<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED MARCH 31, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM --------------- TO
---------------.
</TABLE>
COMMISSION FILE NUMBER 0-29782
WORLD ACCESS, INC.
(Exact name of Registrant as specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 58-2398004
(State of Incorporation) (I.R.S. Employer Identification No.)
945 E. PACES FERRY ROAD, SUITE 2200 30326
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
</TABLE>
(404) 231-2025
(Registrant's telephone number)
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 [ ]
The number of shares outstanding of the Registrant's common stock, par
value $.01 per share, at May 15, 2000 was 60,101,658.
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<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents...................................... $ 145,347 $ 147,432
Short-term investments.................................... 43,922 --
Restricted cash........................................... 30,847 32,243
Accounts receivable....................................... 260,053 164,768
Other current assets...................................... 29,835 24,547
Net assets held for sale.................................. 238,405 244,388
---------- ----------
Total Current Assets.............................. 748,409 613,378
Property and equipment...................................... 154,250 136,033
Goodwill.................................................... 1,081,172 830,234
Other assets................................................ 64,854 50,159
---------- ----------
Total Assets...................................... $2,048,685 $1,629,804
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt........................................... $ 74,722 $ 83,837
Accounts payable.......................................... 228,721 182,107
Other accrued liabilities................................. 101,730 57,590
---------- ----------
Total Current Liabilities......................... 405,173 323,534
Long-term debt.............................................. 413,989 408,338
Other liabilities........................................... 652 633
---------- ----------
Total Liabilities................................. 819,814 732,505
---------- ----------
Stockholders' Equity
Preferred stock........................................... 6 4
Common stock.............................................. 597 523
Capital in excess of par value............................ 1,422,619 1,062,939
Accumulated other comprehensive loss...................... (4,368) (341)
Accumulated deficit....................................... (189,983) (165,826)
---------- ----------
Total Stockholders' Equity........................ 1,228,871 897,299
---------- ----------
Total Liabilities and Stockholders' Equity........ $2,048,685 $1,629,804
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE> 3
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- -------
(UNAUDITED)
<S> <C> <C>
Carrier services............................................ $239,256 $85,098
Retail services............................................. 16,285 --
-------- -------
Total Revenue.......................................... 255,541 85,098
Cost of services............................................ 223,855 80,154
Selling, general and administrative......................... 23,776 3,769
Depreciation and network amortization....................... 5,551 1,259
Goodwill amortization....................................... 12,208 978
-------- -------
Total Operating Expenses............................... 265,390 86,160
-------- -------
Operating Loss......................................... (9,849) (1,062)
Interest and other income................................... 2,619 183
Interest expense............................................ 14,545 2,339
Foreign exchange gain....................................... 532 --
-------- -------
Loss From Continuing Operations Before Income Taxes.... (21,243) (3,218)
Income taxes benefit........................................ 3,460 762
-------- -------
Loss From Continuing Operations........................ (17,783) (2,456)
Net income (loss) from discontinued operations.............. (6,374) 4,609
-------- -------
Net Income (Loss)...................................... (24,157) 2,153
Preferred stock dividends................................... 632 --
-------- -------
Net Income (Loss) Available to Common Stockholders..... $(24,789) $ 2,153
======== =======
Income (Loss) Per Common Share:
Basic:
Continuing Operations............................. $ (0.33) $ (0.07)
Discontinued Operations........................... (0.12) 0.13
-------- -------
Net Income (Loss)................................. $ (0.45) $ 0.06
======== =======
Diluted:
Continuing Operations............................. $ (0.33) $ (0.07)
Discontinued Operations........................... (0.12) 0.13
-------- -------
Net Income (Loss)................................. $ (0.45) $ 0.06
======== =======
Weighted Average Shares Outstanding:
Basic.................................................. 55,189 36,089
======== =======
Diluted................................................ 55,189 36,089
======== =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 4
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL IN OTHER
PREFERRED COMMON EXCESS OF COMPREHENSIVE ACCUMULATED
STOCK STOCK PAR VALUE LOSS DEFICIT TOTAL
--------- ------ ---------- ------------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000..... $4 $523 $1,062,939 $ (341) $(165,826) $ 897,299
Net loss..................... (24,157) (24,157)
Foreign currency translation
adjustment................. (4,027) (4,027)
----------
Total comprehensive loss..... (28,184)
Issuance of common shares in
private offerings.......... 39 82,172 82,211
Issuance of preferred shares,
common shares and options
for acquisition of
businesses................. 2 6 251,330 251,338
Dividends on preferred
stock...................... (632) (632)
Conversion of Series B
preferred stock............ 14 (14) --
Conversion of debt into
common shares.............. 8 13,642 13,650
Release of escrowed common
shares..................... 1,000 1,000
Issuance of common shares for
option and warrant
exercises.................. 7 10,007 10,014
Tax benefit from option and
warrant exercises.......... 2,049 2,049
Other issuances of common
shares..................... 126 126
-- ---- ---------- -------- --------- ----------
Balance at March 31, 2000...... $6 $597 $1,422,619 $ (4,368) $(189,983) $1,228,871
== ==== ========== ======== ========= ==========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
WORLD ACCESS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss)......................................... $(24,157) $ 2,153
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization.......................... 22,351 7,537
Income tax benefit from stock warrants and options..... 2,049 13
Provision for inventory reserves....................... 128 365
Provision for bad debts................................ 2,354 1,022
Stock contributed to employee benefit plan............. 126 77
Changes in operating assets and liabilities, net of
effects from businesses acquired:
Accounts receivable.................................. (64,734) (6,022)
Inventories.......................................... (12,154) (10,918)
Accounts payable..................................... 23,773 6,296
Other assets and liabilities......................... 27,274 (9,482)
-------- --------
Net Cash Used By Operating Activities............. (22,990) (8,959)
-------- --------
Cash Flows From Investing Activities:
Acquisition of businesses, net of cash acquired........... 29,659 (2,486)
Proceeds on sales of assets held for sale................. 5,135 --
Purchase of short-term investments........................ (43,922) --
Expenditures for property and equipment................... (8,997) (1,895)
Capitalization of software development costs.............. (489) (1,204)
Loans to WorldxChange..................................... (25,000) --
-------- --------
Net Cash Used By Investing Activities............. (43,614) (5,585)
-------- --------
Cash Flows From Financing Activities:
Net proceeds from sales of common stock................... 82,211 --
Short-term borrowings (repayments)........................ (21,777) 1,200
Principal payments under capital lease obligations........ (5,050) (779)
Payment of preferred stock dividends...................... (879) --
Proceeds from exercise of stock warrants and options...... 10,014 105
Debt issuance costs....................................... -- (46)
-------- --------
Net Cash From Financing Activities................ 64,519 480
-------- --------
Decrease in Cash and Equivalents.................. (2,085) (14,064)
Cash and Equivalents at Beginning of Period............... 147,432 55,176
-------- --------
Cash and Equivalents at End of Period............. $145,347 $ 41,112
======== ========
Supplemental Schedule of Noncash Financing and Investing
Activities:
Issuance of common stock for businesses acquired.......... $ 13,047 $ 2,454
Issuance of preferred stock for business acquired......... 217,560 --
Issuance of stock options and warrants for businesses
acquired............................................... 21,731 --
Conversion of debt into common stock...................... 13,650 --
Conversion of note receivable to investment in LDI........ 4,674 --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of World Access, Inc. and its majority owned and wholly owned
subsidiaries (the "Company") from their effective dates of acquisition. These
financial statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results of the
interim periods covered have been included.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue 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, short-term investments, accounts
receivable, accounts payable and accrued expenses approximate the carrying
values due to their short-term nature. The fair values of long-term debt are
estimated based on current market rates and instruments with the same risk and
maturities and approximate the carrying value.
The results of operations for the three months ended March 31, 2000 are not
necessarily indicative of the results expected for the full year. Certain
reclassifications have been made to the prior period's financial information to
conform with the presentations used in 2000.
Accounts receivable are presented net of an allowance for doubtful accounts
of $24.0 million and $18.5 million as of March 31, 2000 and December 31, 1999,
respectively.
NOTE B: ACQUISITIONS
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. ("NETnet").
NETnet(TM) provides 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. The Series D Preferred
Stock, which has a $185.0 million liquidation preference, was valued at $217.6
million based on its estimated market value during the period including the
three trading days prior and the three trading days subsequent to the date
economic terms of the LDI acquisition were announced. In addition, the Company
issued 1,500,000 non-qualified options to purchase Company common stock at an
exercise price of
5
<PAGE> 7
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$18.50 per share in exchange for substantially all the stock options held by
LDI's employees. The new stock options were valued at $21.7 million based on the
Black-Scholes option valuation model.
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
in the event of below market issuances of common stock, stock dividends and
certain other distributions with respect to common stock. 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.
The acquisition of LDI has been accounted for under the purchase method of
accounting. Accordingly, the results of LDI's operations have been included in
the accompanying consolidated financial statements from February 11, 2000. 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 based on information currently
available to management (in thousands):
<TABLE>
<S> <C>
Purchase price:
Preferred stock issued.................................... $217,560
Debt forgiven............................................. 4,674
Stock options issued...................................... 21,731
Fees and expenses......................................... 2,000
--------
Total purchase price.............................. 245,965
Allocation to fair value of net assets:
Cash...................................................... (42,476)
Other current assets...................................... (15,447)
Property and equipment.................................... (17,127)
Other assets.............................................. (1,420)
Current liabilities....................................... 78,374
Other liabilities......................................... 478
--------
Goodwill.......................................... $248,347
========
</TABLE>
PRO FORMA RESULTS OF OPERATIONS
During 1999, the Company acquired several businesses including (i)
substantially all the assets of Comm/Net Holding Corporation and its wholly
owned subsidiaries (collectively referred to herein as "Comm/Net") and (ii)
FaciliCom International, Inc. ("FaciliCom").
On a pro forma, unaudited basis, as if the acquisitions of Comm/Net,
FaciliCom and LDI had occurred as of January 1, 1999, total revenue, operating
loss from continuing operations, loss from continuing operations and loss from
continuing operations per diluted common share for the three months ended March
31, 2000 and 1999 would have been approximately $264.2 million and $215.3
million; $23.1 million and $31.5 million; $31.1 million and $42.7 million; and
$0.56 and $0.85, 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 date indicated.
6
<PAGE> 8
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE C: DISCONTINUED OPERATIONS
In December 1999, in connection with the 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 business. As a result of this
plan, 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. Discontinued operations consisted of the
following businesses at December 31, 1999:
- 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 ("WLL") Division, a research and development group
designing a next generation, fixed wireless local loop system.
- Cellular Infrastructure Supply ("CIS") Division (acquired March 1997), a
value-added supplier of new and refurbished cellular base stations and
related equipment.
In April 2000, the Company sold its Telco Systems and WLL divisions in two
separate transactions that generated aggregate gross cash proceeds of
approximately $275.0 million. In addition, in connection with the sale of Telco
Systems, the Company received 960,000 restricted shares of BATM Advanced
Communications Limited ("BATM") stock. The shares of BATM stock, which had an
initial value of approximately $70.0 million, trade on the London Stock
Exchange. Under the terms of the sales agreement, the Company may not sell,
transfer or otherwise monetize these shares for a period of one year without the
consent of BATM.
During the first four months of 2000, the Company monetized its investment
in CIS accounts receivable and inventories in the normal course of business. The
remaining assets of CIS, which were not material, were sold in a private
transaction completed in May 2000.
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 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Accounts receivable......................................... $ 35,518 $ 58,080
Inventories................................................. 38,742 26,716
Other current assets........................................ 34,907 40,369
-------- --------
Total current assets.............................. 109,167 125,165
Property and equipment...................................... 13,679 13,198
Goodwill and other intangibles.............................. 167,259 167,295
Other assets................................................ 12,689 17,891
-------- --------
Total assets...................................... 302,794 323,549
Accounts payable............................................ 16,911 22,771
Other current liabilities................................... 32,334 40,840
Long-term debt.............................................. 147 169
Other liabilities........................................... 14,997 15,381
-------- --------
Net assets held for sale.......................... $238,405 $244,388
======== ========
</TABLE>
7
<PAGE> 9
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 $19.0 million at March 31, 2000. A
portion of this contingent obligation is collateralized by security interests in
the related equipment. The fair value of the recourse obligation at March 31,
2000 was not determinable as no market exists for these obligations.
NOTE D: RESTRUCTURING CHARGE
In December 1999, the Company recorded a one-time restructuring charge of
$37.8 million in connection with the acquisition of FaciliCom. The restructuring
charge included 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 certain of 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 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 FaciliCom and the Company,
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 provided 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 were 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 2000 RESERVE BALANCE
CHARGE ACTIVITY ACTIVITY AT 3/31/00
------------- -------- -------- ---------------
<S> <C> <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 1,441 5,421
Accrual for termination benefits................... 1,588 270 387 931
------- ------- ------ ------
$37,800 $29,620 $1,828 $6,352
======= ======= ====== ======
</TABLE>
The restructuring accrual is recorded in "Other accrued liabilities" on the
Company's Consolidated Balance Sheets. The restructuring program is expected to
be completed in 2000.
8
<PAGE> 10
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E: DEBT
SUMMARY
Debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
13.25% Senior Notes due 2008................................ $285,533 $285,078
4.5% Convertible Subordinated Notes due 2002................ 115,000 115,000
Bank line of credit......................................... -- 25,000
IRU and other capital lease obligations..................... 53,237 45,380
Nortel line of credit....................................... 24,941 21,717
Term loan................................................... 10,000 --
-------- --------
Total debt........................................ 488,711 492,175
Amount due within one year.................................. 74,722 83,837
-------- --------
Long-term debt.................................... $413,989 $408,338
======== ========
</TABLE>
In connection with the LDI acquisition, the Company assumed a $10.0 million
term loan with a stockholder of LDI pursuant to a term loan agreement. The loan
bears interest at 12.25% per annum and matures on July 20, 2000. The loan is
secured by all the capital stock of the non-U.S. subsidiaries of LDI, including
NETnet. The holder of the term loan has an option to exchange the debt,
including accrued interest, at anytime prior to its maturity date for shares of
the Company's common stock valued at $15.00 per share.
In April 2000, the Company issued an aggregate of 936,081 shares of Company
common stock as payment in full for certain capital lease obligations assumed in
connection with the acquisitions of LDI and Resurgens Communications Group
(December 1998). These capital lease obligations had an aggregate debt balance
due of approximately $22.0 million, including accrued interest.
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. Separate financial statements of WA
Telcom are not presented because management has determined that they would not
be material to investors. 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 to December 1999; Advanced TechCom, Inc. -- January
1998; NACT Telecommunications, Inc. -- February 1998; Continuing operations:
Cherry Communications Incorporated
9
<PAGE> 11
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and Cherry Communications U.K. Limited -- December 1998; Comm/Net -- May 1999;
FaciliCom -- December 1999 and LDI -- February 2000 (in thousands):
BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Current assets.............................................. $140,902 $108,264
Non-current assets.......................................... 624,108 448,311
Total assets................................................ 765,010 556,575
Current liabilities......................................... 160,866 112,020
Non-current liabilities..................................... 116,908 131,009
Stockholders' equity........................................ 487,236 313,546
Total liabilities and stockholders' equity.................. 765,010 556,575
</TABLE>
OPERATING STATEMENT INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- -------
<S> <C> <C>
Total revenue from continuing operations.................... $ 50,447 $85,098
Gross profit from continuing operations..................... 2,650 4,944
Net loss from continuing operations......................... (13,010) (560)
Net income (loss) from discontinued operations.............. (987) 3,193
Net income (loss)........................................... (13,997) 2,633
</TABLE>
NOTE F: STOCKHOLDERS' EQUITY
Shares of common and preferred stock outstanding consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Common Stock (150,000,000 shares authorized)................ 59,787,758 52,333,832
========== ==========
Preferred Stock (10,000,000 shares authorized)
Series A.................................................. 50,000 50,000
Series B.................................................. -- 23,174
Series C.................................................. 350,260 350,260
Series D.................................................. 185,000 --
---------- ----------
585,260 423,434
========== ==========
</TABLE>
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 two private
transactions with institutional and sophisticated investors.
In March 2000, all of the Series B Preferred Stock outstanding was
converted into 1,448,373 shares of common stock.
As of March 31, 2000, a total of approximately 33.5 million shares of
common stock are reserved for issuance upon conversion of the Series A, C and D
Preferred Stock, including 20,000 shares of Series A Preferred Stock subject to
a $20.0 million purchase option agreement scheduled to expire on June 30, 2000.
10
<PAGE> 12
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G: INCOME TAXES
The Company's provision for income taxes attributable to continuing
operations for the three months ended March 31, 2000 was a benefit of $3.5
million, or approximately 16.3% of loss from continuing operations before income
taxes. The provision for income taxes differs from the amount computed by
applying the statutory federal and state income tax rates due to non-deductible
expenses, consisting primarily of goodwill amortization.
NOTE H: 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 omission of
material information from some of the Company's 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 States 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. The Company filed an answer on May 5,
2000.
Although the Company and the individuals named as defendants deny 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 shareholders suits.
NOTE I: REPORTABLE SEGMENT DATA
In December 1999, the Company adopted a plan to divest all its
telecommunications equipment businesses. As a result, the Company's service
segment, "Continuing Operations" is the only reportable business segment.
Revenue by geographic region was as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000(A) 1999(A)
-------- -------
<S> <C> <C>
United States............................................... $156,660 $85,098
Europe...................................................... 98,881 --
Other foreign countries..................................... -- --
-------- -------
Consolidated total........................................ $255,541 $85,098
======== =======
</TABLE>
- ---------------
(a) Revenue is attributed to countries based on the location of customers.
Long-lived assets by geographic region were as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
United States............................................... $ 86,041 $ 88,695
Europe...................................................... 68,209 47,338
Other foreign countries..................................... -- --
--------- --------
Consolidated total........................................ $ 154,250 $136,033
========= ========
</TABLE>
11
<PAGE> 13
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE J: SUBSEQUENT EVENTS
SALE OF TELCO SYSTEMS
In April 2000, the Company sold its Telco Systems division to BATM Advanced
Communications Limited, an Israel-based technology company, 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 approximately $70.0 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.
STAR MERGER
In February 2000, the Company executed a definitive agreement with Star
Telecommunications, Inc. ("Star"), a publicly held multinational
telecommunications 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 the third quarter of 2000.
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, none of which has been funded as of the date of this
Report. 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
$600.0 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 the third quarter of 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, all
of which has been funded as of the date of this Report. WorldxChange will be
entitled to elect one director to the Company's board of directors.
12
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
This Form 10-Q Report contains information regarding the Company's
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 the Company's
assessment of a number of risks and uncertainties and 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, a user of this Report should not regard
forward-looking statements contained in the Report as representations by the
Company or any other person that the plans of the Company will be achieved or
that any future expectations will be realized.
Factors that could cause the Company's actual results to differ from the
results discussed in the forward-looking statements include, but are not limited
to (i) the ability to successfully integrate new acquisitions; (ii) the ability
to acquire and develop an international telecommunications network; (iii) the
ability to manage effectively the Company's 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 service of key officers; (ix) loss
of a customer which provides significant revenue; (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 the Company
undertakes 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.
OVERVIEW
Prior to December 1998, the Company was a manufacturer and seller 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 international long
distance service to other carriers 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 carrier international long distance services. In connection
therewith, a wholly owned subsidiary of MCI WorldCom, Inc. ("WorldCom"), 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 carrier services 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
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.
13
<PAGE> 15
During 1999 and the first quarter of 2000, the Company completed three
significant 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 provider
of U.S. originated carrier to carrier traffic in 1999 to a projected
multi-billion dollar provider of U.S. and European originated retail and carrier
traffic in 2000 (on a pro forma basis). These acquisitions include:
Comm/Net
(May 1999) Privately-held facilities based provider of
carrier to carrier 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
(December 1999) Privately-held facilities based provider of
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
(February 2000) Acquired all the assets of Long Distance
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
(Pending) Publicly held international
telecommunications 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
(Pending) Privately held international
telecommunication 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.
The Company expects to complete its acquisitions of Star and WorldxChange
in the third quarter of 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 expect 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 the primary form of consideration in the
pending mergers with 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"). 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.
In April 2000, the Company sold its Telco Systems division to BATM Advanced
Communications Limited, an Israel-based technology company 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 approximately $70.0 million, trade
on the London Stock Exchange. Under the terms of the definitive agreement, the
14
<PAGE> 16
Company may not sell, transfer or otherwise monetize these shares for a period
of one year without the consent of BATM. The Company will record a significant
gain from this transaction in the second quarter of 2000.
During 1999 and 2000, the Company has significantly increased its cash
balances through several 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
recent 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.
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 or to 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 the rates fluctuate significantly over short periods of
time, the Company's future quarterly operating results may vary significantly.
15
<PAGE> 17
RESULTS OF CONTINUING OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of total revenue from continuing operations:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------ ------
<S> <C> <C>
Carrier services............................................ 93.6% 100.0%
Retail services............................................. 6.4 --
----- -----
Total revenue.......................................... 100.0 100.0
Cost of services............................................ 87.6 94.2
Selling, general and administrative......................... 9.3 4.4
Depreciation and network amortization....................... 2.2 1.5
Goodwill amortization....................................... 4.8 1.1
----- -----
Total operating expenses............................... 103.9 101.2
----- -----
Operating loss......................................... (3.9) (1.2)
Interest and other income................................... 1.0 0.2
Interest expense............................................ 5.7 2.8
Foreign exchange gain....................................... 0.2 --
----- -----
Loss from continuing operations income taxes........... (8.4) (3.8)
Income taxes benefit........................................ 1.4 0.9
----- -----
Loss from continuing operations........................ (7.0)% (2.9)%
===== =====
</TABLE>
FIRST QUARTER 2000 CONTINUING OPERATIONS COMPARED TO FIRST QUARTER 1999
CONTINUING OPERATIONS
Revenue. Total revenue increased $170.4 million, or 200.3%, to $255.5
million in the first quarter of 2000 from $85.1 million in the first quarter of
1999. The increase was due to both the acquisitions of Comm/Net in May 1999,
FaciliCom in December 1999 and LDI in February 2000 (the "Acquisitions") and
organic growth. On a pro forma basis, giving effect to the Acquisitions as if
completed on January 1, 1999, first quarter 2000 revenue increased by
approximately $49.0 million, or 23.0%, as compared to the first quarter of 1999.
As a result of the FaciliCom and LDI acquisitions, the Company began
providing telecommunications services to retail European customers in the first
quarter of 2000, primarily to small and medium sized businesses. The Company's
long-term strategy is focused on growing European retail revenues, primarily
through acquisitions. On a pro forma basis, giving effect to the LDI acquisition
as if completed on January 1, 2000, retail revenue was $264.2 million, or 9.5%
of total revenue.
During the first quarter of 2000, approximately 40.0% of the Company's
total revenue was from traffic originated in Europe. The strengthening of the
U.S. dollar versus the Euro and other major European currencies negatively
impacted the Company's European revenue by approximately $5.0 million, or 5.0%.
Pursuant to a Carrier Service Agreement with WorldCom, the Company recorded
approximately $53.0 million of revenue and related gross profit of $18.0 million
during the first quarter of 2000. This represented approximately 21.0% and 56.0%
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 during the second half of 2000 in
connection with its acquisitions of Star and WorldxChange.
Gross Profit. Gross profit increased $26.8 million, or 540.9%, to $31.7
million in the first quarter of 2000 from $4.9 million in the first quarter of
1999. Gross profit margin increased to 12.4% in the first quarter of 2000 as
compared to 5.8% in the first quarter of 1999.
16
<PAGE> 18
This increase in gross profit was due to several factors, including
favorable margins on WorldCom traffic, the inclusion of retail revenue and
overall economies of scale associated with the significant increase in total
revenue. The economies of scale include benefits from access to larger carrier
vendors, lower purchasing rates due to increases in minute traffic volumes and
greater utilization of fixed network facilities. The Company expects that a
reduced overall dependency upon WorldCom traffic and pricing pressures due to
increased competition may adversely affect its gross profit margin in the
future, particularly in the carrier services business. Management expects to
offset these pressures through increased retail services revenue, the
realization of cost synergies from the Acquisitions and direct termination
reductions realized through new direct transit agreements.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $20.0 million, or 530.8%, to $23.8 million in
the first quarter of 2000 from $3.8 million in the first quarter of 1999,
primarily due to the Acquisitions. As a percentage of total revenue, these
expenses increased to 9.3% in the first quarter of 2000 as compared to 4.4% in
the first quarter of 1999. The percentage increase relates primarily to the
costs of operating FaciliCom's businesses in 13 European countries and the
inclusion of retail services, which typically have general and administrative
expenses greater than 20.0% percent of retail revenue.
Depreciation and Network Amortization. Depreciation and network
amortization increased $4.3 million, or 340.9%, to $5.6 million in the first
quarter of 2000 from $1.3 million in the first quarter of 1999, primarily due to
the depreciation and amortization of FaciliCom's European network. FaciliCom has
invested over $200.0 million in this network over the past several years.
Goodwill Amortization. Goodwill amortization increased $11.2 million to
$12.2 million in the first quarter of 2000 from $1.0 million in the first
quarter of 1999. The increase relates to additional goodwill recorded in
connection with the Acquisitions.
The Company amortizes goodwill to expense on a straight-line basis over a
20-year period. Management 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. There was no impairment incurred in the first
quarter of 2000.
Operating Loss. Operating loss increased $8.7 million to $9.8 million in
the first quarter of 2000 from $1.1 million in the first quarter of 1999 as a
direct result of increased goodwill amortization. Operating loss margin
increased to 3.9% of total revenue in the first quarter of 2000 as compared to
1.2% in the first quarter of 1999.
Earning Before Interest, Taxes, Depreciation and Amortization
("EBITDA"). EBITDA increased $6.7 million, or 573.2%, to $7.9 million in the
first quarter of 2000 from $1.2 million in the first quarter of 1999.
Interest and Other Income. Interest and other income increased $2.4
million to $2.6 million in the first quarter of 2000 from $183,000 in the first
quarter of 1999 due to the increase in invested cash balances of the Company and
higher market rates of return.
Interest Expense. Interest expense increased $12.2 million to $14.5
million in the first quarter of 2000 from $2.3 million in the first quarter of
1999. The increase was primarily due to interest expense associated with the
$300.0 million of 13.25% Senior Notes issued in December 1999 in exchange for
FaciliCom's Senior Notes and other debt assumed by the Company in connection
with the Acquisitions.
Foreign Exchange Gain. The Company reported a $532,000 foreign exchange
gain in the first quarter of 2000. All of this gain was unrealized and related
to the conversion of special drawing rights, or SDRs, into monetary units other
than U.S. dollars (see "Quantitative and Qualitative Disclosures about Market
Risks").
RESTRUCTURING CHARGE
In December 1999, the Company recorded a one-time restructuring charge of
$37.8 million in connection with the acquisition of FaciliCom. The restructuring
charge included the estimated costs of (i) consolidating
17
<PAGE> 19
certain of the Company's United States gateway switching centers and related
technical support functions into existing FaciliCom operations; (ii)
consolidating certain of 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. No
costs were included in the restructuring charge that were expected to derive
future economic benefit to the Company.
FaciliCom is a multi-national long distance service carrier focused on
providing international 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 FaciliCom and the Company,
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. As of March 31,
2000, all of these switches have been shut down except the London switch, which
is being utilized on a limited basis. 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
provided 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 were 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 2000 RESERVE BALANCE
CHARGE ACTIVITY ACTIVITY AT 3/31/00
------------- -------- -------- ---------------
<S> <C> <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 1,441 5,421
Accrual for termination benefits................... 1,588 270 387 931
------- ------- ------ ------
$37,800 $29,620 $1,828 $6,352
======= ======= ====== ======
</TABLE>
The restructuring accrual is recorded in "Other accrued liabilities" on the
Company's Consolidated Balance Sheets. The restructuring program is expected to
be completed in 2000.
18
<PAGE> 20
DISCONTINUED OPERATIONS
In December 1999, in connection with the 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 business. As a result of this
plan, 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>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
<S> <C> <C>
Sales....................................................... $18,011 $66,589
Cost of sales............................................... 14,598 41,929
Research and development.................................... 4,052 4,353
Selling, general and administrative......................... 7,504 9,107
Goodwill amortization....................................... 1,635 2,274
Other (income) expense, net................................. (506) 50
------- -------
Income (loss) before income taxes......................... (9,272) 8,876
Income taxes (benefit)...................................... (2,898) 4,267
------- -------
Net income (loss)......................................... $(6,374) $ 4,609
======= =======
</TABLE>
First quarter 1999 results include sales and income before income taxes of
$3.5 million and $1.1 million, respectively, for the Galaxy Engineering Services
Division, which was sold by the Company in December 1999. Discontinued
operations consisted of the following businesses as of December 31, 1999:
- 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 ("WLL") Division, a research and development group
designing a next generation, fixed wireless local loop system.
- Cellular Infrastructure Supply ("CIS") Division (acquired March 1997), a
value-added supplier of new and refurbished cellular base stations and
related equipment.
19
<PAGE> 21
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 (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Accounts receivable......................................... $ 35,518 $ 58,080
Inventories................................................. 38,742 26,716
Other current assets........................................ 34,907 40,369
-------- --------
Total current assets.............................. 109,167 125,165
Property and equipment...................................... 13,679 13,198
Goodwill and other intangibles.............................. 167,259 167,295
Other assets................................................ 12,689 17,891
-------- --------
Total assets...................................... 302,794 323,549
Accounts payable............................................ 16,911 22,771
Other current liabilities................................... 32,334 40,840
Long-term debt.............................................. 147 169
Other liabilities........................................... 14,997 15,381
-------- --------
Net assets held for sale.......................... $238,405 $244,388
======== ========
</TABLE>
In April 2000, the Company sold its Telco Systems Division to BATM Advanced
Communications Limited, an Israel-based technology company 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 approximately $70.0 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 will record a significant
gain from this transaction in the second quarter of 2000.
In April 2000, the Company sold its WLL Division to Nera ASA, a
Norwegian-based technology company for approximately $13.0 million of cash.
During the first four months of 2000, the Company monetized the majority of
its investment in CIS, which consisted primarily of trade accounts receivable
and inventories. The cash realized from these activities approximated the
carrying values of these assets at December 31, 1999. The remaining assets of
CIS, which were not material, were sold in a private transaction completed in
May 2000.
As of the date of this report, the Company's only remaining discontinued
operation was the NACT Switching Division. The Company has not yet been offered
a sales price for this business that management feels appropriately measures its
inherent value. In the first quarter of 2000, NACT had sales and EBITDA of $7.0
million and $872,000, respectively. Management expects NACT to continue to
generate positive operating results and introduce significant new products and
technology during 2000. A. Lindsay Wallace, former President of the Company's
Equipment Group, has recently been appointed the new President and Chief
Executive Officer of NACT.
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 normally associated with the growth
initiatives of acquired businesses. As of March 31, 2000, the Company had $189.3
million of unrestricted cash and investments and $100.0 million in borrowings
available under its bank credit line to support its current working capital
requirements and strategic growth initiatives.
Operating Activities. Cash used by operating activities was $23.0 million
and $9.0 million for the first quarter of 2000 and 1999, respectively.
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<PAGE> 22
Accounts receivable increased $95.3 million to $260.1 million at March 31,
2000 from $164.8 million at December 31, 1999. The increase in accounts
receivable was primarily due to the LDI acquisition completed in February 2000
and the $82.7 million increase in the Company's total revenues for the first
quarter of 2000 as compared to the fourth quarter of 1999. In addition,
WorldCom, the Company's largest customer, began paying for its carrier services
under standard credit terms during the first quarter of 2000. WorldCom had
traditionally prepaid for services provided by the Company under a Carrier
Service Agreement entered into in mid-1998.
Average days sales outstanding at March 31, 2000 were approximately 92 days
as compared to 59 days at December 31, 1999. The increase related primarily to
the change in WorldCom payment terms and a $46.6 million increase in accounts
payable during the first quarter of 2000. In the Company's carrier service
business, the Company will frequently buy selected termination capacity, routes
and services from certain carriers and sell these same carriers different
termination capacity, routes and services. When the timing impact of these
offsetting receivables and payables is excluded, management believes its normal
average days sales outstanding currently approximates 60 days.
Investing Activities. Cash used by investing activities was $43.6 million
in the first quarter of 2000 and $5.6 million for the first quarter of 1999.
The net cash impact of business acquisitions and related transactions
completed in the first quarter of 2000 was the generation of $29.7 million of
cash, consisting of the following (in thousands):
<TABLE>
<S> <C>
Cash balance of acquired companies.......................... $42,644
Cash portion of purchase price.............................. (3,500)
Fees and expenses paid...................................... (9,485)
-------
$29,659
=======
</TABLE>
In February 2000, the Company acquired substantially all of the assets and
assumed certain liabilities of LDI, including its wholly-owned subsidiary NETnet
International S.A. In connection with the LDI acquisition, the Company issued
185,000 shares of Series D Preferred Stock to LDI's stockholders and the holders
of LDI's senior notes. The Series D Preferred Stock, which has a $185.0 million
liquidation preference, was valued at $217.6 million based on its estimated
market value during the period including the three trading days prior and the
three trading days subsequent to the date economic terms of the LDI acquisition
were announced.
LDI had historically maintained significant cash balances in escrow
pursuant to the Indenture governing its $225.0 million senior notes. As an
integral part of the terms of the LDI acquisition, the senior note holders
waived their rights to the remaining $36.7 million of restricted cash. This cash
was received by the Company free of restriction at the acquisition date.
The $9.5 million of fees and expenses paid in the first quarter of 2000
related primarily to the FaciliCom acquisition completed in December 1999.
In the first quarter of 2000, the Company invested its excess cash reserves
in short-term investments consisting of U.S. government securities, certificates
of deposit, high-grade commercial paper and bank acceptances. As of March 31,
2000, the Company had short-term investments of $43.9 million.
During the first quarter of 2000, the Company invested $9.0 million in
property and equipment. Of this amount, $7.8 million related to continuing
operations and was primarily spent on upgrading the Company's European
telecommunication network.
In February 2000, the Company executed a definitive agreement with Star,
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 the third quarter of 2000.
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<PAGE> 23
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, none of which has been funded as of the date of this
Report.
In February 2000, the Company executed a definitive merger agreement with
WorldxChange. 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 the third quarter of 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, $25.0
million of which was funded in the first quarter of 2000 and the remainder in
April 2000. The loans to WorldxChange are included in "Other Assets" in the
Consolidated Balance Sheets.
Financing Activities. Cash provided from financing activities was $64.5
million and $480,000 million for the first quarter of 2000 and 1999,
respectively.
In February 2000, the Company sold an aggregate of 3,822,552 shares of
restricted common stock for approximately $83.1 million, or $21.75 per share, in
two private transactions with a group of institutional and sophisticated
investors. The share price was based on the average closing price of the
Company's common stock during the five days prior to the offering dates.
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. The Facility restricts distributions from the Company's consolidated
subsidiaries. Accordingly, the assets and cash flows of such subsidiaries,
including WA Telcom, the primary obligor on the Company's 4.5% Convertible
Notes, may not be used to pay any dividends to World Access, Inc.
As of December 31, 1999, borrowings of $25.0 million were outstanding under
the Facility, which represented the amount drawn on the Facility in December
1999 to repay $25.0 million owed by FaciliCom at the time of its acquisition
under its revolving line of credit. In January 2000, the Company repaid the
$25.0 million outstanding under the Facility. As of March 31, 2000, there were
no borrowings and $1.2 million of letters of credit outstanding under the
Facility.
During the first quarter of 2000, the Company received approximately $10.0
million in cash from the exercises of stock options and warrants by the
Company's employees and directors.
Commitments and Contingencies. Pursuant to the terms of the Indenture
governing the Company's $300.0 million of 13.25% Senior Notes due 2008, the
Company has an obligation to utilize the net cash proceeds (as defined in the
Indenture) from the sale of certain of the Company's equipment businesses (see
"Discontinued Operations") to make a one-time tender offer for all or a portion
of the 13.25% Senior Notes outstanding. Based on transactions completed as of
the date of this Report, the Company is currently obligated
22
<PAGE> 24
to tender for approximately $160.0 million of the 13.25% Senior Notes by January
2, 2001. Upon the sale of NACT and the monetization of the 960,000 BATM shares
held by the Company, the obligatory tender amount will increase accordingly.
