<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 31, 2000
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
WORLD ACCESS, INC.
(Exact name of Registrant as specified in its charter)
------------------------
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<S> <C> <C>
DELAWARE 3669 58-2398004
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
945 E. PACES FERRY ROAD
SUITE 2200
ATLANTA, GEORGIA 30326
(404) 231-2025
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
BRYAN D. YOKLEY
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
WORLD ACCESS, INC.
945 E. PACES FERRY ROAD
SUITE 2200
ATLANTA, GEORGIA 30326
(404) 231-2025
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF COMMUNICATIONS TO:
LEONARD A. SILVERSTEIN, ESQ.
LONG ALDRIDGE & NORMAN LLP
5300 ONE PEACHTREE CENTER
303 PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201
(404) 527-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon
consummation of the tender offer by World Access for all of the issued and
outstanding shares of stock of TelDaFax Aktiengesellschaft described herein.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE(3)
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Common Stock, $0.01 par value........... 19,873,989 $7.773 $154,480,516.50 $40,782.86
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</TABLE>
(1) Based upon the maximum number of shares of common stock, par value $0.01 per
share, of World Access that may be issued pursuant to the tender offer by
World Access of all of the issued and outstanding shares of stock of
TelDaFax.
(2) Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933,
as amended (the "Act"), the proposed maximum offering price and registration
fee are based upon the average of the high and low price of the TelDaFax
common stock to be received by World Access in the transaction described in
Note 1 above as reported on the Neuer Markt segment of the Frankfurt Stock
Exchange on August 28, 2000. The average of the high and low price of the
TelDaFax common stock was converted from euros to dollars based upon the
noon buying rate in New York for cable transfers in foreign currencies as
certified for customs purposes by The Federal Reserve Bank of New York on
August 28, 2000, which was 0.9002 dollars per one euro.
(3) Pursuant to Rule 457(b) of the Act, the amount of registration fee also
represents the fee payable by the Registrant pursuant to Section 14(g) of
the Securities Exchange Act of 1934, as amended, in connection with the
transaction described in Note 1 above.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
SUBJECT TO COMPLETION, DATED AUGUST 31, 2000
SPECIAL MEETING OF STOCKHOLDERS
BUSINESS COMBINATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The board of directors of World Access, Inc. and the supervisory board of
TelDaFax Aktiengesellschaft have agreed to combine the businesses of World
Access and TelDaFax. Under the TelDaFax purchase agreement, World Access intends
to acquire shares of TelDaFax in five transactions, which are discussed in
detail in the accompanying proxy statement/prospectus. Assuming all of the
outstanding TelDaFax shares are acquired, World Access will issue a total of
approximately 34.7 million shares of its common stock. Your approval of the
TelDaFax transactions constitutes your approval of World Access' issuance of the
shares in the TelDaFax tender offer.
The World Access common stock is traded on the Nasdaq National Market under
the symbol "WAXS." The closing price for the World Access common stock on August
28, 2000 was $9.438 per share. FOR A DISCUSSION OF RISK FACTORS YOU SHOULD
CONSIDER IN EVALUATING THE TELDAFAX TRANSACTIONS, SEE "RISK FACTORS" BEGINNING
ON PAGE 16.
World Access cannot complete the TelDaFax transactions without the approval
of the World Access stockholders. World Access has scheduled a special meeting
for its stockholders to vote on the TelDaFax transactions. A proxy
statement/prospectus accompanies this letter and provides detailed information
about the special meeting and the TelDaFax transactions. In addition, you may
obtain information about World Access from documents it has filed with the
Securities and Exchange Commission. We urge you to read the proxy
statement/prospectus carefully.
The date, time and place of the special meeting is as follows:
, 2000
11:00 a.m., local time
945 E. Paces Ferry Road
Atlanta, Georgia 30326
The World Access board of directors recommends that you vote to approve the
TelDaFax transactions. Whether or not you plan to attend the special meeting in
person, please complete, sign and date the accompanying proxy card and return it
in the enclosed prepaid envelope. Your prompt cooperation will be greatly
appreciated.
/s/ John D. Phillips
John D. Phillips
Chairman and Chief Executive Officer
World Access, Inc.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The proxy statement/prospectus is dated , 2000 and was first
mailed to stockholders on or about , 2000.
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION ABOUT WORLD ACCESS
Federal securities laws require World Access to file information with the
Securities and Exchange Commission concerning its business and operations.
Accordingly, World Access files annual, quarterly and special reports, proxy
statements and other information with the SEC. You can read and copy this
information at the following locations:
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Public Reference Room New York Regional Office Chicago Regional Office
Judiciary Plaza, Seven World Trade Center Northwest Atrium Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Room 1024 New York, New York 10048 Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
</TABLE>
You can get additional information about the operation of the SEC's public
reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also
maintains a web site (http://www.sec.gov) that contains World Access' filings
and the reports, proxy and information statements and other information
regarding other companies. You can also inspect information about World Access
at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C.
20006.
This prospectus is a part of a registration statement that World Access
filed with the SEC and omits certain information contained in the registration
statement as permitted by the SEC. Additional information about World Access and
its common stock is contained in the registration statement on Form S-4 of which
this proxy statement/prospectus forms a part, including certain exhibits and
schedules. You can obtain a copy of the registration statement from the SEC at
the address or Internet site listed above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows World Access and STAR Telecommunications, Inc. to
"incorporate by reference" the information each company files with it, which
means that World Access and STAR can disclose information to you by referring to
those documents. The information incorporated by reference is considered part of
this proxy statement/prospectus, and later information that World Access and
STAR file with the SEC from the date of this proxy statement/prospectus will
automatically update and supersede this information until the date of:
- the World Access special meeting, with respect to the World Access
stockholders, and
- the completion of the purchase of the TelDaFax shares from the Apax
funds, with respect to the Apax funds, and the completion of the TelDaFax
tender offer with respect to the TelDaFax shareholders who receive shares
of World Access common stock in the TelDaFax tender offer.
World Access and STAR incorporate by reference the documents listed below and
any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act prior to the date of the completion of the TelDaFax tender
offer and the purchase of the TelDaFax shares from the Apax funds:
World Access SEC Filings (Commission File No. 0-29782):
- Current Report on Form 8-K filed on June 26, 2000 (event date: June 7,
2000);
- Current Report on Form 8-K filed on June 26, 2000 (event date: June 14,
2000);
- Current Report on Form 8-K filed on April 18, 2000 (event date: April 10,
2000);
- Current Report on Form 8-K filed on March 1, 2000 (event date: February
11, 2000);
- Current Report on Form 8-K filed on March 1, 2000 (event date: February
11, 2000);
- Current Report on Form 8-K filed on February 28, 2000 (event date:
February 11, 2000), as amended by Forms 8-K/A filed on April 26, 2000 and
August 4, 2000;
<PAGE> 4
- Current Report on Form 8-K filed on December 22, 1999 (event date:
December 7, 1999), as amended by Forms 8-K/A filed on February 22, 2000
and August 4, 2000;
- Current Report on Form 8-K filed on February 9, 2000 (event date:
February 2, 2000);
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as
amended by Form 10-Q/A filed on August 4, 2000; and;
- Annual Report on Form 10-K for the fiscal year ended December 31, 1999;
as amended by Form 10-K/A filed on August 4, 2000.
STAR SEC filings (Commission File No. 000-22581):
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000; and
- Annual Report on Form 10-K for fiscal year ended December 31, 1999.
Additional copies of documents incorporated by reference and listed above
may be obtained without charge by writing to the appropriate company. To obtain
copies from World Access, write to Investor Relations, World Access, Inc., 945
E. Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, or by telephone request
to (404) 231-2025. To obtain copies from STAR, write to: Investor Relations,
STAR Telecommunications, Inc., 223 East De La Guerra Street, Santa Barbara,
California 93101, or by telephone request to (805) 899-1962. In order to obtain
the documents in time for the World Access special meeting, you must request the
documents by , 2000, which is five business days prior to the
date of the World Access special meeting.
<PAGE> 5
WORLD ACCESS, INC.
945 E. PACES FERRY ROAD, SUITE 2200
ATLANTA, GEORGIA 30326
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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
---------------------
To the Stockholders of World Access, Inc.:
We have agreed to a business combination with TelDaFax and have scheduled a
special meeting of our stockholders at our principal executive offices located
at 945 E. Paces Ferry Road, Atlanta, Georgia 30326 on , 2000 at 11:00
a.m., local time, for the purposes described below:
1. Proposal 1. To consider and vote upon a proposal to approve the
adoption of a Purchase and Transfer Agreement, dated as of June 14, 2000, by and
among World Access, TelDaFax Aktiengesellschaft, Dr. Henning F. Klose, Apax
Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees
Ltd. fur "D" Account, AP Vermogensverwaltung Gesellschaft burgerlichen Rechts
and A+M GmbH & Co Vermogensverwaltung KG, and the transactions contemplated
thereby.
Under the TelDaFax Purchase Agreement, we intend to acquire shares of
TelDaFax in five transactions:
- Contribution. Under a Contribution/Exchange Agreement, dated August 11,
2000, by and among TelDaFax and Netnet Telekommunikations GmbH and NewTel
Communications GmbH, two of our subsidiaries, after the satisfaction of
the conditions in the contribution agreement, we will contribute the
German operations of Netnet and NewTel to TelDaFax in exchange for
2,546,239 newly issued shares of TelDaFax or such other amount of shares
that is approved by the auditor or court and agreed by the parties;
- Funds Share Purchase. Apax Germany II L.P., Apax Funds Nominees Ltd. fur
"B" Account, Apax Funds Nominees Ltd. fur "D" Account and AP
Vermogensverwaltung Gesellschaft burgerlichen Rechts, collectively
referred to as the Apax funds, have agreed to sell all of the TelDaFax
shares held by them to us. In this purchase, each share of TelDaFax stock
will be exchanged for 1.025 shares of our common stock;
- Klose Share Purchase. From June 14, 2000 until December 31, 2001, Dr.
Henning F. Klose has a right to sell to World Access at Dr. Klose's
option, all shares of TelDaFax stock held by Dr. Klose in up to three
installments. From July 1, 2002 until December 31, 2002, World Access has
a right to purchase from Dr. Klose at its option, all shares of Dr.
Klose's TelDaFax stock. In the Klose share purchase, each share of
TelDaFax stock will be exchanged for a number of shares of our common
stock determined using the same exchange ratio as that used in the
TelDaFax tender offer described below;
- A+M Share Purchase. From the completion of our purchase of the TelDaFax
shares held by the Apax funds until April 30, 2001, A+M GmbH & Co
Vermogensverwaltung KG has a right to sell to us, at A+M's option, all
shares of TelDaFax stock held by A+M. From July 1, 2001 until December
31, 2001, we have a right to purchase from A+M at our option, all shares
of A+M's TelDaFax stock. In the A+M share purchase, each share of
TelDaFax stock will be exchanged for a number of shares of our common
stock determined using the same exchange ratio as that used in the
TelDaFax tender offer described below; and
- Tender Offer. We will conduct a tender offer for all of the issued and
outstanding shares of TelDaFax. In the tender offer, we will offer as
consideration 1.025 shares of our common stock for each share of TelDaFax
stock. We may, at our discretion, adjust the number of shares of our
common stock we will offer as consideration in the TelDaFax tender offer.
<PAGE> 6
2. To transact such other business as may properly come before the special
meeting or any adjournments or postponements thereof.
Copies of the TelDaFax Purchase Agreement and the opinion of Donaldson,
Lufkin & Jenrette Securities Corporation, our financial advisor, are attached as
Annex A and Annex B, respectively, to the accompanying proxy
statement/prospectus.
Only holders of record of our common stock and convertible preferred stock
on , 2000 are entitled to notice of and to vote at the special meeting
and any adjournments or postponements thereof. The TelDaFax transactions require
the approval of a majority in voting power of the shares of our common stock,
Series A preferred stock, Series C preferred stock, Series D preferred stock and
Series E preferred stock entitled to vote and voting together as a single class.
TelDaFax is not asking its stockholders for a proxy, and the TelDaFax
stockholders are requested not to send us a proxy.
All stockholders are cordially invited to attend the special meeting.
However, to ensure your representation at the special meeting, you are urged to
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy at any time before the
vote. If you attend the special meeting in person, you may vote your shares
personally on all matters even if you have previously returned a proxy card. If
you sign, date and mail your proxy card without indicating how you want to vote,
your proxies will vote your shares in favor of adopting the proposal set forth
above. If you do not return your card, the effect will be a vote against the
proposal. If your shares are held in "street name" by your broker or other
nominee, only your broker or nominee can vote your shares. You should follow the
directions provided by your broker or nominee regarding how to instruct them to
vote your shares.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ W. TOD CHMAR
W. Tod Chmar
Executive Vice President and Secretary
<PAGE> 7
TABLE OF CONTENTS
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PAGE
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Currency Presentation and Exchange Rates.................... 1
Questions and Answers About the TelDaFax Transactions....... 2
Summary of the Proxy Statement/Prospectus................... 3
Selected Historical and Pro Forma Financial Information..... 9
Comparative Per Share Data.................................. 14
Risk Factors................................................ 16
Risk factors concerning the combined company in connection
with the mergers....................................... 16
Risk factors concerning the combined company's business
operations............................................. 18
Risk factors concerning the companies' financial
condition.............................................. 20
Risk factors concerning the companies' industry........... 21
Risk factors concerning the combined company's common
stock.................................................. 25
Forward-Looking Statements.................................. 26
Proposal 1 -- The TelDaFax Transactions..................... 27
The TelDaFax transactions................................. 27
Background of the TelDaFax transactions................... 28
World Access' reasons for the TelDaFax transactions....... 28
The World Access board of directors' recommendation that
stockholders approve the TelDaFax transactions......... 29
TelDaFax's reasons for the TelDaFax transactions.......... 29
Opinion of World Access' financial advisor regarding the
purchase of TelDaFax shares from the Apax funds and the
TelDaFax tender offer.................................. 30
Completion of the TelDaFax transactions................... 35
Material U.S. federal income tax consequences of the
TelDaFax transactions.................................. 36
Exchange of TelDaFax stock certificates for World Access
stock certificates..................................... 39
Restrictions on sales of shares by affiliates of World
Access and TelDaFax.................................... 39
Accounting treatment of the TelDaFax transactions......... 40
Regulatory filings and approvals required to complete the
TelDaFax transactions.................................. 40
Stockholders do not have dissenters' rights............... 40
Interests of directors, officers and stockholders in the
TelDaFax transactions.................................. 40
Description of the TelDaFax Purchase Agreement.............. 40
Purchase of the TelDaFax shares that the Apax funds own... 41
Put/call option for shares of Dr. Klose and A+M........... 41
The consideration for the purchase of TelDaFax shares of
the Apax funds and Dr. Klose........................... 41
Tender offer.............................................. 41
Combination of German businesses of World Access and
business of TelDaFax................................... 42
Conditions to the purchase of the TelDaFax shares owned by
the Apax funds......................................... 42
Deliveries at completion of the purchase of the TelDaFax
shares owned by the Apax funds......................... 42
Representations and warranties contained in the TelDaFax
transactions........................................... 43
Remedies for incorrect representations or warranties...... 44
Withdrawal from the TelDaFax purchase agreement........... 45
Restrictions on the transfer of TelDaFax shares owned by
the Apax funds and Dr. Klose........................... 46
Conduct of business until transfer of TelDaFax shares
owned by the Apax funds................................ 46
Service agreement with Dr. Klose and Dr. Klose's agreement
not to compete......................................... 47
Related Transaction Agreements.............................. 47
Contribution agreement.................................... 47
Principal Stockholders of TelDaFax.......................... 48
TelDaFax Market Information................................. 48
Comparative Per Share and Other Market Price Data........... 49
Unaudited Pro Forma Condensed Combined Financial
Statements................................................ 51
</TABLE>
i
<PAGE> 8
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PAGE
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Comparison of Rights of Holders of World Access Common Stock
and TelDaFax Stock........................................ 97
Comparison of authorized and outstanding capital stock.... 97
Comparison of classes of common stock..................... 97
Comparison of requirements for special meeting of
stockholders........................................... 97
Comparison of requirements for action by written consent
in lieu of a stockholders' meeting..................... 98
Comparison of requirements for voting by written ballot... 98
Comparison of record date for determining stockholders.... 98
Comparison of procedures for nomination of directors...... 98
Comparison of number of directors......................... 99
Comparison of classified board of directors............... 99
Comparison of procedures for the removal of directors..... 99
Comparison of board of directors vacancies................ 100
Comparison of notice requirements of special meeting of
the board of directors................................. 100
Comparison of procedures for amendments to the certificate
of incorporation and bylaws............................ 100
Description of World Access' Capital Stock.................. 101
World Access common stock................................. 101
World Access preferred stock.............................. 101
Information Regarding TelDaFax.............................. 105
Regulatory environment.................................... 105
Services provided......................................... 106
Customers................................................. 107
Sales and marketing....................................... 107
TelDaFax Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 109
Overview.................................................. 109
Results of operations..................................... 112
Liquidity and capital resources........................... 114
Foreign currency exposure................................. 115
TelDaFax Selected Consolidated Financial Data............... 115
Information Regarding World Access.......................... 116
Recent developments....................................... 117
Management of World Access After Completion of the TelDaFax
Transactions.............................................. 117
Executive officers........................................ 117
Board of directors........................................ 117
Principal Stockholders of World Access...................... 118
Section 16(a) Beneficial Ownership Reporting Compliance..... 122
Accountants................................................. 122
Experts..................................................... 122
The World Access Special Meeting............................ 124
World Access Stockholder Proposals.......................... 126
Other Matters That May Come Before the World Access Special
Meeting................................................... 126
Legal Matters............................................... 126
Index to Consolidated Financial Statements.................. F-1
</TABLE>
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<PAGE> 9
CURRENCY PRESENTATION AND EXCHANGE RATES
GENERAL
On January 1, 1999, eleven member states of the European Union -- Austria,
Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands,
Portugal and Spain -- introduced the euro ("euro" or "E") as a common legal
currency among those states for "paperless" transactions, pending the
substitution of euro banknotes and coins for the national currencies of the
participating member states. Accordingly, as of January 1, 1999, fixed exchange
rates were introduced, according to which funds denominated in the currency of
one participating member state were converted into the currency of another
participating member state and national currencies were converted into the euro.
These fixed exchange rates do not fluctuate as a result of market conditions. As
a result, the Federal Reserve Bank of New York no longer provides daily "buying
rates" for the national currencies of these eleven member states. Instead, it
provides daily buying rates for the euro, which can then be used to calculate
the value of the eleven national currencies against the U.S. dollar by using the
rate fixed on January 1, 1999. It is anticipated that on July 1, 2002, the euro
will be the official legal tender for the participating member states and that
euro bank notes and coins will be substituted for the national currencies of
those member states which will be withdrawn from circulation.
In this proxy statement/prospectus, currency amounts are expressed in
German marks, euros, or dollars. TelDaFax prepares its financial statements in
German marks. As of January 1, 1999, the official fixed conversion rate for
converting German marks into euro amounts is DM 1.95583 per one euro. For the
convenience of the reader, this proxy statement/prospectus may present
translations into U.S. dollars of German marks and euro amounts. World Access
does not represent that the German marks or euro amounts actually represent
dollar amounts or that it is possible to convert them into dollars at the rates
indicated or at any other rate.
On August 25, 2000, based on the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York, the dollar/euro exchange rate was 0.9024
dollars per one euro. We refer to this rate as the noon buying rate.
HISTORICAL EXCHANGE RATES
The following table sets forth for the years 1995-1998 the high and low
noon buying rates for one German mark expressed in U.S. dollars, and for the
year ended and period ended December 31, 1999 and August 25, 2000, respectively,
the high and low noon buying rates for one euro expressed in U.S. dollars, as
well as the respective average noon buying rates during such periods, and the
respective noon buying rates at the end of such periods, based upon information
provided by The Federal Reserve Bank of New York:
<TABLE>
<CAPTION>
PERIOD
ENDED
AUGUST
YEAR ENDED DECEMBER 31, 25,
------------------------------------------ ------
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ------
(DM) (EURO) (EURO)
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High........................................... 1.5612 1.5655 1.8810 1.8542 1.1812 1.0335
Low............................................ 1.3565 1.4354 1.5413 1.6060 1.0016 0.8891
Average........................................ 1.4261 1.5070 1.7394 1.7588 1.0588 0.9403
Period End..................................... 1.4345 1.5387 1.7991 1.6670 1.0070 0.9024
</TABLE>
As of August 25, 2000, the latest practicable date for which exchange rate
information was available prior to the printing of this document, the noon
buying rate for one euro expressed in U.S. dollars was $0.9024.
1
<PAGE> 10
QUESTIONS AND ANSWERS
ABOUT THE TELDAFAX TRANSACTIONS
Q: WHAT ARE THE TELDAFAX TRANSACTIONS?
A: The board of directors of World Access and the supervisory board of
TelDaFax have voted to combine the businesses of World Access and TelDaFax.
To combine the companies, World Access and TelDaFax have entered into the
TelDaFax purchase agreement under which World Access intends to acquire all
of the outstanding shares of TelDaFax through several integrated
transactions.
Assuming completion of the proposed combinations of World Access with STAR
and WorldxChange, which are discussed below, that World Access pays 100% of
the STAR merger consideration in stock and the acquisition by World Access
of 100% of the outstanding TelDaFax stock in the TelDaFax transactions, the
stockholders of World Access will own approximately 52.3%, the former
stockholders of TelDaFax will own approximately 19.0%, the former
shareholders of WorldxChange will own approximately 16.3%, and the former
stockholders of STAR will own approximately 12.4% in voting power of the
combined companies. If the TelDaFax transactions are completed, but neither
the STAR merger nor the WorldxChange merger is completed, assuming the
acquisition by World Access of 100% of the outstanding TelDaFax stock in
the TelDaFax transactions, the former stockholders of TelDaFax will own
approximately 26.6% in voting power of World Access after the completion of
the transactions.
Q: WHAT ARE THE STAR MERGER AND THE WORLDXCHANGE MERGER?
A: World Access has entered into a merger agreement with each of STAR
Telecommunications, Inc. and Communication TeleSystems International, which
does business as WorldxChange Communications, under which the businesses of
each of these companies will be combined with the business of World Access.
In both of these mergers, which we expect to complete prior to the TelDaFax
transactions, World Access will be the surviving corporation. The STAR
merger and the WorldxChange merger are subject to, among other things, the
approval of the stockholders of World Access. World Access has already
mailed a separate joint proxy statement/prospectus describing these mergers
to its stockholders.
Q: WHAT WILL TELDAFAX STOCKHOLDERS RECEIVE IN THE TELDAFAX TRANSACTIONS?
A: In the TelDaFax tender offer, each TelDaFax stockholder on the TelDaFax
record date will be entitled to exchange each TelDaFax share he or she
holds for 1.025 shares of World Access common stock, subject to adjustment
by World Access. The Apax funds will also receive 1.025 shares of World
Access common stock in exchange for each share of TelDaFax stock they hold.
However, if World Access offers more than 1.025 shares of World Access
common stock for each TelDaFax share in the TelDaFax tender offer, the
exchange ratio for the purchase of the TelDaFax shares from the Apax funds
will be increased to such higher ratio. Assuming a value of $9.00 per share
of World Access common stock and that World Access acquires 100% of the
outstanding TelDaFax stock in the TelDaFax transactions, World Access will
issue a total dollar value of approximately $312.2 million to the TelDaFax
stockholders in consideration in the TelDaFax transactions.
World Access will not issue fractional shares. World Access will issue cash
in lieu of fractional shares based on the market price of World Access
common stock. The following table shows the approximate number of shares of
World Access common stock and amount of cash instead of fractional shares
that a TelDaFax stockholder will receive for TelDaFax common stock tendered
pursuant to the TelDaFax transactions. This table assumes an average
closing price for the World Access common stock of $9.00 for the purpose of
calculating the amount of cash paid instead of fractional shares and the
value of total consideration received.
<TABLE>
<CAPTION>
NUMBER OF SHARES NUMBER OF SHARES VALUE OF
OF TELDAFAX OF WORLD ACCESS CASH TOTAL CONSIDERATION
EXCHANGED STOCK RECEIVED RECEIVED RECEIVED
---------------- ---------------- -------- -------------------
<S> <C> <C> <C>
25 25 $5.63 $230.63
50 51 $2.25 $461.25
100 102 $4.50 $922.50
</TABLE>
2
<PAGE> 11
Q: WHAT SHOULD I DO NOW?
A: If you are a World Access stockholder, you should mail your signed proxy
card in the enclosed return envelope as soon as possible so your shares may
be represented at the World Access special meeting. If you do not include
instructions on how to vote your properly signed proxy, your proxies will
vote your shares for approval of the TelDaFax purchase agreement and the
transactions contemplated by the TelDaFax purchase agreement.
Q: WHAT IF I WANT TO CHANGE MY VOTE?
A: If you are a World Access stockholder and you want to change your vote,
send the secretary of World Access a later-dated, signed proxy card before
the meeting or attend the meeting in person. You may also revoke your proxy
by sending written notice to the secretary of World Access before the
meeting.
Q: WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE EXCHANGE OF MY TELDAFAX
SHARES FOR WORLD ACCESS COMMON STOCK?
A: The receipt of shares of World Access common stock by U.S. holders of
TelDaFax shares in the TelDaFax tender offer and by Apax Germany II L.P.,
in each case in exchange for TelDaFax shares, is a taxable exchange for
U.S. federal income tax purposes upon which gain or loss will be
recognized. The amount of gain or loss, generally capital gain or loss,
that you will recognize will be equal to the difference between the
aggregate fair market value of World Access common stock received,
including in the case of the TelDaFax tender offer, any fractional share
interest in World Access common stock for which cash is received, and your
aggregate tax basis in the TelDaFax shares surrendered in the exchange.
U.S. holders of TelDaFax shares who do not participate in the TelDaFax
tender offer and World Access stockholders will not recognize gain or loss
for U.S. federal income tax purposes as a result of the TelDaFax
transactions.
Q: AM I ENTITLED TO APPRAISAL OR DISSENTERS' RIGHTS?
A: Neither the World Access stockholders nor the TelDaFax stockholders are
entitled to appraisal or dissenters' rights under the applicable laws.
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this document. You should
read carefully this entire document and the other documents we refer to for a
more complete understanding of the TelDaFax transactions. In particular, you
should read the documents attached to this proxy statement/prospectus, including
the TelDaFax purchase agreement, which is attached as Annex A, and the opinion
of Donaldson, Lufkin & Jenrette Securities Corporation, which is attached as
Annex B.
THE COMPANIES
World Access, Inc.
945 E. Paces Ferry Road
Suite 2200
Atlanta, Georgia 30326
(404) 231-2025 World Access transports international long distance
voice, data and Internet traffic for long distance
carriers in the United States and Europe, regional
Bell operating companies, competitive local
exchange carriers, private network operators and
other global carriers. These services are provided
through a combination of owned and leased
switching, fiber and satellite network facilities,
international termination relationships and resale
agreements with other international long distance
providers. Through the acquisition of FaciliCom
International in December 1999 and Netnet
International in February 2000, World Access has
expanded its service offerings to include the sale
of bundled voice, data and Internet services
directly to small and medium sized businesses
located throughout Western Europe.
3
<PAGE> 12
TelDaFax Aktiengesellschaft
Rudolph-Breitscheid- Str.
1-5
35037 Marburg
Tel: 49-6421-181-2002
Fax: 49-6421-181-1210 TelDaFax is a facilities-based provider of bundled
fixed line, wireless, Internet and e-Commerce
services to business and residential customers in
Germany. TelDaFax currently services more than
80,000 small and medium enterprise customers with a
broad range of services, including pre-subscribed
wireline, mobile, Internet access and web hosting,
unified messaging, virtual private networks and
e-Commerce applications. TelDaFax expects to
introduce broadband direct access via SDSL and a
variety of e-Business and application service
provider services during 2000.
In 1999, World Access adopted a strategy designed to build on its
U.S.-based carrier service business and position itself to become a significant
provider of bundled voice, data and Internet services to retail business
customers located in selected European countries. World Access believes that the
European telecommunications market has become extremely fragmented in recent
years due primarily to deregulation and significant forecasted growth. As a
result, World Access expects that a significant consolidation of carriers
operating in Europe will occur in the next few years, not unlike that which
occurred in the United States telecommunications market during the late 1980's
and 1990's. The strategy of World Access is to establish a pan-European
telecommunications network and gain significant market share during this period
of consolidation by playing a leading role in the consolidation of this market.
To execute its strategy, World Access intends to aggressively pursue the
acquisition of businesses, with a particular emphasis on those that provide
retail services to small and medium sized businesses operating in Europe.
To support its retail services strategy, World Access acquired FaciliCom
International in December 1999. FaciliCom has invested in excess of $200.0
million over the past few years to establish an inter-country network in the
U.S. and 13 European countries. Although FaciliCom derived the vast majority of
its revenues from transporting traffic for other carriers, similar to World
Access' base business, FaciliCom's network is readily capable of supporting
retail traffic and related services. This acquisition effectively doubled the
size of World Access' carrier service revenue, provided a significant amount of
European originated revenue and lowered the combined company's costs of
terminating international traffic in Europe.
World Access entered 2000 with an annual revenue base in excess of $1.0
billion, almost all of which relates to transporting traffic for other carriers.
In February 2000, World Access acquired Netnet International, a subsidiary of
Long Distance International. Netnet, which had revenues of approximately $83.0
million in 1999, provides an array of telecommunications services to small- and
medium-sized business customers in Austria, France, Germany, Italy, Norway,
Spain, Sweden, Switzerland and the United Kingdom.
The acquisition of Netnet provided World Access approximately 20,000 retail
customers, an experienced retail sales force and a foundation for the offering
of bundled voice, data and Internet services to its targeted market in Europe.
It also provided World Access with a strong retail trade name, which World
Access currently expects to use for all of its retail product offerings in
Europe. World Access hopes to substantially improve the historical gross margins
realized by Netnet by terminating selected Netnet traffic over the World Access
network and eliminating the costs of redundant network facilities.
With the addition of Netnet, World Access now has an annual revenue base in
excess of $1.1 billion, approximately eight percent of which it derives from
retail services and the remainder of which it derives from its base carriers'
carrier business. Of the total revenue, approximately 60% results from traffic
originated in the United States and 40% from traffic originated in Europe.
In February 2000, World Access entered into agreements to merge with STAR
and WorldxChange. These two companies are expected to increase World Access'
annual revenue base by an additional $1.0 billion, approximately $400.0 million
of which World Access expects to generate from traffic originated in Europe.
After completing these mergers, World Access revenue mix will be approximately
20% retail and 80% carriers' carrier.
In addition to an improved retail/carrier revenue mix, the STAR and
WorldxChange mergers are expected to provide World Access with substantial
benefits in the areas of network coverage, network capacity
4
<PAGE> 13
and reduced operating costs. In combining the networks and operations of all
three companies, World Access expects that there will be redundant switching
equipment, facilities and personnel. World Access expects to eliminate these
redundant assets and significantly reduce the headcount of the combined company
in an effort to realize cost synergies. As a result, World Access expects to
record a one-time restructuring charge upon the completion of the STAR and
WorldxChange mergers. The restructuring charge is expected to include the
write-down of switching and transmission equipment taken out of service, the
write-off of certain leasehold improvements, a provision for lease commitments
remaining on certain facilities and equipment taken out of service, employee
termination benefits and other related costs. Although World Access has not yet
finalized the restructuring program, it is expected to be approved in its final
form and adopted immediately following the mergers. World Access has not yet
determined the actual restructuring charge to be recorded but expects that it
will be significant.
The STAR and WorldxChange mergers will give World Access substantial
operations and network capacity in Germany and the United Kingdom, which
represent the two largest segments of the European telecommunications market.
World Access expects to leverage these operations to further grow its retail
business in these two key countries. WorldxChange has also developed
Internet-based information management systems that incorporate all key aspects
of retail telecommunications services, including billing, fraud protection and
customer care. These information systems are expected to serve as the platform
for supporting all retail operations conducted by World Access in Europe.
Although the STAR and WorldxChange mergers are expected to provide
significant benefits to World Access, they also dramatically increase the
business and financial risks World Access must overcome to execute its strategy.
World Access, STAR and WorldxChange all have a history of significant net
operating losses, and World Access is expected to assume approximately $300.0
million in debt upon the consummation of the two mergers. You should carefully
review the risk factors contained in this proxy statement/prospectus.
The sale of $70.0 million of Series A Preferred Stock, the sale of $158.1
million of common stock in private placement transactions and approximately
$275.0 million of gross cash proceeds from the sale of two equipment businesses
in April 2000 have significantly enhanced the financial strength of World Access
and improved its liquidity. World Access believes that existing cash balances of
approximately $400.0 million, available borrowings under a $100.0 million
revolving bank line of credit and additional cash expected from the sale of
remaining World Access equipment group assets will provide World Access with
sufficient financial resources to support the cash requirements of World Access,
STAR and WorldxChange for at least the next 12 months.
In June 2000, World Access agreed to acquire all or a majority of the
shares of TelDaFax. TelDaFax currently operates nine switches and has 170
interconnection points within Germany. It is also in the process of deploying a
2,800-kilometer fiber optic network between selected German cities that will
provide the foundation for future growth in its service offerings. The TelDaFax
network, together with the existing network assets of World Access and STAR, is
expected to give World Access one of the most extensive telecommunication
networks in Germany. In addition, TelDaFax has a dedicated sales force that
consists of 350 direct sales personnel and over 1,000 non-exclusive sales
agents.
THE TELDAFAX TRANSACTIONS
World Access, TelDaFax, Dr. Klose, the Apax funds and A+M entered into the
TelDaFax purchase agreement on June 14, 2000. Under the TelDaFax purchase
agreement, World Access intends to acquire shares of TelDaFax in the five
transactions described in this proxy statement/prospectus.
World Access and TelDaFax believe the TelDaFax transactions will permit
them to realize several benefits, including:
- enhanced leadership position in German retail international long distance
services;
- advantages of combining TelDaFax's extensive fixed-line network and
attractive German fiber optic network;
5
<PAGE> 14
- enhanced market position in the global telecommunications services
industry;
- potential cost savings in providing global telecommunications services;
and
- potential significant expansion of telecommunications services available
throughout Germany.
There are potential risks to the TelDaFax transactions, including:
- profitability may not be achieved, and World Access will incur
significant transaction expense; and
- government regulatory policies may increase pricing pressures, delay
payments, change foreign currency values and decrease demand for our
services.
The potential benefits to the TelDaFax transactions may not be achieved.
CONDITIONS TO THE PURCHASE OF THE TELDAFAX SHARES OWNED BY THE APAX FUNDS
The respective obligations of World Access and the Apax funds to complete
the sale and purchase of the TelDaFax shares owned by the Apax funds are subject
to the following conditions:
- clearance by the Federal Cartel Office of the transactions contemplated
by the TelDaFax purchase agreement;
- after completion of the TelDaFax tender offer, World Access must own more
than 50% of the shares of TelDaFax, including those TelDaFax shares that
World Access will own upon completion of the purchase of the TelDaFax
shares from the Apax funds and the shares received in exchange for World
Access' contribution of the German operations of Netnet and NewTel;
- the TelDaFax shares that World Access receives in exchange for
contributing the German activities of Netnet and NewTel must be
registered in the German commercial register of TelDaFax;
- no material adverse event has occurred with respect to either World
Access or TelDaFax which gives rise to a party's right to withdraw under
the TelDaFax purchase agreement, and, in such event, no party has
exercised such right to withdraw;
- the TelDaFax purchase agreement and the WorldxChange and STAR merger
agreements must be approved by the requisite vote of the stockholders of
World Access;
- the TelDaFax purchase agreement must not be prohibited by any law or
court order; and
- all material consents and approvals required to complete the purchase of
the TelDaFax shares owned by the Apax funds must be obtained.
If World Access waives any condition, World Access will consider the facts
and circumstances at that time and determine whether a resolicitation of proxies
from its stockholders is appropriate. The World Access board of directors will
resolicit stockholder approval of the TelDaFax transactions if either company
waives a material closing condition that it believes a reasonable investor would
consider important when deciding to approve the TelDaFax transactions.
CONDITIONS TO THE COMPLETION OF THE TELDAFAX TENDER OFFER
World Access cannot complete the TelDaFax tender offer until the following
conditions are met:
- the World Access stockholders must approve the issuance of the shares of
World Access common stock in the TelDaFax tender offer;
- World Access must register the shares of World Access common stock it
will issue in the TelDaFax tender offer under the Securities Act of 1933;
- World Access must list the World Access common stock on the Frankfurt
Stock Exchange; and
- World Access must receive all necessary regulatory approvals required to
complete the TelDaFax tender offer.
6
<PAGE> 15
World Access intends to launch the TelDaFax tender offer before the World
Access special meeting and to complete it no later than 20 business days after
the launch.
Currently, World Access does not have a sufficient number of shares of
common stock authorized for issuance under its amended certificate of
incorporation to complete both the STAR and WorldxChange mergers and the
TelDaFax transactions. The World Access stockholders will vote on a proposal to
increase the number of shares of World Access common stock authorized, which
will provide enough authorized shares of common stock to approve the STAR and
WorldxChange mergers and the TelDaFax transactions at a separate special meeting
scheduled for , 2000. However, if the World Access stockholders
do not approve an increase in the authorized shares, World Access' management
will determine with which transaction(s) World Access will proceed with or if an
alternative structure for one of the transactions is feasible.
FRANKFURT STOCK EXCHANGE LISTING OF WORLD ACCESS
World Access will apply to list the World Access common stock on the
Frankfurt Stock Exchange prior to the World Access special meeting. The
completion of the TelDaFax tender offer is conditioned on this listing.
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the outstanding shares of World Access common
stock, Series A preferred stock, Series C preferred stock, Series D preferred
stock and Series E preferred stock, voting together as a single class, must
approve and adopt the TelDaFax purchase agreement and the transactions
contemplated by the TelDaFax purchase agreement. The shares of World Access
preferred stock are counted on an as-converted to common stock basis. In this
proxy statement/prospectus, we refer to the World Access common stock, the
Series A preferred stock, the Series C preferred stock, the Series D preferred
stock and the Series E preferred stock as the World Access voting stock. World
Access stockholders are entitled to cast one vote per share of World Access
common stock owned or to be received upon the conversion of shares of preferred
stock owned as of the close of business on [ ], 2000, the World Access record
date. Directors and executive officers of World Access collectively beneficially
owned approximately [ %] of the voting power of World Access as of the World
Access record date.
WITHDRAWAL FROM THE TELDAFAX PURCHASE AGREEMENT
World Access, TelDaFax, the Apax funds, including A+M, and Dr. Klose have
the right to withdraw from the TelDaFax purchase agreement prior to the
completion of the purchase and sale of the TelDaFax shares owned by the Apax
funds if:
- the conditions to completing the transactions under the TelDaFax purchase
agreement have not been satisfied by September 30, 2000; however, if all
conditions to completion have been satisfied except the completion of the
TelDaFax tender offer and the approval of the capital increase required
to exchange World Access' contribution of the German activities of Netnet
and NewTel, and the TelDaFax tender offer has been launched, no party may
withdraw before October 31, 2000;
- the supervisory board of TelDaFax does not approve the capital increase
required to exchange the contribution by World Access of the German
activities of Netnet and NewTel;
- the supervisory board of TelDaFax changes its recommendation to outside
stockholders to accept the TelDaFax tender offer; or
- World Access is unable to acquire more than 50% of the shares of TelDaFax
in the TelDaFax tender offer, including the TelDaFax shares World Access
will own upon completion of the purchase of the TelDaFax shares from the
Apax funds and under the TelDaFax contribution agreement, because of the
acquisition by a third party of TelDaFax shares.
7
<PAGE> 16
World Access may also withdraw from the TelDaFax purchase agreement prior
to the completion of the purchase and sale of the TelDaFax shares owned by the
Apax funds if:
- the supervisory board of TelDaFax fails to take any action required to
implement the contribution by World Access of the German activities of
Netnet and NewTel or takes any action which makes such implementation
impossible;
- any of the representations and warranties of the Apax funds are untrue as
of the date the purchase of the TelDaFax shares owned by the Apax funds
is to be completed or, as the case may be, as of any other point in time
specified in a particular representation and warranty, if the breach
constitutes a material adverse event described in the TelDaFax purchase
agreement; or
- upon the occurrence of a material adverse event described in the TelDaFax
purchase agreement.
SERVICE AGREEMENT WITH DR. KLOSE AND DR. KLOSE'S AGREEMENT NOT TO COMPETE
Dr. Klose has agreed to continue to work for TelDaFax under a two-year
fixed-term contract on terms to be agreed upon between World Access and Dr.
Klose prior to the completion of World Access' purchase of the TelDaFax shares
owned by the Apax funds.
For one year after the termination of the respective term of any employment
or service agreement with TelDaFax or any affiliate, Dr. Klose and companies
affiliated with him agree not to engage in any activity, enterprise or company
having activities similar to the telecommunication activities of TelDaFax and
its subsidiaries in the current geographical area of such activities.
OPINION OF WORLD ACCESS' FINANCIAL ADVISOR
In deciding to approve the TelDaFax transactions, World Access' board of
directors considered an opinion from its financial advisor, Donaldson, Lufkin &
Jenrette Securities Corporation, regarding the fairness to World Access, from a
financial point of view, of the consideration to be paid by World Access under
the TelDaFax purchase agreement.
ANTITRUST AND DOMESTIC AND FOREIGN REGULATORY APPROVAL REQUIRED TO COMPLETE THE
TELDAFAX TRANSACTIONS
The TelDaFax transactions are subject to antitrust laws. World Access and
TelDaFax have made the required filings with the German Cartel Office. However,
the companies are not permitted to complete the TelDaFax transactions until the
applicable waiting period has expired or terminated. The German Cartel Office,
as well as other foreign regulatory agencies or governments, state or private
persons, may challenge the TelDaFax transactions at any time before or after
their completion.
COMPARATIVE MARKET PRICE INFORMATION
Shares of World Access common stock are listed on the Nasdaq National
Market. On June 14, 2000, the last full trading day prior to the public
announcement of the proposed TelDaFax transactions, the World Access common
stock closed at $11.3125 per share. We urge you to obtain current market
quotations.
8
<PAGE> 17
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
WORLD ACCESS SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial information for each of the five years in the period
ended December 31, 1999 set forth below has been derived from and should be read
in conjunction with the audited consolidated financial statements of World
Access. The financial information for the six month periods ended June 30, 1999
and 2000 have been derived from unaudited consolidated financial statements of
World Access, which, in the opinion of World Access' management, include all the
significant normal and recurring adjustments necessary for fair presentation of
the financial position and results of operations for such unaudited periods.
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------- ---------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- -------- -------- -------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONTINUING OPERATIONS
DATA(1):
Carrier service revenue............. $ -- $ -- $ -- $ 10,787 $501,081 $198,014 $ 521,000
Gross profit(2)..................... -- -- -- 650 52,776 15,210 71,270
Depreciation and amortization....... 30 71 115 416 13,541 4,597 36,512
Restructuring charge (credit)....... -- -- -- -- 37,800 -- (3,995)
Operating income (loss)............. (880) (1,011) (1,550) (4,383) (26,998) 1,939 (12,585)
Loss from continuing operations..... (1,292) (588) (460) (5,437) (27,098) (1,728) (29,577)
Loss from continuing operations per
share............................. $ (0.14) $ (0.05) $ (0.03) $ (0.25) $ (0.78) $ (0.06) $ (0.53)
Weighted average shares
outstanding....................... 9,083 13,044 17,242 22,073 37,423 36,232 57,658
BALANCE SHEET DATA:
Cash and equivalents................ $ 1,887 $22,480 $118,065 $ 55,176 $147,432 $ 98,996 $ 329,279
Short-term investments.............. -- -- -- -- -- -- 160,211
Working capital..................... 17,884 52,149 206,769 350,816 289,844 180,061 410,422
Total assets........................ 23,604 52,512 207,294 544,649 1,629,804 693,146 2,176,810
Long-term debt...................... 3,750 -- 115,264 137,523 408,338 140,728 417,946
Total liabilities................... 9,270 138 115,539 184,066 732,505 267,354 883,079
Stockholders' equity................ 14,334 52,374 91,755 360,583 897,299 425,792 1,293,731
OTHER FINANCIAL DATA:
EBITDA from continuing operations
before restructuring(3)........... $ (850) $ (940) $ (1,435) $ (3,967) $ 24,343 $ 6,536 $ 19,932
Capital expenditures................ 280 1,176 3,591 12,216 7,198 4,163 12,951
Cash flows from (used by) operating
activities........................ (6,445) 1,995 (1,602) (13,038) 18,515 4,288 (83,053)
Cash flows (used by) investing
activities........................ (2,432) (1,792) (18,240) (66,527) (32,186) (4,102) 176,567
Cash flows from financing
activities........................ 10,010 20,391 115,427 16,676 105,927 43,634 88,333
</TABLE>
---------------
(1) Includes the results of operations for the following businesses from their
respective dates of acquisition: Cherry U.S. and Cherry U.K. -- December
1998; Comm/Net -- May 1999; FaciliCom -- December 1999; and
NETnet -- February 2000.
(2) Gross profit is exclusive of depreciation and amortization related to the
services network which is shown separately below.
(3) EBITDA from continuing operations as used in this proxy statement/prospectus
is earnings (loss) before net interest expense (income), income taxes,
foreign exchange gains or losses, depreciation and amortization and is
presented because World Access believes that such information is commonly
used in the telecommunications industry as one measure of a company's
operating performance and historical ability to service debt. EBITDA from
continuing operations is not determined in accordance with
9
<PAGE> 18
generally accepted accounting principles, is not indicative of cash provided
by operating activities, should not be used as a measure of operating income
and cash flows from operations as determined under generally accepted
accounting principles and should not be considered in isolation, or as an
alternative to, or to be more meaningful than, measures of performance
determined in accordance with generally accepted accounting principles.
EBITDA, as calculated by World Access, may not be comparable to similarly
titled measures reported by other companies and could be misleading unless
all companies and analysts calculated EBITDA in the same manner. The
following table reconciles our loss from continuing operations to EBITDA
from continuing operations and EBITDA from continuing operations before
restructuring charges and credits:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- ------------------
1995 1996 1997 1998 1999 1999 2000
------- ----- ------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Loss from continuing operations... $(1,292) $(588) $ (460) $(5,437) $(27,098) $(1,728) $(29,577)
Net interest expense (income)..... 412 (85) (838) 4,355 9,606 3,443 19,318
Income taxes benefit.............. -- (338) (252) (3,301) (10,126) 224 (2,115)
Foreign exchange (gain) loss...... -- -- -- -- 620 -- 211
Depreciation and amortization..... 30 71 115 416 13,541 4,597 36,512
------- ----- ------- ------- -------- ------- --------
EBITDA from continuing
operations...................... (850) (940) (1,435) (3,967) (13,457) 6,536 15,937
Restructuring charge (credit)..... -- -- -- -- 37,800 -- (3,995)
------- ----- ------- ------- -------- ------- --------
EBITDA from continuing operations
before restructuring............ $ (850) $(940) $(1,435) $(3,967) $ 24,343 $ 6,536 $ 19,932
======= ===== ======= ======= ======== ======= ========
</TABLE>
TELDAFAX SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial information for each of the three years ended
December 31, 1999 set forth below has been derived from and should be read in
conjunction with the audited financial statements of TelDaFax. The financial
information for the six month periods ended June 30, 1999 and 2000 have been
derived from unaudited consolidated financial statements of TelDaFax, which, in
the opinion of TelDaFax's management, include all the significant normal and
recurring adjustments necessary for fair presentation of the financial position
and results of operations for such unaudited periods (in DM thousands, except
share amounts):
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- -----------------------------
1997 1998 1999 1999 2000
--------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... 32,271 263,050 611,018 305,896 307,704
Gross profit................ 1,186 60,691 62,908 57,017 28,097
Sales expenses.............. (3,434) (31,417) (50,716) (26,257) (41,783)
Operating income (loss)..... (6,417) 18,062 (14,365) 23,474 (33,482)
Net income (loss)........... (5,854) 8,774 (5,256) 13,056 (17,848)
Income (loss) per common
share..................... (5.16) 0.45 (0.16) 0.39 (0.53)
Weighted average number of
common shares
outstanding............... 1,133,525 19,296,826 33,828,600 33,828,600 33,828,600
BALANCE SHEET DATA:
Cash and cash equivalents... 7,029 159,011 178,287 45,170 53,882
Working capital............. (8,086) 123,164 69,390 24,632 18,131
Total assets................ 61,885 312,569 455,171 353,459 394,978
Total liabilities........... 41,553 121,234 269,252 49,749 224,936
Shareholders' equity........ 20,332 191,335 186,079 204,390 168,231
</TABLE>
10
<PAGE> 19
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- -----------------------------
1997 1998 1999 1999 2000
--------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(1)................... (1,377) 36,148 19,265 36,764 (8,353)
Net cash provided from (used
by) operating
activities................ 3,409 54,588 89,630 10,731 (80,200)
Capital expenditures........ 30,718 66,146 115,154 29,059 37,790
BUSINESS SEGMENT DATA:
Revenues:
Fixed network............... 32,271 263,050 587,299 305,065 255,275
Mobile...................... -- -- 19,595 -- 48,619
Internet.................... -- -- 4,124 831 3,810
</TABLE>
---------------
(1) EBITDA from continuing operations as used in this proxy statement/prospectus
is earnings (loss) before net interest expense (income), minority interests,
income taxes, depreciation and amortization and is presented because
TelDaFax believes that such information is commonly used in the
telecommunications industry as one measure of a company's operating
performance and historical ability to service debt. EBITDA is not determined
in accordance with generally accepted accounting principles, is not
indicative of cash provided by operating activities, should not be used as a
measure of operating income and cash flows from operations as determined
under generally accepted accounting principles and should not be considered
in isolation, or as an alternative to, or to be more meaningful than,
measures of performance determined in accordance with generally accepted
accounting principles. EBITDA, as calculated by TelDaFax, may not be
comparable to similarly titled measures reported by other companies and
could be misleading unless all companies and analysts calculated EBITDA in
the same manner. The following table reconciles our net income (loss) to
EBITDA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------
1997 1998 1999 1999 2000
------ ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss).................... (5,854) 8,774 (5,256) 13,056 (17,848)
Net interest expense................. 1,104 (425) (764) (1,494) (197)
Minority interests................... -- -- (1,336) (140) (1,746)
Depreciation and amortization........ 5,040 18,086 33,630 13,290 25,129
Income taxes (benefit)............... (1,667) 9,713 (7,009) 12,052 (13,691)
------ ------ ------ ------ -------
EBITDA............................... (1,377) 36,148 19,265 36,764 (8,353)
====== ====== ====== ====== =======
</TABLE>
11
<PAGE> 20
UNAUDITED SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet of World Access as of June
30, 2000 set forth below gives effect to the STAR merger, the WorldxChange
merger, and the TelDaFax transactions. The unaudited selected pro forma
statement of operations data of World Access for the six months ended June 30,
2000 set forth below gives effect to the mergers reflected above and certain
transactions that World Access has completed in 1999, as if consummated at the
beginning of 1999. The selected pro forma information set forth below is
qualified in its entirety by, and should be read in conjunction with, the
Unaudited Pro Forma Condensed Combined Financial Statements included herein and
the historical financial information of World Access, FaciliCom, Comm/Net, LDI,
STAR, WorldxChange and TelDaFax, which, in the case of WorldxChange and
TelDaFax, are included in this document and, in the case of World Access,
FaciliCom, Comm/Net, LDI and STAR, are incorporated herein by reference.
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ------------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS DATA:
Service revenue............................................. $2,554,632 $1,200,144
Operating expenses:
Cost of services(1)......................................... 2,173,494 1,023,555
Selling, general and administrative......................... 496,305 206,939
Depreciation and amortization............................... 202,437 110,495
Merger expense.............................................. 1,867 --
Restructuring and other special charges (credit)............ 44,187 (3,995)
---------- ----------
Total operating expenses.......................... 2,918,290 1,336,994
---------- ----------
Operating loss.................................... (363,658) (136,850)
Interest and other income................................... 19,992 21,568
Interest and other expense.................................. (93,148) (52,708)
Foreign exchange loss....................................... (5,840) 117
---------- ----------
Loss from continuing operations before income
taxes and minority interests.................... (442,654) (167,873)
Provision (benefit) for income taxes........................ (12,177) (10,167)
---------- ----------
Loss from continuing operations before minority
interest.......................................... (430,477) (157,706)
Minority interest........................................... 774 851
---------- ----------
Loss from continuing operations................... (429,703) (156,855)
Preferred stock dividends................................... (847) (1,963)
---------- ----------
Loss from continuing operations available to
common stockholders............................... $ (430,550) $ (158,818)
========== ==========
Loss per share from continuing operations(2)................ $ (2.91) $ (1.03)
========== ==========
Weighted average shares outstanding(2)...................... 147,824 154,848
========== ==========
</TABLE>
---------------
(1) Cost of services is exclusive of depreciation and amortization related to
the services network which is shown separately below.
(2) Loss per share and weighted average shares outstanding are presented on a
diluted basis.
12
<PAGE> 21
<TABLE>
<CAPTION>
AT JUNE 30,
2000
---------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Cash and equivalents........................................ $ 494,484
Short-term investments...................................... 161,967
Restricted cash............................................. 31,095
Accounts receivable......................................... 507,886
Prepaid expenses and other current assets................... 123,705
Net assets held for sale.................................... 41,465
----------
Total Current Assets.............................. 1,360,602
----------
Property and equipment, net................................. 479,439
Goodwill and other intangibles, net......................... 2,329,765
Other assets................................................ 62,892
----------
Total Assets...................................... $4,232,698
==========
Short-term debt............................................. $ 253,507
Accounts payable............................................ 425,732
Other accrued liabilities................................... 502,898
----------
Total Current Liabilities......................... 1,182,137
Long-term debt.............................................. 551,897
Other long-term liabilities................................. 48,974
----------
Total Liabilities................................. 1,783,008
----------
Minority interests.......................................... 888
Stockholders' Equity
Preferred stock............................................. 6
Common stock................................................ 1,571
Additional paid in capital.................................. 2,625,243
Accumulated other comprehensive loss........................ (12,239)
Accumulated deficit......................................... (165,779)
----------
Total Stockholders' Equity........................ 2,448,802
----------
Total Liabilities and Stockholders' Equity........ $4,232,698
==========
</TABLE>
13
<PAGE> 22
COMPARATIVE PER SHARE DATA
(UNAUDITED)
Set forth below are historical loss per share from continuing operations
and book value per common share data of World Access and TelDaFax and the loss
per share from continuing operations and book value per common share data of
World Access on a pro forma basis to give effect to the acquisitions of Comm/Net
in May 1999, FaciliCom in December 1999, Netnet in February 2000 and the pending
acquisitions of STAR, WorldxChange and TelDaFax. No common stock dividends were
paid by World Access during the periods presented below.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- --------------
<S> <C> <C>
World Access -- Historical:
Loss per share from continuing operations:
Basic.................................................. $(0.78) $(0.53)
Diluted................................................ (0.78) (0.53)
Book value per common share(1)............................ 17.15 20.97
World Access -- Pro Forma:
Loss per share from continuing operations(2):
Basic.................................................. $(2.91) $(1.03)
Diluted................................................ (2.91) (1.03)
Book value per common share(3)............................ 18.30
TelDaFax -- Historical(4):
Net loss per share(2):
Basic.................................................. $(0.08) $(0.26)
Diluted................................................ (0.08) (0.26)
Book value per common share(1)............................ 2.82 2.44
TelDaFax -- Equivalent Pro Forma(5):
Net loss per share:
Basic.................................................. $(2.94) $(1.06)
Diluted................................................ (2.94) (1.06)
Book value per common share............................... 18.76
</TABLE>
---------------
(1) Calculated by dividing historical stockholders' equity by the number of
outstanding common shares. The outstanding common shares do not include
shares issuable upon exercise of stock options, stock warrants, conversion
of outstanding convertible securities, or outstanding shares which have
been placed in escrow in connection with previous acquisitions.
(2) Pro forma loss per share from continuing operations is presented on a basic
and diluted basis computed as pro forma loss from continuing operations
divided by the weighted average number of shares outstanding, assuming
shares issued in each of the transactions were outstanding since the
beginning of each period presented. The outstanding common shares do not
include shares issuable upon exercise of stock options, stock warrants, or
conversion of outstanding convertible securities.
(3) Calculated by dividing pro forma stockholders' equity by the number of
outstanding shares of World Access Common Stock expected to be outstanding
as of the consummation of the Mergers, and does not include shares issuable
upon the exercise of stock options, stock warrants, the conversion of
outstanding convertible securities, or outstanding shares which have been
placed in escrow in connection with previous acquisitions.
(4) The following table represents the conversion of TelDaFax's net loss per
share, basic and diluted, and book value per common share for the year
ended and six months ended December 31, 1999 and June 30, 2000,
respectively, from local currency (DM) into U.S. dollars. The U.S. dollar
equivalent
14
<PAGE> 23
was computed by multiplying the deutsche mark amount by 0.5125 and 0.4901,
the exchange rates as of December 31, 1999 and June 30, 2000, respectively.
<TABLE>
<CAPTION>
DM USD
YEAR ENDED EXCHANGE YEAR ENDED
DECEMBER 31, 1999 RATE DECEMBER 31, 2000
----------------- -------- -----------------
<S> <C> <C> <C>
Historical:
Net loss per share:
Basic.............................................. (0.16) 0.5125 $(0.08)
Diluted............................................ (0.16) 0.5125 (0.08)
Book value per common share.......................... 5.50 0.5125 2.82
</TABLE>
<TABLE>
<CAPTION>
DM USD
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000
----------------- -----------------
<S> <C> <C> <C>
Net loss per share:
Basic.............................................. (0.53) 0.4901 $(0.26)
Diluted............................................ (0.53) 0.4901 (0.26)
Book value per common share.......................... 4.97 0.4901 2.44
</TABLE>
(5) Calculated by multiplying the pro forma per share data by the exchange
ratio of 1.025.
15
<PAGE> 24
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this proxy statement/prospectus, you should carefully consider the following
risk factors in deciding whether to approve the TelDaFax purchase agreement and
the transactions contemplated in the TelDaFax purchase agreement. The following
risk factors not only include risks associated with the TelDaFax transactions,
but also include risks associated with the STAR and WorldxChange mergers.
RISK FACTORS CONCERNING THE COMBINED COMPANY IN CONNECTION WITH THE PROPOSED
TRANSACTIONS
THE FAILURE TO SUCCESSFULLY INTEGRATE THE BUSINESSES OF THE FOUR COMPANIES MAY
RESULT IN THE COMBINED COMPANY NOT ACHIEVING ANTICIPATED BENEFITS.
The TelDaFax transactions and the STAR and WorldxChange mergers require the
integration in a timely manner of four companies that previously operated
independently. The companies will have to combine workforces and integrate
offices. The combination of the companies may require some employees to relocate
as part of this process. World Access expects that after the TelDaFax
transactions and the STAR and WorldxChange mergers it will, as a result of the
combined company's increased size and requirements, be able to consolidate its
purchasing and obtain more favorable prices from suppliers. However, the
combined company's ability to do so may be limited by changes in the purchasing
power or practices of its competitors and other market dynamics. The integration
of the networks of TelDaFax, STAR and WorldxChange into the World Access network
will be a complex, time consuming and expensive process that may disrupt the
combined company's business if not completed in a timely and efficient manner.
No assurance can be given that the combined company will be able to successfully
integrate its operations without encountering difficulties or experiencing the
loss of key employees, extended network downtime, or that the cost savings and
synergies expected from integration will be realized. The combined companies may
incur significant expenses in consolidating each company's network and
operations. The consolidation of the companies will require substantial
attention from each company's management. These expenses and the diversion of
management's attention, as well as any difficulties encountered in the
transition and integration process, could have a significant negative effect on
the combined company's revenues, levels of expenses and stock price and could
damage relationships with key customers and employees.
THE COMBINED COMPANY MAY NOT BE ABLE TO ACHIEVE PROFITABILITY.
After giving effect to the STAR and WorldxChange mergers and the TelDaFax
transactions, the combined companies would have had total losses of
approximately $156.9 million from continuing operations for the six months ended
June 30, 2000 and $1.03 loss per diluted share as compared to the $0.77 loss per
diluted share from continuing operations of World Access for the same period on
a stand alone basis. The significance of these losses could cause the combined
company's stock price to drop and prohibit the combined company from achieving
profitability.
THE AMOUNT OF THE COMBINED COMPANY'S INCREASED FINANCIAL LEVERAGE WILL SUBJECT
IT TO SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS.
Immediately after the completion of the TelDaFax transactions and the STAR
and WorldxChange mergers, the combined company will have a higher degree of
financial leverage than prior to the mergers and the TelDaFax transactions. At
June 30, 2000, World Access had a current assets to current liabilities ratio of
1.9, $417.9 million of long-term debt and a total liabilities to equity ratio of
approximately 68.3%. The pro forma balance sheet of World Access at June 30,
2000, reflecting the combination of World Access, TelDaFax, STAR and
WorldxChange, had a current assets to current liabilities ratio of 1.15,
long-term debt of $551.9 million and a total liabilities to equity ratio of
72.8%.
The combined company's indebtedness could have serious negative
consequences. For example, it could:
- limit the combined company's ability to obtain additional financing for
working capital, capital expenditures or other purposes or make it
difficult to obtain such financing on favorable terms;
16
<PAGE> 25
- require the combined company to dedicate a substantial portion of its
cash flow from operations to service payments on its debt, which will
reduce the funds that would otherwise be available for operations and
future business opportunities; and
- make it difficult for the combined company to meet its debt service
requirements or force the combined company to modify its operations if
there is a substantial decrease in operating income and cash flows or an
increase in expenses.
World Access anticipates that the combined company's 2000 debt service
payments will be approximately $415.0 million exclusive of any obligation to
redeem its outstanding debt securities. If the combined company is unable to
generate sufficient cash flow or to otherwise obtain funds necessary to meet its
obligations, or if the combined company does not comply with the various
covenants under its indebtedness, the combined company will be in default under
the terms of that debt. If the combined company defaults, the holders of
indebtedness can accelerate the maturity of the indebtedness that is owed to
them, which could cause defaults under the combined company's other
indebtedness.
IF THE TELDAFAX TRANSACTIONS AND STAR AND WORLDXCHANGE MERGERS ARE APPROVED, THE
VOTING INTERESTS OF CURRENT WORLD ACCESS STOCKHOLDERS WILL BE SUBSTANTIALLY
DILUTED IN THE COMBINED COMPANY DUE TO THE ISSUANCE OF COMMON STOCK TO TELDAFAX,
STAR AND WORLDXCHANGE STOCKHOLDERS.
The completion of the TelDaFax transactions and the STAR and WorldxChange
mergers will result in a substantial dilution of the voting and equity interests
of current World Access stockholders. Following the completion of the TelDaFax
transactions and the STAR and WorldxChange mergers and assuming that World
Access acquires 100% of the outstanding TelDaFax stock and elects to use its
stock as consideration in the STAR merger to the maximum extent possible, the
current World Access stockholders will:
- own shares representing approximately 52.3% of the combined company's
total voting power; and
- own 55.4% of the total number of outstanding shares of the combined
company's common stock on a fully diluted basis.
If only the TelDaFax transactions are completed, the current World Access
stockholders will:
- own shares representing approximately 73.4% of the combined company's
total voting power after completion of the TelDaFax transactions; and
- own 75.7% of the total number of outstanding shares of the combined
company's common stock on a fully diluted basis after completion of the
TelDaFax transactions.
If only the TelDaFax transactions and the STAR merger are completed, the
current World Access stockholders will:
- own shares representing approximately 62.5% of the combined company's
total voting power after completion of the TelDaFax transactions and the
STAR merger; and
- own 65.3% of the total number of outstanding shares of the combined
company's common stock on a fully diluted basis after completion of the
TelDaFax transactions and the STAR merger.
If only the TelDaFax transactions and the WorldxChange merger are
completed, the current World Access stockholders will:
- own shares representing approximately 59.7% of the combined company's
total voting power after completion of the TelDaFax transactions and the
WorldxChange merger; and
17
<PAGE> 26
- own 62.6% of the total number of outstanding shares of the combined
company's common stock on a fully diluted basis after completion of the
TelDaFax transactions and the WorldxChange merger.
DECREASED CASH FLOW MAY LIMIT THE COMBINED COMPANY'S ABILITY TO CONTINUE TO MAKE
CAPITAL EXPENDITURES FOR THE ACQUISITION AND DEVELOPMENT OF ITS INTERNATIONAL
TELECOMMUNICATIONS NETWORK, WHICH IS NECESSARY TO BE COMPETITIVE IN THIS
INDUSTRY.
The combined company will need to continue to enhance and expand its
network and build out its telecommunications network infrastructure in order to
maintain a competitive position and to meet the increasing demands for service
quality, capacity and competitive pricing. The combined company therefore will
need to raise additional capital from equity or debt sources if its cash flow
from operations is insufficient to meet its capital expenditure and working
capital requirements. If the combined company's available cash flow
substantially decreases as a result of lower telecommunications prices or for
other reasons, the combined company may have limited ability to continue to make
capital expenditures for the acquisition and development of its international
telecommunications network. If cash flow from operations is not sufficient to
satisfy the combined company's capital expenditure requirements, additional debt
or equity financing or other sources of capital may not be available to meet the
combined company's requirements.
RISK FACTORS CONCERNING THE COMBINED COMPANY'S BUSINESS OPERATIONS
THE COMBINED COMPANY MAY NOT BE ABLE TO LEASE TRANSMISSION FACILITIES AT
HISTORICAL RATES, WHICH MAY NEGATIVELY IMPACT THE COMBINED COMPANY'S
PROFITABILITY AND CAUSE A LOSS OF CUSTOMERS.
The combined company's future profitability will be based in part upon its
ability to transmit long distance telephone calls over transmission facilities,
also referred to in the industry as network facilities, leased from others on a
cost-effective basis. Also, a substantial portion of the combined company's
transmission capacity will be obtained on a variable, per minute and short-term
basis, subjecting the combined company to the possibility of unanticipated price
increases and service cancellations. Since the combined company will not
generally have long-term arrangements for the purchase or resale of
international long distance services, and since rates fluctuate significantly
over short periods of time, the combined company's gross margins are subject to
significant fluctuations. Competitive pricing pressures for these facilities may
also negatively impact the combined company in the longer term.
IF THE COMBINED COMPANY CANNOT SUCCESSFULLY ENTER THE DATA TRANSMISSION
BUSINESS, IT MAY LOSE CUSTOMERS AND INCUR SIGNIFICANT EXPENSES.
The combined company's experience in providing data transmission services
to date has been limited, and, consequently, the combined company can provide no
assurance that it will be successful in the data transmission business. The
combined company's ability to successfully enter the data transmission business
will depend upon, among other things, its ability to:
- select new equipment and software and integrate these into its network;
- hire and train qualified personnel; and
- enhance its billing, back-office and information systems to accommodate
data transmission services and customer acceptance of its service
offerings.
In providing data transmission services, the combined company will be
dependent upon vendors for assistance in the planning and deployment of its data
product offerings, as well as ongoing training and support. If the combined
company is not successful at entering the data transmission business, it may
suffer a loss of customers and incur significant expenses without any increase
in income to offset such expenses.
18
<PAGE> 27
TECHNICAL DIFFICULTIES WITH OR FAILURES IN THE COMBINED COMPANY'S
TELECOMMUNICATIONS NETWORK COULD RESULT IN DISSATISFIED CUSTOMERS AND LOST
REVENUE.
In Europe, there are a number of different protocols for data transmission.
The combined company's network will need to be able to handle all of these
protocols, which will pose technical difficulties. Technical difficulties with
or failures in the combined company's telecommunications network could result in
dissatisfied customers and lost revenue. For example, a failure in a portion of
the combined company's network could prevent the combined company from
delivering telephone calls initiated by its customers. Additionally, technical
difficulties with the network could cause the loss of call detail record
information, which is the basis for the combined company's ability to process
and substantiate customer billings. Components of each company's networks have
failed in the past, which have resulted in lower billing collections. The
combined company can provide no assurance that similar or other failures or
technical difficulties will not occur in the future, which could result in the
loss of customers and revenue.
WORLD ACCESS MAY NOT BE ABLE TO INCREASE ITS NETWORK CAPACITY TO MEET THE
DEMANDS OF ITS CUSTOMER BASE.
World Access is currently in the process of expanding its network, and as
it expands its network and the volume of its network traffic, its cost of
revenues will increasingly consist of fixed costs arising from the ownership and
maintenance of switches and fiber optic cables. These costs may increase, and
its operating margins may decrease. If its traffic volume were to decrease, or
fail to increase to the extent expected or necessary to make efficient use of
its network, its costs as a percentage of revenues would increase significantly,
which could significantly decrease the revenues of its business operations.
In addition, World Access' business depends in part on its ability to
obtain transmission facilities on a cost-effective basis. World Access may not
be able to obtain sufficient transmission facilities or access to undersea fiber
optic cable on economically viable terms. World Access' failure to obtain
telecommunications facilities that are sufficient to support its network traffic
in a manner that ensures the reliability and quality of its telecommunications
services could increase World Access' operational costs, as well as cause a loss
of customers due to poor quality or unreliable service.
THE COMBINED COMPANY'S BUSINESS IS DEPENDENT UPON THE INTEGRITY AND EXPANSION OF
ITS NETWORK AND TELECOMMUNICATIONS FACILITIES, WHICH PLACES ITS OPERATIONS AT
RISK TO OUTSIDE FORCES BEYOND ITS CONTROL.
Any system or network failure that interrupts the combined company's
operations could cause the loss of customers, a reduction in revenues or a
decrease in the combined company's stock price. The combined company's
operations are dependent on its ability to successfully expand its network and
integrate new and emerging technologies and equipment into its network, which
are likely to increase the risk of system failure and to cause strain upon the
networks. The combined company's operations also depend on its ability to
protect its hardware and other equipment from damage from natural disasters such
as fires, floods, hurricanes and earthquakes, other catastrophic events such as
civil unrest, terrorism and war and other sources of power loss and
telecommunications failures. The combined company cannot be certain that its
switches will not become disabled in the event of an earthquake, power outage or
otherwise. A network failure or a significant decrease in telephone traffic as a
result of a natural or man-made disaster could have a material adverse effect on
the combined company's relationships with its customers, its revenues and its
operating results.
19
<PAGE> 28
THE COMBINED COMPANY MAY BE UNABLE TO MANAGE EFFECTIVELY WORLD ACCESS' RECENT
RAPID GROWTH AND THE RAPID GROWTH PLANNED FOR THE COMBINED COMPANY, WHICH MAY
ADVERSELY AFFECT THE QUALITY OF THE COMBINED COMPANY'S PRODUCTS AND SERVICES AND
ITS ABILITY TO RETAIN KEY PERSONNEL.
World Access' rapid growth from recent acquisitions and the expansion of
its operations has placed significant demands on its resources. In addition,
World Access expects that its expansion into foreign countries will lead to
increased financial and administrative demands, such as:
- increased operational complexity associated with expanded network
facilities;
- administrative burdens associated with managing an increasing number of
foreign subsidiaries and relationships with foreign partners; and
- expanded treasury functions to manage foreign currency risks.
If World Access, and the combined company after the STAR and WorldxChange
mergers and the TelDaFax transactions, is unable to manage its growth
effectively, the quality of its products and services and its ability to retain
key personnel could be adversely affected. To successfully manage its future
growth, World Access must effectively manage its operational, financial and
management information systems, as well as its employees.
RISK FACTORS CONCERNING THE COMPANIES' FINANCIAL CONDITION
WORLD ACCESS MAY SUSTAIN MATERIAL LIABILITY AS A RESULT OF STOCKHOLDER SUITS.
Following World Access' announcement in January 1999 regarding earnings
expectations for the quarter and year ended December 31, 1998 and the subsequent
decline in the price of World Access common stock, a number of stockholders
filed class action complaints against World Access. The plaintiffs allege
violations of the federal securities laws and have requested an unspecified
amount of damages in their complaints and have not quantified their claim at the
time this proxy statement/prospectus was printed. World Access may have to pay
substantial damages if the plaintiffs are successful in their actions.
RESTRICTIONS UNDER THE WORLD ACCESS CREDIT FACILITY MAY REQUIRE WORLD ACCESS TO
MAKE BUSINESS DECISIONS THAT ARE ADVERSE TO WORLD ACCESS' LONG TERM INTERESTS
AND THE INTERESTS OF ITS STOCKHOLDERS.
Restrictions under the World Access $100.0 million revolving line of credit
facility may require World Access to make business decisions that are adverse to
World Access' long term interests and to the interests of the holders of its
common stock. For example, World Access generally must obtain the lenders'
consent and sometimes prepay a portion of the outstanding debt under the credit
facility before it can issue securities, enter into acquisitions for cash or
securities, dispose of its assets or incur additional debt. World Access also
must maintain certain operating ratios and achieve specified financial
thresholds.
Upon a default under World Access' credit facility, the lenders may require
World Access to immediately repay the entire amount outstanding under the credit
facility. If World Access cannot repay these borrowings, it may need to seek the
protection of the federal bankruptcy laws to continue operating its business,
and possibly sell its assets, which would have a material adverse effect on its
business and its relationships with customers, suppliers and employees. Even if
World Access is able to repay all amounts owed under the credit facility, the
payment of the amount outstanding under the credit facility could result in a
loss in liquidity. In addition, in the event of a default under the credit
facility that World Access does not cure, the lenders could foreclose on the
collateral securing the loans, which would result in the lenders owning and
having effective control over World Access' operations and possibly in the sale
of World Access' assets, which would have a material adverse effect on World
Access' business and its relationships with customers, suppliers and employees.
