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UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-29782
WORLD ACCESS, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 58-2398004
(State of Incorporation) (I.R.S. Employer Identification No.)
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945 EAST PACES FERRY ROAD
SUITE 2200
ATLANTA, GA 30326
(Address of Principal Executive (Zip Code)
Offices)
(404) 231-2025
(Registrant's Telephone Number)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
As of March 24, 2000 there were 59,675,996 shares of our common stock
outstanding. The aggregate market value of common stock held by non-affiliates
of the registrant as of March 24, 2000, as based on the average closing bid and
ask prices, was approximately $1,251,286,000.
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WORLD ACCESS, INC.
FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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NUMBER
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 29
Item 3 Legal Proceedings........................................... 30
Item 4 Submission of Matters to a Vote of Security Holders......... 31
Item 4.5 Executive Officers of the Registrant........................ 31
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 33
Item 6 Selected Financial Data..................................... 35
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 37
Item 7A Quantitative and Qualitative Disclosures about Market
Risks....................................................... 49
Item 8 Financial Statements and Supplementary Information.......... 50
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 89
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 89
Item 11 Executive Compensation...................................... 92
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 100
Item 13 Certain Relationships and Related Transactions.............. 102
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 103
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FORWARD-LOOKING STATEMENTS
This Form 10-K report contains certain information regarding our
strategies, plans and future expectations that are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, and Section 21E
of the Securities Exchange Act of 1934. When used in this report, 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. In
light of the risks and uncertainties inherent in all such projected operational
matters, you should not regard forward-looking statements in this report as a
representation by World Access or any other person that the plans of World
Access will be achieved or that any of our future expectations will be realized.
Factors that could cause our actual results to differ from the results
discussed in the forward-looking statements include, but are not limited to (i)
our ability to successfully integrate new acquisitions; (ii) our ability to
acquire and develop our international telecommunications network; (iii) our
ability to manage effectively our rapid growth; (iv) changes in customer rates
per minute; (v) termination of certain service agreements or inability to enter
into additional service agreements; (vi) changes in or developments under
domestic or foreign laws, regulations, licensing requirements or
telecommunications standards; (vii) changes in the availability of transmission
facilities; (viii) loss of the services of key officers; (ix) loss of a customer
which provides significant revenues to us; (x) highly competitive market
conditions in the industry; and (xi) concentration of credit risk. Any forward
looking statement speaks only as of the date of this report, and we undertake no
obligation to update any forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
PART I
ITEM 1. BUSINESS
OVERVIEW
We transport international long distance voice and data traffic for post
telephone and telegraph operators, regional Bell operating companies,
competitive local exchange carriers, long distance companies, private network
providers and other global carriers. We provide our services through a
combination of our own international network facilities, various international
termination relationships and resale arrangements with other international long
distance service providers. Through the acquisition of FaciliCom International,
Inc. in December 1999 and NETnet International S.A. in February 2000, we plan to
expand our service offerings to include the sale of bundled voice, data and
Internet services directly to small and medium size businesses located
throughout Europe.
We provide international communications services over an advanced
asynchronous transfer mode internal backbone. The advanced global network
utilizes Nortel DMS-GSP international gateway switches and other
state-of-the-art platforms to provide end-to-end connectivity to carriers and
business users around the world. Our network is comprised of facilities
coast-to-coast in the United States and in 13 countries throughout Europe. Our
network is linked by ownership and leased lines over 19 separate cable systems,
including FCI One, our wholly owned cable linking Denmark and Sweden. We also
own and operate the Swedish International Teleport, which provides satellite
services.
Prior to the acquisition of Resurgens Communication Group in December 1998,
we were exclusively a manufacturer and reseller of telecommunications network
equipment, including digital switches, billing and network telemanagement
systems, cellular base stations, fixed wireless local loop systems, intelligent
multiplexers and digital microwave radio systems. In December 1999, in
connection with the acquisition of FaciliCom, we adopted a plan to divest all of
our equipment businesses. As a result, the operating results of our equipment
businesses are reported under discontinued operations in the accompanying
financial statements (see "Discontinued Operations").
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With the acquisition of Resurgens and FaciliCom, we have positioned
ourselves to become a leader in the rapidly growing global market for
international long distance voice, Internet access, data and other services. We
enjoy competitive advantages which we believe serve as a model for our continued
successful growth as a diversified telecommunications company, including:
Extensive Facilities-Based International Telecommunications Network. We
have acquired a carrier-grade network in 14 countries, including the United
States and the top ten Western European international long distance markets.
FaciliCom's early entrant approach, implemented through our local management and
operations, has allowed us to enter into interconnection agreements more readily
than companies without these resources and provides us with a lower cost
structure than many of our competitors serving these regions who do not have
these agreements. Our network has been designed and built to allow us to offer
high-quality services, control our termination and network costs and
cost-effectively expand our service offerings. By adding relatively inexpensive
routers to our asynchronous transfer mode network, we intend to further expand
our dial-up Internet access services with little additional investment. We
believe that our existing network gives us an early entrant advantage and
positions us to continue to increase our revenue and improve gross margins.
Strong European Presence. Our European focus enables us to capitalize on
the higher prices associated with traffic originating in Europe as compared to
the United States. Because our network is concentrated in the leading European
markets, we are able to take advantage of increasing opportunities to carry
cross-border European traffic on our network, realize greater economies of scale
in network management and sales and marketing, and capitalize on strategic
opportunities to build fiber systems such as FCI One. In addition, we believe
this geographic concentration favorably positions us for entry into other
deregulating European markets, such as Poland, Portugal and the Czech Republic,
on a more cost-effective basis by adding a new source of traffic which can be
terminated throughout our network and by reducing termination costs of network
traffic entering these newly-deregulated markets.
Established Wholesale Customer Base. We have established a wholesale
customer base of over 200 carriers in the United States and 13 European
countries, including a majority of the first-tier and emerging carriers,
European wireless carriers and seven of the ten largest global international
carriers. This significant customer base enables us to rapidly and
cost-effectively build traffic volumes as we expand our network. Because many of
our customers are also high-quality carriers, we are able to use their
facilities on favorable terms to carry traffic on routes where we have no
facilities, thereby lowering our network costs.
Successful European Retail Operations. Since its initial investment in a
Swedish subsidiary in 1995, FaciliCom has increased its retail customer base
from fewer than 2,000 to approximately 52,000 small-to medium-sized business and
residential retail customers in Sweden, Denmark, Norway and Finland. Our
acquisition of NETnet provided us an additional 20,000 business customers
throughout Europe.
Strong Management Team. We have a highly experienced senior management
team with, on average, over 20 years of experience in the telecommunications
industry, including experience with such industry leaders as MCI WorldCom, Bell
Atlantic, British Telecom, Cable & Wireless, Global One, Sprint, GTE, Viag
Interkom and Nortel Networks. Additionally, in each country in which we operate,
we employ a local management team that is familiar with local legal and
regulatory issues, business practices, and cultural norms that affect our
business. The members of our management team have proven their ability to obtain
licenses, recruit experienced staff, negotiate for interconnection agreements
with national carriers, construct and operate a high-quality network and provide
superior customer service. We believe that experience gained from operating in
Europe over the last four years provides us with a distinct advantage over newer
entrants to these markets.
RECENT DEVELOPMENTS
NETnet Acquisition. In February 2000, we acquired substantially all of the
assets and assumed certain liabilities of Long Distance International, Inc.,
known as LDI, including its wholly owned subsidiary NETnet International.
Operating under the NETnet(TM) name throughout Europe, we now offer an array of
retail telecommunications services concentrating on the needs of business
customers in Austria, France, Germany,
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Italy, Norway, Spain, Sweden, Switzerland, and the United Kingdom. NETnet
currently operates at an annual revenue run rate approaching $100.0 million.
The acquisition of NETnet provides us with approximately 20,000 business
customers in nine European countries, and serves as a first step towards our
becoming a premier provider of bundled voice, data and Internet services to
small and medium enterprise markets throughout Europe. Through direct and
indirect sales forces, NETnet has successfully targeted, acquired and retained
business customers by providing innovative bundled service offerings, customer
service and customizable billing capabilities. We intend to utilize NETnet's
retail customer development and retention programs as a basis for further retail
account growth in Europe.
NETnet corporate customers include: Levi Strauss, Marriott Hotels, Mercedez
Benz, Italy, the Swedish government, and ABB. In addition to its wireline
services, NETnet operates a GSM resale unit in the United Kingdom. Of the 20,000
corporate customers, approximately 4,000 business accounts utilize NETnet's
wireless plan, with approximately 12,000 handsets in use in the United Kingdom.
NETnet recently announced that it is the first competitive telecommunications
provider to be approved for SIM card appliances for its wireless handsets.
Through the use of its cards, NETnet will be able to build customer loyalty and
start to replace the network operator as a key relationship, thus improving its
ability to build a relationship with customers. We anticipate that wireless
services will become an integral part of our enhanced retail services throughout
Europe.
Star Merger. In February 2000, we executed a definitive agreement with
Star Telecommunications, Inc. pursuant to which Star will merge with and into
World Access. Star is a publicly held provider of international voice, data and
Internet services, primarily to long distance carriers, multinational
corporations and Internet service providers in the U.S. and Europe. For the year
ended December 31, 1999, Star reported revenue in excess of $1.0 billion. We
expect the transaction to close in mid-2000.
The Star merger is subject to, among other things, certain regulatory
approvals, the approval of our stockholders, the approval of Star's stockholders
and the divestiture by Star of certain business segments for specified minimum
net cash proceeds. Any net proceeds in excess of the specified minimum proceeds
will serve to directly increase the merger consideration. We have agreed to
provide bridge financing to Star in an amount up to $35.0 million.
Our merger with Star is expected to further strengthen our position in the
European long distance market. Our pan-European network will be greatly enhanced
with Star's network assets and licenses in Germany, the largest
telecommunications market in Europe. In addition to 24 international gateway
switches and ownership on 17 transoceanic cable systems, Star also has
interconnections between 23 German cities. Star's wholesale business will
provide us with further scale and network economies as we attempt to expand our
retail presence. We believe that the combined traffic of World Access and Star
will reduce our overall termination costs throughout the world.
WorldxChange Merger. In February 2000, we executed a definitive merger
agreement with Communication TeleSystems International d/b/a WorldxChange
Communications, a privately held multinational telecommunications service
provider. WorldxChange generated pro-forma revenues in 1999 of approximately
$600.0 million. We expect the transaction to close in mid-2000.
WorldxChange is a global telecommunications company that specializes in
providing high-quality, low-cost services to retail and wholesale customers in
ten countries, including the United Kingdom, Germany, the United States, France
and Australia. It operates 43 switches which are connected with an extensive
network of owned and leased undersea and land-based fiber optic cables,
providing more than 550,000 customers each month with communications services
worldwide.
The WorldxChange merger is subject to, among other things, certain
regulatory approvals, the approval of our stockholders and the approval of
WorldxChange stockholders. We have agreed to provide bridge financing to
WorldxChange in an amount up to $30.0 million.
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Our acquisition of WorldxChange represents a major step forward in our
plans to become a leader in enhanced retail telecommunications services
throughout Europe. WorldxChange has a significant presence in key European
markets such as the United Kingdom, Germany and the Benelux, principally serving
small- to-medium sized business customers. More importantly, WorldxChange has
developed state-of-the-art, Internet-based information management systems,
incorporating all key aspects of retail telecom services, including
provisioning, billing, fraud protection and customer care. We expect these
capabilities to serve as the foundation for our retail management systems
throughout Europe.
TELECOMMUNICATIONS INDUSTRY
A long distance telephone call consists of three parts; origination,
transport and termination. Generally, a national long distance call originates
on a local exchange network or a leased line and is transported to the network
of a long distance carrier. The call is then carried along the long distance
network to another local exchange network where the call is terminated. An
international long distance call is similar to a national long distance call,
but typically involves at least two traditional long distance carriers: the
first carrier transports the call from the country of origination and the second
carrier terminates the call in the country of termination. The two companies may
be operating companies within a group or under common ownership.
The international long distance telecommunications services industry
consists of all transmissions of voice and data that originate in one country
and terminate in another. This industry is undergoing a period of fundamental
change which has resulted in substantial growth in international
telecommunications traffic. According to industry sources, providers of
international telephone service will generate $93.0 billion in revenue and
transport 129 billion minutes of traffic by the year 2001. The volume of
international traffic on the public telephone network is projected to grow by 9%
per year through 2003, with an estimated 75% of all international long distance
traffic originating in the United States or Europe.
The strong growth experienced in the international telecommunications
market is expected to continue into the foreseeable future, driven principally
by the following factors:
- dramatic increases in the availability of telephones and the number
of access lines in service around the world, stimulated by economic growth
and technological advancements;
- opening of overseas telecommunications markets due to deregulation
and the privatization of government-owned monopoly carriers, permitting the
emergence of new carriers;
- rapid globalization of commerce, trade and travel, which is creating
increased communications needs;
- reduction of international long distance rates, driven by
competition and technological advancements, which is making international
calling available to a much larger customer base and stimulating increasing
traffic volumes;
- increased availability and quality of digital undersea fiber optic
cable, which have enabled long distance carriers to improve the quality of
their service while reducing customer access cost;
- worldwide proliferation of new communications services such as
cellular telephones, facsimile machines, the Internet and other forms of
data communications services; and
- rapidly increasing demand for bandwidth-intensive data transmission
services, including the Internet.
Bilateral operating agreements between international long distance carriers
in different countries are key components of the international long distance
telecommunications market. Under an operating agreement, each carrier agrees to
terminate traffic in its country and provide proportional return traffic to its
partner carrier. The implementation of a high quality international network,
including the acquisition and utilization of digital undersea fiber optic cable
and adherence to the technical recommendations of the International Telegraph
and Telephone Consultative Committee of the International Telephone Union for
signaling,
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protocol and transmission, is an important element in enabling a carrier to
compete effectively in the international long distance telecommunications
market.
In February 1997, over 60 countries signed a global agreement on
telecommunications under the auspices of the World Trade Organization, which
became effective February 5, 1998. The agreement seeks to open markets to
competition in telecommunications services, improve foreign investment
opportunities in the telecommunications industry and to adopt pro-competitive
regulatory principles. The Federal Communications Commission, or FCC, has
adopted various rules designed to implement the principles of the World Trade
Organization agreement.
NETWORK
General. We have an extensive facilities-based international network
comprised of gateway switches, additional points of presence, an asynchronous
transfer mode transmission backbone, owned and leased fiber capacity and a
satellite earth station. Our facilities-based network permits us to terminate an
increasing percentage of traffic on our network, allowing us to better control
both the quality and cost of telecommunications services that we provide to our
customers. To provide high-quality telecommunications services, our network
employs digital switching and fiber technologies, uses advanced signaling
protocols and is supported by comprehensive monitoring and technical services.
Our gateway switches and European points of presence allow us to terminate
traffic within European countries, ensuring quality and lowering termination
costs. We have also established interconnection and operating agreements with
national carriers in the markets where we have facilities.
Gateway Switches. We currently operate 15 Nortel and two Ericsson gateway
switches in the United States (New York, New Jersey, Los Angeles and Miami) and
in Europe (Austria, Belgium, Denmark, Finland, France, Germany, Italy, The
Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom).
Asynchronous Transfer Mode Transmission Backbone. We currently operate a
high-capacity asynchronous transfer mode transmission backbone between certain
of our U.S. and European gateway switch locations. Our asynchronous transfer
mode backbone enables us to combine switched voice, private line and data
traffic, including frame relay and Internet Protocol, on the same international
circuits. We believe that our existing asynchronous transfer mode backbone
provides a competitive networking advantage because it is able to combine these
forms of traffic onto the same network, thereby eliminating the need to purchase
capacity and related equipment for different types of traffic. In addition, the
switching technology used in an asynchronous transfer mode system is more
efficient than traditional circuit-switched technology because an asynchronous
transfer mode network, unlike a circuit-based network, does not require a fixed
amount of bandwidth to be reserved for each telephone call or data transmission.
This allows voice and data calls to be pooled, which enables our network to
carry more calls with the same amount of bandwidth. This greater efficiency
creates network cost savings that can be passed on to our customers in the form
of lower rates, and provides an immediate cost advantage for connection from our
nearest point of presence to the chosen Internet backbone interconnect point.
Fiber. We seek to obtain ownership interests in fiber systems where we
believe that our customers' demand will justify the investment in those fixed
assets. We can generally earn a higher gross margin on traffic routed through
our network's owned fiber rather than traffic routed through our network's
leased fiber. However, when it is more cost effective to do so, we will lease
fiber capacity on a short term basis on specific routes.
We currently have acquired fiber capacity on an indefeasible rights of use
or minimum assignable membership units basis in 18 fiber cable systems,
including Hermes, CIRCE, Flag, Qwest, CANTAT, ODIN and Southern Cross.
We believe that no single agreement that we have relating to indefeasible
rights of use or to minimum assignable ownership units is material to our
financial condition or our business operations. With the passage of time, an
increasing amount of fiber capacity is becoming available and the cost of this
capacity is expected
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to decline. As a result, we believe that, when one or more of these agreements
expires, we would be able to replace, at similar costs and within reasonable
time periods, similar capacity on alternative competing fiber systems through
purchases of minimum assignable ownership units or indefeasible rights of use.
Ownership and Operation of Fiber Capacity/FCI One. We purchase fiber
capacity on existing cable systems as demand for our services justifies this
investment. When fiber capacity is not available at reasonable prices, we may
instead install and operate our own fiber cables. Our initial effort in this
area consisted of FCI One, a 24-pair fiber submarine cable that we own and
operate between Copenhagen, Denmark and Malmo, Sweden. Currently, we are only
using one such fiber pair.
Before Denmark granted licenses to additional facilities-based carriers,
Tele Denmark, the incumbent dominant carrier, possessed the exclusive right to
build international cables into Denmark, and fiber capacity into Denmark was
generally available only at high prices. When we became licensed to operate in
Denmark as a facilities-based carrier, we also obtained the right to build
international cables. Given our current and forecasted capacity requirements, we
determined it was more cost effective to build FCI One than lease capacity from
Tele Denmark at high rates. FCI One became operational in May 1999. In addition
to cost savings on capacity that we use, we can sell or lease excess capacity or
swap capacity on FCI One for capacity we require on other routes.
Points of Presence. In addition to our switch centers, we have installed a
number of transmission points of presence in our network that provide additional
geographic locations for our customers and the local public switched telephone
network to interconnect with our network. In the United States, we operate
points of presence in Washington, D.C., Tampa, Florida and New York, New York,
and in Germany we operate points of presence in Stuttgart, Hamburg, Dusseldorf
and seven other cities. We also operate points of presence in London, England,
Helsinki, Finland, and in Stockholm and two other cities in Sweden. These points
of presence allow us to reduce our costs for delivering traffic to public
networks and make it easier for customers with local networks to deliver traffic
to our network.
Interconnection and Operating Agreements. We enter into interconnection
agreements with the national carrier in each of the countries where we have
operating facilities so that we can originate and terminate traffic in that
country. Interconnection agreements enable us to terminate traffic in a country
by connecting the local network of that country with our network.
Interconnection agreements typically allow us to terminate traffic in the
countries in which we have these agreements at the lowest available access cost,
and to originate traffic from these countries when a customer dials our carrier
access code.
We have entered into 12 interconnection agreements, including agreements
with the dominant national carrier in Austria, Denmark, Finland, Germany, Italy,
The Netherlands, Norway, Sweden, Switzerland and the United Kingdom. We are
currently negotiating for additional interconnection agreements with the
dominant national carriers in other European countries.
We also have operating agreements with 16 national carriers and five
emerging carriers. An operating agreement provides for the exchange of
international long distance traffic between correspondent international long
distance providers that own facilities in different countries.
Satellite Facilities. We own and operate the Swedish International
Teleport, a 13-meter satellite earth station in Malmo, Sweden, that transmits to
an INTELSAT satellite over the Indian Ocean. Our status as a member of INTELSAT
enables us to easily expand our geographic coverage worldwide through the
acquisition of additional satellite transmission capacity on a preferential
basis. The earth station and INTELSAT satellite, which provide coverage to
Africa and most of Asia, currently connect customers on the Indian subcontinent
with locations in Europe and North America on a private line basis. We use this
facility to provide connectivity with carriers in developing countries before
international cable capacity becomes available there, and on low-volume
international routes. We are also negotiating agreements with several Asian
carriers to interconnect with Sweden to transmit public switched-voice traffic
through our earth station.
Signaling Network. Modern carrier networks use standard protocols of the
International Telecommunications Union to signal between switches in order to
set up connections and monitor call status. Most small carriers use one channel
of each to signal other carriers on what is designated as an F Link. This F Link
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signaling is adequate for call setup but is subject to failure because it does
not provide for any redundancy. If the F Link fails the entire trunk group
cannot be used. F Link signaling also does not provide many network management
features because its signal capability is limited to one link between two
switches. To overcome the drawbacks of F Link signaling, more advanced network
operators install modern and sophisticated packet signaling switches called
signal transfer points that enable their switches to communicate with other
switches in their network and with customer and carrier networks. These
signaling networks include redundant links to paired switch transfer points and
are virtually failsafe. We have installed a pair of redundant switch transfer
points in Frankfurt and London and another pair of switch transfer points in New
Jersey and New York. As a result, our network is more robust, and it is able to
provide signaling services to other carriers.
Network Reliability. Our resilient network has diverse switching and
routing capabilities. For example, on the high-volume North America to Europe
routes, we split customer traffic between our U.S.-based gateway switches, over
three transatlantic cable routes and over each of our European-based gateway
switches. All of our gateway switches have backup power systems, and each fiber
cable has built-in redundancies that reroute traffic in the event of an
interruption in cable service. Our paired switch transfer points network with
redundant signal paths also provides an additional level of network integrity.
Network Monitoring and Technical Support. We have technical staff located
in the United States and throughout our markets in Europe who provide support
for our network. Our technical staff located in Europe provides network
management and operations support for our gateway switches. In addition, to
support our Nortel switches, we have implemented GTE's support system. This
system provides us with integrated proactive network operations, network message
management and a customer contact system. We fully support all network
management and operations and functions 24 hours a day, seven days a week from a
central location in Washington, D.C.
Our network operations center in Washington, D.C. monitors all of the
switches and transmission links in our network and receives immediate signals
alerting it to any abnormal network condition. Through this facility, we have
the capability to reroute traffic if there is a cable cut or an equipment
failure. This center also monitors the quality of any carriers we use to route
off-net traffic and removes any of them from our routing if they fall below our
performance standards.
SERVICES
We offer high-quality international telecommunications services over our
own international network and by interconnecting our network with the networks
of other carriers. We provide primarily wholesale international
telecommunications voice services and Internet access, data and other services
in select European markets. We recently expanded our retail services in
Scandinavia, and we are offering dial around or casual dialing service in
Finland and in Sweden under the brand name Call One.
Wholesale Services. We provide wholesale international long distance voice
services to carrier customers located in the 14 countries in which we operate.
Other carriers interconnect with our network by direct circuit connections from
their networks to one of our gateway switches. We also provide service to
switchless resellers by enabling their customers to access our network from the
national public switched telephone network by dialed access through carrier
access codes. We provide wholesale termination to over 200 countries using a mix
of owned and leased facilities, and interconnection, operating and resale
agreements. We also offer to certain customers Internet Protocol and frame relay
services over our asynchronous transfer mode backbone.
Retail Services. FaciliCom has traditionally provided international and
domestic long distance voice services to retail customers in Scandinavia. With
the acquisition of NETnet in February 2000, we now provide retail services
throughout most of Western Europe. Retail customers either subscribe to our
services or access the services on a call by call basis by dialing our carrier
access code. In addition, we offer Internet access and international private
line service to business and residential customers.
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Voice. Our retail customers may access our long distance voice services in
the following ways:
Direct Access. The telephone equipment used by subscribers is
directly connected to our switches through a private line and, unless bill
payments are overdue, the subscriber is allowed to make calls up to a
predetermined credit limit. Subscribers to this service do not have to dial
our access code in order to connect to our network. The private line
connections for our direct access services may be leased from the public
switched telephone network. In addition, these connections may be radio
links or digital subscriber lines. Direct access customers are primarily
small-to medium-sized businesses.
Casual Dialing. Any telephone in our markets which is connected to
the public switched telephone network can be used to dial our access code
and place domestic long distance or international calls. The telephone user
does not have to apply in advance to be recognized as a customer. Our
gateway switch receives the calling number from the public network and
screens it in order to determine whether it should be denied service for
any reason, such as a failure to make payments in the past. Casual dialing
customers are primarily residential users.
Indirect Access. To utilize this service, the telephone number of a
customer who satisfies our credit requirements is added to a list in our
switches. Unless the customer's payments are overdue, the customer may
place calls that have a cost up to a predetermined credit limit. Users of
this method of access must dial our access code to connect to our network
through the public switched telephone network. If the customer is a heavy
user, such as a small business, we may equip our telephones with an
automatic dialer that will insert our access code whenever the customer
seeks to make a long distance or international call. This service is
available in countries that do not require equal access to carriers.
Equal Access. This method of access resembles the service that we
provide to customers with indirect access. However, customers can choose to
subscribe to our network for all of their long distance services and do not
have to dial our access code in order to connect to our network through the
public switched telephone network. Instead, the local operator will
automatically route the customer's calls to our network. The 13 European
countries in which we operate are all scheduled to require equal access
service within the next three years.
Data. The retail data services that we presently offer are as follows:
Internet Access. We offer Internet access service to our retail
customers in Finland. We use our own facilities to connect customers to an
Internet backbone interconnect point. We bundle these services with our
long distance and international voice services to provide a single
communications package for some of our customers.
Unlike in the United States, where most local calls are free, dominant
national carriers in Europe charge retail local calling rates of as much as
$0.10 per minute for a dial-up connection to an Internet service provider.
We believe that this situation has inhibited the growth of the use of the
Internet in Europe. We believe that companies like us will stimulate
Internet usage by offering Internet access services at lower costs. Our
interconnection agreements allow any telephone line where we have these
agreements to dial our access code and be connected with our network. We
pay the operator of the public switched telephone network very low
wholesale transport charges to connect these calls to our network. Once the
call is connected to our network, we can connect it to the Internet through
our own data routers and our own asynchronous transfer mode backbone. This
enables us to provide high-quality and low-cost dial-up Internet access to
any home or business.
Private Data Lines. Another data service that we provide is private
line connectivity for business customers, other data providers and for
video conferencing. These services are targeted to businesses that have
offices or operations in more than one country, and that require voice and
data connections between their locations. We provide frame relay, Internet
Protocol and bandwidth connectivity between points on our backbone network.
Customers pay for the effective amount of bandwidth that they purchase.
Voice Over Internet Protocol. Technology has been developed that
enables origination and termination of voice traffic over Internet Protocol
networks. This is commonly referred to as VOIP. The initial concept was to
use the Internet to transport this traffic for free. In actual practice,
the quality of
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voice transported over the Internet varies from acceptable to poor because
of packet delays during high traffic periods. It is possible to improve the
voice quality of Internet Protocol by routing the traffic over a dedicated
intranet that utilizes private data lines instead of the Internet. We
provide VOIP intranet service on our network. We believe that business
customers and residential early technology adopters that have invested in
technology based upon Internet Protocol will be attracted to this service.
No uniform approach to VOIP's regulatory treatment has been developed, and
we cannot predict the manner in which VOIP may be regulated in the future
or the impact of such regulation on our operations.
CUSTOMERS
Wholesale Customers. Our target wholesale customer base consists primarily
of dominant national carriers, other first-tier carriers, emerging carriers and
wireless carriers with international traffic. National carriers and other
first-tier carriers generally have their own international networks, but use
carriers such as us for overflow traffic and in order to route traffic at lower
rates. Emerging and wireless carriers are rapidly growing industry segments that
generally rely on national carriers and wholesale carriers like us to provide
international connectivity. We provide service to over 200 carriers, including
seven of the ten largest global international carriers, and 40 multinational
carriers that originate traffic in more than one of our existing markets,
together with five wireless carriers.
Wholesale services are sold at substantially lower margins than our retail
services. However, because wholesale customers purchase transmission capacity in
bulk, these services will allow us to increase the amount of transmission
capacity that we purchase, enabling us to obtain volume discounts on
transmission capacity from vendors and, therefore, realize lower unit costs. In
addition, the sale of transmission capacity on our leased lines allows us to
generate additional revenues on transmission lines operating at less than full
capacity without incurring significant marginal costs. Wholesale customers
frequently change vendors based on small differences in price, and certain
wholesale customers could subject us to credit risks.
We use a comprehensive credit screening process when identifying new
wholesale customers. We rate our potential customers' creditworthiness based on
several factors, including:
- traditional bank and trade reports, such as Dun & Bradstreet reports;
- internal assessments of our exposure based on the costs of terminating
international traffic in various countries and the capacity requested by
the proposed carrier; and
- references provided by potential customers.
Depending on the results of our credit analysis, a customer's payment terms
and/or billing cycle may be adjusted to shorten the length of time that our
receivables are outstanding. In addition, we may require a customer to post
collateral in the form of a security deposit or an irrevocable letter of credit.
In mid-1998, we entered into a Carrier Service Agreement with a
wholly-owned subsidiary of MCI WorldCom, Inc., pursuant to which MCI WorldCom
purchases international long distance services from us on a wholesale basis. MCI
WorldCom is obligated to purchase from us at least $25.0 million a month of such
services, provided the services are of acceptable quality and the rates quoted
are at least equal to the rates MCI WorldCom is obtaining from other third party
providers. The Service Agreement has a rolling 12-month evergreen term, subject
to a one year prior notice of termination. Our revenue attributable to the
Service Agreement comprised approximately 53% of our total revenue for the year
ended December 31, 1999. There can be no assurance that MCI WorldCom will
purchase future services under the Service Agreement. Termination of the Service
Agreement, or any reduction in services provided thereunder, could have a
material adverse affect on our business, financial condition or results of
operations.
Retail Customers. We target small and medium-sized businesses that
originate in excess of $500 in international telephone calls per month. We
believe that this market segment offers significant opportunities because it has
traditionally been underserved by the major global telecommunications carriers
and the PTTs, which offer their lowest rates and best services primarily to
higher volume multinational business customers.
Our residential services are marketed primarily to residential customers
with significant international calling needs such as expatriate and ethnic
communities. In Europe, we target and plan to target the various
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large ethnic communities, such as the Indian, Pakistani, Caribbean and African
communities in the United Kingdom and the Turkish and eastern European
communities in Germany.
SALES AND MARKETING
Wholesale. Our approach to marketing and selling wholesale services
consists of local sales staff, who are responsible for day-to-day relationships
with local carrier representatives and who have experience in the industry and
long standing relationships with such carriers. Additionally, because we have
several international carrier customers which use us to transport traffic from
multiple locations, we have a multinational global account group, which
coordinates sales to major international accounts in multiple locations and is
responsible for client relationships at the senior management level. We focus on
hiring and retaining experienced marketing and sales people with extensive
knowledge of the telecommunications industry and who have existing relationships
with decision makers at carrier customers.
Retail. We market our services to residential and business customers with
significant long distance calling needs. We rely on a combination of direct
sales, direct response marketing, indirect sales, outbound telemarketing and
affinity programs in marketing our services to customers. Affinity programs are
programs whereby two or more companies market their respective products or
services by promoting a co-branded product or service to the affinity group
members. Residential customers will be solicited through direct mail and
telemarketing and business customers through direct and agent sales. In certain
metropolitan areas in Europe, we hire a dealer manager to manage relationships
with local agents.
MANAGEMENT INFORMATION SYSTEMS
Wholesale. The need to bill customers timely and accurately, and to
monitor and manage network traffic profitability, requires the accurate
operation of management information systems. To meet these needs in our
wholesale business, we contract with Armstrong Holdings, Inc. for our billing
and other management information services. Armstrong Holdings, through its
subsidiary Armstrong International Telecommunications, Inc., owns 16.6% of our
voting common stock.
Subsidiaries of Armstrong Holdings provide billing and specialized
information technology services to its subsidiary companies, and to us, from its
data processing center located in Butler, Pennsylvania. Armstrong Holdings'
subsidiaries include independent telecommunications companies and international
telecommunications companies. Based on its knowledge of billing in the
telecommunications industry, Armstrong Holdings has developed customized systems
to provide call detail record collection, processing, rating, reporting and bill
rendering. These systems enable us to:
- analyze accurately our traffic, revenues and margins by customer and by
route on a daily basis;
- validate carrier settlements; and
- monitor least cost routing of customer traffic.
We believe that contracting with Armstrong Holdings for these customized
systems gives us a strategic advantage over many emerging carriers because we
receive timely and accurate reporting of our customer traffic, revenues and
margins without incurring the significant costs associated with developing and
maintaining our own data center. The Armstrong Holdings data center utilizes IBM
mainframe systems with full disaster recovery and back-up facilities and
provides 24 hours per day, seven days per week data center support. Armstrong
Holdings provides us with experienced professionals and programmers to further
customize and support our growing and changing needs for management information
services. To date, we have not experienced any significant delays in billing our
wholesale customers. We attempt to bill our customers within five business days
after a billing cycle has been completed. We believe that our arrangement with
Armstrong Holdings enables us to effectively and efficiently manage our growing
requirements relating to information technologies.
Armstrong Holdings has agreed to provide billing and management information
systems support for us and our subsidiaries on terms that we believe are
competitive with similar services offered in the industry. This contract extends
through December 2001.
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In addition, all of our administrative and technical locations are
connected by a corporate-wide area network that runs over the backbone network
we have constructed to handle customer traffic. An authorized user with a
personal computer at any of our offices can access all of our corporate systems
and databases. We control access to this network through the use of firewalls,
password protection and other customary security measures.
We have also installed mediation devices and software that were part of a
network monitoring system designed by GTE. These devices are located in each of
our switch centers and interface with major network components, such as our
gateway switches. These devices gather data from the network in real time and
transport it over our corporate-wide access network to our network operations
center and to Armstrong Holdings' data center.
Retail. In Europe, NETnet uses three billing platform concepts. The
operations in France, Italy, Spain and the U.K. rely on in-house personal
computer-based billing systems developed primarily for each individual country.
NETnet collects data from switches and carriers, rates the call records and
bills its carrier customers directly. The German operation has traditionally
outsourced the billing procedure to a third party, while the operations in
Austria, Norway, Sweden and Switzerland use a billing system developed in
cooperation with DIAL Inc. on a 4D/NT platform.
In 1999, NETnet purchased an Oracle-based billing and rating engine that
supports billing in local currencies (GENEVA), from Generic Technology in
Cambridge, England. The German operation is in the process of converting to this
new billing system. The software will handle retail business and residential
billing, as well as wholesale requirements. The GENEVA software is currently
being used by other European telecommunications providers.
NETnet employs its own programming staff to meet ongoing country and
product development/ marketing requirements. Outsourcing is used for
non-recurring programming in Oracle and Helpdesk applications.
COMPETITION
The international telecommunications industry is intensely competitive and
is significantly affected by regulatory changes, marketing and pricing decisions
of the larger industry participants and the introduction of new services made
possible by technological advances. We compete in the international
telecommunications market on the basis of price, customer service, transmission
quality and breadth of service offerings, and our carrier customers are
especially price sensitive. Our competitors include:
- large, facilities-based, multinational carriers, and smaller
facilities-based long distance service providers that have emerged as a
result of deregulation;
- switch-based resellers of international long distance services; and
- global alliances among some of the world's largest telecommunications
carriers.
Competition in the U.S. The U.S.-based international telecommunications
services market is dominated by AT&T, MCI WorldCom, Qwest and Sprint. We also
compete in the United States with second-tier international carriers, including
IDT Corporation, Pacific Gateway Exchange, Inc., Primus Telecommunications
Group, Inc. and Star Telecommunications, Inc. We have entered into a definitive
agreement with Star pursuant to which Star will merge with and into World
Access. Several of these companies have considerably greater financial and other
resources and more extensive domestic and international communications networks
than we do. In addition, the FCC's order implementing the United States' open
market commitments to the World Trade Organization may make it easier for some
foreign carriers to enter the U.S. market, which would increase our competition.
Competition in Europe. In many international markets, a single carrier,
which is often a government-owned or a former monopoly carrier, controls access
to the local networks, enjoys better brand name recognition and customer loyalty
and possesses significant operational economies. These advantages include a
larger backbone network and operating agreements with other dominant national
carriers. These carriers
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generally have competitive advantages over us because of their close ties with
the national regulatory authorities of their home countries that may be
reluctant to act in a way that fosters increased competition for the local
dominant provider. As a result, our ability to increase our market share in
these countries may be extremely limited.
Competition has begun to increase in the European Union telecommunications
markets in connection with the deregulation of the telecommunications industry
in most European Union countries, which began in January 1998. This increase in
competition could adversely affect revenue per minute and gross margins as a
percentage of revenues.
We compete in 13 European markets by offering competitively priced
wholesale services, and we intend to offer competitively priced stand-alone and
bundled telecommunications services to retail customers. The principal
competitor in each of these markets is the dominant national carrier, such as
British Telecom, Deutsche Telekom, France Telecom, KPN (The Netherlands),
Swisscom, Tele Denmark and Telia (Sweden). Other competitors include: Cable and
Wireless, Cellnet Group, Colt, Energis, Esprit Telecom Group, RSL Communications
and Volaphone in the United Kingdom; O.tel.o Communications, Mannesmann ARCOR,
VIAG Interkom, MCI WorldCom in Germany; Enertel, MCI WorldCom and Telfort in The
Netherlands; diAx and Sunrise in Switzerland; and Mobilix and Telia in Denmark.
Additionally, we may face competition from other licensed public telephone
operators that are constructing their own facilities-based networks, cable
companies and switch-based resellers.
Competition from Global Alliances and Consolidation in the
Telecommunications Industry. We anticipate that we will face additional
competition from global alliances among large long distance telecommunications
providers. In addition, consolidation in the telecommunications industry may
create even larger competitors with greater financial and other resources. The
effect of these proposed mergers and alliances could create increased
competition in the telecommunications services market and reduce the number of
customers that purchase wholesale international long distance services from us.
GOVERNMENT REGULATION IN THE UNITED STATES
We provide domestic and international services that are subject to varying
degrees of U.S. federal, state and local regulations. In the United States, the
provision of telecommunications services is subject to the 1934 Communications
Act, as amended, including amendments pursuant to the 1996 Telecommunications
Act and related regulations promulgated by the FCC, as well as the applicable
laws and regulations of the various states and state regulatory commissions. The
FCC exercises jurisdiction under Title II of the 1934 Communications Act over
all facilities of, and services offered by, telecommunications common carriers
to the extent their services involve interstate communications, including
international communications, while state regulatory authorities retain
jurisdiction over intrastate communications. Local governments sometimes impose
franchise or licensing requirements on local service competitors and facilities
companies. The telecommunications laws and regulations of other countries govern
services provided in those countries.
We are subject to the authority of the FCC and the state regulatory
agencies to enforce applicable regulatory requirements. The FCC and the state
regulatory agencies may address regulatory non-compliance with a variety of
enforcement mechanisms, including monetary forfeitures, refund orders,
injunctive relief, license conditions and license revocation.
The regulation of the telecommunications industry is changing rapidly, and
the regulatory environment varies substantially from state to state. Moreover,
as deregulation at the federal level occurs, some states are reassessing the
level and scope of regulation that may be applicable to carriers. We cannot
assure you that future regulatory, judicial or legislative activities will not
have a material adverse effect on our financial condition, results of operations
or cash flow or that domestic or international regulators or third parties will
not raise material issues with regard to compliance or non-compliance with
applicable regulations.
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U.S. Federal Regulation
Local Service Regulation Under the 1996 Telecommunications Act. The 1934
Communications Act was substantially amended by the 1996 Telecommunications Act,
which provides for comprehensive reform of the United States' telecommunications
laws. The 1996 Telecommunications Act may have potentially significant effects
on our financial condition, results of operations or cash flow. The 1996
Telecommunications Act is designed to enhance competition in the local
telecommunications marketplace by (i) removing state and local entry barriers,
(ii) requiring incumbent local exchange carriers to provide interconnection to
their facilities, (iii) facilitating the end users' choice to switch service
providers from incumbent local exchange carriers to competitive local exchange
carriers, and (iv) requiring access to rights-of-way. The legislation also is
designed to increase local competition by newer competitors such as long
distance carriers, cable companies and public utility companies. Under the 1996
Telecommunications Act, regional Bell operating companies have the opportunity
to provide out-of-region long distance services immediately and in-region long
distance services if certain conditions are met, and are no longer prohibited,
in most instances, from providing cable television services. Entry of such
companies into the domestic and international long distance business and the
emergence of other new local competitors could result in substantial competition
to us and may have a material adverse effect on our financial condition, results
of operations or cash flow.
The 1996 Telecommunications Act specifically requires all local exchange
carriers, including incumbent local exchange carriers and competitive local
exchange carriers: (i) not to prohibit or unduly restrict resale of their
services; (ii) to provide dialing parity, number portability and
nondiscriminatory access to telephone numbers, operator services, directory
assistance and directory listings; (iii) to afford access to poles, ducts,
conduits and rights-of-way; and (iv) to establish reciprocal compensation
arrangements for the transport and termination of telecommunications. Incumbent
local exchange carriers are specifically required to provide (i) interconnection
on specified terms and conditions, (ii) unbundled network elements, (iii) resold
local services at wholesale rates, (iv) reasonable public notice of any changes
in the information needed for transmission and routing services over their
communications facilities and (v) physical colocation of equipment necessary for
interconnection and access to unbundle network elements at the local exchange
carriers' premises. A regional Bell operating company can enter the market for
in-region long distance services within the area where it provides local
exchange service upon FCC approval based on a showing that facilities-based
competition is present and that interconnection agreements meeting a 14-point
checklist are in place in the states to be entered. Regional Bell operating
companies are permitted to enter the out of region long distance market
immediately upon enactment. The provision of inter-LATA services by regional
Bell operating companies is expected to reduce the market share of major
inter-exchange carriers and consequently may have an adverse effect on the
ability of competitive local exchange carriers to generate access revenues from
the inter-exchange carriers.
On August 8, 1996, the FCC released the Interconnection Decision, which
established a framework of minimum, national rules enabling state commissions
and the FCC to begin implementing many of the local competition provisions of
the 1996 Telecommunications Act. Among other things, the Interconnection
Decision prescribed certain minimum points of interconnection, adopted a minimum
list of unbundled network elements that incumbent local exchange carriers must
make available to competitors, and adopted a methodology for states to use when
setting wholesale prices for retail services. The U.S. Court of Appeals for the
Eighth Circuit issued a decision vacating certain portions of the
Interconnection Decision, and the United States Supreme Court has agreed to
consider the challenges to the Eighth Circuit Court's decision filed by the FCC
and interested carriers. We cannot predict whether the Eighth Circuit decision
will stand, or what further actions the FCC may or may not take in response to
these appellate decisions.
In a separate case, on December 31, 1997, the U.S. District Court for the
Northern District of Texas ruled that Sections 271 to 275 of the 1996
Telecommunications Act, which established the conditions the regional Bell
operating companies must satisfy before they may provide in-region long distance
telecommunications services, are unconstitutional. This decision, known as the
SBC Decision, has been stayed and is being reviewed by higher courts. We cannot
predict the outcome of that review. If, however, the SBC Decision were upheld on
appeal it would likely have an unfavorable effect on the ability of new entrants
to compete because
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the SBC Decision removes the incentive for regional Bell operating companies to
open their local markets to competition.
Domestic Interstate Services. Domestic interstate common carriers without
market power, such as us, are deemed nondominant and are subject to minimal FCC
regulation. Interstate carriers offering services to the public must comply with
the federal statutory and regulatory requirements of common carriage under the
1934 Communications Act. Among other things, interstate common carriers must
offer service on a non-discriminatory basis at just and reasonable rates.
Nondominant carriers are exempt from the requirement to obtain specific prior
FCC approval to initiate or expand domestic interstate services, although they
are required to file a tariff at the FCC and remain subject to the FCC's
complaint jurisdiction. The FCC has issued an order eliminating the requirement
that nondominant carriers maintain tariffs for their domestic interstate
services on file at the FCC. The FCC order has been appealed to the U.S. Court
of Appeals for the District of Columbia and stayed pending resolution of the
appeal. If the FCC order becomes effective, nondominant interexchange carriers
will need to find new means of providing notice to customers of prices, terms
and conditions on which they offer their interstate services. Elimination of
tariffs will require us to secure with each of our customers contractual
agreements containing the terms of the services offered. To the extent that
disputes arise over such contacts, carriers such as us may no longer resort to
the legal doctrine that the terms of a filed tariff supersede individual
contract language.
Access Charges. The cost of providing long distance and local exchange
services will be affected by changes in the access charge rates imposed by
incumbent local exchange carriers on long-distance carriers for origination and
termination of calls over local facilities. On May 8, 1997, the FCC released an
order intended to reform its system of interstate access charges to make that
regime compatible with the pro-competitive deregulatory framework of the 1996
Telecommunications Act. Access service is the use of local exchange facilities
for the origination and termination of interexchange communications. The FCC's
recent access reform order adopts various changes to its policies governing
interstate access service pricing designed to move access charges, over time, to
more economically efficient levels and rate structures. Among other things, the
FCC modified rate structures for certain non-traffic sensitive access rate
elements, moving some costs from a per-minute-of-use basis to flat-rate
recovery; changed its structure for interstate transport services; and affirmed
that Internet service providers may not be assessed interstate access charges.
In response to claims that existing access charge levels are excessive, the FCC
stated that it would rely on market forces first to drive prices for interstate
access to levels that would be achieved through competition but that a
prescriptive approach, specifying the nature and timing of changes to existing
access rate levels, might be adopted in the absence of competition. The FCC has
indicated that it will promulgate additional rules that may grant increased
pricing flexibility to price cap local exchange carriers, such as the regional
Bell operating companies, GTE and some independents, that are permitted
flexibility to establish rates at or below a regional Bell operating company's
rates upon demonstration of increased competition, or potential competition, in
relevant markets.
Universal Service Charges. In 1997, the FCC released an order establishing
a significantly expanded federal universal service subsidy regime to be funded
by interstate carriers and certain other entities. The FCC established new
universal service funds to support telecommunications and information services
provided to qualifying schools, libraries and rural health care providers, and
expanded the federal subsidies for local telephone services provided to
low-income consumers. In accordance with the 1996 Telecommunications Act, the
FCC adopted plans to implement the recommendations of a Federal-State Joint
Board to preserve universal service, including a definition of services to be
supported, and defining carriers eligible for contributing to and receiving from
universal service subsidies. The FCC plans to revise its rules for subsidizing
service provided to consumers in high cost areas, which may result in further
substantial increases in the overall cost of the subsidy program. The FCC issued
a public notice in April 1998 seeking comment on proposals to revise the
methodology for determining universal service support. In a recent report to
Congress, the FCC clarified that transmission services supplied to Internet
service providers are revenue subject to the contribution. The FCC plans to
address in the future the contribution obligations, if any, of Internet service
providers using their own facilities and Internet service providers providing
phone-to-phone Internet Protocol telephony. We cannot predict the outcome of
these proceedings or their effect on the companies. Several
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parties have appealed the FCC's order, and those appeals are pending before the
Fifth Circuit Court of Appeals. We cannot predict the outcome of the further FCC
proceedings or of the pending judicial appeals or petitions for FCC
reconsideration.
International Services. International common carriers, such as us, are
required to obtain authority under Section 214 of the Communications Act and
file a tariff containing the rates, terms and conditions applicable to their
services prior to initiating their international telecommunications services. We
have obtained a "global" Section 214 authority from the FCC to use, on a
facilities and resale basis, various transmission media for the provision of
international switched and private line services.
We must conduct our international business in compliance with the FCC's
international settlements policy. The international settlements policy
establishes the permissible boundaries for U.S.-based carriers and their foreign
correspondents to exchange traffic and settle the cost of terminating each
other's traffic over their respective networks. The precise terms of settlement
are established in a correspondent agreement, also referred to as an operating
agreement. Among other terms, the operating agreement establishes the types of
service covered by the agreement, the division of revenues between the carrier
that bills for the call and the carrier that terminates the call at the other
end, the frequency of settlements, the currency in which payments will be made,
the formula for calculating traffic flows between countries, technical
standards, procedures for the settlement of disputes, the effective date of the
agreement and the term of the agreement. We may provide services over
international private lines without complying with the international settlements
policy, but only between the United States and countries specifically approved
by the FCC for this activity.
To promote competition in the international telecommunications market, in
November 1996 the FCC issued a new international settlement order, which
provided international carriers more flexibility in negotiating operating
agreements. Under the FCC's new international settlement order, U.S.-based
carriers can apply for waivers of the international settlements policy. Such
waivers, if granted, would allow carriers to negotiate more flexible operating
agreements that, for example, allow them to accept greater than a proportionate
share of return traffic. When it implemented the World Trade Organization
Agreement discussed below, the FCC adopted a rebuttable presumption that
flexibility is permitted for World Trade Organization member countries. Although
we are unable to predict exactly how it will affect our international business,
the new international settlements policy may reduce international access costs
and facilitate our international business.
International telecommunications service providers are required to file
copies of their contracts with other carriers, including operating agreements,
with the FCC within 30 days of execution and to obtain approval of certain of
these contracts. The FCC's rules also require us to file a variety of reports
regarding our international traffic flows and use of international facilities.
In addition, the FCC requires carriers to notify them 60 days prior to becoming
affiliated with a foreign carrier or 30 days after acquiring a 25% or greater
noncontrolling interest in a foreign carrier. The FCC can impose dominant
carrier treatment on affiliates of World Trade Organization carriers with market
power or restrict service of affiliates of non-World Trade Organization
carriers.
In February 1997, the United States entered into the World Trade
Organization Agreement, which seeks to open markets to competition in
telecommunications services, improve foreign investment opportunities in the
telecommunications industry and promote pro-competitive regulatory principles.
In June 1997, the FCC proposed to implement new rules in order to comply with
the World Trade Organization Agreement. These new rules were adopted by the FCC
in November 1997 and became effective in February 1998.
The new rules facilitate the entry of foreign carriers operating in
countries that signed the World Trade Organization Agreement into the United
States telecommunications market. The rules replace the effective competitive
opportunities test for entry of World Trade Organization carriers with
streamlined procedures that presume entry is pro-competitive. The rules
similarly relax the equivalency test for World Trade Organization carriers that
seek to provide switched services over private lines between the United States
and certain World Trade Organization members countries. In addition, the rules
revise competitive safeguards to eliminate or reduce various operating
conditions and replace them with more targeted safeguards that enhance the FCC's
ability to monitor and detect anti-competitive behavior in the United States
market. The FCC has retained
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the right to issue fines, require additional conditions on a grant of authority
and, if necessary, deny or rescind a grant of authority.
The FCC also narrowed the "No Special Concessions" rule, which generally
provides that United States carriers cannot accept benefits from foreign
carriers to which other United States carriers are not entitled. This rule
continues to apply to non-World Trade Organization carriers. The new rule
applicable to World Trade Organization carriers simply prohibits United States
carriers from entering into exclusive arrangements with World Trade Organization
carriers that have sufficient market power to affect competition adversely in
the United States market. To provide more certainty in the market, the FCC
adopted a rebuttable presumption that World Trade Organization carriers with
less than 50% market share in a foreign market lack such market power. As a
result, United States carriers may enter into exclusive dealings with such World
Trade Organization carriers involving a variety of matters, including operating
agreements and interconnection arrangements.
In addition, in 1997 the FCC revised the safeguards that apply to United
States carriers classified as dominant due to an affiliation with a foreign
carrier that has market power on the foreign end of an international route. The
rules rely on reporting requirements, rather than restrictions on carriers'
provision of service, to prevent affiliated carriers from restricting
competition in the United States. In particular, the rules replace the 14-day
advance notice tariff filing requirement with a one-day advance notice
requirement and accord these tariff filings a presumption of lawfulness. The
rules also remove the prior approval requirement of circuit additions or
discontinuances on the dominant route. The rules require quarterly reports on
traffic and revenue, provisioning and maintenance, and circuit status for the
dominant carrier in order to monitor and detect anti-competitive behavior. The
rules also require a limited form of structural separation between United States
carriers and their foreign affiliates with market power. The FCC adopted a
rebuttable presumption that a foreign carrier with less than 50% market share in
the foreign market lacks market power, and, therefore, its United States
affiliate should be presumptively treated as non-dominant.
In August 1997, the FCC adopted mandatory settlement rate benchmarks for
carriers receiving traffic from or sending traffic to the United States. These
benchmarks are intended to reduce the rates that United States carriers pay
foreign carriers to terminate traffic in their home countries. The FCC prohibits
a United States carrier affiliated with a foreign carrier from providing
facilities-based service to the foreign carrier's home market until and unless
the foreign carrier has implemented a settlement rate within the benchmark. In
connection with these rules, the FCC also adopted rules that liberalize the
provision of switched services over private lines to World Trade Organization
member countries by allowing such services on routes where 50% or more of United
States billed traffic is being terminated in the foreign country at or below the
applicable settlement rate benchmark, or where the foreign country's rules
concerning the provision of international switched services over private lines
are deemed equivalent to United States rules.
We are unable to predict the full effect on the international
telecommunications market resulting from the World Trade Organization Agreement
or the rules enacted to implement its provisions or the establishment of
mandatory settlement rate benchmarks. We expect these changes to increase
competition in the telecommunications market. These changes may result in lower
costs to us, but the revenues that we receive from inbound international traffic
may decrease to a greater degree as a result of increased competition. World
Trade Organization carriers with market power in their home markets may be able
to more easily offer United States and foreign customers services to the
disadvantage of United States carriers, which may continue to face substantial
obstacles in obtaining from foreign governments and foreign carriers the
authority and facilities to provide such services. In addition, many foreign
carriers are currently challenging the enforceability against such carriers of
the FCC's order adopting mandatory settlement rate benchmarks. A finding that
this order was unenforceable against such carriers could accelerate the entry of
foreign carriers into the United States market by making it easier for foreign
carriers to route international traffic to the United States at low, cost-based
termination rates, while United States carriers would continue to have to route
international traffic into most foreign countries at much higher settlement
rates. There can be no assurance that these events would not have a material
adverse effect on our business, financial condition or results of operations.
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Foreign Ownership. Under the Communications Act of 1934, no common carrier
radio license may be held by non-U.S. citizens, foreign governments or
corporations organized under the laws of a foreign country, or their
representatives. For companies from World Trade Organization countries, the FCC
has established an open entry standard, meaning that the FCC presumptively will
approve greater than 25% indirect ownership by a World Trade Organization
carrier of a U.S. common carrier radio licensee subject to certain competitive
safeguards. The FCC has reserved the right in certain cases to attach additional
conditions to a grant of authority, and to deny the application in the
exceptional case in which an application poses a very high risk to competition.
For carriers from countries that are not signatories to the World Trade
Organization Agreement, the FCC will continue to apply the effective competitive
opportunities test in deciding whether to approve greater than 25% ownership of
a radio licensee.
State Regulation
Most states require a certification or other authorization to offer local
exchange and long distance intrastate services. These certifications generally
require a showing that the carrier has adequate financial, managerial and
technical resources to offer the proposed services in a manner consistent with
the public interest. In addition to tariff requirements, most states require
that common carriers charge just and reasonable rates and not discriminate among
similarly situated customers. Some states also require the filing of periodic
reports, the payment of various regulatory fees and surcharges and compliance
with service standards and consumer protection rules. States also often require
prior approvals or notifications for some transfers of assets, customers or
ownership. States generally retain the right to sanction a carrier or to revoke
certifications if a carrier violates relevant laws or regulations. If any state
regulatory agency were to conclude that we are or were providing intrastate
service without the appropriate authority, the agency could initiate enforcement
actions, which could include the imposition of fines, the disgorging of revenues
or the refusal to grant the regulatory authority necessary for the future
provision of intrastate telecommunications services.
In addition, carriers are subject to the outcome of proceedings held by
state utility commissions to determine state regulatory policies with respect to
incumbent local exchange carrier and competitive local exchange carrier
competition, geographic build-out, mandatory de-tariffing and other matters.
Some states have adopted specific universal service funding obligations.
Proceedings to adopt state universal service funding obligations rules are also
pending or contemplated in numerous other states. State commissions generally
have authority to impose sanctions on carriers ranging from fines to license
revocation to address non-compliance with the states' particular regulatory
policies and requirements.
State regulatory agencies also regulate access charges and other pricing
for telecommunications services within each state. The regional Bell operating
companies and other local exchange carriers have been seeking reduction of state
regulatory requirements, including greater pricing flexibility. If regulations
are changed to allow variable pricing of access charges based on volume, we
could be placed at a competitive disadvantage over larger long distance
carriers. We also could face increased price competition from the regional Bell
operating companies and other local exchange carriers for local and long
distance services, which competition may be increased by the removal of former
restrictions on long distance service offerings by the regional Bell operating
companies as a result of the 1996 Telecommunications Act. We cannot predict the
impact of such rule changes on us.
GOVERNMENT REGULATION IN NON-U.S. COUNTRIES
Our operations are subject to regulation in Austria, Belgium, Canada,
Denmark, El Salvador, Finland, France, Germany, Guatemala, Italy, Mexico, The
Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the United
Kingdom. The majority of our business outside the United States is conducted in
Europe. Below is a discussion of the markets and regulatory environments in the
European countries where we conduct business.
Overview of Europe. The European telecommunications services market,
including voice telephony, mobile, network and data services, generated
approximately $154.8 billion in 1999, according to the European Information
Technology Observatory. After full liberalization of the telecommunications
services market in
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the European Union, competition has grown significantly in the EU-Member States.
There are more than 240 operators actually providing long distance and
international calls and more than 220 providing local calls, as well as more
than 189 operators offering national and international network services and 375
offering local network services.
In the European Union, each country has its own telecommunications
regulation. The European Union has created a legal framework with Directives
which every European Union Member State (Austria, Belgium, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal,
Spain, Sweden and the United Kingdom) is obliged to implement. The goal of this
legal framework is to create a harmonized, fully-liberalized European
telecommunications market. The most important Directives in this sector include
the Voice Telephony Directive, the Licensing Directive, the Interconnection
Directive, the Leased Lines Directive, the Open Network Provision Directive, the
Numbering Directive and the Data Protection Directive.
The origins of the fully-liberalized telecommunications market, which had
to be established by January 1998, are in the European Commission's 1990
Services Directive (Directive 90/388/EEC), requiring the progressive abolition
of the monopoly or quasi-monopoly rights for the provision of telecommunications
services, with a temporary exception for public voice telephony and the
operation of the basic telecommunications network.
In March 1996, the European Union adopted the Full Competition Directive
containing provisions which required Member States to allow the creation of
alternative telecommunications infrastructures by July 1, 1996 and the abolition
of national carriers' monopolies in voice telephony by January 1, 1998. The
European Commission allowed certain Member States to delay the abolition of the
voice telephony monopoly based on exemptions established in the Full Competition
Directive. At present, Greece is the only country which has not fully
liberalized its telecommunications market.
Austria. With a population of approximately 8.1 million, Austria has a
telecommunications services market that generated approximately $3.4 billion in
total revenue in 1999. The Austrian government had completed by 1997 a ten-year
privatization program. Since the liberalization of the telecommunications
market, competition in the sector is increasing successfully. The Federal
Telecommunications Act of August 1, 1997 set up the telecommunications
regulatory framework in Austria as well as the establishment of the Austrian
regulatory authority, the Telekom-Kontrol.
According to the Federal Telecommunications Act, licenses are required for
(i) the provision of mobile public voice telephony and other public mobile
services through the provider's own network, (ii) the provision of public voice
telephony through the provider's own fixed network and (iii) public offering of
leased lines through the provider's own fixed network. For other
telecommunications services a simple notification is required. Applicants must
have the necessary technical capacity and must meet the requirements with
respect to quality of service and mandatory contracting. We hold a license for
the provision of public voice and data services and a license for the public
offering of leased lines nationwide in Austria.
According to the Federal Telecommunications Act, each operator of a public
telecommunications network is obliged to make an interconnection offer upon
another provider's request, and dominant providers have to allow open access to
their networks. A total of 36 interconnection agreements were in place in
Austria at the end of July 1999. At present, there is no interconnection at the
local level. We have an Interconnect Switch Agreement in Austria with Telekom
Austria AG.
Belgium. Belgium has, together with Luxembourg, a population of
approximately 10.6 million. The Belgium/Luxembourg telecommunications market
generated in 1999 approximately $5.1 billion. Competition in the
telecommunications market has increased over the past year, and there are now 25
licensed market players operating public networks and 23 licensed to offer
public services. Even though Belgium fully liberalized its telecommunication
services on January 1, 1998, important elements of legislation are still
outstanding. The Act of March 21, 1991, modified by the Act of December 19,
1997, on the reform of certain public companies, and the Radio-Communications
Act of July 30, 1979, set up the regulatory framework for
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telecommunications and the legal basis for the establishment of the governmental
agency in charge of telecommunications affairs and frequency management, the
BIPT.
The establishment and running of public telecommunication networks is
subject to an individual license, granted on proposal of the BIPT. A license is
also required for the provision of voice telephony service. The applicants have
to be natural or legal persons established in one of the Member States of the
European Union or the European Free Trade Association. By September 1999 there
were 23 voice telephony licensees and 25 public network operators present in the
market. The Belgian regulatory system establishes the obligation for all
operators of public telecommunications networks, or of telecommunications
services provided to the public who control the access to the end-user, to
negotiate interconnection on request of other operators of telecommunications
services offered to the public. We are licensed in Belgium as a provider of
non-reserved services, including voice services for closed user groups and
value-added services.
Denmark. With a population of approximately 5.3 million, Denmark has a
telecommunications services market that generated approximately $3.2 billion in
1999. The Danish telecommunications market operates within a lightly regulated
environment and it is subject to increasing competition. The international
telecommunications market was historically dominated by the national incumbent
Tele Danmark, whose market share decreased from 82% in 1997 to 64.1% at the end
of 1998. The Danish mobile penetration rate is 46%, one of the highest in the
European Union. The National Telecom Agency is the national regulatory authority
in charge of supervising and enforcing compliance with the telecommunications
legislation in Denmark.
Denmark has a very light licensing regime. All telecommunications services
including voice telephony, as well as the related infrastructure, were
liberalized as of July 1, 1996, and all telecommunications networks and services
may be provided under the conditions set up under a general class license.
According to this license, anyone is allowed to provide networks and services on
the conditions defined by an executive order. Since the legislative changes in
July 1998, the interconnection obligation in Denmark covers switched
interconnections, lease of infrastructure, including leased lines and unbundled
access to the local loop and other infrastructure elements, and access by
telecommunications service providers. We have an Interconnection Agreement with
TeleDanmark A/S that allows us to use TeleDanmark's fixed and mobile network.
Finland. With a population of approximately 5.1 million, Finland's
telecommunications services market has generated approximately $2.4 billion in
1999. The Finnish telecommunications market is characterized by its high mobile
penetration rate, which at over 60% is the highest in the European Union. Due to
the historical structure of the market, the sector operates within a
comparatively deregulated legal framework. The Telecommunications Market Act of
June 1, 1997 set up the legal framework for telecommunications and the legal
basis for the Communications and Telecommunications Administration Centre.
According to the Finnish licensing regime, licences are only required for
the construction of public mobile telephony networks. For other
telecommunications services a notification must be made to the Ministry of
Transport and Communications. The Telecommunications Market Act requires that
public telecommunications network operators complying with essential
requirements shall be interconnected. We have been granted operator prefixes for
domestic long distance traffic and international traffic by Finland's
Telecommunications Administration Centre.
France. With a population of approximately 58.5 million, France's
telecommunications services market generated approximately $25.4 billion in
1999. The French telecommunications services and infrastructure market has
expanded steadily and progressively since its liberalization on January 1, 1998.
Seventy-four licenses have been issued for the establishment of public networks
and/or provision of voice telephony, including eight licenses for satellites.
France is the second largest market for ISDN, after Germany. The
Telecommunications Act of July 26, 1996 set up the regulatory framework for
telecommunications and the legal basis for the establishment of two agencies,
ART and ANFR, in charge of the regulatory affairs and frequency management,
respectively.
The French licensing regime, in accordance with the European Union
Licensing Directive, requires an individual licence for public network provision
and/or voice telephony, for mobile telephony and for
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independent networks that require frequencies. All other services can be
provided under a general authorization. We hold a license for the construction
of network infrastructure and the provision of public and private voice
telephony services by facilities or resale and a license for the provision of
nationwide voice telephony services to the public in France
Public network operators must satisfy requests for interconnection from
operators licensed, in an objective, transparent and non-discriminatory manner.
Interconnection may not be refused if the request is reasonable. We have an
Interconnection Agreement with France Telecom SA.
Germany. With a population of approximately 82.2 million, the German
telecommunications services market generated approximately $36.6 billion in
1999. The opening of the German telecommunications market to full competition
was completed in January 1998. The new entrants have created a strong
competitive pressure which has brought down prices in almost all market
segments. Even though Deutsche Telekom is still the dominant public phone
company in Germany, it is steadily losing market share. Germany is the largest
telecommunications market in Europe. The Telecommunications Act of July 25, 1996
set up the regulatory framework for telecommunications and the legal basis for
the establishment of the Regulatory Authority for Telecommunications and Posts,
or RegTP, in charge of the telecommunications regulatory affairs and frequency
management.
The German licensing regime has established four different classes of
licenses for the operation of transmission lines: (i) for the provision of
mobile radio services to the public, (ii) for the operation of transmission
lines for the provision of satellite services to the public, (iii) for the
operation of transmission lines for the provision of telecommunications services
to the public and (iv) for the provision of voice telephony on the basis of
self-operated telecommunications networks. Telecommunications services not
requiring a license can be provided freely, subject to a written notification to
the RegTP. We have a nationwide license for the provision of voice telephony in
Germany.
In accordance with the Telecommunications Act, telecommunications carriers
providing telecommunications services for the public and having a dominant
position are required to allow other users to access their telecommunications
networks. We have an Interconnection Agreement with Deutsche Telecom AG.
Italy. Italy has a population of approximately 57.4 million. In 1999, the
telecommunications services market in Italy generated approximately $24.3
billion. Since the liberalization of the market in January 1998, about 60
licenses have been granted. The mobile market has reported exceptionally high
growth and is the largest in Europe in subscribers and value. The Act of
September 17, 1997 established the legal framework for telecommunications. The
Communications Commission is the body responsible of the supervision and
administration of telecommunication activities.
Individual licences are required for the provision of voice telephony
service, for the installation and provision of public telecommunications
networks, for the provision of personal and mobile communication services, and
for the assignment of radio frequencies. A general authorization must be issued
for the provision of all public telecommunications services, other than voice
telephony, and the establishment and the provision of public telecommunications
networks. The Italian interconnection regime is not restrictive, and
interconnecting operators are free to set interconnection points independently
from the network architecture of the incumbent. No minimum requirements are
requested in relation to the number of interconnection points, nor on the basis
of the license coverage. We have licenses for the installation and provision of
telecommunications networks and the provision of voice telephony services in
Italy.
The Netherlands. With a population of approximately 15.7 million, the
Dutch telecommunications services market generated approximately $8.4 billion in
1999. The Dutch telecommunications infrastructure, public switched voice
telephony and telex markets were liberalized in July 1997. About 82 operators
and service providers are registered in The Netherlands and authorized to offer
public fixed networks and/or public telecommunications services. Competition is
highly developed, particularly in the mobile market. The Telecommunications Act
of December 15, 1998 set up the regulatory framework for telecommunications. The
Onafhankelijke Post en Telecom Autoriteit, or OPTA, is the independent agency in
charge of the telecommunications regulatory affairs.
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The Telecommunications Act provides that a license is only needed when
scarce resources are involved. Registration is sufficient for the provision of
telecommunications services. The Dutch regime establishes that any provider of
public telecommunication networks and/or services that control access to
end-users has a legal right to interconnect and must register with the OPTA. The
interconnection rates in The Netherlands have decreased significantly. We have
an Interconnection Agreement in The Netherlands with KPN Telecom BV.
Portugal. With a population of approximately 9.9 million, the Portuguese
telecommunications services market generated approximately $2.9 billion in 1999.
The telecommunications market was fully liberalized in January 2000. The
national regulatory authority had granted seven voice licenses for telephony
service as of October 1999. The Telecommunications Act established the legal
framework for telecommunications and the legal basis for the Portuguese
Communications Institute to be considered as the regulatory authority of the
sector. As of January 1, 2000 the telecommunications market has been fully
liberalized.
The Portuguese licensing regime requires individual licenses for the
provision of fixed telephone services, the establishment of public
telecommunication networks, the granting of frequencies and the imposition of
duties relating to the provision of universal service. The provision of other
telecommunications services is subject to registration. The Portuguese regime
provides operators the ability to obtain interconnection through the basic
network and through networks of those other operators holding significant market
power.
Spain. With a population of approximately 39.3 million, the Spanish
telecommunications services market generated approximately $11.0 billion in
1999. Since the liberalization of the telecommunications market in December
1998, the Spanish market has expanded rapidly. About 60 licenses have been
granted by the national regulatory authority for voice telephony service and for
telecommunications infrastructure. The mobile market is set to continue to grow
steadily, reaching more than 15 million subscribers in 2002. The
Telecommunications Act of 1998 established the legal framework for
telecommunications in Spain. The tasks of the regulatory authority are divided
between the Ministry and the Comision del Mercado de las Telecomunicaciones,
which implements the legislation, supervises operators and competition issues
and deals with disputes.
The Spanish licensing regime establishes three different types of licenses:
(i) for the provision of voice telephony not including the establishment of
infrastructure, (ii) for the provision of voice telephony including
establishment of the necessary infrastructure and (iii) for the provision of
services other than voice telephony. All operators of telecommunications
networks available to the public are subject to interconnection obligations. In
addition, all service providers have the right to interconnect. We have a
general authorization for originating and terminating voice and data traffic and
a license for providing voice telephony in Spain.
Sweden. With a population of approximately 8.9 million, the Swedish
telecommunications services market generated approximately $4.9 billion in 1999.
The Swedish market has developed rapidly, and the number of operators present on
the market has also increased. There are 51 notified operators and eight
licenses for public networks, 50 notified operators and 13 licenses for voice
telephony and four mobile operators in the market. The Telecommunications Act of
June 17, 1993 and the Radio-Communications Act of June 10, 1993 set up the
regulatory framework for telecommunications and the legal basis for the
establishment of the National Post and Telecom Agency, or NPTA, in charge of the
telecommunications regulatory affairs and frequency management.
According to the Swedish licensing regime, licenses are required for the
provision of telephony services to a fixed termination point, mobile
telecommunications services, network capacity and other telecommunications
services requiring allocation of capacity of the numbering plan. We have a
license for the provision of public telephone services in Sweden. According to
the Telecommunications Act, providers of telecommunications services who are
obliged to notify the NPTA have the same rights of interconnection as license
holders. We have an Interconnection Agreement in Sweden with Telia AB.
United Kingdom. With a population of approximately 58.9 million, the
United Kingdom has a telecommunications services market that generated
approximately $28.0 billion in 1999. The market is intensely competitive.
British Telecom has decreased its market share in all telephony markets except
for the mobile market. A large number of operators are present in the United
Kingdom, with three major cable
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television network operators also offering local telephony. The
Telecommunications Act of 1984 set up the regulatory framework for
telecommunications and the legal basis for the establishment of OFTEL, the
office in charge of the detailed regulation of the telecommunications sector.
The Telecommunications Act provides for two main categories of licenses to
be granted: (i) class global licenses or general authorizations and (ii)
individual licenses. The main class licenses are the Telecommunications Services
Class License, the Private Mobile Radio Class License, the Satellite Services
Class License and the Cordless Class License. The UK regime establishes that all
categories of operators fulfilling some criteria have the right as well as the
obligation to interconnect with each other. We hold an International Simple
Voice Resale License and a Public Telecommunications Operator license in the
United Kingdom.
DISCONTINUED OPERATIONS
In December 1999, we adopted a plan to divest, spin-off or otherwise
monetize our remaining equipment businesses, consisting of the following:
- Telco Systems Division (acquired November 1998), a provider of next
generation transport and access solutions for service providers
throughout the world. Telco Systems products include intelligent
integrated access devices and multiplexers.
- NACT Switching Division (acquired February 1998), a provider of advanced
switching platforms with integrated proprietary applications software as
well as billing and telemanagement systems.
- Wireless Local Loop Division, a research and development group designing
a next generation, fixed wireless local loop system.
- Cellular Infrastructure Supply Division (acquired March 1997), a
value-added supplier of new and re-furbished cellular base stations and
related equipment.
- Galaxy Engineering Division (acquired August 1997), a provider of system
design, optimization and other value-added radio engineering and
consulting services.
We sold Galaxy in December 1999 for approximately $15.0 million in cash. We
have engaged two investment banking firms to sell the remaining businesses. In
February 2000, we signed a definitive agreement to sell Telco Systems for $326.0
million, and we expect to sell all of these businesses during 2000. We expect to
close the Telco Systems sale in April 2000.
Telco Systems. Telco Systems, headquartered in Norwood, Massachusetts, is
a leading developer of next generation transport and access solutions for
service providers throughout the world. Telco Systems' mission is to develop
superior transport and access solutions that transition existing service
provider networks from legacy circuit-switched and TDM-based equipment to
emerging cell and packet technologies. Telco Systems has recently introduced the
EdgeLink(TM) product line, which allows service providers to deploy scaleable,
cost-effective solutions that efficiently link customers to the edges of service
providers' networks as well as circuit-switched and TDM infrastructure to
packet-based Internet Protocol, frame relay and asynchronous transfer mode
technology. The EdgeLink products are located at the customer's premises, co-
located at the central office, located between two telephone company switching
offices (inter-office locations) and located at the service providers' core
networks.
Telco Systems, with its existing EdgeLink product line and strong pipeline
of new products, believes that it is well-positioned to capitalize on the
unbundling of the local loop and the requirement for domestic and international
service providers to rapidly modernize their networks to provide higher
bandwidth at the edge of the network. Telco Systems' primary markets are: (i)
the multi-service access market, including T1/E1 voice and date integrators,
which is expected to increase from $17.8 million in 1998 to $363.8 million in
2001; (ii) the multi-service broadband transport and access concentration
markets for DS3, asynchronous transfer mode, digital subscriber line and frame
relay access technologies, which are expected to increase at growth rates
ranging from 15% to 79% from 1998 to 2001; and (iii) the integrated access
market, including the low-speed segment (under 2Mb) that is expected to grow by
15% per year from 1998 to 2001. In total, Telco Systems' target markets are
expected to generate revenues in excess of $6.2 billion in 2000.
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Telco Systems' core products by target market include:
Multi-Service Access Market
- EdgeLink300. The EdgeLink300, introduced in November 1998, is the
smallest, highest-density multi-service access solution available on the
market today. It offers competitive local exchange carriers, Internet
service providers, incumbent local exchange carriers, inter-exchange
carriers and wireless providers a unique cost-effective integration of
voice, data and Internet/intranet access on a single, high-speed link.
The EdgeLink300 is an ideal single box solution for small- to medium-size
businesses.
- EdgeLink-T1/E1-E/O. The EdgeLink-T1/E1-E/O Fiber Transport Terminal,
introduced in September 1999, is a complete fiber transport and
multi-service access device that provides an ideal solution for extending
EdgeLink300 integrated voice and data services over fiber. The unit
provides a transparent fiber optic link extension for T1 or E1 signals
and enables multiple applications, including extending T1/E1 for video
conferencing, private branch exchange extension or integrated services
for networks installed with fiber.
- EdgeLink500 Frame Relay Access Devices. The EdgeLink500, introduced in
December 1998 after Telco Systems' acquisition of Jupiter Technologies,
represents a family of low-cost, feature-rich, multi-service frame relay
access devices that enable service providers to provide branch office
users with access to Internet Protocol, Internet packet exchange, polled
async, bisync and business-critical systems network architecture/advanced
peer-to-peer networking applications across public and private frame
relay networks. They combine the benefits of traditional routers with
frame relay access devices and safeguard the end-to-end delivery of
mission-critical data.
Multi-Service Broadband Transport and Access Concentration Market
- EdgeLink100. The EdgeLink100, introduced with carrier-class capabilities
in early 1999, is a compact and economical multi-service DS3 multiplexer
with a revolutionary plug and play design that makes installation,
provisioning and maintenance hassle-free. the EdgeLink100 is ideal for
high bandwidth applications with budget and space constraints such as
co-location solutions for competitive local exchange carrier deployment,
inter-office transport solutions for incumbent local exchange carriers
and T1 delivery at the customer premises edge.
- EdgeLink-T3-E/O. The EdgeLink-T3-E/O Fiber Transport Terminal,
introduced in September 1999, is a cost-effective compact solution that
enables service providers to extend T3 signals from the EdgeLink100 over
single-mode or multi-mode fiber optic cable. The device is ideal for
lighting dark fiber and delivering high-speed applications such as
extending T3 point of presence from service providers' demarcation point
or linking T3 multiplexers, such as EdgeLink100, over fiber optic cable
in a campus network. Telco Systems believes that this technology may be
extended for use in metro wave division multiplexing.
Integrated Access Market
- Access60/45. The Access60(R) and Access45(TM), both introduced in 1997,
are highly reliable, high-capacity T1/E1 multiplexers that provide
digital access to public, private and hybrid networks. The Access60 and
Access45 are ideal for integrating multiple business applications and
cost-effectively connecting them with dedicated switched and packet
network services.
Since its founding in 1972, Telco Systems has sold over $1.3 billion of
carrier-class equipment to service providers. Telco Systems designs and
manufactures its products to be durable and defect-free and always strives to
deliver products to customers on time. In recognition of Telco Systems'
excellence in product design, development, manufacturing, testing and service,
the International Standards Organization awarded Telco Systems an ISO 9001
certification, which is the most stringent of the five ISO standards and vital
to competing in the global marketplace. Many of Telco Systems' products also
comply with the network
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equipment building standards as well as the important standards including those
developed by Bellcore, Underwriter's Laboratories, the Federal Communications
Commission and the British Approvals Board for Telecommunications. Telco Systems
believes its reputation and track record for providing quality products is a
major competitive advantage.
Telco Systems' research and development team is focused on the
multi-service access and multi-service broadband transport and access
concentration markets. Telco Systems' research and development team, which
consists of approximately 70 engineering, product management and planning
professionals and ten to 12 contractors, has developed a detailed product road
map for the entire EdgeLink product line. The road map calls for the
introduction of multiple new products and product enhancements in 2000, as well
as the rapid incorporation of SONET, digital subscriber line, packet/cell
asynchronous transfer mode and legacy async voice and data technology.
Top-priority projects include the EdgeLink-STS, two new releases of the
EdgeLink300-MSIA, and the EdgeLink 700-MSAC. In addition, Telco Systems is
working closely with leading original equipment manufacturers to develop new
network convergence solutions.
Telco Systems has long-standing relationships with a diverse group of
service providers including competitive local exchange carriers, regional Bell
operating companies, local exchange carriers, inter-exchange carriers, PTTs,
Internet service providers, wireless providers and electrical utilities. Major
service provider customers include Bell Atlantic, AT&T, Sprint, MCI WorldCom,
British Telecom, Ameritech, BellSouth, Nextlink and Concert. Telco Systems also
has a growing number of strategic partnerships with leading equipment
manufacturers such as PairGain, Nortel, Lucent / Ascend and Cisco. Telco Systems
services its clients through its own direct sales force and more than 50 leading
third-party telecommunications equipment distributors such as Walker &
Associates, Sprint North Supply, Alltel Supply and GTE Supply. Approximately 65%
of Telco Systems' sales are through its direct sales force, and the remaining
35% of sales are through its distributors.
Telco Systems has an experienced sales force that targets predefined
customers in select markets and conducts nearly all of Telco Systems' product
selling efforts. The sales force focuses primarily on selling product selection
rather than order fulfillment. The sales force and internal product development
personnel also work closely with customers to identify new product and product
enhancement opportunities and to ensure correct product positioning.
In addition, Telco Systems uses leading telecommunications equipment
distributors to provide order fulfillment and other value-added logistics
support services. Telco Systems believes that using distributors for order
fulfillment and logistics support, particularly in certain remote geographic
areas and with smaller and niche customers, improves product delivery
timeliness, reduces inventory carrying costs and enables the in-house sales
force to focus on contacting potential Telco Systems customers. Telco Systems
has been conducting business with most of its large distributors for more than
ten years, and its sales force has well-established personal relationships with
individuals at all of the distributors. Telco Systems believes that it accounts
for a meaningful portion of the business of each of its main distributors and
that, accordingly, the distributors refer business when possible to Telco
Systems as a preferred manufacturer. Telco Systems considers its relationships
with its distributors as a competitive advantage in the markets it serves.
Telco Systems uses major contract manufacturers to supply final products,
including U.S. Assemblies, Inc. and SCI Technologies, Inc. Its contract
manufacturing process primarily involves the assembly of electronic components
onto custom-designed printed circuit boards, incorporating these boards into
larger system packages, and testing the finished products to assure their proper
functioning in accordance with product specifications. Most components used in
the process are standard electrical, electronic and mechanical parts available
from many suppliers. Telco Systems presently maintains a favorable relationship
with its contract manufacturers and its other suppliers and does not presently
anticipate any difficulties that would prevent timely procurement of scheduled
products.
Telco Systems' competitors in the broadband transmission market are
predominantly large, full-line, integrated manufacturers of telecommunications
equipment, such as Lucent Technologies, Fujitsu, Northern Telecom Limited,
Alcatel, NEC and ADC Telecommunications. Many of these competitors have
introduced newer SONET transmission products which the telephone operating
companies are deploying in public
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networks. The availability of such SONET products by competitors provides a
distinct product advantage for them in certain customer applications. However,
the higher cost of the SONET products, typically 20-50% more expensive than the
asynchronous transmission products, is providing a continued strong demand for
Telco Systems' asynchronous transmission products in certain customer
applications. Telco Systems' principal competitors with respect to the network
access product market include Premisys Communications, Verilink Corp., Newbridge
Networks, Tellabs and Carrier Access Corp. Telco Systems believes that it has
substantially strengthened its competitive position in this market with the
availability of new features for the Access60 product, introduction of the new
EdgeLink 100 and Access45 products and new products from the Jupiter and
Synaptyx acquisitions, as well as with a stronger network of distributors. Telco
Systems also believes that the redundancy, high-density application and the
fail-safe nature of the Access60 architecture makes the product more suitable
for the service providers market.
NACT Switching. NACT, headquartered in Provo, Utah, is a rapidly growing
provider of advanced telecommunications switching platforms with integrated
proprietary applications software and billing and telemanagement capabilities.
NACT believes that it is the only provider of a switching solution that
integrates all the required hardware and software elements into one
comprehensive package, which includes a broad range of applications, competitive
pricing, interoperability and scaleable port capacity. NACT's ability to offer
its customers an integrated solution provides NACT with certain competitive
advantages within its marketplace because its integrated solutions result in
lower costs, faster installation, greater reliability and superior functionality
relative to multi-vendor alternatives.
NACT's customers include national and international inter-exchange
carriers, competitive local exchange carriers, prepaid calling card and prepaid
wireless operators, international call back/reorigination providers, payphone
network operators, operators of large institutional networks and other specialty
telecommunications service providers. NACT is one of the leading providers of
switching solutions to independent calling card providers.
NACT's existing products and services include:
STX(TM). The STX (Specialty Telecommunications Exchange) is a Class 4
integrated digital tandem switching system that provides a complete package
for switching and specialty application needs, including 1+ long distance,
prepaid calling card, prepaid equal-access, automated operator and
international call back. It also includes features such as multiple
currency support for prepaid cards, voice prompts in 24 languages, fraud
control and least-cost routing. The most recent enhancement of the STX
increases the call capacity to 1,920 ports (80 T1s), or 2,048 time slots
per switching bay, and can be combined with up to three additional STXs to
provide a total capacity of 7,680 ports, or 8,192 time slots per system.
The STX includes proprietary software that enables a broad range of
specialty applications to run simultaneously. The STX also offers Redundant
Array of Independent Disks (RAID) level 5 redundancy. The STX is targeted
at a wide range of customers that desire a turnkey solution with superior
functionality at an attractive price.
Micro STX. The Micro STX is a smaller and more affordable tandem
switch that is typically used by start-up prepaid calling card operators
and other specialty service companies. The Micro STX is scaleable from 24
to 384 ports and supports all STX features and optional software packages.
Master Control Unit. The Master Control Unit allows interconnectivity
of up to four STX platforms to provide a total capacity of 8,192 time slots
(7,680 ports) per system with a single common database for activities
including fraud control, prepaid calling card management, central billing
system connectivity and system maintenance.
The NTS 2000 Billing(TM) System. The NTS 2000 is a call rating,
accounting, switch management, invoicing and traffic engineering system
designed to process the day-to-day operations of small-to medium-sized
service providers. The NTS 2000 offers, among other features, real-time
data processing, an intuitive graphical user interface, custom reports,
custom invoicing and open system connectivity that allows integration with
other information systems. The NTS 2000 is capable of handling 40 million
call
25
<PAGE> 28
detail recordings per month, 25 million prepaid debit cards and more than
60 million debit transactions. The NTS 2000 may also be used as a billing
system in conjunction with third-party switches.
Facilities Management Services. NACT operates and maintains switches
and billing systems for its customers. These services allow customers to
focus on marketing to their end users and substantially reduces the
customers' investment in the physical space and the technical staff
required to maintain and operate the switches. All of the switches that
NACT manages are located in secure rooms within NACT's owned or leased
premises.
NACT sells its products through a direct sales force located in Provo, Utah
as well as through satellite offices located in New York and Florida. To service
its international customers, NACT maintains an international sales and technical
support office in London and also utilizes international distributors and
agents.
NACT has traditionally focused its sales and marketing efforts on small,
entrepreneurial telecommunications service providers. With the introduction of
the STX and its products and services, NACT now targets larger service
providers. NACT's strategy is to further penetrate certain segments of the
telecommunications industry that offer significant growth opportunities,
including international markets and Internet service providers.
NACT's target customers primarily consist of growth-oriented, small and
medium-sized telecommunications providers. This market has experienced
significant growth in recent years and is expected to continue to expand as new
telecommunications providers emerge as a result of the worldwide deregulation of
the telecommunications industry. More that 70% of the world's population does
not currently have telephone services. Therefore, NACT believes that emerging
telecommunication companies, such as its customers, are well-positioned to take
advantage of this opportunity. Many of NACT's customers already have an
established customer base in many countries through the use of international
re-origination. Therefore, NACT's customers are positioned to build their own
international networks to provide direct dial tone to their existing customers.
NACT currently services more than 180 customers, which increased almost 10%
from 165 customers at the end of 1998. NACT believes that its integrated
products and services are an attractive solution for emerging, growth-oriented
providers that demand a low-cost, quick and easy entry into the
telecommunications market, flexibility to add new services and additional
capacity and reliability. NACT's current customer base includes customers in the
United States, Puerto Rico, Mexico, France, Japan, Argentina, Italy, England and
the Dominican Republic.
NACT's research and development team works very closely with its sales and
marketing teams to solicit customer feedback and ideas for the development of
both new products and the addition of new features and capabilities to its
existing suite of products. Since January 1999, NACT has successfully launched
several new products and product enhancements, including the STX ethernet board,
the NTS 2000 billing system, the Turbo STX/MCU board, the MicroSTX and the 4x4
Dual RAID. Strong market acceptance by customers has propelled unit shipments of
these products.
NACT is scheduled to introduce a number of product enhancements to its
current products, including E1 compatibility and the integration of primary rate
Integrated Services Digital Network, Signaling System 7 and C7 protocols within
the STX. NACT is also in the process of developing its suite of products that
will support new technologies, including packet-switching, asynchronous transfer
mode, voice over Internet Protocol and digital subscriber line access. NACT
believes that these product enhancements and next generation products, scheduled
to be launched during 2000 and 2001, are well-positioned to exploit the
increasing demand of telecommunications providers for advanced voice and data
capabilities.
The market for switching equipment and network management and billing
systems is highly competitive, and NACT expects competition to increase in the
future. The market is subject to rapid technological change, regulatory
developments in the telecommunications industry and emerging industry standards.
NACT believes that the primary competitive factors in the market for switching
equipment and network telemanagement and
26
<PAGE> 29
billing systems are the development and rapid introduction of new product
features, price/performance, reliability and quality of customer support.
As NACT's business develops and it seeks to market its switches to a
broader customer base, NACTs competitors may include larger switch and
telecommunications equipment manufacturers such as Lucent Technologies Inc.,
Harris Corporation, Siemens AG, Alcatel Alsthom Compagnie, Generale
D'Electricite, Telefonaktiebolaget, L.M. Ericsson and Northern Telecom Ltd. Many
of NACT's current and potential competitors have substantially greater
technical, financial, manufacturing and marketing resources than NACT.
Wireless Local Loop. Our Wireless Local Loop Division, or WLLD, has
developed a next generation, CDMA-based, fixed wireless local loop system known
as Velocity-2000(TM). The system provides toll-quality voice service and
provides network operators an innovative way of providing bandwidth-on-demand
data services through a patent-pending virtual LAN technology. Through this
unique virtual LAN technology, data calls are routed outside of Class 5 switch
facilities, thus minimizing the need for additional capital expense to service
the growing demand for Internet services.
Velocity-2000 is intended to provide competitive and rapid telephony
service deployment for international telecommunications markets that have
limited or no telephony deployment. It is also designed to target the emerging
competitive local exchange markets in the United States that will be served by
competitive local exchange carriers and other alternative access providers.
Industry projections suggest that fixed wireless local loop technology will be
one of the largest growth sectors in the telecommunications industry over the
next five to seven years. WLLD believes that the Velocity-2000 is
well-positioned to capitalize on this market opportunity.
We started the development of a fixed wireless local loop product in late
1997 to capitalize on the emerging wireless local loop market. To date, we have
invested in excess of $13.0 million in the development stages of the
Velocity-2000 system. The Velocity-2000 product is currently in alpha testing at
the WLLD's Plano, Texas engineering facility. A field trial began at a local
competitive local exchange carrier in the fourth quarter of 1999.
The superior services offered by the Velocity-2000 Product combined with
the flexibility of the Velocity-2000 Platform, which supports a smooth network
evolution from wireless to wireline networks, position the Velocity-2000 system
as an attractive alternative solution for emerging telecom providers to quickly
enter the telephone access market with high-quality services, low front-end
investment and reduced business risk.
The Velocity-2000 product is targeted to provide competitive and rapid
telephony service deployment for domestic and international competitive local
exchange carriers, Internet service providers, incumbent local exchange
carriers, cable television operators and long distance carriers providing
services in the emerging international and telecommunications markets as well as
domestic providers that are looking to bypass local loop access fees.
There has been a recent proliferation of international and domestic
competitive local exchange carriers operating in international regions. The
Velocity-2000 is specifically targeted to address this rapidly growing customer
base; thus, it offers significant growth opportunities for WLLD. Many of these
customers require a cost-effective method to quickly enter the telephony
services market because they typically do not have facilities in place to
service end users. Utilizing wireless technology is a cost-effective alternative
to leasing lines from the incumbent local exchange carriers.
Cellular Infrastructure Supply. Cellular Infrastructure Supply offers its
customers cellular base stations and related mobile network equipment. Although
substantially all of the equipment sold by Cellular Infrastructure Supply is
manufactured by other telecommunications equipment companies, Cellular
Infrastructure Supply provides a full range of highly technical, value-added
services such as deinstallation, system design, equipment tuning and
installation.
Equipment Markets. The markets for our equipment products are generally
characterized by rapidly changing technology, evolving industry standards and
frequent new product and service introductions that can
27
<PAGE> 30
render existing products and services obsolete or unmarketable. The future
success of our equipment businesses will depend to a substantial degree upon
their ability to develop and introduce in a timely fashion enhancements to their
existing products and services and new products and services that meet changing
customer requirements and emerging industry standards. Our failure to introduce
new products and services and respond to industry changes on a timely and cost
effective basis could have a material adverse affect on our business, financial
condition and results of operations.
The development of new, technologically advanced products and services is a
complex and uncertain process requiring high levels of innovation and capital,
as well as the accurate anticipation of technological and market trends.
Furthermore, the introduction and marketing of new or enhanced products and
services require us to manage the transition from existing products and services
in order to minimize disruption in customer purchasing patterns. There can be no
assurance that we will be successful in developing and marketing, on a timely
and cost-effective basis, new products and services or product enhancements,
that our new products and services will adequately address the changing needs of
the marketplace, or that we will successfully manage the transition to new or
enhanced products and services. There also can be no assurance that we will be
able to identify, develop, manufacture or support new products and services
successfully, that such new products and services will gain market acceptance or
that we will be able to respond effectively to technological changes, emerging
industry standards or product announcements by competitors. In addition, we have
on occasion experienced delays in the introduction of product enhancements and
new products and services. There can be no assurance that in the future we will
be able to introduce product enhancements or new products and services on a
timely and cost effective basis. The rapid development of new technologies also
increases the risk that current or new competitors could develop products and
services that would reduce the competitiveness of our products and services.
There can be no assurance that products, services or technologies developed by
others will not render our products, services or technologies noncompetitive or
obsolete.
Products as complex as ours may contain undetected errors or failures when
first introduced or as new versions are released, and errors have occurred in
these products in the past. There can be no assurance that, despite testing by
us and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments. The occurrence of such
errors could result in the loss of or delay in market acceptance of our
products, diversion of development resources, damage to our reputation or
increased service or warranty costs, any of which could have a material adverse
effect upon our business, financial condition or results of operations.
Furthermore, from time to time, we may announce new products, services,
capabilities or technologies that have the potential to replace or shorten the
life cycle of their 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 and
services or cause resellers to return products to us. Failure to introduce new
products and services or product or service enhancements effectively and on a
timely basis, customer delays in purchasing products and services in
anticipation of new product or service introductions and any inability on our
part to respond effectively to technological changes, emerging industry
standards or product and service announcements by competitors could have a
material adverse effect on our business, financial condition or results of
operations.
Patents and Trademarks. We own, license or have applied for various
patents with respect to our technology and products. While these patents are of
value, we do not believe that we are dependent to any material extent upon
patent protection. We further believe that timely implementation of
technological advances, responsiveness to market requirements, depth of
technical expertise and a high level of customer service and support are more
important to our success than patent rights.
We have various trademarks, trade names and service marks used in
connection with our business and for private label marketing of our products,
including: Access45(TM), Access60(R), EdgeLink 100(TM), EdgeLink 300(TM),
EdgeLink 500(TM) and WLL-2000(TM). Although we consider these trademarks, trade
names and service marks to be readily identifiable with, and valuable to, our
business, we do not believe the loss of any of the foregoing rights for
intellectual property would have a material adverse effect on our business,
financial condition or results of operations.
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<PAGE> 31
EMPLOYEES
As of March 24, 2000, we had 748 full-time employees, including 330 in
continuing operations and 418 in discontinued operations. The continuing
operations consist of 204 employees based in the United States and 126 employees
based in Europe. From time to time, we also use part-time employees and
contractors in our operations, primarily to accommodate temporary changes in
operating levels and facilitate certain projects. None of our employees is
represented by any collective bargaining agreements, and we have never
experienced a work stoppage. We consider our employee relations to be good.
ITEM 2. PROPERTIES
Our executive offices are located in Atlanta, Georgia, where we occupy
approximately 12,300 square feet under a lease expiring in October 2003. We
lease all our other facilities under operating leases which expire at various
dates. The following provides a summary of the significant facilities we
currently utilize to conduct our operations. We believe these facilities are
adequate for our current operations and that suitable additional space will be
available at commercially reasonable rates in all the locations in which we
operate or plan to operate should the need arise.
<TABLE>
<CAPTION>
SQUARE FOOTAGE LEASE EXPIRES
-------------- -------------
<S> <C> <C>
CONTINUING OPERATIONS
Washington, D.C. ............................. 49,600 March 2008
New York, New York............................ 10,700 January 2009
Dallas, Texas................................. 8,300 October 2004
Chicago, Illinois............................. 7,100 March 2001
Los Angeles, California....................... 5,400 November 2002
Miami, Florida................................ 4,400 November 2007
Other switch sites and offices................ 7,800 Various
-------
Total United States................. 93,300
=======
Sweden........................................ 57,000 November 2003; September 2005
Germany....................................... 39,700 January 2002
United Kingdom................................ 26,500 December 2001; January 2003
Austria....................................... 18,600 January 2008; July 2008
Spain......................................... 18,400 August 2003
Switzerland................................... 16,700 October 2003; June 2008
Belgium....................................... 15,100 March 2005
France........................................ 10,900 April 2000; July 2007
Italy......................................... 10,500 June 2004
Norway........................................ 9,200 February 2001
Finland....................................... 8,200 October 2001
Other switch sites and offices................ 6,200 Various
-------
Total Europe........................ 237,000
-------
Total Continuing Operations......... 330,300
=======
</TABLE>
We lease several switch sites, service centers and administrative offices
in each of the European countries listed above, primarily for our FaciliCom and
NETnet operations. The lease expiration dates indicated relate to the most
significant leases in each of the countries.
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<PAGE> 32
<TABLE>
<S> <C> <C>
DISCONTINUED OPERATIONS
Norwood, Massachusetts (Telco Systems)........ 80,000 January 2004
Provo, Utah (NACT)............................ 39,600 December 2009
Savannah, Georgia (C.I.S.).................... 33,500 October 2001
Alpharetta, Georgia........................... 17,800 March 2002
Plano, Texas.................................. 6,000 February 2001
Other offices................................. 17,200 Various
-------
194,100
=======
</TABLE>
Telco Systems leases a 216,000 square foot manufacturing, research and
administration facility in Norwood, Massachusetts, that is owned by a limited
partnership in which Telco Systems has a 50% partnership interest. Approximately
80,000 square feet of this facility is currently utilized by Telco Systems.
Excess costs associated with the idle portion of the facility through January
2004, the lease termination date, have been reserved for in Telco Systems'
balance sheet.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various legal proceedings relating to
claims arising in the ordinary course of our business. Other than as discussed
below, neither we nor any of our subsidiaries is party to any legal proceeding,
the outcome of which we expect to have a material adverse effect on our
financial condition or results of operations.
Plaintiffs have filed 23 class action shareholder suits against us and some
of our current and former officers alleging violations of the federal securities
laws. These suits arise from alleged misstatements of material information in
and alleged omissions of material information from some of our securities
filings and other public disclosures, principally related to product
development, inventory and sales activities during the fourth quarter of 1998.
Plaintiffs have requested damages in an unspecified amount in their complaints.
