<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 2000
REGISTRATION NO. 333-37750
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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WORLD ACCESS, INC.
(Exact name of Registrant as specified in its charter)
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DELAWARE 3669 58-2398004
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification 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 merger between STI Merger Co., a wholly-owned subsidiary of
World Access, and STAR Telecommunications, Inc. and/or upon consummation of the
merger between WorldxChange Communications, Inc. f/k/a CTI Merger Co., a
wholly-owned subsidiary of World Access, and Communication TeleSystems
International d/b/a WorldxChange Communications 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. [ ]
------------------------
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
[World Access Logo] [STAR Logo]
SPECIAL MEETING OF STOCKHOLDERS
MERGERS PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The boards of directors of World Access, Inc. and STAR Telecommunications,
Inc. have agreed on a merger that will combine the businesses of World Access
and STAR. The STAR merger agreement also provides for the sale of PT-1
Communications, Inc., STAR's subsidiary, to a third party.
As a result of the STAR merger, World Access will issue a total of
approximately 22.9 million shares of World Access common stock assuming World
Access chooses to pay all of the consideration in stock. Each outstanding share
of STAR common stock will be converted into the right to receive, at the
election of World Access:
- 0.386595 shares of World Access common stock, subject to adjustment as
described in the accompanying joint proxy statement/prospectus; or
- a combination of shares of World Access common stock and cash.
The board of directors of World Access has also agreed on a merger that
will combine the businesses of World Access and Communication TeleSystems
International, which does business as WorldxChange Communications. As a result
of the WorldxChange merger, World Access will issue a total of approximately
29.8 million shares of World Access common stock. Each outstanding share of
WorldxChange common stock, including shares of preferred stock deemed to be
automatically converted into shares of common stock immediately before
completion of the WorldxChange merger, will be converted into the right to
receive 0.6583 shares of World Access common stock.
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
1, 2000 was $8 11/16 per share. FOR A DISCUSSION OF RISK FACTORS YOU SHOULD
CONSIDER IN EVALUATING THE MERGERS AND THE PT-1 ASSET SALE, SEE "RISK FACTORS"
BEGINNING ON PAGE 29.
STAR cannot complete the STAR merger or the PT-1 asset sale without the
approval of its stockholders, and World Access cannot complete the STAR merger
or the WorldxChange merger without the approval of its stockholders. STAR and
World Access have scheduled special meetings to vote on these transactions and
other important proposals. A joint proxy statement/prospectus accompanies this
letter and provides detailed information about the special meetings, the STAR
merger, the WorldxChange merger and the PT-1 asset sale. In addition, you may
obtain information about our companies from documents that we have filed with
the Securities and Exchange Commission. We urge you to read the joint proxy
statement/prospectus document carefully.
The dates, times and places of the special meetings are as follows:
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For World Access' stockholders: For STAR's stockholders:
, 2000 , 2000
11:00 a.m., local time 11:00 a.m., local time
945 E. Paces Ferry Road 223 East De La Guerra
Atlanta, Georgia 30326 Santa Barbara, California 93101
</TABLE>
The World Access board of directors recommends that you vote to approve the
STAR merger and the WorldxChange merger. The STAR board of directors recommends
that you vote to approve the STAR merger and the PT-1 asset sale. 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.
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/s/ John D. Phillips /s/ Mary A. Casey
John D. Phillips Mary A. Casey
Chairman and Chief Executive Officer President and Secretary
World Access, Inc. STAR Telecommunications, Inc.
</TABLE>
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 JOINT PROXY STATEMENT/ PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint proxy statement/prospectus dated , 2000 and first mailed
to stockholders on or about , 2000.
<PAGE> 3
WHERE YOU CAN FIND MORE INFORMATION ABOUT WORLD ACCESS AND STAR
Federal securities laws require World Access and STAR to file information
with the Securities and Exchange Commission concerning our business and
operations. Accordingly, World Access and STAR file annual, quarterly and
special reports, proxy statements and other information with the SEC. You can
read and copy this information at the following SEC locations:
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Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. Seven World Trade Center Northwest Atrium Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Suite 1400
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' and STAR's
filings and the reports, proxy and information statements and other information
regarding World Access and STAR. You can also inspect information about World
Access and STAR 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 joint 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 DOCUMENTS FILED WITH THE SEC BY REFERENCE
The SEC allows World Access and STAR to "incorporate by reference" the
information each company files with the SEC, 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 prospectus, and
later information that World Access and STAR file with the SEC from the date of
this joint proxy statement/prospectus until the date of:
- the World Access special meeting, with respect to the World Access
stockholders;
- the STAR special meeting, with respect to the STAR stockholders; and
- the completing of the WorldxChange merger, with respect to the
WorldxChange shareholders, will automatically update and supersede this
information.
World Access and STAR incorporate by reference 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 mergers:
World Access SEC Filings (Commission File No. 0-29782):
- Current Report on Form 8-K filed on June 26, 2000 (event date: June
14, 2000);
- Current Report on Form 8-K filed on June 26, 2000 (event date: June
7, 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;
- 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);
<PAGE> 4
- 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 March 31, 2000;
and
- Annual Report on Form 10-K for fiscal year ended December 31, 1999.
WORLD ACCESS AND STAR ANNUAL REPORTS TO STOCKHOLDERS
Copies of the World Access and STAR Annual Reports on Form 10-K for the
fiscal year ended December 31, 1999 are included with this joint proxy
statement/prospectus.
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. IN ORDER TO OBTAIN THE DOCUMENTS IN TIME
FOR THE STAR SPECIAL MEETING, YOU MUST REQUEST THE DOCUMENTS BY ,
2000, WHICH IS FIVE BUSINESS DAYS PRIOR TO THE DATE OF THE STAR SPECIAL MEETING.
<PAGE> 5
WORLD ACCESS, INC.
945 E. PACES FERRY ROAD, SUITE 2200
ATLANTA, GEORGIA 30326
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of World Access, Inc.:
We have agreed to merge with STAR Telecommunications, Inc. and also with
Communication TeleSystems International, which does business as WorldxChange
Communications. World Access will be the surviving company in both mergers. We
have scheduled a special meeting in lieu of an annual meeting of the
stockholders of World Access, Inc. at the principal executive offices of World
Access located at 945 E. Paces Ferry Road, Atlanta, Georgia 30326 on
, 2000 at 11:00 a.m., local time, for the purposes described below.
The purposes of the special meeting are as follows:
Proposal 1. To consider and vote upon a proposal to approve the adoption
of an Agreement and Plan of Merger, dated as of February 11, 2000, as amended
June 7, 2000, among World Access, STI Merger Co., a subsidiary of World Access,
and STAR and the transactions contemplated by the STAR merger agreement. The
STAR merger agreement provides for STAR becoming a subsidiary of World Access.
Under the STAR merger agreement, each outstanding share of STAR common stock
will be converted into the right to receive, at the election of World Access:
- 0.386595 shares of World Access common stock, subject to adjustment as
described in the enclosed joint proxy statement/prospectus; or
- a combination of shares of World Access common stock and cash.
Proposal 2. The World Access stockholders are not being asked to consider
and vote upon Proposal 2 regarding the proposed sale by STAR of the assets of
its wholly-owned subsidiary, PT-1 Communications, Inc. Only the STAR
stockholders will consider and vote upon Proposal 2.
Proposal 3. To consider and vote upon a proposal to approve the adoption
of an Agreement and Plan of Merger, dated as of February 11, 2000, as amended
May 23, 2000, among World Access, WorldxChange Communications, Inc., a
subsidiary of World Access, and WorldxChange and the transactions contemplated
by the WorldxChange merger agreement. The WorldxChange merger agreement provides
for WorldxChange becoming a subsidiary of World Access. Under the WorldxChange
merger agreement, each outstanding share of WorldxChange common stock, including
shares of preferred stock will be converted into the right to receive 0.6583
shares of World Access common stock.
Proposal 4. To consider and vote upon a proposal to approve an amendment
to Article IV of our amended certificate of incorporation to increase the number
of shares of common stock that we are authorized to issue from 150,000,000
shares to 290,000,000 shares.
Proposal 5. To consider and vote upon a proposal to approve an amendment
to Article IX of our amended certificate of incorporation to increase the
maximum number of authorized directors from 12 to 15.
Proposal 6. To consider and vote upon a proposal to approve an amendment
to Article IX of our amended certificate of incorporation to end the division of
our board of directors into three classes so that all directors will serve terms
of one year and until their successors are duly elected and qualified or until
their earlier resignation or removal.
Proposal 7. To consider and vote upon a proposal to approve an amendment
to our Directors' Warrant Incentive Plan to increase the number of warrants
issuable under the plan from 600,000 warrants to 1,200,000 warrants.
Proposal 8. To consider and vote upon a proposal to approve an amendment
to our Directors' Warrant Incentive Plan to modify the performance criteria of
World Access common stock under the plan.
<PAGE> 6
Proposal 9. To elect as directors the nominees named in this joint proxy
statement/prospectus to serve:
- if Proposal 6 is approved, for a term of one year and until their
successors are duly elected and qualified or until their earlier
resignation or removal; or
- if Proposal 6 is not approved, for a term of three years and until their
successors are elected and qualified or until their earlier resignation
or removal.
At the special meeting, we will also transact such other business as may
properly come before the special meeting or any adjournments or postponements
thereof.
Copies of the STAR merger agreement and the WorldxChange merger agreement
are attached as Annex A and Annex B, respectively, to the accompanying joint
proxy statement/prospectus.
Only holders of record of World Access common stock, World Access 4.25%
cumulative senior perpetual convertible preferred stock, Series A, World Access
convertible preferred stock, Series C, World Access convertible preferred stock,
Series D, and World Access convertible preferred stock, Series E, on
, 2000 are entitled to notice of and to vote at the special meeting and any
adjournments or postponements thereof.
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
your shares are held in "street name" by your broker or other nominee, only that
holder 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
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[STAR LOGO]
STAR TELECOMMUNICATIONS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2000
To the Stockholders of STAR Telecommunications, Inc.:
We have agreed to merge STAR with a subsidiary of World Access, Inc. We
also have agreed with World Access to sell the assets of PT-1 Communications,
Inc., our subsidiary, to a third party. The STAR merger and the sale of the
assets of PT-1 require your approval. If the STAR merger agreement is approved
by our stockholders and the STAR merger is completed, World Access can choose to
have each outstanding share of STAR common stock converted into the right to
receive:
- 0.386595 shares of World Access common stock, subject to adjustment as
described in the enclosed joint proxy statement/prospectus; or
- a combination of shares of World Access common stock and cash.
World Access does not have to complete the STAR merger if:
- STAR does not sell the assets of PT-1 prior to the completion of the STAR
merger;
- STAR does not receive net cash proceeds of at least $120.0 million from
the sale of the assets of PT-1 to Counsel Communications LLC; or
- STAR does not receive net cash proceeds of at least $150.0 million from
the sale of PT-1 to another purchaser.
We will hold a special meeting of stockholders on , ,
2000 at , local time, at , for the following purposes:
Proposal 1. To approve the Agreement and Plan of Merger, dated as of
February 11, 2000, as amended June 7, 2000, among World Access, STI Merger
Co. and STAR, which will result in STAR becoming a wholly-owned subsidiary
of World Access; and
Proposal 2. To consider a resolution authorizing the sale of the
assets of PT-1 pursuant to the terms of the Asset Purchase Agreement, dated
as of June 6, 2000, among STAR, PT-1 and Counsel.
At the special meeting, we will also transact any other business that
is properly brought before the special meeting, or any adjournment or
postponement of the special meeting.
The enclosed joint proxy statement/prospectus describes the amended STAR
merger agreement and the PT-1 asset sale agreement in detail. The STAR merger
agreement and the amendment to the STAR merger agreement are attached as Annex A
to the joint proxy statement/prospectus. The PT-1 asset sale agreement is
attached as Annex F to the joint proxy statement/prospectus.
Only holders of record of STAR common stock on the close of business on
, 2000 are entitled to notice of and to vote at the special meeting. A
list of stockholders entitled to vote at the meeting will be available for
inspection at the meeting and for ten days prior to the meeting during regular
business hours at STAR's corporate headquarters in Santa Barbara, California.
You may have appraisal rights under Delaware law in connection with the
STAR merger. The enclosed joint proxy statement/prospectus discusses your
possible appraisal rights. You are not entitled to appraisal rights in
connection with the PT-1 asset sale.
<PAGE> 8
We urge you to vote on the matters in the enclosed joint proxy
statement/prospectus and to sign, date and promptly return the enclosed proxy in
the envelope provided. It is important for you to be represented at the meeting.
You can revoke your proxy at any time before the vote. If you execute and return
your proxy, you can still vote in person if you are present at the meeting. If
your shares are held in "street name" by your broker or other nominee, only that
holder 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/ Mary A. Casey
Mary A. Casey
President and Secretary
, 2000
Santa Barbara, California
Requests for additional copies of proxy materials should be addressed to
Mary A. Casey, Secretary, at STAR's offices located at 223 East De La Guerra
Street, Santa Barbara, California 93101.
<PAGE> 9
TABLE OF CONTENTS
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Questions and Answers About the STAR Merger................. 1
Questions and Answers About the WorldxChange Merger......... 4
Summary of the Joint Proxy Statement/Prospectus............. 6
Risk Factors................................................ 29
Risk factors concerning the combined company in connection
with the mergers....................................... 29
Risk factors concerning the combined company's business
operations............................................. 32
Risk factors concerning the companies' financial
condition.............................................. 34
Risk factors concerning the companies' industry........... 37
Risk factors concerning the combined company's common
stock.................................................. 40
Forward-looking statements................................ 41
Proposal 1 -- The Merger Between World Access and STAR...... 42
Background of the STAR merger............................. 42
World Access' reasons for the STAR merger................. 44
The World Access board of directors' recommendation that
stockholders approve the STAR merger................... 46
STAR's reasons for the STAR merger........................ 46
The STAR board of directors' recommendation that
stockholders approve the STAR merger................... 47
Opinion of World Access' financial advisor regarding the
STAR merger............................................ 48
Opinion of STAR's financial advisor regarding the STAR
merger................................................. 53
Consideration that STAR stockholders will receive in the
STAR merger............................................ 60
Completion of the STAR merger............................. 61
Material federal income tax consequences of the STAR
merger................................................. 61
Exchange of STAR stock certificates for World Access stock
certificates........................................... 65
Restrictions on sales of shares by affiliates of World
Access and STAR........................................ 66
Accounting treatment of the STAR merger................... 66
Regulatory filings and approvals required to complete the
STAR merger............................................ 66
Rights of dissenting STAR stockholders.................... 67
Interests of directors, officers and stockholders in the
STAR merger............................................ 69
Description of the STAR Merger Agreement.................... 70
Description of the STAR merger consideration.............. 70
Representations and warranties contained in the STAR
merger agreement....................................... 71
STAR's conduct of business before completion of the STAR
merger................................................. 71
No other negotiations involving potential acquirors of
STAR................................................... 72
Description of the management services agreement between
World Access and STAR.................................. 73
Board of directors of World Access........................ 73
Conditions to completion of the STAR merger............... 73
Termination of the STAR merger agreement.................. 74
Payment of termination fee if the STAR merger agreement is
terminated............................................. 75
Extension, waiver and amendment of the STAR merger
agreement.............................................. 75
STAR Voting Agreements and Credit Agreements................ 75
Edgecomb voting agreement................................. 75
Tawfik voting agreement................................... 76
STAR credit agreements.................................... 77
Information Regarding STAR.................................. 77
STAR Litigation............................................. 77
Comparison of Rights of Holders of World Access Common Stock
and STAR Common Stock..................................... 79
Comparison of authorized and outstanding capital stock.... 79
Comparison of classes of common stock..................... 79
Comparison of requirements for special meeting of
stockholders........................................... 79
Comparison of requirements for action by written consent
in lieu of a stockholders' meeting..................... 79
Comparison of record date for determining stockholders.... 80
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Comparison of procedures to nominate directors............ 80
Comparison of number of directors......................... 80
Comparison of classified board of directors............... 81
Comparison of procedures for the removal of directors..... 81
Comparison of board of directors vacancies................ 81
Comparison of notice requirements of special meetings of
the board of directors................................. 81
Comparison of procedures for an amendment of certificate
of incorporation and bylaws............................ 81
STAR Selected Consolidated Financial Data................... 82
Proposal 2 -- Description of the PT-1 Asset Sale............ 84
Background of the PT-1 asset sale......................... 84
STAR's reasons for the PT-1 asset sale.................... 85
The STAR board of directors' recommendation that
stockholders approve the PT-1 asset sale............... 86
Opinion of STAR's financial advisor regarding the PT-1
asset sale............................................. 86
Information about Counsel................................. 91
Purchase price............................................ 91
Material federal income tax consequences of the PT-1 asset
sale................................................... 91
Accounting treatment of the PT-1 asset sale............... 91
Regulatory filings and approvals required to complete the
PT-1 asset sale........................................ 92
Rights of dissenting STAR stockholders.................... 92
STAR officer agreement to vote shares in favor of the PT-1
asset sale............................................. 92
Interests of STAR's directors, officers, stockholders and
financial advisors..................................... 92
Description of the PT-1 Asset Sale Agreement................ 92
The PT-1 asset sale closing date.......................... 93
Purchase price............................................ 93
Assumption of liabilities................................. 93
Representations and warranties contained in the PT-1 asset
sale agreement......................................... 94
Conduct of business before completion of the PT-1 asset
sale................................................... 95
No other negotiations involving the PT-1 assets........... 95
Description of the management services agreement between
STAR, PT-1 and Counsel................................. 95
Conditions to completion of the PT-1 asset sale........... 96
Termination of the PT-1 asset sale agreement.............. 96
Payment of termination fee................................ 97
Extension, waiver and amendment of the PT-1 asset sale
agreement.............................................. 97
Proposal 3 -- The Merger Between World Access and
WorldxChange.............................................. 97
Background of the WorldxChange merger..................... 97
World Access' reasons for the WorldxChange merger......... 98
The World Access board of directors' recommendation that
stockholders approve the WorldxChange merger........... 99
WorldxChange's reasons for the WorldxChange merger........ 99
Opinion of World Access' financial advisor regarding the
WorldxChange merger.................................... 100
Consideration that WorldxChange shareholders will receive
in the WorldxChange merger............................. 106
Closing; effective time of the WorldxChange merger........ 106
Material federal income tax consequences of the
WorldxChange merger.................................... 106
Exchange of WorldxChange stock certificates for World
Access stock certificates.............................. 111
Restrictions on sales of shares by affiliates of World
Access and WorldxChange................................ 112
Accounting treatment of the WorldxChange merger........... 112
Regulatory filings and approvals required to complete the
WorldxChange merger.................................... 112
Rights of dissenting WorldxChange shareholders............ 113
Interests of WorldxChange's directors, officers and
shareholders in the WorldxChange merger................ 116
Principal Shareholders of WorldxChange...................... 118
Description of the WorldxChange Merger Agreement............ 119
Description of the WorldxChange merger consideration...... 119
Representations and warranties contained in the
WorldxChange merger agreement.......................... 119
WorldxChange's conduct of business before completion of
the WorldxChange merger................................ 120
No other negotiations involving WorldxChange.............. 120
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Treatment of WorldxChange stock options and warrants...... 120
Board of directors and officers of World Access........... 121
Conditions to completion of the WorldxChange merger....... 121
Termination of the WorldxChange merger agreement.......... 122
Extension, waiver and amendment of the WorldxChange merger
agreement.............................................. 122
Post-closing indemnification.............................. 122
WorldxChange Voting and Participation Agreements............ 123
World Access voting agreement............................. 123
WorldxChange voting agreements............................ 124
Foothill Capital Corporation participation agreement...... 125
Information Regarding WorldxChange.......................... 126
Services.................................................. 126
The WorldxChange network.................................. 127
Termination arrangements.................................. 130
Sales and marketing....................................... 130
Worldwide operations...................................... 132
Employees................................................. 133
Properties................................................ 133
Legal proceedings......................................... 133
WorldxChange Management's Discussion and Analysis of
Financial Condition and Results of Operations............. 135
Overview.................................................. 135
Results of operations..................................... 139
Liquidity and capital resources........................... 143
Market risk............................................... 146
Foreign currency exposure................................. 146
Euro conversion........................................... 146
Seasonality............................................... 147
Recent accounting pronouncements.......................... 147
WorldxChange Selected Consolidated Financial Data........... 149
Comparison of the Rights of Holders of World Access Common
Stock and WorldxChange Common Stock....................... 151
Comparison of authorized and outstanding capital stock.... 151
Comparison of classes of common stock..................... 151
Comparison of requirements for special meeting of
shareholders........................................... 151
Comparison of requirements for action by written consent
in lieu of shareholders' meeting....................... 152
Comparison of record date for determining shareholders.... 152
Comparison of procedures to nominate directors............ 152
Comparison of number of directors......................... 153
Comparison of classified board of directors............... 153
Comparison of procedures for the removal of directors..... 154
Comparison of board of directors vacancies................ 154
Comparison of notice requirements of special meetings of
the board of directors................................. 154
Comparison of procedures for an amendment of certificate
of incorporation and bylaws............................ 155
Comparison of notice requirements of stockholder's
meetings............................................... 155
Comparison of requirements for stockholder approval of
certain business combinations.......................... 155
Comparison of inspection of shareholder list.............. 156
Comparison of dividends and repurchases of shares......... 157
Comparison of dissolution rights.......................... 157
Comparative Per Share Market Price Data for World Access,
STAR and WorldxChange..................................... 158
Unaudited Pro Forma Condensed Combined Financial
Statements................................................ 160
Management of the Combined Companies........................ 207
Executive officers........................................ 207
Board of directors........................................ 207
</TABLE>
iii
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Recent Developments Involving World Access.................. 207
Proposal 4 -- Amendment of the World Access Amended
Certificate of Incorporation to Increase the Number of
Shares of Common Stock that World Access is Entitled to
Issue from 150,000,000 Shares to 290,000,000 Shares....... 208
Proposal 5 -- Amendment of the World Access Amended
Certificate of Incorporation to Increase the Number of
Authorized Directors from 12 to 15........................ 210
Proposal 6 -- Amendment of the World Access Amended
Certificate of Incorporation to End the Classification of
the World Access Board of Directors so that all Directors
will Serve T erms of One Year and Until Their Successors
are Duly Elected and Qualified............................ 210
Proposal 7 -- Amendment to the World Access Directors'
Warrant Incentive Plan to Increase the Number of Warrants
Issuable Under the Plan from 600,000 Warrants to 1,200,000
Warrants.................................................. 212
Description of proposed amendment......................... 212
Brief summary of the warrant plan......................... 212
Vote required............................................. 214
Proposal 8 -- Amendment to the World Access Directors'
Warrant Incentive Plan to Change the Performance Criteria
Under the Plan............................................ 214
Vote required............................................. 215
Proposal 9 -- Election of World Access Directors............ 215
Information regarding nominees and directors.............. 216
World Access Nominees for Director.......................... 216
World Access Directors Continuing in Office Until the 2002
Annual Meeting............................................ 216
World Access Directors Continuing in Office Until the 2001
Annual Meeting............................................ 217
World Access Directors not Divided Into Classes............. 217
Meetings and committees of the World Access board......... 217
World Access director compensation........................ 217
Description of World Access' Capital Stock.................. 219
World Access common stock................................. 219
World Access preferred stock.............................. 219
Principal Stockholders of World Access...................... 224
Executive Officers of World Access.......................... 228
Information regarding executive officers of World
Access................................................. 228
World Access' Executive compensation...................... 228
World Access' Summary Compensation Table.................... 228
World Access Option Grants in Last Fiscal Year.............. 229
World Access' Aggregated Option and Warrant Exercises in
Last Fiscal Year and Fiscal Year-End Option Values........ 230
World Access' executive employment agreements............. 230
World Access' compensation committee report............... 234
World Access' compensation committee interlocks and
insider participation in compensation decisions........ 235
World Access Stock Price Performance Graph.................. 236
Section 16(a) Beneficial Ownership Reporting Compliance..... 236
Certain Relationships and Related Transactions with World
Access' Directors, Officers and Stockholders.............. 237
Accounting Experts.......................................... 237
The World Access Special Meeting............................ 239
The STAR Special Meeting.................................... 242
World Access Stockholder Proposals.......................... 243
Star Stockholder Proposals.................................. 244
</TABLE>
iv
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Other Matters that may come before the World Access Special
Meeting................................................... 244
Other Matters that may come before the STAR Special
Meeting................................................... 244
Legal Matters............................................... 244
</TABLE>
<TABLE>
<S> <C> <C>
Annex A The STAR Merger Agreement
Annex B The WorldxChange Merger Agreement
Annex C Opinion of World Access Financial Advisor regarding the STAR
Merger
Annex D Opinion of World Access Financial Advisor regarding the
WorldxChange Merger
Annex E Opinion of STAR Financial Advisor regarding the STAR Merger
Annex F The PT-1 Asset Sale Agreement
Annex G Opinion of STAR Financial Advisor regarding the PT-1 Asset
Sale
Annex H Delaware General Corporation Law Section 262
Annex I California General Corporation Law Sections 1300 through
1312
</TABLE>
v
<PAGE> 14
QUESTIONS AND ANSWERS
ABOUT THE STAR MERGER
Q: WHAT IS THE STAR MERGER?
A: The boards of directors of World Access and STAR have voted to combine the
businesses of World Access and STAR. To combine the companies, STAR will
merge with a subsidiary of World Access, becoming a wholly-owned subsidiary
of World Access. The completion of the STAR merger is conditioned on the
sale of PT-1 by STAR. Unless World Access waives this condition, World
Access will be merging with STAR minus its PT-1 operations if we complete
the STAR merger. After the STAR merger, the percentage in voting power of
the combined companies that will be owned by the pre-merger stockholders
under the two possible consideration alternatives will be as follows:
<TABLE>
<CAPTION>
WORLD
PARTIES TO COMPLETED MERGER ACCESS STAR WORLDXCHANGE
--------------------------- ------ ---- ------------
<S> <C> <C> <C>
World Access, STAR and WorldxChange
100% World Access stock................................... 67% 15% 19%
60% World Access stock/40% cash........................... 71% 9% 20%
World Access and STAR only
100% World Access stock................................... 82% 18% --
60% World Access stock/40% cash........................... 88% 12% --
</TABLE>
Q: WHAT WILL STAR STOCKHOLDERS RECEIVE IN THE STAR MERGER?
A: World Access has the option to pay STAR stockholders one of two forms of
consideration when the STAR merger is completed. Assuming a value of $9.00
per share of World Access common stock, World Access will issue a total
dollar value of approximately $205.0 million to the STAR stockholders in
consideration in the STAR merger. STAR stockholders who are entitled to and
exercise dissenters' rights of appraisal under Delaware law will not
receive either form of merger consideration.
If World Access selects the first form of consideration, each STAR
stockholder will be entitled to receive, for each share of STAR common
stock, 0.386595 shares of World Access common stock. This amount is subject
to upward adjustment if STAR sells PT-1 prior to the completion of the STAR
merger for net cash proceeds in excess of $150.0 million.
If World Access selects the second form of consideration, each STAR
stockholder will be entitled to receive, for each share of STAR common
stock, the same total value as that paid in the first form of
consideration. However, under the second form, each STAR stockholder will
receive up to 60% of its consideration in World Access common stock and up
to 40% of its consideration in cash. If World Access selects the second
form of consideration, each STAR stockholder will receive the same
percentages of stock and cash as other STAR stockholders.
World Access will not issue fractional shares. World Access will issue cash
instead of fractional shares based on the average closing price of World
Access common stock as reported on the Nasdaq Stock Market for the ten-day
trading period ending at the close of trading on the date of the completion
of the STAR merger.
The following table shows the approximate number of shares of World Access
common stock and amount of cash instead of fractional shares that a STAR
stockholder will receive upon completion of the STAR merger if World Access
selects the first form of consideration. This table assumes an average
closing sale 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.
1
<PAGE> 15
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF
SHARES OF SHARES OF TOTAL
STAR WORLD ACCESS CASH CONSIDERATION
NET CASH PROCEEDS FROM PT-1 ASSET SALE STOCK OWNED STOCK RECEIVED RECEIVED RECEIVED
-------------------------------------- ----------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Less than $150.0 million..................... 25 9 $5.98 $ 86.98
Less than $150.0 million..................... 50 19 $2.97 $173.97
Less than $150.0 million..................... 100 38 $5.94 $347.94
$175.0 million............................... 100 41 $0.35 $369.35
$200.0 million............................... 100 43 $0.25 $387.25
</TABLE>
The following table shows the approximate number of shares of World Access
common stock and amount of cash, including cash instead of fractional
shares, that a STAR stockholder will receive if World Access selects the
second form of consideration and pays 40% of the consideration to each STAR
stockholder in cash and pays 60% of the consideration in the form of World
Access common stock. This table assumes an average closing sale price for
the World Access common stock of $9.00 per share for the purpose of
calculating the amount of cash paid instead of fractional shares, the total
amount of all cash received and the value of total consideration received.
These assumptions are solely for purposes of illustrating the two forms of
consideration. The calculation of the amount of cash to be received as STAR
merger consideration will actually be based on the average closing price of
World Access common stock for the ten-day trading period ending at the
close of trading on the date immediately before the completion of the STAR
merger.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF VALUE OF
SHARES OF SHARES OF TOTAL
STAR WORLD ACCESS CASH CONSIDERATION
NET CASH PROCEEDS FROM PT-1 ASSET SALE STOCK OWNED STOCK RECEIVED RECEIVED RECEIVED
-------------------------------------- ----------- -------------- -------- -------------
<S> <C> <C> <C> <C>
Less than $150.0 million.................... 25 5 $ 41.98 $ 86.98
Less than $150.0 million.................... 50 11 $ 74.97 $173.97
Less than $150.0 million.................... 100 23 $140.94 $347.94
$175.0 million.............................. 100 24 $153.35 $369.35
$200.0 million.............................. 100 25 $162.25 $387.25
</TABLE>
If STAR completes the PT-1 asset sale to Counsel, the net cash proceeds
will be less than $150.0 million.
Q: WHAT HAPPENS IF STAR DOES NOT SELL PT-1 PRIOR TO THE COMPLETION OF THE STAR
MERGER?
A: If STAR does not sell PT-1 prior to the completion of the STAR merger, then
World Access does not have to complete the STAR merger.
Q: WHAT HAPPENS IF STAR SELLS PT-1 FOR LESS THAN NET CASH PROCEEDS OF AT LEAST
$150.0 MILLION?
A: If STAR sells PT-1 to a buyer other than Counsel and does not receive net
cash proceeds of at least $150.0 million from that sale, then World Access
does not have to complete the STAR merger. However, the STAR merger
agreement provides that the condition to World Access' obligations under
the STAR merger agreement relating to the sale of PT-1 will be deemed
satisfied if STAR sells the assets of PT-1 to Counsel under the PT-1 asset
sale agreement.
Q: WHAT IS THE WORLDXCHANGE MERGER?
A: World Access has also agreed to a merger with WorldxChange. The STAR merger
does not depend on the completion of the WorldxChange merger, and the
WorldxChange merger does not depend on the completion of the STAR merger.
Consequently, there are three possible combinations that you should
consider:
- World Access and STAR;
- World Access and WorldxChange; and
- World Access, STAR and WorldxChange.
2
<PAGE> 16
Unless stated otherwise, information provided in this joint proxy
statement/prospectus assumes completion of the WorldxChange merger. Where
appropriate, we have indicated where information pertaining to World Access
and STAR does not give effect to the merger with WorldxChange.
Q: WHAT DO I NEED TO DO NOW?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares will be represented at your meeting. If you do
not include instructions on how to vote your properly signed proxy, your
shares will be voted for approval of the proposals on which you are able to
vote.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: If you are a World Access stockholder and want to change your vote, send
the secretary of World Access a later-dated, signed proxy card before the
World Access 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. World Access stockholders who have signed the voting
agreements described in this document may not revoke the proxies they gave
in the voting agreements.
If you are a STAR stockholder and want to change your vote, send the
secretary of STAR a later-dated, signed proxy card before the STAR meeting
or attend the meeting in person. You may also revoke your proxy by sending
written notice to the secretary of STAR before the meeting. STAR
stockholders who have signed the voting or conversion agreements described
in this document may not revoke the proxies they gave in the voting or
conversion agreements.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how
to vote by following the information provided to you by your broker.
Q: SHOULD I SEND IN MY STAR STOCK CERTIFICATES NOW?
A: No. After the STAR merger is completed, World Access will send STAR
stockholders written instructions for exchanging their STAR stock
certificates for the applicable STAR merger consideration.
Q: WHEN DO YOU EXPECT THE STAR MERGER AND THE PT-1 ASSET SALE TO BE COMPLETED?
A: World Access and STAR are working toward completing the STAR merger, and
STAR is working to complete the PT-1 asset sale, as quickly as possible.
World Access and STAR hope to complete the STAR merger, and STAR hopes to
complete the PT-1 asset sale, in the third calendar quarter of 2000.
Q: WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE STAR MERGER OR THE PT-1
ASSET SALE?
A: STAR stockholders will not recognize gain or loss for federal income tax
purposes if the STAR merger is completed, except that STAR stockholders
will recognize gain or loss with respect to cash received in lieu of
fractional shares or cash received after the exercise of appraisal rights.
If World Access elects to pay cash as part of the STAR merger
consideration, STAR stockholders will recognize their gain realized for
federal income tax purposes, but only up to the amount of cash received,
and any such recognized gain may be taxed as ordinary income. STAR
stockholders will not recognize gain or loss for federal income tax
purposes from the PT-1 asset sale if PT-1 is sold for cash. STAR
stockholders are urged to consult their own tax advisors to determine their
particular tax consequences.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: If you are a STAR stockholder who will receive a combination of World
Access common stock and cash, other than cash paid in lieu of fractional
shares, under the STAR merger agreement and do not vote for the adoption of
the STAR merger agreement, you may have the right under Delaware law to
dissent from the STAR merger and request an appraisal of the fair value of
your STAR common
3
<PAGE> 17
stock. In order to preserve this right, you must follow the procedures
discussed on page 67 of this joint proxy statement/prospectus. STAR
stockholders are not entitled to appraisal rights in connection with the
PT-1 asset sale. If you are a World Access stockholder, you are not
entitled to appraisal rights under Delaware law.
QUESTIONS AND ANSWERS
ABOUT THE WORLDXCHANGE MERGER
Q: WHAT IS THE WORLDXCHANGE MERGER?
A: The boards of directors of World Access and WorldxChange have voted to
combine the businesses of World Access and WorldxChange. To combine the
companies, WorldxChange will merge with a subsidiary of World Access, with
such subsidiary continuing as a wholly-owned subsidiary of World Access.
After the WorldxChange merger, the percentage in voting power of the
combined companies will be as follows:
<TABLE>
<CAPTION>
WORLD
PARTIES TO COMPLETED MERGER ACCESS STAR WORLDXCHANGE
--------------------------- ------ ---- ------------
<S> <C> <C> <C>
World Access, STAR and WorldxChange
100% World Access stock......................... 67% 15% 19%
60% World Access stock/40% cash................. 71% 9% 20%
World Access and WorldxChange only................ 77% -- 23%
</TABLE>
Q: WHAT WILL WORLDXCHANGE SHAREHOLDERS RECEIVE IN THE WORLDXCHANGE MERGER?
A: When the WorldxChange merger is completed, WorldxChange shareholders will
receive 0.6583 shares of World Access common stock in exchange for each
share of WorldxChange common stock, including each share of WorldxChange
common stock into which shares of WorldxChange preferred stock are deemed
converted immediately prior to the completion of the WorldxChange merger.
Assuming a value of $9.00 per share of World Access common stock, World
Access will issue a total dollar value of approximately $270.0 million to
WorldxChange shareholders in consideration in the WorldxChange merger.
World Access will not issue fractional shares. World Access will issue cash
in lieu of fractional shares based on the average closing sale price of
World Access common stock over a ten-trading day period ending at the close
of trading on the second trading day prior to the date of the completion of
the WorldxChange merger.
The following table shows the approximate number of shares of World Access
common stock and amount of cash instead of fractional shares that a
WorldxChange shareholder will receive for WorldxChange common stock held or
received upon conversion of preferred stock upon completion of the
WorldxChange merger. 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 WORLDXCHANGE OF WORLD ACCESS CASH TOTAL CONSIDERATION
STOCK OWNED STOCK RECEIVED RECEIVED RECEIVED
---------------- ---------------- -------- -------------------
<S> <C> <C> <C>
25....... 16 $ 4.12 $148.12
50....... 32 $ 8.24 $296.24
100...... 65 $ 7.47 $592.47
</TABLE>
Q: WHAT ARE THE STAR MERGER AND THE PT-1 ASSET SALE?
A: This joint proxy statement/prospectus contains information regarding an
additional merger, the STAR merger, and the sale by STAR of the assets of
its wholly-owned subsidiary, PT-1. The completion of the WorldxChange
merger does not depend on the completion of the STAR merger or the PT-1
asset sale, and the completion of the STAR merger or the PT-1 asset sale
does not depend on the
4
<PAGE> 18
completion of the WorldxChange merger. Consequently, there are three
possible combinations that you should consider:
- World Access and WorldxChange;
- World Access and STAR; and
- World Access, STAR, and WorldxChange.
Q: WHAT DO I NEED TO 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 that your
shares may be represented at the World Access meeting. If you do not
include instructions on how to vote your properly signed proxy, your shares
will be voted for approval of the proposals with regard to which you are
entitled to vote.
Q: WHAT DO I DO 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. World Access stockholders who have signed voting agreements may
not revoke the proxies given by them in the voting agreement.
Q: SHOULD I SEND IN MY WORLDXCHANGE STOCK CERTIFICATES NOW?
A: No. After the WorldxChange merger is completed, World Access will send
WorldxChange shareholders written instructions for exchanging their
WorldxChange stock certificates for World Access stock certificates.
Q: WHEN DO YOU EXPECT THE WORLDXCHANGE MERGER TO BE COMPLETED?
A: World Access and WorldxChange are working toward completing the
WorldxChange merger as quickly as possible. World Access and WorldxChange
hope to complete the merger in the third calendar quarter of 2000.
Q: WILL I RECOGNIZE AN INCOME TAX GAIN OR LOSS ON THE WORLDXCHANGE MERGER?
A: WorldxChange shareholders will not recognize gain or loss for federal
income tax purposes if the WorldxChange merger is completed, except that
WorldxChange shareholders will recognize gain or loss with respect to cash
received in lieu of fractional shares or cash received after the exercise
of dissenters' rights. Holders of WorldxChange preferred stock may have
additional tax consequences upon payment of the accrued and unpaid
dividends on such stock as part of the WorldxChange merger. WorldxChange
shareholders are urged to consult their own tax advisors to determine their
particular tax consequences.
Q: AM I ENTITLED TO APPRAISAL OR DISSENTERS' RIGHTS?
A: If you are a WorldxChange shareholder, you may be entitled to dissenters'
rights under California law. In order to preserve this right, you must
follow the procedures discussed on page 113 of this joint proxy
statement/prospectus. If you are a World Access stockholder, you are not
entitled to appraisal rights under Delaware law.
5
<PAGE> 19
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this document. To
understand the proposed mergers fully and for a more complete description of the
terms of the mergers, you should read carefully this entire document and the
documents to which we have referred you.
THE COMPANIES
World Access, Inc. World Access transports international long
945 E. Paces Ferry Road distance voice, data and Internet traffic
Suite 2200 for long distance carriers in the United
Atlanta, Georgia 30326 States and Europe, regional Bell operating
(404) 231-2025 companies, competitive local exchange
www.waxs.com 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.
STAR Telecommunications, Inc. STAR provides telecommunications services
223 East De La Guerra Street on a world-wide basis to the public, long
Santa Barbara, California 93101 distance carriers, corporations and
(805) 899-1962 Internet service providers. STAR also
www.startel.com provides international and national long
distance calling services, international
private telephone lines, prepaid calling
cards, long distance services accessible
through a dialed prefix and international
toll free services.
WorldxChange Communications WorldxChange is a global telecommunications
9999 Willow Creek Road company that specializes in providing
San Diego, California 92131 high-quality, low-cost services to
(858) 530-8116 customers in the United States, Australia,
www.worldxchange.com Belgium, Canada, France, Germany,
Guatemala, The Netherlands, New Zealand and
the United Kingdom. WorldxChange operates
43 switches which are connected with a
network of owned and leased undersea and
land-based fiber optic cables, providing
more than 550,000 customers each month with
affordable communications services
worldwide.
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
6
<PAGE> 20
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 had 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 the vast majority of its revenues were
derived from transporting traffic for other carriers, similar to World Access'
base business, FaciliCom's network was 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 gave 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 is derived from
retail services and the remainder 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 will be generated 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 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
7
<PAGE> 21
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 joint 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 to be generated 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 TelDaFax
AG, a leading provider of bundled fixed line, wireless, Internet and e-commerce
services to business and residential customers in Germany. In 1999, TelDaFax
produced revenue and earnings before interest, taxes, depreciation and
amortization of approximately $329.0 million and $9.0 million, respectively. As
of March 31, 2000, TelDaFax had approximately $50.0 million in cash and
marketable securities, with essentially no debt.
TelDaFax currently operates nine switches and has 170 interconnection
points within Germany. They are 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 their service offerings. The
TelDaFax network, together with the existing network assets of World Access and
Star, will 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.
World Access stockholders will receive a separate proxy
statement/prospectus on the TelDaFax acquisition in the near future. The
financial statements of TelDaFax have been included in this joint proxy
statement/prospectus and considered in the preparation of the Unaudited Pro
Forma Financial Information contained herein.
8
<PAGE> 22
SUMMARY OF THE STAR MERGER
THE STAR MERGER
In the STAR merger, STAR will merge with and into a subsidiary of World
Access and become a subsidiary of World Access. In the STAR merger, World Access
will issue a total of approximately 22.9 million shares of World Access common
stock to the STAR stockholders if it elects to pay all of the STAR merger
consideration in stock and will assume approximately $75.0 million of STAR's
debt.
World Access and STAR believe the STAR merger will permit World Access and
STAR to realize several benefits, including:
- potential cost savings and synergies from integrating the systems and
operations of both companies;
- creation of a diversified geographic and product market position for the
combined companies;
- combining operations to take advantage of potential growth in bundled
voice, data and Internet services to key international markets; and
- strengthening international network presence and wholesale customers.
Despite the anticipated benefits, the parties will incur significant merger
related expenses, in addition there are potential risks to the STAR merger,
including:
- profitability may not be achieved;
- increased cash flow may be necessary to fund capital expenditures and
meet obligations on outstanding indebtedness;
- market share may decrease, and the companies may face pricing pressures
if they are not able to compete successfully with other
telecommunications firms; and
- government regulatory policies may increase pricing pressures, delay
payments, change foreign currency values and decrease demand for the
companies' services and products.
CONDITIONS TO COMPLETION OF THE STAR MERGER
World Access' and STAR's respective obligations to complete the STAR merger
are subject to the satisfaction or waiver of closing conditions.
The conditions that must be satisfied or waived before World Access is
obligated to complete the STAR merger include the following:
- no material adverse effect may occur with respect to STAR;
- holders of fewer than 1% of the shares of STAR common stock shall have
exercised dissenters' rights of appraisal under Delaware law; and
- STAR must complete the PT-1 asset sale to Counsel for net cash proceeds
of at least $120.0 million or complete the sale of PT-1 to a party other
than Counsel for net cash proceeds of at least $150.0 million pursuant to
an agreement reasonably satisfactory to World Access.
Any of the closing conditions can be waived by the party that is not
obligated to complete the STAR merger if the condition is not satisfied.
If either World Access or STAR waives any condition, World Access and STAR
will each consider the facts and circumstances at that time and determine
whether a resolicitation of proxies from stockholders is appropriate. The boards
of directors of STAR and World Access will resolicit stockholder approval of the
STAR merger if either company waives a material closing condition that the
boards believe a reasonable investor would consider important when deciding to
approve the STAR merger.
9
<PAGE> 23
The completion of the WorldxChange merger is not a condition to the
completion of the STAR merger.
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 STAR merger agreement and the STAR merger. The shares of
World Access preferred stock are counted as if they have been converted to
common stock. In this joint proxy statement/prospectus, we refer to the World
Access common stock, the Series A preferred stock, the Series C preferred stock
and the Series D 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 [ ], 2000, the World Access record date.
The holders of a majority of the outstanding shares of STAR common stock
must approve and adopt the STAR merger agreement and the STAR merger. STAR
stockholders can cast one vote per share owned as of [ ], 2000,
the STAR record date.
World Access stockholders holding [ %] of the total voting power of
World Access as of the World Access record date have agreed to vote in favor of
the STAR merger. Directors and officers of World Access collectively
beneficially owned approximately [ %] of the voting power of World Access as
of the World Access record date.
TERMINATION OF THE STAR MERGER AGREEMENT
The STAR merger agreement may be terminated under limited circumstances at
any time before the completion of the STAR merger. The circumstances include:
- by World Access or STAR, if the STAR merger is not completed on or before
September 30, 2000;
- by World Access or STAR, if the stockholders of World Access or STAR do
not adopt the STAR merger agreement by the required vote; and
- by World Access if there is a default under STAR's anticipated credit
agreement with World Access.
TERMINATION FEE
If the STAR merger agreement is terminated for specific reasons listed in
the STAR merger agreement, STAR must pay World Access a termination fee of $14.0
million. STAR will be required to pay the termination fee if the STAR merger
agreement is not approved by the required vote of the stockholders of STAR and
STAR enters into a definitive agreement with respect to a business combination
with another party within one year of the failed stockholder vote.
NO OTHER NEGOTIATIONS INVOLVING POTENTIAL ACQUIRORS
STAR agreed that until completion of the STAR merger or unless World Access
consents in writing, STAR will not discuss the sale of STAR with a potential
acquiror other than World Access except under limited circumstances.
MANAGEMENT SERVICES
World Access and STAR intend to enter into an agreement pursuant to which
World Access will provide management services to STAR pending the completion of
the STAR merger.
10
<PAGE> 24
STAR VOTING AGREEMENTS
STAR stockholders Christopher E. Edgecomb and Samer Tawfik entered into
voting and stock transfer restriction agreements with World Access under which
they have agreed to vote all of their shares of STAR common stock in favor of
the approval and adoption of the STAR merger agreement and approval of the STAR
merger. Messrs. Edgecomb and Tawfik together own approximately of the
outstanding shares of STAR's common stock as of , 2000.
OPINIONS OF WORLD ACCESS' AND STAR'S FINANCIAL ADVISORS
In deciding to approve the STAR merger, 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 STAR merger consideration. STAR's board considered the
opinion of its financial advisor, Deutsche Bank Securities, Inc., as to the
fairness, from a financial point of view, of the merger consideration to the
STAR stockholders.
INTERESTS OF DIRECTORS, OFFICERS AND STOCKHOLDERS IN THE STAR MERGER
When considering the recommendations of World Access' and STAR's boards of
directors, you should be aware that some of the directors, officers and
stockholders of STAR have interests in the STAR merger that are different from,
or are in addition to, all other stockholders of STAR. These interests include
the acceleration of stock options and severance payments upon the completion of
the STAR merger, as well as the right of STAR's chief executive officer to serve
as a director of World Access or appoint someone else to.
ANTITRUST AND DOMESTIC AND FOREIGN REGULATORY APPROVAL REQUIRED TO COMPLETE THE
STAR MERGER
The STAR merger is subject to antitrust laws. World Access, STAR and other
related parties have made the required filings with the Department of Justice,
the Federal Trade Commission and the German Cartel Office. The Department of
Justice and the Federal Trade Commission granted an early termination of the
waiting period, effective March 16, 2000. No further action under the U.S.
antitrust laws is required, as long as the STAR merger is completed prior to
March 16, 2001. On May 18, 2000, the German Cartel office approved the STAR
merger. The Department of Justice, the Federal Trade Commission or the German
Cartel Office, as well as a foreign regulatory agency or government, state or
private person, may challenge the STAR merger at any time before or after its
completion.
The STAR merger is also subject to state and federal telecommunications
regulatory approvals. World Access and STAR have filed applications or notices,
as required, in 48 states and at the Federal Communications Commission. The
Federal Communications Commission has approved the STAR merger.
COMPARATIVE MARKET PRICE INFORMATION
Shares of World Access common stock and STAR common stock are listed on the
Nasdaq National Market. On December 20, 1999, the last full trading day prior to
the public announcement of the proposed STAR merger, the World Access common
stock and STAR common stock closed at $20 1/2 per share and $8 7/8 per share,
respectively. We urge you to obtain current market quotations.
For a more complete understanding of the STAR merger, please read the
documents attached to this joint proxy statement/prospectus, including the STAR
merger agreement, which is attached as Annex A, the opinion of Donaldson, Lufkin
& Jenrette Securities Corporation, which is attached as Annex C, and the opinion
of Deutsche Bank Securities, Inc., which is attached as Annex E.
11
<PAGE> 25
SUMMARY OF THE PT-1 ASSET SALE
THE PT-1 ASSET SALE
World Access is not obligated to complete the STAR merger unless STAR sells
the assets of its wholly-owned subsidiary, PT-1, for net cash proceeds of at
least $150.0 million. However, under the STAR merger agreement this condition
will be satisfied if STAR sells the assets of PT-1 to Counsel for net cash
proceeds of at least $120.0 million under the terms of the PT-1 asset sale
agreement.
STAR and PT-1 have agreed to sell the assets of PT-1 to Counsel for $150.0
million, subject to adjustment based on increases in the accounts payable or
receivable of PT-1 and the increases or decreases in the net worth of the assets
of PT-1 on the closing date.
If the STAR stockholders approve the PT-1 asset sale but do not approve the
STAR merger, STAR intends to complete the PT-1 asset sale.
CONDITIONS TO COMPLETION OF THE PT-1 ASSET SALE
STAR's, PT-1's and Counsel's respective obligations to complete the PT-1
asset sale are subject to the satisfaction or waiver of closing conditions. Any
of the closing conditions can be waived by the party that is not obligated to
complete the PT-1 asset sale if the condition is not satisfied.
If either STAR or Counsel waives any closing conditions, STAR and Counsel
will each consider the facts and circumstances at that time and determine
whether a resolicitation of proxies from stockholders is appropriate. The STAR
board of directors will resolicit stockholder approval of the PT-1 asset sale if
either STAR or Counsel waives a material closing condition that the STAR board
of directors believe a reasonable investor would consider important when
deciding to approve the PT-1 asset sale.