20
<PAGE> 29
WORLD ACCESS RELIES ON WORLDCOM, INC. FOR A SUBSTANTIAL AMOUNT OF ITS GROSS
PROFITS, AND THE TERMINATION OF WORLD ACCESS' CARRIER SERVICE AGREEMENT WITH
WORLDCOM COULD SIGNIFICANTLY DECREASE ITS REVENUES AND GROSS PROFITS.
Under a Carrier Service Agreement, WorldCom is obligated to purchase from
World Access at least $25.0 million a month of carrier services, provided the
services are of acceptable quality and the rates quoted are at least equal to
the rates WorldCom is obtaining from other third party providers. The service
agreement is for a one-year term but automatically renews each month, subject to
a one-year termination notice. World Access recorded approximately $116.0
million of revenue and related gross profit of $45.6 million during the first
six months of 2000. This represented approximately 20.7% and 64.0% of World
Access' total revenue and gross profit, respectively. Termination of the service
agreement, or any reduction in the services provided, could significantly
decrease World Access' revenues and profits, particularly in the carrier
services business.
TELDAFAX HAS BEEN OPERATING IN ITS CURRENT MARKET FOR A SHORT TIME AND HAS
SUFFERED LOSSES.
TelDaFax is a young company which began its essential business activity,
which is public fixed-line voice telephony, only after the full liberalization
of the telecommunications market on January 1, 1998. Therefore, there is very
limited and relatively inconclusive historic financial information on TelDaFax
and its valuation. Given that full business activity started only recently and
in view of the intensive competition in TelDaFax's market environment, there can
be no assurance that TelDaFax will be able to establish itself successfully and
hold its market position.
TelDaFax or its legal predecessor, TelDaFax Telefon, Daten und Fax-Transfer
GmbH & Co. KG, as the case may be, has sustained losses each year except 1998.
In 1998, TelDaFax had profits of DM 8.8 million and had a loss of DM 5.3 million
in 1999 and DM 17.8 million for the six months ended June 30, 2000. Building
TelDaFax's own distribution network and paying sales commissions for
distribution will also burden TelDaFax's results in the future. TelDaFax is
active in a market which is subject to significant competition, pressure on
prices, changes in technology and amendments to the regulatory conditions or
their interpretation. TelDaFax is, therefore, active in a business environment
which involves both opportunities and risks. The ability of TelDaFax to achieve
positive results will, in particular, depend upon TelDaFax winning and retaining
new customers and expanding its reputation.
TELDAFAX'S CUSTOMERS OPERATE UNDER SHORT-TERM CONTRACTS AND DO NOT PROVIDE FOR
EXCLUSIVE CUSTOMER RELATIONSHIPS.
As is customary in this market, TelDaFax operates with contracts which may
be terminated by either party on short notice. Some customers are not
contractually bound at all but decide for each call whether to use the services
of TelDaFax. Customers can, therefore, move to other network operators on short
notice. Furthermore, contracts with customers are not exclusive; as a result,
customers may use the services of other companies even during the term of such
contracts. Because the contracts do not provide for automatic renewal, TelDaFax
is in constant price and service competition with its competitors.
RISK FACTORS CONCERNING THE COMPANIES' INDUSTRY
THE COMPANIES' RELIANCE ON INTERNATIONAL SALES IS SIGNIFICANT AND COULD RESULT
IN LOST REVENUE AND INCREASED COSTS BECAUSE OF INTERNATIONAL REGULATORY CHANGES,
POLITICAL AND ECONOMIC INSTABILITY AND DIFFICULTY IN COLLECTION EFFORTS.
Non-U.S. sales represented approximately 4.8% of World Access' total sales
in the year ended December 31, 1999, 100% of TelDaFax's total sales in the year
ended December 31, 1999, approximately 11.7% of STAR's total sales in the year
ended December 31, 1999 and approximately 25.5% of WorldxChange's total sales in
the year ended December 31, 1999. After the STAR, WorldxChange and
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TelDaFax transactions, World Access intends to increase its international sales.
The companies' international sales are subject to inherent risks, including:
- changes in regulatory requirements, tariffs or other barriers;
- difficulties in staffing and managing foreign operations;
- long payment cycles;
- unstable political and economic environments;
- potentially adverse tax consequences of international tax laws; and
- fluctuations in foreign currency values.
THE COMBINED COMPANY CANNOT ASSURE YOU THAT ITS PLANNED ENTRY INTO THE INTERNET
AND DATA BUSINESS IN EUROPE WILL BE SUCCESSFUL BECAUSE OF THE LEVEL OF
COMPETITION AND THE COMBINED COMPANY'S LACK OF EXPERIENCE IN THIS NEW MARKET.
The market for Internet connectivity and related services is extremely
competitive. The combined company's primary competitors will include other
Internet service providers that have a significant national or international
presence, but soon may also include competition from traditional
telecommunications carriers that expand into the market for Internet services.
Many of these carriers have substantially greater resources, capital and
operational experience than the combined company will have. The combined company
will require substantial additional capital to make investments in its Internet
operations, and may not be able to obtain that capital on favorable terms or at
all.
Even if the combined company is able to establish and expand its Internet
business, it will face numerous risks that may adversely affect the operations
of its Internet business. These risks include:
- competition in the market for Internet services;
- its ability to adapt and react to rapid changes in technology related to
the Internet;
- vulnerability to unauthorized access, computer viruses and other
disruptive problems;
- adverse regulatory developments; and
- difficulties managing the growth of its Internet business, including the
need to enter into agreements with other providers of infrastructure
capacity and equipment and to acquire other Internet service providers
and Internet-related businesses on acceptable terms.
AS THE COMBINED COMPANY EXPANDS ITS FOCUS ON RETAIL CUSTOMERS AND EMERGING
CARRIERS, ITS LEVEL OF UNCOLLECTIBLE DEBT MAY INCREASE.
In the companies' experience, a greater percentage of the revenues
generated by retail customers and from emerging carriers has been uncollectible
as compared to revenues generated by sales to established wholesale carriers and
large international carriers. Therefore, since the percentage of World Access'
revenues after the STAR and WorldxChange mergers and the TelDaFax transactions
derived from retail operations and from sales to emerging carriers will increase
as a result of these transactions, its level of uncollectible debt may increase,
which would result in lower revenues and profits. In addition, the combined
company may expend considerable resources to collect receivables from customers
who fail to make timely payments.
DELAYS AND INCONSISTENCIES IN IMPLEMENTATION OF THE WORLD TRADE ORGANIZATION
AGREEMENT AND OTHER COMPETITIVE DIRECTIVES MAY SLOW DOWN THE RATE OF THE
COMBINED COMPANY'S EXPANSION IN SOME FOREIGN COUNTRIES.
Under the World Trade Organization Agreement, the U.S. and 68 other
countries agreed to open their telecommunications markets to competition and
foreign ownership effective February 5, 1998. These World Trade Organization
member countries, which have increased to 72, represent approximately 90% of
worldwide
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telecommunications traffic. Although the World Trade Organization Agreement has
been implemented, to some degree, by most of the 72 signatory countries, some
signatory countries have not yet fully implemented their World Trade
Organization commitments. The combined company's ability to expand its
operations internationally will be limited if any signatory country to the World
Trade Organization Agreement fails to implement its obligations on a timely
basis.
The national governments of the European Union member states were required
to pass legislation to liberalize the telecommunications markets within their
countries to implement European Commission directives. Most of the member states
have now implemented the required legislation. The legislation and/or its
implementation have, in certain circumstances, imposed significant obstacles on
the ability of carriers to proceed with the licensing process. These barriers
include requirements that carriers:
- post significant bonds or make significant capital commitments to build
infrastructure;
- complete extensive application documentation; and
- pay substantial license fees.
Implementation has also been slow in certain member states as a result of
their failure to dedicate the resources necessary to have a functioning
regulatory body in place. These factors and slow implementation of legislation
in connection with deregulation of telecommunications services could slow down
the combined company's rate of expansion and increase the cost of such
expansion.
GOVERNMENT REGULATORY POLICIES AND INDUSTRY CONSOLIDATION IN EUROPE MAY DECREASE
PROFIT MARGINS AND INCREASE PRICING PRESSURES IN THE COMBINED COMPANY'S INDUSTRY
AND DECREASE DEMAND FOR SERVICES AND PRODUCTS.
The companies expect that government regulatory policies, including the
Telecommunications Act of 1996, are likely to continue to have a major impact on
the pricing of both existing and new public network services and possibly
accelerate the entrance of new competitors and consolidation of the industry. In
addition, industry consolidation, especially in Europe, may decrease profit
margins. These trends may decrease demand for the combined company's services
and products that support these services. Lower prices may affect the cost
effectiveness of the combined company's deployment of public network services.
User uncertainty regarding future policies may also decrease demand for the
combined company's telecommunications products and services.
FOREIGN GOVERNMENTS MAY ATTEMPT TO PREVENT THE COMBINED COMPANY FROM CONDUCTING
ITS BUSINESS AND FROM EXPANDING INTO THE FOREIGN COUNTRY.
Governments of many countries exercise substantial influence over various
aspects of the telecommunications market. In some cases, the government owns or
controls companies that are or may become the combined company's competitors or
on which the combined company may depend for required interconnections to local
telephone networks and other services. Accordingly, government actions in the
future could block or impede the combined company's operation of its business.
World Access desires to expand the combined company's foreign operations as
these markets increasingly permit competition. The nature, extent and timing of
the combined company's foreign operations, however, will be determined, in part,
by the actions taken by foreign governments to permit competition and the
response of incumbent carriers to these efforts. The regulatory authorities in
these countries may not provide the combined company with practical
opportunities to compete in the near future, or at all, and the combined company
may not be able to take advantage of any such liberalization in a timely manner.
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RECENT FEDERAL COMMUNICATIONS COMMISSION ACTIONS MAY ADVERSELY AFFECT THE
COMBINED COMPANY'S OPERATIONS AND REVENUES BY INCREASING COMPETITION, WHICH MAY
INCREASE PRICING PRESSURES AND DECREASE DEMAND FOR THE COMBINED COMPANY'S
SERVICES.
Recent Federal Communications Commission rulemaking orders and other
actions have lowered the entry barriers for new carriers and resale
international carriers by streamlining the processing of new applications and by
eliminating the international settlements policy for arrangements with foreign
carriers that lack market power and on other selected routes. In addition, the
Federal Communications Commission's rules implementing the World Trade
Organization Basic Telecommunications Agreement presume that competition will be
advanced by the U.S. entry of carriers and resale carriers from World Trade
Organization member countries, thus further increasing the number of potential
competitors in the U.S. market and the number of carriers which may also offer
end-to-end services. Increased competition may increase pricing pressures,
reduce the combined company's margins and decrease demand for the combined
company's services.
FEDERAL COMMUNICATIONS COMMISSION INTERVENTION REGARDING THE SETTLEMENT RATES
CHARGED BY FOREIGN CARRIERS MAY DISRUPT THE COMBINED COMPANY'S TRANSMISSION
ARRANGEMENTS TO CERTAIN COUNTRIES AND CAUSE THE COMBINED COMPANY TO SUFFER A
DECREASE IN REVENUES.
The Federal Communications Commission recently has sought to reduce the
foreign routing costs of U.S. international carriers by prescribing maximum or
benchmark settlement rates which foreign carriers may charge U.S. carriers for
routing telecommunications traffic. The Federal Communications Commission's
benchmarks order was recently upheld by the U.S. Court of Appeals for the
District of Columbia circuit. The Federal Communications Commission's action may
reduce the combined company's settlement costs, although the costs of other U.S.
international carriers also may be reduced in a similar fashion. The Federal
Communications Commission has not stated how it will enforce the new settlement
benchmarks if U.S. carriers are unsuccessful in negotiating settlement rates at
or below the prescribed benchmarks. Any future Federal Communications Commission
intervention could disrupt the combined company's transmission arrangements to
certain countries or require the combined company to modify its existing
arrangements, which could cause the combined company to suffer a decrease in
revenues.
A RECENT FEDERAL COMMUNICATIONS COMMISSION ORDER DIRECTING ALL DOMESTIC
INTERSTATE CARRIERS TO DE-TARIFF THEIR SERVICES MAY ADVERSELY AFFECT THE
COMBINED COMPANY'S ABILITY TO COMPETITIVELY PRICE ITS SERVICE OFFERINGS.
The Telecommunications Act of 1996 permits the Federal Communications
Commission to forbear enforcement of tariff provisions, which apply to all
interstate and international carriers, and the U.S. Court of Appeals for the
District of Columbia Circuit recently upheld the Federal Communications
Commission's order directing all domestic interstate carriers to de-tariff their
offerings. The Federal Communications Commission's order only applies to
domestic services. However, the Federal Communications Commission may forbear
its current tariff rules for U.S. international carriers such as the combined
company, or order these carriers to de-tariff their services. Any such Federal
Communications Commission action would likely afford non-dominant international
carriers greater flexibility in pricing service offerings, which would increase
the combined company's competition. The Federal Communications Commission
routinely reviews the contribution rate for various levels of regulatory fees,
including the rate for fees levied to support universal service, which fees may
be increased in the future for various reasons, including the need to support
the universal service programs mandated by the Telecommunications Act of 1996,
the total costs for which are still under review by the Federal Communications
Commission.
DELAYS AND COSTS INCURRED IN ACHIEVING COMPLIANCE WITH GOVERNMENT REGULATIONS
AND EVOLVING INDUSTRY STANDARDS FOR THE COMBINED COMPANY'S PRODUCTS COULD
ADVERSELY AFFECT ITS REVENUES.
If the combined company's products fail to comply with the various existing
and evolving regulations and industry standards or if the combined company
experiences delays and incurs costs in achieving compliance with these
regulations and standards, revenues could materially decrease as a result of the
increased costs. The combined company's products must meet a significant number
of voice and data communications regulations and standards, some of which are
evolving as new technologies are deployed. In the United States, these
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<PAGE> 33
products and services must comply with various regulations promulgated by the
Federal Communications Commission, as well as with standards established by Bell
Communications Research. Internationally, the combined company's products and
services must comply with standards established by telecommunications
authorities in various countries, as well as with recommendations of the
International Telecommunications Union. Any failure to comply with these
standards could result in a material reduction of revenue and a loss of
customers for the combined company.
RISK FACTORS CONCERNING THE COMBINED COMPANY'S COMMON STOCK
SIGNIFICANT VARIANCE IN THE COMBINED COMPANY'S QUARTERLY OPERATING RESULTS COULD
ADVERSELY AFFECT THE PRICE OF THE COMBINED COMPANY'S COMMON STOCK.
In future quarters, the combined company's results of operations may fail
to meet the expectations of market analysts and investors, which may adversely
affect the price of its common stock. World Access' quarterly operating results
have varied significantly in the past, and the combined company's quarterly
operating results are expected to do so in the future. World Access' revenues,
costs and 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 combined company's revenues 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 or
merger;
- the loss of economically beneficial routing options for the termination
of traffic; and
- technical difficulties with or failures of portions of its network that
impact its ability to provide service to or bill customers.
The combined company's cost of services and 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;
- changes in sales incentive plans; and
- costs associated with changes in staffing levels of sales, marketing,
technical support and administrative personnel.
In addition, the combined company's operating results can vary due to
factors such as:
- changes in routing due to variations in the quality of vendor
transmission capability;
- 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 combined company's expansion in
international and retail markets; and
- general domestic and international economic and political conditions.
Further, World Access obtains a substantial portion of its transmission
capacity on a variable, per minute and short-term basis. Therefore, World Access
may experience unanticipated price increases and service cancellations. Since
World Access does not generally have long-term arrangements for the purchase or
resale of long distance services, and since rates fluctuate significantly over
short periods of time, World Access' gross margins may also fluctuate
significantly over short periods of time.
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<PAGE> 34
In response to competitive pressures or new product and service
introductions, the combined company may take certain pricing or marketing
actions that could materially adversely affect its quarterly operating results.
World Access currently bases its expense levels, in part, on its expectations of
future sales. If future sales levels are below expectations, then the combined
company may be unable to adjust spending sufficiently in a timely manner to
compensate for the unexpected sales shortfall.
Accordingly, you should not rely upon period-to-period comparisons of
operating results as an indication of future performance. In addition, the
operating results of any quarterly period are not indicative of results that you
should expect for a full fiscal year. Historically, World Access has generated a
disproportionate amount of its operating revenues toward the end of each
quarter, making precise prediction of revenues and earnings particularly
difficult and resulting in risk of variance of actual results from those
forecast at any time.
WORLD ACCESS' COMMON STOCK PRICE IS VOLATILE.
World Access' common stock price is volatile. The value of the World Access
stock on June 14, 2000, which is the original date the exchange ratio was agreed
upon, was $11.3125 per share. As an example of World Access' stock price
volatility, the following table sets forth the high and low closing sale prices
per share of World Access common stock on the Nasdaq National Market during the
past 12 months.
<TABLE>
<CAPTION>
CLOSING SALE
PRICES PER SHARE
OF WORLD ACCESS
COMMON STOCK
-----------------
MONTH HIGH LOW
----- ------ -----
<S> <C> <C>
August 2000 (through August 25)............................. $10 1/16 $ 8
July 2000................................................... 11 3/8 8 5/8
June 2000................................................... 13 10 3/8
May 2000.................................................... 17 9 1/4
April 2000.................................................. 20 14 1/8
March 2000.................................................. 26 7/8 19
February 2000............................................... 24 3/8 17 3/8
January 2000................................................ 20 11/16 17 1/4
December 1999............................................... 22 15 5/16
November 1999............................................... 17 1/8 12 3/8
October 1999................................................ 13 1/8 11
September 1999.............................................. 13 3/16 10 5/16
</TABLE>
FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated by reference
in this proxy statement/prospectus contain certain information regarding our
plans and strategies 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 proxy statement/prospectus or in the
documents incorporated by reference, the words "may," "could," "should,"
"would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and
similar terms and/or expressions are intended to identify forward-looking
statements. These statements reflect the companies' assessment of a number of
risk and uncertainties, and their actual results could differ materially from
the results anticipated in these forward-looking statements. Important factors
that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include, without
limitation, the issues discussed above in the Risk Factors section. The
companies caution you not to place undue reliance on these forward-looking
statements, which speak only as of the date they were made.
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<PAGE> 35
PROPOSAL 1
THE TELDAFAX TRANSACTIONS
This section of the proxy statement/prospectus describes the proposed
transactions between World Access and TelDaFax. While we believe that the
description covers the material terms of the TelDaFax transactions, this summary
may not contain all of the information that is important to you. You should
carefully read this entire document and the other documents we refer to for a
more complete understanding of the TelDaFax transactions.
THE TELDAFAX TRANSACTIONS
Purchase of the TelDaFax Shares Owned by the Apax Funds. World Access will
purchase all of the outstanding shares of TelDaFax held by the funds advised by
Apax, except the A+M fund, in exchange for shares of World Access common stock.
As of June 14, 2000, the Apax funds, excluding the A+M fund, owned 11,178,176
shares of TelDaFax stock, equal to 33.03% of the outstanding capital stock of
TelDaFax.
A+M is a fund advised by Apax; however, because World Access intends to
purchase the TelDaFax shares of A+M separately pursuant to a put/call
arrangement, all references to "Apax funds" in this summary excludes A+M unless
otherwise noted.
Put/Call Option for Shares of Dr. Klose and A+M. From June 14, 2000 until
December 31, 2001, Dr. Klose has the right to sell to World Access all of the
outstanding shares of TelDaFax held by Dr. Klose in up to three installments.
From July 1, 2002 until December 31, 2002, World Access has the right to buy
from Dr. Klose all of the outstanding shares of TelDaFax owned by Dr. Klose at
the time World Access exercises its right to purchase. As of June 14, 2000, Dr.
Klose owned 2,756,200 shares of TelDaFax stock, equal to 8.15% of the
outstanding capital stock of TelDaFax.
From the completion of the purchase by World Access of the TelDaFax shares
owned by the Apax funds until April 30, 2001, A+M has the right to sell to World
Access all of the outstanding shares of TelDaFax owned by A+M in one
installment. From July 1, 2001 until December 31, 2001, World Access has the
right to buy from A+M all of the outstanding shares owned by A+M. As of June 14,
2000, A+M owned 143,492 shares of TelDaFax stock, equal to 0.42% of the
outstanding capital stock of TelDaFax.
The Consideration for the Purchase of TelDaFax Shares of the Apax Funds and
Dr. Klose. In exchange for each share of TelDaFax common stock purchased by
World Access from the Apax funds, including A+M, and Dr. Klose, World Access
will issue a number of shares of World Access common stock determined using the
same exchange ratio as that used in the TelDaFax tender offer.
Tender Offer. World Access will launch a tender offer for all of the
shares of TelDaFax pursuant to which each share of TelDaFax would receive 1.025
shares of World Access common stock conditioned upon receiving all necessary
approvals and the registration under the Securities Act of the shares of the
World Access common stock to be issued in the TelDaFax tender offer. World
Access may, at its discretion, adjust the number of shares of its common stock
it will offer as consideration in the TelDaFax tender offer. In the TelDaFax
purchase agreement, World Access expressed its intention to comply with the
German Take-Over Code of the Exchange Expert Commission, as amended. World
Access intends to list the World Access common stock, including the World Access
common stock to be issued in the TelDaFax tender offer, on the Frankfurt Stock
Exchange.
Combination of German Businesses of World Access and Business of
TelDaFax. Under the TelDaFax contribution agreement, World Access agreed to
contribute the German activities of two of its subsidiaries, Netnet and NewTel,
to TelDaFax. In exchange, TelDaFax agreed to issue 1,620,334 shares of TelDaFax
to Netnet at a subscription amount of Euro 8.90 per share, for a total value of
Euro 14,420,972.60. TelDaFax agreed to issue 925,905 shares of TelDaFax to
Newtel at a subscription amount of Euro 8.90 per share, for a total value of
Euro 8,240,555.50. If these valuation numbers are not confirmed by either the
auditor or the German court to cover the total contribution amount agreed to by
the parties and the contribution contemplated by the TelDaFax contribution
agreement therefore cannot be completed, the parties agreed to
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<PAGE> 36
negotiate in good faith to enter into a new contribution agreement. Any new
agreement must be substantially in the form of the TelDaFax contribution
agreement, taking into account the opinion of the auditor or the court on the
value of the assets to be contributed or any other circumstance which may have
caused the alteration of the assessment regarding the valuation.
BACKGROUND OF THE TELDAFAX TRANSACTIONS
In March 2000, World Access learned that management of TelDaFax had been
considering alternative strategic partnership opportunities and arranged for a
meeting between World Access and TelDaFax. On March 16, 2000, Clifford S. Rees,
Executive Vice President of International Business Development for World Access,
and Rainer Zettl, German Managing Director for World Access, met with Dr.
Henning Klose, Chief Executive Officer and Chief Financial Officer of TelDaFax,
and Stefan Legner, Chief Technical Officer of TelDaFax, at the TelDaFax
headquarters in Marburg, Germany. The parties discussed the business and
strategies of each of World Access and TelDaFax and the possible synergies that
might be achieved through a strategic transaction. On April 19, 2000, Dr. Klose
and Dr. Martin Halusa, a representative of Apax, met with John D. Phillips,
Chairman and Chief Executive Officer of World Access, W. Tod Chmar, Executive
Vice President of World Access, and Mr. Rees at the World Access headquarters in
Atlanta, Georgia. The parties discussed general parameters for the terms of a
potential strategic transaction. The parties agreed to pursue the combination of
their respective businesses in Germany to realize synergies to the largest
extent practically and legally possible and started to discuss a transaction
between World Access and TelDaFax.
From April 25, 2000 until May 19, 2000, legal and financial advisors for
World Access conducted due diligence investigations of TelDaFax at the TelDaFax
offices in Frankfurt, Germany and Marburg, Germany. From May 22, 2000 until May
25, 2000, Mr. Chmar and the World Access financial and legal advisors negotiated
with representatives of TelDaFax regarding the terms of a transaction between
World Access and TelDaFax. These negotiations continued from June 12, 2000 until
June 14, 2000. On June 14, 2000, the parties entered into the TelDaFax purchase
agreement.
WORLD ACCESS' REASONS FOR THE TELDAFAX TRANSACTIONS
In deciding to approve the TelDaFax purchase agreement and the TelDaFax
transactions and to recommend approval and adoption of the TelDaFax purchase
agreement by the World Access stockholders, the World Access board of directors
considered the material factors listed below. In view of the number and wide
variety of factors considered in connection with its evaluation of the TelDaFax
purchase agreement, the board of directors did not consider it practicable to,
nor did it attempt to, quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination. The World Access
board of directors viewed its position and recommendation as being based on the
totality of the information and factors presented to and considered by it. In
addition, individual directors may have given different weight to different
information and factors.
- The Financial Terms of the TelDaFax Purchase Agreement. The World Access
board of directors considered information concerning the business,
earnings, operations, financial condition and prospects of World Access
and TelDaFax, individually, on a combined basis, and in conjunction with
the STAR and WorldxChange mergers. The board determined to approve the
TelDaFax purchase agreement and the TelDaFax transactions based on its
consideration of these factors, without taking into account the STAR and
WorldxChange mergers. The board of directors also considered the opinion
of Donaldson, Lufkin & Jenrette Securities Corporation as to the fairness
to World Access, from a financial point of view, of the consideration to
be paid by World Access under the TelDaFax purchase agreement. The
directors also considered their own knowledge of World Access and TelDaFax
and their respective businesses.
- German Retail International Long Distance Services. The World Access
board of directors considered TelDaFax's strong retail international
long-distance services. TelDaFax currently sells approximately 13 million
call minutes a day, making it the second largest non-incumbent telephone
carrier by volume in Germany.
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<PAGE> 37
- TelDaFax's Extensive German Fixed-line Network and Fiber Optic
Network. The World Access board of directors considered the advantages
of combining TelDaFax's current fixed-line network, which includes nine
switches and 170 interconnection points. TelDaFax has invested
approximately $35.0 million in its fixed-line network. Additionally,
TelDaFax has an attractive German fiber optic network. TelDaFax intends
to have a 1,700 mile fiber optic network operative in the third quarter
of fiscal year 2000 and has invested approximately $10.0 million in the
fiber optic network.
- Industry Trend Toward Consolidation. The World Access board of directors
considered the status of the international telecommunications services
industry and the likely trend toward consolidation of service providers.
It also considered the importance of market position in the global
telecommunications services industry. The World Access board of directors
considered the potential significant cost savings to be achieved as a
result of the TelDaFax purchase agreement and the TelDaFax transactions
in providing global telecommunications services.
- TelDaFax's Strong Growth Among Business Customers. The World Access
board of directors considered the compatibility of TelDaFax's established
customer base with World Access' existing customer base. Of particular
importance was the fact that TelDaFax has more than 80,000 business
customers, which has grown from fewer than 25,000 in the beginning of
1999.
- Ability to Accelerate Plans to Become a Leading Provider of Bundled
Voice, Data and Internet Services to Key International Markets. The
World Access board of directors considered the additional services
offered by TelDaFax, which would be made available to current and future
customers of World Access. Specifically, the board of directors
considered the significant expansion of telecommunications services
available throughout Germany and the potential positioning of World
Access as one of the top telecommunications companies in Germany.
THE WORLD ACCESS BOARD OF DIRECTORS' RECOMMENDATION THAT STOCKHOLDERS APPROVE
THE TELDAFAX TRANSACTIONS
The World Access board of directors has carefully considered the
advisability of the TelDaFax purchase agreement and the TelDaFax transactions
and believes that the terms of the TelDaFax purchase agreement and these
transactions are fair to and in the best interests of the stockholders of World
Access. The board of directors of World Access has unanimously approved the
TelDaFax purchase agreement and these transactions and unanimously recommends
that the stockholders of World Access vote for the approval and adoption of the
TelDaFax purchase agreement and these transactions.
TELDAFAX'S REASONS FOR THE TELDAFAX TRANSACTIONS
The TelDaFax board of directors believes that the TelDaFax transactions are
fair to and in the best interests of TelDaFax's stockholders for the following
reasons:
- Consideration to be Paid by World Access. The TelDaFax transactions
provide the TelDaFax stockholders with an amount of World Access shares
which based on the World Access share price at the time the TelDaFax
purchase agreement was signed, represented a premium over the most recent
price at which TelDaFax sold shares of its capital stock; and
- Potential Growth of World Access. TelDaFax stockholders will be able to
participate in the potential growth of World Access' business after the
TelDaFax transactions and to benefit from the potential appreciation in
the value of World Access common stock.
In preparing its decision to approve the TelDaFax purchase agreement and
the proposed TelDaFax transactions, the TelDaFax board consulted with TelDaFax
management and its advisors and considered a number of factors, including:
- historical information concerning World Access' and TelDaFax's respective
business, financial performance and condition, operations, management and
competitive position;
- TelDaFax management's assessment of the business and financial prospects
of World Access following the TelDaFax transactions. In this regard, the
TelDaFax board considered financial market and
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<PAGE> 38
industry conditions and the potential synergies and opportunities for growth
inherent in a combined company. In light of these factors, the TelDaFax board
concluded that the long-term business and financial prospects of a combined
company were superior to those of TelDaFax as an independent company;
- the terms and conditions of the TelDaFax purchase agreement, which the
TelDaFax board believes to be fair, and in the best interests of, the
TelDaFax stockholders;
- TelDaFax's prior experience with other potential acquirors or strategic
partners;
- the ability of TelDaFax, as an independent company, to meet its near- and
longer-term operating cash needs and fund capital expenditures necessary
to achieve future growth;
- the current and historical market prices and trading information with
respect to World Access' common stock; and
- the impact of the TelDaFax transactions on TelDaFax's customers and
employees.
The TelDaFax board also considered certain potentially negative factors in
assessing the proposed TelDaFax transactions. These factors include:
- the risk that the value of World Access' common stock to be received in
the TelDaFax transactions would be less than the value of the World
Access common stock reflected by the exchange ratio in the TelDaFax
purchase agreement due to potential declines in the trading price of
World Access' shares;
- the risk that the TelDaFax transactions will not be completed in a timely
manner or at all and the effect of the public announcement on TelDaFax's
ability to attract and retain key employees; and
- the risk that a strategic alternative more favorable to the TelDaFax
transactions will be presented or become available to TelDaFax prior to
the completion of the TelDaFax transactions, which alternative TelDaFax
would be prohibited from pursuing under the terms of the TelDaFax
purchase agreement.
These factors are not intended to present an exhaustive list of all of the
factors considered by the TelDaFax board. However, they are believed to include
all of the material factors considered. In light of the variety of factors
considered, the TelDaFax board did not find it practicable to, and did not,
quantify or otherwise assign relative weight to any one or more of the factors
it considered in reaching its determination. In addition, individual TelDaFax
directors may have given different weights to different factors. Based on all of
the above factors and considerations, the TelDaFax board concluded that the
TelDaFax transactions were advisable, fair to, and in the best interests of
TelDaFax and its stockholders and that TelDaFax should proceed with the TelDaFax
transactions.
OPINION OF WORLD ACCESS' FINANCIAL ADVISOR REGARDING THE PURCHASE OF TELDAFAX
SHARES FROM THE APAX FUNDS AND THE TELDAFAX TENDER OFFER
World Access asked Donaldson, Lufkin & Jenrette, in its role as financial
advisor to World Access, to render an opinion to the World Access board as to
the fairness, from a financial point of view, to World Access of the
consideration to be paid by World Access in the purchase of TelDaFax shares from
the Apax funds and the TelDaFax tender offer. On June 13, 2000, Donaldson,
Lufkin & Jenrette delivered to the World Access board its opinion, subsequently
confirmed in writing on June 14, 2000, to the effect that, as of the date of its
opinion, based on and subject to the assumptions, limitations and qualifications
set forth in its written opinion, the consideration to be paid by World Access
in the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender
offer was fair to World Access and its stockholders from a financial point of
view. The full text of Donaldson, Lufkin & Jenrette's opinion is attached as
Appendix B to this proxy statement/prospectus.
Donaldson, Lufkin & Jenrette expressed no opinion as to the prices at which
World Access common stock would actually trade at any time. Donaldson, Lufkin &
Jenrette's opinion did not address the relative merits of the Purchase of
TelDaFax shares from the Apax funds, the TelDaFax tender offer and the other
transactions contemplated by the TelDaFax purchase agreement and the other
business strategies considered
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<PAGE> 39
by the World Access board nor did it address the World Access board's decision
to proceed with the purchase of TelDaFax shares from the Apax funds, the
TelDaFax tender offer and the other transactions contemplated by the TelDaFax
purchase agreement. Donaldson, Lufkin & Jenrette's opinion also does not address
the consideration to be paid by World Access upon exercise of the put/call
option to purchase the TelDaFax shares owned by Dr. Klose and A+M or the terms
of the contribution by World Access for the Netnet and NewTel businesses in
exchange for newly issued TelDaFax shares. Donaldson, Lufkin & Jenrette's
opinion did not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transactions or whether any stockholder
should tender shares in the TelDaFax tender offer.
World Access and TelDaFax determined the consideration to be paid by World
Access in the purchase of TelDaFax shares from the Apax funds and the TelDaFax
tender offer in arm's length negotiations, in which Donaldson, Lufkin & Jenrette
advised World Access.
World Access selected Donaldson, Lufkin & Jenrette as its financial advisor
because Donaldson, Lufkin & Jenrette is an internationally recognized investment
banking firm that has substantial experience providing strategic advisory
services. Donaldson, Lufkin & Jenrette was not retained as an advisor or agent
to the stockholders of World Access or any other person. As part of its
investment banking business, Donaldson, Lufkin & Jenrette is regularly engaged
in the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
World Access did not impose any restrictions or limitations upon Donaldson,
Lufkin & Jenrette with respect to the investigations made or the procedures
followed by Donaldson, Lufkin & Jenrette in rendering its opinion. In arriving
at its opinion, Donaldson, Lufkin & Jenrette:
- reviewed the TelDaFax purchase agreement;
- reviewed financial and other information that was publicly available or
furnished to it by World Access and TelDaFax, including information
provided during discussions with their respective managements. Included
in the information provided during discussions with the respective
managements were certain financial projections of TelDaFax for the period
beginning April 1, 2000, and ending December 31, 2001 prepared by the
management of TelDaFax and for the period beginning January 1, 2002 and
ending December 31, 2004 prepared by the management of World Access, as
well as certain financial projections of World Access for the period
beginning April 1, 2000 and ending December 31, 2004 prepared by the
management of World Access;
- compared certain financial and securities data of TelDaFax and World
Access with various other companies whose securities are traded in public
markets;
- reviewed the historical stock prices and trading volumes of the common
stock of TelDaFax and World Access;
- reviewed prices and premiums paid in certain other business combinations;
and
- conducted other financial studies, analyses and investigations as
Donaldson, Lufkin & Jenrette deemed appropriate for purposes of rendering
its opinion.
In rendering its opinion, Donaldson, Lufkin & Jenrette relied upon and
assumed the accuracy and completeness of all of the financial and other
information that was available to it from public sources, that was provided to
it by World Access and TelDaFax or their respective representatives, or that
Donaldson, Lufkin & Jenrette otherwise reviewed. With respect to the financial
projections supplied to Donaldson, Lufkin & Jenrette, Donaldson, Lufkin &
Jenrette relied on representations that the projections were reasonably prepared
on the basis reflecting the best currently available estimates and judgments of
the management of World Access and TelDaFax as to the future operating and
financial performance of World Access and TelDaFax. In addition, Donaldson,
Lufkin & Jenrette assumed that:
- the TelDaFax common stock is tendered in the TelDaFax tender offer for
consideration equal to 1.025 shares of World Access common stock for each
share of TelDaFax common stock;
- the pending mergers of World Access with STAR and with WorldxChange are
completed;
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<PAGE> 40
- upon such completion, the German businesses of STAR and WorldxChange are
integrated through consolidation or by contract with TelDaFax; and
- the contribution under the TelDaFax contribution agreement is completed
and the German assets of World Access that are contributed include at
least the German businesses of Netnet and NewTel.
Donaldson, Lufkin & Jenrette has also relied upon the estimates of the
management of World Access of the operating synergies achievable as a result of
the completion of the contribution and the combination of TelDaFax with the
German businesses of STAR and WorldxChange and upon its discussions of such
synergies with management of TelDaFax. Donaldson, Lufkin & Jenrette expressed no
opinion with respect to these projections and estimates or the assumptions upon
which they were based. Donaldson, Lufkin & Jenrette did not assume
responsibility for making any independent evaluation of the assets or
liabilities, or for making any independent verification of the information it
reviewed.
Donaldson, Lufkin & Jenrette necessarily based its opinion on economic,
market, financial and other conditions as they existed on, and on the
information made available to Donaldson, Lufkin & Jenrette as of, the date of
its opinion. Donaldson, Lufkin & Jenrette states in its opinion that, although
subsequent developments may affect the conclusions reached in its opinion,
Donaldson, Lufkin & Jenrette does not have any obligation to update, revise or
reaffirm its opinion.
Summary of Financial Analyses Performed by Donaldson, Lufkin & Jenrette
The following is a summary of the financial analyses Donaldson, Lufkin &
Jenrette presented to the World Access board of directors on June 13, 2000 in
connection with the preparation of its opinion. No company or transaction
Donaldson, Lufkin & Jenrette used in the analyses described below is directly
comparable to TelDaFax, World Access, the purchase of TelDaFax shares from the
Apax funds or the TelDaFax tender offer. In addition, mathematical analysis such
as determining the mean or median is not in itself a meaningful method of using
selected company or transaction data. The analyses Donaldson, Lufkin & Jenrette
performed are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by these
analyses. The information summarized in the tables which follow should be read
in conjunction with the accompanying text. In reviewing the consideration to be
paid by World Access in the purchase of TelDaFax shares from the Apax funds and
the TelDaFax tender offer, Donaldson, Lufkin & Jenrette used an exchange ratio
of 1.025 and the World Access common stock closing stock price on June 13, 2000
of $11.44 per share.
Common Stock Trading History. Donaldson, Lufkin & Jenrette examined the
historical closing prices of TelDaFax common stock from June 11, 1999 to June
13, 2000. During this time period, TelDaFax common stock reached a high of
$42.10 per share and a low of $9.60 per share.
Historical Exchange Ratio Analysis. Donaldson, Lufkin & Jenrette reviewed
the historical exchange ratios implied by the daily closing prices per share of
World Access common stock to those of TelDaFax common stock for the period
beginning on June 9, 1999 and ending on June 13, 2000. This analysis showed that
the average historical exchange ratios during the period ending on June 13, 2000
were as follows:
<TABLE>
<CAPTION>
HISTORICAL
PERIOD ENDED JUNE 13, 2000 EXCHANGE RATIO
-------------------------- --------------
<S> <C>
9 months.................................................... 0.900
6 months.................................................... 0.784
3 months.................................................... 0.901
June 13, 2000............................................... 0.973
Proposed Exchange Ratio..................................... 1.025
</TABLE>
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<PAGE> 41
Comparable Publicly Traded Company Analysis. Donaldson, Lufkin & Jenrette
analyzed the market values and trading multiples of selected publicly traded
emerging telecommunications service providers that Donaldson, Lufkin & Jenrette
believed were reasonably comparable to TelDaFax. These comparable companies
consisted of:
- debitel AG
- Drillisch AG
- MobilCom AG
- RSL Communications Ltd.
- Societe Europeenne de Communication SA
In examining these comparable companies, Donaldson, Lufkin & Jenrette
calculated the enterprise value of each company as a multiple of its respective:
(i) last quarter annualized revenue, (ii) last twelve-months revenue and (iii)
projected 2000 revenue. The enterprise value of a company is equal to the value
of its fully-diluted common equity plus debt and the liquidation value of
outstanding preferred stock, if any, minus cash and the value of certain other
assets, including minority interests in other entities. Last quarter annualized
revenue means the last quarter annualized for which financial data for the
company at issue has been reported. Last twelve-months revenue means the last
twelve-month period for which financial data for the company at issue has been
reported. Donaldson, Lufkin & Jenrette also compared the implied enterprise
value of TelDaFax to the implied enterprise values obtained by the above
mentioned ratios of the comparable companies and TelDaFax's last quarter
annualized revenue, last twelve-months revenue and projected 2000 revenue as
provided by TelDaFax. All historical data was derived from publicly available
sources and all projected data of comparable companies was obtained from
published research reports.
For purposes of this analysis, Donaldson, Lufkin & Jenrette determined a
selected valuation range for the comparable companies. The selected valuation
range represents a tighter range of the ratios as deemed reasonable by
Donaldson, Lufkin & Jenrette for comparative purposes. The selected valuation
range includes the above mentioned ratios and implied enterprise values obtained
by the trading statistics for Drillisch and debitel, which were deemed most
comparable to TelDaFax by Donaldson, Lufkin & Jenrette for comparative purposes.
Donaldson, Lufkin & Jenrette's analysis yielded the following multiple ranges:
<TABLE>
<CAPTION>
SELECTED VALUATION RANGE
------------------------
TELDAFAX DRILLISCH DEBITEL
-------- --------- -------
(LOW) (HIGH)
($ IN MILLIONS)
<S> <C> <C> <C>
IMPLIED PURCHASE MULTIPLES:
Enterprise Value/
LQA Revenue.............................................. 1.3x 1.2x NA
LTM Revenue.............................................. 1.2x 1.3x 1.7x
2000 Revenue............................................. 1.3x 1.0x 1.3x
IMPLIED ENTERPRISE VALUE:
LQA Revenue.............................................. $346.6 $338.2 NA
LTM Revenue.............................................. $346.6 374.2 $474.5
2000 Revenue............................................. $346.6 268.1 351.6
</TABLE>
Precedent Merger and Acquisition Transaction Analysis. Donaldson, Lufkin &
Jenrette reviewed selected acquisitions involving companies in the emerging
telecommunications service providers industry that it believed are reasonably
comparable to the purchase of TelDaFax shares from the Apax funds and the
TelDaFax tender offer. These transactions consisted of:
- France Telecom's pending acquisition of a stake in MobilCom AG;
- Primus Telecommunications Group Inc.'s pending acquisition of LCR Telecom
Group, Plc;
- Viatel Inc.'s acquisition of AT&T Communications (UK) Ltd.;
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<PAGE> 42
- Viatel Inc.'s acquisition of Destia Communications, Inc.;
- Swisscom Inc.'s acquisition of a stake in debitel AG;
- Global TeleSystems Group, Inc.'s acquisition of a stake in Omnicom;
- Mannesman AG's acquisition of the fixed line business of Otelo and
germany.net;
- Global TeleSystems Group, Inc.'s acquisition of Esprit Telecom Group,
plc; and
- Esprit Telecom Group, plc's acquisition of Plusnet Gesellschaft fur
Netzwerk Services mbH.
Donaldson, Lufkin & Jenrette also selected key mergers and acquisitions
transactions that it deemed most relevant. The selected key mergers and
acquisitions transactions consisted of the following:
- Primus Telecommunications Group Inc.'s pending acquisition of LCR Telecom
Group, Plc;
- Viatel Inc.'s acquisition of AT&T Communications (UK) Ltd.; and
- Swisscom Inc.'s acquisition of a stake in debitel AG.
In examining these acquisitions, Donaldson, Lufkin & Jenrette calculated
the enterprise value of the acquired company implied by each of the above
transactions as a multiple of last quarter annualized revenue and last
twelve-months revenue and compared TelDaFax implied transaction value as a
multiple of last quarter annualized, or LQA, revenue and last twelve-months, or
LTM, revenue. Donaldson, Lufkin & Jenrette's analysis of all comparable mergers
and acquisitions transactions and the selected key mergers and acquisitions
transactions yielded the following multiple ranges:
<TABLE>
<CAPTION>
ENTERPRISE VALUE
-------------------------
LQA REVENUE LTM REVENUE
----------- -----------
($ IN MILLIONS)
<S> <C> <C>
ALL COMPARABLE TRANSACTIONS:
Low....................................................... 1.2x 1.3x
High...................................................... 4.0x 11.3x
SELECTED KEY COMPARABLE TRANSACTIONS:
Low....................................................... 1.2x 1.3x
High...................................................... 1.9x --
TelDaFax Implied Purchase Multiples......................... 1.3x 1.2x
IMPLIED ENTERPRISE VALUE
BASED ON ALL COMPARABLE TRANSACTIONS:
Low.................................................... $ 333.0 $ 369.9
High................................................... 1,099.6 3,139.8
BASED ON SELECTED KEY COMPARABLE TRANSACTIONS:
Low.................................................... $ 337.8 $ 369.9
High................................................... 528.9 --
TelDaFax Implied Enterprise Value........................... $ 346.6 $ 346.6
</TABLE>
Discounted Cash Flow Analysis. Donaldson, Lufkin & Jenrette performed a
discounted cash flow analysis of the projected cash flows of TelDaFax for the
fiscal years ending December 31, 2000 through December 31, 2004, using
projections and assumptions provided by the management of TelDaFax and the
management of World Access. The discounted cash flows for TelDaFax were
estimated using discount rates ranging from 17% to 19%, based on estimates
related to the weighted average costs of capital of TelDaFax, and terminal
multiples of estimated EBITDA for TelDaFax's fiscal year ending December 31,
2004 ranging from 8.3x to 10.0x. EBITDA means earnings before interest expense,
taxes, depreciation and amortization. Based on this analysis, Donaldson, Lufkin
& Jenrette estimated: (i) enterprise values of TelDaFax ranging from $201.9
million to $348.6 million compared to the implied enterprise value of $346.6
million; (ii) present values of equity from $251.9 million to $398.6 million
compared to the implied equity value of $396.6 million; and (iii) present values
of equity per share ranging from $7.45 to $11.78, compared to the proposed price
of $11.72, based on an exchange ratio of 1.025 and the June 13, 2000 closing
stock price of World Access
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<PAGE> 43
common stock of $11.44, per share of TelDaFax common stock to be paid in the
purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer.
The summary set forth above does not purport to be a complete description
of the analyses performed by Donaldson, Lufkin & Jenrette but describes the
material elements of the presentation that it made to the World Access board on
June 13, 2000 in connection with the preparation of its fairness opinion. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. Donaldson, Lufkin & Jenrette
conducted each of the analyses in order to provide a different perspective on
the transaction and to add to the total mix of information available. Donaldson,
Lufkin & Jenrette did not form a conclusion as to whether any individual
analysis, considered in isolation, supported or failed to support an opinion as
to fairness from a financial point of view. Rather, in reaching its conclusion,
Donaldson, Lufkin & Jenrette considered the results of the analyses in light of
each other and ultimately reached its opinion based on the results of all
analyses taken as a whole. Donaldson, Lufkin & Jenrette did not place any
particular reliance or weight on any individual analysis, but instead concluded
that its analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized above, Donaldson, Lufkin &
Jenrette has indicated to World Access that it believes that its analyses must
be considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, could
create an incomplete view of the evaluation process underlying its opinion. The
analyses Donaldson, Lufkin & Jenrette performed are not necessarily indicative
of actual values or future results, which may be significantly more or less
favorable than suggested by these analyses.
Engagement Letter
Under the terms of an engagement agreement dated June 9, 2000, World Access
has agreed to pay a fee that is customary in transactions of this nature, a
substantial portion of which is contingent upon the completion of the TelDaFax
transactions. In addition, World Access agreed to reimburse Donaldson, Lufkin &
Jenrette, upon Donaldson, Lufkin & Jenrette's request from time to time, for all
out-of-pocket expenses, including the reasonable fees and expenses of counsel,
Donaldson, Lufkin & Jenrette incurred in connection with its engagement
thereunder and to indemnify Donaldson, Lufkin & Jenrette and certain related
persons against certain liabilities in connection with its engagement, including
liabilities under U.S. federal securities laws. Donaldson, Lufkin & Jenrette and
World Access negotiated the terms of the fee arrangement.
Other Relationships
Donaldson, Lufkin & Jenrette has performed investment banking and other
services for World Access in the past and has been compensated for such
services, including:
- acting as financial advisor to World Access in connection with its
acquisition of FaciliCom in 1999 and acting as financial advisor in
connection with the exchange offer for FaciliCom's outstanding senior
notes;
- acting as financial advisor to World Access in connection with its
pending acquisitions of both STAR and WorldxChange in 2000; and
- acting as financial advisor in connection with the sale of World Access'
Telco Systems Inc. subsidiary and World Access' Wireless Local Loop
Division in 2000.
COMPLETION OF THE TELDAFAX TRANSACTIONS
The completion of the purchase of TelDaFax shares from the Apax funds will
occur on the fifth German banking day following the satisfaction or waiver of
all conditions to the completion of such purchase, or at such other time as
World Access and the Apax funds agree.
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<PAGE> 44
World Access cannot complete the TelDaFax tender offer until:
- the World Access stockholders approve the issuance of the World Access
common stock in the TelDaFax tender offer;
- World Access registers the shares of World Access common stock to be
issued in the TelDaFax tender offer under the Securities Act of 1933;
- World Access completes the listing of the World Access common stock on
the Frankfurt Stock Exchange; and
- World Access receives all necessary regulatory approvals.
World Access intends to launch the TelDaFax tender offer before the World
Access special meeting and to complete it no later than 20 business days after
the launch.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TELDAFAX TRANSACTIONS
The following discussion summarizes the material U.S. federal income tax
consequences of the TelDaFax transactions to U.S. holders of TelDaFax shares.
Long Aldridge & Norman LLP, as counsel to World Access, is of the opinion that
the following discussion describes the material U.S. federal income tax
consequences of the TelDaFax transactions to U.S. holders under the U.S. federal
income tax laws in effect as of the date of this proxy statement/prospectus. For
purposes of this discussion, a "U.S. holder" is a beneficial owner of TelDaFax
shares that is:
- an individual citizen or resident of the United States for U.S. federal
income tax purposes;
- a domestic corporation; or
- a partnership, trust or estate treated, for U.S. federal income tax
purposes, as a domestic partnership, trust or estate.
This discussion does not address any U.S. or foreign tax considerations
with respect to holders of TelDaFax shares who are not U.S. holders. The
following discussion is not a complete analysis of all aspects of U.S. federal
income taxation that may be relevant to you as a U.S. holder in light of your
particular circumstances. In particular, this discussion deals only with U.S.
holders who hold TelDaFax shares as "capital assets." Generally, capital assets
include property held for investment for U.S. federal income tax purposes. This
discussion does not address the tax treatment of U.S. holders that may be
subject to special treatment under the Internal Revenue Code, as amended, which
we refer to as the Internal Revenue Code, such as:
- insurance companies, banks, financial institutions, tax exempt
organizations or employee benefit plans;
- dealers in stocks or securities;
- U.S. holders that hold their TelDaFax shares as part of a straddle,
synthetic security, conversion transaction or other integrated investment
composed of TelDaFax shares and one or more other investments;
- U.S. holders that have a "functional currency" other than the U.S.
dollar;
- traders in securities that elect market-to-market accounting treatment;
- U.S. holders liable for alternative minimum tax; or
- U.S. holders who acquired TelDaFax shares through the exercise of options
or otherwise as compensation.
In addition, this discussion does not consider the effect of any foreign,
state, local, or other tax laws, or any tax consequences, such as estate or gift
tax, other than the U.S. federal income tax consequences of the TelDaFax
transactions that may be applicable to U.S. holders.
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<PAGE> 45
Further, this discussion assumes that TelDaFax is not and has not been a
"controlled foreign corporation" for U.S. federal income tax purposes at any
time during the five-year period ending on the date on which the TelDaFax tender
offer and purchase of TelDaFax shares from Apax Germany II L.P. are both
completed. If 10% U.S. holders own in the aggregate, more than 50% of the stock
of TelDaFax, directly, indirectly, or by attribution, TelDaFax would be a
controlled foreign corporation. For purposes of this discussion, the term "10%
U.S. holder," means a U.S. holder who individually owns, or is deemed for U.S.
federal income tax purposes to own under complex attribution rules, 10% or more
of the stock of TelDaFax.
This discussion is based on the Internal Revenue Code and final, temporary
and proposed treasury regulations promulgated thereunder, administrative
pronouncements and rulings, and judicial decisions as of the date of this proxy
statement/prospectus, all of which are subject to change or differing
interpretations at any time with possible retroactive effect and any such change
could affect the continuing validity of this discussion.
In rendering its opinion concerning this discussion, counsel has relied
upon, and has assumed the accuracy of information, factual statements and
representations made by World Access in this proxy statement/prospectus and in
the documents described herein, including representations to counsel by World
Access contained in an officer's certificate. Any inaccuracy or change with
respect to such information, factual statements, representations or assumptions
could adversely affect counsel's opinion concerning this discussion. World
Access has not requested a ruling from the Internal Revenue Service regarding
the U.S. federal income tax consequences of the TelDaFax transactions. YOU ARE
URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC U.S. FEDERAL INCOME
TAX, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE TELDAFAX
TRANSACTIONS TO YOU AS A U.S. HOLDER.
World Access stockholders will not recognize gain or loss for U.S. federal
income tax purposes as a result of the TelDaFax transactions.
Tax Considerations for U.S. holders who participate in the TelDaFax tender
offer
The exchange of your TelDaFax shares for World Access common stock in the
TelDaFax tender offer will constitute a taxable exchange for U.S. federal income
tax purposes upon which you will recognize capital gain or loss. The amount of
capital gain or loss recognized will be equal to the difference between the
aggregate fair market value of World Access common stock received, including any
fractional share interest in World Access common stock for which cash is
received, and your aggregate tax basis in the TelDaFax shares surrendered in the
tender offer. Such capital gain will be long-term capital gain if the holding
period for your TelDaFax shares was greater than one year as of the date on
which you receive the World Access common stock.
The tax basis of the World Access common stock received in the exchange,
including any fractional share interest in World Access common stock for which
cash is received, will be equal to the aggregate fair market value of your
TelDaFax shares surrendered in the tender offer. The holding period for the
World Access common stock received will begin the day after the date on which
you receive the shares.
Tax considerations for U.S. holders who do not participate in the TelDaFax
tender offer
If you do not exchange your TelDaFax shares for shares of World Access
common stock in the TelDaFax tender offer, you will not recognize gain or loss
for U.S. federal income tax purposes as a result of the TelDaFax transactions.
Tax considerations for Apax Germany II L.P. upon the sale of its TelDaFax
shares
The sale by Apax Germany II L.P. of its TelDaFax shares in exchange for
shares of World Access common stock is a taxable exchange for U.S. federal
income tax purposes upon which capital gain or loss will be recognized. The
amount of capital gain or loss recognized will be equal to the difference
between the aggregate fair market value of World Access common stock received
and its aggregate tax basis in the TelDaFax shares. Such capital gain will be
long-term capital gain if the holding period for the TelDaFax
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<PAGE> 46
shares was greater than one year as of the date on which it receives the World
Access common stock. If Apax Germany II L.P. is treated as a "partnership" for
U.S. federal income tax purposes, Apax Germany II L.P. will not itself be
required to pay U.S. federal income tax on the capital gain, if any, it
recognizes as a result of its taxable exchange of TelDaFax shares for World
Access common stock. Instead, each of its partners who are U.S. persons will be
taxable on their distributive shares of any capital gain recognized by Apax
Germany II L.P. Further, if Apax Germany II L.P. is engaged in a trade or
business within the United States for U.S. federal income tax purposes, then the
partnership itself will be required to withhold and pay over to the Internal
Revenue Service a percentage equal to the highest U.S. federal income tax rate
applicable to U.S. persons, which is currently 39.6% in the case of individuals
and 35% in the case of corporations, of each non-U.S. holder's distributive
share of the partnership's income and gain that is effectively connected with
such U.S. trade or business with respect to the taxable year at issue.
The tax basis of the World Access common stock received by Apax Germany II
L.P. in the exchange will be equal to the aggregate fair market value of the
TelDaFax shares it surrendered in the taxable exchange. The holding period for
the World Access common stock received will begin the day after the date on
which it receives the shares.
Information reporting and backup withholding
Proceeds from the sale or other disposition of TelDaFax shares that are
paid to a U.S. holder, including Apax Germany II L.P., other than certain exempt
recipients such as corporations, within the U.S., or in certain cases outside
the U.S., generally are subject to information reporting to the Internal Revenue
Service. "Backup" withholding at a rate of 31% may apply to such amounts if the
U.S. holder fails to provide the payor with its U.S. taxpayer identification
number and other required information required to be shown on its U.S. federal
income tax return. The amount of any backup withholding from a payment to a U.S.
holder will be allowed as a credit against the U.S. holder's U.S. federal income
tax liability.
Tax considerations for the World Access and TelDaFax parties
World Access. No gain or loss will be recognized by World Access for U.S.
federal income tax purposes as a result of its issuance of World Access common
stock to acquire TelDaFax shares pursuant to the TelDaFax transactions. After
completion of the TelDaFax transactions, TelDaFax will constitute a controlled
foreign corporation for U.S. federal income tax purposes, and World Access will
be a 10% U.S. holder. Under Subpart F of the Internal Revenue Code, World Access
will be subject to special tax rules which generally operate on an annual basis
to accelerate the U.S. federal income taxation of certain income earned by
TelDaFax to its 10% U.S. holders prior to actual distribution of such earnings
to such 10% U.S. holders. Internal Revenue Code provisions providing ordinary
dividend income treatment of gain recognized on subsequent taxable dispositions
of TelDaFax shares by 10% U.S. holders will also apply to World Access.
Limitation on World Access tax attributes. Under the Internal Revenue
Code, special limitations on the use of net operating losses and certain other
tax attributes apply following an "ownership change." After an ownership change,
the amount of the World Access consolidated group's taxable income for a
post-ownership change year that may be offset by its net operating losses
arising before the ownership change is subject to an annual loss limitation. The
World Access consolidated group may have already incurred a prior ownership
change, and therefore, may already be subject to this annual loss limitation.
Completion of the STAR merger, the WorldxChange merger and the TelDaFax
transactions individually, or in some combination thereof, will likely cause the
World Access consolidated group to undergo an ownership change which may
constitute a successive ownership change under these rules. Any such successive
ownership change may result in a lesser, but never greater, annual loss
limitation.
NewTel Communications GmbH. By virtue of a previous tax election, NewTel
Telecommunications GmbH is not treated as a "corporation" and instead is
"disregarded" as an entity separate from its shareholders for U.S. federal
income tax purposes. Therefore, World Access is deemed to own NewTel's assets
directly for U.S. federal income tax purposes through another such "disregarded"
World Access entity. Based on the trading values of TelDaFax shares as of the
date of this proxy statement/prospectus, World
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Access expects that the transfer by NewTel Communications GmbH of its assets and
liabilities to TelDaFax in exchange for TelDaFax shares will result in a taxable
loss reportable by the World Access consolidated group for U.S. federal income
tax purposes.
Netnet Telekommunikations GmbH. The transfer by Netnet Telekommunikations
GmbH of its assets and liabilities to TelDaFax in exchange for TelDaFax shares
will not result in a taxable transaction to the World Access consolidated group
for U.S. federal income tax purposes.
TelDaFax. TelDaFax will recognize no gain or loss for U.S. federal income
tax purposes solely as a result of the TelDaFax transactions. If World Access
acquires at least 80% of the outstanding TelDaFax shares in taxable purchases
from TelDaFax stockholders within a 12-month period, whether through the
TelDaFax tender offer, by direct purchase or open market purchases, World Access
would become eligible to make a tax election under which, for U.S. federal
income tax purposes, the adjusted tax basis of TelDaFax's assets would be
increased to an amount generally equal to World Access's aggregate tax basis in
the TelDaFax shares comprising the 80% or greater interest it purchased from
TelDaFax stockholders during such 12-month period. If made, this election would
not result in gain recognition by TelDaFax for U.S. federal income tax purposes,
provided that it is not engaged in a trade or business within the United States
for U.S. federal income tax purposes.
Treatment of Netnet and NewTel under German tax law
In the opinion of Gaedertz Rechtsanwalte, German counsel to World Access,
under Section 20 of the German Reorganization Tax Code (Umwandlungssteuergesetz)
neither Netnet Telekommunikations GmbH nor NewTel Communications GmbH will
recognize gain or loss for German income tax purposes upon the transfers to
TelDaFax of their entire businesses (Geschaftsbetriebe im Ganzen) in exchange
for newly issued TelDaFax shares.
EXCHANGE OF TELDAFAX STOCK CERTIFICATES FOR WORLD ACCESS STOCK CERTIFICATES
World Access intends to conduct the TelDaFax tender offer in compliance
with the German Takeover Code. The offer for TelDaFax shares in the TelDaFax
tender offer, any acceptance of or withdrawal from such offer, and any contract
made or action taken in relation to any of the foregoing are to be governed by
and construed under German law. In accordance with German law, World Access will
publish its offer for the TelDaFax shares, the terms of the offer and the
instructions for tendering TelDaFax shares. World Access also intends to publish
the offer in the United States in a manner reasonably calculated to inform U.S.
holders of TelDaFax shares of the offer.
In the TelDaFax tender offer, each tendering TelDaFax stockholder will
provide either World Access' exchange agent for the TelDaFax tender offer,
, or the TelDaFax stockholder's financial intermediary or U.S.
custodian with instructions for tendering its TelDaFax shares in accordance with
the terms that World Access publishes. World Access expects that the shares of
World Access common stock to be issued in the TelDaFax tender offer will be
represented by global certificates which will be held in global custody by
Clearstream AG. TelDaFax shares not tendered in the TelDaFax tender offer will
continue to be listed on the Neuer Market segment of the Frankfurt Stock
Exchange and the EASDAQ. However, the TelDaFax tender offer will reduce the
number of TelDaFax shares held by the public, which may reduce the trading
liquidity of any shares not tendered.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF WORLD ACCESS AND TELDAFAX
The shares of World Access common stock that will be issued in the TelDaFax
tender offer and to the Apax funds in exchange for their shares of TelDaFax will
be registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares of World Access common stock issued
to any person who is an affiliate of either World Access or TelDaFax. Persons
who may be deemed to be affiliates include individuals or entities that control,
are controlled by, or are under common control of, either World Access or
TelDaFax and may include some of their respective officers, directors and
principal stockholders.
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Affiliates may not sell the shares of World Access common stock they acquire in
the TelDaFax transactions except pursuant to:
- an effective registration statement under the Securities Act of 1933
covering the resale of those shares;
- Rule 145 under the Securities Act of 1933; or
- any other applicable exemption under the Securities Act.
ACCOUNTING TREATMENT OF THE TELDAFAX TRANSACTIONS
World Access intends to account for the TelDaFax transactions as a purchase
for financial accounting purposes in accordance with United States generally
accepted accounting principles.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE TELDAFAX TRANSACTIONS
Under the German Competition Act, TelDaFax must notify the German Cartel
Office of the TelDaFax transactions, and the TelDaFax transactions cannot be
completed until approved by the German Cartel Office or a one month waiting
period has expired. The waiting period starts from the date that the German
Cartel Office completes the notification. During the initial one month waiting
period, the German Cartel Office may decide to open a further investigation of
the TelDaFax transactions. If the German Cartel Office institutes a further
investigation, the TelDaFax transactions may not be completed until a further
three month period has expired or the German Cartel Office clears the TelDaFax
transactions. At any time during the period, the German Cartel Office may act to
block the TelDaFax transactions or impose conditions upon their completion.
There can be no assurance that a challenge to the TelDaFax transactions on
competition law grounds will not be made or that, if such a challenge is made,
it would not be successful in Germany. The parties have notified the German
Cartel Office and are awaiting the German Cartel Office's response or the
expiration of the one month waiting period, which will occur on September 7,
2000.
The TelDaFax transactions also require notification in certain European
counties.
Following the completion of the TelDaFax transactions, an information
filing must be made in Denmark with the national competition authority.
Other than approvals by federal authorities having jurisdiction over
telecommunications activities conducted by World Access or TelDaFax, we are not
aware of any other material governmental or regulatory approval required for
completion of the TelDaFax tender offer, other than the effectiveness of the
registration statement of which this proxy statement/prospectus is a part, and
compliance with applicable corporate laws.
STOCKHOLDERS DO NOT HAVE DISSENTERS' RIGHTS
Neither World Access nor TelDaFax stockholders are entitled to dissenters'
rights.
INTERESTS OF DIRECTORS, OFFICERS AND STOCKHOLDERS IN THE TELDAFAX TRANSACTIONS
From June 14, 2000 until December 31, 2001, Dr. Klose has the right to sell
to World Access all of Dr. Klose's outstanding shares of TelDaFax in up to three
installments. From July 1, 2002 until December 31, 2002, World Access has the
right to buy from Dr. Klose all of Dr. Klose's outstanding shares of TelDaFax at
the time World Access exercises its right to purchase. As of June 14, 2000, Dr.
Klose owned 2,756,200 shares of TelDaFax stock, equal to 8.15% of the
outstanding capital stock of TelDaFax.
DESCRIPTION OF THE TELDAFAX PURCHASE AGREEMENT
This section of the proxy statement/prospectus describes the TelDaFax
purchase agreement. While we believe that the description covers the material
terms of the TelDaFax purchase agreement, this summary may not contain all of
the information that is important to you. The TelDaFax purchase agreement is
attached to this proxy statement/prospectus as Annex A, and we urge you to read
it carefully.
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PURCHASE OF THE TELDAFAX SHARES THAT THE APAX FUNDS OWN
World Access will purchase all of the outstanding shares of TelDaFax held
by the funds advised by Apax, except the A+M fund, in exchange for shares of
World Access common stock.
A+M is a fund advised by Apax; however, because World Access will purchase
the TelDaFax shares of A+M separately pursuant to a put/call arrangement, all
references to "Apax funds" in this summary excludes A+M unless otherwise noted.
PUT/CALL OPTION FOR SHARES OF DR. KLOSE AND A+M
From June 14, 2000 until December 31, 2001, Dr. Klose has the right to sell
to World Access, and World Access is obligated to buy from Dr. Klose, all of Dr.
Klose's outstanding shares of TelDaFax in up to three installments. From July 1,
2002 until December 31, 2002, World Access has the right to buy from Dr. Klose,
and Dr. Klose is obligated to sell to World Access, all of Dr. Klose's
outstanding shares of TelDaFax at the time World Access exercises its right to
purchase.
From the completion of the purchase by World Access of the TelDaFax shares
owned by the Apax funds until April 30, 2001, A+M has the right to sell to World
Access, and World Access is obligated to buy from A+M, all of A+M's outstanding
shares of TelDaFax in one installment. From July 1, 2001 until December 31,
2001, World Access has the right to buy from A+M, and A+M is obligated to sell
to World Access, all of A+M's outstanding shares of TelDaFax.
THE CONSIDERATION FOR THE PURCHASE OF TELDAFAX SHARES OF THE APAX FUNDS AND DR.
KLOSE
In exchange for each share of TelDaFax common stock purchased by World
Access from the Apax funds, including A+M, and Dr. Klose, World Access will
issue 1.025 shares of World Access common stock. World Access agrees to use its
reasonable best efforts to register such shares of World Access common stock.
World Access will also use reasonable efforts to assist Dr. Klose with finding
buyers for the shares of World Access common stock owned by him following the
exercise of the put and/or call options.
World Access, Dr. Klose and A+M will enter into a registration rights
agreement no later than the completion of the purchase of the TelDaFax shares
owned by the Apax funds with respect to the World Access common stock to be
issued in exchange for the TelDaFax shares of Dr. Klose and A+M and, to the
extent legally practicable, register such shares on a Form S-3 as contemplated
by such registration rights agreement.
If World Access offers more than 1.025 shares of World Access common stock
for each TelDaFax common share in the tender offer, then World Access will
similarly increase the number of shares of World Access common stock it will
issue in exchange for the TelDaFax shares it purchases from the Apax funds,
including A+M, and Dr. Klose.
TENDER OFFER
As soon as reasonably practicable, World Access will launch a tender offer
for all of the shares of TelDaFax. In the TelDaFax tender offer, World Access
intends to offer 1.025 shares of World Access common stock for each outstanding
share of TelDaFax stock. The TelDaFax tender offer is conditioned upon receiving
all necessary approvals, including the approval of the World Access
stockholders, and the registration of the shares of the World Access common
stock to be issued in the tender offer. In the TelDaFax purchase agreement,
World Access expressed its intention to comply with the Take-Over Code of the
Exchange Expert Commission, as amended.
After the completion of the purchase of the TelDaFax shares owned by the
Apax funds, the Apax funds and World Access agree to comply with the
notification duties of the Stock Corporation Act and the Securities Trading Act,
to the extent applicable.
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COMBINATION OF GERMAN BUSINESSES OF WORLD ACCESS AND BUSINESS OF TELDAFAX
World Access and TelDaFax agree to pursue the combination of their
respective businesses in Germany in order to realize synergies to the largest
extent practically and legally possible. Under a contribution agreement, World
Access will contribute the German activities of Netnet Telekommunikations GmbH
and NewTel Communications GmbH to TelDaFax by way of a capital increase against
contribution in kind out of authorized capital. In addition, as soon as possible
and to the extent consistent with the best interests of the stockholders of
World Access and TelDaFax, TelDaFax and the other German businesses of World
Access will enter into such agreements of combination or cooperation to achieve
synergies in the most efficient and beneficial way for all parties and the
stockholders of World Access and TelDaFax.
CONDITIONS TO THE PURCHASE OF THE TELDAFAX SHARES OWNED BY THE APAX FUNDS
The respective obligations of World Access and the Apax funds to complete
the sale and purchase of the TelDaFax shares owned by the Apax funds are subject
to the following conditions:
- the Federal Cartel Office's clearance of the transactions contemplated by
the TelDaFax purchase agreement;
- after completion of the TelDaFax tender offer, World Access must own more
than 50% of the shares of TelDaFax, taking into account those TelDaFax
shares that World Access will own upon completion of the purchase of the
TelDaFax shares owned by the Apax funds and the shares received in
exchange for World Access' contribution of the German businesses of
Netnet and NewTel;
- the TelDaFax shares that World Access receives in exchange for
contributing the German activities of Netnet and NewTel must be
registered in the commercial register of TelDaFax;
- no material adverse event has occurred with respect to either World
Access or TelDaFax which gives rise to a party's right to withdraw under
the TelDaFax purchase agreement, and, in such event, no party has
exercised such right to withdraw;
- the TelDaFax purchase agreement and the WorldxChange and STAR merger
agreements must be approved by the requisite vote of the stockholders of
World Access;
- no law or court order can prohibit the TelDaFax purchase agreement; and
- all material consents and approvals required to complete the purchase of
the TelDaFax shares owned by the Apax funds must be obtained.
DELIVERIES AT COMPLETION OF THE PURCHASE OF THE TELDAFAX SHARES OWNED BY THE
APAX FUNDS
To complete the purchase of the TelDaFax shares owned by the Apax funds,
the following documents must be executed and delivered:
- the Apax funds and Dr. Klose must deliver resignation letters of all
members of the supervisory board of TelDaFax except for one
representative for the outside stockholders, which World Access will
designate;
- World Access and the Apax funds must deliver a certificate stating that
the representations and warranties of each of World Access and the Apax
funds, respectively, are true and correct in all material respects as of
the date of the completion of the purchase of the Apax funds' TelDaFax
shares or, as the case may be, as of any other point in time specified in
a particular representation and warranty; and
- execution of a registration rights agreement.
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REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TELDAFAX TRANSACTIONS
The Apax funds made representations and warranties in the TelDaFax purchase
agreement regarding aspects of their legal status and the U.S. securities laws,
including:
- due authorization of the Apax funds to enter into the TelDaFax purchase
agreement and the TelDaFax transactions; and
- the unrestricted right to sell, vote and transfer their shares in
TelDaFax.
The Apax funds, including A+M, also made representations and warranties in
the TelDaFax purchase agreement regarding the business, financial condition,
structure and other pertinent facts relating to TelDaFax, including its:
- legal situation;
- financial situation;
- title to and condition of the assets;
- undisclosed liabilities;
- conduct of business, governmental approvals, licenses and permits;
- pending and threatened litigation;
- employee matters;
- tax matters;
- insurance policies;
- changes in the business or occurrence of certain events since January 1,
2000;
- relations between TelDaFax and the Apax funds; and
- material agreements.
Dr. Klose and A+M will be deemed to have made these same representations
and warranties if either Dr. Klose or A+M offers to sell, and World Access
agrees to buy, the TelDaFax shares owned by him or it prior to the completion of
the purchase of the TelDaFax shares owned by the Apax funds. If Dr. Klose or A+M
offers its TelDaFax shares to World Access after the completion of the purchase
of the TelDaFax shares owned by the Apax funds, or if World Access purchases Dr.
Klose's and/or A+M's shares in TelDaFax pursuant to its call option, Dr. Klose
and A+M, as the case may be, will only be deemed to have given certain of the
representations.
Dr. Klose made representations and warranties in the TelDaFax purchase
agreement regarding the number of shares he owns in TelDaFax and his ability to
enter into the TelDaFax purchase agreement.
World Access made representations and warranties in the TelDaFax purchase
agreement regarding aspects of its legal status and the World Access stock to be
issued in exchange for the shares owned by TelDaFax, including:
- due authorization of World Access to enter into the TelDaFax purchase
agreement and all transactions contemplated thereby and to issue and sell
the World Access stock to be issued in exchange for the shares owned by
TelDaFax;
- capitalization; and
- validity of World Access stock to be issued in exchange for the shares
owned by TelDaFax.
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REMEDIES FOR INCORRECT REPRESENTATIONS OR WARRANTIES
If a representation or warranty given by the Apax funds is incorrect as of
either June 14, 2000 or upon the completion of the purchase of the TelDaFax
shares owned by the Apax funds by World Access, the Apax funds will indemnify
World Access for any loss:
- if attributable to a diminution of the value of TelDaFax and its
subsidiaries, in an amount equal to 33.05% of the aggregate diminution in
the value of TelDaFax and its subsidiaries; or
- if attributable to other than diminution in the value of TelDaFax and its
subsidiaries, in an amount equal to 100% of such loss.