These class action suits were consolidated into a single action for all pretrial
proceedings in the United District Court for the Northern District of Georgia
under the caption In re: World Access, Inc. Securities Litigation (File No.
1:99-CV-43-ODE). The plaintiffs filed an amended consolidated complaint for this
action on or about May 28, 1999. We filed a motion to dismiss the amended
consolidated complaint on June 28, 1999. The court denied this motion to dismiss
in an order dated March 28, 2000. Although we deny that we have violated any of
the requirements or obligations of the federal securities laws, we cannot assure
you that we will not sustain material liability as a result of or related to
these suits.
On February 14, 2000 and March 1, 2000 identical class action complaints
were filed against Star Telecommunications and certain of its directors and
executive officers. The complaints allege, in conclusory terms, causes of action
for breach of fiduciary duty arising from approval of our proposed merger with
Star on the ground that the consideration to be received is unfair,
unconscionable and grossly inadequate. The complaints seek both injunctive
relief and damages. Although Star believes that the complaints have no merit and
the defendants are prepared to defend them vigorously, we cannot assure you that
the complaints will not interfere with our proposed merger with Star or subject
us to material liability if our proposed merger with Star is consummated.
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<PAGE> 33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of stockholders was held on December 7, 1999 at our
headquarters in Atlanta, Georgia. There were 45,205,424 shares of common stock
issued, outstanding and entitled to one vote each at the special meeting; 50,000
shares of Convertible Preferred Stock, Series A issued, outstanding and entitled
to 4,347,826 votes at the special meeting; and 23,174 shares of Convertible
Preferred Stock, Series B issued, outstanding and entitled to 1,448,375 votes at
the special meeting. The special meeting did not involve the election of
directors. At the special meeting, the following matter was voted on:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
---------- ------- -------
<S> <C> <C> <C>
Approval and adoption of the Agreement and Plan of Merger, 31,724,504 109,189 65,882
dated as of August 17, 1999, among World Access, Inc.,
FaciliCom International, Inc., Armstrong
Telecommunications, Inc., Epic Interests, Inc. and BFV
Associates, Inc., pursuant to which FaciliCom was merged
with and into World Access
</TABLE>
ITEM 4.5 EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information, as of March 24, 2000 concerning our
executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
John D. Phillips............. 57 Chairman and Chief Executive Officer
Walter J. Burmeister......... 60 President
W. Tod Chmar................. 46 Executive Vice President and Secretary
Mark A. Gergel............... 42 Executive Vice President and Chief Financial Officer
A. Lindsay Wallace........... 50 President, World Access Equipment Group
Michael F. Mies.............. 37 Senior Vice President of Finance and Treasurer
</TABLE>
John D. Phillips. Mr. Phillips has served as one of our directors since
December 1994, as our Chief Executive Officer since December 1998 and as
Chairman of our Board of Directors since May 1999. Mr. Phillips was Chairman of
the Board and Chief Executive Officer of Cherry Communications and Cherry U.K.
(d/b/a Resurgens Communication Group) from October 1997 until December 1998,
when we acquired both companies. He was President, Chief Executive Officer and a
director of Metromedia International Group, Inc., a global media, entertainment
and communications company, from November 1995 until December 1996. Metromedia
International was formed in November 1995 through the merger of The Actava
Group, Inc., Orion Pictures Corporation, MCEG Sterling Incorporated and
Metromedia International Telecommunications, Inc. He served as President, Chief
Executive Officer and a director of Actava from April 1994 until November 1995.
In May 1989, Mr. Phillips became Chief Executive Officer of Resurgens
Communications Group, Inc. and served in this capacity until September 1993 when
Resurgens merged with Metromedia Communications Corporation and WorldCom.
Walter J. Burmeister. Mr. Burmeister has served as our President and one
of our directors since December 1999. Mr. Burmeister was one of FaciliCom's
co-founders and served as its Chief Executive Officer, President and one of its
directors from 1995 until it merged with us in December 1999. Prior to co-
founding FaciliCom, Mr. Burmeister founded TMG, a telecommunications consulting
firm, and he has served as its Chairman from 1992 to the present. Mr. Burmeister
was Vice President and Chief Financial Officer of Bell Atlantic International
from 1989 to 1992. In this position, Mr. Burmeister was responsible for
overseeing business development in Central and South America, the Middle East
and Africa, as well as managing that company's financial affairs. During his 31
years with Bell Atlantic, Mr. Burmeister was Vice President of Bell of
Pennsylvania's and Diamond State Telephone's sales organization and headed the
C&P Telephone Operations Staff. Mr. Burmeister has served as a director of
Skysat Communications Network since 1992.
W. Tod Chmar. Mr. Chmar has served as our Executive Vice President and
Secretary since December 1998. He was an Executive Vice President and director
of Cherry Communications and Cherry U.K. from October 1997 to December 1998,
when we acquired both companies. Mr. Chmar served as Senior Vice
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<PAGE> 34
President of Metromedia International Group from November 1995 until December
1996 and of The Actava Group from 1994 until November 1995. From January 1985
until September 1993, Mr. Chmar was a partner in the law firm of Long Aldridge &
Norman LLP, specializing in mergers and acquisitions and corporate finance.
Mark A. Gergel. Mr. Gergel has served as our Vice President and Chief
Financial Officer since April 1992. In December 1996, he was named an Executive
Vice President. He also served as one of our directors from December 1998 to
December 1999. From 1983 until March 1992, Mr. Gergel held five positions of
increasing responsibility with Federal-Mogul Corporation, a publicly-held
manufacturer and distributor of vehicular parts, including International
Accounting Manager, Assistant Corporate Controller, Manager of Corporate
Development and Director of Internal Audit. Prior to joining Federal-Mogul, Mr.
Gergel spent four years with the international accounting firm of Ernst & Young.
Mr. Gergel is a Certified Public Accountant.
A. Lindsay Wallace. Mr. Wallace joined us in February 1998 in connection
with our acquisition of a majority interest in NACT Telecommunications, Inc. He
served as President of our Switching Division from February 1998 until December
1998, when he was appointed Executive Vice President and Chief Operating Officer
of our Equipment Group. In January 1999, he was named President of our Equipment
Group. From January 1996 until October 1998, when NACT merged with and into
World Access, Mr. Wallace was President, Chief Executive Officer and a director
of NACT. From January 1994 until January 1996, he was NACT's Director of Sales
and Marketing. In October 1995 he was named an Executive Vice President of NACT.
Prior to joining NACT, Mr. Wallace worked for Sprint Corporation for five years
where he held several positions including National Account Manager.
Michael F. Mies. Mr. Mies has served as our Vice President of Finance and
Treasurer since December 1997. In July 1999, he was named a Senior Vice
President. Prior to joining World Access, Mr. Mies spent 14 years with
Federal-Mogul Corporation in positions of increasing responsibility, most
recently as Director of European Operations from 1995 to 1997.
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<PAGE> 35
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
Our common stock is traded on The Nasdaq Stock Market under the symbol
"WAXS". The quarterly price ranges for our common stock as reported by Nasdaq
are as follows:
<TABLE>
<CAPTION>
HIGH LOW CLOSE
---- --- -----
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
First Quarter............................................. $22 3/4 $ 6 3/8 $ 8 1/4
Second Quarter............................................ 14 3/8 7 1/2 14 1/4
Third Quarter............................................. 16 3/16 10 5/16 11 3/16
Fourth Quarter............................................ 22 1/4 10 5/16 19 1/4
YEAR ENDED DECEMBER 31, 1998
First Quarter............................................. 33 1/2 21 5/8 32 1/2
Second Quarter............................................ 40 25 3/8 30
Third Quarter............................................. 30 15/16 18 3/4 20 1/4
Fourth Quarter............................................ 24 3/4 12 21 3/8
</TABLE>
As of March 24, 2000 there were 730 holders of record of our common stock.
This number does not include beneficial owners of our common stock whose shares
are held in the names of various dealers, clearing agencies, banks, brokers and
other fiduciaries.
SALES OF UNREGISTERED SECURITIES
1. In September 1999 we issued warrants to purchase 100,000 shares of
our common stock at a price of $18.00 per share to principals of The
Breckenridge Group in payment of professional fees.
2. In October and December 1999 we issued an aggregate of 58,215
shares of our common stock to Long Aldridge & Norman LLP in payment of an
aggregate of $880,207 in legal fees.
3. In December 1999 we issued 369,901 shares of our Convertible
Preferred Stock, Series C in connection with our acquisition of FaciliCom
International, Inc. The preferred stock is convertible into shares of our
common stock at a conversion rate of $20.38 per common share, subject to
standard anti-dilution adjustments. If the closing trading price of our
common stock as quoted by the Nasdaq Stock Market exceeds $20.38 per share
for 60 consecutive trading days, the preferred stock will automatically
convert into shares of our common stock. In December 1999 we issued 963,722
shares of our common stock upon conversion of 19,641 shares of preferred
stock held by two individuals.
4. In December 1999 we issued 4,713,128 shares of our common stock for
an aggregate of $75.0 million to a group of institutional and sophisticated
investors in a private placement. Brown Brothers Harriman & Co. acted as an
advisor to us in connection with this transaction.
5. In December 1999 we issued 15,000 shares of our common stock to R.
Darby Boland in settlement of litigation.
6. In December 1999 we issued 47,259 shares of our common stock
pursuant to the earnout provisions of our August 1997 acquisition of Galaxy
Engineering Services, Inc.
No underwriters were involved in the issuances of these securities. The
issuances of these securities were deemed to be exempt from registration under
the Securities Act in reliance on Section 4(2) of the Securities Act as
transactions by an issuer not involving any public offering. The recipients of
securities in these transactions represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution of the securities and appropriate legends were affixed to
the stock certificates and warrants issued in these transactions. All recipients
had adequate access, through their relationships with us, to information about
us.
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<PAGE> 36
DIVIDEND POLICY
We have not paid or declared any cash dividends on our common stock, and we
currently intend to retain all future earnings to fund operations and the
continued development of our business. In addition, our credit facility contains
restrictions limiting our ability to pay cash dividends. Any future
determination to declare and pay cash dividends will be at the discretion of our
board of directors and will be dependent on our financial condition, results of
operations, contractual restrictions, capital requirements, business prospects
and other factors that our board of directors deems relevant.
The holders of our Series A Preferred Stock, in preference to the holders
of shares of our common stock, are entitled to receive, when, as and if declared
by our board of directors, cash dividends at an annual rate on the liquidation
preference equal to 4.25%. Dividends payable on the Series A Preferred Stock are
cumulative and accrue, whether or not declared, on a daily basis from the date
of issuance. We are currently required to make annual dividend payments of
approximately $2.1 million on outstanding Series A Preferred Stock.
The indenture governing our senior notes could limit our ability to pay
cash dividends to our stockholders. Restrictions on our ability to pay cash
dividends to our stockholders apply if, at the time or after giving effect to
the proposed cash dividend, we are or would be in default under the terms of the
indenture, our indebtedness exceeds specified levels or restricted payments
exceed specified levels.
34
<PAGE> 37
ITEM 6. SELECTED FINANCIAL DATA
The selected financial information for each of the five years in the period
ended December 31, 1999 set forth below has been derived from and should be read
in conjunction with the audited consolidated financial statements and other
financial information presented elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
---------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONTINUING OPERATIONS DATA(1):
Carrier service revenue...................... $ 501,081 $ 10,787 $ -- $ -- $ --
Gross profit................................. 52,776 650 -- -- --
Depreciation and amortization................ 13,541 416 115 71 30
Restructuring charge......................... 37,800 -- -- -- --
Operating loss............................... (26,998) (4,383) (1,550) (1,011) (880)
Loss from continuing operations.............. (27,098) (5,437) (460) (588) (1,292)
Loss from continuing operations per
share(2)................................... $ (0.78) $ (0.25) $ (0.03) $ (0.05) $ (0.14)
Weighted average shares outstanding(2)....... 37,423 22,073 17,242 13,044 9,083
BALANCE SHEET DATA:
Cash and equivalents......................... $ 147,432 $ 55,176 $118,065 $22,480 $ 1,887
Restricted cash.............................. 47,201 -- -- -- --
Working capital.............................. 289,844 350,816 206,769 52,149 17,884
Total assets................................. 1,629,804 544,649 207,294 52,512 23,604
Long-term debt............................... 408,338 137,523 115,264 -- 3,750
Total liabilities............................ 732,505 184,066 115,539 138 9,270
Stockholders' equity......................... 897,299 360,583 91,755 52,374 14,334
OTHER FINANCIAL DATA:
EBITDA from continuing operations before
restructuring charge(3).................... $ 24,343 $ (3,967) $ (1,435) $ (940) $ (850)
Capital expenditures......................... 7,198 12,216 3,591 1,176 280
</TABLE>
- ---------------
(1) Includes the results of operations for the following businesses from their
respective dates of acquisition: Cherry U.S. and Cherry U.K. -- December
1998; Comm/Net -- May 1999; and FaciliCom -- December 1999.
(2) Loss per share and weighted average shares outstanding are presented on a
diluted basis.
(3) EBITDA from continuing operations consists of earnings (loss) before net
interest expense (income), income taxes, foreign exchange gains or losses,
depreciation and amortization. EBITDA should not be considered as a
substitute for operating earnings, net income (loss), cash flow or other
combined statement of operations or cash flow data computed in accordance
with generally accepted accounting principles or as a measure of our results
of operations or liquidity. EBITDA is widely used as a measure of a
company's operating performance and its ability to service its indebtedness
because it assists in comparing performance on a consistent basis across
companies, which can vary significantly. The
35
<PAGE> 38
following table reconciles our loss from continuing operations to EBITDA
from continuing operations and EBITDA from continuing operations before
restructuring charge (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1999 1998 1997 1996 1995
-------- ------- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Loss from continuing operations........... $(27,098) $(5,437) $ (460) $(588) $(1,292)
Net interest expense (income)............. 9,606 4,355 (838) (85) 412
Income taxes benefit...................... (10,126) (3,301) (252) (338) --
Foreign exchange loss..................... 620 -- -- -- --
Depreciation and amortization............. 13,541 416 115 71 30
-------- ------- ------- ----- -------
EBITDA from continuing operations......... (13,457) (3,967) (1,435) (940) (850)
Restructuring charge...................... 37,800 -- -- -- --
-------- ------- ------- ----- -------
EBITDA from continuing operations
before restructuring charge............. $ 24,343 $(3,967) $(1,435) $(940) $ (850)
======== ======= ======= ===== =======
</TABLE>
36
<PAGE> 39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Prior to December 1998, the Company was a manufacturer and reseller of
telecommunications network equipment. In December 1998, in connection with the
acquisition of Resurgens Communication Group ("Resurgens"), and the appointment
of a new Chief Executive Officer, the Company reorganized into two separate
operating groups. The Telecommunications Group provided wholesale international
long distance service through a combination of its own international network
facilities, various international termination relationships and resale
arrangements with other international long distance service providers. The
Equipment Group provided digital switches, billing and network telemanagement
systems, fixed wireless local loop systems, intelligent multiplexers, digital
microwave radio systems, cellular base stations and other telecommunications
network products. As discussed further below, in December 1999 the Company
adopted a plan to divest the businesses comprising the Equipment Group.
In December 1998, the Company acquired Resurgens, a facilities based
provider of wholesale international long distance services. In connection
therewith, a wholly owned subsidiary of MCI WorldCom, Inc., a major customer and
vendor of Resurgens, became a significant stockholder of the Company. WorldCom
currently owns approximately 6.9% of the voting common stock of the Company. In
December 1998, John D. Phillips was appointed the Company's new President and
Chief Executive Officer. Mr. Phillips was formerly the President and Chief
Executive Officer of Resurgens.
In early 1999, management adopted a strategy designed to build on the
Company's base wholesale service business and position the Company to become a
leading provider of bundled voice, data and Internet services to retail and
carrier customers throughout Europe. Management believes that the European
telecommunications market has become extremely fragmented in recent years due to
the significant deregulation initiatives undertaken and the significant growth
projected for this market. Management also believes that this market is ripe for
a consolidation of carriers, not unlike that which occurred in the United States
during the late 1980's and 1990's. At the time, management also believed that
being able to provide certain of the Company's customers both services and
equipment represented a competitive advantage.
37
<PAGE> 40
During 1999 and early 2000, the Company completed three acquisitions and
executed definitive agreements to acquire two other companies in an effort to
pursue its strategy. As a result of these transactions and related initiatives,
the Company has evolved from a $501.1 million carrier of U.S. originated
wholesale traffic in 1999 to a projected multi-billion dollar carrier of U.S.
and European originated retail and wholesale traffic in 2000 (on a pro forma
basis). These acquisitions include:
<TABLE>
<S> <C>
Comm/Net Privately-held facilities based provider of
(May 1999) wholesale international long distance
primarily to Mexico. It is expected to serve
as a foundation for facilities and bandwidth
into other Latin American countries.
FaciliCom International Privately-held facilities based provider of
(December 1999) European and U.S. originated international
long distance, voice, data and Internet
services. FaciliCom has invested in excess of
$200.0 million during the past few years to
establish an extensive, high quality switching
and transport network in 13 European
countries.
NETnet International Acquired all the assets of Long Distance
(February 2000) International, Inc. ("LDI") including NETnet
International S.A. ("NETnet"), its wholly
owned subsidiary. NETnet provides an array of
telecommunication services to over 20,000
retail customers in nine European countries.
Star Telecommunications Publicly held international telecommunications
(Pending) service provider with 24 international gateway
switches in the U.S. and Europe, ownership on
17 transoceanic cable systems and
interconnections between 23 German cities.
WorldxChange Communications Privately held international telecommunication
(Pending) service provider operating in 13 countries,
including the U.S., U.K., Germany and
Australia. Operates 45 switches and undersea
and land-based fiber optic cables in providing
communications services to more than 750,000
customers.
</TABLE>
The Company expects to complete its acquisitions of Star and WorldxChange
in mid-2000. The combination of World Access, FaciliCom, Star and WorldxChange
will create one of the largest independent telecommunications service companies
focused on the European market. The combined network, retail customer base,
sales organization and traffic is expected to significantly accelerate the
implementation of the Company's strategy as outlined above. Management expects
to aggressively pursue additional acquisitions in the next few years to further
pursue growth opportunities projected for Europe and selected other deregulating
markets throughout the world.
The Company has used its common stock and new series of its preferred stock
as the primary consideration paid for the companies acquired in 1999 and 2000.
This form of consideration will also be used in the pending acquisitions of Star
and WorldxChange.
In December 1999, the Company adopted a plan to divest its Equipment Group
in order to focus all its resources on its international long distance
businesses (see "Discontinued Operations -- 1999 Plan"). As a result of this
plan, the Company's Equipment Group has been accounted for as discontinued
operations and, accordingly, the results of the Equipment Group's operations
have been excluded from continuing operations in the Consolidated Statements of
Operations for all periods presented. One of the businesses was sold in December
1999 for approximately $15.0 million. The Company has engaged two investment
banking firms to sell the remaining businesses.
38
<PAGE> 41
In February 2000, the Company executed a definitive agreement with BATM
Advanced Communications Limited ("BATM"), an Israel-based technology company,
pursuant to which Telco Systems, the Company's largest equipment business, will
be sold to BATM for $260.8 million of cash and 960,000 restricted shares of BATM
common stock. The shares of BATM common stock, which had an initial value of
$65.2 million, trade on the London Stock Exchange. Under the terms of the
definitive agreement, the Company may not sell, transfer or otherwise monetize
these shares for a period of one year without the consent of BATM. The Company
expects to complete this transaction in April 2000 and record a significant
gain.
During 1999 and 2000, the Company has significantly increased its cash
balances through two private placements of common stock for a total of $158.1
million, a private placement of Series A preferred stock for $50.0 million and
proceeds from the sale or liquidation of certain Equipment Group assets.
Management believes that with existing cash balances, proceeds from the pending
sale of Telco Systems and available borrowings under the Company's $100.0
million revolving line of credit, the Company will have sufficient capital to
support the working capital and other cash requirements associated with the
integration of recent and pending acquisitions.
1999 CONTINUING OPERATIONS COMPARED TO 1998 CONTINUING OPERATIONS
Prior to the December 1998 Resurgens acquisition, the Company was a
manufacturer and reseller of telecommunications network equipment. In connection
with the Company's December 1999 plan to divest its Equipment Group, the
Company's continuing operations are now comprised of its Telecommunications
Group and its corporate office. These operations include Resurgens, Comm/Net and
FaciliCom from their respective dates of acquisition (December 15, 1998, May 1,
1999 and December 7, 1999), general and administrative expenses associated with
the Company's corporate office functions, interest income associated with the
Company's invested cash balances and interest expense associated with the
Company's debt balances.
Carrier Service Revenue. Total carrier service revenue increased $490.3
million to $501.1 million in 1999 from $10.8 million in 1998. The 1998 carrier
service revenue related to Resurgens' revenue subsequent to its acquisition in
mid-December. Pursuant to a Carrier Service Agreement with MCI WorldCom, Inc.
(See "Business -- Customers"), the Company recorded approximately $267.0 million
of revenue and related gross profit of $35.0 million during 1999. This
represented approximately 53% and 66% of the Company's total revenue and gross
profit from continuing operations, respectively. The Company expects the
percentage of its total revenue and gross profit contributed by WorldCom to
decrease in 2000 due to its recent acquisitions.
Gross Profit. Gross profit increased $52.1 million to $52.8 million in
1999 from $650,000 in 1998. Gross profit margin increased to 10.5% in 1999 from
6.0% in 1998 primarily due to enhanced network increases in routing efficiency
and WorldCom traffic. The routing efficiency resulted from access to larger
carrier vendors and lower purchasing rates due to increases in minute traffic
volumes over the year. The increased WorldCom traffic was to countries which are
delivered over higher margin routes and thus increased gross margin. The Company
expects that pricing pressures due to increased competition may adversely affect
its gross margin in the future, particularly to those countries which currently
represent higher margin rates, but that minute growth will somewhat offset this
effect with greater gross margin dollars.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $19.0 million, or 411.8%, to $23.6 million in
1999 from $4.6 million in 1998. The increase primarily related to only one half
month of Resurgens operating results in 1998, expenses associated with the
operations of Comm/Net, which was acquired in early 1999, and expenses related
to the operations of FaciliCom, which was acquired in December 1999. As a
percentage of total sales, selling, general and administrative expenses
decreased to 4.7% in 1999 from 42.8% in 1998. The decrease is due primarily to
the increase in revenue from the carrier service businesses acquired in 1999 and
1998. As a percentage of total sales, we expect selling, general and
administrative expenses to decrease in the future.
Depreciation and Amortization. Depreciation and amortization increased
$13.1 million to $13.5 million in 1999 from $416,000 in 1998, primarily as a
result of the fixed assets and goodwill acquired in connection with the
Resurgens, Comm/Net and FaciliCom acquisitions.
39
<PAGE> 42
Operating Loss. Operating loss increased $22.6 million to $27.0 million in
1999 as compared to $4.4 million in 1998. The increase in operating loss was due
primarily to including a full year of Resurgens operations and the acquisitions
of Comm/Net and FaciliCom during 1999. Included in the operating loss for 1999
is a $37.8 million restructuring charge.
Interest and Other Income. Interest and other income increased $804,000,
or 32.1%, to $3.3 million in 1999 from $2.5 million in 1998 due primarily to
increased invested cash balances of the Company. The increase related primarily
to proceeds received from a $50.0 million issuance of Series A preferred stock
in April 1999.
Interest Expense. Interest expense increased $6.0 million to $12.9 million
in 1999 from $6.9 million in 1998. The increase is primarily related to
obligations under Resurgens capital leases and the issuance of $300.0 million of
13.25% Senior Notes in December 1999.
1998 CONTINUING OPERATIONS COMPARED TO 1997 CONTINUING OPERATIONS
During 1997, only general and administrative costs associated with the
Company's corporate office function, interest income associated with the
Company's invested cash balances and interest expense associated with the
Company's debt balances is presented in the Consolidated Statement of
Operations. As a result of this presentation, it is not meaningful to compare
1998 continuing operations, which includes the results of Resurgens from its
December 1998 acquisition date, to 1997 continuing operations. The remaining
income and expense of the Company has been presented as discontinued operations.
(See "Discontinued Operations").
RESTRUCTURING CHARGE
In December 1999, the Company recorded a one-time restructuring charge of
$37.8 million in connection with its acquisition of FaciliCom. The restructuring
charge includes the estimated costs of (i) consolidating certain of the
Company's United States gateway switching centers and related technical support
functions into existing FaciliCom operations; (ii) consolidating the Company's
United Kingdom operations into existing FaciliCom operations; (iii)
consolidating certain of the Company's administrative functions into FaciliCom's
operations; and (iv) eliminating other redundant operations and assets as a
result of combining the two entities.
FaciliCom is a multi-national long distance service carrier focused on
providing international wholesale telecommunications services to other carriers
worldwide. FaciliCom provides these services over its carrier-grade
international network, which consists of 17 gateway switches as well as a
satellite earth station. Given the duplication of network assets between the two
entities, including switching and transmission equipment, the Company decided in
late 1999 to shut down and dispose of its six gateway switches located in
Chicago, Los Angeles, Newark, Dallas, San Francisco and London. The Company
intends to dispose of these six switches and related network assets through sale
in the secondary switching and transmission equipment market during 2000. The
restructuring charge also provides for the write-off of leasehold improvements
at the six switch sites and lease commitments remaining on certain facilities
and equipment taken out of service.
Approximately 25 personnel whose job functions included accounting and
administrative support as well as network operations were terminated as part of
the overall restructuring. The termination benefits associated with these
personnel are included in the restructuring charge.
40
<PAGE> 43
The following table summarizes the amount in each component of the
restructuring charge (in thousands):
<TABLE>
<CAPTION>
RESTRUCTURING 1999 RESERVE BALANCE
CHARGE ACTIVITY AT 12/31/99
------------- -------- ---------------
<S> <C> <C> <C>
Write-down of leasehold improvements....................... $ 1,506 $ 1,506 $ --
Write-down of network equipment............................ 25,372 25,372 --
Write-down of redundant software and general equipment..... 1,256 1,256 --
Accrual for lease and circuit cost commitments............. 8,078 1,216 6,862
Accrual for termination benefits........................... 1,588 270 1,318
------- ------- ------
$37,800 $29,620 $8,180
======= ======= ======
</TABLE>
The restructuring accrual is recorded in "Other accrued liabilities" on the
Company's December 31, 1999 balance sheet. The restructuring program is expected
to be completed in 2000.
DISCONTINUED OPERATIONS
In December 1998, the Company adopted a plan to offer for sale its
non-proprietary equipment businesses (see "1998 Plan"). In December 1999, in
connection with its acquisition of FaciliCom, the Company adopted a plan to
divest all of its remaining equipment businesses in order to focus on its
international long distance businesses (see "1999 Plan"). As a result of these
plans, all of the Company's equipment businesses have been accounted for as
discontinued operations and, accordingly, the results of their operations have
been excluded from continuing operations in the Consolidated Statements of
Operations for all periods presented. Results of discontinued operations were as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- -------
<S> <C> <C> <C>
Total sales............................................ $265,718 $ 199,903 $92,984
Cost of equipment sold................................. 162,638 121,789 60,072
Write-down of inventories.............................. 2,332 17,110 773
-------- --------- -------
Gross profit................................. 100,748 61,004 32,139
Research and development............................... 17,511 6,966 1,862
Selling, general and administrative.................... 36,599 17,632 7,393
Provision for doubtful accounts........................ 10,266 13,741 172
Amortization of goodwill............................... 8,585 4,905 1,640
Restructuring and other charges........................ -- 19,890 --
In-process research and development.................... -- 100,300 --
-------- --------- -------
Operating income (loss)...................... 27,787 (102,430) 21,072
Gain on exchange of securities......................... 9,590 -- --
Net interest income (expense).......................... (786) 996 310
-------- --------- -------
Income (loss) before income taxes and
minority interests......................... 36,591 (101,434) 21,382
Income taxes (benefit)................................. (17,522) 1,134 7,788
Minority interests in earnings of subsidiary........... -- 2,497 --
-------- --------- -------
Income (loss) before write-down of
discontinued operations to net realizable
value...................................... 19,069 (105,065) 13,594
Write-down of discontinued operations to net realizable
value................................................ (44,994) (9,700) --
-------- --------- -------
Net income (loss)............................ $(25,925) $(114,765) $13,594
======== ========= =======
</TABLE>
1999 Compared to 1998. Sales increased $65.8 million, or 32.9%, to $265.7
million in 1999 from $199.9 million in 1998. This increase was primarily due to
including an entire year of Telco Systems' operations, which was acquired in
November 1998. Gross profit before a write-down of inventories increased $25.0
million, or 32.0%, to $103.1 million in 1999 from $78.1 million in 1998. Gross
profit margin before write-down of inventories decreased to 38.8% in 1999 from
39.1% in 1998.
41
<PAGE> 44
1998 Compared to 1997. Sales increased $106.9 million, or 115.0% to $199.9
million in 1998 from $93.0 million in 1997. The increase was due primarily to
the acquisition of NACT which was completed in 1998. Gross profit before
write-down of inventories increased to $78.1 million in 1998 from $32.9 million
in 1997. Gross profit margin increased to 39.1% in 1998 before a write-down of
inventories from 35.4% in 1997.
1998 Plan. In December 1998, the Company formalized its plan to offer for
sale two businesses, (i) the resale and repair of Nortel and other original
equipment manufacturers' wireline switching equipment, and (ii) pay telephone
refurbishment. In connection, therewith, the Company recorded a $9.7 million
charge in the fourth quarter of 1998 for the estimated loss to dispose of these
discontinued operations. This loss, which was recorded as partial impairment of
existing goodwill, was determined by comparing the book value of the net assets
of the discontinued operations to their net realizable value. The net realizable
value was estimated based on preliminary valuation work performed by an
investment banking firm engaged by the Company to assist in the sale of these
businesses and a preliminary non-committal offer from a prospective buyer.
During the first six months of 1999, the Company and its investment bankers
formally solicited offers for the two businesses. The preliminary offer referred
to above was eventually withdrawn by the potential suitor and the formal selling
process generated only one serious offer for the business. The Company
eventually refused this offer due to its low price and substantial credit risk.
During this selling process, the Company's Nortel resale business
significantly deteriorated and its pay telephone refurbishment business began
showing signs of weakness. In mid-1999, faced with an unsuccessful selling
process and future operating losses, management elected to begin liquidating the
Nortel resale and repair business. A formal liquidation plan designed to
eliminate future quarterly losses, maximize net cash proceeds and realize
significant deferred tax credits, was adopted by management and communicated to
all affected employees.
As a result of this revised plan, the Company recorded an additional charge
of $12.3 million in the second quarter of 1999 to reflect the additional loss
expected to be realized on the liquidation of the Nortel resale and repair
business. Significant elements of this charge consisted of $5.6 million to
write-off all remaining goodwill, $4.3 million to write-down inventories to
estimated realizable value, $600,000 to write-down leasehold improvements, test
equipment and other assets to estimated realizable value, $300,000 for severance
benefits, and $300,000 for the estimated loss on the disposal of facility
leases. The charge also included approximately $200,000 for net operating losses
expected to be incurred by the Company during this liquidation process.
In the fourth quarter of 1999, the Company completed the liquidation of its
Nortel resale and repair business in accordance with the above plan and sold its
pay telephone refurbishment business for approximately $2.0 million in cash. The
actual loss on disposition of these businesses approximated the estimated loss
recorded in the second quarter of 1999.
1999 Plan. In December 1999, the Company adopted a plan to divest,
spin-off or otherwise monetize its remaining equipment businesses, consisting of
the following:
- Telco Systems Division (acquired November 1998), a provider of next
generation transport and access solutions for service providers
throughout the world. Its products include intelligent integrated access
devices, multiplexers and digital microwave radios.
- NACT Switching Division (acquired February 1998), a provider of advanced
switching platforms with integrated proprietary applications software as
well as billing and telemanagement systems.
- Wireless Local Loop Division, a research and development group designing
a next generation, fixed wireless local loop system.
- Cellular Infrastructure Supply Division (acquired March 1997), a
value-added supplier of new and re-furbished cellular base stations and
related equipment.
- Galaxy Engineering Division (acquired August 1997), a provider of system
design, optimization and other value-added radio engineering and
consulting services.
42
<PAGE> 45
The Company sold Galaxy in December 1999 for approximately $15.0 million in
cash. The remaining businesses are being offered for sale by two investment
banking firms engaged by the Company. The Company has signed a definitive
agreement to sell Telco Systems (see "Overview") and expects to sell all of
these businesses during 2000.
Restructuring and Other Charges. During 1998, the Company approved and
began implementing two restructuring programs designed to reduce operating
costs, outsource manufacturing requirements and focus Company resources on
recently acquired business units containing proprietary technology or services.
A summary of restructuring and related charges recorded in connection with these
programs follows (in thousands):
<TABLE>
<S> <C>
Severance and termination benefits.......................... $ 2,600
Idle facility costs......................................... 2,540
Asset write-downs........................................... 13,113
Other exit costs............................................ 1,637
-------
Total restructuring charges 19,890
Write-down of inventories................................... 17,110
Provision for doubtful accounts............................. 12,600
-------
Total charges........................................ $49,600
=======
</TABLE>
In January 1998, the Company approved and began implementing a
restructuring program to consolidate several operations and exit the contract
manufacturing business. The Company's wireline telecom equipment resale business
("AIT") in Lakeland, Florida and its circuit board repair operations were
consolidated into a new facility in Orlando, Florida; the Company's
manufacturing operations were moved from an old facility in Orlando to a new
facility in Alpharetta, Georgia; and the Company's Scottsdale, Arizona
operations were integrated into the Company's radio facility in Wilmington,
Massachusetts. This restructuring program was completed in June 1998. No costs
were included in the restructuring charges that were expected to derive future
economic benefit to the Company. See Note C to the "Financial
Statements" -- "Restructuring and Other Charges."
Gain on Exchange of Securities. In connection with the acquisition of
Telco Systems, the Company acquired an investment in the common stock of Omnia
Communications, Inc. ("Omnia") and warrants to purchase additional common stock
of Omnia. The fair value of the investment in Omnia at the time of the
acquisition of Telco Systems was approximately $3.0 million and was accounted
for by the Company under the cost method.
In March 1999, Omnia announced that it had entered into an agreement to be
acquired by Ciena Corp. ("Ciena"). In June 1999, the Company exercised the
outstanding warrants to purchase additional common stock in Omnia. In July 1999,
Ciena's acquisition of Omnia was completed and the Company received
approximately 445,000 shares of Ciena common stock in exchange for its holdings
of Omnia common stock, of which approximately 45,000 shares or 10% are being
held in escrow for a period of one year related to certain representations and
warranties made by Omnia. In accordance with EITF No. 91-5, "Nonmonetary
Exchange of Cost-Method Investments, the Company recognized a one-time gain, net
of taxes, during 1999 of approximately $7.9 million on the exchange of the Omnia
common stock.
Purchased In-Process Research and Development. In connection with the
Advanced TechCom, NACT and Telco Systems acquisitions in 1998, the Company wrote
off purchased in-process R&D totaling $5.4 million, $44.6 million and $50.3
million, respectively. These amounts were expensed as non-recurring charges on
the respective acquisition dates. These write-offs were necessary because the
acquired technology had not yet reached technological feasibility and had no
future alternate use.
The value of the purchased in-process technology from NACT and Telco
Systems was determined by estimating the projected net cash flows related to
in-process research and development projects, excluding costs to complete the
development of the technology. These cash flows were discounted back to their
net present value. The projected net cash flows from such projects were based on
management's estimates of
43
<PAGE> 46
revenues and operating profits related to such projects. These estimates were
based on several assumptions for each of the respective acquisitions. The
resultant net present value amount was then reduced by a stage of completion
factor. This factor more specifically captures the development risk of an
in-process technology (i.e., market risk is still incorporated in the estimated
rate of return).
The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification, and test
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features, and technical
performance requirements.
If these projects to develop commercially viable products based on the
purchased in-process technology are not successfully completed, the sales and
profitability of NACT and Telco Systems may be adversely affected in future
periods. Additionally, the value of other intangible assets may become impaired.
For a detailed discussion of specific projects in progress at the dates of
the NACT and Telco Systems acquisitions, their current status, rate of return
assumptions and other relevant data regarding the purchased in-process research
and development charges in 1998, see Note C to the "Financial Statements".
LIQUIDITY AND CAPITAL RESOURCES
Overview. Cash management is a key element of the Company's operating
philosophy and strategic plans. Acquisitions to date have been structured to
minimize the cash element of the purchase price and ensure that appropriate
levels of cash are available to support the increased network capacity,
marketing programs and working capital requirements normally associated with
acquired businesses. As of December 31, 1999, the Company had $147.4 million of
cash and equivalents and $73.8 million in borrowings available under its credit
line to support its current working capital requirements and strategic growth
initiatives.
Operating Activities. Cash from (used by) operating activities was $18.5
million in 1999 and $(13.0) million in 1998.
Accounts receivable increased $159.0 million to $164.8 million at December
31, 1999 from $5.8 million at December 31, 1998. Average days sales outstanding
at December 31, 1999 were approximately 59 days as compared to 17 days at
December 31, 1998. In 1999 Resurgens was included for the entire year and the
acquisitions of Comm/Net and FaciliCom have been included from May 1, 1999 and
December 7, 1999, respectively. The primary reason for the increase in average
days sales outstanding relates to a reduced dependence on WorldCom revenue
during the course of 1999. In the fourth quarter of 1998, WorldCom revenue
represented approximately 65% of Resurgens' revenue, while in the fourth quarter
of 1999 WorldCom revenue represented approximately 30% of total Company revenue.
WorldCom has traditionally prepaid for services provided by the Company under a
Carrier Service Agreement entered into in mid-1998.
Investing Activities. Cash used by investing activities, primarily for the
acquisitions of businesses, was $32.2 million and $66.5 million for 1999 and
1998, respectively.
In May 1999, the Company acquired substantially all the assets and assumed
certain liabilities of Comm/Net Holding Corporation and its wholly owned
subsidiaries, Enhanced Communications Corporation, Comm/Net Services Corporation
and Long Distance Exchange Corporation (Comm/Net Holdings and its wholly owned
subsidiaries are collectively referred to herein as "Comm/Net"). Comm/Net,
headquartered in Plano, Texas, is a facilities-based provider of wholesale
international long distance and wholesale prepaid calling card services,
primarily to the Mexican telecommunications markets. In connection with the
acquisition, the Company paid off $3.5 million of Comm/Net debt.
In August 1999 the Company entered into a definitive merger agreement with
FaciliCom International, Inc. ("FaciliCom"), a privately owned company that is a
facilities-based provider of European and U.S. originated international
long-distance voice, data and Internet services. On December 7, 1999, the
transaction was completed in its final form whereby FaciliCom merged into the
Company (the "FaciliCom Merger").
44
<PAGE> 47
In connection with the FaciliCom Merger, the stockholders of FaciliCom
received approximately $56.0 million in cash, 369,901 shares of Convertible
Preferred Stock, Series C (the "Series C Preferred Stock") valued at $265.5
million, and 495,557 vested options that each may be exercised to acquire one
share of the Company's common stock at an average exercise price of $2.63 per
share. In addition, the Company issued non-qualified options to purchase
1,912,500 shares of Company common stock at an exercise price of $15.00 per
share in exchange for substantially all the non-vested options held by
FaciliCom's employees. The aggregate value assigned to these options was $24.8
million.
In the fourth quarter of 1997, the Company began its three phase
acquisition of NACT. During November and December 1997, the Company purchased
355,000 shares of NACT common stock in the open market for approximately $5.0
million.
On December 31, 1997, the Company entered into a stock purchase agreement
with GST Telecommunications, Inc. ("GST") and GST USA, Inc. ("GST USA") to
acquire 5,113,712 shares of NACT common stock owned by GST USA, representing
approximately 63% of the outstanding shares of NACT common stock (the "NACT
Acquisition"). On February 27, 1998 the NACT Acquisition was completed with GST
USA receiving $59.7 million in cash and 1,429,907 restricted shares of the
Company's common stock valued at approximately $26.9 million.
During 1999 and 1998, the Company invested $7.2 million and $12.2 million,
respectively, in capital expenditures. These expenditures in 1999 were primarily
for telecommunications network equipment for the Telecommunications Group,
enhancing and standardizing the Company's research and development platforms,
new test equipment relating to newly introduced products, computer network and
related communications equipment designed to facilitate the integration of the
1999 and 1998 acquisitions and facility improvements required in connection with
the Company's growth. The Company invested approximately $5.0 million during
1998 related to the establishment of the new manufacturing facility in
Alpharetta, Georgia. The remaining 1998 expenditures were primarily for computer
network and related communications equipment designed to upgrade the Company's
management information systems and facilitate the integration of the
acquisitions, and facility improvements required in connection with the
Company's growth.
The Company began capitalizing software development costs in the fourth
quarter of 1997 in connection with its increased focus on developing proprietary
technology and products. Software development costs are capitalized upon the
establishment of technological feasibility of the product. During 1999 and 1998,
the Company capitalized approximately $6.0 million and $5.2 million,
respectively, of software development costs.
During 1999, the Company loaned $2.0 million to Long Distance
International, Inc. ("LDI"). In February 2000, the Company acquired LDI and
forgave the loan accounting for the loan forgiveness as additional investment in
LDI. In November 1998, a $5.0 million loan was made to Telegroup, Inc., a
publicly held provider of international long distance services. In early 1999,
this loan was repaid in full.
Financing Activities. Cash provided from financing activities was $105.9
million and $16.7 million for 1999 and 1998, respectively.
In December 1998, the Company entered into a $75.0 million revolving line
of credit facility (the "Facility"), with a banking syndicate group led by Bank
of America, Fleet National Bank and Bank Austria Creditanstalt. The Facility
consists of a 364-day revolving line of credit which may be extended under
certain conditions and provides the Company the option to convert existing
borrowings to a three year term loan. In December 1999, the Company amended the
Facility to increase the line of credit to $100.0 million and extend the credit
for another 364-day term. Borrowings under the line are secured by a first lien
on substantially all the assets of the Company.
The Facility, which expires in December 2001, contains standard lending
covenants including financial ratios, restrictions on dividends and limitations
on additional debt and the disposition of Company assets. Interest is paid at
the rate of prime plus 1 1/4% or LIBOR plus 2 1/4%, at the option of the
Company. As of December 31, 1999, borrowings of $25.0 million and letters of
credit of $1.2 million were outstanding under the Facility. The Facility
restricts distributions from the Company's consolidated subsidiaries.
Accordingly, the assets and cash flows of such subsidiaries, including WA Telcom
Products Co., Inc., ("WA Telcom"), the
45
<PAGE> 48
primary obligor on the Company's Convertible Notes, may not be used to pay any
dividends to World Access, Inc.
In September 1998, the Company entered into a loan agreement with the
Public Development Authority of Forsyth County, Georgia (the "Issuer"), in the
principal amount of $7,365,000. The Issuer issued its tax exempt industrial
revenue bonds (the "Bonds"), for the sole purpose of financing a portion of the
cost of the acquisition, construction and installation of the Company's
Alpharetta, Georgia telecommunications equipment and printed circuit boards
manufacturing plant. In March 1999, the Company sold the Alpharetta, Georgia
based manufacturing operation. Pursuant to terms and conditions of the Bonds,
the Company is required to pay off the Bonds upon the sale of these assets and
accordingly, the Bonds were repaid in April 1999.
In October 1997, WA Telcom sold $115.0 million in aggregate principal
amount of convertible subordinated notes (the "Notes") under Rule 144A of the
Securities Act of 1933. The Notes bear interest at the rate of 4.5% per annum,
are convertible into Company common stock at an initial price of $37.03 per
share and mature on October 1, 2002. Interest on the Notes is payable on April 1
and October 1 of each year. The Notes are general unsecured obligations of the
Company and are subordinate in right of payment to all existing and senior
indebtedness. The Company received $111.5 million from the sale of the Notes,
after the initial purchasers' discount fees of $3.5 million.
In April 1999, the Company issued 50,000 shares of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A (the "Series A Preferred Stock")
to The 1818 Fund III, L.P. ("The 1818 Fund III") for an aggregate amount of
$50.0 million. The Company allocated approximately $44.8 million of the gross
proceeds to the 50,000 shares of Series A Preferred Stock sold and $5.2 million
to the option granted to purchase additional shares of Series A Preferred Stock.
As part of the above sale, The 1818 Fund III also received an option to purchase
an additional $20.0 million in Series A Preferred Stock from the Company prior
to June 30, 2000 at the original purchase price per share.
In December 1999, the Company sold 4,713,128 shares of restricted common
stock for $75.0 million, or $15.913 per share, in a private transaction with a
small group of institutional and sophisticated investors. The Company used the
majority of the proceeds from this private placement to fund the cash
requirements of the FaciliCom Merger. The share price was based on the average
closing price of the Company's common stock during the five trading days prior
to the transaction date. Funds managed by three directors of the Company
purchased $63.0 million of this private placement.
In February 2000, the Company sold 3,822,552 shares of restricted common
stock for approximately $83.1 million, or $21.75 per share, in a private
transaction with a group of institutional and sophisticated investors.
During 1999 and 1998, the Company received approximately $2.5 million and
$23.2 million in cash, respectively, including related federal income tax
benefits of approximately $650,000 and $12.8 million, respectively, from the
exercises of incentive and non-qualified stock options and warrants by the
Company's directors and employees.
Income Taxes. As a result of the exercises of non-qualified stock options
and warrants by the Company's directors and employees, the Company realized
federal income tax benefits during 1999 and 1998 of approximately $650,000 and
$12.8 million, respectively. Although these tax benefits do not have any effect
on the Company's provision for income tax expense in 1999 and 1998, they
represent a significant cash benefit to the Company. This tax benefit is
accounted for as a decrease in current income taxes payable and an increase in
capital in excess of par value. Due to the Company's net operating losses during
1998, approximately $10.5 million of these tax benefits have not yet been
utilized and are available to reduce future taxable income of the Company. These
benefits are included in Deferred income taxes on the Company's balance sheet at
December 31, 1999 and 1998.
Summary. The Company believes that existing cash balances, available
borrowings under the Company's line of credit and cash projected to be generated
from the sale of Telco Systems and other equipment
46
<PAGE> 49
businesses will provide the Company with sufficient capital resources to support
its current working capital requirements and business plans for at least the
next 12 months.
QUARTERLY OPERATING RESULTS
The Company's quarterly operating results are difficult to forecast with
any degree of accuracy because a number of factors subject these results to
significant fluctuations. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
Carrier service revenue, costs and related expenses have fluctuated
significantly in the past and are likely to continue to fluctuate significantly
in the future as a result of numerous factors. The Company's revenue in any
given period can vary due to factors such as call volume fluctuations,
particularly in regions with relatively high per-minute rates; the addition or
loss of major customers, whether through competition, merger, consolidation or
otherwise; the loss of economically beneficial routing options for the
termination of the Company's traffic; financial difficulties of major customers;
pricing pressure resulting from increased competition; and technical
difficulties with or failures of portions of the Company's network that impact
the Company's ability to provide service to or bill its customers. The Company's
operating expenses in any given period can vary due to factors such as
fluctuations in rates charged by carriers to terminate traffic; increases in bad
debt expense and reserves; the timing of capital expenditures, and other costs
associated with acquiring or obtaining other rights to switching and other
transmission facilities; and costs associated with changes in staffing levels of
sales, marketing, technical support and administrative personnel. In addition,
the Company's operating results can vary due to factors such as changes in
routing due to variations in the quality of vendor transmission capability; loss
of favorable routing options; the amount of, and the accounting policy for,
return traffic under operating agreements; actions by domestic or foreign
regulatory entities; the level, timing and pace of the Company's expansion in
international and commercial markets; and general domestic and international
economic and political conditions. Further, a substantial portion of
transmission capacity used by the Company is obtained on a variable, per minute
and short-term basis, subjecting the Company to the possibility of unanticipated
price increases and service cancellations. Since the Company does not generally
have long-term arrangements for the purchase or resale of long distance
services, and since rates fluctuate significantly over short periods of time,
the Company's operating results may vary significantly.
The following table presents unaudited quarterly operating results for
continuing operations for each of the Company's last eight quarters. This
information has been prepared on a basis consistent with the Company's audited
consolidated financial statements and includes all adjustments, consisting only
of normal recurring accruals, that the Company considers necessary for a fair
presentation in accordance with generally accepted accounting principles. Such
quarterly results are not necessarily indicative of future operating results.
This information should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere in this Report.
47
<PAGE> 50
The following, as it relates to continuing operations, includes the results
of operations for the following businesses acquired from their respective dates
of acquisition: Resurgens -- December 1998; Comm/Net -- May 1999; and
FaciliCom -- December 1999.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1998 1999 1999 1999 1999
--------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carrier service revenue..... $ -- $ -- $ -- $ 10,787 $85,098 $112,916 $130,210 $172,857
Operating expenses:
Cost of carrier
services................ -- -- -- 10,137 80,154 102,650 115,973 149,528
Selling, general and
administrative.......... 534 974 1,262 1,847 3,769 4,905 5,667 14,092
Depreciation and
amortization............ 27 27 23 339 2,237 2,360 2,448 6,496
Restructuring charge...... -- -- -- -- -- -- -- 37,800
-------- ------- ------- -------- ------- -------- -------- --------
Total Operating
Expenses......... 561 1,001 1,285 12,323 86,160 109,915 124,088 207,916
-------- ------- ------- -------- ------- -------- -------- --------
Operating Income
(Loss)........... (561) (1,001) (1,285) (1,536) (1,062) 3,001 6,122 (35,059)
Interest and other income... 1,240 433 381 450 183 689 913 1,523
Interest expense............ (1,497) (1,514) (1,619) (2,229) (2,339) (1,976) (2,418) (6,181)
Foreign exchange loss....... -- -- -- -- -- -- -- (620)
-------- ------- ------- -------- ------- -------- -------- --------
Income (Loss) From
Continuing
Operations Before
Income Taxes..... (818) (2,082) (2,523) (3,315) (3,218) 1,714 4,617 (40,337)
Income taxes (benefit)...... (315) (802) (971) (1,213) (762) 986 1,990 (12,340)
-------- ------- ------- -------- ------- -------- -------- --------
Income (Loss) From
Continuing
Operations....... (503) (1,280) (1,552) (2,102) (2,456) 728 2,627 (27,997)
Net income (loss) from
discontinued operations... (33,698) 7,751 8,582 (87,700) 4,609 3,539 11,578 (657)
Write-down of discontinued
operations to net
realizable value.......... -- -- -- (9,700) -- (12,342) -- (32,652)
-------- ------- ------- -------- ------- -------- -------- --------
Net Income
(Loss)........... (34,201) 6,471 7,030 (99,502) 2,153 (8,075) 14,205 (61,306)
Preferred stock dividends... -- -- -- -- -- (413) (784) (771)
-------- ------- ------- -------- ------- -------- -------- --------
Net Income (Loss)
Available to
Common
Stockholders..... $(34,201) $ 6,471 $ 7,030 $(99,502) $ 2,153 $ (8,488) $ 13,421 $(62,077)
======== ======= ======= ======== ======= ======== ======== ========
Income (Loss) Per Common
Share:
Basic:
Continuing Operations... $ (0.03) $ (0.06) $ (0.07) $ (0.08) $ (0.07) $ 0.01 $ 0.05 $ (0.71)
Discontinued
Operations............ (1.74) 0.37 0.40 (3.59) 0.13 (0.24) 0.32 (0.82)
-------- ------- ------- -------- ------- -------- -------- --------
Net Income (Loss)....... $ (1.77) $ 0.31 $ 0.33 $ (3.67) $ 0.06 $ (0.23) $ 0.37 $ (1.53)
======== ======= ======= ======== ======= ======== ======== ========
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, SFAS No. 133 was amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of SFAS 133. As a result of this amendment, SFAS No. 133 shall be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. In
accordance with SFAS No. 133, an entity is required to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to
48
<PAGE> 51
offset related results on the hedged item in the income statement and requires
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The Company does not expect the
adoption of this standard to have a material effect on its consolidated
financial position or results of operations.
On December 3, 1999, the Securities and Exchange Commission staff issued
SAB No. 101, Revenue Recognition in Financial Statements. The SAB spells out
four basic criteria that must be met before companies can record revenue. These
are: (a) persuasive evidence that an arrangement exists; (b) delivery has
occurred or services have been rendered; (c) the seller's price to the buyer is
fixed or determinable; and (d) collectibility is reasonably assured.
Many of the examples in the SAB address situations that give rise to the
potential for recording revenue prematurely. They include transactions subject
to uncertainties regarding customer acceptance, including rights to refunds and
extended payment terms, and require continuing involvement by the seller.
In March 2000, the SEC issued SAB 101A -- Amendment: Revenue Recognition in
Financial Statements, that delays the implementation date of certain provisions
of SAB 101. Under the amendment, the Company is not required to restate its
prior financial statements provided that the Company reports a change in
accounting principle no later than the second fiscal quarter (ending June 30,
2000) in accordance with FASB Statement No. 3, Reporting Accounting Changes in
Interim Financial Statements. In accordance with FAS 3, for companies that adopt
SAB 101 in the second quarter, financial information for the first quarter would
be restated by including a cumulative effect adjustment in that quarter (i.e.,
the first quarter). The Company believes the adoption of SAB 101 would result in
a substantial increase in the deferral of revenue for certain of our
discontinued operations. The Company does not believe the adoption of SAB 101
would have a material impact on our continuing operations.
YEAR 2000 ISSUE
In late 1999, the Company completed remediation and testing of its computer
systems. As a result of those planning and implementation efforts, the Company
experienced no significant disruptions in its information technology and
non-information technology systems to date and believe those systems
successfully responded to the Year 2000 date change. The Company is not aware of
any material problems resulting from Year 2000 issues and will continue to
monitor its mission critical computer systems and the appropriate systems of its
suppliers and vendors throughout 2000 to ensure that any latent Year 2000
matters which may arise are addressed promptly. To date, the Company is not
aware of any Year 2000 disruptions in the computer systems of its significant
vendors or service providers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Although our reporting currency is the U.S. dollar, an increasing
percentage of our revenues will be generated from international operations.
Accordingly, changes in currency exchange rates may have a significant effect on
our future results of operations. For example, the accounting rate under
operating agreements is often defined in monetary units other than U.S. dollars,
such as "special drawing rights" or "SDRs." To the extent that the U.S. dollar
declines relative to units such as SDRs, the dollar equivalent accounting rate
would increase. In addition, as we expand into foreign markets, our exposure to
foreign currency rate fluctuations is expected to increase. Although we do not
currently engage in exchange rate hedging strategies, we may choose to limit our
exposure by purchasing forward foreign exchange contracts or other similar
hedging strategies. Specific hedging contracts, if any, will be subject to
approval by specified officers acting within our board of directors' overall
policies and limits. We intend to limit our hedging activities to the extent of
our foreign currency exposure. There can be no assurance that any currency
hedging strategy will be successful in avoiding currency exchange-related
losses.
We invest cash balances in excess of operating requirements in short-term
securities, generally with maturities of 90 days or less, in accordance with our
internal investment policies. These investments are limited primarily to U.S.
Treasury securities, certain time deposits, and high quality repurchase
agreements and commercial paper (with restrictions on the rating of the
companies issuing these instruments). We do not
49
<PAGE> 52
invest in any derivative or commodity type instruments. In addition, the
restricted cash balance available to fund the next three scheduled interest
payments on our 13.25% Senior Notes is invested in U.S. Treasury securities.
Accordingly, we are subject to minimal market risk on any of our investments.
The majority of our debt, which consists of $300.0 million of 13.25% Senior
Notes and $115.0 million of 4.5% Convertible Notes, bears interest at a fixed
rate. Although the actual service requirements of this debt are fixed, changes
in interest rates generally could put us in a position of paying interest that
differs from then existing rates. Our revolving line of credit agreements with a
banking syndicate group and Nortel Networks, Inc. provide for borrowings which
bear interest at variable rates based on either the prime rate or the London
Interbank Offered Rates. We had approximately $46.7 million outstanding pursuant
to our revolving line of credit agreements at December 31, 1999. We believe that
the effect, if any, of reasonably possible near-term changes in interest rates
on our financial position, results of operations and cash flows should not be
material.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Reports of Independent Auditors............................. 51
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 52
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998 and 1997.......................... 53
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss for the years ended December 31, 1999,
1998 and 1997............................................. 54
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.......................... 55
Notes to Consolidated Financial Statements.................. 56
</TABLE>
50
<PAGE> 53
REPORTS OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of World Access, Inc.,
We have audited the accompanying consolidated balance sheets of World
Access, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of World Access,
Inc. and subsidiaries at December 31, 1999 and 1998 and the consolidated results
of their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Ernst & Young LLP
Atlanta, Georgia
March 20, 2000
To the Board of Directors and Stockholders of World Access, Inc.,
In our opinion, the accompanying consolidated statements of operations and
changes in stockholders' equity and of cash flows present fairly, in all
material respects, the results of World Access, Inc. and its subsidiaries'
operations and their cash flows for the years ended December 31, 1997 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Atlanta, Georgia
March 5, 1998, except for the discontinued operations reclassifications in the
Consolidated Statements of Operations and Note C, which are as of March 14, 2000
51
<PAGE> 54
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents...................................... $ 147,432 $ 55,176
Restricted cash........................................... 32,243 --
Accounts receivable....................................... 164,768 5,783
Other current assets...................................... 24,547 8,472
Net assets held for sale.................................. 244,388 327,928
---------- --------
Total Current Assets.............................. 613,378 397,359
Property and equipment...................................... 136,033 41,441
Goodwill.................................................... 830,234 78,462
Restricted cash............................................. 14,958 --
Other assets................................................ 35,201 27,387
---------- --------
Total Assets...................................... $1,629,804 $544,649
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt........................................... $ 83,837 $ 13,500
Accounts payable.......................................... 182,107 15,857
Other accrued liabilities................................. 57,590 17,186
---------- --------
Total Current Liabilities......................... 323,534 46,543
Long-term debt.............................................. 408,338 137,523
Other liabilities........................................... 633 --
---------- --------
Total Liabilities................................. 732,505 184,066
---------- --------
Stockholders' Equity
Preferred stock, Series A, B, C, $.01 par value,
10,000,000 shares authorized; 423,434 shares issued and
outstanding at December 31, 1999; $1,000 per share
liquidation preference................................. 4 --
Common stock, $.01 par value, 150,000,000 shares
authorized; 52,333,832 and 44,136,349 issued and
outstanding at December 31, 1999 and 1998,
respectively........................................... 523 441
Capital in excess of par value............................ 1,062,939 472,945
Accumulated other comprehensive loss...................... (341) --
Accumulated deficit....................................... (165,826) (112,803)
---------- --------
Total Stockholders' Equity........................ 897,299 360,583
---------- --------
Total Liabilities and Stockholders' Equity........ $1,629,804 $544,649
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE> 55
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
---------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Carrier service revenue.................................... $501,081 $ 10,787 $ --
Operating expenses:
Cost of carrier services................................... 448,305 10,137 --
Selling, general and administrative........................ 23,628 4,617 1,435
Depreciation and amortization.............................. 13,541 416 115
Provision for doubtful accounts............................ 4,805 -- --
Restructuring charge....................................... 37,800 -- --
-------- --------- -------
Total Operating Expenses......................... 528,079 15,170 1,550
-------- --------- -------
Operating Loss................................... (26,998) (4,383) (1,550)
Interest and other income.................................. 3,308 2,504 2,386
Interest expense........................................... 12,914 6,859 1,548
Foreign exchange loss...................................... 620 -- --
-------- --------- -------
Loss From Continuing Operations Before Income
Taxes.......................................... (37,224) (8,738) (712)
Income taxes benefit....................................... 10,126 3,301 252
-------- --------- -------
Loss From Continuing Operations.................. (27,098) (5,437) (460)
Net income (loss) from discontinued operations............. 19,069 (105,065) 13,594
Write-down of discontinued operations to net realizable
value.................................................... (44,994) (9,700) --
-------- --------- -------
Net Loss......................................... (53,023) (120,202) 13,134
Preferred stock dividends.................................. 1,968 -- --
-------- --------- -------
Net Loss Available to Common Stockholders........ $(54,991) $(120,202) $13,134
======== ========= =======
Loss Per Common Share:
Basic:
Continuing Operations................................. $ (0.78) $ (0.25) $ (0.03)
Discontinued Operations............................... (0.69) (5.20) 0.79
-------- --------- -------
Net Loss.............................................. $ (1.47) $ (5.45) $ 0.76
======== ========= =======
Diluted:
Continuing Operations................................. $ (0.78) $ (0.25) $ (0.03)
Discontinued Operations............................... (0.69) (5.20) 0.79
-------- --------- -------
Net Loss.............................................. $ (1.47) $ (5.45) $ 0.76
======== ========= =======
Weighted Average Shares Outstanding:
Basic.................................................... 37,423 22,073 17,242
======== ========= =======
Diluted.................................................. 37,423 22,073 17,242
======== ========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE> 56
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN NOTE OTHER
PREFERRED COMMON EXCESS OF RECEIVABLE ACCUMULATED COMPREHENSIVE
STOCK STOCK PAR VALUE FROM AFFILIATE DEFICIT LOSS TOTAL
--------- ------ ---------- -------------- ----------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... $163 $ 58,518 $ (572) $ (5,735) $ -- $ 52,374
Net and comprehensive net
income....................... 13,134 13,134
Issuance of shares for
acquisitions of businesses... 18 12,539 12,557
Release of escrowed shares for
acquisitions................. 1,728 1,728
Repayment of loan by
affiliate.................... 572 572
Issuance of shares for options
and warrants................. 12 4,594 4,606
Tax benefit from option and
warrant exercises............ 6,675 6,675
Other issuances of shares...... 109 109
---- ---- ---------- ---------- --------- --------- ---------
Balance at December 31,
1997....................... -- 193 84,163 -- 7,399 91,755
Net and comprehensive net
loss......................... (120,202) (120,202)
Issuance of shares and options
for acquisitions of
businesses................... 232 358,843 359,075
Release of escrowed shares for
acquisitions................. 6,592 6,592
Issuance of shares for options
and warrants................. 16 10,394 10,410
Tax benefit from option and
warrant exercises............ 12,759 12,759
Other issuances of shares...... 194 194
---- ---- ---------- ---------- --------- --------- ---------
Balance at December 31,
1998....................... -- 441 472,945 -- (112,803) 360,583
Net loss....................... (53,023) (53,023)
Foreign currency translation
adjustment................... (341) (341)
---------
Total comprehensive loss....... (53,364)
Issuance of preferred shares
and option in private
offering..................... 1 47,749 47,750
Issuance of common shares in
private offering............. 51 81,125 81,176
Issuance of shares, options and
warrants for acquisitions of
businesses................... 3 20 325,117 325,140
Dividends on preferred stock... (1,968) (1,968)
Release of escrowed shares for
acquisitions of businesses... 1 130,249 130,250
Issuance of shares for licenses
and other agreements......... 5 3,193 3,198
Issuance of shares for option
and warrant exercises........ 4 1,823 1,827
Tax benefit from option and
warrant exercises............ 650 650
Other issuances of shares...... 1 2,056 2,057
---- ---- ---------- ---------- --------- --------- ---------
Balance at December 31,
1999....................... $ 4 $523 $1,062,939 $ -- $(165,826) $ (341) $ 897,299
==== ==== ========== ========== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE> 57
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1999 1998 1997
-------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $(53,023) $(120,202) $ 13,134
Adjustments to reconcile net income (loss) to net cash from
(used by) operating activities:
Depreciation and amortization............................. 34,761 9,200 3,096
Deferred income tax provision (benefit)................... (8,626) (7,566) 1,561
Income tax benefit from stock option and warrant
exercises.............................................. 650 12,759 6,675
Provision for inventory reserves.......................... 491 17,193 773
Provision for bad debts................................... 4,805 13,741 172
In-process research and development....................... -- 100,300 --
Restructuring and other charges........................... 36,401 18,063 --
Write-down of discontinued operations to net realizable
value.................................................. 44,994 9,700 --
Net gain on sale of assets held for sale.................. (8,384) -- --
Minority interests in earnings of subsidiary.............. -- 2,497 --
Changes in operating assets and liabilities, net of
effects from businesses acquired:
Accounts receivable.................................... (39,090) (31,883) (8,797)
Inventories............................................ 578 (24,761) (12,147)
Accounts payable....................................... 7,397 6,743 4,313
Other assets and liabilities........................... (2,439) (18,822) (10,382)
-------- --------- --------
Net Cash From (Used By) Operating Activities...... 18,515 (13,038) (1,602)
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of businesses, net of cash acquired............ (50,894) (40,280) (14,840)
Proceeds on sales of assets held for sale................... 29,158 -- --
Expenditures for property and equipment..................... (7,198) (12,216) (3,591)
Software development costs.................................. (5,967) (5,226) (360)
Repayments of (loans to) business partners.................. 3,000 (7,917) --
Other....................................................... (285) (888) 551
-------- --------- --------
Net Cash Used By Investing Activities............. (32,186) (66,527) (18,240)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sales of common and preferred stock....... 121,984 -- --
Payment of preferred stock dividends........................ (1,184) -- --
Principal payments under capital lease obligations.......... (5,581) -- --
Issuance of long-term debt.................................. 1,654 4,116 111,909
Proceeds from exercise of stock warrants and options........ 1,827 10,410 4,606
Short-term debt borrowings (repayments)..................... (4,500) 4,268 (588)
Long-term debt repayments................................... (7,677) (1,261) --
Debt issuance costs......................................... (596) (857) (500)
-------- --------- --------
Net Cash From Financing Activities................ 105,927 16,676 115,427
-------- --------- --------
Increase (Decrease) in Cash and Equivalents....... 92,256 (62,889) 95,585
Cash and Equivalents at Beginning of Period....... 55,176 118,065 22,480
-------- --------- --------
Cash and Equivalents at End of Period............. $147,432 $ 55,176 $118,065
======== ========= ========
Supplemental Schedule of Noncash Financing and Investing
Activities:
Issuance of equity for businesses acquired.................. $455,390 $ 365,159 $ 14,285
Exchange of Senior Notes for FaciliCom Series B Senior
Notes..................................................... 300,000 -- --
Issuance of common stock for technology license and other
agreements................................................ 3,198 508 --
Conversion of accounts payable to common stock.............. 7,000 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
55
<PAGE> 58
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: GENERAL
NATURE OF BUSINESS
World Access, Inc. and its subsidiaries (the "Company") transport
international long distance voice and data traffic for PTT's, regional Bell
operating companies, competitive local exchange carriers, long distance
companies, private network providers and other global carriers. The Company
provides its services through a combination of its own international network
facilities, various international termination relationships and resale
arrangements with other international long distance service providers. Through
the acquisition of FaciliCom International in December 1999 (see "Note B") and
NETnet International in February 2000 (see "Note O"), the Company plans to
expand its service offerings to include the sale of bundled voice, data and
Internet services direct to small- and medium-sized businesses located
throughout Europe.
Prior to the acquisition of Resurgens Communication Group in December 1998,
the Company was exclusively a manufacturer and reseller of telecommunications
network equipment, including digital switches, billing and network
telemanagement systems, cellular base stations, fixed wireless local loop
systems, intelligent multiplexers and digital microwave radio systems. In
December 1999, in connection with the acquisition of FaciliCom International,
the Company adopted a plan to divest all of its equipment businesses. As a
result, the operating results of all equipment businesses are reported under
discontinued operations in the accompanying financial statements (see "Note C").
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of World Access,
Inc. and its majority owned and wholly owned subsidiaries from their effective
dates of acquisition (see "Note B"). All material intercompany accounts and
transactions are eliminated in consolidation.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented in the
balance sheets herein are based on pertinent information available to management
as of the respective balance sheet dates. Although management is not aware of
any factors that would significantly affect the estimated fair value amounts,
such amounts have not been comprehensively revalued for purposes of these
financial statements since that date and current estimates of fair value may
differ significantly from the amounts presented herein.
The fair values of cash equivalents, accounts receivable, accounts payable
and accrued expenses approximate the carrying values due to their short-term
nature. The fair values of the Senior Notes, lines of credit, and capital lease
obligations are estimated based on current market rates and instruments with the
same risk and maturities and approximate the carrying value. The market value of
the Convertible Subordinated Notes based on current market rates and instruments
with the same risks and maturities is approximately $106 million.
56
<PAGE> 59
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REVENUE RECOGNITION
The Company records revenues from the sale of telecommunications services
at the time of customer usage based upon minutes of traffic processed at
contractual fees. The Company has entered into, and continues to enter into,
operating agreements with telecommunications carriers in several foreign
countries under which international long distance traffic is both delivered and
received. Under these agreements, the foreign carriers are contractually
obligated to adhere to the policy of the FCC, whereby traffic from the foreign
country is routed to U.S.-based international carriers, such as the Company, in
the same proportion as traffic carried into the country. Mutually exchanged
traffic between the Company and foreign carriers is settled through a formal
settlement policy at an agreed upon rate which allows for the offsetting of
receivables and payables with the same carrier (settlement on a net basis).
Although the Company can reasonably estimate the revenue it will receive under
the FCC's proportional share policy, there is no guarantee that the Company will
receive return traffic, and the Company is unable to determine what impact
changes in future settlement rates will have on net payments made and revenue
received. Accordingly, the Company does not record this revenue until the
service is provided.
COMPREHENSIVE LOSS
As of January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The Company's
comprehensive loss for 1999 is comprised of a $341,000 foreign currency
translation adjustment. Comprehensive loss is shown on the Statement of
Stockholders' Equity.
COST OF CARRIER SERVICES
Cost of carrier services includes network costs which consist of access,
transport and termination costs. Such costs are recognized when incurred in
connection with the provision of telecommunication services, including costs
incurred under operating agreements.
FIBER OPTIC CABLE ARRANGEMENTS
The Company obtains capacity on certain fiber optic cables under three
types of arrangements. The Indefeasible Right of Use ("IRU") basis provides the
Company the right to use a fiber optic cable, with most of the rights and duties
of ownership, but without the right to control or manage the facility and
without any right to salvage or duty to dispose of the cable at the end of its
useful life. Because of this lack of control and the fact an IRU term typically
approximates the estimated economic life of the underlying asset, the Company
accounts for such leases as leased transmission and communications equipment and
as capital leases. The Minimum Assignable Ownership Units ("MAOU") basis
provides the Company an ownership interest in the fiber optic cable with certain
rights to control and to manage the facility. Because of the ownership features,
the Company records these fiber optic cables as owned transmission and
communications equipment and as long-term debt. The Carrier Lease Agreement
basis involves a shorter term agreement which provides the Company the right to
use capacity on a cable but without any rights and duties of ownership. The
Company accounts for such leases as operating leases.
FOREIGN CURRENCY TRANSLATION
For non-U.S. subsidiaries, the functional currency is the local currency.
Assets and liabilities of those operations are translated into U.S. dollars
using year-end exchange rates. Income and expenses are translated using the
average exchange rates for the reporting period. Translation adjustments are
reported as a separate component of comprehensive loss. Exchange losses and
gains resulting from foreign currency transactions are
57
<PAGE> 60
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
included in the results of operations based upon the provisions of SFAS No. 52,
"Foreign Currency Translation."
SIGNIFICANT CUSTOMERS
During 1999 and 1998, one customer individually accounted for 53.4% and
73.2%, respectively, of the Company's total revenue from continuing operations.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Total advertising expenses for
continuing operations for 1999 and 1998 were approximately $100,000 and $49,000,
respectively.
CASH AND EQUIVALENTS
The Company considers its investments with an original maturity of three
months or less to be cash equivalents. Cash equivalents are stated at cost plus
accrued interest and consist of highly liquid time deposits, commercial paper,
U.S. Treasury bills and U.S. Treasury notes.
RESTRICTED CASH
Restricted cash consists primarily of U.S. Government obligations pledged
as security for certain interest payments due on the Company's 13.25% Senior
Notes in 2000 and 2001 (see "Note G").
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
of $18.5 million and $300,000 at December 31, 1999 and 1998, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates impairment of long-lived assets pursuant to SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," which requires impairment losses to be recorded on
long-lived assets used in operations when events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Management
periodically evaluates property and equipment and intangible assets for
impairment whenever events or changes in circumstances indicate the assets may
be impaired. This evaluation consists of comparing estimated future cash flows
(undiscounted and without interest charges) over the remaining life of the asset
to its carrying value. When such evaluation results in a deficiency, the asset
is written down to its estimated fair value.
OTHER ACCRUED LIABILITIES
Other accrued liabilities includes interest payable of $19.0 million and
$1.4 million and customer deposits of $8.7 million and $6.5 million as of
December 31, 1999 and 1998, respectively.
LOSS PER COMMON SHARE
The Company computes loss per common share pursuant to SFAS No. 128,
"Earnings per Share". The computation of basic loss per share is based on the
weighted average number of common shares outstanding during the period,
excluding shares held in escrow of 794,000, 8,307,000 and 995,000 for 1999, 1998
and 1997, respectively. The computation of diluted loss per share is based on
the weighted average number of common shares outstanding plus, when their effect
is dilutive, potential common stock consisting of shares subject to stock
options, stock warrants, convertible notes and convertible preferred stock.
There was no potential
58
<PAGE> 61
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common stock included in the calculation of diluted loss per share for 1999,
1998 and 1997 as their effect would be antidilutive for all periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In June 1999, SFAS No. 133 was amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities -- Deferral of the
Effective Date of SFAS 133". As a result of this amendment, SFAS No. 133 shall
be effective for all fiscal quarters of all fiscal years beginning after June
15, 2000. In accordance with SFAS No. 133, an entity is required to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 requires that
changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement and requires that a company
formally document, designate and assess the effectiveness of transactions that
receive hedge accounting. The Company does not expect the adoption of this
standard to have a material effect on its consolidated financial position or
results of operations.
On December 3, 1999, the Securities and Exchange Commission staff issued
SAB No. 101, "Revenue Recognition in Financial Statements." The SAB spells out
four basic criteria that must be met before companies can record revenue. These
are (a) persuasive evidence that an arrangement exists; (b) delivery has
occurred or services have been rendered; (c) the seller's price to the buyer is
fixed or determinable; and (d) collectibility is reasonably assured.
Many of the examples in the SAB address situations that give rise to the
potential for recording revenue prematurely. They include transactions subject
to uncertainties regarding customer acceptance, including rights to refunds and
extended payment terms, and require continuing involvement by the seller.
In March 2000, the SEC issued SAB 101A -- "Amendment: Revenue Recognition
in Financial Statements", that delays the implementation date of certain
provision of SAB 101. Under the amendment, the Company is not required to
restate its prior financial statements provided that the Company reports a
change in accounting principle no later than the second fiscal quarter (ending
June 30, 2000) in accordance with FASB Statement No. 3, "Reporting Accounting
Changes in Interim Financial Statements". In accordance with FAS 3, for
companies that adopt SAB 101 in the second quarter, financial information for
the first quarter would be restated by including a cumulative effect adjustment
in that quarter (i.e., the first quarter). The Company believes the adoption of
SAB 101 would result in a substantial increase in the deferral of revenue for
certain of our discontinued operations. The Company does not believe the
adoption of SAB 101 would have a material impact on our continuing operations.
RECLASSIFICATIONS
Certain items in the prior year consolidated financial statements have been
reclassified to conform to the current presentation.
NOTE B: ACQUISITIONS
RESURGENS MERGER
On February 12, 1998, the Company executed a letter of intent to acquire
Cherry Communications Incorporated, d/b/a Resurgens Communications Group
("RCG"), and Cherry Communications U.K. Limited ("Cherry U.K.", and together
with RCG, "Resurgens"), providers of wholesale international long
59
<PAGE> 62
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
distance services. On May 12, 1998, the Company signed definitive agreements to
acquire Resurgens. On December 14, 1998, the transaction was completed in its
final form whereby RCG and Cherry U.K. became wholly-owned subsidiaries of the
Company (the "Resurgens Merger").
In connection with the Resurgens Merger, the creditors of RCG and the sole
stockholder of Cherry U.K. received 3,687,500 restricted shares of the Company's
common stock valued at approximately $92.9 million or $25.17 per share. The
shares could not be sold or otherwise transferred until December 15, 1999. The
Company's policy is to value restricted stock issued in acquisitions at the
average market price of its common stock for the three trading days prior and
the three trading days subsequent to the date economic terms of the acquisition
are announced (the "Stock Valuation Date"), less a discount to reflect the lack
of marketability caused by trading restrictions, size of the share issuances and
other relevant factors. A discount factor of 30% was used to value the 3,687,500
restricted shares, which was based on previous sales of restricted Company
common stock, an independent review by an investment banking firm and
independent studies regarding discount attributable to lack of marketability.
Management believes the discount rate used to value these restricted shares was
appropriate and reasonable.
In addition to the shares noted above, the RCG creditors and Cherry U.K.
stockholder were issued 7.5 million restricted shares of Company common stock.
These shares were immediately placed into escrow and were originally valued at
par value only, or $75,000. The shares were eligible to be released from escrow
if (i) Resurgens earnings before interest, taxes, depreciation and amortization
("EBITDA") for 2000 and 2001 exceeded targeted levels; or (ii) the Company's
common stock traded above certain predefined levels during 2000 or 2001; or
(iii) a change of control occurred at the Company (as defined in the Resurgens
Merger agreements).
The Company's acquisition of FaciliCom (see below) constituted a change of
control for purposes of the Resurgens Merger and accordingly, the 7.5 million
shares were released from escrow in December 1999. These shares were valued at
approximately $127.4 million based on the price of the Company's common stock on
December 7, 1999, the date the FacilCom merger closed. The net effect of the
above has been to increase goodwill and stockholders' equity by $127.4 million
as of December 31, 1999.
The acquisition of Resurgens has been accounted for using the purchase
method of accounting. Accordingly, the results of Resurgen's operations have
been included in the accompanying consolidated financial statements from
December 14, 1998. The excess of purchase price over the fair value of net
assets acquired has been recorded as goodwill and is being amortized over a
20-year period. The following summarizes the allocation of the purchase price
(in thousands):
<TABLE>
<S> <C>
Purchase price:
Common stock issued at merger............................. $ 92,871
Common stock released from escrow......................... 127,425
Forgiveness of short-term loan............................ 8,260
Cash...................................................... 2,000
Fees and expenses......................................... 1,715
--------
Total purchase price.............................. 232,271
Allocation to fair value of net assets:
Current assets............................................ (8,650)
Property and equipment.................................... (39,666)
Other assets.............................................. (23,727)
Current liabilities....................................... 40,317
Other liabilities......................................... 22,523
--------
Goodwill.......................................... $223,068
========
</TABLE>
60
<PAGE> 63
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMM/NET ACQUISITION
In May 1999, the Company acquired substantially all the assets and assumed
certain liabilities of Comm/Net Holding Corporation and its wholly owned
subsidiaries, Enhanced Communications Corporation, Comm/Net Services Corporation
and Long Distance Exchange Corporation (Comm/Net Holdings and its wholly owned
subsidiaries are collectively referred to herein as "Comm/Net"). Comm/Net,
headquartered in Plano, Texas, is a facilities-based provider of wholesale
international long distance and wholesale prepaid calling card services,
primarily to the Mexican telecommunications markets.
In connection with the acquisition, the Company issued 23,174 shares of
4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Series B
Preferred Stock"), valued at approximately $18.5 million with a $23.2 million
liquidation preference, and paid approximately $3.5 million to retire certain
Comm/Net notes payable outstanding at the time of acquisition. The Series B
Preferred Stock is convertible into shares of the Company's common stock at a
conversion rate of $16.00 per common share, subject to standard anti-dilution
adjustments. If the closing trading price of the Company's common stock exceeds
$16.00 per share for 45 consecutive trading days, the Series B Preferred Stock
will automatically convert into common stock. Preferred dividends began accruing
July 1, 1999 and are payable quarterly. In March 2000, the Series B Preferred
Stock was converted into 1,448,373 shares of the Company's common stock.
The acquisition of Comm/Net has been accounted for under the purchase
method of accounting. Accordingly, the results of Comm/Net's operations have
been included in the accompanying consolidated financial statements from May 1,
1999. The excess of purchase price over the fair value of net assets acquired
has been recorded as goodwill and is being amortized over a 20 year period. The
following summarizes the allocation of the purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Preferred stock issued.................................... $18,539
Debt paid................................................. 3,502
Fees and expenses......................................... 800
-------
Total purchase price.............................. 22,841
Allocation to fair values of net assets:
Current assets............................................ (7,754)
Property and equipment.................................... (3,351)
Current liabilities....................................... 9,609
Other assets and liabilities, net......................... 1,368
-------
Goodwill.......................................... $22,713
=======
</TABLE>
FACILICOM MERGER
On August 17, 1999 the Company entered into a definitive merger agreement
with FaciliCom International, Inc. ("FaciliCom"), a privately owned company that
is a facilities-based provider of European and U.S. originated international
long-distance voice, data and Internet services. On December 7, 1999, the
transaction was completed in its final form whereby FaciliCom merged into the
Company (the "FaciliCom Merger").
In connection with the FaciliCom Merger, the stockholders of FaciliCom
received approximately $56.0 million in cash, 369,901 shares of Convertible
Preferred Stock, Series C (the "Series C Preferred Stock"), and 495,557 vested
options that each may be exercised to acquire one share of the Company's common
stock at an average exercise price of $2.63 per share. In addition, the Company
issued 1,912,500 non-qualified options to purchase Company common stock at an
exercise price of $15.00 per share in exchange for substantially all the options
held by FaciliCom's employees. The Series C Preferred Stock which has a $369.9
61
<PAGE> 64
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million liquidation preference was valued at $265.5 million based on its
estimated market value as of the FaciliCom Stock Valuation Date, as determined
by an investment banking firm. The stock options were valued at $24.8 million
based on the Black-Scholes option valuation model. Included in other liabilities
in the table below, is $300.0 million 10 1/2% FaciliCom Series B Senior Notes
due 2008 which were exchanged for the Company's 13.25% Senior Notes due 2008
having an aggregate principal amount of $300.0 million. As consideration for
this exchange the Company issued 942,627 shares of its common stock valued at
$15.0 million to FaciliCom noteholders.
The Series C Preferred Stock bears no dividend and is convertible into
shares of the Company's common stock at a conversion rate of $20.38 per common
share, subject to adjustment in the event of below market issuances of common
stock, stock dividends, subdivisions, combinations, reclassifications and other
distributions with respect to common stock. If the closing trading price of the
Company's common stock exceeds $20.38 per share for 60 consecutive trading days,
the Series C Preferred Stock will automatically convert into common stock.
Initially, the holders of the Series C Preferred Stock were entitled to elect
four new directors to the Company's board of directors. Except for the election
of directors, the holders of the Series C Preferred Stock vote on an
as-converted basis with the holders of the Company's common stock.
The acquisition of FaciliCom has been accounted for using the purchase
method of accounting. Accordingly, the results of FaciliCom's operations have
been included in the accompanying consolidated financial statements from
December 7, 1999. The excess of purchase price over the fair value of net assets
acquired has been recorded as goodwill and is being amortized over a 20 year
period. The following summarizes the allocation of the purchase price (in
thousands):
<TABLE>
<S> <C>
Purchase price:
Cash...................................................... $ 56,000
Preferred stock issued.................................... 265,515
Common stock issued....................................... 15,000
Stock options issued...................................... 24,785
Fees and expenses......................................... 14,250
---------
Total purchase price.............................. 375,550
Allocation to fair value of net assets:
Current assets............................................ (183,934)
Property and equipment.................................... (116,479)
Other assets.............................................. (1,362)
Current liabilities....................................... 205,230
Other liabilities......................................... 313,148
---------
Goodwill.......................................... $ 592,153
=========
</TABLE>
PRO FORMA RESULTS OF OPERATIONS
On a pro forma, unaudited basis, as if the acquisitions of Resurgens,
Comm/Net and FaciliCom had occurred as of January 1, 1998, total revenue,
operating loss, loss from continuing operations and net loss from continuing
operations per diluted common share for the years ended December 31, 1999 and
1998 would have been approximately $902.3 million and $365.0 million; $98.6
million and $139.9 million; $130.5 million and $167.8 million; and $2.64 and
$4.25, respectively. These unaudited pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of the results of
operations which would actually have occurred had the acquisitions been in
effect on the dates indicated.
62
<PAGE> 65
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C: DISCONTINUED OPERATIONS
OVERVIEW
In December 1998, the Company adopted a plan to offer for sale its
non-proprietary equipment businesses (see "1998 Plan"). In December 1999, in
connection with the FaciliCom Merger, the Company adopted a plan to divest all
of its remaining equipment businesses in order to focus on its international
long distance businesses (see "1999 Plan"). As a result of these plans, all of
the Company's equipment businesses have been accounted for as discontinued
operations and, accordingly, the results of their operations have been excluded
from continuing operations in the Consolidated Statements of Operations for all
periods presented. Results of discontinued operations were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- -------
<S> <C> <C> <C>
Total sales............................................ $265,718 $ 199,903 $92,984
Cost of equipment sold................................. 162,638 121,789 60,072
Write-down of inventories.............................. 2,332 17,110 773
-------- --------- -------
Gross profit................................. 100,748 61,004 32,139
Research and development............................... 17,511 6,966 1,862
Selling, general and administrative.................... 36,599 17,632 7,393
Provision for doubtful accounts........................ 10,266 13,741 172
Amortization of goodwill............................... 8,585 4,905 1,640
Restructuring and other charges........................ -- 19,890 --
In-process research and development.................... -- 100,300 --
-------- --------- -------
Operating income (loss)...................... 27,787 (102,430) 21,072
Gain on exchange of securities......................... 9,590 -- --
Net interest income (expense).......................... (786) 996 310
-------- --------- -------
Income (loss) before income taxes and
minority interests......................... 36,591 (101,434) 21,382
Income taxes (benefit)................................. (17,522) 1,134 7,788
Minority interests in earnings of subsidiary........... -- 2,497 --
-------- --------- -------
Income (loss) before write-down of
discontinued operations to net realizable
value...................................... 19,069 (105,065) 13,594
Write-down of discontinued operations to net realizable
value................................................ (44,994) (9,700) --
-------- --------- -------
Net income (loss)............................ $(25,925) $(114,765) $13,594
======== ========= =======
</TABLE>
In general, sales are recognized when the Company's products are shipped,
provided that there are no significant uncertainties regarding the customers'
acceptance and collection of the related receivable is probable. Revenue is
deferred for estimated future returns for stock balancing and excess quantities
above levels the Company deems appropriate in its distribution channels.
Sales of software products, which have not been material to date, are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable and collectibility is probable in
accordance with Statement of Position 97-2, "Software Revenue Recognition", as
amended.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The assets and liabilities of the discontinued operations are reflected as
"Net assets held for sale" in the Consolidated Balance Sheets and consisted of
the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accounts receivable......................................... $ 58,080 $ 64,702
Inventories................................................. 26,716 48,591
Other current assets........................................ 40,369 50,094
-------- --------
Total current assets.............................. 125,165 163,387
Property and equipment...................................... 13,198 22,161
Goodwill and other intangibles.............................. 167,295 213,659
Other assets................................................ 17,891 4,572
-------- --------
Total assets...................................... 323,549 403,779
Accounts payable............................................ 22,771 23,100
Other current liabilities................................... 40,840 37,589
Long-term debt.............................................. 169 341
Other liabilities........................................... 15,381 14,821
-------- --------
Net assets held for sale.......................... $244,388 $327,928
======== ========
</TABLE>
In the normal course of business, the Company enters into certain
sales-type lease arrangements with equipment customers. These leases are
generally sold to third-party financing institutions. A portion of these
arrangements contains certain recourse provisions under which the Company
remains liable. The Company's maximum exposure under the recourse provisions,
net of related reserves, was approximately $21.9 million at December 31, 1999. A
portion of this contingent obligation is collateralized by security interests in
the related equipment. The fair value of the recourse obligation at December 31,
1999 was not determinable as no market exists for these obligations.
RESEARCH AND DEVELOPMENT
Research, engineering and product development costs are expensed as
incurred. Costs incurred in the research and development of new software
products and certain enhancements to existing software products are expensed as
incurred until technological feasibility has been established. After
technological feasibility is established, any additional development costs are
capitalized in accordance with SFAS No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed." Such costs are
amortized commencing with product introduction utilizing the straight-line
method over the remaining economic life of the product, not to exceed four
years. The unamortized capitalized costs by product are reduced to an amount not
to exceed their future net realizable value at each balance sheet date. Future
net realizable value is determined based on sales forecasts. Capitalized
software costs, net of accumulated amortization, are included in Goodwill and
other intangibles.
The amount of development costs capitalized in accordance with SFAS No. 86
for 1999, 1998 and 1997 was $6.0 million, $5.2 million and $360,000,
respectively. Amortization of software development costs charged to expense for
1999 and 1998 was $576,000 and $106,000, respectively. There was no amount
charged to expense in 1997.
1998 PLAN
In December 1998, the Company formalized its plan to offer for sale two
businesses, (i) the resale and repair of Nortel and other original equipment
manufacturers' wireline switching equipment, and (ii) pay telephone
refurbishment. In connection therewith, the Company recorded a $9.7 million
charge in the fourth
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarter of 1998, for the estimated loss to dispose of these discontinued
operations. This loss, which was recorded as partial impairment of existing
goodwill, was determined by comparing the book value of the net assets of the
discontinued operations to their net realizable value. The net realizable value
was estimated based on preliminary valuation work performed by an investment
banking firm engaged by the Company to assist in the sale of these businesses
and a preliminary non-committal offer from a prospective buyer.
During the first six months of 1999, the Company and its investment bankers
formally solicited offers for the two businesses. The preliminary offer referred
to above was eventually withdrawn by the potential suitor and the formal selling
process generated only one serious offer for the businesses. The Company
eventually refused this offer due to its low price and substantial credit risk.
During this selling process, the Company's Nortel resale business
significantly deteriorated, and its pay telephone refurbishment business began
showing signs of weakness. In mid 1999, faced with an unsuccessful selling
process and future operating losses, management elected to begin liquidating the
Nortel resale and repair business. A formal liquidation plan designed to
eliminate future quarterly losses, maximize net cash proceeds and realize
significant deferred tax credits, was adopted by management and communicated to
all affected employees.
As a result of this revised plan, the Company recorded an additional charge
of $12.3 million in the second quarter of 1999 to reflect the additional loss
expected to be realized on the liquidation of the Nortel resale and repair
business. Significant elements of this charge consisted of $5.6 million to
write-off all remaining goodwill, $4.3 million to write-down inventories to
estimated realizable value, $600,000 to write-down leasehold improvements, test
equipment and other assets to estimated realizable value, $300,000 for severance
benefits, and $300,000 for the estimated loss on the disposal of facility
leases. The charge also included approximately $200,000 for net operating losses
expected to be incurred by the Company during this liquidation process.
In the fourth quarter of 1999, the Company completed the liquidation of its
Nortel resale and repair business in accordance with the above plan and sold its
pay telephone refurbishment business for approximately $2.0 million in cash.
1999 PLAN
In December 1999, the Company adopted a plan to divest, spin-off or
otherwise monetize its remaining equipment businesses, consisting of the
following:
- Telco Systems Division (acquired November 1998), a provider of next
generation transport and access solutions for service providers
throughout the world. Its products include intelligent integrated access
devices, multiplexers and digital microwave radios.
- NACT Switching Division (acquired February 1998), a provider of advanced
switching platforms with integrated proprietary applications software as
well as billing and telemanagement systems.
- Wireless Local Loop Division, a research and development group designing
a next generation, fixed wireless local loop system.
- Cellular Infrastructure Supply Division (acquired March 1997), a
value-added supplier of new and re-furbished cellular base stations and
related equipment.
- Galaxy Engineering Division (acquired August 1997), a provider of system
design, optimization and other value-added radio engineering and
consulting services.
The Company sold Galaxy in December 1999 for approximately $15.0 million in
cash. The remaining businesses are being offered for sale by two investment
banking firms engaged by the Company. The Company
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has signed a definitive agreement to sell Telco Systems (see "Note O") and
expects to sell all of these businesses during 2000.
Although the Company expects to realize a significant net gain from the
sale of all these businesses, certain of these businesses are expected to be
sold or liquidated at a loss. Accordingly, in the fourth quarter of 1999, the
Company recorded a $32.7 million charge to write-down certain of these
businesses to their estimated net realizable value. Significant elements of this
charge consisted of $19.8 million to write-off goodwill, $4.6 million to
write-down capitalized software, $3.4 million to write-down inventories to
estimated realizable value and $1.6 million to provide for net operating losses
expected to be incurred by certain divisions during this selling process.
RESTRUCTURING AND OTHER CHARGES
During 1998, the Company approved and began implementing two restructuring
programs designed to reduce operating costs, outsource manufacturing
requirements and focus Company resources on recently acquired business units
containing proprietary technology or services. A summary of restructuring and
related charges recorded in connection with these programs follows (in
thousands):
<TABLE>
<S> <C>
Severance and termination benefits.......................... $ 2,600
Idle facility costs......................................... 2,540
Asset write-downs........................................... 13,113
Other exit costs............................................ 1,637
-------
Total restructuring charges 19,890
Write-down of inventories................................... 17,110
Provision for doubtful accounts............................. 12,600
-------
Total charges........................................ $49,600
=======
</TABLE>
In January 1998, the Company approved and began implementing a
restructuring program to consolidate several operations and exit the contract
manufacturing business. The Company's wireline telecom equipment resale business
("AIT") in Lakeland, Florida and its circuit board repair operations were
consolidated into a new facility in Orlando, Florida; the Company's
manufacturing operations were moved from an old facility in Orlando to a new
facility in Alpharetta, Georgia; and the Company's Scottsdale, Arizona
operations were integrated into the Company's Radio facility in Wilmington,
Massachusetts. This restructuring program was completed in June 1998. No costs
were included in the restructuring charges that were expected to derive future
economic benefit to the Company.
The special charges included approximately $3.4 million to cost of sales
for obsolete contract manufacturing inventories and other inventories deemed
obsolete or redundant as a result of the consolidation activities. Severance and
termination benefits of approximately $550,000 were paid to the approximately 60
employees who lost their jobs as a direct result of the restructuring program.
The idle facility and equipment portion of the charge, collectively representing
$2.7 million, included the write-off of Orlando, Lakeland and Scottsdale
leasehold improvements, provisions for the estimated costs to terminate idle
facility and equipment leases, the write-off of Orlando manufacturing equipment
not relocated to the Company's Alpharetta facility and certain phase-down
expenses associated with the six facilities closed down.
In December 1998, in connection with the (i) recently completed acquisition
of NACT, Telco Systems and Resurgens; (ii) election of several new outside
directors to the Company's board; and (iii) appointment of a new Chief Executive
Officer, the Company approved and began implementing a major restructuring
program to reorganize its operating structure, consolidate several facilities,
outsource its manufacturing requirements, rationalize its product offerings and
related development efforts, and pursue other potential
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
synergies expected to be realized as a result of the integration of recently
acquired businesses. The fourth quarter charge amounted to $43.0 million. The
Company completed the restructuring program in 1999.
Costs associated with the reorganized operating structure consisted
primarily of termination benefits payable to the Company's former President,
which were paid throughout 1999, and remaining lease obligations on the
Company's Equipment Group headquarters facility in Alpharetta, Georgia. Group
personnel relocated to the Company's headquarters in Atlanta in February 1999
and the facility was closed.
Restructuring charges also included costs associated with the consolidation
of the Company's Radio operations in Wilmington, Massachusetts into Telco
Systems' facility in Norwood, Massachusetts. Manufacturing of wireless radios
was out-sourced to a contact manufacturer and all other aspects of the Company's
Radio operations were integrated into Telco Systems' existing operating
infrastructure. Severance and other termination benefits of approximately $1.2
million were paid to approximately 60 Radio employees as the consolidation
program was completed during the first half of 1999. A provision of $577,000 was
recorded for the costs associated with the idle portion of the Wilmington
facility, the lease of which was terminated in December 1999. Production
equipment was written-down by $700,000 to reflect its estimated net realizable
value upon disposal.
An integral part of the restructuring program was the Company's decision to
outsource all its electrical manufacturing requirements and sell its Alpharetta,
Georgia manufacturing operations to an established contract manufacturer.
Severance and other termination benefits of $426,000 were provided for in
December 1998, the majority of which was paid in January 1999 to approximately
25 personnel. Restructuring charges also included the write-off of $365,000 in
leasehold improvements related to the manufacturing portion of the Alpharetta
facility, and $2.4 million to write-down production equipment and other
manufacturing assets to their estimated net realizable values. The Company
completed the sale of its manufacturing operations in March 1999. The actual
loss incurred in connection with the sale did not differ materially from the
amounts recorded in the restructuring charges
The most significant component of the restructuring charges related to a
change in the Company's long-term focus for its switching products, primarily
its Compact Digital Exchange ("CDX") switch. In January 1999, the Company
elected to reallocate development resources targeted for the CDX switch as a
stand-alone product to the integration of the central office functionally of the
CDX switch and the long-distance functionality of NACT's switch into a common,
next generation technology platform. This strategic decision, performance
difficulties experienced by certain customers' applications of the CDX switch in
1998, and dramatically reduced internal estimates for CDX switch revenues in
1999 caused the Company to significantly write-down all CDX related assets as of
December 31, 1998.
Other charges recorded in the fourth quarter of 1998 were provisions for
potential inventory obsolescence and doubtful accounts of $8.8 million and $10.7
million, respectively. The inventory charge consisted primarily of $4.7 million
to write-down CDX inventories to estimated net realizable value and $3.8 million
to reflect estimated losses to be incurred in connection with the sale of Radio
and manufacturing inventories to contract manufacturers. The provision for
doubtful accounts was recorded primarily to reduce the carrying value of
accounts receivable resulting from previous CDX sales to estimated minimum
realizable values in light of the issues noted above.
GAIN ON EXCHANGE OF SECURITIES
In connection with the acquisition of Telco Systems, the Company acquired
an investment in the common stock of Omnia Communications, Inc. ("Omnia") and
warrants to purchase additional common stock of Omnia. The fair value of the
investment in Omnia at the time of the acquisition of Telco Systems was
approximately $3.0 million and, thereafter, it was accounted for by the Company
under the cost method.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1999, Omnia announced that it had entered into an agreement to be
acquired by Ciena Corp. ("Ciena"), a publicly traded company. In June 1999, the
Company exercised the outstanding warrants to purchase additional common stock
in Omnia. In July 1999, Ciena's acquisition of Omnia was completed, and the
Company received approximately 445,000 shares of Ciena common stock in exchange
for its holdings of Omnia common stock, of which approximately 45,000 shares or
10% are being held in escrow for a period of one year related to certain
representations and warranties made by Omnia. In accordance with EITF No. 91-5,
Nonmonetary Exchange of Cost-Method Investments, the Company recognized a
one-time gain, net of taxes, during 1999 of approximately $7.9 million on the
exchange of the Omnia common stock.