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the outstanding shares of STAR common stock
must approve the PT-1 asset sale. STAR stockholders are entitled to cast one
vote per share owned as of the STAR record date.
TERMINATION OF THE PT-1 ASSET SALE AGREEMENT
The PT-1 asset sale agreement may be terminated under limited circumstances
at any time before the completion of the PT-1 asset sale, including by PT-1 or
Counsel if the PT-1 asset sale is not completed on or before August 31, 2000.
TERMINATION FEE
The PT-1 asset sale agreement may be terminated under limited circumstances
at any time before the completion of the PT-1 asset sale. If the PT-1 asset sale
agreement is terminated for certain reasons, PT-1 will be required to pay
Counsel a termination fee of $5.85 million. PT-1 will be required to pay the
termination fee if the PT-1 asset sale agreement is not approved by the required
vote of the stockholders of STAR and STAR sells the assets of PT-1 to another
party within one year of the failed stockholder vote.
NO OTHER NEGOTIATIONS INVOLVING POTENTIAL ACQUIRORS OF PT-1
STAR and PT-1 have agreed not to discuss the sale of PT-1 with a potential
acquiror other than Counsel.
STAR OFFICER AGREEMENT TO VOTE SHARES IN FAVOR OF THE PT-1 ASSET SALE
Mr. Edgecomb has agreed to vote all of his shares of STAR common stock in
favor of the approval of the PT-1 asset sale. Mr. Edgecomb owns approximately
% of the outstanding shares of STAR common stock as of , 2000.
12
<PAGE> 26
OPINION OF STAR'S FINANCIAL ADVISOR
In deciding to approve the PT-1 asset sale, STAR's board of directors
considered a fairness opinion from its financial advisor, Kaufman Bros., L.P.,
regarding the fairness, from a financial point of view, of the PT-1 asset sale
consideration.
ANTITRUST AND OTHER REGULATORY APPROVAL REQUIRED TO COMPLETE THE PT-1 ASSET SALE
The PT-1 asset sale is subject to antitrust laws. STAR and Counsel have
made the required filings with the Department of Justice and the Federal Trade
Commission and the applicable waiting period has terminated. The PT-1 asset sale
is also subject to approvals from the Federal Communications Commission and
certain state public utility commissions and the required filings have been
made.
RIGHTS OF DISSENTING STAR STOCKHOLDERS
STAR stockholders are not entitled to appraisal rights under Delaware law
with respect to the PT-1 asset sale.
For a more complete understanding of the PT-1 asset sale, please read the
documents attached to this joint proxy statement/prospectus, including the PT-1
asset sale agreement attached as Annex F and the opinion of Kaufman Bros.
attached as Annex G.
13
<PAGE> 27
SUMMARY OF THE WORLDXCHANGE MERGER
THE WORLDXCHANGE MERGER
In the WorldxChange merger, WorldxChange will merge into a subsidiary of
World Access, with the surviving company continuing as a subsidiary of World
Access. In the WorldxChange merger, World Access will issue a total of
approximately 29.8 million shares of World Access common stock to the
WorldxChange shareholders and will assume approximately $225.0 million of
WorldxChange's debt.
World Access believes the WorldxChange merger will provide several
potential benefits, including:
- strengthening international presence through adding WorldxChange's global
communications network and presence in Europe and the Pacific Rim to
World Access' operations;
- providing a stronger telecommunications company during the consolidation
trend in the international telecommunications services industry; and
- combining growing retail operations and adding diversified revenues.
There are potential risks to the WorldxChange merger, including:
- profitability may not be achieved;
- the companies will incur significant merger-related expenses;
- increased cash flow will be necessary to fund capital expenditures and
meet obligations on outstanding indebtedness;
- market share may decrease, and the companies may face pricing pressures
if they are not able to compete successfully with other
telecommunications firms; and
- government regulatory policies may increase pricing pressures, delay
payments, change foreign currency values and decrease demand for the
companies' services and products.
CONDITIONS TO COMPLETION OF THE WORLDXCHANGE MERGER
World Access' and WorldxChange's respective obligations to complete the
WorldxChange merger are subject to the satisfaction or waiver of closing
conditions. Any of the closing conditions can be waived by the party that is not
obligated to complete the WorldxChange merger if the condition is not satisfied.
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 WorldxChange merger if either company
waives a material closing condition that it believes a reasonable investor would
consider important when deciding to approve the WorldxChange merger.
The conditions that must be satisfied or waived before either World Access
or WorldxChange is obligated to complete the WorldxChange merger include the
following, subject to exceptions and qualifications:
- the WorldxChange merger agreement and the WorldxChange merger must be
approved by the requisite vote or consent of the stockholders of World
Access and shareholders of WorldxChange;
- the registration statement with respect to the shares of World Access
common stock to be issued in the WorldxChange merger must be declared
effective by the Securities and Exchange Commission; and
- World Access and WorldxChange must enter into the escrow agreement
setting forth the terms and conditions under which the shares of World
Access common stock issued in the WorldxChange merger to be placed in
escrow will be held and released;
14
<PAGE> 28
The conditions that must be satisfied or waived before World Access is
obligated to complete the WorldxChange merger include the following, subject to
exceptions and qualifications:
- fewer than 1% of the shares of WorldxChange common stock shall have
exercised dissenters' rights under California law;
- the representations and warranties of WorldxChange must be true and
correct;
- WorldxChange must have complied with its agreements in the WorldxChange
merger agreement;
- all consents and approvals required of WorldxChange to complete the
WorldxChange merger must be obtained; and
- all shares of WorldxChange preferred stock must be voted in favor of the
WorldxChange merger and deemed to be converted immediately prior to the
completion of the WorldxChange merger into not more than 8,282,829 shares
of WorldxChange common stock.
The conditions that must be satisfied or waived before WorldxChange is
obligated to complete the WorldxChange merger include the following, subject to
exceptions and qualifications:
- the representations and warranties of World Access must be true and
correct;
- World Access must have complied with its agreements in the WorldxChange
merger agreement; and
- all consents and approvals required of World Access to complete the
WorldxChange merger must be obtained;
The completion of the STAR merger is not a condition to the completion of
the WorldxChange merger.
VOTE OR CONSENT 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 WorldxChange merger agreement. The shares of World Access
preferred stock are counted on an as-converted to common stock basis. 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 [ ], 2000, the World Access record date.
The holders of a majority of the outstanding shares of WorldxChange common
stock and WorldxChange preferred stock, voting or consenting as separate
classes, must approve and adopt the WorldxChange merger agreement. WorldxChange
shareholders are entitled to cast one vote per share of common stock owned as of
[ ], 2000, the WorldxChange record date.
World Access stockholders holding [ %] of the voting power of World
Access as of the World Access record date have agreed to vote in favor of the
WorldxChange merger.
WorldxChange shareholders holding [ %] of the voting power of
WorldxChange as of the WorldxChange record date have agreed to vote in favor of
the WorldxChange merger.
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<PAGE> 29
TERMINATION OF THE WORLDXCHANGE MERGER AGREEMENT
The WorldxChange merger agreement may be terminated under limited
circumstances at any time before the completion of the WorldxChange merger.
WORLD ACCESS VOTING AGREEMENT
World Access stockholders Armstrong International Telecommunications, Inc.,
WorldCom Network Services, Inc., The 1818 Fund III, L.P., John D. Phillips, W.
Tod Chmar and Resurgens Partners, LLC have entered into voting and stock
transfer restriction agreements with WorldxChange, under which these World
Access stockholders have agreed to vote all shares of World Access capital stock
owned by them in favor of the approval and adoption of the WorldxChange merger
agreement and the transactions contemplated thereby. In addition, these
stockholders have agreed not to transfer or sell their shares of World Access
common stock before to the completion of the WorldxChange merger.
The World Access stockholders who entered into the voting and stock
transfer restriction agreements collectively held approximately [ %] of the
voting power of World Access as of the World Access record date.
WORLDXCHANGE VOTING AGREEMENTS
WorldxChange shareholders Atocha, L.P., Roger B. Abbott and Rosalind Abbott
(whose shares are jointly owned), Gold & Appel Transfer S.A. and Edward S. Soren
have entered into voting and stock transfer restriction agreements with World
Access. The agreements require these WorldxChange shareholders to vote all
shares of WorldxChange capital stock beneficially owned by them in favor of the
approval and adoption of the WorldxChange merger agreement and the transactions
contemplated thereby. These WorldxChange shareholders also have agreed to
restrictions on the pre-closing transfer of their shares of WorldxChange common
stock and post-closing transfer of shares of World Access common stock to be
received by them in the WorldxChange merger.
The WorldxChange shareholders who entered into the voting and stock
transfer restriction agreements collectively held approximately [ %] of the
voting power of WorldxChange capital stock as of the WorldxChange record date.
OPINION OF WORLD ACCESS' FINANCIAL ADVISORS
In deciding to approve the WorldxChange merger, World Access' board of
directors considered an opinion from its financial advisor, 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
pursuant to the WorldxChange merger agreement.
INTERESTS OF DIRECTORS, OFFICERS AND SHAREHOLDERS IN THE WORLDXCHANGE MERGER
When considering the recommendations of World Access' and WorldxChange's
boards of directors, you should be aware that certain World Access and
WorldxChange directors, officers and shareholders have interests in the
WorldxChange merger that are different from, or are in addition to, all other
stockholders of World Access and shareholders of WorldxChange. These interests
include the acceleration of stock options and severance payments upon completion
of the WorldxChange merger, as well as the right of WorldxChange's Chairman of
the Board to serve as a World Access director or appoint someone else to do so.
ANTITRUST AND DOMESTIC AND FOREIGN REGULATORY APPROVALS REQUIRED TO COMPLETE THE
WORLDXCHANGE MERGER
The WorldxChange merger is subject to antitrust laws. World Access,
WorldxChange and other related parties have made the required filings with the
Department of Justice, the Federal Trade Commission, the German Cartel Office
and Australian and New Zealand foreign investment review boards. However, the
companies are not permitted to complete the WorldxChange merger until the
16
<PAGE> 30
applicable waiting periods have expired or terminated. The Department of Justice
and the Federal Trade Commission granted an early termination of the waiting
period, effective April 6, 2000. No further action under the U.S. antitrust laws
is required, as long as the WorldxChange merger is completed prior to April 6,
2001. The Department of Justice, the Federal Trade Commission, the German Cartel
Office, and the Australian and New Zealand foreign investment review boards, as
well as other foreign regulatory agencies or governments, state or private
persons, may challenge the WorldxChange merger at any time before or after its
completion.
The WorldxChange merger is also subject to state and federal
telecommunications regulatory approvals. World Access and WorldxChange have
filed applications or notices, as required, in 48 states and at the FCC. The FCC
has approved the WorldxChange merger.
COMPARATIVE MARKET PRICE INFORMATION
Shares of World Access common stock are listed on the Nasdaq National
Market. On February 11, 2000, the last full trading day prior to the public
announcement of the proposed WorldxChange merger, the World Access common stock
closed at $22 7/8 per share. We urge you to obtain current market quotations.
The WorldxChange common stock is not publicly traded.
Please read the documents attached to this joint proxy
statement/prospectus, including the WorldxChange merger agreement, which is
attached as Annex B and the opinion of Donaldson, Lufkin & Jenrette Securities
Corporation, which is attached as Annex D.
17
<PAGE> 31
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 three month periods ended March 31,
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 THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- -----------------------
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 $ 85,098 $ 255,541
Gross profit(2).................. -- -- -- 650 52,776 4,944 31,686
Depreciation and amortization.... 30 71 115 416 13,541 2,237 17,759
Restructuring charge............. -- -- -- -- 37,800 -- --
Operating loss................... (880) (1,011) (1,550) (4,383) (26,998) (1,062) (9,849)
Loss from continuing
operations..................... (1,292) (588) (460) (5,437) (27,098) (2,456) (17,783)
Loss from continuing operations
per share...................... $ (0.14) $ (0.05) $ (0.03) $ (0.25) (0.78) (0.07) (0.33)
Weighted average shares
outstanding.................... 9,083 13,044 17,242 22,073 37,423 36,089 55,189
BALANCE SHEET DATA:
Cash and equivalents............. $ 1,887 $22,480 $118,065 $ 55,176 $ 147,432 $ 41,112 $ 145,347
Short-term investments........... -- -- -- -- -- -- 43,922
Working capital.................. 17,884 52,149 206,769 350,816 289,844 127,687 343,236
Total assets..................... 23,604 52,512 207,294 544,649 1,629,804 605,974 2,048,685
Long-term debt................... 3,750 -- 115,264 137,523 408,338 135,631 413,989
Total liabilities................ 9,270 138 115,539 184,066 732,505 240,333 819,814
Stockholders' equity............. 14,334 52,374 91,755 360,583 897,299 365,641 1,228,871
OTHER FINANCIAL DATA:
EBITDA from continuing operations
before restructuring
charge(3)...................... $ (850) $ (940) $ (1,435) $ (3,967) $ 24,343 $ 1,175 $ 7,910
Capital expenditures............. 280 1,176 3,591 12,216 7,198 1,895 8,997
Cash flows from (used by)
operating activities........... (6,445) 1,995 (1,602) (13,038) 18,515 (8,959) (22,990)
Cash flows (used by) investing
activities..................... (2,432) (1,792) (18,240) (66,527) (32,186) (5,585) (43,614)
Cash flows from financing
activities..................... 10,010 20,391 115,427 16,676 105,927 480 64,519
</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 LDI -- 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 joint 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
18
<PAGE> 32
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
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 charge:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ------------------
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) $(2,456) $(17,783)
Net interest expense
(income).............. 412 (85) (838) 4,355 9,606 2,156 11,926
Income taxes benefit.... -- (338) (252) (3,301) (10,126) (762) (3,460)
Foreign exchange (gain)
loss.................. -- -- -- -- 620 -- (532)
Depreciation and
amortization.......... 30 71 115 416 13,541 2,237 17,759
------- ----- ------- ------- -------- ------- --------
EBITDA from continuing
operations............ (850) (940) (1,435) (3,967) (13,457) 1,175 7,910
Restructuring charge.... -- -- -- -- 37,800 -- --
------- ----- ------- ------- -------- ------- --------
EBITDA from continuing
operations
before restructuring
charge................ $ (850) $(940) $(1,435) $(3,967) $ 24,343 $ 1,175 $ 7,910
======= ===== ======= ======= ======== ======= ========
</TABLE>
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<PAGE> 33
STAR 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 STAR. The
financial information for the three month periods ended March 31, 1999 and 2000
have been derived from unaudited consolidated financial statements of STAR,
which, in the opinion of STAR'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.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................. $66,964 $283,450 $434,086 $619,220 $1,061,774 $228,209 $255,105
Operating expenses:
Cost of services(1).... 50,300 244,153 374,504 523,621 925,206 192,914 225,840
Selling, general and
administrative...... 13,356 41,804 48,906 66,140 160,067 31,465 33,329
Depreciation and
amortization........ 952 2,343 5,650 15,054 44,236 8,730 13,050
Loss on impairment of
goodwill............ -- -- -- 2,604 -- -- --
Merger expense......... -- -- 286 1,026 1,878 1,442 --
------- -------- -------- -------- ---------- -------- --------
Total operating
expenses............ 64,608 288,300 429,346 608,445 1,131,387 234,551 272,219
------- -------- -------- -------- ---------- -------- --------
Income (loss) from
operations.......... 2,356 (4,850) 4,740 10,775 (69,613) (6,342) (17,114)
Other income (expenses):
Interest income........ 65 138 464 4,469 2,192 729 189
Interest expense....... (214) (1,270) (2,617) (3,386) (9,895) (1,213) (2,924)
Legal settlements and
expense............. -- (100) (1,653) -- -- -- --
Other.................. (97) 186 208 (304) 1,373 (2,021) 10,696
------- -------- -------- -------- ---------- -------- --------
Income (loss) before
provision for income
taxes............... 2,110 (5,896) 1,142 11,554 (75,943) (8,847) (9,153)
Provision (benefit) for
income taxes........... 66 577 2,905 9,923 (12,096) (1,295) (2,629)
------- -------- -------- -------- ---------- -------- --------
Net income (loss)........ $ 2,044 $ (6,473) $ (1,763) $ 1,631 $ (63,847) $ (7,552) $ (6,524)
======= ======== ======== ======== ========== ======== ========
Pro forma net income
(loss)
(unaudited)(2)......... $ 478 $ (7,416) $ (1,958)
======= ======== ========
Income (loss) per common
share(3)
Basic and Diluted...... $ 0.10 $ (0.27) $ (0.06) $ 0.04 $ (1.12) $ (0.14) $ (0.11)
======= ======== ======== ======== ========== ======== ========
</TABLE>
20
<PAGE> 34
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Pro forma income (loss)
per common share
(unaudited)(3)
Basic and Diluted...... $ 0.02 $ (0.31) $ (0.06)
======= ======== ========
Weighted average number
of common shares
outstanding -- basic(3)
Basic.................. 19,916 24,076 31,101 40,833 57,036 52,628 58,601
Diluted................ 19,916 24,076 31,101 42,434 57,036 52,628 58,601
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
-------------------------------------------------------- ------------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- --------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital
(deficit).......... $(1,065) $(10,913) $ 4,692 $ 46,698 $ (197,921) $ (85,773) $ (160,745)
Total assets......... 37,169 76,250 130,382 374,651 807,754 638,674 741,884
Total long-term
liabilities, net of
current portion.... 2,980 8,834 14,800 33,048 96,693 38,691 84,060
Accumulated deficit.. (6,294) (12,077) (13,737) (12,106) (75,953) (19,657) (82,477)
Stockholders'
equity............. 6,614 9,986 40,615 195,591 278,054 336,207 270,068
OTHER FINANCIAL DATA:
EBITDA from
continuing
operations(4)...... $ 3,308 $ (2,507) $ 10,390 $ 25,829 $ (25,377) $ 2,388 $ (4,064)
Cash flows (used in)
provided by
operating
activities......... 2,076 (2,847) 11,476 (12,379) 40,138 18,593 4,332
Cash flows (used in)
provided by
investing
activities......... (1,123) (10,403) (31,157) (100,986) (58,297) (22,678) 5,482
Cash flows used in
(provided by)
financing
activities......... (839) 14,721 19,174 158,526 (991) (21,123) (22,109)
Capital
expenditures(5).... 2,922 14,810 26,584 147,236 150,588 32,021 10,387
North American
wholesale billed
minutes of use(6).. 38,106 479,681 1,034,187 1,657,523 2,129,296 517,325 481,107
North American
wholesale revenue
per billed minute
of use(7).......... $0.4102 $ 0.4288 $ 0.3612 $ 0.3145 $ 0.2084 $ 0.2468 $ 0.1682
</TABLE>
---------------
(1) Cost of services is exclusive of depreciation and amortization related to
the services network which is shown separately below.
21
<PAGE> 35
(2) The pro forma net income or loss per share assumes that STAR and CEO
Telecommunications, Inc., which STAR acquired in a pooling of interests
transaction on November 30, 1997, were C-corporations for all periods
presented.
(3) See Note 2 of Notes to Consolidated Financial Statements set forth in STAR's
annual report on Form 10-K for the fiscal year ended December 31, 1999 and
incorporated by reference herein, for an explanation of the method used to
determine the number of shares used in computing basic and diluted income
(loss) per common share and pro form basic and diluted income (loss) per
common share.
(4) EBITDA from continuing operations as used in this joint 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 STAR 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
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 STAR, may not be comparable to similarly titled
measures reported by other companies and could be misleading unless all
companies and analysts calculate EBITDA in the same manner.
(5) Includes assets financed with capital leases, notes and vendor financing
arrangements.
(6) Does not include wholesale billed minutes of use from T-One Corporation, a
former subsidiary of STAR, prior to the year ended December 31, 1997.
Includes wholesale billed minutes of use attributable to ALLSTAR Telecom,
formerly know as United Digital Network, Inc., a subsidiary of STAR, for all
years presented.
(7) Represents wholesale gross call usage revenue per billed minute. Amounts
exclude other revenue related items such as finance charges. This data does
not include wholesale billed minutes of use from T-One prior to the year
ended December 31, 1997.
The following table reconciles STAR's income (loss) from continuing
operations to EBITDA from continuing operations (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
------ ------- ------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing
operations.................. $2,044 $(6,473) $(1,763) $ 1,631 $(63,847) $ (7,552) $ (6,524)
Net interest expense
(income).................... 149 1,132 2,153 (1,083) 7,703 484 2,735
Income tax expense
(benefit)................... 66 577 2,905 9,923 (12,096) (1,295) (2,629)
Other......................... 97 (86) 1,445 304 (1,373) 2,021 (10,696)
Depreciation and
amortization................ 952 2,343 5,650 15,054 44,236 8,730 13,050
------ ------- ------- ------- -------- -------- --------
EBITDA from continuing
operations.................. $3,308 $(2,507) $10,390 $25,829 $(25,377) $ 2,388 $ (4,064)
====== ======= ======= ======= ======== ======== ========
</TABLE>
22
<PAGE> 36
WORLDXCHANGE SELECTED HISTORICAL FINANCIAL INFORMATION
The following table summarizes WorldxChange's financial data. The data
presented in this table are derived from the "WorldxChange Selected Consolidated
Financial Data" and the consolidated financial statements and notes which are
included elsewhere in this joint proxy statement/prospectus. You should read
those sections for a further explanation of the financial data summarized here.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $331,660 $398,867 $421,580 $190,758 $291,600
Cost of services(1)......................... 235,027 287,312 328,334 150,839 230,207
-------- -------- -------- -------- --------
Gross profit................................ 96,633 111,555 93,246 39,919 61,393
Selling, general and administrative......... 113,459 114,897 124,112 57,135 84,585
Depreciation and amortization............... 8,677 12,332 17,705 7,679 21,825
-------- -------- -------- -------- --------
Operating loss.............................. (25,503) (15,674) (48,571) (24,895) (45,017)
Interest expense............................ 8,682 11,947 16,883 7,802 13,528
Other expense, net.......................... 3,366 1,378 648 397 727
Minority interest........................... (473) (1,546) (2,251) (1,071) --
-------- -------- -------- -------- --------
Net loss.................................... $(37,078) $(27,453) $(63,851) $(32,023) $(59,272)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF SEPTEMBER 30, MARCH 31,
---------------------------------------------------- ---------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......... $ 1,400 $ 3,400 $ 4,326 $ 20,917 $ 38,030 $ 9,553
Working capital (deficit)......... (15,100) (35,400) (50,428) (37,035) (37,173) (268,677)
Total assets...................... 55,200 62,800 103,745 120,129 235,002 422,512
Short-term debt and capital lease
obligations..................... 13,500 15,700 9,456 20,272 20,381 174,142
Long-term debt, net of current
portion......................... 24,900 24,700 49,204 99,313 129,719 71,434
Minority interest................. -- 300 8,815 7,269 -- --
Total shareholders' deficit....... (8,600) (32,000) (68,880) (89,593) (35,053) (51,789)
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
EBITDA(2)................................... $(16,826) $ (3,342) $(30,866) $(17,216) $(23,192)
Cash provided by (used in) operating
activities................................ (7,206) (31,735) (31,549) 2,210 (24,344)
Cash used in investing activities........... (10,871) (11,990) (27,633) (16,928) (58,374)
Cash provided by financing activities....... 18,783 60,535 76,284 20,031 54,241
Capital expenditures........................ 19,404 22,411 81,024 21,003 16,343
GEOGRAPHIC DATA:
Revenues:
North America............................. $291,633 $321,763 $337,457 $147,398 $175,778
Pacific Rim............................... 24,437 58,382 55,619 29,621 25,829
Europe.................................... 15,590 18,722 28,504 13,739 89,993
-------- -------- -------- -------- --------
Total............................. $331,660 $398,867 $421,580 $190,758 $291,600
======== ======== ======== ======== ========
</TABLE>
---------------
(1) Cost of services is exclusive of depreciation and amortization related to
the services network which is shown separately below.
23
<PAGE> 37
(2) EBITDA as used in this joint proxy statement/prospectus is operating loss
plus depreciation and amortization expense and is presented because
WorldxChange 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 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 WorldxChange, may not be comparable to similarly titled
measures reported by other companies and could be misleading unless all
companies and analysts calculate EBITDA in the same manner.
The following table reconciles our net loss to EBITDA:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss.................................... $(37,078) $(27,453) $(63,851) $(32,023) $(59,272)
Net interest expense........................ 8,682 11,947 16,883 7,802 13,528
Other expense, net.......................... 3,366 1,378 648 397 727
Minority interest........................... (473) (1,546) (2,251) (1,071) --
Depreciation and amortization............... 8,677 12,332 17,705 7,679 21,825
-------- -------- -------- -------- --------
EBITDA...................................... $(16,826) $ (3,342) $(30,866) $(17,216) $(23,192)
======== ======== ======== ======== ========
</TABLE>
UNAUDITED SELECTED PRO FORMA FINANCIAL INFORMATION
The unaudited selected pro forma balance sheet of World Access as of March
31, 2000 set forth below gives effect to the STAR merger, the WorldxChange
merger, as well as the PT-1 asset sale and the TelDaFax purchase. The unaudited
selected pro forma statement of operations data of World Access for the three
months ended March 31, 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."
24
<PAGE> 38
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS DATA:
Service revenues............................................ 2,554,632 609,354
Operating expenses:
Cost of services(1)......................................... 2,173,494 520,958
Selling, general and administrative......................... 435,658 96,123
Depreciation and amortization............................... 205,161 56,964
Provision for doubtful accounts............................. 60,647 10,405
Merger expense.............................................. 1,867 --
Restructuring and other special charges..................... 44,187 --
---------- --------
Total operating expenses.......................... 2,921,014 684,450
---------- --------
Operating loss.................................... (366,382) (75,096)
Interest and other income................................... 16,521 17,688
Interest and other expense.................................. (91,958) (24,895)
Foreign exchange loss....................................... (2,369) 438
---------- --------
Loss from continuing operations before income
taxes and minority interests.................... (444,188) (81,865)
Provision (benefit) for income taxes........................ (15,100) (4,518)
---------- --------
Loss from continuing operations before minority
interest.......................................... (429,088) (77,347)
Minority interest........................................... 2,388 635
---------- --------
Loss from continuing operations................... (426,700) (76,712)
Preferred stock dividends................................... (2,461) (632)
---------- --------
Loss from continuing operations available to
common stockholders............................... $ (429,161) $(77,344)
========== ========
Loss per common share from continuing operations:
Basic.................................................. $ (2.90) $ (0.51)
========== ========
Diluted................................................ $ (2.90) $ (0.51)
========== ========
Weighted average shares outstanding:
Basic.................................................. 147,824 152,379
========== ========
Diluted................................................ 147,824 152,379
========== ========
</TABLE>
---------------
(1) Cost of services is exclusive of depreciation and amortization related to
the services network which is shown separately below.
25
<PAGE> 39
<TABLE>
<CAPTION>
AT MARCH 31,
2000
---------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Current Assets
Cash and equivalents........................................ $ 522,860
Short-term investments...................................... 45,232
Restricted cash............................................. 30,847
Accounts receivable......................................... 492,316
Prepaid expenses and other current assets................... 75,635
Net assets held for sale.................................... 104,705
Investments................................................. 70,000
----------
Total Current Assets.............................. 1,341,595
----------
Property and equipment, net................................. 494,667
Goodwill and other intangibles, net......................... 2,192,242
Other assets................................................ 165,738
----------
Total Assets...................................... $4,194,242
==========
Current Liabilities
Short-term debt............................................. $ 270,913
Accounts payable............................................ 661,835
Other accrued liabilities................................... 177,352
----------
Total Current Liabilities......................... 1,110,100
Long-term debt.............................................. 544,897
Other long-term liabilities................................. 46,367
----------
Total Liabilities................................. 1,701,364
----------
Minority interests.......................................... (548)
Stockholders' Equity
Preferred stock............................................. 6
Common stock................................................ 1,538
Additional paid in capital.................................. 2,562,233
Accumulated other comprehensive loss........................ (4,368)
Accumulated deficit......................................... (65,983)
----------
Total Stockholders' Equity........................ 2,493,426
----------
Total Liabilities and Stockholders' Equity........ $4,194,242
==========
</TABLE>
26
<PAGE> 40
COMPARATIVE PER SHARE DATA
(UNAUDITED)
Set forth below are historical income (loss) per share from continuing
operations and book value per common share data of World Access, STAR and
WorldxChange and the income (loss) per share from continuing operations and book
value per common share data of World Access on a pro forma basis to give effect
to the acquisition of Comm/Net in May 1999, the acquisition of FaciliCom in
December 1999. No common stock dividends were paid by World Access during the
periods presented below.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
<S> <C> <C>
World Access -- Historical:
Loss per share from continuing operations:
Basic.................................................. $(0.78) $(0.33)
Diluted................................................ (0.78) (0.33)
Book value per common share(1)............................ 17.41 20.81
World Access -- Pro Forma(4):
Loss per share from continuing operations(2):
Basic.................................................. $(3.62) $(0.62)
Diluted................................................ (3.62) (0.62)
Book value per common share(3)............................ 17.38
World Access -- Pro Forma(5):
Net loss per share
Basic.................................................. $(3.37) $(0.43)
Diluted................................................ (3.37) (0.43)
Book value per common share............................... 19.44
World Access -- Pro Forma(6):
Net loss per share
Basic.................................................. $(4.25) $(0.77)
Diluted................................................ (4.25) (0.77)
Book value per common share............................... 19.13
STAR -- Historical:
Net loss per share(2):
Basic.................................................. $(1.12) $(0.11)
Diluted................................................ (1.12) (0.11)
Book value per common share(1)............................ 4.75 4.61
STAR -- Equivalent Pro Forma(7):
Net loss per share
Basic.................................................. $(1.40) $(0.24)
Diluted................................................ (1.40) (0.24)
Book value per common share............................... 6.72
STAR -- Equivalent Pro Forma(8):
Net loss per share
Basic.................................................. $(1.30) $(0.17)
Diluted................................................ (1.30) (0.17)
Book value per common share............................... 7.52
</TABLE>
27
<PAGE> 41
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, 1999 MARCH 31, 2000
------------------ --------------
<S> <C> <C>
WorldxChange -- Historical:
Net loss per share(2):
Basic.................................................. $(1.91) $(1.64)
Diluted................................................ (1.91) (1.64)
Book value per common share(1)............................ (0.95) (1.40)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
<S> <C> <C>
WorldxChange -- Equivalent Pro Forma(7):
Net loss per share
Basic.................................................. $(2.38) $(0.41)
Diluted................................................ (2.38) (0.41)
Book value per common share............................... 11.44
WorldxChange -- Equivalent Pro Forma(9):
Net loss per share
Basic.................................................. $(2.80) $(0.51)
Diluted................................................ (2.80) (0.51)
Book value per common share............................... 12.59
</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 income (loss) per share from continuing operations is presented
on a basic and diluted basis computed as pro forma income (loss) from
continuing operations divided by the weighted average number of shares
outstanding, assuming shares issued in each of the transactions were
outstanding since the beginning of each period presented. The outstanding
common shares do not include shares issuable upon exercise of stock
options, stock warrants, or conversion of outstanding convertible
securities.
(3) Calculated by dividing pro forma stockholders' equity by the number of
outstanding shares of World Access Common Stock expected to be outstanding
as of the consummation of the 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) Pro forma information assumes World Access acquires both STAR and
WorldxChange.
(5) Pro forma information assumes World Access acquires STAR but not
WorldxChange.
(6) Pro forma information assumes World Access acquires WorldxChange but not
STAR.
(7) Equivalent pro forma information assumes World Access acquires both STAR
and WorldxChange.
(8) Equivalent pro forma information assumes World Access acquires STAR but not
WorldxChange.
(9) Equivalent pro forma information assumes World Access acquires WorldxChange
but not STAR.
28
<PAGE> 42
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, YOU SHOULD CAREFULLY CONSIDER THE
FOLLOWING RISK FACTORS IN DECIDING WHETHER TO VOTE FOR OR EXERCISE DISSENTERS'
RIGHTS WITH RESPECT TO THE MERGERS.
RISK FACTORS CONCERNING THE COMBINED COMPANY IN CONNECTION WITH THE MERGERS
THE FAILURE TO SUCCESSFULLY INTEGRATE THE COMPANIES BY MANAGING THE SIGNIFICANT
CHALLENGES OF INTEGRATING THREE COMPANIES MAY RESULT IN THE COMBINED COMPANY NOT
ACHIEVING THE ANTICIPATED BENEFITS OF THE MERGERS.
The mergers require the integration in a timely manner of three 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 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 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 company will require substantial attention from 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 mergers and certain other transactions, the
combined companies would have had total losses of approximately $72.8 million
from continuing operations for the three months ended March 31, 2000 and $0.62
per diluted share as compared to the $0.57 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 FIXED EXCHANGE RATIOS IN EACH OF THE MERGERS MAY REQUIRE STAR OR
WORLDXCHANGE TO CLOSE THE STAR MERGER OR THE WORLDXCHANGE MERGER, RESPECTIVELY,
AT A TIME WHEN THE VALUE OF THE WORLD ACCESS SHARES TO BE RECEIVED BY THE STAR
STOCKHOLDERS OR THE WORLDXCHANGE SHAREHOLDERS, RESPECTIVELY, IS SUBSTANTIALLY
LESS THAN IT WAS ON THE DATES THE STAR MERGER AGREEMENT AND THE WORLDXCHANGE
MERGER AGREEMENT WERE ENTERED INTO.
Neither WorldxChange nor STAR has the right under their respective merger
agreements to decline to close the merger if World Access's stock price falls
below any particular level. This could result in WorldxChange and STAR
shareholders receiving World Access shares worth substantially less than these
shares were worth at the time the merger agreements were entered into.
The value of the World Access stock on February 11, 2000, which is the
original date the exchange ratios were agreed upon, was $22.875. As an example
of World Access' stock price volatility, the following
29
<PAGE> 43
table sets forth the high and low closing sale prices per share of World Access
common stock on the Nasdaq National Market during the indicated months.
<TABLE>
<CAPTION>
CLOSING SALE
PRICES
PER SHARE OF
WORLD ACCESS
COMMON
STOCK
-------------
MONTH HIGH LOW
----- ----- ----
<S> <C> <C>
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
August 1999................................................. 14 15/16 11 7/8
</TABLE>
THE COMBINED COMPANY'S INCREASED FINANCIAL LEVERAGE WILL SUBJECT IT TO
SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS.
Immediately after the completion of the mergers, the combined company will
have a higher degree of financial leverage than prior to the mergers. At March
31, 2000, World Access had $414.0 million of long-term debt and a total debt to
equity ratio of approximately 39.8%, STAR had approximately $43.1 million of
long-term debt and approximately $270.1 stockholders' equity and WorldxChange
had $71.4 million of long-term debt and negative stockholders' equity. Based on
World Access' balance sheet at March 31, 2000 reflecting the combination of
World Access, STAR and WorldxChange, the combined company would have had
long-term debt of $524.0 million and a total debt to equity ratio of 38.1%.
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;
- 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.
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<PAGE> 44
IF THE 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 STAR AND WORLDXCHANGE STOCKHOLDERS.
The completion of the STAR merger and WorldxChange merger will result in a
substantial dilution of the voting and equity interests of current World Access
stockholders. Following the completion of the mergers and assuming that World
Access elects to use its stock as consideration in the STAR merger to the
maximum extent possible, the current World Access stockholders will:
(i) own shares representing approximately 67.0% of the combined
company's total voting power and
(ii) own 68.0% of the total number of outstanding shares of the
combined company's common stock on a fully diluted basis.
If only the STAR merger is completed, assuming that World Access elects to
use its stock as consideration in the STAR merger to the maximum extent
possible, the current World Access stockholders will:
(i) own shares representing approximately 82.0% of the combined
company's total voting power after completion of the STAR merger and
(ii) own 83.0% of the total number of outstanding shares of the
combined company's common stock on a fully diluted basis after completion
of the STAR merger.
If only the WorldxChange merger is completed, the current World Access
stockholders will:
(i) own shares representing approximately 77.0% of the combined
company's total voting power after completion of the WorldxChange merger
and
(ii) own 78.0% of the total number of outstanding shares of the
combined company's common stock on a fully diluted basis after completion
of the WorldxChange merger.
IF THE SALE OF PT-1 IS NOT COMPLETED PRIOR TO THE CLOSING OF THE STAR MERGER, IF
STAR DOES NOT RECEIVE NET CASH PROCEEDS OF AT LEAST $120.0 MILLION FROM THE SALE
OF THE ASSETS OF PT-1 TO COUNSEL, OR IF STAR DOES NOT RECEIVE NET CASH PROCEEDS
OF AT LEAST $150.0 MILLION FROM THE SALE OF PT-1 TO ANOTHER PURCHASER, THE STAR
MERGER MAY NOT CLOSE.
If STAR sells the assets of PT-1 to Counsel for net cash proceeds of less
than $120.0 million, or to a purchaser other than Counsel for net cash proceeds
of less than $150.0 million, then World Access does not have to complete the
STAR merger. There can be no assurance that STAR will complete the PT-1 asset
sale to Counsel for net cash proceeds of at least $120.0 million, or to any
other purchaser for net cash proceeds of at least $150.0 million, as required by
the STAR merger agreement. In the event that the STAR merger is not completed,
STAR may face significant costs associated with the failed STAR merger,
including a termination fee of $14.0 million, and will need to obtain additional
capital. STAR is not certain that it will be able to raise additional capital on
favorable terms or at all.
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<PAGE> 45
While STAR believes it will complete the PT-1 asset sale to Counsel, the
completion of the PT-1 asset sale is subject to closing conditions contained in
the PT-1 asset sale agreement. There can be no assurance that all such
conditions will be satisfied. In addition, the PT-1 asset sale agreement
provides that the PT-1 asset sale agreement can be terminated under certain
circumstances, including by PT-1 or Counsel if the PT-1 asset sale is not
completed on or before August 31, 2000.
STAR cannot guarantee that the PT-1 asset sale will be completed. If the
PT-1 asset sale agreement is terminated and STAR does not enter into an
alternative definitive agreement for the sale of PT-1, World Access does not
have to complete the STAR merger. If the PT-1 asset sale agreement is
terminated, STAR may face significant costs associated with the failed PT-1
asset sale, including a termination fee of $5.85 million. In addition, PT-1 will
be required to pay the termination fee if the PT-1 asset sale agreement is not
approved by the required vote of the stockholders of STAR and STAR sells the
assets of PT-1 to another party within one year of the failed stockholder vote.
In addition, the completion of the PT-1 asset sale to Counsel for net cash
proceeds of at least $120.0 million is dependent, in part, on the results of a
final audit to be conducted after the close of the PT-1 asset sale. There can be
no assurance that the net value of the assets of PT-1 as of the closing of the
PT-1 asset sale will be greater than or equal to the net value of the assets as
of December 31, 1999 or that there will be no increases in the accounts payable
or receivable of PT-1, which may result in net cash proceeds of less than $120.0
million for the PT-1 asset sale.
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 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 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.
As a result of the mergers, the combined company will be able to utilize
World Access' network facilities, STAR's network facilities and WorldxChange's
network facilities. However, 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.
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<PAGE> 46
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.
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 companies' 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 AT A RATE THAT IS
COMMENSURATE WITH 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 PUTS 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
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<PAGE> 47
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's 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.
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 mergers, 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, the combined company 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 joint 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
34
<PAGE> 48
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.
IF STAR'S LENDERS DO NOT EXTEND THE DUE DATE FOR CERTAIN DEBT, OR IF THEY SUE TO
COLLECT CERTAIN DEBTS PRIOR TO COMPLETING THE PT-1 ASSET SALE, STAR COULD BECOME
INSOLVENT OR BE FORCED TO FILE FOR BANKRUPTCY.
STAR is subject to certain restrictions under its financing arrangements,
including its financing arrangement with WorldCom Network Services, Inc. If STAR
violates any restrictions under its financing arrangements, STAR's lenders may
accelerate payment of the amounts STAR owes them. If STAR's lenders do not
extend the due date for STAR's debt or if STAR's lenders sue to collect on any
of STAR's debt, it could force STAR to file for bankruptcy or reorganize its
business.
If STAR violates any restrictions under its receivables sale agreement with
RFC, RFC may declare an event of default and no longer purchase receivables from
STAR. If RFC does not continue to purchase STAR's receivables, STAR may be
deprived of needed liquidity. RFC can refrain from purchasing additional
receivables from STAR if STAR is in default under any other financing
arrangement.
STAR has entered into promissory notes with WorldCom Network Services in
the amounts of $56.0 and up to $30.0 million, both of which are currently due on
August 31, 2000. In addition, STAR and certain of its subsidiaries owe Nortel
Networks, Inc. approximately $35 million. STAR intends to seek extensions on a
month to month basis from WorldCom Network Services to permit the PT-1 asset
sale to close and is working to obtain payment terms from Nortel. If STAR
commits a breach of the terms of the STAR merger agreement which results in
World Access having the right to terminate the STAR merger agreement, WorldCom
Network Services can accelerate payment of the outstanding balance. If STAR is
unable to obtain an extension from WorldCom Network Services and WorldCom
Network Services seeks to collect its debt, or if Nortel seeks to collect the
sum STAR and its subsidiaries owes to it, STAR and certain of its subsidiaries
may need to seek the protection of the federal bankruptcy laws to continue
operating its business, unless the sale of PT-1 is completed before these debts
are sought to be collected.
STAR's anticipated financing arrangement with World Access provides for a
mutually agreeable initial advance but no such advance has been made, nor have
any other advances been made despite STAR's request. There can be no assurance
that World Access will provide financing to STAR. If World Access does provide
financing to STAR, such financing would be due if the STAR merger agreement was
terminated or if any terms of the financing were breached.
There can be no assurance that STAR will not breach any restrictions under
its financing arrangements, that it will not breach the terms of the STAR merger
agreement or that if STAR enters into a financing arrangement with World Access,
that World Access will agree to make additional advances to STAR. STAR cannot
predict what actions its lenders will take if it is out of compliance with any
restrictions under any of its financing arrangements or under the STAR merger
agreement.
IF WORLDXCHANGE'S LENDERS ACCELERATE PAYMENT OF THE AMOUNTS WORLDXCHANGE OWES
THEM, WORLDXCHANGE COULD BECOME INSOLVENT OR BE FORCED TO FILE FOR BANKRUPTCY.
WorldxChange is subject to certain restrictions under its financing
arrangements, including its financing arrangement with Foothill Capital
Corporation. If WorldxChange violates any restrictions under its financing
arrangements, its lenders may accelerate payment of the amounts it owes them. If
the lenders accelerate payment on any of WorldxChange's debt, it could force
WorldxChange to file for bankruptcy or reorganize its business. Under
WorldxChange's financing arrangements, if WorldxChange commits a breach of the
terms of these arrangements, WorldxChange's lenders can accelerate payment of
their obligations. There can be no assurance that WorldxChange will not breach
any of its financing
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<PAGE> 49
arrangements. WorldxChange cannot predict what actions its lenders will take if
it is out of compliance with any restrictions under any of its financing
arrangements.
WORLDXCHANGE WILL NOT HAVE SUFFICIENT CASH FLOW FROM ITS BUSINESS TO PAY ITS
DEBT, AND UNLESS THE WORLDXCHANGE MERGER IS COMPLETED BEFORE OCTOBER 1, 2000,
WORLDXCHANGE WILL NEED TO RAISE ADDITIONAL CAPITAL TO PAY, OR WILL NEED TO
RESTRUCTURE, ITS DEBT OBLIGATIONS, WHICH CANNOT BE ASSURED.
The amount of WorldxChange's outstanding debt is large compared to its cash
flow. As of March 31, 2000 WorldxChange had:
- total consolidated debt of approximately $204.5 million; and
- stockholders' deficit of approximately $51.8 million.
Of WorldxChange's total consolidated debt, approximately $162.0 million is
due over the next 12 months. The earliest of the maturity dates for this debt is
October 1, 2000. WorldxChange will not generate enough cash from its operations
to meet these obligations. If the WorldxChange merger is not completed by the
earliest maturity of these obligations, WorldxChange will need to raise
additional capital to pay, or will need to restructure, a substantial portion of
these obligations. No assurance can be given that additional capital will be
raised or that such obligations can or will be restructured.
DUE TO STAR'S LARGE AMOUNT OF DEBT PAYMENTS, STAR WILL NOT HAVE SUFFICIENT CASH
FLOW FROM ITS INDEPENDENT BUSINESS OPERATIONS TO PAY ITS DEBT AND STAR MAY NEED
TO RAISE ADDITIONAL CAPITAL TO PAY, OR WILL NEED TO RESTRUCTURE, ITS DEBT
OBLIGATIONS IF THE PT-1 ASSET SALE IS NOT COMPLETED, WHICH CANNOT BE ASSURED.
The amount of STAR's outstanding debt is large compared to its cash flow
and the net book value of its assets. STAR is required to make significant
payments under its outstanding debt. As of March 31, 2000, STAR had:
- total consolidated debt of approximately $179.0 million, including
$25.9 million outstanding under its receivables sale arrangement with
RFC and $56.0 million under its financing arrangement with WorldCom
Network Services which was entered into on April 12, 2000; and
- stockholders' equity of approximately $270.1 million.
The WorldCom debt is currently due August 31, 2000 and STAR will seek month
to month extensions of this debt to permit the STAR merger to close.
The following chart shows the interest and principal payments due on all of
STAR's currently outstanding debt for each of the next five fiscal years,
assuming STAR's lenders do not require early payment of the amounts due under
its credit arrangements. Also, because the interest rates under some of its
credit arrangements are based upon variable market rates, the amount of these
interest payments could fluctuate in the future.
<TABLE>
<CAPTION>
SCHEDULED PAYMENTS
--------------------
INTEREST PRINCIPAL
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
For the year ending December 31:
2000...................................................... $10,012 $75,690
2001...................................................... 6,487 107,637
2002...................................................... 1,679 20,675
2003...................................................... 1,428 8,446
2004...................................................... 0 0
</TABLE>
Due to the large amount of these principal and interest payments, STAR will
not generate enough cash from its operations to meet these obligations. In
addition, because of the large amount of STAR's debt and the restraints on its
cash flow, STAR has experienced difficulty paying trade debts as they
36
<PAGE> 50
become due. STAR expects that the proceeds it receives from the sale of the
assets of PT-1 will provide it with sufficient capital to continue its
operations and service its debt. However, there can be no assurance that the
PT-1 asset sale will close, that STAR will find an alternative buyer for PT-1 or
that the proceeds STAR receives from the PT-1 asset sale will be sufficient. If
the PT-1 asset sale is not completed, STAR will need to raise additional capital
to pay its debts, or will need to restructure a substantial amount of these
obligations. No assurance can be given that additional capital will be raised or
that such obligations can or will be restructured.
WORLD ACCESS RELIES ON MCI WORLDCOM FOR A SUBSTANTIAL AMOUNT OF ITS GROSS
PROFITS AND THE TERMINATION OF WORLD ACCESS' CARRIER SERVICE AGREEMENT WITH MCI
WORLDCOM COULD SIGNIFICANTLY DECREASE ITS REVENUES AND GROSS PROFITS.
World Access entered into a Carrier Service Agreement with MCI WorldCom
under which MCI WorldCom purchases international long distance services from
World Access on a wholesale basis. World Access recorded approximately $53.0
million of revenue and related gross profit of $18.0 million during the first
quarter of 2000. This represented approximately 21.0% and 56.0% of 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. MCI WorldCom Network Services is obligated to purchase from
World Access at least $25.0 million a month of such services, provided the
services are of acceptable quality and the rates quoted are at least equal to
the rates WorldCom Network Services is obtaining from other third party
providers. The service agreement is for a one-year term but automatically renews
each month, subject to a one year termination notice.
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, 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 mergers, the combined
company 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 DUE TO 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
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<PAGE> 51
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 mergers derived from retail operations and from sales to
emerging carriers will increase as a result of the mergers, 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 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.
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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.
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
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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 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;
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- 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.
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.
FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus and the documents incorporated by
reference in this joint 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 joint 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
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risks 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.
PROPOSAL 1
THE MERGER BETWEEN WORLD ACCESS AND STAR
This section of the joint proxy statement/prospectus describes the proposed
merger between World Access and STAR. This proposal is for consideration by the
World Access stockholders and the STAR stockholders, voting separately. The
completion of the STAR merger is conditioned on the sale of PT-1 by STAR. Unless
World Access waives this condition, World Access will be merging with STAR minus
its PT-1 operations if the STAR merger is completed.
BACKGROUND OF THE STAR MERGER
During the first quarter of 1999, the STAR board of directors and members
of its management began searching for additional capital at a time when STAR's
core business margins were declining as a result of increased competition. In
addition, STAR was incurring significant capital costs in connection with the
expansion of its business into Germany and the development of its retail long
distance operations. During this time period, STAR engaged Goldman Sachs Credit
Partners LP, Kaufman Bros., L.P., Lehman Brothers, Morgan Stanley Dean Witter
and Deutsche Bank Securities Inc. to pursue a possible high yield bond offering
and to provide financial advice on strategic mergers. STAR concluded that it
would not raise sufficient capital from a high yield bond offering.
During this same period, STAR also consulted with Goldman Sachs, Kaufman
Bros., Lehman Brothers, Morgan Stanley and Deutsche Bank about the feasibility
of spinning off its European operations, the possibility of the sale of stock of
one or more of STAR's subsidiaries and raising senior subordinated debt. STAR
determined that it could not pursue these transactions because the
telecommunications market conditions were not favorable and STAR lacked
sufficient capital.
STAR received several acquisition proposals in the last quarter of 1999 for
STAR's German operations. These proposals were not considered attractive by the
STAR board of directors because the sale of STAR's German operations would have
provided additional cash but did not fit with STAR's strategy to diversify and
improve its business mix.
In the late fall of 1999, STAR was approached by World Access, which was
aware of STAR's search for a strategic transaction. STAR was unable to discuss a
transaction with World Access at that time because it was subject to an
exclusive negotiating agreement with a third party. On December 20, 1999, after
the exclusive negotiating agreement had expired, STAR and World Access announced
the execution of a letter of intent under which World Access would acquire all
of STAR's outstanding capital stock in exchange for shares of common stock of
World Access, and possibly cash, valued at approximately $10.50 per share of
STAR common stock. The letter also called for World Access to provide STAR with
a short-term loan when a definitive agreement was signed. During the due
diligence period, World Access concluded that STAR would require substantial
capital to achieve its business objectives, including capital expenditures
necessary to expand its network, employ new technologies and enter foreign
markets. World Access also concluded that STAR's operating losses could not be
stemmed as easily as World Access had first thought and it would require a
significant capital investment to return STAR to profitability. World Access and
STAR both maintained strong networks but both parties determined that there
would be a continuing need for capital to fund expansions into new geographic
areas and in order to enter into new operating agreements.