The Apax funds will satisfy their indemnification obligations by first
transferring back to World Access any World Access stock then held by the Apax
funds having a value equal to the loss, and, to the extent there is any
shortfall, by paying in cash.
World Access may assert claims for indemnification for breaches of
representations and warranties only if such claims exceed euro 1,750,000 in the
aggregate. World Access may not assert claims for indemnification in excess of
an aggregate amount equal to 33% of the World Access shares issued in exchange
for the TelDaFax shares purchased from the Apax funds, including A+M, and Dr.
Klose or, in the case of indemnification by way of payment of cash, its value as
of June 14, 2000, with exceptions for certain representations and warranties.
These limitations do not apply to breaches of certain representations, including
the legal status of the Apax funds and TelDaFax, U.S. securities laws,
capitalization of TelDaFax and Dr. Klose's representations, or in cases where
World Access is able to show that a breach was known to the Apax funds on June
14, 2000 but was not disclosed. In no event will the liability of the Apax funds
exceed the value of the shares of World Access common stock exchanged for the
purchase of its TelDaFax shares as of June 14, 2000. Each of the various funds
Apax advises is severally liable on a pro rata basis according to its relevant
percentage of World Access stock received in exchange for the purchase of its
TelDaFax shares.
World Access can exclude a claim for indemnification for a breach of a
representation or warranty in certain circumstances, including:
- if insurance or a third party covers the loss;
- if the breach is disclosed to World Access prior to June 14, 2000;
- if the breach is due to a change after the completion of the purchase of
the Apax funds' TelDaFax shares of the corporate or tax structure or the
accounting policies of TelDaFax and its subsidiaries;
- if an action or omission outside the ordinary course of business
attributable to World Access after the completion of the purchase of the
Apax funds' TelDaFax shares causes the breach;
- if the breach has the effect of decreasing the tax burden of World Access
or TelDaFax or its subsidiaries; and
- to the extent reserves contained in the financial statements of TelDaFax
were specifically established for purposes of such loss and can be used
pursuant to U.S. generally accepted accounting principals to offset such
loss.
Claims for legal defects as defined by German law must be brought in
accordance with the applicable provisions of German law. All other claims except
tax claims must be brought within 18 months from the completion of the purchase
by World Access of the TelDaFax shares owned by the Apax funds. Tax claims must
be brought within six months after the right of the competent authority to
assess the relevant tax assessment for the period up to December 31, 1999 ended,
with certain limited exceptions. If the statute of limitations is interrupted
under German law, the time in which World Access may bring a claim in all cases
is extended to six months after the interruption; however, the period prior and
after the interruption in the aggregate may not be less than 18 months.
Dr. Klose agrees to indemnify World Access in the same manner described
above if he offers to sell, and World Access agrees to buy, the TelDaFax shares
owned by him prior to December 31, 2001; however, the
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33.05% threshold will be equal to the percentage of the share capital sold by
Dr. Klose and the statute of limitations for each claim will run from the
completion of the purchase by World Access of the TelDaFax shares owned by Dr.
Klose.
WITHDRAWAL FROM THE TELDAFAX PURCHASE AGREEMENT
World Access, TelDaFax, the Apax funds, including A+M, and Dr. Klose have
the right to withdraw from the TelDaFax purchase agreement prior to the
completion of the purchase and sale of the TelDaFax shares owned by the Apax
funds if:
- the conditions to completion of the transactions under the TelDaFax
purchase agreement have not been satisfied by September 30, 2000;
however, if all conditions to completion have been satisfied except the
completion of the TelDaFax tender offer and the approval of the capital
increase required to exchange World Access' contribution of the German
activities of Netnet and NewTel, and the TelDaFax tender offer has been
launched, no party may withdraw before October 31, 2000;
- the supervisory board of TelDaFax does not approve the capital increase
required to exchange the contribution by World Access of the German
activities of Netnet and NewTel;
- the supervisory board of TelDaFax changes its recommendation to outside
stockholders to accept the TelDaFax tender offer; or
- World Access is unable to acquire more than 50% of the shares of TelDaFax
in the TelDaFax tender offer because of a third party's acquisition of
TelDaFax shares.
World Access may also withdraw from the TelDaFax purchase agreement prior
to the completion of the purchase and sale of the TelDaFax shares owned by the
Apax funds if:
- the supervisory board of TelDaFax fails to take any action required to
implement the contribution by World Access of the German activities of
Netnet and NewTel or takes any action which makes such implementation
impossible;
- if any of the representations and warranties of the Apax funds in the
TelDaFax purchase agreement are untrue as of the date the purchase of the
TelDaFax shares owned by the Apax funds is to be completed or, as the
case may be, as of any other point in time specified in a particular
representation and warranty, if the breach constitutes a material adverse
event under the TelDaFax purchase agreement;
- upon the occurrence of a material adverse event under the TelDaFax
purchase agreement.
Under the TelDaFax purchase agreement, a material adverse event will be
deemed to have occurred with respect to TelDaFax if:
- certain representations and warranties, including those relating to the
legal status of the Apax funds and TelDaFax, U.S. securities laws,
financial statements and material agreements, are or become incorrect;
- any approvals, licenses or permits necessary for TelDaFax to continue its
business activities are revoked;
- TelDaFax enters into a material agreement outside the ordinary course of
business or to acquire an interest in an entity other than one of its
subsidiaries without World Access' consent;
- any event occurs that would make or be likely to make a reasonable
purchaser willing to purchase the TelDaFax shares owned by the Apax funds
seek a reduction in value of the consideration to be paid for such shares
in the TelDaFax purchase agreement in an amount equal to or exceeding 33%
of the value of the shares of World Access common stock to be issued in
exchange, except to the extent that such event is attributable to a fall
in the listed stock price of TelDaFax on the Neuer Market of the
Frankfurt Stock Exchange and/or EASDAQ, a change in the economic
situation in Germany or the condition of the financial markets in
general, a change in the services and pricing of competitors of TelDaFax
or changes in applicable laws; or
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- TelDaFax, the Apax funds, including A+M, or Dr. Klose fails to perform or
comply with any of the covenants or agreements contained in the TelDaFax
purchase agreement which would make or be likely to make a reasonable
purchaser willing to purchase the TelDaFax shares owned by the Apax funds
seek a reduction in value of the consideration to be paid for such shares
in the TelDaFax purchase agreement in an amount equal to or exceeding 33%
of the value of the shares of World Access common stock to be issued in
exchange.
In the event that a failure of TelDaFax, the Apax funds, including A+M, or
Dr. Klose to perform or comply with any of the covenants or agreements contained
in the TelDaFax purchase agreement results in a loss to World Access but does
not reach the 33% qualification for withdrawal, TelDaFax, the Apax funds,
including A+M, and/or Dr. Klose will indemnify World Access against such loss.
The following events also constitute a material adverse event with respect
to World Access. In the event any of the following occur, the Apax funds,
including A+M, and Dr. Klose may jointly withdraw from the TelDaFax purchase
agreement prior to the completion of the purchase and sale of the TelDaFax
shares owned by the Apax funds:
- any of the representations or warranties given by World Access are or
become incorrect in any material respects;
- any of the material approvals, licenses or permits necessary and relevant
for World Access and its affiliates to continue their business activities
are revoked; and
- any event occurs that would make or be likely to make a reasonable
purchaser willing to purchase the shares of World Access common stock to
be issued in exchange for the TelDaFax shares of the Apax funds seek a
reduction in value of such shares of World Access common stock, except to
the extent that such event is attributable to a fall in the listed stock
price of World Access on the Nasdaq National Market, a change in the
economic situation in the United States or the condition of the financial
markets in general, or changes in applicable laws.
RESTRICTIONS ON THE TRANSFER OF TELDAFAX SHARES OWNED BY THE APAX FUNDS AND DR.
KLOSE
The Apax funds, including A+M, agree not to sell or otherwise transfer any
shares of TelDaFax stock owned or controlled by them except as agreed in the
TelDaFax purchase agreement. If any of the Apax funds decides to sell its World
Access common stock after the completion of the purchase of the TelDaFax shares
of the Apax funds, World Access and the Apax funds agree to cooperate in an
effort to have such shares sold privately to institutional or financial
purchasers rather than on the open market.
Dr. Klose may not sell or otherwise transfer any of his shares in TelDaFax
unless, in the event Dr. Klose receives an offer to buy such shares from an
unrelated third party, he first offers World Access the right to buy the shares
on the same terms offered by the third party, or, in the event Dr. Klose desires
to sell any of his TelDaFax shares on the Frankfurt Stock Exchange, he first
offers World Access the right to buy such shares at a price equal to the average
price quoted on the Frankfurt Stock Exchange on the five trading days before the
date of notice to World Access of Dr. Klose's intent to sell.
CONDUCT OF BUSINESS UNTIL TRANSFER OF TELDAFAX SHARES OWNED BY THE APAX FUNDS
The Apax funds and Dr. Klose agree to use their best efforts to ensure
that:
- the business of TelDaFax and its subsidiaries is continued in the
ordinary course of business and that World Access has appropriate access
to the management of TelDaFax until the completion of the purchase of the
TelDaFax shares owned by the Apax funds;
- no steps are taken by TelDaFax which could be detrimental to the
transactions contemplated by the TelDaFax purchase agreement; and
- no action is taken by TelDaFax which would require approval of its
stockholders or supervisory board.
46
<PAGE> 55
TelDaFax agrees not to acquire any interest in any entity other than its
subsidiaries or to terminate or materially amend any material agreement without
World Access' consent, which may not be unreasonably withheld.
The Apax funds, including A+M, and Dr. Klose agree that, until completion
of the purchase of the shares owned by the Apax funds, no profits of the
subsidiaries of TelDaFax will be distributed.
SERVICE AGREEMENT WITH DR. KLOSE AND DR. KLOSE'S AGREEMENT NOT TO COMPETE
Dr. Klose agrees to continue to work for TelDaFax under a two-year
fixed-term contract on terms to be agreed upon between World Access and Dr.
Klose prior to the completion of the purchase of the Apax funds' TelDaFax
shares.
For one year after the termination of the respective term of any employment
or service agreement with TelDaFax or any affiliate, Dr. Klose and companies
affiliated with him agree not to engage in any activity, enterprise or company
having activities similar to the telecommunication activities of TelDaFax and
its subsidiaries in the current geographical area of such activities. In the
event of a violation of his non-competition obligation, Dr. Klose agrees to pay
to World Access euro 250,000 and, if the violation continues, a further penalty
of euro 100,000. World Access retains all other claims for damages and
injunctive relief.
RELATED TRANSACTION AGREEMENTS
This section of the proxy statement/prospectus describes agreements related
to the TelDaFax purchase agreement, including the TelDaFax contribution
agreement.
CONTRIBUTION AGREEMENT
On August 11, 2000, TelDaFax, Netnet and NewTel entered into a contribution
agreement under which Netnet and NewTel will transfer to TelDaFax the businesses
operated by Netnet and NewTel in Germany as a contribution in kind against the
issuance of 1,620,334 and 925,905 new shares of TelDaFax to Netnet and NewTel,
respectively. If these valuation numbers are not confirmed by either the auditor
or the German court to cover the total contribution amount agreed to by the
parties and the contribution contemplated by the TelDaFax contribution agreement
therefore cannot be completed, the parties agreed to negotiate in good faith to
enter into a new contribution agreement. Any new agreement must be substantially
in the form of the TelDaFax contribution agreement, taking into account the
opinion of the auditor or the court on the value of the assets to be contributed
or any other circumstance which may have caused the alteration of the assessment
regarding the valuation. The transfer of the businesses of Netnet and NewTel
will include all assets, liabilities and contracts, such as but not limited to
accounts receivable, equipment, intellectual property, employment contracts and
good will. The transfer of the businesses of Netnet and NewTel will not include
liabilities owed to World Access or any of its subsidiaries. Netnet, NewTel and
World Access did not give any representations and warranties with respect to
their businesses.
Netnet and NewTel agreed to take every action necessary to obtain the
consent of third parties to the transfer of receivables, contracts, legal
positions and liabilities.
TelDaFax agreed to arrange for the filing of the application for the
registration of the capital increase on or immediately after the period for the
acceptance of the tender offer has expired, unless, following the tender offer,
World Access will not own 50% of the outstanding shares, including those
TelDaFax shares that World Access will own upon completion of the purchase of
the TelDaFax shares owned by the Apax funds and the shares received in exchange
for World Access' contribution of the German activities of Netnet and NewTel.
TelDaFax also agreed to consult with the competent commercial register to ensure
registration of the capital increase as soon as possible after filing.
All parties have the right to withdraw from the TelDaFax contribution
agreement if:
- the completion of the purchase of the Apax funds' TelDaFax shares by
World Access is not completed by October 31, 2000;
47
<PAGE> 56
- one of the parties to the TelDaFax purchase agreement has withdrawn from
that agreement; or
- the auditor does not confirm the value of Netnet and NewTel to cover the
total contribution amount.
TelDaFax has agreed to indemnify Netnet and NewTel against all losses
incurred in connection with any contract, legal position and liability assigned
to TelDaFax and any liability relating to Netnet or NewTel employees transferred
to TelDaFax.
Each of Netnet, NewTel and TelDaFax has agreed to ensure that:
- their respective businesses are conducted in the ordinary course of
business, unless otherwise approved by the other parties, until the
registration with the commercial register of the TelDaFax shares issued
in exchange for the contribution of the Netnet and NewTel businesses;
- no steps are taken which are or could be, using sound commercial
judgment, detrimental to the transactions contemplated by the TelDaFax
contribution agreement; and
- no action is taken which would require the approval of the stockholders
or supervisory boards of Netnet, NewTel or TelDaFax.
PRINCIPAL STOCKHOLDERS OF TELDAFAX
The following table sets forth certain information regarding beneficial
ownership of TelDaFax's common stock as of August 1, 2000 by the following:
- each person who is known by TelDaFax to own beneficially 5% or more of
the outstanding shares of TelDaFax's common stock;
- each of TelDaFax's directors;
- each of TelDaFax's Chief Executive Officer and its next four most highly
compensated executive officers whose total compensation for fiscal 1999
was at least $100,000; and
- all of TelDaFax's directors and executive officers as a group.
The persons named in the following table have sole voting and investment
power with respect to all shares of TelDaFax's common stock shown as
beneficially owned by them. The Apax funds are located at Possartstrabe 11,
D-81679 Munchen, Germany. Dr. Klose is located at Rudolph-Breitscheid -- Str.
1-5 35037 Marburg.
<TABLE>
<CAPTION>
NUMBER OF
STOCKHOLDER'S NAME SHARES PERCENTAGE
------------------ --------- ----------
<S> <C> <C>
Apax Germany II LP.......................................... 3,743,116 11.06%
Apax Funds Nominees Ltd.
B Account................................................. 2,516,352 7.44
Apax Funds Nominees Ltd.
D Account................................................. 3,768,382 11.14
AP Vermogensverwaltung GbR.................................. 1,511,800 4.47
Dr. Henning F. Klose........................................ 2,756,200 8.15
</TABLE>
TELDAFAX MARKET INFORMATION
TelDaFax is traded on the Neuer Markt and the EASDAQ. The Neuer Markt
segment of the Frankfurt Stock Exchange is designed for innovative, small- to
mid-size companies in high growth industries or in traditional industries that
have an international orientation and that are willing to provide active
investor relations. Issuers are requested to provide investors on an ongoing
basis with information such as annual and quarterly reports, including cash flow
statements, and a corporation action timetable.
Trading of shares listed on the Neuer Markt takes place on the floor of the
stock exchange, but is computer-aided. Shares listed on the Neuer Markt can also
be traded on a computer-aided system called Xetra. Trading occurs on every
business day between 9:00 a.m. and 8:00 p.m., Frankfurt time. Trading within
48
<PAGE> 57
the Xetra system is executed by banks and securities dealers who have been
admitted to trading on at least one of Germany's stock exchanges. Xetra is
integrated into the Frankfurt Stock Exchange and is subject to its rules and
regulations.
Markets in listed securities are generally of the auction type, but listed
securities also change hands in inter-bank dealer markets off the Frankfurt
Stock Exchange. Price formation is determined by open bid by specialists who are
themselves exchange members, but who do not, as a rule, deal with the public.
Prices of shares traded on the Neuer Markt are displayed continuously during
trading hours. At the half-way point of each trading day, a single standard
quotation is determine for all shares. The Frankfurt Stock Exchange publishes an
official daily list of quotations containing the established prices on the
Internet at http://www.exchange.da.
Transactions on the Frankfurt Stock Exchange, including transactions within
the Xetra system, are settled on the second business day following trading.
Transactions off the Frankfurt Stock Exchange for large volumes or if one of the
parties is foreign are generally also settled on the second business day
following trading, unless the parties have agreed upon a different date.
Following a recent amendment to the conditions of German banks for securities
trading, customers' orders to buy or sell listed securities must be executed on
a stock exchange, unless the customer instructs otherwise. Trading can be
suspended by the Frankfurt Stock Exchange if orderly stock exchange trading is
temporarily endangered or if a suspension is in the public interest.
A specific feature of the Neuer Markt is the introduction of the obligatory
designated sponsor, an entity admitted for trading at the Frankfurt Stock
Exchange which provides additional liquidity by quoting prices for the buying
and selling of shares on request. Each issuer on the Neuer Markt is required to
nominate at least two designated sponsors which will not only ensure that there
is sufficient liquidity for its shares, but also serve as consultants on all
stock market related matters for the issuer.
Trading on German stock exchanges is regulated by, among others, the
Federal Supervisory Office for Securities Trading.
EASDAQ is a screen-based regulated market under Belgian law with its seat
in Brussels. Admission to trading on EASDAQ is subject to certain admission
criteria which are set by the EASDAQ Market Authority. EASDAQ operates
throughout Europe as a price driven market with a single and integrated trading
and settlement platform. On-screen quotations are reported and transactions
matched and confirmed using TRAX, the trade-reporting system of the
International Securities Market Association, which is directly linked to
INTERSETTLE, EASDAQ's clearing and settlement agency.
Financial instruments admitted to trading on EASDAQ have at least two
registered market makers. Such market makers are willing to purchase and sell
securities for which they are registered on their own account during normal
business hours and must therefore enter and maintain two sided quotations during
those hours. Quotations must:
- be at least a minimum quotation size, as specified by EASDAQ;
- be reasonably related to prevailing market prices; and
- not exceed the maximum allowable spread, as defined by EASDAQ.
COMPARATIVE PER SHARE AND OTHER MARKET PRICE DATA
The World Access common stock is traded on the Nasdaq National Market under
the symbol "WAXS," and the TelDaFax shares are traded on the regular market of
the Frankfurt Stock Exchange, Segment Neuer Markt, and on the EASDAQ under the
symbol "TFX." All TelDaFax shares have been issued in bearer form. As of August
1, 2000, TelDaFax had approximately 60,000 stockholders. Less than 10% of
TelDaFax's capital stock is held in the United States and TelDaFax shares are
not traded in the United States.
49
<PAGE> 58
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of World Access common stock as reported on
the Nasdaq National Market and TelDaFax stock as reported on the Neuer Markt.
<TABLE>
<CAPTION>
WORLD ACCESS TELDAFAX
COMMON STOCK COMMON STOCK
--------------- ---------------
HIGH LOW HIGH LOW
------ ------ ------ ------
(EURO) (EURO)
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter............................................. $33.50 $21.63 30.01 28.53
Second Quarter............................................ 40.00 25.38 43.20 30.16
Third Quarter............................................. 30.94 18.75 36.20 27.66
Fourth Quarter............................................ 24.75 12.00 11.65 11.61
Year Ended December 31, 1999:
First Quarter............................................. 22.75 6.38 64.00 29.00
Second Quarter............................................ 14.38 7.50 44.70 33.17
Third Quarter............................................. 16.19 10.83 42.60 15.16
Fourth Quarter............................................ 22.25 10.31 19.60 9.55
Year Ended December 31, 2000:
First Quarter............................................. 26.88 17.25 23.40 10.60
Second Quarter............................................ 20.00 9.25 18.94 9.31
Third Quarter (through August 25, 2000)................... 11.38 8.00 9.45 7.70
</TABLE>
The following table sets forth the closing prices per share of World Access
common stock as reported on the Nasdaq National Market and TelDaFax stock as
reported on the Neuer Markt. On June 13, 2000, the business day preceding public
announcement that World Access and TelDaFax had signed the TelDaFax purchase
agreement, the closing prices per share of World Access and TelDaFax were 11.44
and 11.60, respectively, and on , 2000, the last full trading day for
which closing prices were available at the time of the printing of this proxy
statement/prospectus, the closing prices per share of World Access and TelDaFax
were and , respectively. This table also sets forth the equivalent
price per share of TelDaFax common stock on those dates. The equivalent price
per share is equal to the closing price of a share of World Access common stock
on that date multiplied by 1.025, the number of shares of World Access common
stock to be issued in exchange for each share of TelDaFax common stock.
<TABLE>
<CAPTION>
TELDAFAX WORLD ACCESS EQUIVALENT PER
COMMON STOCK COMMON STOCK SHARE PRICE
------------ ------------ --------------
<S> <C> <C> <C>
June 13, 2000......................................... $11.60 $11.44 $11.73
, 2000........................................
</TABLE>
TelDaFax and World Access believe that the TelDaFax common stock presently
trades on the basis of the value of the World Access common stock expected to be
issued in exchange for the TelDaFax common stock in the TelDaFax tender offer,
discounted primarily for the uncertainties associated with the TelDaFax tender
offer. Apart from the publicly disclosed information concerning World Access
which is included in, or incorporated by reference to, this proxy
statement/prospectus, World Access cannot state with certainty what factors
account for changes in the market price of the World Access common stock.
TelDaFax stockholders are advised to obtain current market quotations for
World Access common stock and TelDaFax common stock. No assurance can be given
as to the market prices of World Access common stock or TelDaFax common stock at
any time before the completion of the TelDaFax tender offer or as to the market
price of World Access common stock at any time after the completion of the
TelDaFax tender offer.
World Access has never paid cash dividends on its shares of capital stock,
and TelDaFax had no distributable profits for the fiscal year 1999. Pursuant to
the TelDaFax purchase agreement, TelDaFax has agreed not to pay dividends prior
to the closing of the TelDaFax purchase agreement.
50
<PAGE> 59
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Combined Financial Statements
of World Access give effect to several transactions, under seven different
scenarios, that World Access has completed or are currently contemplated as
follows:
<TABLE>
<S> <C> <C>
Scenario 1: World Access acquires STAR, WorldxChange and TelDaFax.
Scenario 2: World Access acquires STAR and WorldxChange.
Scenario 3: World Access acquires STAR and TelDaFax.
Scenario 4: World Access acquires WorldxChange and TelDaFax.
Scenario 5: World Access acquires STAR.
Scenario 6: World Access acquires WorldxChange.
Scenario 7: World Access acquires TelDaFax.
</TABLE>
The Unaudited Pro Forma Condensed Combined Statements of Operations for the
year ended December 31, 1999 also give effect to (i) the FaciliCom acquisition,
(ii) the Comm/Net acquisition and (iii) the LDI acquisition as if each of the
acquisitions had occurred on January 1, 1999. The Unaudited Pro Forma Condensed
Combined Balance Sheets as of June 30, 2000 under all seven scenarios gives
effect to the STAR, WorldxChange and TelDaFax acquisitions as if each
acquisition had occurred on June 30, 2000. The Unaudited Pro Forma Condensed
Combined Statements of Operations for the six months ended June 30, 2000 under
all seven scenarios also give effect to the LDI acquisition as if the
acquisition had occurred on January 1, 1999.
On June 14, 2000, World Access entered into a definitive agreement pursuant
to which it agreed to acquire a majority share in TelDaFax in a series of
transactions. TelDaFax is a facilities-based provider of bundled fixed line,
wireless, Internet and e-Commerce services to business and residential customers
in Germany. Pursuant to the terms of the agreement, World Access has agreed to
buy the 33% interest in TelDaFax held by the Apax funds by issuing World Access
common stock at an exchange ratio of 1.025 shares of World Access for each share
of TelDaFax. In addition, World Access intends to make a tender offer for all of
the remaining shares of TelDaFax at the exchange ratio. World Access also will
contribute certain of its German businesses to TelDaFax in exchange for newly
issued TelDaFax shares.
The completion of these transactions is subject to, among other things,
acquisitions by World Access in the transactions of no less than 50.1% of the
fully diluted shares outstanding of TelDaFax on a pro forma basis, certain
regulatory approvals, including antitrust approval in Germany, and the approval
of the shareholders of World Access. The closing of the Apax acquisition, the
tender offer and the contribution will occur simultaneously. The transactions
are anticipated to close around the end of the third quarter. Concurrent with
the transactions, World Access intends to apply for listing on one or more
European stock exchanges, including the Neuer Market in Germany.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that the management of World Access believes are
reasonable. Each of the acquisition transactions above has been accounted for
using the purchase method of accounting. The adjustments recorded in the
Unaudited Pro Forma Condensed Combined Financial Statements represent the
preliminary determination of these adjustments based upon available information.
The total estimated purchase price of the transaction has been allocated on a
preliminary basis to assets and liabilities based on management's estimate of
their fair values. There can be no assurance that the actual adjustments will
not differ significantly from the pro forma adjustments reflected in the
Unaudited Pro Forma Condensed Combined Financial Statements.
The Unaudited Pro Forma Condensed Combined Financial Statements are not
necessarily indicative of the financial position or the future results of
operations or results that might have been achieved if the foregoing acquisition
transactions had been consummated as of the indicated dates. The Unaudited Pro
Forma Condensed Combined Financial Statements should be read in conjunction with
the historical consolidated financial statements of World Access, LDI, STAR,
WorldxChange and TelDaFax and the related notes thereto. See "Incorporation of
Certain Documents by Reference" and "Available Information."
51
<PAGE> 60
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
WORLD STAR AND STAR WORLDXCHANGE
ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS
---------- --------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents......... $ 329,279 $ 131,884 $ -- $ 461,163 $ 6,913 $ --
Short-term investments....... 160,211 1,756 -- 161,967 -- --
Restricted cash.............. 31,095 -- -- 31,095 -- --
Accounts and notes
receivable.................. 264,678 99,810 -- 364,488 103,172 (2,201)(17)
Prepaid expenses and other
current assets.............. 38,491 22,023 -- 60,514 32,566 --
Net assets held for sale..... 41,465 -- -- 41,465 -- --
---------- --------- ----------- ------------ ---------------- ------------
Total Current Assets... 865,219 255,473 -- 1,120,692 142,651 (2,201)
---------- --------- ----------- ------------ ---------------- ------------
Property and equipment....... 151,609 261,555 (94,000)(2) 319,164 193,494 (6,500)(11)
(68,000)(11)
Goodwill and other
intangibles................. 1,080,797 3,968 (1,764)(4) 1,336,990 90,162 (76,327)(15)
-- 250,689 (2) 591,090 (11)
3,300 (2) 29,500 (11)
Other assets................. 79,185 4,767 -- 83,952 4,105 (38,192)(11)
---------- --------- ----------- ------------ ---------------- ------------
Total Assets........... $2,176,810 $ 525,763 $ 158,225 $ 2,860,798 $ 430,412 $ 429,370
========== ========= =========== ============ ================ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.............. $ 57,033 $ 86,680 $ (55,685)(6) $ 88,028 $ 201,825 $ (2,201)(17)
(38,192)(11)
(3,213)(15)
Accounts payable............. 246,436 104,507 (21,789)(6) 329,154 23,682 (792)(15)
Other accrued liabilities.... 151,328 107,689 3,000 (2) 260,794 224,478 3,000 (11)
(1,223)(6) -- --
---------- --------- ----------- ------------ ---------------- ------------
Total Current
Liabilities.......... 454,797 298,876 (75,697) 677,976 449,985 (41,398)
---------- --------- ----------- ------------ ---------------- ------------
Long-term debt............... 417,946 55,398 -- 473,344 70,829 (11,596)(15)
Other long-term
liabilities................. 10,336 32,744 -- 43,080 5,547 --
---------- --------- ----------- ------------ ---------------- ------------
Total Liabilities...... 883,079 387,018 (75,697) 1,194,400 526,361 (52,994)
---------- --------- ----------- ------------ ---------------- ------------
Minority interests........... -- -- -- -- -- --
Stockholders' Equity
(Deficit):
Preferred stock............. 6 -- -- 6 30,000 (30,000)(14)
Common stock................ 617 58 (58)(5) 912 148,056 (148,056)(14)
227 (2) 298 (11)
68 (6) 14 (15)
Additional paid in capital... 1,471,126 365,930 (365,930)(5) 1,843,498 -- 352,804 (11)
285,604 (2) 17,712 (11)
8,139 (2) 15,587 (15)
78,629 (6)
Deferred compensation........ -- (1,810) 1,810 (5) -- -- --
Notes receivable from
shareholders................ -- (3,856) 3,856 (5) -- (1,937) 1,937 (14)
Accumulated other
comprehensive loss.......... (12,239) (8,017) 8,017 (5) (12,239) (12,900) 12,900 (14)
Accumulated deficit.......... (165,779) (213,560) 213,560 (5) (165,779) (259,168) 259,168 (14)
---------- --------- ----------- ------------ ---------------- ------------
Total Stockholders'
Equity (Deficit)..... 1,293,731 138,745 233,922 1,666,398 (95,949) 482,364
---------- --------- ----------- ------------ ---------------- ------------
Total Liabilities and
Stockholders'
Equity............... $2,176,810 $ 525,763 $ 158,225 $ 2,860,798 $ 430,412 $ 429,370
========== ========= =========== ============ ================ ============
<CAPTION>
PRO FORMA PRO FORMA
WORLD ACCESS, WORLD ACCESS,
STAR AND STAR, WORLDXCHANGE
WORLDXCHANGE TELDAFAX TELDAFAX AND TELDAFAX
COMBINED (21) ADJUSTMENTS COMBINED
------------- -------- ----------- ------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents......... $ 468,076 $ 26,408 $ -- $ 494,484
Short-term investments....... 161,967 -- -- 161,967
Restricted cash.............. 31,095 -- -- 31,095
Accounts and notes
receivable.................. 465,459 42,427 -- 507,886
Prepaid expenses and other
current assets.............. 93,080 30,625 -- 123,705
Net assets held for sale..... 41,465 -- -- 41,465
------------- -------- ----------- ------------------
Total Current Assets... 1,261,142 99,460 -- 1,360,602
------------- -------- ----------- ------------------
Property and equipment....... 438,158 65,281 (24,000)(22) 479,439
Goodwill and other
intangibles................. 1,971,415 15,811 (12,430)(24) 2,329,765
330,969 (22)
24,000 (22)
Other assets................. 49,865 13,027 -- 62,892
------------- -------- ----------- ------------------
Total Assets........... $ 3,720,580 $193,579 $ 318,539 $ 4,232,698
============= ======== =========== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.............. $ 246,247 $ 7,260 $ -- $ 253,507
--
Accounts payable............. 352,044 73,688 -- 425,732
Other accrued liabilities.... 488,272 9,626 5,000 (22) 502,898
--
------------- -------- ----------- ------------------
Total Current
Liabilities.......... 1,086,563 90,574 5,000 1,182,137
------------- -------- ----------- ------------------
Long-term debt............... 532,577 19,320 -- 551,897
Other long-term
liabilities................. 48,627 347 -- 48,974
------------- -------- ----------- ------------------
Total Liabilities...... 1,667,767 110,241 5,000 1,783,008
------------- -------- ----------- ------------------
Minority interests........... -- 888 -- 888
Stockholders' Equity
(Deficit):
Preferred stock............. 6 -- -- 6
Common stock................ 1,224 84,309 (84,309)(25) 1,571
347 (22)
Additional paid in capital... 2,229,601 7,737 (7,737)(25) 2,625,243
395,642 (22)
Deferred compensation........ -- -- -- --
Notes receivable from
shareholders................ -- -- -- --
Accumulated other
comprehensive loss.......... (12,239) -- -- (12,239)
Accumulated deficit.......... (165,779) (9,596) 9,596 (25) (165,779)
------------- -------- ----------- ------------------
Total Stockholders'
Equity (Deficit)..... 2,052,813 82,450 313,539 2,448,802
------------- -------- ----------- ------------------
Total Liabilities and
Stockholders'
Equity............... $ 3,720,580 $193,579 $ 318,539 $ 4,232,698
============= ======== =========== ==================
</TABLE>
52
<PAGE> 61
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10)
---------------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Service revenues........................ $570,279 $236,915 $(15,426)(7) $791,768 $280,589
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)...................... 500,355 209,303 (15,426)(7) 694,232 225,270
Selling, general and administrative..... 59,430 39,118 -- 98,548 80,584
Depreciation and amortization........... 41,155 18,069 1,173(3) 54,012 25,756
(6,715)(3)
330(3)
Restructuring and other special
charges................................ (3,995) -- -- (3,995) --
-------- -------- -------- -------- --------
Total operating expenses.......... 596,945 266,490 (20,638) 842,797 331,610
-------- -------- -------- -------- --------
Operating loss.................... (26,666) (29,575) 5,212 (51,029) (51,021)
Interest and other income............... 12,996 7,687 -- 20,683 --
Interest and other expense.............. (29,789) (7,154) 1,223(6) (35,720) (17,101)
Foreign exchange loss................... 117 -- -- 117 --
-------- -------- -------- -------- --------
Loss from continuing operations
before income taxes and minority
interests........................ (43,342) (29,042) 6,435 (65,949) (68,122)
Provision (benefit) for income taxes.... (205) (7,277) 3,119(8) (4,363) --
-------- -------- -------- -------- --------
Loss from continuing operations
before minority interest......... (43,137) (21,765) 3,316 (61,586) (68,122)
Minority interest....................... -- -- -- -- --
-------- -------- -------- -------- --------
Loss from continuing operations... (43,137) (21,765) 3,316 (61,586) (68,122)
Preferred stock dividends............... (1,163) -- -- (1,163) (800)
-------- -------- -------- -------- --------
Loss from continuing operations
available to common
stockholders..................... $(44,300) $(21,765) $ 3,316 $(62,749) $(68,922)
======== ======== ======== ======== ========
Loss per common share from continuing
operations:
Basic.................................. $ (0.77)
========
Diluted................................ $ (0.77)
========
Weighted average shares outstanding:
Basic.................................. 57,658
========
Diluted................................ 57,658
========
<CAPTION>
PRO FORMA
WORLD ACCESS, PRO FORMA
STAR AND WORLD ACCESS, STAR,
WORLDXCHANGE WORLDXCHANGE TELDAFAX WORLDXCHANGE AND
ADJUSTMENTS COMBINED TELDAFAX(21) ADJUSTMENTS TELDAFAX COMBINED
------------ ------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C>
Service revenues........................ $(19,477)(16) $1,052,880 $150,036 $(2,772)(26) $1,200,144
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)...................... (19,477)(16) 900,025 126,302 (2,772)(26) 1,023,555
Selling, general and administrative..... 179,132 27,807 -- 206,939
Depreciation and amortization........... 12,119(12) 89,977 12,253 7,580(23) 110,495
(4,860)(12) (1,715)(23)
2,950(12) 2,400(23)
Restructuring and other special
charges................................ -- (3,995) -- -- (3,995)
-------- ---------- -------- ------- ----------
Total operating expenses.......... (9,268) 1,165,139 166,362 5,493 1,336,994
-------- ---------- -------- ------- ----------
Operating loss.................... (10,209) (112,259) (16,326) (8,265) (136,850)
Interest and other income............... -- 20,683 885 -- 21,568
Interest and other expense.............. 901(15) (51,920) (788) -- (52,708)
Foreign exchange loss................... -- 117 -- -- 117
-------- ---------- -------- ------- ----------
Loss from continuing operations
before income taxes and minority
interests........................ (9,308) (143,379) (16,229) (8,265) (167,873)
Provision (benefit) for income taxes.... 1,153(18) (3,210) (6,676) (281)(27) (10,167)
-------- ---------- -------- ------- ----------
Loss from continuing operations
before minority interest......... (10,461) (140,169) (9,553) (7,984) (157,706)
Minority interest....................... -- -- 851 -- 851
-------- ---------- -------- ------- ----------
Loss from continuing operations... (10,461) (140,169) (8,702) (7,984) (156,855)
Preferred stock dividends............... (1,963) -- -- (1,963)
-------- ---------- -------- ------- ----------
Loss from continuing operations
available to common
stockholders..................... $(10,461) $ (142,132) $ (8,702) $(7,984) $ (158,818)
======== ========== ======== ======= ==========
Loss per common share from continuing
operations:
Basic.................................. $ (1.03)(9)(19)(28)
==========
Diluted................................ $ (1.03)(9)(19)(28)
==========
Weighted average shares outstanding:
Basic.................................. 154,858(9)(19)(28)
==========
Diluted................................ 154,858(9)(19)(28)
==========
</TABLE>
53
<PAGE> 62
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PROFORMA WORLD ACCESS
WORLD ACCESS STAR STAR AND STAR WORLDXCHANGE
(29) (1) ADJUSTMENTS COMBINED (10)
---------------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Service revenues....................... $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)................... 905,936 537,895 (17,949)(7) 1,425,882 477,317
Selling, general and administrative... 146,231 108,246 -- 254,477 193,070
Depreciation and amortization......... 96,783 29,635 3,999(3) 117,648 43,304
(13,429)(3)
660(3)
Merger expense........................ -- 1,867 -- 1,867 --
Restructuring and other special
charges............................. 44,187 -- -- 44,187 --
---------- -------- -------- ---------- ---------
Total operating expenses......... 1,193,137 677,643 (26,719) 1,844,061 713,691
---------- -------- -------- ---------- ---------
Operating loss................... (173,584) (61,174) 8,770 (225,988) (106,656)
Interest and other income.............. 10,822 6,701 -- 17,523 --
Interest and other expense............. (58,208) (8,614) -- (66,822) (25,385)
Foreign exchange loss.................. (2,369) (3,471) -- (5,840) --
---------- -------- -------- ---------- ---------
Loss from continuing operations
before income taxes and minority
interests....................... (223,339) (66,558) 8,770 (281,127) (132,041)
Provision (benefit) for income taxes... (6,999) (11,041) 5,235(8) (12,805) --
---------- -------- -------- ---------- ---------
Loss from continuing operations
before minority interest........ (216,340) (55,517) 3,535 (268,322) (132,041)
Minority interest...................... -- -- -- -- --
---------- -------- -------- ---------- ---------
Loss from continuing
operations...................... (216,340) (55,517) 3,535 (268,322) (132,041)
Preferred stock dividends.............. (2,461) -- -- (2,461) 1,614
---------- -------- -------- ---------- ---------
Loss from continuing operations
available to common
stockholders.................... $ (218,801) $(55,517) $ 3,535 $ (270,783) $(130,427)
========== ======== ======== ========== =========
Loss per common share from continuing
operations:
Basic................................. $ (4.32)
==========
Diluted............................... $ (4.32)
==========
Weighted average shares outstanding:
Basic................................. 50,634
==========
Diluted............................... 50,634
==========
<CAPTION>
PRO FORMA
WORLD ACCESS, PRO FORMA
STAR AND WORLD ACCESS, STAR,
WORLDXCHANGE WORLDXCHANGE TELDAFAX TELDAFAX WORLDXCHANGE AND
ADJUSTMENTS COMBINED (21) ADJUSTMENTS TELDAFAX COMBINED
------------ ------------- ------------ ----------- -------------------
<S> <C> <C> <C> <C> <C>
Service revenues....................... $(25,601)(16) $2,199,507 $364,039 $ (8,914)(26) $2,554,632
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)................... (25,601)(16) 1,877,598 304,810 (8,914)(26) 2,173,494
Selling, general and administrative... 447,547 48,758 -- 496,305
Depreciation and amortization......... 10,914(12) 166,752 18,369 15,945(23) 202,437
(1,300)(11) (3,429)(23)
(9,714)(12) 4,800(23)
Merger expense........................ 5,900(12) 1,867 -- 1,867
Restructuring and other special
charges............................. 44,187 -- -- 44,187
-- ---------- -------- -------- ----------
Total operating expenses......... -------- 2,537,951 371,937 8,402 2,918,290
(19,801) ---------- -------- -------- ----------
Operating loss................... -------- (338,444) (7,898) (17,316) (363,658)
Interest and other income.............. (5,800) 17,523 2,469 -- 19,992
Interest and other expense............. -- (90,977) (2,171) -- (93,148)
Foreign exchange loss.................. 1,230(15) (5,840) -- -- (5,840)
-- ---------- -------- -------- ----------
Loss from continuing operations --------
before income taxes and minority
interests....................... (417,738) (7,600) (17,316) (442,654)
Provision (benefit) for income taxes... (4,570) (7,785) (3,830) (562)(27) (12,177)
5,020(18) ---------- -------- -------- ----------
Loss from continuing operations --------
before minority interest........ (409,953) (3,770) (16,754) (430,477)
Minority interest...................... (9,590) -- 774 -- 774
-- ---------- -------- -------- ----------
Loss from continuing --------
operations...................... (409,953) (2,996) (16,754) (429,703)
Preferred stock dividends.............. (9,590) (847) -- -- (847)
---------- -------- -------- ----------
Loss from continuing operations --------
available to common
stockholders.................... $ (410,800) $ (2,996) $(16,754) $ (430,550)
$ (9,590) ========== ======== ======== ==========
Loss per common share from continuing ========
operations:
Basic................................. $ (2.91)(9)(19)(28)
==========
Diluted............................... $ (2.91)(9)(19)(28)
==========
Weighted average shares outstanding:
Basic................................. 147,824(9)(19)(28)
==========
Diluted............................... 147,824(9)(19)(28)
==========
</TABLE>
54
<PAGE> 63
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
WORLD STAR AND STAR WORLDXCHANGE
ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS
---------- --------- ------------ ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents...... $ 329,279 $ 131,884 $ -- $ 461,163 $ 6,913 $ --
Short-term investments.... 160,211 1,756 -- 161,967 -- --
Restricted cash........... 31,095 -- -- 31,095 -- --
Accounts and notes
receivable............... 264,678 99,810 -- 364,488 103,172 (2,201)(17)
Prepaid expenses and other
current assets........... 38,491 22,023 -- 60,514 32,566 --
Net assets held for
sale..................... 41,465 -- -- 41,465 -- --
---------- --------- ------------ ---------- --------- ---------
Total Current
Assets........... 865,219 255,473 -- 1,120,692 142,651 (2,201)
---------- --------- ------------ ---------- --------- ---------
Property and equipment.... 151,609 261,555 (94,000)(2) 319,164 193,494 (6,500)(11)
(68,000)(11)
Goodwill and other
intangibles.............. 1,080,797 3,968 (1,764)(4) 1,336,990 90,162 (76,327)(15)
250,689(2) 591,090(11)
3,300(2) 29,500(11)
Other assets.............. 79,185 4,767 -- 83,952 4,105 (38,192)(11)
---------- --------- ------------ ---------- --------- ---------
Total Assets....... $2,176,810 $ 525,763 $ 158,225 $2,860,798 $ 430,412 $ 429,370
========== ========= ============ ========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt........... $ 57,033 $ 86,680 $ (55,685)(6) $ 88,028 $ 201,825 $ (2,201)(17)
(38,192)(11)
(3,213)(15)
Accounts payable.......... 246,436 104,507 (21,789)(6) 329,154 23,682 (792)(15)
Other accrued
liabilities.............. 151,328 107,689 3,000(2) 260,794 224,478 3,000(11)
(1,223)(6)
---------- --------- ------------ ---------- --------- ---------
Total Current
Liabilities...... 454,797 298,876 (75,697) 677,976 449,985 (41,398)
Long-term debt............ 417,946 55,398 -- 473,344 70,829 (11,596)(15)
Other long-term
liabilities.............. 10,336 32,744 -- 43,080 5,547 --
---------- --------- ------------ ---------- --------- ---------
Total
Liabilities...... 883,079 387,018 (75,697) 1,194,400 526,361 (52,994)
---------- --------- ------------ ---------- --------- ---------
Stockholders' Equity
(Deficit):
Preferred Stock........... 6 -- -- 6 30,000 (30,000)(14)
Common stock.............. 617 58 (58)(5) 912 148,056 (148,056)(14)
227(2) 298(11)
68(6) 14(15)
Additional paid in
capital.................. 1,471,126 365,930 (365,930)(5) 1,843,498 -- 352,804(11)
285,604(2) 17,712(11)
8,139(2) 15,587(15)
78,629(6)
Deferred compensation..... -- (1,810) 1,810(5) -- -- --
Notes receivable from
shareholders............. -- (3,856) 3,856(5) -- (1,937) 1,937(14)
Accumulated other
comprehensive loss....... (12,239) (8,017) 8,017(5) (12,239) (12,900) 12,900(14)
Accumulated deficit....... (165,779) (213,560) 213,560(5) (165,779) (259,168) 259,168(14)
---------- --------- ------------ ---------- --------- ---------
Total Stockholders'
Equity
(Deficit)........ 1,293,731 138,745 233,922 1,666,398 (95,949) 482,364
---------- --------- ------------ ---------- --------- ---------
Total Liabilities
and Stockholders'
Equity........... $2,176,810 $ 525,763 $ 158,225 $2,860,798 $ 430,412 $ 429,370
========== ========= ============ ========== ========= =========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE
COMBINED
-------------
<S> <C>
ASSETS
Cash and equivalents...... $ 468,076
Short-term investments.... 161,967
Restricted cash........... 31,095
Accounts and notes
receivable............... 465,459
Prepaid expenses and other
current assets........... 93,080
Net assets held for
sale..................... 41,465
----------
Total Current
Assets........... 1,261,142
----------
Property and equipment.... 438,158
Goodwill and other
intangibles.............. 1,971,415
Other assets.............. 49,865
----------
Total Assets....... $3,720,580
==========
LIABILITIES
AND
STOCKHOLDERS'
EQUITY
Short-term debt........... $ 246,247
Accounts payable.......... 352,044
Other accrued
liabilities.............. 488,272
----------
Total Current
Liabilities...... 1,086,563
Long-term debt............ 532,577
Other long-term
liabilities.............. 48,627
----------
Total
Liabilities...... 1,667,767
----------
Stockholders' Equity (Defi
Preferred Stock........... 6
Common stock.............. 1,224
Additional paid in
capital.................. 2,229,601
Deferred compensation..... --
Notes receivable from
shareholders............. --
Accumulated other
comprehensive loss....... (12,239)
Accumulated deficit....... (165,779)
----------
Total Stockholders'
Equity
(Deficit)........ 2,052,813
----------
Total Liabilities
and Stockholders'
Equity........... $3,720,580
==========
</TABLE>
55
<PAGE> 64
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10)
---------------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Service revenues................... $570,279 $236,915 $ (15,426)(7) $791,768 $280,589
Operating expenses:................
Cost of services (exclusive of
depreciation and amortization
shown separately below).......... 500,355 209,303 (15,426)(7) 694,232 225,270
Selling, general and
administrative................... 59,430 39,118 -- 98,548 80,584
Depreciation and amortization...... 41,155 18,069 1,173(3) 54,012 25,756
(6,715)(3)
330(3)
Restructuring and other special
charges.......................... (3,995) -- -- (3,995) --
-------- -------- ----------- -------- --------
Total operating expenses... 596,945 266,490 (20,638) 842,797 331,610
-------- -------- ----------- -------- --------
Operating loss............. (26,666) (29,575) 5,212 (51,029) (51,021)
Interest and other income.......... 12,996 7,687 -- 20,683 --
Interest and other expense......... (29,789) (7,154) 1,223(6) (35,720) (17,101)
Foreign exchange loss.............. 117 -- -- 117 --
-------- -------- ----------- -------- --------
Loss from continuing
operations before income
taxes and minority
interests................ (43,342) (29,042) 6,435 (65,949) (68,122)
Provision (benefit) for income
taxes............................ (205) (7,277) 3,119(8) (4,363) --
-------- -------- ----------- -------- --------
Loss from continuing
operations before
minority interest........ (43,137) (21,765) 3,316 (61,586) (68,122)
Minority interest.................. -- -- -- -- --
-------- -------- ----------- -------- --------
Loss from continuing
operations............... (43,137) (21,765) 3,316 (61,586) (68,122)
Preferred stock dividends.......... (1,163) -- -- (1,163) (800)
======== ======== =========== ======== ========
Loss from continuing
operations available to
common stockholders...... $(44,300) $(21,765) $ 3,316 $(62,749) $(68,922)
======== ======== =========== ======== ========
Loss per common share from
continuing operations:
Basic............................ $ (0.77)
========
Diluted.......................... $ (0.77)
========
Weighted average shares
outstanding:
Basic............................ 57,658
========
Diluted.......................... 57,658
========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE WORLDXCHANGE
ADJUSTMENTS COMBINED
------------ -------------
<S> <C> <C>
Service revenues................... $ (19,477)(16) $ 1,052,880
Operating expenses:................
Cost of services (exclusive of
depreciation and amortization
shown separately below).......... (19,477)(16) 900,025
Selling, general and
administrative................... -- 179,132
Depreciation and amortization...... 12,119(12) 89,977
Restructuring and other special (4,860)(12)
charges.......................... 2,950(12) (3,995)
-------------
Total operating expenses... -- 1,165,139
------------ -------------
Operating loss............. (9,268) (112,259)
Interest and other income.......... ------------ 20,683
Interest and other expense......... (10,209) (51,920)
Foreign exchange loss.............. -- 117
901(15) -------------
Loss from continuing --
operations before income ------------
taxes and minority
interests................ (143,379)
Provision (benefit) for income
taxes............................ (9,308) (3,210)
-------------
Loss from continuing 1,153(18)
operations before ------------
minority interest........ (140,169)
Minority interest.................. --
(10,461) -------------
Loss from continuing --
operations............... ------------ (140,169)
Preferred stock dividends.......... (1,963)
(10,461) =============
Loss from continuing --
operations available to ============
common stockholders...... $ (142,132)
=============
Loss per common share from $ (10,461)
continuing operations: ============
Basic............................ $ (1.18)(9)(19)
=============
Diluted.......................... $ (1.18)(9)(19)
=============
Weighted average shares
outstanding:
Basic............................ 120,173(9)(19)
=============
Diluted.......................... 120,173(9)(19)
=============
</TABLE>
56
<PAGE> 65
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR WORLDXCHANGE
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS
---------------- -------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Service revenues................. $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035 $(25,601)(16)
Operating expenses:..............
Cost of services (exclusive of
depreciation and amortization
shown separately below)...... 905,936 537,895 (17,949)(7) 1,425,882 477,317 (25,601)(16)
Selling, general and
administrative............... 146,231 108,246 -- 254,477 193,070 --
Depreciation and
amortization................. 96,783 29,635 3,999(3) 117,648 43,304 10,914(12)
(13,429)(3) (1,300)(11)
660(3) (9,714)(12)
5,900(12)
Merger expense................. -- 1,867 -- 1,867 -- --
Restructuring and other special
charges...................... 44,187 -- -- 44,187 -- --
---------- -------- -------- ---------- --------- --------
Total operating
expenses............... 1,193,137 677,643 (26,719) 1,844,061 713,691 (19,801)
---------- -------- -------- ---------- --------- --------
Operating loss........... (173,584) (61,174) 8,770 (225,988) (106,656) (5,800)
Interest and other income........ 10,822 6,701 -- 17,523 -- --
Interest and other expense....... (58,208) (8,614) -- (66,822) (25,385) 1,230(15)
Foreign exchange loss............ (2,369) (3,471) -- (5,840) -- --
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations before
income taxes and
minority interests..... (223,339) (66,558) 8,770 (281,127) (132,041) (4,570)
Provision (benefit) for income
taxes.......................... (6,999) (11,041) 5,235(8) (12,805) -- 5,020(18)
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations before
minority interest...... (216,340) (55,517) 3,535 (268,322) (132,041) (9,590)
Minority interest................ -- -- -- -- -- --
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations............. (216,340) (55,517) 3,535 (268,322) (132,041) (9,590)
Preferred stock dividends........ (2,461) -- -- (2,461) 1,614 --
---------- -------- -------- ---------- --------- --------
Loss from continuing
operations available to
common stockholders.... $ (218,801) $(55,517) $ 3,535 $ (270,783) $(130,427) $ (9,590)
========== ======== ======== ========== ========= ========
Loss per common share from
continuing operations:
Basic.......................... $ (3.79)
==========
Diluted...................... $ (3.79)
==========
Weighted average shares
outstanding:
Basic.......................... 57,658
==========
Diluted........................ 57,658
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE
COMBINED
-------------
<S> <C>
Service revenues................. $2,199,507
Operating expenses:..............
Cost of services (exclusive of
depreciation and amortization
shown separately below)...... 1,877,598
Selling, general and
administrative............... 447,547
Depreciation and
amortization................. 166,752
Merger expense................. 1,867
Restructuring and other special
charges...................... 44,187
----------
Total operating
expenses............... 2,537,951
----------
Operating loss........... (338,444)
Interest and other income........ 17,523
Interest and other expense....... (90,977)
Foreign exchange loss............ (5,840)
----------
Loss from continuing
operations before
income taxes and
minority interests..... (417,738)
Provision (benefit) for income
taxes.......................... (7,785)
----------
Loss from continuing
operations before
minority interest...... (409,953)
Minority interest................ --
----------
Loss from continuing
operations............. (409,953)
Preferred stock dividends........ (847)
----------
Loss from continuing
operations available to
common stockholders.... $ (410,800)
==========
Loss per common share from
continuing operations:
Basic.......................... $ (3.63)(9)(19)
==========
Diluted...................... $ (3.63)(9)(19)
==========
Weighted average shares
outstanding:
Basic.......................... 113,149(9)(19)
==========
Diluted........................ 113,149(9)(19)
==========
</TABLE>
57
<PAGE> 66
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
STAR AND STAR TELDAFAX
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED TELDAFAX(21) ADJUSTMENTS
---------------- --------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.............. $ 329,279 $ 131,884 $ -- $ 461,163 $ 26,408 $ --
Short-term investments............ 160,211 1,756 -- 161,967 -- --
Restricted cash................... 31,095 -- -- 31,095 -- --
Accounts and notes receivable..... 264,678 99,810 -- 364,488 42,427 --
Prepaid expenses and other current
assets........................... 38,491 22,023 -- 60,514 30,625 --
Net assets held for sale.......... 41,465 -- -- 41,465 -- --
---------- --------- --------- ---------- -------- --------
Total Current Assets....... 865,219 255,473 -- 1,120,692 99,460 --
---------- --------- --------- ---------- -------- --------
Property and equipment............ 151,609 261,555 (94,000)(2) 319,164 65,281 (24,000)(22)
Goodwill and other intangibles.... 1,080,797 3,968 (1,764)(4) 1,336,990 15,811 (12,430)(24)
250,689(2) 330,969(22)
3,300(2) 24,000(22)
Other assets...................... 79,185 4,767 -- 83,952 13,027 --
---------- --------- --------- ---------- -------- --------
Total Assets............... $2,176,810 $ 525,763 $ 158,225 $2,860,798 $193,579 $318,539
========== ========= ========= ========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt................... $ 57,033 $ 86,680 $ (55,685)(6) $ 88,028 $ 7,260 $ --
Accounts payable.................. 246,436 104,507 (21,789)(6) 329,154 73,688 --
Other accrued liabilities......... 151,328 107,689 3,000(2) 260,794 9,626 5,000(22)
(1,223)(6)
---------- --------- --------- ---------- -------- --------
Total Current
Liabilities.............. 454,797 298,876 (75,697) 677,976 90,574 5,000
Long-term debt.................... 417,946 55,398 -- 473,344 19,320 --
Other long-term liabilities....... 10,336 32,744 -- 43,080 347 --
---------- --------- --------- ---------- -------- --------
Total Liabilities.......... 883,079 387,018 (75,697) 1,194,400 110,241 5,000
---------- --------- --------- ---------- -------- --------
Minority interests................ 888 --
Stockholders' Equity (Deficit):
Preferred Stock.................. 6 -- -- 6 -- --
Common stock..................... 617 58 (58)(5) 912 84,309 (84,309)(25)
227(2) 347(22)
68(6)
Additional paid in capital........ 1,471,126 365,930 (365,930)(5) 1,843,498 7,737 (7,737)(25)
285,604(2) 395,642(22)
8,139(2)
78,629(6)
Deferred compensation............. -- (1,810) 1,810(5) -- -- --
Notes receivable from
shareholders..................... -- (3,856) 3,856(5) -- -- --
Accumulated other comprehensive
loss............................. (12,239) (8,017) 8,017(5) (12,239) -- --
Accumulated deficit............... (165,779) (213,560) 213,560(5) (165,779) (9,596) 9,596(25)
---------- --------- --------- ---------- -------- --------
Total Stockholders' Equity
(Deficit)................ 1,293,731 138,745 233,922 1,666,398 82,450 313,539
---------- --------- --------- ---------- -------- --------
Total Liabilities and
Stockholders' Equity..... $2,176,810 $ 525,763 $ 158,225 $2,860,798 $193,579 $318,539
========== ========= ========= ========== ======== ========
<CAPTION>
PRO FORMA
WORLD ACCESS, STAR
AND TELDAFAX
COMBINED
------------------
<S> <C>
ASSETS
Cash and equivalents.............. $ 487,571
Short-term investments............ 161,967
Restricted cash................... 31,095
Accounts and notes receivable..... 406,915
Prepaid expenses and other current
assets........................... 91,139
Net assets held for sale.......... 41,465
----------
Total Current Assets....... 1,220,152
----------
Property and equipment............ 360,445
Goodwill and other intangibles.... 1,695,340
Other assets...................... 96,979
----------
Total Assets............... $3,372,916
==========
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Short-term debt................... $ 95,288
--
Accounts payable.................. 402,842
Other accrued liabilities......... 275,420
----------
Total Current
Liabilities.............. 773,550
Long-term debt.................... 492,664
Other long-term liabilities....... 43,427
----------
Total Liabilities.......... 1,309,641
----------
Minority interests................ 888
Stockholders' Equity (Deficit):
Preferred Stock.................. 6
Common stock..................... 1,259
Additional paid in capital........ 2,239,140
Deferred compensation............. --
Notes receivable from
shareholders..................... --
Accumulated other comprehensive
loss............................. (12,239)
Accumulated deficit............... (165,779)
----------
Total Stockholders' Equity
(Deficit)................ 2,062,387
----------
Total Liabilities and
Stockholders' Equity..... $3,372,916
==========
</TABLE>
58
<PAGE> 67
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED TELDAFAX(21)
---------------- -------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Service revenues................................... $570,279 $236,915 $(15,426)(7) $791,768 $150,036
Operating expenses:................................
Cost of services (exclusive of depreciation and
amortization shown separately below)............. 500,355 209,303 (15,426)(7) 694,232 126,302
Selling, general and administrative................ 59,430 39,118 -- 98,548 27,807
Depreciation and amortization...................... 41,155 18,069 1,173(3) 54,012 12,253
(6,715)(3)
330(3)
Restructuring and other special charges............ (3,995) -- -- (3,995) --
-------- -------- -------- -------- --------
Total operating expenses.................. 596,945 266,490 (20,638) 842,797 166,362
-------- -------- -------- -------- --------
Operating loss............................ (26,666) (29,575) 5,212 (51,029) (16,326)
Interest and other income.......................... 12,996 7,687 -- 20,683 885
Interest and other expense......................... (29,789) (7,154) 1,223(6) (35,720) (788)
Foreign exchange loss.............................. 117 -- -- 117 --
-------- -------- -------- -------- --------
Loss from continuing operations before
income taxes and minority interests..... (43,342) (29,042) 6,435 (65,949) (16,229)
Provision (benefit) for income taxes............... (205) (7,277) 3,119(8) (4,363) (6,676)
-------- -------- -------- -------- --------
Loss from continuing operations before
minority interest....................... (43,137) (21,765) 3,316 (61,586) (9,553)
Minority interest.................................. -- -- -- -- 851
-------- -------- -------- -------- --------
Loss from continuing operations........... (43,137) (21,765) 3,316 (61,586) (8,702)
Preferred stock dividends.......................... (1,163) -- -- (1,163) --
-------- -------- -------- -------- --------
Loss from continuing operations available
to common stockholders.................. $(44,300) $(21,765) $ 3,316 $(62,749) $ (8,702)
======== ======== ======== ======== ========
Loss per common share from continuing operations:
Basic............................................ $ (0.77)
========
Diluted.......................................... $ (0.77)
========
Weighted average shares outstanding:
Basic............................................ 57,658
========
Diluted.......................................... 57,658
========
<CAPTION>
PRO FORMA
WORLD
ACCESS,
STAR AND
TELDAFAX TELDAFAX
ADJUSTMENTS COMBINED
----------- ------------
<S> <C> <C>
Service revenues................................... $(2,772)(26) $ 939,032
Operating expenses:................................
Cost of services (exclusive of depreciation and
amortization shown separately below)............. (2,772)(26) 817,762
Selling, general and administrative................ -- 126,355
Depreciation and amortization...................... 7,580(23) 74,530
(1,715)(23)
2,400(23)
Restructuring and other special charges............ -- (3,995)
------- ----------
Total operating expenses.................. 5,493 1,014,652
------- ----------
Operating loss............................ (8,265) (75,620)
Interest and other income.......................... -- 21,568
Interest and other expense......................... -- (36,508)
Foreign exchange loss.............................. -- 117
------- ----------
Loss from continuing operations before
income taxes and minority interests..... (8,265) (90,443)
Provision (benefit) for income taxes............... (281)(27) (11,320)
------- ----------
Loss from continuing operations before
minority interest....................... (7,984) (79,123)
Minority interest.................................. -- 851
------- ----------
Loss from continuing operations........... (7,984) (78,272)
Preferred stock dividends.......................... -- (1,163)
------- ----------
Loss from continuing operations available
to common stockholders.................. $(7,984) $ (79,435)
======= ==========
Loss per common share from continuing operations:
Basic............................................ $ (0.65)(9)(28)
==========
Diluted.......................................... $ (0.65)(9)(28)
==========
Weighted average shares outstanding:
Basic............................................ 122,826(9)(28)
==========
Diluted.......................................... 122,826(9)(28)
==========
</TABLE>
59
<PAGE> 68
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR TELDAFAX
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED TELDAFAX(21) ADJUSTMENTS
---------------- -------- ----------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Service revenues................... $1,019,553 $616,469 $(17,949)(7) $1,618,073 $364,039 $ (8,914)(26)
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)........ 905,936 537,895 (17,949)(7) 1,425,882 304,810 (8,914)(26)
Selling, general and
administrative................. 146,231 108,246 -- 254,477 48,758 --
Depreciation and amortization.... 96,783 29,635 3,999(3) 117,648 18,369 15,945(23)
(13,429)(3) (3,429)(23)
660(3) 4,800(23)
Merger expense................... -- 1,867 -- 1,867 -- --
Restructuring and other special
charges........................ 44,187 -- -- 44,187 -- --
---------- -------- -------- ---------- -------- --------
Total operating expenses... 1,193,137 677,643 (26,719) 1,844,061 371,937 8,402
---------- -------- -------- ---------- -------- --------
Operating loss............. (173,584) (61,174) 8,770 (225,988) (7,898) (17,316)
Interest and other income.......... 10,822 6,701 -- 17,523 2,469 --
Interest and other expense......... (58,208) (8,614) -- (66,822) (2,171) --
Foreign exchange loss.............. (2,369) (3,471) -- (5,840) -- --
---------- -------- -------- ---------- -------- --------
Loss from continuing
operations before income
taxes and minority
interests................ (223,339) (66,558) 8,770 (281,127) (7,600) (17,316)
Provision (benefit) for income
taxes............................ (6,999) (11,041) 5,235(8) (12,805) (3,830) (562)(27)
---------- -------- -------- ---------- -------- --------
Loss from continuing
operations before
minority interest........ (216,340) (55,517) 3,535 (268,322) (3,770) (16,754)
Minority interest.................. -- -- -- -- 774 --
---------- -------- -------- ---------- -------- --------
Loss from continuing
operations............... (216,340) (55,517) 3,535 (268,322) (2,996) (16,754)
Preferred stock dividends........ (2,461) -- -- (2,461) -- --
---------- -------- -------- ---------- -------- --------
Loss from continuing
operations available to
common stockholders...... $ (218,801) $(55,517) $ 3,535 $ (270,783) $ (2,996) $(16,754)
========== ======== ======== ========== ======== ========
Loss per common share from
continuing operations:
Basic............................ $ (3.79)
==========
Diluted.......................... $ (3.79)
==========
Weighted average shares
outstanding:
Basic............................ 57,658
==========
Diluted.......................... 57,658
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
TELDAFAX
COMBINED
-------------
<S> <C>
Service revenues................... $1,973,198
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)........ 1,721,778
Selling, general and
administrative................. 303,235
Depreciation and amortization.... 153,333
Merger expense................... 1,867
Restructuring and other special
charges........................ 44,187
----------
Total operating expenses... 2,224,400
----------
Operating loss............. (251,202)
Interest and other income.......... 19,992
Interest and other expense......... (68,993)
Foreign exchange loss.............. (5,840)
----------
Loss from continuing
operations before income
taxes and minority
interests................ (306,043)
Provision (benefit) for income
taxes............................ (17,197)
----------
Loss from continuing
operations before
minority interest........ (288,846)
Minority interest.................. 774
----------
Loss from continuing
operations............... (288,072)
Preferred stock dividends........ (2,461)
----------
Loss from continuing
operations available to
common stockholders...... $ (290,533)
==========
Loss per common share from
continuing operations:
Basic............................ $ (2.51)(9)(28)
==========
Diluted.......................... $ (2.51)(9)(28)
==========
Weighted average shares
outstanding:
Basic............................ 115,802(9)(28)
==========
Diluted.......................... 115,802(9)(28)
==========
</TABLE>
60
<PAGE> 69
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
AND
WORLD WORLDXCHANGE WORLDXCHANGE
ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED TELDAFAX(21)
---------------- ---------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents............... $ 329,279 $ 6,913 $ -- $ 336,192 $ 26,408
Short-term investments............. 160,211 -- -- 160,211 --
Restricted cash.................... 31,095 -- -- 31,095 --
Accounts and notes receivable...... 264,678 103,172 -- 367,850 42,427
Prepaid expenses and other current
assets........................... 38,491 32,566 -- 71,057 30,625
Net assets held for sale........... 41,465 -- -- 41,465 --
---------- --------- -------- ---------- --------
Total Current Assets....... 865,219 142,651 -- 1,007,870 99,460
---------- --------- -------- ---------- --------
Property and equipment............. 151,609 193,494 (6,500)(11) 270,603 65,281
(68,000)(11)
Goodwill and other intangibles..... 1,080,797 90,162 (76,327)(15) 1,715,222 15,811
591,090(11)
29,500(11)
Other assets....................... 79,185 4,105 (38,192)(11) 45,098 13,027
---------- --------- -------- ---------- --------
Total Assets............... $2,176,810 $ 430,412 $431,571 $3,038,793 $193,579
========== ========= ======== ========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.................... $ 57,033 $ 201,825 $ -- $ 217,453 $ 7,260
(38,192)(11)
(3,213)(15)
Accounts payable................... 246,436 23,682 (792)(15) 269,326 73,688
Other accrued liabilities.......... 151,328 224,478 3,000(11) 378,806 9,626
---------- --------- -------- ---------- --------
Total Current
Liabilities.............. 454,797 449,985 (39,197) 865,585 90,574
Long-term debt..................... 417,946 70,829 (11,596)(15) 477,179 19,320
Other long-term liabilities........ 10,336 5,547 -- 15,883 347
---------- --------- -------- ---------- --------
Total Liabilities.......... 883,079 526,361 (50,793) 1,358,647 110,241
---------- --------- -------- ---------- --------
Minority interests................. 888
Stockholders' Equity (Deficit):
Preferred Stock.................... 6 30,000 (30,000)(14) 6 --
Common stock....................... 617 148,056 (148,056)(14) 929 84,309
298(11)
14(15)
Additional paid in capital......... 1,471,126 -- 352,804(11) 1,857,229 7,737
17,712(11)
15,587(15)
Notes receivable from
shareholders..................... -- (1,937) 1,937(14) -- --
Accumulated other comprehensive
loss............................. (12,239) (12,900) 12,900(14) (12,239) --
Accumulated deficit................ (165,779) (259,168) 259,168(14) (165,779) (9,596)
---------- --------- -------- ---------- --------
Total Stockholders' Equity
(Deficit)................ 1,293,731 (95,949) 482,364 1,680,146 82,450
---------- --------- -------- ---------- --------
Total Liabilities and
Stockholders' Equity..... $2,176,810 $ 430,412 $431,571 $3,038,793 $193,579
========== ========= ======== ========== ========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE AND
TELDAFAX TELDAFAX
ADJUSTMENTS COMBINED
----------- ----------------
<S> <C> <C>
ASSETS
Cash and equivalents............... $ -- $ 362,600
Short-term investments............. -- 160,211
Restricted cash.................... -- 31,095
Accounts and notes receivable...... -- 410,277
Prepaid expenses and other current
assets........................... -- 101,682
Net assets held for sale........... -- 41,465
-------- ----------
Total Current Assets....... -- 1,107,330
-------- ----------
Property and equipment............. (24,000)(22) 311,884
Goodwill and other intangibles..... (12,430)(24) 2,073,572
330,969(22)
24,000(22)
Other assets....................... -- 58,125
-------- ----------
Total Assets............... $318,539 $3,550,911
======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Short-term debt.................... $ -- $ 224,713
Accounts payable................... -- 343,014
Other accrued liabilities.......... 5,000(22) 393,432
-------- ----------
Total Current
Liabilities.............. 5,000 961,159
Long-term debt..................... -- 496,499
Other long-term liabilities........ -- 16,230
-------- ----------
Total Liabilities.......... 5,000 1,473,888
-------- ----------
Minority interests................. -- 888
Stockholders' Equity (Deficit):
Preferred Stock.................... -- 6
Common stock....................... (84,309)(25) 1,276
347(22)
Additional paid in capital......... (7,737)(25) 2,252,871
395,642(22)
Notes receivable from
shareholders..................... -- --
Accumulated other comprehensive
loss............................. -- (12,239)
Accumulated deficit................ 9,596(25) (165,779)
-------- ----------
Total Stockholders' Equity
(Deficit)................ 313,539 2,076,135
-------- ----------
Total Liabilities and
Stockholders' Equity..... $318,539 3,550,911
======== ==========
</TABLE>
61
<PAGE> 70
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PROFORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues................................ $570,279 $280,589 $ (14,257)(16) $ 836,611
Operating expenses:.............................
Cost of services (exclusive of depreciation
and amortization shown separately below).... 500,355 225,270 (14,257)(16) 711,368
Selling, general and administrative........... 59,430 80,584 -- 140,014
Depreciation and amortization................. 41,155 25,756 12,119(12) 77,120
(4,860)(12)
2,950(12)
Restructuring and other special charges....... (3,995) -- -- (3,995)
-------- -------- ------------ ---------
Total operating expenses................ 596,945 331,610 (4,048) 924,507
-------- -------- ------------ ---------
Operating loss.......................... (26,666) (51,021) (10,209) (87,896)
Interest and other income..................... 12,996 -- -- 12,996
Interest and other expense.................... (29,789) (17,101) 901(15) (45,989)
Foreign exchange loss......................... 117 -- -- 117
-------- -------- ------------ ---------
Loss from continuing operations before
income taxes and minority interests... (43,342) (68,122) (9,308) (120,772)
Provision (benefit) for income taxes.......... (205) -- 1,153(18) 948
-------- -------- ------------ ---------
Loss from continuing operations before
minority interest..................... (43,137) (68,122) (10,461) (121,720)
Minority interest............................. -- -- -- --
-------- -------- ------------ ---------
Loss from continuing operations......... (43,137) (68,122) (10,461) (121,720)
Preferred stock dividends..................... (1,163) (800) -- (1,963)
-------- -------- ------------ ---------
Loss from continuing operations
available to common stockholders...... $(44,300) $(68,922) $ (10,461) $(123,683)
======== ======== ============ =========
Loss per common share from continuing
operations:
Basic......................................... $ (0.77)
========
Diluted....................................... $ (0.77)
========
Weighted average shares outstanding:
Basic......................................... 57,658
========
Diluted....................................... 57,658
========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE
TELDAFAX AND TELDAFAX
TELDAFAX(21) ADJUSTMENTS COMBINED
------------ ----------- ----------------
<S> <C> <C> <C>
Service revenues................................ $150,036 $ (2,772)(26) $ 983,875
Operating expenses:.............................