SIGNIFICANT ACQUISITIONS
NACT. In the fourth quarter of 1997, the Company began a three-phase
acquisition of NACT Telecommunications, Inc., ("NACT") a Provo, Utah based
single-source provider of advanced telecommunications switching platforms with
integrated telephony software applications and network telemanagement
capabilities. During November and December 1997, the Company purchased 355,000
shares of NACT common stock in the open market for approximately $5.0 million.
On December 31, 1997, the Company entered into a stock purchase agreement
with GST Telecommunications, Inc. ("GST") and GST USA, Inc. ("GST USA") to
acquire 5,113,712 shares of NACT common stock owned by GST USA, representing
approximately 67.3% of the outstanding shares of NACT (the "NACT Acquisition").
On February 27, 1998, the NACT Acquisition was completed with GST USA receiving
$59.7 million in cash and 1,429,907 restricted shares of the Company's common
stock valued at approximately $26.9 million. These shares were valued at $18.80
per share, a 20% discount to the closing market price of Company common stock on
February 26, 1998. Management believes this valuation was appropriate and
reasonable based on the fact that GST USA sold all 1,429,907 restricted shares
at $18.80 per share to an independent third party in a private transaction
completed on February 27, 1998.
In addition, the Company issued 740,543 non-qualified options to purchase
Company common stock at $11.15 per share and 106,586 non-qualified options to
purchase Company common stock at $16.25 per share in exchange for substantially
all the options held by NACT employees, which became immediately vested in
connection with the NACT Acquisition. These options had an initial fair value of
approximately $8.4 million based on the Black-Scholes option valuation model.
Under the terms of the Company's stock purchase agreement with GST, the
Company and GST agreed to share evenly the costs of any judgement against NACT
as a result of a patent dispute claim filed by Aerotel, Ltd. and Aerotel U.S.A.,
Inc. (collectively "Aerotel") in 1996. Subsequent to the NACT Acquisition, the
Company actively engaged in settlement negotiations. On October 26, 1998, the
Company, GST and Aerotel settled the Aerotel litigation. The Company's portion
of the total settlement costs, including NACT legal fees, was approximately $3.4
million. The payment made to Aerotel was satisfied through the issuance of
137,334 shares of Company common stock. The settlement costs incurred by the
Company as a result of the Aerotel litigation were accounted for as additional
NACT purchase price.
On February 24, 1998, the Company entered into a merger agreement with NACT
pursuant to which the Company agreed to acquire all of the shares of NACT common
stock not already owned by the Company or GST USA (the "NACT Merger"). On
October 28, 1998, the NACT Merger was completed whereby the Company issued
2,790,182 shares of the Company's common stock valued at approximately $67.8
million for the remaining minority interest of NACT.
The acquisition of NACT has been accounted for using the purchase method of
accounting. Accordingly, the results of NACT's operations have been included in
the accompanying consolidated financial statements from February 27, 1998, the
date the majority interest was acquired. The purchase price was allocated to the
net assets acquired, including $44.6 million of purchased in-process research
and development ("R&D"). The
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
excess of purchase price over the fair value of net assets acquired,
approximately $92.7 million, has been recorded as goodwill and is being
amortized over a 20 year period.
During the first quarter of 1998, $44.6 million of purchased in-process R&D
was expensed, which consisted of 67.3% of the value of NACT products in the
development stage that were not considered to have reached technological
feasibility as of the date of the NACT Acquisition. In connection with the NACT
Merger, the Company revalued purchased in-process R&D to reflect the current
status of in-process NACT technology and related business forecasts and to
ensure compliance with the additional guidance provided by the Securities and
Exchange Commission in its September 15, 1998 letter to the American Institute
of Certified Public Accountants. The revalued amount approximated the $44.6
million expensed in connection with the NACT Acquisition, therefore no
additional charge was recorded for purchased in-process R&D. However, the effect
of the revaluation required the Company to reduce the first quarter charge
related to the purchased in-process R&D by $14.6 million and record an
additional charge of $14.6 million in the fourth quarter as of the date of the
NACT Merger.
The value of the purchased in-process technology from NACT and Telco
Systems (see below) was determined by estimating the projected net cash flows
related to in-process research and development projects, excluding costs to
complete the development of the technology. These cash flows were discounted
back to their net present value. The projected net cash flows from such projects
were based on management's estimates of revenues and operating profits related
to such projects. These estimates were based on several assumptions, including
those summarized below for each respective acquisition. The resultant net
present value amount was then reduced by a stage of completion factor. This
factor more specifically captures the development risk of an in-process
technology (i.e., market risk is still incorporated in the estimated rate of
return).
The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relate to the
completion of all planning, designing, prototyping, verification, and test
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features, and technical
performance requirements. If these projects to develop commercially viable
products based on the purchased in-process technology are not successfully
completed, the sales and profitability of the Company may be adversely affected
in future periods. Additionally, the value of other intangible assets may become
impaired.
NACT provides advanced telecommunications switching platforms with
integrated applications software and network telemanagement capabilities. NACT
designs, develops, and manufacturers all hardware and software elements
necessary for a fully integrated, turnkey telecommunications switching solution.
The nature of the in-process research and development was such that
technological feasibility had not been attained. Failure to attain technological
feasibility, especially given the high degree of customization required for
complete integration into the NACT solution, would have rendered partially
designed hardware and software useless for other applications. Incomplete design
of hardware and software coding would create a non-connective, inoperable
product that would have no alternative use.
NACT's business plan called for a shift in market focus to large customers,
both domestic and international; therefore, NACT had numerous projects in
development at the time of the acquisition. Additionally, the pending completion
of a major release of NACT's billing system required significant development
efforts to ensure continued integration with NACT's product suite. The projects
also include the creation of products for new product suites. The research and
development projects were at various stages of development. None of the
in-process projects considered in the write-off had attained technological
feasibility. The in-process projects do not build on existing core technology;
such existing technologies were valued as a separate asset.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NACT had 13 projects in development at the time of acquisition. These
projects were at multiple stages along NACT's development timeline. Some
projects were beginning testing in NACT labs; others were at earlier stages of
planning and designing. These projects were scheduled for release between
December 1998 and December 2000. Revenue projections for the in-process
technologies reflected the anticipated release dates of each project.
Revenue attributable to in-process technology was assumed to increase in
the first five years of the 12-year projection at annual rates ranging from
61.4% to 2.81%, decreasing over the remaining years at annual rates ranging from
16.0% to 48.5% as other products are released in the marketplace. Projected
annual revenue attributable to in-process technology ranged from approximately a
low of $8.0 million to a high of $101.1 million within the term of the
projections. These projections were based on assumed penetration of the existing
customer base and movement into new markets. Projected revenues from in-process
technology were assumed to peak in 2003 and decline from 2004 through 2009 as
other new products are expected to enter the market.
In-process technology's contribution to the operating profit of NACT
(earnings before interest, taxes and depreciation and amortization) was
projected to grow within the projection period at annual rates ranging from a
high of 67.2% to a low of 2.8% during the first five years, decreasing during
the remaining years of the projection period similar to the revenue growth
projections described above. Projected in-process technology's annual
contribution to operating profit ranged from approximately $2.1 million to $29.3
million within the term of the projections.
The discount rate used to value the existing technology of NACT was 14.0%.
This discount rate was estimated relative to the overall business discount rate
of 15.0% based on (1) the completed status of the products utilizing existing
technology (i.e., the lack of development risk), and (2) the potential for
obsolescence of current products in the marketplace.
The discount rate used to value the in-process technology of NACT was
15.0%. This discount rate was estimated relative to the overall business
discount rate of 15.0% based on (1) the incomplete status of the products
expected to utilize the in-process technology (i.e., development risk), (2) the
expected market risk of the planned products relative to the existing products,
(3) the emphasis on targeting larger customers for the planned products, (4) the
expected demand for the products from current and prospective NACT customers,
(5) the anticipated increase in NACT's sales force, and (6) the nature of
remaining development tasks relative to previous development efforts.
Set forth in the table below are details relating to the significant NACT
in-process research and development projects (dollar amounts in thousands):
<TABLE>
<CAPTION>
PERCENTAGE OF
COMPLETION ESTIMATED COST TO
AS OF COMPLETION
PERCENTAGE OF ---------------------- AS OF THE ACQUISITION
NACT COSTS INCURRED DATE FOR
IPR&D AS OF ACQUISITION ACQUISITION ---------------------
DEVELOPMENT PROJECT CHARGE DATE DATE 12/31/99 1998 1999 2000
- ------------------- ------------- ----------------- ----------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
STX Application Switching
Platform.................... 43% $1,347 80% 100% $56 $285
TCPIP......................... 7 227 90 100 8 17
SS7/C7........................ 14 1,280 72 92 54 324 $116
NTS Telemanagement and Billing
System...................... 26 1,425 91 100 54 82
E1/T1 CONVERSION.............. 6 125 48 95 20 117
MCU........................... 1 123 24 90 66 334
68060......................... 2 218 48 100 60 178
</TABLE>
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Telco Systems. On June 4, 1998, the Company entered into a definitive
agreement to acquire Telco Systems, Inc. ("Telco Systems") a Norwood,
Massachusetts-based manufacturer of broadband transmission, network access and
bandwidth optimization products. On October 13, 1998 the Company and Telco
Systems agreed to amend the agreement to provide Telco Systems stockholders a
minimum per share value. On November 30, 1998, the transaction was completed in
its final form whereby Telco Systems was merged with and into a wholly-owned
subsidiary of the Company (the "Telco Systems Merger").
In connection with the Telco Systems Merger, the stockholders of Telco
Systems received 7,041,773 shares of the Company's common stock valued at
approximately $143.0 million. In addition, the Company issued 1,028,670
non-qualified options to purchase Company common stock at an average exercise
price of $15.78 per share in exchange for substantially all the options held by
Telco Systems employees, which became immediately vested in connection with the
Telco Systems Merger. These options had an initial fair value of approximately
$10.8 million based on the Black-Scholes option valuation model.
The acquisition of Telco Systems has been accounted for using the purchase
method of accounting. Accordingly, the results of Telco Systems' operations have
been included in the accompanying consolidated financial statements from
November 30, 1998. The purchase price was allocated to net assets acquired,
including $50.3 million of purchased in-process R&D. The excess of purchase
price over the fair value of net assets acquired, approximately $39.4 million,
has been recorded as goodwill and is being amortized over a 20 year period.
Purchased in-process R&D, which consisted of the value of Telco Systems products
in the development stage that were not considered to have reached technological
feasibility as of the date of the Telco Systems Merger, was expensed in the
fourth quarter of 1998 in accordance with applicable accounting rules.
Telco Systems develops and manufactures products focused on providing
integrated access for network services. Telco Systems' products can be separated
into three categories: (1) broadband transmission products, (2) network access
products, and (3) bandwidth optimization products. Telco Systems' products are
deployed at the edge of the service provider's networks to provide organizations
with a flexible, cost-effective means of transmitting voice, data, video and
image traffic over public or private networks.
At the time of acquisition, Telco Systems had several primary projects in
development relating to next-generation telecommunication and data network
hardware. These projects were at various stages in the development process. Some
were about to enter the testing phase of the initial hardware prototype, while
others were still in the early concept and design specification stages. These
projects were scheduled for commercial release at various points in time from
December 1998 through early 2000.
Telco Systems' in-process research and development projects are being
developed to run on new communications protocols and technologies not employed
in its current products. These include HDSL, SONET, Voice over IP and ATM
inverse multiplexing. Additionally, the products to be commercialized from Telco
Systems' in-process research and development are expected to include interface
support not in Telco Systems' current product line, including E1, DS3 and OC3.
Revenue attributable to Telco Systems' aggregate in-process technology was
assumed to increase over the first six years of the projection period at annual
rates ranging from a high of 103.6% to a low of 3.8%, reflecting both the
displacement of Telco Systems' old products by these new products as well as the
expected growth in the overall market in which Telco Systems' products compete.
Thereafter, revenues are projected to decline over the remaining projection
period at annual rates ranging from 15.2% to 42.6%, as the acquired in process
technologies become obsolete and are replaced by newer technologies.
Management's projected annual revenues attributable to the aggregate
acquired in-process technologies, which assume that all such technologies
achieve technological feasibility, ranged from a low of approximately $39.0
million to a high of approximately $276 million. Projected revenues were
projected to peak in 2004 and decline thereafter through 2009 as other new
products enter the market.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The acquired in-process technology's contribution to the operating income
was projected to grow over the first five years of the projection period at
annual rates ranging from a high of 240.9% to a low of 22.2% with one
intermediate year of marginally declining operating income. Thereafter, the
contribution to operating income was projected to decline through the projection
period. The acquired in-process technology's contribution to operating income
ranged from a low of approximately $4.4 million to a high of approximately $70.5
million.
The discount rate used to value the existing technology was 20.0%. This
discount rate was selected because of the asset's intangible characteristics,
the risk associated with the economic life expectations of the technology and
potential obsolescence of legacy products, and the risk associated with the
financial assumptions with respect to the projections used in the analysis.
The discount rate used to value the in-process technologies was 25%. This
discount rate was selected due to several incremental inherent risks. First the
actual useful economic life of such technologies may differ from the estimates
used in the analysis. Second, risks associated with the financial projections on
the specific products that comprise the acquired in-process research and
development. The third factor is the incomplete and unproven nature of the
technologies. Finally, future technological advances that are currently unknown
may negatively impact the economic and functional viability of the in-process
R&D.
Set forth in the table below are details relating to the significant Telco
Systems in-process research and development projects (dollar amounts in
thousands):
<TABLE>
<CAPTION>
PERCENTAGE OF
PERCENTAGE OF COMPLETION AS OF
TELCO ----------------------- ESTIMATED COSTS TO COMPLETION
SYSTEMS COSTS INCURRED AS OF THE ACQUISITION DATE FOR
IPR&D AS OF ACQUISITION ACQUISITION -------------------------------
DEVELOPMENT PROJECT CHARGE DATE DATE 12/31/99 1998 1999 2000
- ------------------- ------------- ----------------- ----------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Access 45/60 Release I..... 1% $2,610 72% 100% $ 77 $ 923
EdgeLink 100 E1(1)......... 4 880 47 N/A 76 914
Voice over Packet MSIA(2).. 11 1,730 45 70 162 1,948
EdgeLink 300............... 48 2,200 90 100 100 200
EdgeLink 600 MSAC(3)....... 34 6,220 60 70 619 5,461 $1,000
Hyperspan SMUG(1).......... 2 760 77 N/A 38 192
</TABLE>
- ---------------
(1) During the first quarter of 2000, Telco Systems management decided to
discontinue development of Edgelink 100 E1 and Hyperspan SMUG due to
inability to meet cost and feature targets.
(2) The original Voice over Packet project has been re-defined to incorporate
additional features, and is now referred to as Voice over Packet MSIA.
(3) During the first quarter of 2000, Telco Systems management consolidated
several development projects, including the Edgelink 600 and Edgelink
650/IMA/Sonet IAD, into a new project, Edgelink 600 MSAC, incorporating a
redefined feature set.
Management expects that the cost to complete the development of the
acquired in-process technologies and to commercialize the resulting products
will aggregate approximately $11.7 million through 2001. Over the projection
period, management expects to spend an additional aggregate $48.2 million on
sustaining development efforts relating to the acquired in-process technologies.
These sustaining efforts include bug fixing, form-factor changes and identified
upgrades.
NOTE D: RESTRUCTURING CHARGE
In December 1999, the Company recorded a one-time restructuring charge of
$37.8 million in connection with the FaciliCom Merger. The restructuring charge
includes the estimated costs of (i) consolidating certain of the Company's
United States gateway switching centers and related technical support functions
into existing FaciliCom operations; (ii) consolidating the Company's United
Kingdom operations into existing
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FaciliCom operations; (iii) consolidating certain of the Company's
administrative functions into FaciliCom's operations; and (iv) eliminating other
redundant operations and assets as a result of combining the two entities.
FaciliCom is a multi-national long distance service carrier focused on
providing international wholesale telecommunications services to other carriers
worldwide. FaciliCom provides these services over its carrier-grade
international network, which consists of 17 gateway switches as well as a
satellite earth station. Given the duplication of network assets between the two
entities, including switching and transmission equipment, the Company made the
decision in late 1999 to shut down and dispose of its six gateway switches
located in Chicago, Los Angeles, Newark, Dallas, San Francisco and London. The
Company intends to dispose of these six switches and related network assets
through sale in the secondary switching and transmission equipment market during
2000. The restructuring charge also provides for the write-off of leasehold
improvements at the six switch sites and lease commitments remaining on certain
facilities and equipment taken out of service.
Approximately 25 personnel whose job functions included accounting and
administrative support as well as network operations were terminated as part of
the overall restructuring. The termination benefits associated with these
personnel are included in the restructuring charge.
The following table summarizes the amounts included in each component of
the restructuring charge (in thousands):
<TABLE>
<CAPTION>
RESTRUCTURING 1999 RESERVE BALANCE
CHARGE ACTIVITY AT 12/31/99
------------- -------- ---------------
<S> <C> <C> <C>
Write-down of leasehold improvements....................... $ 1,506 $ 1,506 $ --
Write-down of network equipment............................ 25,372 25,372 --
Write-down of redundant software and general equipment..... 1,256 1,256 --
Accrual for lease and circuit cost commitments............. 8,078 1,216 6,862
Accrual for termination benefits........................... 1,588 270 1,318
------- ------- ------
$37,800 $29,620 $8,180
======= ======= ======
</TABLE>
The restructuring accrual is recorded in "Other accrued liabilities" on the
Company's December 31, 1999 balance sheet. The restructuring program is expected
to be completed in 2000.
NOTE E: PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is provided using
the straight-line method over the estimated useful lives (from three to eight
years) of the related assets. Included in property and equipment are network
assets leased under certain IRU and MAOU agreements and other equipment lease
agreements. Assets recorded under capital leases are recorded at the present
value of the future minimum lease payments and depreciated over the lesser of
the related lease term or useful life of the related assets. Total depreciation
expense for 1999, 1998 and 1997 was $5.8 million, $253,000 and $115,000,
respectively.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and equipment consisted of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Leasehold improvements...................................... $ 4,667 $ 2,028
Network equipment........................................... 67,208 26,326
IRU and MRU assets.......................................... 56,015 9,675
Computer equipment.......................................... 11,830 3,088
Other....................................................... 2,803 992
-------- -------
142,523 42,109
Accumulated depreciation.................................... (6,490) (668)
-------- -------
$136,033 $41,441
======== =======
</TABLE>
The Company capitalizes the costs of software and software upgrades for use
in its network. Replacements and betterments are also capitalized. Maintenance
and repairs are expensed as incurred.
The Company leases various facilities and equipment under operating leases.
As of December 31, 1999, future minimum payments under noncancelable operating
leases with initial or remaining terms of more than one year were approximately
$23.9 million, payable over the next five years as follows: 2000 -- $5.6
million; 2001 -- $5.1 million; 2002 -- $4.9 million; 2003 -- $4.4 million; and
2004 -- $3.9 million.
Total rental expense under operating leases for 1999 and 1998 was
approximately $3.9 million and $280,000, respectively, exclusive of property
taxes, insurance and other occupancy costs generally payable by the Company.
NOTE F: GOODWILL
Goodwill from acquisitions, representing the excess of purchase price paid
over the value of net assets acquired, consisted of the following at December 31
(in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Resurgens................................................... $223,068 $78,626
Comm/Net.................................................... 22,713 --
FaciliCom................................................... 592,153 --
-------- -------
837,934 78,626
Accumulated amortization.................................... 7,700 164
-------- -------
$830,234 $78,462
======== =======
</TABLE>
The Company amortizes goodwill to expense on a straight-line basis over a
20-year period. The Company reviews the net carrying value of goodwill on a
regular basis, and if deemed necessary, charges are recorded against current
operations for any impairment in the value of these assets. Such reviews include
an analysis of current results and take into consideration the discounted value
of projected operating cash flows. Goodwill is removed from the books when fully
amortized. Amortization expense for 1999 and 1998 was $7.5 million and $164,000,
respectively.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G: DEBT
SUMMARY
Debt consisted of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
13.25% Senior Notes due 2008................................ $285,078 $ --
4.5% Convertible Subordinated Notes due 2002................ 115,000 115,000
Bank line of credit......................................... 25,000 4,500
IRU and other capital lease obligations..................... 45,380 29,934
Nortel line of credit....................................... 21,717 --
Other debt.................................................. -- 1,589
-------- --------
Total debt........................................ 492,175 151,023
Amount due within one year.................................. 83,837 13,500
-------- --------
Long-term debt.................................... $408,338 $137,523
======== ========
</TABLE>
Interest paid during 1999, 1998 and 1997 was $8.1 million, $5.7 million and
$24,000, respectively.
SENIOR NOTES
In December 1999, as an integral part of the FaciliCom Merger, the Company
issued $300.0 million in aggregate principal amount of 13.25% Senior Notes due
2008 ("Senior Notes") in exchange for all outstanding 10 1/2% FaciliCom Series B
Senior Notes due 2008 having an aggregate principal amount of $300.0 million. To
facilitate the exchange, the Company also paid holders of FaciliCom's Senior
Notes $3.0 million of cash and issued them 942,627 shares of Company common
stock having an aggregate market value of $15.0 million (the "Stock
Consideration"). The $18.0 million in total exchange consideration was accounted
for as additional FaciliCom purchase price (see "Note B").
Other than the pledged assets discussed below, the Senior Notes are general
unsecured obligation of the Company. The Senior Notes rank senior in right of
payment to any of the Company's existing and future obligations expressly
subordinated in right of payment and will be pari passu in right of payment with
all of the Company's other existing and future unsecured and unsubordinated
obligations, including trade payables. The Company's subsidiaries are not
guarantors of the Senior Notes.
The Senior Notes bear interest at the rate of 13.25% per annum, payable in
arrears on January 15 and July 15 of each year, and mature on January 15, 2008.
The Senior Notes are not redeemable by the Company prior to January 15, 2003. At
any time after that date, the Company has the option to redeem the Senior Notes
at the following redemption prices plus accrued and unpaid interest (based on
January 15 fiscal year): 2003 -- 106.625%; 2004 -- 104.417%; 2005 -- 102.208%;
and 2006 to maturity -- 100.0%. In the event of a change in control of ownership
of the Company, each holder of the Senior Notes has the right to require the
Company to purchase all or any of such holder's Senior Notes at a purchase price
in cash equal to 101% of the aggregate principal amount.
The Senior Notes require the Company to maintain certain financial and
nonfinancial covenants, including limitations on additional indebtedness,
restricted payments including dividends, transactions with affiliates, liens and
asset sales. Upon the sale of certain of its equipment businesses (see "Note
C"), the Company will be obligated to tender for all or a portion of the Senior
Notes at a purchase price equal to 100% of principal, plus accrued and unpaid
interest, less the current market value of the Stock Consideration at the date
the tender offer is commenced. The tender offer must be made within 270 days of
the qualified asset sale(s).
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon issuance, the Company recorded the Senior Notes at $285.0 million,
total principal less a $15.0 million original issuance discount. The discount
was based on the estimated fair market value of the Senior Notes on the date of
issuance as determined by an investment banking firm. The discount will be
amortized to interest expense over the term of the Senior Notes.
At the time of the FaciliCom Merger, FaciliCom had approximately $47.0
million invested in U.S. Government obligations that served as collateral for
its Series B Senior Notes. In connection with the exchange transaction, the
FaciliCom note holders released this collateral and the Company was required to
pledge these assets as collateral for its Senior Notes. The pledged assets,
recorded as "Restricted cash" on the Company's December 31, 1999 balance sheet,
will be released to the Company to partially fund interest payments due on the
Senior Notes in 2000 and 2001.
CONVERTIBLE SUBORDINATED NOTES
In October 1997, the Company sold $115.0 million in aggregate principal
amount of convertible subordinated notes (the "Convertible Notes") under Rule
144A of the Securities Act of 1933. The Convertible Notes bear interest at the
rate of 4.5% per annum, are convertible into Company common stock at an initial
price of $37.03 per share and mature on October 1, 2002. Interest on the
Convertible Notes is payable on April 1 and October 1 of each year. The
Convertible Notes are general unsecured obligations of the Company and are
subordinate in right of payment to all existing and senior indebtedness. The
Company received $111.5 million from the sale of the Notes, after the
application of the initial purchasers' discount fees of $3.5 million.
The discount fees and legal, accounting, printing and other expenses (the
"Debt issuance costs") related to the Convertible Notes amounted to
approximately $4.0 million, and are being amortized to expense over the
five-year term of the Convertible Notes. During 1999, 1998 and 1997, the Company
recognized amortization expense of approximately $1.1 million, $800,000 and
$200,000, respectively. Debt issuance costs of approximately $3.2 million are
included in "Other assets" on the Company's December 31, 1999 balance sheet.
SUMMARIZED FINANCIAL INFORMATION OF WA TELCOM PRODUCTS CO., INC.
On October 28, 1998, World Access, Inc. reorganized its operations into a
holding company structure and changed its name to WA Telcom Products Co., Inc.
("WA Telcom"). As a result of the reorganization, WA Telcom became a
wholly-owned subsidiary of WAXS INC., which changed its name to World Access,
Inc. and is the company filing this Report. Pursuant to the reorganization, the
Company exchanged each outstanding share of common stock of WA Telcom for one
share of common stock of the Company, converted each option and warrant to
purchase shares of common stock of WA Telcom into options and warrants to
purchase a like number of shares of common stock of the Company, and fully and
unconditionally guaranteed the payment of the $115.0 million aggregate principal
amount 4.5% convertible subordinated notes dated October 1, 1997 (due 2002)
previously issued by WA Telcom.
Set forth below is summarized financial information of WA Telcom presented
for the information of its debtholders. The summarized financial information
presented below includes the results of operations for the following businesses
from their respective dates of acquisitions: Discontinued operations: Cellular
Infrastructure Supply, Inc. -- January 1997; Galaxy Personal Communications
Services, Inc. -- July 1997; Advanced TechCom, Inc. -- January 1998; NACT
Telecommunications, Inc. -- February 1998; Continuing operations: Cherry
Communications Incorporated and Cherry Communications U.K. Limited -- December
1998; and Comm/Net Holdings -- May 1999. Separate financial statements of WA
Telcom are not presented because management has determined that they would not
be material to investors. In addition, summarized financial information for 1997
is not presented as there is no difference between this information and the 1997
consolidated financial statements included herein. The only difference between
the summarized financial
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
information of WA Telcom and the 1998 consolidated financial statements is that
WA Telcom does not include the transactions incurred by the new parent holding
company from October 28, 1998 to December 31, 1998, including the acquisition of
Telco Systems on November 30, 1998. The only difference between the summarized
financial information of WA Telcom and the 1999 consolidated financial
statements is that WA Telcom does not include the transactions incurred by the
parent holding company, Telco Systems and FaciliCom.
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $108,264 $162,554
Non-current assets.......................................... 448,311 300,139
Total assets................................................ 556,575 462,693
Current liabilities......................................... 112,020 70,976
Non-current liabilities..................................... 131,009 145,839
Stockholders equity......................................... 313,546 245,878
Total liabilities and stockholders equity................... 556,575 462,693
</TABLE>
OPERATING STATEMENT INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Total sales from continuing operations...................... $ 444,463 $ 10,787
Gross profit from continuing operations..................... 44,906 650
Loss from continuing operations............................. (19,034) (4,602)
Income (loss) from discontinued operations(1)............... 298 (68,411)
Net loss.................................................... (42,931) (73,848)
</TABLE>
- ---------------
(1) Income (loss) from discontinued operations in 1998 includes special charges
relating to: $50.0 million of in-process research and development; $6.2
million of goodwill impairment; and $17.2 million of restructuring and other
charges.
BANK LINE OF CREDIT
In December 1998, the Company entered into a $75.0 million revolving line
of credit facility (the "Facility"), with a banking syndicate group led by Bank
of America, The Facility consists of a 364-day revolving line of credit which
may be extended under certain conditions and provides the Company the option to
convert existing borrowings to a three year term loan. In December 1999, the
Company amended the facility to increase the line of credit to $100.0 million
and extend the credit for another 364-day term.
Borrowings under the facility are secured by a first lien on substantially
all the assets of the Company. The Facility, which expires in December 2001,
contains standard lending covenants including financial ratios, restrictions on
dividends and limitations on additional debt and the disposition of Company
assets. Interest is paid at the rate of prime plus 1 1/4% or LIBOR plus 2 1/4%,
at the option of the Company. As of December 31, 1999, borrowings of $25.0
million were outstanding under the Facility at an interest rate of 8.7%.
The Facility restricts distributions from the Company's consolidated
subsidiaries. Accordingly, the assets and cash flows of such subsidiaries,
including WA Telcom Products Co., Inc., the primary obligor on the Convertible
Notes, may not be used to pay any dividends to World Access, Inc. As a result,
restricted net
77
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
assets of consolidated subsidiaries of the Company amounted to approximately
$313.5 million at December 31, 1999.
IRU AND OTHER CAPITAL LEASE OBLIGATIONS
The Company leases certain fiber optic cables under IRU and MAOU agreements
permitting the use of the cables over periods up to 25 years with payment
requirements typically over periods not exceeding five years.
In May 1998, FaciliCom entered into a Memorandum of Understanding ("MOU")
with Qwest Communications International Inc. ("Qwest"). The MOU incorporates
agreements to provide Qwest with international direct dial termination service
to various destinations and provides the Company a 25 year IRU for domestic and
international fiber optic capacity. The total purchase price for the IRU was
$24.0 million, of which approximately $11.0 million remained outstanding as of
December 31, 1999. Delivery of the capacity segments was completed during 1999.
The Company also leases telecommunications network and related equipment
through various capitalized lease agreements. Future minimum lease payments on
capitalized lease obligations at December 31, 1999 are as follows (in
thousands):
<TABLE>
<S> <C>
2000........................................................ $ 31,788
2001........................................................ 11,628
2002........................................................ 6,006
2003........................................................ 630
2004........................................................ 415
Future...................................................... 1,408
--------
Net minimum lease payments................................ 51,875
Less amount representing interest........................... (6,495)
--------
Present value of minimum lease payments................... 45,380
Less current portion of capitalized lease obligations....... (31,788)
--------
Long-term portion of capitalized lease obligations........ $ 13,592
========
</TABLE>
The net carrying value of assets under capital leases was approximately
$52.9 million at December 31, 1999, and is included in "Property and equipment"
on the Company's balance sheet. Amortization of these assets is included in
depreciation expense.
NORTEL LINE OF CREDIT
In October 1999, FaciliCom entered into a Credit Agreement with Nortel
Networks, Inc. ("Nortel Facility") to refinance a promissory note and to provide
a $40.0 million revolving loan facility to finance equipment purchases from
Nortel. The Nortel Facility is scheduled to terminate on December 29, 2000 and
contains interest rate options based on Prime or Eurodollar rates. Loans under
the Nortel Facility are secured by the related equipment and are subject to
certain restrictive covenants. As of December 31, 1999, the Company had
borrowings under the Nortel Facility of approximately $21.7 million at an
interest rate of 11 1/4%.
NOTE H: STOCKHOLDERS' EQUITY
COMMON STOCK
In December 1999, the Company sold 4,713,128 shares of restricted common
stock for $75.0 million, or $15.913 per share, in a private transaction with a
small group of institutional and sophisticated investors. The Company used the
majority of the proceeds from this private placement to fund the cash
requirements of the
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FaciliCom Merger. The share price was based on the average closing price of the
Company's common stock during the five trading days prior to the transaction
date. Funds managed by three directors of the Company purchased $63.0 million of
this private offering.
A total of approximately 24.7 million shares of the Company's common stock
are reserved for issuance upon conversion of the Series A, B and C Preferred
Stock, including those shares of Series A Preferred Stock subject to option.
SERIES A PREFERRED STOCK
In April 1999, the Company issued 50,000 shares of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A (the "Series A Preferred Stock")
to The 1818 Fund III, L.P. ("The 1818 Fund III") for an aggregate amount of
$50.0 million. As part of the above sale, The 1818 Fund III also received an
option to purchase an additional $20.0 million in Series A Preferred Stock from
the Company prior to June 30, 2000 at the original purchase price per share. The
Company allocated approximately $44.8 million of the gross proceeds to the
50,000 shares of Series A Preferred Stock sold and $5.2 million to the option
granted to purchase additional shares of Series A Preferred Stock. One of our
directors is a co-manager of The 1818 Fund III.
Each share of Series A Preferred Stock is convertible at the option of the
holder into the Company's common stock in accordance with a conversion formula
equal to the $1,000 liquidation preference per share divided by a conversion
price of $11.50 per share, subject to adjustment. If the closing trading price
of the Company's common stock exceeds $30.00 per share for 45 consecutive
trading days, the Series A Preferred Stock will be automatically converted into
the Company's common stock. The Series A Preferred Stock may be voted with the
Company's common stock on an as converted basis. The holders of Series A
Preferred Stock also have the right to designate one member to the Company's
board of directors. The holders of Series A Preferred Stock have certain
supermajority voting rights upon certain circumstances, such as the
authorization of a class of securities having senior or parity rights with the
Series A Preferred Stock, a reorganization or liquidation of the Company, or a
consolidation or merger of the Company into a third party.
SERIES B PREFERRED STOCK
As part of the consideration paid by the Company in May 1999 to acquire
Comm/Net, the Company issued 23,174 shares of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B (the "Series B Preferred Stock") for an
aggregate amount of approximately $23.2 million. Each share of the Series B
Preferred Stock is convertible at the option of the holder into the Company's
common stock in accordance with a conversion formula equal to the $1,000
liquidation preference per share divided by a conversion price of $16.00 per
common share, subject to standard anti-dilution adjustments. If the closing
trading price of the Company's common stock exceeds $16.00 per share for 45
consecutive trading days, the Series B Preferred Stock will automatically
convert into common stock. Preferred dividends began accruing July 1, 1999 and
are payable quarterly. In March 2000, the Series B Preferred Stock was converted
into 1,448,373 shares of the Company's common stock.
SERIES C PREFERRED STOCK
As part of the consideration paid by the Company in connection with the
FaciliCom Merger in December 1999, the Company issued 369,901 shares of
Convertible Preferred Stock, Series C (the "Series C Preferred Stock") for an
aggregate amount of approximately $369.9 million. In December 1999, holders of
19,641 shares of Series C Preferred Stock converted their shares into 963,722
shares of the Company's common stock.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Series C Preferred Stock bears no dividend and is convertible into
shares of the Company's common stock at the option of the holder in accordance
with a conversion formula equal to the $1,000 liquidation preference per share
divided by a conversion price of $20.38 per common share, subject to adjustment
in the event of below market issuances of common stock, stock dividends,
subdivisions, combinations, reclassifications and other distributions with
respect to common stock. If the closing trading price of the Company's common
stock exceeds $20.38 per share for 60 consecutive trading days, the Series C
Preferred Stock will automatically convert into common stock. Initially, the
holders of the Series C Preferred Stock will be entitled to elect four new
directors to the Company's 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 the Company's common stock.
NOTE I: STOCK WARRANTS AND OPTIONS
DIRECTOR WARRANT PLANS
In December 1994, in an effort to attract and retain experienced executives
to serve as outside directors for the Company, the Company's board of directors
adopted an Outside Directors' Warrant Plan (the "Plan"). The Plan, as amended,
provides for the granting of up to 2.4 million warrants. Warrants granted are
priced at or above market value on the date of grant, typically vest within a
one year period and must be exercised prior to the fifth anniversary from the
date of grant. As of December 31, 1999, there were 799,000 warrants available
for future grant under the Plan.
In December 1994, the board also adopted the Directors Warrant Incentive
Plan (the "Incentive Plan"), pursuant to which the board, beginning in 1997, may
grant to each director on an annual basis warrants to purchase up to 50,000
shares of Company common stock at an exercise price per share equal to no less
than 110% of the fair market value of the common stock at the date of grant.
Warrants may only be issued under the Incentive Plan if the Company's common
stock has appreciated by a compounded average annual growth rate equal to or in
excess of 35% for the four years preceding the year of grant. The Incentive Plan
provides for the granting of up to 600,000 warrants. As of December 31, 1999,
there were 150,000 warrants available for future grant under the Incentive Plan.
In March 2000, the Company's board of directors increased the authorized number
of warrants underlying the Incentive Plan to 1.2 million, subject to approval by
the Company's stockholders.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity relating to the Plan and the
Incentive Plan:
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF WARRANTS PRICE
----------- -------
<S> <C> <C>
Balance at January 1, 1997.................................. 1,026,000 $ 2.61
Warrants granted............................................ 200,000 9.21
Warrants exercised.......................................... (358,660) 2.02
Warrants lapsed or canceled................................. --
---------
Balance at December 31, 1997................................ 867,340 4.37
Warrants granted............................................ 400,000 22.87
Warrants exercised.......................................... (700,000) 3.76
Warrants lapsed or canceled................................. (100,000) 25.85
---------
Balance at December 31, 1998................................ 467,340 16.52
Warrants granted............................................ 551,000 12.90
Warrants exercised.......................................... (67,340) 3.55
Warrants lapsed or cancelled................................ (26,000) 19.88
---------
Balance at December 31, 1999................................ 925,000 $15.22
=========
Exercisable at December 31, 1999............................ 925,000 $15.22
=========
</TABLE>
The vesting of all warrants awarded pursuant to the plans above typically
will be subject to the board's discretion, provided that the director to whom
such warrants have been granted has attended at least 75% of the meetings of the
board of directors for the year in which such warrants are scheduled to vest.
Notwithstanding this limitation, the warrants to be awarded pursuant to the
plans will become immediately exercisable (i) if the Company is to be
consolidated with or acquired by another entity in a merger, (ii) upon the sale
of substantially all of the Company's assets or the sale of at least 90% of the
outstanding common stock of the Company to a third party, (iii) upon the merger
or consolidation of the Company with or into any other corporation or the merger
or consolidation of any corporation with or into the Company (in which
consolidation or merger the shareholders of the Company receive distributions of
cash or securities as a result thereof), or (iv) upon the liquidation or
dissolution of the Company.
STOCK OPTION PLANS
In 1991, the Company's stockholders adopted the 1991 Stock Option Plan (the
"1991 Plan"). The 1991 Plan, as amended, provided for the granting of up to 3.5
million options. As of December 31, 1999, no options were available for future
grant under the 1991 Plan.
In December 1997, the Company's board of directors authorized the adoption
of the 1998 Incentive Equity Plan (the "1998 Plan"). The 1998 Plan provides for
the granting of up to 7.5 million options. As of December 31, 1999, there were
1.9 million options available for future grant under the 1998 Plan.
These plans allow the board of directors to grant non-qualified and
incentive stock options to purchase the Company's common stock at an exercise
price not less than fair market value as of the grant date. Options issued under
these plans typically vest over a four year period. Options awarded under the
1991 Plan and the 1998 Plan are subject to the same accelerated vesting
provisions described above under the director warrant plans.
81
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity relating to the 1991 Plan and
the 1998 Plan:
<TABLE>
<CAPTION>
NUMBER AVERAGE
OF OPTIONS PRICE
---------- -------
<S> <C> <C>
Balance at January 1, 1997.................................. 2,327,128 $ 6.08
Options granted............................................. 1,955,500 16.95
Options exercised........................................... (647,700) 5.77
Options lapsed or canceled.................................. (80,440) 7.23
----------
Balance at December 31, 1997................................ 3,554,488 12.14
Options granted............................................. 1,713,500 21.69
Options exercised........................................... (793,761) 6.37
Options lapsed or canceled.................................. (144,375) 15.25
----------
Balance at December 31, 1998................................ 4,329,852 17.15
Options granted............................................. 4,683,150 11.92
Options exercised........................................... (163,188) 6.70
Options lapsed or cancelled................................. (1,746,019) 14.83
----------
Balance at December 31, 1999................................ 7,103,795 $14.51
==========
Exercisable at December 31, 1999............................ 1,605,945 $14.84
==========
</TABLE>
In February 1998, the Company issued 740,543 non-qualified options to
purchase Company common stock at $11.15 per share and 106,586 non-qualified
options to purchase Company common stock at $16.25 per share in exchange for
substantially all the options held by NACT employees, which became immediately
vested in connection with the NACT Merger. As of December 31, 1999, there were
500,792 of these options outstanding at an average exercise price of $12.24 per
share.
In November 1998, the Company issued 1,028,670 non-qualified options to
purchase Company common stock at prices ranging from $.01 to $32.41 per share in
exchange for substantially all the options held by Telco Systems employees,
which became immediately vested in connection with the Telco Systems Merger. As
of December 31, 1999, there were 604,449 of these options outstanding at an
average exercise price of $16.53 per share.
In December 1999, the Company issued 495,557 non-qualified options to
purchase Company common stock at prices ranging from $.0001 to $11.06 per share
in exchange for all the options held by FaciliCom employees under the FaciliCom
1998 Stock Option Plan, which became immediately vested in connection with the
FaciliCom Merger. As of December 31, 1999, all 495,557 options were outstanding
at an average exercise price of $2.63 per share.
In December 1999, the Company issued 1,912,500 options to purchase Company
common stock at $15.00 per share in exchange for all the options held by
FaciliCom employees under the FaciliCom 1999 Stock Option Plan. Other than
approximately 75,000 options that vested in connection the FaciliCom Merger, the
options vest over a four year period. As of December 31, 1999, 1,912,500 options
were outstanding at an exercise price of $15.00 per share.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All stock options outstanding at December 31, 1999 have been segregated
into six price ranges for additional disclosure as follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF OUTSTANDING REMAINING EXERCISE
EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE PRICES
- --------------- ----------- ---------------- ----------------
<S> <C> <C> <C>
$ .01 - $ 3.97............................. 662,406 4.36 $ 1.53
5.44 - 9.75............................. 1,477,660 3.06 8.17
10.00 - 14.71............................. 3,058,783 3.89 12.00
15.00 - 19.88............................. 2,923,478 4.89 15.73
20.31 - 24.74............................. 2,361,159 3.66 21.12
25.25 - 32.41............................. 133,607 3.94 25.91
----------
10,617,093
==========
</TABLE>
A total of approximately 13.5 million shares of the Company's common stock
are reserved for issuance upon the exercise of stock warrants and options.
PRO FORMA RESULTS OF OPERATIONS
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for its employee
stock options. Therefore, no compensation cost has been recognized related to
stock options. If the Company had elected to account for its stock options under
the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net loss and net loss per common share from
continuing operations would have been reduced to the pro forma amounts indicated
below (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------- ------- ------
<S> <C> <C> <C>
Loss from continuing operations
As reported............................................ $ (27,098) $(5,437) $ (460)
Pro forma.............................................. (34,958) (9,484) (2,214)
Loss per common share from continuing operations
As reported............................................ (0.78) (0.25) (0.03)
Pro forma.............................................. (0.99) (0.43) (0.02)
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Since the Company's employee stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of the Company's employee stock options.
The fair value of each option has been estimated on the date of grant using
a Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1999, 1998, and 1997, respectively:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C>
Dividend yield.............................................. n/a n/a n/a
Expected volatility......................................... 70 72 44
Risk-free interest rate..................................... 5.3 5.0 5.5
Expected life of stock options (in years)................... 3.0 5.0 4.5
</TABLE>
83
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J: RETIREMENT SAVINGS PLAN
The Company has a retirement savings 401(k) plan that covers substantially
all employees. The plan provides for the employees to voluntarily contribute a
portion of their compensation on a tax deferred basis and allows for the Company
to make discretionary matching contributions as determined by the board of
directors. For 1999, 1998, and 1997, the Company contributed approximately
$357,000, $194,000, and $109,000, respectively, in the form of Company common
stock to the Plan. Company contributions have been based on a 50% match to
employee contributions, up to the first six percent contributed.
NOTE K: INCOME TAXES
The Company uses the asset and liability approach for financial accounting
and reporting for income taxes. Certain expenses are reported for financial
accounting purposes in different periods than for income tax purposes. These
temporary differences arise primarily from depreciation, provisions for doubtful
accounts, inventory valuation reserves and various other accrued expenses.
The components of the income taxes benefit attributable to loss from
continuing operations consisted of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- ------
<S> <C> <C> <C>
Federal income taxes
Current................................................... $ -- $ -- $ --
Deferred.................................................. (10,892) (2,167) (242)
-------- ------- ------
(10,892) (2,167) (242)
State income taxes
Current................................................... -- -- --
Deferred.................................................. 766 (1,134) (10)
-------- ------- ------
766 (1,134) (10)
-------- ------- ------
Total income taxes benefit........................ $(10,126) $(3,301) $ (252)
======== ======= ======
</TABLE>
As a result of the exercises of non-qualified stock options and warrants by
the Company's directors and employees during 1999 and 1998, the Company realized
a federal income tax benefit of approximately $650,000 and $12.8 million,
respectively. These tax benefits are accounted for as a decrease in current
income taxes payable and an increase in capital in excess of par value.
The income taxes benefit attributable to continuing operations differs from
the amount computed by applying the statutory federal income tax rate to loss
from continuing operations before income taxes as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -----
<S> <C> <C> <C>
Federal income taxes at statutory rate...................... $(13,028) $(2,971) $(242)
Amortization of goodwill.................................... 2,610 938 --
State tax, net of federal benefit........................... 498 (730) (6)
Other....................................................... (206) (538) (4)
-------- ------- -----
Income taxes benefit........................................ $(10,126) $(3,301) $(252)
======== ======= =====
</TABLE>
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred tax assets and liabilities at December 31 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
DEFERRED TAX ASSETS
Inventory and other reserves................................ $ 9,412 $ 123
Restructuring/acquisition costs............................. 15,498 --
Net operating loss carryforwards............................ 90,669 51,000
Other....................................................... -- --
Federal tax credits carryforward............................ -- --
-------- -------
115,579 51,123
Valuation reserve........................................... (75,510) (24,881)
-------- -------
Total deferred tax assets................................... 40,069 26,242
DEFERRED TAX LIABILITIES
Depreciation/amortization................................... (1,508) --
Intangible Assets........................................... -- --
Capitalized Software........................................ (68) --
Other....................................................... (49) --
-------- -------
Total deferred tax liabilities.............................. (1,625) --
-------- -------
Net deferred tax assets..................................... $ 38,444 $26,242
======== =======
</TABLE>
SFAS No. 109, "Accounting for Income Taxes" requires that a valuation
reserve be established if it is "more likely than not" that realization of the
tax benefits will not occur. The valuation reserve increased by approximately
$50.6 million in 1999. This change is primarily due to the valuation allowance
established for the net operating loss ("NOL") acquired in connection with the
FaciliCom Merger. This NOL carryforward is subject to limitations under the
consolidated return regulations and limits for certain ownership changes.
At December 31, 1999, the Company had NOL carryforwards acquired through
acquisitions to reduce future taxable income of these acquisitions of
approximately $78.0 million. To the extent not utilized, the U.S. federal net
operating losses will expire in 2011 through 2018. The Company also acquired
through business acquisitions unused research and development and investment tax
credit carryforwards of approximately $2.7 million at December 31, 1999, which
expire in 2000 through 2013.
At December 31, 1999, the Company had recorded approximately $13.1 million
relating to deferred tax assets of the discontinued entities.
NOTE L: REPORTABLE SEGMENT DATA
In December 1999, the Company adopted a plan to divest all its
telecommunications equipment business. As a result, the Company's service
segment, "Continuing Operations" is the Company's only reportable business
segment.
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present revenues and other financial information by
geographic region (in thousands):
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31
-------------------------------------------------------------------
1999 1998
-------------------------------- --------------------------------
REVENUES(A) LONG-LIVED ASSETS REVENUES(A) LONG-LIVED ASSETS
----------- ------------------ ----------- ------------------
<S> <C> <C> <C> <C>
United States................................... $476,911 $88,695 $10,787 $32,136
Europe.......................................... 24,170 47,338 -- 9,305
Other foreign countries......................... -- -- -- --
Consolidated total.............................. 501,081 136,033 10,787 41,441
</TABLE>
- ---------------
(a) Revenues are attributed to countries based on the location of customers.
NOTE M: LITIGATION
Following the Company's announcement in early 1999 regarding earnings
expectations for the quarter and year ended December 31, 1998 and the subsequent
decline in the price of the Company's common stock, 23 class action shareholder
suits were filed against the Company. The Company and certain of its then
current officers and directors were named as defendants. These suits arise from
alleged misstatements of material information in and alleged omissions of
material information from some of our securities filings and other public
disclosures, principally related to product development, inventory and sales
activities during the fourth quarter of 1998. Plaintiffs have requested damages
in an unspecified amount in their complaints.
These class action suits were consolidated into a single action for all
pretrial proceedings in the United District Court for the Northern District of
Georgia. The plaintiffs filed an amended consolidated complaint for this action
on or about May 28, 1999. The Company filed a motion to dismiss the amended
consolidated complaint on June 28, 1999. The court denied this motion to dismiss
in an order dated March 28, 2000.
Although the Company and the individuals named as defendants deny that they
have violated any of the requirements or obligations of the federal securities
laws, there can be no assurance the Company will not sustain material liability
as a result of or related to these shareholder suits.
NOTE N: RELATED PARTY TRANSACTIONS
A wholly owned subsidiary of MCI WorldCom, Inc. ("WorldCom"), which owned
approximately 8.0% of the Company's voting common stock at December 31, 1999,
purchases international long distance services from the Company under a Carrier
Service Agreement (the "Service Agreement") entered into in June 1998. WorldCom
is obligated to purchase from the Company at least $25.0 million a month of such
services, provided the services are of acceptable quality and the rates quoted
are at least equal to the rates WorldCom is obtaining from other third party
providers. The Service Agreement has a rolling 12-month evergreen term, subject
to a one year prior notice of termination. The revenues attributable to this
Service Agreement comprised approximately 53.4% of the Company's carrier service
revenue for the year ended December 31, 1999.
FaciliCom has historically relied on its majority stockholder, Armstrong
Holdings, Inc. ("AHI") for the performance of certain of its services, including
customer billing. In connection with the FaciliCom Merger, an affiliate of AHI
received 309,002 shares of Series C Preferred Stock, which represented
approximately 20.0% of the Company's voting common stock at December 31, 1999.
In December 1999, the Company entered into a two year services agreement with
AHI. The terms of the agreement includes professional services billed at hourly
rates and data center services based on usage and disk storage space. The
Company believes that the terms of the agreements are competitive with similar
services offered in the industry.
86
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WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company paid Brown Brothers Harriman & Co. $750,000 for advisory
services in connection with the $75.0 million private placement of our common
stock in December 1999 and $830,000 for advisory services in connection with an
$83.1 million private placement of our common stock in February 2000.
Additionally, Brown Brothers Harriman has been engaged in connection with the
proposed sale of our Equipment Group, pursuant to which Brown Brothers Harriman
may be entitled to a payment equal to 0.5% of the sales price upon closing.
Lawrence C. Tucker, a director of the Company, is a General Partner of Brown
Brothers Harriman.
NOTE O: SUBSEQUENT EVENTS
LDI ACQUISITION
In February 2000, the Company acquired substantially all of the assets and
assumed certain liabilities of Long Distance International Inc. ("LDI"),
including its wholly-owned subsidiary NETnet International S.A. Operating under
the NETnet(TM) name throughout Europe, LDI offers an array of retail
telecommunications services concentrating on the needs of business customers in
Austria, France, Germany, Italy, Norway, Spain, Sweden, Switzerland, and the
United Kingdom.
In connection with the LDI acquisition, the Company issued 185,000 shares
of Convertible Preferred Stock, Series D ("Series D Preferred Stock"), to LDI's
stockholders and the holders of LDI's senior notes, for an aggregate
consideration of $185.0 million. The Series D Preferred Stock bears no dividend
and is convertible into shares of the Company's common stock at the option of
the holder in accordance with a conversion formula equal to the $1,000
liquidation preference per share divided by a conversion price of $18.00 per
common share, subject to adjustment. If the closing trading price of the
Company's common stock exceeds $18.00 per share for 60 consecutive trading days,
the Series D Preferred Stock will automatically convert into common stock.
PRIVATE PLACEMENT OF COMMON STOCK
In February 2000, the Company sold 3,822,552 shares of restricted common
stock for approximately $83.1 million, or $21.75 per share, in a private
transaction with a group of institutional and sophisticated investors.
PENDING SALE OF TELCO SYSTEMS
In February 2000, the Company executed a definitive agreement with BATM
Advanced Communications Limited ("BATM"), an Israel-based technology company,
pursuant to which Telco Systems will be sold to BATM for $260.8 million of cash
and 960,000 restricted shares of BATM common stock. The shares of BATM common
stock, which had an initial value of $65.2 million, trade on the London Stock
Exchange. Under the terms of the definitive agreement, the Company may not sell,
transfer or otherwise monetize these shares for a period of one year without the
consent of BATM. The Company expects to complete this transaction in the second
quarter of 2000.
STAR MERGER
In February 2000, the Company executed a definitive agreement with Star
Telecommunications, Inc. ("Star"), a publicly held multinational
telecommunication service provider, pursuant to which Star will be merged with
and into the Company. Under the terms of the agreement, each share of Star
common stock will be converted into .3905 shares of the Company's common stock
(approximately 23 million shares). The Company has the option of paying up to
40% of the merger consideration in cash. The Company expects the transaction to
close in mid-2000.
87
<PAGE> 90
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Star merger is subject to, among other things, certain regulatory
approvals, the approval of the stockholders of the Company and Star, and the
divestiture by Star of certain business segments for specified minimum net cash
proceeds. Any net proceeds in excess of the specified minimum proceeds would
serve to directly increase the merger consideration. The merger is intended to
qualify as a tax-free reorganization, and will be accounted for as a purchase
transaction. The Company has agreed to provide bridge financing to Star in an
amount up to $35.0 million. Star will be entitled to elect one director to the
Company's board of directors.
WORLDXCHANGE MERGER
In February 2000, the Company executed a definitive merger agreement with
Communication TeleSystems International, d/b/a WorldxChange Communications
("WorldxChange"), a privately held multinational telecommunications service
provider. WorldxChange generated pro-forma revenues in 1999 of approximately
$600 million, through its primary operations in North America, Germany, the
United Kingdom, France, the Netherlands, Belgium, Australia and New Zealand.
Pursuant to the terms of the agreement, stockholders of WorldxChange will
receive approximately 31 million shares of the Company's common stock, subject
to adjustment under certain circumstances. In addition, the Company will assume
approximately $225.0 million in WorldxChange debt. The Company expects the
transaction to close in mid-2000.
The WorldxChange merger is subject to, among other things, certain
regulatory approvals and the approval of the stockholders of the Company and
WorldxChange. The merger is intended to qualify as a tax-free reorganization,
and will be accounted for as a purchase transaction. The Company has agreed to
provide bridge financing to WorldxChange in an amount up to $30.0 million.
WorldxChange will be entitled to elect one director to the Company's board of
directors.
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<PAGE> 91
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We had no disagreements with our accountants during the period covered by
this report, and our accountant's reports on the financial statements for each
of the past three years did not contain an adverse opinion or disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
Set forth below is information regarding each of our directors as of March
24, 2000.
Walter J. Burmeister. Mr. Burmeister (age 60) has served as our President
and one of our directors since December 1999. Mr. Burmeister was one of
FaciliCom's co-founders and served as its Chief Executive Officer, President and
one of its directors from 1995 until it merged with us in December 1999. Prior
to co-founding FaciliCom, Mr. Burmeister founded TMG, a telecommunications
consulting firm, and he has served as its Chairman from 1992 to the present. Mr.
Burmeister was Vice President and Chief Financial Officer of Bell Atlantic
International from 1989 to 1992. In this position, Mr. Burmeister was
responsible for overseeing business development in Central and South America,
the Middle East and Africa, as well as managing that company's financial
affairs. During his 31 years with Bell Atlantic, Mr. Burmeister was Vice
President of Bell of Pennsylvania's and Diamond State Telephone's sales
organization and headed the C&P Telephone Operations Staff. Mr. Burmeister has
served as a director of Skysat Communications Network since 1992. Mr. Burmeister
serves on our board of directors as a designee of the holders of our Series C
preferred stock, and his current term is scheduled to end at our 2000 Annual
Meeting of Stockholders.
Kirby J. Campbell. Mr. Campbell (age 52) has served as one of our
directors since December 1999. He served as Treasurer, Vice President and as a
director of FaciliCom from its inception in 1995 until it merged with us in
December 1999. Since June 1997, Mr. Campbell has been the Chief Executive
Officer of Armstrong Holdings, Inc., FaciliCom's indirect majority stockholder,
and he was previously Executive Vice President of Armstrong Holdings. Mr.
Campbell also holds various executive and board positions with Armstrong
Holdings' affiliated companies. Mr. Campbell serves on our board of directors as
a designee of the holders of our Series C preferred stock, and his current term
is scheduled to end at our 2000 Annual Meeting of Stockholders.
Bryan Cipoletti. Mr. Cipoletti (age 39) has served as one of our directors
since December 1999. He served as a director of FaciliCom from September 1997
until it merged with us in December 1999. Mr. Cipoletti has been Chief Financial
Officer of Armstrong Holdings since December 1999 and was Vice President of
Finance of Armstrong Holdings from 1993 to 1999. Mr. Cipoletti also holds
various executive and board positions with Armstrong Holdings' affiliated
companies. Mr. Cipoletti serves on our board of directors as a designee of the
holders of Series C preferred stock, and his current term is scheduled to end at
our 2000 Annual Meeting of Stockholders.
Stephen J. Clearman. Mr. Clearman (age 49) has served as one of our
directors since 1988. Mr. Clearman co-founded Geocapital Partners. Since 1984,
he has served as a general partner of six Geocapital venture capital
partnerships. Mr. Clearman currently serves as a director of MemberWorks
Incorporated and several private companies, all of which principally provide
computer software or information services. Mr. Clearman's current term as a
director of World Access is scheduled to end at our 2000 Annual Meeting of
Stockholders.
John P. Imlay, Jr. Mr. Imlay (age 63) has served as one of our directors
since December 1998. He is Chairman of Imlay Investments, Inc., a private
investment firm which manages capital and provides venture funds for small
technology companies. He also serves as Chairman of Dun & Bradstreet Software
Services, Inc., an application software company, and as a director of Metromedia
International Group, Inc., a global media, entertainment and communications
company. Mr. Imlay is the former Chairman of Management
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<PAGE> 92
Science America, a mainframe application software company that was acquired by
Dun & Bradstreet in 1990. He is also a director of the Atlanta Falcons and The
Gartner Group. Mr. Imlay's current term as a director of World Access is
scheduled to end at our 2001 Annual Meeting of Stockholders.
John D. ("Jack") Phillips. Mr. Phillips (age 57) has served as one of our
directors since December 1994, as our Chief Executive Officer since December
1998 and as Chairman of our Board of Directors since May 1999. Mr. Phillips was
Chairman of the Board and Chief Executive Officer of Cherry Communications and
Cherry U.K. d/b/a Resurgens Communications Group from October 1997 until
December 1998, when we acquired both companies. He was President, Chief
Executive Officer and a director of Metromedia International from November 1995
until December 1996. Metromedia International was formed in November 1995
through the merger of The Actava Group, Inc., Orion Pictures Corporation, MCEG
Sterling Incorporated and Metromedia International Telecommunications, Inc. He
served as President, Chief Executive Officer and a director of Actava from April
1994 until November 1995. In May 1989, Mr. Phillips became Chief Executive
Officer of Resurgens Communications Group, Inc. and served in this capacity
until September 1993 when Resurgens merged with Metromedia Communications
Corporation and WorldCom. Mr. Phillips' current term as a director of World
Access is scheduled to end at our 2000 Annual Meeting of Stockholders.
Massimo Prelz Oltramonti. Mr. Prelz (age 45) has served as one of our
directors since December 1999. He is a Managing Director of Gilbert Global
Equity Partners, L.L.C., a private equity firm with a diversified global
investment strategy. He previously served as Managing Director of Advent
International Corporation, the general partner of a series of global private
equity funds. In this capacity, he co-managed the media and telecom investment
activity of Advent International in Europe and was directly responsible for its
investments in Scandinavian Broadcasting Systems SA, Esat Telecom Group plc,
PrimaCom AG, Esaote S.p.A. and Jazztel SA. Prior to joining Advent International
in 1991, Mr. Prelz was a partner at Alta Berkeley Associates, a venture capital
group in London. He currently serves as Vice-Chairman of PrimaCom AG and is a
director of Esat Telecom Group plc, Jazztel SA and Iaxis N.V. Mr. Prelz's
current term as a director of World Access is scheduled to end at our 2002
Annual Meeting of Stockholders.
John P. Rigas. Mr. Rigas (age 36) has served as one of our directors since
December 1999. He is a Managing Partner of Zilkha Capital Partners L.P., a
private equity firm involved in a wide variety of venture capital and technology
investments both in the U.S. and internationally. Mr. Rigas has been a founder
of Zilkha Capital Partners and a member of its predecessor firms for twelve
years. He currently serves as the Chairman of Advanced Interactive Systems Inc.
and as a director of New Colt Holding, Inc., Omniglow, Inc. and Total Sports,
Inc. Mr. Rigas' current term as a director of World Access is scheduled to end
at our 2001 Annual Meeting of Stockholders.
Carl E. Sanders. Mr. Sanders (age 74) has served as one of our directors
since December 1998. He is engaged in the private practice of law as Chairman of
Troutman Sanders LLP, a law firm based in Atlanta, Georgia. He is a former
governor of the State of Georgia. Mr. Sanders is currently a director of Carmike
Cinemas, Matria Health Care and H.I.E. Corp. Mr. Sanders' current term as a
director of World Access is scheduled to end at our 2001 Annual Meeting of
Stockholders.
Dru A. Sedwick. Mr. Sedwick (age 34) has served as one of our directors
since December 1999. He served as Secretary, Vice President and as a director of
FaciliCom from FaciliCom's inception in 1995 until it merged with us in December
1999. Since June 1997, Mr. Sedwick has been President of Armstrong Holdings, and
previously he was Senior Vice President of Armstrong Holdings. Mr. Sedwick also
holds various executive and board positions with Armstrong Holdings' affiliated
companies. Mr. Sedwick serves on our board of directors as a designee of the
holders of our Series C preferred stock, and his current term is scheduled to
end at our 2000 Annual Meeting of Stockholders.
Lawrence C. Tucker. Mr. Tucker (age 57) has served as one of our directors
since April 1999. He has been a General Partner of Brown Brothers Harriman &
Co., a private banking firm, since 1979 and he also serves on The Partners'
Steering Committee. Mr. Tucker serves as a director of MCI WorldCom, Inc., the
MCI WorldCom Venture Fund, National Healthcare Corporation, Riverwood Holdings,
Inc., VAALCO Energy Inc. and National Equipment Services, Inc. Brown Brothers
Harriman & Co. is the general partner of
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The 1818 Fund, L.P., The 1818 Fund II, L.P., the 1818 Fund and The 1818
Mezzanine Fund, L.P. Mr. Tucker serves on our board of directors as the designee
of the holder of our Series A preferred stock, and his current term as a
director of World Access is scheduled to end at our 2002 Annual Meeting of
Stockholders.
EXECUTIVE OFFICERS
The information with respect to our executive officers is set forth in Item
4.5 of Part I of this Report.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own beneficially more than ten percent of a registered
class of our equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
our securities. Directors, executive officers and greater than ten-percent
stockholders are required by Commission regulations to furnish us with copies of
all Section 16(a) reports they file.
To the best of our knowledge, based solely on review of the copies of such
reports furnished to us and representations that no other reports were required,
all Section 16(a) filing requirements applicable to our directors, executive
officers and greater than ten-percent beneficial owners were complied with
during the 1999 fiscal year, except for Mr. Phillips, whose Annual Statement of
Changes in Beneficial Ownership on Form 5 was not filed timely. Mr. Phillips was
required to file a Form 5 to reflect shares of our common stock that he gifted
to his children in December 1999.
ITEM 11. EXECUTIVE COMPENSATION
DIRECTOR COMPENSATION
Our non-employee directors receive no cash compensation for their service
as directors of World Access. Their compensation is in the form of stock
warrants as discussed below. The directors are reimbursed for out-of-pocket
travel and related expenses incurred in connection with their attendance at
meetings of our board or its committees and at other World Access events to
which they are invited.
In December 1994, in an effort to attract and retain experienced executives
to serve as outside directors, the Outside Directors' Warrant Plan was adopted.
Our stockholders approved the Warrant Plan at the 1995 Annual Meeting of
Stockholders.
The purposes of the Warrant Plan are to attract and retain the best
available personnel for service as directors of World Access, to provide
additional incentive to the persons serving as directors, to align director and
stockholder long-term interests and to encourage continued service on the World
Access board. Warrants may be granted under the Warrant Plan only to directors
of the Company who are neither employees of World Access nor of any of its
affiliates. The aggregate number of shares of common stock authorized to be
issued pursuant to the Warrant Plan is 2,400,000, subject to adjustment in
certain instances as described below. The Warrant Plan provides that each
eligible non-employee director elected to serve as a director of World Access on
or after October 1, 1994 may be granted, in the discretion of the World Access
board, warrants to purchase no more than 450,000 shares of common stock in the
aggregate. The initial exercise price of the warrants will be not less than the
fair market value of the common stock subject to the warrant on the date of
grant.
In June 1999, the following directors were granted warrants to purchase a
total of 201,000 shares of our common stock at an exercise price of $11.69 per
share, the then current market price: Mr. Clearman -- 17,000 shares; Mr.
Imlay -- 42,000 shares; Mr. Sanders -- 42,000 shares; and Mr. Tucker -- 100,000
shares. These warrants, which were fully vested upon issuance, expire on June
15, 2004.
In December 1999, Mr. Prelz and Mr. Rigas joined our Board and were each
granted warrants to purchase 100,000 shares of our common stock at an exercise
price of $17.62 per share, the then current market price. These warrants, which
were fully vested upon issuance, expire on December 9, 2004.
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In December 1994, we also adopted the Directors' Warrant Incentive Plan
pursuant to which our board may grant, beginning in February 1997, to each
non-employee director on an annual basis warrants to purchase up to 50,000
shares of common stock at an exercise price per share equal to no less than 110%
of the fair market value of the common stock at the date of grant. No warrants
may be granted under the Incentive Plan in a given year unless our common stock
has appreciated by a compounded annual average rate of return in excess of 35%
for the four-year period preceding the year of grant. The aggregate number of
shares of common stock authorized to be issued pursuant to the Incentive Plan is
600,000 subject to adjustment in certain instances as described below. Upon
stockholder approval in mid-2000, the number of authorized shares will be
increased to 1.2 million shares.
In March 1999, pursuant to the Incentive Plan, our board granted each of
Messrs. Clearman, Imlay and Sanders warrants to purchase 50,000 shares of our
common stock at an exercise price of $8.25 per share, 110% of the then current
market price. These warrants became fully vested on December 31, 1999 and expire
on March 10, 2004.
Notwithstanding the foregoing, the Warrant Plan and the Incentive Plan
provide that warrants awarded pursuant to these plans will become immediately
exercisable (i) if we are consolidated with or acquired by another entity in a
merger, (ii) upon the sale of substantially all of our assets or the sale of at
least 90% of outstanding common stock to a third party, (iii) upon our merger or
consolidation with or into any other corporation or the merger or consolidation
of any corporation with or into us (in which consolidation or merger our
stockholders receive distributions of cash or securities as a result thereof),
or (iv) upon our liquidation or dissolution.
EXECUTIVE COMPENSATION
Summary of Compensation. The following table sets forth the cash and
non-cash compensation we awarded or paid our named executive officers,
consisting of our Chief Executive Officer and our four most highly compensated
executive officers other than our Chief Executive Officer, during 1997, 1998 and
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) OPTIONS (#) COMPENSATION ($)(6)
- --------------------------- ---- -------- ---------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
John D. Phillips(1)................. 1999 $625,000 $1,000,000 1,267,000 $ --
Chairman and Chief Executive 1998 26,000 -- 50,000 --
Officer 1997 -- -- 50,000 --
W. Tod Chmar(2)..................... 1999 300,000 300,000 175,000 --
Executive Vice 1998 9,800 -- -- --
President and Secretary 1997 -- -- -- --
Mark A. Gergel(3)................... 1999 300,000 210,000 90,000 5,000
Executive Vice President and 1998 168,100 -- -- 4,200
Chief Financial Officer 1997 97,500 115,000 216,000 28,000
A. Lindsay Wallace(4)............... 1999 270,000 -- 160,000 36,500
President of World Access 1998 160,400 65,000 70,000 4,200
Equipment Group 1997 -- -- -- --
Michael F. Mies(5).................. 1999 150,000 45,000 50,000 5,000
Senior Vice President 1998 101,000 30,000 -- --
of Finance and Treasurer 1997 -- -- 42,500 21,500
</TABLE>
- ---------------
(1) Mr. Phillips joined our board in December 1994, was appointed our Chief
Executive Officer in December 1998 and our Chairman in May 1999. Under the
Directors' Warrant Incentive Plan, Mr. Phillips was granted warrants to
purchase 50,000 shares of common stock at $9.21 per share and
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50,000 shares of common stock at $25.85 per share in 1997 and 1998,
respectively. These warrants were fully vested as of December 31, 1999.
(2) Mr. Chmar joined World Access as Executive Vice President and Secretary in
December 1998.
(3) During 1997, Mr. Gergel was paid a flat sum allowance of $25,000 for the
relocation of his household to Atlanta, Georgia.
(4) Mr. Wallace joined World Access in February 1998 in connection with our
acquisition of a majority interest in NACT Telecommunications, Inc. During
1999, Mr. Wallace was paid $31,500 to reimburse him for costs incurred in
the relocation of his household to Atlanta, Georgia.
(5) During 1997, Mr. Mies was paid a flat sum allowance of $21,500 for the
relocation of his household to Atlanta, Georgia.
(6) Except as noted above, All Other Compensation represents matching
contributions we provide all eligible employees under our 401(k) benefit
plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock
options to the named executive officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE ($) AT ASSUMED
-------------------------------------- ANNUAL RATES OF
NUMBER OF % OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
- ---- ---------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John D. Phillips(1).......... 750,000 10.6% $12.75 1/12/04 $8,077,500 $11,842,500
250,000 3.5 12.75 4/16/04 2,767,500 4,127,500
17,000 .2 11.69 6/16/04 209,600 307,000
250,000 3.5 15.88 11/29/04 2,160,000 3,782,500
W. Tod Chmar(2).............. 100,000 1.4 8.19 2/12/04 1,543,000 2,059,000
75,000 1.1 15.88 11/29/04 648,000 1,134,700
Mark A. Gergel(2)............ 40,000 .6 11.69 6/16/04 493,200 722,400
50,000 .7 15.88 11/29/04 432,000 756,500
A. Lindsay Wallace(3)........ 130,000 1.8 12.75 1/12/04 1,400,100 2,052,700
30,000 .4 11.69 6/16/04 369,900 541,800
Michael F. Mies(3)........... 37,500 .5 8.19 2/12/04 578,600 772,100
12,500 .2 11.69 6/16/04 154,100 225,800
</TABLE>
- ---------------
(1) The 750,000 and 250,000 options granted to Mr. Phillips at $12.75 per share
were originally scheduled to vest over a four-year period. In connection
with Mr. Phillips' execution of a letter agreement with Armstrong
International Telecommunications, Inc. (see "Executive Employment
Agreements"), our board elected to vest all these options in full upon the
consummation of our merger with FaciliCom in December 1999. The 17,000
options vested immediately upon issuance, and the other 250,000 of options
will vest one-third on each of the first three anniversaries from date of
grant.
(2) The first option grant indicated will vest 25% on each of the first four
anniversaries from date of grant and the second grant will vest one-third on
each of the first three anniversaries from date of grant.
(3) All options granted will vest 25% on each of the first four anniversaries
from date of grant.
(4) The 5% and 10% appreciation rates are set forth in the Securities and
Exchange Commission rules and no representation is made that common stock
will appreciate at these assumed rates or at all.
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AGGREGATED OPTION AND WARRANT EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of director
warrants and employee options exercised by the named executive officers during
1999 and the value at December 31, 1999 of unexercised warrants and options held
by each such officer. The value of unexercised warrants and options reflects the
increase in market value of our common stock from the date of grant through
December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY(2)
NUMBER OF WARRANTS AND OPTIONS WARRANTS AND OPTIONS
SHARES AT 12-31-99 AT 12-31-99
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John D. Phillips -- $ -- 1,117,000 250,000 $7,130,500 $ 842,500
W. Tod Chmar -- -- -- 175,000 -- 1,358,700
Mark A. Gergel 10,125 107,500 237,500 156,000 1,038,400 470,900
A. Lindsay Wallace -- -- 122,380 212,500 712,700 1,071,800
Michael F. Mies -- -- 17,500 71,250 37,800 582,700
</TABLE>
- ---------------
(1) The "value realized" represents the difference between the exercise price of
the shares and the market price of the shares on the date the warrants and
options were exercised. The value realized was determined without
considering any taxes which may have been owed.
(2) "In-the-Money" warrants and options have an exercise price less than $19.25
per share, the closing price of our common stock as of December 31, 1999.
EXECUTIVE EMPLOYMENT AGREEMENTS
On April 16, 1999, we entered into new employment agreements with each of
John D. Phillips, our Chairman and Chief Executive Officer, W. Tod Chmar, our
Executive Vice President and Secretary, and Mark A. Gergel, our Executive Vice
President and Chief Financial Officer. Mr. Phillips' employment agreement
provides for a base salary of $625,000 per year. The agreement further provides
that Mr. Phillips may be awarded an annual bonus in the discretion of our board
pursuant to a bonus or incentive plan or otherwise. The initial term of the
agreement is three years, with an automatic one-year extension on each
anniversary of the agreement's effective date unless either party to the
agreement gives notice of termination. If, during the term of the agreement, Mr.
Phillips' employment with World Access is terminated (i) by World Access without
cause, as defined below, or (ii) by Mr. Phillips for good reason, as defined
below, Mr. Phillips will be entitled to an amount in cash equal to two times his
base annual salary, which will be paid in bi-weekly installments over a period
of 24 months, and to his then current life insurance, disability, medical,
dental and hospitalization benefits for a period of 24 months or such longer
period as may be provided by the terms of the appropriate program, all of Mr.
Phillips' stock options, warrants and stock appreciation rights granted on or
prior to the date of his employment agreement shall become fully vested and
immediately exercisable until the first anniversary of Mr. Phillips' termination
date, and all performance units granted to Mr. Phillips at any time prior to his
termination shall become fully vested.
Mr. Chmar's employment agreement provides for a base salary of $300,000 per
year. The agreement further provides that Mr. Chmar may be awarded an annual
bonus in the discretion of our board pursuant to a bonus or incentive plan or
otherwise. The initial term of the agreement is three years, with an automatic
one-year extension on each anniversary of the agreement's effective date unless
either party to the agreement gives notice of termination. If, during the term
of the agreement, Mr. Chmar's employment with World Access is terminated (i) by
World Access without cause or (ii) by Mr. Chmar for good reason, Mr. Chmar will
be entitled to an amount in cash equal to his base annual salary, which will be
paid in bi-weekly installments over a period of 12 months, and to his then
current life insurance, disability, medical, dental and hospitalization benefits
for a period of 12 months or such longer period as may be provided by the terms
of the appropriate program, all of Mr. Chmar's stock options, warrants and stock
appreciation rights granted on or prior to the date of his employment agreement
shall become fully vested and immediately exercisable until the first
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anniversary of Mr. Chmar's termination date, and all performance units granted
to Mr. Chmar at any time prior to his termination shall become fully vested.
Mr. Gergel's employment agreement provides for a base salary of $300,000
per year. The agreement further provides that Mr. Gergel may be awarded an
annual bonus in the discretion of our board pursuant to a bonus or incentive
plan or otherwise. The initial term of the agreement is three years, with an
automatic one-year extension on each anniversary of the agreement's effective
date unless either party to the agreement gives notice of termination. If,
during the term of the agreement, Mr. Gergel's employment with World Access is
terminated (i) by World Access without cause or (ii) by Mr. Gergel for good
reason following a change of control, Mr. Gergel will be entitled to an amount
in cash equal to his base annual salary, which will be paid in bi-weekly
installments over a period of 12 months, and to his then current life insurance,
disability, medical, dental and hospitalization benefits for a period of 12
months or such longer period as may be provided by the terms of the appropriate
program, all of Mr. Gergel's stock options, warrants and stock appreciation
rights granted on or prior to the date of his employment agreement shall become
fully vested and immediately exercisable until the first anniversary of Mr.
Gergel's termination date, and all performance units granted to Mr. Gergel at
any time prior to his termination shall become fully vested. Notwithstanding
these provisions, if Mr. Gergel terminates his employment for any reason, in
addition to receiving the same treatment with respect to his options, warrants,
rights and performance units, he shall be entitled to an amount of cash equal to
one-half of his base annual salary and the benefits described above for a period
of six months.
For the purposes of the employment agreements with each of Messrs.
Phillips, Chmar and Gergel, the following definitions apply:
A termination of employment is for cause if the employee has been convicted
of a felony or a felony prosecution has been brought against the employee or if
the termination is evidenced by a resolution adopted in good faith by two-thirds
(2/3) of the board that the employee (i) intentionally and continually failed
substantially to perform his reasonably assigned duties, other than a failure
resulting from the employee's incapacity due to physical or mental illness or
from the employee's assignment of duties that would constitute good reason,
which failure continued for a period of at least 30 days after a written notice
of demand for substantial performance has been delivered to the employee
specifying the manner in which the employee has failed substantially to perform
or (ii) intentionally engaged in illegal conduct or gross misconduct which
results in material economic harm to World Access.
Good reason means a good faith determination by the employee that any one
or more of the following events has occurred, without the employee's express
written consent:
(i) the assignment to the employee of any duties inconsistent with the
employee's position, authority, duties or responsibilities as in effect
immediately prior to the date of his employment agreement, or any other
action by World Access that results in a material diminution in such
position, authority, duties or responsibilities; (ii) a reduction by World
Access in the employee's base salary, or a change in the eligibility
requirements or performance criteria under any bonus, incentive or
compensation plan, program or arrangement under which the employee is
covered immediately prior to his termination date which adversely affects
the employee; (iii) any failure to pay the employee any compensation or
benefits to which he is entitled within five days of the date due; (iv)
World Access' requiring the employee to be based anywhere other than within
50 miles of the employee's job location as of the date of his employment
agreement, except for reasonably required travel on World Access' business
which is not greater than such travel requirements prior to the date of his
employment; (v) the taking of any action by World Access that would
materially adversely affect the physical conditions existing in or under
which the employee performs his employment duties; (vi) the insolvency or
the filing of a petition for bankruptcy by World Access; (vii) any
purported termination of the employee's employment for cause by World
Access which does not comply with his terms of his employment agreement; or
(viii) any breach by World Access of any provision of an employment
agreement.
A change in control shall have occurred if: (i) a majority of the directors
of World Access shall be persons other than persons: (A) for whose election
proxies shall have been solicited by the board, or (B) who are then serving as
directors appointed by the board to fill vacancies on the board caused by death
or
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resignation, but not by removal, or to fill newly-created directorships; (ii) a
majority of the outstanding voting power of World Access shall have been
acquired or beneficially owned by any person (other than World Access, a
subsidiary of World Access or the employee) or any two or more persons acting as
a partnership, limited partnership, syndicate, or other group acting in concert
for the purpose of acquiring, holding or disposing of voting stock of World
Access, which group does not include the employee; or (iii) there shall have
occurred: (A) a merger or consolidation of World Access with or into another
corporation (other than (1) a merger or consolidation with a subsidiary of World
Access or (2) a merger or consolidation in which (a) the holders of voting stock
of World Access immediately prior to the merger as a class continue to hold
immediately after the merger at least a majority of all outstanding voting power
of the surviving or resulting corporation or its parent and (b) all holders of
each outstanding class or series of voting stock of World Access immediately
prior to the merger or consolidation have the right to receive substantially the
same cash, securities or other property in exchange for their voting stock of
World Access as all other holders of such class or series); (B) a statutory
exchange of shares of one or more classes or series of outstanding voting stock
of World Access for cash, securities or other property; (C) the sale or other
disposition of all or substantially all of the assets of World Access, in one
transaction or a series or transactions; or (D) the liquidation or dissolution
of World Access; unless more than 25% of the voting stock, or the voting equity
interest, of the surviving corporation or the corporation or other entity
acquiring all or substantially all of the assets of World Access (in the case of
a merger, consolidation or disposition of assets) or of World Access or its
resulting parent corporation (in the case of a statutory share exchange) is
beneficially owned by the employee or a group that includes the employee.
John D. Phillips and Armstrong International Telecommunications, Inc. have
entered into a letter agreement, pursuant to which Mr. Phillips has agreed not
to sell or transfer, directly or indirectly, any shares of World Access common
stock held by him without the prior written consent of Armstrong International
Telecommunications for so long as Armstrong International Telecommunications or
any of its affiliates remains a stockholder of World Access. The provisions of
the letter agreement terminate upon (i) Mr. Phillips' death or disability, (ii)
any decision to remove, or to not reelect, Mr. Phillips as the Chief Executive
Officer of World Access in which at least 50% of the directors elected by the
holders of World Access Series C preferred stock (or, upon conversion into or
other acquisition of World Access common stock, by 50% of the directors
nominated, designated or elected by Armstrong International Telecommunications,
Epic Interests, Inc. and BFV Associates, Inc., or their affiliates) vote in
favor of such removal or fail to vote in favor of such reelection, (iii) the
fifth anniversary of the closing of our merger with FaciliCom in the event that
Mr. Phillips is no longer Chief Executive Officer of World Access for any
reason, and (iv) upon a change of control of World Access.
On November 29, 1999, we entered into an agreement with A. Lindsay Wallace,
President of our Equipment Group, that provides incentive compensation for Mr.
Wallace in the event of the sale of specified divisions of our Equipment Group.
This agreement provides that World Access will pay to Mr. Wallace: (i) a cash
payment equal to 0.75% of the gross consideration received by World Access upon
the sale of the NACT Switching Division; (ii) a cash payment equal to 0.75% of
the gross consideration received by World Access upon the sale of the Wireless
Local Loop Division; and (iii) 0.5% of the gross consideration received by World
Access upon the sale of the Transport and Access Division. This agreement also
provides that all stock options granted to Mr. Wallace under our 1991 Stock
Option Plan and 1998 Incentive Equity Plan will become fully vested upon the
sale of the NACT Switching Division and the Transport and Access Division, and
those options may be exercised by Mr. Wallace at any time until the one year
anniversary of the termination of Mr. Wallace's employment with World Access.
Additionally, this agreement states that if Mr. Wallace's employment with World
Access is terminated as a direct result of the sale of one of these divisions,
World Access will continue to pay Mr. Wallace's current base salary through the
second anniversary of his termination date. World Access' obligations under this
agreement are conditioned upon Mr. Wallace remaining the President of the
Equipment Group through the closing of the sales of these divisions, his
assistance in facilitating these sales and his agreement to serve as a full-time
employee or consultant with the buyer of these divisions for a period of six
months following the closing date. This agreement may be revoked at any time by
the Chief Executive Officer of World Access, in his sole discretion.
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COMPENSATION COMMITTEE REPORT
This report sets forth information on the compensation and benefits
provided to our Chief Executive Officer and other executive officers of the
Company during 1999 and has been prepared by the Compensation Committee of our
board of directors.
Compensation Philosophy. The Compensation Committee is currently comprised
of four non-employee directors. Among other things, the Compensation Committee
reviews and approves annual executive officer compensation. In general, the
compensation policies adopted by the Compensation Committee are designed to (i)
attract and retain executives capable of leading World Access to meet its
business objectives and (ii) motivate World Access executives to enhance
long-term stockholder value.
The annual compensation of Mr. Phillips, our Chairman and Chief Executive
Officer, and our other executive officers consists of a combination of base
salary, incentive bonuses and stock options. The Compensation Committee sets
base salaries for executive officers based principally on an assessment of World
Access' short and long-term goals and the specific responsibilities of each
officer. Information on individual performance is provided to the Compensation
Committee by our Chief Executive Officer. In addition to individual performance
against goals and responsibilities, the Compensation Committee is aware of
executive compensation practices at comparable companies (i.e., companies which
are generally of the same size in related industries). The Compensation
Committee uses this information only as a general reference, however, and not to
set specific salary amounts.
Incentive Bonuses. Annually, the Compensation Committee establishes the
performance goals and range of bonuses under our Short-Term Incentive Plan for
Senior Executives which was approved by our stockholders in June 1999. The
performance goals for 1999 were tied to World Access achieving predefined levels
of (i) earnings per share; (ii) revenue; (iii) earnings before interest, taxes,
depreciation and amortization; and (iv) common stock price appreciation. Each
performance goal operates independently, so achieving or failing to achieve
results from one measurement does not reflect the eligible bonus amounts awarded
for others.
Stock Options. The stock option program is a long-term incentive plan for
executive officers and other key employees. The objectives of the program are to
align executive and stockholder long-term interests by creating a strong and
direct relationship between executive compensation and stockholder returns. The
Compensation Committee strongly believes that by providing those individuals who
have substantial responsibility for the management and growth of World Access
and the maximizing of stockholder returns with an opportunity to increase their
ownership of common stock, the best interests of stockholders and executives
will be more closely aligned. World Access stock options typically vest over
three to four years, which increases the long-term value of these awards.
The Compensation Committee's determination of the number of options to
award to an individual executive officer is made in a manner similar to that
described above with respect to the setting of salaries. In addition, in
determining the number of options to be granted to an individual, the
Compensation Committee takes into account the number of options already granted
to that individual and the value of those options.
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Discussion of 1998 Chief Executive Officer Compensation. Based on our
actual performance against Short-Term Incentive Plan goals in 1999, as well as
Mr. Phillips' ability to complete several key strategic initiatives during the
year, the Compensation Committee awarded Mr. Phillips an incentive bonus of $1.0
million. Key strategic initiatives completed by Mr. Phillips included: (i) $50.0
million investment by The 1818 Fund III; (ii) acquisition of Comm/Net; (iii)
FaciliCom merger; (iv) $75.0 million private placement by institutional
investors; (v) pending acquisition of Long Distance International; and (vi)
pending monetization of the Company's equipment businesses. The Compensation
Committee also considered Mr. Phillips' continued progress in establishing a
broad, experienced management team, the efficient integration of acquired
businesses and the significant increase in the Company's market capitalization
during 1999.
Submitted by the Compensation
Committee
Stephen J. Clearman
John P. Imlay, Jr.
Carl E. Sanders
Dru A. Sedwick
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Our board's Compensation Committee consists of the four persons named as
signatories to the Compensation Committee Report above. There are no
Compensation Committee interlocks.
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WORLD ACCESS STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on our
common stock with the cumulative total return (including reinvested dividends)
of The Nasdaq Stock Market -- United States owned companies and Nasdaq
Telecommunications Stocks for the five years ended December 31, 1999. The Nasdaq
total returns were prepared by the Center for Research in Security Prices at the
University of Chicago.
<TABLE>
<CAPTION>
WORLD ACCESS NASDAQ (U.S.) NASDAQ (TELCOM)
------------ ------------- ---------------
<S> <C> <C> <C>
1994 100 100 100
1995 300 141.33 130.91
1996 320 173.89 133.86
1997 955 213.07 195.75
1998 855 300.25 322.3
1999 770 542.43 561.27
</TABLE>
- ---------------
Assumes that the value of the investment in our common stock and each index was
$100 on December 31, 1994, and that all dividends were reinvested.
(1) World Access common stock
(2) Total Return Index for The Nasdaq Stock Market (U.S. Companies)
(3) Total Return Index for Nasdaq Telecommunications Stocks
Pursuant to Securities and Exchange Commission regulations, this
performance graph is not "soliciting material," is not deemed filed with the
Commission and is not to be incorporated by reference in any of our filings
under the Securities Act or the Securities Exchange Act.
99
<PAGE> 102
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Our only issued and outstanding classes of voting securities are common
stock, Series A preferred stock, Series C preferred stock and Series D preferred
stock. As of March 24, 2000, there were 59,675,996 shares of World Access common
stock issued and outstanding; 50,000 shares of Series A preferred stock issued
and outstanding (convertible to 4,347,826 shares of our common stock); 350,260
shares of Series C preferred stock issued and outstanding (convertible into
17,186,451 shares of our common stock) and 185,000 shares of Series D preferred
stock issued and outstanding (convertible into 10,277,777 shares of our common
stock).
The following table sets forth information regarding the beneficial
ownership of our common stock and each individual class of our preferred stock,
as of March 24, 2000 for (i) each person we know beneficially owns more than 5%
of our common stock, (ii) each director individually, (iii) each executive
officer who would be a named executive officer under Rule 402 of Regulation S-K
and (iv) all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES UNDERLYING TOTAL SHARES
SHARES DERIVATIVE BENEFICIALLY PERCENTAGE
NAME OWNED(1) SECURITIES(2) OWNED(1) OWNED
- ---- ---------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
World Access Common Stock
Armstrong International
Telecommunications, Inc.(3)........... -- 15,162,015 15,162,015 20.3%
One Armstrong Place
Butler, PA 16001
WorldCom Network Services, Inc.(4)...... 6,327,344 -- 6,327,344 10.6
500 Clinton Center Drive
Clinton, MS 39056
The 1818 Fund III, L.P.(5).............. -- 6,086,956 6,086,956 9.3
59 Wall Street
New York, NY 10005
Morgan Stanley & Co. Incorporated(6).... -- 5,685,111 5,685,111 8.7
1585 Broadway
New York, NY 10036
Walter J. Burmeister+++(7).............. -- 1,135,694 1,135,694 1.9
Kirby J. Campbell+...................... -- -- -- *
Bryan Cipoletti+........................ -- -- -- *
Stephen J. Clearman+(8)................. 1,309,044 167,000 1,476,044 2.5
John P. Imlay, Jr.+..................... 59,900 179,000 238,900 *
John D. Phillips+++(9).................. 1,312,500 1,117,000 2,429,500 4.0
Massimo Prelz Oltramonti+(10)........... 1,885,251 100,000 1,985,251 3.3
John P. Rigas+(11)...................... 816,942 100,000 916,942 1.5
Carl E. Sanders+(12).................... 62,000 179,000 241,000 *
Dru A. Sedwick+......................... -- -- -- *
Lawrence C. Tucker+(5).................. -- 6,186,956 6,186,956 9.4
W. Tod Chmar++.......................... 312,500 25,000 337,500 *
Mark A. Gergel++(13).................... 26,791 237,500 264,291 *
Michael F. Mies++(13)................... 2,267 28,750 31,017 *
</TABLE>
100
<PAGE> 103
<TABLE>
<CAPTION>
SHARES UNDERLYING TOTAL SHARES
SHARES DERIVATIVE BENEFICIALLY PERCENTAGE
NAME OWNED(1) SECURITIES(2) OWNED(1) OWNED
- ---- ---------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
A. Lindsay Wallace++(13)................ 496 172,380 172,876 *
All directors and executive officers as
a group (15 persons).................. 5,787,691 9,628,280 15,415,971 16.1
Series A Preferred Stock
The 1818 Fund III, L.P.................. 50,000 20,000 70,000 100.0
Series C Preferred Stock
Armstrong International
Telecommunications, Inc............... 309,002 -- 309,002 88.2
Walter J. Burmeister 19,161.... -- 19,161 5.5
Juan Carlos Valls....................... 19,161 -- 19,161 5.5
1530 Key Boulevard #306
Arlington, VA 22209
Series D Preferred Stock
Morgan Stanley & Co. Incorporated....... 102,332 -- 102,332 55.3
AIM High Yield Fund..................... 16,851 -- 16,851 9.1
11 Greenway Plaza, #1919
Houston, TX 77046
NETnet International S.A................ 14,800 -- 14,800 8.0
Siege Social; L-1611
41 Avenue de la Gare
R.C. Luxemburg B49615
Kemper High Yield Series................ 11,794 -- 11,794 6.4
222 South Riverside Plaza
Chicago, IL 60606
</TABLE>
- ---------------
* Less than one percent
+ Director
++ Named executive officer
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Securities Exchange Act. Unless otherwise noted, we believe that all
persons named in the table have sole voting and investment power with
respect to all shares of common stock beneficially owned by them.
(2) Unless otherwise indicated, represents shares which may be acquired by the
exercise of stock options and warrants on or before May 23, 2000.
(3) Represents 15,162,015 shares of common stock issuable upon the conversion of
309,002 shares of Series C preferred stock.
(4) Includes 1,746,500 shares of common stock held in escrow pursuant to our
acquisition of Cherry Communications Incorporated in December 1998. This
amount currently represents our best estimate of the shares to ultimately be
released to WorldCom Network Services, Inc., a wholly owned subsidiary of
MCI WorldCom, Inc., upon the final resolution of all creditor claims against
Cherry Communications in U.S. Bankruptcy Court. WorldCom Network Services
directs the voting of these shares while they are held in escrow.
(5) Includes 4,347,826 shares of common stock issuable upon the conversion of
50,000 shares of Series A preferred stock owned of record by The 1818 Fund
III, a private equity partnership, and 1,739,130 shares of common stock
reserved for issuance upon the conversion of 20,000 shares of Series A
preferred stock which is subject to an option held by The 1818 Fund III. The
general partner of the 1818 Fund III is
101
<PAGE> 104
Brown Brothers Harriman & Co. Mr. Tucker, a partner at Brown Brothers
Harriman, is deemed to be the beneficial owner of these shares due to his
role as co-manager of The 1818 Fund III.
(6) Represents 5,685,111 shares of common stock issuable upon the conversion of
102,332 shares of Series D preferred stock.
(7) Includes 940,204 shares of common stock issuable upon the conversion of
19,161 shares of Series C preferred stock.
(8) Includes 1,211,982 shares of common stock owned by Geocapital V, L.P.,
36,900 shares owned by Geocapital Advisors, L.P., and 7,952 shares owned by
Geocapital Investors V, L.P. Mr. Clearman, a general partner of these
partnerships, is deemed to be the beneficial owner of these shares.
(9) Includes 787,500 shares owned of record by Resurgens Partners, LLC, of
which Mr. Phillips has the sole voting and dispositive power. Also includes
100,000 shares held in the name of Mr. Phillips' wife as custodian for two
of Mr. Phillips' minor children, with respect to which Mr. Phillips
disclaims beneficial ownership.
(10) Represents 1,443,887 shares of common stock owned by Gilbert Global Equity
Partners, L.P. and 441,364 shares owned by Gilbert Global Equity Partners
(Bermuda), L.P. Mr. Prelz, a Managing Director of Gilbert Global Equity
Partners, is deemed to be the beneficial owner of these shares.
(11) Represents 816,942 shares of common stock owned by Zilkha Capital Partners,
L.P. Mr. Rigas, a Managing Partner of Zilkha Capital Partners, is deemed to
be the beneficial owner of these shares.
(12) Includes 2,000 shares owned by Mr. Sanders' wife, with respect to which Mr.
Sanders disclaims beneficial ownership.
(13) Includes the following shares of common stock acquired through voluntary
employee contributions to our 401(k) Plan and contributed to the 401(k)
Plan under a matching contribution program offered to all 401(k) Plan
participants: Mr. Gergel -- 4,041 shares; Mr. Mies -- 517 shares and Mr.
Wallace -- 496 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1999, we paid aggregate fees of approximately $215,900 to JDP
Aircraft II, Inc. for charter flight services provided to World Access. John D.
Phillips, our Chairman and Chief Executive Officer, is the sole shareholder and
an officer of JDP Aircraft II.
In April 1999, we issued 50,000 shares of Series C preferred stock to The
1818 Fund III for consideration of $50.0 million. Lawrence C. Tucker, one of our
directors, is a co-manager of The 1818 Fund III.
We paid Brown Brothers Harriman & Co. $750,000 for advisory services in
connection with a $75.0 million private placement of our common stock in
December 1999 and $830,000 for advisory services in connection with an $83.1
million private placement of our common stock in February 2000. Additionally, we
have engaged Brown Brothers Harriman in connection with the proposed sale of our
Equipment Group, pursuant to which Brown Brothers Harriman may be entitled to a
payment equal to 0.5% of the sales price upon closing. Mr. Tucker is a General
Partner of Brown Brothers Harriman.
FaciliCom has historically relied on its majority stockholder, Armstrong
Holdings, Inc. for the performance of services, including customer billing. In
connection with the FaciliCom merger, an affiliate of Armstrong Holdings
received 309,002 shares of our Series C preferred stock, which represented
approximately 20.0% of our voting common stock at December 31, 1999. In December
1999, we entered into a two year services agreement with Armstrong Holdings. The
terms of the agreement includes professional services billed at hourly rates and
data center services based on usage and disk storage space. We believe that the
terms of the agreements are competitive with similar services offered in the
industry.
In December 1999, we sold 4,713,128 shares of restricted common stock for
$75.0 million, or $15.91 per share, in a private transaction with a group of
institutional and sophisticated investors. Entities affiliated with Geocapital
Partners, entities affiliated with Gilbert Global Equity Partners, and Zilkha
Capital Partners were the purchasers of $20.0 million, $30.0 million, and $13.0
million of common stock, respectively, in this
102
<PAGE> 105
transaction. Stephen J. Clearman, a general partner of Geocapital Partners,
Massimo Prelz Oltramonti, a Managing Director of Gilbert Global Equity Partners,
and John P. Rigas, a Managing Partner of Zilkha Capital Partners, are members of
our board of directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this report
(1) Financial Statements
The index to the financial statements included in this report within Item 8
(page 50) is incorporated herein by reference.
(2) Financial Statement Schedules
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER NUMBER
-------- ------
<S> <C>
I 109
II 114
</TABLE>
(3) Exhibits -- See Item 14 (c) below
(b) Reports on Form 8-K
On October 5, 1999 we filed an amendment to our Report on Form 8-K filed on
July 14, 1999 announcing that WA Telco Systems Products Co., Inc., our wholly
owned subsidiary, acquired substantially all the assets and assumed certain
liabilities of Comm/Net Holding Corporation and its wholly owned subsidiaries,
Enhanced Communications Corporation, Comm/Net Services Corporation and Long
Distance Exchange Corporation. The purpose of this amendment was to clarify that
financial statements and pro forma financial information were not required to be
filed with the Commission with respect to this transaction as Comm/Net did not
represent a significant subsidiary at the 20% level as set forth in Rule 3-05 of
Regulation S-X.