Representatives of World Access and STAR met to renegotiate the terms of
the STAR merger. STAR's management had taken steps to improve cash flow,
including through the reduction of capital
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expenditures, but in part due to capital constraints, had not been able to
return STAR to profitability or positive cash flow. World Access determined that
the initial offer it had made to STAR was too high because of STAR's financial
condition and future capital requirements. STAR considered World Access' revised
proposal and determined that the revised offer was in the best interests of the
STAR stockholders because of STAR's operating results, capital requirements and
prospects.
On February 2, 2000, the parties agreed to reprice the STAR merger, and
World Access indicated that STAR was free to shop for better offers from other
bidders. Under the revised terms, World Access agreed to pay between $7.50 and
$8.00 for each outstanding share of STAR common stock. In addition, World Access
agreed in principle to provide STAR with a short-term loan, subject to STAR's
and World Access' agreement on the definitive terms of the short-term loan.
Based on this agreement, the parties issued a joint press release announcing the
repricing and worked to finalize the STAR merger agreement.
During the period between December 20, 1999 and February 2, 2000, STAR did
not receive a superior proposal from another potential competing bidder. Prior
to signing a definitive agreement, the STAR board of directors was free to and
did seek out other proposals. The STAR board of directors met on February 7,
2000 and considered the revised proposal at length. Given STAR's rising debt and
cash shortage and the lack of superior offers, management was instructed to
continue negotiations with World Access.
On February 8, 2000, the board of directors of World Access met to receive
a report from management regarding the status of the merger discussions with
STAR, including the results of World Access' due diligence investigation of STAR
and the resulting repricing of the transaction. On February 11, 2000, the board
of directors of World Access met again to consider the merger with STAR. At this
meeting, management reviewed, for the board of directors, the strategic reasons
for a business combination with STAR. Management and legal counsel described the
specific terms of the proposed STAR merger agreement. During this meeting,
Donaldson, Lufkin & Jenrette gave its oral opinion as to the fairness of the
consideration to be paid by World Access under the STAR merger agreement. The
board of directors also received summaries of the results of World Access' due
diligence investigation of STAR. The World Access board of directors unanimously
approved the STAR merger agreement and the transactions contemplated by the STAR
merger agreement and unanimously agreed to recommend its adoption to the
stockholders of World Access. On February 11, 2000, Donaldson, Lufkin & Jenrette
forwarded its written opinion regarding the fairness of the consideration to be
paid by World Access under the STAR merger agreement to the members of the board
of directors of World Access.
On or about February 7, 2000 and February 11, 2000, the STAR board of
directors met to consider World Access' renegotiated proposal. The board
received an opinion from Deutsche Bank Securities Inc. that the proposal was
fair from a financial point of view to STAR and STAR's stockholders. The STAR
board of directors also received advice from Delaware legal counsel on its
obligations regarding its duty of care and its duty to exercise informed
business judgment.
At the meeting held on February 11, 2000, the STAR board of directors
concluded that the STAR merger was fair to and in the best interests of STAR and
its stockholders. The STAR board of directors considered STAR's financial
condition, the decline in margins in its core business due to increased
competition and the significant capital required to diversify STAR's business
mix. The STAR board of directors voted to approve the STAR merger agreement and
the transactions contemplated by the STAR merger agreement and voted to
recommend that the stockholders of STAR vote for the approval and adoption of
the STAR merger agreement and the transactions contemplated by the STAR merger
agreement. In approving the STAR merger, the STAR board of directors considered
the potential benefits of the STAR merger, including all material business,
financial, legal and market factors, and the risks associated with the STAR
merger discussed below under the heading "STAR's reasons for the STAR merger."
Beginning on or about May 18, 2000, STAR began discussions with World
Access regarding the PT-1 asset sale agreement. STAR sought World Access'
approval of the terms of the PT-1 asset sale agreement, as well as World Access'
consent to STAR's execution of the PT-1 asset sale agreement, as required by
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the STAR merger agreement. On May 25, 2000, STAR received World Access' consent
to enter into the PT-1 asset sale agreement although World Access had not yet
determined whether the PT-1 asset sale agreement met the requirements of the
STAR merger agreement. On May 30, 2000, representatives of both STAR and World
Access met in Atlanta, Georgia to discuss the terms of the PT-1 asset sale
agreement in relation to the requirements of the STAR merger agreement. STAR and
World Access determined that an amendment to the STAR merger agreement was
necessary to adjust the amount of net cash proceeds that STAR was required to
obtain from the PT-1 asset sale and to modify certain other provisions of the
STAR merger agreement as more fully described in this joint proxy statement/
prospectus.
On June 6, 2000, the STAR board of directors met to consider the proposal
to amend the STAR merger agreement. The STAR board of directors received advice
from Delaware legal counsel on its obligations regarding its duty of care and
its duty to exercise informed business judgment. The STAR and World Access board
of directors did not seek a new fairness opinion regarding the amendment to the
STAR merger agreement as the boards of directors determined that the terms of
the amendment did not differ materially from the original terms of the STAR
merger agreement. In addition, the STAR board of directors obtained a fairness
opinion from Kaufman Bros. regarding the PT-1 asset sale. The STAR board of
directors concluded that the amendment to the STAR merger agreement was fair to
and in the best interests of the stockholders of STAR. The STAR board of
directors considered the potential benefits of the amendment to the STAR merger
agreement, including the importance of completing the STAR merger for the
reasons discussed below under the heading "STAR's reasons for the STAR merger."
The STAR board of directors also considered the potential negative consequences
of the amendment to the STAR merger agreement also discussed below.
On June 6, 2000, STAR entered into the PT-1 asset sale agreement with
Counsel. On June 7, 2000, STAR and World Access executed the amendment to the
STAR merger agreement and issued a joint press release announcing the amendment
to the STAR merger agreement.
WORLD ACCESS' REASONS FOR THE STAR MERGER
In approving the STAR merger, the World Access board of directors
considered the potential benefits of the STAR merger and the risks associated
with the STAR merger. All material business, financial, legal and market factors
are discussed below. In view of the number and wide variety of factors
considered in connection with its evaluation of the STAR merger, the board of
directors did not consider it practicable to, nor did it attempt to, quantify or
otherwise assign relative weights to the material 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 STAR merger. The World Access board of
directors considered information concerning the business, earnings, operations,
financial condition and prospects of World Access and STAR, individually, on a
combined basis, and in conjunction with the WorldxChange merger. The board
determined to approve the STAR merger agreement and the transactions
contemplated by the STAR merger agreement based on its consideration of these
factors without taking into account the WorldxChange merger. The board 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 pursuant to the STAR merger agreement.
Star's extensive facilities-based network. The World Access board of
directors considered the approximately $350.0 million that STAR has invested in
its international network and the additional geographic coverage, connectivity
and capacity this network would bring World Access. The STAR network connects
more than 51 countries worldwide and includes 24 international gateway switches,
17 transoceanic cable systems and a North American fiber network that connects
30 cities. The board reviewed financial analyses prepared by World Access
management that estimated a range of gross margin improvement that could be
realized by redirecting selected World Access traffic over the STAR network
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and redirecting selected STAR traffic over the World Access network. The board
determined that the World Access estimates were realistic and that based on the
financial analyses presented and their own business judgment, the cost savings
would be substantial.
The board placed particular emphasis on the investments made by STAR in
recent years to implement its German network, including switching and
transmission equipment, cable connections between 23 German cities and related
operating licenses. The presence of the network and related infrastructure
within Germany was a significant factor in evaluating the STAR merger due to the
size of the German telecommunications market, the importance of this market to
World Access' future strategic plans and the ability of the network to
efficiently support retail service offerings.
Star's established revenue base. The World Access board of directors
considered the current revenue base of STAR, which consisted primarily of
approximately $350.0 million in U.S.-based carrier traffic and $150.0 million
from traffic originated in Germany. Of the German revenue, World Access
management estimated approximately 90% was related to carrier services and 10%
from retail services. The addition of this revenue base establishes World Access
as one of the largest providers of carrier services in the world and provides a
significant base within Germany to leverage future growth.
Potential cost savings and synergies. The board reviewed financial
analyses by World Access management that estimated a range of selling, general
and administrative cost savings that could be realized by combining World Access
and STAR, including the elimination of redundant switching centers, customer
care operations and corporate office functions. The board determined that the
World Access estimates were realistic and that based on the financial analyses
presented and their own business judgment, the cost savings would be
substantial.
STAR's established customer base. The World Access board of directors
considered the compatibility of STAR's established base of carrier customers
with World Access' existing customer base. STAR's customer base includes 14 of
the top 40 global carriers, the vast majority of which are complementary to
World Access' customer base. In particular, STAR does considerable business with
AT&T, Sprint and Qwest Communications, three global telecommunications
companies. World Access currently does not do significant business with these
companies and is optimistic that these and other STAR customer relationships can
be leveraged to provide incremental revenue and further cost reductions.
Ability to accelerate plans to become a leading provider of bundled voice,
data and internet services to key European markets. The World Access board of
directors considered the additional services offered by STAR, which would be
made available to current and future customers of World Access. Specifically,
the board considered the significant expansion of retail telecommunications
services available throughout Europe and the potential positioning of World
Access as one of the top long distance carriers in Germany.
The World Access board of directors also considered the following material
risks associated with completing the STAR merger, but concluded that the
advantages of the STAR merger far outweighted the risks:
- STAR's history of operating losses and negative cash flow, though the
board felt that the spending plans and controls of World Access combined
with the realization of margin improvement and cost savings as a result
of the merger would eliminate these losses and negative cash flow within
a one year period;
- World Access' ability to service and repay STAR's outstanding debt and
financial commitments, though this risk was significantly reduced as a
result of the cancellation of STAR's participation in a China-U.S. cable
consortium and WorldCom's agreement to convert approximately $90.0
million of STAR trade debt into shares of World Access common stock upon
consummation of the STAR merger; and
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- the risk that World Access would be unable to effectively integrate the
technical operations, customers, suppliers and management of both STAR
and WorldxChange and realize the margin and cost savings synergies noted
above.
THE WORLD ACCESS BOARD OF DIRECTORS' RECOMMENDATION THAT STOCKHOLDERS APPROVE
THE STAR MERGER
The World Access board of directors considered the advisability of the STAR
merger and believes that the terms of the STAR merger agreement and the
transactions contemplated thereby are fair to and in the best interests of the
stockholders of World Access. The World Access board of directors has
unanimously approved the STAR merger agreement and the transactions contemplated
by the STAR merger agreement. The World Access board of directors unanimously
recommends that the stockholders of World Access vote for the approval and
adoption of the STAR merger agreement and the transactions contemplated by the
STAR merger agreement.
STAR'S REASONS FOR THE STAR MERGER
In approving the STAR merger, the STAR board of directors considered the
potential benefits of the STAR merger and the risks associated with the STAR
merger. All material business, financial, legal and market factors are discussed
below. After due deliberation, the STAR board of directors concluded that the
STAR merger was fair to and in the best interest of STAR and its stockholders
based on the following material factors:
The financial condition of STAR. The STAR board of directors examined the
current financial condition of STAR and determined that STAR was facing
significant cash restraints resulting in difficulty in meeting STAR's ongoing
obligations. STAR was experiencing substantial operating losses and negative
cash flow and its ability to implement its operating and business plans was
severely constrained by the absence of available capital. The STAR board of
directors noted that as of December 31, 1999 STAR had long term debt obligations
of $94.3 million and total debt obligations of $156.4 million. The STAR board of
directors also considered that STAR was unable to fund required future capital
expenditures needed to expand and maintain STAR's business. STAR's management
focused on minimizing losses and improving cash flow but it lacked the capital
necessary to implement a business plan designed to return STAR to profitability.
The STAR board of directors considered that all of these factors and STAR's debt
obligations created a substantial risk of insolvency and the need to seek
bankruptcy protection.
Lack of financing alternatives. During the first quarter of 1999, STAR
began to explore financing alternatives. The STAR board of directors engaged
financial advisors to examine STAR's options with respect to sources of
financing, including equity and debt financing. The STAR board of directors
determined that the necessary financing would not be available or would not be
available on acceptable terms.
The potential cost savings and synergies. The STAR board of directors
considered the potential cost savings and synergies that World Access and STAR
would achieve through the STAR merger. The STAR board of directors reviewed a
number of financial analyses prepared by World Access that estimated a range of
cost savings achievable through the STAR merger. The STAR board of directors
determined that the World Access estimates were realistic and that based on the
World Access analyses and their own business judgment, the cost savings would be
substantial. The STAR board of directors considered the following material
potential cost savings and synergies that would be achieved through the STAR
merger:
- the combined technical operations would create a more efficient
communications network than STAR's and World Access' networks on a
stand-alone basis;
- the combined company would have a geographically broader, more diverse
network and savings could be achieved through the elimination of
overlapping networks; and
- STAR could combine its network monitoring operations with those of World
Access, which would generate cost savings.
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Diversified geographic market position. The STAR board of directors
considered that World Access' network coverage would complement STAR's existing
coverage. The STAR board of directors considered that STAR would obtain a
broader European presence through the combination of STAR's network assets and
licenses in Germany with World Access' existing operations.
Diversified product and service offering. The STAR board of directors
considered that the combined company would be in a position to offer a broader
array of services and products than STAR could individually. STAR was facing
declining profit margins in the wholesale business and STAR's efforts to enter
the retail market were encountering difficulty, in part due to capital
constraints. The combination with World Access would provide STAR with an
increased presence in foreign markets, expanded use of Internet based
technologies and expansion opportunities in selected retail markets, which the
STAR board of directors believed would increase stockholder value.
Enhanced Management Strength. The STAR board of directors considered that
the STAR merger would strengthen STAR's management team by providing additional
financial and technical expertise. The STAR board of directors noted that STAR
was facing difficulty filling key managerial positions and determined that the
STAR merger would obviate the need to fill certain key management positions and
would improve STAR's ability to recruit key personnel.
The STAR board of directors also considered the following material risks
associated with completing the STAR merger, but concluded that the advantages of
the STAR merger far outweighed these risks:
- the possibility that World Access would be unable to complete the STAR
merger and the WorldxChange merger simultaneously;
- the risk that World Access would be unable to effectively integrate the
technical operations and management of both STAR and WorldxChange, or to
effectively integrate future acquisitions considering the announced
intention of World Access to make acquisitions;
- the risk that World Access might not have sufficient funds available to
finance the combined companies, though the STAR board of directors
considered that at the time of its approval of the STAR merger, World
Access had significant capital resources; and
- overall risks inherent in the highly competitive telecommunications
industry, but the STAR board of directors considered that the combined
companies would be better able to withstand and respond to competitive
risks.
The above discussion of the information and factors considered by the STAR
board of directors sets forth the material factors considered by the STAR board
of directors. The STAR board of directors considered many factors when
evaluating the STAR merger agreement and the STAR merger. The STAR board of
directors did not quantify, rank or attempt to assign relative weights to the
factors considered in reaching its determination. In addition, the STAR board of
directors conducted an overall analysis of the above factors, including a
thorough discussion with and questioning of STAR's management. The STAR board of
directors also considered management's analysis of the STAR merger based on
information received from STAR's legal, financial and accounting advisors. The
STAR board of directors considered all these factors as a whole, and considered
the factors overall to be favorable to and to support its determination.
THE STAR BOARD OF DIRECTORS' RECOMMENDATION THAT STOCKHOLDERS APPROVE THE STAR
MERGER
The STAR board of directors carefully considered the advisability of the
STAR merger and believes that the terms of the STAR merger agreement and the
transactions contemplated by the STAR merger agreement are fair to and in the
best interests of the stockholders of STAR. The STAR board of directors approved
the STAR merger agreement and the transactions contemplated by the STAR merger
agreement. The STAR board of directors recommends that the stockholders of STAR
vote for the approval and adoption of the STAR merger agreement and the
transactions contemplated by the STAR merger agreement.
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<PAGE> 61
OPINION OF WORLD ACCESS' FINANCIAL ADVISOR REGARDING THE STAR MERGER
World Access asked Donaldson, Lufkin & Jenrette Securities Corporation in
its role as financial advisor, 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. On February 11, 2000, Donaldson,
Lufkin & Jenrette rendered an oral opinion to World Access' board of directors,
which was subsequently confirmed in writing as of the same date, to the effect
that, as of the date of the opinion, and based upon and subject to the
assumptions, limitations and qualifications set forth in the written opinion,
the consideration to be paid by World Access pursuant to the STAR merger
agreement was fair to World Access, from a financial point of view. The full
text of Donaldson, Lufkin & Jenrette's opinion is attached as Annex C to this
joint proxy statement/prospectus.
Donaldson, Lufkin & Jenrette expressed no opinion as to the prices at which
STAR common stock or World Access common stock would actually trade at any time.
Donaldson, Lufkin & Jenrette's opinion did not address the relative merits of
the STAR merger and the other business strategies considered by the World Access
board of directors nor did it address the decision of the World Access board of
directors to proceed with the STAR merger. Donaldson, Lufkin & Jenrette's
opinion did not constitute a recommendation to any World Access stockholder as
to how such stockholder should vote on the STAR merger.
World Access and STAR determined the consideration to be paid by World
Access 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 draft dated February 26, 2000 of the merger agreement and
assumed the final form of that agreement would not vary in any respect
material to Donaldson, Lufkin & Jenrette's analysis;
- reviewed financial and other information that was publicly available or
furnished to it by World Access and STAR, including information provided
during discussions with their respective managements, which included
certain financial projections of each of World Access and STAR that were
prepared by World Access' management;
- compared certain financial and securities data of World Access and STAR
with various other companies whose securities are traded in public
markets;
- reviewed the historical stock prices and trading volumes of the common
stock of World Access and STAR;
- reviewed prices paid in selected 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 STAR or their respective representatives, or that was
otherwise reviewed by it. Donaldson, Lufkin & Jenrette relied upon the estimates
of the management of World Access of the operating synergies achievable as a
result of the STAR merger. Donaldson, Lufkin &
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Jenrette also assumed that the financial projections of World Access and STAR
supplied to it were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of World Access as
to the future operating and financial performance of World Access and STAR. In
addition, Donaldson, Lufkin & Jenrette relied upon and assumed net cash proceeds
of $150.0 million from the sale of PT-1 by STAR. Donaldson, Lufkin & Jenrette
expressed no opinion with respect to such forecasts or the assumptions on which
they were based. Donaldson, Lufkin & Jenrette did not assume any responsibility
for making any independent evaluation or appraisal of the assets or liabilities
of World Access or for making any independent verification of any of the
information reviewed by Donaldson, Lufkin & Jenrette. Donaldson, Lufkin &
Jenrette also did not assume any responsibility for making any independent
investigation of any legal matters affecting World Access or STAR and assumed
the correctness of all legal advice given to each of them and to World Access'
board of directors, including advice as to the tax consequences of the STAR
merger. Donaldson, Lufkin & Jenrette assumed that the STAR merger would be
accounted for as a purchase under generally accepted accounting principles and
that it would qualify as a tax-free reorganization for U.S. federal income tax
purposes.
Donaldson, Lufkin & Jenrette's opinion is necessarily based upon economic,
market, financial and other conditions as they existed on, and on information
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 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 February 11, 2000
in connection with the preparation of Donaldson, Lufkin & Jenrette's opinion. No
company or transaction Donaldson, Lufkin & Jenrette used in the analyses
described below is directly comparable to World Access, STAR or to the STAR
merger. 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.
For purposes of the following analyses, Donaldson, Lufkin & Jenrette (i)
used the February 9, 2000 closing price of the World Access common stock of
$22.88 per share and (ii) assumed net cash proceeds of $150.0 million from the
sale by STAR of PT-1. It should be understood that Donaldson, Lufkin & Jenrette
makes no prediction, and there can be no assurance, as to what the closing price
of World Access common stock or the net cash proceeds from the sale of PT-1 will
actually be.
1. CONSIDERATION PAID ANALYSIS
Donaldson, Lufkin & Jenrette reviewed the consideration to be paid by World
Access pursuant to the STAR merger agreement. In reviewing the consideration to
be paid by World Access, Donaldson, Lufkin & Jenrette assumed an exchange ratio
of 0.3905, which represents the exchange ratio based on net cash proceeds from
the sale of PT-1 of $150.0 million.
2. COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS
Donaldson, Lufkin & Jenrette analyzed the market values and trading
multiples of selected publicly traded emerging multinational carriers that
Donaldson, Lufkin & Jenrette believed were reasonably
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<PAGE> 63
comparable to STAR based on business and certain financial characteristics.
These comparable companies consisted of:
<TABLE>
<S> <C>
(i) IDT Corporation;
(ii) Pacific Gateway Exchange, Inc.;
(iii) PRIMUS Telecommunications Group, Incorporated;
(iv) RSL Communications, Ltd.; and
(v) Startec Global Communications Corporation.
</TABLE>
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) projected calendar year 2000 revenue;
(iii) gross property, plant and equipment and (iv) net property plant and
equipment. 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. All historical data was derived
from publicly available sources as of February 9, 2000 and all projected data
was obtained from Wall Street research reports.
Donaldson, Lufkin & Jenrette performed this analysis in order to compare
the ratio of STAR's enterprise value to its last quarter annualized revenues,
estimated 2000 revenues as provided by World Access, gross property, plant and
equipment and net property, plant and equipment to those of the comparable
companies and to the reference range, which represents a tighter range of the
ratios as deemed reasonable by Donaldson, Lufkin & Jenrette. In addition,
Donaldson, Lufkin & Jenrette compared the enterprise value of STAR to the
implied enterprise values obtained by the above mentioned ratios of the
comparable companies and the reference range and STAR's last quarter annualized
revenues, estimated 2000 revenues as provided by World Access, gross property,
plant and equipment and net property, plant and equipment. Donaldson, Lufkin &
Jenrette's analysis of the comparable companies yielded the following multiple
ranges and implied enterprise values:
COMPARABLE COMPANY ANALYSIS
($ IN MILLIONS)
<TABLE>
<CAPTION>
COMPARABLE
COMPANIES REFERENCE RANGE
----------------- -------------------
STAR HIGH LOW HIGH LOW
------ -------- ------ -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise Value/Last Quarter Annualized
Revenues........................................ 1.0x 2.2x 0.6x 1.7x 1.2x
Enterprise Value/2000 Estimated Revenues.......... 1.1x 1.9x 0.7x 1.5x 1.0x
Enterprise Value/Gross Property, Plant and
Equipment....................................... 1.6x 7.5x 2.5x 4.5x 3.5x
Enterprise Value/Net Property, Plant and
Equipment....................................... 2.0x 8.8x 2.9x 5.5x 4.5x
Implied Enterprise Value based on:
Last Quarter Annualized Revenues................ $619.7 $1,311.6 $391.9 $1,035.4 $ 730.9
2000 Estimated Revenues......................... 619.7 1,052.9 370.8 828.4 552.3
Gross Property, Plant and Equipment............. 619.7 2,882.5 943.3 1,718.4 1,336.5
Net Property, Plant and Equipment............... 619.7 2,786.4 924.5 1,742.9 1,426.0
</TABLE>
---------------
The comparable company analysis showed that the implied multiples of World
Access' consideration were either within or lower than the range of multiples
implied by the prevailing market prices of the comparable companies. In
addition, the analysis showed that the enterprise value based on World Access'
consideration was either within or lower than the range of enterprise values
implied by the multiples of the comparable companies and STAR's last quarter
annualized revenues, estimated 2000 revenues, gross property, plant and
equipment and net property, plant and equipment.
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3. ANALYSIS OF SELECTED MERGER AND ACQUISITION TRANSACTIONS
Donaldson, Lufkin & Jenrette reviewed selected mergers and acquisitions
transactions of companies that operate businesses reasonably similar to that of
STAR. In addition, for purposes of this analysis, Donaldson, Lufkin & Jenrette
selected key mergers and acquisitions transactions deemed most relevant by
Donaldson, Lufkin & Jenrette based on the business characteristics of the
acquiror and/or target and the business nature of the transaction. The following
mergers and acquisitions transactions were deemed most relevant by Donaldson,
Lufkin & Jenrette:
- Viatel, Inc.'s acquisition of Destia Communications, Inc.
- PRIMUS Telecommunications Group, Incorporated's acquisition of TresCom
International, Inc.
In examining these acquisitions, Donaldson, Lufkin & Jenrette calculated
the enterprise value of the acquired company implied by each of these
transactions as a multiple of the last twelve-month revenue, last quarter
annualized revenue, and net property, plant and equipment. The last twelve-month
period for which financial data for the company at issue has been reported is
referred to as the last twelve-month revenue. In addition, Donaldson, Lufkin &
Jenrette calculated the enterprise values implied by the above mentioned ratios
of the selected mergers and acquisitions transactions and STAR's last
twelve-month revenue, last quarter annualized revenue and net property, plant
and equipment. Donaldson, Lufkin & Jenrette's analysis of these comparable
acquisitions yielded the following multiple ranges and implied enterprise
values:
SELECTED MERGERS AND ACQUISITIONS TRANSACTIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
ALL SELECTED M&A KEY SELECTED M&A
TRANSACTIONS TRANSACTIONS
-------------------- -------------------
STAR HIGH LOW HIGH LOW
------ --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise Value/Last Twelve Months Revenues... 1.1x 16.5x 1.1x 3.3x 1.1x
Enterprise Value/Last Quarter Annualized
Revenues..................................... 1.0x 4.0x 1.2x 2.6x 1.2x
Enterprise Value/Net Property, Plant and
Equipment.................................... 2.0x 42.0x 5.9x 6.2x 5.9x
Implied Enterprise Value based on:
Last Twelve Months Revenues.................... $619.7 $ 9,270.1 $ 622.8 $1,828.8 $ 622.8
Last Quarter Annualized Revenues............... 619.7 2,436.3 706.8 1,571.4 706.8
Net Property, Plant and Equipment.............. 619.7 13,307.0 1,876.5 1,971.8 1,876.5
</TABLE>
The analysis of selected mergers and acquisitions transactions showed that
the implied multiples of World Access' consideration were, in each case, within
or lower than the range of multiples paid by the selected mergers and
acquisitions transactions as well as by the key mergers and acquisitions
transactions. In addition, the analysis of selected mergers and acquisitions
transactions showed that the transaction value of World Access' consideration
was, in each case, within or lower than the range of implied transaction values
based on the multiples paid by selected mergers and acquisition transactions.
4. DISCOUNTED CASH FLOW ANALYSIS
In addition, Donaldson, Lufkin & Jenrette performed a discounted cash flow
analysis for STAR on a stand-alone basis. The analysis was based upon financial
projections, including synergies, for the five-year period ending fiscal 2004 as
provided by the management of World Access. Donaldson, Lufkin & Jenrette
performed this analysis to estimate the net present value of STAR's enterprise
value and to compare it to the implied enterprise value based on World Access'
consideration. Donaldson, Lufkin & Jenrette calculated EBITDA for STAR. EBITDA
is earnings before interest, taxes, depreciation and amortization and other
items. Donaldson, Lufkin & Jenrette calculated the terminal value of STAR at the
end of the forecast period, by applying a range of estimated EBITDA multiples
selected in Donaldson, Lufkin & Jenrette's subjective judgment. The terminal
value estimates are a hypothetical approximation of the value of the
enterprise's cash flows beyond the end of the five-year period covered by the
management's projections. The management's projected EBITDA and Donaldson,
Lufkin & Jenrette's subjective estimate
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of the terminal values based on management's projected EBITDA were then
discounted to the present using a range of discount rates selected in Donaldson,
Lufkin & Jenrette's subjective judgment.
DISCOUNTED CASH FLOW ANALYSIS
($ IN MILLIONS)
<TABLE>
<S> <C>
Range of EBITDA Multiples.................... 10.0x - 12.0x
Discount rates............................... 15.0% - 18.3%
Implied Total Enterprise Value............... $507.6 - $662.4
STAR Enterprise Value........................ $619.7
</TABLE>
The above analysis shows that the implied enterprise value based on World
Access' consideration of $619.7 million is near the high range of the implied
enterprise values of $507.6 million to $662.4 million obtained by the analysis.
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 Donaldson, Lufkin & Jenrette made to
the World Access board on February 11, 2000 in connection with the preparation
of Donaldson, Lufkin & Jenrette's 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 for 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 letter dated January 12, 2000, World
Access agreed to pay Donaldson, Lufkin & Jenrette a fee of $400,000 at the time
that Donaldson, Lufkin & Jenrette delivered to the World Access board of
directors its opinion, irrespective of the conclusion reached in the opinion,
and to pay Donaldson, Lufkin & Jenrette a fee of $750,000, less any amounts paid
pursuant to delivery of the fairness opinion, payable in cash promptly upon
consummation of a business combination between World Access and STAR. In
addition, World Access agreed to reimburse Donaldson, Lufkin & Jenrette for all
of its out-of-pocket expenses, including the reasonable fees and expenses of
counsel incurred by Donaldson, Lufkin & Jenrette in connection with its
engagement, and to indemnify Donaldson, Lufkin & Jenrette for liabilities and
expenses arising out of Donaldson, Lufkin & Jenrette's engagement, including
liabilities under federal securities laws.
The terms of the fee arrangement with Donaldson, Lufkin & Jenrette, which
Donaldson, Lufkin & Jenrette and World Access believe are customary in
transactions of this nature, were negotiated at arms-length between World Access
and Donaldson, Lufkin & Jenrette. World Access' board of directors was aware of
such arrangement, including the fact that a significant portion of the aggregate
fee payable to Donaldson, Lufkin & Jenrette is contingent upon consummation of
the STAR merger.
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Donaldson, Lufkin & Jenrette provides a full range of financial, advisory
and brokerage services and in the course of its normal trading activities may
from time to time effect transactions and hold positions in the securities or
debt of World Access and/or STAR for its own account and for the accounts of its
customers. Donaldson, Lufkin & Jenrette has performed investment banking and
other services for World Access in the past and has been compensated for such
services. Donaldson, Lufkin & Jenrette acted as financial advisor to World
Access in connection with its acquisition of FaciliCom International, Inc., and
acted as solicitation agent in connection with the consent solicitation for
FaciliCom's outstanding senior notes. Donaldson, Lufkin & Jenrette is currently
acting as financial advisor to World Access in connection with the WorldxChange
merger.
OPINION OF STAR'S FINANCIAL ADVISOR REGARDING THE STAR MERGER
Deutsche Bank Securities Inc. acted as financial advisor to the board of
directors of STAR in connection with the proposed merger of World Access and
STAR. At the February 7, 2000, meeting of the board of directors of STAR,
Deutsche Bank delivered its oral opinion, subsequently confirmed in writing
dated as of the same date, to the board of directors of STAR to the effect that,
as of the date of such opinion, based upon and subject to the assumptions made,
matters considered and limits of the review undertaken by Deutsche Bank, the
merger consideration was fair, from a financial point of view, to STAR
stockholders. The full text of Deutsche Bank's opinion is attached as Annex E to
this joint proxy statement/prospectus.
In connection with Deutsche Bank's role as financial advisor to the board
of directors of STAR, and in arriving at its opinion, Deutsche Bank has, among
other things:
- reviewed certain publicly available financial information and other
information concerning STAR and World Access;
- reviewed certain internal analyses and other information furnished to it
by STAR and World Access;
- held discussions with the members of the senior managements of STAR and
World Access regarding the businesses and prospects of their respective
companies and the joint prospects of the World Access/STAR combined
company;
- reviewed the reported prices and trading activity for the common stock of
both STAR and World Access;
- compared certain financial and certain stock market information for STAR
and World Access with similar information for selected companies whose
securities are publicly traded;
- reviewed the terms of the draft STAR merger agreement, dated February 6,
2000, and assumed that the final form of the STAR merger agreement would
not vary in any respect that would be material to Deutsche Bank's
analysis; and
- performed such other studies and analyses and considered such other
factors as it deemed appropriate.
Deutsche Bank prepared its financial analyses of the STAR merger before the
merger agreement with WorldxChange was announced, the PT-1 asset sale agreement
was signed, or the STAR merger agreement was amended on June 7, 2000 to reduce
the exchange ratio from 0.3905 to 0.386595. Deutsche Bank did not consider the
WorldxChange merger, the terms of the PT-1 asset sale agreement, or the June 7,
2000 adjustment in the exchange ratio when analyzing the fairness, from a
financial point of view, of the STAR merger consideration to STAR stockholders.
In preparing its opinion, Deutsche Bank did not assume responsibility for
the independent verification of, and did not independently verify, any
information, whether publicly available or furnished to it, concerning STAR or
World Access, including, without limitation, any financial information,
forecasts or projections, considered in connection with the rendering of its
opinion. Accordingly, for purposes of its
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<PAGE> 67
opinion, Deutsche Bank assumed and relied upon the accuracy and completeness of
all such information. Deutsche Bank did not conduct a physical inspection of any
of the properties or assets, and did not prepare or obtain any independent
evaluation or appraisal of any of the assets or liabilities of STAR or World
Access. With respect to the financial forecasts and projections, including
analyses and forecasts made available to Deutsche Bank and used in its analysis,
including analyses and forecasts of certain cost savings, operating
efficiencies, revenue effects and financial synergies expected by STAR and World
Access to be achieved as a result of the STAR merger, Deutsche Bank assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of STAR and World Access, as
the case may be, as to the matters covered thereby. In rendering its opinion,
Deutsche Bank expressed no view as to the reasonableness of such forecasts and
projections, or the assumptions on which they are based. Deutsche Bank's opinion
was necessarily based upon economic, market and other conditions as in effect
on, and the information made available to Deutsche Bank as of, the date of its
opinion.
For purposes of rendering its opinion, Deutsche Bank assumed that, in all
respects material to its analysis:
- the representations and warranties of STAR and World Access contained in
the STAR merger agreement are true and correct;
- STAR and World Access will each perform all of the covenants and
agreements to be performed by it under the STAR merger agreement;
- all conditions to the obligations of each of STAR and World Access to
consummate the STAR merger will be satisfied without any waiver thereof;
- all material governmental, regulatory or other approvals and consents
required in connection with the consummation of the transactions
contemplated by the STAR merger agreement will be obtained; and
- in connection with obtaining any necessary governmental, regulatory or
other approvals and consents, or any amendments, modifications or waivers
to any agreements, instruments or orders to which either STAR or World
Access is a party or is subject or by which it is bound, no limitations,
restrictions or conditions will be imposed or amendments, modifications
or waivers made that would have a material adverse effect on STAR or
World Access or materially reduce the contemplated benefits of the STAR
merger to STAR or its stockholders.
In addition, Deutsche Bank was advised by STAR, and accordingly assumed for
purposes of its opinion, that the STAR merger will be treated as a tax-free
reorganization for federal income tax purposes.
In connection with Deutsche Bank's role as financial advisor to STAR and in
arriving at its opinion, Deutsche Bank was not requested or authorized to
solicit, and did not solicit, any alternative transactions to the STAR merger.
The following is a summary of the material financial analyses used by
Deutsche Bank in reaching its opinion and does not purport to be a complete
description of the analyses performed by Deutsche Bank. The following
quantitative information, to the extent it is based on market data, is based on
market data as it existed at or about February 4, 2000, and is not necessarily
indicative of current market conditions. Readers should understand that the
order of analyses described below do not represent relative importance or weight
given to these analyses by Deutsche Bank.
Analysis of selected publicly traded companies. Deutsche Bank compared
certain financial information and commonly used valuation measurements for STAR
and World Access to corresponding information and measurements for three groups
of publicly traded telecom services companies: a group of large capitalization
competitive global carriers consisting of Global Telesystems, Energis and
Teleglobe; a group of mid capitalization competitive global carriers consisting
of Primus, RSL and Viatel; and a group of international long distance carriers
consisting of IDT, Pacific Gateway, Startec Global and Telscape International.
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The financial information and valuation measurements of the selected
comparable companies included, among other things:
- total enterprise value, or total enterprise value, which is common equity
market value plus debt and cash;
- ratios of total enterprise value to sales for the last reported quarter,
which was the third quarter of 1999, annualized;
- ratios of total enterprise value to estimated sales for the year 2000;
- ratios of total enterprise value to earnings before interest expenses,
tax, depreciation and amortization, or EBITDA, for the last quarter
annualized;
- ratios of total enterprise value to property, plant and equipment, or
property, plant and equipment, net of depreciation; and
- ratios of total enterprise value to gross property, plant and equipment.
The total enterprise value of a company is equal to the value of its
fully-diluted common equity plus debt, cash and the liquidation value of
outstanding preferred stock, if any. Last quarter, annualized revenue means the
last quarter annualized for which financial data for the company at issue has
been reported. In this case, the last quarter was the third quarter of 1999.
To calculate the total enterprise value multiples for STAR, World Access
and the selected comparable companies, Deutsche Bank used publicly available
information concerning historical and projected financial performance, including
published historical financial information and estimates of future financial
results from published equity research analyst reports.
For each of the selected comparable companies, Deutsche Bank calculated
five trading multiples: total enterprise value to sales of the last quarter
annualized and for 2000 estimated; total enterprise value to EBITDA of last
quarter annualized; and total enterprise value to property, plant and equipment
net of depreciation and to gross property, plant and equipment. This analysis
indicated the following medians and means:
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL
ENTERPRISE ENTERPRISE TOTAL ENTERPRISE
VALUE/ VALUE/ ENTERPRISE VALUE/
LAST TOTAL LAST VALUE/ GROSS
QUARTER ENTERPRISE QUARTER NET PROPERTY, PROPERTY,
ANNUALIZED VALUE/ ANNUALIZED PLANT AND PLANT AND
COMPANY OR GROUP OF COMPANIES SALES 2000E SALES EBITDA EQUIPMENT EQUIPMENT
----------------------------- ---------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Big Cap Competitive Global Carrier
range:........................... 4.8x-29.1x 4.1x-18.8x 42.9x(1) 8.5x-18.6x 7.1x(2)
median:.......................... 8.4x 5.8x 42.9x 12.0x 7.1x
mean:............................ 14.1x 9.6x 42.9x 13.0x 7.1x
Mid Cap Competitive Global Carrier
range:........................... 1.5x-7.8x 1.1x-4.5x NM 3.5x-7.7x 3.2x-6.6x
median:.......................... 1.9x 1.7x NM 5.2x 4.2x
mean:............................ 3.7x 2.4x NM 5.5x 4.7x
</TABLE>
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<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL
ENTERPRISE ENTERPRISE TOTAL ENTERPRISE
VALUE/ VALUE/ ENTERPRISE VALUE/
LAST TOTAL LAST VALUE/ GROSS
QUARTER ENTERPRISE QUARTER NET PROPERTY, PROPERTY,
ANNUALIZED VALUE/ ANNUALIZED PLANT AND PLANT AND
COMPANY OR GROUP OF COMPANIES SALES 2000E SALES EBITDA EQUIPMENT EQUIPMENT
----------------------------- ---------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
International Long Distance Carrier
range:........................... 0.4x-1.3x 0.4x-1.0x(3) 14.9x-24.5x(4) 2.5x-4.8x 2.3x-4.4x
median:.......................... 1.0x 0.5x 19.7x 3.6x 2.8x
mean:............................ 0.9x 0.6x 19.7x 3.6x 3.1x
IDT................................ 0.4x 0.4x 24.5x 3.8x 2.8x
Pacific Gateway.................... 0.7x 0.5x 14.9x 3.4x 2.9x
STAR............................... 0.6x 0.5x 52.6x 1.7x 1.5x
World Access....................... 1.9x 1.5x 13.9x 8.4x 7.4x
</TABLE>
---------------
(1) The range, median and mean of the EBITDA multiple for the Big Cap
Competitive Global Carrier group were based solely on the EBITDA multiple
for Teleglobe because the EBITDA multiple was not meaningful for each of
Global Telesystems and Energis.
(2) The range, median and mean of the gross property, plant and equipment
multiple were based solely on the gross property, plant and equipment
multiple of Global Telesystems because the gross property, plant and
equipment multiple for each of Energis and Teleglobe was not applicable.
(3) The range, median and mean of the 2000E sales multiple for the International
Long Distance Carrier group was calculated excluding Telscape International
because the 2000E sales multiple for Telscape International was not
available.
(4) The range, median and mean of the EBITDA multiple for the International Long
Distance Carrier group was calculated excluding Startec Global and Telscape
International because the EBITDA multiple for each of these companies was
not meaningful.
Deutsche Bank calculated (i) the implied total enterprise value of STAR on
a stand alone basis; (ii) the implied equity value of STAR on a stand alone
basis; and (iii) the implied equity value per share of STAR on a stand alone
basis, in each case based on the trading multiples for the International Long
Distance Carrier group. Deutsche Bank analyzed the three groups and concluded
that STAR most closely resembles the International Long Distance Carrier group
and, more specifically, IDT and Pacific Gateway in that group. Deutsche Bank
deemed World Access most comparable to a range between the International Long
Distance Carrier group and the Mid Cap Competitive Global Carrier Group with a
closer emphasis on the International Long Distance Carrier Group. The implied
total enterprise value, implied equity value and implied equity value per share
for STAR, in each case based on the multiple ranges for the International Long
Distance Carriers, are as follows:
<TABLE>
<CAPTION>
TOTAL ENTERPRISE VALUE AS A MULTIPLE OF
---------------------------------------------
LAST QUARTER GROSS PROPERTY,
ANNUALIZED PLANT AND
REVENUE 2000E REVENUE EQUIPMENT
------------- ------------- ---------------
($MM, EXCEPT PER SHARE)
<S> <C> <C> <C>
Comparable trading multiple range............ 0.6x-0.9x 0.5x-0.7x 2.3x-2.6x
STAR......................................... $1,116.9 $1,202.5 $382.9
Implied total enterprise value............... 670.1-1,005.2 601.2-841.7 880.7-995.5
Implied equity value......................... 400.8-735.9 282.3-522.8 611.4-726.2
Implied equity value per share............... $6.60-$12.11 $4.65-$8.61 $10.06-$11.96
</TABLE>
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<PAGE> 70
Deutsche Bank also calculated (i) the implied total enterprise value of
World Access on a stand alone basis; (ii) the implied equity value of World
Access on a stand alone basis; and (iii) the implied equity value per share of
World Access on a stand alone basis, in each case based on a comparable trading
multiple range Deutsche Bank deemed appropriate from the multiples of the three
categories of Selected Comparable Companies. The implied total enterprise value,
implied equity value and implied equity value per share for World Access, in
each case based on the multiple ranges Deutsche Bank deemed appropriate, are as
follows:
<TABLE>
<CAPTION>
TOTAL ENTERPRISE VALUE AS A MULTIPLE OF
----------------------------------------
LAST QUARTER
ANNUALIZED
REVENUE 2000E REVENUE
------------------- -------------------
($MM, EXCEPT PER SHARE)
<S> <C> <C>
Comparable trading multiple........................... 1.3x-1.6x 1.1x-1.4x
World Access Telecom Group............................ $1,106.8 $1,333.3
Implied total enterprise value........................ 1,438.8-1,770.9 1,466.7-1,866.7
Implied equity value.................................. 1,510.3-1,842.4 1,483.0-1,883.0
Implied equity value per share........................ $16.50-$20.13 $16.20-$20.57
</TABLE>
The gross property, plant and equipment for World Access (pro forma for its
previously announced acquisitions and divestitures) was not provided to Deutsche
Bank and therefore Deutsche Bank did not calculate total enterprise value as a
multiple of the gross property, plant and equipment.
The preceding analysis allows a comparison of implied per share equity
values, based on multiple ranges of comparable publicly held companies, of STAR
and World Access. The relationship of those implied per share equity values may
be compared with the exchange ratio under the STAR merger agreement.
None of the companies utilized as a comparison are identical to STAR or
World Access. Accordingly, Deutsche Bank believes the analysis of the publicly
traded comparable companies is not simply mathematical. Rather, it involves
complex considerations and qualitative judgments concerning differences in
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies.
Contribution analysis. Deutsche Bank analyzed the relative contributions
of STAR and World Access to the estimated pro forma income statement and balance
sheet of the combined company. This analysis showed that on a pro forma combined
basis (excluding (i) the effect of any synergies that may be realized as a
result of the STAR merger, and (ii) non-recurring expenses relating to the STAR
merger), based on the estimated 2000 figures, STAR and World Access would
account for approximately 47.4% and 52.6%, respectively, of the combined
company's pro forma total revenues, approximately 52.3% and 47.7%, respectively,
of the combined company's gross profit and (8.2%) and 108.2%, respectively, of
the combined company's EBITDA. These percentage contributions may be compared
with the percentage of World Access shares to be owned following the STAR merger
(without giving effect to the WorldxChange merger or the June 7, 2000 adjustment
of the exchange ratio) by former STAR stockholders and by the stockholders of
World Access before the STAR merger of 20.6% and 79.4%, respectively, and
approximately 28.9% and 71.1%, respectively, of the combined company's total
enterprise value (based on the closing price of World Access stock on February
4, 2000 and on the assumptions that there will be no increase in the STAR merger
consideration as a result of the sale of PT-1 and that all of the merger
consideration will be paid in stock).
The contribution analysis shows that the percentage of World Access shares
to be owned by the former STAR holders is substantially higher than STAR's
contribution to the combined companies' EBITDA, but less than STAR's
contribution to the combined companies' revenues and gross profits.
Discounted cash flow analysis. Deutsche Bank performed a discounted cash
flow analysis for both World Access and STAR. Deutsche Bank calculated the
discounted cash flow values for each of World Access and STAR as the sum of the
net present values of (i) the estimated future cash flow that World
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<PAGE> 71
Access or STAR, as the case may be, will generate for the years 2000 through
2004, plus (ii) the value of World Access or STAR at the end of such period. The
total enterprise values, equity values and equity values per share for STAR were
based on the financial projections for STAR for the years 2000 through 2004
prepared by STAR's management. The discounted cash flow analysis of STAR
management's projections assumes ranges of discount rates of 14% to 16% and 2004
estimated EBITDA exit multiples of 9x to 11x. The total enterprise values,
equity values and equity values per share for World Access were based on the
financial projections for World Access for the years 2000 through 2004 prepared
by World Access' management. The discounted cash flow analysis of World Access
management's projections assumes ranges of discount rates of 12% to 14% and 2004
estimated EBITDA exit multiples of 11x to 13x. For the combined company,
Deutsche Bank used the same discounted cash flow methodology as for the
discounted cash flow analyses of STAR and World Access on a stand alone basis
and assumed the same ranges of discount rates and 2004 estimated exit multiples
as World Access on a stand alone basis. Projections for the combined company
included assumed synergies and transaction expenses. This analysis indicated:
<TABLE>
<CAPTION>
COMBINED
STAR WORLD ACCESS COMPANY
---- ------------ --------
<S> <C> <C> <C>
Discount Rate Range................ 14-16% 12-14% 12-14%
2004E EBITDA Exit Multiple Range... 9x-11x 11x-13x 11x-13x
Total enterprise value............. $490-$658 million $1.3-$1.6 billion $2.6-$3.2 billion
Equity Value....................... $221-$389 million $1.4-$1.7 billion $2.4-3.0 billion
Equity Value Per Share............. $3.63-$6.41 $14.97-$18.71 $20.45-$26.35
</TABLE>
The relationship between the equity value per share of STAR and of World
Access shown in the foregoing analysis may be compared with the exchange ratio
in the merger.
Pro forma financial effects analysis. Deutsche Bank analyzed certain pro
forma effects of the STAR merger. Based on such analysis, Deutsche Bank computed
the share price, revenues per share and total debt per share for STAR
stockholders pre-transaction, for stockholders of the combined company and the
STAR equivalent post-transaction, based on management's 2000 estimates, after
taking into account the potential cost savings and other synergies identified by
management that STAR and World Access could achieve if the STAR merger was
consummated and after non-recurring costs relating to the STAR merger, and
assuming the exchange ratio is 0.3905 and also assuming that the entire
consideration is stock. Deutsche Bank calculated the following pro forma effects
of the STAR merger, after taking into account the potential cost savings and
other synergies and after non-recurring costs:
<TABLE>
<CAPTION>
STAR 2000E STAR
PRE- COMBINED EQUIVALENT
TRANSACTION COMPANY POST-TRANSACTION
----------- -------- ----------------
<S> <C> <C> <C>
Revenues per share.................................. $19.80 $22.00 $8.59
EBITDA per share.................................... (0.08) 1.03 0.40
Earnings before interest and taxes or EBIT per
share............................................. (0.92) (0.09) (0.04)
Total debt per share................................ 5.25 4.99 1.95
Total book value per share.......................... 3.87 10.15 3.96
</TABLE>
This analysis shows that, based on management's 2000 estimates, the
STAR-World Access merger (without giving effect to the WorldxChange merger or
the June 7, 2000 adjustment in the exchange ratio), on a pro forma basis per
STAR share equivalent, would increase EBITDA, EBIT and book value and reduce
debt, but would reduce revenues.
Premiums analysis. Deutsche Bank conducted a premiums analysis, comparing
the World Access/STAR transaction to the median and mean of 27 telecom
transactions, completed or pending, greater than $100 million and less than $2
billion for the period of May 1, 1997 to February 4, 2000 and to the median and
mean of 124 general transactions, completed or pending, greater than $250
million and less than $1 billion that resulted in a controlling stake for the
period of January 1, 1999 to February 4, 2000. The premiums analysis was
conducted one day prior to announcement date, one week prior to announcement
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<PAGE> 72
date and four weeks prior to announcement date. The premium to STAR's share
price was calculated using the original announcement date of the execution of
the letter of intent of December 20, 1999, to enter into the STAR merger and an
exchange ratio of 0.3905 World Access share per STAR share. This analysis
indicated:
<TABLE>
<CAPTION>
MEDIAN AND MEAN PREMIUMS
--------------------------------------------------------
1 DAY PRIOR TO ANN. 1 WEEK PRIOR TO 4 WEEKS PRIOR TO
PERIOD DATE ANN. DATE ANN. DATE
------ ------------------- --------------- ----------------
<S> <C> <C> <C>
Telecom transactions (27 transactions)
Median................................... 21.3% 25.4% 28.7%
Mean..................................... 23.8 29.7 41.1
General transactions (124 transactions)
Median................................... 27.8 36.1 46.5
Mean..................................... 31.0 40.7 63.0
World Access/STAR.......................... 25.0 9.5 27.3
</TABLE>
This premium analysis permits a comparison between the premium over STAR's
share price, based on the market price of World Access and STAR shares at the
times shown, with the premiums involved at comparable times in other
transactions.