The actual price of this tender is defined as the face value of the 13.25%
Senior Notes, plus accrued and unpaid interest, less the current market value of
$15.0 million, or five points, of Company common stock paid to the noteholders
as exchange consideration in December 1999. Since by definition the tender price
will be below face value and these notes carry what management believes to be an
attractive interest rate, the Company is not currently able to forecast how much
of the 13.25% Senior Notes will actually be tendered to the Company. Management
has not yet made any determination as to when the $160.0 million tender offer
will be made, but will likely delay this offer until such time as the Company's
common stock trades at a level management believes to be more appropriate than
current trading ranges.
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 $19.0 million at March 31, 2000. A
portion of this contingent obligation is collateralized by security interests in
the related equipment. The fair value of the recourse obligation at March 31,
2000 was not determinable as no market exists for these obligations.
Income Taxes. The Company's provision for income taxes attributable to
continuing operations for the first quarter of 2000 was a benefit of $3.5
million, or approximately 16.3% of loss from continuing operations before income
taxes. The provision for income taxes differs from the amount computed by
applying the statutory federal and state income tax rates due to non-deductible
expenses, consisting primarily of goodwill amortization.
As a result of the exercises of non-qualified stock options and warrants by
the Company's employees and directors, the Company realized federal income tax
benefits during the first quarter of 2000 of approximately $2.0 million.
Although these tax benefits do not have any effect on the Company's provision
for income tax expense, 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.
Summary. The sale of $50.0 million of Series A Preferred Stock in April
1999, the sale of $158.1 million of common stock in private placement
transactions in the fourth quarter of 1999 and first quarter of 2000 and
approximately $275.0 million of gross cash proceeds received from the sales of
the Telco Systems and WLL divisions in April 2000 have significantly enhanced
the financial strength of the Company and improved its liquidity. The Company
believes that existing cash balances, available borrowings under the Company's
$100.0 million bank line of credit and additional cash expected to be generated
from the sale of Equipment Group assets 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.
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.
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
23
<PAGE> 25
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 gain 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 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 SFAS 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 the quarter
(i.e., the first quarter). Management believes the adoption of SAB 101 may
result in a substantial increase in the deferral of revenue for certain sales by
the Company's NACT business. Management does not believe the adoption of SAB 101
would have a material impact on the Company's continuing operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. The Interpretation poses
and answers 20 separate questions dealing with APB 25 implementation practice
issues.
The Interpretation will be applied prospectively to new awards,
modifications to outstanding awards, and changes in employee status on or after
July 1, 2000, except as follows: (i) requirements related to the definition of
an employee apply to new awards granted after December 15, 1998; (ii)
modifications that directly or indirectly reduce the exercise price of an award
apply to modifications made after December 15, 1998; and (iii) modifications to
add a reload feature to an award apply to modifications made after January 12,
2000. Financial statements for periods prior to July 1, 2000 will not be
affected. Management does not expect the adoption of Interpretation No. 44 to
have a material effect on its consolidated financial position or results of
operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Although the Company's reporting currency is the U.S. dollar, an increasing
percentage of the Company's revenue will be generated from international
operations. Accordingly, changes in currency exchange rates may have a
significant effect on the Company's future results of operations. For example,
the accounting rate under certain European 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 the
Company expands into foreign markets, its exposure to foreign currency rate
fluctuations is expected to increase.
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<PAGE> 26
Although the Company does not currently engage in exchange rate hedging
strategies, management may choose to limit the Company's exposure by purchasing
forward exchange contracts or other similar hedging strategies. Specific hedging
contracts, if any, will be subject to approval by specified officers acting
within the Company's board of directors' overall policies and limits. Management
intends to limit the Company's hedging activities to the extent of its foreign
currency exposure. There can be no assurance that any currency hedging strategy
will be successful in avoiding currency exchange-related losses.
Management invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less, in
accordance with 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). Management does not invest in any
derivative or commodity type instruments. In addition, the restricted cash
balance available to fund the next two scheduled interest payments on the
Company's 13.25% Senior Notes is invested in U.S. Treasury securities.
Accordingly, the Company is subject to minimal market risk on any of its
investments.
The majority of the Company's 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 the Company in a position
of paying interest that differs from then existing rates. The Company's
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. The
Company had approximately $24.9 million outstanding pursuant to these revolving
line of credit agreements at March 31, 2000. Management believes that the
effect, if any, of reasonably possible near-term changes in interest rates on
the Company's financial position, results of operations and cash flows should
not be material.
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<PAGE> 27
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of business. Other than as
discussed below, neither World Access, Inc. nor any of its subsidiaries is party
to any legal proceeding, the outcome of which is expected to have a material
adverse effect on the Company's financial condition or results of operations.
Plaintiffs have filed 23 class action shareholder suits against the Company
and some of its 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 the
Company's 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 States 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. 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. The
Company filed an answer on May 5, 2000. Although the Company denies that it
violated any of the requirements or obligations of the federal securities laws,
there can be no assurance that the Company 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 which, among other things, sought to enjoin that company's
merger into the Company. On May 5, 2000, the court granted the defendants'
demurrer which effectively dismissed those cases.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
1. In January 2000, the Company issued 439,892 shares of common stock to
MCI WorldCom, Inc. as payment for $7.0 million in FaciliCom trade accounts
payable.
2. In February 2000, the Company issued 1,448,373 shares of common stock
upon conversion of 23,174 shares of Series B Preferred Stock held by the former
owners of Comm/Net.
3. In February 2000, the Company issued 3,362,782 shares of common stock
for an aggregate of $73.1 million to a group of institutional and sophisticated
investors outside of the United States in a private placement transaction. The
issuances of these securities were made pursuant to Regulation S under the
Securities Act of 1933 because the offers and sales occurred outside of the
United States. Brown Brothers Harriman & Co. acted as an advisor to the Company
on this transaction.
4. In February 2000, the Company issued 459,770 shares of common stock for
$10.0 million to Esru Investments LLC in a private placement transaction. Brown
Brothers Harriman & Co. acted as an advisor to the Company on this transaction.
5. In February 2000, the Company issued 614,268 shares of common stock,
valued at approximately $12.1 million, to NewTel Inc. in connection with the
acquisition of the assets of NewTel Inc.
6. In February 2000, the Company issued 74,074 shares of common stock to El
Camino Resources, Ltd. as payment for $1,650,000 in capital lease obligations
owed by LDI.
7. In March 2000, the Company issued 10,327 shares of common stock to Long
Aldridge & Norman LLP in payment of $222,627 in legal fees.
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No underwriters were involved in the issuances of theses securities. Other
than the February 2000 private placement transaction involving sales made
pursuant to Regulation S described above, 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 theses 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 theses transactions. All recipients represented that they had
adequate access to information regarding the Company.
In February 2000, the Company acquired substantially all of the assets and
assumed certain liabilities of LDI, including its wholly-owned subsidiary,
NETnet International S.A. In connection with the LDI acquisition, the Company
issued 185,000 shares of Series D Preferred Stock to LDI's stockholders and the
holders of LDI's senior notes. The Series D Preferred Stock ranks, as to
dividends, on par with the World Access common stock. With respect to
liquidation preference, the Series D Preferred Stock ranks senior to the World
Access common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<S> <C> <C>
2.1 -- Agreement and Plan of Merger, dated February 11, 2000 among
the Company, STI Merger Co., a Delaware corporation and
wholly-owned subsidiary of the Company, and STAR
Telecommunications, Inc., a Delaware corporation. The
following is a list of omitted schedules and other
attachments which the Company agrees to furnish
supplementally to the Commission upon request:
</TABLE>
<TABLE>
<S> <C> <C>
SCHEDULES TO MERGER AGREEMENT:
3.1(a) -- Organization
3.1(b) -- Capital Structure
3.1(c) -- No Conflict
3.1(d) -- Reports and Financial Statements
3.1(g) -- Required World Access Stockholder Vote
3.1(j) -- Litigation; Compliance with Laws
3.1(k) -- Absence of Certain Changes or Events
3.1(o) -- Tax Matters
3.1(p) -- Certain Contracts
3.2(a) -- Organization; Standing and Power; Subsidiaries
3.2(b) -- Capital Structure
3.2(c) -- Authority; No Conflicts
3.2(h) -- Litigation
3.2(i) -- Absence of Certain Changes or Events
</TABLE>
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<TABLE>
<S> <C> <C>
3.2(j) -- Employee Benefits Matters
3.2(k) -- Intellectual Property
3.2(n) -- Taxes
3.2(o) -- Certain Contracts
4.2(f) -- Sales
4.2(h) -- Compensation
4.2(l) -- Litigation
</TABLE>
<TABLE>
<S> <C> <C>
2.2 -- Agreement and Plan of Merger, dated February 11, 2000 among
the Company, CTI Merger Co., a Delaware corporation and
wholly-owned subsidiary of the Company, and Communication
TeleSystems International d/b/a WORLDxCHANGE Communications,
a California corporation. The following is a list of omitted
exhibits, schedules and other attachments which the Company
agrees to furnish supplementally to the Commission upon
request:
</TABLE>
<TABLE>
<S> <C> <C>
EXHIBITS TO MERGER AGREEMENT:
A -- Form of Escrow Agreement
B -- Form of Opinion of O'Melveny & Myers LLP
C -- Form of Opinion of Long Aldridge & Norman LLP
SCHEDULES TO MERGER AGREEMENT:
3.1(b) -- Organization and Authorization
3.2 -- Authorized and Outstanding Stock
3.4 -- Financial Statements
3.5 -- Undisclosed Liabilities
3.6 -- Legal Issues
3.7 -- Property
3.10(a) -- Intellectual Property
3.10(b) -- Computer Software and Databases
3.10(c) -- Year 2000 Compliance
3.11 -- Litigation
3.12(a) -- Benefit Plans
3.12(d) -- Benefit Plans
3.12(h) -- Benefit Plans
3.13 -- Collective Bargaining
3.15 -- Investments
3.16 -- Tax Matters
3.18 -- Contracts and Commitments
3.19 -- No Conflict
3.20 -- Agreements in Full Force and Effect
3.21 -- Required Consents and Approvals
3.22 -- Certain Changes and Events
4.1 -- Organization
4.3 -- No Conflict
4.5 -- Capital Structure
4.6 -- Reports and Financial Statements
4.10 -- Required World Access Stockholder Vote
</TABLE>
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<TABLE>
<S> <C> <C>
4.13 -- Litigation; Compliance with Laws
4.14 -- Absence of Certain Changes or Events
4.15 -- Tax Matters
5.1(b) -- Dividends; Changes in Share Capital
5.1(c) -- Issuance of Securities
5.1(e) -- Acquisitions
5.1(f) -- Sales
5.1(g) -- Investments; Indebtedness
5.1(h) -- Compensation
5.1(j) -- Material Agreements
</TABLE>
<TABLE>
<S> <C> <C>
3.1 -- Certificate of Incorporation of the Company and Amendments
to Certificate of Incorporation (incorporated by reference
herein to Exhibit 3.1 to the Company's Form S-4, filed with
the Commission on October 6, 1998, Registration No.
333-65386; Amendment to Certificate of Incorporation
incorporated by reference herein to Exhibit 3.2 to Form 8-K
of the Company's predecessor, World Access, Inc., filed with
the Commission on October 28, 1998).
3.2 -- Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to the Company's Form 10-K for the
year ended December 31, 1998, filed with the Commission on
April 9, 1999).
3.3 -- Certificate of Designation of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock. Series A
(incorporated by reference herein to Exhibit 4 to the
Company's Form 8-K, filed with the Commission on May 3,
1999).
3.4 -- Certificate of Designation of 4.25% Cumulative Junior
Convertible Preferred Stock. Series B (incorporated by
reference herein to Exhibit 4.1 to the Company's Form 8-K,
filed with the Commission on 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 the Company's Proxy Statement dated November
5, 1999 relating to the Special Meeting of Stockholder held
on December 7, 1999).
3.6 -- Certificate of Designation of Convertible Preferred Stock,
Series D (incorporated by reference to Exhibit 4 to the
Company's Form 8-K, filed with the Commission on February
28, 2000).
3.7 -- Bylaws of the Company (incorporated by reference herein to
Exhibit 3.2 to the Company's Form S-4, filed with the
Commission on October 6, 1998, Registration No. 333-65389).
4.1 -- Certificate of Designation of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A
(incorporated by reference herein to Exhibit B to the
Company's Form 8-K, filed with the Commission on May 3,
1999).
4.2 -- Certificate of Designation of 4.25% Cumulative Junior
Convertible Preferred Stock. Series B (incorporated by
reference herein to Exhibit 4.1 to the Company's Form 8-K,
filed with the Commission on July 14, 1999).
4.3 -- Certificate of Designation of Convertible Preferred Stock,
Series C (incorporated by reference to Exhibit 1.7(b) to
Appendix A to the Company's Proxy Statement dated November
5, 1999 relating to the Special Meeting of Stockholders held
on December 7, 1999).
4.4 -- Certificate of Designation of Convertible Preferred Stock,
Series D (incorporated by reference to Exhibit 4 to the
Company's Form 8-K, filed with the Commission on February
28, 2000).
27.1 -- Financial Data Schedule (for SEC use only).
</TABLE>
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(b) Reports on Form 8-K
On February 9, 2000, the Company filed a Report on Form 8-K announcing that
the Company had entered into a definitive agreement with BATM Advanced
Communications Limited pursuant to which the Company would sell its Telco
Systems, Inc. subsidiary.
On February 22, 2000, the Company filed a Report on Form 8-K/A to amend its
Report on Form 8-K filed on December 22, 1999 related to the Company's merger
with FaciliCom International, Inc.
On February 28, 2000, the Company filed a Report on Form 8-K announcing
that World Access Telecommunications Group, Inc., an indirect, wholly-owned
subsidiary of the Company, had acquired substantially all of the assets and
assumed substantially all of the liabilities of Long Distance International,
Inc.
On March 1, 2000, the Company filed a Report on Form 8-K announcing that
the Company had entered into a definitive agreement to merge with STAR
Telecommunications, Inc.
On March 1, 2000, the Company filed a Report on Form 8-K announcing that
the Company had entered into a definitive agreement to merge with Communication
TeleSystems International d/b/a WORLDxCHANGE Communications.
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SIGNATURES
Pursuant to the requirements of the Securities and 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/ MARTIN D. KIDDER
------------------------------------
Martin D. Kidder
Vice President and Controller
Dated: May 19, 2000
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (this
"Agreement"), is made and entered into among WORLD ACCESS, INC., a Delaware
corporation ("WAXS"), STI Merger Co., a Delaware corporation and wholly-owned
subsidiary of WAXS ("Merger Sub"), and STAR TELECOMMUNICATIONS, INC., a
Delaware corporation ("STAR").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of STAR and WAXS deem it advisable
and in the best interests of each corporation and its respective stockholders
that STAR and WAXS engage in a business combination in order to advance the
long-term strategic business interests of STAR and WAXS;
WHEREAS, the combination of STAR and WAXS shall be effected by the
terms of this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
STAR, Merger Sub and WAXS have approved the Merger, upon the terms and subject
to the conditions set forth in this Agreement, pursuant to which each share of
common stock, par value $0.001 per share, of STAR ("STAR Common Stock") issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3) will be converted into the right to receive the consideration set forth in
Section 1.6;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, WAXS and Christopher E. Edgecomb and Samer Tawfik (the "Principal
Stockholders") are entering into an agreement (the "Voting and Stock Transfer
Restriction Agreement") pursuant to which each Principal Stockholder will agree
to, among other things, vote in favor of the Merger and certain restrictions on
the transfer of the consideration received in the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree
as follows:
<PAGE> 2
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), STAR shall be merged with and into Merger
Sub at the Effective Time (as defined below). Following the Merger, the
separate corporate existence of STAR shall cease and Merger Sub shall continue
as the surviving corporation (the "Surviving Corporation").
1.2 Closing. Subject to the satisfaction or waiver of the
conditions set forth in Article VI, the closing of the Merger and the
transactions contemplated by this Agreement (the "Closing") will take place on
the second business day following the satisfaction or waiver of such
conditions, unless another time or date is agreed to in writing by the parties
hereto (the date of the Closing being referred to herein as the "Closing
Date"). The Closing shall be held at the offices of Long Aldridge & Norman LLP,
303 Peachtree Street, Suite 5300, Atlanta, Georgia 30303, unless another place
is agreed to by the parties hereto.
1.3 Effective Time. On the Closing Date the parties shall (i) file
a certificate of merger (the "Certificate of Merger") in such form as is
required by, and executed in accordance with, the relevant provisions of the
DGCL and (ii) make all other filings or recordings required under the DGCL in
connection with the Merger. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State or
at such subsequent time as WAXS and STAR shall agree and as shall be specified
in the Certificate of Merger (the date and time the Merger becomes effective
being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers, licenses, authorizations and franchises
of Merger Sub and STAR shall be vested in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub and STAR shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation/Bylaws. The certificate of
incorporation and bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation and bylaws of the
Surviving Corporation, until thereafter changed or amended as provided therein
or by applicable law.
1.6 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of WAXS, Merger Sub, STAR or the
holders of any of the following securities:
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(a) [INTENTIONALLY OMITTED.]
(b) Each share of STAR Common Stock issued and
outstanding and directly or indirectly owned or held by STAR or a Subsidiary
thereof at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be canceled and retired and no capital stock of WAXS or
other consideration shall be delivered in exchange therefor.
(c) Subject to Section 2.4, each share of STAR Common
Stock issued and outstanding immediately prior to the Effective Time (other
than the Dissenter's Shares (as defined in Section 8.12)) shall be converted
into the right to receive, at the election of WAXS by written notice to STAR
prior to the Closing, (i) the number of shares of WAXS Common Stock obtained by
solving for "X" in the following formula (the "Exchange Ratio"):
X = 7.81 + Z
--------
20
or (ii) such number of shares of WAXS Common Stock as shall equal sixty percent
(60%) of the Exchange Ratio and an amount in cash equal to forty percent (40%)
of the sum of $7.81 plus "Z" (as defined below); provided, however, that WAXS
and STAR expressly agree that, notwithstanding anything in this Agreement to
the contrary, in order to ensure that the Merger satisfies the continuity of
interest requirement under Treasury Regulation Section 1.368-1(e), that in no
event shall WAXS issue cash for more than forty-five percent (45%) of the
outstanding shares of STAR Common Stock, including for purposes of this
calculation cash paid for fractional shares pursuant to Section 2.4 and cash
paid for Dissenters' Shares.
For purposes of this Section 1.6, "Z" shall equal the PT-1 Excess Proceeds (as
defined in Section 8.12) divided by 62,856,702. All shares of STAR Common
Stock, at the Effective Time, shall no longer be outstanding and shall
automatically be canceled and retired and each holder of a certificate
representing any such shares (a "Certificate") shall cease to have any rights
with respect thereto, except as set forth in this Section 1.6(c), Section 2.4
or at law. The shares of WAXS Common Stock issued pursuant to this Section
1.6(c) together with any cash in lieu of fractional shares paid pursuant to
Section 2.4 shall be referred to herein as the "Merger Consideration."
1.7 STAR Stock Options.
(a) At the Effective Time, by virtue of the Merger and
without any further action on the part of STAR, WAXS, Merger Sub or the holder
of any outstanding option, warrant or other right to acquire STAR capital stock
(a "STAR Stock Option"), each STAR Stock Option will be automatically converted
into a WAXS Stock Option (as defined in Section 3.1(b)) to purchase shares of
WAXS Common Stock in an amount equal to the number of shares of STAR Common
Stock
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<PAGE> 4
covered under such STAR Stock Option multiplied by the Exchange Ratio (rounded
to the nearest whole number of shares of WAXS Common Stock) at a price per share
of WAXS Common Stock equal to the per share option exercise price specified in
the STAR Stock Option divided by the Exchange Ratio (rounded to the nearest
whole cent). Each such WAXS Stock Option shall contain terms and provisions
which are substantially similar to those terms, conditions and provisions
governing the original STAR Stock Option, except that references to STAR in such
STAR Stock Option will be deemed to refer to WAXS and the date of grant of the
STAR Stock Option shall be deemed to be the date of grant of such WAXS Stock
Option. At the Effective Time, for purposes of interpretation of such new WAXS
Stock Option, (i) all references in any stock option plan of STAR shall be
deemed to refer to WAXS; (ii) any stock option plan of STAR which governs the
STAR Stock Option shall continue to govern the WAXS Stock Option substituted
therefor; and (iii) WAXS shall, as soon as practicable after the Effective Time,
issue to each holder of an outstanding STAR Stock Option a document evidencing
the foregoing issued and substituted WAXS Stock Option by WAXS. It is the
intention of the parties: (1) that, subject to applicable law, STAR Stock
Options assumed by WAXS qualify, following the Effective Time, as incentive
stock options, as defined in Section 422 of the Code, to the extent that STAR
Stock Options qualified as incentive stock options prior to the Effective Time,
(2) that each holder of a STAR Stock Option shall receive a new WAXS Stock
Option which preserves (but does not increase) the excess of the fair market
value of the shares subject to such STAR Stock Option immediately before the
Effective Time over the aggregate option price of such shares immediately before
the Effective Time, if any such excess then exists, (3) that the terms,
conditions, restrictions and provisions of the WAXS Stock Option be
substantially similar to the terms, conditions, restrictions and provisions of
the STAR Stock Option, and (4) any terms conditions, restrictions or provisions
of a STAR Stock Option applicable to a number of shares rather than a percentage
or fraction of shares should be appropriately adjusted based upon the Exchange
Ratio. Without the prior written consent of WAXS (which may be withheld in its
discretion), no new options shall be issued by STAR on or after the date hereof,
including, without limitation, under any stock option plan currently maintained
by STAR.
(b) With respect to each STAR Stock Option converted into
a WAXS Stock Option pursuant to Section 1.7(a), and with respect to the shares
of WAXS Common Stock underlying such option, WAXS shall file and keep current
all requisite registration statements, on Form S-8 or other appropriate form,
for as long as such options remain outstanding, which registration statement
shall include a prospectus meeting the requirements of General Instruction C to
Form S-8 with respect to affiliates of STAR, subject at all times to compliance
with all applicable federal and state securities laws.
(c) After the date of this Agreement, STAR agrees that it
will not grant any restricted stock, stock appreciation rights or limited stock
appreciation rights and also agrees that it will not permit cash payments to
holders of STAR Stock Options in lieu of the substitution therefor of WAXS
Stock Options, as described in this Section 1.7.
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<PAGE> 5
1.8 Certain Adjustments. If between the date hereof and the
Effective Time, the outstanding WAXS Common Stock or STAR Common Stock shall
have been changed into a different number of shares or different class by
reason of any reclassification, recapitalization, stock split, split-up,
combination, exchange of shares or similar capital stock event or a stock
dividend or dividend payable in any other securities shall be declared with a
record date within such period, or any similar event shall have occurred, the
Exchange Ratio shall be appropriately adjusted to provide to the holders of
STAR Common Stock and the holders of STAR Stock Options the same economic
effect as contemplated by this Agreement prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. At least five (5) days prior to the mailing of
the Joint Proxy Statement/Prospectus (as defined in Section 5.1), WAXS shall
appoint a commercial bank or trust company reasonably acceptable to STAR to act
as exchange agent hereunder (the "Exchange Agent") for the purpose of
exchanging Certificates for the Merger Consideration. Immediately prior to the
Effective Time, WAXS shall deposit with the Exchange Agent, in trust for the
benefit of holders of shares of STAR Common Stock, cash payable and
certificates representing the WAXS Common Stock issuable pursuant to Section
1.6 in exchange for outstanding shares of STAR Common Stock. WAXS agrees to
deposit with the Exchange Agent from time to time as needed, cash sufficient to
pay cash in lieu of fractional shares pursuant to Section 2.4 and any dividends
and other distributions pursuant to Section 2.3. Any cash and certificates of
WAXS Common Stock deposited with the Exchange Agent shall hereinafter be
referred to as the "Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after
the Effective Time, WAXS shall cause the Exchange Agent to mail to each holder
of a Certificate (other than to holders of Dissenter's Shares) (i) a letter of
transmittal which shall advise such holder of the effectiveness of the Merger
and specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, and which letter shall be in customary form and have such other
provisions as WAXS may reasonably specify and (ii) instructions for effecting
the surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in exchange therefor promptly (A) one or more shares of
WAXS Common Stock (which shall be in uncertificated book entry form unless a
physical certificate is requested) representing, in the aggregate, the whole
number of shares that such holder has the right to receive pursuant to Section
1.6 (after taking into account all shares of STAR Common Stock then held by
such holder), and (B) a check in the amount equal to the cash that such holder
has the right to receive pursuant to the provisions of Section 1.6(c), if any,
and this Article II, including cash in lieu of any additional shares of WAXS
Common Stock pursuant to Section 2.4 and dividends and
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<PAGE> 6
other distributions pursuant to Section 2.3. No interest will be paid or will
accrue on any cash payable pursuant to 1.6(c), Section 2.3 or Section 2.4. In
the event of transfer of ownership of STAR Common Stock which is not registered
in the transfer records of STAR, one or more shares of WAXS Common Stock
evidencing, in the aggregate, the proper number of shares of WAXS Common Stock,
a check in the proper amount of cash in lieu of any additional shares of WAXS
Common Stock pursuant to Section 2.4, a check in the proper amount of cash
pursuant to Section 1.6(c) and any dividends or other distributions to which
such holder is entitled pursuant to Section 2.3, may be issued with respect to
such STAR Common Stock to such a transferee if the Certificate representing
such shares of STAR Common Stock is presented to the Exchange Agent,
accompanied by all documents required to evidence and effect such transfer and
to evidence that any applicable stock transfer taxes have been paid.
2.3 Distributions with Respect to Unexchanged Certificates. No
dividends or other distributions declared or made with respect to shares of
WAXS Common Stock with a record date after the Effective Time shall be paid to
the holder of any unexchanged Certificate with respect to the shares of WAXS
Common Stock that such holder would be entitled to receive upon surrender of
such Certificate and no cash payment in lieu of fractional shares of WAXS
Common Stock shall be paid to any such holder pursuant to Section 2.4 until
such holder shall surrender such Certificate in accordance with Section 2.2.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to such holder of shares of WAXS Common Stock
issuable in exchange therefor, without interest, (a) promptly after the time of
such surrender, the amount of any cash payable in lieu of fractional shares of
WAXS Common Stock to which such holder is entitled pursuant to Section 2.4 and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of WAXS
Common Stock, and (b) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of WAXS Common Stock.
2.4 No Fractional Shares of WAXS Common Stock.
(a) No certificates or scrip or shares of WAXS Common
Stock representing fractional shares of WAXS Common Stock or book-entry credit
of the same shall be issued upon the surrender for exchange of Certificates and
such fractional share interests will not entitle the owner thereof to vote or
to have any rights of a stockholder of or a holder of shares of WAXS Common
Stock.
(b) Notwithstanding any other provision of this
Agreement, each holder of shares of STAR Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of WAXS Common Stock (after taking into account all Certificates delivered by
such holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of WAXS
Common Stock multiplied by (ii) the average of the daily closing price for a
share of WAXS Common Stock on the Nasdaq for the ten (10) consecutive trading
days in which such shares are traded on the Nasdaq, ending at the close of
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<PAGE> 7
trading on the date of the Effective Time or, if such date is not a business
day, the business day immediately preceding the date on which the Effective
Time occurs. As promptly as practicable after the determination of the amount
of cash, if any, to be paid to holders of fractional interests, the Exchange
Agent shall so notify WAXS, and WAXS shall promptly deposit such amount with
the Exchange Agent and shall cause the Exchange Agent to promptly forward
payments to such holders of fractional interests subject to and in accordance
with the terms hereof.
2.5 No Further Ownership Rights in STAR Common Stock. As
applicable, all shares of WAXS Common Stock issued and cash paid upon
conversion of shares of STAR Common Stock in accordance with the terms of
Article I and this Article II (including any cash paid pursuant to Section 2.4)
shall be deemed to have been issued or paid in full satisfaction of all rights
pertaining to the shares of STAR Common Stock.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six (6) months
after the Effective Time shall be delivered to the Surviving Corporation or
otherwise on the instruction of the Surviving Corporation, and any holders of
the Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and WAXS for the Merger
Consideration with respect to the shares of STAR Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.6
and Section 2.2, any cash in lieu of fractional shares of WAXS Common Stock to
which such holders are entitled pursuant to Section 2.4 and any dividends or
distributions with respect to shares of WAXS Common Stock to which such holders
are entitled pursuant to Section 2.3. Any such portion of the Exchange Fund
remaining unclaimed by holders of shares of STAR Common Stock five (5) years
after the Effective Time (or such earlier date immediately prior to such time
as such amounts would otherwise escheat to or become property of any
Governmental Entity (as defined in Section 3.1(c)(3)) shall, to the extent
permitted by law, become the property of the Surviving Corporation free and
clear of any claims or interest of any Person previously entitled thereto.
2.7 No Liability. None of WAXS, Merger Sub, STAR, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by the Surviving
Corporation on a daily basis. Any interest and other income resulting from such
investments shall promptly be paid to the Surviving Corporation.
2.9 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that
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<PAGE> 8
may be made against it with respect to such Certificate, the Exchange Agent
will deliver in exchange for such lost stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of STAR Common Stock
formerly represented thereby, any cash in lieu of fractional shares of WAXS
Common Stock, and unpaid dividends and distributions on shares of WAXS Common
Stock deliverable in respect thereof, pursuant to this Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and WAXS
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of STAR Common Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or WAXS, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of STAR Common Stock
in respect of which such deduction and withholding was made by the Surviving
Corporation or WAXS, as the case may be.
2.11 Stock Transfer Books. The stock transfer books of STAR shall
be closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of STAR Common Stock thereafter on the
records of STAR. On or after the Effective Time, any Certificates presented to
the Exchange Agent or WAXS for any reason shall be converted as provided in
Articles I and II hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of WAXS and Merger Sub. Except
as set forth in the WAXS SEC Reports (as defined below) filed and publicly
available prior to the date hereof or the WAXS Disclosure Schedule delivered by
WAXS to STAR prior to the execution of this Agreement (the "WAXS Disclosure
Schedule") (each section of which qualifies the correspondingly numbered
representation and warranty or covenant to the extent specified therein), WAXS
and Merger Sub represent and warrant to STAR as follows:
(a) Organization; Standing and Power; Subsidiaries.
(1) Each of WAXS, its Subsidiaries (as defined
in Section 8.12) and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the requisite power
and authority to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and
authority would not have a Material Adverse Effect on WAXS, and is
duly qualified and in good standing to do business in each
jurisdiction in which the nature of its
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business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the
failure to so qualify or to be in good standing would not have a
Material Adverse Effect on WAXS. The copies of the certificate of
incorporation and bylaws of WAXS and Merger Sub which were previously
furnished or made available to STAR are true, complete and correct
copies of such documents as in effect on the date of this Agreement.
(2) Exhibit 21.1 to WAXS's Annual Report on Form
10-K for the year ended December 31, 1998 includes all the
Subsidiaries of WAXS which as of the date of this Agreement are
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of
the SEC). All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned
directly or indirectly by WAXS, free and clear of all pledges, claims,
liens, charges, encumbrances and security interests of any kind or
nature whatsoever (collectively "Liens") and free of any other
restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests).
Neither WAXS nor any of its Subsidiaries directly or indirectly owns
any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association
or entity (other than the Subsidiaries of WAXS) that is or would
reasonably be expected to be material to WAXS and its Subsidiaries
taken as a whole.
(b) Capital Structure. As of February 7, 2000:
(1) The authorized capital stock of WAXS
consists of (A) 150,000,000 shares of WAXS Common Stock, of which
53,787,805 shares are outstanding and no shares are held in the
treasury of WAXS and (B) 10,000,000 shares of Preferred Stock, par
value $.01 per share, of which 50,000 shares designated as 4.25%
Cumulative Senior Perpetual Convertible Preferred Stock, Series A, par
value $.01 per share (the "Series A Preferred Stock"), and 350,259.875
shares designated as Convertible Preferred Stock, Series C (the
"Series C Preferred Stock"), are outstanding. WAXS has reserved or has
available 4,347,827 shares of WAXS Common Stock for issuance upon
conversion of the Series A Preferred Stock and 18,027,478 shares of
WAXS Common Stock for issuance upon conversion of the Series C
Preferred Stock. All issued and outstanding shares of the capital
stock of WAXS are duly authorized, validly issued, fully paid and
nonassessable, and no class of capital stock is entitled to preemptive
rights. In addition to the rights described in Section 3.1(b) of the
WAXS Disclosure Schedule, there are outstanding options, warrants or
other rights (a "WAXS Stock Option") to acquire 13,133,837 shares of
capital stock from WAXS.
(2) No bonds, debentures, notes or other
indebtedness of WAXS having the right to vote on any matters on which
holders of capital stock of WAXS may vote ("WAXS Voting Debt") are
issued or outstanding.
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(3) Except as otherwise set forth in this
Section 3.1(b) and as contemplated by Section 1.5 and Section 1.6,
there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to
which WAXS or any of its Subsidiaries is a party or by which any of
them is bound obligating WAXS or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of WAXS or any of
its Subsidiaries or obligating WAXS or any of its Subsidiaries to
issue, grant, extend or enter into any such security, option, warrant,
call right, commitment, agreement, arrangement or undertaking. There
are no outstanding obligations of WAXS or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of
WAXS or any of its Subsidiaries.
(c) Authority; No Conflicts.
(1) WAXS and Merger Sub have all requisite
corporate power and authority to enter into this Agreement and to
consummate the Merger and the other transactions contemplated hereby,
subject, in the case of WAXS, to the approval by the stockholders of
WAXS by the Required WAXS Vote (as defined in Section 3.1(g)) of this
Agreement, the Merger and the other transactions contemplated hereby
and, in the case of Merger Sub, the affirmative vote of WAXS, as sole
stockholder thereof, of this Agreement, the Merger and the other
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the Merger and the other
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of WAXS and Merger Sub,
subject, in the case of WAXS, to the approval by the stockholders of
WAXS of this Agreement, the Merger and the transactions contemplated
hereby by the Required WAXS Vote and subject, in the case of Merger
Sub, to the affirmative vote of WAXS, as sole stockholder thereof, of
this Agreement, the Merger and the other transactions contemplated
hereby. This Agreement has been duly executed and delivered by WAXS
and Merger Sub and constitutes a valid and binding agreement of each
of WAXS and Merger Sub, enforceable against it in accordance with its
terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws affecting the enforcement of creditors' rights generally or by
general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(2) Subject, in the case of WAXS, to the
approval by the stockholders of WAXS of this Agreement, the Merger and
the transactions contemplated hereby by the Required WAXS Vote and, in
the case of Merger Sub, the affirmative vote of WAXS, as sole
stockholder thereof, of this Agreement, the Merger and the other
transactions contemplated hereby, the execution and delivery of this
Agreement by WAXS and Merger Sub does not, and the consummation by
WAXS and Merger Sub of the Merger and the other actions contemplated
hereby will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or
both) under, or give rise to a right of
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termination, amendment, cancellation or acceleration of any obligation
or the loss of a material benefit under, or the creation of a Lien on
any assets (any such conflict, violation, default, right of
termination, amendment, cancellation or acceleration, loss or
creation, a "Violation") of: (A) any provision of the certificate of
incorporation or bylaws of WAXS, any Subsidiary of WAXS or Merger Sub,
or (B) except as would not have a Material Adverse Effect on WAXS and
subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
paragraph (3) below, any loan or credit agreement, note, mortgage,
bond, indenture, lease, or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to WAXS, any
Subsidiary of WAXS or their respective properties or assets.
(3) No consent, approval, order or authorization
of, or registration, declaration or filing with, any supranational,
national, state, municipal, local or foreign government, any
instrumentality, subdivision, court, administrative agency or
commission or other authority thereof, or any quasi-governmental or
private body exercising any supranational, national, state, municipal,
local or foreign regulatory, taxing, importing or other governmental
or quasi-governmental authority (a "Governmental Entity"), is required
by or with respect to WAXS, any Subsidiary of WAXS or Merger Sub in
connection with the execution and delivery of this Agreement by WAXS
or Merger Sub or the consummation of the Merger and the other
transactions contemplated hereby, except for those required under or
in relation to (A) the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (B) state securities or "blue sky"
laws (the "Blue Sky Laws"), (C) the Communications Act of 1996, as
amended (the "Communications Act"), and all applicable state public
utilities laws, (D) the Securities Act, (E) the Exchange Act, (F) the
DGCL with respect to the filing of the Certificate of Merger, (G)
rules and regulations of Nasdaq, (H) antitrust or other competition
laws of other jurisdictions, (I) such consents, approvals, orders,
authorizations, registrations, declarations and filings as are
required by applicable laws, regulations and rules governing the
telecommunications business including, without limitation, those of
the United States Federal Communication Commission (the "FCC"), (J)
any filings and approvals expressly contemplated by this Agreement,
and (K) such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make
or obtain would not have a Material Adverse Effect on WAXS. Consents,
approvals, orders, authorizations, registrations, declarations and
filings required under or in relation to any of the foregoing clauses
(A) through (K) are hereinafter referred to as "Necessary Consents".