On December 14, 1999 we filed a Report on Form 8-K announcing that our
Board of Directors had adopted a plan to divest, spin-off or otherwise monetize
our Equipment Group.
On December 22, 1999 we filed a Report on Form 8-K announcing that we had
completed our merger with FaciliCom International, Inc. We included audited
financial statements of FaciliCom in this Report.
(c) The exhibits filed herewith and incorporated by reference herein are
set forth on the Exhibit Index beginning on page 105 hereof. Included in those
exhibits are the following executive compensation plans and arrangements:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.1 -- 1991 Stock Option Plan
10.2 -- Amendment to 1991 Stock Option Plan
10.3 -- Second Amendment to 1991 Stock Option Plan
10.4 -- Third Amendment to 1991 Stock Option Plan
10.5 -- Outside Directors' Warrant Plan
10.6 -- Directors' Warrant Incentive Plan
10.7 -- Fourth Amendment to 1991 Stock Option Plan
10.8 -- Fifth Amendment to 1991 Stock Option Plan
10.9 -- Amendment One to Outside Directors' Warrant Plan
10.10 -- Amendment One to Directors' Warrant Incentive Plan
</TABLE>
103
<PAGE> 106
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.11 -- Amendment Two to Outside Directors' Warrant Plan
10.12 -- Amendment Two to Directors' Warrant Incentive Plan
10.13 -- Sixth Amendment to 1991 Stock Option Plan
10.14 -- Severance Protection Agreement -- Mark A. Gergel
10.15 -- Amendment Three to Outside Directors' Warrant Plan
10.16 -- Executive Employment Agreement between World Access, Inc.
and Mark A. Gergel
10.17 -- 1998 Incentive Equity Plan, as amended
10.29 -- FaciliCom International, Inc. 1998 Stock Option Plan
10.32 -- First Amendment to the World Access, Inc. 1998 Incentive
Equity Plan
10.33 -- FaciliCom International, Inc. 1999 Special Stock Option Plan
10.35 -- Agreement between World Access and A. Lindsay Wallace
</TABLE>
104
<PAGE> 107
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
3.1 -- Certificate of Incorporation of World Access, Inc. and
Amendments to Certificate of Incorporation (incorporated by
reference to Exhibit 3.1 to World Access' Form S-4 filed
October 6, 1998, Registration No. 333-65389, Amendment to
Certificate of Incorporation incorporated by reference to
Exhibit 3.2 of WA Telco Systems Products Co., Inc.'s Form
8-K filed October 28, 1998).
3.2 -- Amendment to the Certificate of Incorporation (incorporated
by reference to Exhibit 3.2 to World Access' Form 10-K for
the year ended December 31, 1998, filed April 9, 1999).
3.3 -- Certificate of Designation of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A
(incorporated by reference to Exhibit 4 to World Access'
Form 8-K, filed May 3, 1999).
3.4 -- Certificate of Designation of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B (incorporated by
reference to Exhibit 4.1 to World Access' Form 8-K, filed
July 14, 1999).
3.5 -- Certificate of Designation of Convertible Preferred Stock,
Series C (incorporated by reference to Exhibit 1.7(b) to
Appendix A to World Access' Proxy Statement dated November
5, 1999 relating to the Special Meeting of Stockholders held
on December 7, 1999).
3.6 -- Certificate of Designation of Convertible Preferred Stock,
Series D (incorporated by reference to Exhibit 4 to World
Access' Form 8-K, filed February 28, 2000).
3.7 -- Bylaws of the World Access (incorporated by reference to
Exhibit 3.2 to World Access' Form S-4 filed October 6, 1998,
No. 333-65389).
4.1 -- Indenture dated as of October 1, 1997 by and between World
Access, Inc. and First Union Bank, as trustee (incorporated
by reference to Exhibit 4.1 to WA Telco Systems' Form 8-K,
filed October 8, 1997).
4.2 -- First Supplemental Indenture dated October 28, 1998 between
World Access, Inc., WA Telco Systems Products Co., Inc. and
First Union Bank, as Trustee (incorporated by reference to
Exhibit 4.1 to the World Access' Form 8-K filed October 28,
1998).
4.3 -- Form of Indenture between World Access, Inc. and First Union
Bank, as Trustee (incorporated by reference to Exhibit 4.6
to World Access' Form S-4/A filed November 5, 1999,
Registration No. 333-89479).
10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to WA Telco
Systems' Registration Statement on Form S-18, filed on July
25, 1991, No. 33-41255-A).
10.2 -- Amendment to World Access, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to WA Telco
Systems' Form 10-K for the year ended December 31, 1993,
filed March 31, 1994).
10.3 -- Second Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to WA Telco Systems' Form 10-K for
the year ended December 31, 1993, filed March 31, 1994).
10.4 -- Third Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.26 to WA Telco Systems' Form S-2,
Amendment No. 2, filed on February 14, 1995, No. 33-87026).
10.5 -- World Access, Inc. Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.40 to WA Telco
Systems' Form 10-K for the year ended December 31, 1995,
filed April 10, 1996).
10.6 -- Directors' Warrant Incentive Plan (incorporated by reference
to Exhibit 10.41 to WA Telco Systems' Form 10-K for the year
ended December 31, 1995, filed April 10, 1996).
10.7 -- Fourth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.32 to WA Telco Systems' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
</TABLE>
105
<PAGE> 108
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
10.8 -- Fifth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.9 -- Amendment One to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.33 to WA Telco
Systems' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.10 -- Amendment One to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.31 to WA Telco
Systems' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.11 -- Amendment Two to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to WA Telco
Systems' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.12 -- Amendment Two to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.22 to WA Telco
Systems' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.13 -- Sixth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.22 to WA Telco Systems' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.14 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Mark A. Gergel (incorporated
by reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
10.15 -- Amendment Three to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.16 -- Executive Employment Agreement between World Access, Inc.
and Mark A. Gergel dated as of December 14, 1998
(incorporated by reference to Exhibit 10.23 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.17 -- World Access, Inc. 1998 Incentive Equity Plan, as amended
(incorporated by reference to Exhibit 10.25 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.18 -- Form of Indemnification Agreement with directors and
officers (incorporated by reference to Appendix H to the
Registrant's Joint Proxy Statement/Prospectus dated November
10, 1998 relating to the Special Meeting of Stockholders
held on November 30, 1998).
10.19 -- Schedule of all officers and directors who have signed an
Indemnification Agreement referred to in Exhibit 10.27
(incorporated by reference to Exhibit 10.28 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.20 -- First Amended and Restated Credit Agreement dated as of
December 7, 1999 between Telco Systems, Inc., World Access
Holdings, Inc. and Bank of America, N.A. as Administrative
Agent and Fleet National Bank as Syndication Agent and Bank
Austria Creditanstalt Corporate Finance, Inc. as
Documentation Agent and Banc of America Securities LLC as
Lead Arranger and Book Running Manager.
10.21 -- Guaranty dated as of December 30, 1998 between the
Registrant, Telco Systems, World Access Holdings, Inc.,
NationsBank, N.A. as Administrative Agent and the lenders
party to the Credit Agreement referred to in Exhibit 10.20
(incorporated by reference to Exhibit 10.30 to World Access'
Form 10-K for the year ended December 31, 1999, filed April
9, 1999).
10.22 -- Pledge Agreement dated as of December 31, 1998 by the
Registrant. in favor of NationsBank, N.A. as Administrative
Agent and the lenders party to the Credit Agreement referred
to in Exhibit 10.20 (incorporated by reference to Exhibit
10.31 to World Access' Form 10-K for the year ended December
31, 1999, filed April 9, 1999).
</TABLE>
106
<PAGE> 109
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
10.23 -- Security Agreement dated as of December 31, 1998 by the
Registrant in favor of NationsBank, N.A. as Administrative
Agent and the lenders party to the Credit Agreement referred
to in Exhibit 10.20 (incorporated by reference to Exhibit
10.32 to World Access' Form 10-K for the year ended December
31, 1999, filed April 9, 1999).
10.24 -- Confirmation Agreement dated as of December 7, 1999 by Telco
Systems, Inc., World Access Holdings, Inc., World Access,
Inc., WA Telco Systems Products Co., Inc., NACT
Telecommunications, Inc., Restor-AIT, Inc., Sunrise Sierra,
Inc., Westec Communications, Inc., Telco Systems Security
Corporation, World Access Capital Corp., World Access
Telecommunications Group, Inc., Cellular Infrastructure
Supply, Inc. and Galaxy Personal Services, Inc. for the
benefit of the lenders party to the Credit Agreement
referred to in Exhibit 10.20.
10.25 -- Pledge Agreement dated as of December 7, 1999 by World
Access, Inc. in favor of Bank of America, N.A., in its
capacity as Administrative Agent, and each lender a party to
the Credit Agreement referred to in Exhibit 10.20.
10.26 -- Disbursement Agreement dated as of December 14, 1998, by and
the Registrant, Cherry Communications Incorporated (d/b/a
Resurgens Communications Group) and William H. Cauthen, Esq.
(incorporated by reference to Exhibit 10.33 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.27 -- Agreement and Plan of Merger and Reorganization by and among
World Access, Inc., WAXS INC., WA Merger Corp. and Cherry
Communications Incorporated (d/b/a Resurgens Communications
Group) dated as of May 12, 1998, as amended (incorporated by
reference to Appendix A to the Registrant's Proxy Statement
dated November 12, 1998 relating to the Special Meeting of
Stockholders held on December 14, 1998).
10.28 -- Share Exchange Agreement by and among World Access, Inc.,
WAXS INC., Cherry Communications U.K. Limited and
Renaissance Partners II, dated as of May 12, 1998
(incorporated by reference to Appendix B to the Registrant's
Proxy Statement dated November 12, 1998 relating to the
Special Meeting of Stockholders held on December 14, 1998).
10.29 -- FaciliCom International, Inc. 1998 Stock Option Plan
(incorporated by reference to Exhibit 10.19 to FaciliCom's
Form 10-K for the year ended September 30, 1998, filed
December 28, 1998).
10.30 -- Form of Stock Purchase Agreements, dated as of October 13,
1999 by and between World Access and Gilbert Global Equity
Partners, L.P., Gilbert Global Equity Partners (Bermuda)
L.P., GGEP/GGEC Equity Partners, L.P., Zilkha Capital
Partners, L.P., Erie Indemnity Company, Erie Insurance
Exchange, Geocapital V, L.P. and Ezra K. Zilkha
(incorporated by reference to Exhibit 4.10 to World Access'
Form S-4/A, filed November 5, 1999).
10.31 -- Form of Registration Rights Agreement between World Access
and Armstrong International Telecommunications, Inc., BFV
Associates, Inc., Epic Interests, Inc. and Anand Kumar
(incorporated by reference to Exhibit 6.3 to Appendix A to
World Access' Proxy Statement dated November 5, 1999
relating to the Special Meeting of Stockholders held on
December 7, 1999).
10.32 -- First Amendment to the World Access, Inc. 1998 Incentive
Equity Plan.
10.33 -- FaciliCom International, Inc. 1999 Special Stock Option
Plan.
10.34 -- Credit Agreement dated as of November 15, 1999 by and among
FaciliCom International, L.L.C. and Nortel Networks Inc.
10.35 -- Agreement between World Access and A. Lindsay Wallace dated
November 29, 1999.
</TABLE>
107
<PAGE> 110
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <C> <S>
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Ernst & Young LLP.
23.2 -- Consent of PricewaterhouseCoopers LLP.
27.1 -- Financial Data Schedule for 1999. (For SEC use only).
27.2 -- Financial Data Schedule for 1998 and 1997 as restated for
discontinued operations.
</TABLE>
108
<PAGE> 111
SCHEDULE 1 -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
WORLD ACCESS, INC.
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 117,267 $ 21,799
Other current assets...................................... 3,519 912
---------- --------
Total Current Assets.............................. 120,786 22,711
Property and equipment...................................... 363 842
Investment in subsidiaries.................................. 987,833 455,739
Intercompany receivable..................................... 79,260 --
Other assets................................................ 47,289 1,000
---------- --------
Total Assets...................................... $1,235,531 $480,292
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short-term debt........................................... $ 25,000 $ 8,500
Accounts payable.......................................... 1,584 2,095
Other accrued liabilities................................. 25,937 6,392
---------- --------
Total Current Liabilities......................... 52,521 16,987
Intercompany payable........................................ -- 102,722
Long-term Debt.............................................. 285,711 --
---------- --------
Total Liabilities................................. 338,232 119,709
---------- --------
Stockholders' Equity:
Preferred Stock........................................... 4 --
Common stock.............................................. 523 441
Capital in excess of par value............................ 1,062,939 472,945
Foreign currency translation adjustment................... (341) --
Accumulated deficit....................................... (165,826) (112,803)
---------- --------
Total Stockholders' Equity........................ 897,299 360,583
---------- --------
Total Liabilities and Stockholders' Equity........ $1,235,531 $480,292
========== ========
</TABLE>
See accompanying notes to condensed financial statements.
109
<PAGE> 112
WORLD ACCESS, INC.
(PARENT COMPANY)
CONDENSED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED TWO MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ----------------
<S> <C> <C>
Sales....................................................... $ -- $ --
Selling, general and administrative expenses................ (8,612) (848)
Interest and other income................................... 3,047 35
Interest expense............................................ (361) (22)
-------- -------
(5,926) (835)
Equity in net loss of continuing subsidiaries............... (21,172) (4,602)
Equity in net loss of discontinued subsidiaries............. (25,925) (1,059)
-------- -------
Net Loss.......................................... $(53,023) $(6,496)
======== =======
</TABLE>
See accompanying notes to condensed financial statements.
110
<PAGE> 113
WORLD ACCESS, INC.
(PARENT COMPANY)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
---------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash Flows From Operating Activities:....................... $ 7,238 $ 1,609
Cash Flows From Investing Activities:
Acquisitions of businesses, net of cash acquired.......... (50,894) (1,171)
Expenditures for property and equipment................... -- (364)
-------- --------
Net Cash Used By Investing Activities............. (50,894) (1,535)
Cash Flows From Financing Activities:
Net proceeds from sales of common and preferred stock..... 121,984 --
Payment of preferred stock dividends...................... (1,184) --
Proceeds from short-term borrowings....................... 43,300 8,500
Payments on short-term borrowings......................... (26,800) --
Proceeds from exercise of stock warrants and options...... 1,824 2,185
-------- --------
Net Cash Provided By Financing Activities......... 139,124 10,685
-------- --------
Increase in Cash and Equivalents............................ 95,468 10,759
Cash and Equivalents at Beginning of Period................. 21,799 11,040
-------- --------
Cash and Equivalents at End of Period............. $117,267 $ 21,799
======== ========
Supplemental Schedule of Noncash Financing and Investing
Activities:
Issuance of common stock and stock options for businesses
acquired.................................................. $455,391 $314,433
======== ========
Issuance of common stock for technology..................... $ 3,197 $ --
======== ========
</TABLE>
See accompanying notes to condensed financial statements.
111
<PAGE> 114
WORLD ACCESS, INC.
(PARENT COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
On October 28, 1998, World Access, Inc. reorganized its operations into a
holding company structure and changed its name to WA Telcom Products Co., Inc.
("WA Telcom"). As a result of the reorganization, WA Telcom became a
wholly-owned subsidiary of WAXS INC., which changed its name to World Access,
Inc. and is the Company filing this report. Pursuant to the reorganization, the
Company exchanged each outstanding share of common stock of WA Telcom for one
share of common stock of the Company, converted each option and warrant to
purchase shares of common stock of WA Telcom into options and warrants to
purchase a like number of shares of common stock of the Company. In the
parent-company-only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The Company's share of net income of
its unconsolidated subsidiaries is included in consolidated income using the
equity method. Parent-company-only financial statements should be read in
conjunction with the Company's consolidated financial statements.
NOTE 2. GUARANTEE
Pursuant to the reorganization, the parent-company fully and
unconditionally guaranteed the payment of the $115.0 million aggregate principal
amount 4.5% convertible subordinated notes dated October 1, 1997 (due 2002)
issued by WA Telcom, a wholly owned subsidiary.
NOTE 3. SENIOR NOTES
In December 1999, as an integral part of the FaciliCom Merger, the Company
issued $300.0 million in aggregate principal amount of 13.25% Senior Notes due
2008 ("Senior Notes") in exchange for all outstanding 10 1/2% FaciliCom Series B
Senior Notes due 2008 having an aggregate principal amount of $300.0 million.
The Senior Notes are general unsecured obligation of the Company. The
Senior Notes rank senior in right of payment to any of the Company's existing
and future obligations expressly subordinated in right of payment and will be
pari passu in right of payment with all of the Company's other existing and
future unsecured and unsubordinated obligations, including trade payables. The
Company's subsidiaries are not guarantors of the Senior Notes.
The Senior Notes bear interest at the rate of 13.25% per annum, payable in
arrears on January 15 and July 15 of each year, and mature on January 15, 2008.
The Senior Notes are not redeemable by the Company prior to January 15, 2003. At
any time after that date, the Company has the option to redeem the Senior Notes
at the following redemption prices plus accrued and unpaid interest (based on
January 15 fiscal year): 2003 -- 106.625%; 2004 -- 104.417%; 2005 -- 102.208%;
and 2006 to maturity -- 100.0%. In the event of a change in control of ownership
of the Company, each holder of the Senior Notes has the right to require the
Company to purchase all or any of such holder's Senior Notes at a purchase price
in cash equal to 101% of the aggregate principal amount.
The Senior Notes require the Company to maintain certain financial and
nonfinancial covenants, including limitations on additional indebtedness,
restricted payments including dividends, transactions with affiliates, liens and
asset sales. Upon the sale of certain of its equipment businesses, the Company
will be obligated to tender for all or a portion of the Senior Notes at a
purchase price equal to 100% of principal, plus accrued and unpaid interest,
less the current market value of the Stock Consideration at the date the tender
offer is commenced. The tender offer must be made within 270 days of the
qualified asset sale(s).
Upon issuance, the Company recorded the Senior Notes at $285.0 million,
total principal less a $15.0 million original issuance discount. The discount
was based on the estimated fair market value of the Senior
112
<PAGE> 115
Notes on the date of issuance as determined by an investment banking firm. The
discount will be amortized to interest expense over the term of the Senior
Notes.
At the time of the FaciliCom Merger, FaciliCom had approximately $47.0
million invested in U.S. Government obligations that served as collateral for
its Series B Senior Notes. In connection with the exchange transaction, the
FaciliCom note holders released this collateral and the Company was required to
pledge these assets as collateral for its Senior Notes. The pledged assets,
recorded as "Other assets" on the Company's December 31, 1999 balance sheet,
will be released to the Company to partially fund interest payments due on the
Senior Notes in 2000 and 2001.
113
<PAGE> 116
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999:
Deducted from asset account
Allowance for accounts
receivable....................... $300 $4,805 $12,728(B) $(295)(A) $18,489
965(D) (14)(C)
Year Ended December 31, 1998:
Deducted from asset account
Allowance for accounts
receivable....................... -- -- 300(B) -- 300
Year Ended December 31, 1997:
Deducted from asset account
Allowance for accounts
receivable....................... -- -- -- -- --
</TABLE>
- ---------------
(A) Write-off of uncollectible amounts.
(B) Reserves from businesses acquired.
(C) Foreign currency translation adjustment.
(D) Charged directly to revenue.
114
<PAGE> 117
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed,
on its behalf by the undersigned, thereunto duly authorized.
WORLD ACCESS, INC.
By: /s/ JOHN D. PHILLIPS
------------------------------------
John D. Phillips
Chairman and Chief Executive Officer
Dated as of March 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN D. PHILLIPS Chairman and Chief Executive March 28, 2000
- ----------------------------------------------------- Officer (Principal Executive
John D. Phillips Officer)
/s/ MARK A. GERGEL Executive Vice President and March 28, 2000
- ----------------------------------------------------- Chief Financial Officer
Mark A. Gergel (Principal Financial Officer)
/s/ MARTIN D. KIDDER Vice President and Controller March 28, 2000
- ----------------------------------------------------- (Principal Accounting
Martin D. Kidder Officer)
/s/ WALTER J. BURMEISTER Director March 28, 2000
- -----------------------------------------------------
Walter J. Burmeister
/s/ KIRBY J. CAMPBELL Director March 28, 2000
- -----------------------------------------------------
Kirby J. Campbell
/s/ BRYAN CIPOLETTI Director March 28, 2000
- -----------------------------------------------------
Bryan Cipoletti
/s/ STEPHEN J. CLEARMAN Director March 28, 2000
- -----------------------------------------------------
Stephen J. Clearman
/s/ JOHN P. IMLAY, JR. Director March 28, 2000
- -----------------------------------------------------
John P. Imlay, Jr.
/s/ MASSIMO PRELZ OLTRAMONTI Director March 28, 2000
- -----------------------------------------------------
Massimo Prelz Oltramonti
/s/ JOHN P. RIGAS Director March 28, 2000
- -----------------------------------------------------
John P. Rigas
</TABLE>
115
<PAGE> 118
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CARL E. SANDERS Director March 28, 2000
- -----------------------------------------------------
Carl E. Sanders
/s/ DRU A. SEDWICK Director March 28, 2000
- -----------------------------------------------------
Dru A. Sedwick
/s/ LAWRENCE C. TUCKER Director March 28, 2000
- -----------------------------------------------------
Lawrence C. Tucker
</TABLE>
116
<PAGE> 1
EXHIBIT 10.20
================================================================================
$100,000,000
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF DECEMBER 7, 1999
BETWEEN
TELCO SYSTEMS, INC.
WORLD ACCESS HOLDINGS, INC.
AND
BANK OF AMERICA, N.A.
AS ADMINISTRATIVE AGENT
AND
FLEET NATIONAL BANK
AS SYNDICATION AGENT
AND
BANK AUSTRIA CREDITANSTALT CORPORATE FINANCE, INC.
AS DOCUMENTATION AGENT
AND
BANC OF AMERICA SECURITIES LLC
AS LEAD ARRANGER AND BOOK RUNNING MANAGER
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I. DEFINITIONS
1.01. Definitions.....................................................................................1
1.02. Accounting and Other Terms.....................................................................25
ARTICLE II. AMOUNTS AND TERMS OF ADVANCES
2.01. The Facility...................................................................................25
2.02. Making Advances................................................................................25
2.03. Evidence of Indebtedness.......................................................................27
2.04. Reduction of Available Commitments.............................................................27
2.05. Prepayments....................................................................................29
2.06. Mandatory Repayment............................................................................30
2.07. Interest.......................................................................................30
2.08. Default Interest...............................................................................31
2.09. Continuation and Conversion Elections..........................................................31
2.10. Fees...........................................................................................32
2.11. Funding Losses.................................................................................32
2.12. Computations and Manner of Payments............................................................33
2.13. Yield Protection...............................................................................34
2.14. Use of Proceeds................................................................................36
2.15. Collateral and Collateral Call.................................................................36
ARTICLE III. LETTERS OF CREDIT
3.01. Issuance of Letters of Credit..................................................................37
3.02. Letters of Credit Fee..........................................................................37
3.03. Reimbursement Obligations......................................................................38
3.04. Lenders' Obligations...........................................................................39
3.05. Administrative Agent's Obligations.............................................................40
3.06 Reinstatement..................................................................................40
3.07 Survivability of Provisions....................................................................40
ARTICLE IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to the Initial Advance....................................................41
4.02. Conditions Precedent to All Advances...........................................................42
ARTICLE V. REPRESENTATIONS AND WARRANTIES
5.01. Organization and Qualification.................................................................43
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C> <C>
5.02. Due Authorization; Validity....................................................................44
5.03. Conflicting Agreements and Other Matters.......................................................44
5.04. Financial Statements...........................................................................44
5.05. Litigation.....................................................................................44
5.06. Compliance With Laws Regulating the Incurrence of Debt.........................................45
5.07. Licenses, Title to Properties, and Related Matters.............................................45
5.08. Outstanding Debt and Liens.....................................................................46
5.09. ERISA..........................................................................................46
5.10. Environmental Laws.............................................................................46
5.11. Disclosure.....................................................................................47
5.12. Investments; Restricted Subsidiaries...........................................................47
5.13. Certain Fees...................................................................................47
5.14. Intellectual Property..........................................................................48
5.16. Survival of Representations and Warranties, etc................................................48
5.17. World Access Charitable Trust Transaction......................................................49
ARTICLE VI. AFFIRMATIVE COVENANTS
6.01. Compliance with Laws and Payment of Debt.......................................................49
6.02. Insurance......................................................................................49
6.03. Inspection Rights..............................................................................50
6.04. Records and Books of Account; Changes in GAAP..................................................50
6.05. Reporting Requirements.........................................................................50
6.06. Use of Proceeds................................................................................52
6.07. Maintenance of Existence and Assets............................................................52
6.08. Payment of Taxes...............................................................................53
6.09. Indemnity......................................................................................53
6.10. Management Fees Paid and Earned................................................................54
6.11. Authorizations and Material Agreements.........................................................54
6.12. Further Assurances.............................................................................54
6.13. Year 2000 Compliance...........................................................................54
6.14. Subsidiaries and Other Obligors................................................................55
ARTICLE VII. NEGATIVE COVENANTS
7.01. Financial Covenants............................................................................55
7.02. Debt...........................................................................................55
7.03. Contingent Liabilities.........................................................................56
7.04. Liens..........................................................................................56
7.05. Dispositions of Assets.........................................................................56
7.06. Distributions and Restricted Payments..........................................................56
7.07. Merger; Consolidation..........................................................................57
7.08. Business.......................................................................................57
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
7.09. Transactions with Affiliates...................................................................57
7.10. Loans and Investments..........................................................................57
7.11. Fiscal Year and Accounting Method..............................................................58
7.12. Issuance of Partnership Interest and Capital Stock; Amendment of Articles and By-
Laws...........................................................................................58
7.13. Change of Ownership............................................................................58
7.14. Sale and Leaseback.............................................................................58
7.15. Compliance with ERISA..........................................................................59
7.16. Rate Swap Exposure.............................................................................59
7.17. Restricted Subsidiaries and Other Obligors.....................................................59
7.18. Limitation on Restrictive Agreements...........................................................59
7.19. Amendment of Material Agreements. ............................................................59
ARTICLE VIII. EVENTS OF DEFAULT
8.01. Events of Default..............................................................................60
8.02. Remedies Upon Default..........................................................................63
8.03. Cumulative Rights..............................................................................64
8.04. Waivers........................................................................................64
8.05. Performance by Administrative Agent or any Lender..............................................64
8.06. Expenditures...................................................................................65
8.07. Control........................................................................................65
ARTICLE IX. THE ADMINISTRATIVE AGENT
9.01. Authorization and Action.......................................................................65
9.02. Administrative Agent's Reliance, Etc...........................................................65
9.03. Bank of America, N. A. and Affiliates..........................................................66
9.04. Lender Credit Decision.........................................................................66
9.05. Indemnification by Lenders.....................................................................66
9.06. Successor Administrative Agent.................................................................67
ARTICLE X. MISCELLANEOUS
10.01. Amendments and Waivers.........................................................................67
10.02. Notices........................................................................................68
10.03. Parties in Interest............................................................................70
10.04. Assignments and Participations.................................................................70
10.05. Sharing of Payments............................................................................71
10.06. Right of Set-off...............................................................................71
10.07. Costs, Expenses, and Taxes.....................................................................71
10.08. Indemnification by the Borrower................................................................72
10.09. Rate Provision.................................................................................72
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C> <C>
10.10. Severability...................................................................................73
10.11. Exceptions to Covenants........................................................................73
10.12. Counterparts...................................................................................73
10.13. GOVERNING LAW; WAIVER OF JURY TRIAL............................................................73
10.14. ENTIRE AGREEMENT...............................................................................74
10.15. Joint and Several Obligations..................................................................74
10.16. No Novation....................................................................................74
</TABLE>
iv
<PAGE> 6
TABLE OF SCHEDULES AND EXHIBITS
SCHEDULES
Schedule 1.00 Permitted Dispositions
Schedule 1.01 Restricted Subsidiaries
Schedule 5.01 Organization and Qualification
Schedule 5.01(d) Stock Options & Warrants Outstanding
Schedule 5.03 Consents under Material Agreements
Schedule 5.05 Litigation
Schedule 5.07 Authorizations
Schedule 5.08 Debt, Contingent Liabilities and Liens on the Closing Date
Schedule 5.11 Environmental Liabilities on the Closing Date
Schedule 5.12 Investments
Schedule 7.01(d) Pro Forma Operating Cash Flow
Schedule 7.03 Subordination Terms
Schedule 7.10 Other Acquisitions
EXHIBITS
Exhibit A - Form of Note
Exhibit B - Assignment and Acceptance
Exhibit C - Form of Pledge and Security Agreement
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Conversion/Continuation Notice
Exhibit F - Form of Borrowing Notice
v
<PAGE> 7
TELCO SYSTEMS, INC.
WORLD ACCESS HOLDINGS, INC.
$100,000,000
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
.
THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is dated as of
December 7, 1999 and is between TELCO SYSTEMS, INC. and WORLD ACCESS HOLDINGS,
INC. (collectively, the "Borrower"), the Lenders from time to time party hereto
(the "Lenders") or to an Assignment and Acceptance, and BANK OF AMERICA, N.A.,
successor by merger to NationsBank, N.A., a national banking association ("Bank
of America"), as a Lender and Administrative Agent (the "Administrative Agent"),
FLEET NATIONAL BANK, as Syndication Agent, BANK AUSTRIA CREDITANSTALT CORPORATE
FINANCE, INC., as Documentation Agent and BANC OF AMERICA SECURITIES LLC as Lead
Arranger and Book Running Manager.
BACKGROUND
WHEREAS, on December 30, 1998, the Borrower, the Administrative Agent
and the Lenders entered into that certain credit facility in the original
principal amount of $75,000,000, as amended from time to time (the "Original
Credit Agreement").
WHEREAS, the Borrower, the Administrative Agent and the Lenders desire
to amend and restate the Original Credit Agreement to, among other things,
increase the facility amount to up to $100,000,000.
AGREEMENT
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I. DEFINITIONS
1.01. Definitions. As used in this Agreement, the following terms have
the respective meanings indicated below (such meanings to be applicable equally
to both the singular and plural forms of such terms):
"Administrative Agent" means Bank of America, N. A., successor by
merger to NationsBank, N.A., in its capacity as Administrative Agent hereunder,
or any successor Administrative Agent appointed pursuant to Section 9.06 hereof.
<PAGE> 8
"Advance" means an advance made by a Lender to the Borrower pursuant to
Section 2.01 hereof.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, Controls or is Controlled By or is Under Common Control
with another Person, and with respect to the Borrower, "Affiliate" means a
Person that directly or indirectly through one or more intermediaries, Controls
or is Controlled By or is Under Common Control with the Borrower or any
Subsidiary of the Borrower.
"Agreement" means this Credit Agreement, as hereafter amended,
modified, or supplemented in accordance with its terms.
"Annualized Operating Cash Flow" means, as of any date of
determination, (i) for the Borrower and each of its Restricted Subsidiaries
other than World Access Telecommunications Group, Inc. the product of two times
Operating Cash Flow for the two most recently ended fiscal quarters and (ii) for
World Access Telecommunications Group, Inc., the product of four times the
Operating Cash Flow for the most recently ended fiscal quarter
"Applicable Law" means (a) in respect of any Person, all provisions of
Laws of Tribunals applicable to such Person, and all orders and decrees of all
courts and arbitrators in proceedings or actions to which the Person in question
is a party and (b) in respect of contracts made or performed in the State of
Texas, "Applicable Law" also means the laws of the United States of America,
including, without limiting the foregoing, 12 U.S.C. Sections 85 and 86, as
amended to the date hereof and as the same may be amended at any time and from
time to time hereafter, and any other statute of the United States of America
now or at any time hereafter prescribing the maximum rates of interest on loans
and extensions of credit, and the laws of the State of Texas, including, without
limitation, Article 5069-1H, Title 79, Revised Civil Statutes of Texas, 1925,
("Art. 1H"), as amended, if applicable, and if Art. 1H is not applicable,
Article 5069-1D, Title 79, Revised Civil Statutes of Texas, 1925, ("Art. 1D"),
as amended, and any other statute of the State of Texas now or at any time
hereafter prescribing maximum rates of interest on loans and extensions of
credit; provided however, that the Borrower agrees that the provisions of
Chapter 346 of the Texas Finance Code, as amended, shall not apply to Advances
hereunder.
"Applicable Margin" means (i) with respect to the Base Rate Advances
under the Facility, 1.250% per annum and (ii) with respect to LIBOR Advances
under the Facility, 2.250% per annum. Notwithstanding the foregoing, effective
three Business Days after receipt by the Administrative Agent from the Borrower
of a Compliance Certificate delivered to the Lenders for any reason and
demonstrating a change in the Total Leverage Ratio to an amount so that another
Applicable Margin should be applied pursuant to the table set forth below, the
Applicable Margin for each type of Advance shall mean the respective amount set
forth below opposite such relevant Total Leverage Ratio in Columns A and B
below, in each case until the first succeeding Quarterly Date which is at least
three Business Days after receipt by the Administrative Agent from the Borrower
of a Compliance Certificate, demonstrating a change in the Total Leverage Ratio
to an amount so that
2
<PAGE> 9
another Applicable Margin shall be applied; provided that, if there exists a
Default or if the Total Leverage Ratio shall at any time be greater than or
equal to 2.50 to 1.00, the Applicable Margin shall again be the respective
amounts first set forth in this definition; provided further, that the
Applicable Margin in effect on the Closing Date shall be determined pursuant to
a Compliance Certificate delivered on the Closing Date, provided, further, that
if the Borrower fails to deliver any financial statements to the Administrative
Agent within the required time periods set forth in Sections 6.05(a) and Section
6.05(b) hereof, the Applicable Margin shall again be the respective amounts
first set forth in this definition until the date which is three Business Days
after the Administrative Agent receives financial statements from the Borrower
which demonstrate that another Applicable Margin should be applied pursuant to
the table set forth below; and provided further, that the Applicable Margin
shall never be a negative number.
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- --------
Total Leverage Ratio Base Rate LIBOR
- -------------------- --------- -----
<S> <C> <C>
Greater than or equal to
2.50 to 1.00 1.250% 2.250%
Greater than or equal to
2.00 to 1.00 but less than
2.50 to 1.00 1.000% 2.000%
Greater than or equal to
1.50 to 1.00 but less than
2.00 to 1.00 0.750% 1.750%
Greater than or equal to
1.00 to 1.00 but less than
1.50 to 1.00 0.500% 1.500%
Less than 0.250% 1.250%
1.00 to 1.00
</TABLE>
"Art. 1H" has the meaning specified in the definition herein of
"Applicable Law".
"Art. 1D" has the meaning specified in the definition herein of
"Applicable Law".
"Asset Sale" means any sale, disposition, liquidation, conveyance or
transfer by the Parent, the Borrower, any Restricted Subsidiary or any
Unrestricted Subsidiary of any Property (or portion thereof) or an interest
other than Permitted Dispositions.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by Administrative Agent,
in the form of Exhibit B hereto,
3
<PAGE> 10
as each such agreement may be amended, modified, extended, restated, renewed,
substituted or replaced from time to time.
"Assignor" has the meaning ascribed thereto in Section 10.04(a) hereof.
"Auditor" means Ernst & Young LLP, or other independent certified
public accountants selected by the Borrower and acceptable to Administrative
Agent.
"Authorizations" means all filings, recordings and registrations with,
and all validations or exemptions, approvals, orders, authorizations, consents,
Licenses, certificates and permits from, the FCC, applicable public utilities
and other federal, state and local regulatory or governmental bodies and
authorities or any subdivision thereof, including, without limitation, FCC
Licenses.
"Authorized Officer" means any of the President, Executive Vice
President-Chief Financial Officer, Vice President-Chief Accounting Officer, Vice
President-Finance, Secretary, Treasurer, or any other officer authorized by the
Borrower from time to time of which the Administrative Agent has been notified
in writing.
"Available Commitment" means $100,000,000, as such amount may be
reduced from time to time or terminated pursuant to Sections 2.04, 2.06 or 8.02
hereof.
"Bank Affiliate" means the holding company of any Lender, or any wholly
owned direct or indirect subsidiary of such holding company or of such Lender.
"Base Rate Advance" means an Advance bearing interest at the Base Rate.
"Base Rate" means a fluctuating rate per annum as shall be in effect
from time to time equal to the lesser of (a) the Highest Lawful Rate and (b) the
sum of the Applicable Margin plus the greater of (i) the sum of Federal Funds
Rate in effect from time to time plus .50% and (ii) the rate of interest as then
in effect announced publicly by Bank of America, N.A. in Dallas, Texas from time
to time as its U.S. dollar prime commercial lending rate (such rate may or may
not be the lowest rate of interest charged by Bank of America from time to
time). The Base Rate shall be adjusted automatically as of the opening of
business on the effective date of each change in the prime rate to account for
such change.
"Bond Letter of Credit" means the $7,470,934.90 Irrevocable Letter of
Credit issued by Bank Austria AG backing payment of the $7,365,000 Forsyth
County Development Authority Industrial Development Revenue Bonds (World Access,
Inc. Project), Series 1998.
"Borrower" means, collectively, Telco Systems, Inc. and World Access
Holdings, Inc.
"Borrowing" means a borrowing under the Facility of the same Type made
on the same day.
4
<PAGE> 11
"Borrowing Notice" has the meaning set forth in Section 2.02(a) hereof.
"Business Day" means a day of the year on which banks are not required
or authorized to close in Dallas, Texas and, if the applicable day relates to
any notice, payment or calculation related to a LIBOR Advance, in London,
England.
"Capital Expenditures" means the aggregate amount of all purchases or
acquisitions of items considered to be capital items under GAAP, and in any
event shall include the aggregate amount of items leased or acquired under
Capital Leases at the cost of the item, and the acquisition of realty, tools,
equipment and fixed assets, and any deferred costs associated with any of the
foregoing.
"Capital Leases" means capital leases and subleases, as defined in
accordance with GAAP, all existing Debt owed to Alcatel USA, as well as an
increase of up to $15,000,000 in switches and transmission equipment acquired by
the Borrower in a one time transaction from Alcatel USA (regardless of how such
switches and transmission equipment are treated under GAAP).
"Capital Stock" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
of any Person that is a corporation and each class of partnership interests
(including, without limitation, general, limited and preference units) in any
Person that is a partnership and membership interests in limited liability
companies.
"Cash Equivalents" means investments (directly or through a money
market fund) in (a) certificates of deposit and other interest bearing deposits
or accounts with United States commercial banks having a combined capital and
surplus of at least $250,000,000, which certificates, deposits and accounts
mature within one year from the date of investment, (b) obligations issued or
unconditionally guaranteed by the United States government, or issued by an
agency thereof and backed by the full faith and credit of the United States
government, which obligations mature within one year from the date of
investment, (c) direct obligations issued by any state or political subdivision
of the United States, which mature within one year from the date of investment
and have the highest rating obtainable from Standard & Poor's Ratings Group or
Moody's Investors Services, Inc. on the date of investment, and (d) commercial
paper which has one of the three highest ratings obtainable from Standard &
Poor's Ratings Group or Moody's Investors Services, Inc.
"Change of Control" means the occurrence of any one or more of the
following events: (i) any "person" or "group" (as such terms are used in Section
13(d) and 14(d) of the Exchange Act) shall become, or obtain rights (whether by
of means or warrants, options or otherwise) to become, the "beneficial owner"
(as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or
indirectly, of more than 25% of the outstanding common stock of World Access,
Inc., (ii) the board of directors of the Parent shall cease to consist of a
majority of Continuing Directors, (iii) any event which results in World Access,
Inc.'s failure to own and control 100% of the Capital Stock of WA Telcom
Products Co., Inc. or Telco Systems, Inc., or WA Telcom Products Co., Inc.'s
failure to own or control, 100% of the Capital Stock of World Access Holdings,
Inc., or Telco Systems,
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Inc.'s or World Access Holdings, Inc.'s failure to own and control, directly or
indirectly, 100% of the Capital Stock of the Restricted Subsidiaries, (iv) as
that term is defined in the World Access Indenture, or (v) as that term is
defined in the Series A Certificate of Designation or (vi) as that term is
defined in the FaciliCom Indenture; provided, that a "Change of Control" shall
not be deemed to have occurred as a result of the issuance of the Series C
Preferred or up to 30% of World Access, Inc. Capital Stock as a result of the
conversion of the Series C Preferred in accordance with the Series C Certificate
of Designation or the appointment of up to 4 directors to the board of directors
of World Access, Inc. in connection with the FaciliCom Acquisition.
"Closing Date" means December 7, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations issued thereunder, as from time to time in effect.
"Collateral" means all "collateral" referred to in any Loan Paper and
all other property which is or may be subject to a Lien in favor or for the
benefit of Administrative Agent on behalf of Lenders or any Lender to secure the
Obligations, including, without limitation, "Collateral" as defined in Section
2.15(a) hereof.
"Commitment Fees" means each of the fees described in Sections 2.10(a)
and 2.10(b) hereof.
"Compliance Certificate" means a certificate of an Authorized Officer
of the Borrower acceptable to Administrative Agent, in the form of Exhibit D
hereto, (a) certifying that such individual has no knowledge that a Default or
Event of Default has occurred and is continuing, or if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the action being taken or proposed to be taken with respect thereto, and (b)
setting forth detailed calculations with respect to each of the covenants
described in Section 7.01 hereof.
"Consequential Loss," with respect to (a) the Borrower's payment of all
or any portion of the then-outstanding principal amount of a LIBOR Advance on a
day other than the last day of the related Interest Period, including, without
limitation, payments made as a result of the acceleration of the maturity of a
Note, (b) (subject to Administrative Agents' prior consent), a LIBOR Advance
made on a date other than the date on which the Advance is to be made according
to Section 2.02(a) or Section 2.09 hereof, or (c) any of the circumstances
specified in Section 2.04, Section 2.05 and Section 2.06 hereof on which a
Consequential Loss may be incurred, means any loss, cost or expense incurred by
any Lender as a result of the timing of the payment or Advance or in
liquidating, redepositing, redeploying or reinvesting the principal amount so
paid or affected by the timing of the Advance or the circumstances described in
Section 2.04, Section 2.05, and Section 2.06 hereof, which amount shall be the
sum of (i) the interest that, but for the payment or timing of Advance, such
Lender would have earned in respect of that principal amount, reduced, if such
Lender is able to redeposit, redeploy, or reinvest the principal amount, by the
interest earned by such Lender as a result of redepositing, redeploying or
reinvesting the principal amount plus (ii) any expense or penalty incurred by
such Lender by reason of liquidating, redepositing, redeploying or reinvesting
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the principal amount. Each determination by each Lender of any Consequential
Loss is, in the absence of manifest error, conclusive and binding.
"Contingent Liability" means, as to any Person, any obligation,
contingent or otherwise, of such Person guaranteeing or having the economic
effect of guaranteeing any Debt or obligation of any other Person in any manner,
whether directly or indirectly, including, without limitation, any obligation of
such Person, direct or indirect, (a) to purchase or pay (or advance or supply
funds for the purchase or payment of) such Debt or to purchase (or to advance or
supply funds for the purchase of) any security for the payment of such Debt, (b)
to purchase Property or services for the purpose of assuring the owner of such
Debt of its payment, or (c) to maintain the solvency, working capital, equity,
cash flow, fixed charge or other coverage ratio, or any other financial
condition of the primary obligor so as to enable the primary obligor to pay any
Debt or to comply with any agreement relating to any Debt or obligation, and
shall, in any event, include any contingent obligation under any letter of
credit, application for any letter of credit or other related documentation.
"Continue," "Continuation" and "Continued" each refer to the
continuation pursuant to Section 2.09 hereof of a LIBOR Advance from one
Interest Period to the next Interest Period.
"Continuing Directors" means the directors of World Access, Inc. on the
Closing Date, and each other director, if, in each case, such other director's
nomination for election to the board of directors of World Access, Inc. is
recommended by at least 66 2/3% of the then Continuing Directors.
"Control" or "Controlled By" or "Under Common Control" mean possession,
direct or indirect, of power to direct or cause the direction of management or
policies (whether through ownership of voting securities, by contract or
otherwise); provided that, in any event (a) it shall include any director (or
Person holding the equivalent position) or executive officer (or Person holding
the equivalent position) of such Person or of any Affiliate of such Person, (b)
any Person which beneficially owns 5% or more (in number of votes) of the
securities having ordinary voting power for the election of directors of a
corporation shall be conclusively presumed to control such corporation, (c) any
general partner of any partnership shall be conclusively presumed to control
such partnership, (d) any other Person who is a member of the immediate family
(including parents, spouse, siblings and children) of any general partner of a
partnership, and any trust whose principal beneficiary is such individual or one
or more members of such immediate family and any Person who is controlled by any
such member or trust, or is the executor, administrator or other personal
representative of such Person, shall be conclusively presumed to control such
Person, and (e) no Person shall be deemed to be an Affiliate of a corporation
solely by reason of his being an officer or director of such corporation.
"Controlled Group" means, as to any Person, all members of a controlled
group of corporations and all trades or businesses (whether or not incorporated)
which are under common control with such Person and which, together with such
Person, are treated as a single employer under Section 414(b), (c), (m) or (o)
of the Code.
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"Conversion or Continuance Notice" has the meaning set forth in Section
2.09(b) hereof.
"Debt" means all obligations, contingent or otherwise, which in
accordance with GAAP are required to be classified on the balance sheet as
liabilities, and, in any event, includes accrued Earn-Out Liabilities(in
accordance with GAAP), Capital Leases, Contingent Liabilities that are required
to be disclosed and quantified in notes to consolidated financial statements in
accordance with GAAP, and liabilities secured by any Lien on any Property,
regardless of whether such secured liability is with or without recourse.
"Debt for Borrowed Money" means, as to any Person, at any date, without
duplication, (a) all obligations of such Person for borrowed money, (b) all
obligations of such Person evidenced by bonds, debentures, notes, letters of
credit (or applications for letters of credit) or other similar instruments, (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business and (d) all obligations of such Person secured by a Lien on any assets
or property of any Person.
"Debtor Relief Laws" means applicable bankruptcy, reorganization,
moratorium or similar Laws, or principles of equity, affecting the enforcement
of creditors' rights generally.
"Default" means any event specified in Section 8.01 hereof, whether or
not any requirement in connection with such event for the giving of notice,
lapse of time or happening of any further condition has been satisfied.
"Distribution" means, as to any Person, (a) any declaration or payment
of any distribution or dividend (other than a stock dividend) on, or the making
of any pro rata distribution, loan, advance or investment to or in any holder
(in its capacity as a partner, shareholder or other equity holder) of, any
partnership interest or shares of capital stock or other equity interest of such
Person, or (b) any purchase, redemption or other acquisition or retirement for
value of any shares of partnership interest or capital stock or other equity
interest of such Person.
"Earn-Out Liability" means, with respect to the Borrower and its
Restricted Subsidiaries, any unsecured contingent liability of the Borrower or
any Restricted Subsidiary of the Borrower incurred in connection with any
Permitted Acquisition, which such contingent liability (a) constitutes a portion
of the purchase price for the property acquired but is not an amount certain,
(b) is only payable based on the performance of the acquired property and in an
amount based only on the performance of the acquired property or (c) is not
subject to any acceleration right (other than those rights in existence as of
the date hereof). "Earn-Out Liability" does not include shares of the common
stock of the Parent already issued and paid into escrow in connection with any
Permitted Acquisition.
"Eligible Assignee" means (a) any Bank Affiliate, (b) a commercial bank
organized under the laws of the United States or any state thereof, having total
assets in excess of $500,000,000; (c) a commercial bank organized under the laws
of any other country which is a member of the
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<PAGE> 15
Organization for Economic Cooperation and Development, or a political
subdivision of any such country, and having total assets in excess of
$500,000,000, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is
described in this clause; and (d) the central bank of any country which is a
member of the Organization for Economic Cooperation and Development.
"Environmental Laws" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. ss.9601 et seq.) ("CERCLA"), the
Hazardous Material Transportation Act (49 U.S.C. ss.1801 et seq.), the Resource
Conservation and Recovery Act (42 U.S.C ss.6901 et seq.), the Federal Water
Pollution Control Act (33 U.S.C. ss.1251 et seq.), the Clean Air Act (42 U.S.C.
ss.7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss.2601 et seq.),
and the Occupational Safety and Health Act (29 U.S.C. ss.651 et seq.) ("OSHA"),
as such laws have been or hereafter may be amended or supplemented, and any and
all analogous future federal, or present or future state or local, Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of the Borrower or any Subsidiary of
the Borrower, or is under common control with the Borrower or any Subsidiary of
the Borrower, within the meaning of Section 414(c) of the Code.
"ERISA Event" means (a) a reportable event, within the meaning of
Section 4043 of ERISA, unless the 30-day notice requirement with respect thereto
has been waived by the PBGC, (b) the issuance by the administrator of any Plan
of a notice of intent to terminate such Plan in a distress situation, pursuant
to Section 4041(a)(2) and 4041(c) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA), (c) the
cessation of operations at a facility in the circumstances described in Section
4062(e) of ERISA, (d) the withdrawal by the Borrower, any Subsidiary of the
Borrower, or an ERISA Affiliate from a Multiple Employer Plan during a Plan year
for which it was a substantial employer, as defined in Section 4001(a)(2) of
ERISA, (e) the failure by the Borrower, any Subsidiary of the Borrower or either
Parent, or any ERISA Affiliate to make a payment to a Plan required under
Section 302 of ERISA, (f) the adoption of an amendment to a Plan requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA, or (g) the
institution by the PBGC of proceedings to terminate a Plan, pursuant to Section
4042 of ERISA, or the occurrence of any event or condition that constitutes
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, a Plan.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended, and the rulings and regulations issued thereunder, as from time to time
in effect.
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<PAGE> 16
"Exchange Indenture" means the indenture dated as of December 7, 1999
between World Access, Inc. and First Union National Bank, as trustee, providing
for 13 1/4% senior notes due 2008, as modified from time to time.
"Exchange Notes" means those certain $300,000,000 aggregate principal
amount of 13 1/4% senior notes due 2008 issued by World Access, Inc.
"Event of Default" means any of the events specified in Section 8.01
hereof, provided there has been satisfied any requirement in connection
therewith for the giving of notice, lapse of time, or happening of any further
condition.
"FaciliCom Acquisition" means the acquisition of FaciliCom
International, Inc. and the related entities pursuant to that Agreement and Plan
of Merger dated as of August 17, 1999 among World Access, Inc., FaciliCom
International, Inc., Armstrong International Telecommunications, Inc., Epic
Interests, Inc. and BFV Associates, Inc.
"FaciliCom Indenture" means the indenture dated as of January 28, 1998
between FaciliCom International, Inc. and State Street Bank and Trust Company,
as Trustee, providing for the 10 1/2% senior notes due 2008, as amended,
restated, supplemented or otherwise modified from time to time.
"FaciliCom Notes" means those certain $300,000,000 aggregate principal
amount of 10 1/2% senior notes due 2008 issued by FaciliCom International, Inc.
"FaciliCom Unrestricted Subsidiaries" means each of the non-United
States organized Subsidiaries acquired in the FaciliCom Acquisition.
"Facility" means the revolving credit facility made hereunder.
"FCC" means the Federal Communications Commission and any successor
thereto.
"FCC License" means any community antenna relay service, broadcast
auxiliary license, earth station registration, business radio, microwave or
special safety radio service license issued by the FCC pursuant to the
Communications Act of 1934, as amended, and any other FCC license from time to
time necessary or advisable for the operation of the Parent's, the Borrower's or
any of their Subsidiaries' business.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of Dallas, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for such date on such
transactions received by Administrative Agent from three federal funds brokers
of recognized standing selected by it.
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"Fee Letters" means that certain letter agreement addressed to the
Borrower and acknowledged by the Borrower, and describing certain fees payable
to the Administrative Agent in connection with this Agreement and the Facility,
and such other fee letter agreements as may be executed from time to time among
the parties hereto, as each may be amended, modified, substituted or replaced by
the parties thereto.
"Fixed Charges" means, for the Parent, the Borrower, and the Restricted
Subsidiaries, for the most recently completed four fiscal quarters, the sum of
(a) cash Total Interest Expense paid or accrued, plus (b) scheduled repayments
of principal of Total Debt (whether by installment or as a result of a scheduled
reduction in a revolving commitment, or otherwise), and accrued Earn-Out
Liabilities(in accordance with GAAP) plus (c) cash taxes paid or accrued, plus
(d) Distributions, plus (e) Capital Expenditures.
"Fixed Charges Coverage Ratio" means the ratio of Operating Cash Flow
for the most recently completed four fiscal quarters, to Fixed Charges.
"Funded Debt" means, without duplication, with respect to any Person,
all Debt of such Person, determined on a consolidated basis and measured in
accordance with GAAP that is either (a) Debt for Borrowed Money, (b) Debt having
a final maturity (or extendable at the option of the obligor for a period
ending) more than one year after the date of creation thereof, notwithstanding
the fact that payments are required to be made less than one year after such
date, (c) Capital Lease obligations (without duplication), (d) reimbursement
obligations relating to letters of credit, without duplication, (e) Contingent
Liabilities relating to any of the foregoing (without duplication), (f)
Withdrawal Liability, (g) Debt, if any, associated with Interest Hedge
Agreements, (h) payments due under Non-Compete Agreements, plus (i) payments due
for the deferred purchase price of property and services (but excluding trade
payables that are less than 90 days old or by that agreement among the parties
are under twelve months old and any thereof that are being contested in good
faith).
"GAAP" means generally accepted accounting principles applied on a
consistent basis. Application on a consistent basis shall mean that the
accounting principles observed in a current period are comparable in all
material respects to those applied in a preceding period, except for new
developments or statements promulgated by the Financial Accounting Standards
Board.
"Galaxy Disposition" means the sale by World Access, Inc. to certain
management employees of World Access, Inc. of all of the assets of Galaxy
Personal Communications, Inc., Galaxy Technical Resources, Inc. and Galaxy
Engineering Services, Inc.
"Guarantors" means the Parent, FaciliCom International, LLC and each of
its direct or indirect domestic Subsidiaries, FCI (GP), LLC and each of its
direct or indirect domestic Subsidiaries and each Restricted Subsidiary and each
other Person from time to time guaranteeing payment of the Obligations to the
Administrative Agent and Lenders.
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<PAGE> 18
"Guaranty" of a Person means any agreement by which such Person
assumes, guarantees, endorses, contingently agrees to purchase or provide funds
for the payment of, or otherwise becomes liable upon, the obligation of any
other Person, or agrees to maintain the net worth or working capital or other
financial condition of any other Person, or otherwise assures any creditor or
such other Person against loss, including, without limitation, any agreement
which assures any creditor or such other Person payment or performance of any
obligation, or any take-or-pay contract and shall include, without limitation,
the contingent liability of such Person in connection with any application for a
letter of credit (without duplication of any amount already included in its
Debt).
"Hazardous Materials" means all materials subject to any Environmental
Law, including, without limitation materials, listed in 49 C.F.R. ss. 172.101,
Hazardous Substances, explosive or radioactive materials, hazardous or toxic
wastes or substances, petroleum or petroleum distillates, asbestos or material
containing asbestos.
"Hazardous Substances" means hazardous waste as defined in the Clean
Water Act, 33 U.S.C. ss. 1251 et seq., the Comprehensive Environmental Response
Compensation and Liability Act as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. ss. 9601 et seq., the Resource Conservation
Recovery Act, 42 U.S.C. ss. 6901 et seq., and the Toxic Substances Control Act,
15 U.S.C. ss. 2601 et seq.
"Highest Lawful Rate" means at the particular time in question the
maximum rate of interest which, under Applicable Law, Administrative Agent is
then permitted to charge on the Obligations. If the maximum rate of interest
which, under Applicable Law, such Lender is permitted to charge on the
Obligations shall change after the date hereof, the Highest Lawful Rate shall be
automatically increased or decreased, as the case may be, from time to time as
of the effective time of each change in the Highest Lawful Rate without notice
to the Borrower. For purposes of determining the Highest Lawful Rate under
Applicable Law, the applicable rate ceiling shall be (a) the indicated rate
ceiling described in and computed in accordance with the provisions of Art. lH;
or (b) either the annualized ceiling or quarterly ceiling computed pursuant to
.008 of Art. 1D; provided, however, that at any time the indicated rate ceiling,
the annualized ceiling or the quarterly ceiling, as applicable, shall be less
than 18% per annum or more than 24% per annum, the provisions of Sections
.009(a) and .009(b) of said Art. lD shall control for purposes of such
determination, as applicable.
"Indemnitees" has the meaning ascribed thereto in Section 6.09 hereof.
"Initial Advance" means the initial Advance made in accordance with the
terms hereof, which shall only be after the Borrower has satisfied each of the
conditions set forth in Section 4.01 and Section 4.02 hereof (or any such
condition shall have been waived by each Lender).
"Insufficiency" means, with respect to any Plan, the amount, if any, of
its unfunded benefit liabilities within the meaning of Section 4001(a)(18) of
ERISA.
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"Interest Coverage Ratio" means as of any date of determination, the
ratio of (a) Operating Cash Flow for the most recently completed four fiscal
quarters, to (b) Total Interest Expense for the most recently completed four
fiscal quarters.
"Interest Hedge Agreements" means any interest rate swap agreements,
interest cap agreements, interest rate collar agreements, or any similar
agreements or arrangements designed to hedge the risk of variable interest rate
volatility, or foreign currency hedge, exchange or similar agreements, on terms
and conditions reasonably acceptable to Administrative Agent (evidenced by
Administrative Agent's consent in writing), as such agreements or arrangements
may be modified, supplemented and in effect from time to time, and
notwithstanding the above, fixed rate Debt for Borrowed Money shall be deemed an
Interest Hedge Agreement.
"Interest Period" means, with respect to any LIBOR Advance, the period
beginning on the date an Advance is made or continued as or converted into a
LIBOR Advance and ending one, two, three or six months thereafter (as the
Borrower shall select) provided, however, that:
(a) the Borrower may not select any Interest Period that
ends after any principal repayment date unless, after giving effect to
such selection, the aggregate principal amount of LIBOR Advances having
Interest Periods that end on or prior to such principal repayment date
shall be at least equal to the principal amount of Advances due and
payable on and prior to such date;
(b) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that if such extension would cause the
last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on the
next preceding Business Day; and
(c) whenever the first day of any Interest Period occurs
on a day of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months in
such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Interest Reserve Account" means that certain interest reserve account
established pursuant to the terms of the FaciliCom Indenture for the purpose of
the payment of interest on the FaciliCom Notes.
"Investment" means any acquisition of all or substantially all assets
of any Person, or any direct or indirect purchase or other acquisition of, or a
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than advances to employees for
moving and travel expenses, entertainment expenses, drawing accounts and similar
expenditures in the ordinary course of business), or capital contribution to or
investment in any other
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<PAGE> 20
Person, including without limitation the incurrence or sufferance of Debt or
accounts receivable of any other Person that are not current assets or do not
arise from sales to that other Person in the ordinary course of business.
"Issuing Bank" means Bank Austria AG.
"Law" means any constitution, statute, law, ordinance, regulation,
rule, order, writ, injunction or decree of any Tribunal.
"Lenders" means the lenders listed on the signature pages of this
Agreement, and each Eligible Assignee which hereafter becomes a party to this
Agreement pursuant to Section 10.04 hereof, for so long as any such Person is
owed any portion of the Obligations or obligated to make any Advances.
"Lending Office" means, with respect to each Lender, its branch or
affiliate, (a) initially, the office of such Lender, branch or affiliate
identified as such on the signature pages hereof, and (b) subsequently, such
other office of such Lender, branch or affiliate as such Lender may designate to
the Borrower and Administrative Agent as the office from which the Advances of
such Lender will be made and maintained and for the account of which all
payments of principal and interest on the Advances and the Commitment Fees will
thereafter be made. Lenders may have more than one Lending Office for the
purpose of making Base Rate Advances and LIBOR Advances.
"Letter of Credit" means collectively those direct pay or standby
commercial letters of credit issued pursuant to Article III hereof , the Bond
Letter of Credit, and any other letters of credit issued by Bank Austria AG for
the account of the Parent, the Borrowers, or the Restricted Subsidiaries.
"Letter of Credit Commitment" means, on any date of determination, an
amount equal to the lesser of (a) $25,000,000 and (b) the Available Commitment
minus all outstanding Advances and Letters of Credit.
"LIBOR Advance" means an Advance bearing interest at the LIBOR Rate.
"LIBOR Rate" means a simple per annum interest rate equal to the lesser
of (a) the Highest Lawful Rate, and (b) the sum of the LIBOR Rate Basis plus the
Applicable Margin. The LIBOR Rate shall, with respect to LIBOR Advances subject
to reserve or deposit requirements, be subject to premiums assessed therefor by
each Lender, which are payable directly to each Lender. Once determined, the
LIBOR Rate shall remain unchanged during the applicable Interest Period.
"LIBOR Rate Basis" means, for any LIBOR Advance for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest
1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the
London interbank offered rate for deposits in Dollars at approximately 11:00
a.m. (London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period. If for any reason such
rate is not available, the
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<PAGE> 21
term "LIBOR Rate Basis" shall mean, for any LIBOR Advance for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London
interbank offered rate for deposits in Dollars at approximately 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest Period
for a term comparable to such Interest Period; provided, however, if more than
one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be
the arithmetic mean of all such rates.
"License" means, as to any Person, any license, permit, certificate of
need, authorization, certification, accreditation, franchise, approval, or grant
of rights by any Tribunal or third person necessary or appropriate for such
Person to own, maintain, or operate its business or Property, including FCC
Licenses.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien, or charge of any kind, including without limitation any agreement to give
or not to give any of the foregoing, any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement or other similar form of public notice
under the Laws of any jurisdiction (except for the filing of a financing
statement or notice in connection with an operating lease).
"Litigation" means any proceeding, claim, lawsuit, arbitration, and/or
investigation conducted or threatened by or before any Tribunal, including
without limitation proceedings, claims, lawsuits, and/or investigations under or
pursuant to any environmental, occupational, safety and health, antitrust,
unfair competition, securities, Tax, or other Law, or under or pursuant to any
contract, agreement, or other instrument.
"Loan Papers" means this Agreement; the Notes; Interest Hedge
Agreements executed among any Obligor and any Lender or Bank Affiliate; all
Pledge Agreements; all Letters of Credit; all Guaranties executed by any Person
guaranteeing payment of any portion of the Obligations; all Fee Letters; each
Assignment and Acceptance; all promissory notes evidencing any portion of the
Obligations; assignments, security agreements and pledge agreements granting any
interest in any of the Collateral; stock certificates and partnership agreements
constituting part of the Collateral; mortgages, deeds of trust, financing
statements, collateral assignments, and other documents and instruments granting
an interest in any portion of the Collateral, or related to the perfection
and/or the transfer thereof, all collateral assignments or other agreements
granting a Lien on any intercompany note, including without limitation, all
other documents, instruments, agreements or certificates executed or delivered
by the Borrower or any other Obligor, as security for the Borrower's obligations
hereunder, in connection with the loans to the Borrower or otherwise; as each
such document shall, with the consent of the Lenders pursuant to the terms
hereof, be amended, revised, renewed, extended, substituted or replaced from
time to time.
"Majority Lenders" means any combination of Lenders having at least
66.67% of the aggregate amount of Advances under the Facility; provided,
however, that if no Advances are
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<PAGE> 22
outstanding under this Agreement, such term means any combination of Lenders
having a Specified Percentage equal to at least 66.67% of the Facility.
"Management Fees" means all fees from time to time directly or
indirectly (including any payments made pursuant to guarantees of such fees)
paid or payable by the Borrower, the Parent, or any of the Restricted
Subsidiaries to any Person for management services for managing any portion of
the Borrower's, the Parent's or the Restricted Subsidiaries' business.
"Material Adverse Change" means any circumstance or event that (a) can
reasonably be expected to cause a Default or an Event of Default, (b) otherwise
can reasonably be expected to (i) be material and adverse to the continued
operation of the Parent, the Borrower and the Restricted Subsidiaries taken as a
whole, or (ii) be material and adverse to the financial condition, business
operations, prospects or Properties of the Parent, the Borrower and the
Restricted Subsidiaries taken as a whole, or (c) in any manner whatsoever does
or can reasonably be expected to materially and adversely affect the validity or
enforceability of any of the Loan Papers.
"Maturity Date" means December 4, 2000, or such earlier date all of the
Obligations become due and payable (whether by acceleration, prepayment in full,
scheduled reduction or otherwise).
"Maximum Amount" means the maximum amount of interest which, under
Applicable Law, Administrative Agent or any Lender is permitted to charge on the
Obligations.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Borrower, any Subsidiary of the Borrower or
any ERISA Affiliate is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an obligation
to make contributions, such plan being maintained pursuant to one or more
collective bargaining agreements.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the
Borrower, any Subsidiary of the Borrower, or any ERISA Affiliate and at least
one Person other than the Borrower, any Subsidiary of the Borrower or any ERISA
Affiliate, or (b) was so maintained and in respect of which the Borrower, any
Subsidiary of the Borrower or any ERISA Affiliate could have liability under
Section 4064 or 4069 of ERISA in the event such plan has been or were to be
terminated.
"Net Proceeds" means the gross proceeds received by the Borrower, the
Parent, any Restricted Subsidiary or any FaciliCom Unrestricted Subsidiary in
connection with or as a result of any Asset Sale, minus (so long as each of the
following are estimated in good faith by the Vice President - Chief Financial
Officer of the Borrower, the Parent, such Restricted Subsidiary or the FaciliCom
Unrestricted Subsidiaries and certified to the Lenders in reasonable detail by
an Authorized Officer) (a) amounts paid or reserved in good faith, if any, for
taxes payable with respect to such Asset Sale in an amount equal to the tax
liability of the Borrower, the Parent, any Restricted Subsidiary or any
FaciliCom Unrestricted Subsidiaries in respect of such sale (taking into account
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<PAGE> 23
all other tax benefits of each of the parties) and (b) reasonable and customary
transaction costs payable by the Borrower, the Parent, any Restricted Subsidiary
or any FaciliCom Unrestricted Subsidiaries related to such sale.
"NewTel Acquisition" means that certain acquisition on terms
substantially similar to the draft LLC Unit Purchase Agreement dated November
24, 1999 among World Access, Inc., NewTel LLC and NewTel, Inc.
"Non-Compete Agreement" means any agreement or related set of
agreements under which the Borrower or any Restricted Subsidiary agrees to pay
money in one or more installments to one or more Persons in exchange for
agreements from such Persons to refrain from competing with the Borrower or such
Restricted Subsidiary in a certain line of business in a specific geographical
area for a certain time period, or pursuant to which any Person agrees to limit
or restrict its right to engage, directly or indirectly, in the same or similar
industry for any period of time for any geographic location.
"Notes" means the promissory notes of the Borrower evidencing the
Advances and obligations owing hereunder to each Lender, in substantially the
form of Exhibit A hereto, each payable to the order of each Lender, as each such
note may be amended, extended, restated, renewed, substituted or replaced from
time to time.
"Obligations" means all present and future obligations, indebtedness
and liabilities, and all renewals and extensions of all or any part thereof, of
the Borrower and each other Obligor to Lenders, the Issuing Bank, and
Administrative Agent arising from, by virtue of, or pursuant to this Agreement,
any of the other Loan Papers and any and all renewals and extensions thereof or
any part thereof, or future amendments thereto, all interest accruing on all or
any part thereof and reasonable attorneys' fees incurred by Lenders, the Issuing
Bank, and Administrative Agent for the administration, execution of waivers,
amendments and consents, and in connection with any restructuring, workouts or
in the enforcement or the collection of all or any part thereof, whether such
obligations, indebtedness and liabilities are direct, indirect, fixed,
contingent, joint, several or joint and several. Without limiting the generality
of the foregoing, "Obligations" includes all amounts which would be owed by the
Borrower, each other Obligor and any other Person (other than Administrative
Agent or Lenders) to Administrative Agent or Lenders under any Loan Paper, but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving the Borrower,
any other Obligor or any other Person (including all such amounts which would
become due or would be secured but for the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding of the
Borrower, any other Obligor or any other Person under any Debtor Relief Law).
"Obligor" means the Borrower, the Parent, the Restricted Subsidiaries
and any other Person liable to the Lenders under the Loan Papers.
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<PAGE> 24
"Operating Cash Flow" means, for the Parent, Borrower, the Restricted
Subsidiaries and the FaciliCom Unrestricted Subsidiaries, for any period,
determined in accordance with GAAP, the consolidated net income (loss)
(including, without limitation, 100% of the net income (loss) of NACT
Telecommunications, Inc.) for such period taken as a single accounting period,
excluding extraordinary gains and losses, plus the sum of the following amounts
for such period to the extent included in the determination of such consolidated
net income: (a) depreciation expense, (b) amortization expense and other
non-cash charges reducing income, (c) Total Interest Expense, (d) total cash
income tax expense plus (e) extraordinary losses minus (f) extraordinary gains
and (g) non cash income; provided, the calculation is made after giving effect
to acquisitions and dispositions of assets of the Borrower, any Restricted
Subsidiary or the FaciliCom Unrestricted Subsidiaries during such period as if
such transactions had occurred on the first day of such period, provided
further, that Operating Cash Flow generated from the FaciliCom Acquisition shall
be included in the definition of Operating Cash Flow commencing in the fiscal
quarter ending December 31, 1999.
"Operating Leases" means operating leases, as defined in accordance
with GAAP.
"Parent" means collectively, World Access, Inc. and WA Telecom Products
Co., Inc.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
agency or entity performing substantially the same functions.
"Permitted Acquisitions" means cash and/or Capital Stock acquisitions
made by the Borrower or any Restricted Subsidiary of Capital Stock or assets of
Persons engaged in telecommunications equipment manufacturing, long distance and
long-haul carrier and related businesses not in excess of $75,000,000 in the
aggregate (excluding the FaciliCom Acquisition and the NewTel Acquisition), so
long as in each case (a) there exists no Default or Event of Default both before
and after giving effect to any such acquisition, (b) such acquired entity
becomes a Restricted Subsidiary and executes a Guaranty of the Obligations, or
such acquired assets are acquired by a Restricted Subsidiary, (c)(i) in the case
of an acquisition of Capital Stock, 100% of the Capital Stock (or 65% of the
Capital Stock of any entity organized under the laws of a country other than the
United States), and (ii) in all cases, all of the assets of the Person being
acquired, are pledged to the Lenders on a first Lien basis, (d) no more than
$50,000,000 of the Unused Commitment is used to make such acquisition, and (e)
the Borrower provides the Administrative Agent and each Lender with information
demonstrating pro forma compliance with the terms of this Agreement through the
Maturity Date, after giving effect to such Permitted Acquisition, including,
without limitation, each provision of Section 7.01 hereof.
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<PAGE> 25
"Permitted Dispositions" means provided that no Default or Event of
Default exists or would result therefrom (i) the sales of receivables by the
Borrower for the purpose of factoring not to exceed at any one time $16,000,000,
(ii) the sale by the Borrower of certain real property located in Provo, Utah,
(iii) the sale by the Borrower of the RTP operations in Dallas, Texas, (iv) the
sale or issuance of the Capital Stock of any Subsidiary of the Borrower to the
Borrower or to any other Subsidiary of the Borrower, (v) sales in the ordinary
course of business, including, without limitation, dispositions of obsolete or
useless assets, (vi) sales of "discontinued operations" as defined under GAAP
(x) as described on Schedule 1 hereto ("Schedule 1 Sales") and (y) which are not
described on Schedule 1 by the Parent, the Borrower or their Subsidiaries, the
Net Proceeds of which are not in excess of $25,000,000 in the aggregate
throughout the term of this Agreement ("Other Sales"); provided that if the
aggregate amount of Net Proceeds of Schedule 1 Sales are greater than
$25,000,000, the amount of Net Proceeds from Other Sales characterized as
"Permitted Dispositions" hereunder shall be reduced by the amount by which Net
Proceeds of Schedule 1 Sales exceeds $25,000,000; (vii) the Galaxy Disposition,
(viii) the Restor Disposition and (ix) the sale or disposition of the capital
stock of Ciena Corporation pursuant to the World Access Charitable Trust
Transaction.; provided, that the aggregate principal amount of all Permitted
Dispositions pursuant to (vi) above shall not exceed $50,000,000 during the term
of this Agreement.
"Permitted Liens" means
(a) those imposed by the Loan Papers;
(b) Liens in connection with workers' compensation,
unemployment insurance or other social security obligations (which phrase shall
not be construed to refer to ERISA);
(c) deposits, pledges or liens to secure the performance
of bids, tenders, contracts (other than contracts for the payment of borrowed
money), leases, statutory obligations, surety, customs, appeal, performance and
payment bonds and other obligations of like nature arising in the ordinary
course of business;
(d) mechanics', workers', carriers, warehousemen's,
materialmen's, landlords' or other like Liens arising in the ordinary course of
business with respect to obligations which are not due or which are being
contested in good faith and by appropriate proceedings diligently conducted;
(e) Liens for taxes, assessments, fees or governmental
charges or levies not delinquent or which are being contested in good faith and
by appropriate proceedings diligently conducted, and in respect of which
adequate reserves shall have been established in accordance with GAAP on the
books of the Borrower or any Restricted Subsidiary;
(f) Liens or attachments, judgments or awards against the
Borrower with respect to which an appeal or proceeding for review shall be
pending or a stay of execution shall have been obtained, and which are otherwise
being contested in good faith and by appropriate proceedings
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diligently conducted, and in respect of which adequate reserves shall have been
established in accordance with GAAP on the books of the Borrower or any
Restricted Subsidiary; and
(g) Liens in existence on the Closing Date and described
on Schedule 5.08 hereto; and
(h) easements, rights of way, restrictions, leases of
Property to others, easements for installations of public utilities, title
imperfections and restrictions, zoning ordinances and other similar encumbrances
affecting Property which in the aggregate do not materially adversely affect the
value of such Property or materially impair its use for the operation of the
business of the Borrower; and
(i) Lien on Provo Utah property securing Debt For
Borrowed Money in an aggregate principal amount not exceeding $5,000,000.
"Person" means an individual, partnership, joint venture, corporation,
trust, Tribunal, unincorporated organization and government, or any department,
agency or political subdivision thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Pledge Agreement" means each Security Agreement and each Pledge and
Security Agreement, whereby the Pledged Interests are pledged to Administrative
Agent and a security interest is granted in the assets of the Borrower and
Restricted Subsidiaries to secure the Obligations, each substantially in the
form of Exhibit C hereto, as each such agreement may be amended, modified,
extended, renewed, restated, substituted or replaced from time to time.
"Pledged Interests" means (a) a first perfected security interest in
100% of the Capital Stock of the Borrower and WA Telecom Products Co., Inc.; (b)
a first perfected security interest in 100% of the Capital Stock of each
Restricted Subsidiary, if any, now existing or hereafter formed or acquired; and
(c) a first perfected security interest in 65% of the Capital Stock of each
Unrestricted Subsidiary, if any, now existing or hereafter formed or acquired.
"Prohibited Transaction" has the meaning specified therefor in Section
4975 of the Code or Section 406 of ERISA.
"Property" means all types of real, personal, tangible, intangible or
mixed property, whether owned in fee simple or leased.
"Quarterly Date" means the last Business Day of each March, June,
September and December during the term of this Agreement, commencing on December
31, 1998.
"Ratable" means, as to any Lender, in accordance with its Specified
Percentage.
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"Refinancing Advance" means an Advance that is used to pay the
principal amount of an existing Advance (or any performance thereof) at the end
of its Interest Period and which, after giving effect to such application, does
not result in an increase in the aggregate amount of outstanding Advances.
"Regulatory Change" means any change after the date hereof in federal,
state or foreign Laws (including, the introduction of any new Law) or the
adoption or making after such date of any interpretations, directives or
requests of or under any federal, state or foreign Laws (whether or not having
the force of Law) by any Tribunal charged with the interpretation or
administration thereof, applying to a class of financial institutions that
includes any Lender, excluding, however, any such change which results in an
adjustment of the LIBOR Reserve Percentage and the effect of which is reflected
in a change in the LIBOR Rate as provided in the definition of such term.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement under Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided that a failure to meet the minimum
funding standard under Section 412 of the Code and under Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waivers in
accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code.
"Restor Disposition" means the disposition of Restor Telephone
Products, a division of WA Telcom Products Co., Inc. to GTE for aggregate cash
consideration not in excess of $2,375,000.
"Restricted Payments" means (a) any direct or indirect distribution,
Distribution or other payment on account of any general or limited partnership
interest in (or the setting aside of funds for, or the establishment of a
sinking fund or analogous fund with respect to), or shares of Capital Stock or
other securities of, the Borrower, the Parent or any Restricted Subsidiary; (b)
any payments of principal of, or interest on, or fees related to, or any other
payments and prepayments with respect to, or the establishment of, or any
payment to, any sinking fund or analogous fund for the purpose of making any
such payments on, Funded Debt of the Borrower, the Parent or any Restricted
Subsidiary (excluding the Obligations); (c) any Management Fee or any interest
thereon, payable by the Borrower, the Parent, or any Restricted Subsidiary to
any Affiliate of the Borrower or Parent or to any other Person; (d) any
administration fee or any administration, consulting or other similar fees, or
any interest thereon, payable by the Borrower, the Parent or any Restricted
Subsidiary to any Affiliate of Parent or the Borrower or to any other Person,
but not including fees for investment banking or accounting services or other
similar kinds of consulting fees in the ordinary course of business; (e) any
payments of any amounts owing under any Non-Compete Agreements; and (f) fees,
loans or other payments or advances by the Borrower, the Parent or any
Restricted Subsidiary to any Unrestricted Subsidiary or any other Affiliate of
the Parent or the Borrower.
"Restricted Subsidiaries" means all of the direct or indirect
Subsidiaries of the Parent and the Borrower and of their Restricted
Subsidiaries, including without limitation, those described on
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Schedule 1.01 attached hereto as well as any Unrestricted Subsidiary designated
in writing as a Restricted Subsidiary by Borrower from time to time; and
"Restricted Subsidiary" means any one of them, as applicable in the context.
"Rights" means rights, remedies, powers, and privileges.
"Series A Certificate of Designation" means that certain Certificate of
Designation of 4.25% Cumulative Senior Perpetual Convertible Preferred Stock,
Series A, of World Access, Inc., executed by it and filed with Secretary of
State of the State of Delaware.
"Series A Preferred" means 70,000 shares of that 4.25% Cumulative
Senior Perpetual Convertible Preferred Stock, Series A, par value $.01 per
share, designated in the Series A Certificate of Designation and issued by World
Access, Inc. pursuant to the Stock Purchase Agreement (as that term is defined
in the Series A Certificate of Designation).
"Series B Certificate of Designation" means that certain Certificate of
Designation of 4.25% Cumulative Junior Convertible Preferred Stock, Series B, of
World Access, Inc., executed by it and filed with Secretary of State of the
State of Delaware.
"Series B Preferred" means 23,174 shares of that 4.25% Cumulative
Junior Convertible Preferred Stock, Series B, par value $.01 per share,
designated in the Series B Certificate of Designation and issued by World
Access, Inc. pursuant to the Purchase Agreement (as that term is defined in the
Series B Certificate of Designation).
"Series C Certificate of Designation" means that certain Certificate of
Designation of Convertible Preferred Stock, Series C, of World Access, Inc., to
be executed by it and filed with Secretary of State of the State of Delaware.
"Series C Preferred" means 380,000 shares of that Convertible Preferred
Stock, Series C, par value $.01 per share, designated in the Series C
Certificate of Designation and issued by World Access, Inc. pursuant to the
Merger Agreement (as that term is defined in the Series C Certificate of
Designation).
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, other than a Multiple Employer Plan, that is
maintained for employees of the Borrower or any ERISA Affiliate.
"Solvent" means, with respect to any Person, that on such date (a) the
fair value of the Property of such Person is greater than the total amount of
liabilities, including, without limitation, Contingent Liabilities of such
Person, (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured, (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities
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<PAGE> 29
mature, and (d) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
Property would constitute an unreasonably small capital.
"Special Counsel" means the law firm of Donohoe, Jameson & Carroll,
P.C., Dallas, Texas, special counsel to Administrative Agent, or such other
counsel selected by Administrative Agent from time to time.
"Specified Percentage" means, as to any Lender, the percentage
indicated beside its name on the signature pages hereof, or as adjusted or
specified in any Assignment and Acceptance, or amendment to this Agreement.
"Subordinated Debt" means subordinated indebtedness of the Borrower
incurred in accordance with the terms of Section 7.02(e)(ii) hereof.
"Subordinated Notes" means the $115,000,000 4.5% Convertible
Subordinated Notes due 2002.
"Subsidiary" of any Person means any corporation, partnership, limited
liability company, joint venture, trust or estate of which (or in which) more
than 50% of:
(a) the outstanding Capital Stock having voting power to
elect a majority of the Board of Directors of such corporation (or
other Persons performing similar functions of such entity, and
irrespective of whether at the time Capital Stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency),
(b) the interest in the capital or profits of such
partnership or joint venture, or
(c) the beneficial interest of such trust or estate,
is at the time directly or indirectly owned by (i) such Person, (ii)
such Person and one or more of its Subsidiaries or (iii) one or more of
such Person's Subsidiaries.
"Taxes" means all taxes, assessments, imposts, fees or other charges at
any time imposed by any Laws or Tribunal.
"Total Debt" means, without duplication, with respect to the Parent,
the Borrower, the Restricted Subsidiaries and the FaciliCom Unrestricted
Subsidiaries, Funded Debt (including, without limitation, recourse factoring and
third- party financing arrangements and any overdue interest on such
indebtedness, but excluding any accrued but not overdue interest on any
indebtedness), calculated on a consolidated basis in accordance with GAAP.
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"Total Interest Expense" means as of any date of determination for any
period of calculation, the Parent's, Borrower's, the Restricted Subsidiaries'
and the FaciliCom Unrestricted Subsidiaries' consolidated interest expense
included in a consolidated income statement (after deduction of interest income)
on Total Debt for such period calculated on a consolidated basis in accordance
with GAAP, including, without limitation or duplication (or, to the extent not
so included, with the addition of), for the Parent, the Borrower, the Restricted
Subsidiaries and the FaciliCom Unrestricted Subsidiaries: (a) the amortization
of Debt discounts; (b) any commitment fees or agency fees related to any Funded
Debt, but specifically excluding any one-time facility and/or arrangement fees
associated with the Facility; (c) any fees or expenses with respect to letters
of credit, bankers' acceptances or similar facilities; (d) fees and expenses
with respect to interest rate swap or similar agreements or foreign currency
hedge, exchange or similar agreements, other than fees or charges related to the
acquisition or termination thereof which are not allocable to interest expense
in accordance with GAAP; (e) preferred stock Distributions for the Borrower, the
Restricted Subsidiaries and the FaciliCom Unrestricted Subsidiaries declared and
payable in cash; and (f) interest capitalized in accordance with GAAP minus
payments made from the Interest Reserve Account.
"Total Leverage Ratio" means as of any date of determination, the ratio
of (a) Total Debt of the Parent, the Borrower, the Restricted Subsidiaries and
the FaciliCom Unrestricted Subsidiaries on such date of determination to (b)
Annualized Operating Cash Flow, all calculated on a consolidated basis in
accordance with GAAP consistently applied.
"Total Senior Debt" means, at any date, the aggregate of all Debt for
Borrowed Money of the Parent, the Borrowers, their Restricted Subsidiaries and
the FaciliCom Unrestricted Subsidiaries (including any overdue interest on such
indebtedness, but excluding any accrued but not overdue interest on any
indebtedness) on a consolidated basis at such date minus the sum of all Debt
under (i) the World Access Indenture, (ii) the FaciliCom Indenture, (iii) the
Exchange Offer Indenture and (iv) any other Debt for Borrowed Money of World
Access, Inc. that is structurally or contractually subordinated to the
Obligations.
"Total Senior Leverage Ratio" means as of any date of determination,
the ratio of (a) Total Senior Debt for the Parent, the Borrower, the Restricted
Subsidiaries and the FaciliCom Unrestricted Subsidiaries on such date of
determination to (b) Annualized Operating Cash Flow, all calculated on a
consolidated basis in accordance with GAAP, consistently applied.
"Tribunal" means any state, commonwealth, federal, foreign, territorial
or other court or government body, subdivision, agency, department, commission,
board, bureau or instrumentality of a governmental body.
"Type" refers to the distinction between Advances bearing interest at
the Base Rate and LIBOR Rate.
"UCC" means the Uniform Commercial Code as adopted in the State of
Texas.
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"Unrestricted Subsidiary" means World Access, Ltd, World Access de
Mexico, S.A., WAXS Limitada, Telco Systems Asia/Pacific Ltd., Telco Indemnity
Corp., Telco Systems, Ltd., TSI Exports Ltd., World Access Telecommunications
Group Limited, and World Access U.K., Ltd., and, with the prior written consent
of the Majority Lenders, any other Subsidiary of the Parent designated as an
"Unrestricted Subsidiary" by the Borrower from time to time.
"Unused Commitment" means, on any date of determination, the Available
Commitment as in effect on such date, minus all outstanding Advances on such
date.
"Withdrawal Liability" has the meaning given such term under Part I of
Subtitle E of Title IV of ERISA.
"World Access Charitable Trust" means that certain trust formed under
Texas law by World Access Investment Corp. pursuant to which (i) World Access
Investment Corp. shall be the present income beneficiary of no less than 75% of
such trust and (ii) a non-profit entity formed under Section 501(c)(3) of the
Code shall be no more than a 25% remainder interest beneficiary.
"World Access Charitable Trust Transaction" means the transaction by
which World Access Investment Corp. will transfer its shares of the capital
stock of Ciena Corporation to a charitable remainder trust, with the World
Access Investment Corp. as the primary beneficiary of the trust, in exchange for
certain cash payments over time.
"World Access Indenture" means the indenture dated as of October 1,
1997 between World Access, Inc. and First Union National Bank, as Trustee,
providing for the Subordinated Notes, as amended, restated, supplemented or
otherwise modified from time to time.
"Year 2000 Compliant" means, with respect to a Person, that all
computer hardware and software that are material to the business and operations
of such Person will on a timely basis be able to perform properly date-sensitive
functions for all dates before and after January 1, 2000, including functions
with respect to any leap year.
1.02. Accounting and Other Terms. All accounting terms used in this
Agreement which are not otherwise defined herein shall be construed in
accordance with GAAP consistently applied on a consolidated basis for Borrower
and the Restricted Subsidiaries, unless otherwise expressly stated herein.
References herein to one gender shall be deemed to include all other genders.
Except where the context otherwise requires, all references to time are deemed
to be Central Standard time.
ARTICLE II. AMOUNTS AND TERMS OF ADVANCES
2.01. The Facility. Each Lender severally agrees, on the terms and
subject to the conditions hereinafter set forth, from the Closing Date until the
Maturity Date, to make Advances under the Available Commitment to the Borrower
on any Business Day during the period from the Closing Date of this Agreement
until the Maturity Date, in an aggregate principal amount not to exceed at
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any time outstanding such Lender's Specified Percentage of the Available
Commitment. Subject to the terms and conditions of this Agreement, until the
Maturity Date, the Borrower may borrow, repay and reborrow the Advances under
the Available Commitment. The Borrower shall repay all outstanding Obligations
on the Maturity Date.
2.02. Making Advances.
(a) Each Borrowing of Advances shall be made upon the written
notice of the Borrower, received by Administrative Agent not later than (i)
12:00 noon three Business Days prior to the proposed date of the Borrowing, in
the case of LIBOR Advances, and (ii) not later than 10:00 a.m. on the date of
such Borrowing, in the case of Base Rate Advances. Each such notice of a
Borrowing (a "Borrowing Notice") shall be by telecopy, promptly confirmed by
letter, in substantially the form of Exhibit F hereto specifying therein:
(i) the date of such proposed Borrowing, which shall be a
Business Day;
(ii) the amount of such proposed Borrowing which, (A)
shall not when aggregated together with all other outstanding Advances
exceed the Available Commitment, and (B) shall, in the case of a
Borrowing of LIBOR Advances, be in an amount of not less than
$1,000,000 or an integral multiple of $500,000 in excess thereof and,
in the case of a Borrowing of Base Rate Advances, be in an amount of
not less than $500,000 or an integral multiple of $100,000 in excess
thereof;
(iii) the Type of Advances of which the Borrowing is to be
comprised; and
(iv) if the Borrowing is to be comprised of LIBOR
Advances, the duration of the initial Interest Period applicable to
such Advances.
If the Borrowing Notice fails to specify the duration of the initial
Interest Period for any Borrowing comprised of LIBOR Advances, such Interest
Period shall be one month. Each Lender shall, before 1:00 p.m. on the date of
each Advance (other than a Refinancing Advance), make available to
Administrative Agent
Bank of America Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
such Lender's Specified Percentage of the aggregate Advances, to be made on that
day in immediately available funds.
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(b) Unless any applicable condition specified in Article IV hereof
has not been satisfied, Administrative Agent will make the funds on Advances
under the Facility promptly available to the Borrower (other than with respect
to a Refinancing Advance) at such account as shall have been specified by the
Borrower.
(c) After giving effect to any Borrowing, (i) there shall not be
more than ten different Interest Periods in the aggregate in effect under the
Facility and (ii) the aggregate principal of outstanding Advances plus the
undrawn portion of all Letters of Credit shall not exceed the Available
Commitment.
(d) No Interest Period for a Borrowing under the Facility shall
extend beyond the Maturity Date.
(e) Unless a Lender shall have notified Administrative Agent prior
to the date of any Advance that it will not make available its Specified
Percentage of any Advance, Administrative Agent may assume that such Lender has
made the appropriate amount available in accordance with Section 2.02(a), and
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If and to the extent any Lender shall not
have made such amount available to Administrative Agent, such Lender and the
Borrower severally agree to repay to Administrative Agent immediately on demand
such corresponding amount together with interest thereon, from the date such
amount is made available to the Borrower until the date such amount is repaid to
Administrative Agent, at (i) in the case of the Borrower, the Base Rate, and
(ii) in the case of such Lender, the Federal Funds Rate.
(f) The failure by any Lender to make available its Specified
Percentage of any Advance hereunder shall not relieve any other Lender of its
obligation, if any, to make available its Specified Percentage of any Advance.
In no event, however, shall any Lender be responsible for the failure of any
other Lender to make available any portion of any Advance.
(g) The Borrower shall indemnify each Lender against any
Consequential Loss incurred by each Lender as a result of (i) any failure by the
Borrower to fulfill, on or before the date specified for the Advance, the
conditions to the Advance set forth herein or (ii) the Borrower's requesting
that an Advance not be made on the date specified in the Borrowing Notice.
2.03. Evidence of Indebtedness.
(a) The obligations of the Borrower with respect to all Advances
made by each Lender shall be evidenced by a Note and in the amount of such
Lender's Specified Percentage of the Available Commitment (as the same may be
modified pursuant to Section 10.04 hereof).
(b) Absent manifest error, Administrative Agent's and each
Lender's records shall be conclusive as to amounts owed Administrative Agent and
such Lender under the Notes and this Agreement.
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2.04. Reduction of Available Commitments.
(a) Voluntary Commitment Reduction. The Borrower shall have the
right from time to time upon notice by the Borrower to the Administrative Agent
not later than 1:00 p.m., three Business Days in advance, to reduce the
Available Commitment, in whole or in part; provided, however, that the Borrower
shall pay the accrued commitment fee on the amount of each such reduction, if
any, and any partial reduction shall be in an aggregate amount which is not less
than $1,000,000 and an integral multiple of $500,000. Such notice shall specify
the amount of reduction and the proposed date of such reduction.
(b) Mandatory Commitment Reductions.
(i) Scheduled Reductions in the Commitment. The Available
Commitment shall be reduced to zero on the Maturity Date.
(ii) Asset Sales. On the date of any Asset Sale by any of
the Borrowers (other than Asset Sales, the proceeds of which are
reinvested within 180 days after any such Asset Sale by the Borrower in
like or similar assets to those which were disposed of)(this provision
not permitting such Asset Sales), the Available Commitment shall be
automatically and permanently reduced by an amount equal to 100% of the
Net Proceeds from such Asset Sales. On such date, the Borrower shall
deliver to Administrative Agent a certificate of an Authorized Officer
certifying as to the amount of (including the calculation of) the
reduction of the Available Commitment, and, with respect to the Asset
Sale giving rise thereto, the gross proceeds thereof and the costs and
expenses payable as a result thereof which were deducted in determining
the amount of Net Proceeds.
(iii) Debt Issuance. On the date of any issuance of public
or private Funded Debt by the Borrower (this provision not permitting
such Debt issuance) other than Debt For Borrowed Money permitted by
Section 7.02 hereof, the Available Commitment shall be automatically
and permanently reduced by an amount equal to 100% of the net proceeds
from the issuance of such Debt. On such date, the Borrower shall
deliver to the Administrative Agent a certificate of an Authorized
Officer certifying as to the amount of (including the calculation of)
such reduction in the Available Commitment, and, with respect to the
Debt issuance giving rise thereto, the gross proceeds thereof and the
costs and expenses payable as a result thereof which were deducted in
determining the amount of net proceeds of such Debt issuance.
(iv) Change of Control. If a Change of Control occurs, the
Available Commitment shall be automatically and permanently reduced to
zero.
(v) Equity Issuances. On the date of any issuance of
equity by any of the Borrowers or the Parent (other than (i) the
issuance of common stock or options or rights to purchase common stock
of any of the Borrowers to employees and directors pursuant to
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stock purchase plans or grant plans, or otherwise; and provided that no
Default or Event of Default exists or would result from the following
issuances of Capital Stock: (ii) issuances of Capital Stock pursuant to
Earn-Out Liabilities contained in agreements to which the Borrower, the
Parent or any Restricted Subsidiaries is currently a party; (iii)
issuances of common stock in the Parent; and (iv) issuances of
convertible preferred stock of the Parent on terms and provisions
acceptable to the Lenders), the Available Commitment shall be
automatically and permanently reduced by an amount equal to 100% of the
net proceeds from the issuance of such equity. On such date, the
Borrower shall deliver to Administrative Agent a certificate of an
Authorized Officer certifying as to the amount of (including the
calculation of) the reduction of the Available Commitment, and, with
respect to the equity issuance giving rise thereto, the gross proceeds
thereof and the costs and expenses payable as a result thereof which
were deducted in determining the amount of net proceeds of such equity
issuance.
(c) Commitment Reductions, Generally. To the extent the sum of the
aggregate outstanding Advances plus the undrawn portion of all issued and
outstanding Letters of Credit exceed the Available Commitment after any
reduction thereof, the Borrower shall immediately repay on the date of such
reduction, any such excess amount and all accrued interest thereon, together
with any amounts constituting any Consequential Loss. Once reduced or terminated
pursuant to this Section 2.04, the Available Commitment may not be increased or
reinstated.
2.05. Prepayments.
(a) Optional Prepayments. The Borrower may, upon at least three
Business Days prior written notice to Administrative Agent stating the proposed
date and aggregate principal amount of the prepayment, prepay the outstanding
principal amount of any Advances in whole or in part, together with accrued
interest to the date of such prepayment on the principal amount prepaid without
premium or penalty other than any Consequential Loss; provided, however, that in
the case of a prepayment of a Base Rate Advance, the notice of prepayment may be
given by telephone by 11:00 a.m. on the date of prepayment. Each partial
prepayment shall, in the case of Base Rate Advances, be in an aggregate
principal amount of not less than $500,000 or a larger integral multiple of
$100,000 in excess thereof and, in the case of LIBOR Advances, be in an
aggregate principal amount of not less than $1,000,000 or a larger integral
multiple of $500,000 in excess thereof. If any notice of prepayment is given,
the principal amount stated therein, together with accrued interest on the
amount prepaid and the amount, if any, due under Sections 2.11 and 2.13 hereof,
shall be due and payable on the date specified in such notice.
(b) Mandatory Prepayments.
(i) Asset Sales. (A) On the date of any Asset Sale (other
than Asset Sales, the proceeds of which are reinvested within 180 days
after the Asset Sale by the Borrower in like or similar assets to those
which were disposed of), the Borrower shall repay the Obligations by an
amount equal to 100% of the Net Proceeds applied to Advances. On such
date, the
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Borrower shall deliver to Administrative Agent a certificate of an
Authorized Officer certifying as to the amount of (including the
calculation of) such repayment and, with respect to the Asset Sale
giving rise thereto, the gross proceeds thereof and the costs and
expenses payable as a result thereof which were deducted in determining
the amount of Net Proceeds.
(ii) Debt Issuances. On the date of any issuance of public
or private Funded Debt by the Borrower (this provision not permitting
such Debt issuance) other than Debt For Borrowed Money permitted by
Section 7.02 hereof, the Borrower shall repay the Obligations by an
amount equal to 100% of the net proceeds from such issuance, applied to
outstanding Advances. On such date, the Borrower shall deliver to
Administrative Agent a certificate of an Authorized Officer certifying
as to the amount of (including the calculation of) such repayment and,
with respect to the Debt issuance giving rise thereto, the gross
proceeds thereof and the costs and expenses payable as a result thereof
which were deducted in determining the amount of net proceeds of such
Debt issuance.
(iii) Equity Issuances. (A) On the date of any issuance of
equity by Parent or the Borrower (other than (i) the issuance of common
stock or options or rights to purchase common stock of the Parent to
employees and directors pursuant to stock purchase plans or grant
plans, or otherwise; and provided that no Default or Event of Default
exists or would result from the following issuances of Capital Stock:
(ii) issuances of Capital Stock pursuant to Earn-Out Liabilities
contained in agreements to which the Borrower, the Parent or any
Restricted Subsidiaries is currently a party; (iii) issuances of shares
of common stock of the Parent; and (iv) issuances of convertible
preferred stock of the Parent on terms and provisions acceptable to the
Lenders), the Borrower shall repay the Obligations applied to
outstanding Advances. On such date, the Borrower shall deliver to
Administrative Agent a certificate of an Authorized Officer certifying
as to the amount of (including the calculation of) such repayment and,
with respect to the equity issuance giving rise thereto, the gross
proceeds thereof and the costs and expenses payable a s a result
thereof which were deducted in determining the amount of net proceeds
of such equity issuance.
(v) Change of Control. If a Change of Control occurs, the
Borrower shall repay the Obligations in full.