Other considerations and analyses. In connection with its opinion Deutsche
Bank also considered, among other things:
- telecom equipment company trading and transaction comparables to
corroborate World Access' statement that it will be able to sell its
Equipment Division for $525 to $600 million,
- historical exchange ratios of World Access and STAR based on historical
trading prices,
- the amounts of STAR shares that have traded at different price levels,
and
- precedent telecom services transactions.
Because many of the precedent transactions occurred in market conditions
for international long distance companies that differed from market conditions
at the time the financial analyses were conducted and/or because business mix or
other factors made the targets in the precedent transactions non-comparable to
STAR, while Deutsche Bank reviewed precedent telecom services transactions, it
did not rely on a precedent transactions analysis.
The foregoing summary describes analyses that Deutsche Bank deemed material
in its presentation to the STAR board of directors, but it is not a
comprehensive description of all analyses performed by Deutsche Bank in
connection with preparing its opinion. The preparation of a fairness opinion is
a complex process involving the application of subjective business judgment in
determining the most appropriate and relevant methods of financial analysis and
the application of those methods to the particular circumstances and, therefore,
is not readily susceptible to summary description. Deutsche Bank believes that
its analyses must be considered as a whole and that considering any portion of
such analyses and of the factors considered without considering all analyses and
factors could create a misleading view of the process underlying the opinion. In
arriving at its fairness determination, Deutsche Bank did not assign specific
weights to any particular analyses.
In conducting its analyses and arriving at its opinions, Deutsche Bank
utilized a variety of generally accepted valuation methods. The analyses were
prepared solely for the purpose of enabling Deutsche Bank to provide its opinion
to the board of directors of STAR as to the fairness to STAR stockholders, from
a financial point of view, of the merger consideration and do not purport to be
appraisals or necessarily reflect the prices at which businesses or securities
actually may be sold, which are inherently subject to uncertainty. In connection
with its analyses, Deutsche Bank made, and was provided by STAR's management
with, numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
STAR's or World Access' control. Analyses based on estimates or forecasts of
future results are not necessarily indicative of actual past or
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<PAGE> 73
future values or results, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
STAR, World Access or their respective advisors, neither STAR nor Deutsche Bank
nor any other person assumes responsibility if future results or actual values
are materially different from these forecasts or assumptions.
The terms of the STAR merger were determined through negotiations between
STAR and World Access and were approved by the STAR board of directors. Although
Deutsche Bank provided advice to the STAR board of directors as to the fairness
of the merger consideration to the stockholders of STAR, from a financial point
of view, the decision to enter into the STAR merger was solely that of the STAR
board of directors. The opinion of Deutsche Bank was only one of a number of
factors taken into consideration by the STAR board of directors in making its
determination to approve the STAR merger. Deutsche Bank's opinion was provided
to the STAR board of directors to assist it in connection with its consideration
of the STAR merger and does not constitute a recommendation to any holder of
STAR common stock as to how to vote with respect to the STAR merger.
The STAR board of directors selected Deutsche Bank as financial advisor in
connection with the STAR merger based on Deutsche Bank's qualifications,
expertise, reputation and experience in mergers and acquisitions. STAR has
retained Deutsche Bank pursuant to an engagement letter dated January 25, 2000.
As compensation for Deutsche Bank's services in connection with the STAR merger,
a cash fee of $250,000 became payable by STAR to Deutsche Bank upon signing and
STAR will pay Deutsche Bank an additional $1,050,000 upon consummation of the
STAR merger. Regardless of whether the STAR merger is consummated, STAR has
agreed to reimburse Deutsche Bank for reasonable fees and disbursements of
Deutsche Bank's counsel and all of Deutsche Bank's reasonable travel and other
out-of-pocket expenses incurred in connection with the STAR merger or otherwise
arising out of the retention of Deutsche Bank under the engagement letter. STAR
has also agreed to indemnify Deutsche Bank and certain related persons to the
full extent lawful against certain liabilities, including certain liabilities
under the federal securities laws that may arise out of its engagement or the
STAR merger.
Deutsche Bank is an internationally recognized investment banking firm
experienced in providing advice in connection with mergers and acquisitions and
related transactions. It is an affiliate of Deutsche Bank AG (together with its
affiliates, the DB Group).
One or more members of the DB Group have, from time to time, provided
investment banking, commercial banking, including extension of credit, other
financial services to STAR and World Access or their respective affiliates for
which it has received compensation. In the ordinary course of business, members
of the DB Group may actively trade in the securities and other instruments and
obligations of STAR and World Access for their own accounts and for the accounts
of their customers. Accordingly, the DB Group may at any time hold a long or
short position in such securities, instruments and obligations.
CONSIDERATION THAT STAR STOCKHOLDERS WILL RECEIVE IN THE STAR MERGER
Upon completion of the STAR merger, each outstanding share of STAR common
stock will be automatically canceled and converted into the right to receive one
of two forms of merger consideration to be determined by World Access.
- Under the first form of consideration, each STAR stockholder will be
entitled to receive, for each share of STAR common stock, 0.386595 shares
of World Access common stock, subject to upward adjustment if STAR sells
PT-1 prior to the completion of the STAR merger for net cash proceeds in
excess of $150.0 million.
- Under the second form of merger consideration, each STAR stockholder will
be entitled to receive, for each share of STAR common stock, the same
total value as that paid in the first form of consideration. However,
under the second form, each STAR stockholder will receive up to 60% of
its consideration in World Access common stock and up to 40% of its
consideration in cash. If
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<PAGE> 74
World Access selects the second form of consideration, each STAR
stockholder will receive the same percentages of stock and cash as other
STAR stockholders.
No fractional shares of World Access common stock will be issued in
connection with the STAR merger. Instead, STAR shareholders will receive cash,
without interest, instead of a fractional share of World Access common stock.
Shares of STAR common stock for which dissenters' rights of appraisal, if
available, have been perfected in accordance with Delaware law will not be
entitled to receive the merger consideration described above.
Upon completion of the STAR merger, each outstanding STAR stock option or
warrant will be automatically converted into an option to purchase such number
of shares of World Access common stock as is equal to the number of shares of
STAR common stock covered under such STAR stock option or warrant multiplied by
the exchange ratio at a per share price equal to the exercise price specified in
the STAR stock option or warrant divided by the exchange ratio. The amount of
World Access common stock each STAR stock option or warrant will be convertible
into is subject to upward adjustment if STAR sells PT-1 before the completion of
the STAR merger for net cash proceeds in excess of $150.0 million. Each newly
issued World Access stock option will contain terms which are substantially
similar to the terms governing the original STAR stock option or warrant.
COMPLETION OF THE STAR MERGER
The completion of the STAR merger will occur two business days after the
conditions to completion are satisfied or waived or at a later time agreed to by
World Access and STAR. The STAR merger will be effective at the time that the
certificate of merger is filed unless World Access and STAR specify a later
effective time in the certificate of merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE STAR MERGER
The following discussion summarizes the material federal income tax
consequences of the STAR merger. Long Aldridge & Norman LLP, as counsel to World
Access, is of the opinion that the following discussion sets forth the material
federal income tax consequences of the STAR merger under the federal income tax
laws in effect as of the date of this joint proxy statement/prospectus. The
following discussion is not a complete analysis of all aspects of federal income
taxation that may be relevant to you as a STAR stockholder in light of your
particular circumstances. For example, it does not address the federal income
tax considerations or the special tax rules that may be relevant to you if you
are one of the following types of holders:
- an insurance company;
- a tax-exempt organization;
- an employee stock ownership plan;
- a bank;
- a broker, dealer or financial institution;
- a holder that holds STAR common stock as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for
federal income tax purposes;
- a holder that has a "functional currency" other than the United States
dollar;
- a holder subject to the alternative minimum tax;
- a holder that is not a citizen or resident of the United States, or that
is a foreign corporation, foreign partnership or foreign estate or trust
as to the United States;
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<PAGE> 75
- a holder who acquired shares of STAR common stock pursuant to the
exercise of options or otherwise as compensation or through a
tax-qualified retirement plan; or
- a holder of options to acquire shares of STAR common stock.
In addition, the 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 federal income tax consequences of the STAR merger that may
be applicable to STAR stockholders, or the consequences of transactions
completed before or after the STAR merger. Further, this discussion assumes that
as a STAR stockholder, you hold your STAR common stock as a "capital asset"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended. Generally, a capital asset is property held for investment. This
discussion is based on the Internal Revenue Code and final, temporary and
proposed treasury regulations promulgated under the Internal Revenue Code,
administrative pronouncements and rulings, and judicial decisions as of the date
of this joint 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 continuity and validity of this discussion.
We have not requested a ruling from the Internal Revenue Service with
respect to the federal income tax consequences of the STAR merger nor is the
completion of the STAR merger conditioned on the receipt by World Access or STAR
of such a ruling or an opinion of tax counsel concerning such tax consequences.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO YOU OF THE STAR MERGER.
The STAR merger
Long Aldridge & Norman LLP has rendered an opinion to World Access that the
STAR merger will constitute a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code. This opinion is subject to the limitations,
qualifications and assumptions referred to herein and in such opinion. In
rendering its opinion as to the status of the STAR merger as a "reorganization,"
and in rendering its opinion with respect to the following discussion, counsel
has relied upon, and has assumed the accuracy of, information, factual
statements and representations made by World Access and STAR in this joint proxy
statement/prospectus and the STAR merger agreement, including those
representations to counsel contained in certificates of their officers. Any
inaccuracy or change with respect to such information, representations or
assumptions, or any past or future actions by World Access or STAR contrary to
such information, representations or assumptions could adversely affect the
conclusions reached in such opinion and the discussion set forth below.
Counsel's opinion neither binds the Internal Revenue Service nor precludes
it or the courts from adopting a contrary position, and no assurance can be
given that contrary positions will not be successfully asserted by the Internal
Revenue Service or adopted by a court if the issues are litigated.
The PT-1 asset sale will not prevent "reorganization" treatment. In order
for the STAR merger to qualify as a "reorganization," STI Merger Co., the
subsidiary of World Access that STAR will merge into in the STAR merger, must
acquire "substantially all" of STAR's assets under the Internal Revenue Code,
notwithstanding the fact that the PT-1 asset sale will occur prior to the STAR
merger and is counted as an asset that STAR should have at the effective time of
the merger for purposes of this calculation. The Internal Revenue Service has
publicly ruled that a target corporation's pre-merger sale of 50% of its
historic business assets for cash did not violate the "substantially all"
requirement where all the remaining assets, including the cash proceeds were
transferred to the acquiring corporation. Based on this Internal Revenue Service
published ruling position on pre-merger asset sales by a target corporation,
STAR's representations that the Internal Revenue Service private letter ruling
requirements regarding the "substantially all" requirement will be met, and the
other Internal Revenue Service and judicial authority, the "substantially all"
requirement will be met in the STAR merger and the PT-1 asset sale will not
prevent the STAR merger from constituting a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code.
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Under the "continuity of business enterprise requirement," STI Merger Co.
must also continue STAR's "historic business" or use a significant portion of
STAR's historic assets in a business in order for the STAR merger to qualify as
a "reorganization" under the Internal Revenue Code. World Access has represented
to counsel that STI Merger Co. will satisfy this test irrespective of the PT-1
asset sale. Based on such World Access representation, Internal Revenue Service
and judicial authority, the "continuity of business enterprise" requirement will
also be met with respect to the STAR merger.
The balance of this discussion is based on the conclusion in the opinion
that the STAR merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code, and that STAR completes the PT-1
asset sale prior to the STAR merger.
World Access stockholders will not recognize any gain or loss for federal
income tax purposes solely as a result of the STAR merger.
Tax considerations for STAR stockholders
Receipt of World Access stock in the STAR merger. You will recognize
neither gain nor loss upon the exchange of your STAR common stock for World
Access common stock and fractional share interests. Your tax basis in the shares
of World Access common stock you receive in the exchange will be the same as the
tax basis of the shares of STAR common stock you surrender in the exchange less
any portion of such basis allocable to any fractional share interest in any
share of World Access common stock for which cash is received. The holding
period of the World Access common stock you receive in the exchange will include
the holding period during which you held your STAR common stock, provided you
held such shares as a capital asset as of the effective time of the STAR merger.
Receipt of World Access stock and cash. If World Access elects to pay
cash, and you realize gain on the exchange of your STAR common stock for a
combination of cash and World Access common stock and fractional share
interests, you will be required to recognize such gain in an amount equal to the
lesser of (i) the amount of gain you realize on the exchange (i.e., the excess
of the sum of the cash and the fair market value of the World Access common
stock you receive over your tax basis in the STAR common stock surrendered in
the exchange) and (ii) the amount of cash you receive in the exchange. If,
however, you realize a loss on the exchange of your STAR common stock for a
combination of cash and World Access common stock, you cannot recognize such
loss.
Your tax basis in the shares of World Access common stock you receive in
the exchange in which you also receive cash will be the same as the tax basis of
your shares of STAR common stock surrendered in the exchange, less any portion
of such basis allocable to any fractional share interest in any share of World
Access common stock for which cash is received, increased by the amount of any
gain recognized in the exchange, whether treated as a capital gain or a dividend
as discussed below, and decreased by the amount of cash you receive. The holding
period of the World Access common stock you receive in the exchange will include
the holding period during which you held your STAR common stock.
Character of gain recognized. The character of the gain you are required
to recognize upon your receipt of cash depends on your particular facts and
circumstances as a STAR stockholder. Assuming you held your STAR common stock as
a capital asset, any gain recognized will be characterized as capital gain
unless your receipt of such cash is treated as having the effect of the
distribution of a dividend under the Internal Revenue Code.
To determine whether any such recognized gain is capital gain or is a
dividend, a hypothetical redemption is deemed to occur under which a STAR
stockholder that receives a combination of cash and World Access common stock is
treated as (i) hypothetically receiving solely shares of World Access common
stock in exchange for all of its STAR common stock, and (ii) having a portion of
its shares of World Access common stock equal in value to the cash actually
received in the STAR merger redeemed by World Access. The cash you receive in
the hypothetical redemption will have the effect of a distribution of a dividend
to you unless such hypothetical redemption (i) is "not essentially equivalent to
a dividend" with respect to you or (ii) results in a "substantially
disproportionate" redemption of your equity
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interest in World Access, in both cases after giving effect to the constructive
ownership rules of the Internal Revenue Code. If either of these redemption
tests is satisfied, then your gain will be capital gain, and will be long-term
capital gain if your STAR common stock was held for more than one year as of the
effective time of the STAR merger. These redemption tests and the application of
the constructive ownership rules are complex. Your tax consequences will depend
upon your particular facts and circumstances as a STAR stockholder. We urge you
to consult with your tax advisor with respect to these matters.
If none of the redemption tests is satisfied, you will be treated as having
received a dividend distribution in that hypothetical redemption exchange. The
amount of such distribution will generally equal the amount of cash you receive,
but not in excess of the gain you realize on the exchange pursuant to the STAR
merger, and such amount will be treated as a dividend, and thus ordinary income,
to the extent of your allocable portion of the accumulated earnings and profits,
if any, as determined for federal income tax purposes of STAR. If the amount of
such distribution exceeds your allocable portion of STAR's accumulated earnings
and profits, then the excess will first be applied against and reduce your basis
in such stock, but not below zero, and then any excess will be treated as gain
from the sale or exchange of World Access common stock, and thus capital gain,
and will be long-term capital gain if your STAR common stock was held for more
than one year as of the effective time of the STAR merger. If such distribution
is taxable as a dividend to you as a corporate stockholder, it may qualify for
the "dividends received deduction;" such dividend distribution may, however,
also be subject to the "extraordinary dividend" provisions of the Internal
Revenue Code.
Cash for fractional shares. Based on the current published ruling position
of the Internal Revenue Service, you will recognize gain or loss measured by the
difference between the amount of cash received and the portion of the tax basis
of your STAR common stock allocable to such fractional share interest. Such gain
or loss will be capital gain or loss, and will be long-term capital gain if your
STAR common stock was held for more than one year as of the effective time of
the STAR merger.
Cash received by dissenting STAR stockholders. If you exercise appraisal
rights, any cash received in connection therewith will be treated as having been
received in redemption of your STAR common stock, provided the payment is not
treated as a dividend pursuant to the Internal Revenue Code. If, after such
redemption, you own no World Access stock after giving effect to the
constructive ownership rules of the Internal Revenue Code, then you will
recognize gain or loss measured by the difference between the amount of cash
received and the tax basis of your STAR common stock surrendered, which will be
long-term capital gain or loss if your STAR common stock was held for more than
one year as of the effective time of the STAR merger.
Reporting requirements. When you file your federal income tax return for
the taxable year in which the STAR merger occurs, you will be required to attach
a statement to your return which includes certain information required by the
Internal Revenue Service concerning your participation as a STAR stockholder in
the STAR merger. ACCORDINGLY, YOU ARE URGED TO CONSULT WITH YOUR TAX ADVISOR
CONCERNING COMPLIANCE WITH THIS REQUIREMENT AND ANY OTHER TAX REPORTING
REQUIREMENTS.
Tax considerations for the corporate parties
World Access, STI Merger Co. and STAR. No gain or loss will be recognized
by World Access, STI Merger Co. or STAR as a result of the STAR merger.
Limitation on STAR tax attributes. Under the Internal Revenue Code, STI
Merger Co. will succeed to the net operating losses, certain "recognized
built-in losses," capital losses, general business credits, minimum tax credits,
excess foreign tax credits and certain other tax attributes of STAR. Use of
these tax attributes by World Access is subject to specific limitations under
the Internal Revenue Code and certain provisions of the treasury regulations
governing the filing of a consolidated federal income tax return, such as the
"separate return limitation year" rules. After an ownership change, the amount
of the loss corporation's taxable income for a post-ownership change year that
may be offset by the loss corporation's net operating losses arising before the
ownership change is annually limited to an amount referred to as the
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"Section 382 limitation." The Section 382 limitation generally equals the
product of (i) the fair market value of the loss corporation's stock immediately
before the ownership change, multiplied by (ii) the federal long-term,
tax-exempt rate published monthly by the Internal Revenue Service, which was
5.53% for August 2000.
STAR and its domestic subsidiaries are members of a "consolidated group"
which files a consolidated federal income tax return. The STAR consolidated
group, with STI Merger Co. as STAR's corporate successor, will constitute a
"loss subgroup" which will undergo a Section 382 ownership change upon
completion of the STAR merger. Utilization of any STAR loss subgroup's net
operating loss carryover, after taking into account the PT-1 sale, which we
refer to as the "pre-change STAR loss subgroup net operating losses," against
future World Access consolidated federal taxable income will be subject to an
annual loss subgroup Section 382 limitation.
An additional limitation may apply under which the pre-change STAR loss
subgroup net operating losses can only be used to the extent of the "qualifying
separate return limitation year subgroup" members' aggregate, cumulative
contribution to World Access consolidated taxable income, or the "separate
return limitation year limitation." Because the STAR loss subgroup and its
separate return limitation year net operating loss subgroup should be treated as
co-extensive, and the Section 382 ownership change and separate return
limitation year event will occur at the same time, the separate return
limitation year limitation should be eliminated with respect to the STAR loss
subgroup net operating losses. Notwithstanding the foregoing, it is anticipated
that any net operating loss carryovers of STAR will be used to partially offset
gain to be recognized by STAR from the sale of the PT-1 assets.
Limitation on World Access tax attributes. World Access and its domestic
subsidiaries are members of a "consolidated group" which files a consolidated
federal income tax return. For its taxable year ended December 31, 1999, the
World Access consolidated group incurred a consolidated net operating loss, and
has a consolidated net operating loss carryover. As such, it constitutes a "loss
group." World Access believes that the World Access loss group may have already
incurred a Section 382 ownership change in either or both of its 1998 and 1999
taxable years. Thus, the World Access consolidated group's ability to utilize
its own consolidated net operating loss carryover as of December 31, 1999
against its future consolidated federal taxable income may already be subject to
an annual loss group Section 382 limitation.
If consummation of either or both the STAR merger and the WorldxChange
merger does result in an ownership change for the World Access loss group, the
amount of such annual loss group Section 382 limitation will depend in part, on
future values which cannot be predicted at this time. In the case of successive
ownership changes, the applicable pre-ownership change World Access loss group
or member's net operating losses will be subject to the lowest amount of Section
382 limitation which results from any of such successive ownership changes. If
instead, completion of either or both the STAR merger and the WorldxChange
merger does not result in an ownership change for the World Access loss group,
then any existing annual loss group Section 382 limitation for World Access will
simply continue to apply.
EXCHANGE OF STAR STOCK CERTIFICATES FOR WORLD ACCESS STOCK CERTIFICATES
When the STAR merger is completed, World Access' exchange agent will mail a
letter of transmittal and instructions to former STAR stockholders describing
the procedures for surrendering STAR stock certificates in exchange for the
applicable STAR merger consideration. STAR stockholders will be required to
deliver their STAR stock certificates, an executed letter of transmittal and any
other required documents to the exchange agent. The STAR stock certificates will
be canceled, and STAR stockholders will receive the number of shares of World
Access common stock and a check for any cash consideration to which they are
entitled under the STAR merger agreement. STAR stockholders also will receive
cash instead of fractional shares of World Access common stock that they would
have otherwise received.
YOU SHOULD NOT SUBMIT YOUR STAR STOCK CERTIFICATES FOR EXCHANGE UNLESS AND
UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT.
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RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF WORLD ACCESS AND STAR
The World Access common stock that will be issued in the STAR merger will
be registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except for shares issued to any person who is an
affiliate of either World Access or STAR. Affiliates include individuals or
entities that control, are controlled by, or are under common control of, either
World Access or STAR and may include some of their respective officers,
directors and principal stockholders. Affiliates may not sell the shares of
World Access common stock they acquire in the STAR merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- Rule 145 under the Securities Act; or
- any other exemption under the Securities Act.
ACCOUNTING TREATMENT OF THE STAR MERGER
World Access intends to account for the STAR merger as a purchase for
financial reporting and accounting purposes, under United States generally
accepted accounting principles. After the STAR merger, the results of operations
of World Access and STAR will be included in the consolidated financial
statements of World Access. The purchase price will be allocated based on the
fair values of the assets acquired and the liabilities assumed. Any excess of
cost over fair value of the net tangible assets of STAR acquired will be
recorded as goodwill and other intangible assets and will be amortized by
charges to operations under United States generally accepted accounting
principles. These allocations will be made based upon valuations and other
studies that have not yet been finalized.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE STAR MERGER
The STAR merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended. The Hart-Scott-Rodino Act
prevents the completion of transactions until required information and materials
are furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and the appropriate waiting periods end or expire.
World Access and STAR have filed the required information and materials with the
Antitrust Division of the Department of Justice and the Federal Trade
Commission. The Department of Justice and Federal Trade Commission granted an
early termination of the waiting period, effective March 16, 2000. No further
action under the Hart-Scott-Rodino Act is required, as long as the STAR merger
is completed prior to March 16, 2001.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the STAR merger on antitrust grounds either before or
after expiration of the waiting period. Other persons could take action under
the antitrust laws, including seeking to enjoin the STAR merger. Additionally,
at any time before or after the completion of the STAR merger or the expiration
of the waiting period, any state could take action under the antitrust laws.
The STAR merger also requires notification in certain European countries.
Under the German Competition Act, the German Cartel Office must be notified
of the STAR merger, and the STAR merger cannot be completed until it has been
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 considers
the notification complete. On May 18, 2000, the German Cartel Office approved
the STAR merger.
Following the completion of the STAR merger, an information filing must be
made in Denmark with the national competition authority.
The STAR merger is subject to state and federal telecommunications
regulatory approvals. All but two of the state regulatory agencies and the
Federal Communications Commission require prior notice or approval of the STAR
merger. Requests for approval or notifications of the STAR merger have been
filed on behalf of World Access and STAR in 48 states and with the Federal
Communications Commission.
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The legal standard for approval varies from state to state, but approval of the
STAR merger generally requires a showing that it is consistent with the public
interest. The Federal Communications Commission has approved the STAR merger.
STAR and World Access cannot complete the STAR merger unless and until the
registration statement of which this joint proxy statement/prospectus is a part
is declared effective and STAR and World Access are in compliance with Delaware
law.
Other than as described above, we are not aware of any other material
governmental or regulatory approval required for completion of the STAR merger.
RIGHTS OF DISSENTING STAR STOCKHOLDERS
If World Access elects to convert shares of STAR common stock into the
right to receive a combination of shares of World Access common stock and cash
in the STAR merger, and you are a STAR stockholder who does not wish to accept
the merger consideration, you have the right to demand the appraisal of and be
paid the fair value of your shares in cash. The fair value of your shares of
STAR common stock will exclude any element of value arising from the expectation
or completion of the STAR merger. Appraisal rights are not available if World
Access elects to convert shares of STAR common stock into the right to receive
shares of World Access common stock only.
THIS JOINT PROXY STATEMENT PROSPECTUS CONSTITUTES THE NOTICE OF APPRAISAL
RIGHTS REQUIRED BY DELAWARE LAW. FAILURE TO PROPERLY AND TIMELY COMPLY WITH
THESE PROCEDURES WILL RESULT IN THE LOSS OF YOUR APPRAISAL RIGHTS. IF YOU LOSE
YOUR APPRAISAL RIGHTS, YOU WILL RECEIVE THE MERGER CONSIDERATION ONLY. THE
FOLLOWING DISCUSSION IS A SUMMARY OF DELAWARE LAW AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE RELEVANT PROVISIONS OF DELAWARE LAW, A COPY OF
WHICH IS ATTACHED AS ANNEX H AND INCORPORATED HEREIN BY REFERENCE.
If you have a beneficial interest in STAR common stock held of record by
another person or entity, such as a nominee, and you wish to exercise the right
to appraisal, if available, you must promptly act to cause the record holder to
follow the steps below and in Annex H properly and in a timely manner.
Delaware courts have decided that the statutory appraisal remedy, depending
on factual circumstances, may or may not be a stockholder's exclusive remedy in
connection with transactions such as the STAR merger.
Written demand. If World Access elects to convert shares of STAR common
stock into the right to receive both shares of World Access common stock and
cash, and you are a STAR common stockholder who wishes to exercise appraisal
rights you must deliver a written demand for appraisal of your shares of STAR
common stock to STAR before the vote on the STAR merger at the STAR stockholders
meeting. The demand should be delivered to STAR at 223 East De La Guerra Street,
Santa Barbara, California 93101, Attention: Corporate Secretary.
Your written demand must reasonably inform STAR:
- of your identity as a STAR common stockholder; and
- that by your written demand, you intend to demand appraisal of your
shares.
An abstention or proxy or vote against the STAR merger is not a written
demand for appraisal.
You must hold your shares of STAR common stock of record:
- on the record date for the STAR stockholders meeting; and
- from the time you make the written demand, continuously through the
STAR merger.
You must not vote in favor of the STAR merger or consent to the STAR
merger in writing.
After the STAR merger. Within 10 days after the STAR merger, if appraisal
rights are available, World Access must send notice of the STAR merger to each
person who has satisfied the procedures
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established by Delaware law. Within 120 days after the STAR merger, if you are a
STAR common stockholder who complied with these appraisal procedures, you are,
upon written request, entitled to receive from World Access a statement of:
- the total number of shares of STAR common stock not voted for the STAR
merger and for which written demands for appraisal were received; and
- the total number of holders of such shares.
This statement must be mailed by World Access within ten days after its receipt
of the written request for the statement or within ten days after the expiration
of the period for delivery of written demand for appraisal, whichever is later.
Petition in the Court of Chancery. If you have followed the steps above,
if appraisal rights are available, and the STAR merger is completed, you or
World Access may file a petition in the Court of Chancery of the State of
Delaware, within 120 days after the STAR merger is completed, demanding a
determination of the "fair value" of your shares. World Access has no obligation
to file this petition, and does not currently intend to file this petition. If
you wish to have the Court of Chancery determine the "fair value" of your
shares, you must file the petition. You will fail to perfect and lose your right
to appraisal if no petition is filed within 120 days after the STAR merger is
completed.
The Court of Chancery may require you to submit your share certificates to
the Register in Chancery for notation of the appraisal proceeding. If you fail
to comply with this direction, the court may dismiss the appraisal proceedings
as to you.
If you have complied with these procedures, the Court of Chancery will
determine whether you have complied with Delaware law and if you are entitled to
appraisal rights. After determining the STAR common stockholders entitled to
appraisal, the court will appraise the "fair value" of shares of STAR common
stock. "Fair value" will be determined exclusive of any element of value arising
from the completion or expectation of the STAR merger. The court may consider
all relevant factors including market value, asset value, dividends, earning
prospects, and the nature of the business. "Fair value" may be more than, the
same as, or less than the value of the merger consideration.
The court will also determine if interest will be paid on the amounts to be
received by those STAR common stockholders whose shares have been appraised. The
costs of the appraisal proceeding may be determined by the court and taxed on
the parties as the court determines to be equitable. You also may apply to the
court to have the expenses of the appraisal proceeding incurred by you charged
pro rata against the value of all shares entitled to appraisal.
Withdrawal of written demand for appraisal. If you fail to perfect, lose
or withdraw your right to appraisal under Delaware law, you will receive the
merger consideration provided in the STAR merger agreement. You may withdraw
your written demand for appraisal by delivering a written withdrawal of your
demand for appraisal and acceptance of the merger consideration to World Access.
Any attempt to withdraw made more than 60 days after the STAR merger will
require the written approval of World Access. No appraisal proceeding filed with
the Court of Chancery may be dismissed as to you without approval of the court.
Rights of STAR common stockholders demanding appraisal. If you have
complied with the procedures of Delaware law as to appraisal, after the STAR
merger, you will not be entitled to:
- vote your shares of STAR common stock subject to appraisal, or
- dividends or distributions on your shares of STAR common stock subject
to appraisal.
You will still be entitled to dividends or distributions payable on your shares
subject to appraisal as to a date prior to the STAR merger.
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INTERESTS OF DIRECTORS, OFFICERS AND STOCKHOLDERS IN THE STAR MERGER
Option plans and change in control arrangements
STAR's stockholders should be aware that some of STAR's executive officers
and directors have interests in the STAR merger that are in addition to the
interests of the stockholders of STAR generally.
Under STAR's 1997 Omnibus Stock Incentive Plan, the administrator of the
plan, which is a committee of the STAR board of directors, may provide for the
acceleration of the stock options, stock appreciation rights, stock units or
restricted shares granted to employees and outside directors in the event of a
change in control.
Under STAR's 1996 Outside Director Nonstatutory Stock Option Plan, the STAR
board of directors may decide upon a change in control, that it is necessary or
desirable to accelerate the exercisability of outstanding options granted under
the plan. The STAR board of directors also has the discretion to terminate any
outstanding options that have been accelerated but not exercised during the
exercise period. The STAR merger constitutes a change in control under the 1997
Omnibus Stock Incentive Plan and the 1996 Outside Director Nonstatutory Stock
Option Plan.
Other than as discussed below, the STAR board of directors does not intend
to accelerate options or other securities held by executive officers or
directors of STAR under the 1997 Omnibus Stock Incentive Plan or the 1996
Outside Director Nonstatutory Stock Option Plan.
On January 3, 2000, STAR's non-executive stock option committee determined
that all of David Vaun Crumly's currently outstanding and future unvested
options would become exercisable five business days before a change in control.
The non-executive stock option committee accelerated Mr. Crumly's stock options
as an incentive for Mr. Crumly's continued employment with STAR through the
completion of the STAR merger. As of , 2000, Mr. Crumly's options to
purchase shares will accelerate upon the STAR merger. The
approximate value of his accelerated options as of , 2000 is
$ .
Change in control agreement
In January 1996, STAR entered into an employment agreement with David Vaun
Crumly, whereby Mr. Crumly became Executive Vice President. Under his employment
agreement, Mr. Crumly will receive a bonus equal to the lesser of $1,500,000 or
a percentage of the monthly gross sales of accounts relating to customers
introduced to STAR by Mr. Crumly for the month before a sale transaction. The
percentage is either ten, twenty or thirty percent, depending on the size of the
monthly gross sales. STAR must pay the bonus in cash within 90 days of the sale
transaction, or if the stockholders of STAR receive stock in the transaction,
STAR can pay up to 50% of the bonus in STAR common stock or the shares of common
stock of the acquiring company. The STAR merger constitutes a sale transaction
under the agreement. As of , 2000, Mr. Crumly's bonus is
approximately $ .
Registration rights under voting agreement of Christopher Edgecomb
World Access and Christopher Edgecomb entered into a voting and stock
transfer restriction agreement under which World Access granted to Mr. Edgecomb
unlimited "piggyback" registration rights. Mr. Edgecomb is entitled to include
the shares of World Access common stock he acquires in the STAR merger in any
registration of capital stock for the account of World Access or any selling
stockholder. World Access has also agreed to pay all of Mr. Edgecomb's expenses
in any piggyback registration, other than underwriting commissions and fees of
Mr. Edgecomb's legal counsel.
Election of member of board of directors of World Access
In the STAR merger agreement, World Access agreed to elect Christopher
Edgecomb to the board of directors of World Access or another person designated
by STAR and agreed to by World Access.
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DESCRIPTION OF THE STAR MERGER AGREEMENT
World Access and STAR entered into the original STAR merger agreement on
February 11, 2000. On June 7, 2000, the parties amended the original STAR merger
agreement to:
- adjust the exchange ratio,
- reduce World Access' short-term loan commitments to STAR by amounts
provided to STAR by WorldCom or any of its affiliates, and
- provide that the condition to World Access' obligations under the STAR
merger agreement relating to STAR's sale of PT-1 will be satisfied if STAR sells
the assets of PT-1 to Counsel for net cash proceeds of at least $120.0 million
pursuant to the PT-1 asset sale agreement.
The original STAR merger agreement as amended is referred to in this joint
proxy statement/prospectus as the STAR merger agreement. This is only a summary
of the STAR merger agreement and may not contain all of the information that is
important to you. The STAR merger agreement is attached to this joint proxy
statement/prospectus as Annex A. World Access and STAR urge you to read it
carefully.
DESCRIPTION OF THE STAR MERGER CONSIDERATION
Upon completion of the STAR merger, each outstanding share of STAR common
stock will be automatically canceled and converted into the right to receive one
of two forms of merger consideration to be determined by World Access.
- Under the first form of consideration, each STAR stockholder will be
entitled to receive, for each share of STAR common stock, 0.386595 shares
of World Access common stock, subject to upward adjustment if STAR sells
PT-1 prior to the completion of the STAR merger for net cash proceeds in
excess of $150.0 million.
- Under the second form of merger consideration, each STAR stockholder will
be entitled to receive, for each share of STAR common stock, the same
total value as that paid in the first form of consideration. However,
under the second form, each STAR stockholder will receive up to 60% of
its consideration in World Access common stock and up to 40% of its
consideration in cash. If World Access selects the second form of
consideration, each STAR stockholder will receive the same percentages of
stock and cash as other STAR stockholders.
No fractional shares of World Access common stock will be issued in
connection with the STAR merger. Instead, STAR shareholders will receive cash,
without interest, instead of a fractional share of World Access common stock.
Shares of STAR common stock for which dissenters' rights of appraisal, if
available, have been perfected in accordance with Delaware law will not be
entitled to receive the merger consideration described above.
Upon completion of the STAR merger, each outstanding STAR stock option or
warrant will be automatically converted into an option to purchase the number of
shares of World Access common stock that equals the number of shares of STAR
common stock covered under the STAR stock option or warrant multiplied by the
exchange ratio at a per share price equal to the exercise price specified in the
STAR stock option or warrant divided by the exchange ratio. The amount of World
Access common stock each STAR stock option or warrant will be convertible into,
is subject to upward adjustment if STAR sells PT-1 before to the completion of
the STAR merger for net cash proceeds in excess of $150.0 million. Each newly
issued World Access stock option will contain terms that are substantially
similar to the terms governing the original STAR stock option or warrant.
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REPRESENTATIONS AND WARRANTIES CONTAINED IN THE STAR MERGER AGREEMENT
World Access and STAR each made representations and warranties in the STAR
merger agreement regarding their businesses, financial condition, structure and
other facts pertinent to the STAR merger, including:
- corporate existence, organization, standing, authority and
capitalization;
- consents and regulatory approvals necessary to complete the STAR merger;
- validity of required filings and reports with the Securities and Exchange
Commission;
- absence of pending or threatened suits, actions or other proceedings not
already disclosed in the STAR merger agreement;
- maintenance of permits and licenses necessary for the operation of
business;
- compliance with applicable laws and required licenses and permits;
- absence of material changes in business or the occurrence of certain
events since December 31, 1998;
- ownership of intellectual property and absence of infringement on any
intellectual property rights of any person or entity;
- fairness opinions to be received by financial advisors;
- the filing of tax returns and payment of taxes; and
- validity of material contracts.
In addition, STAR made representations and warranties regarding employees
and employee benefits matters.
Except with respect to breaches that occur before the completion of the
STAR merger, the representations and warranties of World Access and STAR do not
survive beyond the effective time of the STAR merger.
STAR'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE STAR MERGER
STAR has agreed that until the completion of the STAR merger or unless
World Access consents in writing, STAR will conduct its business in the ordinary
course and will use reasonable efforts to preserve intact its lines of business,
maintain its rights and franchises and preserve its relationships with customers
and suppliers.
STAR has also agreed that until the completion of the STAR merger or unless
World Access consents in writing, STAR will conduct its business in compliance
with restrictions relating to the following:
- the issuance, redemption, reclassification, combination or split of any
of its capital stock;
- employees and employee benefits and remuneration;
- the issuance of dividends or other distributions on its capital stock;
- modification of its certificate of incorporation or bylaws;
- the acquisition of assets or other entities;
- the sale of assets;
- capital expenditures or other investments;
- the creation, assumption or incurrence of indebtedness not currently
outstanding;
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- the settlement of litigation;
- the entering into of contracts that would restrict World Access from
engaging in business in certain geographic areas after the completion of
the STAR merger;
- the changing of its accounting policies and procedures; and
- actions which would jeopardize the tax treatment of the STAR merger.
NO OTHER NEGOTIATIONS INVOLVING POTENTIAL ACQUIRORS OF STAR
Until the STAR merger is completed or the STAR merger agreement is
terminated, STAR has agreed that it will not permit any of its agents or
representatives to take any of the following actions without World Access' prior
written consent:
- encourage or knowingly facilitate any inquiries regarding an acquisition
proposal;
- participate in any discussions or negotiations regarding an acquisition
proposal;
- disclose any confidential information to any person in connection with an
acquisition proposal; or
- knowingly facilitate any effort to make or accept an acquisition
proposal.
Notwithstanding the above limitations on STAR's actions, for any
unsolicited, bona fide written acquisition proposal by a person unaffiliated
with STAR that proposes:
- a business combination or similar action involving STAR;
- any purchase or sale of a material portion of STAR's assets, taken as a
whole; or
- any purchase or sale of, or tender or exchange offer for, a material
portion of the shares of STAR common stock.
STAR may:
- recommend approval by its stockholders of such proposal or withdraw,
modify or qualify its recommendation that the STAR stockholders approve
the STAR merger; or
- furnish information and engage in discussions regarding such proposal.
Provided that:
- the STAR stockholders meeting has not occurred;
- if the STAR board of directors changes its recommendation, the STAR board
of directors must conclude that the acquisition proposal is a superior
proposal to the STAR merger, terminate the STAR merger agreement and pay
the $14.0 million termination fee to World Access;
- if the STAR board of directors furnishes information regarding an
acquisition proposal, the STAR board of directors must conclude that the
proposal could reasonably be expected to result in a superior proposal;
- STAR enters into a confidentiality agreement with a third party making an
acquisition proposal before providing any confidential information; and
- STAR notifies World Access of any third party inquiries, proposals or
offers before providing any confidential information.
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DESCRIPTION OF THE MANAGEMENT SERVICES BETWEEN WORLD ACCESS AND STAR
The STAR merger agreement provides that, to the extent permitted by
applicable law, World Access and STAR intend to enter into a management
agreement under which World Access would provide management services to STAR
pending the completion of the STAR merger. At the time of the mailing of this
joint proxy statement/prospectus, World Access and STAR have not entered into a
management services agreement.
BOARD OF DIRECTORS OF WORLD ACCESS
World Access and STAR agreed that immediately following the completion of
the STAR merger, World Access will elect a STAR designee to the World Access
board of directors.
CONDITIONS TO COMPLETION OF THE STAR MERGER
Each party's obligation to complete the STAR merger is subject to the
satisfaction or waiver of each of the following material conditions:
- the STAR merger agreement and the STAR merger must be approved by the
required vote of the stockholders of World Access and STAR;
- this joint proxy statement/prospectus must be declared effective by the
Securities and Exchange Commission, and must not be subject to a stop
order;
- the representations and warranties of each party contained in the STAR
merger agreement must be true and correct as of February 11, 2000 and as
of the date the STAR merger is completed, except where any failure to be
true and correct would not have a material adverse effect on the other
party;
- each of the parties must perform or comply in all material respects with
all of its material agreements and covenants required by the STAR merger
agreement to be performed or complied with at or before completion of the
STAR merger;
- each of the parties must obtain all consents and approvals that are
necessary to complete the STAR merger. However, if the failure of a party
to use reasonable efforts to obtain such consents and approvals is the
cause of the failure to obtain such consents and approvals, the party
failing to use reasonable efforts must complete the STAR merger;
- no material adverse effect with respect to either party shall have
occurred since February 11, 2000; and
- the waiting period applicable to the STAR merger under the
Hart-Scott-Rodino Act must have terminated or expired.
World Access' obligations to complete the STAR merger are subject to the
satisfaction or waiver of each of the following material conditions:
- STAR must comply with all procedures and requirements applicable to it
under the dissenters' rights requirements of Delaware law, the period for
exercising appraisal rights in connection with the STAR merger must have
expired and fewer than 1% of the shares of STAR common stock must have
exercised appraisal rights;
- STAR must complete the PT-1 asset sale to Counsel for net cash proceeds
of at least $120.0 million pursuant to the PT-1 asset purchase agreement,
or sell PT-1 to another purchaser for net cash proceeds of at least
$150.0 million pursuant to an agreement reasonably satisfactory to World
Access; and
- STAR must not have received notification, and World Access must not have
any reasonable reason to believe, STAR's obligations relating to the
China-U.S. Cable Network were not fully satisfied by
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<PAGE> 87
the reclamation of STAR's capacity in the network, and STAR must have no
further obligations or liabilities with respect to the network.
TERMINATION OF THE STAR MERGER AGREEMENT
The STAR merger agreement may be terminated at any time before completion
of the STAR merger by either party for any of the following reasons:
- by mutual written consent;
- if the other party fails to comply with its material covenants or
agreements in the STAR merger agreement and fails to cure such
noncompliance within ten business days after receiving a notice of
breach; however, the non-breaching party may not terminate the STAR
merger agreement if the breaching party continues to use reasonable
efforts to cure the breach;
- if the other party has breached any of its representations or warranties,
and the breach remains uncured for ten business days after receiving a
notice of breach; however, the non-breaching party may not terminate the
STAR merger agreement if the breaching party continues to use reasonable
efforts to cure the breach;
- if the STAR merger has not been completed by September 30, 2000, unless
the failure to complete the STAR merger is the result of a breach of the
STAR merger agreement by the party seeking to terminate the STAR merger
agreement;
- if any permanent injunction, order, decree or ruling by any governmental
entity preventing the completion of the merger has become final and
nonappealable; or
- if the stockholders of World Access or STAR fail to approve the STAR
merger agreement by the required vote.
The STAR merger agreement may be terminated at any time prior to completion
of the STAR merger by STAR if, prior to the STAR stockholders vote and upon
three business days' prior notice to World Access, STAR's board of directors
determines that an acquisition proposal is a superior proposal. However, STAR's
termination of the STAR merger agreement is subject to the following conditions:
- prior to termination and upon request by World Access, STAR negotiates
with World Access regarding a revised proposal by World Access;
- the STAR board of directors determines, during such three-day period
and after considering the revised World Access proposal, that the
acquisition proposal is a superior proposal; and
- STAR pays the $14.0 million termination fee.
The STAR merger agreement may be terminated at any time prior to completion
of the STAR merger by World Access if STAR:
- is involved in a voluntary or involuntary bankruptcy or similar
proceeding;
- is subject to the appointment of a receiver or similar official;
- is subject to a winding up or a liquidation decree or order;
- shares a general assignment for the benefit of its creditors;
- prior to the stockholder vote, makes an adverse change in the board's
recommendation or approves or recommends a superior proposal before the
STAR stockholders meeting; or
- is involved in an event of default under the anticipated short-term loan
agreements between World Access and STAR.
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<PAGE> 88
PAYMENT OF TERMINATION FEE IF THE STAR MERGER AGREEMENT IS TERMINATED
STAR must pay World Access a termination fee of $14.0 million if the STAR
merger agreement is terminated for the following reasons:
- because the STAR board of directors determines that a competing
acquisition proposal is a superior proposal;
- if the STAR merger agreement is terminated by World Access because the
STAR board of directors makes an adverse change in the STAR
recommendation or approves or recommends a superior proposal; or
- because the stockholders of STAR have not adopted the STAR merger
agreement by the required vote and STAR enters into a definitive
agreement with respect to a business combination with an entity other
than World Access within 12 months after the termination of the STAR
merger agreement.
EXTENSION, WAIVER AND AMENDMENT OF THE STAR MERGER AGREEMENT
The STAR merger agreement may be amended by World Access and STAR at any
time before completion of the STAR merger. However, no amendment may be made
after adoption of the STAR merger agreement by the World Access and STAR
stockholders.
World Access or STAR may, at any time prior to completion of the STAR
merger:
- extend the time for the performance of any of the obligations or other
acts of the other party under the STAR merger agreement;
- waive any inaccuracies in representations and warranties of the other
party; or
- waive compliance with any of the agreements of the other party contained
in the STAR merger agreement.
STAR VOTING AGREEMENTS AND CREDIT AGREEMENTS
This section of the joint proxy statement/prospectus describes the voting
agreements of Christopher E. Edgecomb and Samer Tawfik and the anticipated STAR
credit agreements.
EDGECOMB VOTING AGREEMENT
World Access and Christopher E. Edgecomb have entered into a voting and
stock transfer restriction agreement, dated February 11, 2000, under which Mr.
Edgecomb has agreed to vote all of his shares of STAR common stock in favor of
the STAR merger and against any action that would not be in favor of the STAR
merger.
Under the agreement, Mr. Edgecomb may not:
- sell or transfer any of his shares of STAR common stock;
- trade or take any position with respect to his shares of STAR common
stock;
- enter into any voting arrangement or understanding with respect to his
shares of STAR common stock; or
- take any action that would make his representations or warranties untrue
or prevent him from performing any of his obligations.
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<PAGE> 89
The agreement also prohibits Mr. Edgecomb from transferring or taking a
position in any of the shares of World Access common stock he receives in the
STAR merger for six months after the completion of the STAR merger or as long as
he is a member of the World Access board of directors. World Access has the
first right to assist Mr. Edgecomb in the sale of his shares to an "accredited
investor" or "qualified institutional buyer," as defined in the Securities
Exchange Act of 1934, as amended. However, if World Access is unable to arrange
for a sale within 30 days, Mr. Edgecomb may complete the sale.
World Access has also agreed to provide Mr. Edgecomb piggyback registration
rights for Mr. Edgecomb's shares of World Access common stock that he is
restricted from selling under Rule 144 of the Securities and Exchange Act of
1934. Mr. Edgecomb can only exercise this right if he requests the registration
of at least 25% of his shares or shares having a value of at least $2.0 million.
Mr. Edgecomb has also agreed to restrictions on the solicitation or
employment of STAR employees.
The voting and stock transfer restriction agreement terminates upon the
termination of the STAR merger agreement in accordance with its terms.
TAWFIK VOTING AGREEMENT
On February 11, 2000, World Access also entered into a voting and stock
transfer restriction agreement with Samer Tawfik. Under this agreement, Mr.
Tawfik has agreed to vote all of his shares of STAR common stock in favor of the
STAR merger and against any action that would not be in favor of the STAR
merger.
Under the agreement, Mr. Tawfik may not:
- sell or transfer any of his shares of STAR common stock, except that Mr.
Tawfik can transfer up to 2,430,000 shares of his STAR common stock to
unaffiliated third parties;
- trade or take any position with respect to his shares of STAR common
stock;
- enter into any voting arrangement or understanding with respect to his
shares of STAR common stock; or
- take any action that would make his representations or warranties untrue
or prevent him from performing any of his obligations.
Mr. Tawfik may not transfer any of the shares of World Access common stock
he receives in the STAR merger agreement for six months after the completion of
the STAR merger. World Access has the first right to assist Mr. Tawfik in the
sale of his shares to an "accredited investor" or a "qualified institutional
buyer," as defined in the Securities Exchange Act of 1934. However, if World
Access is unable to arrange for a sale within 30 days, Mr. Tawfik may complete
the sale.
The voting and stock transfer restriction agreement terminates upon the
termination of the STAR merger agreement in accordance with its terms.
Because Mr. Edgecomb and Mr. Tawfik each hold a significant number of
shares of STAR common stock, there is a greater likelihood that the STAR merger
will be approved by the required vote of the STAR stockholders. Mr. Edgecomb's
voting agreement applies to shares representing approximately %
of the voting power for the STAR merger as of , 2000. Mr.
Tawfik's voting agreement applies to shares representing approximately
% of the voting power for the STAR merger as of , 2000. The
combined voting power for the STAR merger under the agreements of Mr. Edgecomb
and Mr. Tawfik is approximately % as of , 2000.