Cost of services (exclusive of depreciation
and amortization shown separately below).... 126,302 (2,772)(26) 834,898
Selling, general and administrative........... 27,807 -- 167,821
Depreciation and amortization................. 12,253 7,580(23) 97,638
(1,715)(23)
2,400(23)
Restructuring and other special charges....... -- -- (3,995)
-------- ----------- -------------
Total operating expenses................ 166,362 5,493 1,096,362
-------- ----------- -------------
Operating loss.......................... (16,326) (8,265) (112,487)
Interest and other income..................... 885 -- 13,881
Interest and other expense.................... (788) -- (46,777)
Foreign exchange loss......................... -- -- 117
-------- ----------- -------------
Loss from continuing operations before
income taxes and minority interests... (16,229) (8,265) (145,266)
Provision (benefit) for income taxes.......... (6,676) (281)(27) (6,009)
-------- ----------- -------------
Loss from continuing operations before
minority interest..................... (9,553) (7,984) (139,257)
Minority interest............................. 851 -- 851
-------- ----------- -------------
Loss from continuing operations......... (8,702) (7,984) (138,406)
Preferred stock dividends..................... -- -- (1,963)
-------- ----------- -------------
Loss from continuing operations
available to common stockholders...... $ (8,702) $ (7,984) $ (140,369)
======== =========== =============
Loss per common share from continuing
operations:
Basic......................................... $ (1.13)(19)(28)
=============
Diluted....................................... $ (1.13)(19)(28)
=============
Weighted average shares outstanding:
Basic......................................... 124,355(19)(28)
=============
Diluted....................................... 124,355(19)(28)
=============
</TABLE>
62
<PAGE> 71
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PROFORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED TELDAFAX(21)
---------------- ---------------- ------------ ----------------- ------------
<S> <C> <C> <C> <C> <C>
Service revenues....................... $1,019,553 $ 607,035 $(25,601)(16) $1,600,987 $364,039
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................. 905,936 477,317 (25,601)(16) 1,357,652 304,810
Selling, general and
administrative..................... 146,231 193,070 -- 339,301 48,758
Depreciation and amortization........ 96,783 43,304 10,914(12) 145,887 18,369
(1,300)(11)
(9,714)(12)
5,900(12)
Merger expense....................... -- -- -- -- --
Restructuring and other special
charges............................ 44,187 -- -- 44,187 --
---------- --------- -------- ---------- --------
Total operating expenses....... 1,193,137 713,691 (19,801) 1,887,027 371,937
---------- --------- -------- ---------- --------
Operating loss................. (173,584) (106,656) (5,800) (286,040) (7,898)
Interest and other income.............. 10,822 -- -- 10,822 2,469
Interest and other expense............. (58,208) (25,385) 1,230(15) (82,363) (2,171)
Foreign exchange loss.................. (2,369) -- -- (2,369) --
---------- --------- -------- ---------- --------
Loss from continuing operations
before income taxes and
minority interests........... (223,339) (132,041) (4,570) (359,950) (7,600)
Provision (benefit) for income taxes... (6,999) -- 5,020(18) (1,979) (3,830)
---------- --------- -------- ---------- --------
Loss from continuing operations
before minority interest..... (216,340) (132,041) (9,590) (357,971) (3,770)
Minority interest...................... -- -- -- -- 774
---------- --------- -------- ---------- --------
Loss from continuing
operations................... (216,340) (132,041) (9,590) (357,971) (2,996)
Preferred stock dividends.............. (2,461) 1,614 -- (847) --
---------- --------- -------- ---------- --------
Loss from continuing operations
available to common
stockholders................. $ (218,801) $(130,427) $ (9,590) $ (358,818) $ (2,996)
========== ========= ======== ========== ========
Loss per common share from continuing
operations:
Basic................................ $ (3.79)
==========
Diluted.............................. $ (3.79)
==========
Weighted average shares outstanding:
Basic................................ 57,658
==========
Diluted.............................. 57,658
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
TELDAFAX WORLDXCHANGE AND
ADJUSTMENTS TELDAFAX COMBINED
----------- --------------------
<S> <C> <C>
Service revenues....................... $ (8,914)(26) $1,956,112
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................. (8,914)(26) 1,653,548
Selling, general and
administrative..................... -- 388,059
Depreciation and amortization........ 15,945(23) 181,572
(3,429)(23)
4,800(23)
Merger expense....................... -- --
Restructuring and other special
charges............................ -- 44,187
-------- ----------
Total operating expenses....... 8,402 2,267,366
-------- ----------
Operating loss................. (17,316) (311,254)
Interest and other income.............. -- 13,291
Interest and other expense............. -- (84,534)
Foreign exchange loss.................. -- (2,369)
-------- ----------
Loss from continuing operations
before income taxes and
minority interests........... (17,316) (384,866)
Provision (benefit) for income taxes... (562)(27) (6,371)
-------- ----------
Loss from continuing operations
before minority interest..... (16,754) (378,495)
Minority interest...................... -- 774
-------- ----------
Loss from continuing
operations................... (16,754) (377,721)
Preferred stock dividends.............. -- (847)
-------- ----------
Loss from continuing operations
available to common
stockholders................. $(16,754) $ (378,568)
======== ==========
Loss per common share from continuing
operations:
Basic................................ $ (3.23)(19)(28)
==========
Diluted.............................. $ (3.23)(19)(28)
==========
Weighted average shares outstanding:
Basic................................ 117,331(19)(28)
==========
Diluted.............................. 117,331(19)(28)
==========
</TABLE>
63
<PAGE> 72
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
WORLD STAR AND STAR
ACCESS(29) STAR(1) ADJUSTMENTS COMBINED
---------- --------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents...................... $ 329,279 $ 131,884 $ -- $ 461,163
Short-term investments.................... 160,211 1,756 -- 161,967
Restricted cash........................... 31,095 -- -- 31,095
Accounts and notes receivable............. 264,678 99,810 -- 364,488
Prepaid expenses and other current
assets.................................. 38,491 22,023 -- 60,514
Net assets held for sale.................. 41,465 -- -- 41,465
---------- --------- ------------ ----------
Total Current Assets............ 865,219 255,473 -- 1,120,692
---------- --------- ------------ ----------
Property and equipment.................... 151,609 261,555 (94,000)(2) 319,164
Goodwill and other intangibles............ 1,080,797 3,968 (1,764)(4) 1,336,990
250,689(2)
3,300(2)
Other assets.............................. 79,185 4,767 -- 83,952
---------- --------- ------------ ----------
Total Assets.................... $2,176,810 $ 525,763 $ 158,225 $2,860,798
========== ========= ============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt........................... $ 57,033 $ 86,680 $ (55,685)(6) $ 88,028
Accounts payable.......................... 246,436 104,507 (21,789)(6) 329,154
Other accrued liabilities................. 151,328 107,689 3,000(2) 260,794
(1,223)(6)
---------- --------- ------------ ----------
Total Current Liabilities....... 454,797 298,876 (75,697) 677,976
Long-term debt............................ 417,946 55,398 -- 473,344
Other long-term liabilities............... 10,336 32,744 -- 43,080
---------- --------- ------------ ----------
Total Liabilities............... 883,079 387,018 (75,697) 1,194,400
---------- --------- ------------ ----------
Stockholders' Equity (Deficit):
Preferred Stock......................... 6 -- -- 6
Common stock............................ 617 58 (58)(5) 912
227(2)
68(6)
Additional paid in capital................ 1,471,126 365,930 (365,930)(5) 1,843,498
285,604(2)
8,139(2)
78,629(6)
Deferred compensation..................... -- (1,810) 1,810(5) --
Notes receivable from shareholders........ -- (3,856) 3,856(5) --
Accumulated other comprehensive loss...... (12,239) (8,017) 8,017(5) (12,239)
Accumulated deficit....................... (165,779) (213,560) 213,560(5) (165,779)
---------- --------- ------------ ----------
Total Stockholders' Equity
(Deficit)..................... 1,293,731 138,745 233,922 1,666,398
---------- --------- ------------ ----------
Total Liabilities and
Stockholders' Equity.......... $2,176,810 $ 525,763 $ 158,225 $2,860,798
========== ========= ============ ==========
</TABLE>
64
<PAGE> 73
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenues........................... $570,279 $236,915 $(15,426)(7) $791,768
Operating expenses:........................
Cost of services (exclusive of depreciation
and amortization shown separately
below)................................... 500,355 209,303 (15,426)(7) 694,232
Selling, general and administrative........ 59,430 39,118 -- 98,548
Depreciation and amortization.............. 41,155 18,069 1,173(3) 54,012
(6,715)(3)
330(3)
Restructuring and other special charges.... (3,995) -- -- (3,995)
-------- -------- -------- --------
Total operating expenses......... 596,945 266,490 (20,638) 842,797
-------- -------- -------- --------
Operating loss................... (26,666) (29,575) 5,212 (51,029)
Interest and other income.................. 12,996 7,687 -- 20,683
Interest and other expense................. (29,789) (7,154) 1,223(6) (35,720)
Foreign exchange loss...................... 117 -- -- 117
-------- -------- -------- --------
Loss from continuing operations
before income taxes and minority
interests........................ (43,342) (29,042) 6,435 (65,949)
Provision (benefit) for income taxes....... (205) (7,277) 3,119(8) (4,363)
-------- -------- -------- --------
Loss from continuing operations
before minority interest....... (43,137) (21,765) 3,316 (61,586)
Minority interest.......................... -- -- -- --
-------- -------- -------- --------
Loss from continuing
operations..................... (43,137) (21,765) 3,316 (61,586)
Preferred stock dividends.................. (1,163) -- -- (1,163)
-------- -------- -------- --------
Loss from continuing operations
available to common
stockholders................... $(44,300) $(21,765) $ 3,316 $(62,749)
======== ======== ======== ========
Loss per common share from continuing
operations:
Basic.................................... $ (0.77) $ (0.71)(9)
======== ========
Diluted.................................. $ (0.77) $ (0.71)(9)
======== ========
Weighted average shares outstanding:
Basic.................................... 57,658 88,151(9)
======== ========
Diluted.................................. 57,658 88,151(9)
======== ========
</TABLE>
65
<PAGE> 74
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PROFORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenues........................... $1,019,553 $616,469 $(17,949)(7) $1,618,073
Operating expenses:........................
Cost of services (exclusive of
depreciation and amortization shown
separately below)..................... 905,936 537,895 (17,949)(7) 1,425,882
Selling, general and administrative...... 146,231 108,246 -- 254,477
Depreciation and amortization............ 96,783 29,635 3,999(3) 117,648
(13,429)(3)
660(3)
Merger expense........................... -- 1,867 -- 1,867
Restructuring and other special
charges............................... 44,187 -- -- 44,187
---------- -------- -------- ----------
Total operating expenses......... 1,193,137 677,643 (26,719) 1,844,061
---------- -------- -------- ----------
Operating loss................... (173,584) (61,174) 8,770 (225,988)
Interest and other income.................. 10,822 6,701 -- 17,523
Interest and other expense................. (58,208) (8,614) -- (66,822)
Foreign exchange loss...................... (2,369) (3,471) -- (5,840)
---------- -------- -------- ----------
Loss from continuing operations
before income taxes and
minority interests............. (223,339) (66,558) 8,770 (281,127)
Provision (benefit) for income taxes....... (6,999) (11,041) 5,235(8) (12,805)
---------- -------- -------- ----------
Loss from continuing operations
before minority interest....... (216,340) (55,517) 3,535 (268,322)
Minority interest.......................... -- -- -- --
---------- -------- -------- ----------
Loss from continuing
operations..................... (216,340) (55,517) 3,535 (268,322)
Preferred stock dividends.................. (2,461) -- -- (2,461)
---------- -------- -------- ----------
Loss from continuing operations
available to common
stockholders................... $ (218,801) $(55,517) $ 3,535 $ (270,783)
========== ======== ======== ==========
Loss per common share from continuing
operations:
Basic.................................... $ (3.79) $ (3.34)(9)
========== ==========
Diluted.................................. $ (3.79) $ (3.34)(9)
========== ==========
Weighted average shares outstanding:
Basic.................................... 57,658 81,127(9)
========== ==========
Diluted.................................. 57,658 81,127(9)
========== ==========
</TABLE>
66
<PAGE> 75
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
WORLD WORLDXCHANGE WORLDXCHANGE
ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents....................... $ 329,279 $ 6,913 $ -- $ 336,192
Short-term investments..................... 160,211 -- -- 160,211
Restricted cash............................ 31,095 -- -- 31,095
Accounts and notes receivable.............. 264,678 103,172 -- 367,850
Prepaid expenses and other current
assets................................... 38,491 32,566 -- 71,057
Net assets held for sale................... 41,465 -- -- 41,465
---------- --------- -------- ----------
Total Current Assets.............. 865,219 142,651 -- 1,007,870
---------- --------- -------- ----------
Property and equipment..................... 151,609 193,494 (6,500)(11) 270,603
(68,000)(11)
Goodwill and other intangibles............. 1,080,797 90,162 (76,327)(15) 1,715,222
-- -- 591,090(11)
29,500(11)
Other assets............................... 79,185 4,105 (38,192)(11) 45,098
---------- --------- -------- ----------
Total Assets...................... $2,176,810 $ 430,412 $431,571 $3,038,793
========== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............................ $ 57,033 $ 201,825 $ -- $ 217,453
(38,192)(11)
(3,213)(15)
Accounts payable........................... 246,436 23,682 (792)(15) 269,326
Other accrued liabilities.................. 151,328 224,478 3,000(11) 378,806
---------- --------- -------- ----------
Total Current Liabilities......... 454,797 449,985 (39,197) 865,585
Long-term debt............................. 417,946 70,829 (11,596)(15) 477,179
Other long-term liabilities................ 10,336 5,547 -- 15,883
---------- --------- -------- ----------
Total Liabilities................. 883,079 526,361 (50,793) 1,358,647
---------- --------- -------- ----------
Stockholders' Equity (Deficit):
Preferred Stock............................ 6 30,000 (30,000)(14) 6
Common stock............................... 617 148,056 (148,056)(14) 929
298(11)
14(15)
Additional paid in capital................. 1,471,126 -- 352,804(11) 1,857,229
17,712(11)
15,587(15)
Deferred compensation...................... -- -- -- --
Notes receivable from shareholders......... -- (1,937) 1,937(14) --
Accumulated other comprehensive loss....... (12,239) (12,900) 12,900(14) (12,239)
Accumulated deficit........................ (165,779) (259,168) 259,168(14) (165,779)
---------- --------- -------- ----------
Total Stockholders' Equity
(Deficit)....................... 1,293,731 (95,949) 482,364 1,680,146
---------- --------- -------- ----------
Total Liabilities and
Stockholders' Equity............ $2,176,810 $ 430,412 $431,571 $3,038,793
========== ========= ======== ==========
</TABLE>
67
<PAGE> 76
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PROFORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues................ $570,279 $280,589 $(14,257)(16) $ 836,611
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)....... 500,355 225,270 (14,257)(16) 711,368
Selling, general and
administrative................ 59,430 80,584 -- 140,014
Depreciation and amortization... 41,155 25,756 12,119(12) 77,120
(4,860)(12)
2,950(12)
Restructuring and other special
charges....................... (3,995) -- -- (3,995)
-------- -------- -------- ---------
Total operating
expenses............. 596,945 331,610 (4,048) 924,507
-------- -------- -------- ---------
Operating loss......... (26,666) (51,021) (10,209) (87,896)
Interest and other income....... 12,996 -- -- 12,996
Interest and other expense...... (29,789) (17,101) 901(15) (45,989)
Foreign exchange loss........... 117 -- -- 117
-------- -------- -------- ---------
Loss from continuing
operations before
income taxes and
minority interests... (43,342) (68,122) (9,308) (120,772)
Provision (benefit) for income
taxes......................... (205) -- 1,153(18) 948
-------- -------- -------- ---------
Loss from continuing
operations before
minority interest.... (43,137) (68,122) (10,461) (121,720)
Minority interest............... -- -- -- --
-------- -------- -------- ---------
Loss from continuing
operations........... (43,137) (68,122) (10,461) (121,720)
Preferred stock dividends....... (1,163) (800) -- (1,963)
-------- -------- -------- ---------
Loss from continuing
operations available
to common
stockholders......... $(44,300) $(68,922) $(10,461) $(123,683)
======== ======== ======== =========
Loss per common share from
continuing operations:
Basic......................... $ (0.77) $ (1.38)(19)
======== =========
Diluted....................... $ (0.77) $ (1.38)(19)
======== =========
Weighted average shares
outstanding:
Basic......................... 57,658 89,680(19)
======== =========
Diluted....................... 57,658 89,680(19)
======== =========
</TABLE>
68
<PAGE> 77
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
PROFORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues............. $1,019,553 $ 607,035 $ (25,601)(16) $1,600,987
Operating expenses:..........
Cost of services (exclusive
of depreciation and
amortization shown
separately below)........ 905,936 477,317 (25,601)(16) 1,357,652
Selling, general and
administrative........... 146,231 193,070 -- 339,301
Depreciation and
amortization............. 96,783 43,304 10,914(12) 145,887
(1,300)(11)
(9,714)(12)
5,900(12)
Merger expense............. -- -- -- --
Restructuring and other
special charges.......... 44,187 -- -- 44,187
---------- --------- ------------ ----------
Total operating
expenses.......... 1,193,137 713,691 (19,801) 1,887,027
---------- --------- ------------ ----------
Operating loss...... (173,584) (106,656) (5,800) (286,040)
Interest and other income.... 10,822 -- -- 10,822
Interest and other expense... (58,208) (25,385) 1,230(15) (82,363)
Foreign exchange loss........ (2,369) -- -- (2,369)
---------- --------- ------------ ----------
Loss from continuing
operations before
income taxes and
minority
interests......... (223,339) (132,041) (4,570) (359,950)
Provision (benefit) for
income taxes............... (6,999) -- 5,020(18) (1,979)
---------- --------- ------------ ----------
Loss from continuing
operations before
minority
interest.......... (216,340) (132,041) (9,590) (357,971)
Minority interest............ -- -- -- --
---------- --------- ------------ ----------
Loss from continuing
operations........ (216,340) (132,041) (9,590) (357,971)
Preferred stock dividends.... (2,461) 1,614 -- (847)
---------- --------- ------------ ----------
Loss from continuing
operations
available to
common
stockholders...... $ (218,801) $(130,427) $ (9,590) $ (358,818)
========== ========= ============ ==========
Loss per common share from
continuing operations:
Basic...................... $ (3.79) $ (4.34)(19)
========== ==========
Diluted.................... $ (3.79) $ (4.34)(19)
========== ==========
Weighted average shares
outstanding:
Basic...................... 57,658 82,656(19)
========== ==========
Diluted.................... 57,658 82,656(19)
========== ==========
</TABLE>
69
<PAGE> 78
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
WORLD TELDAFAX AND TELDAFAX
ACCESS(29) TELDAFAX(21) ADJUSTMENTS COMBINED
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents...................... $ 329,279 $ 26,408 $ -- $ 355,687
Short-term investments.................... 160,211 -- -- 160,211
Restricted cash........................... 31,095 -- -- 31,095
Accounts and notes receivable............. 264,678 42,427 -- 307,105
Prepaid expenses and other current
assets.................................. 38,491 30,625 -- 69,116
Net assets held for sale.................. 41,465 -- -- 41,465
---------- -------- -------- ----------
Total Current Assets............ 865,219 99,460 -- 964,679
---------- -------- -------- ----------
Property and equipment.................... 151,609 65,281 (24,000)(22) 192,890
Goodwill and other intangibles............ 1,080,797 15,811 (12,430)(24) 1,439,147
330,969(22)
24,000(22)
Other assets.............................. 79,185 13,027 -- 92,212
---------- -------- -------- ----------
Total Assets.................... $2,176,810 $193,579 $318,539 $2,688,928
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt........................... $ 57,033 $ 7,260 $ -- $ 64,293
Accounts payable.......................... 246,436 73,688 -- 320,124
Other accrued liabilities................. 151,328 9,626 5,000(22) 165,954
---------- -------- -------- ----------
Total Current Liabilities....... 454,797 90,574 5,000 550,371
Long-term debt............................ 417,946 19,320 -- 437,266
Other long-term liabilities............... 10,336 347 -- 10,683
---------- -------- -------- ----------
Total Liabilities............... 883,079 110,241 5,000 998,320
---------- -------- -------- ----------
Minority interests........................ 888 -- 888
Stockholders' Equity (Deficit):
Preferred stock........................... 6 -- -- 6
Common stock.............................. 617 84,309 (84,309)(25) 964
347(22)
Additional paid in capital................ 1,471,126 7,737 (7,737)(25) 1,866,768
395,642(22)
Accumulated other comprehensive loss...... (12,239) -- (12,239)
Accumulated deficit....................... (165,779) (9,596) 9,596(25) (165,779)
---------- -------- -------- ----------
Total Stockholders' Equity
(Deficit)..................... 1,293,731 82,450 313,539 1,689,720
---------- -------- -------- ----------
Total Liabilities and
Stockholders' Equity.......... $2,176,810 $193,579 $318,539 $2,688,928
========== ======== ======== ==========
</TABLE>
70
<PAGE> 79
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR,
WORLDXCHANGE
PROFORMA AND
WORLD TELDAFAX TELDAFAX
ACCESS(29) TELDAFAX(21) ADJUSTMENTS COMBINED
---------------- ------------ ----------- ------------------
<S> <C> <C> <C> <C>
Service revenues............................. $570,279 $150,036 $(2,772)(26) $717,543
Operating expenses:..........................
Cost of services (exclusive of depreciation
and amortization shown separately below)... 500,355 126,302 (2,772)(26) 623,885
Selling, general and administrative.......... 59,430 27,807 -- 87,237
Depreciation and amortization................ 41,155 12,253 7,580(23) 61,673
(1,715)(23)
2,400(23)
Restructuring and other special charges...... (3,995) -- -- (3,995)
-------- -------- ------- --------
Total operating expenses............ 596,945 166,362 5,493 768,800
-------- -------- ------- --------
Operating loss...................... (26,666) (16,326) (8,265) (51,257)
Interest and other income.................... 12,996 885 -- 13,881
Interest and other expense................... (29,789) (788) -- (30,577)
Foreign exchange loss........................ 117 -- -- 117
-------- -------- ------- --------
Loss from continuing operations
before income taxes and minority
interests......................... (43,342) (16,229) (8,265) (67,836)
Provision (benefit) for income taxes......... (205) (6,676) (281)(27) (7,162)
-------- -------- ------- --------
Loss from continuing operations
before minority interest.......... (43,137) (9,553) (7,984) (60,674)
Minority interest............................ -- 851 -- 851
-------- -------- ------- --------
Loss from continuing operations..... (43,137) (8,702) (7,984) (59,823)
Preferred stock dividends.................... (1,163) -- -- (1,163)
-------- -------- ------- --------
Loss from continuing operations
available to common
stockholders...................... $(44,300) $ (8,702) $(7,984) $(60,986)
======== ======== ======= ========
Loss per common share from continuing
operations:
Basic...................................... $ (0.77) $ (0.66)(28)
======== ========
Diluted.................................... $ (0.77) $ (0.66)(28)
======== ========
Weighted average shares outstanding:
Basic...................................... 57,658 92,333(28)
======== ========
Diluted.................................... 57,658 92,333(28)
======== ========
</TABLE>
71
<PAGE> 80
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
PROFORMA TELDAFAX WORLD ACCESS AND
WORLD ACCESS(29) TELDAFAX(21) ADJUSTMENTS TELDAFAX COMBINED
---------------- ------------ ----------- -----------------
<S> <C> <C> <C> <C>
Service revenues........................... $1,019,553 $364,039 $ (8,914)(26) $1,374,678
Operating expenses:........................
Cost of services (exclusive of
depreciation and amortization shown
separately below)...................... 905,936 304,810 (8,914)(26) 1,201,832
Selling, general and administrative...... 146,231 48,758 -- 194,989
Depreciation and amortization............ 96,783 18,369 15,945(23) 132,468
(3,429)(23)
4,800(23)
Restructuring and other special
charges................................ 44,187 -- -- 44,187
---------- -------- ----------- ----------
Total operating expenses.......... 1,193,137 371,937 8,402 1,573,476
---------- -------- ----------- ----------
Operating loss.................... (173,584) (7,898) (17,316) (198,798)
Interest and other income.................. 10,822 2,469 -- 13,291
Interest and other expense................. (58,208) (2,171) -- (60,379)
Foreign exchange loss...................... (2,369) -- -- (2,369)
---------- -------- ----------- ----------
Loss from continuing operations
before income taxes and minority
interests....................... (223,339) (7,600) (17,316) (248,255)
Provision (benefit) for income taxes....... (6,999) (3,830) (562)(27) (11,391)
---------- -------- ----------- ----------
Loss from continuing operations
before minority interest........ (216,340) (3,770) (16,754) (236,864)
Minority interest.......................... -- 774 -- 774
---------- -------- ----------- ----------
Loss from continuing operations... (216,340) (2,996) (16,754) (236,090)
Preferred stock dividends.................. (2,461) -- -- (2,461)
---------- -------- ----------- ----------
Loss from continuing operations
available to common
stockholders.................... $ (218,801) $ (2,996) $ (16,754) $ (238,551)
========== ======== =========== ==========
Loss per common share from continuing
operations:
Basic.................................... $ (3.79) $ (2.80)(28)
========== ==========
Diluted.................................. $ (3.79) $ (2.80)(28)
========== ==========
Weighted average shares outstanding:
Basic.................................... 57,658 85,309(28)
========== ==========
Diluted.................................. 57,658 85,309(28)
========== ==========
</TABLE>
72
<PAGE> 81
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
STAR ADJUSTMENTS
(1) These columns represent the historical financial position and results
of operations of STAR as of and for the six months ended June 30, 2000
and for the year ended December 31, 1999 and have been adjusted to
reflect the sale of PT-1 as required for the successful completion of
the STAR merger. For pro forma purposes, we have assumed that the net
cash proceeds on the sale of PT-1 will be approximately $120.0
million.
<TABLE>
<CAPTION>
STAR
STAR EXCLUSION OF EXCLUDING PT-1
JUNE 30, 2000 PT-1 JUNE 30, 2000
-------------- ------------ --------------
<S> <C> <C> <C>
Cash and equivalents....................... $ 16,844 $ (4,960)(i) $131,884
120,000(ii)
Short-term investments..................... 1,756 --(i) 1,756
Accounts and notes receivable.............. 161,169 (61,359)(i) 99,810
Prepaid expenses and other current
assets................................... 46,552 (24,529)(i) 22,023
-------- --------- --------
Total Current Assets............. 226,321 29,152 255,473
-------- --------- --------
Property and equipment, net................ 304,314 (42,759)(i) 261,555
Goodwill and other intangibles............. 193,316 (189,348)(i) 3,968
Other assets............................... 5,838 (1,071)(i) 4,767
-------- --------- --------
Total Assets..................... $729,789 $(204,026) $525,763
======== ========= ========
Short-term debt............................ $ 88,709 $ (2,029)(i) $ 86,680
Accounts payable........................... 126,292 (21,785)(i) 104,507
Other accrued liabilities.................. 163,182 (55,493)(i) 107,689
-------- --------- --------
Total Current Liabilities........ 378,183 (79,307) 298,876
Long-term debt............................. 59,403 (4,005)(i) 55,398
Other long-term liabilities................ 33,634 (890)(i) 32,744
-------- --------- --------
Total Liabilities................ 471,220 (84,202) 387,018
-------- --------- --------
Total Stockholders' Equity....... 258,569 (119,824)(iii) 138,745
-------- --------- --------
Total Liabilities and
Stockholders' Equity........... $729,789 $(204,026) $525,763
======== ========= ========
</TABLE>
(i) Represents the historical asset and liability amounts for PT-1 and
includes the effect of PT-1 goodwill recorded by STAR.
(ii) Represents the assumed net cash proceeds for the sale of PT-1.
(iii) Represents the assumed loss on the sale of PT-1.
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
SIX MONTHS SIX MONTHS
ENDED EXCLUSION OF ENDED
JUNE 30, 2000 PT-1 JUNE 30, 2000
-------------- ------------ --------------
<S> <C> <C> <C>
Carrier service revenues...................... $ 497,400 $(260,485) $ 236,915
Cost of carrier services...................... (433,657) 224,354 (209,303)
Selling, general and administrative........... (61,181) 22,063 (39,118)
Depreciation and amortization................. (26,128) (8,059) (18,069)
Interest and other income..................... 7,819 (132) 7,687
</TABLE>
73
<PAGE> 82
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
SIX MONTHS SIX MONTHS
ENDED EXCLUSION OF ENDED
JUNE 30, 2000 PT-1 JUNE 30, 2000
-------------- ------------ --------------
<S> <C> <C> <C>
Interest expense.............................. (7,742) 588 (7,154)
Benefit for income taxes...................... 5,706 1,571 7,277
--------- --------- ---------
Net loss............................ $ (17,783) $ (3,982) $ (21,765)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
YEAR ENDED EXCLUSION OF YEAR ENDED
DECEMBER 31, 1999 PT-1 DECEMBER 31, 1999
----------------- ------------ -----------------
<S> <C> <C> <C>
Carrier service revenues.................. $1,061,774 $(445,305) $ 616,469
Cost of carrier services.................. (925,206) 387,311 (537,895)
Selling, general and administrative....... (160,067) 51,821 (108,246)
Depreciation and amortization............. (44,236) 14,601 (29,635)
Merger expense............................ (1,878) 11 (1,867)
Interest and other income................. 7,036 (335) 6,701
Interest expense.......................... (9,895) 1,281 (8,614)
Foreign exchange loss..................... (3,471) -- (3,471)
Benefit for income taxes.................. 12,096 (1,055) 11,041
---------- --------- ---------
Net loss........................ $ (63,847) $ 8,330 $ (55,517)
========== ========= =========
</TABLE>
(2) The STAR merger will be accounted for under the purchase method of
accounting. The total cost to acquire STAR is subject to change, to
the extent that the number of shares of STAR common stock to be
acquired will not be fixed until the effective date of the merger. A
change in total cost will result in a corresponding change in goodwill
and related amortization expense. The excess of the purchase price
over the fair value of the net assets acquired has been allocated to
goodwill and other intangible assets. These allocations are subject to
change pending the completion of the final analysis of the total
purchase price and fair values of the assets acquired and the
liabilities assumed. The impact of such changes could be material.
<TABLE>
<S> <C>
Purchase price:
Issuance of World Access Common Stock(i).................. $ 285,831
Fair value of World Access options issued in exchange for
STAR options(ii)....................................... 8,139
Estimated fees and expenses............................... 3,000
---------
Total estimated purchase price.................... $ 296,970
Allocation to fair values:
Pro forma stockholders' equity as of June 30, 2000(iii)... $(138,745)
Intangible assets(v)...................................... (3,300)
Adjust assets and liabilities:
Eliminate historical goodwill as of June 30, 2000...... 1,764
Write-down of fixed assets to fair value............... 94,000
---------
Preliminary goodwill(iv).......................... $ 250,689
=========
</TABLE>
74
<PAGE> 83
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
-----------------------
(i) In accordance with the merger agreement, each share of STAR common
stock issued and outstanding shall be converted into the right to
receive .3866 shares of World Access Common Stock. At June 30, 2000,
approximately 22,667,000 shares of World Access Common Stock are
assumed to have been issued in connection with the STAR merger as
follows (in thousands, except per share amounts):
<TABLE>
<S> <C>
STAR common shares outstanding at June 30, 2000............. 58,632
Multiplied by: Exchange ratio............................... 0.3866
--------
Shares of World Access Common Stock assumed to be
exchanged................................................. 22,667
Multiplied by: Average market price(a)...................... $ 12.61
--------
Value of World Access Common Stock exchanged................ $285,831
========
</TABLE>
In accordance with the STAR merger agreement, World Access, at its
option, may pay up to 40% of the purchase price in the form of cash.
Currently, World Access has no intention of paying any portion of
the STAR purchase price with cash other than an immaterial amount to
be paid for fractional shares and any cash to be paid for
Dissenters' Shares. However, should World Access decide to pay a
portion of the STAR purchase price in cash, assuming the maximum of
40% and based upon the average closing price of World Access Common
Stock on Nasdaq for the 10 trading day period ended July 17, 2000 of
$10.83, World Access would be required to pay STAR shareholders
approximately $98.2 million in cash and issue approximately 13.6
million shares of World Access Common Stock having an approximate
value of $171.5 million in connection with the merger. Since the
option to pay a portion of the STAR purchase price in cash is solely
at the option of the World Access and World Access has no intention
of paying any portion of the STAR purchase price with the cash
option, the pro forma balance sheets have been prepared excluding
the cash option.
---------------------------
(a) The average market price represents the average market price of
World Access Common Stock for the three trading days prior to
and on June 7, 2000, the date economic terms of the merger were
amended.
(ii) As the consummation of the merger is expected to occur after July
1, 2000, we have valued the World Access options using the guidance
in FIN 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. Under FIN 44,
the fair value of vested options issued will be included as part of
the purchase price. The fair value of unvested options issued will
also be included as part of the purchase price; however, a portion
of the intrinsic value (if any) of the unvested options will be
allocated to unearned compensation and recognized as compensation
cost over the remaining future vesting period. The intrinsic value
to be allocated to unearned compensation is not significant and has
not been reflected in these pro forma financial statements.
In accordance with the merger agreement, each STAR option is to be
converted into an option to purchase 0.3866 shares of World Access
Common Stock. At June 30, 2000, STAR had approximately 3.7 million
options outstanding; 1.8 million of which were vested and 1.9
million were unvested. The vested and unvested options are
convertible to approximately 686,000 and 751,000 World Access
options, respectively, totaling 1.4 million.
The fair value of the 686,000 vested options is $4.4 million
computed using the Black-Scholes Option Pricing Model and is
included in the purchase price. The fair value of the 751,000
unvested options is $3.7 million computed using the Black-Scholes
Option Pricing Model. The
75
<PAGE> 84
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
assumptions used in the Black-Scholes model are: dividend yield 0%,
volatility 70%, risk free interest rate of 6.43%, and an expected
life of 3 years.
(iii) STAR pro forma stockholders' equity as of June 30, 2000 assumes
the sale of PT-1 for net cash proceeds of $120.0 million.
(iv) The pro forma goodwill is preliminary and subject to change based
on a final review of the fair values of STAR's net assets as of the
actual merger date. Upon a final review of the fair value of STAR's
assets and liabilities, it is likely that certain tangible and
intangible assets such as international licenses, foreign carrier
operating agreements and property and equipment may be recognized
at amounts which differ from the amounts estimated in these
unaudited pro forma financial statements. Although we do not expect
these final adjustments to be significant, they could increase or
decrease the depreciation and amortization expense reflected in the
unaudited pro forma financial statements.
(v) Intangible assets consist of retail customer base, licenses and
interconnection, management and workforce expertise. Amortization
is provided using the straight-line method over a 5-year period.
(3) Amortization of additional goodwill over an estimated life of 20
years. The pro forma adjustment to goodwill was computed as follows
(in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
STAR -- for the six months ended June 30,
2000................................... $250,689 $ 6,267 $(5,094) $1,173
STAR -- for the year ended December 31,
1999................................... $250,689 $12,534 $(8,535) $3,999
</TABLE>
Depreciation benefit as a result of write-down of fixed assets to fair
value is arrived at using an estimated life of 7 years. The pro forma
adjustment to property and equipment was computed as follows (in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
PROPERTY AND DEPRECIATION
EQUIPMENT ADJUSTMENT
------------ ------------
<S> <C> <C>
STAR -- for the six months ended June 30, 2000.............. $94,000 $ (6,715)
STAR -- for the year ended December 31, 1999................ $94,000 $(13,429)
</TABLE>
Amortization of additional intangible assets over an estimated life of 5
years. The pro forma adjustment to intangible assets was computed as
follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
INTANGIBLE AMORTIZATION
ASSETS ADJUSTMENT
-------------- ------------
<S> <C> <C>
STAR -- for the six months ended June 30, 2000.............. $3,300 $ 330
STAR -- for the year ended December 31, 1999................ $3,300 $ 660
</TABLE>
(4) Elimination of STAR's historical goodwill.
(5) Elimination of STAR's historical stockholders equity accounts.
(6) In connection with the consummation of the STAR merger, a certain
vendor of STAR has agreed to convert approximately $90.0 million of
STAR indebtedness into approximately 7,826,000 shares of World Access
Common Stock based upon a conversion rate of $11.50 per share. These
shares
76
<PAGE> 85
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
are assumed to be issued for purposes of the calculation of basic and
diluted earnings per share in the pro forma condensed combined statement
of operations. The balance sheet adjustment reflects the conversion of
approximately $78.7 million from accounts payable and debt to common
stock and paid-in capital for the amount of indebtedness outstanding as
of June 30, 2000. The adjustment to the pro forma statement of
operations is to eliminate the interest expense recorded on the debt
included in the historical results.
(7) Elimination of intercompany revenues and related costs.
(8) Adjustment for the additional tax benefit derived from certain pro
forma adjustments. World Access has not recorded any tax benefit on a
pro forma basis that may be derived from STAR's net operating losses.
(9) Represents pro forma weighted average shares for basic and diluted
earnings from continuing operations per share. The weighted average
shares are computed assuming the issuance of approximately 22,667,000
shares of common stock to complete the STAR merger and 7,826,000
shares upon the conversion of STAR indebtedness into World Access
Common Stock, see Note 6. Due to the pro forma loss from continuing
operations, potential common stock shares related to stock options,
stock warrants, convertible notes and convertible preferred stock have
been excluded from the diluted loss per share as the inclusion of
these potential common stock shares would be anti-dilutive.
WORLDXCHANGE ADJUSTMENTS
(10) These columns represent the historical financial position and results
of operations of WorldxChange as of and for the six months ended June
30, 2000 and for the year ended December 31, 1999. As WorldxChange's
fiscal year end is September 30 the following table represents a
reconciliation of WorldxChange's results of operations for its fiscal
year ended on September 30, 1999 to the year ended December 31, 1999:
<TABLE>
<CAPTION>
HISTORICAL
RESULTS FOR
FISCAL YEAR EXCLUSION OF INCLUSION OF
ENDED OPERATIONS OPERATIONS YEAR ENDED
SEPTEMBER 30, FROM 10/1/98- FROM 10/1/99- DECEMBER 31,
1999 12/31/98 12/31/99 1999
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues............................ $ 421,580 $(89,927) $ 143,327 $ 474,980
Cost of services.................... (328,334) 70,922 (112,545) (369,957)
Selling, general and
administrative.................... (106,254) 23,990 (37,830) (120,094)
Depreciation and amortization....... (17,705) 3,564 (9,375) (23,516)
Provision for doubtful accounts..... (17,858) 3,962 (5,600) (19,496)
Interest and other expense.......... (17,531) 4,234 (6,420) (19,717)
Minority interest................... 2,251 (637) -- 1,614
--------- -------- --------- ---------
Net loss.................. $ (63,851) $ 16,108 $ (28,443) $ (76,186)
========= ======== ========= =========
</TABLE>
77
<PAGE> 86
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
On November 4, 1999, WorldxChange acquired the outstanding shares
of certain European subsidiaries of ACC Corp. (ACC), a subsidiary of
AT&T. The historical results of operations of WorldxChange includes
ACC's results for the two months ended December 31, 1999. The results of
ACC for the period from January 1, 1999 to October 31, 1999 have been
added to the WorldxChange historical results of operations as follows:
<TABLE>
<CAPTION>
WXC WXC
YEAR ENDED ACC FOR YEAR ENDED
DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999
INCLUDING 1/1/99 TO INCLUDING
2 MONTHS OF ACC 10/31/99 12 MONTHS OF ACC
----------------- ---------- -----------------
<S> <C> <C> <C>
Revenues................................ $ 474,980 $ 132,055 $ 607,035
Cost of services........................ (369,957) (107,360) (477,317)
Selling, general and administrative..... (139,590) (53,480) (193,070)
Depreciation and amortization........... (23,516) (19,788) (43,304)
Interest and other expense.............. (19,717) (5,668) (25,385)
Minority interest....................... 1,614 -- 1,614
--------- --------- ---------
Net loss...................... $ (76,186) $ (54,241) $(130,427)
========= ========= =========
</TABLE>
The following table represents a reconciliation of WorldxChange's
results of operations for the nine months ended June 30, 2000 (as shown
in the WorldxChange financial statements included in this registration
statement) to the results of operations for the six months ended June
30, 2000:
<TABLE>
<CAPTION>
EXCLUSION OF
RESULTS FOR THE RESULTS FOR THE RESULTS FOR THE
NINE MONTHS THREE MONTHS ENDED SIX MONTHS ENDED
ENDED JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 2000
------------------- ------------------ ----------------
<S> <C> <C> <C>
Revenues................... $ 423,913 $(143,324) $ 280,589
Cost of services........... (337,814) 112,544 (225,270)
Selling, general and
administrative........... (124,014) 43,430 (80,584)
Depreciation and
amortization............. (35,131) 9,375 (25,756)
Interest and other
expense.................. (23,516) 6,415 (17,101)
--------- --------- ---------
Net loss................... $ (96,562) $ 28,440 $ (68,122)
========= ========= =========
</TABLE>
(11) The WorldxChange merger will be accounted for under the purchase
method of accounting. The total cost to acquire WorldxChange is
subject to change, to the extent that the number of shares of
WorldxChange capital stock to be acquired will not be fixed until the
effective date of the merger. A change in total cost will result in a
corresponding change in goodwill and related amortization expense. The
excess of the purchase price over the fair value of the net assets
acquired has been allocated to goodwill and other intangible assets.
These allocations are subject to change pending the completion of the
final analysis of the total purchase price and fair values of the
assets acquired
78
<PAGE> 87
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
and the liabilities assumed. The impact of such changes could be
material. The preliminary purchase price and goodwill is currently
estimated as follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of World Access Common Stock(i).................. $353,102
Fair value of World Access options issued in exchange for
WorldxChange options(ii)............................... 17,712
Bridge financing(iii)..................................... 38,192
Estimated fees and expenses............................... 3,000
--------
Total estimated purchase price.................... $412,006
Allocation to fair values:
Historical shareholders' deficit as of June 30, 2000...... $ 95,949
Intangible assets (vi).................................... (29,500)
Eliminate payable to World Access......................... (38,192)
Adjust assets and liabilities:
Eliminate historical goodwill as of June 30, 2000...... 76,327
Write-off impaired assets(iv).......................... 6,500
Write-down of fixed assets to fair value............... 68,000
--------
Preliminary goodwill(v)................................... $591,090
========
</TABLE>
-----------------------
(i) In accordance with the merger agreement, each share of WorldxChange
common stock issued and outstanding shall be converted into the
right to receive 0.6583 shares of World Access Common Stock. At June
30, 2000, a total of 29,848,000 shares of World Access Common Stock
are assumed to have been issued in connection with the WorldxChange
merger as follows (in thousands, except per share amounts):
<TABLE>
<S> <C>
WorldxChange common shares outstanding upon the conversion
of preferred shares outstanding at June 30, 2000.......... 2,727
WorldxChange common shares outstanding at June 30, 2000..... 42,614
--------
Total WorldxChange common shares outstanding...... 45,341
Multiplied by: Exchange ratio............................... 0.6583
--------
Shares of World Access Common Stock assumed to be
exchanged................................................. 29,848
Multiplied by: Average market price (a)..................... $ 11.83
--------
Value of World Access Common Stock exchanged................ $353,102
========
</TABLE>
---------------
(a) The average price represents the average market price of World
Access Common Stock for the three trading days prior to and on
May 23, 2000, the date economic terms of the merger were
amended.
(ii) As the consummation of the merger is expected to occur after July
1, 2000, we have valued the World Access options using the guidance
in FIN 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB opinion No. 25. Under FIN
44, the fair value of vested options issued will be included as
part of the purchase price. The fair value of unvested options
issued will also be included as part of the purchase price;
however, a portion of the intrinsic value (if any) of the unvested
options will be allocated to unearned compensation and recognized
as compensation cost over the remaining future vesting period. The
intrinsic value to be allocated to unearned compensation is not
significant and has not been reflected in these pro forma financial
statements.
79
<PAGE> 88
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the merger agreement, each WorldxChange option is
to be converted into an option to purchase 0.6583 shares of World
Access Common Stock. At June 30, 2000, WorldxChange had
approximately 4.0 million options outstanding; 2.5 million of which
were vested and 1.5 million were unvested. The vested and unvested
options are convertible to approximately 1.6 million and 1.0 million
World Access options respectively, totaling 2.6 million. The fair
value of the 1.6 million vested options is $12.7 million computed
using the Black-Scholes Option Pricing Model and is included in the
purchase price. The fair value of the 1.0 million unvested options
is $5.0 million computed using the Black-Scholes Option Pricing
Model. The assumptions used in the Black-Scholes model are: dividend
yield 0%, volatility 70%, risk free interest rate of 6.43%, and an
expected life of 3 years.
(iii) As an integral component of the merger agreement, World Access
agreed to provide WorldxChange up to $45.0 million in bridge
funds, $38.2 million of which had been advanced as of June 30,
2000. These funds are being used to finance operating losses
expected to be incurred by WorldxChange prior to the merger date
and to make permanent investments in working capital that are
required to support WorldxChange growth. World Access expects that
the remaining balance of $6.8 million to be advanced subsequent to
the merger date and intends to fully forgive this loan in
connection with the consummation of the merger. As a result, the
bridge financing already funded is being accounted for as
additional purchase price.
(iv) At June 30, 2000, WorldxChange has PC based switches with net book
value of approximately $6.5 million. The merger with World Access
would result in an impairment of these assets, hence, the
adjustment to write-off impaired assets from the acquisition.
Consequently, depreciation expense is decreased by $1.3 million and
$650,000 for the year ended December 31, 1999 and the six months
ended June 30, 2000, respectively.
(v) The pro forma goodwill is preliminary and subject to change based
on a final review of the fair values of WorldxChange's net assets
as of the actual merger date. Upon a final review of the fair value
of WorldxChange's assets and liabilities, it is likely that certain
tangible and intangible assets such as international licenses,
foreign carrier operating agreements and property and equipment may
be recognized at amounts which differ from the amounts estimated in
these unaudited pro forma financial statements. Although we do not
expect these final adjustments to be significant, they could
increase or decrease the depreciation and amortization expense
reflected in the unaudited pro forma financial statements.
(vi) Intangible assets consist of retail customer base, management
information systems, licenses and interconnection, management and
workforce expertise. Amortization is provided using the
straight-line method over a 5-year period.
(12) Amortization of goodwill over an estimated life of 20 years. The pro
forma adjustment to goodwill was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
WorldxChange -- For the six months ended
June 30, 2000.......................... $591,090 $14,777 $ (2,658) $12,119
WorldxChange -- For the year ended
December 31, 1999...................... $591,090 $29,555 $(18,641) $10,914
</TABLE>
80
<PAGE> 89
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation benefit as a result of write-down of fixed assets to
fair value is arrived at using an estimated life of 7 years. The pro
forma adjustment to property and equipment was computed as follows
(in thousands):
<TABLE>
<CAPTION>
PRO FORMA
PROPERTY AND DEPRECIATION
EQUIPMENT ADJUSTMENT
------------ ------------
<S> <C> <C>
WorldxChange -- for the six months ended June 30, 2000...... $ 68,000 $(4,860)
WorldxChange -- for the year ended December 31, 1999........ $ 68,000 $(9,714)
</TABLE>
Amortization of additional intangible assets over an estimated life
of 5 years. The pro forma adjustment to intangible assets was
computed as follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
INTANGIBLE AMORTIZATION
ASSETS ADJUSTMENT
----------- -------------
<S> <C> <C>
WorldxChange -- for the six months ended June 30, 2000...... $29,500 $2,950
WorldxChange -- for the year ended December 31, 1999........ $29,500 $5,900
</TABLE>
(13) Elimination of WorldxChange's historical goodwill.
(14) Elimination of WorldxChange's historical shareholders' deficit
accounts.
(15) In connection with the consummation of the WorldxChange merger, a
certain vendor of WorldxChange has agreed to convert approximately
$25.0 million of WorldxChange indebtedness into approximately
2,174,000 shares of World Access Common Stock based upon a conversion
rate of $11.50 per share. These shares are assumed to be issued for
purposes of the calculation of basic and diluted earnings per share in
the pro forma condensed combined statement of operations. The balance
sheet adjustment reflects the conversion of approximately $15.6
million accounts payable and debt to common stock and paid-in-capital
for the amount of indebtedness outstanding as of June 30, 2000. The
adjustment to the pro forma statement of operations is to eliminate
the interest expense recorded on the debt included in the historical
results.
(16) Elimination of intercompany carrier service revenues and related
costs.
(17) At June 30, 2000, WorldxChange had a $2.2 million note payable to
STAR. Assuming the mergers of WorldxChange and STAR with World Access
are consummated, this adjustment is necessary to eliminate the
intercompany debt.
(18) Adjustment for the additional income tax provision derived from
certain pro forma adjustments. World Access has not recorded any tax
benefit on a pro forma basis that may be derived from WorldxChange's
net operating losses.
(19) Represents pro forma weighted average shares for basic and diluted
earnings from continuing operations per share. The weighted average
shares are computed assuming the issuance of an aggregate of
29,848,000 shares issued to complete the WorldxChange merger and
2,174,000 shares upon the conversion of WorldxChange indebtedness into
World Access Common Stock, see Note 15. Due to the pro forma loss from
continuing operations potential common stock shares related to stock
options, stock warrants, convertible notes and convertible preferred
stock have been excluded from the diluted loss per share as the
inclusion of these potential common stock shares would be
anti-dilutive.
81
<PAGE> 90
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
TELDAFAX ADJUSTMENTS
(21) These columns represent the historical financial position and results of
operations of TelDaFax as of and for the six months ended June 30, 2000 and
for the year ended December 31, 1999.
The following tables represent the conversion of TelDaFax's balance sheet
as of June 30, 2000 and statements of operations for the three months and
year ended June 30, 2000 and December 31, 1999, respectively, from local
currency (DM) into U.S. dollars. The U.S. dollar equivalent was computed by
multiplying the deutsche mark balance by 0.4901, the exchange rate as of
June 30, 2000 for the balance sheet and by 0.4876 and 0.5435 which
represent the average exchange rates for the six months and year ended
periods June 30, 2000 and December 31, 1999, respectively.
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX
JUNE 30, EXCHANGE JUNE 30,
2000 RATE 2000
------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C>
Cash and equivalents...................... 53,882 0.4901 $ 26,408
Accounts receivable....................... 86,569 0.4901 42,427
Prepaid expenses and other current
assets.................................. 62,487 0.4901 30,625
------- --------
Total current assets.................. 202,938 99,460
------- --------
Property and equipment, net............... 133,199 0.4901 65,281
Goodwill.................................. 32,261 0.4901 15,811
Other assets............................... 26,580 0.4901 13,027
------- --------
Total assets.......................... 394,978 $193,579
======= ========
Short-term debt........................... 14,814 0.4901 7,260
Accounts payable.......................... 150,353 0.4901 73,688
Other accrued liabilities................. 19,640 0.4901 9,626
------- --------
Total current liabilities............. 184,807 90,574
------- --------
Long-term debt............................ 39,422 0.4901 19,320
Other long-term liabilities............... 707 0.4901 347
------- --------
Total liabilities..................... 224,936 110,241
------- --------
Minority interests........................ 1,811 0.4901 888
Stockholders' Equity (Deficit):
Common stock.............................. 172,024 0.4901 84,309
Additional paid in capital................ 15,787 0.4901 7,737
Accumulated deficit....................... (19,580) 0.4901 (9,596)
------- --------
Total stockholders' equity............ 168,231 82,450
------- --------
Total liabilities and stockholders'
equity.............................. 394,978 $193,579
======= ========
</TABLE>
]
82
<PAGE> 91
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX
SIX MONTHS ENDED EXCHANGE SIX MONTHS ENDED
JUNE 30, 2000 RATE JUNE 30, 2000
------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C>
Service revenues......................... 307,704 0.4876 $150,036
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)................... 259,028 0.4876 126,302
Selling, general and administrative... 57,029 0.4876 27,807
Depreciation and amortization......... 25,129 0.4876 12,253
------- --------
Total operating expenses.............. 341,186 166,362
------- --------
Operating loss................... (33,482) (16,326)
Interest and other income............. 1,814 0.4876 885
Interest expense...................... (1,617) 0.4876 (788)
------- --------
Loss from continuing operations
before income taxes and
minority interests............. (33,285) (16,229)
Provision (benefit) for income
taxes............................... (13,691) 0.4876 (6,676)
------- --------
Loss from continuing operations
before minority interests...... (19,594) (9,553)
Minority interests.................... 1,746 0.4876 851
------- --------
Loss from continuing
operations..................... (17,848) $ (8,702)
======= ========
</TABLE>
83
<PAGE> 92
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Effective October 1, 1999, TelDaFax acquired a majority interest in the
telecommunications equipment distributor Demuth & Dietl Co.
Kommunikationselektronik GmbH (D & D). The historical results of operations
of TelDaFax for the year ended December 31, 1999 includes D & D results for
the three months ended December 31, 1999. The results of D & D for the
period from January 1, 1999 to September 30, 1999 have been added to the
TelDaFax historical results of operations as follows:
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX TELDAFAX
YEAR ENDED D&D FOR YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999 DECEMBER 31, 1999
INCLUDING 3 MONTHS JANUARY 1, 1999 TO INCLUDING 12 MONTHS EXCHANGE INCLUDING 12 MONTHS
OF D&D SEPTEMBER 30, 1999 OF D&D RATE OF D&D
------------------ ------------------- ------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C> <C> <C>
Service revenues...... 611,018 58,787 669,805 0.5435 $364,039
Operating expenses:
Cost of services
(exclusive of
depreciation and
amortization shown
separately
below)............. 507,745 53,083 560,828 0.5435 304,810
Selling, general and
administrative..... 84,008 5,703 89,711 0.5435 48,758
Depreciation and
amortization....... 33,630 168 33,798 0.5435 18,369
-------- ------- -------- --------
Total operating
expenses........... 625,383 58,954 684,337 371,937
-------- ------- -------- --------
Operating loss.... (14,365) (167) (14,532) (7,898)
Interest and other
income............. 4,456 86 4,542 0.5435 2,469
Interest expense..... (3,692) (302) (3,994) 0.5435 (2,171)
-------- ------- -------- --------
Loss from
continuing
operations
before income
taxes and
minority
interests....... (13,601) (383) (13,984) (7,600)
Provision (benefit)
for income taxes... (7,009) (37) (7,046) 0.5435 (3,830)
-------- ------- -------- --------
Loss from
continuing
operations
before minority
interest........ (6,592) (346) (6,938) (3,770)
Minority interest.... 1,336 89 1,425 0.5435 774
-------- ------- -------- --------
Loss from
continuing
operations...... (5,256) (257) (5,513) $ (2,996)
======== ======= ======== ========
</TABLE>
(22) The board of directors of World Access has approved a Purchase and Transfer
Agreement, dated as of June 14, 2000, under which World Access will acquire
shares of TelDaFax stock.
Pursuant to the TelDaFax Purchase Agreement, World Access will acquire
shares of TelDaFax in five transactions (collectively referred to as the
TelDaFax Purchase):
- Contribution. TelDaFax and Netnet Telekommunikations GmbH and NewTel
Communications GmbH, each a subsidiary of World Access, will enter
into a Contribution/Exchange Agreement under which World Access will
contribute the German operations of Netnet and NewTel to TelDaFax in
exchange for newly issued shares of TelDaFax;
84
<PAGE> 93
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
- Funds Share Purchase. Apax Germany II L.P., Apax Funds Nominees Ltd.
fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account and AP
Vermogensverwaltung Gesellschaft burgerlichen Rechts, collectively
referred to as the Funds, have agreed to sell all of the TelDaFax
shares held by them to World Access. In the purchase of the TelDaFax
shares from the Funds, each share of TelDaFax stock will be exchanged
for 1.025 shares of World Access Common Stock;
- Klose Share Purchase. From June 14, 2000 until December 31, 2001, Dr.
Henning F. Klose has a right to sell to World Access, and World Access
has an obligation to purchase from Dr. Klose at Dr. Klose's option,
all shares of TelDaFax stock held by Dr. Klose in up to three
installments. From July 1, 2002 until December 31, 2002, World Access
has a right to purchase from Dr. Klose, and Dr. Klose has an
obligation to sell to World Access at World Access' option, all shares
of TelDaFax stock held by Dr. Klose. In the Klose share purchase, each
share of TelDaFax stock will be exchanged for 1.025 shares of World
Access Common Stock;
- A+M Share Purchase. From the closing of World Access' purchase of the
TelDaFax shares held by the Funds until April 30, 2001, A+M GmbH & Co
Vermogensverwaltung KG has a right to sell to World Access, and World
Access has an obligation to purchase from A+M at A+M's option, all
shares of TelDaFax stock held by A+M. From July 1, 2000 until December
31, 2001, World Access has a right to purchase from A+M, and A+M has
an obligation to sell to World Access at World Access' option, all
shares of TelDaFax stock held by A+M. In the A+M share purchase, each
share of TelDaFax stock will be exchanged for 1.025 shares of World
Access Common Stock; and
- Tender Offer. World Access will conduct a tender offer for all of the
remaining issued and outstanding shares of TelDaFax. In the tender
offer, World Access will offer as consideration 1.025 shares of World
Access Common Stock for each share of TelDaFax stock.
The TelDaFax Purchase will be accounted for under the purchase method of
accounting. For purposes of these pro forma financial statements, World
Access has assumed that all five transactions were consummated resulting in
World Access acquiring 100% of the outstanding TelDaFax shares. The total
cost to acquire TelDaFax is subject to change, to the extent that the
number of shares of TelDaFax capital stock to be acquired will not be fixed
until the effective date of the merger. A change in total cost will result
in a corresponding change in goodwill and related amortization expense. The
excess of the purchase price over the fair value of the net assets acquired
has been allocated to goodwill and other intangible assets. These
allocations are subject to change pending the completion of the final
analysis of the total purchase price and fair values of the assets acquired
and the liabilities assumed. The impact of
85
<PAGE> 94
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
such changes could be material. The preliminary purchase price and goodwill
is currently estimated as follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of World Access Common Stock (i)................. $ 395,989
Estimated fees and expenses............................... 5,000
----------
Total estimated purchase price.................... $ 400,989
Allocation to fair values:
Historical shareholders' equity as of March 31, 2000...... (82,450)
Intangible assets (iii)................................... (24,000)
Adjust assets and liabilities:
Eliminate historical goodwill.......................... 12,430
Write down of fixed assets to fair value............... 24,000
----------
Preliminary goodwill (ii)................................... $ 330,969
==========
</TABLE>
---------------
(i) In accordance with the purchase agreement, each share of TelDaFax
common stock held by the Funds, Klose and A+M and all TelDaFax common
stock subject to the tender offer shall be converted into the right to
receive 1.025 shares of World Access Common Stock and such World Access
Common Stock is assumed to have been issued in connection with the
TelDaFax purchase as follows (in thousands, except per share amounts):
TelDaFax common shares held by:
<TABLE>
<S> <C>
The Funds, Dr. Klose and A+M.............................. 14,078
Remaining shares subject to the tender offer.............. 19,751
--------
Total TelDaFax shares purchased................... 33,829
Multiplied by: Exchange ratio............................. 1.025
--------
Shares of World Access Common Stock to be exchanged 34,675
Multiplied by: Average market price (a)................... $ 11.42
--------
Value of World Access Common Stock exchanged.............. $395,989
========
</TABLE>
---------------
(a) The average price represents the average market price of World Access
Common Stock for the three trading days prior and the three trading
days subsequent to June 14, 2000, the date economic terms of the
purchase were announced.
(ii) The pro forma goodwill is preliminary and subject to change based on a
final review of the fair values of TelDaFax's net assets as of the
actual purchase date. Upon a final review of the fair value of
TelDaFax's assets and liabilities, it is likely that certain tangible
and intangible assets such as customer lists, trademarks and property
and equipment may be recognized at amounts which differ from the
amounts estimated in these unaudited pro forma financial statements.
Although we do not expect these final adjustments to be significant,
they could increase or decrease the amortization and depreciation
expense reflected in the unaudited pro forma financial statements.
(iii) Intangible assets consist of retail customer base, licenses and
interconnection, management and workforce expertise. Amortization is
provided using the straight-line method over a 5-year period.
86
<PAGE> 95
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(23) Amortization of goodwill over an estimated life of 20 years. The pro forma
adjustment to goodwill was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT
-------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
TelDaFax -- For the six months ended
June 30, 2000........................ $330,969 $ 8,270 $ (690) $ 7,580
TelDaFax -- For the year ended December
31, 1999............................. $330,969 $16,550 $ 605 $15,945
</TABLE>
Depreciation benefit as a result of write-down of fixed assets to fair
value is arrived at using an estimated life of 7 years. The pro forma
adjustment to property and equipment was computed as follows (in
thousands):
<TABLE>
<CAPTION>
PRO FORMA
PROPERTY AND DEPRECIATION
EQUIPMENT ADJUSTMENT
------------ ------------
<S> <C> <C>
TelDaFax -- For the six months ended June 30, 2000.... $24,000 $(1,715)
TelDaFax -- For the year ended December 31, 1999...... $24,000 $(3,429)
</TABLE>
Amortization of additional intangible assets over an estimated life of 5
years. The pro forma adjustment to intangible assets was computed as
follows (in thousands):
<TABLE>
<CAPTION>
PRO FORMA
INTANGIBLE AMORTIZATION
ASSETS ADJUSTMENT
---------- ------------
<S> <C> <C>
TelDaFax -- For the six months ended June 30, 2000.... $24,000 $2,400
TelDaFax -- For the year ended December 31, 1999...... $24,000 $4,800
</TABLE>
(24) Elimination of historical goodwill.
(25) Elimination of historical shareholders' equity accounts.
(26) Elimination of intercompany service revenues and related costs.
(27) Adjustment to record additional tax provision (benefit) derived from
certain pro forma adjustments. World Access has not recorded any tax
benefit on a pro forma basis that may be derived from TelDaFax's net
operating losses.
(28) Represents pro forma weighted average shares for basic and diluted earnings
from continuing operations per share. The weighted average shares are
computed assuming the issuance of an aggregate of 34,675,000 shares issued
to complete the TelDaFax purchase. Due to the pro forma loss from
continuing operations potential common stock shares related to stock
options, stock warrants, convertible notes and convertible preferred stock
have been excluded from the diluted loss per share as the inclusion of
these potential common stock shares would be anti-dilutive.
PRO FORMA WORLD ACCESS
(29) On December 17, 1999, World Access entered into an Asset Purchase Agreement
with Long Distance International, Inc. ("LDI") whereby it agreed to
purchase substantially all of its assets in exchange for World Access
Convertible Preferred Stock, Series D, with an Aggregate Liquidation
Preference of $185,000,000 ("World Access Preferred") and the assumption of
certain of LDI's liabilities. At the closing of the transaction, 81% of the
World Access Preferred was issued to holders of LDI's 12 1/4% Senior Notes
due 2008 ("Note Holders"), in satisfaction of LDI's obligations thereunder;
6% of World Access Preferred was issued to NETnet International S.A.
("S.A.") in satisfaction of LDI's obligation
87
<PAGE> 96
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
under an Acquisition Agreement dated October 9, 1998; 3% of the World
Access Preferred was issued to LDI to satisfy any remaining obligations;
and 10% of the World Access Preferred was deposited into escrow to secure
LDI's indemnification obligations under the Asset Purchase Agreement. Any
escrow proceeds not so applied will be allocated 70% to the Note Holders;
20% to S.A. and 10% to LDI.
The Unaudited Pro Forma World Access Condensed Combined Statement of
Operations for the year ended December 31, 1999 give effect to our February
2000 acquisition of LDI, our December 1999 merger with FaciliCom and
related transactions, and our May 1999 acquisition of Comm/Net as if the
acquisitions had been completed on January 1, 1999. The Unaudited Pro Forma
World Access Condensed Combined Statement of Operations for the six months
ended June 30, 2000 gives effect to our February 2000 acquisition of LDI as
if the acquisition had been completed on January 1, 2000. The unaudited pro
forma condensed combined statements of operations, while helpful in
illustrating characteristics of the combined company under one set of
assumptions, does not attempt to predict or suggest future results.
As a result of the FaciliCom merger and the restructuring program initiated
by World Access in the fourth quarter of 1999, World Access expects to
realize significant operational and financial synergies. These synergies
are expected to include cost reductions resulting from traffic routing
changes made to take advantage of each company's least cost routes,
elimination of redundant leased line costs, elimination of redundant
switching centers and consolidation of certain administrative functions.
World Access currently estimates that these annualized cost savings, which
have been excluded from the unaudited pro forma condensed combined
statement of operations, will range from $20.0 million to $35.0 million.
The unaudited pro forma condensed combined statements of operations are
presented for comparative purposes only and are not intended to be
indicative of the actual results had these transactions occurred as of the
beginning of the period nor does it purport to indicate results which may
be attained in the future.
88
<PAGE> 97
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA WORLD ACCESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000:
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(A) LDI(D) ADJUSTMENTS WORLD ACCESS
--------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Carrier service revenues........................ $561,600 $ 8,679 $ -- $570,279
Operating expenses:
Cost of carrier services (exclusive of
depreciation and amortization shown separately
below)........................................ 490,330 10,025 -- 500,355
Selling, general and administrative............. 51,338 8,092 -- 59,430
Depreciation and amortization................... 36,512 2,595 854(G) 41,155
Restructuring credit............................ (3,995) -- 1,194(G) (3,995)
-------- -------- ------- --------
Total operating expenses.............. 574,185 20,712 2,048 596,945
-------- -------- ------- --------
Operating income (loss)............... (12,585) (12,033) (2,048) (26,666)
Interest and other income....................... 9,254 3,742 -- 12,996
Interest expense................................ (28,572) (6,235) 5,018(J) (29,789)
Foreign exchange gain (loss).................... 211 (94) -- 117
-------- -------- ------- --------
Income (loss) from continuing
operations before income taxes...... (31,692) (14,620) 2,970 (43,342)
Provision (benefit) for income taxes............ (2,115) -- 1,910(K) (205)
-------- -------- ------- --------
Income (loss) from continuing
operations.......................... (29,577) (14,620) 1,060 (43,137)
Preferred stock dividends....................... (1,163) -- -- (1,163)
-------- -------- ------- --------
Income (loss) from continuing
operations available to common
stockholders........................ $(30,740) $(14,620) $ 1,060 $(44,300)
======== ======== ======= ========
Loss per common share from continuing
operations:
Basic......................................... $ (0.53) $ (0.77)(N)
======== ========
Diluted....................................... $ (0.53) $ (0.77)(N)
======== ========
Weighted average shares outstanding:
Basic......................................... 57,658 57,658(N)
======== ========
Diluted....................................... 57,658 57,658(N)
======== ========
</TABLE>
89
<PAGE> 98
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA WORLD ACCESS
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999:
<TABLE>
<CAPTION>
WORLD PRO FORMA PRO FORMA
ACCESS(A) FACILICOM(B) COMM/NET(C) LDI(D) ADJUSTMENTS WORLD ACCESS
--------- ------------ ----------- -------- ----------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Carrier service revenues...... $501,081 $404,485 $13,868 $117,662 $(17,543)(F) $1,019,553
Operating expenses:
Cost of carrier services
(exclusive of depreciation
and amortization shown
separately below)........... 448,305 364,773 9,923 97,867 (14,932)(F) 905,936
Selling, general and
administrative.............. 28,433 56,652 2,324 58,822 -- 146,231
Depreciation and
amortization................ 13,541 27,823 390 20,716 36,505(G) 96,783
4,776(G)
(6,968)(H)
Restructuring and other
special charges............. 37,800 -- -- 6,387 -- 44,187
-------- -------- ------- -------- -------- ----------
Total operating
expenses........... 528,079 449,248 12,637 183,792 19,381 1,193,137
-------- -------- ------- -------- -------- ----------
Operating income
(loss)............. (26,998) (44,763) 1,231 (66,130) (36,924) (173,584)
Interest and other income..... 3,308 3,026 -- 4,488 -- 10,822
Interest expense.............. (12,914) (33,413) (65) (33,607) (8,325)(I) (58,208)
30,116(J)
Foreign exchange loss......... (620) (1,749) -- -- -- (2,369)
-------- -------- ------- -------- -------- ----------
Income (loss) from
continuing
operations before
income taxes....... (37,224) (76,899) 1,166 (95,249) (15,133) (223,339)
Provision (benefit) for income
taxes....................... (10,126) (7,335) 264 -- 10,198(K) (6,999)
-------- -------- ------- -------- -------- ----------
Income (loss) from
continuing
operations......... (27,098) (69,564) 902 (95,249) (25,331) (216,340)
Preferred stock dividends..... (1,968) -- -- (2,049) (493)(L) (2,461)
2,049(M)
-------- -------- ------- -------- -------- ----------
Income (loss) from
continuing
operations
available to common
stockholders....... $(29,066) $(69,564) $ 902 $(97,298) $(23,775) $ (218,801)
======== ======== ======= ======== ======== ==========
Loss per common share from
continuing operations:
Basic....................... $ (0.78) $ (4.32)(N)
======== ==========
Diluted..................... $ (0.78) $ (4.32)(N)
======== ==========
Weighted average shares
outstanding:
Basic....................... 37,423 50,634(N)
======== ==========
Diluted..................... 37,423 50,634(N)
======== ==========
</TABLE>
90
<PAGE> 99
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
A. This column represents the historical results of operations of World
Access. The World Access results of operations for the year ended
December 31, 1999 includes the results of Comm/Net from May 1, 1999 and
the results of FaciliCom from December 7, 1999. The World Access results
of operations for the six months ended June 30, 2000 include the results
of operations of LDI from February 11, 2000.
B. This column represents the historical results of operations of FaciliCom
for the period January 1, 1999 to December 6, 1999.
On August 17, 1999 the Company entered into a definitive merger
agreement with FaciliCom International, Inc. ("FaciliCom"), a privately
owned company that is a facilities-based provider of European and U.S.
originated international long-distance voice, data and Internet
services. On December 7, 1999, the transaction was completed in its
final form whereby FaciliCom merged into the Company (the "FaciliCom
Merger").
In connection with the FaciliCom Merger, the stockholders of FaciliCom
received approximately $56.0 million in cash, 369,901 shares of
Convertible Preferred Stock, Series C (the "Series C Preferred Stock"),
and 495,557 vested options that each may be exercised to acquire one
share of the Company's common stock at an average exercise price of
$2.63 per share. In addition, the Company issued 1,912,500 non-qualified
options to purchase Company common stock at an exercise price of $15.00
per share in exchange for substantially all the options held by
FaciliCom's employees. The Series C Preferred Stock which has a $369.9
million liquidation preference was valued at $265.5 million based on its
estimated market value as of the FaciliCom Stock Valuation Date, as
determined by an investment banking firm. The stock options were valued
at $24.8 million based on the Black-Scholes option valuation model.
Included in other liabilities in the table below, is $300.0 million
10 1/2% FaciliCom Series B Senior Notes due 2008 which were exchanged
for the Company's 13.25% Senior Notes due 2008 having an aggregate
principal amount of $300.0 million. As consideration for this exchange
the Company issued 942,627 shares of its common stock valued at $15.0
million to FaciliCom noteholders.
The Series C Preferred Stock bears no dividend and is convertible into
shares of the Company's common stock at a conversion rate of $20.38 per
common share, subject to adjustment in the event of below market
issuances of common stock, stock dividends, subdivisions, combinations,
reclassifications and other distributions with respect to common stock.
If the closing trading price of the Company's common stock exceeds
$20.38 per share for 60 consecutive trading days, the Series C Preferred
Stock will automatically convert into common stock. Initially, the
holders of the Series C Preferred Stock were entitled to elect four new
directors to the Company's board of directors. Except for the election
of directors, the holders of the Series C Preferred Stock vote on an
as-converted basis with the holders of the Company's common stock.
The acquisition of FaciliCom has been accounted for using the purchase
method of accounting. Accordingly, the results of FaciliCom's operations
have been included in the accompanying consolidated financial statements
from December 7, 1999. The excess of purchase price over the fair value
of
91
<PAGE> 100
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
net assets acquired has been recorded as goodwill and is being amortized
over a 20 year period. The following summarizes the allocation of the
purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Cash...................................................... $ 56,000
Preferred stock issued.................................... 265,515
Common stock issued....................................... 15,000
Stock options issued...................................... 24,785
Fees and expenses......................................... 15,650
---------
Total purchase price.............................. 376,950
Allocation to fair value of net assets:
Current assets............................................ (183,934)
Property and equipment.................................... (116,479)
Intangible assets......................................... (5,380)
Other assets.............................................. (1,362)
Current liabilities....................................... 207,362
Other liabilities......................................... 313,148
---------
Goodwill.......................................... $ 590,305
=========
</TABLE>
C. This column represents the historical results of operations of Comm/Net
for the period January 1, 1999 to April 30, 1999.
In May 1999, the Company acquired substantially all the assets and
assumed certain liabilities of Comm/Net Holding Corporation and its
wholly owned subsidiaries, Enhanced Communications Corporation, Comm/Net
Services Corporation and Long Distance Exchange Corporation (Comm/Net
Holdings and its wholly owned subsidiaries are collectively referred to
herein as "Comm/Net"). Comm/Net, headquartered in Plano, Texas, is a
facilities-based provider of wholesale international long distance and
wholesale prepaid calling card services, primarily to the Mexican
telecommunications markets.
In connection with the acquisition, the Company issued 23,174 shares of
4.25% Cumulative Junior Convertible Preferred Stock, Series B (the
"Series B Preferred Stock"), valued at approximately $18.5 million with
a $23.2 million liquidation preference, and paid approximately $3.5
million to retire certain Comm/Net notes payable outstanding at the time
of acquisition. The Series B Preferred Stock is convertible into shares
of the Company's common stock at a conversion rate of $16.00 per common
share, subject to standard anti-dilution adjustments. If the closing
trading price of the Company's common stock exceeds $16.00 per share for
45 consecutive trading days, the Series B Preferred Stock will
automatically convert into common stock. Preferred dividends began
accruing July 1, 1999 and are payable quarterly. In March 2000, the
Series B Preferred Stock was converted into 1,448,373 shares of the
Company's common stock.
The acquisition of Comm/Net has been accounted for under the purchase
method of accounting. Accordingly, the results of Comm/Net's operations
have been included in the accompanying consolidated financial statements
from May 1, 1999. The excess of purchase price over the fair value
92
<PAGE> 101
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
of net assets acquired has been recorded as goodwill and is being
amortized over a 20 year period. the following summarizes the allocation
of the purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Preferred stock issued.................................... $18,539
Debt paid................................................. 3,502
Fees and expenses......................................... 800
-------
Total purchase price.............................. 22,841
Allocation to fair values of net assets:
Current assets............................................ (7,754)
Property and equipment.................................... (3,351)
Current liabilities....................................... 9,609
Other assets and liabilities, net......................... 1,368
-------
Goodwill.......................................... $22,713
=======
</TABLE>
D. These columns represents the historical results of operations of LDI.
For the Unaudited Pro Forma Condensed Combined Statement of Operations
for the three months ended March 31, 2000, the historical results of
operations of LDI are for the period January 1, 2000 to February 10,
2000. For the Unaudited Pro Forma Condensed Combined Statement of
Operations for the year ended December 31, 1999, the historical results
of operations of LDI are for the period January 1, 1999 to December 31,
1999.