(d) Reports and Financial Statements.
(1) WAXS has filed all required registration
statements, prospectuses, reports, schedules, forms, statements and
other documents required to be filed by it under the federal
securities laws with the SEC since January 1, 1998 (collectively,
including all exhibits thereto, the "WAXS SEC Reports"). No Subsidiary
of WAXS, including, without
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limitation Merger Sub, is required to file any form, report,
registration statement, prospectus or other document with the SEC not
otherwise filed with a WAXS SEC Report. As of the respective times
such documents were filed or, as applicable, became effective, or as
subsequently amended, the WAXS SEC Reports complied as to form and
content, in all material respects, with the requirements of the
Securities Act and the Exchange Act, as the case may be, and the rules
and regulations promulgated thereunder and, taken as a whole, the WAXS
SEC Reports do not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the
WAXS SEC Reports (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing) presents
fairly, in all material respects, the consolidated financial position
and consolidated results of operations and cash flows of WAXS and its
Subsidiaries as of the respective dates or for the respective periods
set forth therein all in conformity with GAAP consistently applied
during the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to
normal and recurring year-end adjustments that have not been and are
not expected to be material in amount. All of such WAXS SEC Reports,
as of their respective dates (or as of the date of any amendment to
the respective WAXS SEC Report filed prior to the date of this
Agreement), complied or will comply as to form in all material
respects with the applicable requirements of the Securities Act and
the Exchange Act and the rules and regulations promulgated thereunder.
(2) Since December 31, 1998, WAXS and its
Subsidiaries have not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of WAXS and
its Subsidiaries or the footnotes thereto prepared in conformity with
GAAP, other than (A) liabilities incurred in the ordinary course of
business or (B) liabilities that would not have a Material Adverse
Effect on WAXS.
(e) Information Supplied. None of the information
supplied or to be supplied by WAXS for inclusion or incorporation by reference
in the Joint Proxy Statement/Prospectus (as defined herein) will, on the date
it is first mailed to WAXS's and STAR's stockholders, as applicable, or at the
time of the WAXS Stockholders Meeting or the STAR Stockholders Meeting, as
applicable, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Joint Proxy Statement/Prospectus will, on the date it
is first mailed to WAXS's and STAR's stockholders and at the time of the WAXS
Stockholders Meeting and the STAR Stockholders Meeting, comply as to form in
all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder.
(f) WAXS Board Approval. The Board of Directors of WAXS,
by resolutions duly adopted by unanimous vote at a meeting duly called and held
and not subsequently rescinded or modified in any way (the "WAXS Board
Approval"), has duly (i) determined that this Agreement, the Merger and the
other transactions contemplated hereby are fair to and in the best interests of
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WAXS and its stockholders, (ii) approved this Agreement, the Merger and the
other transactions contemplated hereby and (iii) declared the advisability of
this Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that the stockholders of WAXS approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby and
directed that this Agreement and the transactions contemplated hereby be
submitted for consideration by WAXS's stockholders at the WAXS Stockholders
Meeting.
(g) Required WAXS Stockholder Vote. The affirmative vote
of holders of shares of WAXS Common Stock, Series A Preferred Stock and Series
C Preferred Stock, voting together as a single class, representing a majority
of the outstanding shares of WAXS Common Stock, Series A Preferred Stock and
Series C Preferred Stock (the "Required WAXS Vote"), is the only vote of
the holders of any class or series of WAXS capital stock necessary to adopt
this Agreement and approve the Merger and the other transactions contemplated
hereby.
(h) Required Merger Sub Board Approval. The Board of
Directors of Merger Sub, by resolutions duly adopted by a unanimous written
consent and not subsequently rescinded or modified in any way, has duly (i)
determined that this Agreement, the Merger and the other transactions
contemplated hereby are fair to and in the best interests of Merger Sub and its
sole stockholder, WAXS, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) declared the advisability of this
Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that WAXS adopt this Agreement and approve the Merger
and the other transactions contemplated hereby and directed that this Agreement
and the transactions contemplated hereby be submitted for consideration by WAXS
at a meeting duly called.
(i) Required Merger Sub Stockholder Vote. The affirmative
vote of WAXS, as sole stockholder of Merger Sub, is the only vote of the
holders of any class or series of Merger Sub capital stock necessary to adopt
this Agreement and approve the Merger and the other transactions contemplated
hereby.
(j) Litigation: Compliance with Laws.
(1) There is no suit, investigation, action or
proceeding pending or, to the Knowledge of WAXS, threatened, against
or affecting WAXS or any Subsidiary of WAXS having, or which would
have a Material Adverse Effect on WAXS, nor is there any judgment,
decree, injunction, rule or order of any Governmental Entity or
arbitrator outstanding against WAXS or any Subsidiary of WAXS having,
or which would have a Material Adverse Effect on WAXS.
(2) Except as would not have a Material Adverse
Effect on WAXS, WAXS and its Subsidiaries hold all permits, licenses,
variances, authorizations, exemptions, orders and approvals of all
Governmental Entities including, without limitation, the FCC and state
public utilities commissions, which are necessary for the operation of
the businesses
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of WAXS and its Subsidiaries (the "WAXS Permits"). Such WAXS permits
are valid and in full force and effect and WAXS and its Subsidiaries
are in compliance with the terms of the WAXS Permits, except where the
failure to be valid and in full force and effect or to so comply would
not have a Material Adverse Effect on WAXS. The businesses of WAXS and
its Subsidiaries are not being conducted in violation of, and WAXS has
not received any notices of violations with respect to, any law,
ordinance or regulation of any Governmental Entity, except for
possible violations which would not have a Material Adverse Effect on
WAXS. WAXS is not aware of any threatened suspension, cancellation or
invalidation of any such WAXS Permit. Except as set forth in the WAXS
SEC Reports or except as would not have a Material Adverse Effect on
WAXS, neither WAXS nor any of its Subsidiaries has received notice
from either the FCC or any state public utilities commissions of any
complaint filed therewith concerning WAXS or any of its Subsidiaries,
operations or services.
(k) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, and except as permitted by Section 4.1, since December 31,
1998 through and including the date hereof, (i) WAXS and its Subsidiaries have
conducted, in all material respects, their business only in the ordinary course
and (ii) there has not been any change, circumstance or event which has had, or
would reasonably be expected to have, a Material Adverse Effect on WAXS, other
than any change, circumstance or effect relating (A) to the economy or
financial markets in general, or (B) in general to the industries in which WAXS
and its Subsidiaries operate and not specifically relating to WAXS and its
Subsidiaries.
(l) Intellectual Property. Except as would not have a
Material Adverse Effect on WAXS: (i) WAXS and each of its Subsidiaries owns, or
is licensed to use (in each case, free and clear of any Liens, or claim of
rights therein by any third party) all Intellectual Property (as defined below)
used in or necessary for the conduct of its business as currently conducted,
(ii) the use of any Intellectual Property by WAXS and its Subsidiaries does not
infringe on or otherwise violate the rights of any Person and is in accordance
with any applicable license pursuant to which WAXS or any Subsidiary acquired
the right to use any Intellectual Property; (iii) to the Knowledge of WAXS, no
Person is challenging, infringing on or otherwise violating any right of WAXS
or any of its Subsidiaries with respect to any Intellectual Property owned by
and/or licensed to WAXS or its Subsidiaries; and (iv) neither WAXS nor any of
its Subsidiaries has received any written notice of any pending claim with
respect to any Intellectual Property used by WAXS and its Subsidiaries and to
WAXS's Knowledge no Intellectual Property owned and/or licensed by WAXS or its
Subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property.
For purposes of this Agreement, "Intellectual Property" shall mean trademarks,
service marks, brand names, certification marks, trade dress and other
indications of origin, the goodwill associated with the foregoing and
registrations in any jurisdiction of, and applications in any jurisdiction to
register, the foregoing, including any extension, modification or renewal of
any such registration or application; inventions, discoveries and ideas,
whether patentable or not, in any jurisdiction; patents, applications for
patents (including,
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without limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; non-public information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or not,
in any jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; any
similar intellectual property or proprietary rights; and any claims or causes
of action arising out of or relating to any infringement or misappropriation of
any of the foregoing.
(m) Brokers or Finders. No agent, broker, investment
banker, financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in connection
with any of the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of WAXS, except Donaldson, Lufkin & Jenrette
Securities Corporation (the "WAXS Financial Advisor"), whose fees and expenses
will be paid by WAXS in accordance with WAXS's agreement with such firm, a copy
of which has been, or will be promptly when available, provided to STAR.
(n) Opinion of WAXS Financial Advisor. WAXS has received
the opinion of the WAXS Financial Advisor, dated the date of this Agreement, to
the effect that as of such date, the Merger Consideration is fair, from a
financial point of view, to WAXS and its stockholders, a copy of which has been
provided to STAR.
(o) Taxes.
(1) (i) All material Tax Returns of WAXS and
each of its Subsidiaries have been filed, or requests for extensions
have been timely filed and have not expired; (ii) all Tax Returns
filed by WAXS and its Subsidiaries are complete and accurate in all
material respects; (iii) all Taxes shown to be due on such Tax Returns
or on subsequent assessments with respect thereto have been paid or
adequate reserves have been established for the payment of such Taxes,
and no other material Taxes are payable by WAXS or any of its
Subsidiaries with respect to items or periods covered by such Tax
Returns (whether or not shown on or reportable on such Tax Returns) or
with respect to any period prior to the date of this Agreement; (iv)
there are no material liens on any of the assets of WAXS or any of its
Subsidiaries with respect to Taxes, other than liens for Taxes not yet
due and payable or for Taxes that WAXS and its Subsidiaries is
contesting in good faith through appropriate proceedings and for which
appropriate reserves have been established; and (v) there is no audit,
examination, deficiency or refund litigation or matter in controversy
with respect to any Taxes of WAXS and its Subsidiaries that might
reasonably be expected to result in a Tax determination which would
have a Material Adverse Effect on WAXS.
(2) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this
Agreement, covering any employee or former employee of WAXS or any of
its Subsidiaries that, individually or collectively, could give
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rise to the payment of any amount (or portion thereof) that would not
be deductible pursuant to Sections 280G, 404, or 162 of the Code.
(3) Neither WAXS nor any of its Subsidiaries is
a party to a Tax Sharing Agreement.
(p) Certain Contracts. Neither WAXS nor any of its
Subsidiaries is a party to or bound by (i) any "material contract" (as such
term is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any
noncompetition agreement or any other agreement or arrangement that limits or
otherwise restricts WAXS or any of its Subsidiaries or any successor thereto,
from engaging or competing in any line of business or in any geographic area,
which agreement or arrangement would have a Material Adverse Effect on WAXS or
the Surviving Corporation after giving effect to the Merger, or (iii) any
agreement or arrangement between WAXS or any of its Subsidiaries, on the one
hand, and any affiliates, directors or officers of WAXS or its Subsidiaries, on
the other hand, that is not on arm's-length terms. All contracts filed with the
WAXS SEC Reports and the contracts listed on Section 3.1(p) of the WAXS
Disclosure Schedule are valid, binding and are in full force and effect and
enforceable in accordance with their respective terms, except to the extent
that such enforceability may be subject to applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting the enforcement or
creditors' rights generally or by general equitable principles, and other than
such contracts which by their terms are no longer in force or effect. Neither
WAXS nor its Subsidiaries are in violation or breach of or default under any
such contract, nor to WAXS's and its Subsidiaries' Knowledge, is any other
party to any such contract in violation or breach or other default under any
such contract, except for any such violation, breach or default which would not
have a Material Adverse Effect on WAXS.
3.2 Representations and Warranties of STAR. Except as set forth in
the STAR SEC Reports (as defined below) filed and publicly available prior to
the date hereof or the STAR Disclosure Schedule delivered by STAR to WAXS prior
to the execution of this Agreement (the "STAR Disclosure Schedule") (each
section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein), STAR represents and
warrants to WAXS as follows:
(a) Organization; Standing and Power; Subsidiaries.
(1) Each of STAR and its Subsidiaries is a
corporation duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation or organization,
has the requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted, except
where the failure to be so organized, existing and in good standing or
to have such power and authority would not have a Material Adverse
Effect on STAR, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure to so
qualify or to be in good standing would not have a Material Adverse
Effect
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on STAR. The copies of the certificate of incorporation and bylaws of
STAR which were previously furnished or made available to WAXS are
true, complete and correct copies of such documents as in effect on
the date of this Agreement.
(2) Exhibit 21.1 to STAR's Annual Report on Form
10-K for the year ended December 31, 1998 includes all the
Subsidiaries of STAR which as of the date of this Agreement are
Significant Subsidiaries (as defined in Rule 1-02 of Regulation S-X of
the SEC). All the outstanding shares of capital stock of, or other
equity interests in, each such Significant Subsidiary have been
validly issued and are fully paid and nonassessable and are owned
directly or indirectly by STAR, free and clear of all Liens and free
of any other restriction (including any restriction on the right to
vote, sell or otherwise dispose of such capital stock or other
ownership interests). Neither STAR nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any
equity or similar interest in, any corporation, partnership, joint
venture or other business association or entity (other than the
Subsidiaries of STAR), that is or would reasonably be expected to be
material to STAR and its Subsidiaries taken as a whole.
(b) Capital Structure.
(1) The authorized capital stock of STAR
consists of (A) 50,000,000 shares of STAR Common Stock, of which
58,683,131 shares are outstanding and no shares are held in the
treasury of STAR and (B) 5,000,000 shares of preferred stock, par
value $0.001 per share, of which no shares are outstanding. All issued
and outstanding shares of the capital stock of STAR are duly
authorized, validly issued, fully paid and nonassessable, and no class
of capital stock is entitled to preemptive rights. There are
outstanding options, warrants or other rights to acquire 4,173,571
shares of capital stock from STAR. Section 3.2(b) of the STAR
Disclosure Schedule lists the exercise price and vesting schedule for
each STAR Stock Option.
(2) No bonds, debentures, notes or other
indebtedness of STAR having the right to vote on any matters on which
holders of capital stock of STAR may vote ("STAR Voting Debt") are
issued or outstanding.
(3) Except as otherwise set forth in this
Section 3.2(b), there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any
kind to which STAR or any of its Subsidiaries is a party or by which
any of them is bound obligating STAR or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of STAR
or any of its Subsidiaries or obligating STAR or any of its
Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are no outstanding obligations of STAR or any of
its
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Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of STAR or any of its Subsidiaries.
(c) Authority; No Conflicts.
(1) STAR has all requisite corporate power and
authority to enter into this Agreement and to consummate the Merger
and the other transactions contemplated hereby, subject to the
approval by the stockholders of STAR by the Required STAR Vote (as
defined in Section 3.2(g)) of this Agreement, the Merger and the other
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the Merger and the other
transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of STAR, subject to the
approval by the stockholders of STAR of this Agreement and the Merger
and the other transactions contemplated hereby by the Required STAR
Vote. This Agreement has been duly executed and delivered by STAR and
constitutes a valid and binding agreement of STAR, enforceable against
it in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally or by general equitable principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(2) Subject to the approval by the stockholders
of STAR of this Agreement, the Merger and the other transactions
contemplated hereby by the Required STAR Vote, the execution and
delivery of this Agreement by STAR does not, and the consummation by
STAR of the Merger and the other actions contemplated hereby will not,
conflict with, or result in a Violation of: (A) any provision of the
certificate of incorporation or bylaws of STAR or a Shareholder or any
Subsidiary of STAR or (B) except as would not have a Material Adverse
Effect on STAR, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declarations and
filings referred to in paragraph (3) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, or other agreement,
obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to STAR, any Subsidiary of STAR or their respective
properties or assets.
(3) No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to STAR or any Subsidiary of
STAR in connection with the execution and delivery of this Agreement
by STAR, or the consummation of the Merger and the other transactions
contemplated hereby, except the Necessary Consents and such consents,
approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain would not have a
Material Adverse Effect on STAR.
(d) Reports and Financial Statements.
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EXHIBIT 2.1
(1) STAR has filed all required registration
statements, prospectuses, reports, schedules, forms, statements and
other documents required to be filed by it under the federal securities
laws with the SEC since January 1, 1998 (collectively, including all
exhibits thereto, the "STAR SEC Reports"). No Subsidiary of STAR is
required to file any form, report, registration statement or prospectus
or other document with the SEC not otherwise filed with an STAR SEC
Report. As of the respective times such documents were filed or, as
applicable, became effective, or as subsequently amended, the STAR SEC
Reports complied as to form and content, in all material respects, with
the requirements of the Securities Act and the Exchange Act, as the
case may be, and the rules and regulations promulgated thereunder, and,
taken as a whole, the STAR SEC Reports do not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the financial statements (including the related
notes) included in the STAR SEC Reports (or, if amended or superseded
by a filing prior to the date of this Agreement, then on the date of
such filing) presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations
and cash flows of STAR and its Subsidiaries as of the respective dates
or for the respective periods set forth therein, all in conformity with
GAAP consistently applied during the periods involved except as
otherwise noted therein, and subject, in the case of the unaudited
interim financial statements, to normal and recurring year-end
adjustments that have not been and are not expected to be material in
amount. All of such STAR SEC Reports, as of their respective dates (or
as of the date of any amendment to the respective STAR SEC Report filed
prior to the date of this Agreement), complied or will comply as to
form in all material respects with the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder.
(2) Since December 31, 1998, STAR and its
Subsidiaries have not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of STAR and
its Subsidiaries or the footnotes thereto prepared in conformity with
GAAP, other than (A) liabilities incurred in the ordinary course of
business or (B) liabilities that would not have a Material Adverse
Effect on STAR.
(e) Information Supplied. None of the information
supplied or to be supplied by STAR for inclusion or incorporation by reference
in the Joint Proxy Statement/Prospectus will, on the date it is first mailed to
WAXS's or STAR's stockholders, as applicable, or at the time of the WAXS
Stockholders Meeting (as defined in Section 5.1) or the STAR Stockholders
Meeting, as applicable, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(f) Board Approval. The Board of Directors of STAR, by
resolutions duly adopted by unanimous vote at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "STAR Board Approval"),
has duly (i) determined that this Agreement,
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the Merger and the other transactions contemplated hereby are fair to and in the
best interests of STAR and its stockholders, (ii) approved this Agreement, the
Merger and the other transactions contemplated hereby and (iii) declared the
advisability of this Agreement, the Merger and the other transactions
contemplated hereby, and, further, (iv) recommended that the stockholders of
STAR approve and adopt this Agreement, the Merger and the other transactions
contemplated hereby and directed that this Agreement and the transactions
contemplated hereby be submitted for consideration by STAR's stockholders.
(g) Required Stockholder Vote. The affirmative vote of
the holders of a majority of the outstanding shares of STAR Common Stock (the
"Required STAR Vote") is the only vote of the holders of any class or series of
STAR capital stock necessary to adopt this Agreement and approve the Merger and
the other transactions contemplated hereby.
(h) Litigation: Compliance with Laws.
(1) There is no suit, investigation, action or
proceeding pending or, to the Knowledge of STAR, threatened, against or
affecting STAR or any Subsidiary of STAR having, or which would have a
Material Adverse Effect on STAR, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator
outstanding against STAR or any Subsidiary of STAR having, or which
would have a Material Adverse Effect on STAR.
(2) Except as would not have a Material Adverse
Effect on STAR, STAR and its Subsidiaries hold all permits, licenses,
variances, authorizations, exemptions, orders and approvals of all
Governmental Entities including, without limitation, the FCC and state
public utilities commissions, necessary for the operation of the
businesses of STAR and its Subsidiaries (the "STAR Permits"). Such STAR
permits are valid and in full force and effect and STAR and its
Subsidiaries are in compliance with the terms of the STAR Permits,
except where the failure to be valid and in full force and effect or to
so comply would not have a Material Adverse Effect on STAR. The
businesses of STAR and its Subsidiaries are not being conducted in
violation of, and STAR has not received any notices of violations with
respect to, any law, ordinance or regulation of any Governmental
Entity, except for possible violations which would not have a Material
Adverse Effect on STAR. STAR is not aware of any threatened suspension,
cancellation or invalidation of any STAR Permit. Except as set forth in
the STAR SEC Reports or except as would not have a Material Adverse
Effect on STAR, STAR has not received notice from either the FCC or any
state public utilities commissions of any complaint filed therewith
concerning STAR or any of its Subsidiaries, operations or services.
(i) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, except as disclosed in the STAR SEC Reports filed prior to
the date of this Agreement, and except as permitted by Section 4.2, since
December 31, 1998 through and including the date hereof, (i) STAR and its
Subsidiaries have
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conducted, in all material respects, their business only in the ordinary course
and (ii) there has not been any change, circumstance or event which has had, or
would reasonably be expected to have, a Material Adverse Effect on STAR, other
than any change, circumstance or effect relating (A) to the economy or financial
markets in general, or (B) in general to the industries in which STAR and its
Subsidiaries operate and not specifically relating to STAR and its Subsidiaries.
(j) Employee Benefits Matters.
(1) Section 3.2(j)(l) of the STAR Disclosure
Schedule sets forth a list of all material agreements, arrangements,
commitments, and policies (i) which relate to employee benefits; (ii)
which pertain to present or former employees, retirees, directors or
independent contractors (or their beneficiaries, dependents or spouses)
of STAR; and (iii) which are currently or expected to be adopted,
maintained by, sponsored by, or contributed to by STAR or any other
employer (a "STAR Affiliate") which, under Section 414 of the Code,
would constitute a single employer with STAR (collectively referred to
as "STAR Employee Benefit Plans"), including, but not limited to, all:
(A) employee benefit plans as defined in Section 3(3) of ERISA; and (B)
all other deferred compensation, incentive, profit-sharing, thrift,
stock ownership, stock appreciation rights, bonus, stock option, stock
purchase, vacation, or other benefit plans or arrangements.
(2) STAR and all STAR Affiliates have complied
with their respective substantive obligations with respect to all STAR
Employee Benefit Plans (including, but not limited to, (i) filing or
distributing all reports or notices required by ERISA or the Code and
(ii) complying with all requirements of Part 6 of Title I of ERISA and
Code Section 4980B) and have maintained the STAR Employee Benefit Plans
in compliance with all applicable laws and regulations (including, but
not limited to, ERISA and the Code), except where the failure to comply
with such obligations would not result in a Material Adverse Effect on
STAR. Each STAR Employee Benefit Plan that is intended to qualify under
Code Section 401(a) has received a favorable determination letter (or
other ruling indicating its tax-qualified status) from the IRS, and the
IRS has not threatened or taken any action to revoke any favorable
determination letter issued with respect to any such STAR Employee
Benefit Plan. No statement, either oral or written, has been made by
STAR or any STAR Affiliate (or any agent of either) to any Person
regarding any STAR Employee Benefit Plans that is not in accordance
with the terms of that plan that would have a Material Adverse Effect
on STAR.
(3) STAR has made available to WAXS true,
correct and complete copies of all of the current documents relating to
the STAR Employee Benefit Plans, including, but not limited to: (i) all
plan texts (including any subsequent amendments), trust instruments and
other funding arrangements adopted or entered into in connection with
each of the STAR Employee Benefit Plans; (ii) the notices and election
forms used to notify employees and their dependents of their
continuation coverage rights under group health plans (under Code
Section 4980B(f) and ERISA Section 606), if applicable; and (iii) the
most recent Form 5500
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annual reports (including all schedules thereto), summary plan
descriptions and favorable determination letters, if applicable, for
Employee Benefit Plans. Since the date such documents were supplied to
WAXS, no plan amendments have been adopted and no such amendments or
changes shall be adopted or made prior to the Closing Date without
WAXS's approval, except as required by applicable law after the date
hereof.
(4) Neither STAR nor any STAR Affiliate has any
agreement, arrangement, commitment or understanding to create any
additional STAR Employee Benefit Plans or to continue, modify, change
or terminate any existing STAR Employee Benefit Plans that could have a
Material Adverse Effect on STAR.
(5) None of the STAR Employee Benefit Plans (i)
is currently under investigation, audit or review by the U.S.
Department of Labor, the IRS, the Pension Benefit Guaranty Corporation
or any other federal or state agency or (ii) is liable for any federal,
state, local or foreign taxes that would have a Material Adverse Effect
on STAR. Except for such liabilities that would not have a Material
Adverse Effect on STAR, there is no transaction in connection with
which STAR or any STAR Affiliate could be subject to either a civil
penalty assessed pursuant to ERISA Section 502, a tax imposed by Code
Section 4975 or liability for a breach of fiduciary responsibility
under ERISA.
(6) Other than routine claims for benefits
payable to participants or beneficiaries in accordance with the terms
of the STAR Employee Benefit Plans, or relating to qualified domestic
relations orders (as defined in Section 414(p) of the Code), there are
no claims, pending or threatened, by any participant or beneficiary
against any of the STAR Employee Benefit Plans or any fiduciary of any
of the STAR Employee Benefit Plans that could have a Material Adverse
Effect on STAR.
(7) Neither STAR nor any STAR Affiliate has at
any time maintained, sponsored or contributed to any "pension plan" as
defined in ERISA Section 3(2) which is subject to Title IV of ERISA or
contributed to any pension plan which is a "multiemployer plan" as
defined in ERISA Section 3(37)(A).
(8) Section 3.2(j)(8) of the STAR Disclosure
Schedule sets forth a list of all agreements, arrangements, commitments
and STAR Employee Benefit Plans, under which (i) any benefits will be
increased, (ii) the vesting or exercisability of benefits will be
accelerated, (iii) amounts will become immediately payable, and/or (iv)
the immediate funding for any benefits is required, upon the occurrence
of the transaction contemplated by this Agreement. Section 3.2(j)(8) of
the STAR Disclosure Schedule sets forth an estimate of the total value
and/or cost of any such change in control benefits and/or funding and
the time periods in which such payments must be made and/or funding
obligations must be met, including but not limited to the value and/or
costs of any gross up payments for tax purposes.
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(9) To the Knowledge of STAR, no key employee,
or group of employees of STAR has any plans to terminate employment
with STAR other than employees with plans to retire. STAR has complied
in all material respects with all laws relating to the employment of
labor, including provisions thereof relating to wages, hours and equal
opportunity, and it does not have any material labor relations problems
(including threatened or actual strikes or work stoppages or material
grievances).
(10) Neither STAR nor any of its Subsidiaries is
a party to any collective bargaining agreement.
(k) Intellectual Property. Except as would not have a
Material Adverse Effect on STAR: (i) STAR and each of its Subsidiaries owns, or
is licensed to use (in each case, free and clear of any Liens, or claims of
rights therein by any third party), all Intellectual Property used in or
necessary for the conduct of its business as currently conducted, (ii) the use
of any Intellectual Property by STAR and its Subsidiaries does not infringe on
or otherwise violate the rights of any Person and is in accordance with any
applicable license pursuant to which STAR or any Subsidiary acquired the right
to use any Intellectual Property; (iii) to the Knowledge of STAR, no Person is
challenging, infringing on or otherwise violating any right of STAR or any of
its Subsidiaries with respect to any Intellectual Property owned by and/or
licensed to STAR or its Subsidiaries; and (iv) neither STAR nor any of its
Subsidiaries has received any written notice of any pending claim with respect
to any Intellectual Property used by STAR and its Subsidiaries and to STAR's
Knowledge, no Intellectual Property owned and/or licensed by STAR or its
Subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property.
(l) Brokers or Finders. No agent, broker, investment
banker, financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in connection
with any of the transactions contemplated by this Agreement, based upon
arrangements made by or on behalf of STAR except Deutsche Bank Alex Brown (the
"STAR Financial Advisor"), whose fees and expenses will be paid by STAR in
accordance with STAR's agreement with such firm, a copy of which has been, or
will be promptly when available, provided to WAXS.
(m) Opinion of STAR Financial Advisor. STAR has received
the opinion of the STAR Financial Advisor, dated the date of this Agreement, to
the effect that as of such date, the Merger Consolidation is fair, from a
financial point of view, to STAR and its stockholders, a copy of which has been
provided to WAXS.
(n) Taxes.
(1) (i) All material Tax Returns of STAR and
each of its Subsidiaries have been filed, or requests for extensions
have been timely filed and have not expired; (ii) all Tax Returns filed
by STAR and its Subsidiaries are complete and accurate in all material
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respects; (iii) all Taxes shown to be due on such Tax Returns or on
subsequent assessments with respect thereto have been paid or the STAR
SEC Reports reflect that adequate reserves have been established for
the payment of such Taxes, and no other material Taxes are payable by
STAR and its Subsidiaries with respect to items or periods covered by
such Tax Returns (whether or not shown on or reportable on such Tax
Returns) or with respect to any period prior to the date of this
Agreement; (iv) STAR and each of its Subsidiaries have disclosed on its
federal income Tax Return all positions taken therein that could give
rise to a substantial understatement of income Tax within the meaning
of Section 6662 of the Code; (v) there are no material liens on any of
the assets of STAR or any of its Subsidiaries with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that
STAR or any of its Subsidiaries is contesting in good faith through
appropriate proceedings and for which the STAR SEC Reports reflect that
appropriate reserves have been established; (vi) no power of attorney
to deal with Tax matters or waiver or extension of any statute of
limitations with respect to Taxes has been granted by STAR or any of
its Subsidiaries; and (vii) there is no (X) audit, examination,
deficiency or refund litigation or matter in controversy with respect
to any Taxes of STAR and its Subsidiaries nor (Y) has the IRS nor any
other Tax authority asserted any claim for Taxes in writing, or to the
knowledge of STAR, is threatening to assert any claim for Taxes, that
might reasonably be expected to result in a Tax determination which
would have a Material Adverse Effect on STAR.
(2) [INTENTIONALLY OMITTED.]
(3) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this
Agreement, covering any employee or former employee of STAR or any of
its Subsidiaries that, individually or collectively, could give rise to
the payment of any amount (or portion thereof) that would not be
deductible pursuant to Sections 280G, 404, or 162 of the Code.
(4) Neither STAR nor any of its Subsidiaries is
a party to (A) a Tax Sharing Agreement, (B) transactions which have
produced deferred intercompany gains, losses or other intercompany
items or excess loss accounts (within the meaning of Treas. Reg. ss.
1.1502-13 or 1.1502-19, respectively, or any predecessor regulations or
any comparable items for state, local or non-United States Tax
purposes), or (C) any joint venture, partnership, limited liability
company or other arrangement or contract that should be treated as a
partnership for federal income Tax purposes or as to which, an election
has been made under Treas. Reg. ss. 301.7701-3 to have the entity
disregarded for federal income Tax purposes as an entity separate from
its owner.
(5) None of STAR and its Subsidiaries (A) has or
has had operations or assets outside the United States taxable as a
"branch" by the United States or as a "permanent establishment" by any
foreign country, (B) has received written notice of any claim made by a
Tax authority in a jurisdiction where STAR or any of its Subsidiaries
does not file Tax Returns that it is or may be subject to Taxes in such
jurisdiction, (C) does business in or
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derives income from any state, local territorial or non-United States
taxing jurisdiction other than those for which Tax Returns have been
filed and made available to WAXS pursuant to Section 3.2 (n)(6) hereof,
(D) is a "passive foreign investment company" within the meaning of the
Code, (E) has participated in or cooperated with an international
boycott or has been requested to do so in connection with any prior
transaction or the transactions contemplated by this Agreement, and (F)
has availed itself of any Tax amnesty, Tax holiday or similar relief in
any jurisdiction.
(6) STAR has made available to WAXS true copies
of (A) all material Tax Returns that STAR or its Subsidiaries have
filed since January 1, 1994 and (B) all material correspondence,
including without limitation, closing agreements, private letter
rulings, advance pricing agreements and gain recognition agreements and
other written submissions to or communications with any Tax
authorities.
(o) Certain Contracts. Neither STAR nor any of its
Subsidiaries is a party to or bound by (i) any "material contract" (as such term
is defined in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any
noncompetition agreement or any other agreement or arrangement that limits or
otherwise restricts STAR or any of its Subsidiaries or any successor thereto or
that would, after the Effective Time, limit or restrict WAXS or the Surviving
Corporation or any of its affiliates or any successor thereto, from engaging or
competing in any line of business or in any geographic area, which agreement or
arrangement would have a Material Adverse Effect on WAXS or the Surviving
Corporation, (iii) any agreement or arrangement between STAR or any of its
Subsidiaries, on the one hand, and any affiliates, directors or officers of STAR
or its Subsidiaries, on the other hand, that is not on arm's-length terms or
(iv) any agreement or arrangement that may require the payment of money or
provision of services in excess of $500,000 annually or $1,000,000 over the term
of such agreement or arrangement. All contracts filed with the STAR SEC Reports
and the contracts listed on Section 3.2(o) of the STAR Disclosure Schedule are
valid binding and are in full force and effect and enforceable in accordance
with their respective terms, except to the extent that such enforceability may
be subject to applicable bankruptcy, insolvency, moratorium, reorganization, or
other laws affecting the enforcement of creditors' rights generally or by
general equitable principles, and other than such contracts which by their terms
are no longer in force or effect. Neither STAR nor its Subsidiaries are in
violation or breach of or default under any such contract, nor to STAR's
Knowledge, is any other party to any such contract in violation or breach or
other default under any such contract, except for any such violation, breach or
default which would not have a Material Adverse Effect on STAR.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of STAR. During the period from the date of this
Agreement and continuing until the Effective Time, STAR agrees as to itself and
its Subsidiaries that (except as
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expressly required, contemplated or permitted by this Agreement or the STAR
Disclosure Schedule or as required by a Governmental Entity of competent
jurisdiction or any law or regulation or to the extent that WAXS shall otherwise
consent in writing, which consent shall not be unreasonably withheld, delayed or
conditioned):
(a) Ordinary Course. STAR and its Subsidiaries shall
carry on their respective businesses in the usual, regular and ordinary course
in all material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their present
lines of business, maintain their rights and franchises and preserve their
relationships with customers, suppliers and others having significant business
dealings with them.
(b) Dividends; Changes in Share Capital. STAR shall not,
and shall not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect of any of
its capital stock, except for dividends by wholly owned Subsidiaries of STAR,
(ii) split, combine or reclassify any of its capital stock or issue or authorize
or propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its capital stock, except for any such action by a
wholly owned Subsidiary of STAR which remains a wholly owned Subsidiary after
consummation of such transaction, or (iii) repurchase, redeem or otherwise
acquire any shares of capital stock of STAR or any of its Subsidiaries or any
securities convertible into or exercisable for any shares of such capital stock
except for the purchase from time to time by STAR of STAR Common Stock in the
ordinary course of business consistent with past practice in connection with the
STAR Employee Benefit Plans.
(c) Issuance of Securities. STAR shall not, and shall not
permit any of its Subsidiaries to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock of
any class, any STAR Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such shares
or STAR Voting Debt, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of STAR Common Stock upon the exercise of
STAR Stock Options or in connection with other stock-based Benefits Plans
outstanding on the date hereof, in each case in accordance with their present
terms, or (ii) issuances by a wholly-owned Subsidiary of STAR of capital stock
to such Subsidiary's parent or another wholly-owned subsidiary of STAR.
(d) Governing Documents. Except to the extent required by
the rules and regulations of the Nasdaq, neither STAR nor any of its
Subsidiaries shall amend or propose to amend their respective certificates of
incorporation, by-laws or other governing documents.
(e) Acquisitions. STAR shall not, and shall not permit
any of its Subsidiaries to acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets (other than
the acquisition of assets used in the operations of the business of STAR and its
Subsidiaries in the ordinary course).
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(f) Sales. Except as set forth in Section 4.1(f) of the
STAR Disclosure Schedule, STAR shall not, and shall not permit any of its
Subsidiaries to, sell or agree to sell by merging or consolidating with, or by
selling or substantial equity interest in or a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise sell
or agree to sell any assets (other than the sale of assets used in the
operations of the business of STAR and its Subsidiaries in the ordinary course;
provided, however, STAR may enter into a definitive agreement for (and
consummate) the PT-1 Sale on terms and conditions which would satisfy the
condition set forth in Section 6.2(h) hereof).
(g) Investments; Indebtedness. STAR shall not, and shall
not permit any of its Subsidiaries to, (i) make any loans, advances or capital
commitments to, or investments in, any other Person, other than (x) by STAR or a
Subsidiary of STAR to or in STAR or in any Subsidiary of STAR or (y) pursuant to
any contract or other legal obligation of STAR or any of its Subsidiaries
existing at the date hereof or (ii) create, incur, assume or suffer to exist any
indebtedness, issuances of debt or securities, guarantees, loans or advances not
in existence as of the date hereof except pursuant to credit facilities,
indentures and other arrangements in existence on the date hereof or in the
ordinary course of business consistent with past practice, in each case as such
credit facilities, indentures and other arrangements may be amended, extended,
modified, refunded, renewed or refinanced after the date hereof.