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<PAGE> 90
STAR CREDIT AGREEMENTS
World Access expects to enter into a credit agreement with STAR which would
provide STAR with a short-term loan of up to $25.0 million. The loan will
provide an initial advance to STAR and additional advances, each of which will
be made in World Access' sole discretion. The loan will be secured by all
personal property of STAR, PT-1 and Helvey Com LLC, including all equipment,
inventory, Indefeasible Rights of Use in telecommunications cables and cable
systems, accounts receivable, and general intangibles of STAR, PT-1, and Helvey;
by a pledge of all capital stock owned by STAR in certain of its subsidiaries;
and by a pledge of all capital stock owned by PT-1 in certain of its
subsidiaries. The interest rate will be LIBOR plus 4% per year. The loan will be
due on the earlier of:
- one year from the date of the STAR credit agreement; or
- 90 days after the STAR merger agreement terminates.
World Access also expects to enter into a credit agreement with STAR
Telecommunications Holding GmbH, which would provide STAR GmbH with a short-term
loan of $10.0 million. This loan will provide an initial advance to STAR GmbH
and additional advances, each of which will be made in World Access' sole
discretion. The loan will be secured by all personal property of STAR GmbH. STAR
will pledge all of its interest in STAR GmbH and STAR GmbH will pledge all of
its interest in STAR Telecommunications Deutschland GmbH and STAR
Telecommunications Network GmbH. The interest rate will be LIBOR plus 4% per
year. The loan will be due on the earlier of:
- one year from the date of the STAR GmbH credit agreement; or
- 90 days after the STAR merger agreement is terminated.
World Access will reduce the amount of credit it provides to STAR or its
subsidiaries for each dollar of additional financing provided to STAR and its
subsidiaries by WorldCom Network Services up to an aggregate of $30.0 million.
INFORMATION REGARDING STAR
STAR provides high-quality, competitively priced, long distance
telecommunication services to consumer and commercial retail customers as well
as to other telecommunications carriers located within the U.S. and Europe. In
Germany, STAR offers Internet service providers wholesale dial-up services along
with a range of support services including data center co-location and bandwidth
provisioning. STAR seeks to capitalize on the increasing demand for high-quality
international communications services which is being driven by the globalization
of the world's economies, the worldwide trend toward telecommunications
deregulation, and the growth of voice, data and Internet traffic.
STAR was incorporated in Delaware on September 13, 1996. Additional
information regarding STAR is contained in STAR's filings with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934. See
"Where You Can Find More Information" on the inside front cover page of this
joint proxy statement/prospectus.
STAR LITIGATION
On February 14, 2000 and March 1, 2000, identical class action complaints
were filed against STAR and Christopher E. Edgecomb, Mary A. Casey, Mark
Gershein, Gordon Hutchins, Jr., John R. Snedegar, Arunas A. Chesonis and Samer
Tawfik. The complaint alleged causes of action for breach of fiduciary duty
arising from approval of the STAR merger on the grounds that the consideration
to be received in the STAR merger was unfair, unconscionable and grossly
inadequate. On May 31, 2000, the Superior Court of the State of California of
the County of Santa Barbara granted STAR's demurrer on the grounds that the
plaintiff's complaints were legally deficient, effectively dismissing the
lawsuit. On July 14, 2000, the plaintiff filed a notice of appeal from that
judgment.
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<PAGE> 91
On March 11, 1999, a proceeding was commenced by PT-1 by notice of petition
following the election by a PT-1 stockholder to dissent from STAR's merger with
PT-1 and following a demand for payment of the fair value of approximately
2,731,330 shares of PT-1 held by the stockholder. The proceeding was commenced
in the Supreme Court of the State of New York. The PT-1 stockholder is seeking
damages in accordance with his appraisal rights under New York law. On July 26,
2000, the Supreme Court of the State of New York of the County of Queens issued
a temporary restraining order in favor of the stockholder which prevents PT-1
from distributing any of the proceeds of the PT-1 asset sale to STAR unless PT-1
has first set aside a reserve in the amount of $37,649,800 in cash to satisfy
the stockholder's claim.
From time to time, STAR is party to various legal proceedings, including
billing disputes and collection matters and actions brought by certain
terminated employees that arise in the ordinary course of business.
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<PAGE> 92
COMPARISON OF RIGHTS OF HOLDERS OF
WORLD ACCESS COMMON STOCK AND
STAR COMMON STOCK
This section of the joint proxy statement/prospectus summarizes the
differences between the World Access common stock and STAR common stock. STAR
stockholders should read this entire document, and each companies' certificate
of incorporation, bylaws and the other documents referred to carefully for a
more complete understanding of the differences between the World Access common
stock and STAR common stock. For information on how to obtain these documents,
see "Where You Can Find More Information" on the inside front cover page.
The rights of World Access' stockholders are governed by its certificate of
incorporation, as amended, its bylaws and the laws of the State of Delaware. The
rights of STAR stockholders are currently governed by its certificate of
incorporation, as amended and restated, its bylaws and the laws of the State of
Delaware. After the completion of the STAR merger, STAR stockholders will become
stockholders of World Access. Because STAR and World Access are both Delaware
corporations, after the STAR merger is completed, the rights of STAR's
stockholders will continue to be governed by Delaware law. The following
paragraphs compare the rights of World Access stockholders and STAR stockholders
under the certificates of incorporation and bylaws of World Access and STAR, as
applicable.
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 are common stock of $.01 par
value per share, and 10,000,000 shares of which are preferred stock of $.01 par
value per share. Note, however, that pursuant to this joint proxy
statement/prospectus, 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 1, 2000, 61,707,277 shares of World Access
common stock were outstanding and 613,905 shares of World Access preferred stock
were outstanding.
The authorized capital stock of STAR consists of 100,000,000 shares of
common stock, of which 58,656,802 shares were outstanding as of August 1, 2000
and 5,000,000 shares of preferred stock, of which no shares were outstanding as
of August 1, 2000.
COMPARISON OF CLASSES OF COMMON STOCK
World Access and STAR each have one class of common stock issued and
outstanding. Holders of World Access common stock and holders of STAR 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 World Access' board of
directors or an officer instructed by the board of directors to call a meeting.
Special meetings of STAR may be called by the president of STAR and must be
called by the president or secretary of STAR at the request of a majority of the
board of directors.
COMPARISON OF REQUIREMENTS FOR ACTION BY WRITTEN CONSENT IN LIEU OF A
STOCKHOLDERS' MEETING
Pursuant to the World Access certificate of incorporation, World Access
stockholders may not take action without a meeting by written consent except for
preferred stockholders.
STAR stockholders may take action without a meeting only by unanimous
written consent of the stockholders entitled to vote on such action.
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<PAGE> 93
COMPARISON OF RECORD DATE FOR DETERMINING STOCKHOLDERS
Both the World Access bylaws and the STAR bylaws provide that each of their
boards 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, may not be more
than 60 days or less than ten days before the date of the meeting; and
- in the case of any other action, may not be more than 60 days before any
such action.
Furthermore, if the World Access board of directors or the STAR board of
directors do 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 will be at the close of business on the
day after the day that notice is given, or, if notice is waived, at the
close of business on the day after the day that the meeting is held; and
- the record date for determining stockholders for any other purpose will
be at the close of business on the day the board of directors adopt the
related resolution.
COMPARISON OF PROCEDURES TO NOMINATE DIRECTORS
The World Access bylaws require that board nominations be made by the board
of directors or a stockholder who gives timely notice to the secretary of World
Access. To give timely notice, a stockholder's nomination notice must be
received by the secretary of World Access at least 120 days before the one-year
anniversary of the date of the proxy statement in connection with the previous
year's annual meeting of stockholders. 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 if:
- no annual meeting was held in the previous year;
- the date of the upcoming annual meeting has changed by more than 30
days from the date set forth in the previous year's proxy statement;
or
- the upcoming meeting is not an annual meeting.
The STAR certificate of incorporation and bylaws are silent with respect to
the nomination of persons for election to the STAR board of directors.
COMPARISON OF NUMBER OF DIRECTORS
The World Access amended certificate of incorporation and bylaws provide
that the World Access board of directors may not have less than three and not
more than 12 directors. The exact number of directors will be determined from
time to time by the World Access board of directors. Note, however, that in
connection with this joint proxy statement/prospectus, World Access is seeking
approval by its stockholders of an amendment to its certificate of incorporation
that would increase the maximum number of directors to 15.
The STAR certificate of incorporation and bylaws provide that the number of
directors will be determined from time to time by the STAR board of directors.
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COMPARISON OF CLASSIFIED BOARD OF DIRECTORS
Each of World Access' and STAR's board of directors is currently divided
into three classes, as nearly equal in size as possible, in which each class of
directors is elected annually. Directors of World Access and STAR are elected
for a three year term and until their successors are elected and qualified.
You should note, however, that in connection with this joint proxy
statement/prospectus, World Access is seeking the approval of its stockholders
to amend its certificate of incorporation to eliminate World Access' classified
board of directors. If this amendment is approved by the required vote of the
World Access stockholders, all World Access directors would be elected annually
to serve a one-year term. 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.
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.
Delaware law provides that any director or the entire board of directors of
STAR may be removed for cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
COMPARISON OF BOARD OF DIRECTORS VACANCIES
The bylaws of both World Access and STAR provide that vacancies on the
board of directors may be filled by the vote of the majority of directors
remaining in office.
COMPARISON OF NOTICE REQUIREMENTS OF SPECIAL MEETINGS 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 STAR bylaws provide that special meetings may be called by the
president on ten days notice to each director by mail or 48 hours notice either
personally by telephone, telegram or facsimile. Special meetings must be called
in like manner and on like notice by the president or secretary upon the written
request of two directors, or the sole director if the board consists of only one
director.
COMPARISON OF PROCEDURES FOR AN AMENDMENT OF 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 either the
board of directors or stockholders of World Access.
Except with respect to the corporate name, registered office, name of the
registered agent and purpose of the corporation, which require a majority vote,
the stockholders of STAR may amend the certificate of incorporation only by the
vote of at least 75% of the voting power of the outstanding shares entitled to
vote in the election of directors, voting as a single class. The STAR bylaws may
be amended by the STAR board of directors or by the vote of stockholders owning
75% of the shares of STAR.
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STAR SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, STAR provides you with selected consolidated financial
data of STAR. The selected consolidated statements of operations data for the
years ended December 31, 1997, 1998, and 1999 and the balance sheet data at
December 31, 1998 and 1999 are derived from STAR's audited financial statements
incorporated by reference in this joint proxy statement/prospectus. The
consolidated statement of operations data for the years ended December 31, 1995
and 1996 and the balance sheet data at December 31, 1995, 1996 and 1997 are
derived from audited financial statements not contained herein. The selected
consolidated financial data as of March 31, 2000 and for the three-month periods
ended March 31, 1999 and 2000 are derived from STAR's unaudited consolidated
financial statements incorporated by reference in this joint proxy
statement/prospectus, which, in the opinion of management, include all
adjustments, consisting of normal recurring adjustments necessary for a fair
presentation of such information. When you read this selected consolidated
financial data, it is important that you also read the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and STAR's consolidated financial statements and the related notes
thereto incorporated by reference in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
-------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues........................................ $66,964 $283,450 $434,086 $619,220 $1,061,774 $228,209 $255,105
Operating expenses:
Cost of services(1)........................... 50,300 244,153 374,504 523,621 925,206 192,914 225,840
Selling, general and administrative........... 13,356 41,804 48,906 66,140 160,067 31,465 33,329
Depreciation and amortization................. 952 2,343 5,650 15,054 44,236 8,730 13,050
Loss on impairment of goodwill................ -- -- -- 2,604 -- -- --
Merger expense................................ -- -- 286 1,026 1,878 1,442 --
------- -------- -------- -------- ---------- -------- --------
Total operating expenses............... 64,608 288,300 429,346 608,445 1,131,387 234,551 272,219
------- -------- -------- -------- ---------- -------- --------
Income (loss) from operations................... 2,356 (4,850) 4,740 10,775 (69,613) (6,342) (17,114)
Other income (expenses):
Interest income............................... 65 138 464 4,469 2,192 729 189
Interest expense.............................. (214) (1,270) (2,617) (3,386) (9,895) (1,213) (2,924)
Legal settlements and expenses................ -- (100) (1,653) -- -- -- --
Other......................................... (97) 186 208 (304) 1,373 (2,021) 10,696
------- -------- -------- -------- ---------- -------- --------
Income (loss) before provision for income
taxes......................................... 2,110 (5,896) 1,142 11,554 (75,943) (8,847) (9,153)
Provision (benefit) for income taxes............ 66 577 2,905 9,923 (12,096) (1,295) (2,629)
------- -------- -------- -------- ---------- -------- --------
Net income (loss)............................... $ 2,044 $ (6,473) $ (1,763) $ 1,631 $ (63,847) $ (7,552) $ (6,524)
======= ======== ======== ======== ========== ======== ========
Pro forma net income (loss) (unaudited)(2)...... $ 478 $ (7,416) $ (1,958)
======= ======== ========
Income (loss) per common share(3)
Basic and Diluted............................. $ 0.10 $ (0.27) $ (0.06) $ 0.04 $ (1.12) $ (0.14) $ (0.11)
======= ======== ======== ======== ========== ======== ========
Pro forma income (loss) per common share
(unaudited)(3)
Basic and Diluted............................. $ 0.02 $ (0.31) $ (0.06)
======= ======== ========
Weighted average number of common shares
outstanding -- basic(3)
Basic......................................... 19,916 24,076 31,101 40,833 57,036 52,628 58,601
Diluted....................................... 19,916 24,076 31,101 42,434 57,036 52,628 58,601
</TABLE>
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<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
---------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- -------- -------- --------- ----------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........ $(1,065) $(10,913) $ 4,692 $ 46,698 $(197,921) $(85,773) $(160,745)
Total assets..................... 37,169 76,250 130,382 374,651 807,754 638,674 741,884
Total long-term liabilities, net
of current portion............. 2,980 8,834 14,800 33,048 96,693 38,691 84,060
Accumulated deficit.............. (6,294) (12,077) (13,737) (12,106) (75,953) (19,657) (82,477)
Stockholders' equity............. 6,614 9,986 40,615 195,591 278,054 336,207 270,068
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1999 2000
------- -------- ---------- ---------- ---------- ----------- --------
(IN THOUSANDS, EXCEPT RATE PER MINUTE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER CONSOLIDATED FINANCIAL
AND OPERATING DATA:
EBITDA from continuing
operations(4)............... $ 3,308 $ (2,507) $ 10,390 $ 25,829 $ (25,377) $ 2,388 $ (4,064)
Cash flow provided by (used
in) operating activities.... 2,076 (2,847) 11,476 (12,379) 40,138 18,593 4,332
Cash flow provided by (used
in) investing activities.... (1,123) (10,403) (31,157) (100,986) (58,297) (22,678) 5,482
Cash flow provided by (used
in) financing activities.... (839) 14,721 19,174 158,526 (991) (21,123) (22,109)
Capital expenditures(5)....... 2,922 14,810 26,584 147,236 150,588 32,021 10,387
North American wholesale
billed minutes of use(6).... 38,106 479,681 1,034,187 1,657,523 2,129,296 517,325 481,107
North American wholesale
revenue per billed minute of
use(7)...................... $0.4102 $ 0.4288 $ 0.3612 $ 0.3145 $ 0.2084 $ 0.2468 $ 0.1682
</TABLE>
---------------
(1) Cost of services is exclusive of depreciation and amortization related to
the services network which is shown separately below.
(2) The pro forma net income or loss per share assumes that STAR and CEO, which
STAR acquired in a pooling of interests transaction on November 30, 1997,
were C-corporations for all periods presented.
(3) See Note 2 of Notes to Consolidated Financial Statements set forth in STAR's
annual report on Form 10-K for the fiscal year ended December 31, 1999 and
incorporated by reference herein, for an explanation of the method used to
determine the number of shares used in computing basic and diluted income
(loss) per common share and pro forma basic and diluted income (loss) per
common share.
(4) EBITDA from continuing operations as used in this joint 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 STAR 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
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 STAR, may not be comparable to similarly titled
measures reported by other companies and could be misleading unless all
companies and analysts calculate EBITDA in the same manner.
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(5) Includes assets financed with capital leases, notes and vendor financing
arrangements. See Note 2 of Notes to Consolidated Financial Statements of
STAR.
(6) Does not include wholesale billed minutes of use from T-One prior to the
year ended December 31, 1997. Includes wholesale billed minutes of use to
UDN for all years presented.
(7) Represents wholesale gross call usage revenue per billed minute. Amounts
exclude other revenue related items such as finance charges. This data does
not include wholesale billed minutes of use from T-One prior to the year
ended December 31, 1997.
PROPOSAL 2
DESCRIPTION OF THE PT-1 ASSET SALE
This section of the joint proxy statement/prospectus describes the proposed
sale by STAR of the assets of its wholly-owned subsidiary, PT-1, to Counsel.
This proposal is for the consideration of the STAR stockholders only.
BACKGROUND OF THE PT-1 ASSET SALE
PT-1 constitutes 90% of the net book value of STAR. As a condition to World
Access' obligation to complete the STAR merger, STAR is required to sell PT-1
for net cash proceeds of at least $150.0 million or complete the sale of the
assets of PT-1 to Counsel pursuant to the PT-1 asset sale agreement for net cash
proceeds of at least $120.0 million. STAR has entered into an agreement with
Counsel to sell to Counsel, or one of its affiliates, certain assets of PT-1,
including the assumption of certain liabilities, for cash proceeds of $150.0
million, subject to adjustment based on increases or decreases in the accounts
payable or receivable of PT-1 and the net worth of the assets of PT-1 on the
closing date.
On February 14, 2000, STAR and World Access issued a joint press release
announcing the STAR merger agreement and indicating that the sale of certain
STAR assets would be required. After the announcement, STAR began to receive
inquiries from potential purchasers regarding PT-1, including an inquiry from
Counsel. Following a series of preliminary discussions between representatives
of STAR and representatives of Counsel, on February 22, 2000, a representative
of STAR met with representatives of Counsel at an industry conference in
California to discuss the potential acquisition of the PT-1 assets by Counsel.
On February 29, 2000, STAR engaged Kaufman Bros. to act as its exclusive
financial and merger advisor and investment banker in connection with the PT-1
asset sale. Kaufman Bros. reviewed the inquiries from potential acquirors of
PT-1 received after the February 14, 2000 press release and familiarized itself
with PT-1's operations. STAR received three offers for the sale of some or all
of the assets of PT-1 by the end of March, 2000. One offer was for the separate
acquisition of the portion of PT-1's business providing long distance services
accessible through a dialed prefix, the second offer was for PT-1's prepaid
calling card operations, and the third offer was made by Counsel for the entire
operations of PT-1. Working with Kaufman Bros., STAR evaluated each offer
carefully and determined that the offers for the individual component businesses
of PT-1 were not attractive because STAR believed there was more value in PT-1
as a whole company. As evidence of this, the STAR board of directors considered
that the combined value of the two offers for the component businesses of PT-1
was less than the offer STAR had received from Counsel for PT-1 as a whole
company. STAR was particularly concerned that the combined offers for the
separate component businesses of PT-1 would not provide net cash proceeds of at
least $150.0 million as required by the STAR merger agreement.
On March 8, 2000, STAR met with Counsel in New York to discuss Counsel's
interest in PT-1. Representatives and financial advisors of STAR and Counsel
attended the meeting. At the meeting, Counsel indicated that it was serious
about the acquisition, that it was interested in moving quickly to close the
deal and that it wanted STAR to enter into an exclusive arrangement with
Counsel. STAR was unwilling to commit to an exclusive arrangement at that time,
but permitted Counsel to begin due
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diligence. On March 18, 2000, STAR met with Counsel in Toronto, Canada, to
continue discussions. After the March 18, 2000 meeting, formal discussions on
the letter of intent began. The STAR board of directors held a meeting on March
24, 2000 to discuss the terms of the letter of intent and considered the
proposal at length. The STAR board of directors decided to continue negotiations
with Counsel and to obtain World Access' approval as required by the STAR merger
agreement. STAR and Counsel executed the letter of intent on March 29, 2000.
On June 6, 2000, the STAR board of directors met to consider the definitive
PT-1 asset sale agreement. The STAR board of directors received an opinion from
Kaufman Bros. that the proposed PT-1 asset sale was fair from a financial point
of view to STAR's stockholders. The STAR board of directors also received advice
from Delaware legal counsel on its obligations regarding its duty of care and
its duty to exercise informed business judgment. At the meeting, the STAR board
of directors concluded that the PT-1 asset sale was fair to and in the best
interests of STAR and its stockholders. The STAR board of directors considered
many factors in making its decision, including the need to complete the PT-1
asset sale prior to and in connection with the close of the STAR merger and the
financial condition of STAR and need to raise funds to pay debt and fund
operations. The STAR board of directors also considered the potential benefits
and the potential risks of the PT-1 asset sale, including all material business,
financial, legal and market factors discussed below under the heading "STAR's
reasons for the PT-1 asset sale." The STAR board of directors voted to approve
the PT-1 asset sale agreement and the transactions contemplated by the PT-1
asset sale agreement and voted to recommend that the stockholders of STAR vote
for the approval and adoption of the PT-1 asset sale agreement and the
transactions contemplated by the PT-1 asset sale agreement.
On June 7, 2000, the parties announced the execution of the PT-1 asset sale
agreement.
STAR'S REASONS FOR THE PT-1 ASSET SALE
In approving the PT-1 asset sale, the STAR board of directors considered
the potential benefits of the PT-1 asset sale and the risks associated with the
PT-1 asset sale. All material business, financial, legal and market factors are
discussed below.
After due deliberation, the STAR board of directors concluded that the PT-1
asset sale was fair to and in the best interests of STAR and its stockholders
based on all of the following material factors:
The sale of PT-1 is a condition to the close of the STAR merger. The
STAR merger agreement requires that STAR sell PT-1 for net cash proceeds of
at least $150.0 million or complete the sale of the assets of PT-1 to
Counsel for net cash proceeds of at least $120.0 million. If STAR fails to
sell PT-1 for net cash proceeds of at least $150.0 million or complete the
sale of the assets of PT-1 to Counsel for net cash proceeds of at least
$120.0 million, then World Access does not have to complete the STAR
merger. The STAR board of directors has voted to approve the STAR merger
and has determined that the completion of the STAR merger is fair to and in
the best interests of STAR and its stockholders.
The financial condition of STAR. The STAR board examined the current
financial condition of STAR and determined that STAR's cash flow situation
and debt levels and debt maturities required the sale of certain non-core
segments of STAR's operations. The PT-1 asset sale is a condition to the
close of the STAR merger and STAR entered into the STAR merger agreement
partly to alleviate its cash flow situation. In the event that the STAR
merger does not close, and should STAR elect to proceed with the PT-1 asset
sale, STAR expects that the sale of the assets of PT-1 will provide needed
cash to allow STAR to continue its operations and growth.
Improved focus on STAR's core business. Historically, STAR has
focused its operations on the wholesale international long distance market.
Through acquisitions, including the acquisition of PT-1, STAR expanded its
operations into the consumer and commercial retail long distance markets.
If the STAR merger does not close, the PT-1 asset sale would enable STAR to
focus on its wholesale
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international long distance business and continue to expand its network in
order to improve operating margins.
The STAR board of directors also considered the material risks associated
with completing the PT-1 asset sale, including the following, but concluded that
the advantages of the PT-1 asset sale far outweighed these risks:
- The risk that Counsel might not have sufficient funds available to
finance the purchase of PT-1's assets, though the STAR board of directors
considered that at the time of its approval of the PT-1 asset sale,
Counsel represented that it has sufficient resources; and
- The risk that STAR may not receive net cash proceeds of $120.0 million
from Counsel as required in the STAR merger agreement, though the STAR
board of directors considered that at the time of its approval of the
PT-1 asset sale, the PT-1 asset sale consideration would generate the
necessary net cash proceeds.
The above discussion of the information and factors considered by the STAR
board of directors only sets forth the material factors considered by the STAR
board of directors. The STAR board of directors considered many factors when
evaluating the PT-1 asset sale agreement and the PT-1 asset sale. The STAR board
of directors did not quantify, rank or attempt to assign relative weights to the
factors considered in reaching its determination. In addition, the STAR board of
directors conducted an overall analysis of the above factors, including a
thorough discussion with and questioning of STAR's management. The STAR board of
directors also considered management's analysis of the PT-1 asset sale based on
information received from STAR's legal, financial and accounting advisors. The
STAR board of directors considered all these factors as a whole, and considered
the factors overall to be favorable to STAR and to support its determination.
THE STAR BOARD OF DIRECTORS' RECOMMENDATION THAT STOCKHOLDERS APPROVE THE PT-1
ASSET SALE
The STAR board of directors has carefully considered the advisability of
the PT-1 asset sale and believes that the terms of the PT-1 asset sale agreement
and the transactions contemplated by the PT-1 asset sale agreement are fair to
and in the best interests of STAR and its stockholders. The STAR board of
directors has approved the PT-1 asset sale agreement and the transactions
contemplated by the PT-1 asset sale agreement. The STAR board of directors
recommends that the stockholders of STAR vote for the approval and adoption of
the PT-1 asset sale agreement and the transactions contemplated by the PT-1
asset sale agreement.
OPINION OF STAR'S FINANCIAL ADVISOR REGARDING THE PT-1 ASSET SALE
In connection with its consideration of the proposed PT-1 asset sale, STAR
requested that Kaufman Bros. advise the STAR board of directors with respect to
the fairness to the stockholders of STAR, from a financial point of view, of the
consideration to be paid by Counsel to PT-1 in the PT-1 asset sale.
STAR selected Kaufman Bros. for a number of reasons, including its
familiarity with STAR and PT-1 and its experience and reputation in the areas of
valuation and financial advice, particularly in relation to transactions of the
size and nature of the PT-1 asset sale. Kaufman Bros. is an investment banking
firm which is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, private placements and valuations for corporate and
other purposes. In the normal course of its business, Kaufman Bros. trades STAR
common stock for its own account or for the account of its customers and,
accordingly, may, from time to time, hold long or short positions in STAR common
stock.
On May 25, 2000, Kaufman Bros. reviewed with the STAR board of directors
the financial analyses performed by Kaufman Bros. and delivered to the STAR
board of directors an oral opinion. The oral opinion was subsequently confirmed
by delivery of a written opinion, dated May 25, 2000, to the effect that, based
upon and subject to the considerations and limitations set forth in the opinion,
as of May 25,
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2000, the consideration to be paid by Counsel to PT-1 in the PT-1 asset sale was
fair, from a financial point of view, to the stockholders of STAR.
The following summary of the Kaufman Bros. opinion may not include all of
the information important to you. The full text of the opinion letter, dated May
25, 2000, delivered by Kaufman Bros. to the STAR board of directors, which sets
forth fully the assumptions made, general procedures followed, matters
considered and limits on the scope of review undertaken, is included as Annex G
to this joint proxy statement/prospectus and is incorporated herein by
reference. Kaufman Bros. has consented to the inclusion of the full text of its
opinion as Annex G to this joint proxy statement/prospectus. Holders of STAR
common stock are urged to read the Kaufman Bros. opinion carefully and in its
entirety.
STAR did not place any limitation upon Kaufman Bros. with respect to the
procedures to be followed or factors to be considered in rendering its opinion.
In conducting its investigation and analysis and in arriving at its opinion,
Kaufman Bros. reviewed information and took into account the financial and
economic factors it deemed relevant and material under the circumstances. In
connection with its analysis, Kaufman Bros., among other things:
- reviewed the PT-1 asset sale agreement in the form presented to the STAR
board of directors;
- reviewed internal financial information concerning the business and
operations of PT-1 furnished to Kaufman Bros. for purposes of its
analysis, as well as publicly available information, such as STAR's
recent filings with the SEC;
- reviewed forecasts and projections of PT-1 prepared or supplied by the
management of STAR and PT-1 for the fiscal years ending December 31, 2000
through December 31, 2005;
- held discussions with executives of PT-1 and STAR concerning PT-1's
historical and current financial condition, operating results, and future
prospects;
- visited PT-1's facility in Flushing, New York;
- compared the financial position and operating results of PT-1 with those
of other publicly traded companies Kaufman Bros. deemed reasonably
comparable to PT-1;
- compared the proposed financial terms of the PT-1 asset sale with the
financial terms of other business combinations Kaufman Bros. deemed
reasonably comparable to the proposed PT-1 asset sale;
- performed such other financial studies, analyses, inquiries and
investigations as it deemed appropriate.
In addition, Kaufman Bros. took into account the manner in which the
financial terms of the PT-1 asset sale were negotiated by STAR and Counsel, the
terms of the merger between STAR and World Access as they relate to the PT-1
asset sale and the results of the various discussions held by STAR and Kaufman
Bros. with persons with a possible interest in acquiring PT-1.
In arriving at its opinion, Kaufman Bros. assumed and relied upon, without
independent verification, the accuracy and completeness of all of the financial
and other information provided to it by or on behalf of PT-1, or obtained by
Kaufman Bros. from publicly available sources and upon the assurance of the
management of STAR and PT-1 that they were not aware of any information or facts
that would make any of this information incomplete or misleading. In conducting
its review, Kaufman Bros. did not conduct or obtain an independent evaluation or
appraisal of any of the assets or liabilities, contingent or otherwise, of PT-1,
nor was it furnished with any evaluation or appraisal. Kaufman Bros. assumed,
with STAR's consent, that:
- the sale of PT-1 will be consummated in accordance with the terms set
forth in the PT-1 asset sale agreement, without any amendments and
without waiver by the parties thereto of any of the conditions to their
respective obligations under the agreement; and
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- all regulatory and other approvals and third party consents required for
consummation of the PT-1 asset sale will be obtained without material
cost to STAR or PT-1.
Kaufman Bros. assumed that the financial forecasts examined by it were
reasonably prepared, at the time of their delivery to Kaufman Bros., based upon
the best available estimates and good faith judgments of PT-1's and STAR's
respective senior managements as to the future performance of PT-1. In the
course of analyzing the PT-1 projections, Kaufman Bros. performed certain
sensitivity analyses to incorporate the results of the quarter ended March 31,
2000 and other information available since the time the projections were
delivered to Kaufman Bros. and prior to the date of the Kaufman Bros. opinion.
Kaufman Bros. noted that its opinion was necessarily based upon the
financial, economic, market and other conditions as they existed and could be
evaluated by Kaufman Bros. on, and the information made available to it as of,
the date of its opinion. Kaufman Bros. has disclaimed any undertaking or
obligation to advise any person of any change in any fact or matter affecting
its opinion that is brought to its attention after the date of its opinion.
Although Kaufman Bros. evaluated the consideration to be paid by Counsel to PT-1
in the PT-1 asset sale from a financial point of view, Kaufman Bros. was not
asked to, and did not, recommend the specific consideration payable in the PT-1
asset sale, which was determined through negotiations between STAR and Counsel.
The Kaufman Bros. opinion is for the information of the STAR board of
directors for its use in evaluating the fairness, from a financial point of
view, to the stockholders of STAR of the consideration to be paid by Counsel to
STAR in the PT-1 asset sale. The opinion does not constitute a recommendation as
to any action the STAR board of directors or any stockholder of STAR should take
in connection with the PT-1 asset sale or any aspect of the transaction. The
Kaufman Bros. opinion is not an opinion as to the structure, terms or effect of
any other aspect of the PT-1 asset sale or any transaction contemplated in
connection with the PT-1 asset sale or as to the merits of the underlying
decision of STAR to enter into the PT-1 asset sale agreement or any other
transaction.
In preparing its opinion, Kaufman Bros. performed a variety of financial
and comparative analyses, including those described below. The summary of these
analyses does not purport to be a complete description of the analyses
underlying the Kaufman Bros. opinion or of the presentation by Kaufman Bros. to
the STAR board of directors. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the most appropriate
and relevant methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Kaufman Bros. did not attribute particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Kaufman Bros. believes
that its analysis must be considered as a whole and that selecting portions of
its analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the preparation
of its opinion. In its analysis, Kaufman Bros. made numerous assumptions with
respect to the company, industry performance, general business, economic, market
and financial conditions and other matters, many of which are beyond PT-1's and
STAR's control. The estimates contained in its analyses and the valuation ranges
resulting from any particular analysis are not necessarily indicative of the
actual values or predictive of future results or values, which may be
significantly more or less favorable than those suggested by the analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, these analyses and estimates are
inherently subject to substantial uncertainty.
The Kaufman Bros. opinion and analyses were only one of many factors
considered by the STAR board of directors in its evaluation of the PT-1 asset
sale and should not be viewed as determinative of the view of the STAR board of
directors or management of STAR with respect to the PT-1 asset sale or the
consideration to be paid by Counsel in the PT-1 asset sale.
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The following is a summary of the material financial analyses performed by
Kaufman Bros. in connection with rendering its opinion.
Analysis of Selected Comparable Acquisition Transactions
Using publicly available information, Kaufman Bros. analyzed certain
financial and operating information relating to the following ten selected
merger and acquisition transactions in the calling card and dial-around
telecommunications sector each of which were consummated in calendar years 1997
through 2000. The comparable transactions were chosen based on a review of
acquired companies that possessed general business, operating and financial
characteristics representative of companies in the industry in which PT-1
operates. Kaufman Bros. noted that none of the comparable transactions reviewed
was exactly comparable to the PT-1 asset sale and that the range of information
available for each comparable transaction varied from detailed information
relating to publicly registered companies, to limited and summary information
contained in public press releases relating to private companies. The comparable
transactions reviewed by Kaufman Bros. were (the purchaser is listed first and
is followed by the acquired company):
Fiscal Year 2000
EGlobe/Trans Global Communications
Fiscal Year 1999
DCI Telecommunications/Wavetech International
Viatel/Destia Communications
EGlobe/Coast International Telecom
World Access/Comm/Net Holdings Corporation
AT&T/Smartalk Teleservices
EGlobe/TeleKey
Fiscal Year 1998
Teleglobe/Excel Communications
Primus Telecommunications/Trescom International
Fiscal Year 1997
LCI International/USLD Communications
For each comparable transaction, Kaufman Bros. calculated multiples of:
- the market value of common equity plus book value of total debt and
preferred stock minus total cash, referred to as Enterprise Value, of the
acquired company to its last twelve months EBIT. EBIT is earnings before
interest and taxes; and
- Enterprise Value to the last twelve-month EBITA. EBITDA is earnings
before interest, taxes, depreciation and amortization.
The last twelve-month earnings and balance sheet data items were based upon the
most recent quarterly publicly available information prior to the closing of the
respective comparable transaction. Kaufman Bros. then applied these multiples to
the last twelve-month financial results of PT-1 for the period ended March 31,
2000, to determine PT-1's Enterprise Value. Based upon these analyses:
- The median multiple of Enterprise Value to last twelve-month EBIT for the
comparable transactions is 17.4x;
- The median multiple of Enterprise Value to last twelve-month EBITDA for
the comparable transactions is 10.1x;
- The implied Enterprise Value of PT-1, based upon applying these median
multiples to PT-1's financial data, falls within the range of $151.2
million to $159.2 million. Kaufman Bros. noted that the consideration to
be paid by Counsel to PT-1 in the PT-1 asset sale was close to this
range.
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Analysis of Selected Publicly Traded Companies
Kaufman Bros. reviewed publicly available financial information, as of the
most recently reported period, and stock market information as of May 24, 2000,
for the following six publicly traded companies that Kaufman Bros. deemed
reasonably comparable based upon their general business and operating and
financial characteristics to PT-1:
- Global Telecom Solutions;
- Tricom SA;
- IDT Corporation;
- RSL Communications, LTD.;
- Pacific Gateway Exchange; and
- Dial-Thru International.
Kaufman Bros. noted that none of the comparable companies is directly
comparable to PT-1.
For each comparable company, Kaufman Bros. calculated multiples of
Enterprise Value to last twelve-month EBIT, last twelve-month EBITDA and to
total assets. Kaufman Bros. then applied these multiples to the last
twelve-month financial results of PT-1 for the period ended March 31, 2000,
furnished to Kaufman Bros.. Based upon these analyses:
- the median multiple of Enterprise Value to last twelve-month EBIT for the
comparable companies is 6.8x;
- the median multiple of Enterprise Value to last twelve-month EBITDA for
the comparable companies is 6.7x;
- the median multiple of Enterprise Value to the total assets for the
comparable companies is 1.2x; and
- the implied Enterprise Value of PT-1 based upon these median multiples of
PT-1's financial data falls within the range of $61.5 million to $161.8
million. Kaufman Bros. noted that the consideration to be paid by Counsel
to PT-1 in the PT-1 asset sale fell within this range.
Discounted Cash Flow Analysis
Kaufman Bros. performed a discounted cash flow analysis of PT-1, on a
stand-alone-basis, using the PT-1 projections for the fiscal years 2000 through
2005. In addition, Kaufman Bros. performed certain sensitivity analyses based
upon the PT-1 projections to incorporate the results of the quarter ended March
31, 2000 and certain other information available since the time the PT-1
projections were delivered to Kaufman Bros. and prior to the date of the Kaufman
Bros. opinion. A discounted cash flow analysis is a traditional valuation
methodology used to derive a valuation of a corporate entity by calculating the
estimated future free cash flows of the entity and discounting the cash flow
results back to the present. Free cash flows means earnings before interest,
taxes, depreciation and amortization less taxes, capital expenditures and
changes in working capital.
In its discounted cash flow analyses, Kaufman Bros. estimated a terminal
value of free cash flow in 2005 using a perpetual annual growth rate of 3% and
discounted the stream of free cash flows during the forecast period together
with the estimated terminal value back to March 31, 2000 at discount rates
ranging from 23.0% to 26.0%. Selection of an appropriate discount rate is an
inherently subjective process and is affected by numerous factors. The discount
rates used by Kaufman Bros. were selected based upon PT-1's recent historical
financial results, current financial condition and the risk associated with PT-1
achieving its financial projections. This range of discount rates also reflects
an estimate of the cost of capital for PT-1, and the rates of return for
comparable public companies adjusted for market capitalization and industry.
This analysis produced Enterprise Values for PT-1 ranging from $149.7 million
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to $182.0 million. Kaufman Bros. noted that the consideration to be paid by
Counsel to PT-1 in the PT-1 asset sale fell within this range.
Compensation
Pursuant to the terms of Kaufman Bros.' engagement, STAR has paid to
Kaufman Bros. the sum of $50,000 and has agreed to pay Kaufman Bros. a cash fee
of 1% of the consideration paid by Counsel to STAR upon closing of the PT-1
asset sale less any amounts previously paid. STAR has also agreed to reimburse
Kaufman Bros. for its reasonable out-of-pocket expenses incurred in performing
its services, including the reasonable fees and expenses of its legal counsel,
and to indemnify Kaufman Bros. and related persons against certain liabilities
relating to or arising out of its engagement, including certain liabilities
under the federal securities laws.
INFORMATION ABOUT COUNSEL
Counsel is a subsidiary of Counsel Corporation, Inc., an investment and
management company that specializes in Internet communication technologies and
other technology-based enterprises. The common stock of Counsel Corporation is
traded on the Nasdaq National Market under the symbol "CXSN."
PURCHASE PRICE
Counsel will purchase all of PT-1's assets that relate to PT-1's debit card
and long distance services accessible through a dialed prefix for $150.0 million
in cash, subject to adjustment upward or downward to the extent that the net
value of the purchased assets, less the liabilities being assumed of PT-1 as of
the closing date, is greater or less than $47,589,862. In addition, the purchase
price is subject to adjustment to the extent that PT-1's accounts payable and
accounts receivable for the 30 days prior to close differ materially from the
figures for the 30 days prior to December 31, 1999. Counsel will only assume
some liabilities, including those liabilities itemized on PT-1's balance sheet
as accounts payable and accrued expenses, accrued taxes payable, short-term
debt, deferred revenue and long-term debt. On the closing date, Counsel will pay
STAR $150.0 million in cash, subject to adjustment as indicated above and less
$22.5 million which will be held in escrow pursuant to an escrow agreement
between STAR and Counsel. One quarter of the escrow amount of $22.5 million,
less any amounts paid to Counsel in connection with indemnification claims made
by Counsel, will be released to STAR on each six month anniversary of the
closing date of the PT-1 asset sale. Counsel must pay STAR 100% of the escrow
amount, less any amounts paid to Counsel in connection with indemnification
claims made by Counsel, when the STAR merger closes and when World Access
assumes STAR's and PT-1's obligations under the PT-1 asset sale agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PT-1 ASSET SALE
The PT-1 asset sale is a taxable transaction to STAR. STAR expects that the
net proceeds of the PT-1 asset sale will be substantially greater than the
adjusted tax basis of the PT-1 assets and that, accordingly, PT-1 will recognize
substantial gain from the sale, which will only be partially offset by STAR's
net operating loss carryovers. Therefore, STAR will have income tax liability
from the sale of PT-1's assets of between $6-$12 million.
ACCOUNTING TREATMENT OF THE PT-1 ASSET SALE
STAR intends to account for the PT-1 asset sale as a sale of assets in
accordance with United States generally accepted accounting principles. STAR
expects to record a loss on its financial statements for the difference between
the total proceeds from the sale of the PT-1 assets and the net book value of
those assets, even though for tax purposes, STAR will have income tax due from
the sale of the assets.
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REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE PT-1 ASSET SALE
The PT-1 asset sale is subject to the requirements of the Hart-Scott-Rodino
Act. The Hart-Scott-Rodino Act prevents the completion of transactions until
required information and materials are furnished to the Antitrust Division of
the Department of Justice and the Federal Trade Commission and the appropriate
waiting periods end or expire. STAR and Counsel have filed the required
information and materials with the Antitrust Division of the Department of
Justice and the Federal Trade Commission. The Department of Justice and Federal
Trade Commission granted an early termination of the waiting period, effective
July 10, 2000. No further action under the Hart-Scott-Rodino Act is required, as
long as the PT-1 asset sale is completed by July 10, 2001.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the PT-1 asset sale on antitrust grounds either before
or after expiration of the waiting period. Other persons could take action under
the antitrust laws, to enjoin the PT-1 asset sale. Additionally, at any time
before or after the completion of the PT-1 asset sale or the expiration of the
waiting period, any state could take action under the antitrust laws.
The PT-1 asset sale is also subject to obtaining authorizations, consents,
certifications or other approvals from the Federal Communications Commission and
the state public utility commissions in the states of New York, California,
Florida, New Jersey and Texas. The required filings have been made and STAR and
Counsel are waiting for comments and approvals from the applicable governmental
agencies.
Other than the approvals described above and compliance with the applicable
corporate laws of Delaware, we are not aware of any other material governmental
or regulatory approval required for completion of the PT-1 asset sale.
RIGHTS OF DISSENTING STAR STOCKHOLDERS
STAR stockholders will not be entitled to dissenters' rights under Delaware
law in connection with the PT-1 asset sale.
STAR OFFICER AGREEMENT TO VOTE SHARES IN FAVOR OF THE PT-1 ASSET SALE
Mr. Edgecomb has agreed to vote all of his shares of STAR common stock in
favor of the PT-1 asset sale. Mr. Edgecomb held approximately [ %] of the
outstanding capital stock of STAR as of the STAR record date representing
approximately % of the combined voting power for the PT-1 asset sale. Because
Mr. Edgecomb holds a significant number of shares of STAR common stock, there is
a greater likelihood that the PT-1 asset sale will be approved by the required
vote of the STAR stockholders.
INTERESTS OF STAR'S DIRECTORS, OFFICERS, STOCKHOLDERS AND FINANCIAL ADVISORS
STAR stockholders should be aware that some of STAR's directors, officers
and stockholders have interests in the STAR merger, of which the PT-1 asset sale
is a condition precedent, that are in addition to all other stockholders of
STAR.
Kaufman Bros., STAR's financial advisor has issued a fairness opinion to
the STAR board of directors in connection with the PT-1 asset sale. After the
PT-1 asset sale is completed, Kaufman Bros. will be paid a transaction fee of 1%
of the PT-1 asset sale price. Regardless of whether the PT-1 asset sale is
completed, STAR will reimburse Kaufman Bros. for reasonable fees and expenses of
Kaufman Bros.' counsel and all of Kaufman Bros.' reasonable travel and other
out-of-pocket expenses incurred in connection with the PT-1 asset sale.
DESCRIPTION OF THE PT-1 ASSET SALE AGREEMENT
This section of the joint proxy statement/prospectus is a summary of the
material terms of the PT-1 asset sale agreement and does not contain all of the
information that is important to you. Counsel, STAR and PT-1 urge you to read
the PT-1 asset sale agreement carefully.
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THE PT-1 ASSET SALE CLOSING DATE
The closing of the PT-1 asset sale shall take place as soon as possible
after all required regulatory approvals are obtained, but no later than five
days after satisfaction of the conditions in the PT-1 asset sale agreement or at
a later time agreed to by the parties.
PURCHASE PRICE
Counsel will purchase all of PT-1's assets that relate to PT-1's debit card
and long distance services accessible through a dialed prefix for $150.0 million
in cash, subject to adjustment upward or downward to the extent that the net
value of the purchased assets, less the liabilities being assumed of PT-1 as of
the closing date, is greater or less than $47,589,862. In addition, the purchase
price is subject to adjustment to the extent that PT-1's accounts payable and
accounts receivable for the 30 days prior to close differ materially from the
figures for the 30 days prior to December 31, 1999. Counsel will only assume
some liabilities, including those liabilities itemized on PT-1's balance sheet
as accounts payable and accrued expenses, accrued taxes payable, short-term
debt, deferred revenue and long-term debt. On the closing date, Counsel will pay
STAR $150.0 million in cash, subject to adjustment as indicated above and less
$22.5 million which will be held in escrow pursuant to an escrow agreement
between STAR and Counsel. One quarter of the escrow amount of $22.5 million,
less any amounts paid to Counsel in connection with indemnification claims made
by Counsel, will be released to STAR on each six month anniversary of the
closing date of the PT-1 asset sale. Counsel must pay STAR 100% of the escrow
amount, less any amounts paid to Counsel in connection with indemnification
claims made by Counsel, when the STAR merger closes and when World Access
assumes STAR's and PT-1's obligations under the PT-1 asset sale agreement.
ASSUMPTION OF LIABILITIES
Counsel will assume liabilities that:
- are itemized on the balance sheet of PT-1 as of the closing date, as
accounts payable and accrued expenses, accrued taxes payable (other than
accrued taxes for certain debit card sales and use), short-term debt,
deferred revenue and long-term debt;
- are liens for PT-1 taxes not yet due and payable;
- relate to claims for payphone compensation to the extent it is accrued
and itemized on the balance sheet of PT-1 as of the closing date; and
- arose after the closing date under the agreements, contracts, leases,
licenses and other arrangements included in the assets being acquired by
Counsel.
Counsel will not assume, and PT-1 will retain, liabilities:
- itemized on the balance sheet of PT-1 as of the closing date, as
liabilities due to carriers, intercompany payables and deferred tax
liability;
- for taxes for periods prior to the closing date and income taxes in
connection with this sale of assets;
- relating to employee, post-employment or retiree benefits or compensation
arrangements existing prior to the closing date;
- relating to any action, lawsuit, investigation or proceeding relating to
PT-1 that is pending as of the closing date of the PT-1 asset sale, or
arises from the acts or omissions of PT-1 or from strict liability or
liability under law or contract imposed on PT-1 or the assets being
purchased by Counsel prior to the closing date, other than the
liabilities for payphone compensation to the extent they are assumed by
Counsel as described above; and
- relating to any deferred tax asset or PT-1's satellite offices.
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REPRESENTATIONS AND WARRANTIES CONTAINED IN THE PT-1 ASSET SALE AGREEMENT
STAR made representations and warranties in the PT-1 asset sale agreement
regarding:
- ownership of shares;
- corporate existence, organization, standing, authority and
capitalization;
- authorization, execution, delivery and enforceability of the PT-1 asset
sale agreement and related transactions;
- absence of violations and consents; and
- validity of proxy statement information.
STAR and PT-1 made representations and warranties in the PT-1 asset sale
agreement regarding aspects of their businesses, financial condition, structure
and other facts pertinent to the PT-1 asset sale, including:
- corporate existence, organization, standing, authority and
capitalization;
- ownership of shares of their capital stock;
- authorization, execution, delivery and enforceability of the PT-1 asset
sale agreement and related transactions;
- absence of violations and consents;
- required governmental authorizations;
- absence of pending or threatened lawsuits, or other proceedings not
already disclosed in the PT-1 asset sale agreement;
- validity of financial statements and reports;
- absence of material changes in business or the occurrence of certain
events since December 31, 1999;
- retirement and other employee plans and matters related to compliance
with the Employee Retirement Income Security Act of 1974, as amended;
- absence of material environmental violations, actions or liabilities;
- real estate leases;
- quality of title to real and personal property;
- the filing of tax returns and payment of taxes;
- ownership of proprietary property;
- labor matters;
- maintenance of adequate insurance;
- validity of material contracts;
- transactions with affiliated parties;
- accounts receivable; and
- inventory.
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Counsel made representations and warranties in the PT-1 asset sale
agreement regarding:
- corporate existence, organization and good standing;
- authorization, execution, delivery and enforceability of the PT-1 asset
sale agreement and related transactions;
- absence of pending or threatened suits, actions, or other legal
proceedings; and
- adequate financing.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE PT-1 ASSET SALE
PT-1 and STAR have agreed that until the closing date, PT-1 will conduct
its businesses in the ordinary course, consistent with past practices unless it
obtains Counsel's prior written consent. PT-1 must also use reasonable efforts
to preserve its business and the goodwill of customers and other business
relationships.
PT-1 and STAR have also agreed that until the closing date PT-1 will
conduct its business in compliance with specific restrictions relating to the
following:
- declaration or making of any dividend payments, intercompany payments,
loans, advances and other distributions;
- the entering into any material contracts;
- the maintenance of real and personal properties;
- modification of leases, contracts, government licenses, permits or other
authorizations or agreements;
- the release of debts;
- modification of accounting policies and procedures;
- notification of any material adverse changes; and
- the representations and warranties of PT-1.
NO OTHER NEGOTIATIONS INVOLVING THE PT-1 ASSETS
STAR and PT-1 have agreed that they will not, and they will not permit any
of their representatives or agents to directly or indirectly take any of the
following actions:
- solicit, discuss or encourage any inquiries, offers or proposals, which
constitute or are reasonably likely to lead to an acquisition proposal;
or
- accept or entertain an offer by, enter into discussions with, or provide
information to any person other than Counsel concerning an acquisition
proposal.
STAR and PT-1 have also agreed that they will keep Counsel informed of any
acquisition proposal.
An "acquisition proposal" is any proposal or offer to acquire an equity
interest in, or a substantial portion of, PT-1, the business of PT-1 or the
assets of PT-1, whether by merger, sale of equity interests, asset purchase or
other transaction, other than by the PT-1 asset sale agreement.