E. The LDI merger has been accounted for under the purchase method of
accounting. Under the terms of the Agreement and Plan of Merger dated
as of December 17, 1999, the purchase price was determined as follows
(in thousands):
<TABLE>
<S> <C>
Purchase price:
Issuance of preferred stock (i)........................... $217,560
Debt forgiven............................................. 4,674
Fair value of World Access options issued in exchange for
LDI options (ii)....................................... 21,731
Fees and expenses......................................... 2,000
--------
245,965
Allocation to fair value of net assets:
Cash...................................................... (42,476)
Other current assets...................................... (15,447)
Intangible assets......................................... (25,910)
Property and equipment.................................... (17,113)
Other assets.............................................. (871)
Current liabilities....................................... 80,433
Other liabilities......................................... 723
--------
Goodwill.................................................... $225,304
========
</TABLE>
(i) World Access management has determined the fair value of the
185,000 shares of Series D Preferred Stock issued as part of the LDI
merger consideration to be $217,560 or $1,176 per share. The fair value
was determined by calculating the equivalent number of shares of common
stock into which the preferred shares are convertible multiplied by the
average market price of the common stock for three trading days prior and
the three trading days subsequent to the date economic terms of the
acquisition are announced, and then adding a six percent premium to the
value to reflect the
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WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock preferences over common stock. The Series D Preferred
Stock bears no dividend and is convertible into shares of World Access
Common Stock at a conversion rate of $18 per common share of World Access
Common Stock, subject to adjustment in the event of below market
issuances of World Access Common Stock, stock dividends, subdivisions,
combinations, reclassifications and other distributions with respect to
World Access common stock. If the closing trading price of World Access
Common Stock exceeds $18 per share for 60 consecutive trading days, the
Series D Preferred Stock will automatically convert into World Access
Common Stock.
(ii) Represents the fair value of approximately 1,500,000 options to
acquire World Access Common Stock issued in exchange for certain options
outstanding to acquire shares of LDI stock. The fair value has been
determined using the Black-Scholes Option Pricing Model with the
following assumptions: dividend yield 0%, volatility 70%, risk free
interest rate of 6.3% and an expected life of 4 years. The World Access
options have an exercise price of $18.50 per share. The holders of the
LDI redeemable warrants have agreed to terminate their warrants as part
of the closing of the acquisition by World Access.
F. Elimination of inter-company revenues and related costs.
G. Amortization of additional goodwill as a result of the FaciliCom,
Comm/Net and LDI Acquisitions over an estimated life of 20 years. The
additional Resurgens goodwill of $127.4 million is a result of the
7,500,000 shares released from escrow related to the acceleration of the
Resurgens earn-out in connection with the FaciliCom Merger. The pro
forma adjustment to goodwill was computed as follows (in thousands):
<TABLE>
<CAPTION>
HISTORICAL
PRO FORMA GOODWILL PRO FORMA
GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENTS
-------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
For the six months ended June 30, 2000:
LDI........................................ $225,304 $ 5,632 $ (4,778) $ 854
For the year ended December 31, 1999:
FaciliCom.................................. 590,305 29,515 (2,475) 27,040
Resurgens.................................. 127,425 6,371 (409) 5,962
LDI........................................ 225,304 11,265 (8,210) 3,055
Comm/Net................................... 22,713 1,136 (688) 448
------- -------- -------
$48,287 $(11,782) $36,505
======= ======== =======
</TABLE>
Amortization of additional intangible assets over their estimated useful
lives. The pro forma adjustment for intangible asset amortization was computed
as follows (in thousands):
<TABLE>
<CAPTION>
INTANGIBLE PRO FORMA HISTORICAL PRO FORMA
ASSETS AMORTIZATION AMORTIZATION ADJUSTMENT
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
For the six months ended June 30, 2000:
LDI......................................... $25,910 $1,850 $ 925 $ 925
FaciliCom................................... 5,380 538 269 269
------- ------ ------- ------
$31,290 $2,388 $ 1,194 $1,194
======= ====== ======= ======
For the year ended December 31, 1999:
LDI......................................... $25,910 $3,700 $ -- $3,700
FaciliCom................................... 5,380 1,076 -- 1,076
------- ------ ------- ------
$31,290 $4,776 $ -- $4,776
======= ====== ======= ======
</TABLE>
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WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
H. Adjustment to depreciation expense for the adjustment to fair values of
switching equipment and IRUs at FaciliCom.
I. Represents the adjustment to interest expense related to the exchange of
$300.0 million of FaciliCom notes with a 10.5% coupon for World Access
notes with a 13.25% coupon and the amortization of the $15.0 million
debt discount related to World Access notes over a period of eight
years. The pro forma adjustment to interest expense was computed as
follows (in thousands):
<TABLE>
<S> <C>
Interest expense on World Access notes for eleven months.... $(36,438)
Debt issue cost amortization on World Access notes for
eleven months............................................. (1,719)
Historical FaciliCom note interest expense.................. 28,875
Historical FaciliCom debt issue cost amortization........... 957
--------
Net increase in interest expense.................. $ (8,325)
========
</TABLE>
J. Adjustment to reduce interest expense related to the elimination of
certain LDI indebtedness resulting from the acquisition as follows:
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED FOR THE YEAR
MARCH 31, ENDED
2000 DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
Interest expense on LDI's 12 1/4% Senior Notes..... $4,609 $27,656
Amortization of original issue discount on LDI's
12 1/4% Senior Notes............................. 200 1,202
Amortization of LDI's 12 1/4% Senior Notes offering
costs............................................ 157 944
Interest expense on certain notes payable to the
holders of LDI's 12 1/4% Senior Notes............ 52 314
------ -------
Net decrease in interest expense......... $5,018 $30,116
====== =======
</TABLE>
K. Adjustment for the additional tax benefit derived from certain pro
forma adjustments. World Access has not recorded any tax benefit on a
pro forma basis that may be derived from LDI's and FaciliCom's net
operating losses.
L. To increase preferred stock dividends to reflect the Series B preferred
stock issued in connection with the Comm/Net acquisition as outstanding
for the full period.
M. To eliminate historical LDI preferred stock dividends and preferred
stock and warrant redemption accretion.
N. Represents pro forma weighted average shares and basic diluted earnings
from continuing operations per share for the year ended December 31,
1999. The weighted average shares are computed assuming the issuance of
(1) an aggregate of 4,713,128 shares issued for $75.0 million in
connection with the private placement of World Access common stock in
conjunction with the FaciliCom merger; (2) an aggregate of 942,627
shares issued to the holders of the FaciliCom notes; (3) an aggregate
963,722 shares issued to certain FaciliCom shareholders; and (4)
7,500,000 shares released from escrow related to the acceleration of
the Resurgens earn-out in connection with the FaciliCom merger as of
January 1, 1999. Due to the pro forma loss from continuing operations
potential common stock shares related to stock options, stock warrants,
convertible notes and convertible preferred stock have been excluded
from the diluted loss per share as the inclusion of these potential
common stock shares would be anti-dilutive.
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<PAGE> 104
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For the six months ended June 30, 2000, no additional shares of common
stock are deemed to be outstanding. Due to the pro forma loss from
continuing operations potential common stock shares related to stock
options, stock warrants, convertible notes and convertible preferred
stock have been excluded from the diluted loss per share as the
inclusion of these potential common shares would be anti-dilutive.
O. Under the terms of the Indenture governing World Access' $300.0 million
of 13.25% Senior Notes due 2008, World Access has an obligation to
utilize the net cash proceeds from the sale of certain of the Company's
equipment businesses 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 joint proxy statement/prospectus, the
Company is currently obligated to tender for approximately $160.0
million of the 13.25% Senior Notes by January 2, 2001. The pro forma
financial statements do not include the impact, if any, of the tender
offer on the financial position of World Access.
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<PAGE> 105
COMPARISON OF RIGHTS OF HOLDERS OF
WORLD ACCESS COMMON STOCK AND TELDAFAX STOCK
This section of the proxy statement/prospectus describes certain
differences between TelDaFax stock and World Access common stock. While World
Access and TelDaFax believe that the description covers the material differences
between the two, this summary may not contain all of the information that is
important to TelDaFax stockholders, including the information set forth in the
certificates of incorporation and bylaws of each company. TelDaFax stockholders
should read this entire document and the other documents referred to carefully
for a more complete understanding of the differences between TelDaFax stock and
World Access common stock.
The rights of stockholders of World Access are governed by World Access'
certificate of incorporation, as amended, and World Access' bylaws. Because
World Access is a Delaware corporation, after the TelDaFax transactions are
completed, the rights of TelDaFax's stockholders will be governed by the General
Corporation Law of the State of Delaware.
COMPARISON OF AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of World Access currently consists of
160,000,000 shares, of which 150,000,000 shares shall be common stock of $.01
par value per share, and 10,000,000 shares of which shall be preferred stock of
$.01 par value per share. Note, however, that at the 2000 World Access special
meeting in lieu of annual meeting, the World Access stockholders are being asked
to approve an amendment to the World Access certificate of incorporation that
would increase the number of shares of common stock World Access is authorized
to issue to 290,000,000. As of August 25, 2000, 61,707,277 shares of World
Access common stock were outstanding and 613,905 shares of World Access
preferred stock were outstanding, which are convertible into 33,939,077 shares
of World Access common stock.
The issued share capital of TelDaFax currently amounts to Euro 87,954,360,
consisting of 33,828,600 bearer shares of common stock with no par value. The
bylaws of TelDaFax provide for increases in share capital and in the number of
shares issued as follows:
The management board of TelDaFax is authorized to increase the issued share
capital by up to Euro 42,900,000 until June 9, 2004.
The general stockholders' meeting has approved a conditional increase in
the issued share capital by Euro 42,900,000 which may become unconditional,
resulting in the issue of up to 16,500,000 bearer shares of common stock,
depending on the exercise of conversion or option rights or the fulfillment of
conversion obligations by the holders of convertible bonds or option bonds
issued by TelDaFax or its wholly owned direct or indirect subsidiaries until
June 9, 2004.
TelDaFax has not issued any preferred stock.
COMPARISON OF CLASSES OF COMMON STOCK
World Access and TelDaFax each have one class of common stock issued and
outstanding. Holders of World Access common stock and holders of TelDaFax common
stock are each entitled to one vote for each share held.
COMPARISON OF REQUIREMENTS FOR SPECIAL MEETING OF STOCKHOLDERS
Special meetings of World Access may be called by a majority of World
Access' board of directors or an officer instructed by the board of directors to
call a meeting.
General stockholders' meetings of TelDaFax may be convened by the
management board, supervisory board or stockholders whose interests, in the
aggregate, amount to not less than 5% of the share capital of TelDaFax.
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COMPARISON OF REQUIREMENTS FOR ACTION BY WRITTEN CONSENT IN LIEU OF A
STOCKHOLDERS' MEETING
World Access stockholders may not take action without a meeting by written
consent except for preferred stockholders pursuant to the World Access
certificate of incorporation.
TelDaFax stockholders may not take action without a meeting by written
consent.
COMPARISON OF REQUIREMENTS FOR VOTING BY WRITTEN BALLOT
World Access' bylaws provide that the election of directors need not be by
written ballot.
The bylaws of TelDaFax provide that the manner in which votes are cast at
the general stockholders' meeting, including votes to elect the members of the
supervisory board, is to be determined by the chairperson of the meeting.
COMPARISON OF RECORD DATE FOR DETERMINING STOCKHOLDERS
The World Access bylaws provide that its board of directors may fix a
record date that:
- in the case of determination of the stockholders entitled to vote at any
meeting of stockholders or adjournment of any meeting, shall not be more
than 60 days nor less than ten days before the date of the meeting; and
- in the case of any other action, shall not be more than 60 days prior to
such action.
Furthermore, the World Access bylaws provide that if the World Access board
of directors does not fix a record date in the manner described above, then:
- the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on
which the meeting is held; and
- the record date for determining stockholders for any other purpose shall
be at the close of business on the same day on which the World Access
board of directors adopts the related resolution.
The bylaws of TelDaFax provide that the right to participate in and vote at
general stockholders' meetings is only accorded to those stockholders who
deposit their shares, for the duration of the meeting, with TelDaFax, a German
notary public, a securities depository bank or any other place of deposit
specified in the notice of the general shareholders' meeting. Shares are also
deemed to have been deposited if, with the consent of an approved depository,
these are deposited with a bank in a blocked security deposit until the end of
the general stockholders' meeting. The deposit must be made at least five days
before the meeting. If the last day of the deposit limit falls on a Sunday,
Saturday or other official holiday in a state of the Federal Republic of
Germany, then deposits must take place on or before the immediately preceding
business day. If the shares are deposited with a German notary public or with a
securities depository bank, a certificate to this effect must be submitted to
TelDaFax on the first business day, excluding Saturdays, following the
expiration of the time limit for deposits.
COMPARISON OF PROCEDURES FOR NOMINATION OF DIRECTORS
The World Access bylaws require that the board of directors or a
stockholder who gives timely notice to the secretary of the company make board
nominations. To be timely, World Access must receive a stockholder's nomination
notice at least 120 days prior to the one-year anniversary of the date of the
proxy statement in connection with the previous year's annual meeting of
stockholders. If (i) no annual meeting was held in the previous year, (ii) the
date of the upcoming annual meeting has changed by more than 30 days from the
date contemplated in the previous year's proxy statement or (iii) the upcoming
meeting is not an
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annual meeting, a nominating stockholder's notice must be received by World
Access no later than the close of business on the tenth day following the
earlier of:
- the day on which notice of the upcoming meeting was mailed or given to
the World Access stockholders; or
- the day on which public disclosure of the date of the upcoming meeting
was made by World Access.
Under German corporate law, the supervisory board appoints the members of
the management board. The supervisory board, which is elected by the
stockholders at the general stockholders' meeting in TelDaFax's case, is
required to make nominations for the election of supervisory board members as
part of the invitation to the general stockholders' meeting. Stockholders may
make nominations at any time until the election, in which case the chairperson
of the general stockholders' meeting decides on the sequence in which
nominations are put to the vote. However, if a nomination was made by a
stockholder within one week after publication of the invitation to the general
stockholders' meeting, stockholders representing not less than 10% of the votes
cast may require that such nomination is put to the vote first, before any
nominations made by the supervisory board.
COMPARISON OF NUMBER OF DIRECTORS
The World Access amended certificate of incorporation and bylaws provide
that the World Access board of directors must consist of not fewer than three
and not more than 12 directors, with the exact number to be fixed from time to
time by the World Access board of directors. Note, however, that at the 2000
World Access special meeting in lieu of annual meeting, World Access is seeking
approval by its stockholders of an amendment to the certificate of incorporation
which would increase the maximum number of directors to 15.
The bylaws of TelDaFax provide that the management board must consist of at
least two members. The supervisory board is authorised to increase that number;
there is no maximum limit.
COMPARISON OF CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be
divided into various classes with staggered terms of office. World Access' board
of directors is divided into three classes, as nearly equal in size as possible,
with one class being elected annually.
You should note, however, that at the 2000 World Access special meeting in
lieu of annual meeting, World Access is seeking the approval of its stockholders
to an amendment to the certificate of incorporation of World Access which would
eliminate World Access' classified board of directors. If this amendment is
approved by the requisite vote of the World Access stockholders, all World
Access directors would be elected annually to a term of one year and until the
next annual meeting of stockholders at which their successors are elected and
qualified . At an annual meeting in which a quorum is present, the persons
receiving a plurality of the votes cast by World Access stockholders would be
elected as the directors.
The bylaws of TelDaFax do not provide for a classified board. The
supervisory board appoints the members of the management board individually, for
terms of up to five years, and may be re-appointed, again for up to five years,
upon the expiration of such term. The stockholders' elect members of the
supervisory board, all at the same time, for a term expiring at the end of the
general stockholders' meeting resolving on the statutory discharge for the
fourth financial year after the commencement of their term, excluding the
financial year during which their term commenced.
COMPARISON OF PROCEDURES FOR THE REMOVAL OF DIRECTORS
The World Access bylaws provide that any director or the entire board of
directors may be removed at any time, with cause, by the holders of a majority
of the voting power of the shares entitled to vote at an election of directors,
voting together as a single class.
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Members of the management board may be removed, with cause, by resolution
of the supervisory board. Members of the supervisory board may be removed by
resolution of the general stockholders' meeting, with or without cause.
COMPARISON OF BOARD OF DIRECTORS VACANCIES
The bylaws of World Access provide that vacancies on the board of directors
may be filled by the vote of the majority of directors remaining in office.
Vacancies on the management board of TelDaFax may be filled by resolution
of the supervisory board at any time. Vacancies on the supervisory board,
resulting in the supervisory board no longer being quorate, may be filled by
court order, at the request of the management board, any supervisory board
member or any stockholder.
COMPARISON OF NOTICE REQUIREMENTS OF SPECIAL MEETING OF THE BOARD OF DIRECTORS
The World Access bylaws provide that the chairman of the board, the
vice-chairman of the board, the president or a majority of directors then in
office may call special meetings of the board of directors. The bylaws do not
require a specific notice period, but only require that the notice provide
sufficient time for the convenient assembly of the directors.
The bylaws of TelDaFax do not provide for a specific notice period for
meetings of the management board. Meetings of the supervisory board must be
called at 14 days' notice. The supervisory board may also pass resolutions by
written vote or vote cast over the telephone, without a physical meeting, if no
member objects.
COMPARISON OF PROCEDURES FOR AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND
BYLAWS
The World Access amended certificate of incorporation imposes a
super-majority voting requirement with respect to certain amendments. Any
amendment to the classified board provisions of the certificate of
incorporation, or any proposed change to the certificate or bylaws which is
inconsistent with such provision, requires the vote of holders of at least 75%
of the voting power of all shares entitled to vote in the election of directors,
voting as a single class. The World Access bylaws may be amended by the board of
directors or stockholders of World Access.
The bylaws of TelDaFax may be amended by a simple majority of the votes
cast at a general stockholders' meeting except for certain matters requiring a
majority of three quarters of the votes cast, for example, an increase in share
capital excluding the subscription rights of existing stockholders, or
unanimity, for example, an amendment imposing additional payment obligations on
stockholders or restricting the transferability of shares. The supervisory board
may amend the bylaws in respect of pure drafting matters and to take account of
the issue of additional shares out of the company's authorized or conditional
share capital.
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DESCRIPTION OF WORLD ACCESS' CAPITAL STOCK
WORLD ACCESS COMMON STOCK
The holders of World Access common stock are entitled to one vote for each
share held of record on all matters to be voted on by the stockholders. There is
no cumulative voting with respect to the election of directors. Accordingly,
holders of a majority of the outstanding shares of World Access common stock and
the holders of the World Access Series A preferred stock, Series D preferred
stock and Series E preferred stock, voting on an as converted to common stock
basis, can elect all members of World Access' board of directors, and holders of
the remaining shares of World Access common stock by themselves cannot elect any
member of the board of directors.
The holders of World Access common stock are entitled to receive dividends
when, as and if declared by the board of directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of World Access, the holders of World Access common stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities and after provision has been made for each class of stock, if
any, having preference over the World Access common stock.
Holders of shares of World Access common stock, as such, have no
conversion, preemptive or other subscription rights. There are no redemption
provisions applicable to the World Access common stock.
WORLD ACCESS PREFERRED STOCK
Both the World Access and STAR certificates of incorporation authorize
their respective boards of directors to issue shares of preferred stock in one
or more series and to fix the designations, preferences, powers and rights of
the shares to be included in such shares. The STAR certificate of incorporation
authorizes the issuance of 5,000,000 shares of preferred stock. No shares of
STAR preferred stock are issued and outstanding. The World Access certificate of
incorporation authorizes the issuance of 10,000,000 shares of preferred stock,
of which 50,000 shares designated as Series A preferred stock, 350,259.875
shares designated as Series C preferred stock, 184,000 shares designated as
Series D preferred stock, and 9,645 shares designated as Series E are issued and
outstanding. The material terms of the Series A preferred stock, the Series C
preferred stock, the Series D preferred stock and the Series E preferred stock
are summarized below.
World Access Series A Preferred Stock
Dividends. The holders of the Series A preferred stock are entitled to
receive, when, as and if declared by the World Access board of directors,
quarterly cash dividends at an annual rate on the liquidation preference of the
Series A preferred stock (i.e., $1,000) equal to 4.25%. Dividends payable on the
Series A preferred stock are cumulative and accrue, whether or not declared, on
a daily basis from April 19, 1999.
Ranking. The Series A preferred stock ranks, as to dividend and
liquidation rights, senior to World Access common stock, the Series C preferred
stock and the Series D preferred stock.
Voting Rights. In addition to any voting rights provided by law, the
holders of the Series A preferred stock are entitled to vote on all matters
voted on by holders of World Access common stock voting together as a single
class with the holders of World Access common stock, Series C preferred stock,
Series D preferred stock and other shares entitled to vote thereon. Each holder
of the Series A preferred stock is entitled to cast the number of votes per
share as is equal to the number of votes that such holder would be entitled to
cast had such holder converted its shares into World Access common stock on the
record date for determining the stockholders entitled to vote on any such
matters.
In addition, unless the consent or approval of a greater number of shares
is then required by law, the vote of the holders of at least 66 2/3% of the
outstanding shares of Series A preferred stock, voting separately as a single
series, is required to: (i) authorize, increase the authorized number of shares
of or issue any shares of any class of stock ranking senior to, or on par with,
the Series A preferred stock; (ii) authorize, adopt or approve an amendment to
the certificate of incorporation of World Access that would increase or decrease
the par value of the Series A preferred stock, or alter or change the powers,
preferences or special rights of the
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Series A preferred stock, or would alter or change the powers, preferences or
special rights of stock ranking senior to, or on par with, the Series A
preferred stock; (iii) amend or alter the certificate of incorporation so as to
affect the Series A preferred stock adversely and materially; (iv) authorize or
issue any security convertible into, exchangeable for or evidencing the right to
purchase or otherwise receive any shares of any class or classes of stock
ranking senior to, or on par with, the Series A preferred stock; (v) subject to
certain limited exceptions described in the World Access certificate of
incorporation, effect the voluntary liquidation, dissolution, winding up,
recapitalization or reorganization of World Access, or the consolidation or
merger of World Access with or into another entity, or the sale or other
distribution to another entity of all or substantially all of the assets of
World Access; or (vi) authorize, increase the authorized number of shares of, or
issue any shares of capital stock having an optional or mandatory redemption
date earlier than April 21, 2004 or amend the terms of any capital stock to
provide that such capital stock has an optional or mandatory redemption date
earlier than April 21, 2004.
Board of Directors Representation. If World Access (i) fails to declare or
pay the full amount of dividends payable on the Series A preferred stock for two
quarterly dividend periods (whether consecutive or not) or (ii) fails to comply
with specific affirmative and negative covenants of World Access set forth in
the Stock Purchase Agreement, dated April 19, 1999, between World Access and The
1818 Fund III, L.P., then the number of directors on the World Access board of
directors must be increased by one, and the holders of the Series A preferred
stock will have the exclusive right to fill such directorship. The person
designated as a director by the holders of the Series A preferred stock will
continue in such position until such breach is cured.
Redemption. On or after April 21, 2003, World Access has the right to
redeem the Series A preferred stock for a price per share equal to $1,000 plus
an amount per share equal to all accrued and unpaid dividends through the
redemption date. If a change of control of World Access occurs on or before
April 21, 2001, World Access has the right to redeem the Series A preferred
stock for a price per share equal to $1,250 plus an amount per share equal to
all accrued and unpaid dividends through the redemption date.
Conversion Price. The Series A preferred stock is convertible, at any time
by the holder thereof, into shares of World Access common stock for a conversion
price equal to $11.50 per share. The conversion price is subject to adjustment
in the event of below market issuances of World Access common stock, stock
dividends, subdivisions, combinations, reclassifications and other distributions
with respect to World Access common stock and certain other instances described
in the World Access certificate of incorporation.
Mandatory Exchange. If at any time on or after April 19, 2004 until April
19, 2009, the holders of at least 50% of the Series A preferred stock demand
that World Access exchange the Series A preferred stock, then World Access must
exchange all such shares for shares of World Access common stock or subordinated
nonconvertible notes of World Access. The exchange must occur at a per share
price equal to $1,000 per share plus an amount per share equal to all accrued
and unpaid dividends to the exchange date. The exchange date must occur at any
time, or from time to time, during the period from the 40th day following the
date a stockholder demands the exchange to the third anniversary of such date.
Any shares of common stock issued in the exchange will be valued at 95% of the
average market price of World Access common stock for the ten trading days
preceding the applicable exchange date, but in no event greater than the
conversion price then in effect.
Mandatory Conversion. If for 45 consecutive trading days the market price
of World Access common stock exceeds 261% of the conversion price in effect on
each such trading day, all shares of Series A preferred stock will be
automatically converted into such number of shares of World Access common stock
as equals the number of shares subject to conversion multiplied by the quotient
of $1,000 divided by the conversion price in effect on the last trading day of
such 45-day period.
World Access Series C Preferred Stock
Ranking. The Series C preferred stock ranks, as to dividends, on par with
the World Access common stock and the Series D preferred stock and junior to the
Series A preferred stock. With respect to liquidation preference, the Series C
preferred stock ranks senior to the World Access common stock, junior to the
Series A preferred stock, and on par with the Series D preferred stock.
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Voting Rights. In addition to any voting rights provided by law, except
with respect to the election of directors, the holders of the Series C preferred
stock are entitled to vote on all matters voted on by holders of World Access
common stock voting together as a single class with the holders of World Access
common stock, Series A preferred stock, Series D preferred stock and other
shares entitled to vote thereon. Each holder of the Series C preferred stock is
entitled to cast the number of votes per share as is equal to the number of
votes that such holder would be entitled to cast had such holder converted its
shares into World Access common stock on the record date for determining the
stockholders entitled to vote on any such matters.
In addition, unless the consent or approval of a greater number of shares
is then required by law, the vote of the holders of at least 66 2/3% of the
outstanding shares of Series C preferred stock, voting separately as a single
series, is required to: (i) authorize, increase the authorized number of shares
of or issue any shares of any class of stock ranking senior to the Series C
preferred stock; (ii) authorize, adopt or approve an amendment to the
certificate of incorporation of World Access that would increase or decrease the
par value of the Series C preferred stock, or alter or change the powers,
preferences or special rights of the Series C preferred stock, or would alter or
change the powers, preferences or special rights of stock ranking senior to the
Series C preferred stock; (iii) amend or alter the certificate of incorporation
so as to affect the Series C preferred stock adversely and materially; (iv)
authorize or issue any security convertible into, exchangeable for or evidencing
the right to purchase or otherwise receive any shares of any class or classes of
stock ranking senior to the Series C preferred stock; and (v) subject to certain
limited exceptions described in the World Access certificate of incorporation,
effect the voluntary liquidation, dissolution, winding up, recapitalization or
reorganization of World Access, or the consolidation or merger of World Access
with or into another entity, or the sale or other distribution to another entity
of all or substantially all of the assets of World Access.
Board of Directors Representation. The holders of the Series C preferred
stock have the right, voting as a separate series, to nominate and elect four
directors to the World Access board of directors (and are not entitled to vote
with respect to the election of any other directors), provided that on the
record date for determining the stockholders eligible to vote for directors, at
least 15% of the originally issued Series C preferred stock is outstanding.
However, if the World Access common stock issuable upon conversion of the Series
C preferred stock equals less than 20% of the outstanding shares of capital
stock of World Access entitled to vote for the election of directors, then, so
long as the outstanding shares of Series C preferred stock equal at least 15% of
the originally issued Series C preferred stock, the holders of the Series C
preferred stock have the right to elect (voting as a separate series), the
number of directors which, as a percentage of the total number of World Access
directors, is at least equal to the percentage of all outstanding shares of
capital stock entitled to vote for the election of directors held by such
holders of Series C preferred stock, on an as converted basis.
Conversion Price. The Series C preferred stock is convertible, at any time
by the holder thereof, into shares of World Access common stock for a conversion
price equal to $20.38 per share. The conversion price is subject to adjustment
in the event of below market issuances of World Access common stock, stock
dividends, subdivisions, combinations, reclassifications and other distributions
with respect to World Access common stock and other instances described in the
World Access certificate of incorporation.
Mandatory Conversion. If for 60 consecutive trading days the market price
of World Access common stock exceeds the conversion price in effect on each such
trading day, all shares of Series C preferred stock will be automatically
converted into such number of shares of World Access common stock as equals the
number of shares subject to conversion multiplied by the quotient of $1,000
divided by the conversion price in effect on the last trading day of such 60-day
period.
In addition, any outstanding shares of Series C preferred stock that have
not been converted into World Access common stock by December 7, 2002 will be
automatically converted into such number of shares of World Access common stock
as is equal to the number of shares of Series C preferred stock subject to
conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average
market price for the 20 consecutive days ending on December 7, 2002.
Notwithstanding the foregoing, the average market price for the 20 consecutive
days ending on December 7, 2002 may not be less than $11.50 or greater than the
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conversion price, and is subject to increase based on a specific decline in the
Nasdaq Composite Index between December 7, 1999 and December 7, 2002.
World Access Series D Preferred Stock
Ranking. The Series D preferred stock ranks, as to dividends, on par with
the World Access common stock and the Series C preferred stock and junior to the
Series A preferred stock. With respect to liquidation preference, the Series D
preferred stock ranks senior to the World Access common stock, junior to the
Series A preferred stock, and on par with the Series C preferred stock.
Voting Rights. In addition to any voting rights provided by law, the
holders of the Series D preferred stock are entitled to vote on all matters
voted on by holders of World Access common stock voting together as a single
class with the holders of World Access common stock, Series A preferred stock,
Series C preferred stock and other shares entitled to vote thereon. Each holder
of the Series D preferred stock is entitled to cast the number of votes per
share as is equal to the number of votes that such holder would be entitled to
cast had such holder converted its shares into World Access common stock on the
record date for determining the stockholders entitled to vote on any such
matters.
Conversion Price. The Series D preferred stock is convertible, at any time
by the holder thereof, into shares of World Access common stock for a conversion
price equal to $18.00 per share. The conversion price is subject to adjustment
in the event of below market issuances of World Access common stock, stock
dividends, subdivisions, combinations, reclassifications and other distributions
with respect to World Access common stock and other instances described in the
World Access certificate of incorporation.
Mandatory Conversion. If for 60 consecutive trading days the market price
of World Access common stock exceeds the conversion price in effect on each such
trading day, all shares of Series D preferred stock will be automatically
converted into such number of shares of World Access common stock as equals the
number of shares subject to conversion multiplied by the quotient of $1,000
divided by the conversion price in effect on the last trading day of such 60-day
period.
In addition, any outstanding shares of Series D preferred stock that have
not been converted into World Access common stock by February 14, 2003 will be
automatically converted into such number of shares of World Access common stock
as is equal to the number of shares of Series D preferred stock subject to
conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average
market price for the 20 consecutive days ending on February 14, 2003.
Notwithstanding the foregoing, the average market price for the 20 consecutive
days ending on February 14, 2003 may not be less than $11.50 or greater than the
conversion price, and subject to increase based on a specific decline in the
Nasdaq Composite Index between February 14, 2000 and February 14, 2003.
World Access Series E Preferred Stock
Ranking. The Series E preferred stock ranks, as to dividends, on par with
the World Access common stock, the Series C preferred stock, and Series D
preferred stock and junior to the Series A preferred stock. With respect to
liquidation preference, the Series E preferred stock ranks senior to the World
Access common stock, junior to the Series A preferred stock, and on par with the
Series C preferred stock and Series D preferred stock.
Voting Rights. In addition to any voting rights provided by law, the
holders of the Series E preferred stock are entitled to vote on all matters
voted on by holders of World Access common stock voting together as a single
class with the holders of World Access common stock, Series A preferred stock,
Series C preferred stock, Series D preferred stock and other shares entitled to
vote thereon. Each holder of the Series E preferred stock is entitled to cast
the number of votes per share as is equal to the number of votes that such
holder would be entitled to cast had such holder converted its shares into World
Access common stock on the record date for determining the stockholders entitled
to vote on any such matters.
Conversion Price. The Series E preferred stock is convertible, at any time
by the holder thereof, into shares of World Access common stock for a conversion
price equal to $21.75 per share. The conversion price is
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<PAGE> 113
subject to adjustment in the event of below market issuances of World Access
common stock, stock dividends, subdivisions, combinations, reclassifications and
other distributions with respect to World Access common stock and other
instances described in the World Access certificate of incorporation.
Mandatory Conversion. If for ten consecutive trading days the market price
of World Access common stock exceeds the conversion price in effect on each such
trading day, all shares of Series E preferred stock will be automatically
converted into such number of shares of World Access common stock as equals the
number of shares subject to conversion multiplied by the quotient of $1,000
divided by the conversion price in effect on the last trading day of such
ten-day period.
In addition, any outstanding shares of Series E preferred stock that have
not been converted into World Access common stock by July 13, 2003 will be
automatically converted into such number of shares of World Access common stock
as is equal to the number of shares of Series E preferred stock subject to
conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average
market price for the ten consecutive days ending on July 13, 2003.
Notwithstanding the foregoing, the average market price for the ten consecutive
days ending on July 13, 2003 may not be less than $11.50 or greater than the
conversion price, and subject to increase based on a specific decline in the
Nasdaq Composite Index between July 13, 2000 and July 13, 2003.
INFORMATION REGARDING TELDAFAX
TelDaFax is a facilities-based national telecommunications company.
TelDaFax provides bundled fixed line, wireless, Internet and e-Commerce services
to business and residential customers in Germany. The TelDaFax strategy focuses
on the convergence of wireline telephone services, internet and mobile
telephony.
Since January 1, 1998, TelDaFax has maintained a communications network of
dedicated lines which it leased from Deutsche Telekom AG, to provide voice
telephony, fax and data transmission services throughout Germany. TelDaFax's
predecessor was established in March 1995 and was registered by the Federal
Ministry for Post and Telecommunications as a telecommunications service
provider in July 1995. Subsequently, TelDaFax built a network of switching nodes
throughout Germany and connected these by way of dedicated leased lines. From
1996, this network was used to create data, fax and corporate network
connections throughout most of Germany. On September 30, 1997, TelDaFax received
a Category 4 License from the Federal Ministry for Post and Telecommunications
for provision of fixed-line telecommunication services throughout Germany.
REGULATORY ENVIRONMENT
The German telecommunications market was fully liberalized on January 1,
1998. Deutsche Telekom, which was partially privatized in November 1996, now has
numerous competitors. The individual market segments were opened up to
competition gradually. Deutsche Telekom's monopoly of corporate networks was
dismantled in 1993, and several competitors have entered this market.
The Telecommunications Act implements the telecommunications policy adopted
by the EU in national law. The Telecommunications Act allows infrastructure to
be installed and operated and public switched voice telephony services to be
provided on the basis of self-operated networks. It stipulates that a license is
required to operate transmission lines for public use and to provide voice
telephony services for the general public. Four license categories are provided
for as follows:
- the operation of public transmission lines for mobile telephony services,
a Category 1 License, satellite communications services, a Category 2
License, and other telecommunications services, Category 3 License; and
- the provision of public voice telephone services on the basis of
self-operated telecommunications networks, a Category 4 License.
As a general rule there is no limit to the number of licenses that can be
issued except in the case of scarce resources. Some of the licenses cover
Germany nationwide, while others are regional. The license territory is defined
by the applicant. TelDaFax holds a nationwide Category 4 License.
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The Telecommunications Act established the Regulatory Authority for
Telecommunications and Post, which monitors competition in the
telecommunications market and grants telecommunications licenses. As of January
1, 1998 the Regulatory Authority succeeded the Federal Ministry for Post and
Telecommunications, the former regulatory authority responsible for discharging
the duties assigned by The Telecommunications Act.
In the context of the asymmetric regulation of the market, price
regulation, both for the end customers and the competing providers which pay
fixed rates for network access and interconnection with a market-dominating
company, is of special significance. Under The Telecommunications Act and an
ordinance adopted on the basis of the Act, the Network Access Ordinance, any
operator of a public telecommunications network is obliged to offer
interconnection at the request of other operators of such networks. Furthermore,
special obligations and conditions regarding interconnection are imposed on
market-dominating companies. Market-dominating providers must allow other users
access to their telecommunications networks. This access can be provided by way
of facilities available to all users and by way of special facilities. The
special facilities access includes the interconnection of networks. In case the
parties fail to agree on the interconnection, The Telecommunications Act and the
Network Access Ordinance provide for an escalation procedure; one party can
declare that the negotiations have failed, for example, and request a decision
from the regulatory authority, which must render such decision within no more
than ten weeks.
SERVICES PROVIDED
TelDaFax currently serves more than 80,000 small and medium enterprise
customers with a broad range of services, including pre-subscribed wireline,
mobile, Internet access and web hosting, unified messaging, virtual private
networks and e-Commerce applications. TelDaFax expects to introduce broadband
direct access via symmetrical digital subscriber line and a variety of
e-business and application service provider services during 2000. The TelDaFax
network is now linked with other operators' networks at over 170 interconnection
points. TelDaFax began to prepare for its own glass fiber cable networks in the
autumn of 1999. TelDaFax intends to bring this network on line in the third
quarter of 2000. Alcatel is managing the project to equip the dark fiber network
with the latest synchron digital hierarchy/dens wave division multiplex
technology. After completion, network operating costs will run at about
one-fifth of current costs. The network will then be able to carry both voice
and data traffic. The transmission capacity will also increase several times
over the current volume, and at significantly lower costs.
TelDaFax has at its disposal a leased integrated services digital network
capable of carrying voice telephony services, fax and data traffic and video
conferences. This network currently consists of nine main switches that are
connected by way of leased lines. Subscribers are not directly connected to the
TelDaFax network. For telecommunications services to be carried by the TelDaFax
network, the call must be accepted from an outside network, carried in the
TelDaFax network and completed at the destination, which again takes place in
third-party networks, especially that of Deutsche Telekom. The TelDaFax network
is linked to the Deutsche Telekom network on the basis of an interconnection
agreement. Deutsche Telekom offers the customers of other network operators two
fundamental dial-in options: permanent preselect priority or access to the
network of a different network operator on a call-by-call basis. In line with
these procedures, TelDaFax offers its customers the options described below:
Mobile telecommunications. Mobile telecommunication services are an
important addition to the services offered by TelDaFax. The acquisition of a
majority of Netztel Plus AG in February 2000, a mobile telephone services
supplier for the networks operators D1 and D2, enables TelDaFax to successfully
enter the market for mobile telephone services. Combined with the TelDaFax
majority interest in Demuth & Dietl GmbH, one of Germany's specialist
distributors for telecommunications products with over 2,000 specialist
retailers, allowed TelDaFax to open a second sales channel in specialist outlets
in addition to direct sales.
Internet. In April 2000 TelDaFax acquired a majority interest in Internet
AG, based in Frankfurt. The combination of the TelDaFax subsidiary GeoNet which
is focused on Internet access and unified messaging with Internet AG gives
direct access to the market of electronic business-to-business and enables
TelDaFax to offer online shops with integrated payment systems and electronic
market places.
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Pre-selection. If subscribers wish to permanently pre-select their network
operator, TelDaFax submits the relevant application to Deutsche Telekom on
behalf of the customer. Deutsche Telekom programs the customer's
telecommunications equipment with the TelDaFax network operator number, so that
every call that is not to remain in the Deutsche Telekom network, which is a
local call, is routed via the TelDaFax network. The TelDaFax contract customers
accounted for 42% of TelDaFax sales revenues for the first six months ending
June 30, 2000.
Call-by-call. In the case of call-by-call, subscribers dial into the
TelDafax network by a prefix number. Telephone calls can be made in the TelDaFax
network 24 hours a day without advance booking. Call-by-call customers are
generally billed for using the TelDafax network according to an agreement
entered into with all private carriers. For technical purposes the accounts are
settled via Deutsche Telekom. TelDaFax notifies Deutsche Telekom of its
transmission data, and Deutsche Telekom issues invoices to the customers of
TelDaFax and forwards the payments received to TelDaFax less a collection fee.
TelDaFax thus receives payment after a delay of about three months.
CUSTOMERS
TelDaFax has aligned itself with the customer segment that consists of
small- and medium-size corporates, professionals in small or home offices and
private individuals with a high demand for telecommunication services.
Small and medium-sized corporates with ten to 250 employees are found
primarily in the manufacturing and construction industry and the hotel and
service sectors. The professional small or home office segment consists mainly
of self-employed professionals, such as doctors, tax consultants, auditors,
attorneys, management consultants and engineering offices. Compared with private
customers, this TelDaFax target group generates an above-average volume of
long-distance and international calls.
Another target group of TelDaFax consists of private customers with
above-average telecommunications expenditures, who are provided with a router.
Private customers that generate relatively small telecommunication volume are
served by TelDaFax by way of the generally accessible call-by-call option where
accounts are administered by Deutsche Telekom.
SALES AND MARKETING
The marketing organization of TelDaFax uses direct and indirect sales
channels and provides customer service by way of call centers operated by
TelDaFax.
Direct sales. The direct sales system of TelDaFax comprises several tiers
and is the point of contact for the core target group. Six principal sales
offices exist throughout Germany, each of which oversees up to three regional
offices, depending on requirements. Each of the local sales offices, which
report to the regional offices, is responsible for a certain sales territory
with populations ranging from about 500,000 to one million.
TelDaFax's two regional directorates are managed by two salaried employees
of TelDaFax. They supervise key accounts and give support to the principal sales
offices. Principal sales offices delineate the responsibilities of the
subordinate sales levels, conduct training and exercise a controlling function.
The regional sales offices assist the principal sales offices in the
familiarization and training of the sales staff. The local sales offices analyze
the telephoning behavior of the customers who are contacted by the sales agents
and compile offers.
All the sales partners at the principal, regional and local level, like the
sales agents, are independent commercial agents of TelDaFax Vertriebs GmbH. Each
of the commercial agents engaged at the lowest sales level must attend a
four-day training course, paying part of the cost, and take part in regular
workshops thereafter.
TelDaFax pays the sales partners (sales agents and local sales managers) an
acquisition commission which is repaid, on a pro rata basis, if the contract is
canceled within 12 months and which is subject to a
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ceiling per customer. In addition, TelDaFax pays its commercial agents an
account management commission on the entire monthly turnover generated by the
customers acquired by them or resident in their territory.
Indirect sales. Alongside direct sales, indirect marketing measures are
implemented with partners in the information technology sector and specialist
retail trade as a means of addressing larger companies and concluding framework
agreements. Through the five distributors which hold the minority interest in
Netztel Plus AG, TelDaFax obtained access to over 12,000 specialist retailers.
Call centers. TelDaFax has set up call centers in Bonn and Marburg. In
addition to processing customer orders, they support the marketing organization
by arranging appointments, and also answer customers' inquiries. In addition,
TelDaFax has concluded an agreement with an external call center in Berlin which
can be contacted free of charge via a hotline by both existing and potential
subscribers.
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TELDAFAX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with TelDaFax's
financial statements, the notes to these financial statements and the other
financial data included in this proxy statement/prospectus. In addition to
historical information, the following discussion and other parts of this proxy
statement/prospectus contain forward-looking information that involves risks and
uncertainties. TelDaFax actual results could differ materially from those
anticipated by forward-looking information due to factors discussed under
"Business" and elsewhere in this proxy statement/prospectus.
OVERVIEW
General
TelDaFax is a national telecommunications company that specializes in
providing domestic and international telecommunications services. TelDaFax's
facilities include nine switches located in major metropolitan areas throughout
Germany. TelDaFax's strategy focuses on the convergence of wireline telephone
services, Internet and mobile telephones.
Revenues
TelDaFax obtains its revenues from providing international and domestic
telecommunication services to retail and business customers.
Revenues are derived mainly from the number of minutes, or fractions
thereof, used by TelDaFax's customers and billed by TelDaFax and are recognized
upon completion of the calls, as well as, to a lesser extent, from certain
recurring and non-recurring fees that are recognized when services are provided.
The market for wireline telephone services is characterized by aggressive
competition with a dramatic drop in prices which has led to margins decreasing
substantially. Whereas the providers were able to distinguish themselves during
the first year of regulation with differing pricing models, prices have now
converged since Deutsche Telekom adapted its pricing policy, and accordingly,
the attractiveness of call-by-call services has declined appreciably. This
caused business in this area to stagnate and even decline in the last quarters.
As a consequence TelDaFax has experienced and expects to continue to experience
declining revenues per minute in these markets. In contrast, the business of
TelDaFax has preferred from the very outset with regular contractual customers
showed positive development.
TelDaFax's revenues have increased from DM 32.2 million in fiscal 1997 to
DM 611 million in fiscal 1999. TelDaFax has achieved its retail growth primarily
through competitive pricing in the call-by-call segment. Business customers were
contacted through direct sales agents in Germany. Business customers accounted
for a third of TelDaFax sales revenues by the end of 1999, and two thirds were
attributable to the call-by-call business. In the first quarter of 2000 this
ratio was about 50:50.
The following table reflects the amounts of total revenue from TelDaFax
operations by type of customers for fiscal 1997, 1998, and 1999 and the six
months ended June 30, 1999 and 2000:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS SIX MONTHS
DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED ENDED
1997 1998 1999 JUNE 30, 1999 JUNE 30, 2000
------------ ------------ ------------ ------------- -------------
(DM MILLIONS)
<S> <C> <C> <C> <C> <C>
Subscribers fixed net.............. 32.2 95.2 159.2 57.5 105.8
Residential (call-by-call)......... 0.0 167.8 451.8 248.4 149.5
Cellular........................... -- -- -- -- 48.6
Internet........................... -- -- -- -- 3.8
Total revenues........... 32.2 263.0 611.0 305.9 307.7
</TABLE>
In October 1999 TelDaFax purchased 51% in the distributor Demuth, Dietl &
Co. GmbH, which is referred to in this discussion as Demuth. The acquisition of
Demuth has been accounted for using the purchase method of accounting.
Accordingly, the results of Demuth's operations have been included from the
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date of acquisition, October 4, 1999. Revenues totalling to DM19.6 million
during the three months ended December 31, 1999 has been primarily attributable
to this purchase.
Cost of services
Cost of services is TelDaFax's largest expense and consists of both
variable and fixed costs. Variable costs include costs associated with the
origination and termination of calls. Virtually all domestic calls TelDaFax
carries must be originated and terminated over the last mile by Deutsche
Telekom. Variable costs also include the cost of transmitting calls using the
long distance facilities of foreign carriers regarding calls to abroad, which
TelDaFax uses since it does not maintain an international network of its own.
These national and foreign long distance carriers charge on a per minute basis.
TelDaFax's fixed costs consist of leased point-to-point cable capacity, which
typically requires fixed monthly payments regardless of usage. Because the cost
of leased lines is fixed, transmitting a greater portion of TelDaFax's traffic
over the leased lines reduces its incremental marginal transmission costs.
Accordingly, once certain volume levels are reached, leased line capacity can be
more cost-effective than capacity acquired from other long distance carriers.
Capitalized costs associated with TelDaFax's ownership interests in cables
and long-term rights of use in cables or other facilities, known as indefeasible
rights of use, are expensed in depreciation and amortization and are therefore
not accounted for as part of cost of services. To the extent TelDaFax's expanded
use of its ownership interests in cables or indefeasible rights of use reduces
its utilization of leased lines and the facilities of other long distance
carriers, TelDaFax believes the increase in depreciation expense associated with
its ownership interests in cables or indefeasible rights of use will be offset
by a decrease in its variable and fixed cost of services.
Selling, general and administrative expenses
TelDaFax's selling, general and administrative expenses consist of
commissions paid to its independent agents and direct sales force, advertising
and promotional costs, direct mail expenses, employee compensation, occupancy,
insurance, professional fees, bad debt expense, expenses relating to customer
service operations and the costs related to maintaining and supporting its
systems. As TelDaFax starts operations in new markets, it incurs significant
start-up costs associated with establishing a supporting infrastructure,
particularly for hiring and training of personnel, leasing office space and
paying various fees in conjunction with its business. As TelDaFax increases its
sales and marketing efforts and commences operations in the new mobile and
internet markets, TelDaFax expects that its sales and marketing expenses will
increase.
Depreciation and amortization expenses
Depreciation and amortization expenses consist of depreciation of all fixed
assets and computer equipment, as well as amortization of the fixed costs
associated with TelDaFax's:
- owned and leased switching platforms, which have been capitalized and are
being amortized over their estimated useful lives or the term of the
lease, which is typically five to seven years; and
- ownership interests in cables or indefeasible rights of use interests in
on-land fiber-optic cable systems, which will be amortized over their
estimated useful lives, typically 18 years.
Interest expense
Even though the interest expenses were payable on short term overdrafts and
capital leases, TelDaFax could compensate the interest expense by interest
income from deposits of the initial public offering proceeds because the initial
public offering proceeds overcompensated the expense. As TelDaFax will need
borrowings in the future to expand its operations, it expects interest expense
to increase.
Income taxes
As of December 31, 1999, TelDaFax has net operating loss of approximately
DM 5.6 million which had been carried back to 1998 and used up.
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Quarterly results of operations
The following table sets forth quarterly results of operations for each of
the past seven quarters for the period ended June 30, 2000 that TelDaFax's
management believes is important to provide an understanding of its results of
operations. This information has been prepared substantially on the same basis
as the audited financial statements appearing elsewhere, and all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the quarterly results of
operations data (in DM thousands):
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
--------------------------------------------------------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1999 1999 1999 1999 2000 2000
------------ --------- -------- ------------- ------------ -------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.............. 118,473 168,743 137,153 141,785 163,337 166,773 140,931
Cost of sales......... (87,973) (128,918) (107,263) (120,948) (159,073) (138,718) (120,310)
------- -------- -------- -------- -------- -------- --------
Gross profit.......... 30,500 39,825 29,890 20,837 4,264 28,055 20,621
Selling, general and
administrative...... (16,458) (14,497) (18,454) (10,412) (32,188) (23,492) (33,537)
Depreciation and
amortization........ (6,739) (6,407) (6,883) (9,304) (11,036) (10,617) (14,512)
------- -------- -------- -------- -------- -------- --------
Operating result...... 7,303 18,921 4,553 1,121 (38,960) (6,054) (27,428)
Financial result...... 743 831 663 (228) (502) 280 83)
Other expense, net.... (6,305) (9,165) (2,887) (1,313) 20,374 2,965 10,726
Minority interests.... 0 10 130 67 1,129 1,258 488
------- -------- -------- -------- -------- -------- --------
Net result..... 1,741 10,597 2,459 (353) (17,959) (1,551) (16,297)
======= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------
1999 2000
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................. 305,896 307,704
Cost of sales............................................. (236,181) (259,028)
-------- --------
Gross profit.............................................. 69,715 48,676
Selling, general and administrative....................... (32,951) (57,029)
Depreciation and amortization............................. (13,290) (25,129)
-------- --------
Operating result.......................................... 23,474 (33,482)
Financial result.......................................... 1,494 197
Other expense, net........................................ (12,052) 13,691
Minority interests........................................ 140 1,746
-------- --------
Net result......................................... 13,056 (17,848)
======== ========
</TABLE>
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Revenues
TelDaFax's revenues increased in each of the first two quarters presented.
The second quarter of 1999 has seen an intensification of competition in the
fixed network telephony sector. The combination of a sharp reduction in prices
at the beginning of the year and a further fall in tariffs in the second quarter
resulted in a considerable pressure on profit margins. The fall in prices in the
second quarter could not, in such a short period, be compensated by a
corresponding volume growth. The volume growth seen in the first quarter of 1999
could not continue to the same extent in the second quarter of 1999, as
competition leveled out prices. As a result of price leveling in the wireline
business in the quarter ended June 30, 1999, there was a slight downturn in
call-by-call business. TelDaFax was, however, able to more than compensate for
this downturn with an increase in the number of business customers with a fixed
contract and the new business segment mobile.
Cost of services
The gross margin percentages ranged from 25.74% to 14.6% over the most
recent six quarters presented. The fluctuations between quarters were the result
of changes in the mix of retail and business revenue and declining carrier
margins throughout the periods presented. The decline in gross margins in the
quarter ended June 30, 2000 from the quarter ended June 30, 1999 was due to a
decline in margins in Germany. The decline in margins was also due to expansion
of TelDaFax's German leased network facilities. TelDaFax's leased network
facilities were increased to have closer access to the customers in order to
benefit from the lowest interconnection tariffs. The facilities were also
expanded to provide TelDaFax with the capacity needed for its expected future
growth in the Internet business.
Selling, general and administrative expenses
Selling, general and administrative spending levels fluctuated throughout
most of the periods presented due to different marketing campaigns including
television commercials.
Depreciation and amortization expenses
Depreciation and amortization increased during the quarters as TelDaFax
made approximately DM 259.2 million in capitalized purchases during this period
to expand the geographic scope and available capacity of its network.
Interest expense
Interest expense resulted from capital lease obligations. All other capital
expenditures were funded out of equity.
RESULTS OF OPERATIONS
Six months ended June 30, 2000 compared to six months ended June 30, 1999
Revenues. Total revenues in the first six months of fiscal 2000 were
nearly at the same level as in the first six months of fiscal 1999, at DM 307.7
million. The decline in the fixed network area, especially in the call-by-call
field, down to DM 149.5 million was counterbalanced by the growth in sales in
our subscribers amounting to DM 105.8 million and in our start up field of
cellular telephony of DM 48.6 million including the attributable revenues from
Demuth & Dietl plus the Internet revenues of DM 3.8 million.
Cost of services. Cost of services increased by 9.6% to DM 259.0 million
for the first six months of fiscal 2000 from DM 236.2 million for the same six
months in fiscal 1999 and, as a percentage of revenue, increased to 84.2% from
77.2%, respectively. Cost of services as a percentage of revenue increased
primarily as a result of consolidating the distributor Demuth & Dietl and the
sharp fall in prices in the second quarter of 1999 resulting in considerable
pressure on profit margins.
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<PAGE> 121
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 73.0% to DM 57.0 million for the first six
months of fiscal 2000 from DM 32.9 million for the same period in fiscal 1999
and, as a percentage of revenues, increased to 18.5% from 9.1%. The increase in
selling, general and administrative expenses was due to increased commissions to
the sales force amounting to DM 24.3 million and other spending in direct costs
associated with increases in revenues. This increase was due to increased sales,
operations and back office infrastructure to support sales growth and the
expansion into the cellular service.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased to DM 25.1 million for the first six months of fiscal 2000
from DM 13.3 million in the first six months of fiscal 1999. The increase in
depreciation and amortization was due to additions to fixed assets from DM 154.3
million to DM 121.4 million up to the first six months of fiscal 2000 associated
with the build-out of network and supporting infrastructure.
Interest expense. Interest expense increased by 128.6% to DM 1.6 million
for the first six months of fiscal 2000 from DM 0.7 million in the first six
months of fiscal 1999. The increase was primarily due to the increased lease
obligations associated with the on-land fiber optic capacity. Per balance the
interest expense was overcompensated by interest income amounting to DM 1.8
million.
Fiscal 1999 compared to fiscal 1998
Revenues. Total revenues for fiscal 1999 increased by 132.3% to DM 611.0
million from DM 263.0 million for fiscal 1998. The increase in revenue was
primarily attributable to increased business and residential revenues. Business
revenues increased 67.2% from DM 95.2 million in fiscal 1998 to DM 159.2 in
fiscal 1999, and residential increased from DM 167.8 million in fiscal 1998 to
DM 451.8 million in fiscal 1999. This increase was based on TelDaFax's lower
prices relative to the prices of competitors in the German wireline business
because TelDaFax reduced its prices during this period. The high demand for low
rates and the fair second-by-second pricing led to increased call volume in the
first quarter of fiscal 1999.
Cost of services. Cost of services increased by 179.0% to DM 516.2 million
in fiscal 1999 from DM 185.0 million for fiscal 1998 and, as a percentage of
revenue, increased to 84.4% from 70.3%. Cost of services as a percentage of
revenue increased primarily as a result of lower prices which resulted in
decreased margins. The increase was also due to additional costs associated with
the expansion of TelDaFax's network infrastructure.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 80.4% to DM 75.6 million for 1999 from DM
41.9 million in fiscal 1998, however, as a percentage of revenues, decreased
from 15.9% to 12.4% of fiscal 1999. The relative decrease was primarily due to
above average revenues growth.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased by 85.6% to DM 33.6 million for fiscal 1999 from DM 18.1
million of fiscal 1998. The increase in depreciation and amortization was due to
the continued build-out of TelDaFax's network and supporting infrastructure.
Interest expense. Interest expense decreased by 80.0% to DM 3.0 million
for fiscal 1999 from DM 5.4 million in fiscal 1998. The reduction was due to the
repayment of bank debts out of the initial public offering proceeds. Per balance
TelDaFax reports a positive financial result of DM 0.5 million in 1999.
Fiscal 1998 compared to fiscal 1997
Revenues. Total revenues for fiscal 1998 increased by 721.8% to DM 263.0
million from DM 32.2 million for fiscal 1997. Growth in revenues during 1998 was
attributable primarily as a result of substantial increases in sales of retail
and residential. Revenues from business customers increased by 195.6% to DM 95.2
million for fiscal 1998 from DM 32.2 million for fiscal 1997. The new market
call-by-call for residentials contributed revenues of DM 167.8 in 1998.
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<PAGE> 122
Cost of services. Cost of services increased by 606.0% to DM 185.0 million
for fiscal 1998 from DM 26.2 million for fiscal 1997 and, as a percentage of
revenues, decreased to 70.0% for fiscal 1998 from 81.3% for fiscal 1997. The
decline was due to lower interconnect tariffs from Deutsch Telekom in the first
year of liberalization.
Selling, general and administrative expenses. In fiscal 1998, selling,
general and administrative expenses increased by 466.2% to DM 41.9 million from
DM 7.4 million for fiscal 1997 and, as a percentage of revenue, decreased to
15.9% for fiscal 1998 from 22.9% for fiscal 1997. A significant portion of the
increase in the absolute figure was directly related to the increase in
revenues, as marketing and sales expenses increased due to increases in
commissions, marketing, and other related expenses. Selling, general and
administrative expenses, as a percentage of revenue, declined due to
efficiencies gained as TelDaFax's revenues increased.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased by 260.0% to DM 18.0 million for fiscal 1998 from DM 5.0
million for fiscal 1997. This increase was due to the expansion of TelDaFax's
network and capital deployed as it entered the liberalized new market.
Interest expense. Interest expense increased by 671.4% to DM 5.4 million
in fiscal 1998 from DM 0.7 million in fiscal 1997. The increase in interest was
due to the increase in the level of debt and capital lease obligations TelDaFax
incurred in order to fund its network expansion. However, per the balance of the
initial public offering proceeds that were deposited in interest bearing
accounts, the interest expense was overcompensated by interest income of DM 6.1
million.
LIQUIDITY AND CAPITAL RESOURCES
As a consequence of the rapid expansion of TelDaFax's business and its
historical capital constraints, TelDaFax raised funds through an initial public
offering in July 1998. The proceeds from the initial public offering of DM 152
million were used as working capital to strengthen the financial statements
ratios, to finance the growth and for other general business purposes. The
incurred cumulative net losses from inception in 1995 through December 31, 1997
resulting primarily from start-up costs, marketing expenses and capital
expenditures required to build and deploy its network could be compensated by
positive cash flows in 1998.
For the six month period ending June 30, 2000, TelDaFax's net cash used in
operating activities was DM(80.2) million, primarily consisting of repayments of
liabilities totaling DM 73.8 million. Cash used in investing activities totaled
DM 37.8 million, which was primarily for the purchase of the mobile provider
NetzTel Plus AG and switching technology. As of June 30, 2000 TelDaFax had
approximately DM 53.9 million in cash.
For fiscal 1999, cash flow from operating activities was DM 88.3 million,
primarily composed of a net loss of DM (6.9) million, depreciation and
amortization of DM 34.0 million, an increase in amounts payable trade amounting
to DM 118.4 offset by an increase in accounts receivable trade of DM 30.9
million. Cash used in investing activities, primarily capital expenditures,
totaled DM 115.2 million in fiscal 1999.
As of September 30, 1999, TelDaFax had DM 129.4 million in cash. As of
September 30, 1998, TelDaFax had approximately DM 169.1 million in cash.
TelDaFax's cash flow from operating activities was DM 54.6 million in fiscal
1998, primarily caused by a net profit of DM 8.8 million, non-cash charges
consisting of the provision for bad debts and depreciation and amortization of
DM 55.3 million and offset by a decrease in operating working capital of DM 14.1
million. Cash used for investing activities totaled DM 66.1 million in fiscal
1998, which was for capital expenditures. The capital expenditures primarily
consisted of purchases associated with the expansion of TelDaFax's network,
computers, and general equipment. Net cash provided by financing activities
totaled DM 157.2 million for fiscal 1998, which consisted in proceeds from the
public offering. Cash flow from operating activities for fiscal 1997 was DM 9.6
million, and net cash used in investing activities, principally capital
expenditures, was DM 31.1 million for fiscal 1997. TelDaFax financed these
capital expenditures primarily with a capital increase and long-term debt. Net
cash provided by financing activities for fiscal 1997 was DM 35.5 million.
Capital expenditures, including assets acquired by incurring capital lease
obligations, for fiscal 1997, 1998 and 1999 totaled DM 31.1 million, DM 66.1
million, and DM 115.2 million, respectively. Capital
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<PAGE> 123
expenditures, including assets acquired by incurring capital lease obligations,
for the six-month period ended June 30, 2000 totaled approximately DM 11.0
million. TelDaFax expects to incur an additional $7.0 million in capital
expenditures prior to the completion of the TelDaFax cooperation. TelDaFax
expects to fund these expenditures through vendor or capital lease financing.
TelDaFax has utilized capital lease and vendor financing to assist in
financing the building of its network, systems and infrastructure. As of June
30, 2000, the balance of capital lease financing obligations totaled DM 51.3
million, primarily relating to the lease of its switching platforms in Germany.
As of June 30, 2000, TelDaFax had no borrowings outstanding.
TelDaFax entered as of March 31,2000 into two agreements for the
acquisition of capacity on land-based fiber optic cable systems for a total
price of DM 12.0 million. The vendors have agreed to finance 90% of the
commitment at 5.24% interest, with monthly principal and interest payments over
a five year amortization period.
FOREIGN CURRENCY EXPOSURE
Immaterial amounts of TelDaFax's revenues will be denominated in non DM
currencies, an insignificant portion of its expenditures, including interest
will be denominated in U.S. dollars. Accordingly, TelDaFax may be subject to
insignificant foreign currency exchange risks.
TelDaFax currently does not hedge against foreign currency exchange risks,
but may in the future.
TELDAFAX SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, TelDaFax provides you with selected consolidated
financial data of TelDaFax. The selected consolidated financial data as of
December 31, 1998 and 1999 and for each of the three years in the period ended
December 31, 1999 are derived from TelDaFax's audited consolidated financial
statements included elsewhere in this proxy statement/prospectus. The financial
information for the six month periods ended June 30, 1999 and 2000 have been
derived from unaudited consolidated financial statements of TelDaFax, which, in
the opinion of TelDaFax's management, include all the significant normal and
recurring adjustments necessary for fair presentation of the financial position
and results of operations for such unaudited periods. When you read this
selected consolidated financial data, it is important that you also read the
section titled "TelDaFax Management's Discussion and Analysis of Financial
Condition and Results of Operations" and TelDaFax's consolidated financial
statements and the related notes to the financial statements included elsewhere
in this proxy statement/prospectus (in DM thousands, except share amounts):
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- -----------------------------
1997 1998 1999 1999 2000
--------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................... 32,271 263,050 611,018 305,896 307,704
Gross profit................ 1,186 60,691 62,908 57,017 28,097
Sales expenses.............. (3,434) (31,417) (50,716) (26,257) (41,783)
Operating income (loss)..... (6,417) 18,062 (14,365) 23,474 (33,482)
Net income (loss)........... (5,854) 8,774 (5,256) 13,056 (17,848)
Income (loss) per common
share..................... (5.16) 0.45 (0.16) 0.39 (0.53)
Weighted average number of
common shares
outstanding............... 1,133,525 19,296,826 33,828,600 33,828,600 33,828,600
</TABLE>
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<PAGE> 124
<TABLE>
<CAPTION>
AS OF AND FOR THE
AS OF AND FOR THE SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------- -----------------------------
1997 1998 1999 1999 2000
--------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents... 7,029 159,011 178,287 45,170 53,882
Working capital............. (8,086) 123,164 69,390 24,632 18,131
Total assets................ 61,885 312,569 455,171 353,459 394,978
Total liabilities........... 41,553 121,234 269,252 49,749 224,936
Shareholders' equity........ 20,332 191,335 186,079 204,390 168,231
OTHER FINANCIAL DATA:
EBITDA(1)................... (1,377) 36,148 19,265 36,764 (8,353)
Net cash provided from (used
by) operating
activities................ 3,409 54,588 89,630 10,731 (80,200)
Capital expenditures........ 30,718 66,146 115,154 29,059 37,790
BUSINESS SEGMENT DATA:
Revenues:
Fixed network............... 32,271 263,050 587,299 305,065 255,275
Mobile...................... -- -- 19,595 -- 48,619
Internet.................... -- -- 4,124 831 3,810
</TABLE>
---------------
(1) EBITDA from continuing operations as used in this proxy statement/prospectus
is earnings (loss) before net interest expense (income), minority interests,
income taxes, depreciation and amortization and is presented because
TelDaFax believes that such information is commonly used in the
telecommunications industry as one measure of a company's operating
performance and historical ability to service debt. EBITDA is not determined
in accordance with generally accepted accounting principles, is not
indicative of cash provided by operating activities, should not be used as a
measure of operating income and cash flows from operations as determined
under generally accepted accounting principles and should not be considered
in isolation, or as an alternative to, or to be more meaningful than,
measures of performance determined in accordance with generally accepted
accounting principles. EBITDA, as calculated by TelDaFax, may not be
comparable to similarly titled measures reported by other companies and
could be misleading unless all companies and analysts calculated EBITDA in
the same manner. The following table reconciles our net income (loss) to
EBITDA:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ----------------
1997 1998 1999 1999 2000
------ ------ ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss).................... (5,854) 8,774 (5,256) 13,056 (17,848)
Net interest expense................. 1,104 (425) (764) (1,494) (197)
Minority interests................... -- -- (1,336) (140) (1,746)
Depreciation and amortization........ 5,040 18,086 33,630 13,290 25,129
Income taxes (benefit)............... (1,667) 9,713 (7,009) 12,052 (13,691)
------ ------ ------ ------ -------
EBITDA............................... (1,377) 36,148 19,265 36,764 (8,353)
====== ====== ====== ====== =======
</TABLE>
INFORMATION REGARDING WORLD ACCESS
World Access is focused on being a leading provider of bundled voice, data
and Internet services to key regions of the world. It provides end-to-end
communications services through its redundant digital network, which is capable
of supporting voice and data services, including frame relay, Internet Protocol,
asynchronous transfer mode and multimedia applications. Located strategically
throughout the United States and 13 European countries, the World Access network
backbone consists of gateway and tandem switches, linked by an extensive fiber
network encompassing tens of millions of circuit miles.
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RECENT DEVELOPMENTS
On February 11, 2000, World Access and STAR Telecommunications, Inc., a
Delaware corporation, entered into an Agreement and Plan of Merger. The parties
amended the Agreement and Plan of Merger on June 7, 2000. The STAR merger
agreement provides for the merger of STAR with and into World Access under which
each outstanding share of STAR common stock will be converted into the right to
receive, at the election of World Access, (i) 0.386595 shares of World Access
common stock or (ii) a combination of shares of World Access common stock and
cash. The completion of the STAR merger is subject to the approval of the
shareholders of World Access and STAR, and the divestiture by STAR of its
subsidiary, PT-1 Communications, Inc., for minimum net cash proceeds of $150
million or, if sold to Counsel Communications LLC, net cash proceeds from the
sale of at least $120 million.
On February 11, 2000, World Access and Communication TeleSystems
International, doing business as WorldxChange Communications, a California
corporation, entered into an Agreement and Plan of Merger. The parties amended
the Agreement and Plan of Merger on May 23, 2000. The WorldxChange merger
agreement provides for the merger of WorldxChange with and into World Access,
under which each outstanding share of WorldxChange common stock, including
shares of preferred stock deemed to be automatically converted into shares of
common stock immediately prior to completion of the WorldxChange merger, will be
converted into the right to receive 0.6583 shares of World Access common stock.
The completion of the WorldxChange merger is subject to the approval of the
shareholders of World Access and WorldxChange.
On May 24, 2000, World Access filed a Form S-4 with the Securities and
Exchange Commission, which, when declared effective, will register with the SEC
the World Access shares to be issued in the STAR merger and the WorldxChange
merger. An amendment to the May 24, 2000 Form S-4 was filed on August 7, 2000
and the Form S-4 was declared effective on , 2000. Proxy
statements were mailed to the STAR and World Access shareholders on ,
2000, and the necessary consents to the WorldxChange merger were received from
the WorldxChange shareholders on , 2000.
For more information concerning World Access, please consult and review
information filed by World Access with the Securities and Exchange Commission
and listed at "Incorporation of Certain Documents by Reference."
MANAGEMENT OF WORLD ACCESS AFTER COMPLETION OF THE TELDAFAX TRANSACTIONS
EXECUTIVE OFFICERS
Following the consummation of the TelDaFax transactions, John D. Phillips
will serve as Chairman of the Board and Chief Executive Officer of World Access,
and Walter J. Burmeister will serve as the President of World Access. It is
anticipated that the other current executive officers of World Access will
continue as executive officers of World Access with the duties and
responsibilities they currently have at World Access. At the time of mailing
this proxy statement/prospectus, the companies have not yet determined which
specific offices, if any, will be held by the current executive officers of
TelDaFax.
BOARD OF DIRECTORS
The board of directors of World Access currently consists of 11 members,
seven of which are elected by the World Access common stockholders and four of
which are nominated and elected by the Series C preferred stockholders. Upon the
completion of the STAR merger and/or the WorldxChange merger, pursuant to the
terms of the World Access Certificate of Designation of the Series C preferred
stock, due to the decreased percentage of the total outstanding World Access
common stock represented by the number of shares of World Access common stock
issuable upon conversion of the Series C preferred stock, the Series C preferred
stockholders will be entitled to designate only two directors.
The current directors of World Access elected by common stockholders are:
Stephen J. Clearman, John P. Imlay, Jr., Massimo Prelz Oltramonti, John D.
Phillips, John P. Rigas, Carl E. Sanders and
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<PAGE> 126
Lawrence C. Tucker. The current directors of World Access designated by the
Series C preferred stockholders are: Walter J. Burmeister, Kirby J. Campbell,
Bryan Cipoletti and Dru A. Sedwick. In connection with the completion of the
STAR and/or WorldxChange mergers, two of the current directors of World Access
designated by the Series C preferred stockholders will no longer serve on the
World Access board. As of the date of this joint proxy statement/prospectus, the
two directors whose terms will end upon completion of the STAR and/or
WorldxChange mergers have not been determined.
Under the terms of the STAR merger agreement, World Access agreed to elect
Christopher Edgecomb, or such other person designated by STAR and agreed to by
World Access, to the board of directors of World Access immediately following
completion of the STAR merger. Under the terms of the WorldxChange merger
agreement, World Access agreed to elect one designee of WorldxChange to the
World Access board of directors immediately following completion of the
WorldxChange merger. The WorldxChange merger agreement provides that this
designee will be Walter Anderson, who is currently the Chairman of the Board of
WorldxChange, or another person designated by Gold & Appel Transfer S.A. and
reasonably acceptable to World Access. Mr. Anderson has the power to direct such
designation by Gold & Appel Transfer S.A. As of the date of this proxy
statement/prospectus, the director designees of STAR and WorldxChange have not
been determined.
PRINCIPAL STOCKHOLDERS OF WORLD ACCESS
As of August 1, 2000, the issued and outstanding classes of World Access
voting securities were as follows:
<TABLE>
<CAPTION>
COMMON
SHARES SHARES
OUTSTANDING EQUIVALENT
-------------- ----------
<S> <C> <C>
Common stock.............................................. 61,707,277 61,707,277
Series A preferred stock.................................. 70,000 6,086,956
Series C preferred stock.................................. 350,260 17,186,451
Series D preferred stock.................................. 184,000 10,222,222
Series E preferred stock.................................. 9,645 443,448
----------
Total voting securities......................... 95,646,354
==========
</TABLE>
The following table sets forth information regarding the beneficial
ownership of the World Access common stock and each individual class of World
Access preferred stock as of August 1, 2000 for:
- each person who beneficially owns more than 5% of the World Access common
stock;
- each current World Access director individually;
- each current World Access executive officer who would be a named
executive officer under Rule 402 of Regulation S-K; and
- all current directors and executive officers of World Access as a group.
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<PAGE> 127
The following table also sets forth information assuming the completion of the
TelDaFax transactions and both the STAR and WorldxChange mergers. For purposes
of this table, we have assumed that World Access will pay 100% of the STAR
merger consideration in World Access common stock.