(h) Compensation. Other than as contemplated by Section
4.1(h) of the STAR Disclosure Schedule, STAR shall not increase the amount of
compensation of any director or executive officer except in the ordinary course
of business consistent with past practice or as required by an existing
agreement, make any increase in or commitment to increase any employee benefits,
issue any additional STAR Stock Options, adopt or make any commitment to adopt
any additional employee benefit plan or make any contribution, other than
regularly scheduled contributions, to any Employee Benefit Plan.
(i) Accounting Methods; Income Tax Matters. STAR shall
not change its methods of accounting in effect on December 31, 1998, except as
required by changes in GAAP as concurred in by STAR's independent auditors. STAR
shall not (i) change its fiscal year, (ii) make any material tax election, (iii)
adopt or change any Tax accounting method, (iv) enter into any closing
agreement, (v) settle or compromise a Tax liability with a Tax authority, (vi)
surrender any right to claim a refund of Taxes, or (vii) take (or permit any
Subsidiary of STAR to take) any other action which would have the effect of
materially increasing the Tax liability or materially decreasing any Tax Asset
of STAR or any of its Subsidiaries, other than in the ordinary course of
business consistent with past practice.
(j) Certain Agreements. STAR shall not, and shall not
permit any of its Subsidiaries to, enter into any agreement or arrangement that
limits or otherwise restricts STAR or any of its Subsidiaries or any of their
respective affiliates or any successor thereto, or that could,
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after the Effective Time, limit or restrict WAXS or the Surviving Corporation or
any of their respective affiliates or any successor thereto, from engaging or
competing in any line of business or, in any geographic area which agreement or
arrangement would reasonably be expected to have a Material Adverse Effect on
WAXS or the Surviving Corporation.
(k) Other Actions. Notwithstanding the fact that STAR may
take certain actions as permitted under Article IV hereof, STAR agrees not to
take any action which could reasonably be expected to cause the Merger to fail
to qualify as a reorganization within the meaning of Section 368(a) of the Code.
(l) Litigation. STAR shall not and shall not permit any
of its Subsidiaries to settle or, compromise any litigation, except where the
amount paid or payable, in each case, does not exceed $200,000.
4.2 Control of STAR's Business. Except as provided in Section 5.9,
nothing contained in this Agreement shall give WAXS, directly or indirectly, the
right to control or direct STAR's operations prior to the Effective Time. Prior
to the Effective Time, STAR shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision over its
operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement: Stockholders Meetings.
(a) As promptly as reasonably practicable following the
date hereof, WAXS and STAR shall prepare (in form and substance reasonably
satisfactory to each of WAXS and STAR) and file with the SEC proxy materials
which shall constitute the joint proxy statement and prospectus in connection
with the WAXS Stockholders Meeting and the STAR Stockholders Meeting (such proxy
statement and prospectus, and any amendments or supplements thereto, the "Joint
Proxy Statement/Prospectus") and WAXS shall prepare (in form and substance
reasonably satisfactory to each of WAXS and STAR) and file a registration
statement on Form S-4 with respect to the issuance of WAXS Common Stock in the
Merger (the "Registration Statement"). The Joint Proxy Statement/Prospectus will
be included in and will constitute a part of the Registration Statement as
WAXS's prospectus. The Registration Statement and the Joint Proxy
Statement/Prospectus shall comply as to form in all material respects with the
applicable provisions of the Securities Act and the Exchange Act and the rules
and regulations thereunder. Each of WAXS and STAR shall use reasonable efforts
to have the Registration Statement declared effective by the SEC as promptly as
reasonably practicable after filing with the SEC and to keep the Registration
Statement effective as long as is necessary to consummate the Merger and the
actions contemplated thereby. WAXS and STAR shall, as promptly as practicable
after receipt thereof, provide the other party copies of any written comments
and advise the other party of any oral comments, with respect to the Joint Proxy
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Statement/Prospectus received from the SEC. WAXS will provide STAR with a
reasonable opportunity to review and comment on any amendment or supplement to
the Registration Statement prior to filing such with the SEC, and will provide
STAR with a copy of all such filings made with the SEC. Notwithstanding any
other provision herein to the contrary, no amendment or supplement (including by
incorporation by reference) to the Joint Proxy Statement/Prospectus or the
Registration Statement shall be made without the approval of both parties, which
approval shall not be unreasonably withheld or delayed; provided, that with
respect to documents filed by a party which are incorporated by reference in the
Registration Statement or Joint Proxy Statement/Prospectus, this right of
approval shall apply only with respect to information relating to the other
party or its business, financial condition or results of operations. WAXS will
use reasonable efforts to cause the Joint Proxy Statements/Prospectus to be
mailed to WAXS's stockholders, and STAR will use reasonable efforts to cause the
Joint Proxy Statement/Prospectus to be mailed to STAR's stockholders, in each
case as promptly as practicable after the Registration Statement is declared
effective under the Securities Act. WAXS shall also take any action (other than
qualifying to do business in any jurisdiction in which it is not now so
qualified or to file a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of WAXS Common Stock and STAR shall furnish all information concerning STAR and
the holders of STAR Common Stock as may be reasonably requested in connection
with any such action. Each party will advise the other party, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective, the issuance of any stop order, the suspension of the qualification
of the WAXS Common Stock issuable in connection with the Merger for offering
or sale in any jurisdiction, or any request by the SEC for amendment of the
Joint Proxy Statement/Prospectus or the Registration Statement. If at any time
prior to the Effective Time any information relating to WAXS or STAR, or any of
their respective affiliates, officers or directors, should be discovered by WAXS
or STAR which should be set forth in an amendment or supplement to any of the
Registration Statement or the Joint Proxy Statement/Prospectus so that any of
such documents would not include any misstatement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, the party which
discovers such information shall promptly notify the other party hereto and, to
the extent required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of WAXS and STAR.
(b) Subject to Section 5.4, STAR shall, as promptly as
reasonably practicable following the execution of this Agreement, duly take all
lawful action to call, give notice of, convene and hold a meeting of its
stockholders (the "STAR Stockholders Meeting ") (which meeting the parties
intend to be held no later than thirty (30) days following the date on which the
Registration Statement has been declared effective by the SEC) for the purpose
of obtaining the Required STAR Vote with respect to the actions contemplated by
this Agreement and shall take all lawful action to solicit the adoption of this
Agreement by the Required STAR Vote. Subject to Section 5.4, the Board of
Directors of STAR shall recommend adoption of this Agreement by the stockholders
of STAR to the effect as set forth in Section 3.2(f), and shall not withdraw,
modify or materially qualify in any manner adverse to WAXS such recommendation
or take any action or make any statement
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in connection with the STAR Stockholders Meeting materially inconsistent with
such recommendation (collectively, an "Adverse Change in the STAR
Recommendation"); provided, however, that the foregoing shall not prohibit
accurate disclosure of factual information regarding the business, financial
condition or results of operations of WAXS or STAR or the fact that an
Acquisition Proposal has been made, the identity of the party making such
proposal or the material terms of such proposal (provided, that the Board of
Directors of STAR does not withdraw, modify or materially qualify in any manner
adverse to WAXS its recommendation) in the Registration Statement or the Joint
Proxy Statement/Prospectus, to the extent such information, facts, identity or
terms is required to be disclosed therein under applicable law.
(c) WAXS shall, as promptly as reasonably practicable
following the execution of this Agreement, duly take all lawful action to call,
give notice of, convene and hold a meeting of its stockholders (the "WAXS
Stockholders Meeting") (which meeting the parties intend to be held no later
than thirty (30) days following the date on which the Registration Statement has
been declared effective by the SEC) for the purpose of obtaining the Required
WAXS Vote with respect to the transactions contemplated by this Agreement and
shall take all lawful action to solicit the approval of the transactions
contemplated hereby by the Required WAXS Vote. The Board of Directors of WAXS
shall recommend approval of the transactions contemplated hereby by the
stockholders of WAXS to the effect as set forth in Section 3.1(f), and shall not
withdraw, modify or materially qualify in any manner adverse to STAR such
recommendation or take any action or make any statement in connection with the
WAXS Stockholders Meeting materially inconsistent with such recommendation;
provided, however, that the foregoing shall not prohibit accurate disclosure of
factual information regarding the business, financial condition or operations of
WAXS or STAR.
5.2 Access to Information. Upon reasonable notice, each of STAR
and WAXS shall (and shall cause its Subsidiaries to) afford to the officers,
employees, accountants, counsel, financial advisors and other representatives of
the other party hereto reasonable access during normal business hours, during
the period prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers and employees and, during such period, each of
STAR and WAXS shall (and shall cause its Subsidiaries to) furnish promptly to
the other party hereto (a) a copy of each report, schedule, registration
statement and other document filed, published, announced or received by it
during such period pursuant to the requirements of federal or state securities
laws, as applicable (other than documents which such party is not permitted to
disclose under applicable law), and (b) consistent with its legal obligations,
all other information concerning it and its business, properties and personnel
as such other party may reasonably request; provided, however, that either STAR
or WAXS may restrict the foregoing access to the extent that any law, treaty,
rule or regulation of any Governmental Entity applicable to such party requires
such party or its Subsidiaries to restrict access to any properties or
information. The parties will hold any such information which is non-public in
confidence to the extent required by, and in accordance with, the provisions of
the Confidentiality Agreement, dated December 17, 1999, between STAR and WAXS
(the "Confidentiality Agreement"). Any investigation by WAXS or STAR shall not
affect the representations and warranties made herein of STAR or WAXS, as the
case may be.
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5.3 Reasonable Efforts.
(a) Subject to the terms and conditions of this
Agreement, each party will use reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the Merger and the
other transactions contemplated by this Agreement as soon as practicable after
the date hereof, including (i) preparing and filing as promptly as practicable
all documentation to effect all necessary applications, notices, petitions,
filings, and other documents and to obtain as promptly as practicable all
consents, waivers, licenses, orders, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and (ii) taking all reasonable steps
as may be necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, tax rulings, orders and approvals. The
parties each shall keep the other apprised of the status of matters relating to
completion of the transactions contemplated hereby, including promptly
furnishing the other with copies of notices or other communications received by
it or any of its Subsidiaries or affiliates from any Governmental Entity or
third party with respect to the Merger or any of the other transactions
contemplated by this Agreement, in each case, to the extent permitted by law or
regulation or any applicable confidentiality agreements existing on the date
hereof.
(b) Promptly following execution of this Agreement, STAR
and WAXS shall promptly prepare and file any required notifications with the
United States Department of Justice and the Federal Trade Commission as required
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"). The parties shall cooperate with each other in connection with the
preparation of such notifications and related matters, including sharing
information concerning sales and ownership and such other information as may be
needed to complete such notification, and providing a copy of such notifications
to the other prior to filing; provided, that WAXS and STAR shall have the right
to redact any dollar revenue information from the copies of such notifications
provided to the other parties. The parties shall keep all information about the
other obtained in connection with the preparation of such notification
confidential pursuant to the terms of the Confidentiality Agreement. Each Person
shall pay the filing fee required under the regulations promulgated pursuant to
the HSR Act with respect to its own filing thereunder.
5.4 Acquisition Proposals. Without the prior written consent of
WAXS, pending the Effective Time or earlier termination of this Agreement
pursuant to Section 7.1, STAR agrees that neither it nor any of its Subsidiaries
shall, and that it shall use its reasonable efforts to cause its employees,
officers, directors, affiliates, agents and representatives (including any
investment banker, financial advisor, attorney or accountant retained by any of
them) not to, directly or indirectly, initiate, solicit, encourage or knowingly
facilitate (including by way of furnishing information or engaging in
discussions or negotiations) any inquiries or the making of any proposal or
offer with respect to a merger, reorganization, share exchange, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
action involving STAR, or any purchase or sale of a material portion of the
assets of (including stock of Subsidiaries) of STAR,
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taken as a whole, or any purchase or sale of, or tender or exchange offer for, a
material portion of the equity securities of STAR (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"). STAR further agrees
that neither it nor any of its Subsidiaries shall, and that it shall use its
reasonable efforts to cause it and its Subsidiaries' officers, directors,
affiliates, employees, agents and representatives (including any investment
banker, financial advisor, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, have any discussion with or
provide any confidential information or data to any Person relating to an
Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal. STAR agrees that it and
its Subsidiaries will, and will cause its officers, directors, affiliates,
employees, agents and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any parties conducted heretofore with respect to any
Acquisition Proposal. STAR agrees that it will promptly inform its directors,
officers, affiliates, key employees, agents and representatives of the
obligations undertaken in this Section 5.4. Notwithstanding anything contained
in this Section 5.4 or otherwise in this Agreement to the contrary, STAR or its
Board of Directors shall be permitted to (A) in response to an unsolicited bona
fide written Acquisition Proposal by any Person, recommend approval of such an
unsolicited bona fide written Acquisition Proposal to its stockholders or effect
an Adverse Change in the STAR Recommendation or (B) engage in any discussions or
negotiations with, or provide any information to, any person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if and
only to the extent that, in any such case as is referred to in clause (A) or
(B), (i) the STAR Stockholders Meeting shall not have occurred, (ii) its Board
of Directors (x) in the case of clause (A) above, concludes in good faith
that such Acquisition Proposal constitutes a Superior Proposal (as defined in
Section 8.12) and terminates this Agreement pursuant to Section 7.1 (h) or (y)
in the case of clause (B) above concludes in good faith that such Acquisition
Proposal could reasonably be expected to result in a Superior Proposal, (iii)
prior to providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, its Board of Directors receives from
such Person an executed confidentiality agreement containing confidentiality
terms at least as stringent as those contained in the Confidentiality Agreement,
and (iv) prior to providing any information or data to any Person or entering
into discussions or negotiations with any such Person regarding such Acquisition
Proposal, its Board of Directors notifies WAXS promptly of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such Person and the material terms and conditions of any inquiries, proposals or
offers. STAR agrees that it will promptly keep WAXS informed of the status and
terms of any such proposals or offers and the status and terms of any such
discussions or negotiations. STAR agrees that it will, and will cause its
officers, directors and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any parties conducted heretofore with respect to any
Acquisition Proposal. STAR agrees that it will promptly inform its directors,
officers, key employees, agents and representative of the obligations undertaken
in this Section 5.4. Nothing in this Section 5.4 shall (x) permit STAR
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or WAXS to terminate this Agreement (except as specifically provided in Article
VII hereof) or (y) affect any other obligation of STAR or WAXS under this
Agreement.
5.5 Fees and Expenses. All Expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such Expenses. As used in this Agreement, "Expenses" includes
all out-of-pocket expenses (including all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby.
5.6 Public Announcements. Neither WAXS nor STAR shall, without the
prior consent of the other party, issue a press release or any other public
statement with respect to this Agreement or the transactions contemplated hereby
except pursuant to a joint communications plan, unless otherwise required by
applicable law or by obligations pursuant to any listing agreement with, or
rules of, any securities exchange, in which case the parties shall use
reasonable efforts to consult with each other before issuing any press release
or otherwise making any public statement with respect to this Agreement or the
transactions contemplated hereby.
5.7 Listing. So long as WAXS Common Stock is quoted on the Nasdaq
or listed on any national securities exchange, WAXS, prior to the Effective
Time, will cause to be quoted or listed, upon official notice of issuance, and
keep quoted or listed on such system or exchange, all WAXS Common Stock issuable
pursuant to Article I hereof.
5.8 Termination of Tax Sharing Agreement. As of the Effective
Time, STAR shall cause all Tax Sharing Agreements to which STAR or any of its
Subsidiaries is a party to be terminated and of no further force and effect
after the Effective Time, thereby extinguishing any rights or obligations of any
party thereunder.
5.9 Management Services. Subject to obtaining any necessary
regulatory or third party consents and to the extent permitted under applicable
law, WAXS and STAR intend to enter into a management agreement pursuant to which
WAXS will provide, under the supervision and direction of the STAR board of
directors, certain management services to STAR. Neither party shall have any
obligation under this Section 5.9 and the provision of the foregoing services
shall be subject to the negotiation of a definitive agreement satisfactory to
each of WAXS and STAR in its sole discretion.
5.10 New Director of WAXS. WAXS shall take all appropriate action
such that, immediately following the Effective Time, and without further action
by WAXS, one (1) designee of STAR shall be elected to the Board of Directors of
WAXS. Such STAR designee shall be Christopher E. Edgecomb, or such other person
designated by STAR and agreed to by WAXS prior to the Effective time.
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5.11 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of STAR or Merger Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of STAR or Merger Sub, any other actions and things to vest, perfect or
confirm of record or otherwise in the Surviving Corporation any and all rights,
properties, or assets acquired or to be acquired by the Surviving Corporation as
a result of, or in connection with, the Merger.
5.12 Directors' and Officers' Indemnification and Insurance.
(a) From the Effective Time through the sixth (6th)
anniversary of the date on which the Effective Time occurs, WAXS shall indemnify
and hold harmless each present (as of the Effective Time) or former officer or
director of STAR and its Subsidiaries (the "Indemnified Parties"), against all
claims, losses, liabilities, damages, judgments, fines and reasonable fees,
costs and expenses, including attorneys' fees and disbursements (collectively,
"Costs"), incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to (i) the fact that the Indemnified Party is or was an
officer or director of STAR or any of its Subsidiaries or (ii) matters existing
or occurring at or prior to the Effective Time (including this Agreement and the
transactions and actions contemplated hereby), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law; provided that no Indemnified Party may settle any such claim
without the prior approval of WAXS (which approval shall not be unreasonably
withheld or delayed). Each Indemnified Party will be entitled to advancement of
expenses incurred in the defense of any claim, action, suit, proceeding or
investigation from WAXS within ten (10) business days of receipt by WAXS from
the Indemnified Party of a request therefor; provided that any person to whom
expenses are advanced provides an undertaking, to the extent required by the
DGCL, to repay such advances if it is ultimately determined that such person is
not entitled to indemnification.
(b) WAXS shall maintain, at no expense to the
beneficiaries, in effect for six years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by STAR
with respect to matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement); provided that WAXS
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less advantageous to any beneficiary
thereof; and provided, further, that in no event shall WAXS be required to pay
annual premiums for such insurance in excess of 125% of the annual premiums
currently paid by STAR for such insurance.
(c) Notwithstanding anything herein to the contrary, if
any claim, action, suit, proceeding or investigation (whether arising before, at
or after the Effective Time) is made against any Indemnified Party, on or prior
to the sixth (6th) anniversary of the Effective Time, the provisions of this
Section 5.12 shall continue in effect until the final disposition of such claim,
action, suit, proceeding or investigation.
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(d) The covenants contained in this Section 5.12 are
intended to be for the benefit of, and shall be enforceable by, each of the
Indemnified Parties and their respective heirs and legal representatives and
shall not be deemed exclusive of any other rights to which an Indemnified Party
is entitled, whether pursuant to law, contract or otherwise.
(e) In the event that the Surviving Corporation or any of
its successors or assigns (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially all of
its properties and assets to any Person, then, and in each such case, proper
provision shall be made so that the successors or assigns of the Surviving
Corporation or the purchaser of such properties and assets shall succeed to the
obligations set forth in this Section 5.12.
5.13 Confidentiality. The parties each agree that the
Confidentiality Agreement shall continue in full force and effect until the
Effective Time, and if this Agreement is terminated or if the Merger is not
consummated for any reason whatsoever, such Confidentiality Agreement shall
thereafter remain in full force and effect in accordance with its terms.
5.14 Compliance with Dissenters' Rights Statute. STAR shall comply
with all procedures and requirements applicable to it under Section 262 of the
DGCL.
5.15 Interim Financing. The parties have agreed that WAXS will make
available up to $25,000,000 in secured financing to STAR and up to $10,000,000
in secured financing to STAR's subsidiary, STAR Telecommunications GmbH,
(collectively, the "Interim Financing") pursuant to the terms of the Loan
Documents (as defined below). The Interim Financing will mature at the earlier
of one year from the date hereof and ninety (90) days after any termination of
this Agreement (other than a termination due to STAR's breach or default under
this Agreement which will result in the Interim Financing becoming immediately
due and payable). The Interim Financing will be made pursuant to, and subject to
the finalization of, appropriate loan and security documents (the "Loan
Documents") substantially in the form of, and as contemplated by, the draft Loan
Documents distributed to STAR on or prior to the date hereof.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of STAR and WAXS to effect the Merger are subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired.
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(b) Stockholder Approval. WAXS shall have obtained the
Required WAXS Vote in connection with the approval of this Agreement and the
Merger and STAR shall have obtained the Required STAR Vote in connection with
the approval of this Agreement and the Merger.
(c) Registration Statement. The Registration Statement shall
have been declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or, to the Knowledge of WAXS or STAR, threatened by the SEC.
6.2 Additional Conditions to Obligations of WAXS. The obligations
of WAXS to effect the Merger are subject to the satisfaction of, or waiver by
WAXS, on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of STAR set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either case
that such representations and warranties speak as of another date, in which
case any such representations and warranties shall be true and correct as of
such date), except where any failures to be true and correct would not have a
Material Adverse Effect on WAXS or the Surviving Corporation, and WAXS shall
have received a certificate of the chief executive officer and the chief
financial officer of STAR to such effect.
(b) Performance of Obligations of STAR. STAR shall have
performed or complied in all material respects with all material agreements and
covenants required to be performed by it under this Agreement at or prior to
the Closing Date, and WAXS shall have received a certificate of the chief
executive officer and the chief financial officer of STAR to such effect.
(c) Consents and Approvals. Other than the filing provided
for under Section 1.3, all consents, approvals and actions of, filings with and
notices to any Governmental Entity required to consummate the Merger and the
other transactions contemplated hereby, or of any other third party required of
STAR or any of its Subsidiaries to consummate the Merger and the other
transactions contemplated hereby, the failure of which to be obtained or taken
would have a Material Adverse Effect on WAXS or the Surviving Corporation,
shall have been obtained; provided, however, that the provisions of this
Section 6.2(c) shall not be available to WAXS, if its failure to fulfill its
obligations pursuant to Section 5.3 shall have been the cause of, or shall have
resulted in, the failure to obtain such consent or approval.
(d) No Material Change. STAR and its Subsidiaries, taken as a
whole, shall not have suffered, since the date hereof, a Material Adverse
Effect, other than any change, circumstance or effect relating (i) to the
economy or financial markets in general, (ii) in general to the industries in
which STAR operates and not specifically relating to STAR or (iii) the trading
price of STAR Common Stock.
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(e) Opinion of Counsel to STAR. WAXS shall have received from
Riordan & McKinzie an opinion, dated the Closing Date, in form and substance
reasonably satisfactory to WAXS.
(f) No Injunctions or Restraints; Illegality. No laws shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Entity of competent jurisdiction shall be in effect (i) having the
effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS
or the Surviving Corporation; provided, however, that the provisions of this
Section 6.2(f) shall not be available to WAXS if its failure to fulfill its
obligations pursuant to Section 5.3 shall have been the cause of, or shall have
resulted in any such order or injunction.
(g) Dissenters' Rights. STAR shall have complied with all
procedures and requirements applicable to it under Section 262 of the DGCL, the
period for exercising dissenters' rights of appraisal pursuant to the DGCL in
connection with the Merger shall have expired, and holders of less than one
percent (1%) of the shares of STAR Common Stock issued and outstanding
immediately prior to the Closing shall have exercised such dissenters' rights
of appraisal, and WAXS shall have received a certificate from an officer of
STAR to all such effects.
(h) Sale of PT-1. STAR shall have consummated the sale of the
capital stock of PT-1 Communications, Inc. ("PT-1"), or the assets of PT-1 on a
substantially equivalent basis, for Net PT-1 Sale Proceeds (as defined in
Section 8.12 ) of at least $150,000,000 pursuant to an agreement in form and
substance reasonably satisfactory to WAXS (the "PT-1 Sale"); provided, however,
if (i) the PT-1 Sale has not been consummated prior to the Closing Date, (but
STAR has entered into a definitive agreement, in form and substance
satisfactory to WAXS, for the PT-1 Sale) and (ii) WAXS determines in its sole
discretion to waive compliance with this Section 6.2(h) and proceed with the
Merger, then WAXS and STAR agree that in such event, they shall amend this
Agreement to provide that (A) the formula used to determine the Exchange Ratio
shall be modified by deleting "Z" therefrom and (B) a holder of STAR Common
Stock and STAR Stock Options immediately prior to the Effective Time shall have
a right to receive such holder's pro rata share of an aggregate number of
additional "contingent" shares of WAXS Common Stock, if and when the PT-1 Sale
is consummated pursuant to such definitive agreement (or, in the case of a
holder of STAR Stock Option, when such option is exercised), equal to the PT-1
Excess Proceeds divided by twenty (20) (the "Contingent Shares") and that the
provisions of any such amendment to this Agreement concerning the issuance of
such Contingent Shares will satisfy the requirements of Section 3.03 of IRS
Revenue Procedure 77-37, as it has been amplified and superseded, which
established the circumstances under which the Internal Revenue Service
previously issued advanced rulings on contingent stock arrangements in mergers
intended to qualify as "reorganizations" under Section 368(a) of the Code.
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(i) STAR shall have provided evidence satisfactory to WAXS
that any and all obligations of STAR (or any of its affiliates) relating to or
arising in connection with the China-U.S. Cable Network were fully satisfied by
the reclamation of STAR's capacity in such network and neither STAR nor any of
its affiliates has any further obligation or liability with respect thereto,
including without limitation payment of the amounts claimed and owing by STAR
according to that letter dated January 11, 2000 from Kou Yinsen, Director, CBP
to Jim Kolsrud.
6.3 Additional Conditions to Obligations of STAR. The obligations
of STAR to effect the Merger are subject to the satisfaction of, or waiver by
STAR, on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of WAXS set forth in this Agreement shall be
true and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent in either case
that such representations and warranties speak as of another date, in which
case any such representations and warranties shall be true and correct as of
such date), except where any failures to be true and correct would not have a
Material Adverse Effect on WAXS, and STAR shall have received a certificate of
the chief executive officer and the chief financial officer of WAXS to such
effect.
(b) Performance of Obligations of WAXS. WAXS shall have
performed or complied in all material respects with all material agreements and
covenants required to be performed by it under this Agreement at or prior to
the Closing Date, and STAR shall have received a certificate of the chief
executive officer and the chief financial officer of WAXS to such effect.
(c) Consents and Approvals. Other than the filing provided
for under Section 1.3, all consents, approvals and actions of, filings with and
notices to any Governmental Entity required to consummate the Merger and the
other transactions contemplated hereby, or of any other third party required of
WAXS or any of its Subsidiaries to consummate the Merger and the transactions
contemplated hereby, the failure of which to be obtained or taken would have a
Material Adverse Effect on WAXS, shall have been obtained; provided, however,
that the provisions of this Section 6.3(c) shall not be available to STAR if
its failure to fulfill any of its obligations pursuant to Section 5.3 shall
have been the cause of, or shall have resulted in, the failure to obtain such
consent or approval.
(d) No Material Change. WAXS shall not have suffered, since
the date hereof, a Material Adverse Effect, other than any change, circumstance
or effect relating (i) to the economy or financial markets in general, (ii) in
general to the industries in which WAXS operates and not specifically relating
to WAXS or (iii) the trading price of WAXS Common Stock.
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(e) Opinion of Counsel to WAXS. STAR shall have received from
Long Aldridge & Norman LLP an opinion, dated the Closing Date, in form and
substance reasonably satisfactory to STAR.
(f) No Injunctions or Restraints; Illegality. No laws shall
have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Entity of competent jurisdiction shall be in effect (i) having the
effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS
after giving effect to the Merger; provided, however, that the provisions of
this Section 6.3(g) shall not be available to STAR if its failure to fulfill
its obligations pursuant to Section 5.3 shall have been the cause of, or shall
have resulted in any such order or injunction.
(g) Exchange Fund. An officer of the Exchange Agent shall
have certified in writing to STAR that the deposit required to be made by WAXS
into the Exchange Fund pursuant to Section 2.1 has been made in connection with
the establishment thereof.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, by action taken or authorized by the Board of
Directors of the terminating party or parties:
(a) By mutual written consent of WAXS and STAR;
(b) By either WAXS or STAR, if the other party shall have
failed to comply in any material respect with any of its material covenants or
agreements contained in this Agreement, which failure to so comply has not been
cured within ten (10) business days following receipt by such other party of
written notice of such failure to comply; provided, however, that if any such
breach is curable by the breaching party through the exercise of the breaching
party's reasonable efforts and for so long as the breaching party shall be so
using its reasonable efforts to cure such breach, the non-breaching party may
not terminate this Agreement pursuant to this paragraph; and provided, further,
that no party shall have the right to terminate this Agreement pursuant to this
Section 7.1(b) if such party is then failing to comply in any material respect
with any of its covenants or agreements contained in this Agreement;
(c) By either WAXS or STAR, if there has been a breach by the
other party of any representations or warranties, which breach has not been
cured within ten (10) business days following receipt by such other party of
written notice of such failure to comply; provided, however, that if any such
breach is curable by the breaching party through the exercise of the breaching
party's
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reasonable efforts and for so long as the breaching party shall be so
using reasonable efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph; and provided further, that
this provision shall not apply to such breaches which would not have a Material
Adverse Effect on WAXS or the Surviving Corporation;
(d) By either STAR or WAXS, if the Effective Time shall not
have occurred on or before September 30, 2000 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to any party whose action or failure to
fulfill any obligation under this Agreement has been the cause of, or resulted
in, the failure of the Effective Time to occur on or before the Termination
Date and any such action or failure constitutes a breach of this Agreement by
such party;
(e) By either STAR or WAXS if any Governmental Entity (i)
shall have issued an order, decree or ruling or taken any other action (which
the parties shall have used their reasonable efforts to resist, resolve or
lift, as applicable, in accordance with Section 5.3) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling, or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action (which order, decree, ruling or other action
the parties shall have used their reasonable efforts to obtain, in accordance
with Section 5.3), which, in the case of each of (i) and (ii) is necessary to
fulfill the conditions set forth in Section 6.2(f) with respect to WAXS or
Section 6.3(g) with respect to STAR, and such denial of a request to issue such
order, decree, ruling or take such other action shall have become final and
nonappealable; provided, however, that the right to terminate this Agreement
under this Section 7.1(e) shall not be available to any party whose action or
failure to fulfill any obligation under this Agreement has been the cause of
such action or inaction and any such action or failure constitutes a breach of
this Agreement by such party;
(f) By WAXS or STAR if the adoption of this Agreement by the
stockholders of WAXS or the stockholders of STAR shall not have been obtained
by reason of the failure to obtain the Required WAXS Vote or the Required STAR
Vote, as applicable, in each case upon the taking of such vote at a duly held
meeting of stockholders of WAXS or STAR, or at any adjournment thereof;
(g) By WAXS if the Board of Directors of STAR, prior to the
Required STAR Vote, shall make an Adverse Change in the STAR Recommendation
(other than in connection with STAR's termination of this Agreement pursuant to
Section 7.1(b)) or approve or recommend a Superior Proposal pursuant to Section
5.4 or shall resolve to take any such actions;
(h) By STAR, at any time prior to the Required STAR Vote upon
three (3) business days' prior notice to WAXS, if its Board of Directors shall
have determined as of the date of such notice that an Acquisition Proposal is a
Superior Proposal; provided, however, that (i) STAR shall have complied with
Section 5.4, (ii) prior to such termination, STAR shall, if requested by
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WAXS in connection with a revised proposal by it, negotiate in good faith for
such three (3) business day period with WAXS and (iii) the Board of Directors
of STAR shall have concluded in good faith, as of the effective date of such
termination, after taking into account any revised proposal by WAXS during such
three (3) business day period, that an Acquisition Proposal is a Superior
Proposal; and provided, further, that it shall be a condition to termination by
STAR pursuant to this Section 7.1(h) that STAR shall have made the payment of
the fee to WAXS pursuant to Section 7.2(b);
(i) By WAXS, if (X) either STAR or any of its material
Subsidiaries (1) commences a voluntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or consents to the
entry of an order for relief in an involuntary case under any such law, (2)
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of STAR or any
of its Subsidiaries or for all or a material portion of the property or assets
of STAR or any of its Subsidiaries or (3) effects any general assignment for
the benefit of creditors or (Y) a Governmental Entity having jurisdiction
enters a decree or order for (a) relief in respect of STAR or any of its
material Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (b) appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official of STAR or any of its Subsidiaries or for all or a material portion of
the property and assets of STAR or any of its Subsidiaries or (c) the winding
up or liquidation of the affairs of STAR or any of its material Subsidiaries
and, in each case, such decree or order shall remain unstayed and in effect for
a period of 30 consecutive days; or
(j) By WAXS if there has been an Event of Default under the
Credit Agreement, of even date herewith, between WAXS and STAR.
7.2 Effect of Termination.
(a) In the event of any termination of this Agreement by
either STAR or WAXS, as provided in Section 7.1, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of WAXS
or STAR or their respective officers or directors except with respect to
Section 3.1(m), Section 3.2(l), the second sentence of Section 5.2, Section
5.5, Section 5.6, this Section 7.2, and Article VIII, which provisions shall
survive such termination and except that, notwithstanding anything to the
contrary contained in this Agreement, neither WAXS nor STAR shall be relieved
or released from any liabilities or damages arising out of its breach of this
Agreement;
(b) If this Agreement is terminated by STAR pursuant to
Section 7.1(h), STAR shall, prior to such termination, pay to WAXS $14,000,000
in immediately available funds (the "Termination Fee");
(c) If this Agreement is terminated by WAXS pursuant to
Section 7.1(g), STAR shall, within three (3) days following such termination,
pay to WAXS the Termination Fee; and
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(d) If this Agreement is terminated by WAXS or STAR pursuant
to Section 7.1(f) because STAR's stockholders have failed to adopt this
Agreement by the Required Star Vote and STAR enters into a definitive agreement
with respect to a Business Combination within twelve (12) months following such
termination, then STAR shall pay to WAXS the Termination Fee prior to or at the
consummation thereof.
7.3 Amendment. This Agreement may be amended by STAR and WAXS, by
action taken or authorized by their respective Boards of Directors or
representatives or authorized officers, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of STAR
and WAXS (including, without limitation, an amendment as described in Section
6.2(h)), but, after any such approval, no amendment shall be made which by law
or in accordance with the rules of any relevant stock exchange or automatic
quotations system requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of STAR and WAXS.
7.4 Extension, Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, representatives or authorized officers, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements.
None of the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII.
8.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed duly given (a) on the date of delivery
if delivered personally, or by telecopy or facsimile, upon confirmation of
receipt, (b) on the first business day following the date of dispatch if
delivered by a recognized next day courier service, or (c) on the tenth
business day following the
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date of mailing if delivered by registered or certified mail return receipt
requested, postage prepaid All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
(a) If to WAXS or Merger Sub, to:
World Access, Inc.
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, Georgia 30326
Facsimile No.: (404) 233-2280
Attention: John D. Phillips
with a copy to
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Facsimile No.: (404) 527-4198
Attention: H. Franklin Layson
(b) If to STAR to:
STAR Telecommunications, Inc.
223 East De La Guerra
Santa Barbara, California 93101
Facsimile No.: (805) 884-1137
Attention: Christopher E. Edgecomb
with a copy to
Riordan & McKinzie
Twenty-Ninth Floor
300 South Grand Avenue
Los Angeles, California 90071
Facsimile No.: (213) 229-8550
Attention: Richard J. Welch
8.3 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits, the WAXS Disclosure Schedule or the STAR Disclosure
Schedule, such reference shall be to a Section of or Exhibit or schedule to
this Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this Agreement. Whenever the
words "include", "includes" or
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"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". All Exhibits, the WAXS Disclosure Schedule and
the STAR Disclosure Schedule are incorporated herein and made a part hereof.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement and the Confidentiality Agreement
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, including, without limitation, that
certain Letter of Intent, dated December 17, 1999, between WAXS and STAR, among
the parties with respect to the subject matter hereof.
(b) This Agreement shall be binding upon and inure solely to
the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement, except as provided for in Section 5.12.
8.6 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
8.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the actions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other parties, and any attempt to make any
such assignment without such consent shall be null and void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of and be enforceable by the parties and their respective successors and
assigns.