DESCRIPTION OF THE MANAGEMENT SERVICES AGREEMENT BETWEEN STAR, PT-1 AND COUNSEL
STAR, PT-1 and Counsel intend to enter into a management agreement under
which Counsel would provide management services to STAR and PT-1 pending the
completion of the PT-1 asset sale. STAR, PT-1 and Counsel have not yet
determined the types of management services that will be provided.
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CONDITIONS TO COMPLETION OF THE PT-1 ASSET SALE
The obligations of each of PT-1 and Counsel to complete the PT-1 asset sale
are subject to the satisfaction or waiver of the following material conditions
before completion of the PT-1 asset sale:
- no injunction or restraining order challenging the PT-1 asset sale may be
pending or seriously threatened against the PT-1 asset sale;
- the necessary regulatory approval, consents and authorizations must be
obtained;
- the waiting period applicable to the PT-1 asset sale under the
Hart-Scott-Rodino Act, must have terminated or expired;
- the PT-1 asset sale agreement and the PT-1 asset sale must be approved by
the requisite vote of the stockholders of STAR;
- STAR and Counsel must have entered into a shared network services
agreement and switch partition services agreement;
- each party must comply in all material respects with all of its material
agreements and covenants required by the PT-1 asset sale agreement to be
performed or complied with before completion of the PT-1 asset sale;
- each party's representations and warranties must be true as of June 6,
2000, and as of the date of completion of the PT-1 asset sale; and
- each party must have received the escrow agreement and the bill of sale
pursuant to the PT-1 asset sale agreement.
Counsel's obligations to complete the PT-1 asset sale are subject to the
satisfaction or wavier of each of the following additional conditions before
completion of the PT-1 asset sale:
- Counsel must have received any third party consents required to transfer
to Counsel all rights and benefits relating to certain material contracts
and proprietary property;
- Counsel must have received written evidence from the distributors under
certain agreements that the accounts receivable on the financial
statements of PT-1 are accurate, valid and fully-collectible, net of
reserves set forth on such financial statements;
- Counsel must have received from STAR and PT-1 a copy of STAR's and PT-1's
best estimate of the cash, accounts payable and accounts receivable of
PT-1 as of the date of the close of the PT-1 asset sale; and
- STAR, PT-1 and Counsel must have determined the amount of any related
purchase price adjustment.
If either STAR or Counsel waives any conditions, STAR and Counsel will each
consider the facts and circumstances at that time and determine whether a
resolicitation of proxies from stockholders is appropriate. STAR and Counsel
will resolicit the approval of stockholders if a material condition is waived.
TERMINATION OF THE PT-1 ASSET SALE AGREEMENT
The PT-1 asset sale agreement may be terminated at any time prior to the
close of the PT-1 asset sale by PT-1 or Counsel if:
- the asset sale has not closed by August 31, 2000, unless the failure to
close is because a required regulatory approval has not been received; or
- at any time prior to the closing of the PT-1 asset sale, there is any
injunction, law, regulation, or ruling that makes consummation of the
PT-1 asset sale illegal or otherwise prohibited.
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No party to the PT-1 asset purchase agreement will have the right to
terminate the agreement if the terminating party has failed to perform its
obligations under the PT-1 asset purchase agreement, unless such party obtains
the prior written consent of the non-breaching party.
PAYMENT OF TERMINATION FEE
STAR and PT-1 have agreed that PT-1 will be required to pay Counsel a
termination fee of $5.85 million in cash if PT-1 fails or refuses to complete
the transactions contemplated by the PT-1 asset sale agreement for any reason
other than the following:
- the failure, after good faith efforts, to obtain necessary regulatory
approval for the transaction;
- the failure, after good faith efforts by the STAR board of directors, to
obtain the approval of the PT-1 asset sale agreement by a majority of
STAR stockholders, unless the PT-1 assets are sold to a third party
within 12 months of the stockholder vote;
- Counsel's failure to comply with the material terms and conditions of the
PT-1 asset sale agreement; or
- the mutual written consent of Counsel, PT-1 and STAR.
EXTENSION, WAIVER AND AMENDMENT OF THE PT-1 ASSET SALE AGREEMENT
STAR, PT-1 and Counsel may by written agreement signed by all parties:
- amend the PT-1 asset sale agreement;
- modify any of the covenants of the PT-1 asset sale agreement; or
- extend the time for performance of any party's obligations under the PT-1
asset sale agreement.
PROPOSAL 3
THE MERGER BETWEEN WORLD ACCESS AND WORLDXCHANGE
This section of the joint proxy statement/prospectus describes the proposed
merger between World Access and WorldxChange. This proposal is for the
consideration of the World Access stockholders. While we believe that the
description covers the material terms of the WorldxChange merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document and the other documents
we refer to carefully for a more complete understanding of the WorldxChange
merger.
BACKGROUND OF THE WORLDXCHANGE MERGER
In the spring of 1999, Roger B. Abbott, Chief Executive Officer of
WorldxChange, met with John D. Phillips and W. Tod Chmar in Atlanta, Georgia. At
this meeting, Mr. Phillips explained his views regarding certain trends in the
international long distance industry, including the likely consolidation among
international long distance providers. Mr. Phillips expressed his desire to make
World Access a leader in the movement toward consolidation of the international
long distance industry and asked Mr. Abbott to consider a possible business
combination involving World Access and WorldxChange. No agreement regarding a
possible transaction was reached at this meeting, but the parties kept in
contact with periodic telephone conversations throughout the summer and
remainder of 1999.
On December 14, 1999, after World Access acquired FaciliCom International,
Inc. and entered into a definitive agreement to acquire Long Distance
International, Inc., Mr. Abbott called Mr. Phillips regarding a possible
transaction. During numerous phone calls over the next few weeks, the parties
worked through the basic economic terms of a transaction and instructed their
representatives to begin working on a definitive merger agreement.
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During the month of January and into the early part of February, the
parties worked on the definitive merger agreement and conducted their respective
due diligence investigations of the other party. On January 18, 2000, Roger
Abbott and Walter Anderson, the Chairman of the board of WorldxChange, met with
John D. Phillips and W. Tod Chmar in Atlanta to discuss Mr. Phillips' vision for
the combined company.
On February 8, 2000, the World Access board of directors met by telephonic
conference call to receive an update from World Access management on, and to
discuss the terms of, the proposed transaction with WorldxChange. On February
11, 2000, the World Access board of directors met again by telephonic conference
call to consider the merger with WorldxChange. At this meeting, management
reviewed, for the board of directors, the strategic reasons for a business
combination with WorldxChange and management and legal counsel described the
specific terms of the proposed merger agreement. During this meeting, Donaldson,
Lufkin & Jenrette Securities Corporation, or Donaldson, Lufkin & Jenrette gave
its oral opinion as to the fairness of the consideration to be paid by World
Access pursuant to the merger agreement. The board of directors also received
summaries of the results of World Access' due diligence investigation of
WorldxChange. After the foregoing, the World Access board of directors
unanimously approved the WorldxChange merger agreement and the transactions
contemplated thereby and unanimously agreed to recommend its adoption to the
stockholders of World Access. On February 11, 2000, Donaldson, Lufkin & Jenrette
forwarded its written opinion regarding the fairness of the consideration to be
paid by World Access pursuant to the merger agreement to the members of the
board of directors of World Access.
On February 5, 2000, the WorldxChange board of directors met by telephonic
conference call to consider the merger with World Access. During this meeting,
management reviewed the strategic reasons for a business combination with World
Access and described the specific terms of the proposed merger agreement. After
the foregoing, the WorldxChange board approved the WorldxChange merger agreement
and the transactions contemplated thereby.
WORLD ACCESS' REASONS FOR THE WORLDXCHANGE MERGER
In approving the WorldxChange merger, the World Access board of directors
considered the potential benefits of the WorldxChange merger and the risks
associated with the WorldxChange merger. All material business, financial, legal
and market factors are discussed below. In view of the number and wide variety
of factors considered in connection with its evaluation of the WorldxChange
merger, the World Access board of directors did not consider it practicable to,
nor did it attempt to, quantify or otherwise assign relative weights to the
material 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 World Access board of directors believes that the WorldxChange merger
is fair to and in the best interests of World Access and its stockholders for
the following reasons:
The financial terms of the WorldxChange merger. The World Access board of
directors considered information concerning the business, earnings, operations,
financial condition and prospects of World Access and WorldxChange,
individually, on a combined basis, and in conjunction with the STAR merger. The
board determined to approve the WorldxChange merger agreement and the
transactions contemplated thereby based on its consideration of these factors
without taking into account the STAR merger. The board of directors also
considered the opinion of Donaldson, Lufkin & Jenrette as to the fairness to
World Access, from a financial point of view, of the consideration to be paid by
World Access pursuant to the WorldxChange merger agreement.
WorldxChange's global communications network. The World Access board of
directors considered WorldxChange's presence in Europe and the Pacific Rim and
the potential for entry into additional countries. The board believes
WorldxChange's retail presence in the United Kingdom will accelerate the
implementation of World Access' strategy to increase its retail
telecommunications services throughout
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Europe. The board of directors also considered the technical capabilities, cost
effectiveness, expansion possibilities and available capacity of WorldxChange's
telecommunications network in multiple countries, ownership interest in undersea
cable telecommunications systems and indefeasible rights of use in additional
undersea cable systems.
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 considered
the potential significant cost savings to be achieved as a result of the
WorldxChange merger in order to provide global retail telecommunications
services at competitive rates.
WorldxChange's international presence. The World Access board of directors
considered the compatibility of WorldxChange's operations in Australia, Canada,
the Netherlands, New Zealand and the United Kingdom with World Access' existing
operations. The board of directors also considered WorldxChange's agreements for
telecommunications services in Belgium, Chile, France, Germany and Guatemala in
light of potential expansion. The combination of World Access and WorldxChange
would result in a combined network covering 18 countries worldwide. This
increased international presence accelerates World Access' strategy to increase
its non-U.S. services.
Growing retail operations and diversified revenues. The World Access board
of directors considered WorldxChange's growing retail operations, which would be
made available to World Access in the future. WorldxChange is currently serving
more than 550,000 residential and commercial retail customers each month.
Additionally, the World Access board of directors believes that WorldxChange
would strengthen World Access' position outside of North America because more
than 40% of WorldxChange's revenues originate outside of North America.
The World Access board also considered the following potentially negative
factors but concluded they were outweighed by the positive factors described
above:
Risks associated with integration. The World Access board of directors
considered the risk that World Access would be unable to effectively integrate
the technical operations and management of World Access and WorldxChange.
Risk of not achieving profitability. The World Access board of directors
considered the risk that the combined company may not be profitable. Both World
Access and WorldxChange had losses in the first quarter of 2000. Despite
expected cost savings from the WorldxChange merger, the combined company may
continue to have losses which may cause the price of the World Access common
stock to decline.
THE WORLD ACCESS BOARD OF DIRECTORS' RECOMMENDATION THAT STOCKHOLDERS APPROVE
THE WORLDXCHANGE MERGER
The World Access board of directors has carefully considered the
advisability of the WorldxChange merger and believes that the terms of the
WorldxChange merger are fair to, and that the WorldxChange merger is in the best
interests of, the stockholders of World Access. The board of directors of World
Access has unanimously approved the WorldxChange merger agreement and the
transactions contemplated by the WorldxChange merger agreement and unanimously
recommends that the stockholders of World Access vote for the approval and
adoption of the WorldxChange merger agreement and the transactions contemplated
by the WorldxChange merger agreement.
WORLDXCHANGE'S REASONS FOR THE WORLDXCHANGE MERGER
The WorldxChange board of directors believes that the WorldxChange merger
is fair to and in the best interests of WorldxChange's stockholders for the
following reasons:
- The WorldxChange merger provides WorldxChange shareholders with an amount
of World Access shares, in a tax-free exchange, which, based on the World
Access share price at the time the WorldxChange merger agreement was
signed, represented a premium over the most recent price at which
WorldxChange sold shares of its capital stock;
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- WorldxChange shareholders will be able to participate in the potential
growth of World Access' business after the WorldxChange merger and to
benefit from the potential appreciation in the value of World Access
common stock; and
- WorldxChange shareholders will have the liquidity of publicly traded
World Access shares in place of their WorldxChange shares, which are not
publicly traded.
In reaching its decision to approve the WorldxChange merger agreement and
the proposed WorldxChange merger, the WorldxChange board consulted with
WorldxChange management and its advisors and considered the following factors:
- The belief of the WorldxChange board that WorldxChange's
telecommunications equipment and other assets, together with
WorldxChange's presence in key European markets, would provide the
combined company with opportunities for growth superior to those of
WorldxChange as an independent company;
- The fact that WorldxChange requires significant additional financing to
fund operating cash needs and continue growing, and the belief of the
WorldxChange board that WorldxChange has limited ability to obtain this
needed capital as an independent company;
- The belief of the WorldxChange board that the terms of the merger
agreement, including the value of the World Access stock to be exchanged
for the shares of WorldxChange common stock, are fair to and in the best
interests of the WorldxChange shareholders;
- The fact that WorldxChange had not previously been successful in entering
into a satisfactory agreement with other potential acquirors or strategic
partners; and
- The belief of the WorldxChange board that the combined company would have
a greater ability to serve customers and provide greater opportunities
for employees than WorldxChange as an independent company.
The WorldxChange board also considered the following potentially negative
factors but concluded that they were outweighed by the positive factors
described above:
- The risk that World Access's stock price would decline between the
signing of the merger agreement and the closing of the merger, resulting
in the WorldxChange shareholders receiving less value for their
WorldxChange shares;
- The risk that the WorldxChange merger would not be completed in a timely
manner or at all and that the public announcement of the merger could
hinder WorldxChange's ability to attract and retain key employees; and
- The risk that, after WorldxChange committed to complete the merger, a
more attractive strategic alternative would become available to the
Company.
Based on all of the above factors and considerations, the WorldxChange
board concluded that the WorldxChange merger was advisable, fair to, and in the
best interests of WorldxChange and its shareholders and that WorldxChange should
proceed with the WorldxChange merger.
OPINION OF WORLD ACCESS' FINANCIAL ADVISOR REGARDING THE WORLDXCHANGE MERGER
World Access asked Donaldson, Lufkin & Jenrette, in its role as financial
advisor, 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. On February 11, 2000, Donaldson, Lufkin & Jenrette rendered an
oral opinion to World Access' board of directors, which was subsequently
confirmed in writing as of the same date, to the effect that, as of the date of
the opinion, and based upon and subject to the assumptions, limitations and
qualifications set forth in the opinion, the consideration to be paid by World
Access pursuant to the WorldxChange merger agreement was fair to World Access,
from a financial point
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of view. The full text of Donaldson, Lufkin & Jenrette's opinion is attached as
Annex D to this joint proxy statement/prospectus.
Donaldson, Lufkin & Jenrette expressed no opinion as to the price 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 WorldxChange
merger and the other business strategies considered by the World Access board of
directors nor did it address the decision of the World Access board of directors
to proceed with the WorldxChange merger. Donaldson, Lufkin & Jenrette's opinion
did not constitute a recommendation to any World Access stockholder as to how
such stockholder should vote on the WorldxChange merger.
World Access and WorldxChange determined the consideration to be paid by
World Access 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 draft dated February 10, 2000 of the WorldxChange merger
agreement and assumed the final form of that agreement would not vary in
any respect material to Donaldson, Lufkin & Jenrette's analysis;
- reviewed financial and other information that was publicly available or
furnished to it by World Access and WorldxChange, including information
provided during discussions with their respective managements, which
included certain financial projections of each of World Access and
WorldxChange that were prepared by World Access' management;
- compared certain financial and securities data of World Access and
WorldxChange with various other companies whose securities are traded in
public markets;
- reviewed the historical stock prices and trading volumes of the common
stock of World Access;
- reviewed prices paid in selected 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 WorldxChange or their respective representatives, or that
was otherwise reviewed by it. Donaldson, Lufkin & Jenrette relied upon the
estimates of the management of World Access of the operating synergies
achievable as a result of the WorldxChange merger. Donaldson, Lufkin & Jenrette
also assumed that the financial projections of World Access and WorldxChange
supplied to it were reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of World Access as
to the future operating and financial performance of World Access and
WorldxChange. Donaldson, Lufkin & Jenrette expressed no opinion with respect to
such forecasts or the assumptions on which they were based, and Donaldson,
Lufkin & Jenrette did not assume any responsibility for making any independent
evaluation or appraisal of the assets or liabilities of World Access or for
making any independent verification of any of the information reviewed by
Donaldson, Lufkin & Jenrette. Donaldson, Lufkin & Jenrette also did not assume
any responsibility for making any independent investigation of any legal matters
affecting World Access or WorldxChange and assumed the
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correctness of all legal advice given to each of them and to World Access' board
of directors, including advice as to the tax consequences of the WorldxChange
merger. Donaldson, Lufkin & Jenrette assumed that the WorldxChange merger would
be accounted for as a purchase under generally accepted accounting principles
and that it would qualify as a tax-free reorganization for U.S. federal income
tax purposes.
Donaldson, Lufkin & Jenrette's opinion is necessarily based upon economic,
market, financial and other conditions as they existed on, and on information
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 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 February 11, 2000
in connection with the preparation of Donaldson, Lufkin & Jenrette's opinion. No
company or transaction Donaldson, Lufkin & Jenrette used in the analyses
described below is directly comparable to World Access, WorldxChange or to the
WorldxChange merger. 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. For purposes of the following analyses, Donaldson,
Lufkin & Jenrette used the February 9, 2000 closing price of the World Access
common stock of $22.88 per share.
1. CONSIDERATION PAID ANALYSIS
Donaldson, Lufkin & Jenrette reviewed the consideration to be paid by World
Access pursuant to the WorldxChange merger agreement by using an exchange ratio
of (i) 0.6583, which assumes an average stock price of at least $20.38 per share
and is referred to as the initial exchange ratio for the ten-day period ending
at the close of trading on the second trading day preceding the closing, which
is referred to as the average period, and (ii) 1.1666, which assumes an average
stock price of less than $20.38 per share during the averaging period and the
issuance of the maximum number of contingent shares on the first anniversary of
the completion of the WorldxChange merger, which is referred to as the maximum
exchange ratio. In reviewing the consideration to be paid by World Access,
Donaldson, Lufkin & Jenrette used the closing stock price on February 9, 2000 of
$22.88 per share to determine the consideration to be paid based on the initial
exchange ratio and $11.50 per share, the floor price, to determine the
consideration to be paid based on the maximum exchange ratio.
2. COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS
Donaldson, Lufkin & Jenrette analyzed the market values and trading
multiples of selected publicly traded emerging multinational carriers that
Donaldson, Lufkin & Jenrette believed were reasonably comparable to WorldxChange
based on business and certain financial characteristics. These comparable
companies consisted of:
<TABLE>
<S> <C>
(i) IDT Corporation;
(ii) Pacific Gateway Exchange, Inc.;
(iii) PRIMUS Telecommunications Group, Incorporated;
(iv) RSL Communications, Ltd.; and
(v) Startec Global Communications Corporation.
</TABLE>
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) projected calendar year 2000 revenue;
(iii) gross property, plant and equipment and (iv) net property plant and
equipment. The enterprise value of a company is equal to the value of its
fully-diluted common equity plus
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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. All historical data was derived from publicly available sources
as of February 9, 2000 and all projected data was obtained from Wall Street
research reports.
Donaldson, Lufkin & Jenrette performed this analysis in order to compare
the ratio of WorldxChange's enterprise value to its last quarter annualized
revenues, estimated 2000 revenues as provided by World Access, gross property,
plant and equipment and net property, plant and equipment to those of the
comparable companies and to the reference range, which represents a tighter
range of the ratios as deemed reasonable by Donaldson, Lufkin and Jenrette. For
purposes of this analysis, Donaldson, Lufkin & Jenrette compared the implied
multiples of World Access' consideration to be paid based on the initial
exchange ratio, which results in a higher value for the consideration to be paid
than the maximum exchange ratio. In addition, Donaldson, Lufkin & Jenrette
compared the enterprise value of WorldxChange, based on the initial exchange
ratio, to the implied enterprise values obtained by the above mentioned ratios
of the comparable companies and the reference range and WorldxChange's last
quarter annualized revenues, estimated 2000 revenues as provided by World
Access, gross property, plant and equipment and net property, plant and
equipment. Donaldson, Lufkin & Jenrette's analysis of the comparable companies
yielded the following multiple ranges and implied enterprise values:
COMPARABLE COMPANY ANALYSIS
($ IN MILLIONS)
<TABLE>
<CAPTION>
COMPARABLE COMPANIES REFERENCE RANGE
-------------------- --------------------
WORLDXCHANGE HIGH LOW HIGH LOW
------------ --------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise Value/Last Quarter
Annualized Revenues................ 1.5x 2.2x 0.6x 1.7x 1.2x
Enterprise Value/2000 Estimated
Revenues........................... 1.2x 1.9x 0.7x 1.5x 1.0x
Enterprise Value/Gross Property,
Plant and Equipment................ 3.2x 7.5x 2.5x 4.5x 3.5x
Enterprise Value/Net Property, Plant
and Equipment...................... 4.8x 8.8x 2.9x 5.5x 4.5x
Implied Enterprise Value based on:
Last Quarter Annualized Revenues... $924.5 $1,361.9 $406.9 $1,075.1 $ 758.9
2000 Estimated Revenues............ 924.5 1,450.6 510.8 1,141.3 760.9
Gross Property, Plant and
Equipment....................... 924.5 2,173.8 711.4 1,295.9 1,007.9
Net Property, Plant and
Equipment....................... 924.5 1,705.1 565.7 1,066.5 872.6
</TABLE>
The comparable company analysis showed that the implied multiples of World
Access' consideration, based on the initial exchange ratio, were either within
or lower than the range of multiples implied by the prevailing market prices of
the comparable companies. In addition, the analysis showed that the enterprise
value based on World Access' consideration, based on the initial exchange ratio,
was either within or lower than the range of enterprise values implied by the
multiples of the comparable companies and WorldxChange's last quarter annualized
revenues, estimated 2000 revenues, gross property, plant and equipment and net
property, plant and equipment.
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3. ANALYSIS OF SELECTED M&A TRANSACTIONS
Donaldson, Lufkin & Jenrette reviewed selected mergers and acquisitions
transactions of companies that operate businesses reasonably similar to that of
WorldxChange. In addition, for purposes of this analysis, Donaldson, Lufkin &
Jenrette selected key mergers and acquisitions transactions deemed most relevant
by Donaldson, Lufkin & Jenrette based on the business characteristics of the
acquiror and/or target and the business nature of the transaction. The following
mergers and acquisitions transactions were deemed most relevant by Donaldson,
Lufkin & Jenrette:
- Viatel, Inc.'s acquisition of Destia Communications, Inc.
- PRIMUS Telecommunications Group, Incorporated's acquisition of TresCom
International, Inc.
In examining these acquisitions, Donaldson, Lufkin & Jenrette calculated
the enterprise value of the acquired company implied by each of these
transactions as a multiple of last quarter annualized revenue and net property,
plant and equipment. In addition, Donaldson, Lufkin & Jenrette calculated the
enterprise values implied by the above mentioned ratios of the selected mergers
and acquisitions transactions and WorldxChange's last quarter annualized revenue
and net property, plant and equipment. Donaldson, Lufkin & Jenrette's analysis
of these comparable acquisitions yielded the following multiple ranges and
implied enterprise values:
SELECTED MERGERS AND ACQUISITIONS TRANSACTIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
ALL SELECTED M&A KEY SELECTED M&A
TRANSACTIONS TRANSACTIONS
-------------------- --------------------
WORLDXCHANGE HIGH LOW HIGH LOW
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise Value/Last Quarter
Annualized Revenues.............. 1.5x 4.0x 1.2x 2.6x 1.2x
Enterprise Value/Net Property,
Plant and Equipment.............. 4.8x 42.0x 5.9x 6.2x 5.9x
Implied Enterprise Value based on:
Last Quarter Annualized Revenues... $924.5 $2,529.6 $ 733.9 $1,631.6 $ 733.9
Net Property, Plant and
Equipment........................ 924.5 8,143.1 1,148.3 1,206.6 1,148.3
</TABLE>
The analysis of selected mergers and acquisitions transactions showed that
the implied multiples of World Access' consideration, based on the initial
exchange ratio, were, in each case, within or lower than the range of multiples
paid by the selected mergers and acquisitions transactions as well as by the key
mergers and acquisitions transactions. In addition, the analysis of selected
mergers and acquisitions transactions showed that the transaction value of World
Access' consideration, based on the initial exchange ratio, was, in each case,
within or lower than the range of implied transaction values based on the
multiples paid by selected mergers and acquisition transactions, as well as by
the key merger and acquisitions transactions.
4. DISCOUNTED CASH FLOW ANALYSIS
In addition, Donaldson, Lufkin & Jenrette performed a discounted cash flow
analysis for WorldxChange on a stand-alone basis. The analysis was based upon
financial projections, including synergies, for the five-year period ending
fiscal 2004 as provided by the management of World Access. Donaldson, Lufkin &
Jenrette performed this analysis to estimate the net present value of
WorldxChange's enterprise value and to compare it to the implied enterprise
value based on World Access' consideration. Donaldson, Lufkin & Jenrette
calculated EBITDA for WorldxChange. EBITDA is earnings before interest, taxes,
depreciation and amortization. Donaldson, Lufkin & Jenrette calculated the
terminal value of WorldxChange at the end of the forecast period, by applying a
range of estimated EBITDA multiples selected in Donaldson, Lufkin & Jenrette's
subjective judgment. The terminal value estimates are a hypothetical
approximation of the value of the enterprise's cash flows beyond the end of the
five-year period covered by the management's projections. The management's
projected EBITDA and Donaldson, Lufkin & Jenrette's subjective estimate of the
terminal values based on management's projected EBITDA
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were then discounted to the present using a range of discount rates selected in
Donaldson, Lufkin & Jenrette's subjective judgment.
DISCOUNTED CASH FLOW ANALYSIS
($ IN MILLIONS)
<TABLE>
<S> <C>
Range of EBITDA Multiples................................... 10.0x - 12.0x
Discount rates.............................................. 15.0% - 18.3%
Implied Total Enterprise Value.............................. $758.2 - $998.1
WorldxChange Enterprise Value............................... $924.5
</TABLE>
The above analysis shows that the implied enterprise value based on World
Access' consideration, based on the initial exchange ratio, of $924.5 million is
near the high range of the implied enterprise values of $758.2 million to $998.1
million obtained by the analysis.
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 Donaldson, Lufkin & Jenrette made to
the World Access board on February 11, 2000 in connection with the preparation
of Donaldson, Lufkin & Jenrette's 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 a 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 letter dated January 18, 2000, World
Access agreed to pay Donaldson, Lufkin & Jenrette a fee of $850,000 at the time
that Donaldson, Lufkin & Jenrette delivered to the World Access board of
directors its opinion, irrespective of the conclusion reached in the opinion,
and to pay Donaldson, Lufkin & Jenrette a fee of $1.5 million, less any amounts
paid pursuant to delivery of the fairness opinion, payable in cash promptly upon
consummation of a business combination between World Access and WorldxChange in
one or a series of transactions, by merger, consolidation, or any other business
combination, by purchase involving all or a substantial amount of the business,
securities or assets of WorldxChange or otherwise. In addition, World Access
agreed to reimburse Donaldson, Lufkin & Jenrette for all of its out-of-pocket
expenses, including the reasonable fees and expenses of counsel incurred by
Donaldson, Lufkin & Jenrette in connection with its engagement, and to indemnify
Donaldson, Lufkin & Jenrette for liabilities and expenses arising out of
Donaldson, Lufkin & Jenrette's engagement, including liabilities under federal
securities laws.
The terms of the fee arrangement with Donaldson, Lufkin & Jenrette, which
Donaldson, Lufkin & Jenrette and World Access believe are customary in
transactions of this nature, were negotiated at arms-length between World Access
and Donaldson, Lufkin & Jenrette. World Access' board of directors was aware of
such arrangement, including the fact that a significant portion of the aggregate
fee payable to Donaldson, Lufkin & Jenrette is contingent upon consummation of
the WorldxChange merger.
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Donaldson, Lufkin & Jenrette provides a full range of financial, advisory
and brokerage services and in the course of its normal trading activities may
from time to time effect transactions and hold positions in the securities or
debt of World Access for its own account and for the accounts of its customers.
Donaldson, Lufkin & Jenrette has performed investment banking and other services
for World Access in the past and has been compensated for such services.
Donaldson, Lufkin & Jenrette acted as financial advisor to World Access in
connection with its acquisition of FaciliCom International, Inc., and acted as
solicitation agent in connection with the consent solicitation for FaciliCom's
outstanding senior notes. Donaldson, Lufkin & Jenrette is currently acting as
financial advisor to World Access in connection with its proposed acquisition of
STAR. Further, Donaldson, Lufkin & Jenrette is currently providing advisory
services in connection with the exploration of a possible sale of World Access'
NACT Telecommunications Inc. and Telco Systems Inc. subsidiaries and World
Access' Wireless Local Loop Division.
CONSIDERATION THAT WORLDXCHANGE SHAREHOLDERS WILL RECEIVE IN THE WORLDXCHANGE
MERGER
Upon completion of the WorldxChange merger, each outstanding share of
WorldxChange common stock will be automatically canceled and converted into the
right to receive 0.6583 shares of World Access common stock. Under the
WorldxChange articles of incorporation, all outstanding shares of WorldxChange
preferred stock voted in favor of the WorldxChange merger will be deemed
automatically converted into shares of WorldxChange common stock immediately
prior to the completion of the WorldxChange merger. Therefore, outstanding
shares of WorldxChange preferred stock voted in favor of the WorldxChange merger
will be entitled to the WorldxChange merger consideration described above on an
as-converted basis. No fractional shares of World Access common stock will be
issued in connection with the WorldxChange merger. Instead, WorldxChange
shareholders will receive cash, without interest, in lieu of any fraction of a
share of World Access common stock to which they would otherwise be entitled
under the WorldxChange merger agreement.
Upon completion of the WorldxChange merger, each outstanding WorldxChange
stock option or warrant will be automatically converted into an option to
acquire such number of shares of World Access common stock as is equal to the
number of shares of WorldxChange common stock covered under such WorldxChange
stock option or warrant multiplied by 0.6583. The exercise price will be the
exercise price specified in the WorldxChange stock option or warrant divided by
0.6583. Each newly-issued World Access stock option will contain terms which are
substantially similar to the terms governing the original WorldxChange stock
option or warrant.
CLOSING; EFFECTIVE TIME OF THE WORLDXCHANGE MERGER
The closing of the WorldxChange merger will occur on the second business
day following the satisfaction or waiver of all conditions to the completion of
the WorldxChange merger, or at such other time as World Access and WorldxChange
agree. On the date of the closing of the WorldxChange merger, World Access and
WorldxChange will file a certificate of merger with the Delaware Secretary of
State and an agreement of merger with the California Secretary of State. The
WorldxChange merger will be effective upon the filing of the certificate of
merger and the agreement of merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE WORLDXCHANGE MERGER
The following discussion summarizes the material federal income tax
consequences of the WorldxChange merger. Long Aldridge & Norman LLP, as counsel
to World Access, is of the opinion that, except as to matters upon which they
have expressly declined to express an opinion, the following discussion sets
forth the material federal income tax consequences of the WorldxChange merger
under the federal income tax laws in effect as of the date of this joint proxy
statement/prospectus. The following discussion is not a complete analysis of all
aspects of federal income taxation that may be relevant to you as a WorldxChange
shareholder in light of your particular circumstances. For example, it does not
address
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the federal income tax considerations or the special tax rules that may be
relevant to you if you are one of the following types of holders:
- an insurance company;
- a tax-exempt organization;
- an employee stock ownership plan;
- a bank;
- a broker, dealer or financial institution;
- a holder that holds WorldxChange capital stock as part of a position in a
"straddle" or as part of a "hedging" or "conversion" transaction for
federal income tax purposes;
- a holder that has a "functional currency" other than the United States
dollar;
- a holder subject to the alternative minimum tax;
- a holder that is not a citizen or resident of the United States, or that
is a foreign corporation, foreign partnership or foreign estate or trust
as to the United States;
- a holder who acquired shares of WorldxChange capital stock pursuant to
the exercise of options or otherwise as compensation or through a
tax-qualified retirement plan; or
- a holder of options to acquire shares of WorldxChange capital stock.
In addition, the 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 federal income tax consequences of the WorldxChange merger
that may be applicable to WorldxChange shareholders, or except as expressly
provided below, the consequences of transactions completed before or after the
WorldxChange merger. Further, this discussion assumes that as a WorldxChange
shareholder, you hold your WorldxChange capital stock as a "capital asset"
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended. Generally, a capital asset is property held for investment. This
discussion is based on the Internal Revenue Code and final, temporary and
proposed treasury regulations promulgated under the Internal Revenue Code,
administrative pronouncements and rulings, and judicial decisions as of the date
hereof, all of which are subject to change or differing interpretations at any
time with possible retroactive effect and any such change could affect the
continuing validity of this discussion.
We have not requested a ruling from the IRS with respect to the federal
income tax consequences of the WorldxChange merger nor is the completion of the
WorldxChange merger conditioned on the receipt by World Access or WorldxChange
of such a ruling or an opinion of tax counsel concerning such tax consequences.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC FEDERAL, STATE,
LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO YOU OF THE WORLDXCHANGE MERGER.
The WorldxChange merger
Long Aldridge & Norman LLP has rendered an opinion to World Access that the
WorldxChange merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code. This opinion is subject to the
limitations, qualifications and assumptions referred to herein and in such
opinion. In rendering its opinion as to the status of the WorldxChange merger as
a "reorganization," and in rendering its opinion with respect to the following
discussion, counsel has relied upon, and has assumed the accuracy of
information, factual statements and representations made by World Access and
WorldxChange in this joint proxy statement/prospectus and the WorldxChange
merger agreement. Any inaccuracy or change with respect to such information,
representations or assumptions, or any past or future actions by World Access or
WorldxChange contrary to such information, representations or assumptions could
adversely affect the conclusions reached in such opinion and the discussion set
forth below.
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Counsel's opinion neither binds the Internal Revenue Service nor precludes
it or the courts from adopting a contrary position, and no assurance can be
given that contrary positions will not be successfully asserted by the Internal
Revenue Service or adopted by a court if the issues are litigated. The balance
of this discussion is based on the conclusion in the opinion that the
WorldxChange merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
WorldxChange has received the opinion of O'Melveny & Myers LLP to the
effect that the WorldxChange merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a)(1) of the
Internal Revenue Code.
World Access stockholders will not recognize any gain or loss for federal
income tax purposes solely as a result of the WorldxChange merger.
Tax considerations for WorldxChange shareholders
Receipt of World Access stock in the WorldxChange merger. You will not
recognize gain or loss upon the exchange of your WorldxChange common stock and
preferred stock for World Access common stock and fractional share interests
except for the receipt of cash in lieu of a fractional share of World Access
common stock and the portion of the World Access common stock you received in
payment of accrued and unpaid dividends on your WorldxChange preferred stock
that is treated by the Internal Revenue Service as a dividend distribution to
you, as more fully described below.
Your tax basis in the shares of World Access common stock you receive in
the exchange will be the same as the tax basis of your shares of WorldxChange
capital stock (and if you hold shares of both common stock and preferred stock
in WorldxChange, by aggregating the tax basis of all such shares) surrendered in
the exchange less any portion of such basis allocable to any fractional share
interest in any share of World Access common stock for which you receive cash.
The holding period of the World Access common stock you receive in the exchange
will include the holding period during which you held your WorldxChange capital
stock.
Cash for fractional shares. Based on the current published ruling position
of the Internal Revenue Service, you will recognize gain or loss measured by the
difference between the amount of cash received in lieu of a fractional share
interest in World Access common stock and the portion of the tax basis of your
WorldxChange capital stock allocable to such fractional share interest. Such
gain or loss will be capital gain or loss, provided that you held the
WorldxChange capital stock as a capital asset as of the effective time of the
WorldxChange merger, and will be long-term capital gain if your WorldxChange
capital stock was held for more than one year as of the effective time of the
WorldxChange merger.
Dividends on escrowed World Access common stock. Dividends paid to you by
World Access on World Access common stock you receive in the exchange, including
the shares held pursuant to the WorldxChange escrow agreement will be treated as
if you held such shares of World Access common stock directly.
Return of escrowed shares to World Access to satisfy claims. Pursuant to
the WorldxChange escrow agreement, if a claim is successfully asserted by World
Access against the escrow fund, the escrow agent will be instructed to return to
World Access that number of shares of World Access common stock with a value in
an amount equal to the claim using the $20.38 share price to value such returned
shares. Any such returned shares would reduce on a pro rata basis the escrowed
shares that could be distributed to WorldxChange shareholders after any
indemnification claims of World Access under the merger agreement are satisfied.
Because the number of shares to be returned to World Access from the escrow
account is based on the initial negotiated value of $20.38 per share of World
Access common stock, you will realize no benefit or detriment from any
appreciation or depreciation of such World Access common stock following the
effective time of the WorldxChange merger. Accordingly, the return of such
shares to World Access in satisfaction of escrow claims will not result in your
recognition of gain or loss and instead, will be treated as a non-taxable
purchase price adjustment as part of the original stock-for-stock exchange. Upon
a return of any such shares to World Access, your tax basis in your pro rata
share of the returned
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shares will be added to the tax basis of your remaining shares of World Access
common stock received in the exchange.
Sale of escrowed shares held in the expense fund. To the extent escrowed
shares of World Access common stock held in the expense fund are sold by the
shareholder representative, you will be required to recognize gain or loss for
federal income tax purposes with respect to your allocable share of the gross
proceeds as if you sold such shares of World Access common stock directly.
Release of escrowed shares to WorldxChange shareholders. You will not
recognize any gain or loss or any interest income, as a result of the
distribution to you of any of the World Access common stock held in either the
escrow fund or the expense fund because under both such arrangements described
in the WorldxChange merger agreement, the stock-for-stock exchange takes place
at the effective time of the WorldxChange merger, not later when the escrowed
shares of World Access common stock are released from the applicable escrow
provisions to you as former WorldxChange shareholders.
World Access common stock received for accrued dividends on WorldxChange
preferred stock. The law is unclear as to how shares you receive that are or
could be attributed to accrued but undeclared and unpaid dividends, or "dividend
related shares," will be characterized for federal income tax purposes. In at
least two private letter rulings, which cannot be relied upon by other taxpayers
as binding legal precedent, the Internal Revenue Service has taken the position
that common stock issued by an acquiring company in payment of such dividends
would be treated as part of an overall stock-for-stock exchange and would be
tax-free to the recipient shareholders. Moreover, dividends have not been
declared on any of the shares of the WorldxChange preferred stock, will not be
declared as of the effective time of the WorldxChange merger, and, in general,
with certain exceptions not here applicable, shareholders are not taxable on
unpaid dividends that have not been declared. Based upon these principles, you
would not recognize gain or loss on the receipt of the dividend related shares.
Furthermore, the Internal Revenue Service has not taken a position in any
reported case or in any published or private ruling that shares received in
exchange for shares in an otherwise tax-free acquisition should be treated in
part as payment of unpaid dividends. In this case, your tax basis in the
dividend related shares will be the same as your basis in the other shares of
World Access common stock received in the exchange and your holding period for
the dividend related shares will include the holding period during which you
held your WorldxChange preferred stock. Notwithstanding the absence of authority
on point, however, it is possible that the Internal Revenue Service could
attempt to treat the receipt of shares identified with accrued but unpaid
dividends, including the dividend related shares, as the actual or deemed
payment of dividends, and therefore taxable as ordinary income to the extent of
your allocable portion of the accumulated earnings and profits, if any, as
determined for federal income tax purposes, of WorldxChange. If the amount of
such actual or deemed payment exceeds such earnings and profits, then the excess
first will be applied against and reduce your basis in your preferred stock, but
not below zero, and then any excess over such amount will be treated as capital
gain from the sale of such WorldxChange stock and will be long-term capital gain
if your WorldxChange preferred stock was held for more than one year as of the
effective time of the WorldxChange merger. If such actual or deemed payment is
treated as a dividend and you are a corporation, the distribution may qualify
for the "dividends received deduction", and may possibly be subject to the
"extraordinary dividend" provisions of the Internal Revenue Code. Here, your tax
basis in the dividend related shares will be the fair market value of such
shares upon receipt and your holding period will begin upon receipt of such
shares.
Due to the inherently factual nature of these determinations, coupled with
the lack of Internal Revenue Service or judicial authority as to how your
receipt of the dividend related shares should be characterized for federal
income tax purposes, Long Aldridge & Norman LLP has expressed no opinion with
respect to this matter. World Access intends to take the position that the
dividend related shares should be treated as part of the overall stock-for-stock
exchange. No ruling from the Internal Revenue Service has been sought. Thus, no
assurance can be given to you that the position currently intended to be taken
by World Access described above will be accepted by the Internal Revenue
Service.
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Cash received by dissenting WorldxChange shareholders. If you exercise
appraisal rights, any cash received in connection therewith will be treated as
having been received in redemption of your WorldxChange common stock, provided
the payment is not treated as a dividend payment. If, after such redemption, you
own no World Access stock after giving effect to the constructive ownership
rules of the Internal Revenue Code, then you will recognize gain or loss
measured by the difference between the amount of cash received and the tax basis
of your WorldxChange common stock surrendered, which will be long-term capital
gain or loss if your WorldxChange common stock was held for more than one year
as of the effective time of the WorldxChange merger.
Reporting requirements. When you file your federal income tax return for
the taxable year in which the WorldxChange merger occurs, you will be required
to attach a statement to your return which includes certain information required
by the Internal Revenue Service concerning your participation as a WorldxChange
shareholder in the WorldxChange merger. Accordingly, you are urged to consult
with your tax advisor concerning compliance with this requirement and any other
tax reporting requirements.
Tax considerations for the corporate parties
World Access, WorldxChange Communications, Inc. formerly known as CTI
Merger Co. and WorldxChange. No gain or loss will be recognized by World
Access, WorldxChange Communications, Inc., which was formerly known as CTI
Merger Co. and is a subsidiary of World Access, or WorldxChange as a result of
the WorldxChange merger.
Potential "Excess Parachute Payments." Under certain circumstances,
acceleration of the vesting of specific WorldxChange options and the making of
certain payments by World Access to WorldxChange employees following the
WorldxChange merger may result in "excess parachute payments" to a "disqualified
individual" within the meaning of Section 280G of the Internal Revenue Code.
World Access will not be entitled to a tax deduction for the amounts determined
to be excess parachute payments, thereby increasing World Access' taxable income
or reducing its taxable loss, if applicable, by the amount of any excess
parachute payments. Excess parachute payments are also subject to a 20% excise
tax payable by the disqualified individual receiving the payment. Because the
calculation of whether such amounts may be determined to be excess parachute
payments cannot be made until the effective time of the WorldxChange merger or
thereafter, no determination can be made at this time whether any amounts will
be determined to be excess parachute payments. Therefore, Long Aldridge & Norman
LLP has expressed no opinion with respect to this matter.
Limitation on WorldxChange tax attributes. Under the Internal Revenue
Code, WorldxChange Communications, Inc., which was formerly known as CTI Merger
Co. will succeed to the net operating losses, certain "recognized built-in
losses," capital losses, general business credits, minimum tax credits, excess
foreign tax credits and certain other tax attributes of WorldxChange. Use of
these tax attributes by World Access is subject to specific limitations under
the Internal Revenue Code and certain provisions of the treasury regulations
governing the filing of a consolidated federal income tax return, such as the
"separate return limitation year" rules. After an ownership change, the amount
of the loss corporation's taxable income for a post-ownership change year that
may be offset by the loss corporation's net operating losses arising before the
ownership change is annually limited to an amount referred to as the "Section
382 limitation." The Section 382 limitation generally equals the product of (i)
the fair market value of the loss corporation's stock immediately before the
ownership change, multiplied by (ii) the federal long-term, tax-exempt rate
published monthly by the Internal Revenue Service (5.53% for August 2000).
WorldxChange and its domestic subsidiaries are members of a "consolidated
group" which files a consolidated federal income tax return. The WorldxChange
consolidated group, with WorldxChange Communications, Inc., which was formerly
known as CTI Merger Co. as WorldxChange's corporate successor will constitute a
"loss subgroup" which will undergo a Section 382 ownership change upon the
completion of the WorldxChange merger. Utilization of any such loss subgroup's
net operating loss carryover, which we refer to as the "pre-change WorldxChange
loss subgroup net operating losses," against
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future World Access consolidated federal taxable income will be subject to an
annual loss subgroup Section 382 limitation.
An additional limitation may apply under which the pre-change WorldxChange
loss subgroup net operating losses can only be used to the extent of the
"qualifying separate return limitation year subgroup" members' aggregate,
cumulative contribution to World Access consolidated taxable income or the
"separate return limitation year limitation." Because the WorldxChange loss
subgroup and its separate return limitation year net operating loss subgroup
should be treated as co-extensive, and the Section 382 ownership change and
separate return limitation year event will occur at the same time, the separate
return limitation year limitation should be eliminated with respect to the
WorldxChange loss subgroup net operating losses.
Limitation on World Access tax attributes. World Access and its domestic
subsidiaries are members of a "consolidated group" which files a consolidated
federal income tax return. For its taxable year ended December 31, 1999, the
World Access consolidated group incurred a consolidated net operating loss, and
has a consolidated net operating loss carryover. As such, it constitutes a "loss
group." World Access believes that the World Access loss group may have already
incurred a Section 382 ownership change in either or both of its 1998 and 1999
taxable years. Thus, the World Access loss group's ability to utilize its own
consolidated net operating loss carryover as of December 31, 1999 against its
future consolidated federal taxable income may already be subject to an annual
loss group Section 382 limitation.
If the completion of either or both the WorldxChange merger and the STAR
merger does result in an ownership change for the World Access loss group, the
amount of such annual loss group Section 382 limitation will depend in part, on
future values which cannot be predicted at this time. In the case of successive
ownership changes, the applicable pre-ownership change World Access loss group
or member's net operating losses will be subject to the lowest amount of Section
382 limitation which results from any of such Section 382 ownership changes. If
instead, consummation of either or both the WorldxChange merger and the STAR
merger does not result in an ownership change for the World Access loss group,
then any existing annual loss group Section 382 limitation for World Access will
simply continue to apply.
EXCHANGE OF WORLDXCHANGE STOCK CERTIFICATES FOR WORLD ACCESS STOCK CERTIFICATES
When the WorldxChange merger is completed, World Access' exchange agent
will mail to WorldxChange shareholders a letter of transmittal and instructions
for use in surrendering WorldxChange stock certificates in exchange for World
Access stock certificates. When WorldxChange shareholders deliver their
WorldxChange stock certificates to the exchange agent along with an executed
letter of transmittal and any other required documents, their WorldxChange stock
certificates will be canceled, and WorldxChange shareholders will receive World
Access stock certificates representing the number of full shares of World Access
common stock to which the WorldxChange shareholder is entitled under the
WorldxChange merger agreement. WorldxChange shareholders will receive payment in
cash in lieu of any fractional shares of World Access common stock which would
have been otherwise issuable in the WorldxChange merger.
YOU SHOULD NOT SUBMIT YOUR WORLDXCHANGE STOCK CERTIFICATES FOR EXCHANGE
UNLESS AND UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER
OF TRANSMITTAL FROM THE EXCHANGE AGENT.
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RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF WORLD ACCESS AND WORLDXCHANGE
The shares of World Access common stock to be issued in the WorldxChange
merger will be registered under the Securities Act of 1933. These shares will be
freely transferable under the Securities Act of 1933, except for shares of World
Access common stock issued to any person who is an affiliate of either of World
Access or WorldxChange. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control with either of World Access or WorldxChange and may include some of
their respective officers and directors, as well as their respective principal
stockholders. Affiliates may not sell their shares of World Access common stock
acquired in the WorldxChange merger 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 of 1933.
ACCOUNTING TREATMENT OF THE WORLDXCHANGE MERGER
We intend to account for the WorldxChange merger as a purchase for
financial reporting and accounting purposes, under United States generally
accepted accounting principles. After the WorldxChange merger, the results of
operations of World Access and WorldxChange will be included in the consolidated
financial statements of World Access. The purchase price will be allocated based
on the fair values of the assets acquired and the liabilities assumed. Any
excess of cost over fair value of the net tangible assets of WorldxChange
acquired will be recorded as goodwill and other intangible assets and will be
amortized by charges to operations under United States generally accepted
accounting principles. These allocations will be made based upon valuations and
other studies that have not yet been finalized.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE WORLDXCHANGE MERGER
The WorldxChange merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which prevents
transactions from being completed until required information and materials are
furnished to the Antitrust Division of the Department of Justice and the Federal
Trade Commission and the appropriate waiting periods end or expire. World
Access, WorldxChange and related parties have filed the required information and
materials with the Antitrust Division of the Department of Justice and the
Federal Trade Commission. The Department of Justice and Federal Trade Commission
granted an early termination of the waiting period, effective April 6, 2000. No
further action under the Hart-Scott-Rodino Act is required, as long as the
WorldxChange merger is completed prior to April 6, 2001.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the WorldxChange merger on antitrust grounds either
before or after expiration of the waiting period. Accordingly, at any time
before or after the completion of the WorldxChange merger, either the Antitrust
Division of the Department of Justice or the Federal Trade Commission could take
action under the antitrust laws. Certain other persons could take action under
the antitrust laws, including seeking to enjoin the WorldxChange merger.
Additionally, at any time before or after the completion of the WorldxChange
merger, notwithstanding that the applicable waiting period expired or ended, any
state could take action under the antitrust laws. There can be no assurance that
a challenge to the WorldxChange merger under the antitrust laws will not be made
or that, if a challenge is made, it would not be successful.
The WorldxChange merger also requires notification in certain European
countries.
Under the German Competition Act, the German Cartel Office must be notified
of the WorldxChange merger, and the WorldxChange merger 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 notification is
considered by the German Cartel Office to be complete. During the initial one
month
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waiting period, the German Cartel Office may decide to open a further
investigation of the transaction. If a further investigation is instituted, the
WorldxChange merger may not be completed until a further three month period has
expired or the WorldxChange merger has been cleared. At any time during the
period, the German Cartel Office may act to block the WorldxChange merger or
impose conditions upon its completion. There can be no assurance that a
challenge to the WorldxChange merger on competition law grounds will not be made
or that, if such a challenge is made, it would not be successful in Germany.