(c) Prepayments, Generally. Any prepayment of Advances pursuant to
this Section 2.05 shall be applied first to Base Rate Advances, if any, then
outstanding under the Facility, second to LIBOR Advances for which the date of
prepayment is the last day of the applicable Interest Period, if any,
outstanding under the Facility and third to LIBOR Advances with the shortest
remaining Interest Periods outstanding under the Facility.
2.06. Mandatory Repayment. The Borrower agrees that all Obligations
are due and payable in full on the Maturity Date.
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2.07. Interest. Subject to Section 2.08 below, the Borrower shall
pay interest on the unpaid principal amount of each Advance from the date of
such Advance until such principal shall be paid in full, at the following rates,
as selected by the Borrower in accordance with the provisions of Section 2.02
hereof:
(a) Base Rate Advances. Base Rate Advances shall bear
interest at a rate per annum equal to the lesser of (i) the Base Rate
as in effect from time to time and (ii) the Highest Lawful Rate. If the
amount of interest payable in respect of any interest computation
period is reduced to the Highest Lawful Rate pursuant to the
immediately preceding sentence and the amount of interest payable in
respect of any subsequent interest computation period would be less
than the Maximum Amount, then the amount of interest payable in respect
of such subsequent interest computation period shall be automatically
increased to the Maximum Amount; provided that at no time shall the
aggregate amount by which interest paid has been increased pursuant to
this sentence exceed the aggregate amount by which interest has been
reduced pursuant to the immediately preceding sentence.
(b) LIBOR Advances. LIBOR Advances shall bear interest at
the rate per annum equal to the LIBOR Rate applicable to such Advance,
which at no time shall exceed the Highest Lawful Rate.
(c) Payment Dates. Accrued and unpaid interest on Base
Rate Advances shall be paid quarterly in arrears on each Quarterly Date
and on the appropriate maturity, repayment or prepayment date. Accrued
and unpaid interest on LIBOR Advances shall be paid on the last day of
the appropriate Interest Period and on the date of any prepayment or
repayment of such Advance; provided, however, that if any Interest
Period for a LIBOR Advance exceeds three months, interest shall also be
paid on each date occurring during the Interest Period which is the
three month anniversary date of the first day of the Interest Period.
2.08. Default Interest. During the continuation of any Event of
Default, the Borrower shall pay, on demand, interest (after as well as before
judgment to the extent permitted by Law) on the principal amount of all Advances
outstanding and on all other Obligations due and unpaid hereunder equal to the
lesser of the (a) the Highest Lawful Rate and (b) the Base Rate (whether or not
in effect) plus 2.00% per annum.
2.09. Continuation and Conversion Elections.
(a) The Borrower may upon irrevocable written notice to
Administrative Agent and subject to the terms of this Agreement:
(i) elect to convert, on any Business Day, all or any
portion of outstanding Base Rate Advances (in an aggregate amount not
less than $1,000,000 or a larger integral multiple of $500,000 in
excess thereof) into LIBOR Advances.
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(ii) elect to convert at the end of any Interest Period
therefor, all or any portion of outstanding LIBOR Advances comprised in
the same Borrowing (in an aggregate amount not less than $500,000 or a
larger integral multiple of $100,000 in excess thereof) into Base Rate
Advances; or
(iii) elect to continue, at the end of any Interest Period
therefor, any LIBOR Advances;
provided, however, that if the aggregate amount of outstanding LIBOR Advances
comprised in the same Borrowing shall have been reduced as a result of any
payment, prepayment or conversion of part thereof to an amount less than
$1,000,000, the LIBOR Advances comprised in such Borrowing shall automatically
convert into Base Rate Advances at the end of each respective Interest Period.
(b) The Borrower shall deliver a notice of conversion or
continuation (a "Notice of Conversion/Continuation"), in substantially the form
of Exhibit E hereto, to Administrative Agent not later than (i) 12:00 noon three
Business Days prior to the proposed date of conversion or continuation, if the
Advances or any portion thereof are to be converted into or continued as LIBOR
Advances; and (ii) not later than 10:00 a.m. on the proposed date of conversion
or continuation, if the Advances or any portion thereof are to be converted into
Base Rate Advances.
Each such Notice of Conversion/Continuation shall be by telecopy or
telephone, promptly confirmed in writing, specifying therein:
(i) the proposed date of conversion or continuation;
(ii) the aggregate amount of Advances to be converted or
continued;
(iii) the nature of the proposed conversion or
continuation; and
(iv) the duration of the applicable Interest Period.
(c) If, upon the expiration of any Interest Period applicable to
LIBOR Advances, the Borrower shall have failed to select a new Interest Period
to be applicable to such LIBOR Advances or if an Event of Default shall then
have occurred and be continuing, the Borrower shall be deemed to have elected to
convert such LIBOR Advances into Base Rate Advances effective as of the
expiration date of such current Interest Period.
(d) Upon receipt of a Notice of Conversion/Continuation,
Administrative Agent shall promptly notify each Lender thereof. All conversions
and continuations shall be made pro rata among Lenders based on their Specified
Percentage of the respective outstanding principal amounts of the Advances with
respect to which such notice was given held by each Lender.
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(e) Notwithstanding any other provision contained in this
Agreement, after giving effect to any conversion or continuation of any
Advances, there shall not be outstanding Advances with more than ten different
Interest Periods in the aggregate under the Facility.
2.10. Fees.
(a) Subject to Section 10.09 hereof, the Borrower agrees to pay to
Administrative Agent, for the account of the Lenders in accordance with their
Specified Percentages, a commitment fee on the average daily amount of the
Unused Commitment, from the Closing Date through the Maturity Date, at the rate
of .75% per annum, payable quarterly in arrears on each Quarterly Date occurring
after the Closing Date, with the last such payment due and owing on the Maturity
Date.
(b) Subject to Section 10.09 hereof, the Borrower agrees to pay to
Administrative Agent for its own account as administrative lender and
underwriter, and to Banc of America Securities LLC, as arranger hereunder, such
fees as agreed to in writing among the Borrower and the Administrative Agent and
Banc of America Securities LLC, payable as set forth in that certain Fee Letter
executed among the Borrower, Administrative Agent and Banc of America Securities
LLC in accordance with the terms of the Fee Letter.
2.11. Funding Losses. If the Borrower makes any payment or
prepayment of principal with respect to any LIBOR Advance (including payments
made after any acceleration thereof) or converts any Advance from a LIBOR
Advance on any day other than the last day of an Interest Period applicable
thereto, or if the Borrower fails to prepay, borrow, convert or continue any
LIBOR Advance after a notice of prepayment, borrowing, conversion or
continuation has been given (or is deemed to have been given) to Administrative
Agent, the Borrower shall pay to each Lender on demand (subject to Section 10.09
hereof) any Consequential Loss. The Borrower agrees that each Lender is not
obligated to actually reinvest the amount prepaid in any specific obligation as
a condition to receiving any Consequential Loss, or otherwise.
2.12. Computations and Manner of Payments.
(a) The Borrower shall make each payment hereunder and under the
other Loan Papers not later than 1:00 p.m. on the day when due in same day funds
to Administrative Agent, for the Ratable account of Lenders unless otherwise
specifically provided herein, at
Administrative Agent
Bank of America Plaza
901 Main Street
14th Floor
Dallas, Texas 75202
for further credit to the account of the Borrower. No later than the end of each
day when each payment hereunder is made, the Borrower shall notify
Administrative Agent, telephone (800) 880-
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5537, facsimile (214) 508-2515, or such other Person as Administrative Agent may
from time to time specify.
(b) Unless Administrative Agent shall have received notice from
the Borrower prior to the date on which any payment is due hereunder that the
Borrower will not make payment in full, Administrative Agent may assume that
such payment is so made on such date and may, in reliance upon such assumption,
make distributions to Lenders. If and to the extent the Borrower shall not have
made such payment in full, each Lender shall repay to Administrative Agent
forthwith on demand the applicable amount distributed, together with interest
thereon at the Federal Funds Rate, from the date of distribution until the date
of repayment. The Borrower hereby authorizes each Lender, if and to the extent
payment is not made when due hereunder, to charge the amount so due against any
account of the Borrower with such Lender.
(c) Subject to Section 10.09 hereof, interest on LIBOR Advances
shall be calculated on the basis of actual days elapsed but computed as if each
year consisted of 360 days. Subject to Section 10.09 hereof, interest on Base
Rate Advances, the Commitment Fees and other amounts due under the Loan Papers
shall be calculated on the basis of actual days elapsed but computed as if each
year consisted of 365 or 366 days, as the case may be. Such computations shall
be made including the first day but excluding the last day occurring in the
period for which such interest, payment or Commitment Fees is payable. Each
determination by Administrative Agent or a Lender of an interest rate, fee or
commission hereunder shall be conclusive and binding for all purposes, absent
manifest error. All payments under the Loan Papers shall be made in United
States dollars and without setoff, counterclaim or other defense.
(d) Notwithstanding anything herein or in any Loan Paper to the
contrary, any payment made by the Borrower in excess of the Available Commitment
or outstanding Advances, shall be applied to outstanding amounts (or to reduce
the commitment) of any other outstanding Obligations.
(e) Reference to any particular index or reference rate for
determining any applicable interest rate under this Agreement is for purposes of
calculating the interest due and is not intended as and shall not be construed
as requiring any Lender to actually fund any Advance at any particular index or
reference rate.
2.13. Yield Protection.
(a) If any Lender determines that either (i) the adoption, after
the date hereof, of any Applicable Law, rule, regulation or guideline regarding
capital adequacy applicable to commercial banks or financial institutions
generally or any change therein, or any change, after the date hereof, in the
interpretation or administration thereof by any Tribunal, central bank or
comparable agency charged with the interpretation or administration thereof, or
(ii) compliance by any Lender (or Lending Office of any Lender) with any request
or directive made after the date hereof applicable to commercial banks or
financial institutions generally regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency has the effect of
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reducing the rate of return on such Lender's capital as a consequence of its
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, change or compliance (taking into consideration
such Lender's policies with respect to capital adequacy (but excluding
consequences of such Lender's negligence or intentional disregard of law or
regulation)) by an amount reasonably deemed by such Lender to be material, then
from time to time, within fifteen days after demand by such Lender, the Borrower
shall pay to such Lender such additional amount or amounts as will adequately
compensate such Lender for such reduction. Each Lender will notify the Borrower
of any event occurring after the date of this Agreement which will entitle such
Lender to compensation pursuant to this Section 2.13(a) as promptly as
practicable after such Lender obtains actual knowledge of such event; provided
that no Lender shall be liable for its failure or the failure of any other
Lender to provide such notification. A certificate of such Lender claiming
compensation under this Section 2.13(a), setting forth in reasonable detail the
calculation of the additional amount or amounts to be paid to it hereunder and
certifying that such claim is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender shall be conclusive in the absence of manifest error. Each Lender shall
use reasonable efforts to mitigate the effect upon the Borrower of any such
increased costs payable to such Lender under this Section 2.13(a).
(b) If, after the date hereof, any Tribunal, central bank or other
comparable authority, at any time imposes, modifies or deems applicable any
reserve (including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System), special deposit or similar requirement against
assets of, deposits with or for the amount of, or credit extended by, any
Lender, or imposes on any Lender any other condition affecting a LIBOR Advance,
the Notes or its obligation to make a LIBOR Advance; and the result of any of
the foregoing is to increase the cost to such Lender of making or maintaining
LIBOR Advances, or to reduce the amount of any sum received or receivable by
such Lender under this Agreement or under the Notes or reimbursement obligations
by an amount reasonably deemed by such Lender to be material, then, within five
days after demand by such Lender, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender for such increased
cost or reduction. Each Lender will (i) notify the Borrower and Administrative
Agent of any event occurring after the date of this Agreement that entitles such
Lender to compensation pursuant to this Section 2.13(b), as promptly as
practicable after such Lender obtains actual knowledge of the event; provided
that no Lender shall be liable for its failure or the failure of any other
Lender to provide such notification and (ii) use good faith and reasonable
efforts to designate a different Lending Office for LIBOR Advances of such
Lender if the designation will avoid the need for, or reduce the amount of, the
compensation and will not, in the sole opinion of such Lender, be
disadvantageous to such Lender. A certificate of such Lender claiming
compensation under this Section 2.13(b) setting forth in reasonable detail the
computation of the additional amount or amounts to be paid to it hereunder and
certifying that such claim is consistent with such Lender's treatment of similar
customers having similar provisions generally in their agreements with such
Lender shall be conclusive in the absence of manifest error. If such Lender
demands compensation under this Section 2.13(b), the Borrower may at any time,
on at least five Business Days' prior notice to such Lender, (i) repay in full
the then outstanding principal amount of LIBOR Advances of such Lender, together
with accrued interest thereon, or (ii)
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convert the LIBOR Advances to Base Rate Advances in accordance with the
provisions of this Agreement; provided, however, that the Borrower shall be
liable for the Consequential Loss arising pursuant to those actions.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation or administration of
any Law shall make it unlawful, or any central bank or other Tribunal shall
assert that it is unlawful, for a Lender to perform its obligations hereunder to
make LIBOR Advances or to continue to fund or maintain LIBOR Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the Borrower, (i)
each LIBOR Advance will automatically, upon such demand, convert into a Base
Rate Advance, and (ii) the obligation of such Lender to make or to convert
Advances into LIBOR Advances shall be suspended until such Lender notifies
Administrative Agent and the Borrower that such Lender has determined that the
circumstances causing such suspension no longer exist.
(d) Upon the occurrence and during the continuance of any Default
or Event of Default, (i) each LIBOR Advance will automatically, on the last day
of the then existing Interest Period therefor, convert into a Base Rate Advance
and (ii) the obligation of each Lender to make or to convert Advances into LIBOR
Advances shall be suspended.
(e) Failure on the part of any Lender to demand compensation for
any increased costs, increased capital or reduction in amounts received or
receivable or reduction in return on capital pursuant to this Section 2.13 with
respect to any period shall not constitute a waiver of any Lender's right to
demand compensation with respect to such period or any other period, subject,
however, to the limitations set forth in this Section 2.13.
(f) The term "Lender" for purposes of this Section shall include
the Administrative Agent and the Issuing Bank. The obligations of the Borrower
under this Section 2.13 shall survive any termination of this Agreement.
(g) Determinations by Lenders for purposes of this Section 2.13
shall be conclusive, absent manifest error. Any certificate delivered to the
Borrower by a Lender pursuant to this Section 2.13 shall include in reasonable
detail the basis for such Lender's demand for additional compensation and a
certification that the claim for compensation is consistent with such Lender's
treatment of similar customers having similar provisions generally in their
agreements with such Lender.
(h) If any Lender notifies Administrative Agent that the LIBOR
Rate for any Interest Period for any LIBOR Advances will not adequately reflect
the cost to such Lender of making, funding or maintaining LIBOR Advances for
such Interest Period, Administrative Agent shall promptly so notify the
Borrower, whereupon (i) each such LIBOR Advance will automatically, on the last
day of the then existing Interest Period therefor, convert into a Base Rate
Advance and (ii) the obligation of such Lender to make or to convert Advances
into LIBOR Advances shall be suspended until such Lender notifies Administrative
Agent that such Lender has determined that the
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circumstances causing such suspension no longer exist and Administrative Agent
notifies the Borrower of such fact.
2.14. Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrower shall use such proceeds) to (a) refinance existing
Funded Debt of the Borrower and its Restricted Subsidiaries, (b) fund Capital
Expenditures of the Borrower and the Restricted Subsidiaries permitted by the
terms of this Agreement, and (c) fund certain acquisitions, and (d) use for
general working capital purposes.
2.15. Collateral and Collateral Call.
(a) Collateral. Payment of the Obligations is secured by (i) a
first perfected security interest in 100% of the Capital Stock of the Borrower
and the Restricted Subsidiaries, 100% of the Capital Stock of WA Telecom
Products, Inc., and 65% of the Capital Stock of Unrestricted Subsidiaries, (ii)
subject to Permitted Liens, a first perfected security interest in all of the
accounts, equipment, inventory, chattel paper, general intangibles, and other
assets of the Borrower, the Restricted Subsidiaries and the Guarantors (other
than real property located in Provo, Utah, the real and personal property used
in the operation of the RTP operations in Dallas, Texas, and the leasehold
interests described in Section 2.15(b) hereof), subject to no other Lien, and
(iii) a Guaranty of the Obligations executed by each Guarantor (collectively,
together with all other Properties or assets of the Borrower, the Restricted
Subsidiaries and other Persons securing the Obligations from time to time, the
"Collateral"). The Borrower agrees that it will, and will cause the Restricted
Subsidiaries, the Parent and Affiliates (except the Unrestricted Subsidiaries)
to, execute and deliver, or cause to be executed and delivered, such documents
as Administrative Agent may from time to time reasonably request to create and
perfect a first Lien, and subject to Permitted Liens, for the benefit of
Administrative Agent and the Lenders in the Collateral.
(b) Collateral Call. The Borrower agrees that it will, and will
cause any other Person owning any interest in the Borrower or any Restricted
Subsidiary or the Parent from time to time to immediately pledge such interest
to secure the Obligations, pursuant to a pledge agreement substantially in the
form of the Pledge Agreements. The Borrower agrees to, and agrees to cause the
Parent and Restricted Subsidiaries to, promptly grant Administrative Agent and
the Lenders from time to time at the request of the Lenders a Lien on any of the
Property of the Borrower, the Parent, and the Restricted Subsidiaries not
already constituting Collateral to the extent permitted by the World Access
Indenture, the FaciliCom Indenture and the Exchange Indenture, including,
without limitation (on a best efforts basis), Liens on leasehold estates by no
later than 120 days following the Closing Date. In that regard, the Borrower
shall use best efforts to assist Administrative Agent and the Lenders in
creating and perfecting a first Lien for the benefit of Administrative Agent and
the Lenders securing the Obligations in any such Property of the Borrower, the
Parent and the Restricted Subsidiaries, subject to Permitted Liens, including,
without limitation, providing Administrative Agent with title commitments,
appraisals, surveys (with flood plain certification), mortgagee title insurance,
evidence of insurance, including flood hazard insurance, environmental audits,
UCC-11 searches, Tax and Lien searches, recorded real estate documents,
intellectual
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property documentation and registration and other similar types of documents,
consents, Authorizations, instruments and agreements relating to all Property of
the Borrower, the Parent and the Restricted Subsidiaries as reasonably requested
by Administrative Agent from time to time.
ARTICLE III. LETTERS OF CREDIT
3.01. Issuance of Letters of Credit. The Borrower shall give the
Administrative Agent not less than five Business Days prior written notice of a
request for the issuance of a Letter of Credit, and the Administrative Agent
shall promptly notify each Lender of such request. Upon receipt of the
Borrower's properly completed and duly executed Applications, and subject to the
terms of such Applications and to the terms of this Agreement, the
Administrative Agent agrees to issue Letters of Credit on behalf of the Borrower
in an aggregate face amount not in excess of the lesser of (a) Letter of Credit
Commitment and (b) the remainder of the Available Commitment minus the sum of
all outstanding Advances plus the aggregate face amount of all outstanding
Letters of Credit, including without limitation, the Bond Letter of Credit. No
Letter of Credit shall have a maturity extending beyond the earliest of (i) the
Maturity Date, or (ii) one year from the date of its issuance, or (iii) such
earlier date as may be required to enable the Borrower to satisfy its repayment
obligations under Section 2.06 hereof. Subject to such maturity limitations and
so long as no Default or Event of Default has occurred and is continuing or
would result from the renewal of a Letter of Credit, the Letters of Credit may
be renewed by the Administrative Agent in its discretion. The Lenders shall
participate ratably in any liability under the Letters of Credit and in any
unpaid reimbursement obligations of the Borrower with respect to any Letter of
Credit in their Specified Percentages. The amount of the Letters of Credit
(including, without limitation, the Bond Letter of Credit) issued and
outstanding and the unpaid reimbursement obligations of the Borrower for such
Letters of Credit shall reduce the amount of the Available Commitment available,
so that at no time shall the sum of (i) all outstanding Advances in the
aggregate, plus (ii) the aggregate face amount of all outstanding Letters of
Credit (including, without limitation, the Bond Letter of Credit), plus (iii)
(without duplication) all outstanding reimbursement obligations related to
Letters of Credit, exceed the Available Commitment, and at no time shall the sum
of all Advances by any Lender made plus its ratable share of amounts available
to be drawn under the Letters of Credit (including, without limitation, the Bond
Letter of Credit) and the unpaid reimbursement obligations of the Borrower in
respect of such Letters of Credit exceed its Specified Percentage of the
Available Commitment.
3.02. Letters of Credit Fee. In consideration for the issuance of
each Letter of Credit (including the Bond Letter of Credit), the Borrower shall
pay to (a) the Administrative Agent for its account and for the account of the
Issuing Bank, application and processing fees in the amount of the higher of (i)
$350.00 and (ii) the product of .125% multiplied by the face amount of such
Letter of Credit on each Letter of Credit, due and payable on the date of
issuance of each Letter of Credit (other than the issuance of the Bond Letter of
Credit by Bank Austria AG which has already been issued), and (b) the
Administrative Agent for the account of the Lenders in accordance with their
Specified Percentages or the Issuing Bank, as case may be, a per annum fee for
each Letter of Credit equal to the higher of (i) $350.00 and (ii) the product of
the Applicable Margin for a LIBOR
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Advance in effect on the date of calculation multiplied by the face amount of
each such Letter of Credit. Each fee for each Letter of Credit under subsection
(b) above shall be due and payable to the Administrative Agent or the Issuing
Bank, as the case may be, quarterly as it accrues, on each Quarterly Date during
the term of the Letter of Credit and on the expiration or renewal of each such
Letter of Credit, beginning with the first such Quarterly Date after the
issuance of each Letter of Credit and ending on the expiration date of each such
Letter of Credit.
3.03. Reimbursement Obligations.
(a) The Borrower hereby agrees to reimburse Administrative Agent
and the Issuing Bank immediately upon demand by Administrative Agent, and in
immediately available funds, for any payment or disbursement made by
Administrative Agent or the Issuing Bank under any Letter of Credit. Payment
shall be made by the Borrower with interest on the amount so paid or disbursed
by Administrative Agent or the Issuing Bank from and including the date payment
is made under any Letter of Credit to and including the date of payment, at the
lesser of (i) the Highest Lawful Rate, and (ii) the sum of the Base Rate in
effect from time to time plus 2% per annum; provided, however, that if the
Borrower would be permitted under the terms of Section 2.01, Section 2.02 and
Section 4.02 to borrow Advances in amounts at least equal to their reimbursement
obligation for a drawing under any Letter of Credit, a Base Advance by each
Lender in an amount equal to such Lender's Specified Percentage shall
automatically be deemed made on the date of any such payment or disbursement
made by Administrative Agent or the Issuing Bank in the amount of such
obligation and subject to the terms of this Agreement.
(b) The Borrower hereby also agrees to pay to Administrative Agent
immediately upon demand by Administrative Agent or the Issuing Bank and in
immediately available funds, as security for its reimbursement obligations in
respect of the Letters of Credit under Section 3.03(a) hereof and any other
amounts payable hereunder and under the Notes, an amount equal to the aggregate
amount available to be drawn under Letters of Credit then outstanding,
irrespective of whether the Letters of Credit have been drawn upon, upon an
Event of Default. Any such payments shall be deposited in a separate account
designated "World Access Special Account" or such other designation as
Administrative Agent shall elect. All such amounts deposited with Administrative
Agent shall be and shall remain funds of the Borrower on deposit with
Administrative Agent and may be invested by Administrative Agent as
Administrative Agent shall determine. Such amounts may not be used by
Administrative Agent or the Issuing Bank to pay the drawings under the Letters
of Credit; however, such amounts may be used by Administrative Agent and the
Issuing Bank as reimbursement for Letter of Credit drawings which Administrative
Agent or the Issuing Bank has paid. During the existence of an Event of Default
but after the expiration of any Letter of Credit that was not drawn upon, the
Borrower may direct Administrative Agent or the Issuing Bank to use any cash
collateral for any such expired Letter of Credit, if any, to reduce the amount
of the Obligations. Any amounts remaining in the World Access Special Account
after the date of the expiration of all Letters of Credit and after all
Obligations have been paid in full, shall be repaid to the Borrower promptly
after such expiration and such payment in full.
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(c) The obligations of the Borrower under this Section 3.03 will
continue until all Letters of Credit have expired and all reimbursement
obligations with respect thereto have been paid in full by the Borrower and
until all other Obligations shall have been paid in full.
(d) The Borrower shall be obligated to reimburse Administrative
Agent and the Issuing Bank upon demand for all amounts paid under the Letters of
Credit as set forth in Section 3.03(a) hereof; provided, however, if the
Borrower for any reason fails to reimburse Administrative Agent or the Issuing
Bank in full upon demand, whether by failing to or not being permitted to borrow
Advances to pay such reimbursement obligations or otherwise, the Lenders shall
reimburse Administrative Agent and the Issuing Bank in accordance with each
Lender's Specified Percentage for amounts due and unpaid from the Borrower as
set forth in Section 3.04 hereof; provided, however, that no such reimbursement
made by the Lenders shall discharge the Borrower's obligations to reimburse
Administrative Agent or the Issuing Bank.
(e) The Borrower and the Parent shall indemnify and hold
Administrative Agent, the Issuing Bank, or any Lender, its officers, directors,
representatives and employees harmless from loss for any claim, demand or
liability which may be asserted against Administrative Agent, the Issuing Bank,
or such indemnified party in connection with actions taken under the Letters of
Credit or in connection therewith (INCLUDING LOSSES RESULTING FROM THE
NEGLIGENCE OF ADMINISTRATIVE AGENT OR SUCH INDEMNIFIED PARTY), and shall pay
Administrative Agent and the Issuing Bank for reasonable fees of attorneys (who
may be employees of Administrative Agent and the Issuing Bank) and legal costs
paid or incurred by Administrative Agent and the Issuing Bank in connection with
any matter related to the Letters of Credit, except for losses and liabilities
incurred as a direct result of the gross negligence or wilful misconduct of
Administrative Agent, the Issuing Bank, or such indemnified party. If the
Borrower for any reason fails to indemnify or pay Administrative Agent, the
Issuing Bank or such indemnified party of Administrative Agent as set forth
herein in full, the Lenders shall indemnify and pay Administrative Agent upon
demand, in accordance with each Lender's Specified Percentage of such amounts
due and unpaid from the Borrower. The provisions of this Section 3.03(e) shall
survive the termination of this Agreement.
3.04. Lenders' Obligations. Each Lender agrees, unconditionally and
irrevocably, to reimburse Administrative Agent or the Issuing Bank on demand for
such Lender's Specified Percentage of each draw paid by Administrative Agent or
the Issuing Bank under any Letter of Credit. All amounts payable by any Lender
under this subsection shall include interest thereon at the Federal Funds Rate,
from the date of the applicable draw to the date of reimbursement by such
Lender. No Lender shall be liable for the performance or nonperformance of the
obligations of any other Lender under this Section. The obligations of the
Lenders under this Section shall continue after the Maturity Date and shall
survive termination of any Loan Papers.
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3.05. Administrative Agent's Obligations.
(a) Administrative Agent and the Issuing Bank each makes no
representation or warranty, and assumes no responsibility with respect to the
validity, legality, sufficiency or enforceability of any Application or any
document relative thereto or to the collectibility thereunder. Administrative
Agent and the Issuing Bank each assumes no responsibility for the financial
condition of the Borrower and its Subsidiaries or for the performance of any
obligation of the Borrower. Administrative Agent and the Issuing Bank each may
use its discretion with respect to exercising or refraining from exercising any
rights, or taking or refraining from taking any action which may be vested in it
or which it may be entitled to take or assert with respect to any Letter of
Credit or any Application.
(b) Administrative Agent and Issuing Bank each shall be under no
liability to any Lender with respect to anything Administrative Agent or Issuing
Bank may do or refrain from doing in the exercise of its judgment, the sole
liability and responsibility of Administrative Agent or Issuing Bank being to
handle each Lender's share on as favorable a basis as Administrative Agent or
Issuing Bank handles its own share and to promptly remit to each Lender its
share of any sums received by Administrative Agent under Article III or any
Application. Administrative Agent and Issuing Bank shall have no duties or
responsibilities except those expressly set forth herein, and those duties and
liabilities shall be subject to the limitations and qualifications set forth
herein.
(c) Neither Administrative Agent, Issuing Bank, nor any of its
directors, officers, or employees shall be liable for any action taken or
omitted (whether or not such action taken or omitted is expressly set forth
herein) under or in connection herewith or any other instrument or document in
connection herewith, except for gross negligence or willful misconduct, and no
Lender waives its right to institute legal action against Administrative Agent
or Issuing Bank for wrongful payment of any Letter of Credit due to
Administrative Agent's or Issuing Bank's gross negligence or willful misconduct.
Administrative Agent and Issuing Bank shall incur no liability to any Lender,
the Borrower or any Affiliate of the Borrower or Lender in acting upon any
notice, document, order, consent, certificate, warrant or other instrument
reasonably believed by Administrative Agent and Issuing Bank to be genuine or
authentic and to be signed by the proper party.
3.06 Reinstatement. The provisions of this Article III shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any of the reimbursement obligations in respect
of Letters of Credit is rescinded or must otherwise be restored or returned by
the Administrative Agent or the Issuing Bank upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any other Obligor,
or upon or as a result of the appointment of a receiver, intervenor or
conservator of, or custodian, trustee or similar officer for, the Borrower or
any other Obligor or any part of its property, or otherwise, all as though such
payments had not been made.
3.07 Survivability of Provisions. The Borrower agrees to replace
the Bond Letter of Credit with a Letter of Credit issued by the Administrative
Agent by no later than September 30, 1999.
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The Borrower agrees to replace all other Letters of Credit issued by the Issuing
Bank with a Letter of Credit issued by the Administrative Agent by no later than
January 15, 1999. Notwithstanding the replacement of, or change in the identity
of, the Issuing Bank hereunder, the provisions of this Agreement relating to the
Issuing Bank shall continue to inure to the benefit of any prior Issuing Bank as
to any actions taken or omitted to be taken by such prior Issuing Bank while it
was Issuing Bank hereunder.
ARTICLE IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to the Initial Advance. The obligations
of each Lender under this Agreement and the obligation of each Lender to make
the Initial Advance shall be subject to the following conditions precedent. On
the Closing Date:
(a) All terms, conditions and documentation in connection with
this Agreement shall be acceptable to the Lenders.
(b) The making of the Available Commitment shall not contravene
any Law applicable to Administrative Agent or any Lender.
(c) Each Lender shall have received a Certificate from an
Authorized Officer stating that no Material Adverse Change, as determined by the
Lenders, shall have occurred and be continuing in the business, assets,
prospects or financial condition of the businesses of the Borrower, the Parent
and the Restricted Subsidiaries since September 30, 1999.
(d) All proceedings of the Borrower, the Parent and the Restricted
Subsidiaries taken in connection with the transactions contemplated hereby, and
all documents incidental thereto, shall be reasonably satisfactory in form and
substance to the Lenders. Each Lender shall have received copies of all
documents or other evidence that it may reasonably request in connection with
such transactions.
(e) Each Lender shall have received an executed copy of this
Agreement, and all documents required to be delivered pursuant thereto, as well
as its respective Notes, duly completed and correct. The Lenders shall have
received copies of the Fee Letters signed by the Borrower, as applicable. Each
of the following shall have been delivered to Administrative Agent on behalf of
Lenders, in form and substance satisfactory to Administrative Agent, Special
Counsel and each Lender to the extent required by Administrative Agent: each
other Loan Paper requested by Administrative Agent, including, without
limitation, all guarantees, pledge agreements, security agreements, mortgages,
deeds of trust, collateral assignments and other agreements granting any
interest in any Collateral.
(f) The Borrower shall have delivered to each Lender a
Certificate, dated as of the Closing Date, executed by an Authorized Officer on
behalf of the Parent, the Borrower and its Restricted Subsidiaries, certifying
that (i) no Default or Event of Default has occurred and is
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continuing, (ii) the representations and warranties set forth in Article V
hereof are true and correct, (iii) each of the Parent, the Borrower and its
Restricted Subsidiaries has complied with all agreements and conditions to be
complied with by it under the Loan Papers by such date, (iv) that the attached
resolutions for each of the Parent, the Borrower and its Restricted Subsidiaries
are the true, accurate and complete resolutions authorizing the corporate
restructuring, the incurrence and performance of the Facility and the Loan
Papers, (v) that the attached copies of certified articles of incorporation, or
other articles of organization, certificates of good standing, certificates of
existence and incumbency certificates for each of the Parent, the Borrower and
its Restricted Subsidiaries are (A) not more than 30 days old and certified by
the appropriate secretary of state or other governmental organization and (B)
represent the true and accurate certificate for each such entity, and (vi) the
attached copies of by-laws or other organizational documents represent the true
and accurate by-laws or other organizational documents for each of the Parent,
the Borrower and its Restricted Subsidiaries in effect on the Closing Date.
(g) Each Lender shall have received opinions of Long Aldridge &
Norman LLP, corporate counsel to the Parent, the Borrower and the Restricted
Subsidiaries, dated as of the Closing Date, acceptable to the Lenders and
otherwise in form and substance satisfactory to the Lenders and Special Counsel.
(h) Each Lender shall have evidence satisfactory that the
Borrower, the Parent and each of their Subsidiaries has reasonably anticipated
that all computer applications that are material to their respective businesses
and operations will on a timely basis be able to perform properly date-sensitive
functions and will make an inquiry of each of their key suppliers, vendors and
customers as to whether such Persons will on a timely basis be Year 2000
Compliant in all material respects and, on the basis of that inquiry, believe
that all such Persons will be so compliant;
(i) All proceedings of the Parent, the Borrower and the
Subsidiaries of the Parent and the Borrower taken in connection with the
transactions contemplated hereby, and all documents incidental thereto, shall be
satisfactory in form and substance to each Lender. The Administrative Agent and
each Lender shall have received copies of all documents or other evidence that
it may reasonably request in connection with such transactions. No Material
Adverse Change, as determined by the Lenders, shall have occurred and be
continuing in the financial markets. The Borrower shall have paid all fees,
costs and expenses (including the fees of Special Counsel) incurred by the
Lenders in connection with the closing of the Facility.
4.02. Conditions Precedent to All Advances. The obligation of each
Lender to make each Advance, except for Refinancing Advances, which constitutes
an increase, shall be subject to the further conditions precedent that (a) on
the date of such Advance, the following statements shall be true:
(i) The representations and warranties contained in
Article V hereof are true and correct on such date, as though made on
and as of such date (and the delivery of each Borrowing Notice under
Section 2.02(a), and each Conversion or Continuation Notice under
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Section 2.09(b), or the failure to deliver a Conversion or Continuation
Notice under Section 2.09(b), shall constitute a representation that on
the disbursement date such representations are true (except as to
representations and warranties which (i) refer to a specific date, (ii)
have been modified by transactions permitted pursuant to this Agreement
or any other Loan Paper or (iii) have been specifically waived in
writing by Administrative Agent));
(ii) No event has occurred and is continuing, or would
result from such Advance (including the intended application of the
proceeds of such Advance), that does or could constitute a Default or
Event of Default;
(iii) There shall have occurred no Material Adverse Change,
and the making of such Advance shall not cause or result in a Material
Adverse Change; and
(iv) After giving effect to each such Advance, the
aggregate amount of all outstanding Advances plus the undrawn face
amount of all issued and outstanding Letters of Credit do not exceed
the Available Commitment;
and (b) Administrative Agent shall have received, in form and substance
acceptable to it, such other approvals, documents, certificates, opinions and
information as it may deem necessary or appropriate.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that the following are true and
correct:
5.01. Organization and Qualification. Each of the Borrower, the
Parent and their Restricted Subsidiaries is a corporation or partnership duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its incorporation or formation, as applicable. Each such Person
is qualified to do business in all jurisdictions where the nature of its
business or Properties require such qualification, except to the extent that any
failure to be so qualified could not, in the aggregate, reasonably be expected
to cause a Material Adverse Change. Set forth on Schedule 5.01 attached hereto
is a complete and accurate listing with respect to the Borrower and each of the
Parent and their Restricted Subsidiaries, showing (a) the jurisdiction of its
organization and its mailing address, which is the principal place of business
and executive offices of each unless otherwise indicated, (b) the classes of
Capital Stock and shares of Capital Stock issued and outstanding in each of the
Parent, the Borrower and the Restricted Subsidiaries and the numbers or amounts
of each of the Parent's, the Borrower's and the Restricted Subsidiaries' Capital
Stock authorized and outstanding, (c) other than with respect to the Parent, the
Borrower and the Restricted Subsidiaries, each record and beneficial owner of
outstanding Capital Stock on the date hereof, indicating the ownership
percentage, and (d) all outstanding options, rights, rights of conversion or
purchase, repurchase, rights of first refusal and similar rights relating to the
Capital Stock of each of the Parent, the Borrower and the Restricted
Subsidiaries. Except as set forth on Schedule 5.01 hereto, neither the Borrower,
the Parent nor any Restricted Subsidiary has agreed to grant or issue
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any options, warrants or similar rights to any Person to acquire any Capital
Stock of the Borrower or any Restricted Subsidiary. All Capital Stock is validly
issued and fully paid. The Borrower has no knowledge of any share of Capital
Stock of it, the Parent or any Restricted Subsidiaries being subject to any
Lien, including any restrictions on hypothecation or transfer, except Liens
described on Schedule 5.08 hereto.
5.02. Due Authorization; Validity. The board of directors of the
Borrower, the Parent and each of their Restricted Subsidiaries, or of their
partners, as applicable, have duly authorized the execution, delivery, and
performance of the Loan Papers to be executed by the Borrower and each of the
Parent or their Restricted Subsidiaries, as appropriate. Each of the Borrower,
the Parent and their Restricted Subsidiaries has full legal right, power and
authority to execute, deliver and perform under the Loan Papers to be executed
and delivered by it. The Loan Papers constitute the legal, valid and binding
obligations of the Borrower, the Parent and their Restricted Subsidiaries, as
appropriate, enforceable in accordance with their terms (subject as to
enforcement of remedies to any applicable Debtor Relief Laws).
5.03. Conflicting Agreements and Other Matters. The execution or
delivery of any Loan Papers, and performance thereunder, does not conflict with,
result in a breach of the terms, conditions or provisions of, or constitute a
default under, result in any violation of or result in the creation of any Lien
(other than in favor of Administrative Agent) upon any Properties of the
Borrower, the Parent or their Restricted Subsidiaries under, or require any
consent, approval or other action by, notice to or filing with, any Tribunal or
Person pursuant to any organizational document, by-laws award of any arbitrator,
or any agreement, instrument or Law to which the Borrower, the Parent or any of
their Restricted Subsidiaries or any of their Properties is subject except as
set forth on Schedule 5.03 hereto.
5.04. Financial Statements. The audited financial statements of the
Parent, the Borrower and the Restricted Subsidiaries dated December 31, 1998 and
previously delivered to Administrative Agent, fairly present its financial
position and the results of operations as of the dates and for the periods
shown, all in accordance with GAAP. Such financial statements reflect all
material liabilities, direct and contingent, of the Parent, the Borrower and
their Restricted Subsidiaries that are required to be disclosed in accordance
with GAAP. As of the date of such financial statements, there were no Contingent
Liabilities, liabilities for Taxes, forward or long-term commitments, or
unrealized or anticipated losses from any unfavorable commitments that are
material in amount and that are not reflected on such financial statements or
otherwise disclosed in writing to Administrative Agent. Since September 30,
1999, there has been no Material Adverse Change. The Borrower, the Parent and
each of the Restricted Subsidiaries is Solvent. The projections of the Borrower,
the Parent, and the Restricted Subsidiaries dated December 1, 1999, previously
delivered to Administrative Agent, were prepared in good faith, and management
believes them to be based on reasonable assumptions (each of which is stated in
such statement) and to provide reasonable estimations of future performance as
of the dates and for the periods shown for the Parent, the Borrower and their
Restricted Subsidiaries, subject to the uncertainty and approximation inherent
in any projections. The Borrower's fiscal year ends on December 31.
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5.05. Litigation. Shown on Schedule 5.05 is all Litigation that is
pending and, to the Borrower's best knowledge, threatened against the Borrower,
the Parent and their Restricted Subsidiaries, and any of their Properties or
assets on the date hereof. There is no pending or, to the Borrower's best
knowledge, threatened Litigation against the Borrower, the Parent or their
Restricted Subsidiaries, any of their Properties that could reasonably be
expected to cause a Material Adverse Change.
5.06. Compliance With Laws Regulating the Incurrence of Debt. No
proceeds of any Advance will be used directly or indirectly to acquire any
security in any transaction which is subject to Sections 13 and 14 of the
Exchange Act. The Borrower is not, nor is any of the Parent or their Restricted
Subsidiaries, engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U issued
by the Board of Governors of the Federal Reserve System), and no proceeds of any
Advance will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock. Following
the Borrower's intended use of the proceeds of each Advance, not more than 25%
of the value of the assets of the Borrower will be "margin stock", within the
meaning of Regulation U. The Borrower is not subject to regulation under the
Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940, the Interstate Commerce Act (as any of the
preceding acts have been amended), or any other Law that the incurring of Debt
by the Borrower would violate in any material respect, including, without
limitation, Laws relating to common or contract carriers or the sale of
electricity, gas, steam, water, or other public utility services. None of the
Borrower and its Restricted Subsidiaries, nor any agent acting on their behalf,
has taken or will knowingly take any action which might cause this Agreement or
any Loan Papers to violate any regulation of the Board of Governors of the
Federal Reserve System or to violate the Exchange Act, in each case as in effect
now or as the same may hereafter be in effect.
5.07. Licenses, Title to Properties, and Related Matters. Except as
listed on Schedule 5.07 hereto, the Borrower and each of the Parent and their
Restricted Subsidiaries possess all material Authorizations necessary and
appropriate to own, operate and conduct their business or otherwise for the
operation of their businesses and are not in violation thereof in any material
respect. All Authorizations are in full force and effect, and no event has
occurred that permits, or after notice or lapse of time could permit, the
revocation, termination or material and adverse modification of any such
Authorization, except those which in the aggregate could not reasonably be
expected to cause a Material Adverse Change. Schedule 5.07 shows the expiration
date and/or termination date for each Authorization (including, without
limitation, FCC Licenses) in effect on the Closing Date. The Borrower is not,
nor is any Subsidiary of the Borrower or the Parent, in violation of any
material duty or obligation required by the Communications Act of 1934, as
amended, or any FCC rule or regulation applicable to the operation of any
portion of any of its business. There is not pending or, to the best knowledge
of the Borrower, threatened, any action by the FCC to revoke, cancel, suspend or
refuse to renew any FCC License relating to any of the Borrower's, the Parent's,
or the Restricted Subsidiaries' business. There is not pending or, or to the
best knowledge of the Borrower, threatened, any action by the FCC to modify
adversely, revoke, cancel, suspend or refuse to renew any other Authorization
relating to such business. There is not issued or outstanding or, to the best
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knowledge of the Borrower, threatened, any notice of any hearing, violation or
material complaint against the Borrower, the Parent or any of the Restricted
Subsidiaries with respect to the operation of any portion of such businesses,
and the Borrower has no knowledge that any Person intends to contest renewal of
any Authorization relating to such business. Each of the Borrower, the Parent
and their Restricted Subsidiaries has requisite corporate or partnership power
(as applicable) and legal right to own and operate its Property and to conduct
its business. Each has good and indefeasible title (fee or leasehold, as
applicable) to its Property, subject to no Lien of any kind, except Permitted
Liens. All of the assets of the Borrower, the Parent and each of their
Restricted Subsidiaries are located within the municipalities and borough
locations described on Schedule 5.07. Neither the Borrower, nor the Parent nor
their Restricted Subsidiaries is in violation of its respective articles of
organization or incorporation (as applicable) or bylaws. Neither the Borrower,
nor the Parent nor their Restricted Subsidiaries is in violation of any Law, or
material agreement or instrument binding on or affecting it or any of its
Properties, the effect of which could reasonably be expected to cause a Material
Adverse Change. No business or Properties of the Parent, the Borrower or any
Restricted Subsidiary is affected by any strike, lock-out or other labor
dispute. No business or Properties of the Parent, the Borrower or any Restricted
Subsidiary is affected by any drought, storm, earthquake, embargo, act of God or
public enemy or other casualty, the effect of which could reasonably be expected
to cause a Material Adverse Change.
5.08. Outstanding Debt and Liens. The Borrower, the Parent and their
Restricted Subsidiaries have no outstanding Debt, Contingent Liabilities or
Liens, except Permitted Liens, except as shown on Schedule 5.08 hereto. No
breach, default or event of default exists under any document, instrument or
agreement evidencing or otherwise relating to any Funded Debt of any of the
Borrower, the Parent or their Restricted Subsidiaries.
5.09. ERISA. Each Plan of the Parent, the Borrower and each
Restricted Subsidiary of the Parent and the Borrower has satisfied the minimum
funding standards under all Laws applicable thereto, and no Plan has an
accumulated funding deficiency thereunder. The Borrower has not, and neither has
the Parent nor any Restricted Subsidiary of the Borrower or the Parent, incurred
any material liability to the PBGC with respect to any Plan. No ERISA Event has
occurred with respect to any Plan for which an Insufficiency in excess of
$100,000 exists on the date of such occurrence. None of the Parent, the
Borrower, nor any Restricted Subsidiary of the Parent or the Borrower has
participated in any non-exempt Prohibited Transaction with respect to any Plan
or trust created thereunder. None of the Borrower, the Parent or any Restricted
Subsidiary of the Parent or the Borrower, nor any ERISA Affiliate has incurred
any Withdrawal Liability to any Multiemployer Plan that has not been satisfied.
None of the Borrower, the Parent or any Restricted Subsidiary of the Parent or
the Borrower, nor any ERISA Affiliate has been notified by the sponsor of a
Multiemployer Plan that such Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA.
5.10. Environmental Laws. The Borrower, the Parent and each of their
Restricted Subsidiaries have obtained all material environmental, health and
safety permits, licenses and other material authorizations required under all
Applicable Environmental Laws to carry on their
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respective businesses as being conducted. On the Closing Date, there are no
environmental liabilities of the Borrower, the Parent or any other of their
Restricted Subsidiaries (with respect to any fee owned or leased Properties),
except as disclosed and described in detail on Schedule 5.11 hereto. Each of
such permits, licenses and authorizations is in full force and effect, and the
Borrower and each Restricted Subsidiary is in compliance with the terms and
conditions thereof and is also in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in any applicable Environmental Law or in any
regulation, code, plan, order, decree, judgment, injunction, notice or demand
letter issued, entered, promulgated or approved thereunder, except to the extent
failure to comply with any thereof could not reasonably be expected to cause a
Material Adverse Change. In addition, no written notice, notification, demand,
request for information, citation, summons or order has been issued, no written
complaint has been filed, no penalty has been assessed and no investigation or
review is pending or, to the best knowledge of the Borrower or any Restricted
Subsidiary, threatened, by any Tribunal or other entity with respect to any
alleged failure by the Borrower or any Restricted Subsidiary to have any
environmental, health or safety permit, license or other authorization required
under any Applicable Environmental Law in connection with the conduct of the
business of the Borrower or any Restricted Subsidiary or with respect to any
generation, treatment, storage, recycling, transportation, discharge, disposal
or release of any Hazardous Materials by the Borrower or any Restricted
Subsidiary. To the best knowledge of the Borrower and each Restricted
Subsidiary, there are no material environmental liabilities of the Borrower or
any Restricted Subsidiary, except as previously disclosed in writing to the
Lenders. To the best knowledge of the Borrower and each Restricted Subsidiary,
there are no environmental liabilities of the Borrower or any Restricted
Subsidiary which could reasonably be expected to cause a Material Adverse
Change. The Borrower has delivered to Administrative Agent copies of all
environmental studies and reports conducted or received by the Borrower or any
Restricted Subsidiary in connection with real Property. Such studies cover all
real Property, if any, owned in fee by the Borrower and each Restricted
Subsidiary. No Hazardous Materials are generated or produced at or in connection
with the Properties and operations of the Borrower or any Restricted Subsidiary,
nor have any Hazardous Materials been disposed of or otherwise released on or to
any Property on which any operations of the Borrower or any Restricted
Subsidiaries are conducted, except in compliance with Applicable Environmental
Laws.
5.11. Disclosure. Neither the Borrower, nor the Parent, nor any
Restricted Subsidiary has made a material misstatement of fact or failed to
disclose any material fact necessary to make the facts disclosed not misleading
in light of the circumstances under which they were made, to Administrative
Agent or any Lender during the course of application for and negotiation of any
Loan Papers or otherwise in connection with any Advances. There is no fact known
to the Borrower, the Parent or any other Restricted Subsidiary that materially
adversely affects any of the Borrower's, the Parent's or any Restricted
Subsidiary's Properties or business, or that could constitute a Material Adverse
Change, and that has not been set forth in the Loan Papers or in other documents
furnished to Administrative Agent or to any Lender.
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5.12. Investments; Restricted Subsidiaries. The Parent, the Borrower
and the Restricted Subsidiaries have no Investments except as described on
Schedule 5.12 hereto and as permitted by Section 7.10 hereof. Schedule 5.12 is a
complete and accurate listing with respect to each of the Parent, the Borrower
and the Restricted Subsidiaries showing (a) its complete name, (b) its
jurisdiction of organization, (c) its capital structure, (d) its street and
mailing address, which is its principal place of business and executive office,
and (e) all interests in the Parent, the Borrower and the Restricted
Subsidiaries.
5.13. Certain Fees. No broker's, finder's, management fee or other
fee or commission will be payable by the Borrower with respect to the making of
the Available Commitment or Advances hereunder other than fees payable
hereunder. The Borrower, the Parent and each Restricted Subsidiary hereby agree
to indemnify and hold harmless Administrative Agent and each Lender from and
against any claims, demand, liability, proceedings, costs or expenses asserted
with respect to or arising in connection with any such fees or commissions.
5.14. Intellectual Property. The Borrower, the Parent and each
Restricted Subsidiary have obtained all patents, trademarks, service-marks,
trade names, copyrights, licenses and other rights, free from material
restrictions, which are necessary for the operation of their respective
businesses as presently conducted and as proposed to be conducted. Nothing has
come to the attention of the Borrower, the Parent or any Restricted Subsidiary
to the effect that (a) any process, method, part or other material presently
contemplated to be employed by the Borrower, the Parent or any other Restricted
Subsidiary may or could reasonably be alleged to infringe any patent, trademark,
service-mark, trade name, license or other right (except copyright) owned by any
other Person, or (b) except as shown on Schedule 5.05 attached hereto, there is
not pending or threatened any claim or litigation against or affecting the
Borrower, the Parent or any other Restricted Subsidiary contesting its right to
sell or use any such process, method, part or other material. Nothing has come
to the attention of the Borrower, the Parent or any Restricted Subsidiary to the
effect that any material presently contemplated to be employed by the Borrower,
the Parent or any Restricted Subsidiary may or could reasonably be alleged to
infringe any copyright owned by any other Person, except to the extent that any
such infringement, when aggregated with all other copyright infringements, could
not reasonably be expected to cause a Material Adverse Change.
5.15. Year 2000 Compliance.
(a) Any reprogramming required to permit the proper functioning,
in and following the year 2000, of (i) the computer systems used by the
Borrower, the Parent and their Subsidiaries and (ii) equipment containing
embedded microchips (including systems and equipment supplied by others or with
which any of such systems interface) and the testing of all such material
systems and equipment, as so reprogrammed, will be completed by September 30,
1999. The cost to the Borrower, the Parent and the Restricted Subsidiaries of
such reprogramming and testing and of the reasonably foreseeable consequences of
year 2000 to the Borrower, the Parent and the Restricted Subsidiaries
(including, without limitation, reprogramming errors and the failure of others'
systems or equipment) will not result in a Default or Event of Default or cause
a Material Adverse Change.
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Except for such of the reprogramming referred to in the immediately preceding
sentence as may be necessary, the computer and management information systems of
the Borrower, the Parent and their Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this Agreement to be,
sufficient to permit the Borrower, the Parent and their respective Subsidiaries
to conduct their respective businesses without causing a Material Adverse
Change.
(b) Each of the Borrower, the Parent and their Subsidiaries is in
the process of making inquiry of each of its key suppliers, vendors and
customers as to whether such Person will on a timely basis be Year 2000
Compliant in all material respects. "Key suppliers, vendors and customers"
refers to those suppliers, vendors and customers of the Borrower, the Parent and
their Subsidiaries, the business failure of which could result in a Material
Adverse Change.
5.16. Survival of Representations and Warranties, etc. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the Closing Date and at and as of the date of each Advance,
except for Refinancing Advances, and each shall be true and correct when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof, (b) subsequently inapplicable, or (c) previously waived in writing by
Administrative Agent and Lenders with respect to any particular factual
circumstance. The representations and warranties made under this Agreement shall
be deemed applicable to each Restricted Subsidiary as of the formation or
acquisition of such Restricted Subsidiary and at and as of each date the
representations and warranties are remade pursuant to this provision. All
representations and warranties made under this Agreement shall survive, and not
be waived by, the execution hereof by Administrative Agent and Lenders, any
investigation or inquiry by Administrative Agent or any Lender, or by the making
of any Advance under this Agreement.
5.17. World Access Charitable Trust Transaction. The World Access
Charitable Trust Transaction will not result in a breach of the terms,
conditions or provisions of any material agreement to which the Borrower or any
Restricted Subsidiary is a party. The World Access Charitable Trust Transaction
will not result in a breach of any Applicable Law.
ARTICLE VI. AFFIRMATIVE COVENANTS
So long as the Available Commitment, any Advance, any Letter of Credit
or any portion of the Obligations is outstanding, or the Borrower, the Parent or
any other Restricted Subsidiary owes any other amount hereunder or under any
other Loan Paper:
6.01. Compliance with Laws and Payment of Debt. The Borrower shall,
and shall cause the Parent and all Restricted Subsidiaries to, comply in all
material respects with all Applicable Laws, including, without limitation,
compliance with ERISA and all applicable federal and state securities Laws. The
Borrower shall, and shall cause the Parent and all Restricted Subsidiaries to,
pay its (a) Funded Debt as and when due (or within any applicable grace period),
unless payment thereof is being contested in good faith by appropriate
proceedings and adequate reserves have been established therefor, and (b) trade
debt in accordance with its past practices, and in any event before
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any trade creditor takes any action or terminates any relationship, except those
disputes diligently contested in good faith by the Borrower, the Parent and
their Restricted Subsidiaries for which appropriate reserves have been
established in accordance with GAAP.
6.02. Insurance. The Borrower shall, and shall cause the Parent and
each Restricted Subsidiaries to, (a) keep its offices and other insurable
Properties adequately insured at all times by reputable insurers to such extent
and against such risks, including fire and other risks insured against by
extended coverage, as is customary with companies similarly situated and in the
same or similar businesses, (b) maintain in full force and effect public
liability (including liability insurance for all vehicles and other insurable
Property) and workers' compensation insurance, in amounts customary for such
similar companies to cover normal risks, by insurers satisfactory to
Administrative Agent, (c) maintain business interruption insurance for such
business in amounts satisfactory to the Lenders, and (d) maintain other
insurance as may be required by Law or reasonably requested by Administrative
Agent, provided that such insurance policies will show Administrative Agent, on
behalf of the Lenders, as additional insured or loss payee, as appropriate. The
Borrower shall deliver evidence of renewal of each insurance policy on or before
the date of its expiration, and from time to time shall deliver to
Administrative Agent, upon demand, evidence of the maintenance of such
insurance.
6.03. Inspection Rights. The Borrower shall, and shall cause the
Parent and each Restricted Subsidiary to, permit Administrative Agent or any
Lender, upon one day's notice or such lesser notice as is reasonable under the
circumstances, to examine and make copies of and abstracts from their records
and books of account, to visit and inspect their Properties and to discuss their
affairs, finances, and accounts with any of their directors, officers,
employees, accountants, attorneys and other representatives, all as
Administrative Agent or any Lender may reasonably request.
6.04. Records and Books of Account; Changes in GAAP. The Borrower
shall, and shall cause the Parent and each Subsidiary of the Parent and the
Borrower to, keep adequate records and books of account in conformity with GAAP.
The Borrower shall not, nor shall the Borrower permit the Parent or any
Restricted Subsidiary of the Borrower or the Parent to change its fiscal year or
its method of financial accounting except in accordance with GAAP. In connection
with any such change after the date hereof, the Borrower and Lenders shall
negotiate in good faith to make appropriate alterations to the covenants set
forth in Section 7.01 hereof, reflecting such change.
6.05. Reporting Requirements. The Borrower shall furnish to the
Administrative Agent:
(a) As soon as available and in any event within 75 days after the
end of the Borrower's fiscal quarters, (i) consolidated balance sheets of
Parent, the Borrower, and the Restricted Subsidiaries and consolidating balance
sheets of the Borrower and its Subsidiaries, as of the end of such quarter, and
consolidated statements of income and statements of cash flows of the Parent,
the Borrower, and each of the Restricted Subsidiaries and consolidating
statements of income and statements of cash flows of the Parent, the Borrower
and the Restricted Subsidiaries, for the portion of the fiscal year ending with
such quarter, setting forth, in comparative form, figures for the
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corresponding periods in the previous fiscal year, all in reasonable detail, and
certified by an Authorized Officer as prepared in accordance with GAAP, and
fairly presenting the financial position and results of operations of the
Parent, the Borrower and the Restricted Subsidiaries, subject to normal year-end
adjustments, (ii) for the Parent, the Borrower and the Restricted Subsidiaries,
comparisons and reconciliations of actual results to the budget delivered
pursuant to Section 6.05(e) below for the fiscal quarter most recently ended, in
reasonable detail and satisfactory to the Administrative Agent, and (iii) for
the Parent, the Borrower and the Restricted Subsidiaries, all information set
forth in (i) and (ii) above in a separate presentation;
(b) As soon as available, and in any event within 120 days after
the end of each fiscal year, (i) consolidated balance sheets of the Parent, the
Borrower and the Restricted Subsidiaries, and consolidating balance sheets of
the Parent, the Borrower and the Restricted Subsidiaries, as of the end of such
fiscal year, and consolidated statements of income and cash flows of the Parent,
the Borrower and the Restricted Subsidiaries, and consolidating statements of
income and cash flows of the Parent, the Borrower and the Restricted
Subsidiaries, for such fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by an unqualified opinion of the Auditor,
which opinion shall state that such financial statements were prepared in
accordance with GAAP, that the examination by the Auditor in connection with
such financial statements was made in accordance with generally accepted
auditing standards, and that such financial statements present fairly the
financial position and results of operations of the Parent, the Borrower and the
Restricted Subsidiaries, and (ii) for the Parent, the Borrower and the
Restricted Subsidiaries, all information set forth in (i) above in a separate
presentation;
(c) Promptly upon receipt thereof, (i) copies of all material
reports or letters submitted to the Borrower, the Parent or any Subsidiary of
the Borrower or the Parent by the Auditor or any other accountants in connection
with any annual, interim, or special audit, including without limitation, the
comment letter submitted to management in connection with any such audit, (ii)
each financial statement, report, notice or proxy statement sent by the Parent,
the Borrower or any Restricted Subsidiary in writing to stockholders generally,
(iii) each regular or periodic report and any registration statement or
prospectus (or material written communication in respect of any thereof) filed
by the Parent, the Borrower or any Restricted Subsidiary with any securities
exchange, with the Securities and Exchange Commission or any successor agency,
and (iv) all press releases concerning material financial aspects of the Parent,
the Borrower or any Restricted Subsidiary;
(d) Together with each set of financial statements delivered
pursuant to subsections (a) and (b) above, a Compliance Certificate executed by
an Authorized Officer, (i) certifying that there has occurred no Default or
Event of Event of Default, (ii) computing the Applicable Margin, and (iii)
setting forth the detailed calculations with respect to the financial covenants
required by Section 7.01 hereof;
(e) As soon as available, and in any event not later than 45 days
after the beginning of each fiscal year of the Borrower, the annual operating
and Capital Expenditure budgets of the Borrower and the Restricted Subsidiaries
for such fiscal year;
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(f) Promptly upon knowledge by the Borrower, the Parent or any
Restricted Subsidiary of the occurrence of any Default or Event of Default, a
notice from an Authorized Officer, setting forth the details of such Default or
Event of Default and the action being taken or proposed to be taken with respect
thereto;
(g) As soon as possible, and in any event within five Business
Days after knowledge thereof by the Borrower, the Parent or any Restricted
Subsidiary, notice of any Litigation pending or threatened against the Borrower,
the Parent or any Restricted Subsidiary which, if determined adversely, could
reasonably be expected to result in a judgment, penalties or damages in excess
of $5,000,000, together with a statement of an Authorized Officer describing the
allegations of such Litigation and the action being taken or proposed to be
taken with respect thereto;
(h) Promptly following notice or knowledge thereof by the
Borrower, the Parent or any other Restricted Subsidiaries, notice of any actual
or threatened loss or termination of any material Authorization of the Borrower,
the Parent or any Restricted Subsidiary, together with a statement of an
Authorized Officer describing the circumstances surrounding the same and the
action being taken or proposed to be taken with respect thereto;
(i) Promptly after filing or receipt thereof, copies of all
reports and notices that the Parent, the Borrower or any Restricted Subsidiary
(i) files or receives in respect of any Plan with or from the Internal Revenue
Service, the PBGC or the United States Department of Labor, or (ii) furnishes to
or receives from any holders of any Debt or Contingent Liability, if in either
case, any information or dispute referred to therein either causes a Default or
Event of Default or could reasonably be expected to cause or result in a Default
or an Event of Default;
(j) Within 30 days after renewal or issuance of any hazard, public
liability, business interruption or other insurance policy maintained by the
Borrower, the Parent or any Restricted Subsidiary, a copy of the binder or
insurance certificate (showing Administrative Agent, on behalf of the Borrower,
the Parent or any Restricted Subsidiary, as loss payee or additional insured, as
appropriate);
(k) As soon as possible and in any event within 10 days after the
Borrower, the Parent or any Restricted Subsidiary knows that any Reportable
Event has occurred with respect to any Plan, a statement, signed by an
Authorized Officer, describing said Reportable Event and the action which the
such Person proposes to take with respect thereto;
(l) As soon as possible, and in any event within 10 days after
receipt by the Borrower, the Parent or any Restricted Subsidiary thereof, a copy
of (a) any notice or claim to the effect that the Borrower, the Parent or any
Restricted Subsidiary is or may be liable to any Person as a result of the
release by the Borrower, the Parent, any Restricted Subsidiary or any other
Person of any toxic or hazardous waste or substance into the environment, and
(b) any notice alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Borrower, the
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Parent or any Restricted Subsidiary, which, in either case, could reasonably be
expected to cause a Material Adverse Change;
(m) Promptly upon the filing thereof, copies of all material
registration statements and all annual, quarterly, monthly or other regular
reports which the Parent, the Borrower or any Restricted Subsidiary files with
the FCC or the Securities and Exchange Commission; and
(n) Promptly upon request, such other information concerning the
condition or operations of the Borrower, the Parent and any of the Restricted
Subsidiaries and any of their Affiliates, financial or otherwise, as
Administrative Agent or any Lender may from time to time reasonably request.
6.06. Use of Proceeds. The proceeds of the Advances shall be
available (and the Borrower shall use such proceeds) to (a) refinance existing
Funded Debt of the Borrower and its Restricted Subsidiaries, (b) fund Capital
Expenditures of the Borrower and the Restricted Subsidiaries permitted by the
terms of this Agreement, and (c) fund certain acquisitions, and (d) use for
general working capital purposes.
6.07. Maintenance of Existence and Assets. The Borrower shall
maintain, and shall cause the Parent and each Restricted Subsidiary to maintain,
its corporate existence, authority to do business in the jurisdictions in which
it is necessary for the Borrower, the Parent or each Restricted Subsidiary to do
so, and all Authorizations necessary for the operation of any of their
businesses. The Borrower shall maintain, and shall cause the Parent and each
other Restricted Subsidiary to maintain, the assets necessary for use in their
respective businesses in good repair, working order and condition (normal wear
and tear excepted), and make all such repairs, renewals and replacements thereof
as may be reasonably required.
6.08. Payment of Taxes. The Borrower will, and will cause the Parent
and all Subsidiaries of the Parent and the Borrower to, promptly pay and
discharge all lawful Taxes imposed upon it or upon its income or profit or upon
any Property belonging to it, unless such Tax shall not at the time be due and
payable, or if the validity thereof shall currently be contested on a timely
basis in good faith by appropriate proceedings (provided that the enforcement of
any Liens arising out of any such nonpayment shall be stayed or bonded during
the proceedings) and adequate reserves with respect to such Tax shall have been
established in accordance with GAAP.
6.09. INDEMNITY.
(A) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD
HARMLESS ADMINISTRATIVE AGENT AND EACH LENDER, EACH OF THEIR RESPECTIVE
AFFILIATES, AND EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS
(INCLUDING, WITHOUT LIMITATION, THOSE RETAINED IN CONNECTION WITH THE
SATISFACTION OR ATTEMPTED SATISFACTION OF ANY OF THE CONDITIONS SET FORTH
HEREIN) OF EACH OF THE FOREGOING (COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST
ANY AND ALL LIABILITIES, OBLIGATIONS,
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LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS, COSTS, EXPENSES
AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER (INCLUDING, WITHOUT
LIMITATION, THE REASONABLE FEES AND DISBURSEMENTS OF COUNSEL FOR SUCH
INDEMNITEES IN CONNECTION WITH ANY INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL
PROCEEDING, WHETHER OR NOT SUCH INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO
OR SUCH PROCEEDING SHALL HAVE ACTUALLY BEEN INSTITUTED), IMPOSED ON, INCURRED
BY, OR ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR
CONSEQUENTIAL AND WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR
OTHERWISE), ARISING FROM OR CONNECTED WITH THE PAST, PRESENT OR FUTURE
OPERATIONS OF THE PARENT, THE BORROWER, ANY RESTRICTED SUBSIDIARY OF THE
BORROWER OR THE PARENT, ANY OTHER RESTRICTED SUBSIDIARY, ANY AFFILIATE OR ANY
PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION
OF PROPERTY OF THE PARENT, THE BORROWER, ANY RESTRICTED SUBSIDIARY OF THE
BORROWER OR PARENT, ANY OTHER RESTRICTED SUBSIDIARY, ANY AFFILIATE OR ANY
PREDECESSORS IN INTEREST, IN EACH CASE RELATING TO OR ARISING OUT OF THIS
AGREEMENT, THE LOAN PAPERS OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED ACT,
EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO AND THE MANAGEMENT OF THE
ADVANCES BY THE ADMINISTRATIVE AGENT, INCLUDING IN CONNECTION WITH, OR AS A
RESULT, IN WHOLE OR IN PART, OF ANY NEGLIGENCE OF ADMINISTRATIVE AGENT OR ANY
LENDER (OTHER THAN THOSE MATTERS INVOLVING A CLAIM BY A PARTICIPANT PURCHASER
AGAINST ANY LENDER AND NOT THE BORROWER), OR THE USE OR INTENDED USE OF THE
PROCEEDS OF THE ADVANCES HEREUNDER, OR IN CONNECTION WITH ANY INVESTIGATION OF
ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING ANY CLAIM OR LIABILITY THAT
ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF ANY
INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF COMPETENT
JURISDICTION (COLLECTIVELY, "INDEMNIFIED MATTERS").
(B) IN ADDITION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST,
REIMBURSE EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE
EXPENSES (INCLUDING THE COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN
CONNECTION WITH ANY INDEMNIFIED MATTER. IF FOR ANY REASON THE FOREGOING
INDEMNIFICATION IS UNAVAILABLE TO ANY INDEMNITEE OR INSUFFICIENT TO HOLD ANY
INDEMNITEE HARMLESS WITH RESPECT TO INDEMNIFIED MATTERS, THEN THE BORROWER SHALL
CONTRIBUTE TO THE AMOUNT PAID OR PAYABLE BY SUCH INDEMNITEE AS A RESULT OF SUCH
LOSS, CLAIM, DAMAGE OR LIABILITY IN SUCH PROPORTION AS IS APPROPRIATE TO REFLECT
NOT ONLY THE RELATIVE BENEFITS RECEIVED BY THE BORROWER AND THE HOLDERS OF THE
CAPITAL STOCK OF THE BORROWER ON THE ONE HAND, AND SUCH INDEMNITEE ON THE OTHER
HAND, BUT ALSO THE RELATIVE FAULT OF THE BORROWER AND SUCH INDEMNITEE, AS WELL
AS ANY OTHER RELEVANT EQUITABLE CONSIDERATIONS. THE REIMBURSEMENT, INDEMNITY AND
CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION TO ANY
LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME
TERMS AND CONDITIONS TO EACH INDEMNITEE AND SHALL BE BINDING UPON AND INURE TO
THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES, AS
THE CASE MAY BE, OF THE BORROWER, THE ADMINISTRATIVE AGENT, THE LENDERS AND ALL
OTHER INDEMNITEES. THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 6.09 SHALL
SURVIVE (I) THE EXECUTION OF THIS AGREEMENT AND (II) ANY TERMINATION OF THIS
AGREEMENT AND PAYMENT OF THE OBLIGATIONS.
6.10. Management Fees Paid and Earned. The Borrower agrees that no
Management Fees will be paid by the Borrower or any Restricted Subsidiary to any
Person at any time.
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6.11. Authorizations and Material Agreements. The Borrower shall,
and shall cause the Parent and the Restricted Subsidiaries to, obtain and comply
in all material respects with all FCC Licenses relating to the Borrower's, the
Parent's or the Subsidiaries' businesses. The Borrower shall, and shall cause
the Parent and the Restricted Subsidiaries to, obtain and comply in all material
respects with all Authorizations relating to such businesses, except to the
extent that a failure to do so could not reasonably be expected to cause or
result in a Material Adverse Change. The Borrower shall, and shall cause the
Parent and all other Restricted Subsidiaries to, maintain and comply in all
material respects with all agreements necessary or appropriate for any of them
to own, maintain or operate any of their businesses or Properties.
6.12. Further Assurances. The Borrower shall, and shall cause the
Parent and each other Restricted Subsidiary to, make, execute or endorse and
acknowledge and deliver or file or cause the same to be done, all such vouchers,
invoices, notices, certifications and additional agreements, undertakings,
conveyances, deeds of trust, mortgages, security agreements, transfers,
assignments, financing statements and other assurances, and take any and all
such other action, as Administrative Agent may, from time to time, deem
reasonably necessary or proper in connection with the Parent or any Restricted
Subsidiary's obligations under any of the Loan Papers and the obligations of the
Borrower thereunder, or for better assuring and confirming unto Administrative
Agent all or any part of the security for any of the Obligations.
6.13. Year 2000 Compliance. The Borrower will promptly notify
Administrative Agent if the Borrower discovers or determines that any computer
application (including those of its suppliers and vendors) that is material to
its or any of the Parent's or any of the Borrower's and/or the Parent's
Subsidiaries' businesses and operations will not be Year 2000 Compliant on a
timely basis, except to the extent that such failure could not be reasonably
expected to cause a Material Adverse Change.
6.14. Subsidiaries and Other Obligors. The Borrower shall cause each
of the Restricted Subsidiaries and the Parent to comply with each provision of
this Article VI.
ARTICLE VII. NEGATIVE COVENANTS
So long as the Available Commitment, any Advance, or any portion of the
Obligations is outstanding, or the Borrower, the Parent or any Restricted
Subsidiary owes any other amount hereunder or under any other Loan Paper:
7.01. Financial Covenants. The Borrower and the Restricted
Subsidiaries shall comply with the following covenants:
(a) Total Senior Leverage Ratio. At all times during the term
hereof, the Total Senior Leverage Ratio shall not be greater than (i) for the
period from the Closing Date through June 29, 2000, 2.00 to 1.00, (ii) for the
period from June 30, 2000 through September 29, 2000, 1.50 to 1.00, and (iii)
for the period from September 30, 2000 through the Maturity Date, 1.25 to 1.00.
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(b) Interest Coverage Ratio. At all times during the term hereof,
the Interest Coverage Ratio shall not be less than 2.50 to 1.00.
(c) Fixed Charges Coverage Ratio. At all times during the term
hereof, the Fixed Charges Coverage Ratio shall not be less than 1.25 to 1.00.
(d) Minimum Operating Cash Flow. The Operating Cash Flow for the
immediately preceding two fiscal quarters shall not be less than the Operating
Cash Flow amounts for such period as set forth below:
<TABLE>
<CAPTION>
Six Month Period Ending Minimum Operating Cash Flow
----------------------- ---------------------------
<S> <C>
September 30, 1999 $38,300,000
December 31, 1999 $37,400,000
March 31, 2000 $32,600,000
June 30, 2000 $38,800,000
September 30, 2000 $49,600,000
</TABLE>
7.02. Debt. The Borrower shall not, and shall not permit the Parent,
any of the other Restricted Subsidiaries or any of the FaciliCom Unrestricted
Subsidiaries to, create, incur, assume, become or be liable in any manner in
respect of or suffer to exist, any Debt, except (a) Debt under the Loan Papers,
(b) Debt under the Subordinated Notes and other Debt in existence on the date
hereof as shown on Schedule 5.08 hereto, and renewals, extensions (but not
increases) and refinancings thereof on terms substantially similar thereto and
on terms no more restrictive, (c) trade payables incurred and paid in the
ordinary course of business, (d) Debt between the Borrower and its Restricted
Subsidiaries, and (e) so long as there exists no Default or Event of Default in
existence at the time incurred and none is caused thereby, (i) $100,000,000 in
Debt constituting Capital Leases outstanding in the aggregate at any one time,
(ii) unsecured subordinated Debt of the Borrower on terms and conditions
acceptable to the Administrative Agent and each Lender, subordinated to the
Facility pursuant to the subordination language set forth on Schedule 7.02
hereto and not in excess of $25,000,000 at any one time outstanding, (iii) with
respect to the Borrower Debt of the Borrower under Interest Hedge Agreements,
(iv) Debt For Borrowed Money not in excess of $5,000,000 secured by a Lien on
the Provo, Utah property, (v) no more than $25,000,000 in recourse third- party
financing and factoring arrangements outstanding at any one time, (vi) accrued
but unpaid Earn-Out Liabilities, (vii) Debt under the FaciliCom Notes and (viii)
Debt under the Exchange Indenture issued in exchange for the FaciliCom Notes
pursuant to an offer to exchange on terms and conditions acceptable to
Administrative Agent.
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7.03. Contingent Liabilities. The Borrower shall not, and shall not
permit the Parent, or any of the Restricted Subsidiaries to, create, incur,
assume, become or be liable in any manner in respect of, or suffer to exist, any
Contingent Liabilities, except Contingent Liabilities under or relating to the
Loan Papers, Contingent Liabilities incurred in the ordinary course of business,
and Contingent Liabilities described on Schedule 7.03 hereof, and Contingent
Liabilities in respect of the World Access Charitable Trust Transaction.
7.04. Liens. The Borrower shall not, and shall not permit the
Parent, or any of the Restricted Subsidiaries to, create or suffer to exist any
Lien upon any of its Properties, except Permitted Liens and Liens securing Debt
permitted under Section 7.02(e)(i) and (v) hereof. It is specifically
acknowledged and agreed that the Borrower shall not, and shall not permit the
Parent or any of the Restricted Subsidiaries to, hereafter agree with any Person
(other than Administrative Agent) not to grant a Lien on any of its assets.
7.05. Dispositions of Assets. Except for Permitted Dispositions, the
Borrower shall not, and shall not permit the Parent or any of the Restricted
Subsidiaries to, sell, lease, assign, or otherwise dispose of any assets of the
Borrower or any Restricted Subsidiary, or otherwise consummate any Asset Sale.
7.06. Distributions and Restricted Payments. The Borrower shall not,
and shall not permit the Parent, any Restricted Subsidiary or the FaciliCom
Unrestricted Subsidiaries to, make any Restricted Payments, other than (a) any
Restricted Payment in the form of a Distribution made by any Restricted
Subsidiary or the FaciliCom Unrestricted Subsidiaries to any other Restricted
Subsidiary or to the Borrower, (b) other than so long as there exists no Default
or Event of Default both before and after giving effect to any such Restricted
Payment, (i) scheduled cash interest payments required to be paid by WA Telcom
Products Co., Inc. under the Subordinated Notes, (ii) issuances of common stock
by the Parent in connection with its Earn-Out Liabilities and (iii) Restricted
Payments required to be made by the Series A Certificate of Designation as in
effect on April 21, 1999, by the Series B Certificate of Designation, and by the
Series C Certificate of Designation in the form presented to the Administrative
Agent and the Lenders; (iv) issuances of common stock pursuant to Section 8,
Section 10, or Section 11 of the Series A Certificate of Designation, pursuant
to Section 8, Section 9, or Section 10 of the Series B Certificate of
Designation (and the payment of cash in lieu of fractional shares in each case)
and pursuant to Section 6 and Section 7 of the Series C Certificate of
Designation (and the payment of cash in lieu of fractional shares in each case)
and (v) scheduled cash interest payments required to be paid by World Access,
Inc. under the Exchange Notes and (c) other than so long as there exists no
Default or Event of Default both before and after giving effect to any such
Restricted Payment, the issuance of Common Stock pursuant to Section 6 or
Section 7 of the Series C Certificate of Designation (and the payment of cash in
lieu of fractional shares in each case). To the extent required by the terms of
the Credit Agreement (including without limitation Sections 2.04, 2.05, and
7.12), the Lenders consent to the execution by the Parent of the Purchase
Agreement and the Registration Rights Agreement (as that term is defined in the
Series B Certificate of Designation), the Stock Purchase Agreement, Registration
Rights Agreement (as that term is defined in the Stock Purchase
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Agreement), the Series A Certificate of Designation, the Series B Certificate of
Designation, the Series C Certificate of Designation, the FaciliCom Acquisition
and the related Agreement and Plan of Merger dated as of August 17, 1999 and the
related registration rights agreement as defined in such Agreement and Plan of
Merger and to the performance by the Parent of all of its obligations
thereunder. Nothing contained in this Section however shall be construed to
permit the Parent to redeem the outstanding shares of Series A Preferred or the
Series B Preferred or the Series C Preferred pursuant to Section 5 of the Series
A Certificate of Designation or the Series B Certificate of Designation or the
Series C Certificate of Designation, or to issue Subordinated Notes pursuant to
Section 10 of the Series A Certificate of Designation.
7.07. Merger; Consolidation. The Borrower shall not, and shall not
permit the Parent or any of the Restricted Subsidiaries to, merge into or
consolidate with any Person; provided that any Restricted Subsidiary may be
merged or consolidated with or into any other Restricted Subsidiary or with or
into the Borrower (so long as the Borrower shall be continuing or surviving
corporation).
7.08. Business. The Borrower shall not, and shall not permit the
Parent or any of the other Restricted Subsidiaries to, change the nature of its
business as now conducted. The Borrower shall not conduct any business except
the ownership and operation of telecommunications equipment manufacturing, long
distance, and long-haul carrier businesses. WA Telecom Products Co, Inc. shall
not conduct any business except the ownership of Capital Stock of World Access
Holdings, Inc. World Access, Inc. shall not conduct any business except the
ownership of Capital Stock of WA Telecom Products Co., Inc. and Telco Systems,
Inc.
7.09. Transactions with Affiliates. The Borrower shall not, and
shall not permit the Parent or any of the Restricted Subsidiaries to, enter into
or be party to a transaction with any Affiliate, except on terms no less
favorable than could be obtained on an arms'-length basis with a Person that is
not an Affiliate.
7.10. Loans and Investments. The Borrower shall not, and shall not
permit the Parent or any of the Restricted Subsidiaries to, make any loan,
advance, extension of credit or capital contribution to, or make or have any
Investment in, any Person, or make any commitment to make any such extension of
credit or Investment, or make any acquisition, except (a) Investments in Cash
Equivalents, (b) Permitted Acquisitions, (c) provided no Default or Event of
Default exists or would result therefrom, Investments in Restricted Subsidiaries
that have executed or will execute Loan Papers required by the Administrative
Agent, and (d) provided no Default or Event of Default exists or would result
therefrom, and with respect to Unrestricted Subsidiaries for which (i) 100% of
the Capital Stock of such Unrestricted Subsidiary has not been pledged as
Collateral to secure this Agreement and (ii) an opinion of counsel in a form
satisfactory to Administrative Agent with respect to the pledge of such
Collateral has not been delivered to Administrative Agent, Investments of up to
$1,000,000 in any Unrestricted Subsidiary individually and of up to $5,000,000
in the aggregate in all Unrestricted Subsidiaries, (e) provided no Default or
Event of Default exists or would result therefrom, Investments of not more than
$5,000,000 individually or $25,000,000 in the aggregate (not including any
Investments pursuant to the World Access Charitable Trust Transaction) in
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companies in similar lines of business to those of the Borrower, the Parent or
the Restricted Subsidiaries, (f) Investments in Omnia Communications, Inc. and
any successor thereto, (g) any Investments pursuant to the World Access
Charitable Trust Transaction, (h) other acquisitions described on Schedule 7.10
hereof and (i) Investments up to $30,000,000 in the aggregate over the term of
this Agreement in the FaciliCom Unrestricted Subsidiaries.
7.11. Fiscal Year and Accounting Method. The Borrower shall not, and
shall not permit the Parent or any of the Restricted Subsidiaries to, change its
fiscal year or method of accounting, except as may be required by GAAP.
7.12. Issuance of Partnership Interest and Capital Stock; Amendment
of Articles and ByLaws. Except in connection with the transactions consummated
on or prior to the Closing Date, the Borrower shall not, and shall not permit WA
Telecom Products, Inc. or any of the Restricted Subsidiaries to, issue, sell or
otherwise dispose of any Capital Stock in such Person, or any options or rights
to acquire such partnership interest or capital stock not issued and outstanding
on the Closing Date. The Borrower shall not amend its articles of organization
or bylaws and the Borrower shall not permit the Parent or any of the other
Restricted Subsidiaries to amend its articles of organization or bylaws or
partnership agreement, as applicable, except, so long as there exists no Default
or Event of Default both prior to and after giving effect to such amendment, and
after written notice to the Administrative Agent, the Borrower, the Parent, or
any of the other Restricted Subsidiaries may make (i) changes to comply with
applicable Law and (ii) changes which would not result in a Material Adverse
Change.
7.13. Change of Ownership. The Borrower shall not, and shall not
permit the Borrower or any Restricted Subsidiary to, permit any change in the
ownership of the Borrower and each Guarantor (other than World Access, Inc.)
from the ownership thereof as of the date hereof as disclosed on Schedule 5.01
hereto other than a transfer to the Borrower or any other Restricted Subsidiary
in which the Borrower or such Restricted Subsidiary is the surviving entity.
7.14. Sale and Leaseback. Other than a transaction with respect to
the Borrower's real property located at Provo, Utah, the Borrower shall not, and
shall not permit any of the Parent, or the Restricted Subsidiaries to, enter
into any arrangement whereby it sells or transfers any of its assets, and
thereafter rents or leases such assets.
7.15. Compliance with ERISA. The Borrower shall not, and shall not
permit the Parent or any Subsidiary of the Borrower or the Parent to, directly
or indirectly, or permit any member of such Person's Controlled Group to
directly or indirectly, (a) terminate any Plan so as to result in any material
(in the opinion of Administrative Agent) liability to any of the Borrower, the
Parent or any Subsidiary of the Borrower or the Parent, or any member of their
Controlled Group, (b) permit to exist any ERISA Event, or any other event or
condition, which presents the risk of any material (in the opinion of
Administrative Agent) liability of any of the Parent, the Borrower or any
Subsidiary of the Parent or the Borrower, or any member of their Controlled
Group, (c) make a complete or partial withdrawal (within the meaning of Section
4201 of ERISA) from any Multiemployer Plan
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so as to result in any material (in the opinion of Administrative Agent)
liability to any of the Borrower, the Parent or any Subsidiary of the Parent or
the Borrower, or any member of their Controlled Group, (d) enter into any new
Plan or modify any existing Plan so as to increase its obligations thereunder
(except in the ordinary course of business consistent with past practice) which
could result in any material (in the opinion of Administrative Agent) liability
to any of the Parent, the Borrower or any Subsidiary of the Parent or the
Borrower, or any member of their Controlled Group, or (e) permit the present
value of all benefit liabilities, as defined in Title IV of ERISA, under each
Plan of each of the Parent, the Borrower or any Subsidiary of the Parent or the
Borrower, or any member of their Controlled Group (using the actuarial
assumptions utilized by the PBGC upon termination of a Plan) to materially (in
the opinion of Administrative Agent) exceed the fair market value of Plan assets
allocable to such benefits all determined as of the most recent valuation date
for each such Plan.
7.16. Rate Swap Exposure. The Borrower shall not enter into or
become liable in respect of any Interest Hedge Agreement pursuant to which the
aggregate amount subject to such Interest Hedge Agreements exceeds the aggregate
principal amount of all Advances.
7.17. Restricted Subsidiaries and Other Obligors. The Borrower shall
not permit the Parent or any of its Restricted Subsidiaries to violate any
provision of this Article VII.
7.18. Limitation on Restrictive Agreements. The Borrower shall not,
and shall not permit the Parent or any Restricted Subsidiary to, other than in
connection with the Subordinated Notes and the FaciliCom Notes, or the World
Access Charitable Trust Transaction, enter into any indenture, agreement,
instrument, financing document or other arrangement which, directly or
indirectly, prohibits or restrains, or has the effect of prohibiting or
restraining, or imposes materially adverse conditions upon: (a) the incurrence
of Debt, (b) the granting of Liens, (c) the making or granting of Guarantees,
(d) the payment of dividends or Distributions, (e) the purchase, redemption or
retirement of any Capital Stock, (f) the making of loans or advances, (g)
transfers or sales of property or assets (including Capital Stock) by the
Parent, the Borrower or any of the Restricted Subsidiaries, or (h) the making of
Investments or acquisitions.
7.19. Amendment of Material Agreements. The Borrower and the Parent
shall not, and shall not permit any Restricted Subsidiary to, amend, waive or
consent to any deviation from any provision of any documentation or agreements
of the (i) World Access Indenture in any manner that is both material and
adverse to the interests of the Lenders, (ii) Subordinated Notes in any manner
that is both material and adverse to the interests of the Lenders, (iii)
FaciliCom Indenture in any manner that is both material and adverse to the
interests of the Lenders, (iv) Series A Certificate of Designation in any manner
that is both material and adverse to the interests of the Lenders, (v) Series B
Certificate of Designation in any manner that is both material and adverse to
the interests of the Lenders, (vi) Series C Certificate of Designation in any
manner that is both material and adverse to the interests of the Lenders, (vii)
FaciliCom Notes in any manner that is both material and adverse to the interests
of the Lenders, (viii) Exchange Indenture in any manner that is both material
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and adverse to the interests of the Lenders, or (vii) Exchange Notes in any
manner that is both material and adverse to the interests of the Lenders.
ARTICLE VIII. EVENTS OF DEFAULT
8.01. Events of Default. Any one or more of the following shall be
an "Event of Default" hereunder, if the same shall occur for any reason
whatsoever, whether voluntary or involuntary, by operation of Law or otherwise:
(a) The Borrower shall fail to pay (i) any principal on any Note
when due; or (ii) any interest on any Note within three days after the same
becomes due; or (iii) any Commitment Fees, other fees, or other amounts payable
under any Loan Paper within five days after the same becomes due;
(b) Any representation or warranty made or deemed made by the
Borrower, the Parent or any Restricted Subsidiary (or any of its officers or
representatives) under or in connection with any Loan Papers shall prove to have
been incorrect or misleading in any material respect when made or deemed made;
(c) The Borrower, the Parent or any Restricted Subsidiary shall
fail to perform or observe any term or condition contained in Article VI hereof
(except Section 6.05(f) hereof) which is not remedied within thirty days after
the earlier of (i) actual knowledge of such breach by the Parent, the Borrower
or any of the Restricted Subsidiaries of such breach and (ii) written notice
from the Administrative Agent or any Lender of such breach;
(d) The Borrower, the Parent or any Restricted Subsidiary shall
fail to perform or observe any term or covenant contained in Article VII hereof
or in Section 6.05(f) hereof;
(e) The Borrower, the Parent or any Restricted Subsidiary shall
fail to perform or observe any other term or covenant contained in any Loan
Paper, other than those described in Sections 8.01(a), (b), (c) and (d) hereof
which is not remedied within thirty days after the earlier of (i) actual
knowledge of such breach by the Borrower, the Parent or any of the Restricted
Subsidiaries of such breach and (ii) written notice from Administrative Agent or
any Lender of such breach;
(f) (i) Any Loan Paper or material provision thereof shall, for
any reason, not be valid and binding on the Borrower, the Parent or any
Restricted Subsidiary signatory thereto, or not be in full force and effect, or
shall be declared to be null and void; (ii) the validity or enforceability of
any Loan Paper shall be contested by the Borrower, the Parent, or any Restricted
Subsidiary; (iii) the Borrower, the Parent or any Restricted Subsidiary shall
deny that it has any or further liability or obligation under its respective
Loan Papers; or(iv) any default or breach under any provision of any Loan Papers
shall continue after the applicable grace period, if any, specified in such Loan
Paper;
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(g) Any of the following shall occur: (i) any of the Parent, the
Borrower or any Subsidiary of the Parent or the Borrower shall make an
assignment for the benefit of creditors or be unable to pay its debts generally
as they become due; (ii) any of the Parent, the Borrower or any Subsidiary of
the Parent or the Borrower shall petition or apply to any Tribunal for the
appointment of a trustee, receiver or liquidator of it or of any substantial
part of its assets, or shall commence any proceedings relating to any of the
Parent, the Borrower or any Subsidiary of the Parent or the Borrower under any
Debtor Relief Law, whether now or hereafter in effect; (iii) any such petition
or application shall be filed, or any such proceedings shall be commenced,
against any of the Parent, the Borrower or any Subsidiary of the Parent or the
Borrower, or an order, judgment or decree shall be entered appointing any such
trustee, receiver or liquidator, or approving the petition in any such
proceedings and such petition, application or proceedings shall continue
undismissed for 30 days or such order, judgment or decree shall continue
unstayed and in effect for 30 days; (iv) any final order, judgment or decree
shall be entered in any proceedings against any of the Parent, the Borrower or
any Subsidiary of the Parent or the Borrower decreeing its dissolution; (v) any
final order, judgment or decree shall be entered in any proceedings against any
of the Parent, the Borrower or any Subsidiary of the Parent or the Borrower
decreeing its split-up which requires the divestiture of a substantial part of
its assets; or (vi) any of the Parent, the Borrower or any Subsidiary of the
Parent or the Borrower shall petition or apply to any Tribunal for the
appointment of a trustee, receiver or liquidator of it or of any substantial
part of its assets, or shall commence any proceedings relating to any of the
Parent, the Borrower or any Subsidiary of the Parent or the Borrower under any
Debtor Relief Law, whether now or hereafter in effect;
(h) (i) Any of the Borrower, the Parent or any Restricted
Subsidiary shall fail to pay any Debt or Contingent Liability of $5,000,000 or
more when due (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such Debt
or Contingent Liability; (ii) any of the Borrower, the Parent or any Restricted
Subsidiary shall fail to perform or observe any term or covenant contained in
any agreement or instrument relating to any such Debt or Contingent Liability,
when required to be performed or observed, and such failure shall continue after
the applicable grace period, if any, specified in such agreement or instrument,
and can result in acceleration of the maturity of such Debt or Contingent
Liability; or (iii) any such Debt or Contingent Liability shall be declared to
be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof;
(i) Any of the Borrower, the Parent or Restricted Subsidiary shall
have any judgment(s) outstanding against it for the payment of $5,000,000 or
more, and such judgment(s) shall remain unstayed, in effect, uncontested and
unpaid for a period of 30 days;
(j) (i) Any Authorization necessary for the ownership or essential
for the operation of any of the interstate or intrastate telecommunications
systems or networks operated by the Parent, the Borrower or any Restricted
Subsidiary shall expire, and on or prior to such expiration, the same shall not
have been renewed or replaced by another Authorization authorizing substantially
the same operations; (ii) any Authorization necessary for the ownership or
essential for the operation of any
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of the Parent's, the Borrower's or the Restricted Subsidiaries' businesses shall
be canceled, revoked, terminated, rescinded, annulled, suspended or modified in
a materially adverse respect, or shall no longer be in full force and effect, or
the grant or the effectiveness thereof shall have been stayed, vacated, reversed
or set aside, and such action shall be no longer subject to further
administrative or judicial review; (iii) the FCC shall have issued, on its own
initiative and not upon the complaint of or at the request of a third party, any
hearing designation order in any non-comparative license renewal proceeding or
any license revocation proceeding involving any License or Authorization
necessary for the ownership or essential for the operation of the Borrower's,
the Parent's or the Restricted Subsidiaries' businesses, or (iv) in any
non-comparative license renewal proceeding or license revocation proceeding
initiated by the FCC upon the complaint of or at the request of a third party or
any comparative (i.e., multiple applicant) license renewal proceeding, in each
case involving any License or Authorization necessary for the ownership or
essential for the operation of such business; or (v) any administrative law
judge of the FCC (or successor to the functions of an administrative law judge
of the FCC) shall have issued an initial decision to the effect that the Parent,
the Borrower or any Restricted Subsidiary lacks the basic qualifications to own
or operate its business or is not deserving of a renewal expectancy, and such
initial decision shall not have been timely appealed or shall otherwise have
become an order that is final and no longer subject to further administrative or
judicial review;
(k) Any of the Parent, the Borrower or any Subsidiary of the
Parent or the Borrower or any ERISA Affiliate shall have committed a failure
described in Section 302(f)(l) of ERISA, and the amount determined under Section
302(f)(3) of ERISA is equal to or greater than $5,000,000;
(l) The Parent, the Borrower, any Subsidiary of the Parent or the
Borrower, or any ERISA Affiliate, shall have been notified by the sponsor of a
Multiemployer Plan that such Plan is in reorganization or is being terminated,
within the meaning of Title IV of ERISA, if as a result thereof, the aggregate
annual contributions to all Multiemployer Plans in reorganization or being
terminated is increased over the amounts contributed to such Plans for the
preceding Plan year by an amount exceeding $5,000,000;
(m) The Borrower, the Parent or any Restricted Subsidiary shall be
required under any Environmental Law (i) to implement any remedial,
neutralization or stabilization process or program, the cost of which could
constitute a Material Adverse Change, or (ii) to pay any penalty, fine or
damages in an aggregate amount of $5,000,000 or more;
(n) (i) Any Property (whether leased or owned) of any of the
Borrower, the Parent or any Restricted Subsidiary, or the operations conducted
thereon by any of them or any current or prior owner or operator thereof (in the
case of real Property), shall violate or have violated any applicable
Environmental Law, if such violation could constitute a Material Adverse Change;
or (ii) any of the Borrower, the Parent, or any Restricted Subsidiary shall not
obtain or maintain any License required to be obtained or filed under any
Environmental Law in connection with the use of such Property and assets,
including, without limitation, past or present treatment, storage, disposal or
release of
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Hazardous Materials into the environment, if the failure to obtain or maintain
the same could constitute a Material Adverse Change;
(o) Any Collateral Document shall for any reason (other than
pursuant to the terms thereof) cease to create a valid and perfected first
priority Lien in the Collateral (subject to Permitted Liens) purported to be
covered thereby, and the value of such Collateral, singly or in the aggregate,
equals or exceeds $5,000,000;
(p) The occurrence of any Change of Control;
(q) (i) A petition or complaint is filed before or by the Federal
Trade Commission, the United States Justice Department, or any other Tribunal,
seeking to cause the Borrower, the Parent or any Restricted Subsidiary to divest
a significant portion of its assets or the Capital Stock of any of the Parent,
the Borrower or any Restricted Subsidiary pursuant to any antitrust, restraint
of trade, unfair competition or similar Laws, and such petition or complaint is
not dismissed or discharged within 60 days of the filing thereof, which such
divestiture could reasonably be expected to cause a Material Adverse Change, or
(ii) a warrant of attachment or execution or similar process shall be issued or
levied against Property of the Parent, the Borrower or any Restricted Subsidiary
which, together with all other such Property of the Borrower, the Parent and the
Restricted Subsidiaries subject to other such process, exceeds in the aggregate
$5,000,000 in value, and if such judgment or award is not insured or, within 60
days after the entry, issue or levy thereof, such judgment, warrant or process
shall not have been paid or discharged, bonded or stayed pending appeal, or if,
after the expiration of any such stay, such judgment, warrant or process shall
not have been paid or discharged;
(r) (i) Any civil action, suit or proceeding shall be commenced
against any of the Borrower, the Parent or any Restricted Subsidiary under any
federal or state racketeering statute (including, without limitation, the
Racketeer Influenced and Corrupt Organization Act of 1970)("RICO"), and such
suit shall be adversely determined by a court of applicable jurisdiction
resulting in a judgment against the Borrower, the Parent or any Restricted
Subsidiary in excess of $5,000,000; or (ii) any criminal action or proceeding
shall be commenced against any of the Borrower, the Parent or any Restricted
Subsidiary under any federal or state racketeering statute (including, without
limitation, RICO);
(s) There shall exist any Event of Default relating to the
Subordinated Notes, the FaciliCom Notes, under the World Access Indenture or the
FaciliCom Indenture; or
(t) Any of the Parent, the Borrower or any of their Subsidiaries
shall fail to be Year 2000 Compliant.
8.02. Remedies Upon Default. If an Event of Default described in
Section 8.01(g) hereof shall occur with respect to the Parent, the Borrower or
any Subsidiary of the Parent or the Borrower, the Available Commitment shall be
immediately terminated and the aggregate unpaid principal
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balance of and accrued interest on all Advances shall, to the extent permitted
by applicable Law, thereupon become due and payable concurrently therewith,
without any action by Administrative Agent or any Lender, and without diligence,
presentment, demand, protest, notice of protest or intent to accelerate, or
notice of any other kind, all of which are hereby expressly waived. Subject to
the immediately foregoing sentence, if any Event of Default shall occur and be
continuing, then no LIBOR Advances shall be available to the Borrower, and
Administrative Agent may at its election, and shall at the direction of Majority
Lenders, do any one or more of the following:
(a) Declare the entire unpaid balance of all Advances immediately
due and payable, whereupon it shall be due and payable without diligence,
presentment, demand, protest, notice of protest or intent to accelerate or
notice of any other kind (except notices specifically provided for under Section
8.01), all of which are hereby expressly waived (except to the extent waiver of
the foregoing is not permitted by applicable Law);
(b) Terminate the Available Commitment;
(c) Reduce any claim of Administrative Agent and Lenders to
judgment; or
(d) Exercise any Rights afforded under any Loan Papers or by Law,
including, without limitation to the UCC, in equity or otherwise.