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8.9 Submission to Jurisdiction; Waivers. Each of WAXS and STAR
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in the Chancery or other Courts of the State of Delaware, and
each of WAXS and STAR hereby irrevocably submits with regard to any such action
or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of WAXS and STAR hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (i) any right to trial by jury with respect to
any action, suit or proceeding arising out of or relating to this Agreement,
the Merger or any other transaction contemplated hereby, (ii) any claim that it
is not personally subject to the jurisdiction of the above named courts for any
reason other than the failure to lawfully serve process, (iii) that it or its
property is exempt or immune from jurisdiction of any such court or from any
legal process commenced in such courts (whether through service of notice,
attachment prior to judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), and (iv) to the fullest extent permitted
by applicable law, that (a) the suit, action or proceeding in any such court is
brought in an inconvenient forum, (b) the venue of such suit, action or
proceeding is improper and (c) this Agreement, or the subject matter hereof,
may not be enforced in or by such courts.
8.10 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed
that the parties shall be entitled to specific performance of the terms hereof,
this being in addition to any other remedy to which they are entitled at law or
in equity.
8.11 Headings. The headings contained in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
8.12 Definitions. As used in this Agreement:
(a) "beneficial ownership" or "beneficially own" shall have
the meaning under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(b) "Board of Directors" means the Board of Directors of any
specified Person and any committees thereof.
(c) "Business Combination" means (i) a merger,
reorganization, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction involving a
party as a result of which either (A) such party's stockholders prior to such
transaction (by virtue of their ownership of such party's shares) in the
aggregate cease to own at least 65% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent entity
thereof) or, regardless of the percentage of voting securities held by such
stockholders, if any Person shall beneficially own, directly or indirectly, at
least 20% of the voting securities of such
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ultimate parent entity, or (B) the individuals comprising the board of
directors of such party prior to such transaction do not constitute a majority
of the board of directors of such ultimate parent entity, (ii) a sale, lease,
exchange, transfer or other disposition of at least 50% of the assets of such
party and its Subsidiaries, taken as whole, in a single transaction or a series
of related transactions, or (iii) the acquisition, directly or indirectly, by a
Person of beneficial ownership of 20% or more of the common stock of such party
whether by merger, consolidation, share exchange, business combination, tender
or exchange offer or otherwise.
(d) "Dissenters' Shares" means shares of STAR Common Stock
for which dissenter's rights of appraisal have been exercised pursuant to the
DGCL.
(e) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(f) "GAAP" means United States generally accepted accounting
principles.
(g) "Known" or "Knowledge" means, with respect to any party,
the knowledge of such party's executive officers after reasonable inquiry.
(h) "Material Adverse Effect" means, with respect to any
entity, any change, circumstance or effect or any breach of the provisions of
this Agreement that, individually or in the aggregate with all other changes,
circumstances and effects or breaches, is or would reasonably be expected to be
materially adverse to (i) the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole, or (ii) the
ability of such entity (or the party owning such entity) to consummate the
transactions contemplated by this Agreement.
(i) "Nasdaq" means the National Market System of the NASDAQ
Stock Market.
(j) "Net PT-1 Proceeds" means the cash proceeds received by
STAR at the consummation of the PT-1 Sale, net of all Taxes, fees, expenses and
costs incurred in connection with the PT-1 Sale, including, without limitation:
(1) fees or expenses for investment banking or other
financial services;
(2) agency, brokerage, finder's or other similar fees or
commissions;
(3) legal, accounting, consulting or other professional
fees or expenses;
(4) the cost of any remedial or corrective actions or
measures;
(5) the costs associated with the transfer or termination
of any PT-1 employees; or
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(6) the costs of any right or obligation the vesting of
which is accelerated by the PT-1 Sale.
(k) "Person" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated
organization, other entity or group (as defined in the Exchange Act).
(l) "Pre-Closing Price" means the closing price of WAXS
Common Stock as reported on the Nasdaq for the trading day (in which such
shares are traded on the Nasdaq) ending at the close of trading on the second
(2nd) trading day preceding the Closing.
(m) "PT-1 Excess Proceeds" means the Net PT-1 Proceeds in
excess of $150,000,000.
(n) "SEC" means the Securities and Exchange Commission.
(o) "Securities Act" means the Securities Act of 1933, as
amended.
(p) "Subsidiary", when used with respect to any party means
any corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority of
the voting interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.
(q) "Superior Proposal" means a written proposal made by a
Person unaffiliated with STAR which is for (I) (i) a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving STAR as a result of
which either (A) STAR's stockholders prior to such action (by virtue of their
ownership of STAR's shares) in the aggregate cease to own at least 50% of the
voting securities of the entity surviving or resulting from such transaction
(or the ultimate parent entity thereof) or (B) the individuals comprising the
board of directors of STAR prior to such transaction do not constitute a
majority of the board of directors of such ultimate parent entity, (ii) a sale,
lease, exchange, transfer
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<PAGE> 48
or other disposition of at least 50% of the assets of STAR and its
Subsidiaries, taken as a whole, in a single transaction or a series of related
transactions, or (iii) the acquisition, directly or indirectly, by a Person of
beneficial ownership of 50% or more of the common stock of STAR whether by
merger, consolidation, share exchange, business combination, tender or exchange
offer or otherwise, and which is (II) otherwise on terms which the Board of
Directors of STAR in good faith concludes (after consultation with its
financial advisors and outside legal counsel), taking into account among other
things, all legal, financial, regulatory and other aspects of the proposal and
the Person making the proposal, (i) would, if consummated, result in a
transaction that is more favorable to its stockholders (in their capacities as
stockholders), from a financial point of view, than the transactions
contemplated by this Agreement and (ii) is reasonably capable of being
completed.
(r) "Tax" (and, with correlative meaning, "Taxes" shall mean:
(i) all taxes, charges, fees, levies or other assessments, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local
or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, employer tax, estimated, severance, telecommunications,
occupation, goods and services, capital, profits, value added taxes, franchise
taxes, gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers' compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which the Person is required to pay, withhold or
collect; and (ii) any liability for the payment of any amounts described in
clause (i) as a result of being a successor to or transferee of any individual
or entity or a member of an affiliated, consolidated or unitary group for any
period (including pursuant to Treas. Reg. ss. 1.1502-6 or comparable provisions
of state, local or foreign tax law); and (iii) any liability for the payment of
amounts described in clause (i) or clause (ii) as a result of any express or
implied obligation to indemnify any Person or as a result of any obligations
under agreements or arrangements with any Person.
(s) "Tax Asset" means any net operating loss, net capital
loss, investment tax credit, foreign tax credit, charitable deduction or any
other credit or tax attribute which could reduce Taxes (including, without
limitation, credits related to alternative minimum Taxes).
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(t) "Tax Return" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns (including
any attached schedules) or similar statement relating to, or required to be
filed in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties.
(u) "Tax Sharing Agreement" shall mean any and all existing
Tax sharing agreements, or arrangements written or unwritten, express or
implied, binding two or more Persons with respect to the payment of Taxes,
including any agreements or arrangements which afford any other Person the
right to receive any payment from one or more other Persons in respect to any
Taxes or the benefit of any Tax Asset of one or more other Persons or require
or permit the transfer or assignment of any income, revenue, receipts or gains.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, WAXS, Merger Sub and STAR have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first above written.
WAXS:
WORLD ACCESS, INC.
By: /s/ John D. Phillips
-------------------------------------------------
Name: John D. Phillips
Title: Chairman and Chief Executive Officer
STAR:
STAR TELECOMMUNICATIONS, INC.
By: /s/ Christopher E. Edgecomb
-------------------------------------------------
Name: Christopher E. Edgecomb
Title: President
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MERGER SUB:
STI MERGER CO.
By: /s/ John D. Phillips
-------------------------------------------------
Name: John D. Phillips
Title: Chairman and Chief Executive Officer
51
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (this
"Agreement"), by and among World Access, Inc., a Delaware corporation ("WAXS"),
CTI Merger Co., a Delaware corporation and wholly-owned subsidiary of WAXS
("Merger Sub"), and Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, a California corporation ("CTI").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of CTI and WAXS deem it advisable and
in the best interests of each corporation and its respective stockholders that
CTI and WAXS engage in a business combination in order to advance the long-term
strategic business interests of CTI and WAXS;
WHEREAS, the combination of CTI and WAXS shall be effected by the
terms of this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
CTI, Merger Sub and WAXS have approved the Merger, upon the terms and subject
to the conditions set forth in this Agreement, pursuant to which each share of
common stock, par value $.01 per share, of CTI ("CTI Common Stock"), each share
of preferred stock, Series A, no par value per share, of CTI (the "CTI Series A
Preferred Stock") and each share of preferred stock, Series B, no par value per
share, of CTI (the "CTI Series B Preferred Stock") (the CTI Series A Preferred
Stock and the CTI Series B Preferred Stock are collectively referred to herein
as the "CTI Preferred Stock" and the CTI Preferred Stock and the CTI Common
Stock are collectively referred to herein as the "CTI Capital Stock") issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3) will be converted into the right to receive the consideration set forth in
Section 1.7;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder; and
WHEREAS, simultaneously with the execution and delivery of this
Agreement, WAXS is entering into an agreement with each of Roger Abbott and
Rosalind Abbott, Atocha, L.P., Gold & Appel Transfer S.A. and Edward Soren (the
"Principal Stockholders") pursuant to which each Principal Stockholder will
agree to, among other things, vote in favor of the Merger and certain
restrictions on the transfer of the consideration received in the Merger.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, and upon and subject to the terms
and the conditions hereinafter set forth, the parties do hereby agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the Delaware General Corporation Law
(the "DGCL") and the California General Corporation Law (the "CGCL"), CTI shall
be merged with and into Merger Sub at the Effective Time (as defined below).
Following the Merger, the separate corporate existence of CTI shall cease and
Merger Sub shall continue as the surviving corporation (the "Surviving
Corporation").
1.2 Closing. Subject to the satisfaction or waiver of the conditions
set forth in Article VII, the closing of the Merger and the transactions
contemplated by this Agreement (the "Closing") will take place on the second
business day following the satisfaction or written waiver of such conditions,
unless another time or date is agreed to in writing by the parties hereto (the
date of the Closing being referred to herein as the "Closing Date"). The
Closing shall be held at the offices of Long Aldridge & Norman LLP, 303
Peachtree Street, Suite 5300, Atlanta, Georgia 30303.
1.3 Effective Time. On the Closing Date the parties shall (i) file a
certificate of merger in such form as is required by, and executed in
accordance with, the relevant provisions of the DGCL (the "Delaware Certificate
of Merger") and an agreement of merger in such form as is required by, and
executed in accordance with, the relevant provisions of the CGCL (the
"California Agreement of Merger") and (ii) make all other filings or recordings
required under the DGCL and the CGCL in connection with the Merger. The Merger
shall become effective at such time as the Delaware Certificate of Merger and
the California Agreement of Merger are duly filed with the Delaware Secretary
of State and the California Secretary of State, respectively, or at such
subsequent time as WAXS and CTI shall agree and as shall be specified in the
Delaware Certificate of Merger and the California Agreement of Merger (the date
and time the Merger becomes effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger
will have the effects set forth in the DGCL and the CGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers, licenses, authorizations and franchises
of Merger Sub and CTI shall be vested in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub and CTI shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Articles of Incorporation/Bylaws. The articles of incorporation
and bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the articles of
<PAGE> 3
incorporation and bylaws of the Surviving Corporation, until thereafter changed
or amended as provided therein or by applicable law.
1.6 New Directors of WAXS. Immediately following the Effective Time,
WAXS shall cause one (1) designee of CTI to be elected to the Board of
Directors of WAXS. Such CTI designee shall be Walt Anderson, or such other
person designated by Gold & Appel Transfer S.A. and reasonably acceptable to
WAXS.
1.7 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of WAXS, Merger Sub, CTI or the
holders of any of the following securities:
(a) [INTENTIONALLY OMITTED.]
(b) Each share of CTI Capital Stock issued and outstanding and
directly or indirectly owned or held by CTI or a Subsidiary (as defined in
Section 3.1(b)) thereof at the Effective Time shall, by virtue of the Merger,
cease to be outstanding and shall be canceled and retired and no capital stock
of WAXS or other consideration shall be delivered in exchange therefor.
(c) Subject to Sections 2.4, 2.5 and 2.14 hereof, each share of CTI
Capital Stock issued and outstanding immediately prior to the Effective Time
shall be converted into the right to receive 0.6583 (the "Exchange Ratio")
shares of common stock, par value $.01 per share, of WAXS ("WAXS Common Stock").
All shares of CTI Capital Stock, as of the Effective Time, shall no longer be
outstanding and shall automatically be canceled and retired and each holder of a
certificate representing any such shares (a "Certificate") shall cease to have
any rights with respect thereto, except as set forth in this Section 1.7(c),
Section 2.4, Section 2.5 and/or Section 2.14 and as provided under applicable
law. The shares of WAXS Common Stock issuable pursuant to Section 1.7(c) and, if
applicable, the Contingent Shares issuable pursuant to Section 1.7(d), together
with any cash in lieu of fractional shares paid pursuant to Section 2.4, shall
be referred to herein collectively as the "Merger Consideration."
(d) In the event that the average of the closing prices of WAXS
Common Stock as reported on the National Market System of the Nasdaq Stock
Market (the "Nasdaq") for the ten (10) trading-day period ending at the close of
trading on the second (2nd) trading day preceding the Closing (the "Averaging
Period") is less than $20.38, then in addition to the shares of WAXS Common
Stock issued pursuant to Section 1.7(c), each CTI stockholder who receives
shares of WAXS Common Stock pursuant to Section 1.7(c) shall be entitled to
receive, subject to Section 2.5, the amount, if any (the "Contingent Amount"),
by which the Target Price (as defined below) exceeds the greater of (X) the
Current Market Price (as defined below) on the first anniversary of the
Effective Time (the "Maturity Date") and (Y) the Floor Price (as defined below),
multiplied by the number of shares of WAXS Common Stock issued to such holder
pursuant to Section 1.7(c). The maximum number of Contingent Shares that may be
issued to CTI stockholders pursuant to this Section 1.7(d) shall in all events
be less than fifty percent (50%) of the sum of the shares of WAXS Common Stock
issued pursuant to Section 1.7(c) plus
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the number of Contingent Shares issued pursuant to this Section 1.7(d). The
Contingent Amount shall only be paid in shares of WAXS Common Stock (the
"Contingent Shares"), which shares shall be valued for purposes hereof at the
greater of the Current Market Price as of the Maturity Date and the Floor Price
and rounded to the nearest whole share. Notwithstanding anything to the
contrary contained in this Agreement, any and all rights in, or to receive, the
Contingent Amount shall terminate and be of no further force or effect if, at
any time on or prior to the Maturity Date, the Current Market Price is greater
than the Target Price. The parties further acknowledge and agree that if any
shares of WAXS Common Stock constituting part of the Escrow Fund (as defined in
Section 2.5) are released to WAXS in accordance with the Escrow Agreement (as
defined in Section 7.1(e)), then the right to receive the Contingent Amount
with respect to such shares of WAXS Common Stock shall terminate and be of no
further force or effect. Neither the right to receive the Contingent Shares nor
any interest therein shall be transferable or assignable by a holder of CTI
Capital Stock except by operation of law. The terms and conditions relating to
the Contingent Shares have been negotiated by WAXS and CTI so as to satisfy, to
the extent possible, the specific requirements of Section 3.03 of the IRS
Revenue Procedure 77-37, as it has been amplified and superseded, which
established the circumstances under which the Internal Revenue Service (the
"IRS") previously issued advance rulings on contingent stock arrangements in
mergers intended to qualify as "reorganizations" under Section 368(a) of the
Code. Solely for purposes of this Agreement's compliance with such Revenue
Procedure, the maximum number of shares of WAXS Common Stock issuable pursuant
to Sections 1.7(c) and 2.6(b), and as Contingent Shares pursuant to this
Section 1.7(d) is 58,146,739 shares of WAXS Common Stock.
For purposes hereof, (a) the "Target Price" means $20.38 per share of WAXS
Common Stock; provided, however, that if the Nasdaq Composite Index (the
"IXIC") at the close of trading on the Maturity Date is eighty-five percent
(85%), or less, of the IXIC at the close of trading on the date of the
Effective Time (the difference between one hundred percent (100%) and such
percentage being referred to as the "Market Correction Percentage"), then the
Target Price shall be reduced by a percentage equal to that portion of the
Market Correction Percentage in excess of fifteen percent (15%); (b) the
"Current Market Price" means, as of any date specified herein, the average of
the daily closing trading prices of WAXS Common Stock, as reported on the
Nasdaq, for the twenty (20) consecutive trading days (in which such shares are
traded on the Nasdaq) ending at the close of trading on such date; (c) the
"Floor Price" means $11.50 per share of WAXS Common Stock; and (d) references
to the "close of trading" as of or on a particular date shall mean such date,
or if such date is not a trading day or no shares of WAXS Common stock are
traded on the Nasdaq on such date, the last trading day preceding such date on
which shares of WAXS Common Stock were traded on the Nasdaq.
1.8 CTI Stock Options.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of CTI, WAXS, Merger Sub or the holder of any
outstanding CTI Stock Option (as defined in Section 3.2), each CTI Stock Option
will be automatically converted into (i) an option to purchase shares of WAXS
Common Stock (a "WAXS Stock Option") in an amount equal to the number of shares
of CTI Common Stock covered under such CTI Stock Option multiplied by
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the Exchange Ratio (rounded to the nearest whole number of shares of WAXS
Common Stock) at a price per share of WAXS Common Stock equal to the per share
option exercise price specified in the CTI Stock Option divided by the Exchange
Ratio (rounded to the nearest whole cent) and (ii) if applicable, the right to
acquire for no additional consideration such number of Contingent Shares as is
equal to the number of Contingent Shares the holder of such CTI Stock Option
would be entitled to receive pursuant to Section 1.7(d) if such CTI Stock
Option had been exercised immediately prior to the Effective Time. Each WAXS
Stock Option shall contain terms and provisions which are substantially similar
to those terms, conditions and provisions governing the original CTI Stock
Option, except that references to CTI in such CTI Stock Option will be deemed
to refer to WAXS and the date of grant of the CTI Stock Option shall be deemed
to be the date of grant of such WAXS Stock Option. At the Effective Time, for
purposes of interpretation of such new WAXS Stock Option, (i) all references in
any stock option plan of CTI (including, without limitation, CTI's 1996 and
1999 Stock Option/Stock Purchase Plans) shall be deemed to refer to WAXS; (ii)
any stock option plan of CTI which governs the CTI Stock Option shall continue
to govern the WAXS Stock Option substituted therefor; and (iii) WAXS shall, as
soon as practicable after the Effective Time, issue to each holder of an
outstanding CTI Stock Option such documentation as appropriately evidences the
foregoing issued and substituted WAXS Stock Option by WAXS. It is the intention
of the parties: (1) that, subject to applicable law, CTI Stock Options assumed
by WAXS qualify, following the Effective Time, as incentive stock options, as
defined in Section 422 of the Code, to the extent that CTI Stock Options
qualified as incentive stock options prior to the Effective Time, (2) that each
holder of a CTI Stock Option shall receive a new WAXS Stock Option which
preserves (but does not increase) the excess of the fair market value of the
shares subject to such CTI Stock Option immediately before the Effective Time
over the aggregate option price of such shares immediately before the Effective
Time, if any such excess then exists, (3) that the terms, conditions,
restrictions and provisions of the WAXS Stock Option be substantially similar
to the terms, conditions, restrictions and provisions of the applicable CTI
Stock Option, including without limitation, the same vesting schedule (other
than to the extent accelerated pursuant to the existing terms of such CTI Stock
Option or plan under which such Stock Option was granted), and (4) any terms
conditions, restrictions or provisions of a CTI Stock Option applicable to a
number of shares rather than a percentage or fraction of shares should be
appropriately adjusted based upon the Exchange Ratio.
(b) With respect to each CTI Stock Option converted into a WAXS
Stock Option pursuant to Section 1.8(a), and with respect to the shares of WAXS
Common Stock and Contingent Shares, if any, in respect of such shares of WAXS
Common Stock underlying such option, WAXS shall file and keep current all
requisite registration statements, on Form S-8 or other appropriate form(s),
and comply in all other material respects with applicable state and federal
requirements for as long as such options remain outstanding.
(c) After the date of this Agreement, CTI agrees that it will not
(x) grant any options, warrants or other rights to acquire any shares of CTI
Capital Stock (except as set forth on SCHEDULE 5.1(c)), including any
restricted stock, stock appreciation rights, limited stock appreciation rights
or any other stock rights, (y) permit cash payments to holders of CTI Stock
Options in lieu of the substitution therefor of WAXS Stock Options, as
described in this Section
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1.8 or (z) modify the vesting rules under any CTI Stock Option outstanding on
the date hereof or take any other action (other than the transactions
contemplated in this Agreement) which in any way would have the effect of
accelerating the vesting of the options granted thereunder.
(d) A holder of a WAXS Stock Option into which a CTI Stock Option
has been converted in accordance with this Section 1.8 may exercise such option
in whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to WAXS, together with the consideration therefor
and the federal withholding tax information, if any, required in accordance
with the related stock option plan.
1.9 Certain Adjustments. If between the date hereof and the Effective
Time, the outstanding WAXS Common Stock or CTI Capital Stock shall have been
changed into a different number of shares or different class by reason of any
reclassification, recapitalization, stock split, split-up, combination or
exchange of shares or a stock dividend or dividend payable in any other
securities shall be declared with a record date within such period, or any
similar event shall have occurred, the Exchange Ratio shall be appropriately
adjusted to provide to the holders of CTI Capital Stock and CTI Stock Options
the same economic effect as contemplated by this Agreement prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, WAXS shall appoint a
commercial bank or trust company reasonably acceptable to CTI to act as
exchange agent hereunder (the "Exchange Agent") for the purpose of exchanging
Certificates for the Merger Consideration. At or prior to the Effective Time,
WAXS shall deposit with the Exchange Agent, in trust for the benefit of holders
of shares of CTI Capital Stock, certificates representing the WAXS Common Stock
issuable pursuant to Section 1.7 in exchange for outstanding shares of CTI
Capital Stock. WAXS agrees to make available to the Exchange Agent from time to
time as needed, cash sufficient to pay cash in lieu of fractional shares
pursuant to Section 2.4 and any dividends and other distributions pursuant to
Section 2.3. Any cash, certificates of WAXS Common Stock deposited with the
Exchange Agent shall hereinafter be referred to as the "Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a Certificate (i) a letter of transmittal which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, and which letter shall be in customary form and have such other
provisions as WAXS may reasonably specify and (ii) instructions for effecting
the surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be
entitled to receive in
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exchange therefor (A) one or more shares of WAXS Common Stock (which shall be
in uncertificated book entry form unless a physical certificate is requested)
representing, in the aggregate, the whole number of shares that such holder has
the right to receive pursuant to Section 1.7 (after taking into account all
shares of CTI Capital Stock then held by such holder), and (B) a check in the
amount equal to the cash that such holder has the right to receive pursuant to
this Article II, including cash in lieu of any additional shares of WAXS Common
Stock pursuant to Section 2.4 and dividends and other distributions pursuant to
Section 2.3. No interest will be paid or will accrue on any cash payable
pursuant to Section 2.3 or Section 2.4. In the event of transfer of ownership
of CTI Capital Stock which is not registered in the transfer records of CTI,
one or more certificates evidencing, in the aggregate, the proper number of
shares of WAXS Common Stock, a check in the proper amount of cash in lieu of
any additional shares of WAXS Common Stock pursuant to Section 2.4, and any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.3, may be issued with respect to such CTI Capital Stock to such a
transferee if the Certificate representing such shares of CTI Capital Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made with respect to shares of WAXS Common
Stock with a record date after the Effective Time shall be paid to the holder
of any unsurrendered Certificate with respect to the shares of WAXS Common
Stock that such holder would be entitled to receive upon surrender of such
Certificate and no cash payment in lieu of fractional shares of WAXS Common
Stock shall be paid to any such holder pursuant to Section 2.4 until such
holder shall surrender such Certificate in accordance with Section 2.2. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to such holder of shares of WAXS Common Stock issuable in
exchange therefor, without interest, (a) promptly after the time of such
surrender, the amount of any cash payable in lieu of fractional shares of WAXS
Common Stock to which such holder is entitled pursuant to Section 2.4 and the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of WAXS
Common Stock, and (b) at the appropriate payment date, the amount of dividends
or other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such shares of WAXS Common Stock.
2.4 No Fractional Shares of WAXS Common Stock.
(a) No certificates or scrip or shares of WAXS Common Stock
representing fractional shares of WAXS Common Stock or book-entry credit of the
same shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to
have any rights of a stockholder of WAXS.
(b) Except for Contingent Shares, if any, notwithstanding any other
provision of this Agreement, each holder of a Certificate exchanged for Merger
Consideration who would otherwise have been entitled to receive a fraction of a
share of WAXS Common Stock (after taking into account all Certificates
delivered by such holder) shall receive, in lieu thereof, cash
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(without interest) in an amount equal to the product of (i) such fractional
part of a share of WAXS Common Stock multiplied by (ii) the average closing
price of WAXS Common Stock on the Nasdaq over the Averaging Period. As promptly
as practicable after the determination of the amount of cash, if any, to be
paid to holders of fractional interests, the Exchange Agent shall so notify
WAXS, and WAXS shall cause the Surviving Corporation to deposit such amount
with the Exchange Agent and shall cause the Exchange Agent to forward payments
to such holders of fractional interests subject to and in accordance with the
terms hereof.
2.5 Escrow of Shares.
(a) At the Closing, 2,453,385 of the shares of WAXS Common Stock to
be issued to CTI's stockholders pursuant to Section 1.7(c) (collectively, the
"Escrow Fund") shall be delivered to SunTrust Bank, Atlanta (the "Escrow
Agent"), which Escrow Fund shall serve as the sole and exclusive source of
recovery for any WAXS Protected Party (as defined in Section 8.1) for any
indemnification claims hereunder. The Escrow Fund shall be held in escrow and
released pursuant to the terms and conditions of the Escrow Agreement (as
defined in Section 7.1(e)). The terms and conditions of the Escrow Agreement
have been structured by WAXS and CTI so as to satisfy the specific requirements
of Section 3.06 of IRS Revenue Procedure 77-37, as it has been amplified and
superseded, which established the circumstances under which the IRS previously
issued advance rulings on the escrow of stock in mergers intended to qualify as
"reorganizations" under Section 368(a) of the Code.
(b) If any Contingent Shares are issued at a time that shares of
WAXS Common Stock remain in escrow pursuant to the Escrow Agreement (as defined
in Section 7.1(d)), then any Contingent Shares that are issued with respect to
such shares of WAXS Common Stock shall be delivered to the Escrow Agent and
shall be held and released in accordance with the terms and conditions of
Section 4 of the Escrow Agreement.
2.6 No Further Ownership Rights in CTI Capital Stock.
(a) All shares of WAXS Common Stock issued and cash paid upon
conversion of shares of CTI Capital Stock in accordance with the terms of this
Article II (including any cash paid pursuant to Section 2.4) shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to the
shares of CTI Capital Stock.
(b) Any accrued and unpaid dividends owed upon consummation of the
Merger to any holder of CTI Preferred Stock in connection with the automatic
conversion of such CTI Preferred Stock under the articles of incorporation of
CTI shall be paid, at the Closing, solely in shares of WAXS Common Stock
(valued at $20.38 per share). Any such shares so issued to any holder of CTI
Preferred Stock shall not affect the Exchange Ratio.
2.7 Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the holders of Certificates for six months after
the Effective Time shall be delivered to the Surviving Corporation or otherwise
on the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this
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Article II shall thereafter look only to the Surviving Corporation and WAXS for
the Merger Consideration with respect to the shares of CTI Capital Stock
formerly represented thereby to which such holders are entitled pursuant to
Section 1.7 and Section 2.2, any cash in lieu of fractional shares of WAXS
Common Stock to which such holders are entitled pursuant to Section 2.4 and any
dividends or distributions with respect to shares of WAXS Common Stock to which
such holders are entitled pursuant to Section 2.3. Any such portion of the
Exchange Fund remaining unclaimed by holders of shares of CTI Capital Stock
five years after the Effective Time (or such earlier date immediately prior to
such time as such amounts would otherwise escheat to or become property of any
Governmental Entity (as defined in Section 3.6) shall, to the extent permitted
by law, become the property of the Surviving Corporation free and clear of any
claims or interest of any person previously entitled thereto.
2.8 No Liability. None of WAXS, Merger Sub, CTI, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.9 Investment of the Exchange Fund. The Exchange Agent shall invest
any cash included in the Exchange Fund as directed by the Surviving Corporation
on a daily basis. Any interest and other income resulting from such investments
shall promptly be paid to the Surviving Corporation.
2.10 Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost stolen or destroyed
Certificate the applicable Merger Consideration with respect to the shares of
CTI Capital Stock formerly represented thereby, any cash in lieu of fractional
shares of WAXS Common Stock, and unpaid dividends and distributions on shares
of WAXS Common Stock deliverable in respect thereof, pursuant to this
Agreement.
2.11 Withholding Rights. Each of the Surviving Corporation and WAXS
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of CTI Capital Stock
such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or WAXS, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of CTI Capital Stock
in respect of which such deduction and withholding was made by the Surviving
Corporation or WAXS, as the case may be.
2.12 Further Assurances. At and after the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of CTI or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the
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name and on behalf of CTI or Merger Sub, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets acquired or to be acquired by the Surviving Corporation as a result of,
or in connection with, the Merger.
2.13 Stock Transfer Books. The stock transfer books of CTI shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of CTI Capital Stock thereafter on the
records of CTI. On or after the Effective Time, any Certificates presented to
the Exchange Agent or WAXS for any reason shall be converted into the Merger
Consideration with respect to the shares of CTI Capital Stock formerly
represented thereby, any cash in lieu of fractional shares of WAXS Common Stock
to which the holders thereof are entitled pursuant to Section 2.4 and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 2.3.
2.14 Further Holdback. At the Closing, separately from the shares of
WAXS Common Stock comprising the Escrow Fund (which shall be deposited with the
Escrow Agent pursuant to the Escrow Agreement), a total of 49,068 of the shares
of WAXS Common Stock to be issued to CTI's stockholders pursuant to Section
1.7(c) (the "Expense Fund") shall be deemed delivered to each CTI stockholder
and at the deemed direction of each such stockholder delivered to an escrow
agent to be designated in writing by CTI not less than five (5) days prior to
the Closing Date. Any and all escrow provisions with respect to the Expense
Fund shall in all aspects satisfy the specific requirements of Section 3.06 of
IRS Revenue Procedure 77-37, as it has been amplified and superseded by the
IRS. The CTI stockholders as of immediately prior to the Effective Time shall
be the holders of record with full voting rights to all of the shares of WAXS
Common Stock held in the Expense Fund. The CTI stockholders as of immediately
prior to the Effective Time shall be entitled to exercise such voting rights
until such time, if any, as such shares of WAXS Common Stock are sold to pay
Representative's Costs pursuant to this Section 2.14. The escrow agent shall
deliver to the CTI stockholders as of immediately prior to the Effective Time
such proxies or other documents as may be necessary to enable such CTI
stockholders to exercise such voting rights. Further, the CTI stockholders as
of immediately prior to the Effective Time shall be entitled to promptly
receive any dividend distribution with respect to the shares of WAXS Common
Stock held in the Expense Fund. Any such dividends paid with respect to such
shares shall be distributed by the escrow agent to the CTI stockholders as of
immediately prior to the Effective Time as holders of record of such shares.
The Expense Fund shall be available in the good faith discretion of the
Shareholder Representative to pay the costs and expenses, if any, incurred by
the Shareholder Representative in defending (including, without limitation,
assuming the defense of any third party claims pursuant to Section 8.5) or
otherwise responding to, on behalf of the stockholders of CTI, any claims for
indemnification by any WAXS Protected Party pursuant to Article VIII hereof, or
otherwise in the performance of its duties hereunder, including, without
limitation, the reasonable fees, costs and expenses of attorneys, accountants
and other professionals engaged by the Shareholder Representative for such
purpose (collectively, the "Representative Costs"). The Shareholder
Representative shall have the authority to direct the sale from time to time of
such number of shares from the Expense Fund as may be necessary to reimburse
the Shareholder Representative for any Representative's Costs, which shall be
reimbursed to the Shareholder Representative from the Expense Fund
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promptly after the escrow agent's receipt of a request therefor. The
Shareholder Representative shall also be entitled to have any Representative's
Costs advanced to the Shareholder Representative from the Expense Fund upon
request therefor, provided that any such advanced amounts not actually expended
by the Shareholder Representative to pay Representative's Costs shall be
promptly returned to the Expense Fund or returned to the stockholders of CTI as
of immediately prior to the Effective Time on a pro rata basis. All shares of
WAXS Common Stock or any cash amounts returned to the Expense Fund pursuant to
the immediately preceding sentence which are remaining in the Expense Fund at
the later to occur of (i) the expiration of the period for asserting claims
pursuant to Section 8.2(b) or (ii) the first date on which there are no pending
claims from any WAXS Protected Party shall be distributed by the escrow agent
to the stockholders of CTI as of immediately prior to the Effective Time on a
pro rata basis. CTI shall have authority to negotiate, and the Shareholder
Representative shall have authority to enter into an agreement with the escrow
agent designated by CTI, which shall effectuate the foregoing. WAXS agrees
that, notwithstanding any contrary provision of this Agreement, any voting
agreement between WAXS and any Principal Stockholder or any other agreement
entered into in connection herewith or therewith, any shares of WAXS Common
Stock comprising the Expense Fund may be sold from time to time at the
discretion of the Shareholder Representative as contemplated hereby. The
provisions of Section 8.7 shall apply to all actions taken by the Shareholder
Representative as contemplated hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CTI
CTI hereby represents and warrants to WAXS as follows:
3.1 Organization and Authorization.
(a) Each of CTI and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization, as applicable, and has the
corporate power and authority to carry on and conduct its business as it is now
being conducted and to own or lease its properties and assets, and is duly
qualified and in good standing. Each of CTI and its Subsidiaries is duly
qualified and in good standing in every state of the United States and in such
other jurisdictions (within or outside of the United States) in which the
conduct of its business or the ownership of its properties and assets requires
it to be so qualified except where the failure to be so qualified would not
have a Material Adverse Effect (as defined in Section 3.6) on CTI.
(b) SCHEDULE 3.1(b) sets forth (i) every entity in which CTI owns
fifty percent (50%) or more of the outstanding equity, directly or indirectly
(each a "Subsidiary" and collectively, the "Subsidiaries"), and (ii) the equity
interest in such entity that is owned by CTI. Except as noted on SCHEDULE
3.1(b), all outstanding shares of capital stock of the Subsidiaries (the
"Subsidiary Shares") are owned by CTI, directly or indirectly, free and clear
of all liens, restrictions, claims, equities, charges, options, rights of first
refusal or encumbrances. Except as
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set forth on SCHEDULE 3.1(b), CTI has full power, right and authority to vote
all of the shares of capital stock of each Subsidiary which are owned or held by
CTI. Except as set forth on Schedule 3.1(b), CTI is not a party to or bound by
any agreement prohibiting or restricting its right to transfer or vote the
shares of capital stock of any Subsidiary which are owned or held by CTI.
(c) Subject to the approval of this Agreement, the Merger and the
other transactions contemplated hereby by the stockholders of CTI by the
Required CTI Stockholder Vote, CTI has the corporate power to execute, deliver
and perform this Agreement and to consummate the transactions and perform its
obligations contemplated hereby. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly and validly authorized by all necessary action on the part of
CTI, subject to the approval of this Agreement, the Merger and the other
transactions contemplated hereby by the stockholders of CTI by the Required CTI
Stockholder Vote. This Agreement has been duly and validly executed and
delivered by CTI and constitutes CTI's legal, valid and binding obligation,
enforceable in accordance with its terms, except to the extent such enforcement
may be limited by applicable bankruptcy, reorganization, moratorium or other
such laws affecting the enforcement of creditors' rights generally.
3.2 Authorized and Outstanding Stock. The authorized capital stock of
CTI, the number of issued and outstanding shares thereof and the record holders
of such issued and outstanding shares of CTI's capital stock are set forth on
SCHEDULE 3.2. All of such issued and outstanding shares of capital stock of CTI
are validly issued, fully paid and nonassessable. There are outstanding
options, warrants or other rights, to acquire an aggregate of 4,029,110 shares
of capital stock of CTI (each, a "CTI Stock Option"). SCHEDULE 3.2 lists the
exercise price and vesting schedule for each CTI Stock Option.