Following the completion of the WorldxChange merger, an information filing
must be made in Denmark with the national competition authority. In addition,
the WorldxChange merger is also subject to review and clearance by the foreign
investment review boards of Australia and New Zealand.
The WorldxChange merger is subject to state and federal telecommunications
regulatory approvals. All but two of the state regulatory agencies and the
Federal Communications Commission require prior notice or approval of the
WorldxChange merger. Applications or notices, as required, requesting either
approval or providing notification of the WorldxChange merger have been filed on
behalf of World Access and WorldxChange in 48 states and at the Federal
Communications Commission. The governing legal standard for approval varies from
state to state, but approval of the WorldxChange merger generally requires a
showing that it is consistent with the public interest. The Federal
Communications Commissions has approved the WorldxChange merger.
Except for approvals by state and federal authorities having jurisdiction
over telecommunications activities conducted by World Access and WorldxChange,
World Access and WorldxChange are not aware of any other material governmental
or regulatory approval required for completion of the WorldxChange merger, other
than the effectiveness of the registration statement of which this joint proxy
statement/prospectus is a part, and compliance with applicable corporate laws
of Delaware and California.
RIGHTS OF DISSENTING WORLDXCHANGE SHAREHOLDERS
The following provides a summary of the statutory procedure a dissenting
WorldxChange shareholder must follow in order to exercise dissenters' rights
under Chapter 13 of the California General Corporation Law. This summary is
qualified in its entirety by reference to the full text of Chapter 13 of the
California law. A copy of Chapter 13 of the California law is attached as Annex
I to this joint proxy statement/prospectus and is incorporated by reference
into this document. Failure to comply with the procedures set forth in
California law will result in the loss or waiver of dissenters' rights.
Therefore, this discussion and Chapter 13 of the California law should be
reviewed carefully by any WorldxChange shareholder who wishes to exercise
statutory dissenters' rights or who wishes to preserve the right to do so.
If the WorldxChange merger is completed, each WorldxChange shareholder
owning shares on the date for the determination of shareholders entitled to vote
on or consent to the WorldxChange merger that does not vote their shares in
favor of the WorldxChange merger and complies with the provisions and procedures
of Chapter 13 of the California law, will be entitled to require WorldxChange to
purchase for cash at their fair market value the WorldxChange shares owned by
such shareholder.
The fair market value of the WorldxChange shares will be determined as of
the day before the first announcement of the terms of the proposed WorldxChange
merger, excluding any appreciation or depreciation resulting from the merger but
adjusted for any stock split, reverse stock split or share dividend that becomes
effective after the announcement. A failure to vote against the WorldxChange
merger will not constitute a waiver of dissenters' rights set forth in Chapter
13 of the California law. Any WorldxChange shares as to which dissenters' rights
are exercised will not be converted into the right to receive shares of World
Access common stock in the merger.
The merger agreement provides that WorldxChange will not be the surviving
corporation in the WorldxChange merger. Under California law, the surviving
corporation will assume WorldxChange's obligations under Chapter 13 of the
California law.
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To qualify as a dissenting share under California law, shares of
WorldxChange stock must satisfy each of the following requirements:
- the shares of WorldxChange stock must have been outstanding on the record
date;
- the shares of WorldxChange stock must not have been voted in favor of the
WorldxChange merger;
- the holder of such shares of WorldxChange stock must make a written
demand that WorldxChange repurchase such shares of WorldxChange stock at
fair market value; and
- the holder of such shares of WorldxChange stock must submit share
certificates for endorsement.
WorldxChange is required within 10 days after the date of the approval of
the merger by the required WorldxChange shareholder vote or consent to mail a
notice of the approval of the merger to each shareholder who has not voted to
approve and adopt the WorldxChange merger, together with:
- a copy of Sections 1300 through 1304 of Chapter 13 of the California law;
- a statement of the price determined by WorldxChange to represent the fair
market value of the dissenting WorldxChange shares; and
- a brief description of the procedure to be followed if the shareholder
desires to exercise dissenters' rights. The statement of price by
WorldxChange constitutes an offer by WorldxChange to purchase all
properly dissenting shares at the stated amount.
In order to exercise dissenters rights, shareholders must send a written
demand to WorldxChange that WorldxChange repurchase their dissenting shares.
WorldxChange must receive this demand within 30 days after the date on which
notice of the approval of the WorldxChange merger by the outstanding shares of
WorldxChange stock is mailed to dissenting shareholders. The demand must state
the number and class of shares held of record that the shareholder demands that
WorldxChange purchase, and a statement of what the dissenting shareholder claims
to be the fair market value of the dissenting shares as of the day before the
announcement of the proposed merger. The statement of fair market value in this
demand by the dissenting shareholder constitutes an offer by the shareholder to
sell the shares at this price to WorldxChange.
In addition, within 30 days after the date on which notice of the approval
by the outstanding shares was mailed to shareholders, the dissenting shareholder
must also submit to WorldxChange at its principal office or the office of its
transfer agent share certificates representing any dissenting shares that the
dissenting shareholder demands that WorldxChange purchase, so that the
dissenting shares may either be stamped or endorsed with the statement that the
shares are dissenting shares or may be exchanged for certificates of appropriate
denomination so stamped or endorsed.
If the dissenting shareholder and WorldxChange agree that the shares
qualify as dissenting shares and agree upon the price of the shares, the
dissenting shareholder is entitled to the agreed upon price plus the legal rate
of interest on judgments from the date of such agreement. This amount is to be
paid to the dissenting shareholder within the later of 30 days after the date of
such agreement or 30 days after any statutory or contractual conditions to the
closing of the WorldxChange merger are satisfied or waived, subject to surrender
by the dissenting shareholder of his, her or its certificates representing the
dissenting shares to WorldxChange unless provided otherwise by agreement. Any
agreement between WorldxChange and a shareholder fixing the fair market value of
any dissenting shares will be filed with the secretary of WorldxChange.
If the dissenting shareholder and WorldxChange fail to agree upon the fair
market value of the dissenting shares or whether the shares qualify as
dissenting shares, the dissenting shareholder may file a complaint in California
superior court of the proper county within six months after the date on which
notice of the approval of the WorldxChange merger is mailed to shareholders
requesting that the court determine the fair market value of the dissenting
shares and, if applicable, whether the shares qualify as dissenting shares.
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The costs and expenses of the action, including reasonable compensation to
the appraisers, will be fixed and assessed or apportioned as the court considers
equitable. However, if the appraisal exceeds the price offered by WorldxChange,
then WorldxChange would be required to pay the costs, including, in the
discretion of the court, attorneys' fees, fees of expert witnesses and interest
at a legal rate on the judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is 125 percent of
the price offered by WorldxChange.
Under the provisions of Chapter 5 of the California law and Section 1306 of
the California law, a California corporation is legally prohibited from
purchasing shares of stock through the payment of cash or other property, even
if all dissenters' rights conditions are fulfilled, unless the corporation
satisfies certain financial conditions. Due to these legal restrictions, neither
WorldxChange nor the surviving corporation in the WorldxChange merger may be
legally able to repurchase all or any dissenting shares of the dissenting
shareholders for cash.
To the extent that WorldxChange is prohibited from making cash payments to
holders of dissenting shares who exercise and perfect their dissenters' rights
of their fair market value, unpaid dissenting shareholders will become creditors
of WorldxChange for the unpaid amount plus interest at the legal rate on
judgments until the date of payment. The rights of unpaid dissenting
shareholders, however, will be subordinate to the rights of all other creditors
of WorldxChange in any liquidation proceeding, with the unpaid debt to be
payable when permissible under the provisions of Chapter 5.
If any shareholder who demands the purchase of his, her or its shares under
Chapter 13 of the California law fails to perfect, or effectively withdraws or
loses his, her or its right to such purchase, the shares of that holder will be
converted into a right to receive the applicable merger consideration in
accordance with the WorldxChange merger agreement.
Dissenting shares lose their status as dissenting shares if:
- the WorldxChange merger is abandoned, in which case WorldxChange must pay
on demand to any dissenting shareholder who has initiated proceedings in
good faith under Chapter 13 of the California law all necessary expenses
incurred in these proceedings and reasonable attorney's fees;
- the shares are transferred prior to their submission for the required
endorsement or are surrendered for conversion into shares of another
class in accordance with the amended and restated articles of
incorporation of WorldxChange;
- the dissenting shareholder and WorldxChange do not agree upon the status
of the shares as dissenting shares or do not agree on the purchase price
of the shares, but neither WorldxChange nor the shareholder files a
complaint or intervenes in a pending action within six months after
mailing the notice of approval of the WorldxChange merger; or
- with WorldxChange's consent, the shareholder delivers to WorldxChange a
written withdrawal of such shareholder's demand for purchase of his, her
or its shares.
Except as expressly limited by provisions of California law pertaining to
dissenters' rights, holders of dissenting shares continue to have all of the
rights and privileges incident to their shares until the fair market value of
their shares is agreed upon or determined. A dissenting shareholder may not
withdraw the demand for payment of the fair market value of dissenting shares
unless WorldxChange consents to the request for withdrawal.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 13 OF THE CALIFORNIA
GENERAL CORPORATION LAW FOR PERFECTING DISSENTERS' RIGHTS MAY RESULT IN THE LOSS
OF SUCH RIGHTS (IN WHICH EVENT A SHAREHOLDER WILL BE ENTITLED TO RECEIVE THE
APPLICABLE MERGER CONSIDERATION IN EXCHANGE FOR THOSE DISSENTING SHARES IN
ACCORDANCE WITH THE WORLDXCHANGE MERGER AGREEMENT). BECAUSE OF THE COMPLEXITY OF
THE PROVISIONS OF CHAPTER 13, WORLDXCHANGE SHAREHOLDERS WHO ARE CONSIDERING
OBJECTING TO THE WORLDXCHANGE MERGER SHOULD CONSULT THEIR OWN LEGAL ADVISORS.
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INTERESTS OF WORLDXCHANGE'S DIRECTORS, OFFICERS AND SHAREHOLDERS IN THE
WORLDXCHANGE MERGER
Certain WorldxChange officers, directors and shareholders have interests in
the merger that are different from or in addition to those of the other
shareholders of WorldxChange, as follows:
- World Access is obligated under the WorldxChange merger agreement to
cause Walter Anderson, WorldxChange's Chairman of the board, or another
person designated by Mr. Anderson, to be elected to the World Access
board.
- In the WorldxChange merger, the WorldxChange shares beneficially owned by
WorldxChange executive officers (including common stock issuable upon
conversion of the preferred stock owned beneficially by directors Walter
Anderson and Tom Cirrito) and directors as of August 1, 2000 will be
converted into a total of 25,144,433 shares of World Access with a total
value of approximately $226,299,897, assuming a per share value of the
World Access common stock of $9.00. In addition, these officers and
directors held options and warrants that were exercisable within 60 days
of August 1, 2000 to purchase a total of 828,950 shares of WorldxChange
common stock at exercise prices ranging between $.67 and $11.00. To the
extent these options are not exercised before the merger, these options
will carry over and be exercisable for World Access common stock, with
the exercise price and number of shares applicable to each option
adjusted based on the exchange ratio.
- Roger Abbott, WorldxChange's Chief Executive Officer and a director, and
Edward Soren, WorldxChange's Executive Vice President and a director,
have agreed with World Access not to sell shares of World Access common
stock received by them in the WorldxChange merger for a period of six
months after the WorldxChange merger is completed. However, World Access
has agreed to permit Roger Abbott to sell up to $30 million worth of the
World Access shares he receives in the WorldxChange merger beginning
immediately after the WorldxChange merger is completed. In addition,
World Access has agreed to allow Mr. Soren to sell up to 750,000 of the
World Access shares received by him in the merger beginning immediately
after the WorldxChange merger is completed.
- Under Mr. Abbott's employment agreement with WorldxChange, if Mr.
Abbott's employment with WorldxChange is terminated other than for cause,
death or disability following the completion of the WorldxChange merger,
Mr. Abbott will be entitled all earned but unpaid salary and bonus
through the date of termination, plus a lump sum cash payment equal to
$50,000 times the number of months then remaining until July 31, 2002,
plus the cost for Mr. Abbott to maintain through July 31, 2002 the
insurance and other benefits enjoyed by Mr. Abbott at the time of his
termination.
- Under his employment agreement with WorldxChange, Patrick Aelvoet,
WorldxChange's Chief Financial Officer, will be entitled to a $25,000
bonus upon completion of the WorldxChange merger. He is also entitled to
a $50,000 severance payment if, after the WorldxChange merger, his
employment with WorldxChange is terminated without cause and without at
least 90 days' advance notice. In addition, if Mr. Aelvoet's employment
with WorldxChange is involuntarily terminated within 12 months after the
WorldxChange merger, all of his unvested options to purchase World Access
common stock will become immediately fully vested and remain so until the
earlier of one year following such termination or ten years from the
applicable grant date. Mr. Aelvoet has options to purchase a total of
150,000 shares of WorldxChange common stock at exercise prices ranging
from $9.00 to $11.00 per share. As of August 1, 2000, 56,250 of these
options were vested and 93,750 options were unvested. Unless their
vesting is accelerated as described above, these unvested options will
vest at varying rates each calendar quarter.
- Under his employment agreement with WorldxChange, if the employment of
Eric Lipoff, WorldxChange's Vice President and General Counsel, is
involuntarily terminated following the WorldxChange merger, he will be
entitled to receive all earned but unpaid salary and bonuses through the
date of such termination, plus a lump sum cash payment equal to $16,666
times the number of months then remaining until December 31, 2002, plus
the cost for Mr. Lipoff to
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maintain through December 31, 2002 the health insurance and other
benefits in effect at the time of such termination. In addition, if Mr.
Lipoff's employment is terminated without cause after the WorldxChange
merger and on or prior to December 31, 2002, all of Mr. Lipoff's
currently unvested options to purchase a total of 150,000 shares of
WorldxChange common stock at $10.00 per share, would become immediately
fully vested.
- WorldxChange directors Sen. Paul Laxalt and Dann Angeloff each have
options to purchase 57,500 shares of WorldxChange common stock at $10.00
per share. As of August 1, 2000, a total of 52,292 of these options were
vested. Following the WorldxChange merger, all of these unvested options
will immediately fully vest and remain exercisable for one year following
the completion of the merger.
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PRINCIPAL SHAREHOLDERS OF WORLDXCHANGE
The following table sets forth certain information regarding beneficial
ownership of WorldxChange's common stock as of August 1, 2000 by the following:
- each person who is known by WorldxChange to own beneficially 5% or more
of the outstanding shares of WorldxChange's common stock;
- each of WorldxChange's directors;
- each of WorldxChange'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 WorldxChange's directors and executive officers as a group.
Except as indicated in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of
WorldxChange's common stock shown as beneficially owned by them, subject to
community property laws where applicable, and are located at WorldxChange's
principal offices at 9999 Willow Creek Road, San Diego, California 92131.
Shares of common stock subject to options or warrants exercisable, or
securities convertible, within 60 days of August 1, 2000 are deemed outstanding
for the purpose of computing the percentage ownership of the person holding
those options, warrants or securities, but are not deemed outstanding for
computing the percentage ownership of any other person.
<TABLE>
<CAPTION>
TOTAL SHARES PERCENTAGE
NAME BENEFICIALLY OWNED OWNED
---- ------------------ ----------
<S> <C> <C>
Roger B. Abbott(2)(3)....................................... 14,984,087 35.2%
Edward S. Soren(3).......................................... 7,311,812 17.2
Walter Anderson(4).......................................... 11,799,750 25.9
Tom Cirrito(5).............................................. 5,222,561 12.3
Eric G. Lipoff(6)........................................... 277,820 *
Christopher Bantoft(7)...................................... 200,000 *
Patrick M. Aelvoet(7)....................................... 64,063 *
Dann V. Angeloff(7)......................................... 54,375 *
Paul Laxalt(7).............................................. 54,375 *
All directors and executive officers as a group (10
persons)(2)(3)(4)(5)(6)(7)................................ 39,027,043 84.5
</TABLE>
---------------
* Less than 1%.
(1) Percentage calculation is based upon 42,613,954 shares outstanding.
(2) All shares, other than (i) 1,000,000 shares as to which Mr. Abbott,
WorldxChange's Chief Executive Officer and a director, has sole voting power
pursuant to a voting trust agreement with Mr. Soren (see note 3 below), (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 Ms. Abbott as community property.
(3) Includes 1,000,000 shares of common stock as to which Mr. Abbott has sole
voting power and Mr. Soren has sole investment power pursuant to the terms
of a voting trust agreement between Mr. Abbott and Mr. Soren.
(4) The record owner of these shares is Gold & Appel Transfer, S.A. Includes
170,000 shares issuable upon the exercise of a warrant held by Gold & Appel
Transfer, S.A. Under a power of attorney from Gold & Appel Transfer, S.A.,
Mr. Anderson, the Chairman of the board of WorldxChange, 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. Also includes a total of 6,893,937 shares of common stock
issuable upon conversion of the WorldxChange Series A
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Convertible Preferred Stock and WorldxChange Series B Convertible Preferred
Stock held by Gold & Appel Transfer, S.A. The address for each of Walter
Anderson and Gold & Appel Transfer, S.A. is c/o Gold & Appel Transfer, S.A.,
Omar Hodge Building, Wickhams Cay, Road Town, Tortula, British Virgin
Islands.
(5) All of these shares are owned of record by Atocha, L.P., of which Tom
Cirrito, a WorldxChange director, is a general partner. As a result, Mr.
Cirrito may be deemed to have beneficial ownership of these shares. The
address for each of Tom Cirrito and Atocha, L.P. is c/o Atocha, L.P., 6429
Georgetown Pike, McLean, Virginia 22101. Also includes a total of 1,388,889
shares of common stock issuable upon conversion of the WorldxChange Series B
Convertible Preferred Stock held by Atocha.
(6) Includes a total of 250,000 shares issuable pursuant to options that were
exercisable as of June 30, 2000 or within 60 days of such date.
(7) Represents shares issuable pursuant to options that were exercisable as of
June 30, 2000, or within 60 days of that date. Mr. Bantoft resigned from
WorldxChange as of May 31, 2000.
DESCRIPTION OF THE WORLDXCHANGE MERGER AGREEMENT
World Access and WorldxChange entered into the original WorldxChange merger
agreement on February 11, 2000. On May 23, 2000, the parties amended the
original WorldxChange merger agreement to delete the provisions therein relating
to the possible payment by World Access to the WorldxChange shareholders of
contingent shares after the completion of the WorldxChange merger and to make
the necessary conforming changes. On August 1, 2000, World Access and
WorldxChange again amended the WorldxChange merger agreement to reflect the fact
that the parties entered into a management services agreement. The original
WorldxChange merger agreement, as amended, is referred to in this joint proxy
statement/prospectus as the WorldxChange merger agreement. This is only a
summary of the WorldxChange merger agreement and may not contain all of the
information that is important to you. World Access and WorldxChange urge you to
read the WorldxChange merger agreement carefully and in its entirety.
DESCRIPTION OF THE WORLDXCHANGE MERGER CONSIDERATION
After the completion of the WorldxChange merger, WorldxChange will be a
wholly-owned subsidiary of World Access and each outstanding share of
WorldxChange common stock held by WorldxChange or a subsidiary of WorldxChange
will be cancelled and will no longer be outstanding. Each share of WorldxChange
common stock not held by WorldxChange or a subsidiary of WorldxChange will be
converted into the right to receive 0.6583 shares of World Access common stock.
No fractional shares will be issued. Instead, WorldxChange shareholders will
receive cash based on the market price of World Access common stock.
REPRESENTATIONS AND WARRANTIES CONTAINED IN THE WORLDXCHANGE MERGER AGREEMENT
World Access and WorldxChange each made representations and warranties in
the WorldxChange merger agreement regarding aspects of their respective
businesses, financial condition, structure and other facts pertinent to the
WorldxChange merger, including:
- corporate existence, organization, standing, authority and capitalization
- financial statements;
- compliance with applicable laws and required licenses and permits;
- absence of conflicts between each party's obligations under the
WorldxChange merger agreement and its charter, bylaws, and material
contracts, and applicable law;
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- absence of pending or threatened suits, actions or other proceedings not
already disclosed in the WorldxChange merger agreement;
- the filing of tax returns and payment of taxes;
- consents and regulatory approvals required to complete the WorldxChange
merger; and
- required approvals by the respective boards of directors and
stockholders.
WORLDXCHANGE'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE WORLDXCHANGE MERGER
WorldxChange has agreed that until the completion of the WorldxChange
merger, it will conduct its business in the ordinary course and substantially in
accordance with past practice.
WorldxChange also agreed that until the completion of the WorldxChange
merger, it would conduct business in compliance with specific restrictions
relating to:
- the issuance, redemption, reclassification, combination or split of any
of its capital stock;
- employees and employee benefits and remuneration;
- the issuance of dividends or other distributions on its capital stock;
- the modification of its certificate of incorporation or bylaws;
- the acquisition of assets or other entities;
- the sale of assets;
- the incurrence of new indebtedness;
- capital expenditures and other investments;
- entering into contracts that would restrict World Access from engaging in
business in certain geographic areas after the completion of the
WorldxChange merger;
- changing its accounting policies and procedures; and
- the settlement of litigation.
NO OTHER NEGOTIATIONS INVOLVING WORLDXCHANGE
Until the WorldxChange merger is completed, WorldxChange has agreed that it
will not permit any of its agents and representatives to, directly or indirectly
take any of the following actions without World Access' written consent:
- solicit any inquiries regarding an acquisition proposal;
- participate in any discussions or negotiations regarding an acquisition
proposal; or
- disclose any confidential information with respect to an acquisition
proposal.
WorldxChange also agreed that it would cause its agents and representatives
to, immediately discontinue any discussions or negotiations regarding an
acquisition proposal in effect on February 11, 2000.
TREATMENT OF WORLDXCHANGE STOCK OPTIONS AND WARRANTS
After completion of the WorldxChange merger, each outstanding WorldxChange
stock option or warrant will be automatically converted into an option to
purchase the number of shares of World Access common stock as is equal to the
number of shares of WorldxChange common stock covered under the WorldxChange
stock option or warrant multiplied by 0.6583 at a per share price equal to the
exercise price of the WorldxChange option or warrant divided by 0.6583. Each
newly issued World Access stock option will contain terms substantially similar
to the terms of the original STAR stock option or warrant.
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BOARD OF DIRECTORS AND OFFICERS OF WORLD ACCESS
World Access and WorldxChange agreed that, immediately following the
completion of the WorldxChange merger, World Access will elect a WorldxChange
designee to the World Access board of directors. The WorldxChange designee will
be Walter Anderson, or a person designated by Gold & Appel Transfer S.A. and
acceptable to World Access. Gold & Appel S.A. is a shareholder of WorldxChange.
CONDITIONS TO COMPLETION OF THE WORLDXCHANGE MERGER
Each party's obligations to complete the WorldxChange merger is subject to
the satisfaction or waiver of each of the following material conditions:
- the WorldxChange merger agreement and the WorldxChange merger must be
approved by the required vote of the stockholders of World Access and
WorldxChange;
- this joint proxy statement/prospectus must have been declared effective
by the Securities and Exchange Commission, and must not be subject to a
stop order suspending the effectiveness of this joint proxy
statement/prospectus; and
- World Access and WorldxChange must have entered into an escrow agreement
governing the terms and conditions of the holding and release of the
shares of World Access common stock issued in the WorldxChange merger.
- each of the representations and warranties of the other party must be
true and correct as of February 11, 2000 and as of the date the
WorldxChange merger is completed except where any failure to be true and
correct results from any act of World Access performed under the
management services agreement between World Access and WorldxChange or
would not have a material adverse effect on the other party;
- each party must perform or comply with its agreements and covenants
required by the WorldxChange merger agreement, except that WorldxChange
will be deemed to have satisfied this condition even if it has not
performed or complied with its agreements and covenants if the failure to
do so is due to WorldxChange's performance of its obligations under the
management services agreement between World Access and WorldxChange; and
- each party must obtain all consents and approvals required by the
WorldxChange merger, except where the failure to obtain any such consent
or approval would not have a material adverse effect on the other party
or if such failure results from acts performed by World Access under the
management services agreement between World Access and WorldxChange;
Additionally, World Access' obligations to complete the WorldxChange merger
are subject to the satisfaction or waiver of the following conditions before
completion of the WorldxChange merger:
- WorldxChange must have complied with all procedures and requirements
applicable to it under the dissenters' rights chapter of the California
General Corporation Law, the period for exercising dissenters' rights
under the California General Corporation Law must have expired and fewer
than 1% of the shares of WorldxChange capital stock shall have exercised
dissenters' rights with respect to the WorldxChange merger; and
- all shares of WorldxChange preferred stock shall have been voted in favor
of the WorldxChange merger agreement, and such shares shall have been
deemed converted into not more than 8,282,829 shares of WorldxChange
common stock.
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TERMINATION OF THE WORLDXCHANGE MERGER AGREEMENT
The WorldxChange merger agreement may be terminated at any time prior to
completion of the WorldxChange merger by either party for any of the following
reasons:
- by mutual written consent;
- if the other party fails to comply in any material respects with any of
its covenants or agreements in the WorldxChange merger agreement and
fails to cure the failure within 30 days after receipt of notice of
breach. However, the non-breaching party may not terminate the
WorldxChange merger agreement if the breaching party is using reasonable
efforts to cure the breach, and World Access may not terminate the
WorldxChange merger agreement if WorldxChange's breach is because of acts
of World Access performed under the management services agreement between
World Access and WorldxChange;
- if the other party has breached any of its representations or warranties,
which breach has not been cured within 30 days after receipt of written
notice of the breach. However, the non-breaching party may not terminate
the WorldxChange merger agreement as long as the breaching party is using
reasonable efforts to cure the breach, and World Access may not terminate
the WorldxChange merger agreement if WorldxChange's breach is because of
acts of World Access performed under the management services agreement
between World Access and WorldxChange;
- if the WorldxChange merger is not completed before December 31, 2000,
except that the right to terminate the WorldxChange merger agreement is
not available to the party whose action or failure to act has been the
cause of or resulted in the failure of the WorldxChange merger to occur
on or before December 31, 2000; or
- if the WorldxChange merger agreement fails to receive the requisite vote
for approval by the stockholders of World Access or WorldxChange, in each
case upon the taking of such vote.
EXTENSION, WAIVER AND AMENDMENT OF THE WORLDXCHANGE MERGER AGREEMENT
The WorldxChange merger agreement may be amended by World Access and
WorldxChange at any time before completion of the WorldxChange merger. However,
following stockholder approval, no amendment may be made that requires further
approval by the stockholders. World Access and WorldxChange may extend the time
for the performance of any of the obligations or other acts of the other party
under the WorldxChange merger agreement, waive any inaccuracies of the other
party's representations and warranties and waive compliance with any of the
agreements or conditions of the other party contained in the WorldxChange merger
agreement.
POST-CLOSING INDEMNIFICATION
After the completion of the WorldxChange merger, World Access will be
entitled to indemnification from and against any and all losses incurred by
World Access, its successors or assigns, and their respective officers,
employees, consultants and agents as a result of any of the following:
- a breach of any representation or warranty of WorldxChange in the
WorldxChange merger agreement;
- a breach of any representation or warranty of WorldxChange in the
certificate to be provided by WorldxChange at the closing with respect to
the truth, accuracy and fulfillment of representations, warranties and
covenants of WorldxChange;
- a breach prior to the completion of the WorldxChange merger of any
covenant or agreement of WorldxChange contained in the WorldxChange
merger agreement; or
- the imposition of the suspended $17.6 million dollar fine, or other
monetary penalty, imposed in connection with or related to a matter
involving WorldxChange before the California Public Utilities Commission.
However, World Access will only be entitled to indemnification if the
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imposition arises out of wrongful acts or omissions of WorldxChange which
occur after the effective date of the order related to such matter and
before the completion of the WorldxChange merger.
WorldxChange will not have to indemnify World Access for losses incurred
because of acts of World Access performed under the management services
agreement between World Access and WorldxChange. All claims for indemnification
must be asserted no later than one year following the completion of the
WorldxChange merger. No claim may be made, except in limited circumstances,
until the amount of each loss in excess of $150,000 exceeds $3.0 million in the
aggregate, at which time World Access may claim indemnification for the amount
of losses, in each case net of $150,000, in excess of $3.0 million.
Upon approval of the WorldxChange merger agreement and the transactions
contemplated by the WorldxChange merger agreement by the WorldxChange
shareholders, Edward S. Soren, a shareholder of WorldxChange, will serve as the
attorney-in-fact and agent of the WorldxChange shareholders with authority to
take any actions permitted to be taken by the WorldxChange shareholders under
the WorldxChange merger agreement and the escrow agreement, including those
related to indemnification.
WORLDXCHANGE SERVICES, VOTING AND PARTICIPATION AGREEMENTS
This section of the joint proxy statement/prospectus describes agreements
related to the WorldxChange merger agreement, including the World Access
stockholders' voting and stock transfer restriction agreement, the WorldxChange
shareholders' voting and stock transfer restriction agreements, the escrow
agreement, the World Access -- WorldxChange services agreement and the Foothill
Capital Corporation participation agreement. While World Access and WorldxChange
believe that these descriptions cover the material terms of these agreements,
these summaries may not contain all of the information that is important to you.
WORLD ACCESS VOTING AGREEMENT
On February 11, 2000, WorldxChange and certain World Access stockholders,
including Armstrong International Telecommunications, Inc., WorldCom Network
Services, Inc., The 1818 Fund III, L.P., John D. Phillips, Walter J. Burmeister,
W. Tod Chmar Geocapital V, L.P., Geocapital Advisors, L.P., Geocapital Investors
V, L.P., Gilbert Global Equity Partners, L.P., Gilbert Global Equity Partners
(Bermuda), L.P. and Resurgens Partners, LLC, entered into a voting and stock
transfer restriction agreement, pursuant to which each World Access stockholder
agreed to vote all of its shares of World Access capital stock (whether owned
beneficially or of record), as well as any other shares of World Access capital
stock such World Access stockholder acquires prior to the completion of the
WorldxChange merger, in favor of the WorldxChange merger and the adoption and
approval of the WorldxChange merger agreement. Each World Access stockholder
also agreed to vote against any action or agreement that would result in a
material breach of any covenant, representation or warranty of World Access
contained in the WorldxChange merger agreement. Further, each World Access
stockholder agreed not to (except in limited circumstances) sell, hypothecate,
transfer, pledge, encumber, assign or otherwise dispose of any of its shares of
World Access capital stock prior to the termination of the voting and stock
transfer restriction agreement. The voting and stock transfer restriction
agreement terminates upon the first to occur of:
- the termination of the WorldxChange merger agreement in accordance with
the termination provisions of the WorldxChange merger agreement,
- the completion of the WorldxChange merger and
- October 31, 2000.
As of the World Access record date, the World Access stockholders that
entered into the voting and stock transfer restriction agreement owned shares of
World Access capital stock representing approximately 50% of the voting stock of
World Access voting together as a single class.
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WORLDXCHANGE VOTING AGREEMENTS
World Access has entered into separate voting and stock transfer
restriction agreements with the following WorldxChange shareholders: Tom
Cirrito; Roger B. Abbott and Rosalind Abbott, whose shares of WorldxChange
capital stock are owned jointly; Walter Anderson; and Edward S. Soren. Each
voting and stock transfer restriction agreement is substantially similar and
contains the following provisions:
- each WorldxChange shareholder must vote all of its shares of WorldxChange
capital stock (whether owned beneficially or of record), as well as any
other shares of WorldxChange capital stock acquired prior to the
completion of the WorldxChange merger, in favor of the WorldxChange
merger and the adoption and approval of the WorldxChange merger
agreement;
- each WorldxChange shareholder must vote against any action or agreement
that would result in a material breach of any covenant, representation or
warranty of WorldxChange contained in the WorldxChange merger agreement;
- subject to certain exceptions designed to ensure that the same number of
shares of WorldxChange capital stock remain subject to the restrictions
and obligations set forth in the voting and stock transfer restriction
agreements, no WorldxChange shareholder may:
- sell, transfer, or otherwise dispose of any shares of WorldxChange
capital stock or options to acquire shares,
- trade or take any position, hedge or otherwise, with respect to shares
of WorldxChange capital stock or options to acquire such shares,
- enter into any voting arrangement with respect to shares of
WorldxChange capital stock or options to acquire such shares or
- take any action that would make any of such WorldxChange shareholder's
representations or warranties untrue to a material extent or have the
effect of preventing or materially impeding such WorldxChange
shareholder from performing any of its obligations;
- except for Edward S. Soren, Roger B. Abbott and Rosalind Abbott (as
described below), until six months following the completion of the
WorldxChange merger, no WorldxChange shareholder may (i) Transfer or
enter into any contract or understanding with respect to the Transfer of
any of the shares of World Access common stock to be received by such
shareholder in the WorldxChange merger or (ii) trade or take any
position, hedge or otherwise, with respect to the shares of World Access
common stock received by such shareholder in the WorldxChange merger; and
- each voting and stock transfer restriction agreement terminates upon the
first to occur of (i) the termination of the WorldxChange merger
agreement in accordance with its termination provisions
Because the above-referenced shareholders hold a significant number of
WorldxChange stock, there is a greater likelihood that the WorldxChange merger
will be approved. The WorldxChange voting agreements represent approximately an
aggregate of WorldxChange capital stock, which is approximately %
of the voting stock of WorldxChange.
EXECUTIVE MANAGEMENT SERVICES AGREEMENT WITH WORLDXCHANGE
World Access has entered into an Executive Management Services Agreement
with WorldxChange under which World Access will manage the operations and
business affairs of WorldxChange as if World Access and WorldxChange had already
completed the WorldxChange merger. The agreement calls for World Access to serve
as the exclusive agent for WorldxChange to provide all management services
required for the operation and management of WorldxChange. World Access has the
authority, to the fullest extent permitted by law, to take all actions and make
all decisions on behalf of WorldxChange in the operation and management of
WorldxChange's day to day business affairs. World Access may contract with third
parties to perform the management services. WorldxChange will reimburse World
Access, on a monthly basis, for all expenses incurred by World Access on behalf
of WorldxChange. WorldxChange is
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obligated to provide and furnish World Access with any reasonable assistance
and/or information necessary for World Access to perform the services under the
agreement. 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.
FOOTHILL CAPITAL CORPORATION PARTICIPATION AGREEMENT
On February 11, 2000, World Access entered into a participation agreement
with Foothill Capital Corporation under which WorldxChange can borrow money. A
participation agreement is an agreement that establishes the terms under which
an additional lender, referred to as a participant and in this case World
Access, provides a portion of the funds to be borrowed under a loan arrangement
to a lead lender. In this participation agreement, Foothill is the lead lender
and will act as agent for World Access in dispersing the funds and in
administering and collecting the loan. The Foothill participation agreement
provides for World Access to provide up to $45.0 million to be advanced by
Foothill to WorldxChange and certain of its subsidiaries. The terms of the loan
are governed by the terms of an existing loan arrangement between Foothill and
WorldxChange. The Foothill loan to WorldxChange is structured as a term loan
which bears interest at a rate of 11% per annum and matures on February 11,
2001. The Foothill loan to WorldxChange is subject to extension by World Access
up to October 1, 2003. Both the term loan and the existing indebtedness to
Foothill under the loan arrangement will be secured by a security interest in
all personal property of WorldxChange. The participation interest of World
Access in the term loan is a last-out participation, which means that at any
time after an acceleration by Foothill of the maturity of the obligations under
the loan arrangement, or the failure of WorldxChange to repay such obligations
in full upon the obligations stated maturity, all amounts collected or received
by Foothill will be applied first to the repayment of all principal, interest
and costs owing to Foothill, and then, to repayment of amounts owing to World
Access.
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INFORMATION REGARDING WORLDXCHANGE
WorldxChange is a global telecommunications company that specializes in
providing high-quality, low-cost domestic and international telecommunications
services. WorldxChange has established operations in North America, Europe and
the Pacific Rim. WorldxChange's global facilities include 43 switches located in
major metropolitan areas in 10 countries. Switches are devices that direct calls
and record billing information. WorldxChange connects its switches with a
network of owned and leased undersea and land-based cables.
WorldxChange's services currently include international and domestic long
distance telephone service, pre-paid calling card services, operator services,
and Internet access. WorldxChange markets these services through direct mail,
independent agents, direct sales and media advertising. WorldxChange currently
serves customers in the United States, Australia, Belgium, Canada, France,
Germany, Guatemala, The Netherlands, New Zealand and the United Kingdom.
SERVICES
WorldxChange provides a variety of retail telecommunication and information
services to residential and commercial customers, including international and
domestic long distance telephone service and pre-paid calling card services,
operator services and Internet access. WorldxChange also provides wholesale and
resale services to carrier customers.
Retail services
WorldxChange offers international and domestic long distance telephone
service and pre-paid calling card services in all of its primary geographic
markets, including the United States, Australia, Belgium, Canada, France,
Germany, The Netherlands, New Zealand and the United Kingdom. In addition,
WorldxChange offers Internet access service in the United States, The
Netherlands, New Zealand, and the United Kingdom. Each of these services is
described in more detail below.
International and domestic long distance telephone service. International
and domestic long distance telephone service is accessed from a customer's
billing location, such as the home or office. In North America, Germany,
Australia and New Zealand, customers who have subscribed to WorldxChange's
service may access the WorldxChange network by dialing a prefix. U.S. customers
who have subscribed to WorldxChange's service may use the service by dialing
"1+," and U.S. customers who have not subscribed must dial a seven-digit code.
Most of WorldxChange's U.S. residential customers use the seven-digit access
code. WorldxChange's international and domestic long distance telephone service
generally enables customers to call to any destination.
Calling card services. WorldxChange sells pre-paid calling card services
in most of the countries in which it operates. In these countries, customers
access WorldxChange's calling card service by dialing a national toll-free
number or a local access number.
Internet access services. WorldxChange introduced its Internet access
service, known as "wxc.net", in June 1999. Customers access WorldxChange's
Internet service by dialing a local or toll-free number. This service is offered
to residential and commercial customers for a fixed monthly price.
Other retail services. WorldxChange also provides the other retail
services described below. These services currently account for a relatively
small portion of WorldxChange's revenues and are currently provided as ancillary
offerings.
- Toll-free service. WorldxChange provides domestic toll-free service to
customers in most of the countries in which it operates. Toll-free
customers in the United States also may obtain an enhanced feature known
as "follow me" service, under which toll-free calls are automatically
forwarded to alternate numbers until answered.
- Directory assistance. WorldxChange provides its U.S. and Canadian long
distance customers with nationwide directory assistance service 24 hours
a day.
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- Dedicated access service. This service provides customers with a
dedicated, leased transmission line that connects the customer's business
directly to our network. This service is marketed to high-volume
customers in the United States, Germany and the United Kingdom and can be
used for voice, data, video and Internet access.
- Operator services. In the United States, WorldxChange offers 24-hour
operator service to customers that have pre-selected the WorldxChange
service. In addition, alternative operator services are offered,
predominately for U.S. bound calls originating from countries outside the
United States.
Wholesale services
Carrier services. WorldxChange sells long distance transmission capacity
to carriers through a direct sales force in the United States, Australia,
Canada, New Zealand and the United Kingdom. These customers, which include some
of the largest carriers in the world, may purchase capacity to carry traffic
where they do not have their own routes, where they require additional or
reserve capacity, or where WorldxChange is able to provide more favorable
pricing. These carrier customers use WorldxChange transmission capacity to
provide service to their customers.
Other wholesale services. WorldxChange sells transmission capacity to
customers that offer their own branded products and services such as private
label calling cards. In addition, WorldxChange also sells transmission capacity
to resellers for subsequent sale of long distance services to their customers.
THE WORLDXCHANGE NETWORK
As of March 1, 2000, WorldxChange's network consisted of:
- 43 switches in ten countries;
- long-term rights to use on-land cable capacity in the United States;
- seven satellite earth stations at locations in the United States and
abroad; and
- an international transmission network consisting of direct ownership
interests and long-term rights to use the following undersea cables:
Americas-I
APCN
Atlantic Crossing
Cantat 3
Canus 1
Columbus II
F.L.A.G.
Guam-Philippines
HAW-5
Jasuraus
PacRim East
Pan American
PTAT
Taino-Caribe
Tasman 2
TAT-12/TAT-13
TPC-5
UK-Belgium 6
UK-Germany 6
UK-Japan
UK-Netherlands 12
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WorldxChange also has arrangements to connect with the telecommunications
networks of large telecommunications carriers in each of Australia, Belgium,
Canada, Chile, France, Germany, Guatemala, The Netherlands, New Zealand and the
United Kingdom, as well as arrangements to connect with the networks of major
carriers in the United States.
Costs of call origination, transmission and termination
The major components of WorldxChange's costs include the cost of
origination, transmission and termination.
Origination and termination. In general, WorldxChange pays a per-minute
fee to originate and terminate calls. WorldxChange can reduce the costs of its
U.S. calls by having a direct connection with the applicable local telephone
companies, which allows WorldxChange to carry a larger portion of each call on
its network. WorldxChange can reduce these costs outside North America by
connecting with the large national carriers. In addition, these connections
allow WorldxChange to provide network access through prefix code dialing and to
transport calls on its network originating in a greater number of locations.
Transmission. WorldxChange currently uses a combination of direct
ownership interests in undersea cables, long-term rights to use on-land and
undersea cables, leased lines and arrangements with other carriers, to manage
its transmission costs. WorldxChange usually tries to acquire ownership
interests in long-term rights to use undersea cables and/or that connect cities
with substantial calling traffic between them. However, WorldxChange has used
leased lines in regions where long-term rights of use are either too expensive
or if WorldxChange believes prices for long-term rights of use will decline, or
where long-term rights of use are not available. In some cases, WorldxChange
uses specialized equipment to further increase the capacity of the cables on
which it has long-term rights of use.
Other. In addition to the cost of origination, transmission and
termination, the other costs of the WorldxChange network relate primarily to
switching and related equipment, WorldxChange's Internet access equipment and
network management and related software.
Network operations
North America. WorldxChange monitors and maintains the North American
portion of its network from a centralized network operations center in San
Diego, which operates 24 hours a day.
Overseas operations. Currently, each of the foreign WorldxChange operating
subsidiaries monitors its own domestic switching and network functions.
WorldxChange's San Diego network operation center monitors the intercontinental,
intercountry and intracountry portions of the WorldxChange network.
Information systems. WorldxChange's information systems provide vital
operating information and statistics. These information systems are relied upon
to monitor carrier traffic volumes and patterns and price schedules and are used
to respond quickly to changes in these traffic volumes, patterns and prices and
assist in routing calls to their destination in the least expensive manner.
WorldxChange has installed a wide area network linking all its switch sites,
which coordinates the use of WorldxChange's systems.
North American network
WorldxChange has switches in each of the 10 cities listed below that are
connected with the WorldxChange network. WorldxChange expects to relocate its
switch in Seattle to San Francisco by approximately September 1, 2000.
<TABLE>
<S> <C> <C>
Chicago Montreal Vancouver
Dallas New York City Washington D.C.
Los Angeles Seattle
Miami Toronto
</TABLE>
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WorldxChange connects the North American portion of its network with other
regions of the world through interests on the Americas-I, Atlantic Crossing,
Canus 1, Columbus II, HAW-5, Taino-Caribe and TPC-5 undersea cables.
U.S. network. Prior to March 1999, WorldxChange leased most of its on-land
cables from MCI WorldCom. As those leases expired, they were converted to
long-term rights of use covering the same capacity. These new arrangements also
allow additional capacity to be added in the future.
In February 1999, WorldxChange entered into a five-year lease with Level 3
Communications providing additional capacity to carry calls, which is commonly
referred to as transmission capacity. This lease is convertible into a long-term
right of use at the end of the lease.
European network
WorldxChange connects the European portion of its network with other
regions of the world through interests on the Atlantic Crossing, Cantat 3,
Columbus-II, F.L.A.G., PTAT, TAT-12/TAT-13, UK-Belgium 6, UK-Germany 6 and
UK-Netherlands 12 undersea cables.
ACC Acquisition. In November 1999, WorldxChange acquired the operations of
ACC Corp. in France, Germany and the United Kingdom, and a switch in Italy. This
acquisition expanded WorldxChange's presence in these key European markets.
WorldxChange is in the process of integrating the operations and network
equipment into its existing operations and network. No assurance can be given
that this integration can or will be successful.
Pacific Rim network
WorldxChange has a total of nine switches in Australia. WorldxChange
connects the Asia Pacific portion of its network with other regions of the world
through interests on the APCN, Jasuraus, F.L.A.G., Guam-Philippines, PacRim
East, Tasman 2, TPC-5 and US-Japan undersea cables.
Latin America network
WorldxChange has a switch in Guatemala City, Guatemala and Santiago, Chile.
WorldxChange connects the Latin American portion of its network through an
ownership interest in the Pan American undersea cable, as well as via satellite
services.
Network hardware and software
North America. WorldxChange uses switches throughout its North American
network. These switches enable WorldxChange to handle large, simultaneous call
volumes, provide high quality service to customers and connect with local
carriers.
During the fourth quarter of 1998, WorldxChange experienced technical
problems with a new switch that it installed in New York. The problems included
the failure of the switch to record billing information for certain calls.
WorldxChange worked with the vendor of the switch to fix the problems and has
implemented new procedures to detect any similar problems that may arise with
this switch or similar switches in the future. However, there can be no
assurance that WorldxChange will not experience additional problems with its
switching equipment in the future.
Overseas operations. WorldxChange uses both switches assembled by
WorldxChange and purchased from outside vendors in markets outside of North
America. The switches assembled by WorldxChange are personal computer-based
devices designed to route calls and provide customer service and billing
functions. Shortly before WorldxChange acquired ACC Corp.'s U.K. operations, ACC
introduced a new billing system in the United Kingdom that has not performed
properly, resulting in delaying billing and billing inaccuracies. WorldxChange
has installed its own billing system in place of the faulty ACC system in the
United Kingdom. However, there can be no assurance that this replacement billing
system will not also experience problems.
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Least cost routing. WorldxChange uses a combination of hardware and
software to route a call over the most cost-efficient route available at the
time the call is placed. Prices for various destinations fluctuate daily.
WorldxChange uses routing software to frequently revise routing tables,
including accounting for fluctuations in currency exchange rates, as the cost of
certain routes changes. WorldxChange employs a group of employees based in San
Diego who focus on monitoring the routing of calls and seeking to minimize
transmission costs. In addition to the monitoring performed by WorldxChange's
San Diego-based team, a limited amount of the monitoring is performed in each of
the countries in which WorldxChange operates.
Internet network
WorldxChange provides Internet access from its network. Internet customers
dial an access number, which connects the customer over the WorldxChange network
to WorldxChange's server in Los Angeles, which ultimately connects the customer
to the Internet. WorldxChange monitors its Internet network from its San Diego
network operations center.
TERMINATION ARRANGEMENTS
WorldxChange terminates calling traffic through a number of routing
alternatives. These alternatives include resale arrangements, operating
agreements and other termination arrangements as described below.
Resale arrangements provide WorldxChange with multiple options to route
traffic through switches in various destination countries. These arrangements
generally involve terminating traffic through a third party. For example,
WorldxChange does not have operations in Afghanistan. If one of its customers
wishes to place a call to Afghanistan, WorldxChange can pass the call on to a
third party carrier by purchasing some of the excess capacity on that carrier's
network. The carrier would then terminate the call in Afghanistan either
directly or through another carrier with which it has a relationship.
During a typical month, WorldxChange may purchase capacity from more than
80 vendors. WorldxChange pays per-minute charges to use much of this capacity,
which subjects WorldxChange to potential price increases. In addition, since
WorldxChange generally obtains this capacity on a short-term basis, it may
experience service cancellations. WorldxChange's vendor contracts provide that
rates are subject to change after notice periods varying from one to 30 days.
The pricing of termination services depends on such factors as the volume of
call traffic and the time of day.
The Federal Communications Commission or foreign regulatory agencies may
assert that certain of WorldxChange's call termination practices do not comply
with current international settlement rules and policies, such as current
international simple resale rules. WorldxChange could face sanctions, including
forfeitures, if the Federal Communications Commission were to find that certain
of WorldxChange's termination arrangements violate Federal Communications
Commission rules.
SALES AND MARKETING
WorldxChange uses a number of marketing channels to reach customers. These
channels include direct mail, independent sales agents, multilevel marketing, a
direct sales force, affinity groups, the Internet and media advertising. This
multi-faceted approach allows WorldxChange to customize its marketing for
specific geographic markets and services.
United States
WorldxChange uses several channels to market its services to U.S.
customers, including direct mail, its recently introduced "xPectations ML"
multi-level marketing program, direct sales and other channels such as affinity
programs, the Internet and media advertising. These channels are described
below.
Direct mail. WorldxChange has developed a number of different direct mail
programs, each designed to appeal to a particular market segment. Direct mail is
used principally to market services to residential and commercial customers who
have not pre-subscribed to WorldxChange's service.
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Multilevel marketing. In October 1998, WorldxChange introduced its
xPectations ML marketing program in the United States. This program involves the
marketing by independent representatives of WorldxChange long distance service,
as well as Internet access and prepaid calling card services, to potential
customers. These representatives also seek to recruit additional xPectations ML
representatives who will in turn market WorldxChange services to their contacts.
Program representatives earn commissions based on revenues collected by
WorldxChange from new customers that they sign up, as well as based on revenues
collected from customers signed up by other representatives that they recruit to
the program.
WorldxChange also uses the Internet to enhance the xPectations ML program.
xPectations ML representatives can obtain their own Web site, which WorldxChange
hosts. This allows representatives to use a professionally-designed Web site to
market the xPectations ML program to potential customers while allowing
WorldxChange to retain control over the advertising content on the site.
Direct sales. WorldxChange employs a direct sales force in the United
States. This direct sales force primarily markets WorldxChange prepaid calling
cards to residential and commercial customers. They also sell excess
transmission capacity to carrier and other wholesale customers. The direct sales
approach is used for these services because they are more complex and usually
have a longer sales cycle.