<TABLE>
<CAPTION>
TOTAL
TOTAL SHARES SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
OWNED(1) OWNED OWNED(1) OWNED
SHARES BEFORE BEFORE AFTER AFTER
UNDERLYING COMPLETION COMPLETION COMPLETION COMPLETION
SHARES DERIVATIVE OF THE OF THE OF THE OF THE
NAME OWNED(1) SECURITIES(2) TRANSACTIONS TRANSACTIONS(3) TRANSACTIONS TRANSACTIONS
---- --------- ------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
WORLD ACCESS COMMON STOCK
Armstrong International
Telecommunications, Inc.(4)....... -- 15,162,015 15,162,015 19.7% 15,162,015 9.2%
One Armstrong Place
Butler, PA 16001
WorldCom Network Services,
Inc.(5)........................... 7,081,444 -- 7,081,444 11.5 17,081,444 11.5
500 Clinton Center
Drive Clinton, MS 39056
The 1818 Fund III, L.P.(6).......... -- 6,086,956 6,086,956 9.0 6,086,956 3.9
59 Wall Street
New York, NY 10005
Morgan Stanley & Co.
Incorporated(7)................... -- 5,685,111 5,685,111 8.4 5,685,111 3.7
1585 Broadway
New York, NY 10005
Roger B. Abbott(8).................. -- -- -- * 9,939,982 6.7
9999 Willow Creek Road
San Diego, CA 92131
Gold & Appel Transfer, S.A.(9)...... -- -- -- * 7,691,817 5.2
Omar Hodge Building
Wickhams City Tortola, British,
V.I
Apax Partners Co.(10)............... -- -- -- -- 11,828,139 7.9
Possartstrabe 11
D-81679 Munchen
Germany
Walter J. Burmeister+++(11)......... -- 1,135,694 1,395,694 1.8 1,135,694 *
Kirby J. Campbell+.................. -- -- -- -- -- --
Bryan Cipoletti+.................... -- -- -- -- -- --
Stephen J. Clearman+(12)............ 1,309,044 167,000 1,476,044 2.4 1,476,044 *
John P. Imlay, Jr.+................. 59,900 179,000 238,900 * 238,900 *
John D. Phillips+++(13)............. 1,312,500 1,092,000 2,404,500 3.8 2,404,500 1.6
Massimo Prelz Oltramonti+(14)....... 1,885,251 100,000 1,985,251 3.2 1,985,251 1.3
John P. Rigas+(15).................. 1,561,958 100,000 1,661,958 2.7 1,661,958 1.1
Carl E. Sanders+(16)................ 62,000 179,000 241,000 * 241,000 *
Dru A. Sedwick+..................... -- -- -- -- -- --
Lawrence C. Tucker+(6).............. -- 6,186,956 6,186,956 9.1 6,186,956 4.0
W. Tod Chmar++...................... 312,500 25,000 337,500 * 337,500 *
Mark A. Gergel ++(17)............... 26,791 246,833 273,624 * 273,624 *
Michael F. Mies++(17)............... 2,267 33,750 36,017 * 36,017 *
Bryan D. Yokley..................... -- -- -- -- -- --
All directors and executive officers
as a group (15 persons)........... 6,532,211 9,445,233 15,977,444 22.5 15,977,444 10.1
SERIES A PREFERRED STOCK
The 1818 Fund III, L.P.............. 70,000 -- 70,000 100.0 70,000 100.0
</TABLE>
119
<PAGE> 128
<TABLE>
<CAPTION>
TOTAL
TOTAL SHARES SHARES
BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE
OWNED(1) OWNED OWNED(1) OWNED
SHARES BEFORE BEFORE AFTER AFTER
UNDERLYING COMPLETION COMPLETION COMPLETION COMPLETION
SHARES DERIVATIVE OF THE OF THE OF THE OF THE
NAME OWNED(1) SECURITIES(2) TRANSACTIONS TRANSACTIONS(3) TRANSACTIONS TRANSACTIONS
---- --------- ------------- ------------ --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
SERIES C PREFERRED STOCK
Armstrong International
Telecommunications, Inc........... 309,002 -- 309,002 88.2 309,002 88.2
Walter J. Burmeister................ 19,161 -- 19,161 5.5 19,161 5.5
Juan Carlos Valls
1530 Key Boulevard #306
Arlington, VA 22209............... 19,161 -- 19,161 5.5 19,161 5.5
SERIES D PREFERRED STOCK
Morgan Stanley & Co.
Incorporated...................... 102,332 -- 102,332 55.6 102,332 55.6
AIM High Yield Fund................. 16,851 -- 16,851 9.1 16,851 9.1
11 Greenway Plaza, #1919
Houston, TX 77046
NETnet International S.A............ 14,800 -- 14,800 8.0 14,800 8.0
Siege Social: L-1611
41 Avenue de la Gare
R.C. Luxembourg, B49615
Kemper High Yield Series............ 11,794 -- 11,794 6.4 11,794 6.4
222 South Riverside Plaza
Chicago, IL 60606
SERIES E PREFERRED STOCK
3i Group plc........................ 6,760 -- 6,760 70.1 6,760 70.1
91 Waterloo Road
GB-SE 8XP London England
David Marcus........................ 1,659 -- 1,659 17.2 1,659 17.2
4, Chemin de Normandie
CH-1206 Geneva
Switzerland
Soditic SA.......................... 645 -- 645 6.7 645 6.7
118 Rue du Rhone
1204 Geneva
Switzerland
</TABLE>
---------------
* Less than one percent
+ Director
++ Named executive officer
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act. Unless otherwise noted, we believe that
all persons named in the table have sole voting and investment power with
respect to all shares of World Access common stock beneficially owned by
them.
(2) Unless otherwise indicated, represents shares which may be acquired by the
exercise of stock options and warrants on or before September 30, 2000.
(3) Shares of common stock subject to options, warrants and convertible
securities are deemed outstanding for the purpose of computing the
percentage ownership of the person holding such derivative securities, but
are not deemed outstanding for computing the percentage ownership of any
other person.
(4) Represents 15,162,015 shares of World Access common stock issuable upon
the conversion of 309,002 shares of Series C preferred stock.
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<PAGE> 129
(5) Includes 1,746,500 shares of World Access common stock held in escrow
pursuant to our acquisition of Cherry Communications Incorporated in
December 1998. This amount currently represents our best estimate of the
shares to ultimately be released to WorldCom Network Services, Inc., a
wholly owned subsidiary of WorldCom, Inc., upon the final resolution of all
creditor claims against Cherry Communications in U.S. Bankruptcy Court.
WorldCom Network Services directs the voting of these shares while they are
held in escrow. Also includes 10,000,000 shares to be issued to WorldCom in
connection with the consummation of the STAR and WorldxChange mergers.
WorldCom has agreed to approximately $115.0 million of trade debt currently
due from STAR and WorldxChange for World Access common stock at an exchange
ratio of $11.50 per share.
(6) Includes 6,086,956 shares of World Access common stock issuable upon the
conversion of 70,000 shares of Series A preferred stock owned of record by
The 1818 Fund III, a private equity partnership. The general partner of the
1818 Fund III is Brown Brothers Harriman & Co. Mr. Tucker, a partner at
Brown Brothers Harriman & Co., is deemed to be the beneficial owner of
these shares due to his role as co-manager of The 1818 Fund III.
(7) Represents 5,685,111 shares of World Access common stock issuable upon the
conversion of 102,332 shares of Series D preferred stock.
(8) Represents 15,099,472 shares of WorldxChange common stock converted into
World Access common stock at .6583 per share. All WorldxChange shares,
other than (i) 1,000,000 shares as to which Mr. Abbott has sole voting
power pursuant to a voting trust agreement, (ii) 81,176 shares that are
held directly by Mr. Abbott, and (iii) 81,176 shares that are held directly
by Mr. Abbott's spouse, Rosalind Abbott, are jointly held by Mr. Abbott and
his spouse as community property.
(9) Represents 11,684,365 shares of WorldxChange common stock converted into
World Access common stock at .6583 per share. Under a power of attorney
from Gold & Appel Transfer, S.A., Walter Anderson has sole investment power
over these shares and as a result may be deemed to be the beneficial owner
of such shares. Mr. Anderson, however, disclaims beneficial ownership of
these shares.
(10) Represents an aggregate of 11,539,650 shares of TelDaFax common stock owned
by four Apax funds converted into World Access common stock at 1.025 per
share. Apax Partners Co., advisor to these four funds, is deemed to be the
beneficial owner of these shares.
(11) Includes 940,204 shares of World Access common stock issuable upon the
conversion of 19,161 shares of Series C preferred stock.
(12) Includes 1,211,982 shares of World Access common stock owned by Geocapital
V, L.P., 36,900 shares owned by Geocapital Advisors, L.P., and 7,952 shares
owned by Geocapital Investors V, L.P. Mr. Clearman, a general partner of
these partnerships, is deemed to be the beneficial owner of these shares.
(13) Includes 787,500 shares of World Access common stock owned of record by
Resurgens Partners, LLC, of which Mr. Phillips has the sole voting and
dispositive power. Also includes 100,000 shares held in the name of Mr.
Phillips' wife as custodian for two of Mr. Phillips' minor children, with
respect to which Mr. Phillips disclaims beneficial ownership.
(14) Represents 1,443,887 shares of World Access common stock owned by Gilbert
Global Equity Partners, L.P. and 441,364 shares owned by Gilbert Global
Equity Partners (Bermuda), L.P. Mr. Prelz, a Managing Director of Gilbert
Global Equity Partners, L.P., is deemed to be the beneficial owner of these
shares.
(15) Includes 1,552,958 shares of World Access common stock owned by Zilkha
Capital Partners, L.P. Mr. Rigas, a Managing Partner of Zilkha Capital
Partners, L.P., is deemed to be the beneficial owner of these shares.
(16) Includes 2,000 shares of World Access common stock owned by Mr. Sanders'
wife, with respect to which Mr. Sanders disclaims beneficial ownership.
(17) Includes the following shares of World Access common stock acquired through
voluntary employee contributions to World Access' 401(k) Plan and
contributed to the 401(k) Plan under a matching contribution program
offered to all 401(k) Plan participants: Mr. Gergel -- 4,041 shares and Mr.
Mies -- 517 shares.
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<PAGE> 130
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires World Access' directors and
executive officers, and persons who own beneficially more than ten percent of a
registered class of World Access' equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of World Access' securities. Directors, executive officers and greater
than ten-percent stockholders are required by Commission regulations to furnish
World Access with copies of all Section 16(a) reports they file.
To the best of World Access' knowledge, based solely on review of the
copies of such reports furnished to it and representations that no other reports
were required, all Section 16(a) filing requirements applicable to World Access'
directors, executive officers and greater than ten-percent beneficial owners
were complied with during the 1999 fiscal year, except for Mr. Phillips, whose
Annual Statement of Changes in Beneficial Ownership on Form 5 was not filed
timely. Mr. Phillips was required to file a Form 5 to reflect shares of World
Access common stock that he gifted to his children in December 1999.
ACCOUNTANTS
The World Access board has appointed Ernst & Young LLP, independent public
accountants, as independent accountants for World Access for the fiscal year
ending December 31, 2000. Representatives of Ernst & Young LLP are expected to
be present at the World Access special meeting, will have an opportunity to make
a statement if they so desire and will be available to respond to appropriate
questions from stockholders.
On December 22, 1998, World Access engaged Ernst & Young LLP as the
certifying accountants and dismissed PricewaterhouseCoopers LLP. The World
Access board approved this change in accountants. World Access had no
disagreements with its former accountant on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which disagreement(s), if not resolved to the satisfaction of the former
accountant, would have caused them to make reference to the subject matter of
the disagreement(s) in connection with their reports during each of the two
years in the period ended December 31, 1997 and from January 1, 1998 to December
22, 1998, and such accountants' report on the financial statements for each of
the past two years did not contain an adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope or accounting
principles.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K/A,
Amendment No. 1, for the years ended December 31, 1999 and 1998, as set forth in
their report, which is incorporated by reference in this joint proxy
statement/prospectus and elsewhere in the registration statement. Our
consolidated financial statements and schedules are incorporated by reference in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The financial statements of World Access for the year ended December 31,
1997 incorporated in this joint proxy statement/prospectus by reference to the
Annual Report on Form 10-K/A, Amendment No. 1, of World Access for the year
ended December 31, 1999 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, dated March 5, 1998, except
for the discontinued operations described in Note C, which are as of March 14,
2000, given on the authority of that firm as experts in auditing and accounting.
The consolidated financial statements of FaciliCom International, Inc. and
subsidiaries incorporated in this World Access joint proxy statement/prospectus
by reference to the World Access Current Report on Form 8-K dated December 22,
1999, as amended, have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is also incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
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<PAGE> 131
Ernst & Young LLP, independent certified public accountants, have audited
the consolidated financial statements of Long Distance International, Inc. at
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, as set forth in their report. The Long Distance
International, Inc. financial statements are incorporated by reference in this
joint proxy statement/prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
The consolidated financial statements of STAR incorporated in this joint
proxy statement/prospectus by reference to STAR's Form 10-K for the year ended
December 31, 1999, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report dated April 14, 2000 with respect
thereto, which is also incorporated by reference into this joint proxy
statement/prospectus, and are so incorporated in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of WorldxChange at September 30, 1999 and 1998, and for
each of the three years in the period ended September 30, 1999, as set forth in
their report. The WorldxChange financial statements are included in the joint
proxy statement/prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.
BDO Deutsche Warentreuhand, independent auditors, have audited the
consolidated financial statements of TelDaFax AG at December 31, 1999 and 1998,
and for each of the three years in the period ended December 31, 1999, as set
forth in their report. The TelDaFax financial statements are included in the
joint proxy statement/prospectus and elsewhere in the registration statement in
reliance on BDO Deutsche Warentreuhand's report, given on their authority as
experts in accounting and auditing.
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<PAGE> 132
THE WORLD ACCESS SPECIAL MEETING
Date, Time and Place of the World Access Special Meeting.
, 2000
11:00 a.m., local time
945 E. Paces Ferry Road, Suite 2200
Atlanta, Georgia 30326.
World Access Board of Directors' Recommendations. The board of directors
of World Access unanimously approved the TelDaFax purchase agreement and the
transactions contemplated by the TelDaFax purchase agreement and unanimously
recommends that the stockholders of World Access vote for the approval and
adoption of the TelDaFax purchase agreement and the transactions contemplated by
the TelDaFax purchase agreement.
World Access Record Date. The board of directors of World Access has fixed
, 2000 as the record date for determination of holders of World Access
voting stock entitled to notice of, and to vote at, the World Access special
meeting.
Stockholders Entitled to Vote. As of the close of business on the World
Access record date, shares of World Access common stock were
outstanding, held by approximately holders of record. World
Access stockholders are entitled to cast one vote per share of World Access
common stock owned or to be received upon the conversion of shares of preferred
stock owned as of the World Access record date.
World Access also has shares of preferred stock issued and outstanding.
Each share of World Access preferred stock is convertible at the option of the
holder into World Access common stock in accordance with a conversion formula
contained in the World Access amended certificate of incorporation. The World
Access preferred stock is entitled to vote on the approval and adoption of the
TelDaFax purchase agreement and the transactions contemplated by the TelDaFax
purchase agreement on an as converted basis with the World Access common stock
voting together as a single class.
The following table sets forth information regarding the World Access
preferred stock:
<TABLE>
<CAPTION>
COMMON STOCK
SERIES SHARES OUTSTANDING HELD UPON CONVERSION
------ ------------------ --------------------
<S> <C> <C>
Series A.......................................... 70,000 6,086,956
Series C.......................................... 350,259.875 17,186,451
Series D.......................................... 184,000 10,222,222
Series E.......................................... 9,645 443,448
</TABLE>
Only holders of record of World Access voting stock as of the close of
business on the World Access record date are entitled to notice of and to vote
at the World Access special meeting and any adjournments or postponements
thereof.
Quorum; vote required. A majority of the shares of World Access common
stock entitled to vote at the World Access special meeting will constitute a
quorum for the transaction of business at the World Access special meeting. The
vote required for approval of the TelDaFax purchase agreement and the
transactions contemplated by the TelDaFax purchase agreement is a majority in
voting power of the shares of World Access voting stock entitled to vote and
voting as a single class.
The total outstanding shares of World Access common stock for purposes of
calculating the number of shares constituting a quorum and needed for approval
includes the number of shares of World Access common stock issuable upon
conversion of the Series A preferred stock, the Series C preferred stock, the
Series D preferred stock and the Series E preferred stock.
Shares of World Access voting stock that are voted "for," "against" or
"withheld" at the World Access special meeting will be treated as being present
at such meeting for purposes of establishing a quorum and will
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<PAGE> 133
also be treated as votes eligible to be cast by the World Access voting stock
present in person or represented by proxy at the World Access special meeting
and entitled to vote on the subject matter. Abstentions will be counted for
purposes of determining both the presence or absence of a quorum for the
transaction of business and the total number of votes cast with respect to a
particular matter. Broker non-votes will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business but will not
be counted for purposes of determining the number of votes cast with respect to
the particular proposal on which the broker has expressly not voted. Because
approval of the TelDaFax purchase agreement and the transactions contemplated by
the TelDaFax purchase agreement requires the affirmative vote of a majority in
voting power of outstanding shares of World Access voting stock, abstentions and
broker non-votes will have the same effect as negative votes with respect to
these proposals.
Security ownership by certain beneficial owners and management. As of the
close of business on the World Access record date, directors and executive
officers of World Access and their respective affiliates may be deemed to be the
beneficial owners of shares of World Access common stock representing
approximately % of the outstanding voting power of World Access.
Solicitation and revocability of proxies. This proxy statement/prospectus
is being furnished to holders of World Access voting stock in connection with
the solicitation of proxies by and on behalf of the board of directors of World
Access for use at the World Access special meeting. All shares of World Access
voting stock that are entitled to vote and are represented at the World Access
special meeting, by properly executed proxies received prior to or at such
meeting and not duly and timely revoked, will be voted at such meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies will be voted for the approval and adoption of the
proposals described herein.
If any other matters are properly presented for consideration at the World
Access special meeting or any adjournments or postponements thereof, including,
among other things, consideration of a motion to adjourn or postpone such
meeting to another time and/or place, including, without limitation, for the
purpose of soliciting additional proxies, the persons named in the enclosed form
of proxy and voting thereunder will have discretion to vote on such matters in
accordance with their best judgment. Proxies voting against the proposals
presented in this proxy statement/prospectus may not be voted for an adjournment
or postponement of the World Access special meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of World Access at or before the taking of the
vote at the World Access special meeting a written notice of revocation
bearing a later date than the proxy;
- duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of World Access before the taking of the
vote at the World Access special meeting; or
- attending the World Access special meeting and voting in person.
Attendance at the World Access special meeting will not in and of itself
constitute a revocation of a proxy.
Any written notice of revocation or subsequent proxy should be sent so as
to be delivered to World Access, Inc., at 945 E. Paces Ferry Road, Suite 2200,
Atlanta, Georgia 30326, Attention: Secretary, or hand delivered to the Secretary
of World Access at or before the taking of the vote at the World Access special
meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this proxy statement/ prospectus to stockholders of World Access, will
be borne by World Access. In addition to solicitation by use of the mails,
proxies may be solicited by directors, officers and employees of World Access in
person or by telephone, telegram or other means of communication. Such
directors, officers and employees will not be additionally compensated, but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Arrangements will also be made with custodians, nominees and
fiduciaries for forwarding of proxy solicitation materials to beneficial owners
of shares held of record by such custodians, nominees and
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<PAGE> 134
fiduciaries, and World Access will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
WORLD ACCESS STOCKHOLDER PROPOSALS
Proposals of World Access stockholders submitted pursuant to Rule 14a-8 of
the Exchange Act for inclusion in the proxy statement for the 2001 annual
meeting of stockholders of World Access must be received by World Access at its
principal executive offices at 945 E. Paces Ferry Road, Suite 2200, Atlanta,
Georgia 30326 a reasonable time before World Access begins to print and mail the
proxy materials for its 2001 annual meeting of stockholders.
Under the World Access amended certificate of incorporation, stockholders
desiring to nominate persons for election as directors at an annual meeting must
notify the Secretary of World Access in writing not less than 120 calendar days
in advance of the date which is one year later than the date of World Access
proxy statement released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that if no annual meeting of
stockholders was held in the previous year or if the date of the forthcoming
annual meeting of stockholders has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement or
if the forthcoming meeting is not an annual meeting of stockholders, then to be
timely such stockholders' notice must be so received not later than the close of
business on the tenth day following the earlier of:
- the day on which notice of the date of the forthcoming meeting was mailed
or given to stockholders by or on behalf of World Access; or
- the day on which public disclosure of the date of the forthcoming meeting
was made by or on behalf of World Access.
Any such stockholders' notices must contain the specific information set
forth in the World Access amended certificate of incorporation. Stockholders
will be furnished a copy of the World Access amended certificate of
incorporation without charge upon written request to the Secretary of World
Access.
OTHER MATTERS THAT MAY COME BEFORE THE WORLD ACCESS SPECIAL MEETING
The World Access board does not know of any other matters which may come
before the World Access special meeting. If any other matters are properly
presented at the World Access special meeting, it is the intention of the
persons named in the accompanying proxy to vote, or otherwise act, in accordance
with their best judgement on such matters.
LEGAL MATTERS
The legality of the World Access common stock offered by this proxy
statement/prospectus, including the material U.S. income tax consequences of the
TelDaFax transactions, will be passed upon for World Access by Long Aldridge &
Norman LLP, Atlanta, Georgia. LAN Equities Partnership, L.P., an affiliate of
Long Aldridge & Norman LLP, is the owner of 88,390 shares of World Access common
stock issued to Long Aldridge as payment for legal fees incurred from time to
time. Certain German tax consequences of the TelDaFax transactions will be
passed upon for World Access by Gaedertz Rechtsanwalte, Frankfurt, Germany.
126
<PAGE> 135
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE
COMMUNICATIONS
Report of Ernst & Young LLP, Independent Auditors........... F-2
Consolidated Balance Sheets as of June 30, 2000 (Unaudited),
September 30, 1999 and 1998............................... F-3
Consolidated Statements of Operations for the nine months
ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and
each of the three years in the period ended September 30,
1999...................................................... F-4
Consolidated Statements of Shareholders' Deficit and
Comprehensive Income/Loss for the nine months ended June
30, 2000 (Unaudited) and each of the three years in the
period ended September 30, 1999........................... F-5
Consolidated Statements of Cash Flows for the nine months
ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and
each of the three years in the period ended September 30,
1999...................................................... F-6
Notes to Consolidated Financial Statements.................. F-7
TELDAFAX AG
Independent Auditors' Report................................ F-28
Consolidated Balance Sheets as of March 31, 2000
(Unaudited), December 31, 1999 and 1998................... F-29
Consolidated Statements of Operations for the three months
ended March 31, 2000 (Unaudited) and 1999 (Unaudited) and
each of the three years in the period ended December 31,
1999...................................................... F-30
Consolidated Statements of Shareholders' Deficit and
Comprehensive of Changes in Combined Equity Shareholder's
Funds for the six months ended June 30, 2000 (Unaudited)
and each of the three years in the period ended December
31, 1999.................................................. F-31
Consolidated Statements of Cash Flows for the six months
ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and
each of the three years in the period ended December 31,
1999...................................................... F-32
Notes to the Consolidated Financial Statements.............. F-33
</TABLE>
F-1
<PAGE> 136
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Communications Telesystems International d.b.a.
WorldxChange Communications
We have audited the consolidated balance sheets of Communications
Telesystems International d.b.a. WorldxChange Communications as of September 30,
1999 and 1998, and the related consolidated statements of operations,
shareholders' deficit, and cash flows for each of the three years in the period
ended September 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Communications Telesystems International d.b.a. WorldxChange Communications at
September 30, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
1999, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
San Diego, California
December 10, 1999,
except for the fourth paragraph of
Note 5 and the sixth paragraph of
Note 13 as to which the date is
May 22, 2000
F-2
<PAGE> 137
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------- --------------------
2000 1999 1998
----------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 6,913 $ 38,030 $ 20,917
Accounts receivable, net of allowance of $14,173 at June
30, 2000 (unaudited) and $9,590 and $10,690 at September
30, 1999 and 1998, respectively......................... 103,172 54,991 38,966
Prepaid expenses and other current assets................. 32,566 8,224 3,825
--------- --------- --------
Total current assets............................... 142,651 101,245 63,708
Equipment and leasehold improvements, net................... 193,494 114,765 49,697
Intangible assets........................................... 90,162 12,194 --
Other assets................................................ 4,105 6,798 6,724
--------- --------- --------
Total assets....................................... $ 430,412 $ 235,002 $120,129
========= ========= ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued network costs..................................... $ 174,830 $ 83,993 $ 49,796
Accounts payable.......................................... 23,682 13,770 14,144
Other accrued liabilities................................. 44,758 16,333 15,377
Payable to related parties................................ 2,396 -- 468
Deferred revenue.......................................... 2,493 3,941 686
Current portion of long-term debt and subordinated
debentures.............................................. 187,020 9,799 13,421
Current portion of capital lease obligations.............. 14,805 10,582 6,851
--------- --------- --------
Total current liabilities.......................... 449,984 138,418 100,743
Long-term debt.............................................. 38,447 100,324 75,287
Subordinated debentures..................................... -- -- 1,182
Capital lease obligations................................... 32,382 29,395 22,844
Other long-term liabilities................................. 5,547 1,918 2,397
--------- --------- --------
Total liabilities.................................. 526,360 270,055 202,453
Minority interest........................................... -- -- 7,269
Shareholders' deficit:
Preferred Stock, no par value; Authorized
shares -- 10,000,000:
Series A Cumulative Preferred Stock; Issued and
outstanding 30,000 at June 30, 2000 (unaudited) and
September 30, 1999, and 23 at September 30, 1998;
liquidation preference of $1,000 per share............ 30,000 30,000 7
Series B Cumulative Preferred Stock; Issued and
outstanding -- zero at June 30, 2000 (unaudited) and
zero at September 30, 1999 and 1998; liquidation
preference of $1,000 per share........................ -- -- --
Common Stock, no par value; Authorized
shares -- 100,000,000, Issued and outstanding 42,613,954
at June 30, 2000 (unaudited), 36,965,911 at September
30, 1999 and 28,576,552 at September 30, 1998........... 148,056 99,047 10,297
Notes receivable from shareholders........................ (1,937) (1,474) --
Accumulated other comprehensive loss...................... (12,900) (2,405) (3,529)
Accumulated deficit....................................... (259,167) (160,221) (96,368)
--------- --------- --------
Total shareholders' deficit........................ (95,948) (35,053) (89,593)
--------- --------- --------
Total liabilities and shareholders' deficit........ $ 430,412 $ 235,002 $120,129
========= ========= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 138
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEARS ENDED SEPTEMBER 30,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $423,913 $304,324 $421,580 $398,867 $331,660
Operating expenses:
Cost of services.......................... 337,814 238,599 328,334 287,312 235,027
Selling, general and administrative....... 124,014 88,431 124,112 114,897 113,459
Depreciation and amortization............. 35,131 12,394 17,705 12,332 8,677
-------- -------- -------- -------- --------
Total operating expenses.......... 496,959 339,424 470,151 414,541 357,163
Operating loss.............................. (73,046) (35,100) (48,571) (15,674) (25,503)
Interest expense............................ 22,694 12,448 16,883 11,947 8,682
Other expense, net.......................... 822 222 648 1,378 3,366
-------- -------- -------- -------- --------
Loss before minority interest............... (96,562) (47,770) (66,102) (28,999) (37,551)
Minority interest........................... -- (1,782) 2,251 1,546 473
-------- -------- -------- -------- --------
Net loss.................................... $(96,562) $(45,988) $(63,851) $(27,453) $(37,078)
Preferred stock dividends................... 2,384 -- 2 7 13
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders........................... $(98,946) $(45,988) $(63,853) $(27,460) $(37,091)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 139
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND
COMPREHENSIVE INCOME/LOSS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B
CUMULATIVE CUMULATIVE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK NOTES RECEIVABLE
------------------ ------------------ --------------------- FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS
------- -------- ------- -------- ---------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996...... 82 $ 36 -- -- 27,572,000 $ 196 $ --
Repurchase of Series A Cumulative
Preferred Stock................... (59) (29) -- -- -- -- --
Dividends on Series A Cumulative
Preferred Stock................... -- -- -- -- -- -- --
Exercise of options/warrants....... -- -- -- -- 162,000 62 --
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment........................ -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- -------- -------
BALANCE AT SEPTEMBER 30, 1997...... 23 7 27,734,000 258 --
Dividends on Series A
Preferred Stock.................... -- -- -- -- -- -- --
Issuance of Common Stock........... -- -- -- -- 788,127 10,000 --
Exercise of options/warrants....... -- -- -- -- 54,425 39 --
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment........................ -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- -------- -------
BALANCE AT SEPTEMBER 30, 1998...... 23 7 -- -- 28,576,552 10,297 --
Repurchase of Series A
Cumulative Preferred Stock......... (23) (7) -- -- -- -- --
Dividends on Series A
Preferred Stock.................... -- -- -- -- -- -- --
Issuance of Series A
Cumulative Preferred Stock......... 30,000 30,000 -- -- -- -- --
Issuance of Common Stock........... -- -- -- -- 8,153,120 87,102 --
Exercise of options/warrants....... -- -- -- -- 236,239 1,648 --
Notes receivable for sales of
common stock...................... -- -- -- -- -- -- (1,474)
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- --
Foreign currency translation
adjustment........................ -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- -------- -------
BALANCE AT SEPTEMBER 30, 1999...... 30,000 $30,000 -- -- 36,965,911 $99,047 $(1,474)
------ ------- ------- ------- ---------- -------- -------
Dividends on Series A Cumulative
Preferred Stock (unaudited)....... -- -- -- -- -- -- --
Issuance of Series B Cumulative
Preferred Stock
net of issuance cost of $1,342
(unaudited)..................... -- -- 50,000 48,658 -- -- --
Conversion of Series B Cumulative
Preferred Stock into Common Stock
(unaudited)....................... -- -- (50,000) (48,658) 5,555,550 48,658 --
Exercise of options/warrants
(unaudited)....................... -- -- -- -- 92,493 351 --
Notes receivable for sales of
common stock (unaudited).......... -- -- -- -- -- -- (463)
Comprehensive loss:
Net loss (unaudited)............... -- -- -- -- -- -- --
Foreign currency translation
adjustment (unaudited)............ -- -- -- -- -- -- --
Total comprehensive loss
(unaudited).................
------ ------- ------- ------- ---------- -------- -------
BALANCE AT JUNE 30, 2000
(UNAUDITED)....................... 30,000 $30,000 -- $ -- 42,613,954 $148,056 $(1,937)
====== ======= ======= ======= ========== ======== =======
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
ACCUMULATED INCOME SHAREHOLDERS'
DEFICIT (LOSS) DEFICIT
----------- ------------- -------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996...... $ (31,817) $ (434) $ (32,019)
Repurchase of Series A Cumulative
Preferred Stock................... -- -- (29)
Dividends on Series A Cumulative
Preferred Stock................... (13) -- (13)
Exercise of options/warrants....... -- -- 62
Comprehensive loss:
Net loss........................... (37,078) -- (37,078)
Foreign currency translation
adjustment........................ -- 197 197
---------
Total comprehensive loss..... (36,881)
--------- -------- ---------
BALANCE AT SEPTEMBER 30, 1997...... (68,908) (237) (68,880)
Dividends on Series A
Preferred Stock.................... (7) -- (7)
Issuance of Common Stock........... -- -- 10,000
Exercise of options/warrants....... -- -- 39
Comprehensive loss:
Net loss........................... (27,453) -- (27,453)
Foreign currency translation
adjustment........................ -- (3,292) (3,292)
---------
Total comprehensive loss..... (30,745)
--------- -------- ---------
BALANCE AT SEPTEMBER 30, 1998...... (96,368) (3,529) (89,593)
Repurchase of Series A
Cumulative Preferred Stock......... -- -- (7)
Dividends on Series A
Preferred Stock.................... (2) -- (2)
Issuance of Series A
Cumulative Preferred Stock......... -- -- 30,000
Issuance of Common Stock........... -- -- 87,102
Exercise of options/warrants....... -- -- 1,648
Notes receivable for sales of
common stock...................... -- -- (1,474)
Comprehensive loss:
Net loss........................... (63,851) -- (63,851)
Foreign currency translation
adjustment........................ -- 1,124 1,124
---------
Total comprehensive loss..... (62,727)
--------- -------- ---------
BALANCE AT SEPTEMBER 30, 1999...... $(160,221) $ (2,405) $ (35,053)
--------- -------- ---------
Dividends on Series A Cumulative
Preferred Stock (unaudited)....... (2,384) -- (2,384)
Issuance of Series B Cumulative
Preferred Stock
net of issuance cost of $1,342
(unaudited)..................... -- -- 48,658
Conversion of Series B Cumulative
Preferred Stock into Common Stock
(unaudited)....................... -- -- --
Exercise of options/warrants
(unaudited)....................... -- -- 351
Notes receivable for sales of
common stock (unaudited).......... -- -- (463)
Comprehensive loss:
Net loss (unaudited)............... (96,562) -- (96,562)
Foreign currency translation
adjustment (unaudited)............ -- (10,495) (10,495)
---------
Total comprehensive loss
(unaudited)................. (107,057)
--------- -------- ---------
BALANCE AT JUNE 30, 2000
(UNAUDITED)....................... $(259,167) $(12,900) $ (95,948)
========= ======== =========
</TABLE>
See accompanying notes.
F-5
<PAGE> 140
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30, YEARS ENDED SEPTEMBER 30,
--------------------- ----------------------------------
2000 1999 1999 1998 1997
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................ $ (96,562) $ (45,988) $ (63,851) $ (27,453) $ (37,078)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debt........................ 15,148 11,005 15,202 15,170 22,348
Depreciation and amortization................. 35,131 12,394 17,705 12,332 8,677
Deferred revenue.............................. (3,654) 1,825 3,255 (2,275) 2,714
Impairment of long-lived assets............... - - - - 659
Minority interest............................. - (1,782) (2,251) (1,546) (473)
Changes in operating assets and liabilities:
Accounts receivable......................... (25,455) (26,214) (31,227) (391) (48,411)
Receivables from related parties............ - (1,037) (1,448) (1,864) 1,317
Prepaid expenses and other assets........... (6,707) (2,536) (4,740) (5,551) (3,478)
Accrued network costs....................... 68,246 39,966 34,629 (12,255) 21,200
Accounts payable............................ 364 2,613 (1,031) (1,584) 12,136
Other accrued liabilities................... (24,387) 5,248 2,208 (6,318) 13,183
--------- --------- ---------- --------- ---------
Net cash used in operating
activities........................... (37,876) (4,506) (31,549) (31,735) (7,206)
INVESTING ACTIVITIES
Acquisition of equipment and leasehold
improvements.................................. (5,163) (25,125) (27,633) (11,990) (10,871)
Acquisition of ACC Europe, net of cash
acquired...................................... (55,745) - - - -
--------- --------- ---------- --------- ---------
Net cash used in investing
activities........................... (60,908) (25,125) (27,633) (11,990) (10,871)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement........ 257,713 179,011 283,485 256,535 154,961
Repayments on revolving credit agreement........ (252,649) (178,820) (278,407) (255,885) (128,598)
Proceeds from issuance of long-term debt........ 35,725 - - 55,152 -
Repayment of long-term debt, subordinated
debentures, loans payable and capital
leases........................................ (21,800) (24,604) (30,433) (5,299) (16,602)
Payment of dividends on Preferred Stock......... - (2) (2) (7) (11)
Proceeds from the issuance of Preferred Stock... 48,658 - 30,000 - -
Proceeds from issuance of Common Stock.......... 20 71,286 71,648 10,039 62
Repurchase of Preferred Stock................... - (7) (7) - (30)
Proceeds from issuance of subsidiary common
stock to minority holders..................... - - - - 9,001
--------- --------- ---------- --------- ---------
Net cash provided by financing
activities........................... 67,667 46,864 76,284 60,535 18,783
Effect of exchange rate changes on cash......... - 47 11 (219) 197
--------- --------- ---------- --------- ---------
Net increase (decrease) in cash and
cash equivalents..................... (31,117) 17,280 17,113 16,591 903
Cash and cash equivalents at beginning of
period........................................ 38,030 20,917 20,917 4,326 3,423
--------- --------- ---------- --------- ---------
Cash and cash equivalents at end of period...... $ 6,913 $ 38,197 $ 38,030 $ 20,917 $ 4,326
========= ========= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest...................................... $ 14,665 $ 8,244 $ 9,248 $ 6,686 $ 7,176
Income taxes.................................. - 2 2 8 102
NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired by incurring capital lease
obligations or long-term debt................. 27,386 32,638 53,391 10,421 8,533
Common stock issued in exchange for the
acquisition of certain minority interest...... - - 17,102 - -
Debt issued in conjunction with acquisition of
ACC........................................... 53,000 - - - -
</TABLE>
See accompanying notes.
F-6
<PAGE> 141
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
1. BUSINESS ACTIVITY
Communications TeleSystems International d/b/a WorldxChange Communications
("WorldxChange"), a California corporation, is a facilities-based
telecommunications carrier that provides international and domestic
long-distance service to retail and carrier customers. Our retail base is
comprised of residential and commercial customers. Our wholesale base is
comprised of other U.S. and foreign telecommunications carriers and resellers.
We have established retail and carrier operations in the United States, the
Pacific Rim, Canada, Europe and Latin America. WorldxChange also provides
operator, debit/calling card service, toll free, private line and other enhanced
services.
WorldxChange has established operations in the United Kingdom, France,
Germany, Belgium, The Netherlands, Australia, New Zealand and Canada through
wholly-owned subsidiaries. WorldxChange has additional subsidiaries domiciled in
various other countries; however, the activity of these subsidiaries to date has
not been significant.
The revenue from WorldxChange's international operations continues to
increase as a percentage of total revenue. For the years ended September 30,
1997, 1998 and 1999 international revenue, including Canada, represented
approximately 13%, 20% and 22% of WorldxChange's total revenue, respectively.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared assuming that
WorldxChange will continue as a going concern. WorldxChange has experienced
recurring losses and has a deficiency in working capital and shareholders'
equity. WorldxChange's rapid growth and investments for additional anticipated
growth have required significant capital. Historically, WorldxChange's capital
needs have been met primarily through a combination of a revolving credit
facility, debt, lease financing, cash flows from operations and private
placement equity offerings. During the year ended September 30, 1999,
WorldxChange raised approximately $100 million in private placement offerings
(Note 8). Management believes its available cash, $30 million of financing
received from World Access (Note 13), $15 million of available credit facility
from a shareholder (Note 13), vendor committed financing, along with the
existing credit facility will be adequate to meet WorldxChange's domestic and
international capital requirements through September 30, 2000. Management also
believes that WorldxChange's ability to raise additional financing will enable
the continuation of its global expansion. However, without additional financing,
WorldxChange will be required to delay, reduce the scope of and/or eliminate
certain of its future expansion plans, and/or reduce its planned expenditures on
infrastructure and marketing activities.
Interim Financial Information (Unaudited)
The accompanying financial statements at June 30, 2000 and for the nine
months ended June 30, 1999 and 2000 are unaudited but include all adjustments
(consisting of normal recurring accruals), which, in the opinion of management,
are necessary for a fair statement of the financial position and the operating
results and cash flows for the interim date and periods presented. Results for
the interim period ended June 30, 2000 are not necessarily indicative of results
for the entire year or future periods.
F-7
<PAGE> 142
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Consolidation
The accompanying consolidated financial statements include the accounts of
WorldxChange and its wholly and majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Cash Equivalents
Cash equivalents are highly liquid investments purchased with maturities of
three months or less when purchased to be cash equivalents.
Foreign Currency
Assets and liabilities of operations outside the United States, for which
the functional currency is not U.S. dollars, are translated into U.S. dollars
using the exchange rate in effect at each period end. Revenues and expenses are
translated at the average exchange rate prevailing during the period. Cumulative
translation adjustments are included as a separate component of shareholders'
deficit. Exchange gains and losses from foreign currency transactions are
included in "Other (income) expense," in the accompanying Consolidated
Statements of Operations.
Concentration of Credit Risk
WorldxChange's customer base is comprised of several hundred carrier
customers and over 750,000 residential and commercial users of its direct dial
long distance telephone services, as well as hotels and other users of its
operator-assisted long distance telephone services. These customers are located
principally throughout the United States (U.S.), and to a much lesser extent in
the Pacific Rim, Europe, Latin America, and Canada. WorldxChange's U.S. revenues
from residential and smaller commercial users are billed and collected by local
exchange carriers (LECs). These LECs pass through to WorldxChange their
collection experience with customers billed under these billing agreements.
WorldxChange direct bills carrier and certain commercial customers in the U.S.
and direct bills all customers in its international markets. WorldxChange
performs credit evaluations of the financial condition of these direct bill
customers, and may require a deposit in certain circumstances. Revenue is
reported net of estimated customer credits which are provided for in the
financial statements at the same time the corresponding revenue is recognized.
The Company periodically estimates its reserve requirements for uncollectable
accounts, and the bad debt expense is included in selling, general and
administrative expense. No one customer accounted for more than 10% of revenues
for any period during fiscal 1999, 1998 and 1997 and for the nine months ended
June 30, 2000.
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost and are
depreciated or amortized using the straight-line method over the estimated
useful lives of the assets (generally two to seven years) Equipment under
capital leases are recorded at the net present value of the minimum lease
payments and are amortized over the shorter of the useful life of the asset or
the lease term (ranging from three to seven years). Interests in international
undersea and on-land fiber-optic cable systems are amortized over their
estimated useful lives, typically 20 years.
F-8
<PAGE> 143
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Installation Costs
Installation costs consists of costs incurred by WorldxChange for the
expansion of its switching capacity and related network. These costs also
include dialer installation costs incurred upon establishing network services
with certain operator services customers. These costs are amortized using the
straight-line method over three years.
Accrued Network Costs
Accrued network costs represent an estimate for cost of network services
received from third party telecommunications companies for which WorldxChange
has not been invoiced. The estimates are based upon vendor contract rates and
actual minutes utilized per WorldxChange's records.
Minority Interest
Certain of WorldxChange's subsidiaries have sold stock to outside
investors. Income or losses from these operations are allocated to minority
shareholders based on ownership percentages. Losses in excess of the amounts
invested by the minority shareholders are absorbed by WorldxChange. In September
1999, WorldxChange issued 1,554,763 shares of its common stock in exchange for
the shares held by certain minority shareholders of its Australian subsidiary
and a related holding company (Note 8). At September 30, 1999 a 2.2% minority
interest remains in a WorldxChange subsidiary.
Stock-Based Compensation
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
WorldxChange accounts for compensation expense under its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees. Pro forma disclosure of net loss,
as if the fair value-based method had been applied in measuring compensation
expense, is presented in Note 8.
Revenue Recognition
Revenue is recognized as long distance telecommunications services are
provided. Prepaid calling card revenue is reported net of selling discounts and
recorded when minutes are used. Deferred revenue relates to amounts received
from or billed to customers prior to WorldxChange providing telecommunications
services.
Cost of Services
Cost of services is exclusive of depreciation and amortization related to
the services network which is included in "Depreciation and amortization"
presented separately on the consolidated statements of operations.
Advertising
WorldxChange charges advertising costs to expense as the costs are
incurred. Total advertising expense was $15,836,000, and $13,898,000 for the
nine months ended June 30, 2000 and 1999. Total advertising expense was
$17,201,000, $14,117,000 and $19,118,000 for the years ended September 30, 1997,
1998, and 1999, respectively.
F-9
<PAGE> 144
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Comprehensive Income
Effective April 1, 1998, WorldxChange adopted SFAS No. 130, Reporting
Comprehensive Income. This statement requires that all components of
comprehensive income be reported, net of any related tax effect, in the
financial statements in the period in which they are recognized. The components
of comprehensive income for WorldxChange include net loss and foreign currency
translation adjustments.
Segment Information
Effective October 1, 1998, WorldxChange adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. This statement requires
disclosures of certain information about WorldxChange's operating segments,
products, geographic areas in which it operates and its major customers. This
information is presented in Note 12.
Fair Values of Financial Instruments
WorldxChange believes that the carrying amounts of its cash, cash
equivalents, accounts receivable, accounts payable, accrued liabilities, and
notes payable approximate their fair market values due to their short-term
nature or variable interest rates.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. In May
1999, the FASB voted to delay the effective date of SFAS No. 133 by one year.
The Company will be required to adopt FAS 133 for fiscal year 2001. This
statement establishes a new model for accounting for derivatives and hedging
activities. Under SFAS No. 133, all derivatives must be recognized as assets and
liabilities and measured at fair value. WorldxChange does not expect the
adoption of SFAS No. 133 to have a material impact on its consolidated financial
position or results of operations.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current period presentation.
3. ACQUISITIONS
In December 1998, WorldxChange completed a business combination with CTS
Telcom, Inc. and WorldxChange Limited, affiliates under common ownership and
management control, both of which have been accounted for in a manner similar to
a pooling-of-interests. WorldxChange issued 278,000 shares in connection with
the acquisition of WorldxChange Limited, and no consideration was paid for the
acquisition of CTS Telcom. The accompanying pooled consolidated financial
statements are derived from the combined
F-10
<PAGE> 145
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
historical financial statements of CTS Telcom, WorldxChange Limited and
WorldxChange. All significant intercompany accounts and transactions have been
eliminated.
Net revenues and net loss for fiscal 1997 and 1998 preceding the merger by
entity are as follows (in thousands):
<TABLE>
<CAPTION>
NET NET INCOME
REVENUES (LOSS)
-------- ----------
<S> <C> <C>
1997:
WxC....................................................... $328,517 $(35,349)
CTS Telcom................................................ 17,884 (2,184)
WxL New Zealand........................................... 18,342 455
Eliminations.............................................. (33,083) --
-------- --------
Combined.................................................. $331,660 $(37,078)
======== ========
1998:
WxC....................................................... $394,232 $(24,932)
CTS Telcom................................................ 16,343 (2,099)
WxL New Zealand........................................... 21,204 (422)
Eliminations.............................................. (32,912) --
-------- --------
Combined.................................................. $398,867 $(27,453)
======== ========
</TABLE>
4. BALANCE SHEET INFORMATION
Sale of Accounts Receivable with Recourse
WorldxChange sells certain receivables, subject to full recourse
provisions, to Zero Plus Dialing Incorporated (ZPDI), one of WorldxChange's
providers of billing and collection services. At June 30, 2000 the outstanding
balance of such accounts for which WorldxChange is contingently liable was zero.
At September 30, 1998 and 1999 the outstanding balance of such accounts for
which WorldxChange is contingently liable was approximately $4,019,000 and
$1,962,000, respectively.
Equipment and Leasehold Improvements
Equipment and leasehold improvements consist of the following (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------
2000 1999 1998
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Telecommunications equipment and cables............... $216,065 $125,190 $ 56,091
Computer equipment and software....................... 32,955 15,365 9,985
Office furniture, equipment and vehicles.............. 12,955 9,745 9,335
Leasehold improvements................................ 7,194 3,147 1,614
Equipment in progress................................. -0- 10,266 4,932
-------- -------- --------
269,169 163,713 81,957
Accumulated depreciation and amortization............. (75,675) (48,948) (32,260)
-------- -------- --------
$193,494 $114,765 $ 49,697
======== ======== ========
</TABLE>
F-11
<PAGE> 146
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Telecommunications equipment and cables include eight indefeasible rights
of use in cable systems amounting to $41,892,000 and $825,000 and eleven
ownership interests in international cables amounting to $15,605,000 and
$4,224,000 at September 30, 1999 and 1998, respectively. As of June 30, 2000,
WorldxChange had indefeasible rights of use in cable systems amounting to
$56,868,000 and ownership interests in international cables amounting to
$16,728,000. These assets are amortized over the life of the agreements of 15 to
20 years.
Other Assets
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, ---------------
2000 1999 1998
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Deposits.................................................. $3,331 $4,240 $3,417
Debt issuance costs, net of accumulated amortization of
$2,272, $1,686 and $97 at June 30, 2000, September 30,
1999 and 1998, respectively............................. 613 1,718 3,307
Offering Costs............................................ -- 652 --
Other..................................................... 161 188 --
------ ------ ------
$4,105 $6,798 $6,724
====== ====== ======
</TABLE>
Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Accrued taxes.......................................... $19,437 $ 3,734 $ 1,766
Accrued commissions.................................... 1,039 1,575 2,311
Accrued compensation and benefits...................... 3,519 3,144 3,384
Accrued settlements (Note 11).......................... -- 1,211 2,059
Accrued interest....................................... 7,116 634 901
Other.................................................. 13,647 6,035 4,956
------- ------- -------
$44,758 $16,333 $15,377
======= ======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, --------------------------
2000 1999 1998
----------- --------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Unsecured subordinated note balance due December
2000 with interest payable at maturity of 12%... $ 53,000 $ -- $ --
</TABLE>
F-12
<PAGE> 147
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, --------------------------
2000 1999 1998
----------- --------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Secured subordinated note, balance due November
2000 with interest payable quarterly at 12.5%... 45,200 45,200 55,000
Unsecured note due February 2002 with varying
monthly principal payments from $300,000 to
$1,250,000. The unpaid principal bears interest
at 13.0%, which is payable at maturity.......... 18,316 -- --
Term loan due October 2000, with principal
reductions of $300,000 due monthly and interest
payable monthly at prime plus 5.00% (14.5% at
June 30, 2000) and prime plus 6.75% (15.00% at
September 30, 1999 and 1998, respectively)...... 3,800 4,600 5,125
Loan and security agreement payable upon
collections of accounts receivable with interest
payable monthly at prime rate plus 1.75% (11.25%
at June 30, 2000) and prime plus 2.75% (11.00%
at September 30, 1999 and 1998 respectively).... 27,762 24,362 21,888
Term loan due February 2001 with interest payable
at a per annum rate equal to 11.0%.............. 35,725 -- --
Secured subordinated note with interest payable
quarterly at 10%................................ -- -- 1,200
Note payable due March 2004, with principal and
interest payments payable in monthly
installments of $183,518 at 12.00%.............. 6,507 7,521 --
Notes payable due June 2004 to March 2005, with
aggregate monthly principal and interest
payments at 12% due in monthly installments of
$355,410 at June 30, 2000 and $197,222 at
September 30, 1999.............................. 14,129 8,693 --
Note payable due May 2004, with principal and
interest payments payable in monthly
installments of $322,632 at 11.5%............... 11,956 13,742 --
Note payable due August 2004, with principal and
interest payments payable in monthly
installments of $73,235 at 11.5%................ 2,853 3,247 --
Note payable due June 2004, with principal and
interest payments payable in monthly
installments of $56,777 at 10%.................. 2,201 2,568 --
Note Payable due June 2002 with quarterly payments
of $67,000...................................... 536 -- --
</TABLE>
F-13
<PAGE> 148
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, --------------------------
2000 1999 1998
----------- --------------- --------
(UNAUDITED)
<S> <C> <C> <C>
Note payable due May 2004 with principle and
interest payments made payable in monthly
installments of $93,044 at 11%.................. 3,294 -- --
Secured and unsecured notes, with principal and
interest payments payable in quarterly
installments, maturing at various dates through
June 2000. Interest rates ranging from 10% to
14.25%.......................................... 188 190 429
---------- ---------- --------
225,467 110,123 83,642
Less current portion.............................. (187,020) (9,799) (8,355)
---------- ---------- --------
$ 38,447 $ 100,324 $ 75,287
========== ========== ========
</TABLE>
In March 1997, WorldxChange entered into its credit facility, which
consists of an accounts receivable-based revolving credit facility and a term
loan. In February 2000, the credit facility was amended to increase the maximum
borrowing capacity, add a bridge loan, extend the maturity date of the revolving
credit agreement and term loan and reduce the interest rate charge. The credit
facility allows WorldxChange to borrow up to a maximum of $65.0 million, subject
to certain restrictions and borrowing base limitations. The maximum available
borrowing base under the revolving credit agreement is $30.0 million and is
determined as a specified percentage of eligible accounts receivable. The
balance outstanding on the revolving credit agreement is reduced by the
application of payments received on collections of accounts receivable. The
accounts receivable revolving credit facility had an outstanding balance of
approximately $27.8 million at June 30, 2000, and $2.2 million available for
borrowing pursuant to the borrowing base limitations. This facility bears
interest at the prime rate plus 1.75% and is repaid through collections of
accounts receivable. The term loan was issued in the amount of $5.0 million,
which at June 30, 2000 had an outstanding balance of approximately $3.8 million,
bears interest at the prime rate plus 5.00% and requires monthly reductions of
principal of $300,000 plus interest. The bridge loan has a maximum borrowing
availability of $30.0 million, bears interest at 11% and matures on February 11,
2001. The maturity date may be extended until October 1, 2003 by the bridge loan
participant. As part of the amended agreement and the WorldxChange merger
agreement, World Access agreed to participate in the bridge loan and agreed to
fund the $30.0 million under the agreement. As of June 30, 2000, the outstanding
balance on the bridge loan was $35.7 million and $9.3 million was available for
borrowing. In total, as of June 30, 2000, WorldxChange had $67.3 million
borrowed under the credit facility and $11.5 million available for borrowing.
The revolving credit agreement and the term loan mature at the earlier of
60 days prior to the maturity of the subordinated promissory notes or the notes
due in the ACC Europe acquisition or October 1, 2003. As of June 30, 2000,
WorldxChange was in compliance with the restrictive covenants under the credit
facility. WorldxChange's obligations under the credit facility are secured by
first position in substantially all of its property.
In May 2000, the credit facility was amended to increase the maximum
borrowing capacity to $80.0 million. The $15.0 million increase in the borrowing
capacity consists of an additional $15.0 million under the bridge loan, under
the same terms and conditions.
F-14
<PAGE> 149
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
As of September 30, 1998 and 1999, and June 30, 2000, WorldxChange was in
compliance with these covenants, as amended and restructured in order to reflect
the debt and equity financings discussed below and in Note 8 and the acquisition
of two affiliated companies during fiscal 1999 as discussed in Note 3.
WorldxChange's obligations under this agreement are secured by a first position
in substantially all of its assets, excluding equipment where encumbrances
already exist.
From May through August 1998, WorldxChange issued and sold subordinated
promissory notes in the aggregate principal amounts of $55.0 million. These
notes bear interest at 12.5% per annum, provide for quarterly payments of
interest only and mature on November 30, 2000. These notes provide the lender
the right to require WorldxChange to use a portion of the net proceeds from any
private placement or public offering of WorldxChange's common stock to repay the
notes. As such, the outstanding balance at September 30, 1999 has been reduced
to $45,200,000. As of June 30, 2000 the outstanding balance was $45,200,000.
In addition, WorldxChange also issued a promissory note in August 1998 in
the amount of $1.2 million representing accrued interest on the subordinated
promissory notes. This note bears interest at the rate of 10.0% per annum,
provides for quarterly payments of interest only and matures on November 30,
2000. In accordance with the terms of the note, this balance was repaid out of
the proceeds of the private placement equity offerings.
In July 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a transatlantic telecommunications cable system
for $4,000,000. At June 30, 2000 the outstanding balance related to this
agreement was $3,294,000.
In October 1998, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a transatlantic telecommunications cable system
for $8,250,000. The purchase was vendor financed with a note that bears interest
at 12.0% per annum and provides for monthly payments of principal and interest.
WorldxChange's obligations under this agreement are secured by a first-priority
security interest in the leased capacity. At June 30, 2000 and September 30,
1999, the outstanding balance related to this agreement was $6,507,000 and
$7,521,000, respectively.
In February 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a nationwide fiber optic communications system.
The initial fee for each capacity segment is calculated based on mileage between
cities, as defined per the agreement. This purchase was vendor financed with
notes that bear interest at 12.0% per annum and provide for payments in equal
monthly installments of principal and interest. At June 30, 2000 and September
30, 1999, the outstanding balances related to this agreement were $14,129,000
and $8,693,000 respectively.
In March 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a nationwide telecommunications network. Pursuant
to this agreement, WorldxChange signed notes payable to the vendor for the
purchase price. These notes bear interest at 11.5% per annum and provide for
monthly payments of principal and interest. WorldxChange's obligations under
this agreement are secured by a security interest in the leased capacity. At
June 30, 2000 and September 30, 1999, the aggregate outstanding balance were
approximately $14,809,000 and $16,989,000, respectively, which was comprised of
two separate notes with balances outstanding of $11,956,000 and $2,853,000 at
June 30, 2000.
In June 1999, WorldxChange entered into an indefeasible right of use
agreement to lease capacity in a fiber optic communications system for
$2,969,000. The purchase was vendor financed with a note that bears interest at
10.0% per annum and provides for payments in equal monthly installments of
principal and interest,
F-15
<PAGE> 150
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
which are inclusive of all operation and maintenance fees. At June 30, 2000 and
September 30, 1999, the outstanding balances related to this agreement were
$2,201,000 and $2,568,000 respectively.
Subordinated debentures consisted of the following as of September 30, 1998
(in thousands):
<TABLE>
<S> <C>
10% subordinated debentures maturing through December 31,
1999...................................................... $ 807
15% subordinated debentures maturing through December 31,
1999...................................................... 5,441
-------
6,248
Less current portion........................................ (5,066)
-------
$ 1,182
=======
</TABLE>
As of September 30, 1999, WorldxChange has repaid all amounts outstanding
relating to the 10% and 15% subordinated debentures.
Maturities of long-term debt as of September 30, 1999 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDING SEPTEMBER 30,
-------------------------
<S> <C>
2000........................................................ $ 9,799
2001........................................................ 77,741
2002........................................................ 7,717
2003........................................................ 8,653
2004........................................................ 6,213
--------
Total............................................. $110,123
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Leases
WorldxChange leases its primary operating facilities under noncancellable
operating leases which expire at various dates through March 2015. Certain of
these leases contain escalation clauses based on inflation or fixed amounts and
the leases generally require WorldxChange to pay utilities, insurance, taxes and
other operating expenses. Rental expense under such leases was $6,299,000,
$3,426,000, $4,783,000, and $3,129,000, respectively, for the nine months ended
June 30, 2000 and June 30, 1999 and the years ended September 30, 1999 and 1998.
WorldxChange leases its switches and certain other telecommunication and
computer equipment under capital leases, most of which contain bargain or fair
market value purchase options. At June 30, 2000 and September 30, 1999 and 1998
assets acquired under these leases have an original cost of $51,985,000,
$42,958,000 and $40,099,000, respectively, and accumulated amortization of
$30,992,000, $24,375,000, and $18,515,000, respectively. The amortization of
these assets is included with depreciation and amortization expense presented in
the Consolidated Statements of Operations.
F-16
<PAGE> 151
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Future minimum payments for capital leases and noncancellable operating
leases with initial or remaining terms of one year or more as of September 30,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING SEPTEMBER 30, LEASES LEASES
------------------------- -------- ---------
<S> <C> <C>
2000........................................................ $ 13,292 $3,198
2001........................................................ 11,475 2,317
2002........................................................ 11,535 1,264
2003........................................................ 7,206 247
2004........................................................ 3,530 138
Thereafter.................................................. 123 451
-------- ------
Total minimum lease payments................................ 47,161 $7,615
======
Less amount representing interest........................... (7,184)
--------
Present value of minimum lease payments..................... 39,977
Less current portion........................................ (10,582)
--------
Amounts due after one year.................................. $ 29,395
========
</TABLE>
Commitments for Undersea Cable and Land-based Fiber Optic Cable Systems
WorldxChange has entered into three agreements to increase its ownership of
undersea cables. These commitments will continue WorldxChange's further
expansion in international markets, and are expected to require incremental
capital expenditures of approximately $18.0 million. Of this balance, $4.0
million will be vendor financed at 11% interest, with monthly principal and
interest payments over a four year amortization period. The remaining $14.0
million will be paid in installments of $6.8 million upon service delivery date
and payments of $3.0 million and $4.2 million on the 1st and 2nd anniversaries
of the service delivery dates, respectively. As of September 30, 1999 and June
30, 2000 these obligations remain outstanding.
WorldxChange entered into an agreement during the year ended September 30,
1999 to acquire $25.0 million of capacity in land-based fiber optic cable
systems. The vendor has agreed to finance 90% of the commitment at 12% interest,
with monthly principal and interest payments over a five year amortization
period. At September 30, 1999, WorldxChange has purchased for cash of
approximately $10.0 million, leaving $15.0 million to be ordered. As of June 30,
2000, $7.2 million remained to be ordered.
7. INCOME TAXES
Income taxes are provided for in accordance with the provisions of FASB
Statement No. 109, Accounting for Income Taxes. Under this method, WorldxChange
recognizes deferred tax assets and liabilities for the expected future tax
effects of temporary differences between the carrying amounts and the tax bases
of assets and liabilities, as well as operating loss carryforwards.
F-17
<PAGE> 152
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
The significant components of WorldxChange's deferred tax assets and
liabilities as of September 30, 1998 and 1999 are shown below (in thousands). At
September 30, 1999, a valuation allowance of $51,113,000 has been recorded as
realization of such net deferred assets is uncertain:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
U.S. net operating loss carryforward...................... $ 28,541 $ 16,704
Foreign net operating loss carryforwards.................. 19,263 9,275
Accrued liabilities and reserves.......................... 4,263 3,720
Other..................................................... -- 336
-------- --------
52,067 30,035
Deferred tax liabilities:
Depreciation and amortization............................. (1,153) (2,145)
Other..................................................... 199 (56)
-------- --------
Net deferred tax assets..................................... 51,113 27,834
Deferred tax assets valuation allowance..................... (51,113) (27,834)
-------- --------
$ -- $ --
======== ========
</TABLE>
At September 30, 1999, WorldxChange had net operating loss carryforwards
available for federal, state and foreign tax purposes of approximately
$74,200,000, $45,000,000 and $55,000,000 respectively. The federal tax loss
carryforwards will begin expiring in 2007, unless previously utilized. The state
tax loss carryforwards began expiring in 1999 and will continue to expire
through 2003, unless previously utilized. The Canadian and Netherlands net
operating loss carryforwards in the amounts of $6,200,000 and $5,500,000,
respectively, will begin expiring in 2003. Other foreign loss carryforwards may
be carried forward indefinitely. The realization of future domestic benefits
from net operating loss carryforwards may be limited under Section 382 of the
Internal Revenue Code if certain cumulative changes occur in WorldxChange's
ownership.
8. SHAREHOLDERS' DEFICIT
Common Stock
In September 1998, WorldxChange completed a private placement for the
issuance of 1,659,214 shares of common stock. WorldxChange issued 788,127 shares
of common stock in September 1998 for $10,000,000. The remaining 871,087 shares
of common stock were issued in December 1998 for another $10,000,000. During
fiscal 1999, WorldxChange issued 5,727,000 shares of common stock for proceeds
of $60,000,000.
In September 1999, WorldxChange issued 1,554,763 shares of its common stock
in exchange for minority interests held in certain of its subsidiaries. The
acquisition was accounted for under the purchase method of accounting at a value
of $17,102,000, or $11.00 per share. The excess value of the stock issued over
the minority interest balance at September 30, 1999 was recorded as goodwill of
$12,194,000. This intangible asset is being amortized on a straight-line basis
over 20 years.
F-18
<PAGE> 153
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
Preferred Stock
As of September 30, 1998, WorldxChange had 23 shares of Series A Cumulative
Preferred Stock outstanding. The shares were non-voting and entitled the holders
to certain annual cumulative dividends. During fiscal 1999, all 23 shares were
repurchased by WorldxChange.
In August 1999, WorldxChange issued 30,000 shares of Series A Convertible
Preferred Stock for $30,000,000. The holders of the Series A Convertible
Preferred Stock are entitled to receive an annual cash dividend of $40 per share
(an aggregate of $100,000 at September 30, 1999). The holders of the Series A
Convertible Preferred Stock are entitled to certain antidilution rights and have
liquidation rights senior to those of common shareholders.
Each share of Series A Convertible Preferred Stock is convertible into
90.9091 shares of common stock. The stock is convertible at the option of the
holder six months after issuance provided WorldxChange has not completed a
public offering and no such offering is pending. The stock is automatically
convertible: (i) six months from a completed registered public offering,
provided there has been no other registered public offering during the course of
the six months and no registered public offering is pending, or (ii) in the
event there is no registered public offering, two years from the date of
issuance, provided there is no registered public offering pending.
Stock Options
WorldxChange's 1996 Stock Option Plan provides for the granting of stock
options to purchase, and the issuance of, up to 3 million shares to employees,
non-exempt directors and consultants. Generally, options are granted at prices
at least equal to fair value of WorldxChange's common stock on the date of grant
as determined by WorldxChange's Board of Directors. In addition, certain
officers and directors have been granted stock options outside the Plan.
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if WorldxChange had accounted for its employee stock
options under the fair value method of that statement. The fair value of these
options was estimated at the date of grant using the minimum value method and
the following weighted average assumptions for fiscal year 1997, 1998 and 1999,
respectively: risk free interest rate of 6.20%, 5.25% and 5.75%; expected option
life of seven years; and no annual dividends.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options. The
effects of applying SFAS 123 for pro forma disclosure purposes are not likely to
be representative of the effects on pro forma net income or loss in future years
because they do not take into consideration pro forma compensation expenses
related to grants made prior to fiscal 1996. WorldxChange's pro forma
information follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Pro forma net loss..................................... $(65,016) $(28,176) $(37,432)
======== ======== ========
</TABLE>
F-19
<PAGE> 154
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
A summary of WorldxChange's stock option activity, including those issued
outside of the plans and related information are as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED-
AVAILABLE NUMBER PRICE AVERAGE
FOR GRANT OF SHARES PER SHARE EXERCISE PRICE
----------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
Balance as of September 30,
1996............................ 1,377,600 1,622,400 $ 0.42-$5.00 $ 1.54
Grants.......................... (1,977,559) 1,977,559 $ 4.33-$7.00 4.94
Exercises....................... -- (90,000) $ 0.42 0.42
Cancellations................... 1,312,525 (1,312,525) $ 4.33-$5.00 4.57
----------- ----------- ------------- -------
Balance as of September 30,
1997............................ 712,566 2,197,434 $ 0.42-$7.00 2.84
Additional shares reserved...... 1,008,166 -- -- --
Grants.......................... (1,377,453) 1,377,453 $ 7.00-$10.00 9.67
Exercises....................... -- (54,425) $ 0.67-$7.00 0.72
Cancellations................... 320,162 (320,162) $ 4.33-$5.00 5.00
----------- ----------- ------------- -------
Balance as of September 30,
1998............................ 663,441 3,200,300 $ 0.42-$10.00 5.73
Additional shares reserved...... 4,000,000 -- -- --
Grants.......................... (1,273,752) 1,273,752 $10.00-$11.00 10.34
Exercises....................... -- (236,239) $ 0.67-$11.00 6.98
Cancellations................... 495,391 (495,391) $ 5.00-$10.00 9.06
----------- ----------- ------------- -------
Balance as of September 30,
1999............................ 3,885,080 3,742,422 $ 0.42-$11.00 6.85
Grants (unaudited).............. (621,581) 621,581 $10.00-$13.00 11.67
Exercises (unaudited)........... -- (92,486) $ 0.42-$10.00 3.80
Cancellations (unaudited)....... 740,662 (740,662) $ 5.00-$11.00 9.68
----------- ----------- ------------- -------
Balance as of June 30, 2000
(unaudited)..................... 4,011,659 3,530,855 $ 0.42-$13.00 $ 7.02
=========== =========== ============= =======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at June 30, 2000 (unaudited):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING LIFE AVERAGE AVERAGE
EXERCISE PRICES SHARES IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE
--------------- --------- -------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.42-$0.67 909,575 2.75 $ 0.58 909,575 $ 0.58
$5.00-$9.00 721,951 6.10 $ 6.21 570,326 5.87
$10.00-$10.00 1,254,528 8.48 $ 10.00 613,609 10.00
$11.00-$13.00 644,801 9.27 $ 11.21 78,223 11.29
--------- ---- ------- --------- -------
3,530,855 6.66 $ 7.02 2,171,733 $ 5.02
========= ==== ======= ========= =======
</TABLE>
The weighted average fair value at date of grant for options granted during
fiscal 1997, 1998 and 1999 were $1.43, $1.88 and $2.52 per share, respectively,
and $3.46 per share for the nine months ended June 30, 2000.
F-20
<PAGE> 155
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS
Affiliated Long Distance Companies
In fiscal 1996, WorldxChange began utilizing long distance services from
four affiliated companies owned by a relative of WorldxChange's
officers/shareholders. Billings by the four affiliates for long distance
services provided to WorldxChange were approximately $12,607,000, $5,409,000 and
$1,705,000 for the years ended September 30, 1997, 1998 and 1999, respectively.
WorldxChange had accounts payable to the four affiliates of $468,000 at
September 30, 1998 and no such amounts outstanding at September 30, 1999.
Effective January 1999, WorldxChange terminated the agreements with these
affiliates.
10. SAVINGS PLAN
In January 1996, WorldxChange adopted a 401(k) Savings Plan covering
substantially all employees that have been employed for at least one year and
meet other age and eligibility requirements. Participants may elect to
contribute up to six percent of their compensation. WorldxChange matches 25% of
participant contributions. WorldxChange's matching contribution totaled $62,000,
$82,000 and $100,000 during the years ended September 30, 1997, 1998 and 1999,
respectively.
11. LITIGATION AND REGULATION
WorldxChange is required under federal law and regulations to file tariffs
showing rates, terms and conditions affecting its services. WorldxChange has
filed interstate long distance tariffs with the FCC. The FCC has adopted an
order that, with certain exceptions, rescinds the requirement that carriers such
as WorldxChange maintain FCC tariffs and mandates that tariffs be withdrawn. The
FCC stayed its order pending judicial review. If tariffs are eliminated, it will
probably be necessary for WorldxChange to secure contractual agreements with its
customers providing for many of the terms of its existing tariffs. Absent
tariffs and contracts, WorldxChange believes that disputes could arise
concerning the respective rights of WorldxChange and its customers, which could
hinder WorldxChange's ability to collect its accounts receivable, increase
WorldxChange's overall bad debt losses and collection expenses, and increase
WorldxChange's exposure to unlimited damage claims. The FCC has not proposed to
change its requirements that tariffs for international services be filed, and
WorldxChange continues to file such tariffs.
The intrastate long distance operations of WorldxChange are also subject to
various state laws. The majority of states require certification or
registrations. WorldxChange has secured the ability to offer intra-state service
in forty-one states. Many states require tariff filing as well.
WorldxChange has been successful in obtaining all necessary regulatory
approvals to date, although revision of tariffs, authorities and approvals are
being made on a continuing basis and many such requests are pending at any one
time.
Some states may assess penalties on long distance service providers for
traffic sold prior to tariff approval. Such states may require refunds to be
made to customers. It is the opinion of management that such penalties and
refunds, if any, would not have a material adverse effect on the consolidated
results of operations, financial position or liquidity of WorldxChange.
In May 1997, the California Public Utilities Commission issued an order,
which became effective in October 1997, revoking WorldxChange's Certificate of
Public Convenience and Necessity in California and
F-21
<PAGE> 156
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
imposing certain other fines and penalties against WorldxChange based on the
California Public Utilities Commission's findings that WorldxChange violated
California laws and regulations requiring WorldxChange to obtain prior consumer
authorization before switching consumers' long distance carriers. As a result of
the revocation for WorldxChange's Certificate of Public Convenience and
Necessity, WorldxChange cannot provide intrastate telecommunication services in
California. In addition, WorldxChange must, among other things, (i) pay a $19.6
million fine to the state of California, $2 million of which has been paid with
the balance suspended so long as WorldxChange is not found to have committed any
future violations of California law or California Public Utilities Commission
directives; (ii) reimburse the California Public Utilities Commission for
$100,000 in prosecution costs which has also been paid; and (iii) pay
approximately $1.9 million in reparations to consumers, of which $1,211,000
remains payable at September 30, 1999 and $0 remains payable at June 30, 2000.
Under the California Public Utilities Commission's order, the suspension of
WorldxChange's Certificate of Public Convenience and Necessity and the other
sanctions and fines imposed on WorldxChange are binding on any successor of
WorldxChange. WorldxChange may apply to the California Public Utilities
Commission for reinstatement of the Certificate of Public Convenience and
Necessity after October 22, 2000, although there can be no assurance that such
reinstatement would be granted.
In addition, WorldxChange is subject to certain legal, regulatory and
administrative proceedings, claims and inquiries arising in the ordinary course
of business, some of which involve claims for substantial amounts of damages.
The ultimate outcome of such proceedings, claims or inquiries cannot be
predicted at this time. It is management's opinion, after consultation with its
legal counsel, that any such liability or possible restrictions placed on
WorldxChange's operations resulting from the ultimate resolution of such
proceedings, claims, and inquiries, beyond that provided, would not have a
material effect on WorldxChange's consolidated financial position or
WorldxChange's future consolidated results of operations or cash flows.
12. SEGMENT INFORMATION
In 1999, WorldxChange adopted SFAS 131. The prior year's segment
information has been restated to present three reportable operating segments.
WorldxChange's segments are organized on the basis of geographic location and
include North America, Pacific Rim and Europe. None of WorldxChange's operating
segments have been aggregated.
WorldxChange evaluates performance and allocates resources based on profit
or loss from operations before interest expense, other income (loss) and
minority interest. The accounting policies of the reportable segments are the
same as those described in the basis of presentation and summary of significant
accounting policies. Intersegment sales and transfers between geographic regions
are accounted for at prices that approximate arm's length transactions. No
single customer accounted for 10% or more of revenues in fiscal 1999, 1998 or
1997.
WorldxChange's regional segments earn revenue from direct-dial long
distance services as well as operator, debit/calling card, toll free, private
line and other enhanced services to residential customers, other
telecommunications carriers, and small to medium-sized businesses. Each of
WorldxChange's reportable regions represents a strategic business segment that
functions in an environment with common economic characteristics determined
based on historical and expected future performance.