3.3 Absence of Other Claims. Except as set forth on SCHEDULE 3.2,
there is not outstanding, nor is CTI bound by, any subscriptions, options,
preemptive rights, warrants, calls, commitments or agreements or rights of any
character requiring CTI to issue or entitling any person or entity to acquire
any additional shares of capital stock or any other equity security of CTI,
including any right of conversion or exchange under any outstanding security or
other instrument, and CTI is not obligated to issue or transfer any shares of
its capital stock for any purpose. There are no outstanding obligations of CTI
to repurchase, redeem or otherwise acquire any outstanding shares of capital
stock of CTI.
3.4 Financial Statements. SCHEDULE 3.4 contains true, correct and
complete copies of (i) the audited consolidated balance sheet of CTI as of
September 30, 1998, and the related audited statement of income, retained
earnings, and cash flows for the year then ended, and the related notes
thereto; (ii) the audited consolidated balance sheet of CTI as of September 30,
1999, and the related audited statement of income, retained earnings, and cash
flows for the year then ended, and the related notes thereto; and (iii) the
unaudited consolidated balance sheet of CTI for the three (3) month period
ending December 31, 1999, and the related unaudited statement of income,
retained earnings, and cash flows for the period then ended (the "Interim
Financial Statements") (collectively, the "Financial Statements"). The
Financial Statements
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present fairly, in all material respects, the consolidated financial position
of CTI, as of the dates thereof, and the related results of its operations for
the periods then ended. Except as set forth on SCHEDULE 3.4, the Financial
Statements have been prepared in accordance with GAAP on a basis consistent
with prior periods subject, in the case of the Interim Financial Statements, to
the absence of any notes thereto and to normal and recurring year-end
adjustments, which adjustments will not, individually or in the aggregate, be
material in amount.
3.5 No Undisclosed Liabilities. Except (i) as and to the extent
reflected and adequately reserved against in the Financial Statements, (ii) for
liabilities and obligations of a type not required under GAAP to be disclosed
in the Financial Statements and which were incurred in the ordinary course of
business, consistent with past practice or (iii) as shown on SCHEDULE 3.5, as
of September 30, 1999, CTI had no liabilities or obligations whatsoever,
whether accrued, absolute, contingent or otherwise. Since September 30, 1999,
CTI has not incurred any liability or obligation whatsoever, except for (i)
liabilities and obligations incurred in the ordinary course of business
consistent with past practice or (ii) as reflected on SCHEDULE 3.5.
3.6 No Violation of Law. Except as set forth on SCHEDULE 3.6, neither
CTI nor any of its Subsidiaries is or has been (by virtue of any past or
present action, omission to act, contract to which it is a party or any
occurrence or state of facts whatsoever) in violation of, or has received any
notices of violation with respect to, any applicable local, state, federal or
international law, ordinance, regulation, order, injunction or decree, or any
other requirement of any supranational, national, state, municipal, local or
foreign government, instrumentality, subdivision, court, administrative agency,
commission or authority thereof, or any quasi-governmental or private body
exercising any supranational, national, state, municipal, local or foreign
regulatory, taxing, importing or other governmental or quasi-governmental
authority (a "Governmental Entity") binding on it, or relating to its assets or
business, except where such violation or loss, liability, penalty or expense by
virtue thereof would not have a Material Adverse Effect on CTI. For purposes of
this Agreement, "Material Adverse Effect" means, with respect to any specified
entity, any change, circumstance or effect or breach of any of the provisions
of this Agreement that, individually or in the aggregate with all other
changes, circumstances and effects or breaches, is or would reasonably be
expected to be materially adverse to (i) the business, financial condition or
results of operations of such entity and its Subsidiaries taken as a whole, or
(ii) the ability of such entity (or the party owning such entity) to consummate
the transactions contemplated by this Agreement.
3.7 Property. Except where it would not have a Material Adverse Effect
on CTI:
(a) Each of CTI and its Subsidiaries (i) has marketable fee simple
title to all of its material real property and has valid title to all personal
and mixed, tangible and intangible properties and assets which it purports to
own, including all such real and personal properties and assets reflected, but
not shown as leased or encumbered, in the Financial Statements (except for
inventory and assets sold in the ordinary course of business consistent with
past practice and supplies consumed in the ordinary course of business
consistent with past practice); and (ii) except for Permitted Liens (as defined
hereafter), owns such real and personal property free and
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clear of objections, liens, restrictions, claims, charges, security interests,
easements or other encumbrances of any nature whatsoever, including any
mortgages, leases, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention arrangements.
"Permitted Liens" shall mean (x) the security interests, easements or other
encumbrances described in SCHEDULE 3.7 and (y) liens for Taxes not yet due and
payable. All properties and assets of CTI and its Subsidiaries are in the
possession or control of CTI or its Subsidiaries, as applicable.
(b) Except as would not have a Material Adverse Effect on CTI, the
plants, structures and equipment owned or leased by CTI or any of its
Subsidiaries are structurally sound with no known defects, are in good and safe
operating condition and repair and are adequate for the uses to which they are
being put.
(c) Except as would not have a Material Adverse Effect on CTI, the
rights, properties and other assets presently owned, leased or licensed by CTI
or any of its Subsidiaries include all rights, properties and other assets
necessary to permit CTI and its Subsidiaries to conduct their business in the
same manner as their business has been conducted in prior periods, without any
need for replacement, refurbishment or extraordinary repair.
3.8 [INTENTIONALLY OMITTED.]
3.9 [INTENTIONALLY OMITTED.]
3.10 Intellectual Property.
(a) Generally. SCHEDULE 3.10(a) sets forth a complete and accurate
list of (i) all material patents, trademarks, service marks, trademark and
service mark registrations, trademark and service mark registration
applications, label filings, copyrights, inventions, patents and patent
applications owned by CTI or any of its Subsidiaries and all agreements with
respect thereto, (ii) all material trade names owned by CTI or any of its
Subsidiaries and (iii) all contracts, agreements or understandings pursuant to
which CTI or any of its Subsidiaries has authorized any person to use or any
person has the right to use, in any business or commercial activity, any of the
items listed in clauses (i) and (ii) above that are owned by CTI or any of its
Subsidiaries. Except as would not have a Material Adverse Effect on CTI or as
set forth on SCHEDULE 3.10(a), neither CTI nor any of its Subsidiaries has
heretofore infringed upon, and is not now infringing upon, any patent, service
mark, trade name, trademark, copyright, trade secret, or other intellectual
property belonging to any other person. Except as would not have a Material
Adverse Effect on CTI or as set forth on SCHEDULE 3.10(a), CTI does not know of
any person infringing upon any of CTI's or its Subsidiaries' patents, service
marks, trademarks, copyrights, trade secrets, or other intellectual property.
CTI has made available to Buyer true, correct and complete copies of each
trademark and service mark registration or application therefor, patent or
patent application or other item listed in SCHEDULE 3.10(a) and each assignment
or license with respect to any thereof.
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(b) Computer Software and Databases. SCHEDULE 3.10(b) accurately
identifies all material proprietary computer software and databases internally
developed or acquired by CTI or any of its Subsidiaries (excluding generally
available "shrink wrap" software and databases). Except as would not have a
Material Adverse Effect on CTI, CTI and its Subsidiaries have all computer
software and databases that are necessary to conduct the business of CTI and
its Subsidiaries as presently conducted and all documentation relating to all
such computer software and databases. Except as would not have a Material
Adverse Effect on CTI, all such computer software and databases perform in
accordance with the documentation related thereto or used in connection
therewith and are free of defects in programming and operation. SCHEDULE
3.10(b) identifies each person to whom CTI or any of its Subsidiaries, in the
last two (2) years, has sold, licensed, leased or otherwise transferred or
granted any interest or rights to any of the computer software and databases
described above and the date of each such sale, license, lease or other
transfer or grant. CTI has made available to WAXS true, correct and complete
copies of all documents relating to each such sale, license, lease or other
transfer or grant.
(c) Year 2000 Compliance. Except as would not have a Material
Adverse Effect on CTI, all computer hardware and software (including all
computer hardware and software contained in imbedded systems) used in the
business of CTI and its Subsidiaries or included in products previously or
currently manufactured by CTI or any of its Subsidiaries (whether such hardware
and software is owned by CTI or any of its Subsidiaries or is licensed from
third parties) (collectively, the "Technology Systems") is designed to be used
during and after the calendar year 2000 and such hardware and software will
continue to operate during each such time period to accurately process date
data (including, but not limited to calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first centuries, including leap
year calculations ("Year 2000 Compliance"). Except as would not have a Material
Adverse Effect on CTI, the occurrence of the calendar year 2000 will not
adversely affect the Technology Systems of CTI or any of its Subsidiaries or of
third parties using products manufactured, or services provided, by CTI or any
of its Subsidiaries. No expenditures in excess of currently budgeted items are
necessary to cause Technology Systems to operate properly during and after the
calendar year 2000. CTI and its Subsidiaries have taken reasonable steps to
determine whether the failure of any third parties with which CTI or any of its
Subsidiaries has a relationship to achieve Year 2000 Compliance could have a
Material Adverse Effect on CTI. Except as would not have a Material Adverse
Effect on CTI, all computer hardware and software embedded in products
manufactured, or services provided, by CTI or any of its Subsidiaries, when
used in combination with, or interfacing with computer hardware and software of
any other person, shall accurately accept, release and exchange date data, and
shall continue to function in the same manner as it performs today and shall
not otherwise impair the accuracy or function ability of such person's computer
hardware or software.
3.11 Litigation. SCHEDULE 3.11 sets forth all litigation, claims,
suits, actions, investigations, indictments or informations, proceedings or
arbitrations, grievances or other procedures (including grand jury
investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) pending, or to the knowledge of
CTI, threatened, before any court, commission, arbitration tribunal, or
judicial, governmental or
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administrative department, body, agency, administrator or official, grand jury,
or any other forum for the resolution of grievances, against CTI or any of its
Subsidiaries or involving any of its or their assets or business, except for
such matters as would not have a Material Adverse Effect on CTI. Further,
except as set forth in SCHEDULE 3.11 and for matters which would not have a
Material Adverse Effect on CTI, there are no material judgments, orders, writs,
injunctions, decrees, indictments or informations, grand jury subpoenas or
civil investigative demands, plea agreements, stipulations or awards (whether
rendered by a court, commission, arbitration tribunal, or judicial,
governmental or administrative department, body, agency, administrator or
official, grand jury or any other forum for the resolution of grievances)
against or relating to CTI or any of its Subsidiaries or involving any of its
or their assets or business. CTI has made available to WAXS all information
requested by WAXS with respect to each pending litigation, claim, suit, action,
investigation, indictment or information, proceeding, arbitration, grievance or
other procedure listed in SCHEDULE 3.11, and the judgements and informations,
grand jury subpoenas and civil investigative demands, plea agreements,
stipulations and awards listed in said Schedule.
3.12 Employment Matters and Benefit Plans.
(a) SCHEDULE 3.12(a) sets forth a list of all material agreements,
arrangements, commitments, and policies (1) which relate to employee benefits;
(2) which pertain to present or former employees, officers, retirees, directors
or independent contractors (or their beneficiaries, dependents or spouses) of
CTI or any of its Subsidiaries; and (3) which are currently in effect or
expected to be adopted, maintained by, sponsored by, or contributed to by CTI
or any other employer (a "CTI Affiliate") which, under Section 414 of the Code,
would constitute a single employer with CTI (collectively referred to as "CTI
Employee Benefit Plans", including, but not limited to, all: (A) employee
benefit plans as defined in Section 3(3) of ERISA; and (B) all other deferred
compensation, incentive, profit-sharing, thrift, stock ownership, stock
appreciation rights, bonus, stock option, stock purchase, vacation, or other
benefit plans or arrangements.
(b) CTI and all CTI Affiliates have complied with their respective
substantive obligations with respect to all CTI Employee Benefit Plans
(including, but not limited to, (1) filing or distributing all reports or
notices required by ERISA or the Code and (2) complying with all requirements
of Part 6 of Title I of ERISA and Code Section 4980B) and have maintained the
CTI Employee Benefit Plans in compliance with all applicable laws and
regulations (including, but not limited to, ERISA and the Code), except where
the failure to comply with such obligations would not result in a Material
Adverse Effect on CTI. Each CTI Employee Benefit Plan that is intended to
qualify under Code Section 401(a) has received a favorable determination letter
(or other ruling indicating its tax-qualified status) from the IRS which is
current with respect to all plan provisions required under applicable law for
which such a letter can be obtained under IRS procedures, and the IRS has not
threatened or taken any action to revoke any favorable determination letter
issued with respect to any such CTI Employee Benefit Plan. No statement, either
oral or written, has been made or administrative action has been taken by CTI
or any CTI Affiliate (or any agent of either) to any Person regarding any CTI
Employee Benefit Plans that is not in accordance with the terms of that plan
that would have a Material Adverse Effect on CTI.
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(c) CTI has made available to WAXS true, correct and complete
copies of all of the current documents relating to the CTI Employee Benefit
Plans, including, but not limited to (1) all plan texts (including any
subsequent amendments), trust instruments and other funding arrangements
adopted or entered into in connection with each of the CTI Employee Benefit
Plans; (2) the notices and election forms used to notify employees and their
dependents of their continuation coverage rights under group health plans
(under Code Section 4980B(f) and ERISA Section 606), if applicable; and (3) the
most recent Form 5500 annual reports (including all schedules thereto), summary
plan descriptions and favorable determination letters, if applicable, for
Employee Benefit Plans. Since the date such documents were supplied to WAXS, no
plan amendments have been adopted and no such amendments or changes shall be
adopted or made prior to the Closing Date without WAXS's approval, except as
required by applicable law after the date hereof.
(d) Except as listed in SCHEDULE 3.12(d), neither CTI nor any CTI
Affiliate has any material agreement, arrangement, commitment or understanding
to create any additional CTI Employee Benefit Plans or to continue, modify,
change or terminate any existing CTI Employee Benefit Plans.
(e) None of the CTI Employee Benefit Plans (1) is currently under
investigation, audit or review by the U.S. Department of Labor, the IRS, the
Pension Benefit Guaranty Corporation or any other federal or state agency or
(2) is liable for any federal, state, local or foreign taxes that would have a
Material Adverse Effect on CTI. Except for such liabilities that would not have
a Material Adverse Effect on CTI, there is no transaction in connection with
which CTI or any CTI Affiliate could be subject to either a civil penalty
assessed pursuant to ERISA Section 502, a tax imposed by Code Section 4975 or
liability for a breach of fiduciary responsibility under ERISA.
(f) Other than routine claims for benefits payable to participants
or beneficiaries in accordance with the terms of the CTI Employee Benefit
Plans, or relating to qualified domestic relations orders (as defined in
Section 414(p) of the Code), there are no claims, pending or threatened, by any
participant or beneficiary against any of the CTI Employee Benefit Plans or any
fiduciary of any of the CTI Employee Benefit Plans that would have a Material
Adverse Effect on CTI.
(g) Neither CTI nor any CTI Affiliate has at any time maintained,
sponsored or contributed to any "pension plan", as defined in ERISA Section
3(2), which is subject to Title IV of ERISA or contributed to any pension plan
which is a "multiemployer plan" as defined in ERISA Section 3(37)(A).
(h) SCHEDULE 3.12(h) sets forth a list of all agreements,
arrangements, commitments and CTI Employee Benefit Plans, under which (1) any
benefits will be increased, (2) the vesting or exercisability of benefits will
be accelerated, (3) amounts will become immediately payable, and/or (4) the
immediate funding for any benefits is required, upon the occurrence of the
transactions contemplated by this Agreement. Except with respect to CTI
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Stock Options, SCHEDULE 3.12(h) also sets forth a good faith estimate of the
total value and/or cost of any such change in control benefits and/or funding
and a statement of the time periods in which such payments must be made and/or
funding obligations must be met, including but not limited to the value and/or
costs of any gross up payments for tax purposes.
(i) To the knowledge of CTI, no key employee, or group of
employees of CTI has any plans to terminate employment with CTI or any of
its Subsidiaries other than employees with plans to retire. CTI and its
Subsidiaries have complied with all laws relating to the employment of labor,
including provisions thereof relating to wages, hours and equal opportunity,
and it does not have any labor relations problems (including threatened or
actual strikes or work stoppages or grievances), except for such failures or
problems that would not have a Material Adverse Effect on CTI.
3.13 Collective Bargaining. Except as set forth on SCHEDULE 3.13,
there are no labor contracts, collective bargaining agreements, letters of
understanding or other arrangements, formal or informal, with any union or
labor organization covering any of CTI's or its Subsidiaries' employees and
none of said employees are represented by any union or labor organization. CTI
has made available to Buyer a true, correct, and complete copy of each
agreement listed on SCHEDULE 3.13.
3.14 Labor Disputes. CTI and its Subsidiaries are in compliance with
all federal and state laws respecting employment and employment practices,
terms and conditions of employment, wages and hours, except where the failure
to be in compliance would not have a Material Adverse Effect on CTI. No unfair
labor practice complaint against CTI or any of its Subsidiaries is pending
before the National Labor Relations Board. CTI does not know of any labor
strike or other labor trouble actually pending, being threatened against, or
affecting CTI or any of its Subsidiaries. Relations between management and
labor are amicable and there have not been, nor are there presently, any
attempts to organize non-union employees, nor are there plans for any such
attempts.
3.15 Investments. Except for the Subsidiary Shares and as disclosed on
SCHEDULE 3.15, neither CTI nor any of its Subsidiaries owns any capital stock
or other securities or have any other material investment in any person or
other entity.
3.16 Tax Matters. Except as set forth on SCHEDULE 3.16:
(a) (i) All material Tax Returns required to be filed under
applicable law by CTI and each of its Subsidiaries have been filed, or requests
for extensions have been timely filed and have not expired; (ii) all such Tax
Returns filed by CTI and its Subsidiaries are complete and accurate in all
material respects; (iii) all Taxes shown to be due on such Tax Returns or on
subsequent assessments with respect thereto have been paid or the Financial
Statements reflect that adequate reserves have been established for the payment
of such Taxes, and no other material Taxes are payable by CTI and its
Subsidiaries with respect to items or periods covered by such Tax Returns
(whether or not shown on or reportable on such Tax Returns) or with respect to
any period prior to the date of this Agreement; (iv) CTI and each of its
Subsidiaries
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has disclosed on their federal income Tax Return all positions taken therein
that could give rise to a substantial understatement of income Tax within the
meaning of Section 6662 of the Code; (v) there are no material liens on any of
the assets of CTI or any of its Subsidiaries with respect to Taxes, other than
liens for Taxes not yet due and payable or for Taxes that CTI or any of its
Subsidiaries is contesting in good faith through appropriate proceedings and
for which the Financial Statements reflect that appropriate reserves have been
established; (vi) no power of attorney to deal with Tax matters or waiver or
extension of any statute of limitations with respect to Taxes has been granted
by CTI or any of its Subsidiaries; and (vii) there is no (X) audit,
examination, deficiency or refund litigation or matter in controversy with
respect to any Taxes of CTI and its Subsidiaries nor (Y) has the IRS nor any
other Tax authority asserted any claim for Taxes in writing, or to the
knowledge of CTI, is threatening to assert any claim for Taxes, that might
reasonably be expected to result in a Tax determination which would have a
Material Adverse Effect on CTI.
(b) SCHEDULE 3.16 sets forth the names of the Subsidiaries of CTI
which are or have been a member of an affiliated group of corporations filing a
consolidated federal income Tax Return (or a group of corporations filing a
consolidated, combined or unitary income Tax Return under comparable provisions
of state, local or foreign Tax law) other than a group the common parent of
which was CTI;
(c) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of CTI or any of its Subsidiaries that,
individually or collectively, could give rise to the payment of any amount (or
portion thereof) that would not be deductible pursuant to Section 280G of the
Code.
(d) Neither CTI nor any of its Subsidiaries is a party to (i) a Tax
Sharing Agreement, (ii) transactions which have produced deferred intercompany
gains, losses or other intercompany items or excess loss accounts (within the
meaning of Treas. Reg. ss. 1.1502-13 or 1.1502-19, respectively, or any
predecessor regulations or any comparable items for state, local or non-United
States Tax purposes), or (iii) any joint venture, partnership, limited
liability company or other arrangement or contract that should be treated as a
partnership for federal income Tax purposes or as to which, an election has
been made under Treas. Reg. ss. 301.7701-3 to have the entity disregarded for
federal income Tax purposes as an entity separate from its owner.
(e) None of CTI and its Subsidiaries (i) has or has had operations
or assets outside the United States taxable as a "branch" by the United States
or as a "permanent establishment" by any foreign country, (ii) has received
written notice of any claim made by a Tax authority in a jurisdiction where CTI
or any of its Subsidiaries does not file Tax Returns that it is or may be
subject to Taxes in such jurisdiction, (iii) is a "passive foreign investment
company" within the meaning of the Code, (iv) has participated in or cooperated
with an international boycott or has been requested to do so in connection with
any prior transaction or the transactions contemplated by this Agreement, and
(v) has availed itself of any Tax amnesty, Tax holiday or similar relief in any
jurisdiction.
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(f) CTI has made available to WAXS true copies of (i) all material
Tax Returns that CTI or its Subsidiaries have filed since its fiscal year ended
September 30, 1995, and (ii) all material correspondence, including without
limitation, closing agreements, private letter rulings, advance pricing
agreements and gain recognition agreements and other written submissions to or
communications with any Tax authorities.
(g) (i) There is no plan or intention on the part of holders of CTI
Capital Stock who own five percent (5%) or more of the CTI Capital Stock by
vote or value (the "5% CTI stockholders"), nor have any of such 5% CTI
stockholders entered any agreement, and to the knowledge of CTI, there is no
plan or intention on the part of the remaining holders of CTI Capital Stock to
sell, exchange or otherwise dispose of a number of shares of WAXS Common Stock
received in the Merger (excluding the Contingent Shares, if any) to any person
related to WAXS within the meaning of Treas. Reg. ss. 1.368-1(e)(3) that would
reduce the CTI stockholders' aggregate ownership of such WAXS Common Stock to a
number of shares of WAXS Common Stock having a value, as of the Effective Time
of the Merger, of less than fifty percent (50%) of the value of all of the
formerly outstanding CTI Capital Stock as of the Effective Time. For purposes
of this representation, shares of WAXS Common Stock exchanged for cash or other
property, surrendered by dissenters or exchanged for cash in lieu of fractional
shares of WAXS Common Stock will be treated as outstanding CTI Capital Stock as
of the Effective Time. Any third party who may acquire WAXS Common Stock from
Roger Abbott and Rosalind Abbott as former CTI stockholders after the Merger as
contemplated in the Voting and Stock Transfer Restriction Agreement dated as of
the date hereof between WAXS and Roger Abbott and Rosalind Abbott (the "Abbott
Voting and Stock Transfer Restriction Agreement"), will not be a person related
to WAXS within the meaning of Treas. Reg. ss. 1.368-1(e)(3), and there are no
facts and circumstances indicating that the cash to be used by each such third
party to purchase the WAXS Common Stock from such former CTI stockholders
receiving WAXS Common Stock in the Merger will in substance be exchanged by
WAXS or any of its Subsidiaries for CTI Capital Stock.
(ii) The fair market value of the WAXS Common Stock (inclusive of
Contingent Shares, if any) and cash in lieu of fractional shares of Parent
Common Stock, if any, together with any cash paid or shares of WAXS Common
Stock issued, as the case may be, in satisfaction of accrued unpaid dividends
on CTI Preferred Stock, received by each holder of CTI Capital Stock in the
Merger will be approximately equal to the fair market value of the shares of
CTI Capital Stock surrendered in the Merger by each CTI stockholder.
(iii) CTI is not a regulated investment company, a real estate
investment trust, or a corporation fifty percent (50%) or more of the value of
whose total assets (excluding cash, cash items, receivables and U.S. government
securities) are stock or securities and eighty percent (80%) or more of the
value of whose total assets are assets held for investment. For purposes of the
fifty percent (50%) and eighty percent (80%) determinations under the preceding
sentence, stock and securities in any subsidiary corporation shall be
disregarded and the parent corporation shall be deemed to own its ratable share
of the subsidiary's assets. A corporation shall be considered a subsidiary for
purposes of this paragraph
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if the parent owns fifty percent (50%) or more of the combined voting power of
all classes of stock entitled to vote, or fifty percent (50%) or more of the
total value of shares of all classes of stock outstanding.
(iv) In the Merger, CTI will transfer to Merger Sub at least
ninety percent (90%) of the fair market value of its net assets, and at least
seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the Merger. For purposes of this representation, amounts
paid by CTI to dissenters or to CTI stockholders who receive cash or other
property, CTI assets used by CTI to pay reorganization expenses, and CTI assets
used for redemptions and distributions (excluding regular, normal dividends)
made by CTI prior to the Effective Time will be included as assets of CTI held
immediately prior to the Merger.
(v) None of the compensation received by any stockholder-employee
of CTI will be separate consideration for, or allocable to, any of the shares
of CTI Capital Stock held by such stockholder-employee; none of the shares of
WAXS Common Stock issued in the Merger and received by any stockholder-employee
of CTI will be separate consideration for, or allocable to, any employment
agreement, agreement not to compete or any other compensation owed or owing to
such stockholder-employee; and the compensation paid to any
stockholder-employee of CTI will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
(vi) CTI and each of its stockholders will pay their respective
expenses, if any, incurred in connection with the Merger.
(vii) There is no intercorporate indebtedness existing between
WAXS and CTI or between CTI and the Merger Sub that was issued, acquired, or
will be settled at a discount.
(viii) At the Effective Time of the Merger, the fair market value
of the assets of CTI transferred to Merger Sub will equal or exceed the sum of
its liabilities assumed by Merger Sub, plus (without duplication) the amount of
liabilities, if any, to which the transferred assets of CTI are subject.
(ix) The liabilities of CTI assumed by Merger Sub and the
liabilities of CTI to which the transferred assets of CTI are subject were
incurred by CTI in the ordinary course of its business.
(x) CTI is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(xi) The business carried on by CTI at the Effective Time is its
"historic business" within the meaning of Treas. Reg. ss. 1.368-1(d).
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(xii) Prior to the Effective Time, CTI has not distributed the
stock of any corporation in a distribution qualifying for Tax-free treatment
under Section 355 of the Code.
(xiii) During the five (5) year period ending as of the Effective
Time, neither CTI nor any persons related to CTI within the meaning of Treas.
Reg. ss. 1.368-1(e)(3) (but without regard to Treas. Reg. ss.
1.368-1(e)(3)(i)(A)) will have directly or through any transaction, agreement,
or arrangement with any other person, (A) acquired CTI Capital Stock with
consideration other than shares of WAXS capital stock or CTI Capital Stock or
(B) made any "extraordinary distributions" with respect to CTI Capital Stock
within the meaning of Treas. Reg. ss. 1.368-1T(e)(1)(ii)(A).
(xiv) The principal purposes of CTI for participating in the
Merger are bona fide purposes unrelated to Taxes, and the terms of this
Agreement are the product of arm's-length negotiations.
(xv) CTI and each of its Subsidiaries are not currently, have not
been within the last five (5) years, and do not anticipate becoming a "United
States real property holding corporation" within the meaning of Section 897(c)
of the Code.
(xvi) There is a valid business reason underlying the Section
1.7(d) provisions concerning the possible issuance of Contingent Shares and the
provisions of this Agreement relating to Contingent Shares satisfy the specific
requirements of Section 3.03 of IRS Revenue Procedure 77-37, as it has been
amplified and superseded by the IRS.
(xvii) There is a valid business reason for the escrow of shares
of WAXS Common Stock, including Contingent Shares, if any, pursuant to Section
2.5 of this Agreement and the Escrow Agreement described in Section 7.1(d), and
the escrow provisions of this Agreement and the Escrow Agreement satisfy the
specific requirements of Section 3.06 of IRS Revenue Procedure 77-37, as it has
been amplified and superseded by the IRS.
(xviii) There is a valid business reason for the escrow of shares
of WAXS Common Stock comprising the Expense Fund pursuant to Section 2.14 of
this Agreement, and the escrow provisions of Section 2.14 satisfy the specific
requirements of Section 3.06 of IRS Revenue Procedure 77-37, as it has been
amplified and superseded by the IRS.
(h) For purposes of this Agreement:
(i) "Tax" (and, with correlative meaning, "Taxes" shall mean: (i)
all taxes, charges, fees, levies or other assessments, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local
or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes,
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sales and use taxes, ad valorem taxes, excise taxes, employer tax, estimated,
severance, telecommunications, occupation, goods and services, capital,
profits, value added taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension Benefit
Guaranty Corporation premiums and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
the Person is required to pay, withhold or collect; and (ii) any liability for
the payment of any amounts described in clause (i) as a result of being a
successor to or transferee of any individual or entity or a member of an
affiliated, consolidated or unitary group for any period (including pursuant to
Treas. Reg. ss. 1.1502-6 or comparable provisions of state, local or foreign
tax law); and (iii) any liability for the payment of amounts described in
clause (i) or clause (ii) as a result of any express or implied obligation to
indemnify any Person or as a result of any obligations under agreements or
arrangements with any Person;
(ii) "Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any other
credit or tax attribute which could reduce Taxes (including, without
limitation, credits related to alternative minimum Taxes);
(iii) "Tax Return" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns (including
any attached schedules) or similar statement relating to, or required to be
filed in connection with, any Taxes, including information returns or reports
with respect to backup withholding and other payments to third parties; and
(iv) "Tax Sharing Agreement" shall mean any and all existing
written Tax sharing agreements, or arrangements binding two or more persons
with respect to the payment of Taxes, including any written agreements or
arrangements which afford any other person the right to receive any payment
from one or more other persons in respect to any Taxes or the benefit of any
Tax Asset of one or more other persons or require or permit the transfer or
assignment of any income, revenue, receipts or gains.
3.17 Required Licenses and Permits. Except as would not have a
Material Adverse Effect on CTI, CTI and its Subsidiaries have all licenses,
tariffs, permits, variances, exemptions, orders, approvals and other
authorizations of all Governmental Entities necessary for the operation of the
business of CTI and its Subsidiaries (the "CTI Permits"). CTI and its
Subsidiaries are in compliance with the terms of the CTI Permits, except where
the failure to so be in compliance would have a Material Adverse Effect on CTI.
The businesses of CTI and its Subsidiaries are not being conducted in violation
of, and neither CTI nor any of its Subsidiaries have received any notices of
violations with respect to, any law, ordinance or regulation of any
Governmental Entity, except for possible violations which would not have a
Material Adverse Effect on CTI. CTI has made available to WAXS true, correct,
and complete copies of all CTI Permits.
3.18 Contracts and Commitments. Except as set forth or described in
SCHEDULES 3.12, 3.13 or 3.18:
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(a) Neither CTI nor any of its Subsidiaries is a party to any
agreement or contract, the absence of which would have a Material Adverse
Effect on CTI;
(b) No contracts or commitments of CTI or any of its Subsidiaries
have unexpired terms of more than twelve (12) months from the date hereof or
require payments or the provision of services having a value individually in
excess of $1,000,000 (or, as to any series of related contracts or commitments,
$1,000,000 in the aggregate);
(c) Neither CTI not any of its Subsidiaries have any contract,
written or oral, relating to the employment of any person by CTI or any
Subsidiary thereof, or any consulting or similar kind of contract, that is not
cancelable by CTI as a Subsidiary thereof, on notice of not longer than one
hundred twenty (120) days and without liability of any kind, except liabilities
which arise as a matter of law upon termination of employment, or any agreement
or arrangement providing for the payment of any bonus or commission based on
sales or earnings;
(d) Except for negotiable instruments in the process of collection,
neither CTI nor any of its Subsidiaries has any unexpired power of attorney
outstanding or any contract, commitment or liability (whether absolute,
accrued, contingent or otherwise), as guarantor, surety, co-signer, endorser,
co-maker, indemnitor in respect of the contract or commitment of any other
person, corporation, partnership, joint venture, association, organization or
other entity (other than a Subsidiary of CTI) with respect to an amount
exceeding $2,000,000;
(e) There are no contracts or agreements with any director, officer
or shareholder of CTI or a Subsidiary thereof, or with any person related to
any such person or with any company or other organization in which any
director, officer, or shareholder of CTI or a Subsidiary thereof, or anyone
related to any such person, has a material direct or indirect financial
interest;
(f) Neither CTI nor any of its Subsidiaries is subject to any
contract or agreement containing covenants limiting the freedom of CTI or any
of its Subsidiaries to compete in any line of business in any geographic area
or requiring CTI or any of its Subsidiaries to share any profits;
(g) Neither CTI nor any of its Subsidiaries has any outstanding
contract or agreement for variable cost service (excluding point-to-point
service obtained pursuant to a lease or IRU arrangement) which is of a
"take-or-pay" or similar variety and which requires payments or the provision
of services having a value in excess of $50,000 per year or $1,000,000 over the
term of the contract or agreement; and
(h) CTI has made available to WAXS true, correct and complete
copies of each of the agreements listed on SCHEDULE 3.18 (such agreements,
together with any agreements set forth or described in or required to be set
forth or described in any of SCHEDULES 3.12 or 3.13 being referred to as the
"Material Contracts");
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3.19 No Conflict. Subject to obtaining any required consents or
approvals set forth on SCHEDULE 3.21, the execution and delivery of this
Agreement by CTI, the consummation of the transactions contemplated herein by
CTI, and the performance of the covenants and agreements hereunder of CTI will
not, with or without the giving of notice or the lapse of time, or both, (i)
violate or conflict with any of the provisions of any charter document or bylaw
of CTI or a Subsidiary thereof, (ii) except as set forth in SCHEDULE 3.19,
violate, conflict with or result in a breach or default under or give rise to a
right of termination, amendment, cancellation or acceleration of any term,
condition or obligation under any material mortgage, indenture, contract,
license, permit, instrument, trust document, will, or other agreement, document
or instrument to which CTI or a Subsidiary thereof is a party or by which CTI,
any Subsidiary thereof or its or their assets may be bound, (iii) violate any
provision of law, statute, regulation, court order or ruling of any
governmental authority to which CTI or a Subsidiary thereof is a party or by
which its or their assets may be bound or (iv) result in the creation or
imposition of any lien, claim, charge, restriction, security interest or
encumbrance of any kind whatsoever upon any asset, except, with respect to the
foregoing clauses (ii), (iii) or (iv), where there would arise no Material
Adverse Effect on CTI therefrom.
3.20 Agreements in Full Force and Effect. Except as expressly set
forth in SCHEDULE 3.20, all Material Contracts are valid and binding and in
full force and effect and are enforceable in accordance with their terms,
except to the extent that such enforceability may be limited due to laws
relating to bankruptcy, reorganization, moratorium or other such laws. CTI does
not have knowledge of any pending or threatened bankruptcy, insolvency or
similar proceeding with respect to any party to such agreements. No event has
occurred with respect to any agreement or contract to which CTI or a Subsidiary
thereof is a party which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder by CTI or a Subsidiary thereof, or to the knowledge of CTI, any
other party thereto, except where such default would not have a Material
Adverse Effect on CTI.
3.21 Required Consents and Approvals. Except as set forth on SCHEDULE
3.21, no consent or approval is required by virtue of the execution hereof by
CTI or the consummation of any of the transactions contemplated herein by CTI
to avoid the violation or breach of, or the default under, or the creation of a
lien on any asset of CTI or a Subsidiary thereof pursuant to the terms of, any
regulation, order, decree or award of any Governmental Entity or any lease,
agreement, contract, mortgage, note, license, permit, tariff, authorization or
any other instrument to which CTI or a Subsidiary thereof is a party or to
which it or any of its property or any of its capital stock is subject, except
where the failure to obtain such consent or approval would not have a Material
Adverse Effect on CTI.