8.03. Cumulative Rights. All Rights available to Administrative
Agent and Lenders under the Loan Papers shall be cumulative of and in addition
to all other Rights granted thereto at Law or in equity, whether or not amounts
owing thereunder shall be due and payable and whether or not Administrative
Agent or any Lender shall have instituted any suit for collection or other
action in connection with the Loan Papers.
8.04. Waivers. The acceptance by Administrative Agent or any Lender
at any time and from time to time of partial payment of any amount owing under
any Loan Papers shall not be deemed to be a waiver of any Default or Event of
Default then existing. No waiver by Administrative Agent or any Lender of any
Default or Event of Default shall be deemed to be a waiver of any Default or
Event of Default other than such Default or Event of Default. No delay or
omission by Administrative Agent or any Lender in exercising any Right under the
Loan Papers shall impair such Right or be construed as a waiver thereof or an
acquiescence therein, nor shall any single or partial exercise of any such Right
preclude other or further exercise thereof or the exercise of any other Right
under the Loan Papers or otherwise.
8.05. Performance by Administrative Agent or any Lender. Should any
covenant of any of the Borrower, the Parent or the Restricted Subsidiaries fail
to be performed in accordance with the terms of the Loan Papers, Administrative
Agent may, at its option, perform or attempt to perform such covenant on behalf
of such Person. Notwithstanding the foregoing, it is expressly understood that
neither Administrative Agent nor any Lender assumes, and neither shall ever
have, except by express written consent of Administrative Agent or such Lender,
any liability or responsibility for
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the performance of any duties or covenants of any of the Borrower, the Parent or
the Restricted Subsidiaries.
8.06. Expenditures. The Borrower shall reimburse Administrative
Agent and each Lender for any sums spent by it in connection with the exercise
of any Right provided herein. Such sums shall bear interest at the lesser of (a)
the Base Rate in effect from time to time, plus 2.0%, and (b) the Highest Lawful
Rate, from the date spent until the date of repayment by the Borrower.
8.07. Control. None of the covenants or other provisions contained
in this Agreement shall, or shall be deemed to, give Administrative Agent or any
Lender any Rights to exercise control over the affairs and/or management of any
of the Borrower, the Parent or the Restricted Subsidiaries, the power of
Administrative Agent and each Lender being limited to the Rights to exercise the
remedies provided in this Article; provided, however, that if Administrative
Agent or any Lender becomes the owner of any partnership, stock or other equity
interest in any Person, whether through foreclosure or otherwise, it shall be
entitled to exercise such legal Rights as it may have by being an owner of such
stock or other equity interest in such Person.
ARTICLE IX. THE ADMINISTRATIVE AGENT
9.01. Authorization and Action. Each Lender hereby appoints and
authorizes Administrative Agent to take such action as Administrative Agent
deems appropriate on its behalf and to exercise such powers under this Agreement
and the other Loan Papers as are delegated to the Administrative Agent by the
terms of the Loan Papers, together with such powers as are reasonably incidental
thereto. As to any matters not expressly provided for by this Agreement and the
other Loan Papers (including, without limitation, enforcement or collection of
the Notes), Administrative Agent shall not be required to exercise any
discretion or take any action, but shall be required to act or to refrain from
acting (and shall be fully protected in so acting or refraining from acting)
upon the instructions of Majority Lenders (or all Lenders, if required under
Section 10.01), and such instructions shall be binding upon all Lenders;
provided, however, that Administrative Agent shall not be required to take any
action which exposes Administrative Agent to personal liability or which is
contrary to any Loan Papers or applicable Law. Administrative Agent agrees to
give to each Lender notice of each notice given to it by the Borrower pursuant
to the terms of this Agreement and to distribute to each applicable Lender in
like funds all amounts delivered to Administrative Agent by the Borrower for the
Ratable or individual account of any Lender.
9.02. Administrative Agent's Reliance, Etc. Neither Administrative
Agent, nor any of its directors, officers, agents, employees, or representatives
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement or any other Loan Paper, except for its or
their own gross negligence or willful misconduct. Without limitation of the
generality of the foregoing, Administrative Agent (a) may treat the payee of any
Note as the holder thereof until Administrative Agent receives written notice of
the assignment or transfer thereof signed by such payee and in form satisfactory
to Administrative Agent; (b) may consult with legal counsel (including counsel
for the Borrower or any of the Restricted Subsidiaries), independent
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public accountants and other experts selected by it, and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Papers; (d) shall not have any duty to ascertain or
to inquire as to the performance or observance of any of the terms, covenants or
conditions of this Agreement or any other Loan Papers on the part of the
Borrower, the Parent or the Restricted Subsidiaries or to inspect the Property
(including the books and records) of the Borrower, the Parent or the Restricted
Subsidiaries; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement, any other Loan Papers, or any other instrument or document furnished
pursuant hereto; and (f) shall incur no liability under or in respect of this
Agreement or any other Loan Papers by acting upon any notice, consent,
certificate or other instrument or writing believed by it to be genuine and
signed or sent by the proper party or parties.
9.03. Bank of America, N. A. and Affiliates. With respect to its
Available Commitment, its Advances, its Specified Percentage and any Loan
Papers, Bank of America, N. A. has the same Rights under this Agreement as any
other Lender and may exercise the same as though it were not Administrative
Agent. Bank of America, N. A. and its Affiliates may accept deposits from, lend
money to and generally engage in any kind of business with, any of the Borrower,
the Parent or the Restricted Subsidiary, any Affiliate thereof, and any Person
who may do business therewith, all as if Bank of America, N. A. were not
Administrative Agent and without any duty to account therefor to any Lender.
9.04. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon Administrative Agent or any other
Lender, and based on the financial statements referred to in Section 5.04 hereof
and such other documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon
Administrative Agent or any other Lender and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement and the
other Loan Papers.
9.05. Indemnification by Lenders. Lenders shall indemnify
Administrative Agent, Ratable, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against Administrative Agent in any way relating to
or arising out of any Loan Papers or any action taken or omitted by
Administrative Agent thereunder, including any negligence of Administrative
Agent; provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from Administrative Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, Lenders
shall reimburse Administrative Agent, Ratable, promptly upon demand for any
out-of-pocket expenses (including reasonable attorneys'
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fees) incurred by Administrative Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiation, legal proceedings or otherwise) of, or legal and
other advice in respect of rights or responsibilities under, the Loan Papers.
The indemnity provided in this Section 9.05 shall survive the termination of
this Agreement.
9.06. Successor Administrative Agent. Administrative Agent may
resign at any time by giving written notice thereof to Lenders and the Borrower,
and may be removed at any time with or without cause by the action of all
Lenders (other than Administrative Agent, if it is a Lender). Upon any such
resignation, Majority Lenders shall have the right to appoint a successor
Administrative Agent. If no successor Administrative Agent shall have been so
appointed and shall have accepted such appointment within thirty days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the Laws
of the United States of America or of any State thereof and having a combined
capital and surplus of at least $50,000,000. Upon the acceptance of any
appointment as Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the Rights and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations under the Loan Papers, provided that if the retiring or removed
Administrative Agent is unable to appoint a successor Administrative Agent,
Administrative Agent shall, after the expiration of a sixty day period from the
date of notice, be relieved of all obligations as Administrative Agent
hereunder. Notwithstanding any Administrative Agent's resignation or removal
hereunder, the provisions of this Article IX shall continue to inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement.
ARTICLE X. MISCELLANEOUS
10.01. Amendments and Waivers. No amendment or waiver of any
provision of this Agreement, or any other Loan Papers, nor consent to any
departure by the Borrower, the Parent or the Restricted Subsidiaries therefrom,
shall be effective unless the same shall be in writing and signed by
Administrative Agent with the consent of Majority Lenders, and then any such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given; provided, however, that no amendment, waiver
or consent shall (and the result of action or failure to take action shall not),
unless in writing and signed by all of Lenders and Administrative Agent, (a)
increase the Available Commitment or the Letter of Credit Commitment, (b) reduce
any principal, interest, fees or other amounts payable hereunder, or waive or
result in the waiver of any Event of Default under Section 8.01(a) hereof, or
change the pro rata sharing of payments, (c) postpone any date fixed for any
payment of principal, interest, fees or other amounts payable hereunder, (d)
release any Collateral or Guaranties securing any Person's obligations
hereunder, other than releases specifically contemplated hereby and by the Loan
Papers, including, without limitation, releases of assets that have been sold or
transferred as specifically permitted hereby or by the Loan Papers, or (e)
change the meaning of Specified Percentage or the number of Lenders required to
take
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any action hereunder. No amendment, waiver or consent shall affect the Rights or
duties of Administrative Agent under any Loan Papers, unless it is in writing
and signed by Administrative Agent in addition to the requisite number of
Lenders.
10.02. Notices.
(a) Manner of Delivery. All notices communications and other
materials to be given or delivered under the Loan Papers shall, except in those
cases where giving notice by telephone is expressly permitted, be given or
delivered in writing. All written notices, communications and materials shall be
sent by registered or certified mail, postage prepaid, return receipt requested,
by telecopier or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Agent, any Lender or the Borrower has acted in reliance on such
telephonic notice.
(b) Addresses. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
If to the Borrower:
c/o World Access, Inc.
2240 Resurgens Plaza
945 E. Paces Ferry Road
Atlanta, Georgia 30326
Attention: Treasurer
Telephone No.: (404)231-2025
Facsimile No.: (404)365-9847
With a Copy to:
Long Aldridge & Norman LLP
Suite 5300
303 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Telephone No.: (404) 527-4000
Facsimile No.: (404) 527-4198
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If to Administrative Agent:
Bank of America, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Attention: Todd Shipley
Telephone No.: (214) 209-1078
Facsimile No.: (214) 209-9390
With a Copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Michael Cuda
Telephone No.: (214) 698-3867
Facsimile No.: (214) 744-0231
If to any Lender, to its address set forth below opposite its signature or on
any Assignment and Acceptance or amendment to this Agreement or at such other
address or, telecopier or telephone number or to the attention of such other
individual or department as the party to which such information pertains may
hereafter specify for the purpose in a notice to the other specifically
captioned "Notice of Change of Address".
(d) Effectiveness. Each notice, communication and any material to
be given or delivered to any party pursuant to this Agreement shall be effective
or deemed delivered or furnished (i) if sent by mail, on the fifth Business Day
after such notice, communication or material is deposited in the mail, addressed
as above provided, (ii) if sent by telecopier, when such notice, communication
or material is transmitted to the appropriate number determined as above
provided in this Section 10.02 and the appropriate receipt is received or
otherwise acknowledged, (iii) if sent by hand delivery or overnight courier,
when left at the address of the addressee addressed as above provided, and (iv)
if given by telephone, when communicated to the individual or any member of the
department specified as the individual or department to whose attention notices,
communications and materials are to be given or delivered except that notices of
a change of address, telecopier or telephone number or individual or department
to whose attention notices, communications and materials are to be given or
delivered shall not be effective until received; provided, however, that notices
to Administrative Agent pursuant to Article II shall be effective when received.
The Borrower agrees that Administrative Agent shall have no duty or obligation
to verify or otherwise confirm telephonic notices given pursuant to Article II
and agrees to indemnify and hold harmless Administrative Agent
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and Lenders for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs and expenses resulting,
directly or indirectly, from acting upon any such notice.
10.03. Parties in Interest. All covenants and agreements contained in
this Agreement and all other Loan Papers shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto. Each Lender may
from time to time assign or transfer its interests hereunder pursuant to Section
10.04 hereof. Neither the Borrower, the Parent or any Restricted Subsidiary may
assign or transfer its Rights or obligations under any Loan Paper without the
prior written consent of Administrative Agent.
10.04. Assignments and Participations.
(a) Subject to the following sentence, each Lender (an "Assignor")
may assign its Rights and obligations as a Lender under the Loan Papers to one
or more Eligible Assignees pursuant to an Assignment and Acceptance, so long as
(i) each assignment shall be of a constant, and not a varying, percentage of all
Rights and obligations thereunder, (ii) each Assignor shall obtain in each case
the prior written consent of Administrative Agent (and, so long as the Bond
Letter of Credit is outstanding and issued by Bank Austria AG, the prior written
consent of Bank Austria Creditanstalt Corporate Finance, Inc.), which consent
shall not be unreasonably withheld, (iii) each Assignor shall in each case pay a
$3,500 processing fee to Administrative Agent, and (iv) no such assignment is
for an amount less than the lesser of the total amount of the Available
Commitment or $5,000,000. Within five Business Days after Administrative Agent
receives notice of any such assignment, the Borrower shall execute and deliver
to Administrative Agent, in exchange for the Notes issued to Assignor, new Notes
to the order of such Assignor and its assignee in amounts equal to their
respective Specified Percentages of the Available Commitment. Such new Notes
shall be dated the effective date of the assignment. It is specifically
acknowledged and agreed that on and after the effective date of each assignment,
the assignee shall be a party hereto and shall have the Rights and obligations
of a Lender under the Loan Papers.
(b) Each Lender may sell participations to one or more Persons in
all or any of its Rights and obligations under the Loan Papers; provided,
however, that (i) such Lender's obligations under the Loan Papers shall remain
unchanged, (ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Lender shall remain
the holder of its Notes for all purposes of the Loan Papers, (iv) the
participant shall be granted the Right to vote on or consent to only those
matters described in Sections 10.01(a), (b), (c) and (d), (v) each of the
Borrower, the Parent, Restricted Subsidiaries, Administrative Agent and the
other Lenders shall continue to deal solely and directly with such Lender in
connection with its Rights and obligations under the Loan Papers, and (vi) no
such participation is for an amount less than the lesser of the total amount of
the Available Commitment or $5,000,000.
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(c) Any Lender may, in connection with any assignment or
participation, or proposed assignment or participation, disclose to the assignee
or participant, or proposed assignee or participant, any information relating to
the Borrower, the Parent or any Restricted Subsidiary furnished to such Lender
by or on behalf of any of the Borrower, the Parent or any Restricted Subsidiary.
(d) Notwithstanding any other provision set forth in this
Agreement, each Lender may at any time create a security interest in all or any
portion of its Rights under this Agreement (including, without limitation, the
Advances owing to it and the Note or Notes held by it) in favor of any Federal
Reserve Bank in accordance with Regulation A of the Board of Governors of the
Federal Reserve System.
10.05. Sharing of Payments. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any Right of set-off,
or otherwise) on account of its Advances in excess of its Ratable share of
payments made by the Borrower, such Lender shall forthwith purchase
participations in Advances made by the other Lenders as shall be necessary to
share the excess payment Ratable with each of them; provided, however, that if
any of such excess payment is thereafter recovered from the purchasing Lender,
its purchase from each Lender shall be rescinded and each Lender shall repay the
purchase price to the extent of such recovery together with a Ratable share of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered. The Borrower agrees that any Lender so
purchasing a participation from another Lender pursuant to this Section 10.05
may, to the fullest extent permitted by Law, exercise all its Rights of payment
(including the Right of set-off) with respect to such participation as fully as
if such Lender were the direct creditor of the Borrower in the amount of such
participation.
10.06. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by Law, to set-off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender to or for the credit or the account of the Borrower against any and all
of the obligations of the Borrower now or hereafter existing under this
Agreement and the other Loan Papers, whether or not Administrative Agent or any
Lender shall have made any demand under this Agreement or the other Loan Papers,
and even if such obligations are unmatured. Each Lender shall promptly notify
the Borrower after any such set-off and application, provided that the failure
to give such notice shall not affect the validity of such set-off and
application. The Rights of each Lender under this Section 10.06 are in addition
to other Rights (including, without limitation, other Rights of set-off) which
such Lender may have.
10.07. Costs, Expenses, and Taxes.
(a) The Borrower agrees to pay on demand (i) all costs and
expenses of Administrative Agent and the Issuing Bank (with respect solely to
the Letters of Credit issued by it) in connection with the preparation and
negotiation of all Loan Papers, including, without limitation, the reasonable
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fees and out-of-pocket expenses of Special Counsel and (ii) all costs and
expenses (including reasonable attorneys' fees and expenses) of Administrative
Agent and each Lender in connection with administration, interpretation,
modification, amendment, waiver, or release of any Loan Papers and any
restructuring, work-out or collection of any portion of the Obligations or the
enforcement of any Loan Papers.
(b) In addition, the Borrower shall pay any and all stamp, debt
and other Taxes payable or determined to be payable in connection with any
payment hereunder (other than Taxes on the overall net income of Administrative
Agent or any Lender or franchise Taxes or Taxes on capital or capital receipts
of Administrative Agent or any Lender), or the execution, delivery or
recordation of any Loan Papers, and agrees to save Administrative Agent and each
Lender harmless from and against any and all liabilities with respect to, or
resulting from, any delay in paying or omission to pay any Taxes in accordance
with this Section 10.07, including any penalty, interest and expenses relating
thereto. All payments by the Borrower or any Restricted Subsidiary under any
Loan Papers shall be made free and clear of and without deduction for any
present or future Taxes (other than Taxes on the overall net income of
Administrative Agent or any Lender of any nature now or hereafter existing,
levied or withheld, or franchise Taxes or Taxes on capital or capital receipts
of Administrative Agent or any Lender), including all interest, penalties or
similar liabilities relating thereto. If the Borrower shall be required by Law
to deduct or to withhold any Taxes from or in respect of any amount payable
hereunder, (i) the amount so payable shall be increased to the extent necessary
so that, after making all required deductions and withholdings (including Taxes
on amounts payable to Administrative Agent or any Lender pursuant to this
sentence), Administrative Agent or any Lender receives an amount equal to the
sum it would have received had no such deductions or withholdings been made,
(ii) the Borrower shall make such deductions or withholdings, and (iii) the
Borrower shall pay the full amount deducted or withheld to the relevant taxing
authority in accordance with applicable Law. Without prejudice to the survival
of any other agreement of the Borrower hereunder, the agreements and obligations
of the Borrower contained in this Section 10.07 shall survive the execution of
this Agreement, termination of the Available Commitment, repayment of the
Obligations, satisfaction of each agreement securing or assuring the Obligations
and termination of this Agreement and each other Loan Paper.
10.08. Indemnification by the Borrower. The Borrower shall indemnify,
defend and hold harmless Administrative Agent, each Lender and their respective
Affiliates, directors, officers, agents, employees and representatives, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever which may be imposed on, incurred by or asserted against
any of them in any way relating to or arising out of any Loan Papers (including
in connection with or as a result, in whole or in part, of the negligence of any
of them), any transaction related hereto or thereto, or any act, omission or
transaction of the Borrower, the Parent or any Restricted Subsidiary and their
respective Affiliates, or any of their directors, partners, officers, agents,
employees or representatives; provided, however, that neither Administrative
Agent nor any Lender shall be indemnified, defended and held harmless pursuant
to this Section 10.08 to the extent of any losses
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or damages which the Borrower proves were caused by the indemnified party's
willful misconduct or gross negligence.
10.09. Rate Provision. It is not the intention of any party to any
Loan Papers to make an agreement violative of the Laws of any applicable
jurisdiction relating to usury. In no event shall the Borrower or any other
Person be obligated to pay any amount in excess of the Maximum Amount. If
Administrative Agent or any Lender ever receives, collects or applies, as
interest, any such excess, such amount which would be excessive interest shall
be deemed a partial repayment of principal and treated hereunder as such, and if
principal is paid in full, any remaining excess shall be paid to the Borrower or
the other Person entitled thereto. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Amount,
each of the Borrower, the Parent or any Restricted Subsidiary, Administrative
Agent and each Lender shall, to the maximum extent permitted under Applicable
Law, (a) characterize any nonprincipal payment as an expense, fee or premium
rather than as interest, (b) exclude voluntary prepayments and the effect
thereof, and (c) amortize, prorate, allocate and spread in equal parts, the
total amount of interest throughout the entire contemplated term of the
Obligations so that the interest rate is uniform throughout the entire term of
the Obligations; provided that if the Obligations are paid and performed in full
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Amount,
Administrative Agent or Lenders, as appropriate, shall refund to the Borrower
the amount of such excess or credit the amount of such excess against the total
principal amount owing, and, in such event, neither Administrative Agent nor any
Lender shall be subject to any penalties provided by any Laws for contracting
for, charging or receiving interest in excess of the Maximum Amount. This
Section 10.09 shall control every other provision of all agreements among the
parties to the Loan Papers pertaining to the transactions contemplated by or
contained in the Loan Papers.
10.10. Severability. If any provision of any Loan Papers is held to
be illegal, invalid or unenforceable under present or future Laws during the
term thereof, such provision shall be fully severable, the appropriate Loan
Paper shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part thereof, and the remaining
provisions thereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision there shall be added automatically as a part of such Loan Paper a
legal, valid and enforceable provision as similar in terms to the illegal,
invalid or unenforceable provision as may be possible.
10.11. Exceptions to Covenants. Neither the Borrower, nor the Parent,
nor any Restricted Subsidiary shall be deemed to be permitted to take any action
or to fail to take any action that is permitted as an exception to any covenant
in any Loan Papers, or that is within the permissible limits of any covenant, if
such action or omission would result in a violation of any other covenant in any
Loan Papers.
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10.12. Counterparts. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
10.13. GOVERNING LAW; WAIVER OF JURY TRIAL.
(A) THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS) AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER
JURISDICTION AND NOT AS A LIMITATION OF SECTION 10.14 HEREOF, THE BORROWER
AGREES THAT THE STATE AND FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS, WILL
HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT
PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT THAT IT MAY HAVE TO A
TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY OR
OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS OR
ANY RELATED MATTERS AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A
JUDGE SITTING WITHOUT A JURY.
(B) THE BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY LEGAL
PROCESS UPON IT. THE BORROWER AGREES THAT SERVICE OF PROCESS MAY BE MADE UPON IT
BY REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO THE BORROWER AT ITS
ADDRESS DESIGNATED FOR NOTICE UNDER THIS AGREEMENT, AND SERVICE SO MADE SHALL BE
DEEMED TO BE COMPLETED FIVE BUSINESS DAYS AFTER DEPOSIT IN THE UNITED STATES
MAIL. NOTHING IN THIS SECTION 10.13 SHALL AFFECT THE RIGHT OF ADMINISTRATIVE
AGENT OR ANY LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
10.14. ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN PAPERS
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
10.15. Joint and Several Obligations. The Borrower and the Lenders
agree that the obligations and duties of the Borrower hereunder and under the
Loan Papers shall be joint and several in all instances.
76
<PAGE> 83
10.16. No Novation. The Agreement is a renewal, extension, amendment
and restatement of the Existing Credit Agreement, and is not a novation of the
Obligations (as defined in the Existing Credit Agreement). The execution,
delivery and effectiveness of this Agreement and the other Loan Papers shall not
discharge or release the Lien or priority of any of the Loan Papers (as defined
in the Existing Credit Agreement) which shall remain valid, binding and
enforceable Liens against the Borrower and each of the other Persons which
granted such Liens.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
77
<PAGE> 84
IN WITNESS WHEREOF, this Credit Agreement is executed as of the date
first set forth above.
THE BORROWER:
WORLD ACCESS HOLDINGS, INC.
By: /s/ Michael F. Mies
-----------------------------
Its:Vice President and Treasurer
----------------------------
TELCO SYSTEMS, INC.
By: /s/ Michael F. Mies
-----------------------------
Its:Vice President and Treasurer
----------------------------
78
<PAGE> 85
ADMINISTRATIVE AGENT:
BANK OF AMERICA, N.A., as Administrative
Agent
/s/ Todd Shipley
-----------------------------------
By: Todd Shipley
Its: Managing Director
SYNDICATION AGENT:
FLEET NATIONAL BANK, as Syndication Agent
/s/ Michael S. Barclay
-----------------------------------
By: Michael S. Barclay
-----------------------------------
Its: Vice President
-----------------------------------
DOCUMENTATION AGENT:
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC., as Documentation
Agent
/s/ William E. McCollum, Jr.
-----------------------------------
By: William E. McCollum, Jr.
-----------------------------------
Its: Vice President
-----------------------------------
/s/ Robert M. Biringer
-----------------------------------
By: Robert M. Biringer
-----------------------------------
Its: Executive Vice President
-----------------------------------
79
<PAGE> 86
LENDERS:
BANK OF AMERICA, N.A.,
individually as Lender
Specified Percentage: 60.0000000000%
/s/ Todd Shipley
-----------------------------------------
By: Todd Shipley
Its: Managing Director
80
<PAGE> 87
FLEET NATIONAL BANK,
individually as Lender
Specified Percentage: 25.0000000000%
/s/ Michael S. Barclay
-----------------------------------
By: Michael S. Barclay
-----------------------------------
Its: Vice President
-----------------------------------
81
<PAGE> 88
BANK AUSTRIA CREDITANSTALT
CORPORATE FINANCE, INC., individually as
Lender
Specified Percentage: 15.0000000000%
/s/ William E. McCollum, Jr.
-----------------------------------
By: William E. McCollum, Jr.
-----------------------------------
Its: Vice President
-----------------------------------
/s/ Robert M. Biringer
-----------------------------------
By: Robert M. Biringer
-----------------------------------
Its: Executive Vice President
-----------------------------------
82
<PAGE> 1
EXHIBIT 10.24
CONFIRMATION AGREEMENT
THIS CONFIRMATION AGREEMENT (this "Agreement") is dated as of December
7, 1999 by the undersigned (collectively, the "Loan Parties"), for the benefit
of the Lenders from time to time party to the First Amended and Restated Credit
Agreement dated as of December 7, 1999 among Telco Systems, Inc., World Access
Holdings, Inc. (collectively the "Borrowers"), Bank of America, N.A., as
Administrative Agent for itself ("Administrative Agent") and other Lenders from
time to time party thereto ("Lenders") (as amended, restated, or otherwise
modified from time to time, the "Credit Agreement"). Unless otherwise defined
herein, terms used herein shall have the meanings ascribed to them in the Credit
Agreement.
WITNESSETH:
The Borrower, the Administrative Agent and Lenders have entered into a
First Amended and Restated Credit Agreement of even date herewith.
Pursuant to the terms of the Credit Agreement, the Loan Parties are
required to execute and deliver this Agreement, confirming their obligations
under the Loan Papers to which they are a party;
NOW, THEREFORE, for valuable consideration hereby acknowledged, each of
the Loan Parties agrees, ratifies and confirms that each of the Loan Papers
described on Schedule 1 hereto to which it is a party remains in full force and
effect, and is a valid, binding and enforceable obligation of such Loan Party,
unchanged, except to the extent amended hereby, and that any of the Obligations
or Obligation (as defined in each of the Loan Papers) secured or guaranteed by
the Loan Parties pursuant to the Loan Papers shall include the Obligations as
that term is defined in the Credit Agreement. Each of the Loan Parties agrees
that it shall execute and deliver such further agreements, documents,
instruments, and certificates in form and substance satisfactory to the
Administrative Agent, as the Administrative Agent may deem necessary or
appropriate in connection with this Agreement.
Each of the Loan Parties agree that all references in the Loan Papers
to "Obligations" or "Obligation" shall include obligations of the Borrower, its
Subsidiaries, and any other Person under the Credit Agreement, as amended from
time to time, and the other Loan Papers, and that all Loan Papers shall be
deemed amended by this Agreement.
The Loan Parties each agree that all references to the "Credit
Agreement" in each of the Loan Papers shall be references to the Credit
Agreement between the Borrower, the Administrative Agent, and the other Lenders
party thereto (as amended, restated, or otherwise modified from time to time),
and as amended and restated of even date herewith by the Credit Agreement.
The Loan Parties each agree that this Agreement is a Loan Papers within
the definition thereof in the Credit Agreement.
THIS AGREEMENT AND ALL OTHER LOAN PAPERS SHALL BE DEEMED TO BE
CONTRACTS MADE IN DALLAS, TEXAS AND SHALL BE GOVERNED BY AND
<PAGE> 2
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (EXCEPT TO THE
EXTENT THE ADMINISTRATIVE AGENT AND THE LENDERS HAVE GREATER RIGHTS OR REMEDIES
UNDER FEDERAL LAW, WHETHER AS NATIONAL BANKS OR OTHERWISE, IN WHICH CASE SUCH
CHOICE OF TEXAS LAW SHALL NOT BE DEEMED TO DEPRIVE ADMINISTRATIVE AGENT AND
LENDERS OF ANY SUCH RIGHTS AND REMEDIES AS MAY BE AVAILABLE UNDER FEDERAL LAW)
AND THE UNITED STATES OF AMERICA. WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE
BORROWER AGREES THAT THE FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS WILL
HAVE JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH. TO THE MAXIMUM EXTENT
PERMITTED BY LAW, THE BORROWERS EACH HEREBY WAIVE ANY RIGHT THAT IT MAY HAVE TO
A TRIAL BY JURY OF ANY DISPUTE (WHETHER A CLAIM IN TORT, CONTRACT, EQUITY, OR
OTHERWISE) ARISING UNDER OR RELATING TO THIS AGREEMENT, THE OTHER LOAN PAPERS,
OR ANY RELATED MATTERS, AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A
JUDGE SITTING WITHOUT A JURY. EACH OF BORROWERS, THE ADMINISTRATIVE AGENT AND
EACH LENDER REPRESENTS THAT IT HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.
THIS AGREEMENT AND THE LOAN PAPERS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. EXCEPT AS MODIFIED OR
SUPPLEMENTED HEREBY, THIS AGREEMENT, THE OTHER LOAN PAPERS AND ALL OTHER
DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION THEREWITH SHALL CONTINUE IN FULL
FORCE AND EFFECT.
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument. In making
proof hereof, it shall not be necessary to produce or account for any
counterpart other than one signed by the party against which enforcement is
sought.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
2
<PAGE> 3
IN WITNESS WHEREOF, each Obligor has caused this Confirmation Agreement
to be duly executed and delivered by its respective officers thereunto duly
authorized as of the date first above written.
TELCO SYSTEMS, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
WORLD ACCESS HOLDINGS, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
WORLD ACCESS, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
WA TELECOM PRODUCTS CO., INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
3
<PAGE> 4
NACT TELECOMMUNICATIONS, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
RESTOR-AIT, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
SUNRISE SIERRA, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
WESTEC COMMUNICATIONS, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
TELCO SECURITY CORPORATION
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
4
<PAGE> 5
WORLD ACCESS CAPITAL CORP.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
W O R L D A C C E S S
TELECOMMUNICATIONS GROUP, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
CELLULAR INFRASTRUCTURE SUPPLY,
INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
G A L A X Y P E R S O N A L
COMMUNICATIONS SERVICES, INC.
/s/ Michael F. Mies
------------------------------------
By: Michael F. Mies
---------------------------------
Its: Vice President and Treasurer
--------------------------------
5
<PAGE> 6
SCHEDULE 1
Loan Papers
1. Guaranty dated December 30, 1998 executed by World Access, Inc.
2. Guaranty dated December 30, 1998 executed by WA Telcom Products Co.,
Inc.
3. Guaranty dated December 30, 1998 executed by:
a. Cellular Infrastructure Supply, Inc.
b. Galaxy Personal Communications Services, Inc.
c. NACT Telecommunication, Inc.
d. Restor-AIT, Inc.
e. Sunrise Sierra, Inc.
f. Telco Security Corporation
g. Telco Technology, Inc.
h. Westec Communications, Inc.
i. World Access Capital Corp.
j. World Access Telecommunications Group, Inc.
4. Pledge Agreement dated December 31, 1998 executed by WA Telcom Products
Co., Inc.
5. Pledge Agreement dated December 31, 1998 executed by World Access, Inc.
6. Pledge Agreement dated December 31, 1998 executed by Telco Systems,
Inc.
7. Pledge Agreement dated December 31, 1998 executed by World Access
Holdings, Inc.
8. Security Agreement dated December 31, 1998 executed by WA Telcom
Products Co., Inc.
9. Security Agreement dated December 31, 1998 executed by World Access,
Inc.
10. Security Agreement dated December 31, 1998 executed by Telco Systems,
Inc.
11. Security Agreement dated December 31, 1998 executed by World Access
Holdings, Inc.
12. Security Agreement dated December 31, 1998 executed by:
a. Cellular Infrastructure Supply, Inc.
b. Galaxy Personal Communications Services, Inc.
c. NACT Telecommunication, Inc.
d. Restor-AIT, Inc.
e. Sunrise Sierra, Inc.
f. Telco Security Corporation
g. Telco Technology, Inc.
h. Westec Communications, Inc.
i. World Access Capital Corp.
j. World Access Telecommunications Group, Inc.
<PAGE> 1
EXHIBIT 10.25
PLEDGE AGREEMENT
PLEDGE AGREEMENT dated as of December 7, 1999 (this "Agreement"), by
World Access, Inc., a Delaware corporation ("Pledgor"), in favor of Bank of
America, N.A., a national banking association, in its capacity as Administrative
Agent pursuant to the Credit Agreement described below ("Administrative Agent")
and each lender a party to the Credit Agreement from time to time (singly, a
"Secured Party" and collectively "Secured Parties").
BACKGROUND.
(1) Secured Parties, Administrative Agent, Telco Systems, Inc. and
World Access Holdings, Inc. (the "Company") have entered into the First Amended
and Restated Credit Agreement dated as of December 7, 1999 (as the same may be
supplemented, amended and modified from time to time, being the "Credit
Agreement").
(2) It is the intention of the parties hereto that this Agreement
and the steps contemplated hereby will create a first priority security interest
securing the payment of the obligations set forth in Section 1.02 hereof.
(3) It is a condition precedent to the extension of credit under
the Credit Agreement that Pledgor shall have executed and delivered this
Agreement.
AGREEMENT.
NOW, THEREFORE, in consideration of the premises set forth herein and
for other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, and in order to induce Secured Parties to make the
Advances under the Credit Agreement, Pledgor hereby agrees with Administrative
Agent, for its benefit and the ratable benefit of Secured Parties, as follows:
ARTICLE I. PLEDGE
1.01. Pledge. Pledgor hereby grants, pledges, assigns, hypothecates,
and transfers to Administrative Agent, for its benefit and the ratable benefit
of Secured Parties, a first and prior pledge and security interest in all
Capital Stock owned by Pledgor in all Persons and each other Person which is a
successor to such Persons (singly, an "Issuer" and collectively, "Issuers"), now
or hereafter owned beneficially or of record by Pledgor and any certificate or
instrument evidencing such interest, including, without limitation, the
interests listed on Schedule 1 hereto; and without affecting the obligation of
Pledgor or Issuer under any agreement prohibiting such action, in the event of
any consolidation or merger in which each Issuer is not the surviving entity, or
in the event of any sale, lease, transfer or other disposition of all or
substantially all of the assets of such Issuer,
<PAGE> 2
all Capital Stock, equity, partnership, limited liability company ("LLC") or
other interest of the successor entity formed by or resulting from such
consolidation or merger, or of the Person to which such sale, lease, transfer or
other disposition shall have been made, owned by Pledgor, and all proceeds and
products of the foregoing (collectively, "Collateral"), to secure the payment
and performance of the Obligations (as defined below).
1.02. Description of Obligations. The security interest granted by
Pledgor shall secure the payment and performance of any and all obligations now
or hereafter existing of the Company, Pledgor or any Subsidiary of the Pledgor,
and any other Obligor (other than Administrative Agent or Secured Parties) under
the Credit Agreement and the Loan Papers, including any extensions,
modifications, substitutions, amendments and renewals thereof, whether for
principal, interest, fees, premium, expenses, indemnification or otherwise (all
such obligations of the Company, Pledgor, each of its Subsidiaries, and each
other Obligor together with the "Obligations" as defined in the Credit Agreement
being the "Obligations"). Without limiting the generality of the foregoing, this
Agreement secures the payment of all amounts which constitute part of the
Obligations and would be owed by the Company, Pledgor, each of its Subsidiaries
or any other Obligor to Administrative Agent or any Secured Party under any Loan
Paper, but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding involving the
Company, Pledgor, each of its Subsidiaries or any other Obligor (including all
such amounts which would become due but for the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding of the Company, Pledgor, any of its Subsidiaries, or any other
Obligor under any Debtor Relief Law).
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.01. Representations and Warranties Concerning Pledgor. Pledgor
represents and warrants to Administrative Agent and each Secured Party that (a)
the chief place of business and chief executive office of Pledgor at 945 East
Paces Ferry Road, Suite 2240, Atlanta, Georgia 30326; and (b) no consent of any
other Person and no authorization, approval or other action by, and no notice to
or filing with, any Tribunal is required (i) for the pledge by Pledgor of the
Collateral pledged by it hereunder, for the grant by Pledgor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Pledgor, (ii) for the perfection or maintenance of the pledge,
assignment and security interest created hereby (including the first priority
nature of such pledge, assignment and security interest), or (iii) for the
exercise by Administrative Agent of the Rights provided for in this Agreement or
the remedies in respect of the Collateral pursuant to this Agreement.
2.02. Representations and Warranties Concerning Collateral. Pledgor
represents and warrants to Administrative Agent and each Secured Party that (a)
Pledgor is the sole legal and beneficial owner of the Collateral pledged by it
free and clear of any Lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement or as
otherwise permitted by the Credit Agreement; (b) no effective financing
statement or other similar document used to perfect and preserve a security
interest under the Laws of any jurisdiction
2
<PAGE> 3
covering all or any part of the Collateral is on file in any recording office,
except such as may have been filed in favor of Administrative Agent relating to
this Agreement and as otherwise permitted by the Credit Agreement; (c) Schedule
1 is a complete and correct description of all interest of Pledgor in each of
its Subsidiaries, including each class of interest and number of units or
percentage of ownership owned by Pledgor; (d) the pledge, assignment, and
delivery of the Collateral hereunder, and filing of an appropriate financing
statement, create a valid first and prior perfected security interest in the
Collateral, securing the Obligations; (e) the Capital Stock pledged hereunder is
duly authorized, validly issued, fully paid, and non-assessable and were not
issued in violation of the Rights of any Person; (f) no unpaid capital call or
dispute exists with respect to any of the Collateral; (g) none of the Collateral
is evidenced by a certificate, instrument or other writing that has not been
delivered to Administrative Agent; (h) the interest of Pledgor in each of its
Subsidiaries is a 100% interest of all Capital Stock of Pledgor's Subsidiaries
specified on Schedule 1 unless otherwise indicated on Schedule 1; (i) none of
the Collateral is subject to any buy-sell, voting trust, transfer restriction
(other than transfer restrictions arising under the Exchange Act), preferential
right to purchase or similar agreement or any option, warrant, put or call or
similar agreement, which consent has not been obtained; (j) Pledgor is organized
pursuant to the articles of incorporation, partnership agreement, LLC agreement,
bylaws or other articles of governance, and no other agreement amends the rights
of Pledgor under such documents; and (k) Pledgor's federal taxpayer
identification number is ____________. The delivery at any time by Pledgor to
Administrative Agent of Collateral shall constitute a representation and
warranty by Pledgor under this Agreement that, with respect to such Collateral,
Pledgor is the sole legal and beneficial owner of the Collateral, and that the
matters set forth in this Section 2.02 are true and correct with respect to such
Collateral.
2.03. Representations and Warranties Concerning Benefit. Pledgor
represents and warrants to Administrative Agent and each Secured Party that (a)
the value of the consideration received and to be received by Pledgor is
reasonably worth at least as much as the liability and obligation of Pledgor
hereunder, and such liability and obligation may reasonably be expected to
benefit Pledgor directly or indirectly; and (b) none of Administrative Agent,
Secured Party or any other Person has made any representation, warranty or
statement to Pledgor (other than as provided in the Loan Papers) in order to
induce Pledgor to execute this Agreement.
ARTICLE III. COVENANTS
3.01. Affirmative Covenants. Pledgor covenants and agrees (a)
promptly to deliver to Administrative Agent all instruments, certificates,
documents, or agreements evidencing any of the Collateral; (b) promptly to
notify Administrative Agent of any material change in any fact or circumstances
warranted or represented by Pledgor in this Agreement or in any other Loan
Paper; (c) promptly to notify Administrative Agent of any claim, action, or
proceeding affecting Pledgor's title to the Collateral, or any part thereof, or
the security interest therein granted hereunder, and, at the request of
Administrative Agent, appear in and defend, at Pledgor's expense, any such
action or proceeding; and (d) promptly to pay to Administrative Agent the amount
of all court costs and reasonable attorney's fees incurred by Administrative
Agent hereunder.
3
<PAGE> 4
3.02. Negative Covenants. Pledgor covenants and agrees that it shall
not (a) create any other security interest or pledge in, mortgage or otherwise
encumber the Collateral or any part thereof, or permit the same to be or become
subject to any Lien, attachment, execution, sequestration, other legal or
equitable process, or any encumbrance of any kind or character, or grant any
option, warrant, or other Rights in the Collateral in favor of any Person other
than Administrative Agent; (b) except as permitted under the Credit Agreement,
cause or permit any Issuer to authorize and issue any additional Capital Stock,
or take any other action that would otherwise dilute any of the Collateral; (c)
except as permitted in the Credit Agreement, approve any amendment to the
articles of incorporation, partnership agreement, LLC agreement, bylaws, or
other organizational or governance document of any Issuer; (d) except as
permitted in the Credit Agreement, permit the merger, consolidation or
dissolution of any Issuer; or (e) sell, lease, transfer or otherwise dispose of
any Collateral in any manner.
3.03. Right to Distributions. With respect to any certificates,
bonds, or other instruments or securities constituting a part of the Collateral,
Administrative Agent shall have authority during the continuance of an Event of
Default, without notice to Pledgor, either to have the same registered in
Administrative Agent's name or in the name of a nominee, and, with or without
such registration, to demand of the issuer thereof, and to receive and receipt
for, any and all Distributions (including any stock or similar dividend or
distribution) payable in respect thereof, whether they be ordinary or
extraordinary. Subject to the next sentence hereof, if Pledgor shall become
entitled to receive or shall receive any interest in or certificate (including,
without limitation, any interest in or certificate representing a Distribution
in connection with any reclassification, increase, or reduction of capital, or
issued in connection with any reorganization), or any option or Rights arising
from or relating to any of the Collateral, whether as an addition to, in
substitution of, as a conversion of, or in exchange for any of the Collateral,
or otherwise, Pledgor agrees to accept the same as Administrative Agent's agent
and to hold the same in trust on behalf of and for the benefit of Administrative
Agent, and to deliver the same immediately to Administrative Agent in the exact
form received, with appropriate undated stock, partnership interest, LLC
membership interest, or similar powers, duly executed in blank, to be held by
Administrative Agent, subject to the terms hereof, as Collateral. Unless an
Event of Default is in existence or would occur as a result thereof, Pledgor
shall be entitled to receive and utilize for its own purposes, all cash
Distributions (other than Distributions constituting a return of capital) paid
in respect of any of the Collateral. Administrative Agent shall be entitled to
all Distributions, and to any sums paid upon or in respect of any Collateral,
upon the liquidation, dissolution, or reorganization of the issuer thereof or
which constitute a return of capital which shall be paid to Administrative Agent
to be held by it as additional collateral security for the Obligations and
application to the Obligations at the discretion of Administrative Agent. All
Distributions paid or distributed in respect of the Collateral which are
received by Pledgor in violation of this Agreement shall, until paid or
delivered to Administrative Agent, be held by Pledgor in trust as additional
Collateral for the Obligations.
3.04. Records of Collateral. Pledgor at all times shall maintain
accurate books and records concerning the Collateral. Pledgor shall cause all
issuers of the Collateral to mark immediately all
4
<PAGE> 5
books and records of issue, registration, and transfer relating to the
Collateral, with an entry showing the collateral assignment of the Collateral to
Administrative Agent.
3.05. Information and Inspection. Subject to the terms and
provisions of Section 6.03 of the Credit Agreement, Pledgor shall, and shall
cause each Issuer to, (a) allow Administrative Agent to inspect and copy, or at
the option of Administrative Agent, furnish copies of, all records relating to
the Collateral and the Obligations; and (b) furnish Administrative Agent such
information as it may request with respect to the Collateral, any Distributions
thereon, and any proceeds thereof, at the time and in the form requested by
Administrative Agent.
3.06. Indemnity and Expenses. (a) Pledgor shall indemnify
Administrative Agent and each Secured Party from and against any and all claims,
losses and liabilities (including reasonable attorneys' fees) growing out of or
resulting from this Agreement (including, without limitation, enforcement of
this Agreement), expressly including such claims, losses or liabilities arising
out of mere negligence of Administrative Agent or any Secured Party, except
claims, losses or liabilities resulting from Administrative Agent's or any
Secured Party's gross negligence or willful misconduct.
(b) Pledgor will upon demand pay to Administrative Agent and each
Secured Party the amount of any and all reasonable expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, which
Administrative Agent and each Secured Party may incur in connection with (i) the
sale of, collection from, or other realization upon, any of the Collateral, (ii)
the exercise or enforcement of any of the Rights of Administrative Agent or any
Secured Party hereunder or (iii) the failure by Pledgor to perform or observe
any of the provisions hereof.
(c) Any payment made or cost borne by Administrative Agent and
each Secured Party shall be a part of the Obligations, shall be payable upon
demand, and shall bear interest as provided in the Credit Agreement.
3.07. Additional Documents. Pledgor, at its expense, shall take all
action, and execute and deliver such further instruments, agreements, blank
stock, partnership interest, LLC membership interest, or similar powers, and
assignments as Administrative Agent shall deem necessary or appropriate to
obtain, maintain, and perfect the security interest hereunder, including the
security interest in after-acquired Collateral granted herein, and to enable
Administrative Agent to comply with all applicable federal or state Law, in
order to obtain or perfect Administrative Agent's interest in the Collateral, to
effect its Rights hereunder, or to obtain Distributions and other proceeds of
the Collateral as provided herein.
3.08. Additional Collateral. Upon acquisition by Pledgor of any
additional interest in any Issuer, Pledgor shall be deemed to grant hereunder,
and shall cause to be granted, Liens and security interests on such interest to
Administrative Agent, as security for the Obligations. Pledgor agrees to take,
and to cause to be taken, at its own cost and expense, such actions as
Administrative Agent shall deem necessary or appropriate to create, evidence,
and perfect such Liens and assure the first priority of such Liens.
5
<PAGE> 6
ARTICLE IV. RIGHTS AND POWERS OF ADMINISTRATIVE AGENT
4.01. Remedies upon Default. Administrative Agent, during the
continuance of an Event of Default and without liability to Pledgor, may without
notice or demand: obtain from any Person information regarding Pledgor, any
issuer of the Collateral, or any of their businesses, which information any such
Person also may furnish without liability to Pledgor or any other Person;
require Pledgor to give possession or control of any of the Collateral to
Administrative Agent; endorse as Pledgor's agent or attorney-in-fact any
instruments or documents representing proceeds of the Collateral; unless earlier
permitted hereunder, take control of funds generated by the Collateral and any
other proceeds, and exercise all other Rights which an owner of such Collateral
may exercise; at any time transfer any of the Collateral or evidence thereof
into its own name or that of its nominee; vote any Collateral and exercise any
Rights with respect thereto; and demand, collect, convert, redeem, receipt for,
settle, compromise, adjust, sue for, foreclose, or realize upon the Collateral,
in its own name for the benefit of Secured Parties, or in the name of Pledgor,
as Administrative Agent may determine. Neither Administrative Agent nor any
Secured Party shall be liable for failure to collect any Distribution or other
proceeds, or for any act or omission on the part of Administrative Agent, its
officers, agents, employees, or other representatives, except willful misconduct
and gross negligence. The foregoing Rights of Administrative Agent shall be in
addition to, and not a limitation upon, any Right of Administrative Agent given
by Law, elsewhere in this Agreement or any other Loan Papers, or otherwise.
4.02. Right of Administrative Agent to Notify Issuers. At any time
during the continuance of an Event of Default and at such other times as
Administrative Agent is entitled to receive Distributions and other property
constituting Collateral pursuant to the terms of this Agreement, Administrative
Agent may notify issuers of the Collateral to make payments of the applicable
Distributions directly to Administrative Agent and Administrative Agent may take
control of all applicable proceeds of any Collateral. Until Administrative Agent
elects to exercise such Right, during the continuance of an Event of Default,
Pledgor, as agent of Administrative Agent, shall collect and segregate all
Distributions and other amounts paid or distributed with respect to the
Collateral.
4.03. Delivery of Receipts to Administrative Agent. Upon
Administrative Agent's demand during the continuance of an Event of Default,
Pledgor shall deposit, upon receipt and in the form received, with any necessary
endorsement, all payments received as proceeds of or otherwise in connection
with the Collateral, in a special bank account in a bank of Administrative
Agent's choice over which Administrative Agent alone shall have power of
withdrawal. The funds in such account shall secure the Obligations.
Administrative Agent is authorized, and is hereby appointed during the
continuance of an Event of Default, Pledgor's attorney-in-fact, to make any
endorsement in Pledgor's name and behalf. Pending such deposit, Pledgor shall
not mingle any such payments with any of Pledgor's other funds or property, but
shall hold them separate and upon an express trust for Administrative Agent.
During the continuance of an Event of Default, Administrative Agent may from
time to time apply the whole or any part of the funds in the special account
against the Obligations.
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4.04. Voting Rights. It is expressly understood and agreed that
Pledgor shall retain all voting or management rights to the Collateral unless an
Event of Default shall exist and be continuing, at which time such voting rights
shall transfer to or be exercised as directed by Administrative Agent, at its
sole discretion; provided, however, that no voting or management rights shall be
exercised, vote cast, consent, waiver, or ratification given, or action taken by
Pledgor which would be inconsistent with or violate any provision of this
Agreement or any other Loan Paper.
4.05. Realization upon Collateral. During the continuance of an
Event of Default, Administrative Agent, without notice or demand, but subject to
any limitations or restrictions imposed by applicable Law, may exercise any
Right of a secured party under the Uniform Commercial Code of Texas or any other
applicable jurisdiction ("UCC"), this Agreement, any other Loan Papers, or
otherwise and also may (i) require Pledgor to, and Pledgor hereby agrees that it
will at its expense and upon request of Administrative Agent forthwith, assemble
all or part of the Collateral as directed by Administrative Agent and make it
available to Administrative Agent at a place to be designated by Administrative
Agent which is reasonably convenient to both parties or (ii) without notice,
except as specified below, sell the Collateral or any portion thereof in one or
more parcels at public or private sale, at any of Administrative Agent's offices
or elsewhere, for cash, on credit or for future delivery, and upon such other
terms as Administrative Agent may deem commercially reasonable. Unless the
Collateral is of a type customarily sold on a recognized market, Administrative
Agent shall give Pledgor reasonable written notice of the time and place of any
public sale thereof or of the time after which any private sale or other
intended disposition thereof is to be made. Pledgor agrees that ten days advance
written notice thereof shall constitute reasonable notice. Administrative Agent
shall not be obligated to make any sale of Collateral, regardless of notice of
sale having been given. Administrative Agent may adjourn any public or private
sale from time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to which it
was so adjourned. Expenses of retaking, holding, preparing for sale, selling, or
the like shall include Administrative Agent's reasonable attorneys' fees and
legal expenses, and constitute a portion of the Obligations. During the
continuance of an Event of Default, Administrative Agent shall be entitled to
immediate possession of all books and records maintained by Pledgor with respect
to the Collateral, and shall have the authority to enter upon any premises upon
which any of the same may be situated and remove the same therefrom without
liability. Upon disposition of Collateral during an Event of Default, Pledgor
shall be entitled to any surplus with respect to the Collateral following
payment in full of the Obligations and termination hereof, and shall be liable
to Administrative Agent for any deficiency with respect thereto. All cash
proceeds received by Administrative Agent upon any sale of, collection of, or
other realization upon, all or any part of the Collateral shall be applied as
follows:
First: To the payment of all out-of-pocket expenses incurred in
connection with the sale of, collection of or other realization upon
Collateral, including reasonable attorneys' fees and disbursements;
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Second: To the payment of the Obligations as provided in the Credit
Agreement and in such order and in such manner consistent with
applicable Laws as Administrative Agent in its discretion shall decide;
and
Third: To the extent of the balance (if any) of such proceeds, to the
payment to Pledgor or other Person legally entitled thereto.
Non-cash proceeds of any disposition of Collateral available to satisfy
the Obligations shall be applied to the Obligations in such order and in such
manner consistent with applicable Law as Administrative Agent in its discretion
shall decide.
4.06. Securities and Other Laws; Contractual Restrictions;
Registration.
(a) Because of the Securities Act of 1933, as amended ("Securities
Act"), and other Laws, including, without limitation, state "blue sky" laws, or
contractual restrictions or agreements imposed upon certain Persons, there may
be legal restrictions or limitations affecting Administrative Agent in any
attempts to dispose of the Collateral and the enforcement of its Rights
hereunder. For these reasons, Administrative Agent is hereby authorized by
Pledgor, but not obligated, during the continuance of any Event of Default, to
sell or otherwise dispose of any of the Collateral at private sale, subject to
an investment letter, or in any other manner which will not require the
Collateral, or any part thereof, to be registered in accordance with the
Securities Act, or the rules and regulations promulgated thereunder, or any
other Law. Administrative Agent is also hereby authorized by Pledgor, but not
obligated, to take such actions, give such notices, obtain such consents, and do
such other things as Administrative Agent may deem required or appropriate under
the Securities Act or other securities Laws or other Laws or contractual
restrictions or agreements in the event of a sale or disposition of any
Collateral. Pledgor clearly understands that Administrative Agent may in its
discretion approach a restricted number of potential purchasers and that a sale
under such circumstances may yield a lower price for the Collateral than would
otherwise be obtainable if same were registered and sold in the open market. No
sale so made in good faith by Administrative Agent shall be deemed to be not
"commercially reasonable" because so made. Pledgor agrees that in the event
Administrative Agent shall, during the continuance of an Event of Default, sell
the Collateral or any portion thereof at any private sale or sales,
Administrative Agent shall have the Right to rely upon the advice and opinion of
appraisers and other Persons, which appraisers and other Persons are acceptable
to Administrative Agent, as to the best price reasonably obtainable upon such a
private sale thereof. In the absence of fraud, such reliance shall be evidence
that Administrative Agent handled such matter in a commercially reasonable
manner under applicable Law.
(b) If Administrative Agent shall determine to exercise its Right
to sell any or all of the Collateral, and if in the opinion of counsel for
Administrative Agent it is necessary, or if in the opinion of Administrative
Agent it is advisable, to have the Collateral or that portion thereof to be
sold, registered under the provisions of the Securities Act, Pledgor will, to
the fullest extent it has the capability to do so, cause the issuers of the
Collateral contemplated to be sold to execute and deliver, and cause the
directors and officers of each thereof to execute and deliver, all at Pledgor's
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expense, all such instruments and documents, and to do or cause to be done all
such other acts and things, as may be necessary or, in the opinion of
Administrative Agent advisable to register the Collateral or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as Administrative Agent may deem appropriate to
facilitate the sale or other disposition of such Collateral from the date of the
first public offering of the Collateral or that portion thereof to be sold, and
to make all amendments thereto and/or to the related prospectus which, in the
opinion of Administrative Agent, are necessary or advisable, all in conformity
with the requirements of the Securities Act. Pledgor shall use its best efforts
to cause each Issuer to comply with the provisions of the securities or "blue
sky" laws of any jurisdiction which Administrative Agent shall designate and to
cause each Issuer to make available to its security holders, as soon as
practicable, an earnings statement which will satisfy the provisions of the
Securities Act and applicable "blue sky" laws.
4.07. Further Approvals Required.
(a) In connection with the exercise by Administrative Agent of its
Rights hereunder that effects the disposition of or use of any Collateral, it
may be necessary to obtain the prior consent, waiver or approval of Tribunals
and other Persons to a transfer or assignment of Collateral, including, without
limitation, the FCC.
(b) Pledgor hereby agrees, during the continuance of an Event of
Default, to execute, deliver, and file, and hereby appoints (to the extent
permitted under applicable Law) Administrative Agent as its attorney-in-fact,
during the continuance of an Event of Default, to execute, deliver, and file on
Pledgor's behalf and in Pledgor's name, all applications, certificates, filings,
instruments, and other documents (including without limitation any application
for an assignment or transfer of control or ownership) that may be necessary or
appropriate, in Administrative Agent's opinion, to obtain such consents, waivers
or approvals. Pledgor acknowledges that there is no adequate remedy at Law for
failure by it to comply with the provisions of this Section 4.07 and that such
failure would not be adequately compensable in damages, and therefore agrees
that this Section 4.07 may be specifically enforced.
4.08. Convertible Securities. During the continuance of an Event of
Default, Administrative Agent may present for conversion any Collateral which is
convertible into any other instrument, investment security, or cash.
Administrative Agent shall not have any duty, however, to present for conversion
any of the Collateral, unless it shall have received from Pledgor detailed
written instructions to that effect at a time reasonably far in advance of the
final conversion date to make such conversion possible and such conversion does
not violate any provisions of any Loan Paper.
4.09. Issuer Liabilities. By taking a security interest in the
Collateral pursuant to this Agreement, neither Administrative Agent nor any
Secured Party assumes, accepts, or becomes liable with respect to any debts,
liabilities, or obligations of or owed to any issuer of any Collateral.
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04.10. Power of Attorney. PLEDGOR HEREBY IRREVOCABLY GRANTS TO
ADMINISTRATIVE AGENT PLEDGOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE
OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO VOTE ANY COLLATERAL AND, DURING
THE CONTINUANCE OF AN EVENT OF DEFAULT, APPOINTS ADMINISTRATIVE AGENT PLEDGOR'S
ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS OF PLEDGOR UNDER THIS AGREEMENT AND
TO EXERCISE ALL OF ADMINISTRATIVE AGENT'S RIGHTS HEREUNDER. THE PROXY AND POWER
OF ATTORNEY HEREIN GRANTED, AND EACH STOCK, PARTNERSHIP INTEREST, OR LLC
MEMBERSHIP INTEREST POWER AND SIMILAR POWER NOW OR HEREAFTER GRANTED (INCLUDING
ANY EVIDENCED BY A SEPARATE WRITING), ARE COUPLED WITH AN INTEREST AND ARE
IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.
ARTICLE V. MISCELLANEOUS
5.01. Cumulative Rights. All Rights of Administrative Agent and
Secured Parties under the Loan Papers are cumulative of each other and of every
other Right which Administrative Agent and Secured Parties may otherwise have
at Law or in equity or under any other contract or other writing for the
enforcement of the security interest herein or the collection of the
Obligations. The exercise of one or more Rights shall not prejudice or impair
the concurrent or subsequent exercise of any other Right.
5.02. Administrative Agent's and Secured Parties' Duties. The powers
conferred on Administrative Agent hereunder are solely to protect
Administrative Agent's and Secured Parties' interest in the Collateral and
shall not impose any duty upon Administrative Agent or any Secured Party to
exercise any such powers. Except for the safe custody of any Collateral in its
possession and the accounting for moneys actually received by it hereunder,
Administrative Agent shall have no duty as to any Collateral, as to
ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relative to any Collateral, whether or not
Administrative Agent has or is deemed to have knowledge of such matters, or as
to the taking of any necessary steps to preserve Rights against prior parties
or any other Rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Administrative Agent accords its
own property. Except as provided in this Section 5.02, Administrative Agent
shall not have any duty or liability to protect or preserve any Collateral or
to preserve Rights pertaining thereto. Nothing contained in this Agreement
shall be construed as requiring or obligating Administrative Agent or any
Secured Party, and neither Administrative Agent nor any Secured Party shall be
required or obligated, to (a) present or file any claim or notice or take any
action, with respect to any Collateral or in connection therewith or (b) notify
Pledgor of any decline in the value of any Collateral.
5.03. Waiver. Should any part of the Obligations be payable in
installments, the acceptance by Administrative Agent or any Secured Party at
any time and from time to time of partial payment of the aggregate amount of
all installments then matured shall not be deemed as a waiver of any Event of
Default then existing. No waiver of any
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Event of Default shall be deemed to be a waiver of any other subsequent Event
of Default, nor shall any such waiver be deemed to be a continuing waiver. No
delay or omission by Administrative Agent or any Secured Party in exercising
any Right hereunder, or under any other Loan Papers shall impair any such Right
or be construed as a waiver thereof or any acquiescence therein, nor shall any
single or partial exercise of any such Right preclude other or further exercise
thereof or the exercise of any other Right of Administrative Agent or any
Secured Party hereunder or under such other agreements.
5.04. Waivers by Pledgor. Pledgor waives notice of the creation,
advance, increase, existence, extension, or renewal of, or of any indulgence
with respect to, the Obligations; waives presentment, demand, notice of
dishonor, and protest; waives notice of the amount of the Obligations
outstanding at any time, notice of any Default or Event of Default, and all
other notices respecting the Obligations; and agrees that maturity of the
Obligations and any part thereof may be accelerated, extended, or renewed one
or more times by Secured Parties, in its or their discretion, without notice to
Pledgor. Pledgor waives (a) any claim that, as to any part of the Collateral, a
public sale, should Administrative Agent elect so to proceed, is, in and of
itself, not a commercially reasonable method of sale for such Collateral, (b)
except as otherwise provided in this Agreement, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, NOTICE OR JUDICIAL HEARING IN CONNECTION WITH ADMINISTRATIVE
AGENT'S DISPOSITION OF ANY OF THE COLLATERAL, INCLUDING ANY AND ALL PRIOR
NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT
THAT PLEDGOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE
UNITED STATES OR OF ANY STATE, AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE
AND TERMS OF SALE OR OTHER REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF
ADMINISTRATIVE AGENT'S RIGHTS HEREUNDER, AND (C) ALL RIGHTS OF REDEMPTION,
APPRAISAL OR VALUATION.
5.05. Other Parties and Other Collateral. No renewal, increase, or
extension of or any other indulgence with respect to, the Obligations or any
part thereof, no release, exchange, or taking of any security, no release of
any Person (including Pledgor, any of Pledgor's Subsidiaries, maker, endorser,
guarantor, or surety) liable on the Obligations, no delay in enforcement of
payment, no delay or omission or lack of diligence or care in exercising any
Right or power with respect to the Obligations or any security therefor or
guaranty thereof or under this Agreement, and no other circumstance or event
which might constitute a defense available to or discharge of Pledgor, any of
Pledgor's Subsidiaries or any other Person, shall in any manner impair or
affect the Rights of Administrative Agent or any Secured Party hereunder, under
any other Loan Papers, at Law, or in equity. Neither Administrative Agent nor
any Secured Party need file suit or assert a claim for personal judgment
against any Person for any part of the Obligations or seek to realize upon any
other security for the Obligations, before foreclosing upon the Collateral for
the purpose of paying the Obligations. Pledgor waives any Right to the benefit
of or to require or control application of any other security or proceeds
thereof, and agrees that neither Administrative Agent nor any Secured Party
shall have any duty or obligation to Pledgor to apply any such other security
or proceeds thereof to the Obligations. Pledgor hereby waives all rights by
which it might be entitled to require
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suit on an accrued right of action in respect of any of the Obligations or
require suit against any of Pledgor's Subsidiaries, or others, whether arising
pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended,
Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, or
Rule 31 of the Texas Rules of Civil Procedure, as amended, or otherwise.
5.06. Continuing Security Interest. This Agreement constitutes a
continuing security interest in the Collateral, and shall remain in full force
and effect until final payment and performance in full of the Obligations, and
termination of all commitments and the other Loan Papers.
5.07. Rate Provision. It is not the intention of any party to any Loan
Paper to make an agreement violative of the Laws of any applicable jurisdiction
relating to usury. In no event shall Pledgor be obligated to pay any amount in
excess of the maximum amount of interest permitted under applicable Law. If
from any circumstances Administrative Agent or any Secured Party shall ever
receive anything of value deemed excess interest under applicable Law, an
amount equal to such excess shall be applied to the reduction of the
outstanding balance of the Obligations and any remainder shall be promptly
refunded to the payor.
5.08. Parties Bound. This Agreement shall be binding on Pledgor and
its successors, assigns, and other legal representatives, and shall inure to
the benefit of Administrative Agent and Secured Parties, and their respective
successors and assigns; provided, however, that Pledgor may not assign its
Rights or obligations hereunder without the prior written consent of
Administrative Agent. The Rights, powers, and interests held by Administrative
Agent and Secured Parties hereunder may be transferred or assigned, in whole or
in part, in accordance with the Credit Agreement, without the consent of
Pledgor.
5.09. Notices and Deliveries.
(a) Manner of Delivery. All notices, communications and materials to
be given or delivered pursuant to this Agreement shall, except in those cases
where giving notice by telephone is expressly permitted, be given or delivered
in writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Agent or Pledgor has acted in reliance on such telephonic
notice.
(b) Addresses. All notices, communications and materials to be given
or delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:
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(i) if to Pledgor, to it at:
World Access, Inc.
945 East Paces Ferry Road
Suite 2240
Atlanta, GA 30326
Telephone No.: (404) 231-2025
Telecopier No.: (404) 365-9847
Attention: Chief Executive Officer
With a copy (which shall not constitute notice) to:
Rogers & Hardin LLP
2700 International Tower
229 Peachtree Street NE
Atlanta, GA 30303
Telephone No.: (404) 522-4700
Facsimile No.: (404) 525-2224
Attention: Steven E. Fox, Esq.
(ii) If to the Administrative Agent:
Bank of America, N.A.
901 Main Street, 64th Floor
Dallas, Texas 75202
Telephone No.: (214)508-9588
Facsimile: (214)508-9390
Attention: Mr. David Williams, Vice President
with a copy to:
Donohoe, Jameson & Carroll, P.C.
3400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Telephone: (214) 698-3867
Telecopy: (214) 744-0231
Attention: Michael Cuda
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or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address."
(c) Effectiveness. Each notice, communication and any material to be
given or delivered to Administrative Agent or Pledgor pursuant to this
Agreement shall be effective or deemed delivered or furnished (i) if sent by
mail, on the fifth Business Day after such notice, communication or material is
deposited in the mail, addressed as above provided, (ii) if sent by telecopier,
when such notice, communication or material is transmitted to the appropriate
number determined as above provided in this Section 5.09 and the appropriate
receipt is received or otherwise acknowledged, (iii) if sent by hand delivery
or overnight courier, when left at the address of the addressee addressed as
above provided, and (iv) if given by telephone, when communicated to the
individual or any member of the department specified as the individual or
department to whose attention notices, communications and materials are to be
given or delivered except that notices of a change of address, telecopier or
telephone number or individual or department to whose attention notices,
communications and materials are to be given or delivered shall not be
effective until received.
5.10. Modifications; Amendments; Etc. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Pledgor
herefrom, shall in any event be effective unless the same shall be in writing
and signed by Administrative Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
5.11. Financing Statement. A carbon, photographic, or other
reproduction of this Agreement or any financing statement covering the
Collateral shall be sufficient as a financing statement. Pledgor hereby
authorizes Administrative Agent to file one or more financing or continuation
statements, and amendments thereto, relating to any Collateral, without the
signature of Pledgor where permitted by Law.
5.12. Definitions. Unless otherwise defined in this Agreement, terms
used herein shall have the meanings set forth in the Credit Agreement. Unless
the context indicates otherwise or the terms are otherwise defined herein,
definitions in the UCC apply to words and phrases in this Agreement. "Pledgor"
and "Issuer" include, without limitation, such Person, such Person's heirs,
successors and assigns, such Person as a debtor-in-possession, and any
receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for such Person or all or substantially all of its assets under any
Law.
5.13. Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future Laws during the term
thereof, such provision shall be fully severable, this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part thereof, and the remaining provisions thereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance therefrom. Furthermore,
in lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a legal, valid,
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and enforceable provision as similar in terms to the illegal, invalid, or
unenforceable provision as may be possible.
5.14. Counterparts. This Agreement and the other Loan Papers may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument. In making proof of any such agreement,
it shall not be necessary to produce or account for any counterpart other than
one signed by the party against which enforcement is sought.
5.15. Control.
(a) Notwithstanding anything herein to the contrary, this Agreement,
the other Loan Papers, and the transactions contemplated hereby and thereby (i)
prior to a foreclosure of the Liens granted under this Agreement and the other
Loan Papers, do not and will not constitute, create, or have the effect of
constituting or creating, directly or indirectly, actual or practical ownership
of Pledgor, any issuer of any Collateral or any Subsidiary of Pledgor by
Administrative Agent or Secured Parties, or control, affirmative or negative,
direct or indirect, by Administrative Agent or Secured Parties over the
management or any other aspect of the operation of Pledgor, any issuer of
Collateral or any Subsidiary of Pledgor which ownership and control remains
exclusively and at all times in Pledgor such Subsidiary of Pledgor or any
issuer of Collateral, and (ii) do not and will not constitute the transfer,
assignment, or disposition in any manner, voluntarily or involuntarily,
directly or indirectly, of any license or certificate at any time issued by the
FCC or other applicable Tribunal to Pledgor, any issuer of Collateral or any
Subsidiary of Pledgor ("License"), or the transfer of control of Pledgor, any
issuer of Collateral or any Subsidiary of Pledgor within the meaning of Section
310(d) of the Communications Act of 1934, as amended, or any other applicable
laws.
(b) Notwithstanding any other provision of this Agreement, any
foreclosure on, sale, transfer or other disposition of, or the exercise of any
right to vote or consent with respect to, any of the Collateral, as provided
herein or any other action taken or proposed to be taken by Administrative
Agent hereunder which would affect the operational, voting, or other control of
Pledgor, any Subsidiary of Pledgor or any issuer of Collateral or any
Subsidiary of any issuer of Collateral, shall be in accordance with applicable
Law.
(c) Subject to Section 5.15(e), if an Event of Default shall have
occurred and be continuing, Pledgor shall take any action which Administrative
Agent may reasonably require in order to transfer and assign to Administrative
Agent, or to such one or more third parties as Administrative Agent may
designate or to a combination of the foregoing, each License of the Pledgor,
each Subsidiary or any issuer of the Collateral. To enforce the provisions of
this Section 5.15, Administrative Agent is empowered, during the continuance of
an Event of Default, to require the appointment of a receiver from any court of
competent jurisdiction. Such receiver shall be instructed to seek from the FCC
or other applicable Tribunal an involuntary transfer of control of each such
License for the purpose of seeking a bona fide purchaser to whom control will
ultimately be transferred. Pledgor hereby agrees to authorize such an
involuntary transfer of control upon the request of the receiver so appointed
and, if Pledgor shall refuse to authorize the transfer, its approval
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may be required by the court. Upon the occurrence and during the continuance of
an Event of Default, Pledgor shall further use its best efforts to assist in
obtaining approval of the FCC or other applicable Tribunal, if required, for
any action or transactions contemplated by this Agreement, including, without
limitation, the preparation, execution, and filing with the FCC or other
applicable Tribunal of the assignor's or transferor's portion of any
application or applications for consent to the assignment of any License or
transfer of control necessary or appropriate under the rules and regulations of
the FCC or other applicable Tribunal for approval of the transfer or assignment
of any portion of the Collateral, together with any License.
(d) Pledgor acknowledges that the assignment or transfer of each
License of Pledgor, each Subsidiary and issuer of the Collateral is integral to
Administrative Agent's and Secured Parties' realization of the value of the
collateral pledged by Pledgor, that there is no adequate remedy at law for
failure by Pledgor to comply with the provisions of this Section 5.15 and that
such failure would not be adequately compensable in damages, and therefore
agrees, without limiting the right of Administrative Agent to seek and obtain
specific performance of other obligations of Pledgor contained in this
Agreement, that the agreements contained in this Section 5.15 may be
specifically enforced.
(e) Notwithstanding anything to the contrary contained in this
Agreement or in any other Loan Paper, Administrative Agent shall not, without
first obtaining the approval of the FCC or any other applicable Tribunal, take
any action pursuant to this Agreement which would constitute or result in any
assignment of a License of Pledgor, each Subsidiary or issuer of the Collateral
or any change of control of Pledgor, any Subsidiary of Pledgor or any issuer of
any Collateral or any Subsidiary of any issuer of Collateral, if such
assignment or change in control would require, under then existing Law
(including the written rules and regulations promulgated by the FCC or other
applicable Tribunal), the prior approval of the FCC or such other Tribunal.
5.16. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (OTHER THAN THE
CONFLICT OF LAWS RULES THEREOF AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN
RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF TEXAS).
5.17. WAIVER OF JURY TRIAL. ADMINISTRATIVE AGENT AND PLEDGOR HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE
RELATIONSHIP ESTABLISHED HEREUNDER.
5.18. Administrative Agents Right to Use Agents. Administrative Agent
may exercise its Rights under this Agreement through an agent or other designee.
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<PAGE> 17
5.19. No Interference, Compensation or Expense. Administrative Agent
may exercise its Rights under this Agreement (a) without resistance or
interference by Pledgor and (b) without payment of any rent, license fee or
compensation of any kind to Pledgor.
5.20. Waiver of Subrogation. Pledgor shall not assert, enforce, or
otherwise exercise (a) any right of subrogation to any of the rights or Liens
of Administrative Agent or any Secured Party or any other Person against
Pledgor, any of Pledgor's Subsidiaries or any other Person on all or any part
of the Obligations or any collateral or other security, or (b) any right of
recourse, reimbursement, contribution, indemnification, or similar right
against Pledgor, any of Pledgor's Subsidiaries or any other Person on all or
any part of the Obligations or any collateral or any security, and Pledgor
hereby agrees not to exercise any and all of the foregoing rights, and any
right to participate in, any collateral or other security given to
Administrative Agent or any Secured Party or any other Person to secure payment
of the Obligations, however any such rights arise, whether hereunder or any
other Loan Paper or by operation of Law until the Obligations shall have been
paid indefeasibly in full in cash and no commitments of any Lender remain
outstanding; and thereafter Pledgor will be subrogated to the position of the
Lenders to the extent of the payments made by Pledgor. If any amount shall be
paid to Pledgor in violation of the immediately preceding sentence and the
Obligations shall not have been paid indefeasibly in full in cash or any
commitment of any Lender shall remain outstanding, such amount shall be deemed
to have been paid to Pledgor for the benefit of, and held in trust for the
benefit of, the Lenders, and shall forthwith be paid to the Administrative
Agent to be credited and applied upon the Obligations, whether matured or
unmatured, in accordance with the terms of the Credit Agreement. The provisions
of this Section 5.20 shall survive the termination of this Agreement, and any
satisfaction and discharge of Pledgor and each other Person by virtue of any
payment, court order, or Law.
5.21. Loan Paper. This Agreement is a Loan Paper executed pursuant to
the Credit Agreement and shall (unless otherwise expressly indicated herein) be
construed, administered and applied in accordance with the terms and provisions
thereof.
5.22. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.
5.23. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN PAPERS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.
17
<PAGE> 18
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18
<PAGE> 19
IN WITNESS WHEREOF, Pledgor has executed this Pledge Agreement as of
the date first set forth above.
WORLD ACCESS, INC.
/s/ Michael F. Mies
----------------------------------------
By: Michael F. Mies
-------------------------------------
Its: Vice President and Treasurer
------------------------------------
19
<PAGE> 20
SCHEDULE 1
<TABLE>
<CAPTION>
Number and Percentage
Issuer Class of Units Interest
------ -------------- --------
<S> <C> <C>
FCI (GP), LLC Certificate No. ____ for 100%
_____ shares
FaciliCom International, Certificate No. ____ for 100%
LLC _____ shares
</TABLE>
===============================================================================
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK.
===============================================================================
<PAGE> 1
EXHIBIT 10.32
FIRST AMENDMENT TO THE
WORLD ACCESS, INC.
1998 INCENTIVE EQUITY PLAN
This First Amendment to the World Access, Inc. 1998 Incentive Equity
Plan (the "Plan") is made and entered into by World Access, Inc. (the "Company")
as of the 15th day of June, 1999.
W I T N E S S E T H:
WHEREAS, the Company sponsors the Plan to attract, motivate, and retain
the best available personnel for service as officers, key employees,
consultants, independent contractors, and other agents of the Company; and
WHEREAS, the Company believes that it is in the best interest of the
Company, the eligible employees, and the stockholders to amend the Plan to
increase the number of shares which may be subject to the Plan; and
WHEREAS, the Company desires to increase the number of shares available
under the Plan from 5,000,000 shares to 7,500,000 shares; and
WHEREAS, Section 6.1 of the Plan provides that the Company may amend
the Plan; and
WHEREAS, the Board of Directors of the Company has adopted a resolution
authorizing the amendment of the Plan, contingent on shareholder approval under
the terms of the Plan;
NOW, THEREFORE BE IT RESOLVED, that, effective April 16, 1999, the Plan
hereby is amended as follows:
1.
Section 3.1 of the Plan is hereby amended by replacing the first
sentence thereof with the following sentence:
"The number of Shares which may be issued or sold or for which Options,
Restricted Stock or Performance Shares may be granted under the Plan
shall be 7,500,000; provided, however, that not more than (i) 1,000,000
of such Shares may be issued as Restricted Stock and (ii) 1,000,000 of
such Shares may be issued as Performance Shares."
2.
Except as specifically set forth herein, the terms of the Plan shall
remain in full force and effect.
IN WITNESS WHEREOF, the Company has caused this First Amendment to the
Plan to be executed by its duly authorized officer as of the date first above
written.
WORLD ACCESS, INC.
By:
-----------------------------------
Title:
--------------------------------
<PAGE> 1
EXHIBIT 10.33
FACILICOM INTERNATIONAL, INC.
1999 SPECIAL STOCK OPTION PLAN
1. Definitions.
The terms defined in this Section 1 shall have, for all purposes of
this Plan (unless the context requires otherwise), the meanings herein
specified:
(a) "Administrative Committee" shall mean such one or more persons who
shall have been appointed in accordance with Section 3.
(b) "Affiliate" shall mean with respect to any person, any individual
or entity directly or indirectly controlling, controlled by or under common
control with such person, and such term shall include any individual who is an
officer, director or employee of either any such person or any Affiliate of such
person. As used in the immediately preceding sentence, the term "control" means,
with respect to an entity, the right to exercise, directly or indirectly, a
majority of the voting rights attributable to such entity, and the term
"majority" means more than fifty percent (50%).
(c) "Board" shall mean, prior to the Merger, the board of directors of
the Corporation and, after consummation of the Merger, the board of directors of
World Access.
(d) "Common Stock" shall mean the Common Stock of World Access.
(e) "Conversion Unit" shall mean a right granted by the Corporation
pursuant to this Plan which, upon the consummation of the Merger, shall
automatically and without further action by the Optionee, the Corporation or
World Access, become and be converted into an Option with respect to one share
of the Common Stock of World Access.
(f) "Corporation" shall mean FACILICOM INTERNATIONAL, INC., a Delaware
corporation, and its successors.
(g) "Disabled Optionee" shall mean an Optionee who becomes disabled
within the meaning of Section 422(c)(6) of the Internal Revenue Code of 1986, as
amended.
(h) "Employee" or "Employees" shall mean, depending upon the context,
any one or more persons employed by the Corporation, or a Subsidiary thereof, on
a full-time basis and who are compensated for such employment by a regular
salary.
(i) "Fair Market Value" shall have the meaning given that term in
Section 6(F) hereof.
<PAGE> 2
(j) "Merger" shall mean the merger of the Corporation with and into
World Access as contemplated by and in accordance with the terms of the Merger
Agreement.
(k) "Merger Agreement" shall mean that certain Agreement and Plan of
Merger Agreement dated as of August 17, 1999 and entered into among World
Access, the Corporation and the Corporation's shareholders, as the same may
hereafter be amended or modified.
(l) " Option" shall mean a right, existing after the consummation of
the Merger and pursuant to the conversion of a Conversion Unit, to purchase a
specified number of shares of Common Stock of World Access. The Options granted
hereunder are intended to be non-qualified stock options which are options other
than Incentive Stock Options as defined in Section 422 of the Internal Revenue
Code of 1986, as amended.
(m) "Optionee" shall mean a person who accepts a Conversion Unit
granted under this Plan.
(n) "Option Price" shall mean $15 per share for each share of Common
Stock purchased pursuant to a Stock Option Agreement.
(o) "Option Period" shall mean the period from the date of the
consummation of the Merger to the date after which an Option may no longer be
exercised. Nothing in this Plan shall be construed to extend the termination
date of the Option Period beyond the date set forth in the Stock Option
Agreement.
(p) "Plan" shall mean this FaciliCom International, Inc. 1999 Special
Stock Option Plan.
(q) "Stock Option Agreement" shall mean the written agreement between
the Corporation and an Optionee confirming the grant of one or more Conversion
Units and setting forth the terms and conditions upon which the Option(s) to be
created upon the conversion thereof may be exercised.
(r) "Subsidiary" shall mean with respect to an entity, any corporation,
partnership, business trust, joint venture or other business entity in which the
such entity owns, directly or indirectly through Subsidiaries, at least 50% of
the beneficial interests or total combined voting power of all classes of
equity.
(s) "World Access" means WORLD ACCESS, INC., a Delaware corporation,
and its successors, Subsidiaries and Affiliates.
-2-
<PAGE> 3
2. Purposes.
The purposes of this Plan are to enable key Employees to benefit from
the growth in value of the Corporation and its Subsidiaries as reflected by the
Merger and to enable World Access to retain personnel in positions of
substantial responsibility and to give them an additional incentive to increase
their efforts on behalf of World Access and its Subsidiaries.
3. Administration.
This Plan shall be administered by the Administrative Committee. The
Administrative Committee shall be appointed by the Board. Prior to the
consummation of the Merger, the Administrative Committee shall consist of one or
more, but not more than three, members of the Board. Following the consummation
of the Merger, the Administrative Committee shall consist of that number of and
those persons as shall be appointed by World Access in accordance with its
governing instruments.
The Administrative Committee shall act by majority vote and shall have
plenary authority in its discretion, subject to and not inconsistent with the
express provisions of this Plan, (i) to grant Conversion Units, to determine the
term of each Conversion Unit, the persons to whom and the time or times at which
Conversion Units shall be granted, and the number of whole and/or fractional
shares of Common Stock Options for the purchase of which such Conversion Units
shall be converted; (ii) to interpret this Plan; (iii) to prescribe, amend and
rescind rules and regulations relating to this Plan; (iv) to determine the terms
and provisions of the Stock Option Agreements (which need not be identical)
entered into in connection with awards under this Plan; and (v) to make all
other determinations (including factual determinations) deemed necessary or
advisable for the administration of this Plan. The Administrative Committee may
delegate to one or more of its members or to one or more agents such
administrative duties as it may deem advisable, and the Administrative Committee
or any person to whom it has delegated duties as aforesaid may employ one or
more persons to render advice with respect to any responsibility or authority
the Administrative Committee or such person may have under this Plan. No grant
of a Conversion Unit shall be made to a member of the Administrative Committee.
The Administrative Committee may employ attorneys,
consultants, accountants or other persons, and the Administrative Committee, the
Corporation, World Access and their respective officers and directors shall be
entitled to rely upon the advice, opinions or valuations of any such persons.
All actions taken and all interpretations and determinations made by the
Administrative Committee in good faith shall be final and binding upon all
persons who have received Conversion Units, the Corporation, World Access and
all other interested persons. No member or agent of the Administrative Committee
shall be personally liable for any action, determination or interpretation taken
or made in good faith with respect to this Plan or awards made thereunder, and
all members and agents of the Administrative Committee shall be fully
indemnified and protected by the Corporation (prior to the Merger) and World
Access (following consummation of the Merger) in respect of any such action,
determination or interpretation.
-3-
<PAGE> 4
4. Eligibility.
Subject to the provisions of this Plan, the Administrative Committee
shall determine and designate from time to time those key Employees of the
Corporation or its Subsidiaries to whom Conversion Units are to be granted and
the number of shares of Common Stock covered by such grants. In determining the
eligibility of a key Employee to receive a Conversion Unit, as well as in
determining the number of shares of Common Stock covered by such Conversion
Unit, the Administrative Committee shall consider the position and
responsibilities of such person, the nature and value to the Corporation or a
Subsidiary of his or her services and accomplishments, his or her present and
potential contribution to the success of World Access or its Subsidiaries and
such other factors as the Administrative Committee may deem relevant.
5. Shares Available under this Plan.
The aggregate number of shares of Common Stock which may be issued or
delivered and as to which Conversion Units may be granted under this Plan is
2,000,000 shares. All such shares are subject to adjustment and substitution as
set forth in Section 7. If any Conversion Unit granted under this Plan is
canceled by mutual consent or terminates or expires for any reason prior to the
consummation of the Merger without having been exercised in full, the shares of
Common Stock subject to such Conversion Unit shall again be available for
purposes of this Plan.
The shares of Common Stock which may be issued or delivered under this
Plan may be either authorized but unissued shares or repurchased shares or
partly each, as shall be determined from time to time by the Board of World
Access.
6. Terms and Conditions of Conversion Units and Options.
Conversion Units, and the Options into which they may be converted,
shall be subject to the following terms and conditions:
(A) The Option Price shall be payable in full in any
one or more of the following ways:
(i) in full in cash or in any combination
of cash and installment payments as may be determined
by the Administrative Committee; and/or
(ii) subject to the consent of the
Administrative Committee, in shares of Common Stock
(which are owned by the Optionee free and clear of
all liens and other encumbrances) having a Fair
Market Value on the date of exercise of the Option
which is equal to the Option Price for the shares
being purchased.
If the Option Price is paid in whole or in part in
shares of Common Stock, any portion of the Option Price
representing a fraction of a share shall be paid in
-4-
<PAGE> 5
cash. The cash. The date of exercise of an Option shall be
determined under procedures established by the Administrative
Committee, and the Option Price shall be payable at such time
or times as the Administrative Committee, in its discretion,
shall determine. No shares shall be issued or delivered upon
exercise of an Option until full payment of the Option Price
has been made. When full payment of the Option Price has been
made, the Optionee shall be considered for all purposes to be
the owner of the shares with respect to which payment has been
made. Payment of the Option Price with shares shall not
increase the number of shares of Common Stock which may be
issued or delivered under this Plan as provided in Section 5.
(B) No Option shall be exercisable after the
expiration of ten years and six months from the consummation
of the Merger. Subject to this Section 6(B) and Sections 6(D),
6(E) and 6(F), Options may be exercised at such times, in such
amounts and subject to such restrictions as shall be
determined, in its discretion, by the Administrative
Committee.
(C) An Optionee may not transfer a Conversion Unit or
Option, or any portion thereof, without the prior written
consent of the Administrative Committee.
(D) As to those Optionees who become employees of
World Access, unless otherwise determined by the
Administrative Committee and set forth in the Stock Option
Agreement:
(i) If the employment of an Optionee
(whether or not a Disabled Optionee) with World
Access is voluntarily terminated with the written
consent of World Access, or if an Optionee retires
under any retirement plan of World Access, any
then-outstanding Option held by such Optionee shall
be exercisable (to the extent exercisable on the date
of such event) by such Optionee (or, if applicable,
by such Optionee's permitted transferee) at any time
prior to the expiration date of such Option or within
three months after the date of such event, whichever
is the shorter period;
(ii) Following the death of an Optionee
during employment with World Access, any
then-outstanding Option held by such Optionee at the
time of death shall be exercisable in full (whether
or not so exercisable on the date of the death of
such Optionee) by the person or persons entitled to
do so under the will of the Optionee (or, if
applicable, by such Optionee's permitted transferee),
or, if the Optionee shall fail to make testamentary
disposition of such Option or shall die intestate, by
the legal representative of the estate of such
Optionee, at any time prior to the expiration date of
such Option or within nine months after the date of
death, whichever is the shorter period. Following the
death of an Optionee
-5-
<PAGE> 6
after termination of employment with World Access
during a period when an Option is exercisable as
provided in clause (i) above, any then-outstanding
Option held by the Optionee (or, if applicable, by
such Optionee's permitted transferee) at the time of
death shall be exercisable by such person or persons
entitled to do so under the Will of the Optionee or
by such Optionee's legal representative (or by such
transferee) to the extent that such Option was
exercisable by the Optionee (or, if applicable, by
such Optionee's permitted transferee) at the time of
death at any time prior to the expiration date of
such Option or within nine months after the date of
death, whichever is the shorter period;
(iii) If the employment of an Optionee is
terminated by World Access without cause, any
then-outstanding Option held by such Optionee (or, if
applicable, by such Optionee's permitted transferee)
shall be exercisable (to the extent exercisable on
the date of termination of employment) by such
Optionee (or, if applicable, by such Optionee's
permitted transferee) at any time prior to the
expiration date of such Option or within 30 days
after the date of termination of employment,
whichever is the shorter period; and
(iv) If the employment of an Optionee is
terminated by World Access with cause, the rights of
such Optionee (or, if applicable, by such Optionee's
permitted transferee) under any then-outstanding
Option shall terminate at the time of such
termination of employment. In addition, if an
Optionee engages in the operation or management of a
business, whether as owner, partner, officer,
director, employee or otherwise and whether during or
after termination of employment, which is in
competition with World Access, the Administrative
Committee may in its discretion immediately terminate
all Options held by the Optionee (or, if applicable,
by such Optionee's permitted transferee). For
purposes of this subsection (D), the following events
or circumstances shall constitute "cause", to wit:
perpetration of defalcations; willful, reckless or
grossly negligent conduct entailing a substantial
violation of any material laws or governmental
regulations or orders applicable to World Access; or
repeated and deliberate failure, after written
notice, to comply with policies or directives of the
Chief Executive Officer of World Access or of the
Board.
Whether termination of employment is a voluntary termination
with the written consent of, or an involuntary termination for
cause from, World Access, whether an Optionee is a Disabled
Optionee and whether an Optionee has engaged in the operation
or management of a business which is in competition with World
Access shall be determined in each case by the Administrative
Committee, and any such determination by the Administrative
Committee shall be final and binding.
-6-
<PAGE> 7
(E) All Conversion Units granted hereunder and all
Options into which such Conversion Units may be converted
shall be effective solely upon the delivery of a Stock Option
Agreement, or an amendment thereto, duly executed by the Chief
Executive Officer of the Corporation on behalf of the
Corporation and by the Employee to whom such Conversion Units
are granted.
(F) Fair Market Value of the Common Stock shall be
determined (as of a date not more than 12 months preceding the
date as of which such determination is required to be made
hereunder) in good faith by the Board. The Board shall take
into consideration such factors as it deems relevant, which
factors may include but are not limited to (i) the World
Access' past, current and expected profitability, (ii) the
World Access' past, present and expected revenues and net cash
flow, (iii) World Access' book value, and (iv) the absence of
an organized tracking market for shares of the Common Stock.
(G) The obligation of World Access to issue or
deliver shares of Common Stock under this Plan shall be
subject to (i) the effectiveness of a registration statement
under the Securities Act of 1933, as amended, with respect to
such shares, if deemed necessary or appropriate by counsel for
World Access and (ii) all other applicable securities laws,
regulations, rules and orders which may then be in effect.
Subject to the foregoing provisions of this Section 6 and the other
provisions of this Plan, any Conversion Unit granted under this Plan and any
Option into which the same may be converted shall be subject to such other terms
and conditions as the Administrative Committee shall deem advisable.
7. Adjustment and Substitution of Shares.
If there is any change in the Common Stock by reason of any stock
split, stock dividend, spin-off, split-up, spin-out, recapitalization, merger,
consolidation, reorganization, combination or exchange of shares, or any similar
transactions, the number of shares available for grant hereunder or subject to
or granted pursuant to this Plan or any Stock Option Agreement and the price
thereof, as applicable, shall be appropriately and equitably adjusted by the
Administrative Committee.
8. Restrictions on Transfer of Certain Shares.
World Access is authorized to (i) retain the certificate(s)
representing shares or place such certificates in the custody of its transfer
agent, (ii) place a restrictive legend on such certificates, and/or (iii) issue
a stop transfer order to the transfer agent with respect to shares in order to
enforce the transfer restrictions of Section 6(G) hereof.
-7-
<PAGE> 8
9. Acceleration of the Exercise Date of Options.
Notwithstanding any other provisions of this Plan, all Options shall
become exercisable upon the occurrence of a Change in Control of World Access
whether or not such Options are then exercisable under the provisions of the
Stock Option Agreements relating thereto. A Change in Control of World Access is
any of the following: (i) a merger, consolidation or other reorganization in
which World Access (x) is not the surviving entity or (y) survives only as a
subsidiary of any entity (other than an entity which is under the control (as
defined in Section 1(b)) of any one or more of the shareholders of World Access
as of the effective date, and their respective Affiliates or other than a
previously wholly-owned Subsidiary of World Access), (ii) the acquisition by any
person, entity or affiliated group of persons and entities (other than any one
or more of the shareholders of World Access as of the effective date, and their
respective Affiliates) of 50% or more of the combined voting power of World
Access' then outstanding securities (including securities exercisable for or
convertible into voting securities), or (iii) the consummation of a transaction
requiring shareholder approval and involving the sale, lease or exchange of all
or substantially all the assets of World Access.
10. Effect of this Plan on the Rights of Employees and Employer.
Neither the adoption of this Plan nor any action of the Board or the
Administrative Committee pursuant to this Plan shall be deemed to give any
Employee any right to be granted a Conversion Unit or an Option under this Plan,
and nothing in this Plan, in any Conversion Unit granted under this Plan, in any
Option into which the same may be converted or in any Stock Option Agreement
shall confer any right to any Employee to continue in the employment of the
Corporation or any Subsidiary or World Access or interfere in any way with the
rights of the Corporation or any Subsidiary or World Access to terminate the
employment of any Employee at any time.
11. Interpretation, Amendment, and Termination.
Except as provided elsewhere in this Plan, in the event of any dispute
or disagreement as to the interpretation of this Plan or of any rule, regulation
or procedure, or as to any question, right or obligation arising from or related
to this Plan, the decision of the Board shall be final and binding upon all
persons. The Board may, in its discretion, amend or terminate this Plan at any
time. The Board of the Corporation may not, without the consent of World Access,
(a) increase the total number of shares which may be issued or delivered under
this Plan, (b) otherwise materially increase the benefits accruing to Employees
under this Plan. Termination of this Plan shall not affect the rights of
Optionees or their successors under any Conversion Units or Options outstanding
and not exercised in full on the date of termination.
12. Withholding Taxes.
The Corporation unilaterally or by arrangement with the Optionee shall
make appropriate provision for satisfaction of any obligation to withhold taxes
in the case of any grant, award, exercise or other transaction which gives rise
to a withholding requirement. An Optionee or
-8-
<PAGE> 9
other person receiving shares issued upon exercise of an Option shall be
required to pay World Access in cash the amount of any taxes which World Access
is required to withhold.
Notwithstanding the preceding sentence and subject to such rules as the
Administrative Committee may adopt, Optionees who are subject to Section 16(b)
of the Securities Exchange Act of 1934, as amended, and, if determined by the
Administrative Committee, other Optionees, may satisfy the referenced tax
payment obligation, in whole or in part, by election on or before the date that
the amount of tax required to be withheld is determined, to have the number of
shares received upon exercise of the Option reduced by a number of shares.
13. Effective Date and Termination.
This Plan shall be effective as of September 30, 1999.
This Plan has been adopted in contemplation of the consummation of the
Merger. If the Merger is not consummated in accordance with the Merger
Agreement, as the same may be amended, then upon the earliest to occur of (i)
the termination of the Merger Agreement, (ii) a public announcement to the
effect that the Merger will not be consummated or (iii) upon the occurrence of
any other event by which the possibility of the consummation of the Merger is
irrevocably terminated, this Plan and all Conversion Units granted hereunder
shall forthwith and without further action by the Corporation or any Optionee be
and become terminated, void and of no further force or effect, and no Optionee
shall be entitled to any compensation or remuneration in respect of any
previously granted Conversion Unit.