F-22
<PAGE> 157
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
The Company markets its products domestically and internationally, with its
principal international markets being Australia and Europe. The tables below
contain information about the geographical areas in which the Company operates
and represent information utilized by management to evaluate its operating
segments. Revenues are attributed to countries based on location in which the
sale originated. Long-lived assets are based on the country of domicile.
<TABLE>
<CAPTION>
NORTH PACIFIC
AMERICA RIM EUROPE TOTALS
-------- ------- -------- ----------
<S> <C> <C> <C> <C>
June 30, 2000, and for the nine months then ended
(in thousands)
Sales to unaffiliated customers.................... $246,063 $38,178 $139,672 $ 423,913
Intersegment revenues.............................. 28,091 4,015 10,957 43,063
-------- ------- -------- ----------
Segment revenues................................... 274,154 42,193 150,629 466,976
Depreciation and amortization...................... 15,176 2,088 17,867 35,131
Segment operating loss............................. (32,894) (8,707) (31,445) (73,046)
Segment assets..................................... 639,668 29,952 379,632 1,049,252
Expenditures for long-lived assets................. 2,889 527 1,747 5,163
Reconciliations:
NET LOSS
Total operating loss for reportable segments....... $ (73,046)
Interest expense................................... (22,694)
Other expense, net................................. (822)
Minority interest.................................. --
----------
Total consolidated net loss................ $ (96,562)
==========
ASSETS
Total assets for reportable segments............... $1,049,252
Elimination of intercompany receivables............ (618,840)
----------
Total consolidated assets.................. $ 430,412
==========
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 and for the nine months then ended
(in thousands)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................... $238,013 $42,975 $ 23,336 $ 304,324
Intersegment revenues.............................. 35,551 9,953 4,987 50,491
-------- ------- -------- ----------
Segment revenues................................... 273,564 52,928 28,323 354,815
Depreciation and amortization...................... 9,823 1,298 1,273 12,394
Segment operating loss............................. (22,405) (3,785) (8,910) (35,100)
Segment assets..................................... 364,006 24,183 55,657 443,846
Expenditures for long-lived assets................. 15,765 1,742 7,618 25,125
Reconciliations:
NET LOSS
Total operating loss for reportable segments......... $ (35,100)
Interest expense................................... (12,448)
Other expense, net................................. (222)
Minority interest.................................. 1,782
----------
Total consolidated net loss................ $ (45,988)
==========
</TABLE>
F-23
<PAGE> 158
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<S> <C> <C> <C> <C>
ASSETS
Total assets for reportable segments............... $ 443,846
Elimination of intercompany receivables............ (244,177)
----------
Total consolidated assets.................. $ 199,669
==========
September 30, 1999, and for the year then ended
(in thousands)
Sales to unaffiliated customers.................... $337,457 $55,619 $ 28,504 $ 421,580
Intersegment revenues.............................. 48,345 11,025 6,169 65,539
-------- ------- -------- ----------
Segment revenues................................... 385,802 66,644 34,673 487,119
Depreciation and amortization...................... 13,871 1,948 1,887 17,705
Segment operating loss............................. (24,619) (5,166) (18,786) (48,571)
Segment assets..................................... 444,250 18,273 111,987 574,510
Expenditures for long-lived assets................. 15,731 1,842 10,060 27,633
Reconciliations:
NET LOSS
Total operating loss for reportable segments....... $ (48,571)
Interest expense................................... (16,883)
Other expense, net................................. (648)
Minority interest.................................. 2,251
----------
Total consolidated net loss................ $ (63,851)
==========
ASSETS
Total assets for reportable segments............... $ 574,510
Elimination of intercompany receivables............ (339,508)
----------
Total consolidated assets.................. $ 235,002
==========
September 30, 1998, and for the year then ended
(in thousands)
Sales to unaffiliated customers.................... $321,763 $58,382 $ 18,722 $ 398,867
Intersegment revenues.............................. 44,650 22,605 7,576 74,831
-------- ------- -------- ----------
Segment revenues................................... 366,413 80,987 26,298 473,698
Depreciation and amortization...................... 9,988 1,484 860 12,332
Segment operating loss............................. (5,547) (3,041) (7,086) (15,674)
Segment assets..................................... 176,678 19,883 28,705 225,266
Expenditures for long-lived assets................. 11,790 200 -- 11,990
Reconciliations:
NET LOSS
Total operating loss for reportable segments......... $ (15,674)
Interest expense................................... 11,947
Other expense, net................................. 1,378
Minority interest.................................. 1,546
----------
Total consolidated net loss................ $ (27,453)
==========
ASSETS
Total assets for reportable segments............... $ 225,266
Elimination of intercompany receivables............ (105,137)
----------
Total consolidated assets.................. $ 120,129
==========
</TABLE>
F-24
<PAGE> 159
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1997, and for the year then ended
(in thousands)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................... $291,633 $24,437 $ 15,590 $ 331,660
Intersegment revenues.............................. 39,326 19,333 2,712 61,371
-------- ------- -------- ----------
Segment revenues................................... 330,959 43,770 18,302 393,031
Depreciation and amortization...................... 7,474 548 655 8,677
Segment operating profit (loss).................... (23,439) 2,433 (4,497) (25,503)
Other significant noncash item:
Write down of impaired long-lived assets........ 659 -- -- 659
Segment assets..................................... 136,355 17,796 17,583 171,734
Expenditures for long-lived assets................. 8,691 2,180 -- 10,871
Reconciliations:
NET LOSS
Total operating loss for reportable segments....... $ (25,503)
Interest expense................................... (8,682)
Other expense, net................................. (3,366)
Minority interest.................................. 473
----------
Total consolidated net loss................ $ (37,078)
==========
ASSETS
Total assets for reportable segments............... $ 171,734
Elimination of intercompany receivables............ (67,989)
----------
Total consolidated assets.................. $ 103,745
==========
</TABLE>
The following table summarizes revenue by region and by type of customer
for the years ended September 30, 1997, 1998 and 1999 and nine months ended June
30, 1999 and 2000:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JUNE 30, YEARS ENDED SEPTEMBER 30,
--------------- ---------------------------
2000 1999 1999 1998 1997
------ ------ ------- ------- -------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE BY REGIONS:
United States................................. $240.0 $233.5 $330.0 $318.1 $287.4
North America (other)......................... 6.0 4.5 7.5 3.7 4.3
------ ------ ------ ------ ------
North America total........................... 246.0 238.0 337.5 321.8 291.7
Pacific Rim................................... 38.2 43.0 55.6 58.4 24.4
Europe........................................ 139.7 23.3 28.5 18.7 15.6
------ ------ ------ ------ ------
Total............................... $423.9 $304.3 $421.6 $398.9 $331.7
====== ====== ====== ====== ======
REVENUE BY CUSTOMERS:
Carrier....................................... $172.9 $138.1 $186.9 $166.1 $163.3
Residential................................... 175.5 125.5 185.3 161.1 116.9
Operator Services............................. 7.6 17.7 22.9 41.1 28.7
Commercial.................................... 67.9 23.0 26.5 30.6 22.8
------ ------ ------ ------ ------
Total............................... $423.9 $304.3 $421.6 $398.9 $331.7
====== ====== ====== ====== ======
</TABLE>
F-25
<PAGE> 160
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
13. SUBSEQUENT EVENTS
On November 4, 1999, WorldxChange acquired the outstanding shares of
certain European subsidiaries of ACC Corp, a subsidiary of AT&T. The operations
of these subsidiaries are located in the United Kingdom, Germany, France and
Italy. As part of this transaction, WorldxChange also acquired from ACC Corp a
switch located in the United States and certain indefeasible rights of use of a
transatlantic telecommunications cable system. The $113 million purchase price
for this transaction was comprised of $60 million cash and a $53 million, 12%
per annum interest rate note due on or before December 28, 2000. The acquisition
has been accounted for as a purchase, and accordingly, the excess purchase price
over the fair value of the net assets acquired of approximately $85.0 million
has been preliminarily allocated to goodwill and customer base based on
management's estimates. Goodwill will be amortized on a straight-line basis over
twenty years and the customer base will be amortized over five years.
WorldxChange financed $50 million of the cash payment through the issuance
in November 1999 of 50,000 shares of Series B Convertible Preferred Stock to two
existing shareholders for $50 million. The Series B Convertible Preferred Stock
has a liquidation preference of $1,000 per share.
Unless previously converted prior to 180 days after the issuance date, on
the 180th day each share of Series B Stock shall be convertible automatically,
without any additional consideration by the holder thereof, into 111.111 fully
paid and non-assessable common shares.
Assuming that the acquisition of ACC Corp. had occurred on the first day of
WorldxChange's fiscal year ended September 30, 1998, pro forma condensed
consolidated results of operations would have been as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
--------------------
1999 1998
--------- --------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 581,826 $517,670
Net loss.................................................... (128,654) (47,765)
</TABLE>
In January 2000, WorldxChange secured a loan, which allows for borrowing of
up to $15 million from a shareholder. The loans bear interest at 15% and becomes
payable on December 31, 2000.
In February 2000, WorldxChange signed an Agreement and Plan of merger with
World Access, Inc. Concurrent with the signing of the Agreement and Plan of
merger, World Access, Inc. agreed to participate in WorldxChange's existing loan
and security agreement with a financial institution whereby the existing line
increased by $30 million. The $30 million consists of a term loan, which bears
interest at 11% and is payable in total on February 11, 2001. In May 2000, the
loan and security agreement was amended to increase the term loan to $45
million.
In January 2000, WorldxChange negotiated payment terms with a network
provider to finance outstanding invoices payable to the carrier. Under the terms
of the agreement, the Company agreed to pay to the carrier a total of $24.1
million for services through August 31, 1999. Payments in the aggregate of $4.3
million are due and payable in monthly installments through September 30, 2000
and the remainder is payable in monthly installments of $1.25 million beginning
October 2000. The financing bears interest at 13%.
F-26
<PAGE> 161
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000
AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
14. RECENT EVENT (UNAUDITED)
Effective August 1, 2000, WorldxChange has entered into an Executive
Management Services Agreement with World Access under which World Access will
manage the operations and business affairs of WorldxChange as if World Access
and WorldxChange had already completed the merger. The agreement will terminate
on the first to occur of the following:
- the parties terminate the WorldxChange merger agreement,
- the completion of the WorldxChange merger,
- World Access gives WorldxChange 15 days notice or WorldxChange materially
breaches the services agreement or
- World Access materially breaches the services agreement.
F-27
<PAGE> 162
Herrn
Dr. Henning F. Klose
Vorsitzender des Vorstands
TelDaFax AG
Postfach 22 06
35010 Marburg
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of TelDaFax AG
as of December 31, 1999, 1998 and 1997, and the related consolidated statements
of operations, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of TelDaFax AG as of December
1999, 1998 and 1997, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 11, the Company's 1999 financial statements have been
restated to account for the acquisition of Demuth & Dietl only from the
acquisition date, October 4, 1999.
Wiesbaden, August 2, 2000
BDO Deutsche Warentreuhand
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
<TABLE>
<S> <C> <C>
/s/ BUNGERS /s/ KARLIK
------------------------------ ------------------------------
H.G. Bungers Karlik
</TABLE>
F-28
<PAGE> 163
TELDAFAX GROUP
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN DM '000)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents...................................... 53,882 178,287 159,011
Accounts receivable, less allowance for doubtful accounts
of DM 556 as of June 30, 2000 (unaudited) and DM 1,128
and DM 3,115 as of December 31, 1999 and 1998,
respectively........................................... 86,569 80,260 63,853
Inventories............................................... 4,908 4,129 68
Prepaid expenses and other current assets................. 57,579 29,422 7,843
Total current assets.............................. 202,938 292,098 230,775
Equipment and leasehold improvements, net................... 133,199 137,929 67,355
Intangible assets........................................... 32,261 16,451 13,624
Loan to related parties..................................... 1,385 1,411 --
Financial assets............................................ 4,461 -- --
Deferred tax assets, net.................................... 17,394 3,255 --
Other assets................................................ 3,340 4,027 815
------- ------- -------
Total assets...................................... 394,978 455,171 312,569
======= ======= =======
Current liabilities:
Accounts payable.......................................... 150,353 196,041 90,699
Accrued expenses.......................................... 10,784 6,575 12,094
Other current liabilities................................. 8,856 4,778 --
Current portion of long-term debt......................... 1,424 1,553 --
Current portion of capital lease obligations.............. 13,390 13,761 4,818
------- ------- -------
Total current liabilities......................... 184,807 222,708 107,611
Long-term debt.............................................. 1,549 1,572 --
Capital lease obligations................................... 37,873 44,251 10,076
Deferred tax liabilities.................................... -- -- 2,794
Other long-term liabilities................................. 707 721 753
------- ------- -------
Total long-term liabilities....................... 40,129 46,544 13,623
Minority interests.......................................... 1,811 (160) --
Shareholders' equity:
Common stock, Eur 2,60 as of June 30, 2000 (unaudited) and
December 31, 1999 and DM 5 par value as of December 31,
1998, 33,828,600 authorized, issued and outstanding as
of June 30, 2000 (unaudited) and December 31, 1999 and
1998, respectively..................................... 172,024 172,024 169,143
Additional paid in capital................................ 15,787 15,787 15,787
Retained earnings......................................... (19,580) (1,732) 6,405
------- ------- -------
Total shareholders' equity........................ 168,231 186,079 191,335
------- ------- -------
Total liabilities and shareholders' equity........ 394,978 455,171 312,569
======= ======= =======
</TABLE>
F-29
<PAGE> 164
TELDAFAX GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN DM '000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------------------- -----------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................. 307,704 305,896 611,018 263,050 32,271
Cost of services...................... (279,607) (248,879) (548,110) (202,359) (31,085)
Gross profit.......................... 28,097 57,017 62,908 60,691 1,186
Sales expenses........................ (41,783) (26,257) (50,716) (31,417) (3,434)
General administration expenses....... (17,305) (2,808) (17,723) (8,570) (2,797)
Other operating income................ 2,260 829 791 327 76
Other operating expenses.............. (4,751) (5,307) (9,625) (2,969) (1,448)
Operating income (loss)............... (33,482) 23,474 (14,365) 18,062 (6,417)
Financial result...................... 197 1,494 764 425 (1,104)
Taxes................................. 13,691 (12,052) 7,009 (9,713) 1,667
Minority interests.................... 1,746 140 1,336 -- --
Net income (loss)..................... (17,848) 13,056 (5,256) 8,774 (5,854)
Income (loss) per Common Share from
Continuing Operations:
Basic and Diluted................... (0.53) 0.39 (0.16) 0.45 (5.16)
Weighted Average Shares Outstanding:
Basic and Diluted................... 33,828,600 33,828,600 33,828,600 19,296,826 1,133,525
</TABLE>
F-30
<PAGE> 165
TELDAFAX GROUP
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND
COMPREHENSIVE OF CHANGES IN COMBINED EQUITY SHAREHOLDER'S FUNDS
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID SHARE RETAINED
SHARES AMOUNT IN CAPITAL CAPITAL EARNINGS TOTAL
------------ ------- ------------- ------- -------- -------
PIECES DM'000 DM'000 DM'000 DM'000
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996...... -- -- -- 4,000 (7,732) (3,732)
Issuance of common stock.......... 20,000 100 100
Issuance of common stock.......... 1,648,000 8,240 8,240
Issuance of common stock.......... 714,860 3,574 14,450 18,024
Retirement of share capital....... (4,000) (4,000)
Loss of predecessor company....... (3,663) 3,663 --
Contribution in kind.............. 7,554 7,554
Loss for the period............... (5,854) (5,854)
---------- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1997...... 2,382,860 11,914 10,787 -- (2,369) 20,332
Issuance of common stock.......... 1,000,000 5,000 5,000 10,000
Issuance of IPO -- public......... 9,725,722 48,629 48,629
Issuance of IPO -- old
shareholders.................... 20,720,018 103,600 103,600
Cash dividends.................... --
Transfer to legal reserve......... 334 (334) --
Profit for the period............. 8,774 8,774
---------- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1998...... 33,828,600 169,143 16,121 -- 6,071 191,335
Issue of share capital (Euro), Dec
17, 1999........................ -- 2,881 (2,881) --
Loss for the period............... (5,256) (5,256)
---------- ------- ------ ------ ------- -------
BALANCE AT DECEMBER 31, 1999...... 33,828,600 172,024 16,121 -- (2,066) 186,079
Loss for the period (unaudited)... (17,848) (17,848)
---------- ------- ------ ------ ------- -------
BALANCE AT JUNE 30, 2000.......... 33,828,600 172,024 16,121 -- (19,914) 168,231
========== ======= ====== ====== ======= =======
</TABLE>
F-31
<PAGE> 166
CONSOLIDATED STATEMENTS OF CASH FLOWS
TELDAFAX GROUP
(ALL AMOUNTS IN DM '000)
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30 DECEMBER 31
----------------------- -----------------------------
2000 1999 1999 1998 1997
---------- ---------- -------- -------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss)...................................... (19,594) 12,916 (5,256) 8,774 (5,854)
Minority interests..................................... 1,746 140 (1,336) -- --
Amortization and depreciation.......................... 22,269 13,290 33,630 18,086 5,040
Depreciation of current assets......................... 2,860 -- -- -- --
Loss on the sale of property, plant and equipment...... 6 -- 3,800 6 --
Decrease (increase) in deferred tax assets............. (14,139) -- (3,255) -- --
Increase (decrease) in deferred tax liabilities........ -- -- (2,794) -- --
-------- -------- -------- -------- -------
(6,852) 26,346 24,789 26,866 (814)
-------- -------- -------- -------- -------
Decrease (increase) in accounts receivable trade, net
of bad debts......................................... (6,309) (14,013) (16,407) (59,817) (2,759)
Increase (decrease) in inventories..................... (779) -- (4,061) -- --
Decrease (increase) in prepaid expenses and other
current assets....................................... (28,157) (25,413) (21,579) (8,376) --
Decrease (increase) in other assets.................... 687 815 (3,112) 130 --
Increase (decrease) in accounts payable................ (45,688) 11,106 105,342 48,856 7,205
Increase (decrease) in other accrued liabilities....... 8,287 (729) 5,469 34,164 3,091
Increase (decrease) in tax provisions.................. -- 11,905 (6,210) 6,179 31
Increase (decrease) in provision for deferred taxes.... -- (89) -- (60) 2,854
Decrease (increase) in deferred taxes from loss
carryforwards........................................ -- -- -- 4,525 (4,525)
Increase (decrease) in other long-term liabilities..... (500) (18) 927 2,121 (1,674)
Adjustment for effects of acquisition of
subsidiaries......................................... (889) 821 4,472 -- --
-------- -------- -------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES................... (80,200) 10,731 89,630 54,588 3,409
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... (10,450) (29,029) (110,397) (65,796) (30,718)
Acquisitions........................................... (27,340) (30) (4,757) (350) --
-------- -------- -------- -------- -------
(37,790) (29,059) (115,154) (66,146) (30,718)
-------- -------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from capital increases........................ -- -- -- 157,229 2,199
Loans to related parties............................... -- -- (1,411) -- --
Proceeds in respect of share premium amounts........... -- -- -- 5,000 7,512
Proceeds from outstanding amounts due in respect of
capital subscribed................................... -- -- -- 9,615 --
Proceeds from outstanding amounts due in respect of
share premium amounts................................ -- -- -- 3,275 --
Payments on debt....................................... (23) (22) -- (6) (86)
Proceeds from issuance of debt......................... -- 22 3,125 (9,519) 9,519
Payments on capital lease obligations.................. (6,378) -- -- (12,066) --
Proceeds from long-term accounts payable............... -- 4,505 43,118 10,076 --
Payments on other long-term liabilities................ (14) (18) (32) (64) --
Other proceeds from paid-in capital.................... -- -- -- -- 3,663
Proceeds from issuance of other long-term debt......... -- -- -- -- 10,546
-------- -------- -------- -------- -------
(6,415) 4,487 44,800 163,540 33,353
-------- -------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (124,405) (13,841) 19,276 151,982 6,044
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 178,287 159,011 159,011 7,029 985
CASH AND CASH EQUIVALENTS AT END OF PERIOD............. 53,882 145,170 178,287 159,011 7,029
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: 12,815 7,729 26,812 5,468 1,106
Interest............................................. 1,617 700 3,415 5,425 1,106
Income taxes......................................... 11,198 7,029 23,397 43 --
NON-CASH INVESTING AND FINANCING ACTIVITIES............ 475 9,283 57,695 10,821 9,519
Assets acquired by incurring capital lease obligations
or................................................... 525 9,283 56,086 20,340 --
long term debt......................................... (50) -- 1,609 (9,519) 9,519
</TABLE>
F-32
<PAGE> 167
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DM IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
TelDaFax Telefon-, Daten- und Fax Transfer GmbH & Co. KG was founded in
March 1995. On July 1, 1997, TelDaFax Telefon-, Daten und Fax Transfer GmbH &
Co. KG transferred all of its business assets to TelDaFax GmbH. TelDaFax AG was
then established through a change in the legal form of TelDaFax GmbH. The
transfer of the business assets was a contribution-in-kind to TelDaFax GmbH in
exchange for new shares. The assets were contributed at their fair market value.
The step-up amounts were treated as contributed capital. Following a resolution,
of the General Meeting of Shareholders on May 27, 1998, the legal form was
changed again to that of a stock corporation in accordance with Sections 190ff
and 238ff of the law governing changes in legal form. The incorporation into
TelDaFax AG was entered in the Commercial Register on June 10, 1998.
TelDaFax AG ("TelDaFax"), a German company, provides voice telephony, fax
and data transmission services along with mobile hardware and mobile phone cards
throughout Germany. TelDaFax provides fixed-to-mobile, -international and
-domestic connections to commercial and residential customers through a
communication network of dedicated lines leased from Deutsche Telekom AG. Prior
to January 1, 1998, these services were provided solely to commercial customers.
The receipt of a Category 4 License from the Federal Ministry for Post and
Telecommunications for fixed-line telecommunication services on September 30,
1997 and the full liberalization of the German telecommunications market on
January 1, 1998 allowed TelDaFax to expand these services to residential
customers under the carrier number "01030". TelDaFax also provides internet
access through its majority-owned subsidiary GeoNet Systems GmbH and mobile
phone hardware and calling cards through its majority-owned subsidiaries Demuth
& Dietl + Co. Kommunikationselektronic GmbH and Netztel Plus Drillish AG.
TelDaFax also wholly owns BNC Kommunikationssysteme GmbH & Co. KG, an operating
division responsible for monitoring TelDaFax router system, and TelDaFax
Vertriebs GmbH, an operating division consisting of TelDaFax's sales
organization.
The accompanying financial statements have been prepared in accordance with
United States generally accepted accounting principles, referred to as US GAAP.
TelDaFax maintains its financial records in accordance with German statutory
regulations which represents generally accepted accounting principles in
Germany. Generally, accepted accounting principles in Germany vary in certain
respects from US GAAP. Accordingly, TelDaFax has recorded certain adjustments in
order that these financial statements be in accordance with US GAAP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Information (Unaudited)
The unaudited consolidated balance sheet as of June 30, 2000 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the six month periods ended June 30, 2000 and 1999, have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. All adjustments, in the opinion of management, that are necessary
for the fair statement of the financial position and the operating results and
cash flows for the interim periods have been presented. Results of operations
for the six month periods ended June 30, 2000 and 1999 are not necessarily
indicative of the results that may be achieved for the entire years or future
periods.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TelDaFax and its wholly-and majority-owned financial subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
F-33
<PAGE> 168
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and Cash Equivalents
TelDaFax considers all highly liquid investments purchased with an initial
maturity of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. Concentration of credit risk with respect to trade
receivables is limited as the outstanding total represents a large number of
customers with individually small balances. The Company does not require
collateral or other security interests against trade receivable balances;
however, it does maintain reserves for potential credit losses and such losses
have been within management's expectations. Substantially all of the Company's
cash and cash equivalents are deposited in financial institutions in Germany.
Inventories
Inventories are stated at the lower of cost or market and are valued using
the weighted-average method.
Property, Plant and Equipment
Property, plant and equipment, including equipment under capital leases, is
valued at acquisition or production cost and depreciated or amortized over their
estimated useful lives, or over the lives of the underlying leases, if less,
using the straight-line method as follows:
<TABLE>
<CAPTION>
YEARS
------
<S> <C>
Technical equipment, plant and machinery.................... 4 - 7
Operational, office and other equipment..................... 4 - 20
</TABLE>
Intangible Assets
Intangible assets mainly relate to goodwill, acquired software, acquired
technical know-how and the license for fixed-line telecommunication services.
Goodwill is amortized on a straight-line basis over 15 years. Goodwill as
of June 30, 2000 and December 31, 1999, 1998 and 1997, net of accumulated
amortization, was DM 25,363, DM 8,049, DM 3,852 and DM 2,694, respectively.
Software is capitalized when it is purchased from a third party, either in
the ordinary course of business or, in the case of the acquisition of
subsidiaries, as allocated goodwill. It is amortized over 4 years.
Technical know-how is capitalized as allocated goodwill in the case of the
acquisition of subsidiaries. It is amortized over 4 years.
Technical know-how as of June 30, 2000 and December 31, 1999, 1998 and
1997, net of accumulated amortization, was DM 841, DM 1,245, DM 2,054 and DM
2,614, respectively.
TelDaFax evaluates the recoverability of long-lived assets by measuring the
carrying amount of the assets against the estimated undiscounted future cash
flows associated with them. At the time such evaluations indicate that the
future undiscounted cash flows of long-lived assets are not sufficient to
recover the carrying value of such assets, the assets are adjusted to their fair
values. Based on these evaluations, there were no material adjustments to the
carrying value of long-lived assets during the six month period ended June 30,
2000 and 1999 and the years ended December 31, 1999, 1998 and 1997.
F-34
<PAGE> 169
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue Recognition
Telecommunication revenue is recognized as services are provided. Mobile
hardware revenue is reported when the customer takes possession of the product
and prepaid mobile calling card revenue is recorded when the minutes are used.
Advertising
TelDaFax expenses advertising costs as incurred. Total advertising costs
were DM 8,320 DM 5,041, DM 24,696, DM 12,321 and DM 3,434 for the six month
periods ended June 30, 2000 and 1999 and the years ended December 31, 1999, 1998
and 1997, respectively.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. In June 1999, SFAS No.
133 was amended by SFAS 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 derivatives' fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement and requires
that a company formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. The Company does not expect the
adoption of this standard to have a material effect on its consolidated
financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassification
Certain amounts in prior years financial statements have been reclassified
to conform with the presentation in 1999.
3. INVENTORIES
Inventories consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- ------------
2000 1999 1998
----------- ----- ----
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................... -- -- 68
Work-in-progress............................................ -- 1,027 --
Finished goods.............................................. 4,908 3,102 --
----- ----- --
4,908 4,129 68
===== ===== ==
</TABLE>
F-35
<PAGE> 170
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- --------------
2000 1999 1998
----------- ------ -----
(UNAUDITED)
<S> <C> <C> <C>
Contractual claim of purchase reduction for traffic
services.................................................. 2,313 -- --
Prepaid income taxes........................................ 28,104 16,858 --
Short-term portion of prepaid commissions................... 8,344 5,090 --
Other....................................................... 18,818 7,474 7,843
------ ------ -----
Total............................................. 57,579 29,422 7,843
====== ====== =====
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Technical equipment, plant and machinery.................. 168,573 160,723 75,755
Other equipment, operational and office equipment......... 20,042 18,769 8,657
Construction in progress.................................. 2,662 578 570
------- ------- -------
Total cost...................................... 191,277 180,070 84,982
Accumulated depreciation and amortization................. (58,078) (42,141) (17,627)
------- ------- -------
Net book value.................................. 133,199 137,929 67,355
======= ======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
----------- -------------
2000 1999 1998
----------- ----- -----
(UNAUDITED)
<S> <C> <C> <C>
Loan due November 2002 with a yearly principal reduction of
DM 34.787 and an interest rate of 5.5 %................... 49 72 --
Term loan due September, 2003 with interest payable at per
annum rate equal to 6.75 %................................ 1,500 1,500 --
----- ----- -----
Total............................................. 1,549 1,572 --
===== ===== =====
</TABLE>
Aggregate maturities of long-term debt as of December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST TOTAL
--------- -------- --------
<S> <C> <C> <C>
2001........................................................ 35 101 136
2002........................................................ 37 100 137
2003........................................................ 1,500 74 1,574
2004........................................................ -- -- --
Thereafter.................................................. -- -- --
----- --- -----
Total............................................. 1,572 275 1,847
===== === =====
</TABLE>
F-36
<PAGE> 171
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The loans are secured by transfers of ownership by way of security, blank
assignments as well as land charges of Demuth & Dietl.
7. CAPITAL LEASE OBLIGATIONS
The future minimum lease payments as of December 31, 1999 under capital
leases consist of the following:
<TABLE>
<CAPTION>
CAPITAL LEASES
--------------
<S> <C>
2000........................................................ 16,609
2001........................................................ 15,213
2002........................................................ 14,803
2003........................................................ 13,641
2004........................................................ 4,226
Thereafter.................................................. --
-------
Total minimum lease payments................................ 64,492
Less amount representing interests.......................... 6,480
-------
Present value of minimum lease payments..................... 58,012
Less current portion........................................ (13,761)
-------
Amounts due after one year........................ 44,251
=======
</TABLE>
8. INCOME TAXES
Income taxes are provided for in accordance with the provisions of FASB
Statement No. 109, Accounting for Income Taxes. Under this method, TelDaFax
recognizes deferred tax assets and liabilities for the expected future tax
effects of temporary differences between the carrying amounts and the tax basis
of assets and liabilities, as well as operating loss carryforwards.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Current income taxes:
Payment for 1998 in 1999.................................. -- 989
Corporate tax claim from loss carryback 1999 to 1998...... -- (950)
Prepaid trade taxes....................................... (25) --
Prepaid corporate taxes................................... (475) --
Provision from trade taxes................................ (732) --
Provision from corporate taxes............................ (5,500) --
------ -----
(6,732) 39
Deferred taxes:
Provision from trade taxes................................ (1,042) 2,278
Provision from corporate taxes............................ (1,934) 4,231
------ -----
(2,976) 6,509
------ -----
Total provision for income taxes.................. (9,708) 6,548
====== =====
</TABLE>
F-37
<PAGE> 172
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------
1998 1999
------ -----
<S> <C> <C>
Deferred tax liabilities:
On Amortization of intangible assets........................ 2,794 1,589
Elimination of intermediate earnings
from tangible assets...................................... -- (535)
Differences in value assessment............................. -- 211
------ -----
Total deferred tax liabilities.................... 2,794 1,265
Deferred tax assets:
Tax loss carry forward...................................... -- 4,520
------ -----
Total deferred tax assets......................... -- 4,520
------ -----
Net deferred tax assets........................... (2,794) 3,255
====== =====
</TABLE>
The provision for income taxes differs from the amount of income tax
provision computed by applying the Germany federal income tax rate to income
before income taxes and minority interest. A reconciliation of the differences
is as follows:
<TABLE>
<S> <C> <C>
Loss before income taxes and minority interest:............. DM (13,486)
Income tax rate............................................. 46%
Expected income tax:........................................ DM (6,204)
Prior year payment.......................................... DM (989)
Differences in value assessment............................. DM (211)
Elimination of intermediate earnings........................ DM 535
Higher tax rate on loss carryback........................... DM 321
-------------
Total provision for income taxes.................. DM (6,548)
=============
</TABLE>
9. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------- -------
DM '000 DM '000 DM '000
<S> <C> <C> <C>
Profit (loss) for the period................................ (5,854) 8,774 (5,256)
Loss of predecessor company................................. 3,663 -- --
Increase contributed capital................................ 10,787 5,000 --
Capital increase............................................ 15,468 -- --
Issue of share capital...................................... -- 157,229 --
------ ------- -------
Net changes in combined equity shareholder's funds.......... 24,064 171,003 (5,256)
Opening combined equity shareholder's funds................. (3,732) 20,332 191,335
------ ------- -------
Closing combined equity shareholder's funds....... 20,332 191,335 186,079
====== ======= =======
</TABLE>
The share capital is divided into 33,828,600 non par value bearer shares with a
theoretical nominal value of EUR 2,60.
The executive board is authorized, with the approval of the supervisory
board, to increase the share capital of TelDaFax in the period up to June 9,
2004 at one time or on several occasions by up to a total amount of EUR
42,900,000.00 through the issue of new no par value bearer shares with a
theoretical nominal value of EUR 2,60 each against payment in cash or
contribution in kind (authorized capital). Shareholder's are to be granted
subscription rights with respect thereto. However, subject to the approval of
the supervisory board may decide on the exclusion of subscription rights for
existing shareholders.
F-38
<PAGE> 173
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The executive board is authorized, with the approval of the supervisory
board, at one time or on several occasions in the period up to June 9, 2004, to
grant bearer options and/or convertible bonds with up to a total nominal amount
of EUR 858,000,000.00 and a term of no longer than 20 years and to grant option
rights to the bearers of convertible debenture stock or to grant the bearers of
convertible bonds right of conversion for new shares of TelDaFax with stake in
share capital of up to EUR 42,900,000.00 -- or up to 16,500,000 shares -- within
the limits of the conditions for options or bonds.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
Certain buildings and automobiles are under noncancellable operating lease
agreements expiring in various years. Minimum future lease obligations, by year
and in aggregate, as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
2000........................................................ 2,033
2001........................................................ 1,888
2002........................................................ 1,470
2003........................................................ 1,218
2004........................................................ 1,167
Thereafter.................................................. 17,505
------
Total minimum lease payments...................... 25,281
======
</TABLE>
Legal Proceedings
TelDaFax and certain of its suppliers have entered into legal proceedings
regarding the cost, functionality and period of services provided. TelDaFax has
accrued amounts which it believes reflect the amounts for which it will
ultimately settle these disputes. Although there can be no assurance as to the
ultimate disposition of these matters, it is the opinion of TelDaFax's
management, based on information available at this time, that the expected
outcome of these matters, individually, or in the aggregate, will not have an
adverse effect on the results of operations and financial condition of TelDaFax.
11. ACQUISITIONS
On July 1, 1997, TelDaFax acquired 100% of the stock of BNC
Kommunikationssysteme GmbH & Co. KG, a router management service provider, for
DM 3,037. TelDaFax recorded the acquisition in accordance with purchase
accounting resulting in goodwill of DM 1,374 and goodwill allocated to technical
know-how of DM 2,987.
On January 1, 1998, TelDaFax acquired 100% of the stock of TelDaFax
Vertriebs GmbH, a sales organization, for DM 250. TelDaFax recorded the
acquisition in accordance with purchase accounting resulting in goodwill of DM
115.
On December 8, 1998, TelDaFax acquired 75% of the stock of GeoNet Systems
GmbH, an internet access provider, for DM 400. TelDaFax recorded the acquisition
in accordance with purchase accounting as of January 1, 1999 (the acquisition
was classified as an investment as of December 31, 1998) resulting in goodwill
of DM 1,478.
On October 4, 1999, TelDaFax acquired 51% of the stock of Demuth & Dietl +
Co. Kommunikationselektronik GmbH, a provider of mobile hardware and calling
cards, for DM 5,200. TelDaFax recorded the acquisition in accordance with
purchase accounting resulting in goodwill of DM 3,414.
F-39
<PAGE> 174
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Previously, the financial statements reflected the acquisition of Demuth &
Dietl from January 1, 1999 in accordance with the terms to the agreement between
TelDaFax and the sellers but, under US GAAP, the Company subsequently determined
that it did not "control" Demuth & Dietl until the transaction closed in
October, 1999.
Unaudited pro forma information with respect to TelDaFax as if the 1998,
1999 and 2000 acquisitions had occurred on January 1, 1998, is as follows:
<TABLE>
<CAPTION>
NET INCOME
YEAR ENTITY NET REVENUE (LOSS)
---- ------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
1999 TelDaFax................................................. 630,232 (10,911)
Demuth & Dietl........................................... 58,787 (181)
Netztel.................................................. 17,781 (613)
Eliminations............................................. (19,214) 5,579
------- -------
Combined................................................. 687,586 (6,126)
======= =======
1998 TelDaFax................................................. 292,033 16,890
Demuth & Dietl........................................... 107,204 (50)
Netztel.................................................. -- (204)
Eliminations............................................. (28,983) (8,116)
------- -------
Combined................................................. 370,254 8,520
======= =======
</TABLE>
12. RELATED PARTY TRANSACTIONS
In conjunction with TelDaFax's acquisition of Demuth & Dietl + Co.
Kommunikationselektronic GmbH, a DM 1,411 loan was made to a division of the
acquired company excluded from the transaction with payments beginning in 2000.
13. BUSINESS SEGMENT INFORMATION
TelDaFax provides telecommunication products and services to its customers
in Germany in three distinct business segments organized around the different
services provided: Fixed Network, Mobile and Internet. The Fixed Network is made
up of one operating unit: TelDaFax. TelDaFax provides fixed-to-mobile,
-international and -domestic telephony, fax and data connections to commercial
and residential customers through its communication network leased from Deutsche
Telekom AG. Mobile services, which consist of hardware sales and calling cards
provided through a distribution network consisting of over 1,500 retailer
dealers in Germany, are provided by Demuth + Dietl + Co.
Kommunikationselektronic GmbH and Netztel Plus Drillish. Internet services,
which consists of internet access, is provided by GeoNet Systems GmbH.
F-40
<PAGE> 175
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tables below present information about the business segments in which
TelDaFax operates and represent information utilized by management to evaluate
its business segments.
TELDAFAX FINANCIAL DATA PER SEGMENT
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................. 305,065 831 -- 305,896
Intersegment revenues....................................... -- -- -- --
Segment revenues............................................ 305,065 831 -- 305,896
Depreciation and amortization............................... (13,229) (61) -- (13,290)
Segment operating profit (loss)............................. 23,463 (818) -- 22,645
Segment assets.............................................. 353,992 953 -- 354,945
Expenditures for long-lived assets.......................... 28,529 530 -- 29,059
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ 22,645
Other income.............................................. 829
Financial result.......................................... 1494
Other expense, net........................................ (12,052)
Minority interest......................................... 140
Total consolidated profit (loss).................. 13,056
ASSETS
Total assets for reportable segments...................... 354,945
Elimination of intercompany receivables................... (4,191)
Total consolidated assets......................... 350,754
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000
---------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................. 255,275 3,810 48,619 307,704
Intersegment revenues....................................... -- -- -- --
Segment revenues............................................ 255,275 3,810 48,619 307,704
Depreciation and amortization............................... (22,501) (460) (2,168) (25,129)
Segment operating profit (loss)............................. (24,551) (6,987) (4,204) (35,742)
Segment assets.............................................. 380,081 1,575 42,477 424,133
Expenditures for long-lived assets.......................... 36,670 144 976 37,790
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ (35,742)
Other income.............................................. 2,260
Financial result.......................................... 197
Other expense, net........................................ 13,691
Minority interest......................................... 1,746
Total consolidated profit (loss).................. (17,848)
ASSETS
Total assets for reportable segments...................... 424,133
Elimination of intercompany receivables................... (29,155)
Total consolidated assets......................... 394,978
</TABLE>
F-41
<PAGE> 176
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1999, AND FOR THE YEAR
THEN ENDED
-----------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers........................... 587,299 4,124 19,595 611,018
Intersegment revenues..................................... -- -- -- --
Segment revenues.......................................... 587,299 4,124 19,595 611,018
Depreciation and amortization............................. (33,391) (183) (56) (33,630)
Segment operating profit (loss)........................... (10,279) (4,843) (34) (15,156)
Segment assets............................................ 458,507 3,587 14,154 476,248
Expenditures for long-lived assets........................ 108,185 1,367 845 110,397
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ (15,156)
Other income.............................................. 791
Financial result.......................................... 764
Other expense, net........................................ 7,009
Minority interest......................................... 1,336
Total consolidated profit (loss).................. (5,256)
ASSETS
Total assets for reportable segments...................... 476,248
Elimination of intercompany receivables................... (21,077)
Total consolidated assets......................... 455,171
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998, AND FOR THE YEAR
THEN ENDED
-----------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- --------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers....................... 263,050 -- -- 263,050
Intersegment revenues................................. -- -- -- --
Segment revenues...................................... 263,050 -- -- 263,050
Depreciation and amortization......................... (18,086) -- -- (18,086)
Segment operating profit (loss)....................... 17,735 -- -- 17,735
Segment assets........................................ 314,392 -- -- 314,392
Expenditures for long-lived assets.................... 66,146 -- -- 66,146
Reconciliations:
NET RESULT
Total operating result for the reportable segments.... 17,735
Other income.......................................... 327
Financial result...................................... 425
Other expense, net.................................... (9,713)
Minority interest..................................... --
Total consolidated profit (loss).............. 8,774
ASSETS
Total assets for reportable segments.................. 314,392
Elimination of intercompany receivables............... (1,823)
Total consolidated assets..................... 312,569
</TABLE>
F-42
<PAGE> 177
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED
----------------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
-------- ----------- ----------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers..................... 32,271 -- -- 32,271
Intersegment revenues............................... -- -- -- --
Segment revenues.................................... 32,271 -- -- 32,271
Depreciation and amortization....................... (5,040) -- -- (5,040)
Segment operating profit (loss)..................... (6,493) -- -- (6,493)
Segment assets...................................... 61,885 -- -- 61,885
Expenditures for long-lived assets.................. 30,718 -- -- 30,718
Reconciliations:
NET RESULT
Total operating result for the reportable
segments......................................... (6,493)
Other income........................................ 76
Financial result.................................... (1,104)
Other expense, net.................................. 1,667
Minority interest................................... --
Total consolidated profit (loss)............ (5,854)
ASSETS
Total assets for reportable segments................ 61,885
Elimination of intercompany receivables............. --
Total consolidated assets................... 61,885
</TABLE>
Other Information
TelDaFax is dependent upon one significant supplier for the leasing of
transmission lines and billing operations for call-by-call customers. TelDaFax's
reliance on this external source can be shifted, over a period of time, to
alternative sources should the changes be necessary. However, there may be a
material adverse effect on the business, financial and operations of TelDaFax.
14. SUBSEQUENT EVENTS
Investment in Netztel Plus Drillish AG
On February 3, 2000, TelDaFax acquired an 81.9% of the stock of Netztel
Plus Drillish AG, a mobile phone calling card provider, for DM 15,000. TelDaFax
recorded the acquisition in accordance with purchase accounting resulting in
goodwill of DM 13,658.
Investment in Internet AG
On April 5, 2000, TelDaFax acquired a 32% interest in Internet AG, a
provider of e-commerce solutions with integrated payment systems, on-line shops
and electronic market places. TelDaFax's investment totaled Euro 2,275.
F-43
<PAGE> 178
ANNEX A
TELDAFAX PURCHASE AGREEMENT
A-1
<PAGE> 179
EXHIBIT 2.3
PURCHASE AND TRANSFER AGREEMENT
DATED 14 JUNE 2000
(THE "SIGNING DATE")
between
<TABLE>
<S> <C> <C>
1. Dr. Henning F. Klose hereinafter "KLOSE"
2. Apax Germany II L.P. hereinafter "APAX II"
3. Apax Funds Nominees Ltd. fr "B" Account hereinafter "APAX B FUND"
4. Apax Funds Nominees Ltd. fr "D" Account hereinafter "APAX D FUND" -- Apax B Fund
and Apax D Fund together "APAX FUNDS
NOMINEES LIMITED" --
5. AP Vermogensverwaltung Gesellschaft hereinafter "AP"
burgerlichen Rechts
6. A + M GmbH & Co Vermogensverwaltung KG hereinafter "A+M" -- together the "SELLERS"
--
and
7. World Access, Inc. -- hereinafter the "PURCHASER" --
8. TelDaFax Aktiengesellschaft Marburg/Lahn -- hereinafter the "TELDAFAX" --
</TABLE>
A-2
<PAGE> 180
SECTION 1
DEFINITIONS
<TABLE>
<S> <C>
A+M Call Option............................................. sec. 5.2
A+M Option Shares........................................... sec. 5.2
A+M Put Option.............................................. sec. 5.2
AP.......................................................... Caption
Apax Funds Nominees Limited Assets.......................... Caption
Apax B Fund................................................. Caption
Apax D Fund................................................. Caption
Apax II..................................................... Caption
A+M......................................................... Caption
Breach of Warranty.......................................... sec. 12.1
Call Option Closing......................................... sec. 17.2.3
Closing..................................................... sec. 9.1
Closing Conditions.......................................... sec. 8.1
Closing Date................................................ sec. 9.1
Consideration Stock......................................... sec. 6.1
Consolidated 1999 Financial Statements...................... sec. 11.3.2.1
Contribution Agreement...................................... sec. 4.1
Disclosed Information....................................... sec. 10.2
Exchange Ratio.............................................. sec. 16.4
Funds....................................................... sec. 11.1
Interim Financial Statements................................ sec. 11.3.2.4
Klose....................................................... Caption
Klose Call Option........................................... sec. 5.2
Klose Option Shares......................................... sec. 5.2
Klose Put Option............................................ sec. 5.2
Loss........................................................ sec. 12.1
Material Adverse Event...................................... sec. 13.4
Material Agreement.......................................... sec. 11.3.12
Offeror..................................................... sec. 17.4.1
Option Shares............................................... sec. 5.2
Put Option Closing.......................................... sec. 17.1.3
Purchaser................................................... Caption
Reasonable Purchaser........................................ sec. 13.4.4
Registration Rights Agreement............................... sec. 5.5
Relevant Percentage......................................... sec. 6.5
Sales Notice................................................ sec. 17.4.1(a)
Sellers..................................................... Caption
Signing Date................................................ Caption
Sold Shares................................................. sec. 5.1
Stand-Alone Financial Statements............................ sec. 11.3.2.1
Subsidiaries................................................ sec. 3.7
Caption/sec.
TelDaFax.................................................... 2.1
TelDaFax Group.............................................. sec. 3.7
Tender Offer................................................ sec. 16.4
</TABLE>
A-3
<PAGE> 181
SECTION 2
TELDAFAX AKTIENGESELLSCHAFT
<TABLE>
<S> <C>
2.1 TelDaFax Aktiengesellschaft, is registered in the commercial
register of the local court Marburg under HR B 2174
("TELDAFAX"). TelDaFax provides telecommunication services,
in particular voice telephony via its fixed line network,
internet services through its own platform and other data
and fax transmission services.
2.2 The share capital of TelDaFax currently amounts to
87,954,360, divided into 33,828,600 non par value shares.
TelDaFax has an authorised capital (Genehmigtes Kapital)
with an aggregate nominal amount of 42,900,000 and a
conditional capital in the amount of 42,900,000 to cover the
issue of convertible bonds. The shares of TelDaFax are
admitted to the regular market of the Frankfurt Stock
Exchange, segment Neuer Markt, and on the EASDAQ.
2.3 The Sellers presently hold the following shares in TelDaFax:
2.3.1 Klose holds 2,756,200 shares equal to 8.15% of the
aggregate share capital;
2.3.2 Apax II holds 3,587,312 shares equal to 10,60% of the
aggregate share capital;
2.3.3 Apax B holds 2,508,076 share equal to 7,41% of the
aggregate share capital;
2.3.4 Apax D holds 3,755,988 shares equal to 11.10% of the
aggregate share capital;
2.3.5 AP holds 1,326,800 shares equal to 3.92% of the
aggregate share capital.
2.3.6 A+M holds 143,492 shares equal to 0,42% of the
aggregate share capital.
</TABLE>
SECTION 3
PARTICIPATIONS OF TELDAFAX
TelDaFax holds shares in the following corporations:
<TABLE>
<S> <C>
3.1 BNC Kommunikationssysteme GmbH & Co. KG, Bonn, registered in
the commercial register of the local court in Bonn under HR
A 4286,
Share capital: DM 50,000
Participation of TelDaFax: 100%
3.2 BNC Kommunikationssysteme Verwaltungs GmbH, Bonn, registered
in the commercial register of the local court in Bonn under
HR B 7295,
Share capital: DM 50,000
Participation of TelDaFax: 100%
3.3 TelDaFax Telefon, Daten und Fax Transfer Vertriebs GmbH,
Marburg, registered under HR B 2137 in the commercial
register of the local court in Marburg,
Share capital: DM 50,000
Participation of TelDaFax: 100%
3.4 GeoNet Systems GmbH, Marburg, registered in the commercial
register of Marburg under HR B 2265,
Share capital: DM 100,000
Participation of TelDaFax: 95%
3.5 Demuth, Dietl & Co. Kommunikationselektronik GmbH, Wetzlar,
registered in the commercial register of Wetzlar under HR B
1579,
Share capital: DM 462,200
Participation of TelDaFax: 50,95%
</TABLE>
A-4
<PAGE> 182
<TABLE>
<S> <C>
3.6 Internet AG, Global Network, Birkenau, registered in the
commercial register of Furth/Odenwald under HR B 879,
Share capital: E13,500,000
Participation of TelDaFax: 65% (after registration of
capital increases against cash contributions and
contributions in kind
registration is still pending)
3.7 Netztel Plus AG, Heppenheim a.d. BergstraBe, registered in
the commercial register under HR B5096,
Share capital: E6.925.000.200
Participation of TelDaFax: 81,94%
The companies listed in 3.1, 3.2 and 3.3 are not engaged in
any commercial activity. The companies listed in this 3 are
collectively referred to as the "SUBSIDIARIES". TelDaFax and
the Subsidiaries are together referred to as the "TELDAFAX
GROUP".
</TABLE>
SECTION 4
COMBINATION OF GERMAN BUSINESSES OF
PURCHASER AND THE BUSINESS OF TELDAFAX
Purchaser and TelDaFax agree to use good faith efforts to pursue the
combination of their respective businesses in Germany in order to realise
synergies to the largest extent practically possible. The business combination
shall be implemented by taking the following actions:
<TABLE>
<S> <C>
4.1. Purchaser shall contribute the German activities of Netnet
Telekommunikationssysteme GmbH, and NewTel Communications
GmbH to TelDaFax by way of a capital increase against
contribution in kind out of authorised capital. TelDaFax and
Purchaser and/or affiliates of Purchaser shall enter into a
contribution agreement by June 30, 2000 substantially in the
form of Exhibit 4.1.2 (the "Contribution Agreement") once
agreement on the evaluation of the contributed assets and
the number of shares to be issued has been reached.
4.2. The management board (Vorstand) of TelDaFax with the consent
of the supervisory board (Aufsichtsrat) of TelDaFax is
entitled to increase the capital of TelDaFax by the amount
of the authorised capital to the exclusion of subscription
rights of the existing shareholders if, inter alia, the
newly issued shares are used to acquire other businesses.
TelDaFax and the Sellers undertake to the extent permitted
under applicable law that Vorstand and Aufsichtsrat will
adopt the necessary resolution to effect the capital
increase is effected.
4.3. As soon as and to the extent legally possible and consistent
with the best interest of their shareholders TelDaFax and
the other German businesses of Purchaser shall enter into
such agreements of combination or co-operation to achieve
synergies in the most efficient and beneficial way for all
parties and the shareholders of Purchaser and TelDaFax.
</TABLE>
SECTION 5
SALE AND TRANSFER, PUT AND CALL OPTION
<TABLE>
<S> <C>
5.1 Subject to the terms and conditions of this agreement, the
Funds hereby agree to sell the shares in TelDaFax listed in
sec. 2.3.2 to 2.3.5 (the "SOLD SHARES").
</TABLE>
A-5
<PAGE> 183
<TABLE>
<S> <C>
5.2 Subject to the terms set forth in sec. 17, Klose has the
right to sell to Purchaser and Purchaser is obliged to buy
from Klose all of the shares in TelDaFax listed in sec.
2.3.1 or any portion thereof (the "KLOSE OPTION SHARES"), in
up to three instalments in the period beginning on the
Signing Date and ending on December 31, 2001 ("KLOSE PUT
OPTION") A+M has the right to sell to Purchaser and
Purchaser is obliged to buy from A+M all of the shares in
TelDaFax listed in 2.3.6 (the "A+M OPTION SHARES") in the
period beginning on the Closing and ending on April 30, 2001
(the "A+M Put Option") in one instalment. Purchaser has the
right to buy from Klose and Klose is obliged to sell to
Purchaser all of the Klose Option Shares owned by him at the
time when Purchaser makes use of this right in the period
beginning on July 1, 2002 and ending on December 31, 2002
(the "KLOSE CALL OPTION"). Purchaser has the right to buy
from A+M and A+M is obliged to sell to Purchaser all of the
A+M Option Shares in the period beginning on July 1, 2001
and ending on December 31, 2001 (the "A+M CALL OPTION"). The
shares which are subject to the put and call Options are
hereinafter together referred to as the "OPTION SHARES".
Until the options are exercised Klose and A+M will retain
and may exercise all rights attached to the Option Shares.
5.3 The Sold Shares and Option Shares are represented by global
certificates which are held in global custody by Clearstream
AG. The Sold Shares and Option Shares are only deliverable
as fractional entitlements to the global certificates held
by Clearstream AG. The transfer of the Sold Shares shall be
effected as provided for in Exhibit 5.3 at the Closing. The
Sold Shares are booked to the following securities accounts:
5.3.1 The shares held by Apax II are booked to the
securities account No. 5 374 898 Bank Code 700 202 70 with
Bayerische Hypo- und Vereinsbank.
5.3.2 The shares held by Apax B are booked to the
securities account No. 555 910 44 Bank Code 702 202 00 with
BHF Bank AG Munchen.
5.3.3 The shares held by Apax D are booked to the
securities account No. 555 910 51 Bank Code 702 202 00 with
BHF Bank AG Munchen.
5.3.4 The shares held by AP are booked to the securities
account No. 2 733 951 Bank Code 700 202 70 with Bayerische
Hypo- und Vereinsbank.
5.3.5 The Klose Option Shares are booked to the securities
account No. 035 81672 7 with Goldman Sachs & Co., New York.
5.3.6 The A+M Option Shares are booked to the securities
account No. 241925700 with Commerzbank AG.
5.4 The sale and transfer of the Sold Shares and Option Shares
hereunder shall include all rights and obligations attached
to the Sold Shares at the Closing or the relevant Option
Closing.
5.5 It is understood and agreed that Purchaser will use its
reasonable best efforts to effect the registration under the
Securities Act of 1933, as amended, of the portion of the
Consideration Stock (as defined below) to be issued as
consideration for the Sold Shares on the Form S-4
registration statement to be filed in connection with the
Tender Offer. If this portion of the Consideration Stock is
not included on this Form S-4, or if, even if such
Consideration Stock can be so included on such Form S-4,
Purchaser and the Funds determine, based on the advice of
legal counsel, that the Funds' acquisition of Consideration
Stock is subject to Rule 145 under the Securities Act of
1933, as amended, or that the Funds would be deemed an
affiliate (as defined in Rule 144 under the Securities Act
of 1933, as amended) of Purchaser, Purchaser and the Funds
shall, not later than the Closing Date, enter into a
registration rights agreement with respect to the
Consideration Stock with terms substantially similar to the
terms in the registration rights term sheet attached as
Exhibit 5.5.
</TABLE>
A-6
<PAGE> 184
<TABLE>
<S> <C>
Purchaser, Klose and AM, as the case may be, shall, not
later than the Closing Date, enter into a registration
rights agreement with respect to the Consideration Stock to
be issued as consideration for the Option Shares with terms
substantially similar to the terms in the registration
rights agreement term sheet attached as Exhibit 5.4. In the
event that the Purchaser and the Funds enter into a
registration rights agreement as contemplated by the
foregoing paragraph, such Consideration Stock shall, to the
extent legally practicable, be registered on the same
registration statement on Form S-3 contemplated by such
registration rights agreement and Klose and A+M shall be a
party to such registration rights agreement in lieu of a
separate agreement between Purchaser and Klose or A+M.
</TABLE>
SECTION 6
CONSIDERATION
<TABLE>
<S> <C>
6.1 The consideration for the Sold Shares and for the sale of
the Option Shares shall be the issue to the Sellers of World
Access Common Stock (the "CONSIDERATION STOCK").
6.2 In exchange for each of the Sold Shares and the Option
Shares the Purchaser shall issue such number of shares of
the World Access Common Stock resulting from applying the
Exchange Ratio offered in the Tender Offer to the Sold
Shares, or Option Shares, as the case may be, but in no
event less than 1.025 shares of World Access Common Stock
for one TelDaFax share.
6.3 In the event the Purchaser changes the number or kind of
shares of World Access Common Stock as a result of a stock
split, stock dividend, recapitalization, reclassification,
reorganisation of similar transaction with respect to the
outstanding World Access Common Stock, and the record date
therefore shall be after the date hereof and prior to the
Closing, the Exchange Ratio shall be proportionately
adjusted to such manner as Purchaser and the Sellers shall
agree, which adjustment may include, as appropriate, the
issuance of securities, property or cash on the same basis
as that on which any of the foregoing shall have been
issued, distributed or paid to the holders of World Access
Common Stock generally.
6.4 The Consideration Stock shall (save as provided below) be
transferred to the following securities accounts of Sellers:
6.4.1 Klose securities account No. 035-81672-7 with
Goldman, Sachs & Co., New York;
6.4.2 Apax II securities account No. 5 374 898 Bank Code
700 202 70 with Bayerische Hypo- und Vereinsbank;
6.4.3 Apax B securities account No. 555 910 44 Bank Code
702 202 00 with BHF Bank AG Munchen;
6.4.4 Apax D securities account No. 555 910 51 Bank Code
702 202 00 with BHF Bank AG Munchen;
6.4.5 AP securities account No. 2 733 951 Bank Code 700 202
70 with Bayerische Hypo- und Vereinsbank;
6.4.6 A+M securities account No. 2 419 257 00 Bank Code 700
400 41 with Commerzbank AG.
6.5 Sellers are entitled to the following percentage of the
total Consideration Stock (the "Relevant Percentage").
</TABLE>
A-7
<PAGE> 185
The Relevant Percentage is for
<TABLE>
<S> <C>
Apax II..................................................... 25,5%
Apax B...................................................... 17,8
Apax D...................................................... 26,7
AP.......................................................... 9,4
A+M......................................................... 1,0
Klose....................................................... 19,6
-----
Total............................................. 100,0%
=====
</TABLE>
SECTION 7
DIVIDENDS
<TABLE>
<S> <C>
7.1 TelDaFax has no distributable profits for the fiscal year
1999.
7.2 In respect of the profit distribution of the Subsidiaries
listed in sec. 3, Sellers undertake to procure that no
profit distribution shall take place in the period between
the Signing Date and the Closing.
</TABLE>
SECTION 8
CLOSING CONDITIONS
<TABLE>
<S> <C>
8.1 The closing of the sale of the Sold Shares shall be subject
to the following conditions (the "CLOSING CONDITIONS"):
8.1.1 Clearance by the Federal Cartel Office of all the
transactions contemplated by this Agreement pursuant to sec.
20 (Merger Control) has been obtained.
8.1.2 In Tender Offer enough shares having been tendered so
that following the Closing Purchaser will own more than 50%
of the then outstanding TelDaFax shares;
8.1.3 The capital increase to effect the contributions
contemplated by the Contribution Agreement having been
registered in the commercial register of TelDaFax;
8.1.4 No Material Adverse Event having occurred and no
party having exercised the right to withdraw pursuant to
sec. 13.
8.1.5 The shareholders of Purchaser having approved the
transactions contemplated by this Agreement including the
Tender Offer and the merger agreements of the
Purchaser with Communications Telesystems
International Inc and Star Telecommunications Inc.
8.1.6 No laws shall have been adopted or promulgated and no
court order of whatsoever nature shall be in effect which
prohibits the consummation of the transactions
contemplated by this Agreement or having the effect
of making the transactions illegal.
8.1.7 All material consents, approvals and actions of,
filing with and notices to any third party or governmental
authority required to consummate the transactions
contemplated by this Agreement shall have been
obtained including, to the extent required, under
Hart-Scott Rodino Antitrust Improvements Act of 1976,
as amended.
</TABLE>
A-8
<PAGE> 186
<TABLE>
<S> <C>
8.2 Purchaser and Sellers shall have the right to withdraw
(zurcktreten) from this Agreement including the Klose and
A+M Put and Call Options provided for in sec.sec. 5.2 and
17, if (i) the Closing Conditions have not been satisfied by
September 30, 2000 or (ii) the Supervisory Board of TelDaFax
does not resolve on the capital increase contemplated by the
Contribution Agreement, or (iii) the Supervisory Board of
TelDaFax changes its recommendation to the TelDaFax
shareholders to accept the Tender Offer on the basis of its
fiduciaries duties owed to the outside shareholders in
deviation from its resolution adopted on June 14, 2000
attached as Exhibit 8.2. by which this Agreement and the
transactions contemplated herein were approved, or (iv) if
the Closing Condition in Section sec. 8.1.2 becomes
impossible due to the acquisition by a third party of
TelDaFax shares. If by September 30, 2000 all Closing
Conditions have been satisfied except for the Closing
Condition in 8.1.2 and 8.1.3, but the Tender Offer has been
launched and is pending, the right to withdraw may not be
exercised prior to October 31, 2000. Sellers may only
jointly exercise this right to withdraw by notifying
Purchaser accordingly.
8.3 Purchaser, but not Sellers have the right to withdraw from
this Agreement including the Klose and A+M Put and Call
Option, if the TelDaFax Supervisory Board fails to take any
action required to implement the contribution agreed in the
Contribution Agreement referred to in sec. 4.1 or takes any
action which makes such implementation impossible.
8.4 If Purchaser and/or Sellers withdraw from this Agreement in
accordance with this sec. 8, sec. 13.4 or sec. 13.5, they
shall not be liable to the other parties for any damages or
for the fulfilment of any other obligations under this
agreement or in connection with this Agreement irrespective
of the legal basis on which any claim of such other parties
is based; provided, however, neither Purchaser nor Sellers
shall be relieved or released from any liabilities arising
out of its breach of this Agreement. Sellers and Purchaser
may agree in writing on an extension of the periods set
forth in sec. 8.2.
8.5 If the competent antitrust authorities only clear the
transaction contemplated by this Agreement subject to
modifications, the Closing Condition set forth in sec. 8.1
shall only be deemed to be satisfied if (i) Sellers and
Purchaser acting reasonably agree that the modification
shall be implemented in order to proceed with the Closing or
(ii) in the event that such modification significantly
alters the financial expectations of the Purchaser (in
respect of the purchase of shares in TelDaFax) Sellers agree
to indemnify Purchaser in full against any financial
disadvantage resulting from such modification. Sellers and
Purchaser undertake to negotiate for at least three weeks in
good faith with a view to reaching agreement on the
acceptance of such modification and, if relevant, the
payment of the appropriate indemnification.
8.6 If the Agreement is terminated in accordance with this sec.
8, sec. 13.4 or sec. 13.5 by withdrawal of Purchaser and/or
Sellers, each party shall be obliged to return all material
received from the other side and to keep secret and not to
use for its purposes all confidential information received
in the context of this transaction.
</TABLE>
SECTION 9
CLOSING
<TABLE>
<S> <C>
9.1 Representatives of the Funds and Purchaser shall meet on the
fifth banking day following the satisfaction of the Closing
Conditions, or on such other day as is mutually agreed
between the Funds and Purchaser (the "Closing Date"), in
order to close the sale of the Sold Shares contemplated
herein in accordance with sec. 9.3 ("CLOSING").
</TABLE>
A-9
<PAGE> 187
<TABLE>
<S> <C>
9.2 The Closing shall take place at the offices of Hengeler
Mueller Weitzel Wirtz in Frankfurt am Main, Bockenheimer
Landstra(B)e sec. 51, or as such other place as is mutually
agreed between the parties.
9.3 At the Closing, Purchaser shall procure evidence that the
transfer of the Consideration Stock will be completed,
subject to, and simultaneously with the following:
9.3.1 Delivery by the Funds to Purchaser of the share
transfer agreement (Exhibit 5.3) properly executed by the
Funds covering all Sold Shares;
9.3.2 delivery by the Funds of confirmations by their
respective custody banks that the Sold Shares are booked as
of the Closing Date to the securities accounts
specified in sec. 5.2 substantially in the form of
Exhibit 9.3.2;
9.3.3 delivery by Sellers to Purchaser of resignation
letters of all members of the Supervisory Board of TelDaFax
except for one representative for the outside
shareholders to be designated by Purchaser. Klose
undertakes to take all necessary action to have new
Supervisory Board members proposed by Purchaser
appointed by the competent court as soon as
practically possible;
9.3.4 delivery by the Funds to Purchaser and by Purchaser
to Funds of certificates of Funds and Purchaser,
respectively, that the representations and warranties
of each of them shall be true and correct in all
material respects as of the Closing, or, as the case
may be, as of any other point of time specifically
mentioned therein. If Funds cannot deliver the
certificate because one or more of the
representations and warranties have become incorrect,
Purchaser is entitled to withdraw from this agreement
pursuant to sec. 13.4. provided the breach of the
representation and warranties constitutes a Material
Adverse Event within the meaning of sec. 13.4. If the
breach does not constitute a Material Adverse Event,
Purchaser has the remedies under sec. 12;
9.3.5 execution of the Registration Rights Agreement.
</TABLE>
SECTION 10
DUE DILIGENCE
<TABLE>
<S> <C>
10.1 Giving due consideration to the best interest of TelDaFax
and the other shareholders and complying with applicable
legal restrictions regarding confidentiality, Sellers
prepared a data room which was open for Purchaser in the
period from April 25 to May 5, 2000, arranged for a
management presentation, allowed Purchaser to obtain certain
other information and documentation upon request, gave
Purchaser to opportunity to hold interviews with the
management of TelDaFax as well as to perform on site visits.
Sellers undertake to provide Purchaser with further
information on the TelDaFax Group upon request after the
Signing Date of this Agreement to the extent permitted under
applicable law.
10.2 For the avoidance of doubt, all information provided to
Purchaser and referred to in the due diligence reports of
Ernst & Young, Frankfurt and Clifford Chance Pnder,
Frankfurt, as delivered and initialled by the parties at the
Signing Date or listed in Exhibit 10.2.1, in the Business
Plan attached as Exhibit 10.2.2 or explicitly disclosed in
this Agreement shall be deemed to have been disclosed to and
being known by Purchaser. (the "DISCLOSED INFORMATION").
</TABLE>
A-10
<PAGE> 188
SECTION 11
WARRANTIES AND REPRESENTATIONS
<TABLE>
<S> <C>
11.1 Funds' Warranties and Representations Regarding their Legal
Status
Apax II, Apax B Fund, Apax D Fund, and AP (the "FUNDS")
severally warrant and represent at the Signing Date and at
the Closing unless explicitly stated otherwise:
11.1.1 Apax Funds Nominees Limited holds 6,264,064 shares
of TelDaFax as Nominee for B Account and D Account. Apax
Funds Nominees Limited has been duly formed and is
validly existing in England under the Companies Act
1985.
11.1.2 Apax II is a limited partnership duly formed and
validly existing under the laws of the State of Delaware.
11.1.3 AP is a partnership (Gesellschaft burgerlichen
Rechts) duly formed and validly existing under German Civil
Law.
11.1.4 The Funds have the capacity under the applicable
laws and their constitutional documents to enter into this
Agreement and to perform their obligations
hereunder.
11.1.5 No approval, authorisation or consent under any
contract, applicable law and/or constitutional document is
required for the Funds to enter in this Agreement
and to perform the obligations hereunder. The
execution of this Agreement and the performance of
the obligations hereunder will not result in the
violation of any contract, law applicable to the
Funds or provisions of the respective constitutional
documents of the Funds.
11.2 The Funds Representations Regarding U.S. Securities Laws
The Funds severally represent and warrant at the Signing and
Closing Date
11.2.1 The Funds are acquiring the Consideration Stock as
contemplated by this Agreement for investment purposes and
not with a view toward any distribution thereof.
11.2.2 No Fund will dispose of any of his or its
Consideration Stock, other that pursuant to an effective
registration statement of Rule 144 or Rule 144A
promulgated by the U.S. Securities Exchange
Commission (the "SEC") under the U.S. Securities Act
of 1933, as amended (the "SECURITIES ACT") (or any
similar or analogous rule), unless and until (a)
such Fund shall have notified the Purchaser of the
proposed disposition and shall have furnished to
Purchaser with a statement of the circumstances
surrounding the proposed disposition, and (b) if
requested by the Purchaser, such Fund shall have
furnished the Purchaser with an opinion of counsel
reasonably satisfactory in form and substance to the
Purchaser and Purchaser's counsel to the effect that
(i) such disposition will not require registration
under the Securities Act and (ii) appropriate action
necessary for compliance with the Securities Act and
any applicable U.S. state or local law or non-U.S.
law has been taken.
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11.2.3 Each Fund: (a) is an "ACCREDITED INVESTOR" as that
term is defined in Regulation D promulgated by the
SEC under the Securities Act and has such knowledge
and experience in financial and business matters as
to be capable of evaluating the merits and risks of
his or its prospective investment in the Purchaser;
(b) has received all the information requested by him
or it from the Purchaser and considered necessary or
appropriate for deciding whether to exchange his or
its Sold Shares for Consideration Stock; (c) has the
ability to bear the economic risks of such
prospective investment; and (d) is able, without
materially impairing his or its financial condition,
to hold the Consideration Stock for an indefinite
period of time and to suffer a complete loss of its
investment.
11.3 The Funds' Warranties and Representations Regarding TelDaFax
The Funds warrant and represent severally as follows at the
Signing Date and at the Closing unless explicitly stated
otherwise:
11.3.1 Legal Situation
11.3.1.1 TelDaFax and the Subsidiaries are corporations
duly organised and validly existing under the laws
of Germany.
11.3.1.2 Funds have all necessary authority to enter into
this Agreement and to implement the transaction
contemplated herein.
11.3.1.3 The statements in sec. 2 and sec. 3 are correct,
true and in no way misleading. The Funds own and
have the unrestricted right to sell, vote and
transfer the Sold Shares. The Funds do not hold any
further shares of, or interest of whatever nature
in, TelDaFax other than the Sold Shares and do not
have any rights or warrants to acquire further
shares of, or interest in, TelDaFax. To the best
knowledge of the Funds, no shareholder or group of
shareholders exist which holdings exceed 5% of the
issued share capital of TelDaFax.
11.3.1.4 The Sold Shares are free of encumbrances and of
all and any rights or obligations whatsoever, which
could be asserted by third parties against the
Purchaser and/or TelDaFax.
11.3.1.5 sec. 2.2 correctly sets forth the number of shares
of TelDaFax issued and outstanding and the number
of authorised but not issued shares. There are no
outstanding obligations of TelDaFax to repurchase
or otherwise acquire outstanding shares. TelDaFax
has not issued any securities convertible into or
exchangeable for shares of TelDaFax, or any
warrants, options or other rights to acquire
shares in or from TelDaFax. There are no
outstanding obligations of TelDaFax to issue, or
any third party rights to call for or otherwise
acquire, any shares or securities convertible or
exchangeable for shares in TelDaFax.
11.3.1.6 The share capital of TelDaFax is fully paid in;
and there are no contributions in kind outstanding
except the contributions to be made under the
Contribution Agreement. Cash contributions have
been made in full, and contributions in kind have
been made which fully cover the amount for which
the shares are issued, be it either the minimum
amount (geringster Ausgabebetrag) or, if the
shares are issued for an amount higher than the
minimum amount, such higher amount. Contributions
have not been reduced by repayments.
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11.3.1.7 TelDaFax has good legal title to the shares in the
Subsidiaries. The issued shares of the Subsidiaries
are fully paid in except as set forth in Exhibit in
11.3.1.7. The shares are free of encumbrances and
of any rights or obligations whatsoever which
could be asserted by third parties against the
Purchaser and/or TelDaFax and/or the respective
Subsidiaries. None of the Subsidiaries has
distributed profits for the fiscal year 1999 to
TelDaFax. To the best knowledge of the Funds,
contributions have not been reduced by repayments.
11.3.1.8 Exhibit 11.3.1.8. contains the Articles of
Association as presently in force. To the best of
knowledge of the Funds no agreements among the
shareholders of any company of the TelDaFax Group
exist which relate to the constitution or organisation
of any company of the TelDaFax Group or the voting of
any shares or interests therein.
11.3.1.9 To the best knowledge of the Funds as of the Signing
Date TelDaFax and its Subsidiaries mentioned in
sec. 3 are not, and have not agreed to become, a
party to agreements in the sense of sec. 291 seq.
AktG, joint venture agreements, co-operation
agreements, partnerships or silent partnership
agreements or any other similar contractual
arrangement except as shown in Exhibit 11.3.1.9.
11.3.1.10 As of the Signing Date TelDaFax does not have, and has
not agreed, to acquire any interest in any legal entity
or partnership other than the Subsidiaries. None
of the Subsidiaries has an interest in, or has
agreed to acquire any interest to any other legal
entity or partnership except as provided for in
Exhibit 11.3.1.10.
11.3.1.11 To the best knowledge of the Funds nothing has
occurred (including any failure to act) which renders
any company of the TelDaFax Group liable to be struck
off the commercial register, and no proceedings
have been commenced for its liquidation.
11.3.1.12 To the best knowledge of the Funds there exist no
shareholders' resolutions with respect to the TelDaFax
Group which amend the Articles of Association or other
shareholders' resolutions which require
registration with the commercial register which
are not registered in the commercial register
except as set forth in Exhibit 11.3.1.12.
11.3.2 Financial Situation
11.3.2.1 TelDaFax has provided Purchaser with copies of the
individual financial statements of each member of
the TelDaFax Group (the "STAND-ALONE FINANCIAL
STATEMENTS") and audited consolidated statements
of TelDaFax for the fiscal year ending on December
31, 1999 (the "CONSOLIDATED 1999 FINANCIAL
STATEMENTS").