3.22 Absence of Certain Changes and Events. Except as set forth on
SCHEDULE 3.22, since September 30, 1999, each of CTI and its Subsidiaries has
conducted its business only in the ordinary course, and has not:
(a) made any declaration, setting aside or payment of any dividend
or other distribution of assets (whether in cash, stock or property) with
respect to the capital stock of CTI or a Subsidiary thereof, or any direct or
indirect redemption, purchase or other acquisition of
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such stock, or otherwise made any payment of cash or any transfer of other
assets, to any shareholder or affiliate thereof (including, without limitation,
the repayment of or on any indebtedness or other obligation); or transferred
any assets from a Subsidiary to CTI;
(b) suffered any Material Adverse Effect;
(c) except for customary increases based on term of service or
regular promotion of non-officer employees, increased (or announced any
increase in) the compensation payable or to become payable to any employee or
increased (or announced any increase in) any bonus, insurance, pension or other
employee benefit plan, payment or arrangement for such employees, or entered
into or amended any material employment, consulting, severance or similar
agreement;
(d) incurred, assumed or guaranteed any liability or obligation
(absolute, accrued, contingent or otherwise) other than in the ordinary course
of business consistent with past practice;
(e) paid, discharged, satisfied or renewed any material claim,
liability or obligation other than in the ordinary course of business and
consistent with past practice;
(f) permitted any asset to be subjected to any mortgage, lien,
security interest, restriction, charge or other encumbrance of any kind except
for Permitted Liens;
(g) waived any material claims or rights;
(h) sold, transferred or otherwise disposed of any material asset,
except in the ordinary course of business consistent with past practice;
(i) made any single capital expenditure or investment in excess of
$1,000,000;
(j) made any change in any method, practice or principle of
financial or tax accounting;
(k) paid, loaned, advanced, sold, transferred or leased any asset
to any employee, except for normal compensation involving salary and benefits
or expenses reimbursed in the ordinary course of business, consistent with past
practice;
(l) issued or sold any of its capital stock or issued any warrant,
option or other right to purchase shares of its capital stock, or any security
convertible into its capital stock;
(m) entered into any material commitment or transaction, other than
in the ordinary course of business consistent with past practice, affecting the
business of CTI or its Subsidiaries; or
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(n) agreed in writing, or otherwise, to take any action described
in this Section 3.22.
3.23 Brokers and Advisers. Except for Gerard Klauer Mattison & Co.,
Inc., no broker, agent or finder has rendered financial services to CTI in
connection with the transactions contemplated by this Agreement.
3.24 Information Supplied. None of the information supplied or to be
supplied by CTI for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and the Registration Statement (each as defined herein)
will, on the date it is first mailed to WAXS's stockholders or at the time of
the WAXS Stockholders Meeting (in the case of the Proxy Statement/Prospectus)
or on the date it is filed or declared effective by the SEC (in the case of the
Registration Statement) contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. None of the information supplied or to be supplied
by CTI to its stockholders in connection with such stockholders' adoption of
this Agreement and approval of the Merger and the other transactions
contemplated hereby will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
3.25 CTI Board Approval. The Board of Directors of CTI, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "CTI Board Approval"), has
duly (i) determined that this Agreement, the Merger and the other transactions
contemplated hereby are fair to and in the best interests of CTI and its
stockholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) declared the advisability of this
Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that the stockholders of CTI approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby and
directed that this Agreement and the transactions contemplated hereby be
submitted for consideration by CTI's stockholders.
3.26 Required CTI Stockholder Vote. The affirmative vote of holders of
shares of CTI Common Stock, CTI Series A Preferred Stock and CTI Series B
Preferred Stock voting as three (3) separate classes, representing a majority
of the outstanding shares of each such class (the "Required CTI Stockholder
Vote"), are the only votes of the holders of any class or series of CTI capital
stock necessary to adopt this Agreement and approve the Merger and the other
transactions contemplated hereby.
3.27 Disclosure. No representations or warranties by CTI in this
Agreement (as qualified by the corresponding Schedules delivered by CTI
pursuant hereto) contain any untrue statement of material fact, or omit to
state any fact necessary, in light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WAXS AND MERGER SUB
WAXS and Merger Sub hereby represent and warrant to CTI as follows:
4.1 Organization. WAXS and Merger Sub are corporations duly
organized, validly existing and in good standing under the laws of the state of
their incorporation and have all requisite corporate power and authority to
effect the transactions and perform their obligations as contemplated hereunder.
Except as set forth on SCHEDULE 4.1, Exhibit 21.1 to WAXS's Annual Report on
Form 10-K for the year ended December 31, 1998 includes all the Subsidiaries of
WAXS which as of the date of this Agreement are Significant Subsidiaries (as
defined in Rule 1-02 of Regulation S-X of the Securities and Exchange Commission
(the "SEC")). Except as disclosed on SCHEDULE 4.1 or in the WAXS SEC Reports (as
defined herein), all the outstanding shares of capital stock of, or other equity
interest in, each such Significant Subsidiary owned or held by WAXS have been
validly issued and are fully paid and nonassessable and are owned directly or
indirectly by WAXS, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever and free of
any other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests), except
for such matters as would not have a Material Adverse Effect on WAXS. Neither
WAXS nor any of its Subsidiaries directly or indirectly owns any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity (other than the
Subsidiaries of WAXS) that is or would reasonably be expected to be material to
WAXS and its Subsidiaries taken as a whole.
4.2 Authorization. Subject to the approval of this Agreement, the
Merger and the other transactions contemplated hereby by the stockholders of
WAXS by the Required WAXS Vote, WAXS has the right, power and authority to
execute, deliver and perform this Agreement and the Escrow Agreement and to
consummate the transactions contemplated hereby and thereby, including the
issuance of the WAXS Common Stock as contemplated hereunder. The execution,
delivery and performance of this Agreement and the Escrow Agreement, and the
consummation of the transactions contemplated hereby and thereby, have been duly
and validly authorized by all necessary corporate action on the part of WAXS,
subject to the approval of this Agreement, the Merger and the other transactions
contemplated hereby by the stockholders of WAXS by the Required WAXS Vote. This
Agreement and the Escrow Agreement have been duly and validly executed and
delivered by WAXS and constitute a legal, valid and binding obligation of WAXS,
enforceable in accordance with their terms, except to the extent such
enforceability may be limited by applicable bankruptcy, reorganization,
moratorium or other such laws affecting the rights of creditors generally.
Merger Sub has the right, power and authority to execute, deliver and perform
this Agreement and to consummate the transactions contemplated hereunder. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Merger Sub. This Agreement has
been duly and
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validly executed and delivered by Merger Sub and constitutes a legal, valid and
binding obligation of Merger Sub, enforceable in accordance with its terms,
except to the extent such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium or other such laws affecting the rights
of creditors generally.
4.3 No Conflict. The execution and delivery of this Agreement and
the Escrow Agreement by WAXS, the execution and delivery of this Agreement by
Merger Sub, the consummation of the transactions contemplated herein and therein
by WAXS and Merger Sub, as applicable, and the performance of the covenants and
agreements of WAXS and Merger Sub will not, with or without the giving of notice
or the lapse of time, or both, (i) violate or conflict with any of the
provisions of any charter document or bylaw of WAXS or Merger Sub, (ii) except
as set forth in SCHEDULE 4.3, violate, conflict with or result in a breach or
default under or give rise to a right of termination, amendment, cancellation or
acceleration of any term, condition or obligation under any material mortgage,
indenture, contract, license, permit, instrument, trust document, or other
agreement, document or instrument to which WAXS or Merger Sub is a party or by
which WAXS or Merger Sub or any of its or their properties may be bound, (iii)
violate any provision of law, statute, rule, regulation, court order, judgment
or decree, or ruling of any Governmental Entity, to which WAXS or Merger Sub is
a party or by which WAXS or Merger Sub or any of its or their properties may be
bound or (iv) result in the creation or imposition of any lien, claim, charge,
restriction, security interest or encumbrance of any kind whatsoever upon any
asset of WAXS or Merger Sub, except, with respect to the foregoing clauses (ii),
(iii) or (iv), where there would arise no Material Adverse Effect on WAXS or
Merger Sub therefrom.
4.4 Validity of Issuance. The shares of WAXS Common Stock, when
issued in accordance with Section 1.7 hereof, will be duly authorized, validly
issued, fully paid and nonassessable.
4.5 Capital Structure. As of February 11, 2000:
(a) The authorized capital stock of WAXS consists of (A)
150,000,000 shares of WAXS Common Stock, of which 53,787,805 shares are
outstanding and no shares are held in treasury of WAXS and (B) 10,000,000 shares
of Preferred Stock, par value $.01 per share, of which 50,000 shares designated
as 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, par
value $.01 per share (the "Series A Preferred Stock"), and 350,259.875 shares
designated as Convertible Preferred Stock, Series C (the "Series C Preferred
Stock"), are outstanding. WAXS has reserved or has available 4,347,827 shares of
WAXS Common Stock for issuance upon conversion of the Series A Preferred Stock
and 18,027,478 shares of WAXS Common Stock for issuance upon conversion of the
Series C Preferred Stock. All issued and outstanding shares of the capital stock
of WAXS are duly authorized, validly issued, fully paid and nonassessable, and
no class of capital stock is entitled to preemptive rights. In addition to the
option described in Item 1 of SCHEDULE 4.5, there are outstanding options,
warrants or other rights (a "WAXS Stock Option") to acquire 13,133,837 shares of
capital stock from WAXS.
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(b) No bonds, debentures, notes or other indebtedness of
WAXS having the right to vote on any matters on which holders of capital stock
of WAXS may vote are issued or outstanding.
(c) Except as otherwise set forth in this Section 4.5,
the WAXS SEC Reports (as defined below) or SCHEDULE 4.5 and as contemplated by
Section 1.5 and Section 1.6, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind to
which WAXS or any of its Subsidiaries is a party or by which any of them is
bound obligating WAXS or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock or
other voting securities of WAXS or any of its Subsidiaries or obligating WAXS or
any of its Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call right, commitment, agreement, arrangement or undertaking.
Except as set forth on SCHEDULE 4.5 or the WAXS SEC Reports, there are no
outstanding obligations of WAXS or any of its Subsidiaries to repurchase, redeem
or otherwise acquire any shares of capital stock of WAXS or any of its
Subsidiaries.
4.6 Reports and Financial Statements.
(a) WAXS has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents required
to be filed by it under the federal securities laws with the SEC since January
1, 1998 (collectively, including all exhibits thereto, the "WAXS SEC Reports").
No Subsidiary of WAXS is required to file any form, report, registration
statement, prospectus or other document with the SEC not otherwise filed with a
WAXS SEC Report. None of the WAXS SEC Reports, as of their respective dates (or,
if amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing), contained or will contain any untrue statement of a
material fact or omitted or will omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The WAXS SEC Reports,
taken as a whole, do not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances existing as of the time of
filing of such reports, not misleading. Each of the financial statements
(including the related notes) included in the WAXS SEC Reports (or, if amended
or superseded by a filing prior to the date of this Agreement, then on the date
of such filing) presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of WAXS
and its Subsidiaries as of the respective dates or for the respective periods
set forth therein all in conformity with GAAP consistently applied during the
periods involved except as otherwise noted therein, and subject, in the case of
the unaudited interim financial statements, to normal and recurring year-end
adjustments that have not been and will not be material in amount. All of such
WAXS SEC Reports, as of their respective dates (or as of the date of any
amendment to the respective WAXS SEC Report filed prior to the date of this
Agreement), complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the rules and regulations promulgated thereunder.
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(b) Except as disclosed on SCHEDULE 4.6 or in the WAXS
SEC Reports, since December 31, 1999, WAXS and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to be
disclosed on a balance sheet of WAXS and its Subsidiaries or the footnotes
thereto prepared in conformity with GAAP, other than (A) liabilities incurred in
the ordinary course of business or (B) liabilities that would not have a
Material Adverse Effect on WAXS.
4.7 Brokers and Advisers. Except for Donaldson, Lufkin & Jenrette
Securities Corporation, no broker, agent or finder has rendered financial
services to WAXS in connection with the transactions contemplated by this
Agreement.
4.8 Information Supplied. None of the information supplied or to
be supplied by WAXS for inclusion or incorporation by reference in the Proxy
Statement/Prospectus (as defined herein) will, on the date it is first mailed to
WAXS's stockholders, or at the time of the WAXS Stockholders Meeting contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus will, on the date it is first mailed to WAXS's stockholders
and at the time of the WAXS Stockholders Meeting, comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
4.9 WAXS Board Approval. The Board of Directors of WAXS, by
resolutions duly adopted by unanimous vote at a meeting duly called and held and
not subsequently rescinded or modified in any way (the "WAXS Board Approval"),
has duly (i) determined that this Agreement, the Merger and the other
transactions contemplated hereby are fair to and in the best interests of WAXS
and its stockholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) declared the advisability of this
Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that the stockholders of WAXS approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby and
directed that this Agreement and the transactions contemplated hereby by
submitted for consideration by WAXS's stockholders at the WAXS Stockholders
Meeting.
4.10 Required WAXS Stockholder Vote. Except as set forth on
SCHEDULE 4.10, the affirmative vote of holders of shares of WAXS Common Stock,
Series A Preferred Stock and Series C Preferred Stock, voting together as a
single class, representing a majority of the outstanding shares of WAXS Common
Stock, Series A Preferred Stock, Series B Preferred Stock and Series C Preferred
Stock (the "Required WAXS Vote"), is the only vote of the holders of any class
or series of WAXS capital stock necessary to adopt this Agreement and approve
the Merger and the other transactions contemplated hereby.
4.11 Required Merger Sub Board Approval. The Board of Directors of
Merger Sub, by resolutions duly adopted by a unanimous written consent and not
subsequently rescinded or modified in any way, has duly (i) determined that this
Agreement, the Merger and the other transactions
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contemplated hereby are fair to and in the best interests of Merger Sub and its
sole stockholder, WAXS, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) declared the advisability of this
Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that WAXS adopt this Agreement and approve the Merger
and the other transactions contemplated hereby.
4.12 Required Merger Sub Stockholder Vote. The affirmative vote of
WAXS, as sole stockholder of Merger Sub, is the only vote of the holders of any
class or series of Merger Sub capital stock necessary to adopt this Agreement
and approve the Merger and the other transactions contemplated hereby. WAXS, in
its capacity as sole stockholder of Merger Sub, has, by resolutions duly adopted
by written consent (the "Merger Sub Stockholder Resolutions") adopted this
Agreement and approved the Merger and the other transactions contemplated
hereby.
4.13 Litigation; Compliance with Laws.
(a) Except as disclosed on SCHEDULE 4.13 or in the WAXS
SEC Report, there is no suit, investigation, action or proceeding pending or, to
the knowledge of WAXS, threatened, against or affecting WAXS or any Subsidiary
of WAXS having, or which would have a Material Adverse Effect on WAXS, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against WAXS or any Subsidiary of WAXS having, or
which would have a Material Adverse Effect on WAXS.
(b) Except as would not have a Material Adverse Effect on
WAXS, WAXS and its Subsidiaries hold all permits, licenses, variances,
authorizations, exemptions, orders and approvals of all Governmental Entities
which are necessary for the operation of the businesses of WAXS and its
Subsidiaries (the "WAXS Permits"). WAXS and its Subsidiaries are in compliance
with the terms of the WAXS Permits, except as disclosed in the WAXS SEC Reports
or where the failure to be valid and in full force and effect or to so comply
would not have a Material Adverse Effect on WAXS. The businesses of WAXS and its
Subsidiaries are not being conducted in violation of, and WAXS has not received
any notices of violations with respect to, any law, ordinance or regulation of
any Governmental Entity, except as disclosed in the WAXS SEC Reports or for
violations which would not have a Material Adverse Effect on WAXS.
4.14 Absence of Certain Changes or Events. Except as disclosed on
SCHEDULE 4.14 or in the WAXS SEC Reports and except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, since
December 31, 1998 through and including the date hereof, (i) WAXS and its
Subsidiaries have conducted, in all material respects, their business only in
the ordinary course and (ii) there has not been any change, circumstance or
event which has had, or would reasonably be expected to have, a Material Adverse
Effect on WAXS, other than any change, circumstance or effect relating (A) to
the economy or financial markets in general, or (B) in general to the industries
in which WAXS and its Subsidiaries operate and not specifically relating to WAXS
and its Subsidiaries.
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4.15 Tax Matters. Except as set forth on SCHEDULE 4.15:
(a) (i) All material Tax Returns required to be filed
under applicable law by WAXS and each of its Subsidiaries have been filed, or
requests for extensions have been timely filed and have not expired; (ii) all
such Tax Returns filed by WAXS and its Subsidiaries are complete and accurate in
all material respects; (iii) all Taxes shown to be due on such Tax Returns or on
subsequent assessments with respect thereto have been paid or the WAXS SEC
Reports reflect that adequate reserves have been established for the payment of
such Taxes, and no other material Taxes are payable by WAXS or any of its
Subsidiaries with respect to items or periods covered by such Tax Returns
(whether or not shown on or reportable on such Tax Returns) or with respect to
any period prior to the date of this Agreement; (iv) there are no material liens
on any of the assets of WAXS or any of its Subsidiaries with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that WAXS and
its Subsidiaries is contesting in good faith through appropriate proceedings and
for which the WAXS SEC Reports reflect that appropriate reserves have been
established; and (v) there is no audit, examination, deficiency or refund
litigation or matter in controversy with respect to any Taxes of WAXS and its
Subsidiaries that might reasonably be expected to result in a Tax determination
which would have a Material Adverse Effect on WAXS.
(b) There are no contracts, agreements, plans or
arrangements, including but not limited to the provisions of this Agreement,
covering any employee or former employee of WAXS or any of its Subsidiaries
that, individually or collectively, could give rise to the payment of any amount
(or portion thereof) that would not be deductible pursuant to Section 280G of
the Code.
(c) Neither WAXS nor any of its Subsidiaries is a party
to a Tax Sharing Agreement.
(d) (i) During the five (5) year period beginning as of
the Effective Time, neither WAXS nor any person "related" to WAXS within the
meaning of Treas. Reg. ss. 1.368-1(e)(3) will (A) be under any obligation and
will have entered into any agreement to redeem or repurchase any of the WAXS
Common Stock issued in the Merger or to make any "extraordinary distributions"
within the meaning of Treas. Reg. ss. 1.368-1T(e)(1)(ii)(A) in respect of the
WAXS Common Stock and (B) have a plan or intention to reacquire any of the WAXS
Common Stock issued in the Merger either directly or through any transaction,
agreement or arrangement with any other person, except (X) for escrowed shares
of WAXS Common Stock, if any, which may be returned to WAXS pursuant to the
Escrow Agreement and (Y) that WAXS may repurchase shares of WAXS Common Stock on
the open market through a broker for the prevailing market price pursuant to an
open-market repurchase program as described in Rev. Rul. 99-58, 1999-52 I.R.B.
701. To the knowledge of WAXS, any third party who may acquire WAXS Common Stock
from Roger Abbott and Rosalind Abbott as former CTI stockholders after the
Merger as contemplated by the Abbott Voting and Stock Transfer Restriction
Agreement will not be a person related to WAXS within the meaning of Treas. Reg.
ss. 1.368-1(e)(3) and to the knowledge of WAXS, there are no facts and
circumstances indicating
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that the cash to be used by any such third party to purchase the WAXS Common
Stock from such former CTI stockholders receiving such WAXS Common Stock in the
Merger will in substance be exchanged by WAXS or any of its Subsidiaries for CTI
Capital Stock.
(ii) As of the Effective Time, neither WAXS nor
any person related to WAXS within the meaning of Treas. Reg. ss. 1.368-1(e)(3)
will own beneficially or of record, nor will have owned during the past five (5)
years, any CTI Capital Stock or securities of CTI or options or instruments
giving the holder thereof the right to acquire CTI Capital Stock or securities
of CTI.
(iii) Prior to or in the Merger, neither WAXS nor
any person related to WAXS within the meaning of Treas. Reg. ss. 1.368-1(e)(3)
will have acquired directly or through any transaction, agreement or arrangement
with any other person, any capital stock of CTI with consideration other than
shares of WAXS Common Stock.
(iv) The fair market value of the WAXS Common
Stock (inclusive of Contingent Shares, if any) and cash in lieu of fractional
shares of WAXS Common Stock, if any, together with any cash paid or shares of
WAXS Common Stock issued, as the case may be, in satisfaction of accrued unpaid
dividends on CTI Preferred Stock, received by each holder of CTI Capital Stock
in the Merger will be approximately equal to the fair market value of the shares
of CTI Capital Stock surrendered in the Merger by each CTI stockholder.
(v) Following the Merger, WAXS will cause Merger
Sub to continue CTI's "historic business" within the meaning of Treas. Reg. ss.
1.368-1(d) or use a significant portion of CTI's historic business assets in a
business. For purposes of this representation, Merger Sub will be treated as
conducting CTI's historic business or using a significant portion of CTI's
historic business assets in a business if (a) the members of the WAXS "qualified
group" (as defined below in this Section 4.15(d)(viii)), in the aggregate,
continue the historic business of CTI or use a significant portion of CTI's
historic business assets in a business, or (b) the foregoing activities are
undertaken by a partnership in which (1) the members of the WAXS qualified
group, in the aggregate, own at least a thirty-three and one third percent
(33 1/3%) interest in the partnership, or (ii) one or more members of the
qualified group has active and substantial management functions as a partner
with respect to the partnership business and the members of the qualified
group, in the aggregate, own at least a twenty percent (20%) interest in the
partnership.
(vi) On and prior to the Effective Time, WAXS
will be in "control" of Merger Sub within the meaning of Section 368(c) of the
Code, which is a newly-formed corporation that was organized for the sole
purpose of facilitating the Merger.
(vii) WAXS has no plan or intention, and WAXS has
no plan or intention to cause the Merger Sub, to issue additional shares of its
capital stock following the Merger, or take any other action, that would result
in WAXS losing "control" of the Merger Sub within the meaning of Section 368(c)
of the Code.
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(viii) WAXS has no plan or intention following the
Merger to liquidate the Merger Sub; to merge the Merger Sub with and into
another corporation; to sell or otherwise dispose of the stock of the Merger
Sub; or to cause the Merger Sub to sell or otherwise dispose of any of the
assets acquired from CTI, except for dispositions made in the ordinary course of
business or for transfers or successive transfers of all or part of the assets
acquired from CTI to a member(s) of the WAXS qualified group or to a partnership
that has a member(s) of the qualified group as a partner who own, in the
aggregate, at least a thirty-three and one third percent (33 1/3%) interest in
the partnership, or (ii) one or more members of the qualified group has active
and substantial management functions as a partner with respect to the
partnership business and the members of the qualified group, in the aggregate,
own at least a twenty percent (20%) interest in the partnership. For purposes of
this Section 4.15(d) and as set forth under Treas. Reg. ss. 1.368-1(d)(4)(ii),
the term "qualified group" shall mean one or more chains of corporations
connected through stock ownership with WAXS, but only if WAXS owns directly
stock meeting the requirements of Section 368(c) of the Code in at least one
other corporation, and stock meeting the requirements of Section 368(c) of the
Code in each of the corporations (except WAXS) is owned directly by one of the
other corporations.
(ix) WAXS and Merger Sub will pay their
respective expenses, if any, incurred in connection with the Merger.
(x) There is no intercorporate indebtedness
existing between WAXS and CTI or between the Merger Sub and CTI that was issued,
acquired, or will be settled at a discount.
(xi) Neither WAXS nor Merger Sub is a regulated
investment company, a real estate investment trust, or a corporation fifty
percent (50%) or more of the value of whose total assets (excluding cash, cash
items, receivables and U.S. government securities) are stock or securities and
eighty percent (80%) or more of the value of whose total assets are assets held
for investment. For purposes of the fifty percent (50%) and eighty percent (80%)
determinations under the preceding sentence, stock and securities in any
subsidiary corporation shall be disregarded and the parent corporation shall be
deemed to own its ratable share of the subsidiary's assets. A corporation shall
be considered a subsidiary for purposes of this paragraph if the parent owns
fifty percent (50%) or more of the combined voting power of all classes of stock
entitled to vote, or fifty percent (50%) or more of the total value of shares of
all classes of stock outstanding.
(xii) No stock of the Merger Sub will be issued in
the Merger.
(xiii) Neither WAXS nor the Merger Sub is under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
(xiv) In the Merger, to the knowledge of WAXS, the
Merger Sub will acquire at least ninety percent (90%) of the fair market value
of CTI's net assets, and at least seventy percent (70%) of the fair market value
of CTI's gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by CTI to dissenters or to CTI
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stockholders who receive cash or other property, CTI assets used by CTI to pay
reorganization expenses, and CTI assets used for redemptions and distributions
(excluding regular, normal dividends) made by CTI prior to the Effective Time
will be included as assets of CTI held immediately prior to the Merger.
(xv) None of the compensation received by any
stockholder-employee of CTI will be separate consideration for, or allocable to,
any of the shares of CTI Capital Stock held by such stockholder-employee; none
of the shares of WAXS Common Stock issued in the Merger and received by any
stockholder-employee of CTI will be separate consideration for, or allocable to,
any employment agreement, agreement not to compete or any other compensation
owed or owing to such stockholder-employee; and the compensation paid to any
stockholder-employee of CTI will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
(xvi) The payment of cash in lieu of fractional
shares of WAXS Common Stock is solely for the purpose of avoiding the expense
and inconvenience to WAXS of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that will
be paid in the Merger to CTI stockholders instead of issuing fractional shares
of WAXS Common Stock will not exceed one percent (1%) of the total Merger
Consideration that will be issued in the Merger.
(xvii) Prior to the Effective Time, neither WAXS
nor any Subsidiary of WAXS has distributed the stock of any corporation in a
distribution of stock qualifying for Tax-free treatment under Section 355 of the
Code.
(xviii) The principal purposes of WAXS for
participating in the Merger are bona fide purposes unrelated to Taxes, and the
terms of this Agreement are the product of arm's-length negotiations.
(xix) To the extent of the shares of WAXS Common
Stock, including Contingent Shares, if any, that are placed in escrow under the
Escrow Agreement for possible return to WAXS under the conditions specified in
such Escrow Agreement and this Agreement: (1) there is a valid business reason
for establishing the escrow arrangement; (2) the shares of WAXS Common Stock
subject to the Escrow Agreement at the Effective Date, including the Contingent
Shares, if any, which are issued pursuant to Section 1.7(d) hereunder and
subsequently become subject to the Escrow Agreement, will each appear as issued
and outstanding on the balance sheet of WAXS and such shares will be legally
outstanding under applicable state law; (3) all dividends paid on such stock by
WAXS will be distributed to the former CTI stockholders; (4) all voting rights
of such stock held under the Escrow Agreement will be exercisable by the former
CTI stockholders or on their behalf by the Shareholder Representative; (5) such
stock will not be subject to restrictions requiring its return to WAXS because
of the death, failure to continue employment or similar restrictions; (6) all
such stock will be released from the Escrow Agreement within five (5) years
after the Effective Time (except where there is a bona fide dispute as to whom
such stock should be released); (7) the return of such stock to WAXS will not be
triggered by an event the occurrence or nonoccurrence
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of which is within the control of the CTI stockholders; (8) the return of such
stock to WAXS will not be triggered by the payment of additional Tax or
reduction in Taxes paid as a result of an IRS audit of the CTI stockholders,
Merger Sub or WAXS either (x) with respect to the Merger or (y) when the Merger
involves a related person within the meaning of Section 267(c)(4) of the Code;
(9) the mechanism for the calculation of the number of shares of WAXS Common
Stock to be returned to WAXS from the Escrow Fund is objective and readily
ascertainable; and (10) at least fifty percent (50%) of the number of shares of
WAXS Common Stock issued as of Effective Time to the CTI stockholders will not
be subject to the Escrow Agreement or the Expense Fund.
(xx) As to the Contingent Shares, if any, which
may be issued by WAXS pursuant to Section 1.7(d) hereunder: (1) all the
Contingent Shares will be issued by WAXS pursuant to Section 1.7(d) of this
Agreement within five (5) years from the Effective Time and as to any Contingent
Shares which are placed in escrow under the Escrow Agreement, such Contingent
Shares will be released from the Escrow Agreement within five (5) years after
the Effective Time (except where there is a bona fide dispute as to whom such
stock should be released); (2) there is a valid business reason for the
provisions in Section 1.7(d) concerning the possible issuance of Contingent
Shares; (3) the maximum number of Contingent Shares that may be issued is stated
hereunder; (4) at least fifty percent (50%) of the maximum number of shares of
WAXS Common Stock (inclusive of the Contingent Shares) will be issued as of the
Effective Time pursuant to Section 1.7(c) hereunder; (5) the Section 1.7(d)
provisions concerning the possible right to receive Contingent Shares after the
Effective Time prohibit assignment of such rights except by operation of law;
(6) the Section 1.7(d) provisions can give rise only to the receipt of
additional WAXS Common Stock; (7) such stock issuance will not be triggered by
an event the occurrence or nonoccurrence of which is within the control of the
CTI stockholders; (8) such stock issuance will not be triggered by the payment
of additional Tax or reduction in Taxes paid as a result of an IRS audit of the
CTI shareholders or WAXS either (x) with respect to the Merger or (y) when the
Merger involves related persons within the meaning of Section 267(c)(4) of the
Code; and (9) the mechanism in Section 1.7(d) hereunder for the calculation of
Contingent Shares to be issued is objective and readily ascertainable.
(xxi) To the knowledge of WAXS, there is a valid
business reason for the escrow of shares of WAXS Common Stock comprising the
Expense Fund pursuant to Section 2.14 of this Agreement, and to the knowledge of
WAXS, the escrow provisions of Section 2.14 satisfy the specific requirements of
Section 3.06 of IRS Revenue Procedure 77-37, as it has been amplified and
superseded by the IRS.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
5.1 Covenants of CTI. During the period from the date of this
Agreement and continuing until the Effective Time, CTI agrees as to itself and
its Subsidiaries that:
(a) Ordinary Course. Except with respect to any of the
matters described on
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any of the Schedules to Sections 5(b), (c), (e), (f), (g), (h) or (j), CTI and
its Subsidiaries shall carry on their respective businesses in the usual,
regular and ordinary course, substantially in accordance with past practice, in
all material respects.
(b) Dividends; Changes in Share Capital. Except as set
forth on SCHEDULE 5.1(b), CTI shall not, and shall not permit any of its
Subsidiaries to, and shall not propose to, (i) declare or pay any dividends on
or make other distributions in respect of any of its capital stock, except for
dividends by wholly-owned Subsidiaries of CTI (ii) split, combine or reclassify
any of its capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for, shares of its
capital stock, except for any such action by a wholly-owned Subsidiary of CTI
which remains a wholly owned Subsidiary after consummation of such transaction,
or (iii) repurchase, redeem or otherwise acquire any shares of capital stock of
CTI or any of its Subsidiaries or any securities convertible into or exercisable
for any shares of such capital stock except for the purchase from time to time
by CTI of CTI Common Stock in the ordinary course of business consistent with
past practice in connection with the CTI Employee Benefit Plans.
(c) Issuance of Securities. Except as set forth on
SCHEDULE 5.1(c), CTI shall not, and shall not permit any of its Subsidiaries to,
issue, deliver or sell, or authorize or propose the issuance, delivery or sale
of, any shares of its capital stock of any class, or any securities convertible
into or exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing, other
than (i) the issuance of CTI Common Stock upon the exercise of CTI Stock Options
or in connection with other stock-based benefits plans outstanding on the date
hereof, in each case in accordance with their present terms or (ii) issuances by
a wholly-owned Subsidiary of CTI of capital stock to such Subsidiary's parent or
another wholly-owned subsidiary of CTI.
(d) Governing Documents. Neither CTI nor any of its
Subsidiaries shall amend or propose to amend their respective certificates of
incorporation, bylaws or other governing documents.
(e) Acquisitions. Except as set forth on SCHEDULE 5.1(e),
CTI shall not, and shall not permit any of its Subsidiaries to acquire or agree
to acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or agree to
acquire any assets (other than the acquisition of assets used in the operations
of the business of CTI and its Subsidiaries in the ordinary course).
(f) Sales. Except as set forth on SCHEDULE 5.1(f), CTI
shall not, and shall not permit any of its Subsidiaries to, sell or agree to
sell by merging or consolidating with, or by selling a substantial equity
interest in or a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof or otherwise sell or agree to sell any assets
(other than the sale of assets used in the operations of the business of CTI and
its Subsidiaries in the ordinary course).
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(g) Investments; Indebtedness. Except as set forth on
Schedule 5.1(g), CTI shall not, and shall not permit any of its Subsidiaries to
make any capital expenditures or capital investments or make any loans, advances
or capital commitments to, or investments in, any other person, in excess of
$5,000,000 in the aggregate other than (x) by CTI or a Subsidiary of CTI to or
in CTI or in any Subsidiary of CTI or (y) pursuant to any contract or other
legal obligation of CTI or any of its Subsidiaries existing at the date hereof.
Except as set forth on SCHEDULE 5.1(g), CTI shall not, and shall not permit any
of its Subsidiaries to, create, incur, assume or suffer to exist any
indebtedness, issuances of debt guarantees, loans or advances not in existence
as of the date hereof except pursuant to credit facilities, indentures and other
arrangements in existence on the date hereof (as such credit facilities,
indentures and other arrangements may be amended, extended, modified, refunded,
renewed or refinanced after the date hereof) or in the ordinary course of
business consistent with past practice.
(h) Compensation. Other than as contemplated by SCHEDULE
5.1(h) or SCHEDULE 5.1(c), CTI shall not (i) increase the amount of compensation
of any director or executive officer except in the ordinary course of business
consistent with past practice or as required by an existing agreement, (ii) make
any increase in or commitment to increase any employee benefits, except in the
ordinary course of business, consistent with past practice or as required by an
agreement existing on the date hereof, (iii) issue any options, warrants or
other rights to acquire any shares of CTI Capital Stock or adopt or make any
commitment to adopt any agreement, arrangement, commitment or policy which, if
in affect as of the date hereof, would constitute a CTI Employee Benefit Plan
under Section 3.12(a) hereof or (iv) make any contribution, other than regularly
scheduled contributions, to any CTI Employee Benefit Plan.
(i) Accounting Methods; Income Tax Matters. CTI shall not
change its methods of accounting in effect on December 31, 1999, except as
required by changes in GAAP as concurred in by CTI's independent auditors. CTI
shall not (i) change its fiscal year, (ii) make any material tax election, (iii)
adopt or change any Tax accounting method, (iv) enter into any closing
agreement, settle or compromise a Tax liability with a Tax authority, (v)
surrender any right to claim a refund of Taxes, or (vi) take (or permit any
Subsidiary of CTI to take) any other action which would have the effect of
materially increasing the Tax liability or materially decreasing any Tax asset
of CTI or any of its Subsidiaries, other than in the ordinary course of business
consistent with past practice.
(j) Certain Agreements. Except as set forth on SCHEDULE
5.1(j) and except for extensions or renewals of agreements in existence on the
date hereof, CTI shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of WAXS (which consent shall not be unreasonably
withheld or delayed), enter into any agreement or arrangement which, if it had
been entered into prior to the execution of this Agreement, would have been a
Material Contract.
(k) Litigation. CTI shall not and shall not permit any of
its Subsidiaries to settle or, compromise any litigation, except where the
amount paid or payable, in each case, does not exceed $1,000,000.
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5.2 Control of CTI's Business. Nothing contained in this Agreement
shall give WAXS, directly or indirectly, the right to control CTI's operations
prior to the Effective Time. Prior to the Effective Time, CTI shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision over its operations.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Proxy Statement: Stockholders Meetings.
(a) As promptly as reasonably practicable following the
date hereof, WAXS shall prepare and file with the Securities and Exchange
Commission (the "SEC") materials which shall constitute its proxy statement and
prospectus in connection with the WAXS Stockholders Meeting (such proxy
statement and prospectus, and any amendments or supplements thereto, the "Proxy
Statement/Prospectus") and WAXS shall prepare and file a registration statement
on Form S-4 with respect to the issuance of all WAXS Common Stock in the Merger,
including, without limitation, the Contingent Shares and the shares of WAXS
Common Stock issuable to the holders of CTI Preferred Stock as contemplated by
Section 2.6(b) (the "Registration Statement"). The Proxy Statement/Prospectus
will be included in and will constitute a part of the Registration Statement as
WAXS's prospectus. The Registration Statement and the Proxy Statement/Prospectus
shall comply as to form in all material respects with the applicable provisions
of the Securities Act and the Exchange Act and the rules and regulations
thereunder. WAXS shall use reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as reasonably practicable after filing
with the SEC and to keep the Registration Statement effective as long as is
necessary to consummate the Merger and the actions contemplated thereby. CTI
shall use its reasonable best efforts to cooperate with and assist WAXS in
connection with the preparation and amendment of the Proxy Statement/Prospectus
and the Registration Statement. WAXS will provide CTI with a reasonable
opportunity to review and comment on any amendment or supplement to the
Registration Statement prior to filing such with the SEC, and will provide CTI
with a copy of all such filings made with the SEC. WAXS will use reasonable
efforts to cause the Joint Proxy Statements/Prospectus to be mailed to WAXS's
stockholders as promptly as practicable after the Registration Statement is
declared effective under the Securities Act. WAXS shall also take any action
(other than qualifying to do business in any jurisdiction in which it is not now
so qualified or to file a general consent to service of process) required to be
taken under any applicable state securities laws in connection with the issuance
of WAXS Common Stock and CTI shall furnish all information concerning CTI and
the holders of CTI Capital Stock as may be reasonably requested in connection
with any such action. WAXS will advise CTI promptly after it receives notice
thereof, of the time when the Registration Statement has become effective, the
issuance of any stop order or the suspension of the qualification of the WAXS
Common Stock issuable in connection with the Merger for offering or sale in any
jurisdiction or any request by the SEC for amendment of the Registration
Statement. If at any time prior to the Effective Time any information relating
to WAXS or CTI, or any of their respective affiliates, officers or directors,
should be discovered by WAXS or CTI
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which should be set forth in an amendment or supplement to the Registration
Statement or the Proxy Statement/Prospectus so that any of such documents would
not include any misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other party hereto and, to the extent
required by law, rules or regulations, an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and
disseminated to the stockholders of WAXS and CTI.