-9-
<PAGE> 1
EXHIBIT 10.34
==============================================================================
CREDIT AGREEMENT
dated as of November 15, 1999
by and among
FACILICOM INTERNATIONAL, L.L.C.
as Borrower
and
NORTEL NETWORKS INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$40,000,000 REVOLVING LOAN FACILITY
==============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - Definitions 1
Section 1.1 Definitions, etc 1
Section 1.2 Other Definitional Provisions. 24
Section 1.3 Accounting Terms and Determinations. 24
Section 1.4 Financial Covenants and Reporting. 25
ARTICLE 2 - Loans 25
Section 2.1 Commitments 25
Section 2.2 Notes. 26
Section 2.3 Repayment of Loans. 26
Section 2.4 Interest. 26
Section 2.5 Borrowing Procedure. 27
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans. 28
Section 2.7 Mandatory Prepayments. 28
Section 2.8 Minimum Amounts. 28
Section 2.9 Certain Notices. 29
Section 2.10 Use of Proceeds. 30
Section 2.11 Computations. 30
Section 2.12 Termination or Reduction of Commitments. 30
ARTICLE 3 - Payments 31
Section 3.1 Method of Payment. 31
Section 3.2 Pro Rata Treatment. 31
Section 3.3 Sharing of Payments, etc. 31
Section 3.4 Non-Receipt of Funds by the Administrative Agent. 32
Section 3.5 Taxes. 32
Section 3.6 Withholding Tax Exemption 33
Section 3.7 Reinstatement of Obligations. 34
Section 3.8 No Force Majeure, Disputes. 34
ARTICLE 4 - Yield Protection and Illegality 34
Section 4.1 Additional Costs. 34
Section 4.2 Limitation on Types of Loans. 36
Section 4.3 Illegality 36
Section 4.4 Treatment of Affected Loans. 36
Section 4.5 Compensation. 37
Section 4.6 Capital Adequacy. 37
Section 4.7 Additional Interest on Eurodollar Loans. 38
Section 4.8 Replacement of Lenders. 38
Section 4.9 Change of Applicable Lending Office. 39
ARTICLE 5 - Security 39
Section 5.1 Collateral. 39
</TABLE>
CREDIT AGREEMENT - Page 2
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 5.2 Guaranties. 39
Section 5.3 Landlord Waivers or Subordinations. 39
Section 5.4 Further Assurances. 39
Section 5.5 Setoff. 39
ARTICLE 6 - Conditions Precedent 40
Section 6.1 Initial Extension of Credit. 40
Section 6.2 All Extensions of Credit. 43
Section 6.3 Closing Certificates. 43
ARTICLE 7 - Representations and Warranties 44
Section 7.1 Existence. 44
Section 7.2 Financial Statements. 44
Section 7.3 Corporate Action; No Breach. 45
Section 7.4 Operation of Business; Licenses and Permits. 45
Section 7.5 Intellectual Property. 45
Section 7.6 Litigation and Judgments. 46
Section 7.7 Rights in Properties; Liens. 46
Section 7.8 Enforceability. 46
Section 7.9 Approvals. 46
Section 7.10 Debt. 47
Section 7.11 Taxes. 47
Section 7.12 Margin Securities. 47
Section 7.13 ERISA 47
Section 7.14 Disclosure 47
Section 7.15 Loan Parties. 47
Section 7.16 Compliance with Laws. 48
Section 7.17 Investment Company Act. 48
Section 7.18 Public Utility Holding Company Act. 48
Section 7.19 Environmental Matters. 48
Section 7.20 Year 2000 Compliance. 49
Section 7.21 Labor Disputes and Acts of God. 49
Section 7.23 Insurance. 50
Section 7.24 Common Enterprise. 50
Section 7.25 Burdensome Agreements. 50
ARTICLE 8 - Affirmative Covenants 50
Section 8.1 Reporting Requirements. 50
Section 8.2 Maintenance of Existence; Conduct of Business. 52
Section 8.3 Maintenance of Properties and Permits. 53
Section 8.4 Taxes and Claims. 53
Section 8.5 Insurance. 53
Section 8.6 Inspection Rights. 54
Section 8.7 Keeping Books and Records. 54
Section 8.8 Compliance with Laws. 54
Section 8.9 Maintenance of and Compliance with Agreements. 54
Section 8.10 Further Assurances. 55
Section 8.11 ERISA. 55
</TABLE>
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Section 8.12 Non-Consolidation. 55
Section 8.13 Year 2000 Compliance. 55
Section 8.14 Delivery of Certain Amendments. 56
Section 8.15 Ownership of Telecommunications Assets and Telecommunications
Business; Holdings to Remain a Holding Company. 56
ARTICLE 9 - Negative Covenants 56
Section 9.1 Debt. 56
Section 9.2 Limitation on Liens. 56
Section 9.3 Mergers, etc. 57
Section 9.4 Restricted Payments. 57
Section 9.5 [Intentionally omitted.]. 58
Section 9.6 Limitation on Issuance of Capital Stock. 58
Section 9.7 Transactions with Affiliates. 58
Section 9.8 Disposition of Property. 58
Section 9.9 [INTENTIONALLY OMITTED.] 59
Section 9.10 [INTENTIONALLY OMITTED.] 59
Section 9.11 Environmental Protection. 59
Section 9.12 Intercompany Transactions. 59
Section 9.13 Master Purchase Agreement. 59
Section 9.14 Modification of Certain Agreements. 60
Section 9.15 ERISA. 60
ARTICLE 10 - Financial Covenants 60
Section 10.1 Annualized EBITDA. 60
Section 10.2 Fixed Charge Coverage. 60
Section 10.3 Gross Revenues. 60
Section 10.4 Minutes of Use. 61
Section 10.5 Revision of Financial Covenants. 61
ARTICLE 11 - Default 61
Section 11.1 Events of Default. 61
Section 11.2 Remedies. 64
Section 11.3 Performance by the Administrative Agent, etc. 64
ARTICLE 12 - The Administrative Agent 65
Section 12.1 Appointment, Powers and Immunities. 65
Section 12.2 Rights of Administrative Agent as a Lender. 66
Section 12.3 Defaults. 66
Section 12.4 INDEMNIFICATION. 66
Section 12.5 Independent Credit Decisions. 67
Section 12.6 Several Commitments. 67
Section 12.7 Successor Administrative Agent. 68
ARTICLE 13 - Miscellaneous 68
Section 13.1 Expenses. 68
Section 13.2 INDEMNIFICATION. 69
Section 13.3 Limitation of Liability. 70
</TABLE>
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Section 13.4 No Duty. 70
Section 13.5 No Fiduciary Relationship. 70
Section 13.6 Equitable Relief. 71
Section 13.7 No Waiver; Cumulative Remedies 71
Section 13.8 Successors and Assigns. 71
Section 13.9 Survival. 75
Section 13.10 ENTIRE AGREEMENT. 75
Section 13.11 Amendments. 75
Section 13.12 Maximum Interest Rate. 76
Section 13.13 Notices. 77
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF PROCESS. 77
Section 13.15 Counterparts. 77
Section 13.16 Severability. 78
Section 13.17 Headings. 78
Section 13.18 Construction. 78
Section 13.19 Independence of Covenants. 78
Section 13.20 Confidentiality. 78
Section 13.21 WAIVER OF JURY TRIAL. 79
Section 13.22 Approvals and Consent. 79
Section 13.23 Service of Process. 80
Section 13.24 Acknowledgment relating to the Holdings Merger. 80
Section 13.25 Purchase of Nortel Networks Equipment. 80
</TABLE>
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INDEX TO EXHIBITS
<TABLE>
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Exhibit A - Form of Assignment and Acceptance
Exhibit B - Form of Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations and
Prepayments
Exhibit D - Form of Compliance Certificate
INDEX TO SCHEDULES
Schedule 7.6 - Litigation, Etc.
Schedule 7.10 - Existing Debt
Schedule 7.15 - Loan Parties
Schedule 7.23 - Insurance
Schedule 10.1 - Annualized EBITDA
Schedule 10.2 - Fixed Charge Coverage
Schedule 10.3 - Gross Revenues
Schedule 10.4 - Minutes of Use
</TABLE>
CREDIT AGREEMENT - Page 6
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of November 15, 1999, is by and among
FACILICOM INTERNATIONAL, L.L.C. (the "Borrower"), a Delaware limited liability
company, each of the lending entities which is a party hereto (as evidenced by
the signature pages of this Agreement) or which may from time to time become a
party hereto as a lender or any successor or assignee thereof (individually, a
"Lender" and, collectively, the "Lenders"), and NORTEL NETWORKS INC., a
Delaware corporation, as administrative agent for itself as a Lender and the
other Lenders (in such capacity, together with its successors in such capacity,
the "Administrative Agent").
RECITALS:
A. The Borrower desires to obtain a $40,000,000 revolving loan
facility to finance its costs to purchase Nortel Networks Goods and Services
(as defined herein).
B. The Lender(s) identified on the signature pages of this
Agreement desire to provide such credit facility with the assistance of the
Administrative Agent upon and subject to the terms and provisions contained in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum (rounded upwards, if necessary, to
the nearest 1/16 of one percent) determined by the Administrative Agent to be
equal to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest
Period divided by (b) one minus the Reserve Requirement for such Eurodollar
Loan for such Interest Period.
"Adjusted Net Income" means, as to any Person (the "subject Person")
and its Consolidated Subsidiaries and for any period, Consolidated Net Income
less the following (without duplication) to the extent that any of the
following shall have been included in Consolidated Net Income for such period:
(a) any net gain or loss arising from the sale of any property, plant or
equipment; (b) any net gain or loss arising from any write-up or write-down of
assets; (c) earnings or losses of any other Person, substantially all of the
assets of which have been acquired by the subject Person or a Consolidated
Subsidiary of the subject Person in any manner, to the extent that such
earnings or losses were realized by such other Person prior to the date of such
acquisition; (d) earnings or losses of any Person (other than a Consolidated
Subsidiary of the subject Person) in which the subject Person or a Consolidated
Subsidiary of the
CREDIT AGREEMENT - Page 7
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subject Person has an ownership interest, unless such earnings have actually
been received by the subject Person or such Consolidated Subsidiary in the form
of cash distributions; (e) any net gain or loss arising from the acquisition of
any securities of the subject Person or a Consolidated Subsidiary of the
subject Person; and (f) any net gain of an extraordinary nature or any net loss
of an extraordinary nature, in each case as determined in accordance with GAAP.
"Administrative Agent" means as specified in the introductory paragraph
of this Agreement.
"Affiliate" means, as to any Person, any other Person (a) that
directly or indirectly through one or more intermediaries controls or is
controlled by, or is under direct or indirect common control with, such first
Person, (b) that directly or indirectly beneficially owns or holds ten percent
or more of any class of voting Capital Stock of such first Person, or (c) ten
percent or more of the voting Capital Stock of which is directly or indirectly
beneficially owned or held by such first Person. For the purposes of this
definition, "control" when used with respect to any Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the Loan Documents, neither the Administrative Agent
nor any Lender shall be deemed to be an Affiliate of the Borrower or any Loan
Party.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Annualized EBITDA" means, as to any Person and its Consolidated
Subsidiaries and for the applicable period, EBITDA for the two most recently
completed fiscal quarters multiplied by two.
"Applicable Lending Office" means, for each Lender and each Type of
Loan, the lending office of such Lender (or an Affiliate of such Lender)
designated for such Type of Loan below its name on the signature pages hereof
(or, with respect to a Lender that becomes a party to this Agreement pursuant
to an assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower
and the Administrative Agent as the office by which its Loans of such Type are
to be made and maintained.
"Applicable Margin" means the rate per annum equal to (a) with respect
to each Base Rate Loan, two and three-quarters of one percent (2.75%) and (b)
with respect to each Eurodollar Loan, three and three-quarters of one percent
(3.75%).
"Approved Fund" means (a) with respect to any Lender which is a fund
primarily engaged in making, purchasing or otherwise investing in commercial
loans, any other fund which is primarily engaged in making, purchasing or
otherwise investing in commercial loans or extending, or investing in extensions
of, credit for its own account in the ordinary course of its business and which
is managed or advised by the same investment advisor as such Lender or by an
Affiliate of such investment advisor or (b) any other entity which has been
approved by the Administrative Agent and which is (or which is managed by a
manager which manages funds which are) primarily engaged in making, purchasing
or otherwise investing in commercial loans
CREDIT AGREEMENT - Page 8
<PAGE> 9
or extending, or investing in extensions of, credit for its own account in the
ordinary course of its business; provided, however, that Approved Fund shall not
include any Affiliate of the Borrower.
"Asset Disposition" means the disposition of any or all of the
Property of the Borrower or any of its Subsidiaries, whether by sale, lease,
transfer, assignment, condemnation or otherwise, but excluding (a) sales of
inventory in the ordinary course of business, (b) the grant of a Lien as
security, (c) any involuntary disposition resulting from casualty damage to, or
condemnation of, Property, and (d) dispositions of equipment if and to the
extent that the equipment disposed of is, concurrently therewith, exchanged or
replaced by equipment of equal or greater value.
"Assignee" means as specified in Section 13.8(b).
"Assigning Lender" means as specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Base Rate" means, at any time, the greater of (a) the rate of
interest per annum then most recently announced or established by the Reference
Bank at its principal office in New York City as its highest commercial prime
or base rate then in effect, or (b) the Federal Funds Rate then in effect plus
one-half of one percent (0.50%). The Base Rate may not necessarily be the
lowest rate of interest charged by the Reference Bank to its commercial
borrowers. Each change in any interest rate provided for herein based upon the
prime or base rate or the Federal Funds Rate resulting from a change in the
prime or base rate or the Federal Funds Rate, respectively, shall take effect
without notice to the Borrower at the time of such change in the prime or base
rate or the Federal Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon
the Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented
and otherwise modified and in effect from time to time, or any replacement
thereof.
"Board of Directors" means the board of directors of the Borrower or
other Person (as applicable).
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Borrower or other Person (as
applicable) to have been duly adopted by its Board of Directors and to be in
full force and effect on the date of such certification.
"Borrower" means as specified in the initial paragraph of this
Agreement.
"Borrower Security Agreement" means that certain Security Agreement
dated as of the
CREDIT AGREEMENT - Page 9
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Closing Date executed by the Borrower to and in favor of the Administrative
Agent, and any and all amendments, modifications, supplements, renewals,
extensions, restatements or replacements thereof.
"Business Day" means (a) any day other than a Saturday, Sunday or
other day on which commercial banks are authorized or required by law to close
in New York, New York, Washington, D.C. or Dallas, Texas, and (b) with respect
to all borrowings, payments, Conversions, Continuations, Interest Periods and
notices in connection with Eurodollar Loans, any day which is a Business Day
described in clause (a) above and which is also a day on which dealings in
Dollar deposits are carried out in the London interbank market.
"Business Plan" means the Borrower's marketing and Network build-out
plans, budget and schedule as submitted to and approved by the Administrative
Agent, including financial projections of Holdings, the Borrower and the
Consolidated Subsidiaries of the Borrower for the five year period beginning on
the Closing Date, certified by the chief financial officer of the Borrower as
being prepared generally in accordance with GAAP (except for the absence of
footnotes), such projections giving effect to the Debt to be incurred under
this Agreement as well as the other Debt to be incurred by Holdings, the
Borrower and the Consolidated Subsidiaries of the Borrower during such period.
Unless any amendment or modification thereto or replacement thereof is
permitted by Section 9.14 or, in the case of the revised Business Plan assuming
consummation of the Holdings Merger, is reasonably acceptable to the
Administrative Agent, the Business Plan dated as of September 1999 (version 1)
shall be the Business Plan for purposes of this Agreement.
"Capital Lease Obligations" means, as to any Person and its
Consolidated Subsidiaries, the obligations of such Persons to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) real
and/or personal Property, which obligations are classified as a capital lease
on a balance sheet of such Persons under GAAP. For purposes of this Agreement,
the amount of such Capital Lease Obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities,
shares, partnership interests (whether general, limited, special or other
partnership interests), limited liability company interests, membership
interests, equity interests, participations, rights or other equivalents
(however designated) of corporate stock or any of the foregoing issued by any
entity (whether a corporation, a partnership, a limited liability company or
another entity) and includes, without limitation, securities convertible into
Capital Stock and rights or options to acquire Capital Stock.
"Change in Control" means (a) prior to consummation of the Holdings
Merger, the existence or occurrence of any of the following: (i) any of the
Capital Stock of the Borrower is owned by any Person other than Holdings, (ii)
individuals who, as of the Closing Date, constitute the Board of Directors of
Holdings (the "Holdings Incumbent Board") cease for any reason to constitute at
least a majority of the Board of Directors of Holdings, provided, however, that
any individual becoming a director of Holdings subsequent to the Closing Date
whose election or nomination for election by Holdings' shareholders was
approved by a vote of at least a majority of the directors then comprising the
Holdings Incumbent Board shall be considered as though such individual were a
member of the Holdings Incumbent Board, but excluding, for this
CREDIT AGREEMENT - Page 10
<PAGE> 11
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or contest by or on behalf
of a Person other than the Board of Directors of Holdings, (iii) Armstrong
International Telecommunications, Inc. shall cease to own, directly and
beneficially and of record, seventy-five percent (75%) or more of each class of
the issued and outstanding voting Capital Stock of Holdings, or (iv) Armstrong
Holdings, Inc. or an internationally recognized telecommunications operator
whose securities are investment grade shall cease to own, directly and
beneficially and of record, seventy-five percent (75%) of each class of the
issued and outstanding voting Capital Stock of Armstrong International
Telecommunications, Inc., or (b) concurrently with or after consummation of the
Holdings Merger, any of the Capital Stock of the Borrower is owned by any
Person other than World Access.
"Closing Date" means November 15, 1999, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
"Collateral" means the "Collateral" as such term is defined in the
Borrower Security Agreement.
"Commitment" means, as to any Lender, the obligation of such Lender to
make or continue Loans hereunder in an aggregate principal amount up to but not
exceeding the amount set forth opposite the name of such Lender on the
signature pages hereto under the heading "Commitment" or, if such Lender is a
party to an Assignment and Acceptance, the amount of the "Commitment" set forth
in the most recent Assignment and Acceptance of such Lender, as the same may be
reduced or terminated pursuant to Section 2.12 or 11.2, and "Commitments" means
such obligations of all Lenders. As of the Closing Date, the aggregate
principal amount of the Commitments is $40,000,000.
"Commitment Percentage" means, as to any Lender and its Commitment,
the percentage equivalent of a fraction, the numerator of which is the amount
of the outstanding Commitment of such Lender (or, if such Commitment has
terminated or expired, the outstanding principal amount of the Loans of such
Lender) and the denominator of which is the aggregate amount of the outstanding
Commitments of all Lenders (or, if such Commitments have terminated or expired,
the aggregate outstanding principal amount of the Loans of all Lenders), as
adjusted from time to time in accordance with Section 13.8.
"Commitment Termination Date" means December 22, 2000.
"Communications Act" means the Communications Act of 1934, and any
similar or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consolidated Fixed Charges" means, as to any Person and its
Consolidated Subsidiaries and for any period, the sum of (without duplication)
(a) all Consolidated Interest Expense of such Persons paid or payable in cash
during such period, plus (b) all scheduled payments (as such scheduled payments
are reduced by application of any prepayments) of principal with respect to
CREDIT AGREEMENT - Page 11
<PAGE> 12
the Loans and other outstanding Debt during such period, plus (c) all finance
or similar charges of such Persons paid or payable in cash during such period.
"Consolidated Interest Expense" means, as to any Person and its
Consolidated Subsidiaries and for any period, and without duplication, all
interest on Debt of such Persons paid or payable in cash during such period,
including the interest portion of payments under Capital Lease Obligations.
"Consolidated Net Income" means, as to any Person and its Consolidated
Subsidiaries and for any period, the net income (or loss) of such Persons for
such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary the financial attributes of which are or would be consolidated with
those of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
"Continue", "Continuation" and "Continued" shall refer to the
continuation pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan
of the same Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Current Date" means (a) a date occurring no more than 30 days prior
to the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a)
all indebtedness, liabilities and obligations of such Person for borrowed
money; (b) all indebtedness, liabilities and obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments; (c) all
indebtedness, liabilities and obligations of such Person to pay the deferred
purchase price of Property or services, except trade accounts payable of such
Person arising in the ordinary course of business that are not past due by more
than 90 days; (d) all Capital Lease Obligations of such Person; (e) all Debt of
others Guaranteed by such Person; (f) all indebtedness, liabilities and
obligations secured by a Lien existing on Property owned by such Person,
whether or not the indebtedness, liabilities or obligations secured thereby
have been assumed by such Person or are non-recourse to such Person; (g) all
reimbursement obligations of such Person (whether contingent or otherwise) in
respect of letters of credit, bankers' acceptances, surety or other bonds and
similar instruments; (h) all indebtedness, liabilities and obligations of such
Person to redeem or retire shares of Capital Stock of such Person; (i) all
indebtedness, liabilities and obligations of such Person under interest rate
protection or hedge agreements; and (j) if and to the extent (but only if and
to the extent) that the following are classified as indebtedness in accordance
with GAAP, all indebtedness, liabilities and obligations of such Person in
respect of unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
condition which
CREDIT AGREEMENT - Page 12
<PAGE> 13
with notice or lapse of time or both would become an Event of Default.
"Default Rate" means, in respect of any principal of any Loan at all
times during which any Event of Default has occurred and is continuing or in
respect of any other amount payable by the Borrower under this Agreement or any
other Loan Document which is not paid when due (whether at stated maturity, by
acceleration or otherwise), a rate per annum during the period of such Event of
Default or during the period commencing on the due date of such other amount
until such other amount is paid in full equal to the lesser of (a) the sum of
two percent (2.00%) plus the Base Rate as in effect from time to time plus the
Applicable Margin for Base Rate Loans or (b) the Maximum Rate; provided,
however, that, if and to the extent that such Event of Default consists of the
failure to pay any principal of a Eurodollar Loan and the due date is a day
other than the last day of an Interest Period therefor, the "Default Rate" for
such principal shall be, for the period from and including the due date and to
but excluding the last day of the Interest Period therefor, the lesser of the
rate per annum equal to (i) the sum of two percent (2.00%) plus the interest
rate for such Eurodollar Loan for such Interest Period as provided in clause
(ii) of Section 2.4(a) hereof or (ii) the Maximum Rate and, thereafter, the
rate provided for above in this definition.
"Defined Benefit Plan" means an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) that is subject to the minimum funding
requirements of Section 302 of ERISA or Section 412 of the Code or Title IV of
ERISA (including any Multiemployer Plan).
"Dollars" and "$" mean lawful money of the U.S.
"EBITDA" means, as to any Person and its Consolidated Subsidiaries and
for any period, without duplication, the sum of the following for such Persons
for such period determined on a consolidated basis in accordance with GAAP: (a)
Adjusted Net Income, plus (b) Consolidated Interest Expense, plus (c) income
and franchise taxes to the extent deducted in determining Adjusted Net Income,
plus (d) depreciation and amortization expense and other non-cash, non-tax
items to the extent deducted in determining Adjusted Net Income, minus (e)
non-cash income (or losses) to the extent included in determining Adjusted Net
Income.
"Eligible Assignee" means (a) any Lender or Affiliate of a Lender, (b)
any commercial bank, savings and loan association, savings bank, finance
company, insurance company, pension fund, fund or other financial institution
(whether a corporation, partnership, limited liability company or other entity)
which has been approved by the Administrative Agent as a Lender under this
Agreement, or (c) any Approved Fund; provided, however, that (i) Eligible
Assignee shall not include any Affiliate of the Borrower and (ii) Eligible
Assignee shall not include any business competitor of Holdings, the Borrower or
any Subsidiary of Holdings or the Borrower engaged in the same line of business
as the Borrower except after the occurrence and during the continuance of an
Event of Default which has remained in effect for ten or more Business Days.
"Environmental Law" means any federal, state, provincial, local
or foreign law, statute, code or ordinance, principle of common law, rule or
regulation, as well as any Permit, order, decree, judgment or injunction
issued, promulgated, approved or entered thereunder, relating to pollution or
the protection, cleanup or restoration of the environment or natural resources,
or otherwise governing the generation, use, handling, collection, treatment,
storage, transportation, recovery, recycling, discharge or disposal of
Hazardous Materials, including, without limitation
CREDIT AGREEMENT - Page 13
<PAGE> 14
as to U.S. laws, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. ' 9601 et seq., the Superfund Amendment and
Reauthorization Act of 1986, 99-499, 100 Stat. 1613, the Resource Conservation
and Recovery Act of 1976, 42 U. S. C. ' 6901 et seq., the Clean Air Act, 42
U.S.C. ' 7401 et seq., the Clean Water Act, 33 U. S. C. ' 1251 et seq., the
Emergency Planning and Community Right to Know Act, 42 U. S. C. ' 11001 et
seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ' 136 et
seq., and the Toxic Substances Control Act, 15 U.S.C. ' 2601 et seq., and any
state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, Permit, order or agreement with any
Governmental Authority or other Person, arising from environmental conditions
or the Release or threatened Release of a Hazardous Material into the
environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is
a member of a group of entities, organizations or employers of which a Loan
Party is also a member and which is treated as a single employer within the
meaning of Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon
the Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of 1%) appearing on Telerate Page 3750 (or any successor page) as
the London interbank offered rate for deposits in Dollars in the approximate
amount of the proposed Eurodollar Loan at approximately 11:00 a.m. (London
time) two Business Days prior to the first day of such Interest Period for a
term comparable to such Interest Period. If such rate ceases to be available
from Telerate News Service, the Eurodollar Rate shall be determined by the
Administrative Agent in good faith from another financial reporting service,
which service shall be reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(or any successor act), and the rules and regulations thereunder (or respective
successors thereto).
"Exchange Offer" means the offer by Holdings to exchange Holdings
Senior Notes for Holdings Exchange Senior Notes in accordance with Exchange
Offer and Consent Solicitation -- Outstanding 10 1/2% Series B Senior Notes Due
2008 of FaciliCom International, Inc. exchanged for 13.25% Senior Notes Due
2008 and Common Stock of World Access and Cash, as described in the Amendment
No. 1 to Form S-4 Registration Statement under The Securities
CREDIT AGREEMENT - Page 14
<PAGE> 15
Act of 1933 as filed on November 5, 1999 by World Access with the Securities
and Exchange Commission, a copy of which has been provided to the
Administrative Agent.
"Excluded Taxes" means, with respect to the Administrative Agent or
any Lender, (a) Taxes imposed on or measured by such Person's net income or net
profits and (b) franchise Taxes imposed on such Person, in each case pursuant
to the laws of the jurisdiction in which such Person is organized or the
jurisdiction in which the principal office or Applicable Lending Office of such
Person is located or any subdivision thereof or therein.
"FCC" means the Federal Communications Commission and any successor
agency.
"FCC Licenses" means all Licenses issued by the FCC.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of
1%)) equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if
such rate is not so published on such next succeeding Business Day, the Federal
Funds Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants and/or in statements
of the Financial Accounting Standards Board and/or their respective successors
and which are applicable in the circumstances as of the date in question.
Accounting principles are applied on a "consistent basis" when the accounting
principles applied in a current period are comparable in all material respects
to those accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Governmental Requirement" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, Permit,
certificate, License, authorization or other directive or requirement of any
federal, state, county, municipal, parish, provincial or other Governmental
Authority or any department, commission, board, court, agency or any other
instrumentality of any of them.
"Gross Revenues" means, as to the Borrower and its Consolidated
Subsidiaries and for any period, gross revenues of such Persons determined on a
consolidated basis in accordance with GAAP.
"Gross Up Lender" means any Lender which requests a payment from the
Borrower
CREDIT AGREEMENT - Page 15
<PAGE> 16
pursuant to Section 3.5, 4.1 or 4.6.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person and, without limiting the generality of the
foregoing, any indebtedness, liability or obligation, direct or indirect,
contingent or otherwise, of such Person (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or other obligation
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (b) entered into
for the purpose of assuring in any other manner the obligee of such Debt or
other indebtedness, liability or obligation as to the payment thereof or to
protect the obligee against loss in respect thereof (in whole or in part),
provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning. The amount of any Guarantee shall
be deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee is made or, if not stated
or determinable, the maximum anticipated liability in respect thereof (assuming
such Person is required to perform thereunder).
"Guarantors" means Holdings and each other Person (if any) which has
executed a Guaranty, and "Guarantor" means any of such Persons.
"Guaranties" means that certain Guaranty Agreement dated as of the
Closing Date executed by Holdings to and in favor of the Administrative Agent
which guarantees payment of the Obligations and any and all other guaranty
agreements guaranteeing payment or performance of the Obligations in form and
substance satisfactory to the Administrative Agent executed by a Guarantor in
favor of the Administrative Agent and/or the Lenders, and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro-organisms, odor, radiation,
constituent or material which (a) is or becomes listed, regulated or addressed
under any Environmental Law or (b) is, or is deemed to be, alone or in any
combination, hazardous, hazardous waste, toxic, a pollutant, a deleterious
substance, a contaminant or a source of pollution or contamination under any
Environmental Law, including, without limitation, asbestos, petroleum and
polychlorinated biphenyls.
"Holdings" means FaciliCom International, Inc., a Delaware corporation
and, upon and after the consummation of the Holdings Merger (assuming such
merger is consummated), means World Access as the surviving entity in such
merger.
"Holdings Exchange Indenture" means that certain Indenture dated as of
_____ , ______ [UNDATED] between Holdings, as issuer, and First Union National
Bank, as trustee, relating to $300,000,000 of Holdings 13.25% Senior Notes due
2008, as the same may be dated, amended, modified or supplemented from time to
time (provided, however, that, if the term "Holdings Exchange Indenture" is used
herein or in another Loan Document and the context herein or in such other Loan
Document in which such term is used specifically refers to the Holdings Exchange
Indenture as in existence or in effect as of a specific date, then the term
"Holdings Exchange Indenture" as used in such specific context shall mean the
Holdings
CREDIT AGREEMENT - Page 16
<PAGE> 17
Exchange Indenture as in existence or in effect as of such specific date
without giving effect to any amendment, modification or supplement thereto
entered into after such specific date).
"Holdings Exchange Senior Notes" means the notes issued, or to be
issued, by World Access pursuant to the Holdings Exchange Indenture, as the
same may be amended, modified or supplemented from time to time (provided,
however, that, if the term "Holdings Exchange Senior Notes" is used herein or
in another Loan Document and the context herein or in such other Loan Document
in which such term is used specifically refers to the Holdings Exchange Senior
Notes as in existence or in effect as of a specific date, then the term
"Holdings Exchange Senior Notes" as used in such specific context shall mean
the Holdings Exchange Senior Notes as in existence or in effect as of such
specific date without giving effect to any amendment, modification or
supplement thereto entered into after such specific date).
"Holdings Exchange Senior Notes Documents" means the Holdings Exchange
Indenture, the Holdings Exchange Senior Notes and any and all other material
agreements, documents or instruments executed and/or delivered by Holdings
pursuant to or in connection with the Holdings Exchange Indenture.
"Holdings Indenture" means that certain Indenture dated as of January
28, 1998 between Holdings, as issuer, and State Street Bank and Trust Company,
as trustee, relating to $300,000,000 of Holdings 10 1/2% Senior Notes due 2008
and 10 1/2% Series B Senior Notes due 2008, as the same may be amended,
modified or supplemented from time to time (provided, however, that, if the
term "Holdings Indenture" is used herein or in another Loan Document and the
context herein or in such other Loan Document in which such term is used
specifically refers to the Holdings Indenture as in existence or in effect as
of a specific date, then the term "Holdings Indenture" as used in such specific
context shall mean the Holdings Indenture as in existence or in effect as of
such specific date without giving effect to any amendment, modification or
supplement thereto entered into after such specific date).
"Holdings Merger" means the merger of FaciliCom International, Inc.
with and into World Access in accordance with the Holdings Merger Agreement;
provided, however, that, for purposes of Section 13.24, referenced herein to
the "Holdings Merger Agreement" shall mean the Holdings Merger Agreement as in
effect on the Closing Date or, if (but only if) such amendment, modification or
supplement is consented to by the Administrative Agent (which consent shall not
be unreasonably withheld, conditioned or delayed), in accordance with the
Holdings Merger Agreement as amended, modified or supplemented after the
Closing Date.
"Holdings Merger Agreement" means that certain Agreement and Plan of
Merger dated as of August 17, 1999, among World Access, FaciliCom
International, Inc., Armstrong International Telecommunications, Inc., Epic
Interests, Inc. and BFV Associates, Inc., as the same may be amended, modified
or supplemented from time to time (provided, however, that, if the term
"Holdings Merger Agreement" is used herein or in another Loan Document and the
context herein or in such other Loan Document in which such term is used
specifically refers to the Holdings Merger Agreement as in existence or in
effect as of a specific date, then the term "Holdings Merger Agreement" as used
in such specific context shall mean the Holdings Merger Agreement as in
existence or in effect as of such specific date without giving effect to any
amendment, modification or supplement thereto entered into after such specific
date).
CREDIT AGREEMENT - Page 17
<PAGE> 18
"Holdings Senior Notes" means the notes issued, or to be issued, by
Holdings pursuant to the Holdings Indenture, as the same may be amended,
modified or supplemented from time to time (provided, however, that, if the
term "Holdings Senior Notes" is used herein or in another Loan Document and the
context herein or in such other Loan Document in which such term is used
specifically refers to the Holdings Senior Notes as in existence or in effect
as of a specific date, then the term "Holdings Senior Notes" as used in such
specific context shall mean the Holdings Senior Notes as in existence or in
effect as of such specific date without giving effect to any amendment,
modification or supplement thereto entered into after such specific date).
"Holdings Senior Notes Documents" means the Holdings Indenture, the
Holdings Senior Notes and any and all other material agreements, documents or
instruments executed and/or delivered by Holdings pursuant to or in connection
with the Holdings Indenture.
"Insurance Recovery" means, with respect to any Property of the
Borrower or any of its Subsidiaries and any single occurrence or related
occurrences with respect thereto, the receipt or constructive receipt by such
Loan Party, or the payment by an insurance company to the Administrative Agent,
of proceeds of any such Property or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark
and service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar
technical information, engineering know-how, customer and supplier information,
assembly and test data drawings or royalty rights.
"Interest Period" means, with respect to any Eurodollar Loan, each
period commencing on the date such Loan is made or Converted from a Base Rate
Loan or (if Continued) the last day of the next preceding Interest Period with
respect to such Loan, and ending on the numerically corresponding day in the
first, second, third or sixth calendar month thereafter, as the Borrower may
select as provided in Section 2.9 hereof, except that each such Interest Period
which commences on the last Business Day of a calendar month (or on any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month. Notwithstanding the foregoing: (a) each Interest
Period which would otherwise end on a day which is not a Business Day shall end
on the next succeeding Business Day (or, if such succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day); (b)
any Interest Period which would otherwise extend beyond the Maturity Date shall
end on the Maturity Date; (c) no more than five Interest Periods for Eurodollar
Loans shall be in effect at the same time; (d) no Interest Period shall have a
duration of less than one month and, if the Interest Period for any Eurodollar
Loans would otherwise be a shorter period, such Loans shall not be available
hereunder; and (e) no Interest Period for a Loan may commence before, and end
after, any principal payment date unless, after giving effect thereto, the
aggregate principal amount of the Eurodollar Loans having Interest Periods that
end after such principal payment date shall be equal to or less than the amount
of the applicable Loans scheduled to be outstanding hereunder after such
principal payment date.
CREDIT AGREEMENT - Page 18
<PAGE> 19
"Lender" and "Lenders" means as specified in the initial paragraph of
this Agreement.
"License" means any permit, certificate, approval, order, license or
other authorization, including, without limitation, any FCC License.
"Lien" means, with respect to any Property, any mortgage or deed of
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, hypothecation or other
lien, charge, easement (other than any easement not materially impairing
usefulness), encumbrance, preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever on or with respect to
such Property (including, without limitation, any conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Loan Documents" means this Agreement, the Notes, the Security
Documents and all other agreements, documents, instruments and certificates now
or hereafter executed and/or delivered pursuant to or in connection with any of
the foregoing, and any and all amendments, modifications, supplements,
renewals, extensions or restatements thereof.
"Loan Party" means the Borrower, Holdings, any Guarantor or any Person
who grants a Lien on any Property to secure the payment or performance of the
Obligations or any portion thereof, and "Loan Parties" means all of such
Persons.
"Loans" means as specified in Section 2.1(a).
"Master Purchase Agreement" means any one or more of that certain
Global Network Products Purchase Agreement No. FC19701G dated July 24, 1997, by
and between the Borrower and Nortel Networks (f/k/a Northern Telecom Inc.), as
amended and restated by that certain First Amended and Restated Global Network
Products Purchase Agreement dated as of January 1, 1998, by and between the
Borrower and Nortel Networks (f/k/a Northern Telecom Inc.), as either of the
foregoing agreements has been or may be amended, supplemented or restated from
time to time, together with any and all predecessor agreements to the aforesaid
agreement dated July 24, 1997 relating to the purchase of Nortel Networks
Equipment.
"Material Adverse Effect" means any material adverse effect (no matter
how or why existing, caused, resulting or occurring) on (a) the business,
assets, financial condition, results of operations of Holdings and its
Subsidiaries taken as a whole, (b) the business, assets, financial condition,
results of operations of the Borrower individually or of the Borrower and its
Subsidiaries taken as a whole, (c) the validity or enforceability of any of the
Loan Documents or the rights and remedies of the Administrative Agent and/or
the Lenders thereunder, or (d) the ability of any Loan Party to pay and perform
its indebtedness, liabilities and/or obligations under any of the Loan
Documents.
"Material Contracts" means, as to any Loan Party, any supply,
purchase, service, employment, tax, indemnity, shareholder or other agreement
or contract for which the aggregate amount or value of services performed or to
be performed for or by, or funds or other Property transferred or to be
transferred to or by, any Loan Party to such agreement or contract, or by which
any Loan Party or any of its Properties is otherwise bound, during any fiscal
year of such Loan Party exceeds $1,000,000 (or the equivalent amount in any
currency) and any and all amendments, modifications, supplements, renewals or
restatements thereof.
CREDIT AGREEMENT - Page 19
<PAGE> 20
"Maturity Date" means December 29, 2000.
"Maximum Rate" means, with respect to any Lender, the maximum
non-usurious interest rate or an amount computed in reference to such rate (as
applicable), if any, that any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to the particular Obligations
as to which such rate is to be determined, payable to such Lender pursuant to
this Agreement or any other Loan Document, under laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow. The Maximum
Rate shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Borrower at the time of such change in
the Maximum Rate.
"Minutes of Use" means minutes billed by the Borrower and/or any of
its Subsidiaries to any third party for termination of domestic or
international telecommunications traffic.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been made by or are required
from the Borrower or any ERISA Affiliate since 1974 and which is covered by
Title IV of ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the
gross amount of cash received by the Borrower from such Asset Disposition,
minus (b) the amount, if any, of all taxes paid or payable by the Borrower
directly resulting from such Asset Disposition (including the amount, if any,
estimated by the Borrower in good faith at the time of such Asset Disposition
for taxes payable by the Borrower on or measured by net income or gain
resulting from such Asset Disposition), minus (c) the reasonable out-of-pocket
costs and expenses incurred by the Borrower in connection with such Asset
Disposition (including reasonable brokerage fees paid to a Person other than an
Affiliate of the Borrower) excluding any fees or expenses paid to an Affiliate
of the Borrower. "Net Proceeds" with respect to any Asset Disposition shall
also include proceeds (after deducting any amounts specified in clauses (b),
(c) and (d) of the preceding sentence) of insurance with respect to any actual
or constructive loss of Property, an agreed or compromised loss of Property or
the taking of any Property under the power of eminent domain and condemnation
awards and awards in lieu of condemnation for the taking of Property under the
power of eminent domain.
"Network" means the Borrower's integrated communications network for
the provision of high speed data and voice services as described in the
Business Plan.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
"Nortel Networks Equipment" means as such term is defined in the
Borrower Security Agreement.
"Nortel Networks Goods and Services" means sales, installation and
commissioning of Nortel Networks Equipment and related software, and project
management, system design and
CREDIT AGREEMENT - Page 20
<PAGE> 21
services performed by Nortel Networks personnel.
"Nortel Networks Software" means any and all software sold or licensed
by Nortel Networks or Nortel Networks Corporation or any Subsidiary or
Affiliate of Nortel Networks Corporation to the Borrower or any other Loan
Party, including, without limitation, all source code and object code and all
manuals and other documentation relating thereto and each copy thereof
regardless of the media in which they are stored.
"Notes" means the promissory notes in the form of Exhibit B hereto
made by the Borrower evidencing the Loans and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof and
all substitutions therefor (including promissory notes issued by the Borrower
pursuant to Section 13.8), and "Note" means any of such promissory notes.
"Notice of Borrowing" means as specified in Section 2.9.
"Obligations" means any and all indebtedness, liabilities and
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several or joint and several,
including, without limitation, (a) the obligations of the Borrower or any
Guarantor to repay the Loans, to pay interest on the Loans (including, without
limitation, interest accruing after any, if any, bankruptcy, insolvency,
reorganization or other similar filing) and to pay all fees, indemnities, costs
and expenses (including attorneys' fees) payable in accordance with the Loan
Documents and (b) the indebtedness constituting the Loans and such interest,
fees, indemnities, costs and expenses.
"Other Taxes" means all Taxes other than Excluded Taxes.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the
case of a Multiemployer Plan, at any time since September 2, 1974, by any
Borrower or any ERISA Affiliate for employees of any Borrower or any ERISA
Affiliate.
"Permit" means any permit, certificate, approval, order, License,
right-of-way (whether an easement, contract or agreement in any form) or other
authorization.
"Permitted Liens" mean:
(a) Liens for taxes, assessments, governmental charges or
claims that are
CREDIT AGREEMENT - Page 21
<PAGE> 22
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made;
(b) statutory Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for
which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other types of social security;
(d) Liens incurred or deposits made to secure the performance
of tenders, bids, leases, statutory or regulatory obligations,
bankers' acceptances, surety and appeal bonds, government contracts,
performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive
of obligations for the payment of borrowed money);
(e) easements, rights-of-way, municipal and zoning ordinances
and similar charges, encumbrances, title defects or other
irregularities that do not materially interfere with the ordinary
course of business of the Borrower or any of its Subsidiaries;
(f) Liens (including extensions and renewals thereof) upon
real or personal property purchased or leased after January 28, 1998,
provided that (i) such Lien is created solely for the purpose of
securing Debt incurred in compliance with Section 1011 of the Holdings
Indenture or the Holdings Exchange Indenture to finance the cost
(including the cost of design, development, construction, acquisition,
installation or integration) of the item of property or assets subject
thereto and such Lien is created prior to, at the time of or within
six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or
to refinance any Debt previously so secured, (ii) the principal amount
of the Debt secured by such Lien does not exceed 100% of such cost and
(iii) any such Lien shall not extend to or cover any property or
assets other than such item of property or assets and any improvements
on such item;
(g) leases or subleases granted to others that do not
materially interfere with the ordinary course of business of the
Borrower and its Subsidiaries, taken as a whole;
(h) Liens encumbering property or assets under construction
arising from progress or partial payments by a customer of the
Borrower or its Subsidiaries relating to such property or assets;
(i) any interest or title of a lessor in the property subject
to any Capitalized Lease Obligation or operating lease;
(j) Liens arising from filing UCC financing statements
regarding leases;
CREDIT AGREEMENT - Page 22
<PAGE> 23
(k) Liens on property of, or on shares of stock or Debt of,
any corporation existing at the time such corporation becomes, or
becomes a part of, any Subsidiary, provided that such Liens do not
extend to or cover any property or assets of the Borrower or any
Subsidiary other than the property or assets acquired and were not
created in contemplation of such transaction;
(l) Liens in favor of the Borrower or any Subsidiary;
(m) Liens arising from the rendering of a final judgment or
order against the Borrower or any Subsidiary of the Borrower that does
not give rise to an Event of Default;
(n) Liens securing reimbursement obligations with respect to
letters of credit that encumber documents and other property relating
to such letters of credit and the products and proceeds thereof;
(o) Liens in favor of customs and revenue authorities arising
as a matter of law to secure payment of customs duties in connection
with the importation of goods;
(p) Liens encumbering customary initial deposits and margin
deposits and other Liens that are either within the general parameters
customary in the industry or incurred in the ordinary course of
business, in each case, securing Debt under interest rate agreements
and currency hedge agreements;
(q) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into
by the Borrower or any of its Subsidiaries in the ordinary course of
business in accordance with the past practices of the Borrower and its
Subsidiaries prior to the Closing Date;
(r) Liens existing on January 28, 1998 or securing the
Holdings Senior Notes or the Holdings Exchange Senior Notes or any
guaranty of the Holdings Senior Notes or the Holdings Exchange Senior
Notes;
(s) Liens granted after the Closing Date on any assets, other
than the Collateral, or Capital Stock of the Borrower or its
Subsidiaries created in favor of the holders of the Holdings Senior
Notes or the Holdings Exchange Senior Notes;
(t) Liens securing Debt which is incurred to refinance
secured Debt which is permitted to be incurred under clause (viii) of
paragraph (b) of Section 1011 of the Holdings Indenture or the
Holdings Exchange Indenture, provided that such Liens do not extend to
or cover any property or assets of the Borrower or any Subsidiary of
the Borrower other than the property or assets securing the Debt being
refinanced;
(u) Liens securing Debt under credit facilities incurred in
compliance with clause (iv) of paragraph (b) of Section 1011 of the
Holdings Indenture or the Holdings Exchange Indenture;
(v) Liens granted by the Borrower to and in favor of Key
Corporate Capital
CREDIT AGREEMENT - Page 23
<PAGE> 24
Inc. attaching to the following Properties of the Borrower and related
Properties as more specifically described in the Receivables Financing
Documents as in effect on the Closing Date: (i) all accounts, contract
rights and other rights to receive payment for the provision of
telecommunications services which have a situs in the U.S., other than
the foregoing owing to the Borrower by any of its Subsidiaries (the
"Receivables"), (ii) all proceeds, products, income and profits of any
of the Receivables and the proceeds of any such proceeds, products,
income and profits, and (iii) all right, title and interest of the
Borrower in or to all instruments and documents covering or relating
to the Receivables; and
(w) Liens securing the Obligations in favor of the
Administrative Agent (for the benefit of the Administrative Agent and
the Lenders) pursuant to the Loan Documents;
provided, however, (A) that none of the Permitted Liens (except those in favor
of the Administrative Agent securing the Obligations) referred to in clauses
(c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p), (q), (r),
(s), (t), (u) or (v) preceding may attach or relate to any Collateral, and (B)
none of the Permitted Liens (except those in favor of the Administrative Agent
securing the Obligations) may have a priority equal or prior to the Liens in
favor of the Administrative Agent as security for the Obligations.
"Person" means any individual, corporation, trust, association,
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of
ERISA established or maintained or contributed to by any Loan Party or any
ERISA Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative
Agent in Richardson, Texas, presently located at 2221 Lakeside Blvd.,
Richardson, Texas 75082.
"Prior Note" means that certain Promissory Note dated September 30,
1999, in the original principal amount of $21,716,880.38 made by the Borrower
payable to the order of Nortel Networks.
"Prohibited Transaction" means any transaction set forth in Section
406 of ERISA or Section 4975 of the Code.
"Property" means property and assets of all kinds, whether real,
personal or mixed, tangible or intangible (including, without limitation, all
rights relating thereto), whether owned or acquired on or after the Closing
Date.
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be December 31, 1999.
"Receivables Financing Agreement" means that certain Loan Agreement
dated as of May 24, 1999, by and between the Borrower and Key Corporate Capital
Inc., as the same may be amended, modified or supplemented from time to time
(provided, however, that, if the term "Receivables Financing Agreement" is used
herein or in another Loan Document and the context
CREDIT AGREEMENT - Page 24
<PAGE> 25
herein or in such other Loan Document in which such term is used specifically
refers to the Receivables Financing Agreement as in existence or in effect as
of a specific date, then the term "Receivables Financing Agreement" as used in
such specific context shall mean the Receivables Financing Agreement as in
existence or in effect as of such specific date without giving effect to any
amendment, modification or supplement thereto entered into after such specific
date).
"Receivables Financing Documents" means the Receivables Financing
Agreement and any and all agreements, documents and instruments executed and/or
delivered in connection therewith.
"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 13.8(d).
"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 13.8(h).
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System as the same may be amended or supplemented from time to
time.
"Regulatory Change" means, with respect to any Lender, any change
after the Closing Date in any U.S. federal or state or foreign laws or
regulations (including Regulation D) or the adoption or making after such date
of any interpretations, directives, guidelines or requests applying to a class
of lenders including such Lender of or under any U.S. federal or state or
foreign laws or regulations (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
"Release" means, as to any Person, any release, spill, emission,
leaking, pumping, injection, deposit, discharge, disposal, dispersement,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment or into or out of Property owned by such Person, including, without
limitation, the movement of Hazardous Materials through or in the air, soil,
surface water or ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA other than any such event for which the 30-day notice
requirement has been waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders
holding at least two-
CREDIT AGREEMENT - Page 25
<PAGE> 26
thirds (in Dollar amount) of the sum of (a) the aggregate outstanding principal
amount of the Loans, plus (b) the aggregate amount of the outstanding
Commitments.
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for
any Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate
or the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to any Loan Party, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution
(whether in cash, Property or obligations), direct or indirect, on account of
(or the setting apart of money for a sinking or other analogous fund for) any
shares of any class of Capital Stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding, except a dividend or other distribution payable
solely in shares of that class of stock to the holders of that class; (b) any
redemption, conversion, exchange, retirement, sinking fund or similar payment,
purchase or other acquisition for value, direct or indirect, of any shares of
any class of Capital Stock of the Borrower or any of its Subsidiaries now or
hereafter outstanding; (c) any payment or prepayment of principal of, premium,
if any, or interest on, or any redemption, conversion, exchange, purchase,
retirement or defeasance of, or payment with respect to, any Subordinated Debt;
(d) any loan, advance or payment to any officer, director or shareholder of the
Borrower or any of its Subsidiaries (other than a shareholder consisting of the
Borrower or a Wholly-Owned Subsidiary of the Borrower), exclusive of reasonable
compensation paid to officers or directors paid in the ordinary course of
business and exclusive of payments made for goods sold or services rendered
which comply with Section 9.7; and (e) any payment made to retire, or to obtain
the surrender of, any outstanding warrants, options or other rights to acquire
shares of any class of Capital Stock of the Borrower or any of its Subsidiaries
now or hereafter outstanding; provided, however, that, for purposes of clause
(d) preceding, any payments of principal and/or interest with respect to any
Debt owed or owing by the Borrower to Holdings shall not be deemed to be
Restricted Payments.
"Revolving Period" means the period commencing on the Closing Date and
ending on the Commitment Termination Date.
"Security Agreements" means the Borrower Security Agreement and any
and all other security agreements and other agreements, documents or
instruments evidencing or creating a Lien as security for the Obligations or
any portion thereof in form and substance reasonably satisfactory to the
Administrative Agent executed by any Loan Party, in favor of the Administrative
Agent for the benefit of the Administrative Agent and the Lenders, and any such
CREDIT AGREEMENT - Page 26
<PAGE> 27
agreement, document or instrument subsequently executed in accordance or
connection with this Agreement or any other Loan Document, and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Security Documents" means the Security Agreements and the Guaranties
and any and all other security agreements, guaranties and other agreements,
documents, instruments and financing statements now or hereafter executed
and/or delivered by any Person, as they may be amended, modified, supplemented,
renewed, extended or restated from time to time, as security or assurance for
the payment or performance of the Obligations or any part thereof.
"Solvent" means, with respect to any Person as of the date of any
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's Property would constitute
unreasonably small capital after giving due consideration to current and
anticipated future capital requirements and current and anticipated future
business conduct and the prevailing practice in the industry in which such
Person is engaged. In computing the amount of contingent liabilities at any
time, such liabilities shall be computed at the amount which, in light of the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Subordinated Debt" means Debt of the Borrower which is contractually
subordinated, in whole or in part, to the payment of the Obligations or any
portion thereof.
"Subordinated Debt Documents" means any and all other agreements,
documents and instruments now or hereafter evidencing or governing any
Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding shares of stock or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors (or Persons performing similar
functions) of such corporation or entity (irrespective of whether or not at the
time, in the case of a corporation, stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned or controlled by
such Person or one or more of its Subsidiaries or by such Person and one or
more of its Subsidiaries.
"Taxes" means any and all present or future taxes, levies, duties,
imposts, assessments or other charges at any time assessed, levied, imposed or
charged by any Governmental Authority.
"Telecommunications Assets" means all assets, rights (contractual or
otherwise) and Properties, whether tangible or intangible, used or intended for
use in connection with a
CREDIT AGREEMENT - Page 27
<PAGE> 28
Telecommunications Business.
"Telecommunications Business" means the business of (a) transmitting,
or providing services relating to the transmission of, voice, data or video
through owned or leased transmission facilities, (b) constructing, creating,
developing or marketing communications related network equipment, software and
other devices for use in a telecommunications business or (c) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those referred to in clause (a) or (b) preceding.
"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar
Loan).
"UCC" means the Uniform Commercial Code as in effect in the State of
New York and/or any other jurisdiction, the laws of which may be applicable to
or in connection with the creation, perfection or priority of any Lien on any
Property created pursuant to any Security Document.
"U.S." means the United States of America.
"U.S. Nortel Networks Equipment" means as such term is defined in the
Borrower Security Agreement.
"U.S. Person" means a citizen or resident of the U.S., a
corporation, partnership, limited liability company or other entity created or
organized in or under any laws of the U.S. or any estate or trust that is
subject to U.S. Federal income taxation regardless of the source of its income.
"U.S. Taxes" means any Taxes imposed by or on behalf of the U.S.
or any State of the U.S. or the District of Columbia or any taxing authority or
other Governmental Authority of any of the foregoing.
"Vendor" means Nortel Networks in its capacity as vendor under the
Master Purchase Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of such Person all of whose outstanding Capital Stock (other than
directors' qualifying shares, if any) shall at the time be owned by such Person
and/or one or more of its Wholly-Owned Subsidiaries; provided, however, that a
Subsidiary of the Borrower which would be a Wholly-Owned Subsidiary of the
Borrower but for the ownership of one percent (1.00%) or less of the Capital
Stock of such Subsidiary by a Subsidiary of Holdings (or, in the case of
FaciliCom International Sweden AB, by an unrelated entity) shall be deemed to
constitute a Wholly-Owned Subsidiary of the Borrower.
"World Access" means World Access, Inc., a Delaware corporation.
CREDIT AGREEMENT - Page 28
<PAGE> 29
"Year 2000 Compliant" means that (a) the services, products or other
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will
be affected by any dates/times prior to, on, after or spanning January 1, 2000.
The design of the services, products and other item(s) at issue to ensure
compliance with the "year 2000" representations and warranties and covenants
contained in this Agreement includes proper date/time data century recognition
and recognition of 1999 and 2000, calculations that accommodate single century
and multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that
(i) no value for current date/time will cause any error, interruption or
decreased performance in or for such services, products and other item(s), (ii)
all manipulations of date and time related data (including calculating,
comparing, sequencing processing and outputting) will produce correct results
for all valid dates and times when used independently or in combination with
other services, products and/or items, (iii) date/time elements in interfaces
and data storage will specify the century to eliminate date ambiguity without
human intervention, including leap year calculations, (iv) where any date/time
element is represented without a century, the correct century will be
unambiguous for all manipulations involving that element, (v) authorization
codes, passwords and zaps (purge functions) will function normally and in the
same manner during, prior to, on and after January 1, 2000, including the
manner in which they function with respect to expiration dates and CPU serial
numbers, and (vi) the business' supply of the services, products and other
item(s) will not be interrupted, delayed, decreased or otherwise affected by
the advent of the year 2000.
Section 1.2 Other Definitional Provisions. All definitions contained
in this Agreement are equally applicable to the singular and plural forms of
the terms defined. The words "hereof", "herein" and "hereunder" and words of
similar import referring to this Agreement refer to this Agreement as a whole
and not to any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. Unless otherwise specified, all Article and
Section references pertain to this Agreement. Terms used herein that are
defined in the UCC, unless otherwise defined herein, shall have the meanings
specified in the UCC. All references in this Agreement to any agreement shall
be deemed to mean and refer to such agreement as it may be amended, modified or
supplemented from time to time if (but only if) such amendment, modification or
supplement has been approved by the Administrative Agent and the Required
Lenders, is expressly referred to in such reference or is otherwise expressly
permitted by the terms of this Agreement.
Section 1.3 Accounting Terms and Determinations.
(a) Except as may be expressly provided herein to the contrary,
(i) all accounting terms (whether or not specifically defined herein) shall be
construed in accordance with GAAP (subject to year end adjustments, if
applicable) consistent with such accounting principles
CREDIT AGREEMENT - Page 29
<PAGE> 30
applied in the preparation of the audited financial statements referred to in
Section 7.2(a), (ii) all financial information delivered to the Administrative
Agent pursuant to Section 8.1 shall be prepared in accordance with GAAP
(subject to year end adjustments, if applicable) applied on a basis consistent
with such accounting principles applied in the preparation of the audited
financial statements of the applicable Person referred to in Section 7.2 or in
accordance with Section 8.7, and (iii) with respect to accounting terms or
financial information defined or described in reference to a Person and its
Consolidated Subsidiaries, all such terms and information shall be construed as
applying to such Person and its Consolidated Subsidiaries on a consolidated
basis in accordance with GAAP.
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
material variation between the application of GAAP employed in the preparation
of the next preceding annual or quarterly financial statements prepared in
accordance with Section 1.3(a) preceding as to which no reasonable objection
has been made by the Administrative Agent and (ii) reasonable estimates of the
difference between such statements arising as a consequence thereof.
(c) To enable the ready and consistent determination of compliance
with the covenants set forth in this Agreement, the Borrower will not change
the last day of its fiscal year from September 30 or the last days of the first
three fiscal quarters of the Borrower in each of its fiscal years from December
31, March 31 and June 30, respectively; provided, however, that, after
consummation of the Holdings Merger, the Borrower may change the last day of
its fiscal year to December 31st and the last days of the first three fiscal
quarters of the Borrower to March 31, June 30 and September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary,
all references herein to the Closing Date shall be deemed to mean and refer to
the Closing Date after giving effect to all transactions which occur on or
before such date.
Section 1.4 Financial Covenants and Reporting. All financial
statements and reports required to be delivered pursuant to this Agreement and
the other Loan Documents, and all financial covenants (if any) contained in
this Agreement, shall be prepared or determined (as applicable) in accordance
with GAAP (except as may be expressly provided to the contrary herein) and, if
and to the extent that such statements, reports or covenants are to be prepared
or determined on a consolidated basis, shall be prepared or determined on a
consolidated basis for the Borrower and its Consolidated Subsidiaries except as
may be expressly provided to the contrary herein.
ARTICLE 2
Loans
Section 2.1 Commitments.
(a) Loans. Subject to the terms and conditions of this Agreement
(including, without limitation, Section 2.12(a)), each Lender severally agrees
to make one or more loans to the Borrower from time to time from and including
the Closing Date to but excluding the Commitment Termination Date up to but not
exceeding the amount of such Lender's
CREDIT AGREEMENT - Page 30
<PAGE> 31
Commitment as then in effect. (Such loans referred to in this Section 2.1(a)
now or hereafter made by the Lenders to the Borrower, including, without
limitation, such loans which remain outstanding after the Commitment
Termination Date, are hereinafter collectively called the "Loans".) Subject to
the foregoing limitations and the other terms and conditions of this Agreement,
the Borrower may borrow, repay and reborrow the Loans hereunder during (but not
after) the Revolving Period.
(b) Continuation and Conversion of Loans. Subject to the terms
and conditions of this Agreement, the Borrower may borrow the Loans as Base
Rate Loans or Eurodollar Loans and, until the Maturity Date, the Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other
Type.
(c) Lending Offices. Loans of each Type made by each Lender shall
be made and maintained at such Lender's Applicable Lending Office for Loans of
such Type.
Section 2.2 Notes.
(a) Notes. The Loans made by each Lender shall be evidenced by a
single promissory note of the Borrower in substantially the form of Exhibit B
hereto dated the Closing Date (or such later date on which such Lender becomes
a party to this Agreement), payable to the order of such Lender in a principal
amount equal to the Commitment of such Lender and otherwise duly completed.
Each Lender is hereby authorized by the Borrower to endorse on the schedule (or
a continuation thereof) attached to the Note of such Lender, to the extent
applicable, the date, amount and Type of and the Interest Period for each Loan
made by such Lender to the Borrower and the amount of each payment or
prepayment of principal of such Loan received by such Lender, provided that any
failure by such Lender to make any such endorsement shall not affect the
obligations of the Borrower under any such Note or this Agreement in respect of
any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and
that could become completely exempt from withholding of U.S. Taxes in respect
of payment of any Obligations due to such Lender hereunder relating to any of
its Loans if such Loans were in registered form for U.S. Federal income tax
purposes may request the Borrower (through the Administrative Agent), and the
Borrower agrees thereupon, to exchange such Lender's Note evidencing its Loans
for a promissory note registered as provided in Section 13.8(h) hereof (a
"Registered Note"). Registered Notes may not be exchanged for Notes that are
not in registered form.
Section 2.3 Repayment of Loans. The Borrower shall pay to the
Administrative Agent for the account of each Lender all outstanding principal
of the Loans (and all outstanding principal of the Loans shall be due and
payable in full) on the Maturity Date.
Section 2.4 Interest.
(a) Interest Rate. The Borrower shall pay to the Administrative
Agent for the account of each Lender interest on the unpaid principal amount of
each Loan made by such Lender (or deemed made by such Lender with respect to a
Loan assigned to such Lender after the making of such Loan) to the Borrower for
the period commencing on the date of such Loan to, but excluding, the date such
Loan shall be paid in full, at the following rates per annum:
CREDIT AGREEMENT - Page 31
<PAGE> 32
(i) during the periods such Loan is a Base Rate Loan, the
lesser of (A) the Base Rate plus the Applicable Margin or (B) the
Maximum Rate; and
(ii) during the periods such Loan is a Eurodollar Loan, the
lesser of (A) the Adjusted Eurodollar Rate plus the Applicable Margin
or (B) the Maximum Rate.
(b) Payment Dates. Accrued interest on the Loans shall be due and
payable as follows:
(i) in the case of Base Rate Loans, on each Quarterly Date;
(ii) in the case of each Eurodollar Loan, on the last day of
the Interest Period with respect thereto and, in the case of an
Interest Period greater than three months, at three-month intervals
after the first day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or
optional) of any Loan or the Conversion of any Loan to a Loan of the
other Type (but only on the principal amount so paid, prepaid or
Converted); and
(iv) with respect to all Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower
shall pay to the Administrative Agent for the account of each Lender interest
at the applicable Default Rate (i) at all times during which any Event of
Default has occurred and is continuing, on any principal of any Loan
outstanding, and (ii) to the fullest extent permitted by law, any other amount
payable by the Borrower under this Agreement or any other Loan Document to or
for the account of such Lender which is not paid in full when due (whether at
stated maturity, by acceleration or otherwise) for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Interest payable at the Default Rate shall be payable from time to time
on demand by the Administrative Agent.
Section 2.5 Borrowing Procedure.
(a) Standard Procedure. Borrower shall give the Administrative
Agent notice of each borrowing hereunder in accordance with Section 2.9. Not
later than 1:00 p.m. (New York, New York time) on the date specified for each
borrowing hereunder, each Lender will make available the amount of the Loan to
be made by it on such date to the Administrative Agent, at the Principal
Office, in immediately available funds, for the account of the Borrower. The
amount of each borrowing hereunder so received by the Administrative Agent
shall, subject to the terms and conditions of this Agreement, be made
available, for and on behalf of the Borrower, in immediately available funds by
no later than 1:00 p.m. (New York, New York time) and shall be advanced
directly to the Vendor. Notwithstanding anything to the contrary contained in
this Agreement, if and to the extent that Nortel Networks is a Lender under
this Agreement, the Borrower further hereby irrevocably agrees that each Loan
to be advanced by Nortel Networks to the Borrower in accordance with this
Agreement may (in the discretion of Nortel Networks and if and to the extent
that the proceeds of such Loan are to be paid to Nortel Networks) be
effectively disbursed on the date set forth in the Notice of Borrowing for such
disbursement to the Borrower by virtue of a credit in the amount of such Loan
given to the
CREDIT AGREEMENT - Page 32
<PAGE> 33
Borrower by the Vendor under the Master Purchase Agreement.
(b) Automatic Advancement of Loans at the Election of the
Administrative Agent. Notwithstanding anything to the contrary contained in
this Agreement, the Administrative Agent may, with the prior written consent of
the Required Lenders, cause Loans to be advanced by the Lenders for and on
behalf of the Borrower whether or not (i) any Notice of Borrowing is given in
accordance with Section 2.9, (ii) any of the conditions precedent set forth in
Article 6 hereof are satisfied, (iii) any Default exists, or (iv) any other
fact or circumstance exists, if (A) the Administrative Agent shall have given
five Business Day's prior written notice to the Borrower of the Lenders'
intention to make such Loans and (B) all proceeds of such Loans are used to pay
the purchase price for Nortel Networks Goods and Services which has not been
paid within 45 days after the date of invoice by the Vender therefor and/or to
pay accrued late charges relating to such purchase price in accordance with the
Master Purchase Agreement; provided, however, that the Administrative Agent may
advance Loans to the Borrower on the Closing Date in an amount of up to
$21,716,880.38 without the giving of any prior written notice to the Borrower
of the Lenders' intention to do so, which advance on the Closing Date shall be
used, in part, to pay all principal with respect to the Prior Note. All Loans
advanced pursuant to this Section 2.5(b) shall be advanced as Base Rate Loans
(but, after such advancement, may be Converted to Eurodollar Loans in
accordance with this Agreement). The Borrower irrevocably agrees that it will,
on the Closing Date, execute and deliver to the Administrative Agent a Notice
of Borrowing and thereby request that the Lenders make Loans in the aggregate
amount of $21,716,880.38 to the Borrower on the Closing Date; provided,
however, that, notwithstanding anything to the contrary contained in Section
2.9, such Notice of Borrowing need not be provided to the Administrative Agent
prior to the Closing Date.
Section 2.6 Optional Prepayments, Conversions and Continuations
of Loans. Subject to Section 2.8, the Borrower shall have the right from time
to time to prepay the Loans in whole or in part, to Convert all or part of a
Loan of one Type into a Loan of another Type or to Continue Eurodollar Loans;
provided that: (a) the Borrower shall give the Administrative Agent notice of
each such prepayment, Conversion or Continuation as provided in Section 2.9,
(b) Eurodollar Loans may only be Converted on the last day of the Interest
Period and any prepayment of Eurodollar Loans on any day other than the last
day of the Interest Period shall be subject to payment of the additional
compensation specified in Section 4.5, (c) except for Conversions of Eurodollar
Loans into Base Rate Loans, no Conversions or Continuations shall be made while
an Event of Default has occurred and is continuing, and (d) optional
prepayments of the Loans shall be applied to the principal of the Loans in the
inverse order of the maturities of the then remaining installments (if any) of
such Loans.
Section 2.7 Mandatory Prepayments.
(a) Dispositions of Collateral The Borrower shall, concurrently
with the sale or other disposition of any U.S. Nortel Networks Equipment
constituting Collateral, pay to the Administrative Agent, as a prepayment of
the Loans, an aggregate amount equal to the Net Proceeds of any such sale or
other disposition. (Nothing contained in this Section 2.7(a) shall be deemed to
constitute any authorization to sell or otherwise dispose of any of the
Collateral except in accordance with Section 9.8.)
(b) Application of Mandatory Prepayments. All prepayments pursuant
to Section
CREDIT AGREEMENT - Page 33
<PAGE> 34
2.7(a) shall be applied to the principal of the Loans in the inverse order of
the maturities of the then remaining installments (if any) of the Loans and
then to the remaining outstanding Obligations in such order as the
Administrative Agent may determine.
(c) No Reborrowing. No amounts of the Loans prepaid pursuant to
this Section 2.7 may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and
prepayments pursuant to Section 2.7 and Article 4, each borrowing, each
Conversion and each optional prepayment of principal of the Loans shall be,
unless otherwise agreed by the Administrative Agent, in an amount at least
equal to $500,000 or an integral multiple of $100,000 in excess thereof
(borrowings, prepayments or Conversions of or into Loans of different Types or,
in the case of Eurodollar Loans, having different Interest Periods at the same
time hereunder shall be deemed separate borrowings, prepayments and Conversions
for purposes of the foregoing, one for each Type or Interest Period); provided,
however, that borrowings in accordance with Section 2.5(b) may be in any
amount.
Section 2.9 Certain Notices. Subject to Section 2.5(b), notices
by the Borrower to the Administrative Agent of terminations or reductions of
Commitments, of borrowings, Conversions, Continuations and prepayments of Loans
and of the duration of Interest Periods shall be irrevocable and shall be
effective only if received by the Administrative Agent not later than 11:00
a.m. (New York, New York, time) on the applicable Business Day prior to the
date of the relevant termination, reduction, borrowing, Conversion,
Continuation or prepayment or the first day of such Interest Period specified
below:
<TABLE>
<CAPTION>
Number of
Notice Business Days Prior
------ -------------------
<S> <C>
Terminations or Reductions of Commitments 1
- ------------------------------------------------------------------------------------------------
Borrowings of Loans which are Base Rate Loans, and Conversions of
Eurodollar Loans into Base Rate Loans 3
- ------------------------------------------------------------------------------------------------
Borrowings or Continuations of Loans which are Eurodollar Loans,
and Conversions of Base Rate Loans into Eurodollar Loans 3
- ------------------------------------------------------------------------------------------------
Prepayments of Loans 2
- ------------------------------------------------------------------------------------------------
</TABLE>
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Subject to Section 2.5(b), each such
notice of borrowing, Conversion, Continuation or prepayment shall specify the
Loans to be borrowed, Converted, Continued or prepaid and the amount (subject
to Section 2.8 hereof) and Type of the Loans to be borrowed, Converted,
Continued or prepaid (and, in the case of a Conversion, the Type of Loans to
result from such Conversion) and the date of borrowing, Conversion,
Continuation or prepayment (which shall be a Business Day). Subject to Section
2.5(b), each such notice of termination, reduction, borrowing, Conversion,
Continuation or prepayment shall be in the form of Exhibit C
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hereto, appropriately completed as applicable. Each notice of borrowing (a
"Notice of Borrowing") (a) shall certify that all proceeds of the requested
Loans are, concurrently with the making of such Loans, being used by the
Borrower for the purpose specified in Section 2.10 and (b) shall be accompanied
by such other evidence as to use of the proceeds of such borrowing, as the
Administrative Agent may reasonably request from time to time. Subject to
Section 2.5(b), each notice which includes reference to the duration of an
Interest Period shall specify the Loans to which such Interest Period is to
relate. The Administrative Agent shall promptly notify the Lenders of the
contents of each such notice. In the event the Borrower fails to select the
Type of Loan, or the duration of any Interest Period for any Eurodollar Loan,
within the time period and otherwise as provided in this Section 2.9, such Loan
(if outstanding as Eurodollar Loan) will be automatically Converted into a Base
Rate Loan on the last day of preceding Interest Period for such Loan or (if
outstanding as a Base Rate Loan) will remain as, or (if not then outstanding)
will be made as, a Base Rate Loan. The Borrower may not borrow any Eurodollar
Loans, Convert any Loans into Eurodollar Loans or Continue any Loans as
Eurodollar Loans if the interest rate for such Eurodollar Loans would exceed
the Maximum Rate.
Section 2.10 Use of Proceeds.
(a) Loans. The Borrower agrees that all proceeds of the Loans
shall be used (i) to refinance the principal amount of all Debt outstanding
under the Prior Note, (ii) to finance the purchase price for Nortel Networks
Goods and Services provided by the Vendor under the Master Purchase Agreement,
excluding sales and use taxes and freight charges, and (iii) to pay accrued
late charges and/or other amounts payable by the Borrower to the Vendor under
the Master Purchase Agreement.
(b) Margin Stock. None of the proceeds of any Loan may be used to
acquire any security in any transaction that is subject to Section 13 or 14 of
the Exchange Act or to purchase or carry any margin stock (within the meaning
of Regulations T, U or X of the Board of Governors of the Federal Reserve
System).
Section 2.11 Computations. Interest and fees payable by the
Borrower hereunder and under the other Loan Documents on all Loans shall be
computed on the basis of a year of 360 days and the actual number of days
elapsed (including the first day but excluding the last day) occurring in the
period for which payable unless, in the case of interest or fees which
constitute interest (if applicable), such calculation would result in a
usurious rate, in which case interest or fees which constitute interest (if
applicable) shall be calculated on the basis of a year of 365 or 366 days, as
the case may be.
Section 2.12 Termination or Reduction of Commitments.
(a) Subject to Section 2.12(d), each of the Commitments shall
automatically terminate upon the occurrence of any Change in Control.
(b) Subject to Section 2.12(d), the Borrower shall have the right
to terminate or reduce in part the unused portion of the Commitments at any
time and from time to time prior to the Commitment Termination Date; provided,
however, that (i) no such termination or reduction shall be effective unless
the Borrower shall have given notice of each such termination or reduction as
provided in Section 2.9 and (ii) each partial reduction of the Commitments
shall be
CREDIT AGREEMENT - Page 35
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in an aggregate amount at least equal to $500,000 or an integral multiple of
$100,000 in excess thereof.
(c) Subject to Section 2.12(d), the Commitments may not be
reinstated after they have been terminated or increased after they have been
reduced.
(d) Notwithstanding anything to the contrary contained in this
Agreement, without the prior written consent of the Administrative Agent, the
Commitments may not be terminated at any time when Nortel Networks Goods and
Services have been ordered under the Master Purchase Agreement and have not
been fully paid for and the Commitments may not be reduced at any time to an
amount which is less than the aggregate amount that, at such time, the Borrower
may thereafter be required to pay to the Vendor under the Master Purchase
Agreement based upon Nortel Networks Goods and Services which have been ordered
under the Master Purchase Agreement.
ARTICLE 3
Payments
Section 3.1 Method of Payment. All payments of principal,
interest, fees and other amounts to be made by the Borrower under this
Agreement and the other Loan Documents shall be made to the Administrative
Agent at the Principal Office for the account of each Lender's Applicable
Lending Office in Dollars and in immediately available funds, without setoff,
deduction or counterclaim, not later than 1:00 p.m. (New York, New York time)
on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day). The Borrower shall, at the time of making each such
payment, specify to the Administrative Agent the sums payable by the Borrower
under this Agreement and the other Loan Documents to which such payment is to
be applied (and in the event that the Borrower fails to so specify, or if an
Event of Default has occurred and is continuing, the Administrative Agent may
apply such payment to the Obligations in such order and manner as the
Administrative Agent may elect, subject to Section 3.2). Upon the occurrence
and during the continuation of an Event of Default, all proceeds of any
Collateral and all other funds of the Borrower in the possession of the
Administrative Agent or any Lender may be applied by the Administrative Agent
to the Obligations in such order and manner as the Administrative Agent may
elect, subject to Section 3.2. Each payment received by the Administrative
Agent under this Agreement or any other Loan Document for the account of a
Lender shall be paid promptly to such Lender, in immediately available funds,
for the account of such Lender's Applicable Lending Office. Whenever any
payment under this Agreement or any other Loan Document shall be stated to be
due on a day that is not a Business Day, such payment may be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of the payment of interest and commitment fee, as
the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise
provided in this Agreement: (a) each Loan shall be made by the Lenders under
Section 2.1, and each termination or reduction of the Commitments under Section
2.12 shall be applied to the Commitments of the Lenders, pro rata according to
the respective unused Commitments; (b) the making, Conversion and Continuation
of Loans of a particular Type (other than Conversions provided for by Section
CREDIT AGREEMENT - Page 36
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4.4) shall be made pro rata among the Lenders holding Loans of such Type
according to the amounts of their respective Commitments; (c) each payment and
prepayment by the Borrower of principal of or interest on Loans of a particular
Type shall be made to the Administrative Agent for the account of the Lenders
holding Loans of such Type pro rata in accordance with the respective unpaid
principal amounts of such Loans held by such Lenders; and (d) Interest Periods
for Loans of a particular Type shall be allocated among the Lenders holding
Loans of such Type pro rata according to the respective principal amounts held
by such Lenders.
Section 3.3 Sharing of Payments, etc. If a Lender shall obtain
payment of any principal of or interest on any of the Obligations due to such
Lender hereunder through the exercise of any right of setoff, banker's lien,
counterclaim or similar right, or otherwise, it shall promptly purchase from
the other Lenders participations in the Obligations held by the other Lenders
in such amounts, and make such adjustments from time to time, as shall be
equitable to the end that all the Lenders shall share pro rata in accordance
with the unpaid principal and interest on the Obligations then due to each of
them. To such end, all of the Lenders shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if all or any
portion of such excess payment is thereafter rescinded or must otherwise be
restored. The Borrower agrees, to the fullest extent it may effectively do so
under applicable law, that any Lender so purchasing a participation in the
Obligations held by the other Lenders may exercise all rights of setoff,
banker's lien, counterclaim or similar rights with respect to such
participation as fully as if such Lender were a direct holder of Obligations in
the amount of such participation. Nothing contained herein shall require any
Lender to exercise any such right or shall affect the right of any Lender to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness, liability or obligation of the Borrower.
Section 3.4 Non-Receipt of Funds by the Administrative Agent.
Unless the Administrative Agent shall have been notified by a Lender or the
Borrower (the "Payor") prior to the date on which such Lender is to make payment
to the Administrative Agent of the proceeds of a Loan to be made by it hereunder
or the Borrower is to make a payment to the Administrative Agent for the account
of one or more of the Lenders, as the case may be (such payment being herein
called the "Required Payment"), which notice shall be effective upon receipt,
that the Payor does not intend to make the Required Payment to the
Administrative Agent, the Administrative Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall not
be required to), make the amount thereof available to the intended recipient on
such date and, if the Payor has not in fact made the Required Payment to the
Administrative Agent, the recipient of such payment shall, on demand, pay to the
Administrative Agent the amount made available to it together with interest
thereon in respect of the period commencing on the date such amount was so made
available by the Administrative Agent until the date the Administrative Agent
recovers such amount at a rate per annum equal to the Federal Funds Rate for
such period.
Section 3.5 Taxes.
(a) All payments by the Borrower of principal of and interest on the
Loans and of all fees and other amounts payable under the Loan Documents shall
be made free and clear of, and without withholding or deduction by reason of,
any present or future Other Taxes. If any Other Taxes are so levied or imposed,
the Borrower will (i) make additional payments in such amounts so that every
net payment of principal of and interest on the Loans and of all other amounts
CREDIT AGREEMENT - Page 37
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payable by it under the Loan Documents, after withholding or deduction for or
on account of any such Other Taxes (including any tax imposed on or measured by
net income of a Lender attributable to payments made to or on behalf of a
Lender pursuant to this Section 3.5 and any penalties or interest attributable
to such payments), will not be less than the amount provided for herein or
therein absent such withholding or deduction (provided that the Borrower shall
not have any obligation to pay such additional amounts to any Lender to the
extent that such Other Taxes are levied or imposed by reason of the failure of
such Lender to comply with the provisions of Section 3.6), (ii) make such
withholding or deduction and (iii) remit the full amount deducted or withheld
to the relevant Governmental Authority in accordance with applicable law.
Without limiting the generality of the foregoing, the Borrower will, upon
written request of any Lender, reimburse each such Lender for the amount of (A)
such Other Taxes so levied or imposed by any Governmental Authority and paid by
such Lender as a result of payments made by the Borrower under or with respect
to the Loans other than such Other Taxes previously withheld or deducted by the
Borrower which have previously resulted in the payment of the required
additional amount to such Lender, and (B) such Other Taxes so levied or imposed
with respect to any Lender reimbursement under the foregoing clause (A), so
that the net amount received by such Lender (net of payments made under or with
respect to the Loans) after such reimbursement will not be less than the net
amount such Lender would have received if such Other Taxes on such
reimbursement had not been levied or imposed. The Borrower shall furnish
promptly to the Administrative Agent for distribution to each affected Lender,
as the case may be, upon request of such Lender, official receipts evidencing
any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each
Lender (without duplication) against, and reimburse the Administrative Agent
and each Lender for, all Other Taxes (including interest and penalties) levied
or collected (whether or not legally or correctly imposed, assessed, levied or
collected) on or in respect of this Agreement, any of the Loan Documents or the
Obligations or any portion thereof (the "reimbursable taxes"). Any such
indemnification shall be on an after-tax basis, taking into account any such
reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or
provision of this Agreement, the obligations of the Borrower under this Section
3.5 shall survive the payment of the Loans and the other Obligations and
termination of the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Closing Date or the date upon
which it initially becomes a party to this Agreement and if it is legally able
to do so, deliver to the Borrower and the Administrative Agent, two duly
completed copies of U.S. Internal Revenue Service Form W-8ECI or W-8BEN or
other equivalent successor forms, as appropriate, certifying in any case that
such Lender is entitled to receive payments from the Borrower under any Loan
Document without deduction or withholding of any U.S. federal income taxes.
Each Lender which so delivers a Form W-8ECI or W-8BEN or other equivalent
successor forms, as appropriate, further undertakes to deliver to the Borrower
and the Administrative Agent, two additional copies of such form (or a
successor form) on or before the date such form expires or becomes obsolete or
after the occurrence of any event requiring a change in the most recent form so
delivered by it, and such amendments thereto or extensions or renewals thereof
as may be reasonably requested by the Borrower or the
CREDIT AGREEMENT - Page 38
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Administrative Agent, in each case certifying that such Lender is entitled to
receive payments from the Borrower under any Loan Document without deduction or
withholding of any U.S. federal income taxes, unless an event (including,
without limitation, any change in treaty, law or regulation) has occurred prior
to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from
duly completing and delivering any such form with respect to it and such Lender
advises the Borrower and the Administrative Agent that it is not capable of
receiving such payments without any deduction or withholding of U.S. federal
income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding
anything to the contrary contained in this Agreement or any other Loan
Document, if the payment of any amount of principal of or interest with respect
to the Loans or any other amount of the Obligations, or any portion thereof, is
rescinded, voided or must otherwise be refunded by the Administrative Agent or
any Lender upon the insolvency, bankruptcy or reorganization of the Borrower or
otherwise for any reason whatsoever, then each of (a) the Obligations, (b) the
Loan Documents (including, without limitation, this Agreement, the Notes and
the Security Documents), and (c) all Liens for the benefit of the
Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be automatically reinstated and become automatically effective
and in full force and effect, all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.
Section 3.8 No Force Majeure, Disputes. The Borrower's obligation
to pay all amounts due under the Loans and the other Obligations shall not be
affected by (a) any set-off, counterclaim, recoupment, deduction, abatement,
suspension, diminution, reduction, defense or other right which the Borrower
may have against the Vendor for any reason whatsoever arising under or pursuant
to the Master Purchase Agreement or otherwise relating to the purchase of goods
or services from the Vendor, (b) any defect in the condition, design, operation
or fitness for use of, or any damage to or loss or destruction of, any
equipment or material or service provided by the Vendor, (c) any insolvency,
bankruptcy, reorganization or similar proceedings by or against the Borrower or
affecting any of its Properties, (d) any action of any Governmental Authority
or any damage to or destruction of or any taking of the Borrower's Property or
any part thereof, (e) any change, waiver, extension, indulgence or failure to
perform or comply with, or other action or omission herein or in the other Loan
Documents (except for express written modifications to this Agreement or other
Loan Documents as and in the manner permitted under this Agreement or the other
Loan Documents), (f) any dissolution of the Borrower, (g) any inability or
illegality with respect to the use or ownership of the Borrower's Property, (h)
any failure to obtain, or expiration, suspension or other termination of, or
interruption to, any required licenses, permits, consents, authorizations,
approvals or other legal requirements, (i) the invalidity or unenforceability
of any of the Loan Documents or any other infirmity therein or any lack of
power or authority of the Administrative Agent or any Lender or the Borrower,
or (j) any other event or circumstance whatsoever, whether or not similar to
any of the foregoing and whether or not the Borrower shall have notice or
knowledge of any of the foregoing, it being the intention of the Administrative
Agent and the Lenders and the Borrower that the Obligations of the Borrower
shall be absolute and unconditional and shall be separate and independent
covenants and agreements and shall continue unaffected unless the requirements
to pay or perform the same shall have been terminated pursuant to an express
provision thereof or of any of the other Loan Documents.
CREDIT AGREEMENT - Page 39
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ARTICLE 4
Yield Protection and Illegality
Section 4.1 Additional Costs.
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the reasonable costs incurred by such
Lender which such Lender reasonably determines are attributable to its making or
maintaining of any Eurodollar Loans or its obligation to make any of such Loans,
or any reduction in any amount receivable by such Lender hereunder in respect of
any such Loans or obligations (such increases in reasonable costs and reductions
in amounts receivable being herein called "Additional Costs"), resulting from
any Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to
such Lender under this Agreement or its Notes in respect of any of such
Loans (other than Excluded Taxes);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any
extensions of credit or other assets of, or any deposits with or other
liabilities or commitments of, such Lender (including any of such Loans
or any deposits referred to in the definition of "Eurodollar Rate" in
Section 1.1 hereof, but excluding the Reserve Requirement to the extent
it is included in the calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or
the Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
obtains knowledge thereof and determines to request such compensation. Each
Lender will, in a reasonably prompt fashion after it is able to do so, furnish
the Borrower with a certificate setting forth the basis, calculation and amount
of each request of such Lender for compensation under this Section 4.1(a). If
any Lender requests compensation from the Borrower under this Section 4.1(a),
the Borrower may, by notice to such Lender (with a copy to the Administrative
Agent), suspend the obligation of such Lender to make or Continue making, or
Convert Base Rate Loans into, Eurodollar Loans until the Regulatory Change
giving rise to such request ceases to be in effect (in which case the provisions
of Section 4.4 hereof shall be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Lender to make or Continue making, or Convert
CREDIT AGREEMENT - Page 40
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Base Rate Loans into, Eurodollar Loans hereunder shall be suspended until such
Regulatory Change ceases to be in effect (in which case the provisions of
Section 4.4 hereof shall be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional amounts required to
compensate such Lender in respect of any Additional Costs, shall be conclusive
in the absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the
contrary notwithstanding, if with respect to any Eurodollar Loans for any
Interest Period therefor:
(a) the Administrative Agent reasonably determines (which determination
shall be conclusive absent manifest error) that quotations of interest rates for
the relevant deposits referred to in the definition of "Eurodollar Rate" in
Section 1.1 hereof are not being provided in the relative amounts or for the
relative maturities for purposes of determining the rate of interest for such
Loans as provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the rate
of interest for such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
Section 4.3 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
Section 4.4 Treatment of Affected Loans. If the obligation of any
Lender to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans
is suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's Eurodollar
Loans shall be automatically Converted into Base Rate Loans on the last day(s)
of the then current Interest Period(s) for the Eurodollar Loans (or, in the case
of a Conversion required by Section 4.1(b) or 4.3 hereof, on such earlier date
as
CREDIT AGREEMENT - Page 41
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such Lender may specify to the Borrower with a copy to the Administrative
Agent) and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to such
Conversion no longer exist (as a result of Section 4.8 or Section 4.9 or
otherwise):
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Lender
as Eurodollar Loans shall be made as or Converted into Base Rate Loans and all
Loans of such Lender which would otherwise be Converted into Eurodollar Loans
shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender
agrees to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the Administrative
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss
(excluding lost profits), cost or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 11.2) on a date other than the last day of an Interest
Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to be
satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such
borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
Each Lender will, in a reasonably prompt fashion after it is able to do so,
furnish the Borrower with a certificate setting forth the basis, calculation and
amount of each request of such Lender for compensation under this Section 4.5.
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender
shall have determined that the adoption or implementation (after the Closing
Date) of any applicable law, rule or regulation regarding capital adequacy
(including, without limitation, any law, rule or regulation implementing the
Basle Accord), or any change (after the Closing Date) therein, or any change
(after the Closing Date) in the interpretation or administration thereof by any
central
CREDIT AGREEMENT - Page 42
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bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance (after the Closing Date) by such Lender
(or its parent) with any guideline, request or directive regarding capital
adequacy (whether or not having the force of law) of any central bank or other
Governmental Authority (including, without limitation, any guideline or other
requirement implementing the Basle Accord), has or would have the effect of
reducing the rate of return on such Lender's (or its parent's) capital as a
consequence of its obligations hereunder or the transactions contemplated hereby
to a level below that which such Lender (or its parent) could have achieved but
for such adoption, implementation, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy) by an
amount reasonably deemed by such Lender to be material, then from time to time,
within ten Business Days after demand by such Lender (with a copy to the
Administrative Agent), the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender (or its parent) for such
reduction. A certificate of such Lender claiming compensation under this Section
4.6 and setting forth, in reasonable detail, the additional amount or amounts to
be paid to it hereunder and the calculations for arriving at such amount or
amounts shall be conclusive absent manifest error, provided that the
determination thereof is made on a reasonable basis. In determining such amount
or amounts, such Lender may use any reasonable averaging and attribution
methods.
Section 4.7 Additional Interest on Eurodollar Loans. Without
duplication of Section 2.4 or amounts directly included in the definition of the
term "Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender
from time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower
shall not be obligated to make any such payment of additional interest until the
first Business Day after the date when the Borrower has been informed (i) that
such Lender is subject to a Reserve Requirement and (ii) of the amount of such
Reserve Requirement (after which time the Borrower shall be obligated to make
all such payments of additional interest, including, without limitation, such
payment of additional interest that otherwise would have been payable by the
Borrower on or prior to such time had the Borrower been earlier informed).
Section 4.8 Replacement of Lenders. If at any time a Lender becomes a
Gross Up Lender, the Borrower shall have the right to replace such Lender with
another Person; provided that (a) such other Person shall be an Eligible
Assignee and such other Person shall execute an Assignment and Acceptance, (b)
neither the Administrative Agent nor any Lender shall have any obligation to the
Borrower to find such a replacement lender, (c) in the event of a replacement of
a Gross Up Lender, in order for the Borrower to be entitled to replace such
Lender, such replacement must take place no later than 180 days after the date
the Gross Up Lender shall notify the Borrower and the Administrative Agent of
its desire to be paid any amounts pursuant to Section 3.5, 4.1 or 4.6, and (d)
if the Borrower replaces one Gross Up Lender, it must replace all Gross Up
Lenders or replace all Gross Up Lenders on a pro rata basis. Each Lender agrees
to its replacement as a Lender at the option of the Borrower pursuant to this
Section 4.8 and in accordance with Section 13.8; provided that the successor
Lender shall purchase without
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recourse such Lender's interest in the Obligations of the Borrower to such
Lender for cash in an aggregate amount equal to the aggregate unpaid principal
thereof, all unpaid interest accrued thereon, all unpaid commitment fees accrued
for the account of such Lender, any breakage costs incurred by the selling
Lender because of the prepayment of any Eurodollar Loans, all other fees (if
any) applicable thereto and all other amounts (including any amounts under this
Article 4) then owing to such Lender hereunder or under any other Loan Document.
Section 4.9 Change of Applicable Lending Office. In the event that any
Lender has requested compensation from the Borrower in accordance with Section
3.5, 4.1(a) or 4.6, or in the event that any Lender's obligation to make or
maintain Eurodollar Loans is suspended in accordance with Section 4.3, then such
Lender shall, if requested to do so by the Borrower, designate a different
applicable lending office for the applicable Loans of such Lender if such
designation will avoid the need for, or reduce the amount of, such compensation
or will avoid the illegality of making or maintaining Eurodollar Loans (as
applicable) and if such designation will not, in the sole opinion of such
Lender, violate any law, rule or regulation or be in any way disadvantageous to
such Lender in any material respect.
ARTICLE 5
Security
Section 5.1 Collateral. To secure the full and complete payment and
performance of the Obligations, the Borrower will grant to the Administrative
Agent for the benefit of the Administrative Agent and the Lenders a perfected,
first priority Lien on all of its right, title and interest in and to the
Collateral, whether now owned or hereafter acquired, pursuant to the Security
Agreements.
Section 5.2 Guaranties. The Borrower will cause Holdings to Guarantee
the payment and performance of the Obligations pursuant to a Guaranty.
Section 5.3 Landlord Waivers or Subordinations. With respect to each
lease of real Property executed by the Borrower or any of its Subsidiaries or
Affiliates whereat any of the Collateral constituting switches is located, the
Borrower will, and will cause each of its Subsidiaries or Affiliates (as
applicable) to, use its best efforts to obtain, within 30 days after the Closing
Date and continuing thereafter as may be necessary or appropriate to obtain the
same, waivers or subordinations of landlord's Liens from each lessor and other
agreements from such lessor and its lenders necessary or appropriate to ensure
Administrative Agent's perfected, first priority Lien on the Collateral affected
thereby and the Administrative Agent's access to such Collateral, in each case
in form and substance reasonably satisfactory to the Administrative Agent.
Section 5.4 Further Assurances. In addition to the foregoing, the
Borrower shall, and shall cause each of the other Loan Parties and other
appropriate Persons (as applicable) to, execute and/or deliver such further
agreements, documents and instruments (including, without limitation, financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Article 5.
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Section 5.5 Setoff. If an Event of Default shall have occurred and be
continuing, each Lender is hereby authorized at any time and from time to time,
without prior notice to the Borrower (any such notice being hereby expressly
waived by the Borrower), to set off and apply any and all deposits (general or
special, time or demand, provisional or final excluding any trust accounts) at
any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of the Borrower against any and all of the Obligations
of the Borrower now or hereafter existing under this Agreement, such Lender's
Note or any other Loan Document, irrespective of whether or not the
Administrative Agent or such Lender shall have made any demand under this
Agreement, such Lender's Note or any such other Loan Document and although such
Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
(with a copy to the Administrative Agent) after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
such setoff and application. The rights and remedies of each Lender hereunder
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which such Lender may have.
ARTICLE 6
Conditions Precedent
Section 6.1 Initial Extension of Credit. The obligation of each Lender
to make its initial Loan under this Agreement is subject to the receipt by the
Administrative Agent, on or before the Closing Date, of all of the following in
form and substance satisfactory to the Administrative Agent and the Lenders and,
in the case of actions to be taken, the taking of the following required actions
and evidence that such actions have been taken to the satisfaction of the
Administrative Agent:
(a) Resolutions. Resolutions of the board of directors or equivalent
governing body (as applicable) certified by the Secretary or an Assistant
Secretary or equivalent officer or representative of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by
the Secretary or an Assistant Secretary (or other analogous officer or
representative) of each Loan Party certifying as to the name of each officer or
other representative of such Loan Party (i) who is authorized to sign the Loan
Documents to which it is or is to be a party (including any certificates
contemplated therein), together with specimen signatures of each such officer or
other representative, and (ii) who will, until replaced by other officers or
representatives duly authorized for that purpose, act as its representative for
the purposes of signing documents and giving notices and other communications in
connection with the Loan Documents and the transactions contemplated thereby;
(c) Articles of Incorporation. The certificate of incorporation or
articles of incorporation, articles of association, certificate of formation or
other analogous constitutional documents of each Loan Party certified by the
Secretary of State or other applicable Governmental Authority of the state of
incorporation or organization of such entity and dated as of a Current Date;
(d) Bylaws. The bylaws, regulations, operating agreement or other
analogous constitutional documents of each Loan Party certified by its Secretary
or an Assistant Secretary
CREDIT AGREEMENT - Page 45
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(or other analogous officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials as
to the existence and good standing of each of the Loan Parties in its
jurisdiction of incorporation or organization or formation and in all
jurisdictions in which such Loan Party is qualified or is required to qualify to
do business as a foreign entity, each such certificate to be dated as of a
Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
payable to the order of each Lender with respect to its Commitment);
(g) Security Agreements and Other Security Documents. A Security
Agreement executed by the Borrower pertaining to the Collateral, together with
all related financing statements and other filings, and, with respect to each
existing lease of real Property where Collateral constituting switches is
located and if and to the extent required by Section 5.3, waivers or
subordinations of landlord's Liens from each lessor and other agreements from
such lessor and its lenders necessary or appropriate to ensure Administrative
Agent's perfected, first priority Lien on the Collateral affected thereby and
the Administrative Agent's access to such Collateral or real Property, in each
case in form and substance reasonably satisfactory to the Administrative Agent;
(h) Insurance Certificates and Policies. Certificates evidencing all
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;
(i) Lien Searches. Lien searches in the name of each of the Loan
Parties (and in all names under which any of them has done business within the
last five years) in each jurisdiction where such Loan Party maintains an office
or has Property, showing no financing statements or other Lien instruments of
record affecting the Collateral except for Permitted Liens and Liens being
released prior to or concurrently with the making of the initial Loan;
(j) Master Purchase Agreement. The Master Purchase Agreement dated as
of January 1, 1998 shall be in full force and effect, and the Administrative
Agent shall have received a photocopy of the Master Purchase Agreement as so
executed and delivered, certified by a Responsible Officer of the Borrower as
being a true and correct copy of such document;
(k) Payment of Fees and Expenses. The Borrower shall have paid all
reasonable fees, costs and expenses of or incurred by the Administrative Agent
and its counsel to the extent billed on or before the Closing Date and payable
pursuant to this Agreement;
(l) Compliance with Laws. The Borrower and the other Loan Parties shall
have complied in all material respects with all Governmental Requirements
necessary to execute and deliver this Agreement and the other Loan Documents and
to perform and consummate the transactions contemplated by this Agreement and
the other Loan Documents;
(m) No Prohibitions. No Governmental Requirement shall prohibit the
execution or delivery of this Agreement or any other Loan Document or the
performance or consummation of the transactions contemplated by this Agreement
or any other Loan Document, and no order, judgment or decree of any Governmental
Authority or arbitrator shall, and no litigation or other
CREDIT AGREEMENT - Page 46
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proceeding shall be pending or, to the Borrower's knowledge, threatened which
would, enjoin, prohibit, restrain or otherwise adversely affect in any material
manner the execution or delivery of this Agreement or any other Loan Document or
the performance or consummation of the transactions contemplated by this
Agreement or any other Loan Document or otherwise have a Material Adverse
Effect;
(n) Financial Statements. Copies of each of the financial statements
referred to in Section 7.2, in each case as certified by a Responsible Officer
of the applicable Loan Party as having been prepared in accordance with GAAP and
as fairly presenting the financial condition of the applicable Loan Party as of
the respective dates indicated therein and results of operations for the
respective periods indicated therein;
(o) Opinions of Counsel. Favorable legal opinions of counsel for the
Loan Parties, in form and substance and reasonably satisfactory to the
Administrative Agent, with respect to the Loan Parties and with respect to the
Loan Documents;
(p) Business Plan. A copy of the Business Plan in form and substance
reasonably satisfactory to the Administrative Agent;
(q) Material Agreements. A true and correct and fully executed copy of
each of (i) the Holdings Merger Agreement, (ii) the Holdings Senior Notes
Documents, and (iii) the Receivables Financing Documents;
(r) Waivers and Consents. To the extent not referred to in clause (g)
preceding, copies of all material waivers and consents necessary for the
execution, delivery and performance by each of the Loan Parties of the Loan
Documents to which it is a party, including, without limitation, any (if any)
waivers and consents which may be necessary or appropriate therefor with respect
to the Master Purchase Agreement, the Holdings Senior Notes Documents, the
Holdings Exchange Senior Notes Documents and the Receivables Financing Documents
as the Administrative Agent may reasonably require, which waivers and consents
shall be certified by a Responsible Officer of the Borrower as true and correct
copies of such consents as of the Closing Date;
(s) No Material Adverse Change. As of the Closing Date, no material
adverse change shall have occurred with respect to the businesses, assets,
financial condition, results of operations, operations, capitalization,
indebtedness, liabilities, obligations, profitability or prospects or Properties
or of the general affairs or management of Holdings and its Subsidiaries, taken
as a whole, or of the Borrower individually or of the Borrower and its
Subsidiaries taken as a whole, in each case since June 30, 1999;
(t) Solvency. A certificate certifying that each of (a) Holdings and
its Subsidiaries on a consolidated basis and (b) the Borrower and its
Subsidiaries on a consolidated basis, is Solvent; and
(u) Repayment of Prior Note. The Debt evidenced by the Prior Note shall
have been paid in full concurrently with the making of the initial Loan under
this Agreement.
The Borrower shall deliver, or cause to be delivered, to the Administrative
Agent sufficient
CREDIT AGREEMENT - Page 47
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counterparts of each agreement, document or instrument to be received by the
Administrative Agent under this Section 6. 1 to permit the Administrative Agent
to distribute a copy of the same to each of the Lenders. After the request of
the Borrower, the Administrative Agent shall inform the Borrower in writing as
to the status of satisfaction of the conditions precedent set forth in this
Section 6.1.