11.3.2.2 The Consolidated 1999 Financial Statements were
prepared according to U.S. GAAP, audited and provided
with an unqualified opinion by BDO Deutsche
Warentreuhand Aktiengesellschaft
Wirtschaftsprfungsgesellschaft ("BDO"). The
Stand-Alone Financial Statements are prepared
according to German GAAP.
11.3.2.3 The Consolidated 1999 Financial Statements and the
1999 Stand-Alone Financial Statements of TelDaFax
show a true and fair view of the assets, liabilities
and state of affairs as well as the profits and
losses of each company of the TelDaFax Group or, as
the case may be, of TelDaFax and are prepared on a
consistent basis with prior years.
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11.3.2.4 To the best knowledge of the Funds, except for
normal and recurring year-end adjustments that are
not expected to be material in amount, the unaudited
interim financial statements for the first quarter
of the fiscal year 2000 (the "INTERIM FINANCIAL
STATEMENTS") which have been provided to Purchaser
have been prepared in accordance with U.S. GAAP with
due care and attention on a consistent basis with
previously applied accounting principles and show a
reasonably accurate view of the assets, liabilities
and state of affairs as well as the profits and
losses of the TelDaFax Group as of March 31, 2000
and for the period of January 1, 2000 to March 31,
2000.
11.3.2.5 To the best knowledge of the Funds no insolvency
proceedings or composition proceedings with
creditors in or out of court have been applied for
or initiated by any member of the TelDaFax Group.
11.3.3 Assets
11.3.3.1 To the best knowledge of the Funds except for
retention of title and other collateral rights
arising in the ordinary course of business, and
except from statutory liens (gesetzliche
Pfandrechte), TelDaFax and its Subsidiaries have
good legal title free and clear of any security
rights, liens, charges, encumbrances or similar
rights (dingliche Rechte) to all assets, reflected
in the 1999 Financial Statements plus or minus those
assets acquired or disposed of in the ordinary
course of business since January 1, 2000 (the
"ASSETS").
11.3.3.2 Subject to fair wear and tear and to Exhibit
11.3.3.2 the Assets, taken as a whole, are to the best
knowledge of Sellers in good repair and full working
order.
11.3.3.3 To the best knowledge of the Funds Exhibit 11.3.3.3
lists all trademarks and patents and other material
intellectual property rights owned and used by the
TelDaFax Group. Subject to the best knowledge of the
Funds, no employees of TelDaFax Group or any third
party has or shall have any rights in respect of any
trademarks, patents or other intellectual property
rights used by any company of the TelDaFax Group.
11.3.3.4 Subject to the best knowledge of the Funds, the
rights, properties and other assets (whether
tangible or not) presently owned or leased by or
licensed to TelDaFax or any Subsidiary include all
rights, properties and other assets necessary to
permit them to properly conduct their business
according to usual business standards from companies
in the telecommunications industry in Germany. To
the best knowledge of the Funds, no tangible assets,
including all real property and premises used by the
TelDaFax Group in the conduct of its business are
charged with any environmental damage.
11.3.3.5 The TelDaFax Group does not own real property.
11.3.4 Liabilities
11.3.4.1 To the best knowledge of the Funds and except as set
forth in Exhibit 11.3.4.1 as of December 31, 1999
there were no liabilities of TelDaFax and its
Subsidiaries which were not sufficiently provided
for in the Consolidated 1999 Financial Statements or
the Stand-Alone Financial Statements and as of March
31, 2000 there were no liabilities of TelDaFax and
its Subsidiaries which were not sufficiently
provided for in the Interim Financial Statements.
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11.3.4.2 To the best knowledge of the Funds and except as
set forth in Exhibit 11.3.4.2, since March 31,
2000, TelDaFax and the Subsidiaries have not
incurred any liabilities or obligations other than
in the ordinary course of business consistent with
past practice.
11.3.5 Conduct of Business, Governmental approvals, licenses and
permits
11.3.5.1 To the best knowledge of the Funds the business of
TelDaFax and its subsidiaries is and has been
materially conducted in accordance with all
applicable laws, mandatory rules or requirements of
any governmental body or any other authority, and
it is and has been conducted in accordance with all
applicable laws, mandatory rules or requirements of
any governmental body or any other authority in the
area of telecommunications. To the best knowledge
of the Funds TelDaFax and its Subsidiaries and
their respective entities have been complied with
and discharged all material obligations (including
for this purpose all and any securities laws,
regulations or ordinances as applicable to
TelDaFax, including without limitation the rules,
regulations and other requirements applicable to
stocks listed on the Frankfurt and EASDAQ stock
exchanges, whether material or otherwise) which
they are subject to, whether arising under the law,
the Articles of Association, an agreement or
otherwise.
11.3.5.2 To the best knowledge of the Funds all members of
TelDaFax Group are in possession of all the
governmental approvals, licenses and permits
necessary and relevant for operating its respective
business, as it currently exists. To the best
knowledge of the Funds there are presently no
apparent indications which could form the basis of
a complete or partial revocation of the approvals,
licenses or permits. To the best knowledge of the
Funds the conditions (Auflagen) accompanying those
approvals have been complied with.
11.3.5.3 To the best knowledge of the Funds all members of
TelDaFax Group have in place all contractual
agreements necessary to provide the services which
they are offering. Except as provided for in
Exhibit 11.3.5.3 and subject the best knowledge of
the Funds during the 12 months ending on the
Signing Date, none of the contractual parties from
which TelDaFax is receiving services or equipment
for its operations has ceased, or informed any
member of the TelDaFax Group that it shall cease,
rendering the services or supplying the equipment
which it is currently providing or delivering or
informed TelDaFax Group of its intention to
materially alter the terms for providing such
services or supplying the equipment.
11.3.5.4 To the best knowledge of the Funds all members of
TelDaFax Group have complied, in all material
respects, with all requirements, including, but not
limited to, information requirements under any
Material Agreement. If such agreement also contains
a requirement of the other contractual party to
consent to the transaction contemplated by this
Agreement, all necessary consents are listed in
Exhibit 11.3.5.4 and will have been obtained prior
to the Closing. To the best knowledge of the Funds
neither the execution of this Agreement nor the
conclusion of any other matter contemplated herein
constitutes a breach of any Material Agreement or
will entitle any contractual party to a Material
Agreement to terminate, modify or to reduce any
such Material Agreement.
11.3.5.5 To the best knowledge of the Funds the TelDaFax
Group has not received any investment grants or
other subsidies from any public authority which may
become repayable in case of failure to comply with
the conditions upon which they were granted.
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11.3.6 Litigation
11.3.6.1 To the best knowledge of the Funds and except for
litigation with a value (Gegenstandswert) of
less than E100,000 in the individual case or
per series of claims having the same cause or
basis and the litigation listed in Exhibit
11.3.6.1, the companies of TelDaFax Group are
not involved in, nor do they have any
knowledge of any threatened or imminent court
proceedings (including arbitration) either as
plaintiff or defendant. Except for the
proceedings listed in Exhibit 11.3.6.1 and
subject to the best knowledge of the Funds,
there are no pending or threatened
administrative proceedings or investigations
of authorities against the companies of
TelDaFax Group. To the best knowledge of the
Funds there are no circumstances which could
give rise to such court or administrative
proceedings.
11.3.6.2 To the best knowledge of the Funds TelDaFax and
its Subsidiaries do not infringe intellectual
property rights of third parties and third
parties do not infringe intellectual property
rights owned by TelDaFax Group.
11.3.7 Employees
11.3.7.1 To the best knowledge of the Funds and except for
the employees listed in Exhibit 11.3.7.4, the
employment contracts of the employees of
TelDaFax correspond in all material aspects to
the standard forms attached as Exhibit
11.3.7.1.
11.3.7.2 No employment agreement of TelDaFax employees is
subject to any collective bargaining
agreements (Tarifvertrage) and shop agreements
(Betriebsvereinbarungen). There is no company
pension scheme in force. Except for the works
council at the Bonn and Marburg sites of
TelDaFax, the employees of TelDaFax have not
formed a works council (Betriebsrat) as of the
Signing Date.
11.3.7.3 During the last 12 months ending on the Signing
Date there were no works stoppages, strikes or
other disruptions by employees of TelDaFax or
of any of is Subsidiaries.
11.3.7.4 To the best knowledge of the Funds except for the
employees listed in Exhibit 11.3.7.4 there are
no employment contracts with employees,
managing directors or board members providing
for a total annual compensation of more than
E75,000. No employees' stock option plan has
been, or will be implemented until Closing
neither is the Company under an obligation to
implement a stock option plan.
11.3.7.5 To the best knowledge of the Funds as of the
Signing Date no key employee has terminated or
has threatened to terminate his/her employment
with any company of the TelDaFax Group since
January 1, 2000 except for the employee listed
in Exhibit 11.3.7.5.
11.3.7.6 To the best knowledge of the Funds TelDaFax has
not more than 312 employees and the
Subsidiaries in the aggregate have not more
than 198 employees.
11.3.7.7 To the best knowledge of the Funds TelDaFax and
the Subsidiaries are not engaged in temporary
employment (Arbeitnehmeruberlassung), neither
as a firm hiring out temporary workers nor as
a firm borrowing employees.
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11.3.8 Tax
To the best knowledge of the Funds the companies of TelDaFax
Group have and/or, as appropriate, will have duly and timely
filed all tax returns and all other forms and documents
relating to taxes or other public levies (including, but not
limited to, notifications regarding social security
contributions) required under applicable law to be filed on
or before Closing. To the best knowledge of the Funds no tax
or social security authority has notified the TelDaFax Group
of any alleged inaccuracy or incompleteness or proposed any
rectification of such forms or other documents or has
threatened any company of the TelDaFax Group with any legal
or administrative proceedings in relation thereto. All
taxes, ancillary fiscal obligations an all other public
levies, including, but not limited to, social security
contributions and withholding taxes levied under any
applicable law, due and payable on or before Closing,
whether on its own account or on account of any third party,
have and/or, as appropriate, will have been timely paid. All
taxes due and payable on or before December 31, 1999 have
been appropriately recorded in the books and records of the
appropriate companies and are appropriately reflected in the
1999 Consolidated Financial Statements or any financial
statements of the relevant company in the TelDaFax Group
and, where not paid, have been reflected as provisions in
the Consolidated 1999 Financial Statements.
11.3.9 Insurance Policies
Sellers have given Purchaser the opportunity to verify the
contents of the insurance policies. To the best knowledge of
the Funds there are no other insurance policies than those
contained in the disclosing information. To the best
knowledge of the Funds all insurance premiums under the
insurance policies have at all times been paid fully and in
a timely manner. To the best knowledge of the Funds there
are no outstanding claims in excess of E250,000 by the
TelDaFax Group against any insurance. To the best knowledge
of the Funds no insurance company has threatened to
terminate or initiated termination of the insurance
policies.
11.3.10 Changes since January 1, 2000
To the best knowledge of the Funds the business of TelDaFax
Group has been managed and run using the same methods and in
a manner consistent with former management techniques so as
to ensure continuity of the business and none of the
following events haven occurred since January 1, 2000
(except for the events listed in Exhibit 11.3.10):
11.3.10.1 A material adverse change in the financial
situation and/or in the assets and liabilities shown in the
Consolidated 1999 Financial Statements of the
TelDaFax Group and the Interim Financials
Statements or any event that could cause or
constitute a material adverse change (including,
but not limited to, contingent liabilities);
11.3.10.2 damages or losses being incurred or suffered by
any company of the TelDaFax Group the amount of which
exceeds E250,000 in the individual case or
E1,000,000 in the aggregate;
11.3.10.3 transactions outside the ordinary course of
business;
11.3.10.4 payments of hidden dividends (verdeckte
Gewinnausschuttung).
11.3.11 Relations to the Funds
11.3.11.1 Neither any of the Funds nor any affiliates or
related parties thereof has granted any loans to TelDaFax or
any of the Subsidiaries which are still
outstanding and there are no other agreements
between any of the Funds, affiliates or related
parties thereof with TelDaFax or any of the
Subsidiaries.
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11.3.11.2 Neither TelDaFax nor any of the Subsidiaries has
any outstanding payment claims against, or payment
obligations to any of the Funds or any affiliates
or related parties thereof.
11.3.11.3 Neither TelDaFax nor any of the Subsidiaries has
assumed or is liable for any obligations of any of the Funds
or any affiliates or related parties thereof.
11.3.12 Material Agreements
To the best knowledge of the Funds all Material Agreements
have been disclosed as part of the due diligence process as
described in Section 10.1. For the purposes of this
provision, the term "MATERIAL AGREEMENTS" shall refer to any
agreement, contract or commitment relating to or binding
upon any company of the TelDaFax Group, its business or its
properties which (i) calls, whether as an actual or
contingent liability, for the payment or re-payment by any
company of the TelDaFax Group of (euro)500,000 or more in any 12
month period, or (ii) the delivery by any company of the
TelDaFax Group of goods or services with a fair market value
of (euro)500,000 or more in any 12 month period, or (iii)
provides for any company of the TelDaFax Group to receive
any payments, or any property with a fair market value of
(euro)500,000 or more in any 12 month period, or (iv) which is
not terminable by the relevant company in the TelDaFax
Group, without payment, on less than 12 months' period or
(v) which can be adversely or terminated as an effect of any
of the transactions contemplated herein or (vi) which
restricts the ability of any company in the TelDaFax Group
to compete geographically or in any particular line of
business or (vii) which must be deemed, using a sound
commercial judgement, material for the business of the
TelDaFax Group. To the best knowledge of Sellers none of the
companies of the TelDaFax Group is in violation or breach of
or default under any Material Agreement, is any other party
to any such contract in violation or breach or other default
under any such contract except for Deutsche Telekom.
11.4 Purchaser's Warranties and Representations
Purchaser warrants and represents as follows:
11.4.1 Purchaser has been duly incorporated and is an
existing corporation under the laws of Delaware.
11.4.2 Purchaser has all necessary authority to enter into
this Agreement and the Registration Rights Agreement and to
implement the transactions contemplated herein and
therein.
11.4.3 All of the issued shares of capital stock of the
Purchaser have been duly and validly authorised and issued
and are fully paid and non-assessable.
11.4.4 The Consideration Stock has been duly and validly
authorised and, when issued and delivered as provided
herein, will be duly and validly issued and fully
paid and non-assessable and upon effectiveness of
the shelf registration statement, duly listed and
admitted for trading on the Nasdaq Stock Market's
National Market.
11.4.5 The holders of the issued and outstanding shares of
capital stock of Purchaser are not entitled to pre-emptive
or other rights to acquire the shares of
Consideration Stock to be acquired by Sellers
pursuant to this Agreement.
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11.4.6 In issuing and selling the Consideration Stock to
the Sellers as contemplated herein, complying
with all of the provisions of this Agreement and
consummating the transactions contemplated
herein, Purchaser has complied with and
discharged all material obligations to which it
is subject, whether arising under law, its
Articles of Incorporation, an agreement or
otherwise subject to the matters set forth on
Exhibit 11.4.7 and obtaining the consents listed
on Exhibit 11.4.6.
11.4.7 Except as provided for in Exhibit 11.4.7, no
consent, approval or filing of or with any U.S.
federal or state governmental agency is required
for the issue and sale of the Consideration
Stock to the Sellers or consummation of the
transactions contemplated herein other than the
registration of the Consideration Stock under
the Securities Act.
11.5 Klose's Warranties and Representations
Klose warrants and represents at the Signing Date in the
form of an independent guarantee:
11.5.1 Klose holds 2,756,200 shares of TelDaFax.
11.5.2 No approval, authorisation or consent under any
contract and/or applicable law is required for
Klose to enter in this Agreement and to perform
the obligations hereunder. The execution of this
Agreement and the performance of the obligations
hereunder will not result in the violation of
any contract and/or law applicable to Klose.
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SECTION 12
REMEDIES
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12.1 If a warranty or representation given by the Funds in
sec. 11 is incorrect at the Signing Date or at the Closing
("BREACH OF WARRANTY"), the Funds shall indemnify Purchaser
against the loss, damage, cost or expense (the "LOSS")
suffered or incurred by Purchaser as follows: (i) in the
event the Loss suffered is attributable to a diminution in
the value of the TelDaFax Group, the amount of the Loss for
which the Purchaser shall be indemnified by the Sellers
shall equal 33.05% of the aggregate diminution in the value
of the TelDaFax Group; and (ii) in the event that Purchaser
is able to show that the Loss suffered by Purchaser is
attributable to other than diminution in the value of the
TelDaFax Group then Sellers shall indemnify Purchaser
against 100% of such Loss. As long as and to the extent that
Sellers are holders of the shares of Consideration Stock
received pursuant hereto indemnification within the meaning
of this section shall be satisfied by transferring such
shares of Consideration Stock back to Purchaser having a
value equal to the loss. Thereafter or to the extent Losses
are not covered by retransfer of such shares of
Consideration Stock Sellers shall indemnify Purchaser by way
of a cash payment. For purposes of discharging the
indemnification obligation the shares of Consideration Stock
shall be deemed to have a value which is equal to the
closing quotation on the Nasdaq National Market on the
Signing Date.
12.2 The Purchaser shall only be entitled to assert claims under
this sec. 12 if they exceed (together with any claims for
indemnification under sec. 13.4) the amount of (euro)1,750,000
in the aggregate, but then only for the exceeding amount.
12.3 All claims under this sec. 12 based on a Breach of Warranty
shall be limited in the aggregate to an amount equal to 33%
of the Consideration Stock or, in case of indemnification by
way of payment in cash, its value as of the Signing Date.
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12.4 The foregoing basket (sec. 12.2) and cap (sec. 12.3) shall
not apply to a Breach of Warranty of sec.sec. 11.1, 11.2,
11.3.1.3, 11.3.1.4, 11.3.1.5, 11.3.1.7 and 11.5 or in cases
where Purchaser is able to show that a Breach of Warranty
was known to the Funds at the Signing Date, but not
disclosed, provided however that the liability of the Funds
can never exceed the value of the Consideration Stock
received as of the Signing Date.
12.5 Any claim of the Purchaser under this sec. 12 is excluded if
and to the extent that:
12.5.1 the Loss has been compensated to the Purchaser or to
the applicable company of the TelDaFax Group, as the
case may be, by virtue of an existing insurance
policy net of any increase in premiums arising, or
likely to arise, out of the payment of such
compensation;
12.5.2 the damage arising from the Breach of Warranty has
been compensated to the Purchaser or to the
applicable company of the TelDaFax Group, as the case
may be, by a third party other than an insurance
company;
12.5.3 the circumstances constituting the Breach of Warranty
have been known to the Purchaser before the Signing
Date by means of the Disclosed Information;
12.5.4 the Breach of Warranty is directly and adequately
caused by a change after the Closing of the corporate
or tax structure or the accounting policies of
TelDaFax and its Subsidiaries;
12.5.5 the Breach of Warranty is directly and adequately
caused by an action or omission (in both cases
outside the ordinary course of business) after the
Closing of the Purchaser, TelDaFax or its
Subsidiaries or any other person whose action or
omission is attributable to the Purchaser within the
meaning of Section 278 BGB;
12.5.6 the Breach of Warranty has the effect of decreasing
the tax burden of the Purchaser or TelDaFax or its
Subsidiaries, by way of any final tax savings,
provided that there are no offsetting tax detriments;
12.5.7 reserves contained in the Consolidated 1999 Financial
Statements expressly and specifically identified and
established for purposes of such Loss -- to the
extent not reduced or otherwise used prior to the
Closing --, which are used or can be used pursuant to
U.S. GAAP to offset such Loss provided however that
if risk materialises for which such reserves were
made, but such reserves were not sufficient to offset
the Loss incurred, Purchaser is entitled to claim the
exceeding amount as Loss.
12.6 In case of a claim under sec. 11.3.8 (Tax), the following
limitations apply in addition to the provisions of the
preceding subsections 12.1 to 12.5:
12.6.1 If and to the extent that in a tax audit (Steuerliche
Au(beta)enprufung) the profits for tax purposes are
increased (for example as a result of non-
recognition of deprecations or provisions), but such
increase will lead to a decrease of profits for tax
purposes in later years (tax accelerations), the
amount payable to Purchaser under 12.1 shall be
limited to the financing cost of the additional tax
liability beginning on the date on which the
additional tax liability becomes due pursuant to the
relevant tax assessment up to the time when the tax
decreasing effects -- if applicable on a pro rata
basis -- realises, whereby the financing cost shall
be calculated on the basis of an interest rate of 5%
p.a. above the -- basic interest rate (Basiszinssatz)
relevant for that period of time.
</TABLE>
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12.6.2 If and to the extent that additional corporate income
tax is payable by TelDaFax or any of its Subsidiaries
and as a result the equity available for distribution
which is subject to corporate income tax (mit
Korperschaftsteuer belastetes verwendbares
Eigenkapital) is increased, such additional taxes are
not deemed to constitute a damage to the extent of
the corresponding corporate tax credit including the
reduction amount (Minderungsbetrag) which is realised
at the time of distribution; this restriction shall
only apply if and to the extent that the Sold Shares
are held by an entity which is entitled to the
corporate income tax credit.
12.7 Notwithstanding the foregoing subsections 12.1 and 12.5 and
12.6, the general principles pursuant to sec.sec. 249 seq.
and 254 BGB regarding the calculation and assessment of
reimbursable damages and the duty to mitigate damages remain
unaffected.
12.8 To the extent that representations and warranties are
qualified by reference to the best knowledge of the Funds,
the knowledge has to be established of the Funds separately.
To establish knowledge of the Funds: the knowledge of the
following members of the Supervisory Board of TelDaFax:
Messrs. Halusa and McMonigall.
12.9 The Funds are not jointly liable for any damage payable to
the Purchaser, but only severally on a pro rata basis
according to the Relevant Percentage of the Consideration in
sec. 6.4 (Consideration Stock). The cap pursuant to
sec. 12.3 shall be allocated in the same manner and applied
on a pro rata basis for each the Funds.
12.10 The statute of limitations for claims for Breach of Warranty
shall be as follows:
12.10.1 Claims for legal defects (Rechtsmangel) within the
meaning of section 434 German Civil Code relating to
the Sold Shares shall be barred in accordance with
the applicable provisions of German law;
12.10.2 all other claims excepts under sec. 11.2.8 (Tax)
shall be barred after eighteen months from Closing;
12.10.3 claims under sec. 11.2.8 (Tax) shall be barred six
months after the right of the competent authority to
asses or to change the relevant tax assessment for
the period up to December 31, 1999 ended, however, in
any case not prior to the end of the time limits set
forth in sub-section 12.10.1 and 12.10.2 with the
exception of claims under sec. 11.2.8 resulting from
the fact that persons who were treated by TelDaFax at
the Signing Date as free agents (Handelsvertreter)
have to be treated as employees for tax and/or social
security purposes pursuant to binding decisions of
competent authorities shall be barred after twelve
months from Closing.
The statute of limitations shall be interrupted
(unterbrochen) or extended (gehemmt) in accordance with the
applicable provisions of German law. In case of interruption
the new statute of limitations beginning after the end of
the interruption (section 217 German Civil Code) shall be 6
months; provided, however, that the period prior and after
the interruption in the aggregate shall not be less than
eighteen months.
12.11 Indemnifications by the Funds made according to this sec. 12
constitute in the relationship between Funds and Purchaser a
reduction of the value of the Consideration Stock and, to
the extent they are made directly to a corporation belonging
to the TelDaFax Group, in the relationship between Purchaser
and the relevant corporation a capital contribution
(Einlage).
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12.12 The Funds intend to take out insurance policies providing
coverage for such amounts as could be payable by the
relevant Fund to Purchaser in respect of any breach and
warranties set forth in sec. 11. The Funds herewith assigns
any claims under such insurance policies, provided that the
mere fact of the assignment of such claims does not affect
the obligations of the Funds under this Section 12. The
Funds undertake to provide Purchaser with the relevant
information and documentation, if they take out the
insurance policies and to make all necessary payments
thereunder and keep them in full force and effect as long as
payment obligations of the Funds to Purchaser subsist. To
the extent Purchaser receives payments under the insurance
policies, its claims for Breach of Warranties are reduced by
such payments. Any limitations on claims of Purchaser as set
forth in sec. 12 remain uneffected.
</TABLE>
SECTION 13
EXCLUSION OF FURTHER CLAIMS
<TABLE>
<S> <C>
13.1 The provisions of sec.sec. 11 and 12 of this Agreement
represent the full and entire agreement of the parties with
regard to the consequences of a violation of any
representations and warranties of the Sellers.
13.2 Any further claims of the Purchaser and the Sellers relating
to this Agreement and the transactions contemplated herein
for a reduction of the Purchase Price, rescission of the
Agreement, payment of damages or otherwise, whether on the
basis of violation of pre-contractual duties of care (culpa
in contrahendo), voidability (Anfechtbarkeit) at any other
cause of action, shall be excluded.
13.3 Claims based on deliberate misconduct (vorsatzliches
Handeln) are not limited by any of the provisions of this
Agreement.
13.4 Subject to sec. 13.6 below, Purchaser shall be entitled
(without penalty or liability) to withdraw from this
Agreement including the Klose and A+M Put and Call Option
prior to Closing if any of (but limited to) the following
material adverse events ("MATERIAL ADVERSE EVENT") should
occur:
13.4.1 any of the representations of warranties given in
sec.sec. 11.1, 11.2, 11.3.1, 11.3.2.3, 11.3.2.4,
11.3.2.5, 11.3.12 and 11.5 being or becoming
incorrect;
13.4.2 any of the approvals, licences or permits necessary
and relevant for TelDaFax to continue the business
activities as they existed on the Signing Date being
revoked after the Signing Date;
13.4.3 TelDaFax entering into a Material Agreement outside
the ordinary course of business consistent with past
practice, or entering into or agreeing to enter into
any contracts or arrangements or the type referred to
in sec.sec. 11.2.1.9 and 11.2.1.10. without consent
of Purchaser after the Signing Date;
</TABLE>
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13.4.4 there having occurred after the Signing Date any
event, fact or circumstance that, individually or
when considered with any other matter or event, fact
or circumstance (including, without limitation, any
of the other matters listed in this subsection 13.4),
would make or be likely to make a reasonable
purchaser, willing to buy the Sold Shares for the
consideration and on the terms set out in this
Agreement taking into account any diminution in the
value of the Consideration Stock from the Signing
Date (the "REASONABLE PURCHASER"), to seek a
reduction in the value of such consideration in an
amount equal to or exceeding 33% of the value of the
Consideration Stock as of the Signing Date, provided
however that in themselves none of the following
events will (in and of themselves) be considered as
constituting a material adverse event for these
purposes: (i) a fall in the listed stock price of
TelDaFax on the Neuer Markt of the Frankfurt Stock
Exchange and/or EASDAQ, (ii) a change in the economic
situation in Germany or the condition of the
financial markets in general (iii) a change in the
services and pricing of competitors of TelDaFax to
any third party and (iv) changes in applicable laws
and/or regulations.
13.4.5 failure of Sellers and/or TelDaFax to perform or
comply with any of the covenants or agreements
contained herein required to be performed, or
complied with, at or prior to the Closing, which
failure, individually or when considered with any
other such failures or any of the other matters
listed in this subsection 13.4, would make or be
likely to make a Reasonable Purchaser to seek a
reduction in the value of such consideration in an
amount equal to or exceeding 33% of the Consideration
Stock as of the Signing Date; provided, however, that
in the event that a matter or matters of the type
described in this sec. 13.4.5 (notwithstanding the
33% qualification contained therein) arises or occurs
and, due to the fact that such 33% qualification has
not been satisfied. Purchaser is not entitled to
withdraw from this Agreement pursuant to this sec.
13.4, then Sellers and/or TelDaFax as applicable
undertake to indemnify Purchaser against such Loss.
13.5 Subject sec. 13.6 below, the Sellers shall be entitled
(without penalty or liability) to withdraw from this
Agreement prior to the Closing if any of (but limited to)
the following material adverse events should occur after the
Signing Date which should be deemed for the purpose of
sec. 8.1.4 to also constitute Material Adverse Events:
13.5.1 any of the warranties given in sec. 11.4 being or
becoming incorrect in any material respects;
13.5.2 any of the material approvals, licences or permits
necessary and relevant for Purchaser and its
affiliates to continue the business activities as
they existed on the Signing Date being revoked;
13.5.3 there having occurred after the Signing Date any
event that, individually or when considered with any
other matter or event, would make or be likely to
make a reasonable purchaser, willing to buy the
Consideration Stock in exchange for the Sold Shares
and on the terms set out in this Agreement taking
into account any diminution in the value of the Sold
Shares from the Signing Date, to seek a reduction in
the value of such consideration in an amount equal to
or exceeding 33% of the value of the Consideration
Stock as of the Signing Date, provided however that
in themselves none of the following events will be
considered as constituting a material adverse event
for these purposes: (i) a fall in the listed stock
price of World Access on the Nasdaq National Market,
(ii) a change in the economic situation in the United
States or the condition of the financial markets in
general or (iii) changes in applicable laws and/or
regulations.
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13.6 In case of any of the above material adverse events, each
party upon becoming aware of the same shall forthwith inform
all other parties. The parties undertake to negotiate in
good faith for two weeks to amend this Agreement so that it
becomes acceptable to both Sellers and Purchaser under the
changed circumstances before exercising its right to
withdraw. Sellers may only jointly exercise the right to
withdraw pursuant to sec. 13.5 by notifying Purchasers
accordingly.
</TABLE>
SECTION 14
INFORMATION
CONDUCT OF PROCEEDINGS
ACCESS TO FILES
<TABLE>
<S> <C>
14.1 Upon making a claim under this Agreement, Purchaser shall
use all reasonable endeavours to procure that the Funds are
informed, and are kept informed, promptly and fully of all
circumstances involving such claim of Purchaser against the
Funds hereunder, and shall make available to the Funds
copies of all relevant documents. Purchaser shall give the
Funds opportunity to take part at their own expense in all
relevant meetings and negotiations. As between Purchaser and
the Funds, a settlement (Vergleich), waiver (Verzicht) or
acknowledgement (Anerkenntnis) by Purchaser or any
corporation belonging to TelDaFax Group shall not contribute
evidence for the factual situation or legal position
underlying the compromise, waiver or acknowledgement.
14.2 If and as far as circumstances could give rise to a claim of
Purchaser against the Funds hereunder, Purchaser shall use
all reasonable endeavours to procure that the Funds are
informed of any reports, written opinions given by the tax
authorities in connection with the tax audit before the
final meeting (Schlu(beta)bericht) and are given the
opportunity to take part at their own expense in all
meetings with the tax authorities in the context of tax
audits and tax assessments relating to period until December
31, 2000, as well as to present their position to the tax
authorities in writing. If Purchaser or TelDaFax or any of
its Subsidiaries intend to give any written statements to
tax authorities referring to periods until December 31, 2000
and relevant for the Funds' position, Purchaser undertakes
to inform the Funds in time of such intent so that the Funds
can review the intended statements and comment thereon.
Upon request and at cost of the Funds, Purchaser shall use
all reasonable efforts to procure that all available
remedies are used against tax assessments assessing taxes
for the period until December 31, 2000, which could result
in a claim of Purchaser against the Funds. To the extent
remedies cannot be sought in time for reasons of delayed
transmission of tax assessments and other documents to the
Funds, claims of the Purchaser in respect of the additional
tax liability which was to be contested by such remedy shall
be excluded. Court proceedings shall be conduced jointly by
Purchaser and the Funds, and sentences 1 and 2 of this
subsection 14.2 shall apply mutatis mutandis. Purchaser
shall use all reasonable efforts to procure that a
settlement, waiver or acknowledgement is not entered or not
declared into except with the consent of the Funds.
14.3 Purchaser shall procure that the Funds are granted
reasonable access on reasonable notice to all files,
documents and information directly relating to tax
assessments against the Funds or affiliates of the Funds, or
which are otherwise reasonably required by the Funds.
</TABLE>
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14.4 It is agreed that the provisions of this sec. 14 shall not
apply so as to require the Purchaser to provide any
information or documentation or allow the Funds access to
any meetings or negotiations where, to do so, would in
Purchaser's reasonable opinion be, or might be, unlawful or
detrimental to its legitimate commercial interest or those
of any affiliated company (including all and any members of
the TelDaFax Group).
</TABLE>
SECTION 15
CONDUCT OF THE BUSINESS UNTIL TRANSFER OF SHARES
<TABLE>
<S> <C>
15.1 The Funds, A+M and Klose shall use their best endeavours to
procure (including, without limitation, by voting any shares
over which they have control) that (i) the business of
TelDaFax Group is continued in the ordinary course of
business in the period between signing of this Agreement and
the Closing and the Purchaser has appropriate access to the
management of TelDaFax Group during this period of time,
that (ii) no steps are taken by TelDaFax which are, or could
be, using a sound commercial judgement, detrimental to the
transaction contemplated by this Agreement and that (iii) no
action is taken by TelDaFax which would require
shareholders' or supervisory board's approval.
15.2 TelDaFax undertakes not to acquire directly or indirectly
any interest in any legal entity or partnership other than
the Subsidiaries without the consent of the Purchaser which
shall not be unreasonably withheld.
15.3 TelDaFax undertakes not to become a party to agreements in
the sense of sec.sec. 291 seq. AktG, joint venture
agreements, co-operation agreements, partnerships or silent
partnership agreements or any other similar contractual
arrangement and to procure that the Subsidiaries do not
enter into any of those agreements without the consent if
the Purchaser which shall not be unreasonably withheld.
15.4 TelDaFax undertakes not to enter into, or terminate or
materially amend, any Material Agreement without the consent
of Purchaser which shall not be unreasonably withheld.
</TABLE>
SECTION 16
CONFIDENTIALITY/PUBLIC ANNOUNCEMENT/TAKE-OVER CODE
<TABLE>
<S> <C>
16.1 The parties will keep the contents of this Agreement and any
information provided in connection with the transaction
contemplated hereunder confidential. Any public announcement
including, but not limited to an announcement pursuant to
the WpHG (Wertpapierhandelsgesetz = Securities Trading Act)
and/or press statement to be made after the Signing Date
shall be agreed between the parties in advance.
16.2 Notwithstanding the foregoing, the Purchaser shall be
entitled to make, without the consent of any Seller, any
such disclosures or announcements as may be required by law
or by any regulatory, governmental or other authority
(including the U.S. Securities Exchange Commission and
Nasdaq National Market) in connection with the transactions
contemplated hereunder.
16.3 After the Closing, the Funds and Purchaser will comply with
the notification duties pursuant to sec. 20 Stock
Corporation Act and sec. 21 Securities Trading Act, to the
extent applicable.
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16.4 It is the current intention of the Purchaser to comply with
the Take-Over Code of the Exchange Expert Commission, as
amended. Purchaser agrees subject to sec. 8 to launch a
tender offer (the "TENDER OFFER") for all the shares of
TelDaFax as soon as reasonably practicable pursuant to which
each share of TelDaFax would receive 1.025 shares of World
Access Common Stock ("EXCHANGE RATIO") conditioned upon
receipt of all necessary approvals (including, without
limitation, approval of the shareholders of Purchaser) and
registration of the shares of the World Access Common Stock
to be issued in the Tender Offer.
16.5 The Funds and A+M undertake not to sell, pledge,
hypothecate, or otherwise transfer any shares of TelDaFax
stock owned or controlled by them directly or indirectly
(including any shares acquired after the date hereof),
except pursuant to this Agreement. If, after the Closing,
the Funds decide to sell their shares in Purchaser,
Purchaser and the Funds agree to co-operate in an effort to
have such shares sold institutionally rather than on the
open market.
</TABLE>
SECTION 17
PUT AND CALL OPTION
<TABLE>
<S> <C>
17.1 Klose can exercise the Klose Put Option in up to three
installments by giving written notice to Purchaser in
accordance with sec. 26 in the period beginning on the
signing Date and ending on December 31, 2001. Upon receipt
of the notice a purchase contract is deemed to be entered
into with the following terms:
17.1.1 In exchange for each Option Share sold, the Purchaser
shall issue the number of World Access Common Stock
as provided for in sec. 6.2.
17.1.2 If the Put Option is exercised prior to the Closing
Klose shall be deemed to give the same
representations and warranties as the Funds in sec.
11, provided that all references to the Funds are
deemed to be refer to Klose and all references to
the Sold Shares are deemed to refer to the Klose
Option Shares. sec.sec. 12, 13.1 to 13.3 and 14
shall apply accordingly, in particular (i) the
relevant percentage in sec. 12.1 shall be equal to
the percentage of the share capital sold, (ii) and
the statute of limitations shall run from the
Option Closing and (iii) the knowledge of all
members of the Board of Management of TelDaFax
Messrs. Klose, Legner, Meier shall be attributed to
Klose. If the Put Option is exercised after the
Closing Klose shall be deemed to give only the
representation in sec.sec. 11.3.1.2, 11.3.1.3
sentence 2, 11.3.1.4 and sec. 11.2.
17.1.3 The sale under the Put Option shall be closed as soon
as the Purchaser can deliver the Consideration
Stock but in no event earlier than the Closing (the
"PUT OPTION CLOSING"). If the Purchaser has enough
authorized shares the Put Option Closing shall take
place within three business days after receipt of
the exercise notice.
17.1.4 At the Put Option Closing Purchaser shall procure
evidence that the transfer of the Consideration
Stock for the respective number of Option Shares
will be completed, subject to, and simultaneously
with the following:
17.1.4.1 Delivery by Klose to Purchaser of the share
transfer agreement in the form of Exhibit 5.3
properly executed by the Klose covering all Option
Shares sold;
17.1.4.2 Delivery of Klose of confirmation by its custody
banks that the sold Option Shares are booked as of
the Put Option Closing to the securities account
specified in sec. 5.2 substantially in the form of
Exhibit 9.3.2;
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17.1.4.3 If the Put Option is exercised prior to the
Closing, delivery by Klose to Purchaser and by
Purchaser to Klose of certificates of the Funds and
Purchaser, respectively, that the representations and
warranties of each of them shall be true and correct
in all material respects as of the Put Option
Closing, or, as the case may be, as of any other
point of time specifically mentioned therein.
17.2 Purchaser can exercise the Klose Call Option in the period
between July 1, 2002 until December 31, 2002. To exercise
the Klose Call Option Purchaser has to give written notice
to Klose. The Klose Call Option can only be exercised once.
If exercised, an agreement to sell all Klose Option Shares
Klose is holding at the time of receipt of the notice shall
be deemed to be entered into between Klose and the Purchaser
upon the following terms:
17.2.1 In exchange for each Option Share sold the Purchaser
shall issue the number World Access Common Stock as
provided in sec. 6.2.
17.2.2 Klose shall be deemed to give the representations in
sec.sec. 11.3.1.2, 11.3.1.3 sentence 2, 11.3.1.4,
11.2 and 11.5 and to represent that he holds no
shares in TelDaFax other than the Option Shares he is
selling as of the Call Option Closing.
17.2.3 The sale under the Call Option shall be closed as
soon as the Purchaser can deliver the Consideration
Stock (the "CALL OPTION CLOSING"). If the Purchaser
has enough authorized shares, the Call Option Closing
shall take place within five business days after
receipt of the exercise notice.
17.2.4 At the Call Option Closing Purchaser shall procure
evidence that the transfer of the Consideration Stock
for the respective number of Option Shares will be
completed, subject to, and simultaneously with the
following:
17.2.4.1 Delivery by Klose to Purchaser of the share
transfer agreement in the form of Exhibit 5.2
properly executed by the Klose covering all Option
Shares sold;
17.2.4.2 Delivery of Klose of confirmation by its custody
banks that the sold Option Shares are booked as of
the Call Option Closing date to the securities
account specified in sec. 5.2 substantially in the
form of Exhibit 9.2.2;
17.3 Purchaser undertakes to use reasonable efforts to assist
Klose with finding buyers for the Consideration Stock owned
by him following the Put Option or Call Option Closing in
order to obtain liquid means to cover Klose's personal tax
arising from such sales.
17.4 Klose may not, and will not enter into any Agreement to,
sell, pledge, hypothecate or otherwise transfer any of the
Option Shares except in accordance with the terms of this
Section 17.4.
17.4.1 In the event Klose desires to sell any of the Option
Shares and has received a bona fide written offer
from an unrelated third party (the "OFFEROR") Klose
shall be entitled to sell such Option Shares to the
Offeror only in accordance with this Section 17.4.1:
(a) Klose shall give written notice (the "SALES NOTICE") of
his intention to sell such Options Shares to the
Purchaser. The Sales Notice shall be accompanied by a
copy of the written offer from the offeror containing
the terms of the proposed purchase. The Sales Notice
shall include the identity of the Offeror, the number of
Option Shares to be sold, the purchase price and the
terms of payment. The Purchaser may elect to purchase
all of such Option Shares on the terms set forth in the
Sales Notice by giving written notice to Klose within
ten days from the date of the receipt of the Sales
Notice.
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(b) If Purchaser does not elect to purchase such Option
Shares, then Klose shall be free to sell such Option
Shares to the Offerer in accordance with the terms of the
Sales Notice. If such sale does not occur within ninety
(90) days of the original mailing of the Sales Notice
then such Option Shares will once again become fully
subject to this Section 17.4.
17.4.2 In the event Klose desires to sell Option Shares on
the Frankfurt Stock Exchange Klose shall be entitled to
sell such Option Shares only in accordance with this
sec. 17.4.2:
(a) Klose shall give a Sales Notice to Purchaser. The Sales
Notice shall specify the number of Option Shares to be
sold. Purchaser may elect to purchase all of such Option
Shares by giving written notice to Klose within ten
days from the date of the receipt of the Sales Notice
for a price per Option Share equal to the average price
quoted on the Frankfurt Stock Exchange on the five
trading days prior the date of the Sales Notice.
(b) If Purchaser does not elect to purchase such Option
Shares, Klose is free to sell such Option Shares during
a period of 30 days following the expiry of the ten days
period or the notice given by Purchaser not to purchase
such Option Shares, whichever is earlier.
17.5 The terms set forth in sec.sec. 17.1 - 17.3 shall apply
mutatis mutandis to the A+M Put and Call Option with the
following differences.
17.5.1 The A+M Put Option can only be exercised in one
instalment during the period beginning after the
Closing and ending on April 30, 2001.
17.5.2 The A+M Call Option can only be exercised during the
period beginning on July 1, 2001 and ending on
December 31, 2001.
17.5.3 A+M shall be deemed to represent that A+M is a
limited partnership (Kommanditgesellschaft) duly
formed and validly existing under German law and to
give the representations in sec.sec. 11.1.4 and 11.1.5.
</TABLE>
SECTION 18
NON-COMPETITION COVENANT
<TABLE>
<S> <C>
18.1 For a period of one year after the termination of the
respective term of any employment or service agreement with
TelDaFax or any affiliate, Klose and those companies
affiliated with him within the meaning of sec. 15 et seq.
Aktiengesetz (Stock Corporation Act) undertake not to engage
directly or indirectly in any activity, enterprise or
company having activities similar to the telecommunication
activities of the TelDaFax Group from time to time in the
current geographical area of the activities of TelDaFax
Group.
18.2 The acquisition or the holding of any participation of up to
5% in stock of exchange listed corporations shall not
constitute a violation of the non-competition covenant
pursuant to sec. 18.1.
18.3 In case of any violation of the non-competition covenant
pursuant to sec. 18.1 Klose shall be obliged to pay to
Purchaser a contractual penalty (Vertragsstrafe) in the
amount of (euro)250,000 (in words: two hundred fifty
thousand). If the violation continues (andauert), Klose
shall be obliged to pay for each further month of the
violation a further contractual penalty in the amount of
(euro)100,000 (in words: one hundred thousand). Further
claims of Purchaser for cease and desist (Unterlassung)
and for damages remain unaffected. The contractual penalty
shall be deducted from any damage payments, if any.
</TABLE>
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SECTION 19
ASSIGNMENT
Neither the Sellers nor the Purchaser are entitled to transfer without the
consent of the other contracting parties rights, except rights for payment, or
obligations arising out of this Agreement to a third party.
SECTION 20
MERGER CONTROL CLEARANCE
<TABLE>
<S> <C>
20.1 Sellers and Purchaser shall co-operate and provide each
other with all necessary assistance to notify all
transactions contemplated herein (including, without
limitation, the contribution by Purchaser in accordance with
sec. 4.2 of this Agreement) to the Federal Cartel Office
("FCO").
20.2 Purchaser shall take responsibility for drafting and
formulating a joint notification to, and full communications
with, the FCO. Such actions shall be taken by Purchaser in
consultation with Sellers. The Purchaser shall use its best
endeavours to notify the Agreement as soon as is practically
possible after the Signing Date, provided that the Sellers
provide the pre-requisite information for the completion of
the notification. Representatives of Sellers shall be
informed of, and are entitled at their own expense to be
present at, meetings with representatives of the FCO in the
context of the transaction contemplated hereunder. Purchaser
shall keep Sellers informed of contacts which it may have
with such FCO representatives. In the event that any of the
Sellers should have any contact with the FCO, it shall so
inform the Purchaser.
</TABLE>
SECTION 21
SERVICE CONTRACT WITH KLOSE
Klose undertakes to continue to work for TelDaFax under a two year fixed
term contract to be on such terms as agreed between Purchaser and Klose prior to
Closing provided that the compensation available to Klose under such contract
shall not be less favourable than that currently available to him under the
existing employment contract as disclosed to Purchaser.
SECTION 22
COSTS
Each Party shall bear its own costs and transfer taxes arising in the
context of this Agreement and the implementation of the transaction contemplated
herein.
SECTION 23
MUTUAL ASSISTANCE/FILINGS
Sellers and TelDaFax undertake to co-operate with and to provide Purchaser
with all necessary information required for any regulatory filings, in
particular, but not limited to, all filings with the Securities Exchange
Commission.
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SECTION 24
COMPLETE AGREEMENT/WRITTEN FORM
This Agreement, together with the agreements mentioned herein and the
documents referred to in sec. 10.2, sets forth the complete agreement reached by
the parties on the subject matters dealt with herein. Changes of this Agreement,
including a change of this written form clause, shall require written form,
except where a stronger form requirement applies.
SECTION 25
SEVERABILITY
<TABLE>
<S> <C>
25.1 Should any provision of this Agreement be or become in whole
or in part invalid, this shall not affect the validity of
the rest of the Agreement. In this event, the invalid
provision shall be deemed to be replaced by a valid
provision which corresponds to the economic purpose of the
invalid provisions to the largest extent possible. This
shall also apply in the case of any gaps in this Agreement.
25.2 Should any provision of this Agreement be invalid to its
geographical or substantive areas of application or the
period of application, the respective provision shall be
deemed reduced to the maximum permissible scope.
</TABLE>
SECTION 26
NOTICES, SERVICES OF PROCESS
<TABLE>
<S> <C>
26.1 Notices or declarations to Sellers made in the context of
this Agreement shall be deemed to be validly given if sent
by registered mail, courier or fax to the following address
or such other address as is notified in writing by Sellers
to Purchaser:
26.1.1 If to Klose:
Dr. Henning F. Klose
Augsburger Stra(beta)e 25
D-10789 Berlin
Fax-No.: ++49 6423-1798
26.1.2 If to the Funds:
Pollath + Partner
Lilienthalstra(beta)e 7
D-85399 Munchen - Hallbergmoos
Fax-No.: ++49 89 223 325
26.2 Notices or declarations to Purchaser made in the context of
this Agreement shall be deemed to be validly given if sent
by registered mail, courier or fax to the following address
or such other address as is notified in writing by Purchaser
to Sellers:
GAEDERTZ, Frankfurt office
Bockenheimer Landstra(beta)e 98 - 100
D-60323 Frankfurt am Main
Fax-No.: ++49 69 7941 100
with a copy to:
World Access, Inc.
Attn.: W. Tod Chmar, Executive Vice President,
945 East Paces Ferry Road, Suite 2200
Atlanta, GA 30326 U.S.A.
Fax-No.: ++1 404 233 2280
</TABLE>
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<TABLE>
<S> <C>
26.3 Purchaser appoints GAEDERTZ, Frankfurt office, Bockenheimer Landstra(beta)e 98 - 100,
D-60323 Frankfurt am Main, as its authorised agent for accepting services of process with
respect to any legal proceedings in Germany. The Funds appoint Pollath + Partner, attention
Dr. Matthias Bruse, Munchen, as its authorised agent for accepting services of process.
26.4 Notices or declarations to TelDaFax made in the context of this Agreement shall be deemed
to be validly given if sent by registered mail, courier or fax to the following address or
such other address as is notified in writing by TelDaFax to Purchaser:
TelDaFax Aktiengesellschaft
Rudolf-Breitscheid-Str. 1-5
35037 Marburg
Fax-No.: ++49 6421-181-1210
</TABLE>
SECTION 27
LANGUAGE/COUNTERPARTS/CHOICE OF LAW/JURISDICTION
<TABLE>
<S> <C>
27.1 This Agreement except for Exhibits 10.2.1,11.3.1.8,
11.3.1.12, 11.3.3.2, 11.3.4.1, 11.3.4.2, 11.3.7.1, 11.3.10.1
is in the English language only. Purchaser confirms that he
is fully aware of the contents of those Exhibits which are
in the German language.
27.2 This Agreement will be executed in four counterparts.
27.3 This Agreement shall be governed by the laws of the Federal
Republic of Germany.
27.4 The courts in Frankfurt am Main shall have non-exclusive
jurisdiction.
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------
TelDaFax AG
by Klose und by Legner
--------------------------------------------------- ---------------------------------------------------
World Access, Inc. Otto Haberstock by proxy dated June 7, 2000 for
By: W. Tod Chmar Apax Funds Nominee Ltd. fur "B" Account
Title: Executive Vice President
--------------------------------------------------- ---------------------------------------------------
Dr. Henning F. Klose Otto Haberstock by proxy dated June 7, 2000 for
Apax Funds Nominee Ltd. fur "D" Account
--------------------------------------------------- ---------------------------------------------------
Otto Haberstock by proxy dated June 5, 2000 for Otto Haberstock by proxy dated June 6, 2000 for AP
Apax Germany II L.P. Vermogensverwaltung Gesellschaft burgerlichen
Rechts
---------------------------------------------------
A + M GmbH & Co Vermogensverwaltung KG
</TABLE>
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<PAGE> 209
ANNEX B
June 14, 2000
Board of Directors
World Access, Inc.
945 East Paces Ferry Road
Suite 2200
Atlanta, GA 30326
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to World Access, Inc. (the "Company" or the "Purchaser") of the
consideration to be paid by the Company in the Stock Acquisition (as defined
below) and the Tender Offer (as defined below) pursuant to the terms of the
Purchase and Transfer Agreement, dated as of June 14, 2000 (the "Agreement"), by
and among Apax Germany II L.P. ("Apax II"), Apax Funds Nominees Ltd. fur "B"
Account ("Apax B Fund"), Apax Funds Nominees Ltd. fur "D" Account ("Apax D
Account"), AP Vermogensverwaltung Gesellschaft burgerlichen Rechts ("AP")
(together, the "Funds"), A+M GmbH & Co Vermogensverwaltung KG ("A+M"), Dr.
Henning F. Klose ("Klose") (together with the Funds and A+M, the "Sellers"),
TelDaFax Aktiengesellschaft Marburg, Lahn ("TelDaFax"), and the Company,
pursuant to which, among other things: (i) the Funds agree to sell to the
Company all of the TelDaFax shares currently owned by the Funds (the "Sold
Shares") (the "Stock Acquisition"); and (ii) the Company will launch a tender
offer (the "Tender Offer") for all the other outstanding shares of TelDaFax as
soon as reasonably practicable. Pursuant to the Agreement, (a) the Company and
TelDaFax have agreed to pursue a combination of their respective businesses in
Germany (the "Contribution"), (b) each of Klose and A+M has the right to sell to
the Company its shares of TelDaFax at the same price at which shares are
purchased in the Tender Offer (the "Put Option") and (c) the Company has the
right to purchase from each of Klose and A+M its shares of TelDaFax at the same
price at which shares are purchased in the Tender Offer (the "Call Option").
Pursuant to the Agreement, the Company will launch the Tender Offer in
which each share of TelDaFax would receive 1.025 shares of common stock, par
value $.01 per share ("World Access Common Stock"), of the Company (the
"Consideration"), and the Company will also purchase each of the Sold Shares for
the Consideration. The closing of the Stock Acquisition and the Tender Offer are
conditioned upon enough shares being tendered in the Tender Offer so that
following the Tender Offer the Company will own more than 50% of the then
outstanding TelDaFax shares.
In arriving at our opinion, we have reviewed the Agreement. We also
reviewed financial and other information that was publicly available or
furnished to us by the Company and TelDaFax, including information provided
during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of TelDaFax for the period beginning April 1, 2000
and ending December 31, 2001 prepared by the management of TelDaFax and for the
period beginning January 1, 2002 and ending December 31, 2004 prepared by the
management of the Company, as well as certain financial projections of the
Company for the period beginning April 1, 2000 and ending December 31, 2004
prepared by the management of the Company. In addition, we have compared certain
financial and securities data of TelDaFax and the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the common stock of TelDaFax and the
Company, reviewed prices paid in certain other business combinations and
conducted such other financial studies, analyses and investigations as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company and TelDaFax or
their respective representatives, or that was otherwise reviewed by us. With
respect to the financial projections supplied to us, we have relied on
representations that they have been
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<PAGE> 210
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company and TelDaFax as to the
future operating and financial performance of the Company and TelDaFax. In
addition, we have assumed that: (i) the TelDaFax shares are tendered in the
Tender Offer for the Consideration equal to 1.025 shares of World Access Common
Stock for each TelDaFax share; (ii) the pending merger of the Company with STAR
Telecommunications, Inc. ("STAR") and Communication TeleSystems International
d/b/a WORLDxCHANGE Communications ("WORLDxCHANGE") are consummated; (iii) upon
such consummation, the German businesses of STAR and WORLDxCHANGE are integrated
(through consolidation or by contract) with TelDaFax; and (iv) the Contribution
is consummated and the German assets of the Company that are contributed thereof
include at least the German businesses of NetNet and NewTel. We have also relied
upon the estimates of the management of the Company of the operating synergies
achievable as a result of the consummation of the Contribution and the
combination of TelDaFax with the German businesses of STAR and WORLDxCHANGE and
upon our discussions of such synergies with management of TelDaFax. We have not
assumed any responsibility for making any independent evaluation of any assets
or liabilities or for making any independent verification of any of the
information reviewed by us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion as to the prices
at which World Access Common Stock will actually trade at any time. Our opinion
does not address the relative merits of the Tender Offer, the Stock Acquisition
and the other transactions contemplated by the Agreement and the other business
strategies being considered by the Company's Board of Directors, nor does it
address the Board's decision to proceed with the Tender Offer, Stock Acquisition
and the other transactions contemplated by the Agreement. Our opinion also does
not address the consideration to be paid by the Company upon exercise of the Put
Option or the Call Option or the terms of the Contribution. Our opinion does not
constitute a recommendation to any stockholder as to how such stockholder should
vote on the proposed transactions or whether any shareholder should tender
shares in the Tender Offer.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services, including (i) acting as financial advisor to the Company in
connection with its acquisition of FaciliCom International, Inc. ("FaciliCom")
in 1999 and acting as financial advisor in connection with the exchange offer
for FaciliCom's outstanding senior notes; (ii) acting as financial advisor to
the Company in connection with its pending acquisitions of both STAR and
WORLDxCHANGE in 2000; and (iii) acting as financial advisor in connection with
the sale of the Company's Telco Systems Inc. subsidiary and the Company's
Wireless Local Loop Division in 2000.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Consideration to be paid by the Company in the Stock
Acquisition and the Tender Offer pursuant to the Agreement is fair to the
Company and its stockholders from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/ MICHAEL CONNOLLY
--------------------------------------
Michael Connolly
Senior Vice President
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<PAGE> 211
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the General Corporation Law of the State of Delaware
("DGCL") allows a corporation to eliminate or limit the personal liability of
directors of a corporation to the corporation or to any of its security holders
for monetary damages for a breach of fiduciary duty as a director, except (i)
for breach of the director's duty or loyalty, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) for certain unlawful dividends and stock repurchases, or (iv) for any
transaction from which the director derived an improper personal benefit.
Section 145 of the DGCL provides that, in the case of any action other than
one by or in the right of the corporation, a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
in such capacity on behalf of another corporation or enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Articles X and XI of the World Access, Inc. amended certificate of
incorporation provide for indemnification of directors, officers and employees
to the fullest extent permissible under the DGCL.
Officers and directors of World Access are presently covered by insurance
which (with certain exceptions and with certain limitations) indemnifies them
against any losses or liabilities arising from any alleged "wrongful act"
including any alleged breach of duty, neglect, error, misstatement, misleading
statement, omissions or other act done or wrongfully attempted. The cost of such
insurance is borne by World Access as permitted by the DGCL.
World Access has entered into separate indemnification agreements with its
directors and non-director officers at the level of Vice President and above.
These indemnification agreements provide as follows:
- there is a rebuttable presumption that the director or officer has met
the applicable standard of conduct required for indemnification;
- World Access will advance litigation expenses to a director or officer at
his request provided that he undertakes to repay the amount advanced if
it is ultimately determined that he is not entitled to indemnification
for such expenses;
- World Access will indemnify a director or officer for amounts paid in
settlement of a derivative suit;
- in the event of a determination by the disinterested members of the board
of directors or independent counsel that a director or officer did not
meet the standard of conduct required for indemnification, the director
or officer may contest this determination by petitioning a court or
commencing any arbitration proceeding conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association to make an
independent determination of whether such director or officer is entitled
to indemnification under his indemnification agreement; and
- World Access will reimburse a director or officer for expenses incurred
enforcing his rights under his indemnification agreement.
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<PAGE> 212
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits. The following exhibits are filed as part of this
registration statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <C> <S>
2.1 -- Agreement and Plan of Merger, dated as of February 11, 2000
among World Access, Inc., STI Merger Co. and STAR
Telecommunications, Inc. (incorporated by reference to
Exhibit 2.1 to World Access' Form 10-Q for the quarter ended
March 31, 2000, filed May 22, 2000).
2.2 -- Agreement and Plan of Merger, dated as of February 11, 2000
among World Access, Inc., WorldxChange Communications, Inc.
f/k/a CTI Merger Co. and Communication TeleSystems
International d/b/a WorldxChange Communications
(incorporated by reference to Exhibit 2.2 to World Access'
Form 10-Q for the quarter ended March 31, 2000, filed May
22, 2000).
2.3 -- First Amendment to Agreement and Plan of Merger dated May
23, 2000 by and among World Access, Inc., WorldxChange
Communications, Inc. and Communication Telesystems
International d/b/a WorldxChange Communications
(incorporated by reference to Exhibit 2.3 to World Access'
Registration Statement on Form S-4, filed on ,
2000, Registration No. 333-37750).
2.4 -- Second Amendment to Agreement and Plan of Merger dated
August 1, 2000 by and among World Access, Inc., WorldxChange
Communications, Inc. and Communication TeleSystems
International d/b/a WorldxChange Communications
(incorporated by reference to Exhibit 2.4 to World Access'
Registration Statement on Form S-4, filed on ,
2000, Registration No. 333-37750).
2.5 -- First Amendment to Agreement and Plan of Merger dated June
7, 2000 by and among World Access, Inc., STI Merger Co. and
STAR Telecommunications, Inc. (incorporated by reference to
Exhibit 2.5 to World Access' Registration Statement on Form
S-4, filed on , 2000, Registration No. 333-37750).
2.6 -- Purchase and Transfer Agreement, dated as of June 14, 2000
between Dr. Henning F. Klose, Apax Germany II L.P., Apax
Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees
Ltd. fur "D" Account, AP Vermogensverwaltung Gesellshaft
burgerlichen Rechts, A+M GmbH & Co. Vermogensverwaltung KG,
and, World Access, Inc. and TelDaFax Aktiengsellschaft
Marburg/Lahn (incorporated by reference to Exhibit 2.3 to
World Access' Form 10-Q for the quarter ended June 30, 2000,
filed August 14, 2000).
3.1 -- Certificate of Incorporation of World Access and Amendments
to Certificate of Incorporation (incorporated by reference
to Exhibit 3.1 to World Access' Form S-4 filed to October 6,
1998, Registration No. 333-65389, Amendment to Certificate
of Incorporation incorporated by reference to Exhibit 3.2 of
WA Telcom Products Co., Inc.'s Form 8-K filed October 28,
1998)
3.2 -- Amendment to Certificate of Incorporation (incorporated by
reference to Exhibit 3.2 to World Access' Form 10-K for the
year ended December 31, 1998, filed April 9, 1999)
3.3 -- Certificate of Designation of 4.25% Cumulative Senior
Perpetual Convertible Preferred Stock, Series A
(incorporated by reference to Exhibit 4 to World Access'
Form 8-K, filed May 3, 1999)
3.4 -- Certificate of Designation of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B (incorporated by
reference to Exhibit 4.1 to World Access' Form 8-K, filed
July 14, 1999)
3.5 -- Certificate of Designation of Convertible Preferred Stock,
Series C (incorporated by reference to Exhibit 1.7(b) to
Appendix A to World Access' Proxy Statement dated November
5, 1999 relating to the Special Meeting of Stockholders held
on December 7, 1999)
3.6 -- Certificate of Designation of Convertible Preferred Stock,
Series D (incorporated by reference to Exhibit 4 to World
Access' Form 8-K, filed February 28, 2000)
3.7 -- Certificate of Designation of Convertible Preferred Stock,
Series E (incorporated by reference to Exhibit 3.7 to World
Access' Form 10-Q for the quarter ended June 30, 2000, filed
August 14, 2000).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <C> <S>
3.8 -- Bylaws of World Access (incorporated by reference to Exhibit
3.2 to World Access' Form S-4 filed October 6, 1998, No.
333-65389)
4.1 -- Indenture dated as of October 1, 1997 by and between World
Access, Inc. and First Union Bank, as trustee (incorporated
by reference to Exhibit 4.1 to WA Telcom Products Co.,
Inc.'s Form 8-K, filed October 8, 1997)
4.2 -- First Supplemental Indenture dated October 28, 1998 between
World Access, Inc., WA Telcom Products Co., Inc. and First
Union Bank, as Trustee (incorporated by reference to Exhibit
4.1 to World Access' Form 8-K filed October 28, 1998)
4.3 -- Indenture dated as of December 7, 1999 by and between World
Access, Inc. and First Union Bank, as Trustee (incorporated
by reference to Exhibit 4.3 to World Access' Registration
Statement on Form S-4, filed on , 2000,
Registration No. 333-37750).
5.1* -- Opinion of Long Aldridge & Norman LLP regarding legality of
common stock
8.1 -- Opinion of Long Aldridge & Norman LLP regarding certain tax
matters.
8.2 -- Opinion of Gaedertz Rechtsanwalte regarding certain German
tax matters.
10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to WA Telco
Systems' Registration Statement on Form S-8, filed on July
25, 1991, No. 33-41255-A)
10.2 -- Amendment to World Access, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to WA Telco
Systems' Form 10-K for the year ended December 31, 1993,
filed March 31, 1994)
10.3 -- Second Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to WA Telco Systems' Form 10-K for
the year ended December 31, 1993, filed March 31, 1994)
10.4 -- Third Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.26 to WA Telco Systems' Form S-2,
Amendment No. 2, filed on February 14, 1995, No. 33-87026)
10.5 -- World Access, Inc., Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.40 to WA Telco
Systems' Form 10-K for the year ended December 31, 1995,
filed April 10, 1996)
10.6 -- Directors' Warrant Incentive Plan (incorporated by reference
to Exhibit 10.41 to WA Telco Systems' Form 10-K for the year
ended December 31, 1995, filed April 10, 1996)
10.7 -- Fourth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.32 to WA Telco Systems' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997)
10.8 -- Fifth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997)
10.9 -- Amendment One to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.33 to WA Telco
Systems' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997)
10.10 -- Amendment One to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.31 to WA Telco
Systems' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997)
10.11 -- Amendment Two to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to WA Telco
Systems' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998)
10.12 -- Amendment Two to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.22 to WA Telco
Systems' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998)
10.13 -- Sixth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.22 to WA Telco Systems' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998)
</TABLE>
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<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <C> <S>
10.14 -- Severance Protection Agreement dated November 1, 1997 by and
between World Access, Inc. and Mark A. Gergel (incorporated
by reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998)
10.15 -- Amendment Three to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999)
10.16 -- Executive Employment Agreement between World Access, Inc.
and Mark A. Gergel dated as of December 14, 1998
(incorporated by reference to Exhibit 10.23 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999)
10.17 -- World Access, Inc. 1998 Incentive Equity Plan, as amended
(incorporated by reference to Exhibit 10.25 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999)
10.18 -- Assignment and Assumption Agreement dated October 29, 1998
between World Access, Inc. and WA Telcom Products Co., Inc.
(incorporated by reference to Exhibit 10.1 to World Access'
Form 8-K filed October 28, 1998)
10.19 -- Form of Indemnification Agreement with directors and
officers (incorporated by reference to Appendix H to World
Access' Joint Proxy Statement/Prospectus dated November 10,
1998 relating to the Special Meeting of Stockholders held on
November 30, 1998)
10.20 -- Schedule of all officers and directors who have signed an
Indemnification Agreement referred to in Exhibit 10.19
(incorporated by reference to Exhibit 10.28 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999)
10.21 -- First Amended and Restated Credit Agreement dated as of
December 7, 1999 between Telco Systems, Inc., World Access
Holdings, Inc. and Bank of America, N.A. as Administrative
Agent and Fleet National Bank as Syndication Agent and Bank
Austria Creditanstalt Corporate Finance, Inc. as
Documentation Agent and Banc of America Securities LLC as
Lead Arranger and Book Running Manager (incorporated by
reference to Exhibit 10.20 to World Access' Form 10-K for
the year ended December 31, 1999, filed March 30, 2000)
10.22 -- Guaranty dated as of December 30, 1998 between World Access,
Telco Systems, World Access Holdings, Inc., NationsBank,
N.A. as Administrative Agent and the lenders party to the
Credit Agreement referred to in Exhibit 10.21 (incorporated
by reference to Exhibit 10.30 to World Access' Form 10-K for
the year ended December 31, 1998, filed April 9, 1999)
10.23 -- Pledge Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.21 (incorporated by reference to Exhibit 10.31 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999)
10.24 -- Security Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.21 (incorporated by reference to Exhibit 10.32 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999)
10.25 -- Disbursement Agreement dated as of December 14, 1998 by and
among World Access, Inc., Cherry Communications Incorporated
(d/b/a Resurgens Communications Group) and William H.
Cauthen, Esq. (incorporated by reference to Exhibit 10.33 to
World Access' Form 10M-K for the year ended December 31,
1998, filed April 9, 1999)
10.26 -- Agreement and Plan of Merger and Reorganization by and among
World Access, Inc., WAXS INC., WA Merger Corp. and Cherry
Communications Incorporated (d/b/a/ Resurgens Communications
Group) dated as of May 12, 1998, as amended (incorporated by
reference to Appendix A to World Access, Inc.'s Proxy
Statement dated November 12, 1998 relating to the Special
Meeting of Stockholders held on December 14, 1998)
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <C> <S>
10.27 -- Share Exchange Agreement by and among World Access, Inc.,
WAXS INC., Cherry Communications U.K. Limited and
Renaissance Partners II, dated as of May 12, 1998
(incorporated by reference to Appendix B to World Access,
Inc.'s Proxy Statement dated November 12, 1998 relating to
the Special Meeting of Stockholders held on December 14,
1998)
10.28 -- Confirmation Agreement dated as of December 7, 1999 by Telco
Systems, Inc., World Access Holdings, Inc., World Access,
Inc., WA Telco Systems Products Co., Inc., NACT
Telecommunications, Inc., Restor-AIT, Inc., Sunrise Sierra,
Inc., Westec Communications, Inc., Telco Systems Security
Corporation, World Access Capital Corp., World Access
Telecommunications Group, Inc., Cellular Infrastructure
Supply, Inc. and Galaxy Personal Services, Inc. for the
benefit of the lenders party to the Credit Agreement
referred to in Exhibit 10.20 (incorporated by reference to
Exhibit 10.24 to World Access' Form 10-K for the year ended
December 31, 1999, filed March 30, 2000)
10.29 -- Pledge Agreement dated as of December 7, 1999 by World
Access, Inc. in favor of Bank of America, N.A., in its
capacity as Administrative Agent, and each lender a party to
the Credit Agreement referred to in Exhibit 10.20
(incorporated by reference to Exhibit 10.28 to World Access'
Form 10-K for the year ended December 31, 1999, filed March
30, 2000)
10.30 -- FaciliCom International, Inc. 1998 Stock Option Plan
(incorporated by reference to Exhibit 10.19 to FaciliCom
International, Inc.'s Form 10-K for the year ended September
30, 1998, filed December 28, 1998)
10.31 -- First Amendment to the World Access, Inc. 1998 Incentive
Equity Plan (incorporated by reference to Exhibit 10.32 to
World Access' Form 10-K for the year ended December 31,
1999, filed March 30, 2000)
10.32 -- FaciliCom International, Inc. 1999 Special Stock Option Plan
(incorporated by reference to Exhibit 10.33 to World Access'
Form 10-K for the year ended December 31, 1999, filed March
30, 2000)
10.33 -- Credit Agreement dated as of November 15, 1999 by and among
FaciliCom International, L.L.C. and Nortel Networks Inc.
(incorporated by reference to Exhibit 10.34 to World Access'
Form 10-K for the year ended December 31, 1999, filed March
30, 2000)
10.34* -- Contribution/Exchange Agreement, dated August 11, 2000, by
and among TelDaFax Aktiengsellschaft Marburg/Lahn and Netnet
Telekommunikations GmbH and NewTel Communications GmbH.
16.1 -- Letter of PricewaterhouseCoopers LLP.
21.1 -- Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21.1 to World Access' Form 10-K for the year ended
December 31, 1999, filed March 30, 2000)
23.1 -- Consent of Long Aldridge & Norman LLP (included in Exhibit
5.1)
23.2 -- Consent of Ernst & Young LLP with respect to the financial
statements of World Access, Inc.
23.3 -- Consent of PricewaterhouseCoopers LLP with respect to the
financial statements of World Access, Inc.
23.4 -- Consent of Deloitte & Touche LLP with respect to the
financial statements of FaciliCom International, Inc.
23.5 -- Consent of Ernst & Young LLP with respect to the financial
statements of Long Distance International, Inc.
23.6 -- Consent of Arthur Andersen LLP with respect to the financial
statements of STAR Telecommunications, Inc.
23.7 -- Consent of Ernst & Young LLP with respect to the financial
statements of Communications Telesystems International
(d/b/a WorldxChange Communications)
</TABLE>
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<PAGE> 216
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <C> <S>
23.8 -- Consent of BDO Deutsche Warentrehand with respect to the
financial statements of TelDaFax AG.
23.9 -- Consent of Donaldson, Lufkin & Jenrette Securities
Corporation with respect to the financial opinion of
Donaldson, Lufkin & Jenrette Securities Corporation.
24.1 -- Power of Attorney of World Access (included in the signature
pages hereto)
99.1 -- Form of proxy for World Access stockholders
99.2* -- Form of Letter of Transmittal for TelDaFax stockholders
</TABLE>
---------------
* To be filed by amendment.
(B) Financial Statement Schedules. The financial statement schedules that
are required by Regulation S-X are incorporated herein by reference to our
Annual Report on Form 10-K for the year ended December 31, 1999.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sells are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the lower high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume in
price represent no more than 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering or
throughout a continuous offering. Financial statements and information otherwise
required by Section 10(a)(3) of the Act need not be furnished, provided, that
the registration includes any prospectus, by means of a post-effective
amendment, financial statements required pursuant to this paragraph (a)(4) and
other information necessary to ensure that all other information in the
prospectus is at least as current as the date of those financial statements.
Notwithstanding the foregoing, with respect to registration statements on Form
F-3, a post-effective amendment need not be filed to include financial
statements and information required by Section 10(a)(3) of the Act or Rule 3-19
of this chapter if such financial statements and
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<PAGE> 217
information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(5) Insofar as the indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
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<PAGE> 218
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on August 28, 2000.
WORLD ACCESS, INC.
By: /s/ JOHN D. PHILLIPS
------------------------------------
John D. Phillips
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John D. Phillips and Bryan D. Yokley, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of August 28, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ JOHN D. PHILLIPS Chairman and Chief Executive Officer
----------------------------------------------------- (Principal Executive Officer)
John D. Phillips
/s/ BRYAN D. YOKLEY Executive Vice President and Chief Financial
----------------------------------------------------- Officer (Principal Financial Officer)
Bryan D. Yokley
/s/ MARTIN D. KIDDER Vice President and Corporate Controller
----------------------------------------------------- (Principal Accounting Officer)
Martin D. Kidder
/s/ WALTER J. BURMEISTER President and Director
-----------------------------------------------------
Walter J. Burmeister
/s/ KIRBY J. CAMPBELL Director
-----------------------------------------------------
Kirby J. Campbell
/s/ BRYAN CIPOLETTI Director
-----------------------------------------------------
Bryan Cipoletti
Director
-----------------------------------------------------
Stephen J. Clearman
/s/ JOHN P. IMLAY, JR. Director
-----------------------------------------------------
John P. Imlay, Jr.
</TABLE>
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<PAGE> 219
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
Director
-----------------------------------------------------
Massimo Prelz Oltramonti
Director
-----------------------------------------------------
John P. Rigas
/s/ CARL E. SANDERS Director
-----------------------------------------------------
Carl E. Sanders
/s/ DRU A. SEDWICK Director
-----------------------------------------------------
Dru A. Sedwick
/s/ LAWRENCE C. TUCKER Director
-----------------------------------------------------
Lawrence C. Tucker
</TABLE>
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