(b) CTI shall, as promptly as reasonably practicable
following the execution of this Agreement, (i) duly take all lawful action to
call, give notice of, convene and hold a meeting of its stockholders (which
meeting the parties intend to be held no later than 30 days following the date
on which the Registration Statement has been declared effective by the SEC) for
the purpose of obtaining or (ii) duly take all lawful action to obtain by
written consent pursuant to the CGCL, the required vote of its stockholders with
respect to the actions contemplated by this Agreement and shall take all lawful
action to solicit the adoption of this Agreement by the stockholders of CTI by
written consent or otherwise. The Board of Directors of CTI shall recommend
adoption of this Agreement by the stockholders of CTI and shall not withdraw,
modify or materially qualify in any manner adverse to WAXS such recommendation
or take any action or make any statement materially inconsistent with such
recommendation (collectively, an "Adverse Change in the CTI Recommendation");
provided, however, that the foregoing shall not prohibit accurate disclosure of
factual information regarding the business, financial condition or results of
operations of WAXS or CTI or the fact that an Acquisition Proposal (as defined
in Section 6.4) has been made, the identity of the party making such proposal or
the material terms of such proposal (provided, that the Board of Directors of
CTI does not withdraw, modify or materially qualify in any manner adverse to
WAXS its recommendation) in the Registration Statement or the Proxy
Statement/Prospectus, to the extent such information, facts, identity or terms
is required to be disclosed therein under applicable law.
(c) WAXS shall, as promptly as reasonably practicable
following the execution of this Agreement, duly take all lawful action to call,
give notice of, convene and hold a meeting of its stockholders (the "WAXS
Stockholders Meeting") (which meeting the parties intend to be held no later
than 30 days following the date on which the Registration Statement has been
declared effective by the SEC) for the purpose of obtaining the required vote of
its stockholders with respect to the transactions contemplated by this Agreement
and shall take all lawful action to solicit the approval of the transactions
contemplated hereby by the stockholders of WAXS. The Board of Directors of WAXS
shall recommend approval of the transactions contemplated hereby by the
stockholders of WAXS and shall not withdraw, modify or materially qualify in any
manner adverse to CTI such recommendation or take any action or make any
statement in connection with the WAXS Stockholders Meeting materially
inconsistent with such recommendation; provided, however, that the foregoing
shall not prohibit accurate disclosure of factual information regarding the
business, financial condition or operations of WAXS or CTI.
6.2 Access to Information. Upon reasonable notice, each of CTI and
WAXS shall (and shall cause its Subsidiaries to) afford to the officers,
employees, accountants, counsel,
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financial advisors and other representatives of the other parties hereto
reasonable access during normal business hours, during the period prior to the
Effective Time, to all its properties, books, contracts, commitments, records,
officers and employees and, during such period, each of CTI and WAXS shall (and
shall cause its Subsidiaries to) furnish promptly to the other parties hereto
(a) a copy of each report, schedule, registration statement and other document
filed, published, announced or received by it during such period pursuant to the
requirements of federal or state securities laws, as applicable (other than
documents which such party is not permitted to disclose under applicable law),
and (b) consistent with its legal obligations, all other information concerning
it and its business, properties and personnel as such other party may reasonably
request; provided, however, that either CTI or WAXS may restrict the foregoing
access to the extent that any law, treaty, rule or regulation of any
governmental entity applicable to such party requires such party or its
Subsidiaries to restrict access to any properties or information. The parties
will hold any such information which is non-public in confidence to the extent
required by, and in accordance with, the provisions of the Confidentiality
Agreement, dated January 6, 2000, between CTI and WAXS (the "Confidentiality
Agreement"). Any investigation by WAXS or CTI shall not affect the
representations and warranties made herein of CTI or WAXS, as the case may be.
6.3 Reasonable Efforts.
(a) Subject to the terms and conditions of this
Agreement, each party will use reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the Merger and the
other transactions contemplated by this Agreement as soon as practicable after
the date hereof, including (i) preparing and filing as promptly as practicable
all documentation to effect all necessary applications, notices, petitions,
filings, and other documents and to obtain as promptly as practicable all
consents, waivers, licenses, orders, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any governmental entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement and (ii) taking all reasonable steps
as may be necessary to obtain all such material consents, waivers, licenses,
registrations, permits, authorizations, tax rulings, orders and approvals. The
parties each shall keep the other apprised of the status of matters relating to
completion of the transactions contemplated hereby, including promptly
furnishing the other with copies of notices or other communications received by
it or any of its Subsidiaries or affiliates from any governmental entity or
third party with respect to the Merger or any of the other transactions
contemplated by this Agreement, in each case, to the extent permitted by law or
regulation or any applicable confidentiality agreements existing on the date
hereof.
(b) The parties shall promptly prepare and file any
required notifications with the United States Department of Justice (the "DOJ")
and the Federal Trade Commission (the "FTC") as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The parties shall cooperate with each other in connection with the
preparation of such notifications and related matters, including sharing
information concerning sales and ownership and such other information as may be
needed to complete such notification, and
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providing a copy of such notifications to the other prior to filing; provided,
that WAXS and CTI shall have the right to redact any dollar revenue information
from the copies of such notifications provided to the other parties. The parties
shall keep all information about the other obtained in connection with the
preparation of such notification confidential pursuant to the terms of the
Confidentiality Agreement. Each party shall pay the filing fee required under
the regulations promulgated pursuant to the HSR Act with respect for the
notification for which such party is the "Acquiring Person" (as defined in the
regulations promulgated to the HSR Act).
6.4 Acquisition Proposals. Without the prior written consent of
WAXS, pending the Closing, CTI agrees that neither it nor any of its
Subsidiaries shall, and that it shall cause its employees, officers, directors,
affiliates, agents and representatives (including any investment banker,
financial advisor, attorney or accountant retained by any of them) not to,
directly or indirectly, initiate, solicit, encourage or knowingly facilitate
(including by way of furnishing information or engaging in discussions or
negotiations) any inquiries or the making of any proposal or offer with respect
to a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar action
involving CTI, or any purchase or sale of a material portion of the assets of
(including stock of Subsidiaries) of CTI, taken as a whole, or any purchase or
sale of, or tender or exchange offer for, a material portion of the equity
securities of CTI (any such proposal or offer being referred to herein as an
"Acquisition Proposal"). CTI further agrees that neither it nor any of its
Subsidiaries shall, and that it shall cause it and its Subsidiaries' officers,
directors, affiliates, employees, agents and representatives (including any
investment banker, financial advisor, attorney or accountant retained by it or
any of its Subsidiaries) not to, directly or indirectly, have any discussion
with or provide any confidential information or data to any Person relating to
an Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal. CTI agrees that it and
its Subsidiaries will, and will cause its officers, directors, affiliates,
employees, agents and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any parties conducted heretofore with respect to any
Acquisition Proposal. CTI agrees that it will promptly inform its directors,
officers, affiliates, key employees, agents and representatives of the
obligations undertaken in this Section 6.4.
6.5 Fees and Expenses. All Expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such Expenses. As used in this Agreement, "Expenses" includes
all out-of-pocket expenses (including all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a parry hereto and
its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation, negotiation, execution and
performance of this Agreement and the transactions contemplated hereby.
6.6 Public Announcements. Neither WAXS nor CTI shall, without the
prior consent of the other party, issue a press release or any other public
statement with respect to this Agreement or the transactions contemplated hereby
except pursuant to a joint communications plan, unless otherwise required by
applicable law or by obligations pursuant to any listing
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agreement with or rules of any securities exchange, in which case the parties
shall use reasonable efforts to consult with each other before issuing any press
release or otherwise making any public statement with respect to this Agreement
or the transactions contemplated hereby.
6.7 Listing. So long as WAXS Common Stock is quoted on the Nasdaq
or listed on any national securities exchange, WAXS, if permitted by the rules
of such system or exchange, will quote or list and keep quoted or listed on such
system or exchange, all WAXS Common Stock issuable pursuant to Article I hereof.
WAXS shall not voluntarily cause or take any steps to voluntarily cause WAXS
Common Stock to fail to be quoted on the Nasdaq or a national securities
exchange.
6.8 Termination of Tax Sharing Agreements. As of the Effective
Time, CTI shall cause all Tax Sharing Agreements to which CTI or any of its
Subsidiaries is a party to be terminated and of no further force and effect
after the Effective Time, thereby extinguishing any rights or obligations of any
party thereunder.
6.9 Bridge Financing. WAXS agrees to make funds available to
Borrower (as defined in that certain Participation Agreement, of even date
herewith, between Foothill Capital Corporation and WAXS (the "Participation
Agreement")) on and subject to the terms and conditions set forth in the
Participation Agreement.
6.10 Tax Treatment; Plan of Reorganization. This Agreement is
intended to constitute a "plan of reorganization" within the meaning of Treas.
Reg. ss.1.368-2(g). During the period from the date of this Agreement through
the Effective Time, unless the parties shall otherwise agree in writing, none of
WAXS, CTI or any of their respective Subsidiaries shall knowingly take or fail
to take any action which action or failure to act which could reasonably be
expected to cause the Merger to fail to qualify as a "reorganization" within the
meaning of Section 368(a) of the Code. After the Merger and pursuant to the plan
of reorganization set forth in this Agreement, WAXS expects to transfer some or
all of the assets of the Surviving Corporation in a manner permitted under
Section 368(a)(2)(C) of the Code and Treas. Reg. ss.1.368-2(k). WAXS and CTI
agree to treat the Merger as a reorganization within the meaning of Section
368(a) of the Code. To this end, none of WAXS, CTI nor Merger Sub, nor, after
the Merger, the Surviving Corporation will take any position on any federal,
state or local income or franchise Tax Return, or take any other Tax reporting
position that is inconsistent with the treatment of the Merger as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of
the Code, unless otherwise required by a "determination" (as defined in Section
1313(a)(1) of the Code) or by applicable state or local income or franchise Tax
law.
6.11 Directors' and Officers' Indemnification and Insurance.
(a) From the Effective Time through the sixth (6th)
anniversary of the date on which the Effective Time occurs, WAXS shall indemnify
and hold harmless each present (as of the Effective Time) or former officer or
director of CTI and its Subsidiaries (the "Indemnified Parties"), against all
claims, losses, liabilities, damages, judgments, fines and reasonable fees,
costs and expenses, including attorneys' fees and disbursements (collectively,
"Costs"), incurred
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in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to (i) the fact that the Indemnified Party is or was an officer or director of
CTI or any of its Subsidiaries or (ii) matters existing or occurring at or prior
to the Effective Time (including those related to this Agreement and the
transactions and actions contemplated hereby), whether asserted or claimed prior
to, at or after the Effective Time, to the fullest extent permitted under
applicable law; provided that no Indemnified Party may settle any such claim
without the prior approval of WAXS (which approval shall not be unreasonably
withheld or delayed). Each Indemnified Party will be entitled to advancement of
expenses incurred in the defense of any claim, action, suit, proceeding or
investigation from WAXS within ten (10) business days of receipt by WAXS from
the Indemnified Party of a request therefor; provided that any person to whom
expenses are advanced provides an undertaking, to the extent required by the
CGCL, to repay such advances if it is ultimately determined that such person is
not entitled to indemnification.
(b) WAXS shall maintain, at no expense to the
beneficiaries, in effect for six years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by CTI
with respect to matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement); provided that WAXS
may substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less advantageous to any beneficiary
thereof; and provided, further, that in no event shall WAXS be required to pay
annual premiums for such insurance in excess of 125% of the annual premiums
currently paid by CTI for such insurance. Notwithstanding the foregoing, if the
insurance policies that WAXS would be required to maintain pursuant to this
Section 6.11(b) would require the payment of aggregate annual premiums in excess
of 125% of the aggregate annual premiums in effect under such policies of CTI as
of the date hereof (the "CTI Policies"), then WAXS shall be obligated to use
commercially reasonable efforts to obtain and maintain such substitute policies
of insurance as are the best available as to amount and other coverage terms and
conditions for annual premiums equal to 125% of the aggregate annual premiums in
respect of the CTI Policies.
(c) Notwithstanding anything herein to the contrary, if
any claim, action, suit, proceeding or investigation (whether arising before, at
or after the Effective Time) is made against any Indemnified Party, on or prior
to the sixth (6th) anniversary of the Effective Time, the provisions of this
Section 6.11 shall continue in effect until the final disposition of such claim,
action, suit, proceeding or investigation.
(d) The covenants contained in this Section 6.11 are
intended to be for the benefit of, and shall be enforceable by, each of the
Indemnified Parties and their respective heirs and legal representatives and
shall not be deemed exclusive of any other rights to which an Indemnified Party
is entitled, whether pursuant to law, contract or otherwise.
(e) In the event that WAXS or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, proper provision shall be
made
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so that the successors or assigns of WAXS or the purchaser of such properties
and assets shall succeed to the obligations set forth in this Section 6.11.
6.12 Merger Sub Stockholder Resolutions. Pending the Closing, WAXS
shall not rescind or modify in any material respect the Merger Sub Stockholder
Resolutions.
6.13 Compliance with Dissenters' Rights Statute. CTI shall comply
with all procedures and requirements applicable to CTI under Chapter 13 of the
CGCL.
6.14 Good Faith. The parties shall perform and exercise their
respective obligations and rights provided for hereunder in good faith.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of CTI, Merger Sub and WAXS to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) HSR Act. The waiting period (and any extension
thereof) applicable to the Merger under the HSR Act shall have been terminated
or shall have expired.
(b) Stockholder Approval. The stockholders of WAXS shall
have approved this Agreement and the Merger by the Required WAXS Vote and the
stockholders of CTI shall have approved this Agreement and the Merger by the
Required CTI Vote.
(c) Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been initiated
or, to the knowledge of WAXS or CTI, threatened by the SEC.
(d) Escrow Agreement. WAXS, CTI and the Escrow Agent
shall have executed and delivered an escrow agreement in the form attached
hereto as Exhibit A (the "Escrow Agreement").
7.2 Additional Conditions to Obligations of WAXS. The obligations
of WAXS to effect the Merger are subject to the satisfaction of, or waiver by
WAXS, on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of CTI set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to
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the extent that such representations and warranties speak as of another date, in
which case any such representations and warranties shall be true and correct as
of such date), except where any failures to be true and correct would not have a
Material Adverse Effect on WAXS or the Surviving Corporation, and WAXS shall
have received a certificate of the chief executive officer and the chief
financial officer of CTI to such effect.
(b) Performance of Obligations of CTI. CTI shall have
performed or complied in all material respects with all material agreements and
covenants required to be performed by it under this Agreement at or prior to the
Closing Date, and WAXS shall have received a certificate of the chief executive
officer and the chief financial officer of CTI to such effect.
(c) Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any governmental entity required to
consummate the Merger and the other transactions contemplated hereby, or of any
other third party required of CTI or any of its Subsidiaries to consummate the
Merger and the other transactions contemplated hereby shall have been obtained,
except where the failure to obtain any such consent or approval would not have a
Material Adverse Effect on WAXS or the Surviving Corporation; provided, however,
that the provisions of this Section 7.2(c) shall not be available to WAXS if
WAXS's failure to fulfill its obligations pursuant to Section 6.3 shall have
been the cause of, or shall have resulted in, the failure to obtain any such
consent or approval.
(d) No Material Change. CTI and its Subsidiaries, taken
as a whole, shall not have suffered, since the date hereof, a Material Adverse
Effect, other than any change, circumstance or effect relating (i) to the
economy or financial markets in general, or (ii) in general to the industries in
which CTI operates and not specifically relating to CTI.
(e) Opinion of Counsel to CTI. WAXS shall have received
from O'Melveny & Myers LLP an opinion, dated the Closing Date, in the form
attached hereto as Exhibit B.
(f) No Injunctions or Restraints; Illegality. No laws
shall have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
governmental entity of competent jurisdiction shall be in effect (i) having the
effect of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS or
the Surviving Corporation; provided, however, that the provisions of this
Section 7.2(f) shall not be available to WAXS if its failure to fulfill its
obligations pursuant to Section 6.3 shall have been the cause of, or shall have
resulted in any such order or injunction.
(g) Trading Price. The average of the closing prices of
WAXS Common Stock as reported on the Nasdaq for the ten (10) consecutive trading
days ending at the close of trading on the second (2nd) trading day preceding
the Closing shall not be below $15.00.
(h) Dissenters' Rights. CTI shall have complied with all
procedures and requirements applicable to it under Chapter 13 of the CGCL, the
period for exercising dissenters'
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rights pursuant to the CGCL in connection with the Merger shall have expired and
holders of less than one percent (1%) of the shares of CTI Capital Stock issued
and outstanding immediately prior to the Closing shall have exercised such
dissenters' rights, and WAXS shall have received a certificate from an officer
of CTI to all such effects.
(i) Approval of CTI Preferred Stock. All of the shares of
outstanding CTI Preferred Stock shall have been voted in favor of this
Agreement, the Merger and the other transactions contemplated hereby (which vote
shall not have been rescinded or modified in any way) and such shares have been
converted into not more than 8,282,829 shares of CTI Common Stock pursuant to
the terms and conditions of the Certificate of Determination of Preferences of
the CTI Series A Preferred Stock and the CTI Series B Preferred Stock, as
applicable.
7.3 Additional Conditions to Obligations of CTI. The obligations
of CTI to effect the Merger are subject to the satisfaction of, or waiver by
CTI, on or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the
representations and warranties of WAXS set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent that such
representations and warranties speak as of another date, in which case any such
representations and warranties shall be true and correct as of such date),
except where any failures to be true and correct would not have a Material
Adverse Effect on WAXS, and CTI shall have received a certificate of the chief
executive officer and the chief financial officer of WAXS to such effect.
(b) Performance of Obligations of WAXS. WAXS shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date, and CTI shall have received a certificate of the chief executive officer
and the chief financial officer of WAXS to such effect.
(c) Consents and Approvals. All consents, approvals and
actions of, filings with and notices to any governmental entity required to
consummate the Merger and the other transactions contemplated hereby, or of any
other third party required of WAXS or any of its Subsidiaries to consummate the
Merger and the transactions contemplated hereby shall have been obtained, except
where the failure to obtain any such consent or approval would not have a
Material Adverse Effect on WAXS or the Surviving Corporation; provided, however,
that the provisions of this Section 7.3(c) shall not be available to CTI if its
failure to fulfill any of its obligations pursuant to Section 6.3 shall have
been the cause of, or shall have resulted in, the failure to obtain any such
consent or approval.
(d) Opinion of Counsel to WAXS. CTI shall have received
from Long Aldridge & Norman LLP an opinion, dated the Closing Date, in the form
attached hereto as Exhibit C.
(e) [INTENTIONALLY OMITTED.]
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(f) No Injunctions or Restraints; Illegality. No laws
shall have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
governmental entity of competent jurisdiction shall be in effect (i) having the
effect of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would have a material adverse effect on the
business, financial condition or operations of WAXS and its Subsidiaries taken
as a whole; provided, however, that the provisions of this Section 7.3(g) shall
not be available to CTI if its failure to fulfill its obligations pursuant to
Section 6.3 shall have been the cause of, or shall have resulted in any such
order or injunction.
ARTICLE VIII
POST-CLOSING INDEMNIFICATION; SHAREHOLDER REPRESENTATIVE
8.1 Remedies. Subject to the terms of this Article VIII, from and
after the Effective Time, WAXS shall be indemnified and held harmless from and
against any and all claims, losses, liabilities, damages, costs (including court
costs) and expenses (including reasonable attorneys' and accountants' fees)
suffered or incurred by WAXS, its successors or assigns, and their respective
officers, employees, consultants and agents (the "WAXS Protected Parties")
(hereinafter "Loss" or "Losses"), as a result of, or with respect to, (i) except
as otherwise provided in Section 8.2, any breach or inaccuracy of any
representation or warranty of CTI set forth in this Agreement (without regard to
any Material Adverse Effect qualification contained in any such representation
or warranty, except such qualification contained in the representation and
warranty in Section 3.18(a)), whether such breach or inaccuracy exists or is
made on the date of this Agreement or as of the Closing Date; (ii) any breach or
inaccuracy of any representation or warranty of CTI set forth in the
certificates to be provided to WAXS pursuant to Sections 7.2(a) and (b), without
regard to the Material Adverse Effect qualification contained in such
certificate or the underlying representations or warranties referenced therein
(except such qualification contained in the representation and warranty in
Section 3.18(a)); (iii) any breach of or noncompliance by CTI prior to the
Effective Time with any covenant or agreement of CTI contained in this
Agreement; and (iv) any imposition of the suspended $17.6 million fine, or other
monetary penalty, imposed in connection with or related to the matter described
in item 1 of SCHEDULE 3.6, but only to the extent that such imposition arises
out of wrongful acts or omissions of CTI which occur after the effective date of
the order referred to in item 1 of SCHEDULE 3.6 and prior to the Closing Date.
8.2 Indemnity Claims.
(a) Survival. The representations and warranties of CTI
contained herein or in any certificate or other document delivered pursuant
hereto or in connection herewith shall not be extinguished by the Closing but
shall survive the Closing, subject to the limitations set forth in Section
8.2(b) hereof with respect to the time periods within which claims for indemnity
must be asserted, and the covenants and agreements of the parties contained
herein shall survive
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without limitation as to time except as may be otherwise specified herein.
Notwithstanding the foregoing, none of the representations and warranties of CTI
contained in Section 3.16(g) hereof or in the CTI certificate required pursuant
to Section 7.2(a) with respect to Section 3.16(g) hereof shall survive the
Closing and no WAXS Protected Party shall be entitled to indemnification
pursuant to this Article VIII for any breach or alleged breach by CTI of such
representations and warranties. No investigation or other examination of CTI by
WAXS shall affect the term of survival of any representation or warranty
contained herein or in any certificate or other document delivered pursuant
hereto or in connection herewith.
(b) Time to Assert Claims. All claims for indemnification
hereunder shall be asserted no later than one (1) year after the Effective Time
provided; however, that if a notice of claim which conforms, in all material
respects, as to form and substance with the requirements set forth in Section
8.4 is given pursuant to Section 8.4 prior to such one-year anniversary of the
Effective Time, such representation or warranty shall continue indefinitely with
respect to the claims in such notice until such claims are resolved pursuant to
this Article VIII. Nothing herein shall be deemed to prevent a WAXS Protected
Party from making a claim for a Loss hereunder for potential or contingent
claims or demands provided the notice of Loss sets forth the specific basis for
any such potential or contingent claim or demand to the extent then feasible and
the party making the claim has reasonable grounds to believe that such a claim
or demand may become actual.
8.3 Deductible. Notwithstanding any other provision hereof, the
WAXS Protected Parties shall make no claim against CTI for indemnification
hereunder (except pursuant to Section 8.1(a)(iv)) unless and until the amount of
each individual Loss in excess of $150,000 (the "Subdeductible Amount") exceeds
$3,000,000 in the aggregate (the "Deductible Amount"), in which event the WAXS
Protected Parties may claim indemnification for the amount of such Losses (in
each case net of the Subdeductible Amount) in excess of the Deductible Amount.
8.4 Notice of Claim. A WAXS Protected Party shall notify the
Shareholder Representative (as defined in Section 8.7), in writing, of any claim
for indemnification, specifying in reasonable detail the nature of the Loss,
and, if known, the amount, or an estimate of the amount, of the liability
arising therefrom. The WAXS Protected Party shall provide to the Shareholder
Representative as promptly as practicable thereafter such information and
documentation as may be reasonably requested to support and verify the claim
asserted, so long as such disclosure would not violate the attorney-client
privilege of the WAXS Protected Party.
8.5 Defense. If the facts pertaining to a Loss arise out of the
claim of any third party, or if there is any claim against a third party
available by virtue of the circumstances of the Loss, the Shareholder
Representative may assume the defense or the prosecution thereof by prompt
written notice to the WAXS Protected Party, including the employment of counsel
or accountants, at its cost and expense. The WAXS Protected Party shall have the
right to employ counsel separate from counsel employed by the Shareholder
Representative in any such action and to participate therein, but the fees and
expenses of such counsel employed by the WAXS Protected Party shall be at its
expense. The Shareholder Representative shall not be liable for any settlement
of any such claim effected without its prior written consent, which shall not be
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unreasonably withheld or delayed. The Shareholder Representative shall not agree
to a settlement of any claim which provides for any relief, other than the
payment of monetary damages, which would have a material precedential impact or
effect on the business or financial condition of any WAXS Protected Party
without the WAXS Protected Party's prior written consent. Whether or not the
Shareholder Representative chooses to so defend or prosecute such claim, the
parties hereto shall reasonably cooperate in the defense or prosecution thereof
and shall furnish such records, information and testimony, and attend such
conferences, discovery proceedings, hearings, trials and appeals, as may be
reasonably requested in connection therewith. The Shareholder Representative
shall be subrogated to all rights and remedies of any WAXS Protected Party.
8.6 Satisfaction of Obligations. Notwithstanding anything else
herein or otherwise to the contrary (except as set forth in Section 10.1), (i)
the sole remedy of any WAXS Protected Party for any breach by CTI of a
representation or warranty of CTI hereunder shall be the right to receive
indemnification from CTI pursuant to this Article VIII and (ii) the Escrow Fund
shall constitute the WAXS Protected Parties' sole source of recovery for claims
for indemnification arising under this Article VIII, and none of CTI, its
Subsidiaries or any of their respective officers, directors, employees or
shareholders shall have any personal liability whatsoever with respect thereto.
8.7 Shareholder Representative.
(a) Upon approval by the stockholders of CTI of the
Merger, this Agreement and the other transactions contemplated hereby, the
stockholders of CTI will be deemed to have appointed, as of the Effective Time,
Edward S. Soren (the "Shareholder Representative") as their representative under
this Agreement and the Escrow Agreement, including for purposes of the
indemnification obligations set forth in this Article VIII, and as
attorney-in-fact and agent for and on behalf of such CTI stockholders with
authority to take any and all actions and make any and all decisions required or
permitted to be taken or made by them under this Agreement and the Escrow
Agreement (including the settling of claims for indemnity). The Shareholder
Representative shall have full power and authority as agent of the CTI
stockholders to represent the CTI stockholders, and their successors, heirs,
representatives, and assigns with respect to all matters arising under this
Agreement and the Escrow Agreement and any other matters concerning the
transactions contemplated by this Agreement and the Escrow Agreement after the
Closing, and all action taken by the Shareholder Representative shall be binding
upon the CTI stockholders and their successors, heirs, representatives and
assigns as if expressly confirmed and ratified by each of them.
(b) The Shareholder Representative shall act in good
faith in undertaking his duties set forth herein. The Shareholder
Representative, acting in such capacity, shall not incur any liability with
respect to any action or inaction taken by him except those involving his own
willful misconduct or gross negligence. The Shareholder Representative may, in
all questions arising under this Agreement, rely on the advice of counsel and
for anything done, omitted or suffered in good faith by the Shareholder
Representative based on such advice, the Shareholder Representative shall not be
liable to anyone, except to the extent such action or inaction involves
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the Shareholder Representative's own willful misconduct or gross negligence.
Nothing set forth in this Section 8.7(b) shall in any way relieve the
Shareholder Representative in his capacity as a CTI Stockholder of his
obligations under this Article VIII.
(c) In the event of the death or permanent disability of
the Shareholder Representative or his resignation as the Shareholder
Representative, a successor Shareholder Representative shall be appointed by
Roger Abbott. Prompt notice of such appointment shall be delivered in writing by
Roger Abbott to WAXS and the Escrow Agent.
ARTICLE IX
TERMINATION PRIOR TO CLOSING
9.1 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) By mutual written consent of WAXS and CTI;
(b) By either WAXS or CTI, if the other party shall have
failed to comply in any material respect with any of its material covenants or
agreements contained in this Agreement, which failure to so comply has not been
cured within thirty (30) days following receipt by such other party of written
notice of such failure to comply; provided, however, that if any such breach is
curable by the breaching party through the exercise of the breaching party's
reasonable efforts and for so long as the breaching party shall be so using its
reasonable efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph; and provided, further, that
no party shall have the right to terminate this Agreement pursuant to this
Section 9.1(b) if such party is then failing to comply in any material respect
with any of its covenants or agreements contained in this Agreement;
(c) By either WAXS or CTI, if there has been a breach by
the other party of any representations or warranties, which breach has not been
cured within thirty (30) days following receipt by such other party of written
notice of such failure to comply; provided, however, that if any such breach is
curable by the breaching party through the exercise of the breaching party's
reasonable efforts and for so long as the breaching party shall be so using
reasonable efforts to cure such breach, the non-breaching party may not
terminate this Agreement pursuant to this paragraph; and provided further, that
this provision shall only apply to such breaches which would have a Material
Adverse Effect on (i) WAXS (after giving effect to the Merger), (ii) the
Surviving Corporation or (iii) WAXS (after giving effect to the Merger) and the
Surviving Corporation;
(d) By either CTI or WAXS, if the Effective Time shall
not have occurred on or before October 31, 2000 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this Section
9.1(d) shall not be available to any party whose action or failure to fulfill
any obligation under this Agreement has been the cause of, or resulted
52
<PAGE> 53
in, the failure of the Effective Time to occur on or before the Termination Date
and any such action or failure constitutes a breach of this Agreement;
(e) By either CTI or WAXS if any governmental entity (i)
shall have issued an order, decree or ruling or taken any other action (which
the parties shall have used their reasonable efforts to resist, resolve or lift,
as applicable, in accordance with Section 6.3) permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
Agreement, and such order, decree, ruling, or other action shall have become
final and nonappealable or (ii) shall have failed to issue an order, decree or
ruling or to take any other action (which order, decree, ruling or other action
the parties shall have used their reasonable efforts to obtain, in accordance
with Section 6.3), which, in the case of each of (i) and (ii) is necessary to
fulfill the conditions set forth in Section 7.2(f) with respect to WAXS or
Section 7.3(g) with respect to CTI, and such denial of a request to issue such
order, decree, ruling or take such other action shall have become final and
nonappealable; provided, however, that the right to terminate this Agreement
under this Section 9.1(e) shall not be available to any party whose action or
failure to fulfill any obligation under this Agreement has been the cause of
such action or inaction and any such action or failure constitutes a breach of
this Agreement; or
(f) By WAXS or CTI if the adoption of this Agreement by
the stockholders of WAXS or the stockholders of CTI shall not have been obtained
by reason of the failure to obtain the required vote of the WAXS or CTI
stockholders, in each case, upon the taking of such vote.
9.2 Effect of Termination. In the event of any termination of this
Agreement by either CTI or WAXS, as provided in Section 9.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of WAXS or CTI or their respective officers or directors except with
respect to Sections 6.2, 6.5, 6.6, this Section 9.2 and Section 10.7, which
provisions shall survive such termination and except that, notwithstanding
anything to the contrary contained in this Agreement, neither WAXS nor CTI shall
be relieved or released from any liabilities or damages arising out of its
breach of this Agreement.
9.3 Amendment. This Agreement may be amended by CTI and WAXS, by
action taken or authorized by their respective Boards of Directors or
representatives or authorized officers, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of CTI
and WAXS, but, after any such approval, no amendment shall be made which by law
or in accordance with the rules of any relevant stock exchange or automatic
quotations system requires further approval by such stockholders without such
further approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of CTI and WAXS.
9.4 Extension, Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, representatives or authorized officers, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any
53
<PAGE> 54
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party.
The failure of any party to this Agreement to assert any of its rights under
this Agreement or otherwise shall not constitute a waiver of those rights.
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties and Covenants;
Fraud/Misrepresentation. Except as otherwise provided herein, no representation
or warranty of any party made in this Agreement or in any certificate delivered
by such party pursuant hereto shall survive the Closing. Except as otherwise
provided in Section 9.2, all covenants and agreements of the parties hereto
shall survive the Closing. Notwithstanding anything in this Agreement to the
contrary, nothing contained in Article VIII or in any other provision hereof
shall limit, modify or otherwise affect the rights or remedies of WAXS or CTI,
at law or in equity, arising prior to the Effective Time or against any person
or entity for fraud or intentional misrepresentation.
10.2 Entire Agreement. This Agreement (including the Schedules and
Exhibits), the Escrow Agreement and the Confidentiality Agreement constitute the
sole understanding of the parties with respect to the subject matter hereof;
provided, however, that this provision is not intended to abrogate any other
written agreement between the parties executed with or after this Agreement.
10.3 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of WAXS, CTI may not assign its
rights, duties or obligations hereunder or any part thereof to any other person
or entity. WAXS may assign its rights and duties hereunder in whole or in part
(before or after the Effective Time) to one or more affiliates but if it does
so, it shall remain liable for all WAXS' obligations hereunder.
10.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
10.5 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
10.6 Modification and Waiver. Any of the terms or conditions of
this Agreement may be waived in writing at any time by the party which is
entitled to the benefits thereof. No waiver
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<PAGE> 55
of any of the provisions of this Agreement shall be deemed to or shall
constitute a waiver of any other provision hereof (whether or not similar).
10.7 Notices. Any notice, request, instruction or other document to
be given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally (including by overnight courier or express mail
service) or sent by registered or certified mail, postage or fees prepaid,
<TABLE>
<S> <C>
if to CTI to:
WORLDxCHANGE Communications
9999 Willow Creek Road
San Diego, California 92131
Attention: Eric Lipoff, Esq.
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to WAXS to:
World Access, Inc.
945 E. Paces Ferry Road, Suite 2200
Atlanta, Georgia 30326
Attention: W. Tod Chmar
with a copy to:
Long Aldridge & Norman LLP
Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: H. Franklin Layson, Esq.
</TABLE>
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
55
<PAGE> 56
local time of the recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.
10.8 Governing Law. This Agreement is executed by Buyer in, and
shall be construed in accordance with and governed by the laws of the State of
Delaware without giving effect to the principles of conflicts of law thereof.
10.9 No Third-Party Beneficiaries. With the exception of the
parties to this Agreement and the WAXS Protected Parties and the Seller
Protected Parties, there shall exist no right of any person to claim a
beneficial interest in this Agreement or any rights occurring by virtue of this
Agreement.
10.10 "Including." Words of inclusion shall not be construed as
terms of limitation herein, so that references to "included" matters shall be
regarded as non-exclusive, non-characterizing illustrations.
10.11 Schedules and Exhibits. Each of the Schedules and Exhibits
referred to in this Agreement are and shall be incorporated herein and made a
part hereof.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
56
<PAGE> 57
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date indicated on the
first page hereof.
WAXS:
World Access, Inc.
By: /s/ W. Tod Chmar
------------------------------------------
Name: W. Tod Chmar
-------------------------------------
Title: Executive Vice President
------------------------------------
MERGER SUB:
CTI Merger Co.
By: /s/ W. Tod Chmar
------------------------------------------
Name: W. Tod Chmar
-------------------------------------
Title: President
------------------------------------
CTI:
Communication TeleSystems International d/b/a
WORLDxCHANGE Communications
By: /s/ Edward S. Soren
------------------------------------------
Name: Edward S. Soren
-------------------------------------
Title: Executive Vice President
------------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLD ACCESS FOR THE PERIOD ENDED MARCH 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 145,347
<SECURITIES> 43,922
<RECEIVABLES> 284,067
<ALLOWANCES> 24,014
<INVENTORY> 0
<CURRENT-ASSETS> 748,409
<PP&E> 196,119
<DEPRECIATION> 41,869
<TOTAL-ASSETS> 2,048,685
<CURRENT-LIABILITIES> 405,173
<BONDS> 400,533
0
6
<COMMON> 597
<OTHER-SE> 1,228,268
<TOTAL-LIABILITY-AND-EQUITY> 2,048,685
<SALES> 255,541
<TOTAL-REVENUES> 255,541
<CGS> 223,855
<TOTAL-COSTS> 223,855
<OTHER-EXPENSES> 41,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,545
<INCOME-PRETAX> (21,243)
<INCOME-TAX> 3,460
<INCOME-CONTINUING> (17,783)
<DISCONTINUED> (6,374)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,157)
<EPS-BASIC> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