Section 6.2 All Extensions of Credit. Subject to Section 2.5, the
obligation of each Lender to make any Loan (including the initial Loan) under
this Agreement is subject to the satisfaction of each of the following
additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material
Adverse Effect shall have occurred and be continuing, or would result from such
Loan;
(b) Representations and Warranties. All of the representations and
warranties of the Borrower and the other Loan Parties contained in this
Agreement and in the other Loan Documents shall be true and correct on and as of
the date of such Loan with the same force and effect as if such representations
and warranties had been made on and as of such date (it being agreed and
understood that any representation or warranty which by its terms is made only
as of a specific date or dates shall be required to be true and correct only as
of such specific date or dates);
(c) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10; and
(d) Master Purchase Agreement. The Master Purchase Agreement dated as
of January 1, 1998 shall not have been terminated by the Borrower.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently with
the Closing Date (with respect to the conditions precedent set forth in Section
6.1) and concurrently with the date of the making of each other Loan if
requested by the Administrative Agent (with respect to the conditions precedent
set forth in Section 6.2), execute and deliver to the Administrative Agent a
certificate in form and substance reasonably satisfactory to the Administrative
Agent certifying as to the satisfaction of each of the conditions precedent set
forth in Section 6.1 (with respect to the certificate to be executed
concurrently with the Closing Date) or Section 6.2 (with respect to any
certificate to be executed thereafter) which are required to be satisfied on or
before such date (without regard to whether such matters are, in fact,
satisfactory to the Administrative Agent to the extent that such satisfaction is
required hereunder).
CREDIT AGREEMENT - Page 48
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ARTICLE 7
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and
the Lenders that the following statements are and, after giving effect to the
funding of the initial Loans on the Closing Date and continuing thereafter as
long as the Obligations or any part thereof are outstanding or any Lender has
any Commitment hereunder, will be true and correct (it being agreed and
understood that any representation or warranty which by its terms is made only
as of a specific date shall be required to be true and correct only as of such
specific date):
Section 7.1 Existence. Each Loan Party (a) is a limited liability
company (with respect to the Borrower), a corporation (with respect to Holdings)
or other entity (as applicable, with respect to the other Loan Parties) duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), (b) has, in
all material respects, all requisite power and authority to own its Properties
and carry on its business as now conducted, and (c) is qualified to do business
in all jurisdictions in which the nature of its business makes such
qualification necessary and where failure to so qualify would have a Material
Adverse Effect. Each of the Loan Parties has the power and authority and legal
right to execute, deliver and perform its obligations under the Loan Documents
to which it is or may become a party.
Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the
Lenders (i) the audited consolidated financial statements (including balance
sheet and statements of income or operations, shareholders' equity and cash
flows) of Holdings and its Consolidated Subsidiaries (including, without
limitation, the Borrower) as of and for the fiscal year ended September 30,
1998, and (ii) unaudited consolidated financial statements (including balance
sheets and statements of income or operations, shareholders' equity and cash
flows) of Holdings and its Consolidated Subsidiaries (including, without
limitation, the Borrower) as of and for the fiscal quarter ended June 30, 1999.
All financial statements required to be delivered to the Administrative Agent in
accordance with this Agreement (including, without limitation, those referred to
in the immediately preceding sentence) have been or will be (as applicable)
prepared in accordance with GAAP and fairly and accurately present or will
fairly and accurately present (as applicable), on a consolidated and
consolidating (where applicable) basis, the financial condition of Holdings and
its Consolidated Subsidiaries (including, without limitation, the Borrower) as
of such dates and the results of operations for the respective periods indicated
therein. There has not been, as of the Closing Date, any material adverse change
in the financial condition, results of operations, businesses, operations,
Properties, capitalization, assets, liabilities or prospects of Holdings and its
Subsidiaries taken as a whole, or of the Borrower on an individual basis or of
the Borrower and its Subsidiaries taken as a whole, since June 30, 1999.
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date, the good
faith estimate of the Borrower and its senior management concerning the probable
financial condition and performance of the Borrower and its Subsidiaries for the
time period covered thereunder based upon the assumptions believed to be
reasonable at the time made.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all
CREDIT AGREEMENT - Page 49
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requisite entity action and do not and will not (a) violate or conflict with, or
result in a breach of, or require any consent under (i) the articles of
association, articles of incorporation, certificate of formation, articles of
organization, bylaws, operating agreement, regulations or other constitutional
documents of such Loan Party, (ii) in any material respect, any Governmental
Requirement (including, without limitation, the Communications Act, any rule or
regulation of the FCC or any rule or regulation of any federal or state public
utility commission or other Governmental Authority) or any order, writ,
injunction or decree of any Governmental Authority or arbitrator, or (iii) in
any material respect, any material agreement, document or instrument to which
any Loan Party is a party or by which any Loan Party or any of its Property is
bound or subject, or (b) in any material respect, constitute a default under any
such material agreement, document or instrument, or result in the creation or
imposition of any Lien (except a Lien in favor of the Administrative Agent for
and on behalf of the Lenders under the Security Documents as provided in Article
5) upon any of the revenues or Property of any Loan Party.
Section 7.4 Operation of Business; Licenses and Permits. Each Loan
Party (a) possesses all material Licenses, Permits, franchises and
authorizations necessary or appropriate to conduct its businesses substantially
as now conducted and as to be conducted as contemplated by the Business Plan,
except where failure to possess the same could not reasonably be expected to
have a Material Adverse Effect and (b) has complied, in all material respects,
with all initial and on-going conditions to the issuance and use of all such
material Licenses, Permits, franchises and authorizations, except where failure
to comply could not reasonably be expected to have a Material Adverse Effect. To
the Borrower's knowledge, none of such Persons is in violation of any such
material Licenses, Permits, franchises or authorizations which could be expected
to result in any termination or cessation thereof. All such material Licenses
and Permits which are material to the business or operations of the Borrower
and/or its Subsidiaries have been duly issued by the appropriate Governmental
Authority (as applicable) and are in full force and effect, and all provisions
of such Licenses and Permits have been complied with in all material respects.
As of the Closing Date, no such material License or Permit is subject to any
pending or, to the knowledge of the Borrower, threatened revocation or
termination proceeding or action.
Section 7.5 Intellectual Property. Each Loan Party owns or possesses
(or will be licensed or have the full right to use) all Intellectual Property
which is necessary or appropriate for the operation of its businesses as
presently conducted and as proposed to be conducted, without any known conflict
with the rights of others, except where failure to own or possess the same could
not reasonably be expected to have a Material Adverse Effect. The consummation
of the transactions contemplated by this Agreement and the other Loan Documents
will not materially alter or impair, individually or in the aggregate, any of
such rights of such Persons. No product or service of any Loan Party infringes
upon any Intellectual Property of any other Person, and no claim or litigation
is pending or, to the knowledge of the Borrower, threatened against any such
Person contesting its right to sell or otherwise use any product or material or
service, in each case which could reasonably be expected to have a Material
Adverse Effect. To the Borrower's knowledge, there is no violation by any Loan
Party of any right of such Person with respect to any Intellectual Property
owned or used by such Person, except where such violation could not reasonably
be expected to have a Material Adverse Effect.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding in any court or before any arbitrator or mediator or
before or by any Governmental Authority (whether or not any Governmental
Authority is a party thereto) pending or, to the
CREDIT AGREEMENT - Page 50
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knowledge of the Borrower, threatened against or affecting any Loan Party, or
that relates to any of the Loan Documents as of the Closing Date, is disclosed
on Schedule 7.6. None of such actions, suits, investigations or proceedings
could, if adversely determined, reasonably be expected to have a Material
Adverse Effect. Except as may be disclosed on Schedule 7.6, as of the Closing
Date, there are no outstanding judgments against any Loan Party.
Section 7.7 Rights in Properties; Liens. Each Loan Party has good and
marketable title to or, with respect to leasehold interests, valid leasehold
interests in all of its material Properties and assets, real and personal,
including the material Properties, assets and leasehold interests reflected in
the financial statements described in Section 7.2(a), except where failure to
have good and marketable title or valid leasehold interests could not reasonably
be expected to have a Material Adverse Effect, and none of the Properties or
leasehold interests of any of the Loan Parties is subject to any Lien, except
Permitted Liens. No Loan Party has granted or voluntarily allowed or permitted
to exist any Lien to or in favor of any Person (other than the Administrative
Agent for and on behalf of the Lenders as security for the Obligations) which
attaches or relates to any of the Collateral and the Liens on the Collateral in
favor of the Administrative Agent are perfected, first priority Liens.
Section 7.8 Enforceability. The Loan Documents have been duly and
validly executed and delivered by each of the Loan Parties that is a party
thereto, and such Loan Documents constitute the legal, valid and binding
obligations of such Persons, enforceable against each such Person in accordance
with their respective terms, except as limited by bankruptcy, insolvency or
other laws of general application relating to the enforcement of creditors'
rights and general principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental Authority (including
the FCC) or third party is or will be necessary for the execution, delivery or
performance by any Loan Party of any of the Loan Documents to which it is or
will be a party or for the validity or enforceability thereof, except for such
consents, approvals and filings as have been validly obtained or made and are in
full force and effect. The consummation of the transactions contemplated by the
Loan Documents does not require the consent or approval of any other Person,
except such consents and approvals (a) as have been validly obtained and are in
full force and effect or (b) as to which the failure to obtain is not,
individually or in the aggregate, material. No Loan Party has failed to obtain
any consent, approval, License, Permit, franchise or other authorization of any
Governmental Authority (including the FCC) necessary for the ownership or use of
any of its Properties, conduct of its business and performance of the Business
Plan, except where such failure to obtain the same could not reasonably be
expected to have a Material Adverse Effect.
Section 7.10 Debt. As of the Closing Date, the Borrower does not have
any Debt other than (a) the Obligations, and (b) the Debt disclosed on Schedule
7.10 hereto.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax
returns (federal, state and local) and reports required to be filed, including,
without limitation, all income, franchise, employment, Property and sales tax
returns, and (b) all other material tax returns and reports required to be filed
except where failure to file could not reasonably be expected to have a Material
Adverse Effect, and has paid all federal and other material taxes (shown on such
returns or reports to be due and payable), assessments, fees and other
governmental charges levied or
CREDIT AGREEMENT - Page 51
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imposed upon it or its Properties, income or assets otherwise due and payable
before they become delinquent, except those which are being contested in good
faith by appropriate proceedings and for which adequate reserves have been
provided in accordance with GAAP and no notice of Lien has been filed or
recorded. To the Borrower's knowledge, there is no proposed tax assessment
against any Loan Party which could, if the assessment were made, reasonably be
expected to have a Material Adverse Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.13 ERISA. Each Plan (if any) of the Loan Parties is in
compliance in all material respects with all applicable provisions of ERISA and
the Code. As of the Closing Date and at all times thereafter prior to
consummation of the Holdings Merger, (a) none of the Plans (if any) is a Defined
Benefit Plan and no Loan Party or ERISA Affiliate has ever sponsored, maintained
or contributed to, or ever been obligated to contribute to, a Defined Benefit
Plan, and (b) none of the Plans (if any) is a Multiemployer Plan and no Loan
Party or ERISA Affiliate has ever contributed to, or ever been obligated to
contribute to, a Multiemployer Plan. No litigation is pending or, to the
Borrower's knowledge, threatened concerning or involving any Plan (if any) that
could reasonably be expected to have a Material Adverse Effect.
Section 7.14 Disclosure. No written statement, information, report,
representation or warranty (taken as a whole) furnished to the Administrative
Agent or any Lender by or on behalf of any Loan Party in connection with the
Loan Documents or any transaction contemplated hereby or thereby, and no written
representation or warranty made by any Loan Party in any Loan Document, contains
any untrue statement of a material fact or omits to state any material fact
necessary to make the statements herein or therein, in light of the
circumstances in which made, not misleading in any material respect. There is no
fact known to the Borrower which has had a Material Adverse Effect, and there is
no fact known to the Borrower as of the Closing Date which could reasonably be
expected to have a Material Adverse Effect except as may have been disclosed in
writing to the Administrative Agent.
Section 7.15 Loan Parties. Schedule 7.15 attached hereto contains, as
of the Closing Date, complete and accurate information regarding (a) the
identities of each of the Subsidiaries of Holdings, (b) the identity of each
class of Capital Stock issued by the Borrower and each of its Subsidiaries and
the identities of, and percentage of each of such shares held by, the owner(s)
(both of record and beneficially) of such Capital Stock and (c) the jurisdiction
of incorporation or other organization of each Loan Party. Holdings owns,
beneficially and of record, all of the issued and outstanding shares of Capital
Stock of the Borrower.
Section 7.16 Compliance with Laws. None of the Loan Parties is in
violation of any Governmental Requirement (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any rule or regulation
of any federal or state public utility commission or other Governmental
Authority), except for instances of non-compliance that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
CREDIT AGREEMENT - Page 52
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Section 7.17 Investment Company Act. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. No Loan Party is a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of
the following representations and warranties that could not have, individually
or in the aggregate, a Material Adverse Effect:
(i) Each Loan Party and all of its respective owned or leased
real Properties and operations are in substantial compliance with all
Environmental Laws. The Borrower is not aware of, and no Loan Party has
received written notice of, any past, present or future conditions,
events, activities, practices or incidents which may interfere with or
prevent the substantial compliance or continued compliance by such Loan
Party with all Environmental Laws;
(ii) To the knowledge of the Borrower, no Hazardous Materials
exist on, about or within or have been or are being used, generated,
stored, transported, disposed of on or Released from any of the owned
or leased real Properties of any Loan Party except in substantial
compliance with applicable Environmental Laws. The use which each Loan
Party makes and intends to make of its respective owned or leased real
Properties will not result in the use, generation, storage,
transportation, accumulation, disposal or Release of any Hazardous
Material on, in or from any of their currently owned real Properties
except in substantial compliance with applicable Environmental Laws;
(iii) To the knowledge of the Borrower, there are no
conditions or circumstances associated with the currently owned or
leased real Properties or operations of any Loan Party that could
reasonably be expected to give rise to any material Environmental
Liabilities or claims resulting in any material Environmental
Liabilities;
(iv) To the knowledge of the Borrower, none of the Loan
Parties and none of their respective owned or leased real Properties or
operations are subject to any outstanding or, to the knowledge of the
Borrower, threatened order from or agreement with any Governmental
Authority or other Person or subject to any judicial or administrative
proceeding with respect to (A) any failure to comply with Environmental
Laws, (B) any Remedial Action, or (C) any Environmental Liabilities;
(v) None of the Loan Parties is subject to, or has received
written notice of any claim from any Person alleging that it is or will
be subject to, any Environmental Liabilities;
(vi) None of the Properties of any of the Loan Parties is a
treatment facility
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(except for the recycling of Hazardous Materials generated on-site and
the treatment of liquid wastes subject to the Clean Water Act or other
applicable Environmental Law for temporary storage of Hazardous
Materials generated on-site prior to their disposal off-site) or
disposal facility requiring a permit under the Resource Conservation
and Recovery Act, 42 U.S.C. ' 6901 et seq., regulations thereunder or
any comparable provision of state law. The Loan Parties are in material
compliance with all applicable financial responsibility requirements of
all Environmental Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
owned or leased real Property or revenues of any of the Loan Parties.
Section 7.20 Year 2000 Compliance. Each Loan Party has (a) initiated a
review and assessment of all areas within its business and operations (including
those affected by suppliers and vendors) that could reasonably be expected to be
relevant to whether such Loan Party is Year 2000 Compliant, (b) developed a plan
and timeline for ensuring that it is Year 2000 Compliant on a timely basis, and
(c) to date, implemented that plan in accordance with that timetable. Based upon
the foregoing, each Loan Party reasonably believes that it is Year 2000
Compliant as of the Closing Date.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor
the Properties of any of the Loan Parties are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Employee Matters. As of the Closing Date (a) neither any
Loan Party nor any of its employees is subject to any collective bargaining
agreement, and (b) no petition for certification or union election is pending
with respect to the employees of any Loan Party, and no union or collective
bargaining unit has sought such certification or recognition with respect to the
employees of any such Person. There are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of the Borrower after due
inquiry, threatened against, any Loan Party or its respective employees which
could have, either individually or in the aggregate, a Material Adverse Effect.
Section 7.23 Insurance. Schedule 7.23 sets forth a complete and
accurate description of all policies of insurance that are in effect as of the
Closing Date for the Loan Parties and their Properties located in the U.S.,
which policies satisfy the requirements of Section 8.5. To the extent such
policies have not been replaced, no notice of cancellation has been received for
such policies and the Borrower and the owner and holder of each such policy are
in compliance with all of the terms and conditions of such policies.
Section 7.24 Common Enterprise. The Borrower and each Loan Party are
members of an affiliated group with each other such Person and are collectively
engaged in a common enterprise with one another. Each of the Loan Parties
expects to derive substantial benefit (and
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may reasonably be expected to derive substantial benefit), directly and
indirectly, from the Loans contemplated by this Agreement, both in its separate
capacity and as a member of an affiliated and integrated group.
Section 7.25 Burdensome Agreements. None of the Loan Parties is in
default in any material respect in the performance, observance or fulfillment of
any of the obligations, covenants or conditions contained in any Material
Agreement binding on it or its Properties, except for instances of noncompliance
that, individually or in the aggregate, could not have a Material Adverse
Effect.
ARTICLE 8
Affirmative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Lender has any Commitment hereunder, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish (or will
cause to be furnished) to the Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available, and in any event
within 90 days after the end of each fiscal year of the Borrower, beginning with
the fiscal year ending September 30, 1999 (and, in the case of the Borrower
after consummation of the Holdings Merger, beginning with the fiscal year ending
December 31, 1999), either (i) a copy of the Form 10-K (including all financial
statements contained therein) filed by Holdings as of the end of and for such
fiscal year then ended, together with consolidating schedules for each of
Holdings and its Subsidiaries (including, without limitation, the Borrower) with
respect to the financial statements contained therein, or (ii) a copy of the
annual audit report (including the consolidated balance sheet) of Holdings and
its Subsidiaries (including, without limitation, the Borrower) as of the end of
such year and the related consolidated statements of income or operations,
shareholders' equity and cash flows for such fiscal year, together with
consolidating schedules for Holdings and its Subsidiaries (including, without
limitation, the Borrower) with respect to each of such financial statements, in
each case setting forth in comparative form the figures for the previous fiscal
year, and accompanied by the opinion of independent certified public accountants
of recognized standing reasonably acceptable to the Administrative Agent, which
opinion shall state that such consolidated financial statements present fairly
the financial position and results of operations for the periods indicated in
conformity with GAAP applied on a basis consistent with prior years and which
opinion shall not be qualified or limited because of a restricted or limited
examination by such accountant of any material portion of such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the end of each of the quarters of each fiscal year
of the Borrower, beginning with the fiscal quarter ending September 30, 1999
(and, in the case of the Borrower after consummation of the Holdings Merger,
beginning with the fiscal quarter ending December 31, 1999), either (i) a copy
of the Form 10-Q (including all financial statements contained therein) filed by
Holdings as of the end of and for such fiscal quarter then ended, together with
consolidating schedules for
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each of Holdings and its Subsidiaries (including, without limitation, the
Borrower) with respect to each of the financial statements contained therein, or
(ii) a copy of the unaudited consolidated balance sheet of Holdings and its
Subsidiaries (including, without limitation, the Borrower) as of the end of such
quarter and the related consolidated statements of income or operations,
shareholders' equity and cash flows and quarterly operating budgets for the
period commencing on the first day and ending on the last day of such quarter,
together with unaudited consolidating schedules for Holdings and its
Subsidiaries (including, without limitation, the Borrower) with respect to each
of such financial statements and quarterly operating budgets, in each case
setting forth in comparative form the information or figures and quarterly
operating budget figures, respectively, for the corresponding period of the
preceding fiscal year, and certified by an appropriate Responsible Officer of
Holdings as fairly presenting, in accordance with GAAP, the financial position
and the results of operations of Holdings and its Subsidiaries (including,
without limitation, the Borrower) (except for year-end adjustments and financial
statement footnotes required by GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of
the financial statements referred to in Sections 8.1(a) and 8.1(b), a Compliance
Certificate of a Responsible Officer of the Borrower substantially in the form
of Exhibit D hereto, appropriately completed, stating that, to the best of such
officer's knowledge, no Default has occurred and is continuing or, if a Default
has occurred and is continuing, stating the nature thereof and the action that
has been taken and is proposed to be taken with respect thereto;
(d) Notice of Actions, Suits, Investigations or Proceedings. Promptly
after the commencement thereof, notice of all actions, suits, investigations and
proceedings in any court or before any arbitrator or mediator or before or by
any Governmental Authority (including the FCC) (whether or not any Governmental
Authority is a party thereto) affecting any Loan Party or any License or Permit,
which, if determined adversely to any Loan Party, could reasonably be expected
to have a Material Adverse Effect;
(e) Notice of Default, etc. As soon as possible and in any event within
three Business Days after the Borrower's initial knowledge of the occurrence of
any Default, a written notice setting forth the details of such Default and the
action that the Borrower has taken and, if and to the extent known, proposes to
take with respect thereto;
(f) [INTENTIONALLY OMITTED.]
(g) Insurance. On or before March 31st of each fiscal year of the
Borrower, a report in reasonable detail summarizing all material insurance
coverage maintained by the Borrower with respect to the Collateral as of the
date of such report and all material insurance coverage planned to be maintained
by the Borrower with respect to the Collateral in the subsequent fiscal year;
(h) Business Plan, etc. Not later than 30 days after the end of each
fiscal quarter, an update of the Business Plan for the immediately succeeding
fiscal quarter in reasonable detail generally consistent with the form and
substance of the Business Plan provided to the Administrative Agent on or before
the Closing Date, which update shall reflect the corresponding information for
the prior fiscal quarter; and, promptly upon the Borrower's preparation thereof,
any proposed amendment, modification or supplement to the Business Plan;
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and, not later than 45 days after the consummation of the Holdings Merger, a
revised Business Plan for the succeeding two fiscal years assuming consummation
of the Holdings Merger and related transactions (including, if applicable, any
anticipated material changes to the businesses, assets or operations of the
Borrower in connection with the Holdings Merger) in reasonable detail generally
consistent with the form and substance of the Business Plan provided to the
Administrative Agent on or before the Closing Date, which revised Business Plan
shall reflect the corresponding information for the prior fiscal periods;
(i) Management Letters. Promptly upon each receipt thereof by any Loan
Party, a copy of any management letter or other written report submitted to such
Loan Party by independent certified public accountants with respect to the
business, financial condition, operations or Properties of any Loan Party;
(j) Notice of Material Adverse Effect. Within two Business Days after
the Borrower becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect; and
(k) Environmental Assessments and Notices. Promptly after the receipt
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any owned or leased Property of any
Loan Party and each notice sent by any Governmental Authority relating to any
failure or alleged failure to comply with any Environmental Law or any liability
with respect thereto.
Section 8.2 Maintenance of Existence; Conduct of Business. The Borrower
will, and will cause each Loan Party to, preserve and maintain its entity
existence and all of its leases, privileges, Licenses, Permits, franchises,
qualifications, Intellectual Property, intangible Property and contract and
other rights that are necessary or appropriate in the ordinary conduct of its
business, except where failure to so preserve or maintain could not reasonably
be expected to have a Material Adverse Effect. Without limiting the generality
of the foregoing, each of the Loan Parties has entered into, or will timely
enter into, such long-distance carrier and interconnection agreements as are, at
any time of determination, then necessary to the conduct of its business in
accordance with the Business Plan except to the extent that the failure to do so
could not reasonably be expected to cause a Material Adverse Effect.
Section 8.3 Maintenance of Properties and Permits. The Borrower will,
and will cause each Loan Party to, maintain, keep and preserve all of its
Properties, Licenses and Permits necessary or appropriate in the proper conduct
of its businesses in good repair, working order and condition (ordinary wear and
tear excepted) and make all necessary repairs, renewals and replacements and
improvements thereof, except where failure to so maintain, keep or preserve, or
failure to so make, could not reasonably be expected to have a Material Adverse
Effect.
Section 8.4 Taxes and Claims. The Borrower will, and will cause each
Loan Party to, pay or discharge before becoming delinquent (a) all taxes,
levies, assessments and governmental charges imposed on it or its income or
profits or any of its Property and (b) all lawful claims for labor, material and
supplies, which, if unpaid, might become a Lien upon any of its Property;
provided, however, that neither the Borrower nor any Loan Party shall be
required to pay or discharge any tax, levy, assessment or governmental charge,
or claim for labor, material or supplies, whose amount, applicability or
validity is being contested in good faith by appropriate
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proceedings being diligently pursued and for which adequate reserves have been
established under GAAP.
Section 8.5 Insurance.
(a) The Borrower shall at all times keep all of its and its
Subsidiaries' Properties which are of an insurable nature insured with insurers,
believed by the Borrower to be responsible, against loss or damage to the extent
the Properties of similar character are usually so insured by companies
similarly situated and owning like Properties. The Borrower shall purchase and
maintain in effect all-risk, property and casualty insurance (including casualty
insurance covering earthquake and flood damage) reasonably acceptable and in
amounts reasonably acceptable to the Administrative Agent covering all
Collateral and other equipment related to the Network and liability insurance
covering the operations of the Borrower and its Subsidiaries. All insurance
relating to the Collateral shall be written by financially responsible companies
selected by the Borrower and having an A.M. Best Rating of "A-" or better and
being in a financial size category of "VI" or larger, or by other companies
reasonably acceptable to the Administrative Agent. On or before the Closing
Date, the Borrower shall (a) cause each policy of casualty insurance referred to
in this Section 8.5 relating to the Collateral to name the Administrative Agent
as loss payee (with respect to the Collateral only) and to provide that such
policy will not be canceled, amended or reduced except after not less than 30
days' prior written notice to the Administrative Agent and to also provide that
the interests of the Administrative Agent thereunder shall not be invalidated or
reduced by any act, omission or negligence of the Borrower or any of its
Subsidiaries and (b) cause to be delivered to the Borrower appropriate
certificates of insurance or endorsements to each such policy of insurance
evidencing compliance with clause (a) preceding. The Borrower will advise the
Administrative Agent promptly of any policy cancellation, reduction or amendment
relating to the Collateral. Subject to Section 8.5(b), Insurance Recoveries
under any such policy of insurance relating to the Collateral shall be paid to
the Administrative Agent as its interests may appear.
(b) The Borrower will cause each Insurance Recovery (other than any
portion of an Insurance Recovery payable to a landlord to repair or replace
Property leased by the Borrower or any of its Subsidiaries) relating to any
Collateral payable by any insurance company to be deposited promptly with the
Administrative Agent as security for the Obligations if a Default has then
occurred and is continuing, and will promptly pay all such Insurance Recoveries
to the Administrative Agent for application against the Obligations if and to
the extent required in accordance with Section 2.7(a); provided, however, if no
Default has then occurred and is continuing and if no prepayment obligation
exists pursuant to Section 2.7(a), then the Administrative Agent shall, upon
receipt thereof, promptly deliver the proceeds of such Insurance Recoveries to
the Borrower.
(c) If a Default shall have occurred and be continuing, the Borrower
will cause all proceeds of insurance paid on account of the loss of or damage to
any Collateral and all awards of compensation for any Collateral taken by
condemnation or eminent domain to be promptly paid directly to the
Administrative Agent to be applied against or held as security for the
Obligations, at the election of the Administrative Agent and the Required
Lenders.
Section 8.6 Inspection Rights. The Borrower will, and will cause each
of the Loan Parties to, permit representatives and agents of the Administrative
Agent and the Lenders, during
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normal business hours and upon at least five Business Days' prior notice to the
Borrower, to examine, copy and make extracts from its books and records, to
visit and inspect its Properties and to discuss its business, operations and
financial condition with its officers and independent certified public
accountants; provided, however, that the same may not occur more than once
during any calendar quarter unless an Event of Default has then occurred and is
continuing. The Administrative Agent or its representatives may, at any time and
from time to time at the Borrower's reasonable expense, conduct field exams for
such purposes as the Administrative Agent may reasonably request.
Section 8.7 Keeping Books and Records. The Borrower will, and will
cause each of the Loan Parties to, maintain appropriate books of record and
account in accordance with GAAP consistently applied in which true, full and
correct entries will be made of all their respective dealings and business
affairs. If any changes in accounting principles from those used in the
preparation of the financial statements referenced in Section 8.1 are hereafter
required or permitted by GAAP and are adopted by Holdings or the Borrower (as
applicable) and such changes in GAAP result in a change in the method of
calculation or the interpretation of any of the covenants or standards contained
in this Agreement, the Borrower and the Required Lenders agree to amend any such
affected covenants or standards so as to reflect such changes in GAAP with the
result that the criteria for evaluating the financial condition or performance
of the Loan Parties shall be the same after such changes in GAAP as if such
changes in GAAP had not been made.
Section 8.8 Compliance with Laws. The Borrower will, and will cause
each of the Loan Parties to, comply in all material respects with all
Governmental Requirements applicable to the operation of its business
(including, without limitation, the Communications Act, any rule or regulation
of the FCC or any rule or regulation of any federal or state public utility
commission or other Governmental Authority), except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.9 Maintenance of and Compliance with Agreements. The Borrower
will, and will cause each of the Loan Parties to, comply with all agreements,
documents and instruments binding on it or affecting its Properties or business,
including, without limitation, all Material Contracts, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.10 Further Assurances. The Borrower will execute and deliver
and will cause each of the Loan Parties to execute and deliver such further
agreements and documents (including, without limitation, Security Agreements,
financing statements and amendments to financing statements specifying each item
of the Collateral and the serial number therefor) and take such further actions
as may be reasonably necessary or appropriate and as may be reasonably requested
by the Administrative Agent to carry out the terms and provisions and purposes
of this Agreement and the other Loan Documents, to evidence the Obligations and
to create, preserve, maintain and perfect the Liens of the Administrative Agent
for the benefit of itself and the Lenders in and to the Collateral and the
required priority of such Liens. Without limiting the generality of the
foregoing, the Borrower will, and will cause each of the Loan Parties to, (a)
take all necessary actions to and otherwise ensure that, at all times, the
Obligations will rank senior in respect of priority of payment to any
Subordinated Debt (to the extent of the subordination provisions in the
Subordinated Debt Documents governing such Subordinated
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Debt) and will rank at least pari passu in respect of priority of treatment with
all other present and future Debt of the Borrower (excluding rights of secured
parties with respect to Permitted Liens) and (b) take all necessary actions to
and otherwise ensure that, at all times, the indebtedness, liabilities and
obligations of Holdings under the Guaranty executed by Holdings will rank at
least pari passu in respect of priority of treatment with all other present and
future Debt of Holdings (excluding rights of secured parties with respect to
Permitted Liens).
Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Non-Consolidation. The Borrower will, and will cause each
other Loan Party to: (a) maintain entity records and books of account separate
from those of any other entity which is an Affiliate of such Loan Party; (b) not
commingle its funds or assets with those of any other entity which is an
Affiliate of such Loan Party except in the ordinary course of business and
consistent with past practices of the Borrower so long as the funds or assets of
the Borrower are readily identifiable notwithstanding such commingling; and (c)
provide that its board of directors or other analogous governing body will hold
all appropriate meetings to authorize and approve such Person's entity actions.
Section 8.13 Year 2000 Compliance. Except for such instances as
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect, the Borrower will ensure that all of the material
computer software, computer hardware (whether general or special purpose), and
other similar or related items of automated, computerized or software systems
that are used or relied upon by the Borrower or any Loan Party in the conduct of
its business are and will continue to be substantially Year 2000 Compliant and,
without limiting the generality of the foregoing, will not (to any material
extent) malfunction, will not (to any material extent) cease to function, will
not (to any material extent) generate incorrect data and will not (to any
material extent) produce incorrect results when processing, providing or
receiving (a) date-related data into and between the twentieth and twenty-first
centuries and (b) date-related data in connection with any valid date in the
twentieth and twenty-first centuries. The Borrower will promptly notify the
Administrative Agent in the event the Borrower discovers or determines that its
computer applications (including those of its suppliers and vendors) that are
material to its or any Loan Party's business and operations will not be Year
2000 Compliant on a timely basis.
Section 8.14 Delivery of Certain Amendments. The Borrower will, and
will cause each other Loan Party to, promptly deliver to the Administrative
Agent any amendment, modification or supplement to the certificate of
incorporation, articles of incorporation, certificate of formation, articles of
organization, bylaws, operating agreement, regulations or other constitutional
documents of the Borrower or any other Loan Party; provided, however, that any
such amendment, modification or supplement shall be subject to the provisions of
Section 9.14.
Section 8.15 Ownership of Telecommunications Assets and
Telecommunications Business; Holdings to Remain a Holding Company. The Borrower
and its Subsidiaries shall, at all times, own or lease (as lessee) all
Telecommunication Assets used or useful in the operation of the
Telecommunications Business of the Borrower and its Subsidiaries.
Notwithstanding anything to the contrary contained in this Section 8.15,
however, Holdings may be the lessee with respect to certain leases of real
Property relating to premises occupied by the Borrower or
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premises on which certain personal Property of the Borrower is located and
Holdings may continue to be the "customer" under that certain Facilities
Management Agreement dated as of July 31, 1999, between International Career
Information, Inc. and Holdings.
ARTICLE 9
Negative Covenants
The Borrower covenants and agrees that, as long as the Obligations or
any part thereof are outstanding or any Lender has any Commitment hereunder, it
will perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Debt. The Borrower will not, and will not permit any
Subsidiary of the Borrower to, incur, create, assume or permit to exist any
"Indebtedness" (as such term is defined in the Holdings Indenture or the
Holdings Exchange Indenture) except that the Borrower and any of its
Subsidiaries may incur, create, assume or permit to exist any "Indebtedness" (as
such term is defined in the Holdings Indenture or the Holdings Exchange
Indenture) permitted to be incurred in accordance with Section 1011 of the
Holdings Indenture or the Holdings Exchange Indenture, respectively, whether or
not the Holdings Exchange Indenture may be terminated or no longer be in effect.
Section 9.2 Limitation on Liens. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, directly or indirectly, create, incur,
assume or suffer to exist any Lien or assign or otherwise convey any right to
receive income thereof, on any of its assets or Properties of any character
(including, without limitation, licenses and trademarks), or any shares of
Capital Stock or Debt of any Subsidiary, whether now owned or hereafter
acquired, or any income, profits or proceeds therefrom, except Permitted Liens;
provided, however, that no such Permitted Liens may attach to the Collateral
other than those Permitted Liens which are permitted to attach to the Collateral
in accordance with the definition of the term "Permitted Liens" contained in
Section 1.1. The Borrower will not, and will not permit any Subsidiary of the
Borrower to, enter into any negative pledge or similar arrangement in favor of
other creditors other than such negative pledge or similar arrangements (a)
under purchase money Debts, equipment financing arrangements or conditional
sale, title retention, consignment or similar arrangements for the sale of goods
entered into by the Borrower or any of its Subsidiaries in the ordinary course
of business or Capital Lease Obligations, in each case as permitted by this
Agreement and only with respect to the Properties financed or secured thereby
and (b) existing under this Agreement, the Holdings Indenture, the Holdings
Exchange Indenture and the Receivables Financing Agreement; provided, however,
that no such negative pledge or similar arrangement existing under the Holdings
Indenture, the Holdings Exchange Indenture and the Receivables Financing
Agreement shall prohibit or restrict the Liens on the Collateral securing the
Obligations.
Section 9.3 Mergers, etc. The Borrower will not, and will not permit
any of its Subsidiaries to, (a) become a party to a merger or consolidation
(consummation of the Holdings Merger shall not be prohibited by virtue of this
clause (a)), (b) wind-up, dissolve or liquidate itself, or (c) purchase or
acquire all or a material or substantial part of the business or Properties of
any Person other than Holdings or the Borrower or any of their Subsidiaries if,
immediately after giving effect thereto, an Event of Default would exist;
provided, however, that any
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Subsidiary of the Borrower may merge with and into the Borrower or a
Wholly-Owned Subsidiary of the Borrower if the Borrower or a Wholly-Owned
Subsidiary of the Borrower is the surviving entity in such merger.
Section 9.4 Restricted Payments. The Borrower will not, and will not
permit any Subsidiary of the Borrower to, make any Restricted Payments, except
the following if and to the extent that the same are not prohibited by the
Holdings Indenture or the Holdings Exchange Indenture:
(a) the Borrower may make payments with respect to any Subordinated
Debt (if any) as permitted by the express terms of the Subordinated Debt
Documents governing such Subordinated Debt;
(b) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower or any other Subsidiary of the Borrower or any other shareholder of
such Subsidiaries;
(c) the Borrower and its Subsidiaries may make temporary loans or
advances to employees, officers and directors of any of the Loan Parties or any
of their Subsidiaries in the ordinary course of business; and
(d) the Borrower and its Subsidiaries may make loans or advances, and
payments of principal and/or accrued interest with respect thereto, to one
another and to Holdings and its Subsidiaries;
provided, however, that so long as the Holdings Indenture or the Holdings
Exchange Indenture prohibits any restriction upon Restricted Payments contained
in this Section 9.4, then such restrictions shall not apply until on and after
the date upon which a Default has occurred and is continuing under Section 10.1,
Section 10.2, Section 10.3 or Section 10.4 of this Agreement.
Section 9.5 [Intentionally omitted.].
Section 9.6 Limitation on Issuance of Capital Stock. The Borrower will
not, and will not permit any of its Subsidiaries to, at any time after the
Closing Date, issue, sell, assign or otherwise dispose of (a) any of its Capital
Stock, (b) any securities exchangeable for or convertible into or carrying any
rights to acquire any of its Capital Stock, or (c) any option, warrant or other
right to acquire any of its Capital Stock, in each case to any Person other than
(i) Holdings (with respect to Capital Stock of the Borrower) or (ii) the
Borrower or Holdings (in each case with respect to Capital Stock of any of the
Subsidiaries of the Borrower) or (iii) a Subsidiary of the Borrower or Holdings
(or, in the case of FaciliCom International Sweden AB, an unrelated entity) that
is currently a shareholder of another Subsidiary of the Borrower (with respect
to Capital Stock of a Subsidiary of a Subsidiary of the Borrower or Holdings).
Section 9.7 Transactions with Affiliates. The Borrower will not, and
will not permit any Subsidiary of the Borrower to, enter into any transaction,
including, without limitation, the purchase, sale or exchange of Property or the
rendering of any service, with any Affiliate of the Borrower except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arms-length transaction
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with a Person not an Affiliate of the Borrower; provided, however, that
transactions between or among the Borrower and one or more of its Subsidiaries
or Affiliates may be on terms more favorable to the Borrower or Holdings or any
Subsidiary of the Borrower or Holdings than would be obtained in a comparable
arms-length transaction with a Person not an Affiliate of the Borrower or
Holdings.
Section 9.8 Disposition of Property. The Borrower will not, and will
not permit any Subsidiary of the Borrower to, sell, lease, assign, transfer or
otherwise dispose of any of its Property (including, without limitation, the
Nortel Networks Equipment and the Nortel Networks Software), except:
(a) dispositions of inventory, other than equipment, in the ordinary
course of business, and expenditures of money (including, without limitation,
money held in deposit accounts) made in the ordinary course of business or for
the purpose of making Restricted Payments permitted in accordance with this
Agreement or investments permitted in accordance with the Holdings Indenture or
the Holdings Exchange Indenture;
(b) Asset Dispositions of Property, other than U.S. Nortel Networks
Equipment constituting Collateral, by the Borrower made in the ordinary course
of business if each of the following conditions have been satisfied: (i) the
Borrower or its Subsidiary (as applicable) receives fair consideration for such
Asset Dispositions and (ii) no Default exists at the time of or will result from
such Asset Disposition;
(c) Asset Dispositions of Property, other than U.S. Nortel Networks
Equipment constituting Collateral, by the Borrower or its Subsidiary to Holdings
or any Subsidiary of Holdings or the Borrower; and
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
(including defective equipment) being exchanged or replaced with comparable or
better equipment;
provided, however, that the Borrower will not sell, lease, assign, transfer or
otherwise dispose of any of the U.S. Nortel Networks Equipment constituting
Collateral without the prior written consent of the Required Lenders and Nortel
Networks; provided, further, however, that, prior to the occurrence and
continuation of an Event of Default, U.S. Nortel Networks Equipment constituting
Collateral no longer used or useful in the ordinary course of business may be
disposed of if (but only if) all Net Proceeds thereof are paid to the
Administrative Agent in compliance with Section 2.7(a).
Section 9.9 [INTENTIONALLY OMITTED.]
Section 9.10 [INTENTIONALLY OMITTED.]
Section 9.11 Environmental Protection. The Borrower will not, and will
not permit any Loan Party to, (a) use (or permit any tenant to use) any of its
Properties for the handling, processing, storage, transportation or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a Release
or
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threatened Release of any Hazardous Material in violation of any Environmental
Law, or (d) otherwise conduct any activity or use any of its Properties in any
manner, that violates or is likely to violate any Environmental Law or create
any Environmental Liabilities for which the Borrower or any Loan Party would be
responsible, except for circumstances or events described in clauses (a) through
(d) preceding that could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
Section 9.12 Intercompany Transactions. Except as may be expressly
permitted or required by (a) the Loan Documents, (b) the Holdings Senior Notes
Documents as in effect on the Closing Date or, if the Holdings Exchange
Indenture becomes effective, the Holdings Exchange Senior Notes Documents in the
form existing on the Closing Date or (c) the Receivables Financing Documents as
in effect on the Closing Date, the Borrower will not, and will not permit
Holdings or any Subsidiary of the Borrower or Holdings to, create or otherwise
cause or permit to exist or become effective any consensual encumbrance or
restriction of any kind on the ability of any such Person to (i) pay dividends
or make any other distribution to the Borrower or any of its Subsidiaries in
respect of such Subsidiary's Capital Stock or with respect to any other interest
or participation in, or measured by, its profits, (ii) pay any indebtedness owed
to the Borrower or any of its Subsidiaries, (iii) make any loan or advance or
capital contribution to the Borrower or any of its Subsidiaries, (iv) sell,
lease or transfer any of its Property to the Borrower or any of its
Subsidiaries, or (v) grant any Lien on any of its Properties.
Section 9.13 Master Purchase Agreement. The Borrower will not terminate
the Master Purchase Agreement dated as of January 1, 1998 prior to the
satisfaction in full of the Borrower's purchase commitments thereunder.
Section 9.14 Modification of Certain Agreements. The Borrower will not,
and will not permit any Loan Party to, consent to or implement any termination,
amendment, modification, supplement or waiver of (a) the certificate of
incorporation, articles of incorporation, certificate of formation, articles of
organization, bylaws, operating agreement, regulations or other constitutional
documents of the Borrower or any other Loan Party or (b) the Business Plan
(except in accordance with Section 10.5); provided, however, that the Loan
Parties may amend or modify (i) the documents referred to in clause (a)
preceding if and to the extent that such amendment or modification is not
substantive or material and could not reasonably be expected to be adverse to
any Loan Party, the Administrative Agent or any Lender, provided, however, that
none of such documents referred to in clause (a) preceding may be amended or
modified as they relate to, in any way, any capital contribution to the Borrower
or any obligation or agreement relating thereto, and (ii) the Business Plan
referred to in clause (b) preceding if and to the extent that such amendment or
modification could not reasonably be expected to be materially adverse to any
Loan Party, the Administrative Agent or any Lender.
Section 9.15 ERISA. The Borrower will not, and will not permit any Loan
Party to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that could
reasonably be expected to have a Material Adverse Effect; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit
any ERISA
CREDIT AGREEMENT - Page 64
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Affiliate to take) any action which would cause, any unfunded or unreserved
liability for benefits under any Multiemployer Plan to exist or to be created,
either individually as to any such Plan or in the aggregate as to all such
Plans, that could, upon any partial or complete withdrawal from or termination
of any such Multiemployer Plan or Plans, have a Material Adverse Effect.
ARTICLE 10
Financial Covenants
Section 10.1 Annualized EBITDA. The Borrower will not permit Annualized
EBITDA of Holdings and its Consolidated Subsidiaries (including, without
limitation, the Borrower) at the end of any of the fiscal quarters set forth on
Schedule 10.1 to be less than the amount set forth opposite such date on such
Schedule.
Section 10.2 Fixed Charge Coverage. The Borrower will not permit the
ratio of (a) Annualized EBITDA of Holdings and its Consolidated Subsidiaries
(including, without limitation, the Borrower) during any of the fiscal quarters
ending on any of the dates set forth on Schedule 10.2 to (b) Consolidated Fixed
Charges of Holdings and its Consolidated Subsidiaries (including, without
limitation, the Borrower) for the four fiscal quarter period ending on such
date, to be less than the ratio set forth opposite such date on such Schedule.
Section 10.3 Gross Revenues. The Borrower will not permit the Gross
Revenues of Holdings and its Consolidated Subsidiaries (including, without
limitation, the Borrower) for any of the fiscal quarters ending on any of the
dates set forth on Schedule 10.3 to be less than the amount set forth opposite
such date on such Schedule.
Section 10.4 Minutes of Use. The Borrower will not permit the Minutes
of Use for any of the fiscal quarters ending on any of the dates set forth on
Schedule 10.4 to be less than the amount set forth opposite such date on such
Schedule.
Section 10.5 Revision of Financial Covenants. The Borrower shall, not
later than 45 days after consummation of the Holdings Merger, submit a revised
Business Plan to the Administrative Agent which shall be reasonably acceptable
to the Administrative Agent. The Borrower agrees that the Administrative Agent
may, effective concurrently with consummation of the Holdings Merger or
thereafter, unilaterally amend each of the covenants set forth in Sections 10.1,
10.2, 10.3 and 10.4 by the giving of written notice of such amended covenants to
the Borrower; provided, however, that each of such amended covenants shall be
based upon 85% of such revised Business Plan; provided, further, however, that
each of such amended covenants shall not be less protective of the
Administrative Agent and the Lenders than the covenants set forth in Sections
10.1, 10.2, 10.3 and 10.4, respectively
ARTICLE 11
Default
Section 11.1 Events of Default. Each of the following shall be deemed
an "Event of Default":
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(a) (i) The Borrower shall fail to pay, repay or prepay when due, any
amount of principal owing to the Administrative Agent or any Lender pursuant to
this Agreement or any other Loan Document, (ii) the Borrower shall fail to pay,
within two Business Days after the due date thereof, any interest owing to the
Administrative Agent or any Lender pursuant to this Agreement or any other Loan
Document, or (iii) the Borrower shall fail to pay, within five Business Days
after any request therefor made to the Borrower by the applicable payee thereof,
any fee, expense or other amount or other Obligation owing to the Administrative
Agent or any Lender pursuant to this Agreement or any other Loan Document.
(b) Any representation or warranty made or deemed made by or on behalf
of any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Section 5.1, 8.2 (the first sentence of
8.2 only), Article 9 or Article 10 (other then Section 10.5); any Loan Party
shall fail to perform, observe or comply with any covenant, agreement or term
contained in Article 5 or Section 8.1, 8.3, 8.5, 8.6, 8.7, 8.8, 8.10, 8.15 or
Section 10.5 and such failure is not remedied or waived within ten Business Days
after such failure commenced; or any Loan Party shall fail to perform, observe
or comply with any other covenant, agreement or term contained in this Agreement
or any other Loan Document (other than covenants to pay the Obligations) and
such failure is not remedied or waived within the earlier to occur of 30 days
after such failure commenced or, if a different grace period is expressly made
applicable in such other Loan Documents, such applicable grace period.
(d) Any of (i) Holdings and its Subsidiaries on a consolidated basis or
(ii) the Borrower and its Subsidiaries on a consolidated basis, ceases to be
Solvent.
(e) Any Loan Party shall (i) apply for or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee, liquidator
or administrator of itself or of all or a substantial part of its Property, (ii)
admit in writing its inability to, or be generally unable to, pay its debts as
such debts become due, subject to any applicable grace periods, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect, the
"Bankruptcy Code"), (v) file a petition seeking to take advantage of any other
law providing for the relief of debtors or relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding up, or
composition or readjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or other applicable Governmental
Requirement, (vii) dissolve, or (viii) take any entity action for the purpose of
effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application or
consent of any Loan Party, in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property, or (iii) similar relief in respect
of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or
CREDIT AGREEMENT - Page 66
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readjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 or more days;
or an order for relief shall be entered in an involuntary case under the
Bankruptcy Code against any Loan Party and shall continue unstayed and in effect
for any period of 60 consecutive days.
(g) Any Loan Party shall fail to discharge within a period of 30 days
after the commencement thereof any attachment, sequestration, forfeiture or
similar proceeding or proceedings involving an aggregate amount in excess of
$5,000,000 against any of its Properties.
(h) A final judgment or judgments for the payment of money in excess of
$5,000,000 in the aggregate shall be rendered by a court or courts against any
Loan Party on claims not covered by insurance and the same shall not be
discharged, bonded or a stay of execution thereof shall not be procured, within
30 days from the date of entry thereof and any Loan Party shall not, within said
period of 30 days, or such longer period during which execution of the same
shall have been stayed, appeal therefrom and cause the execution thereof to be
stayed during such appeal.
(i) Any Loan Party shall fail to pay when due any principal of or
interest on any Debt of such Loan Party (other than the Obligations) having
(either individually or in the aggregate) a principal amount of at least
$10,000,000 or the maturity of any such Debt shall have been accelerated, or any
such Debt shall have been required to be prepaid prior to the stated maturity
thereof, or any event shall have occurred (and shall not have been waived or
otherwise cured) that permits (or, with the giving of notice or lapse of time or
both, would permit) any holder or holders of such Debt or any Person acting on
behalf of such holder or holders to accelerate the maturity thereof or require
any such prepayment.
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further liability or obligation under any of
the Loan Documents; or any Lien created or purported to be created by the Loan
Documents shall for any reason cease to be or fail to be a valid, first priority
perfected Lien upon any of the Collateral purported to be covered thereby.
(k) [INTENTIONALLY OMITTED.]
(l) The occurrence of any Material Adverse Effect.
(m) The occurrence of any Change in Control, other than a Change in
Control resulting solely from the Holdings Merger.
(n) If, at any time, the Borrower shall make any payment or prepayment
(in whatever form, whether payment, redemption, repurchase or other form) with
respect to any Subordinated Debt that does not comply with any term or provision
of this Agreement or any Subordinated Debt Document.
(o) If, at any time, (i) Holdings or a Subsidiary of Holdings shall
make any payment or prepayment (in whatever form, whether payment, redemption,
repurchase or other form) with
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respect to the Holdings Senior Notes or the Holdings Exchange Senior Notes,
other than (A) the exchange of the Holdings Senior Notes for the Holdings
Exchange Senior Notes pursuant to the Exchange Offer (and the payment or
prepayment, in whatever form, of the Holdings Senior Notes effectively resulting
from such exchange), (B) cash payments made by Holdings to holders of the
Holdings Senior Notes who accept the Exchange Offer in an amount not to exceed
$10.00 for each $1,000.00 of principal amount of the Holdings Senior Notes
exchanged for Holdings Exchange Senior Notes pursuant to the Exchange Offer, (C)
payments or prepayments of accrued interest with respect to the Holdings Senior
Notes in connection with the exchange of such notes pursuant to the Exchange
Offer or (D) payments of accrued interest with respect to the Holdings Senior
Notes and the Holdings Exchange Senior Notes in accordance with the Holdings
Indenture and the Holdings Exchange Indenture, respectively, or (ii) the
Borrower shall make any payment or prepayment (in whatever form, whether
payment, redemption, repurchase or other form) with respect to (A) any Debt of
the Borrower owed to Holdings, other than payments of accrued interest with
respect to such Debt, which accrued interest shall not exceed a market rate of
interest, or (B) any Debt of Holdings Guaranteed by the Borrower.
(p) The occurrence of any "Event of Default" as such term is defined in
the Holdings Indenture or the Holdings Exchange Indenture.
(q) The Borrower shall (i) pay or make any dividend or other
distribution (whether in cash, Property or obligations), direct or indirect, on
account of (or the setting apart of money for a sinking or other analogous fund
for) any shares of any class of Capital Stock of the Borrower now or hereafter
outstanding, except a dividend payable solely in shares of that class of stock
to the holders of that class, (ii) make any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of any class of Capital Stock of the
Borrower now or hereafter outstanding, or (iii) make any payment to retire, or
to obtain the surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of Capital Stock of the Borrower now or hereafter
outstanding.
Section 11.2 Remedies. If any Event of Default shall occur and be
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments
without notice to the Borrower or any other Loan Party;
(c) Judgment. Reduce any claim to judgment;
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
to secure payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
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(e) Rights. Exercise any and all rights and remedies afforded by the
laws of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section
11.1(e) or Section 11.1(f), the Commitments of all of the Lenders shall
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower under the Loan Documents shall thereupon become immediately and
automatically due and payable, without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower.
Section 11.3 Performance by the Administrative Agent, etc. If the
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Administrative Agent,
promptly pay any reasonable amount expended by the Administrative Agent or the
Lenders in connection with such performance or attempted performance to the
Administrative Agent at its Principal Office, together with interest thereon at
the applicable Default Rate from and including the date of such expenditure to
but excluding the date such expenditure is paid in full. Notwithstanding the
foregoing, it is expressly agreed that neither the Administrative Agent nor any
Lender shall have any liability or responsibility for the performance of any
obligation of the Borrower or any other Person under this Agreement or any of
the other Loan Documents.
ARTICLE 12
The Administrative Agent
Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document,
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or any certificate or other document referred to or provided for in, or received
by any of them under, this Agreement or any other Loan Document, or for the
value, validity, effectiveness, enforceability or sufficiency of this Agreement
or any other Loan Document or any other document referred to or provided for
herein or therein or for any failure by any Person to perform any of its
obligations hereunder or thereunder, (e) may consult with legal counsel
(including counsel for the Borrower), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for by
this Agreement, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders; provided, however, that the Administrative
Agent shall not be required to take any action which exposes the Administrative
Agent to liability or which is contrary to this Agreement or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any fiduciary relationship with any Lender or any Loan Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with respect to the Administrative Agent is not intended to
connote any fiduciary or other express or implied obligation arising under
agency doctrine of any applicable law; instead, such term is used merely as a
matter of market custom and is intended to create or reflect only an
administrative relationship among independent contracting parties.
Section 12.2 Rights of Administrative Agent as a Lender. With respect
to its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity. The Administrative Agent and its Affiliates may (without having to
account therefor to any Lender) accept deposits from, lend money to, act as
trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.1) take such
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent shall have
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to
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such Default as it shall seem advisable and in the best interest of the Lenders.
SECTION 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST
(TO THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING
THE OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN
ACCORDANCE WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT
PERCENTAGE OF THE COMMITMENTS), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED
ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN ANY WAY RELATING
TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED TO
BE TAKEN BY THE ADMINISTRATIVE AGENT UNDER OR IN RESPECT OF ANY OF THE LOAN
DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR ANY PORTION OF
THE FOREGOING TO THE EXTENT CAUSED BY THE ADMINISTRATIVE AGENT'S GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT IS THE
EXPRESS INTENTION OF THE LENDERS THAT THE ADMINISTRATIVE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE
OF THE ADMINISTRATIVE AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE
ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING
ANY OTHER PROVISION OF THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE
ADMINISTRATIVE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF ITS COMMITMENT PERCENTAGE OF THE COMMITMENTS) OF ANY AND ALL
OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE
ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it
has independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Holdings, the Borrower and the
Subsidiaries of the Borrower and its own decision to enter into
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this Agreement and that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based upon such documents and
information as it shall deem appropriate at the time, continue to make its own
analysis and decisions in taking or not taking action under this Agreement or
any of the other Loan Documents. The Administrative Agent shall not be required
to keep itself informed as to the performance or observance by any Loan Party of
this Agreement or any other Loan Document or to inspect the Properties or books
of the Borrower (or any other Person). Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or under the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other financial information concerning the affairs,
financial condition or business of any Loan Party which may come into the
possession of the Administrative Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other obligations
of the Lenders under this Agreement are several. The default by any Lender in
making a Loan in accordance with any of its Commitments shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event shall
any Lender be required to advance an amount or amounts with respect to any of
the Loans which would in the aggregate exceed such Lender's Commitment with
respect to such Loans. No Lender shall be responsible for any act or omission of
any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders will
have the right to appoint another Lender as a successor Administrative Agent. If
no successor Administrative Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign country if acting through its
U.S. branch and having combined capital and surplus of at least $100,000,000.
Upon the acceptance of its appointment as successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges, immunities and duties of the resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the provisions of this Article 12 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was the
Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
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ARTICLE 13
Miscellaneous
Section 13.1 Expenses. The Borrower hereby agrees, on demand, to pay or
reimburse the Administrative Agent and each of the Lenders for paying: (a) all
reasonable out-of-pocket costs and expenses of the Administrative Agent incurred
in connection with the arranging, drafting, preparation, negotiation, execution
and delivery of the Loan Documents and in connection with any and all waivers,
amendments, modifications, renewals, extensions and supplements of or to the
Loan Documents, and the syndication of the Commitments and the Loans, including,
without limitation, the fees and expenses of legal counsel (including all local
counsel) for the Administrative Agent, (b) all out-of-pocket costs and expenses
of the Administrative Agent and the Lenders in connection with any Default, the
exercise of any right or remedy and the enforcement of this Agreement or any
other Loan Document or any term or provision hereof or thereof, including,
without limitation, the fees and expenses of all legal counsel for the
Administrative Agent and/or any Lender, provided, however, that (i) unless an
Event of Default has occurred and is continuing, all such costs and expenses of
the Administrative Agent and the Lenders to be paid or reimbursed by the
Borrower as referred to in this clause (b) shall be reasonable and (ii) all
Lenders and the Administrative Agent shall be limited to the legal fees and
expenses of one counsel for the Administrative Agent and all Lenders unless (A)
the Administrative Agent or any Lender determines in good faith that it has any
right, remedy or defense which is generally separate from those of the other of
the Administrative Agent or such Lenders or (B) such representation shall or
would result in a conflict-of-interest, in which case the Borrower shall,
subject to clause (i) preceding, pay the fees and expenses of all legal counsel
for the Administrative Agent and/or any Lender to the extent necessary or
appropriate, in the good faith determination of the Administrative Agent or such
Lender (as applicable), to the appropriate exercise of such right, remedy or
defense or to the appropriate avoidance of such conflict-of-interest,
respectively, (c) all transfer, stamp, documentary or Other Taxes levied by any
Governmental Authority in respect of this Agreement or any of the other Loan
Documents, (d) all costs, expenses, assessments and other charges incurred in
connection with any filing, registration, recording or perfection of any Lien
contemplated by this Agreement or any other Loan Document, and (e) all
reasonable out-of-pocket costs and expenses incurred by the Administrative Agent
in connection with due diligence, computer services, copying, appraisals,
environmental audits, collateral audits, field exams, insurance, consultants and
search reports.
SECTION 13.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY
THE ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS (EACH AN
"INDEMNIFIED PARTY") FROM, AND HOLD EACH OF THEM HARMLESS AGAINST, ANY AND ALL
LOSSES, LIABILITIES (INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES),
CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES
(INCLUDING REASONABLE ATTORNEYS' AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY
BECOME SUBJECT WHICH DIRECTLY OR INDIRECTLY ARISE FROM OR RELATE TO (A) THE
NEGOTIATION, EXECUTION, DELIVERY, PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF
ANY OF THE LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY
FORECLOSURE RIGHT OR OTHER RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN
COMPLIANCE WITH LAWS AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO
OTHER PERSONS, (B) ANY OF THE TRANSACTIONS
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CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY ANY LOAN PARTY OF ANY
MATERIAL REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT CONTAINED IN ANY
OF THE LOAN DOCUMENTS, (D) THE USE OF THE PROCEEDS OF ANY LOAN, (E) THE
PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF ANY
HAZARDOUS MATERIAL LOCATED ON, WITHIN OR AFFECTING ANY OF THE PROPERTIES OF THE
BORROWER OR ANY OF ITS AFFILIATES CAUSED BY AN ACT OR OMISSION OF THE BORROWER
OR ANY OF ITS AFFILIATES, OR (F) ANY INVESTIGATION, LITIGATION OR OTHER
PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED INVESTIGATION,
LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BROUGHT
BY THE BORROWER, HOLDINGS, ANY CREDITOR OR ANY OTHER PERSON; PROVIDED, HOWEVER,
THAT, IF AND TO THE EXTENT THAT THE LOSSES, LIABILITIES, CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS OR EXPENSES TO BE INDEMNIFIED UNDER
THIS SECTION 13.3 ARE CAUSED BY THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF AN
INDEMNIFIED PARTY, THEN THE INDEMNIFIED PARTIES SHALL NOT BE ENTITLED TO SUCH
INDEMNIFICATION UNDER THIS SECTION 13.3. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR OF ANY OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE
PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL
BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES,
PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE
ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY
NEGLIGENCE (AS OPPOSED TO GROSS NEGLIGENCE) OF SUCH PERSON. WITHOUT PREJUDICE TO
THE SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS AGREEMENT, THE OBLIGATIONS
OF THE BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE THE REPAYMENT OF THE LOANS
AND OTHER OBLIGATIONS AND TERMINATION OF THE COMMITMENTS. NOTHING CONTAINED IN
THIS SECTION 13.3 SHALL BE CONSTRUED AS REQUIRING THE BORROWER TO INDEMNIFY
NORTEL NETWORKS INC. IN ITS CAPACITY AS VENDOR UNDER THE MASTER PURCHASE
AGREEMENT OR TO INDEMNIFY ANY OTHER INDEMNIFIED PARTY WITH RESPECT TO MATTERS
UNDER THE MASTER PURCHASE AGREEMENT.
Section 13.3 Limitation of Liability. None of the Administrative Agent,
any Lender or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable for any error of judgment or act done in good faith, or
be otherwise liable or responsible under any circumstances whatsoever (including
such Person's negligence), except for such Person's gross negligence or willful
misconduct. None of the Administrative Agent, any Lender or any Affiliate,
officer, director, employee, attorney or agent thereof shall have any liability
with respect to, and the Borrower hereby waives, releases and agrees not to sue
any of them upon, any claim for any special, indirect, incidental or
consequential damages suffered or incurred by the Borrower or any Affiliate of
the Borrower in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. The Borrower
hereby waives, releases and
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agrees not to sue the Administrative Agent or any Lender or any of their
respective Affiliates, officers, directors, employees, attorneys or agents for
exemplary or punitive damages in respect of any claim in connection with,
arising out of or in any way related to this Agreement or any of the other Loan
Documents, or any of the transactions contemplated by this Agreement or any of
the other Loan Documents.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the Borrower or any of its Affiliates or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower or any of its Affiliates, (provided, however,
that the parties hereto acknowledge that there does exist a contractual
relationship between the Borrower and Nortel Networks pursuant to the Master
Purchase Agreement) and no term, provision or condition of any of the Loan
Documents shall be construed so as to deem the relationship between the Borrower
and any Lender, or such Affiliate and any Lender, to be other than that of
debtor and creditor. No joint venture or partnership is created by this
Agreement among the Lenders or among the Borrower or any of its Affiliates and
the Lenders.
Section 13.6 Equitable Relief. The Borrower recognizes that, in the
event it fails to pay, perform, observe or discharge any or all of the
Obligations, any remedy at law may prove to be inadequate relief to the
Administrative Agent and the Lenders. The Borrower therefore agrees that the
Administrative Agent and the Lenders, if the Administrative Agent or the Lenders
so request, shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of
the Administrative Agent or any Lender to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Borrower may
not assign or transfer any of its rights or obligations under this Agreement or
any other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
this Agreement
CREDIT AGREEMENT - Page 75
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and the other Loan Documents (including, without limitation, its Commitments)
shall remain unchanged, (ii) such Lender shall remain solely responsible to the
Borrower for the performance of such obligations, (iii) such Lender shall remain
the holder of its Notes for all purposes of this Agreement, (iv) the Borrower
shall continue to deal solely and directly with such Lender in connection with
such Lender's rights and obligations under this Agreement and the other Loan
Documents, and (v) the Lenders shall not grant any participation under which the
participant shall have the right to approve (or under which the consent of the
participant must be obtained prior to the Lenders' being able to approve) any
amendment or waiver of this Agreement or the other Loan Documents, except to the
extent that such amendment or waiver (A) increases any Commitment, (B) reduces
the interest rate or the amount of principal or fees applicable to the Loans or
Commitments in which such participant is participating, (C) extends any Maturity
Date, (D) releases any of the Collateral (except as provided for herein or in
any other Loan Document) or any guaranty of the Obligations, or (E) releases any
Loan Party from its monetary Obligations under any of the Loan Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees all
or any part of its rights and/or obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitments and/or Loans)
(each an "Assignee"); provided, however, that (i) each such assignment may be of
a varying percentage of the Assigning Lender's rights and/or obligations under
this Agreement and the other Loan Documents and may relate to some but not all
of such rights and/or obligations, (ii) except in the case of (A) an assignment
of all of a Lender's rights and obligations under this Agreement and the other
Loan Documents or (B) an assignment by a Lender to an Affiliate of such Lender,
to another Lender or to an Approved Fund, the amount of the Commitment(s) and/or
Loans of the Assigning Lender being assigned pursuant to each assignment
(determined as of the date of the Assignment and Acceptance with respect to such
assignment) shall in no event be less than $5,000,000 calculated based upon the
aggregate amount of the Commitment(s) and/or Loans assigned and (iii) the
parties to each such assignment shall execute and deliver to the Administrative
Agent for its acceptance and recording in the Register (as defined below), an
Assignment and Acceptance, together with the Note subject to such assignment,
and a processing and recordation fee of $3,500. Upon such execution, delivery,
acceptance and recording, from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least five Business
Days after the execution thereof or such other date as may be approved by the
Administrative Agent, (1) the Assignee thereunder shall be a party hereto as a
"Lender" and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, have the rights and
obligations of a Lender hereunder and under the Loan Documents, and (2) the
Assigning Lender thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
and the other Loan Documents (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of a Lender's rights and obligations under
the Loan Documents, such Lender shall cease to be a party thereto, provided that
such Lender's rights under Article 4, Section 13.1 and Section 13.2 accrued
through the date of assignment shall continue). At the time of each assignment
pursuant to this Section 13.8(b) to a Person which is not already a Lender
hereunder and which is not a U. S. Person, the respective assignee Lender shall,
to the extent legally entitled to do so, provide to the Borrower the appropriate
Internal Revenue Service Forms described in Section 3.6. To the extent that an
assignment of all or any portion of a Lender's Commitment and related
outstanding Obligations pursuant to this Section 13.8(b) would, at the time of
such assignment, result in
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increased costs under Sections 3.5, 4.1(a) or 4.6 from those being charged by
the respective assigning Lender prior to such assignment, then the Borrower
shall not be obligated to pay such increased costs (although the Borrower, in
accordance with and pursuant to the other provisions of this Agreement, shall be
obligated to pay any other increased costs of the type described above resulting
from changes after the date of the respective assignment).
(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such Assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition or results of operations of the Borrower or any of its Affiliates or
the performance or observance by the Borrower or any of its Affiliates of its
obligations under the Loan Documents; (iii) such Assignee confirms that it has
received a copy of the Loan Documents, together with copies of the financial
statements referred to in Section 7.2 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision to
enter into such Assignment and Acceptance; (iv) such Assignee will,
independently and without reliance upon the Administrative Agent or such
Assigning Lender and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement and the other Loan Documents; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vii) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at its Principal Office a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lenders and the
Commitments of, and principal amount of the Loans owing to, each Lender from
time to time (the "Register"). The entries in the Register shall be conclusive
and binding for all purposes, absent manifest error, and the Borrower, the
Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such assignment, the Administrative Agent
shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit A hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register, and
(iii) give prompt written notice thereof to the Borrower. Within five Business
Days after its receipt of such notice, the Borrower, at its expense, shall
execute and deliver to the Administrative Agent in exchange for each surrendered
Note evidencing the Loans assigned, a
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new Note evidencing such Loans payable to the order of such Eligible Assignee in
an amount equal to such Loans assigned to it and, if the Assigning Lender has
retained any Loans, a new Note evidencing each such Loans payable to the order
of the Assigning Lender in the amount of such Loans retained by it (each such
promissory note shall constitute a "Note" for purposes of the Loan Documents).
Such new Notes shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit B hereto.
(f) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 13.8, disclose
to the Assignee or participant or proposed Assignee or participant any
information relating to the Borrower or any of its Affiliates furnished to such
Lender by or on behalf of the Borrower or any of its Affiliates; provided that
each such actual or proposed Assignee or participant shall agree to be bound by
the provisions of Section 13.20.
(g) Any Lender may assign and pledge any Note held by it to any Federal
Reserve Bank or the U.S. Treasury as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System and/or Federal Reserve Bank;
provided, however, that any payment made by the Borrower for the benefit of such
assigning and/or pledging Lender in accordance with the terms of the Loan
Documents shall satisfy the Borrower's obligations under the Loan Documents in
respect thereof to the extent of such payment. No such assignment and/or pledge
shall release the assigning and/or pledging Lender from its obligations
hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note. Notwithstanding anything
to the contrary contained in this Section 13.8, a Registered Note and the Loans
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall expressly so provide). Any assignment or transfer of all or part of
such Loans and the Registered Note evidencing the same shall be registered on
the Registered Note Register only upon surrender for registration of assignment
or transfer of the Registered Note evidencing such Loans, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the registered noteholder thereof, and thereupon one or more new Registered
Notes in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the due presentment for registration of
transfer of any Registered Note, the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Note(s) evidencing
the same are registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding any notice to the
contrary. The Registered Note Register shall be available for inspection by the
Borrower and any Lender at any reasonable time upon reasonable prior notice.
(i) The Borrower will not become a party to any loan agreement, credit
agreement or similar agreement which restricts or prohibits the right or ability
of any lender which is a party
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thereto to become a Lender under this Agreement.
(j) The Borrower shall provide prompt and reasonable assistance to the
Administrative Agent and the Lenders in connection with their efforts in
syndicating the Loans and Commitments. Such assistance shall include making
senior officers and other representatives of the Borrower and its Affiliates
available for meetings with prospective Lenders and providing, in a timely
manner, such assistance as may be reasonably requested by the Administrative
Agent or its advisors, including, without limitation, providing information to
and responding to inquiries from prospective Lenders with respect to the
business, operations, Business Plan, results and other matters relating to the
business of the Borrower, Holdings and the other Loan Parties.
Section 13.9 Survival. All representations and warranties made or
deemed made in this Agreement or any other Loan Document or in any document,
statement or certificate furnished in connection with this Agreement shall
survive the execution and delivery of this Agreement and the other Loan
Documents and the making of the Loans, and no investigation by the
Administrative Agent or any Lender or any closing shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them. Without prejudice to the survival of any other
obligation of the Borrower hereunder, the obligations of the Borrower under
Article 4 and Sections 13.1 and 13.2 shall survive repayment of the Loans and
the Reimbursement Obligations and the other Obligations.
SECTION 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS (INCLUDING, WITHOUT
LIMITATION, ANY COMMITMENT LETTER), TERM SHEETS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of
this Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the Borrower, do any of
the following: (a) increase the Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts payable hereunder; (c)
postpone any date fixed for any payment (including, without limitation, any
mandatory prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable hereunder; (d) change the Commitment Percentages or the
aggregate unpaid principal amount of the Loans or the number or interests of the
Lenders which shall be required for the Lenders or any of them to take any
action under this Agreement; (e) change any provision contained in Section 3.2,
3.3 or 5.1 or this Section 13.11 or modify the definition of "Required Lenders"
contained in Section 1.1; or (f) except as expressly authorized by this
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Agreement, release any Collateral from any of the Liens created by the Security
Documents; and provided further, however, that no amendment, waiver or consent
relating to Sections 12.1, 12.2, 12.3, 12.4 or 12.5 shall require the agreement
of the Borrower. Notwithstanding anything to the contrary contained in this
Section 13.11, no amendment, waiver or consent shall be made with respect to (i)
Article 12 hereof without the prior written consent of the Administrative Agent,
(ii) the definition of "Master Purchase Agreement", "Nortel Networks Equipment",
"Nortel Networks Goods and Services", "Nortel Networks Software" or Section 2.5,
2.9 or 2.10 hereof without the prior written consent of Nortel Networks (whether
or not Nortel Networks is then a Lender hereunder), or (iii) any condition
precedent set forth in Article 6 with respect to the making of any Loans without
the prior written consent of the Lenders that hold, at the time of such
amendment, waiver or consent, at least a majority (in Dollar amount) of the
Commitments.
Section 13.12 Maximum Interest Rate.
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this
Agreement or the other Loan Documents, none of the terms and provisions of this
Agreement or the other Loan Documents shall ever be construed to create a
contract or obligation to pay interest at a rate in excess of the Maximum Rate;
and neither the Administrative Agent nor any Lender shall ever charge, receive,
take, collect, reserve or apply, as interest on the Obligations, any amount in
excess of the Maximum Rate. The parties hereto agree that any interest, charge,
fee, expense or other obligation provided for in this Agreement or in the other
Loan Documents which constitutes interest under applicable law shall be, ipso
facto and under any and all circumstances, limited or reduced to an amount equal
to the lesser of (i) the amount of such interest, charge, fee, expense or other
obligation that would be payable in the absence of this Section 13.12(b) or (ii)
an amount, which when added to all other interest payable under this Agreement
and the other Loan Documents, equals the Maximum Rate. If, notwithstanding the
foregoing, the Administrative Agent or any Lender ever contracts for, charges,
receives, takes, collects, reserves or applies as interest any amount in excess
of the Maximum Rate, such amount which would be deemed excessive interest shall
be deemed a partial payment or prepayment of principal of the Obligations and
treated hereunder as such; and if the Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to the
Borrower. In determining whether the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, the Borrower, the Administrative
Agent and the Lenders shall, to the maximum extent permitted by applicable law,
(i) characterize any nonprincipal payment as an expense, fee or premium rather
than as interest, (ii) exclude voluntary prepayments and the effects thereof,
and (iii) amortize, prorate, allocate and spread in equal or unequal parts the
total amount of interest throughout the entire contemplated term of the
Obligations, or applicable portions thereof, so that the interest rate does not
exceed the Maximum Rate at any time during the term of the Obligations; provided
that, if the unpaid principal balance is paid and performed in full
CREDIT AGREEMENT - Page 80
<PAGE> 81
prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
the Administrative Agent and/or the Lenders, as appropriate, shall refund to the
Borrower the amount of such excess and, in such event, the Administrative Agent
and the Lenders shall not be subject to any penalties provided by any laws for
contracting for, charging, receiving, taking, collecting, reserving or applying
interest in excess of the Maximum Rate.
Section 13.13 Notices. All notices and other communications provided
for in this Agreement and the other Loan Documents to which the Borrower is a
party shall be given or made by telecopy (confirmed by the sender) or in writing
and telecopied, mailed by certified mail return receipt requested or delivered
to the intended recipient at the "Address for Notices" specified below its name
on the signature pages hereof (or, with respect to a Lender that becomes a party
to this Agreement pursuant to an assignment made in accordance with Section
13.8, in the Assignment and Acceptance executed by it); or, as to any party, at
such other address as shall be designated by such party in a notice to each
other party given in accordance with this Section 13.13. Except as otherwise
provided in this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telecopy (confirmed by the sender) or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid; provided, however, that notices to the Administrative
Agent shall be deemed given when received by the Administrative Agent.
SECTION 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
PROCESS. THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES HERETO
CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT PURSUANT TO
N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE LAWS OF THE
U.S. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT AND THE LENDERS HEREBY
SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND (2) ANY NEW YORK STATE COURT SITTING
IN NEW YORK, NEW YORK, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF
OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH OF THE BORROWER, THE ADMINISTRATIVE AGENT
AND THE LENDERS HEREBY IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL
PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH
PROCESS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PERSON AT ITS
ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE HERETO. EACH OF THE BORROWER, THE
ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORM.
CREDIT AGREEMENT - Page 81
<PAGE> 82
Section 13.15 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 13.18 Construction. The Borrower, the Administrative Agent and
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall
be given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality.
(a) Lenders' Obligations. Each Lender agrees to exercise its best
efforts to keep any information delivered or made available by the Borrower or
Holdings to it which is clearly indicated to be confidential information,
confidential from anyone other than Persons employed or retained by such Lender
who are or are expected to become engaged in evaluating, approving, structuring
or administering the Loans; provided that nothing herein shall prevent any
Lender from disclosing such information (i) to any other Lender, (ii) to any
Person if reasonably incidental to the administration of the Loans, (iii) upon
the order of any court or administrative agency, (iv) upon the request or demand
of any Governmental Authority having jurisdiction over such Lender, (v) which
has been publicly disclosed, (vi) in connection with any litigation to which the
Administrative Agent, any Lender or their respective Affiliates may be a party,
(vii) to the extent reasonably required in connection with the exercise of any
right or remedy under the Loan Documents, (viii) to such Lender's legal counsel,
independent auditors and Affiliates, and (ix) to any actual or proposed
participant or Assignee of all or part of its rights hereunder, so long as such
actual or proposed participant or Assignee agrees to be bound by the provisions
of this Section 13.20(a).
(b) Loan Parties' and Affiliates' Obligations. The Borrower agrees that
it will, and will cause Holdings and the other Loan Parties and their Affiliates
to, keep the terms and provisions of this Agreement and the other Loan Documents
confidential from anyone other than individuals employed or retained by the
Borrower, Holdings, any other Loan Party or any of their Affiliates (including
employees, officers, directors, shareholders, representatives, agents,
accountants and lawyers of the Borrower, Holdings, any other Loan Party or any
of their
CREDIT AGREEMENT - Page 82
<PAGE> 83
Affiliates), provided that nothing herein shall prevent any such Person from
disclosing such information (i) to any such other Loan Party or Affiliate, (ii)
upon the order of any court or administrative agency, (iii) upon the request or
demand of any Governmental Authority having jurisdiction over such Loan Party or
Affiliate, (iv) which has been publicly disclosed, (v) to World Access and/or
its employees, officers, directors, shareholders, lawyers, accountants, agents
or other representatives in connection with the Holdings Merger, and (vi) to
such Loan Party's or Affiliate's legal counsel and independent auditors;
provided, however, that the Borrower will deliver to the Administrative Agent
written notice of any intention or obligation of Holdings or any of its
Consolidated Subsidiaries (including, without limitation, the Borrower) to
deliver or provide a copy of this Agreement or any other Loan Document or any
term or provision hereof or thereof to any Governmental Authority at least ten
Business Days prior to the initial date upon which any such delivery or
provision occurs and the Borrower shall, and shall cause Holdings and its
Consolidated Subsidiaries to, use all reasonable efforts to redact or delete
from such copy or such term or provision such terms or provisions or language
relating to rates or amounts of interest, fees, financial covenants and other
terms or provisions of a sensitive nature (exclusive of the amount of the
Commitments, the identities of the parties to the Loan Documents and the
maturity of the Loans) as may be requested by the Administrative Agent to be so
redacted or deleted before the same is so delivered or provided. Without
limiting the generality of the foregoing, the Borrower agrees that it will not,
and will cause Holdings and the other Loan Parties and their Affiliates not to,
without the prior written consent of the Administrative Agent, issue or publish
a press release, tombstone or other similar announcement or publication relating
to this Agreement or any other Loan Document or the Loan Transactions
contemplated hereby unless it is required to do so by the order of any court or
administrative agency or in accordance with applicable law. Notwithstanding the
immediately preceding proviso (i.e., the second proviso in the immediately
preceding sentence), such proviso and requirements contained therein shall not
apply to a copy of this Agreement or any other Loan Document or any term or
provision hereof or thereof which is being provided to any Governmental
Authority after the date upon which this Agreement or any such other Loan
Document or any such term or provision hereof or thereof, respectively, has then
previously been publicly disclosed in compliance with this Section 13.20 (b).
SECTION 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly
provided to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such
CREDIT AGREEMENT - Page 83
<PAGE> 84
approval or consent or to exercise such judgment in any particular manner,
regardless of the reasonableness of the request or the action or judgment of the
Administrative Agent or such Lender, and (b) no approval or consent of the
Administrative Agent or any Lender shall in any event be effective unless the
same shall be in writing and the same shall be effective only in the specific
instance and for the specific purpose for which given.
Section 13.23 Service of Process. The Borrower irrevocably consents to
the service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. The Administrative
Agent and the Lenders irrevocably consent to the service of process by the
mailing thereof by the Borrower by registered or certified mail, postage
prepaid, to the Administrative Agent or such Lenders (as applicable) at its
address listed on the signature pages hereof. Nothing in this Section 13.23
shall affect the right of the Administrative Agent or the Lenders or the
Borrower to serve legal process in any other manner permitted by law or affect
the right of the Administrative Agent or any Lender or the Borrower to bring any
action or proceeding against another party hereto or its Property in the court
of any jurisdiction.
Section 13.24 Acknowledgment relating to the Holdings Merger. The
Administrative Agent and the Lenders hereby acknowledge that Holdings is
contemplating consummating the Holdings Merger, and hereby agree that (a)
nothing contained in this Agreement or any other Loan Document shall prohibit
consummation of the Holdings Merger and (b) consummation of the Holdings Merger,
in and of itself, will not constitute a default under, or a breach of, any term
or provision of this Agreement or any other Loan Document or a Default.
Section 13.25 Purchase of Nortel Networks Equipment. The Borrower
shall, in connection with the purchase and delivery of any Nortel Networks
Equipment to the Borrower or any of its Subsidiaries or Affiliates, cause all
Nortel Networks Equipment which is to be used in the U.S. to be purchased by the
Borrower and delivered to the Borrower for the Borrower's use at one or more
business locations of the Borrower located in the U.S. and thereby ensure that
such Nortel Networks Equipment constitutes U.S. Nortel Networks Equipment and a
part of the Collateral.
[Remainder of page intentionally left blank.]
CREDIT AGREEMENT - Page 84
<PAGE> 85
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BORROWER:
FACILICOM INTERNATIONAL, L.L.C.
By: /s/ Christopher S. King
-----------------------------------------
Name: Christopher S. King
---------------------------------------
Title: CFO
--------------------------------------
Address for Notices:
--------------------------------------------
FaciliCom International, L.L.C.
1401 New York Avenue, N.W.
9th Floor
Washington, D.C. 20005
Attention: Christopher S. King
Chief Financial Officer
Telephone: 202-661-4407
Telecopy: 202-661-4408
CREDIT AGREEMENT - Page 85
<PAGE> 86
ADMINISTRATIVE AGENT:
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Paul D. Day
-----------------------------------------
Name: Paul D. Day
Title: Vice President, Customer Finance
Address for Notices:
--------------------------------------------
Nortel Networks plc
Maidenhead Office Park
Westacott Way
Maidenhead, Berkshire SL6 3QH
United Kingdom
Attention: Vice President, Customer Finance
Telephone: 011 44 1 628 43 3066
Telecopy: 011 44 1 628 43 2884
and
Nortel Networks Inc.
PO Box 833858
Mail Stop 04D/02/A40
Richardson, Texas 75083-3858
Attention: Kimberly Poe, Loan
Administration
Telephone: 972-684-7687
Telecopy: 972-684-3808
CREDIT AGREEMENT - Page 86
<PAGE> 87
LENDERS:
Commitment: $40,000,000 NORTEL NETWORKS INC.,
-----------
By: /s/ Paul D. Day
-----------------------------------------
Name: Paul D. Day
Title: Vice President, Customer Finance
Address for Notices:
--------------------------------------------
Nortel Networks plc
Maidenhead Office Park
Westacott Way
Maidenhead, Berkshire SL6 3QH
United Kingdom
Attention: Vice President, Customer Finance
Telephone: 011 44 1 628 43 3066
Telecopy: 011 44 1 628 43 2884
and
Nortel Networks Inc.
PO Box 833858
Mail Stop 04D/02/A40
Richardson, Texas 75083-3858
Attention: Kimberly Poe, Loan Administration
Telephone: 972-684-7687
Telecopy: 972-684-3808
Lending Office for Base Rate Loans:
--------------------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for
--------------------------------------------
CREDIT AGREEMENT - Page 87
<PAGE> 88
Eurodollar Loans:
-----------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
CREDIT AGREEMENT - PAGE 88
<PAGE> 89
EXHIBIT A
FORM OF ASSIGNMENT AND ACCEPTANCE
CREDIT AGREEMENT - Page 89
<PAGE> 90
EXHIBIT B
FORM OF NOTE
CREDIT AGREEMENT - Page 90
<PAGE> 91
EXHIBIT C
FORM OF NOTICE OF BORROWINGS, CONVERSIONS,
CONTINUATIONS AND PREPAYMENTS
CREDIT AGREEMENT - Page 91
<PAGE> 92
EXHIBIT D
FORM OF COMPLIANCE CERTIFICATE
CREDIT AGREEMENT - Page 92
<PAGE> 93
SCHEDULE 7.6
LITIGATION, ETC.
CREDIT AGREEMENT - Page 93
<PAGE> 94
SCHEDULE 7.10
EXISTING DEBT
CREDIT AGREEMENT - Page 94
<PAGE> 95
SCHEDULE 7.15
LOAN PARTIES
CREDIT AGREEMENT - Page 95
<PAGE> 96
SCHEDULE 7.23
INSURANCE
CREDIT AGREEMENT - Page 96
<PAGE> 97
SCHEDULE 10.1
ANNUALIZED EBITDA
<TABLE>
<CAPTION>
Minimum Annualized
Fiscal Quarter Ending EBITDA
- --------------------- ------------------
<S> <C>
December 31, 1999 $ 1,595,000
March 31, 2000 $ 3,918,000
June 30, 2000 $ 6,476,000
September 30, 2000 $10,406,000
</TABLE>
CREDIT AGREEMENT - Page 97
<PAGE> 98
SCHEDULE 10.2
FIXED CHARGE COVERAGE
<TABLE>
<CAPTION>
Minimum Ratio of
Fiscal Quarter Ending Annualized EBITDA
- --------------------- to Consolidated Fixed Charges
-----------------------------
<S> <C>
December 31, 1999 0.04 to 1.00
March 31, 2000 0.19 to 1.00
June 30, 2000 0.32 to 1.00
September 30, 2000 0.52 to 1.00
</TABLE>
CREDIT AGREEMENT - Page 98
<PAGE> 99
SCHEDULE 10.3
GROSS REVENUES
<TABLE>
<CAPTION>
Fiscal Quarter Ending Gross Revenues
- --------------------- --------------
<S> <C>
December 31, 1999 $121,268,000
March 31, 2000 $140,251,000
June 30, 2000 $159,917,000
September 30, 2000 $182,646,000
</TABLE>
CREDIT AGREEMENT - Page 99
<PAGE> 100
SCHEDULE 10.4
MINUTES OF USE
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minutes of Use
- --------------------- --------------
<S> <C>
December 31, 1999 712,288,000
March 31, 2000 840,120,000
June 30, 2000 976,242,000
September 30, 2000 1,132,746,000
</TABLE>
CREDIT AGREEMENT - Page 100
<PAGE> 1
EXHIBIT 10.35
[WORLD ACCESS LETTERHEAD]
November 19, 1999
Mr. A. Lindsay Wallace
9425 Stoney Ridge Lane
Alpharetta, Georgia 30022
Dear Lindsay,
As you know, we have recently hired Donaldson, Lufkin & Jenrette ("DLJ") and
Brown Brothers Harriman ("BBH") to assist us in evaluating strategic
alternatives available to World Access in order to maximize the value of the
World Access Equipment Group for our shareholders. One of the alternatives that
will be considered is the possible sale of the Group's NACT Switching Division
("NACT"), Wireless Local Loop Division ("WLL") and Transport and Access Division
("Telco").
This letter is to confirm that should the Company elect to sell NACT, WLL
and/or Telco to a buyer identified through the efforts of DLJ and BBH, you will
receive the following incentive compensation and benefits immediately upon the
closing of such transactions:
- A cash payment equal to Three-Quarter of One Percent (.0075) of the gross
consideration received by the Company upon the sale of NACT.
- A cash payment equal to Three-Quarter of One Percent (.0075) of the gross
consideration received by the Company upon the sale of WLL.
- A cash payment equal to One-Half of One Percent (.005) of the gross
consideration received by the Company upon the sale of Telco.
- Notwithstanding anything to the contrary in the Company's 1991 Stock
Option Plan, 1998 Incentive Equity Plan or related agreements, all stock
options granted to you under these plans will become fully vested upon
the sale of NACT and Telco. These options may be exercised at any time
and from time to time until the one year anniversary of the termination
of your employment with the Company.
If the Company receives consideration other than cash for the sale of these
businesses, your incentive compensation will be based on the fair market value
of this consideration as determined solely by me, acting in good faith in my
capacity as Chairman and Chief Executive Officer of the Company. Should more
than one division be sold in a single transaction, the total consideration will
be allocated to each division based on my sole determination.
In addition, should you no longer be employed by the Company as a direct result
of the sale of NACT, WLL and/or Telco, the Company will continue to pay your
current base salary on a bi-weekly basis through the second anniversary of your
termination date.
The payment of the above incentive compensation, severance and benefits is
conditioned upon your continued employment with the Company as the President of
the Equipment Group through the closing date of the sales of NACT, WLL and
Telco. In signing below, you acknowledge that this letter does not represent
an employment agreement or any other form of contractual agreement between you
and the Company and that this letter may be revoked by me at any time in my
sole discretion.
<PAGE> 2
A. Lindsay Wallace
November 19, 1999
Page Two
The payment of the above incentive compensation, severance and benefits is also
conditioned upon you providing your best efforts to (i) operate these divisions
in a manner consistent with the first three quarters of 1999 until such time as
a sale is completed, (ii) facilitate any sales transactions that the Company
may agree to, and (iii) provide all reasonable assistance as may be requested
by a buyer to ensure a smooth transition occurs at these divisions. In signing
below, you also acknowledge that to receive the compensation, severance and
benefits described herein, you agree to remain a full-time employee and/or
consultant with the buyer of these divisions for a period of six months
following the closing date, unless earlier released by the buyer.
The payment of the above incentive compensation, severance and benefits is in
lieu of all compensation, severance and benefits that you might otherwise be
entitled to upon your termination of employment with the Company. This letter
constitutes the entire agreement between the parties hereto and supercedes all
prior agreements, understandings and arrangements (oral or written) between the
parties hereto with respect to the subject matter hereof.
You further acknowledge that the Company may elect to terminate its agreement
with DLJ and BBH at any time and cease its efforts to sell these divisions. In
the event these activities occur, the terms and conditions of this letter will
immediately become null and void.
If the foregoing accurately reflects our agreement, I would appreciate you
signing below and returning a copy of this letter to me.
Sincerely,
/s/ John D. Phillips
- --------------------
John D. Phillips
Chairman and Chief Executive Officer
Agreed and accepted this 29th day of November, 1999
/s/ A. Lindsay Wallace
- ----------------------
A. Lindsay Wallace
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Cellular Infrastructure Supply, Inc., a Delaware corporation
Cruisetel - AB, organized under the laws of Sweden
Central Cellphone Ltd., organized under the laws of the United Kingdom
Dynamic Telecom International, Inc., a Florida corporation
Dynamic Telecom de Espana, organized under the laws of Spain
FaciliCom International GmbH, organized under the laws of Austria
FaciliCom International BVBA/SPRL, organized under the laws of Belgium
FaciliCom International A/S, organized under the laws of Denmark
FaciliCom International Sa de CV, organized under the laws of El Salvador
FaciliCom Finland OY, organized under the laws of Finland
FaciliCom International, SARL, organized under the laws of France
FaciliCom Telekommunikation GmbH, organized under the laws of Germany
FaciliCom International SA, organized under the laws of Guatemala
FaciliCom International Ltd., organized under the laws of Hong Kong
FaciliCom International S.r.l., organized under the laws of Italy
FaciliCom International K.K., organized under the laws of Japan
FaciliCom International BV, organized under the laws of Netherlands
FaciliCom International AS, organized under the laws of Norway
FaciliCom International SRL, organized under the laws of Spain
FaciliCom International Sweden AB, organized under the laws of Sweden
FaciliCom International SARL, organized under the laws of Switzerland
FaciliCom International UK Ltd., organized under the laws of United Kingdom
FaciliCom International, LLC, organized under the laws of ___________.
FCI (GP), LLC, organized under the laws of ___________.
LDI Acquisition Sub, Inc., a Delaware corporation
LDI Denmark ApS, organized under the laws of Denmark
LDI Telecommunikations GmbH, organized under the laws of Germany
LDI Telecommunications Ltd, organized under the laws of the United Kingdom
Long Distance International Ltd, organized under the laws of the United Kingdom
LDI Southern Europe, organized under the laws of the United Kingdom
LDI SpA, organized under the laws of Italy
LDI (UK) Limited, organized under the laws of the United Kingdom
NACT Telecommunications, Inc., a Delaware corporation
Nahatan Street Associates Limited Partnership, a Massachusetts limited
partnership
Net Center AB, organized under the laws of Sweden
NETnet AS Norway, organized under the laws of Norway
NETnet Italy, organized under the laws of Italy
NETnet International AB a/k/a NETnet Europe, organized under the laws of Sweden
NETnet Telecom SA, organized under the laws of France
NETnet Sweden, organized under the laws of Sweden
NETnet AG Switzerland, organized under the laws of Switzerland
NETnet Telekommunikation GmbH, organized under the laws of Austria
Newgate Communications, organized under the laws of the United Kingdom
NewTel Communications GmbH, organized under the laws of Germany
NewTel LLC, organized under the laws of Minnesota
Restor - AIT, Inc., a Delaware corporation
Sunrise Sierra, Inc., a Delaware corporation
Telco Indemnity Limited, a Bermuda corporation
Telco Security Corporation, a Massachusetts corporation
Telco Systems Asia/Pacific Ltd., a Hong Kong corporation
Telco Systems Inc., a Delaware corporation
Telco Technology, Inc., a Massachusetts corporation
Telcross Associates Limited Partnership, a Massachusetts limited partnership
Televersa NETnet Telekommunikationssyteme GmbH a/k/a NETnet Germany, organized
under the laws of Germany
Telpoint Associated Limited Partnership, a Massachusetts limited partnership
WA Services, Inc., a Delaware corporation f/k/a Galaxy Personal Communications
Services, Inc.
WA Technical, Inc., a Delaware corporation f/k/a Galaxy Technical Services,
Inc.
WA Telecom Products Co., Inc. a Delaware corporation
Westec Communications Inc., a Delaware corporation
World Access Capital Corp., a Delaware corporation
World Access de Mexico, S.A. de C.V., a Mexico corporation
World Access Holdings, Inc., a Delaware corporation
World Access Investment Corp., a Delaware corporation
World Access, Ltd., a Barbados corporation
<PAGE> 2
World Access Telecommunications Group, Inc., an Illinois corporation
World Access Telecommunications Group Limited, a corporation organized under
the laws of England and Wales
World Access UK, Ltd., a corporation organized under the laws of England and
Wales
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated March 20, 2000, included in the
Annual Report on Form 10-K of World Access, Inc. and subsidiaries for the year
ended December 31, 1999, with respect to the consolidated financial statements
and schedules, included in this Form 10-K.
We consent to the incorporation by reference in the Registration Statements
Form S-8 Nos. 333-68619, 333-68125, 333-68625, 333-66731, 333-68623, 333-66723
and Form S-3 No. 333-79097 pertaining to the various stock option, warrant and
other employee benefit plans of World Access, Inc. and subsidiaries of our
report dated March 20, 2000, with respect to the consolidated financial
statements and schedules of World Access, Inc. and subsidiaries included in
the Annual Report (Form 10-K) for the year ended December 31, 1999.
/s/ Ernst and Young LLP
Atlanta, Georgia
March 29, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
March 5, 1998, except for the discontinued operations reclassifications in the
Consolidated Statements of Operations and Note C, which are as of March 14, 2000
relating to the financial statements of World Access, Inc. for the year ended
December 31, 1997, which appears in World Access, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1999, and which report has been
incorporated by reference in each of the following:
1. Registration Statement on Form S-8 (Registration Statement No. 333-66723) of
World Access, Inc.;
2. Registration Statement on Form S-8 (Registration No. 333-66731) of
World Access, Inc.;
3. Registration Statement on Form S-8 (Registration No. 333-68125) of
World Access, Inc.;
4. Registration Statement on Form S-8 (Registration No. 333-68619) of
World Access, Inc.;
5. Registration Statement on Form S-8 (Registration No. 333-68623) of
World Access, Inc.;
6. Registration Statement on Form S-8 (Registration No. 333-68625) of
World Access, Inc.;
7. Registration Statement on Form S-3 (Registration No. 333-79097) of
World Access, Inc.
/s/ PRICEWATERHOUSECOOPERS LLP
Atlanta, Georgia
March 29, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH AUDITED CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 147,432
<SECURITIES> 0
<RECEIVABLES> 183,257
<ALLOWANCES> 18,489
<INVENTORY> 0
<CURRENT-ASSETS> 613,378
<PP&E> 142,523
<DEPRECIATION> 6,490
<TOTAL-ASSETS> 1,629,804
<CURRENT-LIABILITIES> 323,534
<BONDS> 400,078
0
4
<COMMON> 523
<OTHER-SE> 896,772
<TOTAL-LIABILITY-AND-EQUITY> 1,629,804
<SALES> 0
<TOTAL-REVENUES> 501,081
<CGS> 0
<TOTAL-COSTS> 448,305
<OTHER-EXPENSES> 79,774
<LOSS-PROVISION> 26,998
<INTEREST-EXPENSE> 12,914
<INCOME-PRETAX> (37,224)
<INCOME-TAX> (10,126)
<INCOME-CONTINUING> (27,098)
<DISCONTINUED> (25,925)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,023)
<EPS-BASIC> (1.47)
<EPS-DILUTED> (1.47)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K. AMOUNTS DERIVED FROM WORLD ACCESS, INC.'S
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 HAVE
BEEN RESTATED FOR THE 1999 PRESENTATION OF DISCONTINUED OPERATIONS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY>U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 55,176 118,065
<SECURITIES> 0 0
<RECEIVABLES> 6,083 0
<ALLOWANCES> 300 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 397,359 207,044
<PP&E> 42,109 379
<DEPRECIATION> 668 129
<TOTAL-ASSETS> 544,649 207,294
<CURRENT-LIABILITIES> 46,543 275
<BONDS> 115,000 115,000
0 0
0 0
<COMMON> 441 193
<OTHER-SE> 360,142 91,562
<TOTAL-LIABILITY-AND-EQUITY> 544,649 207,294
<SALES> 0 0
<TOTAL-REVENUES> 10,787 0
<CGS> 0 0
<TOTAL-COSTS> 10,137 0
<OTHER-EXPENSES> 5,033 1,550
<LOSS-PROVISION> 4,383 1,550
<INTEREST-EXPENSE> 6,859 1,548
<INCOME-PRETAX> (8,738) (712)
<INCOME-TAX> (3,301) (252)
<INCOME-CONTINUING> (5,437) (460)
<DISCONTINUED> (114,765) 13,594
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (120,202) 13,134
<EPS-BASIC> (5.45) .76
<EPS-DILUTED> (5.45) .76
</TABLE>