Other channels. WorldxChange also uses affinity programs, the Internet and
media advertising to market its services in the United States. Under the
affinity programs, WorldxChange partners with other companies and organizations
to introduce and sell WorldxChange services. WorldxChange's Internet marketing
strategy includes the recent introduction of the "Virtual PIN" program under
which customers are able to purchase and recharge prepaid calling cards
exclusively through the WorldxChange website, which may be accessed at
www.worldxchange.com.
Europe
WorldxChange's marketing activities vary from country to country and are
based on aspects of WorldxChange's marketing programs used throughout the world.
For example, WorldxChange is in the process of beginning the process of
implementing the xPectations ML program in Europe, and WorldxChange has
commenced direct mailing campaigns modeled after its U.S. direct mail programs.
Marketing activities vary by the kind of service WorldxChange is selling
and the kind of customer WorldxChange is targeting within a particular country.
For example, in the United Kingdom, WorldxChange markets its residential long
distance services through affinity programs and direct mail programs. Direct
sales and independent agents are used to generate commercial long distance
business in the United Kingdom, direct sales are used to generate resale and
carrier and other business there, and independent agents are used to market
WorldxChange's calling card services there.
In The Netherlands WorldxChange uses direct mail, affinity programs, direct
sales and independent agents to market its residential and commercial long
distance services. WorldxChange also uses direct sales, independent agents and
limited media advertising to market other services in The Netherlands, including
its resale and carrier services.
In Belgium, WorldxChange relies on direct mail and independent agents to
market its residential long distance services and direct sales to market its
long distance service to commercial customers as well as sales of excess
capacity to carrier and other wholesale customers there. In addition,
independent agents also market WorldxChange's long distance services to Belgian
commercial customers.
WorldxChange is in the process of establishing a sales and marketing
program in France and Germany. In France, WorldxChange is promoting its
residential long distance service, which currently requires customers to dial a
prefix, through independent agents and direct mail. WorldxChange uses direct
sales to market calling card services and direct sales and independent agents to
market commercial long distance services, which require the use of a four-digit
access code, in France. WorldxChange is marketing its calling card services in
Germany primarily through independent agents and, to a lesser extent, through
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affinity programs. WorldxChange also has conducted direct mailing campaigns in
both France and Germany.
The Pacific Rim
WorldxChange's marketing strategy in Australia and New Zealand uses direct
mailing, independent agents, affinity programs and media advertising to reach
potential residential long distance customers. WorldxChange relies on direct
sales and independent agents to market its long distance service to commercial
customers and direct sales to reach calling card and carrier and other wholesale
customers.
WORLDWIDE OPERATIONS
U.S. headquarters operations
WorldxChange's senior management directs WorldxChange's operations and
those of its foreign operating subsidiaries and develops and oversees the
implementation of its overall business strategy from WorldxChange's San Diego
headquarters. Headquarters personnel currently perform centralized financial
services for WorldxChange's foreign operating subsidiaries, including financial
planning and analysis and cost control. WorldxChange's San Diego-based senior
management also coordinate the acquisition of additional transmission capacity,
either leased or purchased, based on the growth of traffic volumes in each
market and helps arrange financing and vendor discounts on behalf of
WorldxChange's foreign operating subsidiaries. In addition, headquarters
personnel perform worldwide treasury functions for WorldxChange's foreign
operating subsidiaries, including managing cash flows between the foreign
operating subsidiaries for the transmission of traffic between them as well as
the allocation of working capital.
Headquarters personnel also manage the expansion of the WorldxChange
network, which includes determining whether to acquire additional capacity for
existing operations and integrating foreign operating subsidiaries into
WorldxChange's network. Headquarters personnel also coordinate traffic routing
over the network, which involves the programming of WorldxChange's switches to
transport international calls over the route which is most likely to result in
the lowest-cost transmission without sacrificing quality.
Non-U.S. operations
Each of WorldxChange's foreign operating subsidiaries is a limited
liability company that is directly or indirectly wholly- or majority-owned by
WorldxChange. WorldxChange's significant operating subsidiaries are briefly
discussed below. WorldxChange has additional subsidiaries in other countries,
but the operations of these subsidiaries are not significant.
Australian operations
WorldxChange's Australian operating subsidiary provides local service and
international and domestic long distance service to residential and commercial
customers and sells excess transmission capacity to other carrier customers.
Calling card services are also provided. Current commercial customers in
Australia include multinational corporations, large national companies, as well
as small and medium-sized businesses.
Belgian operations
WorldxChange's Belgian operating subsidiary provides domestic and
international long distance and calling card services to residential and
commercial customers. It also sells excess transmission capacity to other
telecommunications carriers.
Dutch operations
WorldxChange's Dutch operating subsidiary provides local service and
domestic and international long distance service to residential and commercial
customers and call shops. Commercial customers include
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small and medium-sized businesses. This operating subsidiary also has reseller,
carrier and other wholesale customers.
French operations
WorldxChange's French operating subsidiary provides local service, domestic
and international long distance and calling card services to residential and
commercial customers. It also sells excess transmission capacity to other
telecommunications carriers.
German operations
WorldxChange's German operating subsidiary provides local service, domestic
and international long distance and calling card services to residential and
commercial customers. It also sells excess transmission capacity to other
telecommunications carriers.
New Zealand operations
WorldxChange's New Zealand operating subsidiary provides domestic and
international long distance services to residential and commercial customers, as
well as toll-free services.
U.K. operations
WorldxChange's U.K. operating subsidiary provides local service and
domestic and international long distance service to residential and commercial
customers and other carriers in the United Kingdom, as well as calling card
services. Current commercial customers include small and medium-sized
businesses.
EMPLOYEES
As of June 30, 2000, WorldxChange employed approximately 876 people,
including officers, administrative and sales personnel, of which 786 were
full-time employees and 90 were part-time employees.
PROPERTIES
WorldxChange's principal offices are located at 9999 Willow Creek Road, San
Diego, California, where WorldxChange occupies approximately 36,100 square feet
under a lease that expires on August 31, 2002.
WorldxChange also maintains a 24,300 square-foot office at 9775
Businesspark Avenue, San Diego, California, which houses WorldxChange's human
resources, technical and certain other corporate functions. This lease expires
on July 31, 2002.
WorldxChange leases all of the facilities in which its switches are
installed. These leases are generally multi-year leases. In addition, our
foreign operating subsidiaries lease facilities for their respective corporate
offices and switch sites.
LEGAL PROCEEDINGS
In May 1997, the California Public Utilities Commission issued an order
revoking WorldxChange's authority to provide intrastate calling service in
California and imposing certain other fines and penalties, including, among
other things, a $19.6 million fine, against WorldxChange based on the California
Public Utilities Commission's finding that WorldxChange had violated California
laws and regulations requiring WorldxChange to obtain prior consumer
authorization before switching consumers' long distance carriers. WorldxChange
has paid $2.0 million of the $19.6 million fine, with the balance suspended so
long as WorldxChange is not found to have committed any future violations of
statutes or California Public Utilities Commission directives. Under the
California Public Utilities Commission's order, the sanctions and fines are
binding on any successor to WorldxChange, unless the California Public Utilities
Commission orders otherwise. WorldxChange has implemented a number of policies
and procedures
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designed to help reduce the likelihood of future allegations of the kind leading
to the California Public Utilities Commission's order. However, there can be no
assurance that additional allegations of wrongdoing will not be brought against
WorldxChange in the future or that, if such allegations are made, that they
would not result in substantial expense and/or liability to WorldxChange. For
example, if such allegations were to be made in California and WorldxChange were
found to have violated statutes or any California Public Utilities Commission
directives, WorldxChange would be subject to paying the $17.6 million portion of
the California Public Utilities Commission fine that is currently suspended, as
well as potentially other fines and penalties, which could be substantial. If
WorldxChange were required to pay the suspended portion of the California Public
Utilities Commission fine and/or any such additional fines or penalties,
WorldxChange's business would be harmed. In September 1995, the California
Attorney General notified WorldxChange that it was investigating alleged
violations by WorldxChange of certain consumer protection laws. WorldxChange
commenced negotiations for a settlement with the California Attorney General,
but these negotiations were terminated in 1997 in connection with the California
Public Utilities Commission proceedings described above without any settlement
agreement. It is possible that the California Attorney General could reopen its
investigation of WorldxChange or commence a lawsuit against WorldxChange based
on the same or new or additional allegations of wrongdoing by WorldxChange. If
such investigation were to be reopened or such lawsuit were to be commenced,
WorldxChange would be forced to respond and defend itself, which could result in
significant expense and diversion of WorldxChange's management's time and
resources. In addition, WorldxChange could incur significant liability pursuant
to a settlement or adverse judicial ruling in connection with any such
proceedings.
WorldxChange was also notified in September 1995 by the attorneys general
of five other states that they were investigating alleged violations by
WorldxChange of certain consumer protection laws. WorldxChange settled these
allegations by paying an aggregate amount of $475,000 and, without admitting
liability, consenting to civil injunctions.
WorldxChange is a party, from time to time, to certain legal and
administrative proceedings, claims and inquiries that arise in the ordinary
course of its business, as well as to certain other litigation, some of which
proceedings, claims and inquiries involve claims for substantial amounts of
damages. Although the ultimate outcome of these proceedings, claims and
inquiries is uncertain, WorldxChange does not believe that any of these
proceedings, claims or inquiries will materially harm WorldxChange's business.
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WORLDXCHANGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with WorldxChange's
financial statements, the notes thereto and the other financial data included
elsewhere in this joint proxy statement/prospectus.
OVERVIEW
General
WorldxChange is a global telecommunications company that specializes in
providing high-quality, low-cost domestic and international telecommunications
services. WorldxChange has established operations in North America, Europe and
the Pacific Rim. WorldxChange's global facilities include switches located in
major metropolitan areas in ten countries.
Revenues
WorldxChange obtains its revenues from providing international and domestic
telecommunication services to retail and wholesale customers. WorldxChange's
retail revenues are derived from usage generated by residential and commercial
customers. WorldxChange's wholesale revenues are composed of revenues generated
from sales to other U.S. and foreign telecommunications carriers and resellers.
Revenues are derived mainly from the number of minutes (or fractions
thereof) used by WorldxChange's customers and billed by WorldxChange and are
recognized upon completion of the calls, as well as, to a lesser extent, from
certain recurring monthly fees that we recognized when services are provided.
Prices for long distance calls have decreased substantially in many of the
markets that WorldxChange serves due to increased competition and to cost
reductions associated with technological advancements. As a consequence,
WorldxChange has experienced and expects to continue to experience declining
revenues per minute in these markets.
WorldxChange's revenues have increased from $331.7 million in fiscal 1997
to $421.6 million in fiscal 1999. WorldxChange's total retail revenues have
grown from $139.7 million in fiscal 1997 to $212.0 million in fiscal 1999.
WorldxChange's foreign retail revenues have increased from $28.1 million in
fiscal 1997 to $69.4 million in fiscal 1999. WorldxChange has achieved its
retail growth primarily through the use of direct mail marketing campaigns in
Europe, the U.S. and Australia, as well as through agent sales.
The following table reflects percentages of total revenue from
WorldxChange's North American and non-North American operations and by type of
customer for fiscal 1997, 1998, and 1999 and the six months ended March 31, 1999
and 2000:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
SEPTEMBER 30, MARCH 31,
-------------------- ------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Retail:
North America................................... 34% 31% 34% 29% 30%
Outside North America........................... 8 17 16 19 28
--- --- --- --- ---
Total Retail................................. 42 48 50 48 58
Carrier:
North America................................... 46 40 41 41 28
Outside North America........................... 3 2 3 4 12
--- --- --- --- ---
Total Carrier................................ 49 42 44 45 40
Operator Services................................. 9 10 6 7 2
--- --- --- --- ---
Total Revenues............................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
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In November 1999, WorldxChange purchased the European operations of ACC
Corp, which is referred to in this discussion as ACC Europe. The acquisition of
ACC Europe has been accounted for using the purchase method of accounting.
Accordingly, the results of ACC Europe's operations have been included from the
date of acquisition, November 4, 1999. The increase in revenues outside North
America during the six months ended March 31, 2000 has been primarily
attributable to this purchase.
Cost of services
Cost of services is WorldxChange'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 calls WorldxChange carries
must be originated and terminated by a local carrier. Variable costs also
include the cost of transmitting calls using the long distance facilities of
other carriers, which WorldxChange uses if it cannot carry the traffic over its
own network. These local and long distance carriers charge on a per minute
basis. WorldxChange'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
WorldxChange'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 WorldxChange's ownership interests in
cables and long-term rights of use in cables or other facilities are expensed in
depreciation and amortization and are therefore not accounted for as part of
cost of services. To the extent WorldxChange's expanded use of its interests in
cables or long-term rights of use in cables or other facilities reduces its
utilization of leased lines and the facilities of other long distance carriers,
WorldxChange believes the increase in depreciation expense associated with its
interests in cables or long-term rights of use in cables or other facilities
will be offset by a decrease in its variable and fixed cost of services.
Selling, general and administrative expenses
WorldxChange'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 WorldxChange 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 WorldxChange increases
its sales and marketing efforts and commences operations in new markets,
WorldxChange 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 WorldxChange'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
- Interests in cables or long-term rights of use in cables or other
facilities interests in international undersea and on-land fiber-optic
cable systems, which are being amortized over their estimated useful
lives, which is typically 20 years.
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WorldxChange expects depreciation and amortization expenses to increase
significantly as a result of the amortization of the $68.2 million of goodwill
and $17.0 million of customer list recorded in association with its purchase of
ACC Europe. Customer list is amortized over five years and goodwill is amortized
over 20 years.
Interest expense
Interest expense principally consists of interest payable on WorldxChange's
revolving credit agreement, subordinated notes, notes payable and capital
leases. As WorldxChange incurs additional indebtedness to expand its operations,
it expects interest expense to increase.
Income taxes
As of September 30, 1999, WorldxChange has net operating loss carryforwards
available for federal, state, and foreign tax purposes of approximately $74.2
million, $45.0 million and $55.0 million, respectively. The federal net
operating loss carryforwards will begin expiring in 2007, and the state net
operating loss carryforwards begin to expire in 1999 and will continue to expire
through 2003, unless previously utilized. The Canadian and Netherlands net
operating loss carryforwards, in the amounts of $6.2 million and $5.5 million,
respectively, will begin expiring in 2003. WorldxChange's other foreign net
operating loss carryforwards carry 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 its equity ownership. WorldxChange has not recognized any income tax
benefit in its historical financial statements because it believes the
realization of the deferred tax asset is uncertain. See Note 7 to Consolidated
Financial Statements.
Pro-forma quarterly results of operations
On November 4, 1999, WorldxChange purchased ACC Europe. The following table
sets forth supplemental unaudited pro-forma quarterly results of operations for
each of the past six quarters for the period ended March 31, 2000 that
WorldxChange's management believes is important to provide an understanding of
its results of operations. The supplemental unaudited pro-forma quarterly
Statements of Operations assumes that the purchase of ACC Europe had been
completed as of the beginning of the periods presented. 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 unaudited quarterly results of operations data. The
pro-forma adjustments give effect to the amortization of the intangible assets
recorded in association with the ACC Europe purchase and the recognition of
interest expense on the debt incurred as if the purchase were incurred at the
beginning of the periods presented. The supplemental unaudited pro-forma
quarterly statements of operations is not necessarily indicative of
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either future results of operations or results that might have been achieved if
the purchase had been consummated as of the indicated dates.
<TABLE>
<CAPTION>
PRO FORMA THREE MONTHS ENDED ACTUAL THREE
-------------------------------------------------------------------- MONTHS ENDED
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1999 1999 1999 1999 2000
------------- --------- -------- -------------- ------------ ------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
PRO-FORMA STATEMENT OF
OPERATIONS DATA:
Revenues............... $ 132.9 $137.0 $ 154.2 $ 157.7 $ 158.1 $ 148.3
Cost of services....... 101.4 109.3 123.4 123.0 124.3 117.7
------- ------ ------- ------- ------- -------
Gross profit........... 31.5 27.7 30.8 34.7 33.8 30.6
Selling general and
administrative....... 48.4 44.2 47.1 50.7 48.5 41.2
Depreciation and
amortization......... 8.9 9.9 10.8 11.8 10.8 12.5
------- ------ ------- ------- ------- -------
Operating loss......... (25.8) (26.4) (27.1) (27.8) (25.5) (23.1)
Interest expense....... 5.7 5.3 6.0 6.0 6.7 7.6
Other expense, net..... 0.1 0.3 0.1 0.5 0.5 0.2
Minority interest...... (0.6) (0.5) (0.7) (0.5) -- --
------- ------ ------- ------- ------- -------
Net loss............... $ (31.0) $(31.5) $ (32.5) $ (33.8) $ (32.7) $ (30.9)
======= ====== ======= ======= ======= =======
</TABLE>
Revenues. WorldxChange's revenues increased in each of the first five
quarters presented, primarily due to increased revenues in North America and
Europe. In October 1998, WorldxChange initiated a multilevel marketing program
in North America to augment its direct mail marketing efforts and provide an
added retail sales distribution channel. In addition, we began to offer and
market calling card products. In Europe, revenues have grown due to increased
marketing expenditures on direct mail campaigns and direct sales. The decline in
revenue in the quarter ended March 31, 2000 is primarily attributable to
reductions in North America of operator service revenue. WorldxChange made a
strategic decision during the latter part of fiscal 1999 to reduce both
marketing and sales efforts in the operator service market.
Cost of Services. The gross margin percentages ranged from 20.2% to 22.0%
over the most recent five quarters presented. The fluctuations between quarters
were the result of changes in the mix of retail and wholesale revenue, margin
degradations due to the expansion of network infrastructure in Europe, margin
improvements gained in North America due to WorldxChange's purchase of its
on-land fiber optic cable capacity and declining North American carrier margins
throughout the periods presented. The decline in gross margins in the quarter
ended March 31, 1999 from the quarter ended December 31, 1998 was due to a
decline in margins in Europe. The decline in European margins was due to
expansion of WorldxChange's European leased network facilities. The European
leased network facilities were increased to obtain interconnection with the
telecommunications networks of dominant carriers in Europe and to meet the
minimum capacity levels required for this interconnection. The facilities were
also expanded to provide WorldxChange with the capacity needed for its expected
future growth.
Selling, general and administrative expenses. Selling, general and
administrative spending levels fluctuated throughout most of the periods
presented due to increases and decreases in sales and marketing spending and the
continued expansion of WorldxChange's European infrastructure. In spite of
increased sales and marketing spending during most of the quarters, selling,
general and administrative expenses as a percentage of revenues continued to
decrease over the periods. Selling, general and administrative levels decreased
in the quarter ending March 31, 2000 from the quarter ended December 31, 1999
due to a decline in promotional and selling expense in North America.
WorldxChange plans to focus more of its promotional and selling efforts and
resources in Europe.
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Depreciation and amortization expenses. Depreciation and amortization
increased during the quarters as WorldxChange made approximately $100.0 million
in capitalized purchases during this period to expand the geographic scope and
available capacity of its network.
Interest expense. Interest expense fluctuated commensurate with the level
of quarterly indebtedness. The decline in interest expense in the quarter ended
March 31, 1999 from the quarter ended December 31, 1998 was due to a reduction
in WorldxChange's notes payable of $8.5 million. The increase of interest
expense in the quarters ended June 30, 1999, December 31, 1999 and March 31,
2000 were due to an increase in WorldxChange's indebtedness associated with the
purchase of its on-land fiber optic capacity in the United States and capital
lease obligations.
RESULTS OF OPERATIONS
Six months ended March 31, 2000 compared to six months ended March 31, 1999
Revenues. Total revenues increased by 52.8% to $291.6 million in the first
six months of fiscal 2000 from $190.7 million for the first six months of fiscal
1999. The increase in revenues was primarily attributable to revenues from ACC
Europe, which WorldxChange acquired in November 1999, and continued internal
growth in WorldxChange's retail and carrier revenues, offset by a decrease in
operator services revenues in North America.
In North America, revenues increased by 19.3% to $175.8 million for the
first six months of fiscal 2000 from $147.4 million for the first six months of
fiscal 1999. The increase was primarily attributable to an increase in
WorldxChange's retail revenue from $56.1 million in the first six months of
fiscal 1999 to $87.3 million for the same period of fiscal 2000. This increase
in revenue is attributable to WorldxChange's multilevel marketing program which
was initiated in October 1998 and its expanded sales and marketing efforts for
its calling card products. The multilevel marketing program was initiated to
augment WorldxChange's direct mail marketing efforts and provide an additional
retail sales distribution channel. Operator services revenue declined 65.1% to
$6.5 million for the first six months of fiscal 2000 from $12.9 million for the
first six months of fiscal 1999. WorldxChange made a strategic decision during
the latter part of fiscal 1999 to reduce both marketing and sales effort in the
operator services market. WorldxChange's North American carrier revenues
increased 4.5% to $81.9 million for the first six months of fiscal 2000 from
$78.4 million for the first six months of fiscal 1999.
In the Pacific Rim, revenues decreased by 12.8%, to $25.8 million for the
first six months of fiscal 2000 from $29.6 million for the first six months of
fiscal 1999. This decline was primarily attributable to the loss of
WorldxChange's largest reseller customer, which accounted for approximately 9.0%
of this region's revenues. This reseller was acquired by a competitor and the
competitor began to migrate the reseller's customer traffic off WorldxChange's
network in October 1998. The balance of the reduction was due to decreases in
pricing resulting from competitive pricing pressures and declining costs.
In Europe, revenues increased by 556.9% for the first six months of fiscal
2000 to $90.0 million from $13.7 million for the same period of fiscal 1999,
primarily due to the acquisition of ACC Europe. ACC Europe contributed $76.1
million of total European revenue. The balance of the increase in revenues was
due to geographic expansion in the region and increased direct mail campaigns in
the region.
Cost of services. Cost of services increased by 52.7% to $230.2 million
for the first six months of fiscal 2000 from $150.8 million for the same six
months in fiscal 1999 and, as a percentage of revenue, decreased to 78.9% from
79.0%, respectively. Cost of services as a percentage of revenue decreased
primarily as a result of higher margins associated with ACC Europe's revenues
and an overall increase in retail revenues as a percentage of total revenues.
Retail revenues have higher gross margins than the gross margins associated with
carrier revenues. ACC Europe's margins are higher because the percentage of its
revenues that are retail revenues is greater than the comparable percentage for
WorldxChange excluding ACC Europe. North America cost of services as a
percentage of revenues increased from 84.0% in the first six months of fiscal
1999 to 84.3% in the first six months of fiscal 2000. The increase was
associated with a decline in carrier revenue margins, partially offset by a
higher revenue mix of retail revenues. Cost of
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services as a percentage of revenues remained constant in the Pacific Rim. In
Europe, excluding ACC Europe, cost of services as a percentage of revenues
increased from 82.4% for the first six months of fiscal 1999 to 94.2% for the
same period of fiscal 2000. This increase was due to additional costs associated
with obtaining interconnection with the telecommunications networks of dominant
local carriers in various countries and meeting their minimum capacity level
requirements, as well as expansion of WorldxChange's European network
infrastructure.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 48.0% to $84.6 million for the first six
months of fiscal 2000 from $57.1 million for the same period in fiscal 1999 and,
as a percentage of revenues, decreased from 30.0% to 29.0%. The increase in
selling, general and administrative expenses was due to the purchase of ACC
Europe, increased spending in Europe and direct costs associated with increases
in revenues. These expenses in Europe, excluding ACC Europe, increased from $8.2
million for the first six months of fiscal 1999 to $14.9 million for the first
six months of fiscal 2000. This increase was due to increased sales, operations
and back office infrastructure to support sales growth and the expansion into
new markets in Europe. Selling, general and administrative expenses in the
Pacific Rim remained relatively flat. Selling, general and administrative
expenses in North America increased to $40.6 million for the first six months of
fiscal 2000 from $38.1 million for the same period of fiscal 1999. The increase
in these expenses in North America was due to increased commissions, billing
costs and bad debt expense associated with increased revenues. As a percentage
of revenue, North America selling, general and administrative expenses decreased
to 20.7% in the first six months of fiscal 2000, from 22.6% in the first six
months of fiscal 1999. Included in selling, general and administrative expenses
was bad debt expense of $10.9 million for the first six months of fiscal 2000
and $8.4 million for the same period in fiscal 1999. The increase in bad debt
expense was attributable to an increase in revenue. Bad debt expense as a
percentage of revenue decreased to 3.8% in the first six months of fiscal 2000
from 4.4% in the same period of fiscal 1999. Bad debt expense as a percentage of
revenue has improved as management has enhanced its account monitoring and
reporting systems designed to reduce bad debt exposure and allow for timely
identification, follow-up and mitigation of potential risk customers.
WorldxChange expects selling, general and administrative expenses to continue to
grow as revenues increase and as it continues to expand into new markets and
build infrastructure.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased to $21.8 million for the first six months of fiscal 2000 from
$7.7 million in the first six months of fiscal 1999. The increase in
depreciation and amortization was due to the amortization of $85.2 million of
intangible assets recorded in association with the purchase of ACC Europe and
$12.2 million of goodwill recorded in association with the purchase of a
minority interest in WorldxChange's Australian operations and increased
depreciation associated with the build-out of network and supporting
infrastructure.
Interest expense. Interest expense increased by 73.1% to $13.5 million for
the first six months of fiscal 2000 from $7.8 million in the first six months of
fiscal 1999. The increase was primarily due to the debt associated with the
purchase of ACC Europe and the on-land fiber optic capacity.
Fiscal 1999 compared to fiscal 1998
Revenues. Total revenues for fiscal 1999 increased by 5.7% to $421.6
million from $398.9 million for fiscal 1998. The increase in revenues was
primarily associated with an increase in European and North American retail
revenues, which was partially offset by a decrease in operator services revenues
in North America.
In North America, revenues increased for fiscal 1999 by 4.9% to $337.5
million from $321.8 million in fiscal 1998. The increase in revenue was
primarily attributable to increased retail and carrier revenues offset by a
decline in operator services revenue. Retail revenues increased 15.3% from
$123.5 million in fiscal 1998 to $142.4 in fiscal 1999. This increase in retail
revenue is attributable to increased promotional spending and the introduction
of WorldxChange's multilevel marketing program. In October 1998, WorldxChange
initiated a multilevel marketing program to augment its direct mail marketing
efforts and provide an added retail sales distribution channel. Also
contributing to the increase in retail revenue was
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WorldxChange's expanded sales and marketing efforts for its calling card
products. Revenue derived from operator services decreased 43.5% from $40.5
million for fiscal 1998 to $22.9 million for fiscal 1999. The decline in
operator services revenues was due to WorldxChange's strategic decision to
reduce marketing efforts in the operator services market. WorldxChange's North
American carrier revenues increased 9.1% to $172.0 million for fiscal 1999 from
$157.7 million for fiscal 1998.
In the Pacific Rim, revenues decreased by 4.8%, to $55.6 million for fiscal
1999 from $58.4 million for fiscal 1998. This decline was primarily attributable
to the loss of WorldxChange's largest reseller customer, which accounted for
approximately 23% of this region's revenues. This reseller was acquired by a
competitor, and the competitor began to migrate the reseller's customer traffic
off WorldxChange's network in October 1998. A substantial portion of the
reduction in revenues attributable to the reseller was offset by increased
retail revenue generated through direct mail and agent sales.
In Europe, revenues increased by 52.4% for fiscal 1999 to $28.5 million
from $18.7 million for the same period of fiscal 1998, primarily due to
increases in retail revenues. Retail revenues increased due to geographic
expansion in the region and increased direct mail campaigns in the region.
Cost of services. Cost of services increased by 14.3% to $328.3 million
fiscal 1999 from $287.3 million for fiscal 1998 and, as a percentage of revenue,
increased to 77.9% from 72.0%. Cost of services as a percentage of revenue
increased primarily as a result of decreasing margins associated with carrier
revenues. Carrier revenues as a percentage of total revenues increased for
fiscal 1999 compared to fiscal 1998. These revenues have lower gross margins
than the gross margins from retail and operator services revenues. Cost of
services as a percentage of revenues increased in North America from 75.7% for
fiscal 1998 to 81.6% for fiscal 1999. Cost of services as a percentage of
revenues decreased in the Pacific Rim from 77.0% for fiscal 1998 to 72.8% for
fiscal 1999. Cost of services as a percentage of revenues increased in Europe
from 84.4% for fiscal 1998 to 88.1% for fiscal 1999. This increase was due to
additional costs associated with the expansion of WorldxChange's European
network infrastructure.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by 8.0% to $124.1 million for 1999 from $115.0
million for fiscal 1998 and, as a percentage of revenues, increased from 28.8%
to 29.4%. The increase was primarily due to increased spending in Europe and the
Pacific Rim, offset in part by reduced general and administrative spending in
North America. These expenses in Europe increased from $10.8 million for fiscal
1998 to $21.2 million for fiscal 1999. This increase was due to increased sales,
operations and back office infrastructure to support sales growth and the
expansion into new markets in Europe. Selling, general and administrative
expenses in the Pacific Rim increased by 6.0% to $21.3 million for fiscal 1999
from $20.1 million for fiscal 1998. This increase was due to growth in the
supporting infrastructure and increased staffing levels in customer service in
WorldxChange's Pacific Rim markets. Selling, general and administrative expenses
in North America decreased to $81.5 million for fiscal 1999 from $84.1 million
for fiscal 1998. The decline in these expenses in North America was due to
WorldxChange's efforts to streamline its North American operations by reducing
personnel costs and overall spending. Included in selling, general and
administrative expenses was bad debt expense of $15.2 million for fiscal 1999
and fiscal 1998. Bad debt expense as a percentage of revenue decreased to 3.6%
in fiscal 1999 from 3.8% in fiscal 1998. Bad debt expense as a percentage of
revenue has improved as management has enhanced its account monitoring and
reporting systems designed to reduce bad debt exposure and allow for timely
identification, follow-up and mitigation of potential risk customers.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased by 43.6% to $17.7 million for fiscal 1999 from $12.3 million
of fiscal 1998. The increase in depreciation and amortization was due to the
continued build-out of WorldxChange's network and supporting infrastructure.
Interest expense. Interest expense increased by 41.3% to $16.9 million for
fiscal 1999 from $11.9 million in fiscal 1998. The increase was primarily due to
interest associated with the subordinated promissory notes issued between May
and August of 1998.
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Fiscal 1998 compared to fiscal 1997
Revenues. Total revenues for fiscal 1998 increased by 20.3% to $398.9
million from $331.7 million for fiscal 1997. Growth in revenues during 1998 was
attributable primarily to an increase in traffic volume, offset in part by a
decline in average carrier prices. Total revenues for fiscal 1998 were also
negatively impacted by WorldxChange's inability to bill for certain calls during
the period due to technical difficulties with a newly installed switch.
In North America, WorldxChange's revenues for fiscal 1998 increased by
10.3% to $321.8 million, primarily as a result of substantial increases in sales
of residential and operator services. Revenues from residential customers
increased by 13.5% to $116.1 million for fiscal 1998 from $102.3 million for
fiscal 1997. The increase in residential revenues was due to increased
promotional spending in late fiscal 1997, which stimulated growth in the first
half of fiscal 1998. Revenues from operator services increased by 51.7% to $40.5
million for fiscal 1998 from $26.7 million for fiscal 1997. Revenues from
carrier and commercial customers were relatively stable.
In the Pacific Rim, revenues increased by 139.3% to $58.4 million for
fiscal 1998 from $24.4 million for fiscal 1997, reflecting significant increases
in the usage of WorldxChange's services by residential and commercial customers.
In Europe, revenues increased by 19.9% to $18.7 million for fiscal 1998
from $15.6 million for fiscal 1997, reflecting significant increases in the
usage of WorldxChange's services by residential and commercial customers.
Cost of services. Cost of services increased by 22.2% to $287.3 million
for fiscal 1998 from $235.0 million for fiscal 1997 and, as a percentage of
revenues, increased to 72.0% for fiscal 1998 from 70.9% for fiscal 1997. Cost of
services increased as a percentage of revenues as a result of lower margins
associated with carrier revenues. Although WorldxChange's carrier costs
decreased during fiscal 1998 due to competitive pricing pressures, it was unable
to maintain the gross margins WorldxChange experienced in 1997. In addition,
during the fourth quarter of fiscal 1998, WorldxChange experienced technical
problems with a newly installed switch. The problems included the failure of the
switch to record billing information for certain calls. As a result,
WorldxChange was unable to bill for all of its calls. This resulted in
WorldxChange's incurring costs for calls with no corresponding revenues, which
reduced overall gross margins.
Selling, general and administrative expenses. In fiscal 1998, selling,
general and administrative expenses increased by 1.3% to $115.0 million from
$113.5 million for fiscal 1997 and, as a percentage of revenue, decreased to
28.8% for fiscal 1998 from 34.2% for fiscal 1997. A significant portion of the
increase in spending 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 primarily due to a reduction in
bad debt expense. Bad debt expense was $15.2 million in fiscal 1998 compared to
$22.3 million for fiscal 1997. Bad debt expense as a percentage of revenue
decreased to 3.8% for fiscal 1998 from 6.7% in fiscal 1997. The reduction in bad
debt expense was due to WorldxChange increasing its efforts in the initial
review for credit approval for new customers and has enhanced its
account-monitoring and reporting systems designed to reduce its bad debt
exposure and allow for timely recognition of risk customers. Furthermore,
WorldxChange increased the number and quality of its credit and collection staff
worldwide.
Depreciation and amortization expenses. Depreciation and amortization
expenses increased by 41.4% to $12.3 million for fiscal 1998 from $8.7 million
for fiscal 1997. This increase was due to the expansion of WorldxChange's
network and capital deployed as it entered new markets.
Interest expense. Interest expense increased by 36.8% to $11.9 million in
fiscal 1998 from $8.7 million in fiscal 1997. The increase in interest was due
to the increase in the level of debt and capital lease obligations WorldxChange
incurred in order to fund its network expansion.
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LIQUIDITY AND CAPITAL RESOURCES
As a consequence of the rapid expansion of WorldxChange's business and its
historical capital constraints, WorldxChange has incurred cumulative net losses
from inception in 1991 through March 31, 2000. These losses and associated
negative cash flows resulted primarily from start-up costs, marketing expenses
and capital expenditures required to build and deploy its network. WorldxChange
has utilized cash provided from financing activities to fund losses and capital
expenditures. The sources of this cash have primarily been private placement
equity offerings, the issuance of subordinated debt, capital lease and vendor
financing and WorldxChange's revolving credit facility.
For the six-month period ending March 31, 2000, WorldxChange's net cash
used in operating activities was $24.3 million, primarily consisting of a net
loss of $59.3 million, offset by an increase in operating working capital of
$3.8 million and $32.8 million of non-cash charges consisting of the provision
for bad debts and depreciation and amortization. Cash used in investing
activities totaled $58.4 million, which was primarily for the purchase of ACC
Europe. Cash provided by financing activities consisted primarily of the net
private placement equity offering totaling $48.7 million and increased net
borrowings of $14.7 million, offset by debt and capital lease payments of $9.2
million. As of March 31, 2000 WorldxChange had approximately $9.6 million in
cash.
For fiscal 1999, cash used in operating activities was $31.5 million,
primarily composed of a net loss of $63.9 million, offset by an increase in
operating working capital and non-cash charges relating to the provision for bad
debt and depreciation and amortization. Cash used in investing activities,
primarily capital expenditures, totaled $27.6 million in fiscal 1999. Cash
provided by financing activities amounted to $76.3 million, primarily consisting
of the receipt of $101.6 million in private placement equity offerings, offset
by repayments of subordinated debt, certain notes payable and capital lease
obligations. As of September 30, 1999, WorldxChange had $38.0 million in cash.
As of September 30, 1998, WorldxChange had approximately $20.9 million in
cash. WorldxChange's net cash used in operating activities was $31.7 million in
fiscal 1998, primarily caused by a net loss of $27.5 million and a decrease in
operating working capital of $28.0 million, offset by $27.5 million of non-cash
charges consisting of the provision for bad debts and depreciation and
amortization. Cash used for investing activities totaled $12.0 million in fiscal
1998, which was for capital expenditures. The capital expenditures primarily
consisted of purchases associated with the expansion of WorldxChange's network,
computers, and general equipment. Net cash provided by financing activities
totaled $60.5 million for fiscal 1998, which consisted of $55.2 million in
proceeds from the issuance of subordinated debt, $10.0 million from a private
placement equity offering and a $0.7 million increase in WorldxChange's
revolving credit facility, offset by $5.3 million in the repayment of debt and
capital lease obligations. Net cash used in operating activities for fiscal 1997
was $7.2 million and net cash used in investing activities, principally capital
expenditures, was $10.9 million for fiscal 1997. WorldxChange financed these
capital expenditures primarily with long-term debt. Net cash provided by
financing activities for fiscal 1997 was $18.8 million.
In October 1997, the California Public Utilities Commission issued its
final order which imposed a $19.6 million fine against WorldxChange, $2.0
million of which was charged against earnings in fiscal 1997 and was paid in
April 1998 and the remainder of which is suspended by the California Public
Utilities Commission subject to WorldxChange's refraining from committing any
violations of statutes or California Public Utilities Commission directives. See
"Certain Information Regarding WorldxChange -- Legal Proceedings".
Capital expenditures, including assets acquired by incurring capital lease
obligations, for fiscal 1997, 1998 and 1999 totaled $19.4 million, $22.4
million, and $81.0 million, respectively. Capital expenditures, including assets
acquired by incurring capital lease obligations, for the six-month period ended
March 31, 2000 totaled approximately $16.3 million. Pursuant to the WorldxChange
merger agreement, WorldxChange is subject to certain restrictions in making
capital expenditures and other investments until the completion of the merger.
WorldxChange expects to incur an additional $7.0 million in capital expenditures
prior to the completion of the WorldxChange merger. WorldxChange expects to fund
these expenditures through vendor or other third party financing.
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WorldxChange has utilized capital lease and vendor financing to assist in
financing the building of its network, systems and infrastructure. As of March
31, 2000, the balance of capital lease financing obligations totaled $41.1
million, primarily relating to the lease of its switching platforms in North
America. In addition, as of March 31, 2000 WorldxChange had outstanding $39.0
million vendor financed note payables relating to various fiber optic cable
acquisitions.
WorldxChange has a billing and collection services agreement with Zero Plus
Dialing Incorporated. Under this services agreement, WorldxChange has the
ability to sell certain receivables, subject to full recourse provisions, to
Zero Plus Dialing. At March 31, 2000 the maximum amount to be sold under this
agreement was sold, and WorldxChange was contingently liable for approximately
$692,000.
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 $16.5 million at March 31, 2000, and $10.5 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 March 31, 2000 had an outstanding balance of approximately $4.7
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 agreements. As of March 31,
2000, the outstanding balance on the bridge loan was $25.0 million and $5.0
million was available for borrowing. In total as of March 31, 2000, WorldxChange
had $46.2 million borrowed under the credit facility and $15.5 million available
for borrowing.
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.
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 on the ACC Europe acquisition or October 1, 2003. As of March 31, 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 January 2000, WorldxChange secured a $15 million loan commitment from
Gold & Appel. Any borrowings under this loan commitment will bear interest at
15% and is payable on December 31, 2000. As of March 31, 2000, WorldxChange had
no borrowings outstanding associated with this commitment.
In fiscal 1997, WorldxChange sold a 40% interest in WorldxChange Pty. Ltd.,
its Australian operating subsidiary, to an affiliate of the Asian Infrastructure
Fund. The proceeds of approximately $9.0 million from this sale were used to
finance working capital requirements and the expansion of this operating
subsidiary. In September 1999, WorldxChange issued 1,554,763 shares of its
common stock to the Asian Infrastructure Fund in exchange for the 40% interest
in WorldxChange Pty. Ltd. The acquisition was accounted for under the purchase
method of accounting at a value of $17,102,000 or $11.00 per share.
From May through August 1998, WorldxChange issued and sold subordinated
promissory notes in the aggregate principal amount of $55.0 million. These notes
bear interest at the rate of 12.5% per annum,
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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 35% of
the net proceeds from any private placement or public offering of its common
stock to repay the notes. The balance of these notes at September 30, 1999 and
March 31, 2000 was $45.2 million.
In September 1998, WorldxChange sold 788,127 shares of its common stock in
a private placement at a price of $12.69 per share for total proceeds of $10.0
million. In December 1998, WorldxChange sold 871,087 shares of its common stock
in a private placement at a price of $11.48 per share for total proceeds of
$10.0 million. In March 1999, WorldxChange sold 3,000,000 shares of its common
stock in a private placement at a price of $10.00 per share for total proceeds
of $30.0 million. In June 1999, WorldxChange sold 2,727,270 shares of its common
stock in a private placement at a price of $11.00 per share for total proceeds
of $30.0 million. The offerings raised a total of $80.0 million. The proceeds
from these private placements were used for network expansion, to pay for direct
mail campaigns and other marketing activities, to repay subordinated debentures,
and to prepay a portion of WorldxChange's subordinated promissory notes and for
other corporate purposes.
In August 1999, WorldxChange entered into an agreement to sell 30,000
shares of its Series A Convertible Preferred Stock in a private placement for
total proceeds of $30.0 million. These shares are convertible into 2,727,270
shares of WorldxChange's common stock. Prior to the conversion of these shares,
WorldxChange is obligated to pay the holder of these shares an annual dividend
equal to 4% of the face amount of these shares. These dividends are declared and
accrued monthly.
WorldxChange entered into two agreements during fiscal 1999 for the
acquisition of the right to use land-based fiber optic cable systems for a total
price of $45.0 million. The vendors have agreed to finance 90% of the commitment
at 12% interest, with monthly principal and interest payments over a five year
amortization period. As of March 31, 2000, WorldxChange had acquired
approximately $37.1 million, leaving $7.9 million to be ordered.
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 long-term rights of use in a
transatlantic telecommunications cable system. The $113 million purchase price
for this transaction was composed of $60 million cash and a $53 million, 12% per
annum interest rate note due on or before December 28, 2000. 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. These shares are convertible into 5,555,550 shares
of WorldxChange's common stock. Prior to the conversion of these shares,
WorldxChange is obligated to pay the holder of these shares an annual dividend
equal to 4% of the face amount of these shares. These dividends are declared and
accrued monthly.
Prior to WorldxChange acquiring ACC Corp.'s U.K. operations, ACC
implemented a new billing system in the United Kingdom that did not function
properly, resulting in delayed billings and billings containing errors which had
to be manually corrected. The billing has been delayed as much as 75 days. This
has resulted in up to approximately $20.0 million in receivables being collected
up to 75 days later than under normal terms. Due to this delay in collections,
WorldxChange was forced to pay vendors late, negatively impacting the
relationships and requiring WorldxChange to incur late payment fees and interest
charges of approximately $500,000 with vendors. WorldxChange was able to
accurately estimate billing amounts and reflect these amounts in the applicable
quarterly operating results.
WorldxChange believes that it will be able to satisfy its operating cash
requirements through the maturity date of its credit facility from a combination
of cash on hand, the proceeds of equity offerings, availability under
WorldxChange's vendor financing arrangements, its secured credit facility,
outstanding loan commitment and from the financing of WorldxChange's European
receivables. Under the WorldxChange merger agreement, WorldxChange will need
World Access' consent to incur debt or raise additional proceeds from equity
offerings, and there can be no assurance that any such additional debt or
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equity proceeds can or will be raised. If the WorldxChange merger is not
completed by the maturity of the credit facility, WorldxChange will need to
raise additional capital to pay, or will need to restructure, its obligations in
connection with the ACC Europe acquisition and the subordinated promissory notes
described above. No assurance can be given that additional capital will be
raised or that such obligations can or will be restructured. The table below
summarizes WorldxChange's financial commitments as they relate to capital
expenditures, secured and unsecured loans and notes, and the credit facility.
Below is a table summarizing capital expenditures, commitments, and debt
obligations as of March 31, 2000.
<TABLE>
<CAPTION>
DUE DUE
WITHIN AFTER
1 YEAR 1 YEAR
---------- ---------
<S> <C> <C>
Commitments to acquire capital assets
Land based fiber optic cable.............................. $ 7,900 $ --
Other capital expenditures................................ 7,000 --
-------- -------
14,900 --
Existing Debt Obligations
Unsecured subordinated note due December 2000............. 53,000 --
Secured subordinated note................................. 45,200 --
Other secured notes....................................... 17,568 42,467
Credit facility........................................... 46,244 --
Capital leases............................................ 12,130 28,967
-------- -------
$174,142 $71,434
======== =======
</TABLE>
MARKET RISK
The carrying value of cash and cash equivalents approximates fair value due
to the short-term, highly liquid nature of the cash equivalents, which have
maturities of three months or less. Interest rate fluctuations would not have a
significant effect on the fair market value of cash equivalents held by
WorldxChange.
At March 31, 2000 WorldxChange had outstanding debt, excluding capital
lease obligations, in the amount of $204.5 million, of which $183.3 million is
fixed interest debt. Variable rate debt $16.5 million carries adjustable
interest rates at the prime rate plus 1.75%, and the remaining $4.7 million
carries an adjustable rate at prime plus 5.0%. A one percent change in the
interest rate would change interest payments by approximately $17,700 per month.
FOREIGN CURRENCY EXPOSURE
While an increasing amount of WorldxChange's revenues will be denominated
in non-U.S. currencies, a disproportionate portion of its expenditures,
including interest, will be denominated in U.S. dollars. In addition, the assets
and liabilities of WorldxChange's non-U.S. subsidiaries are generally
denominated in local currencies. Accordingly, WorldxChange may be subject to
significant foreign currency exchange risks. In addition, WorldxChange may in
the future acquire interests in entities that operate in countries where the
expatriation or conversion of currency is restricted. WorldxChange currently
does not hedge against foreign currency exchange risks, but may in the future.
Because of the number of currencies involved, WorldxChange's constantly changing
foreign currency exposure and the fact that all foreign currencies do not
fluctuate in the same manner against the U.S. dollar, WorldxChange cannot
quantify the effect of exchange rate fluctuations on its future financial
condition or results of operations.
EURO CONVERSION
On January 1, 1999, several member countries of the European Union
established fixed conversion rates and adopted the euro as their new common
legal currency. Since that date, the euro has traded on
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currency exchanges, although the legacy currencies will remain legal tender in
the participating countries for a transition period between January 1, 1999 and
January 1, 2002. During the transition period, parties can elect to pay for
goods and services and transact business using either the euro or a legacy
currency. Between January 1, 2002 and July 1, 2002, the participating countries
will introduce euro currency coins and withdraw all legacy currencies.
The euro conversion may affect cross-border competition by creating
cross-border price transparency. WorldxChange is assessing its pricing and
marketing strategy in order to insure that it remains competitive in a broader
European market. In addition, WorldxChange is reviewing whether certain existing
contracts will need to be modified. WorldxChange's currency risks and risk
management for operations in participating countries may be reduced as the
legacy currencies now trade at a fixed exchange rate against the euro.
WorldxChange will continue to evaluate issues involving introduction of the
euro. However, based on current information and assessments, WorldxChange does
not expect that the euro conversion will have a material adverse effect on its
results of operations or financial condition.
SEASONALITY
WorldxChange's European and Australian operations experience seasonality
during the summer seasons of those regions, which results in decreased customer
calling volumes.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
In June 1999, SFAS No. 133 was amended by SFAS No. 137, Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of SFAS 133. As a result of this amendment, SFAS No. 133 shall be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000. In
accordance with SFAS No. 133, an entity is required to recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. SFAS No. 133 requires that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gain and losses to offset related results on the hedged
item in the income statement and requires that a company formally document,
designate and assess the effectiveness of transactions that receive hedge
accounting. WorldxChange does not expect the adoption of this standard to have a
material effect on its consolidated financial position or results of operations.
On December 3, 1999, the Securities and Exchange Commission staff issued
SAB No. 101, Revenue Recognition in Financial Statements. The SAB spells out
four basic criteria that must be met before companies can record revenue. These
are: (i) persuasive evidence that an arrangement exists; (ii) delivery has
occurred or services have been rendered; (iii) the seller's price to the buyer
is fixed or determinable; and (iv) collectibility is reasonably assured. Many of
the examples in the SAB address situations that give rise to the potential for
recording revenue prematurely. They include transactions subject to
uncertainties regarding customer acceptance, including rights to refunds and
extended payment terms, and require continuing involvement by the seller.
In March 2000, the SEC issued SAB 101A -- Amendment: Revenue Recognition in
Financial Statements, that delays the implementation date of certain provisions
of SAB 101. Management does not believe the adoption of SAB 101 would have a
material impact on WorldxChange's operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB Opinion No. 25. The Interpretation poses
and answers 20 separate questions dealing with APB 25 implementation practice
issues.
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The Interpretation will be applied prospectively to new awards,
modifications to outstanding awards, and changes in employee status on or after
July 1, 2000, except as follows: (i) requirements related to the definition of
an employee apply to new awards granted after December 15, 1998; (ii)
modifications that directly or indirectly reduce the exercise price of an award
apply to modifications made after December 15, 1998; and (iii) modifications to
add a reload feature to an award apply to modifications made after January 12,
2000. Financial statements for periods prior to July 1, 2000 will not be
affected. Management does not expect the adoption of Interpretation No. 44 to
have a material effect on its consolidated financial position or results of
operations.
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WORLDXCHANGE SELECTED CONSOLIDATED FINANCIAL DATA
In the table below, WorldxChange provides you with selected consolidated
financial data of WorldxChange. The selected consolidated financial data as of
September 30, 1998 and 1999 and for each of the three years in the period ended
September 30, 1999 are derived from WorldxChange's audited consolidated
financial statements included elsewhere in this joint proxy
statement/prospectus. The selected consolidated financial data as of September
30, 1995, 1996 and 1997 and for the years ended September 30, 1995 and 1996 are
derived from WorldxChange's audited consolidated financial statements that are
not contained herein. The selected consolidated financial data as of March 31,
2000 and for the six-month periods ended March 31, 1999 and 2000 are derived
from WorldxChange's unaudited consolidated financial statements included
elsewhere in this joint proxy statement/prospectus, which, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of such information. When you read this
selected consolidated financial data, it is important that you also read the
section titled "WorldxChange Management's Discussion and Analysis of Financial
Condition and Results of Operations" and WorldxChange's consolidated financial
statements and the related notes thereto included elsewhere in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------------------------- ----------------
1995 1996 1997 1998 1999 1999 2000
------ ------ ------ ------ ------ ------ ------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $101.7 $183.9 $331.7 $398.9 $421.6 $190.7 $291.6
Cost of services(1)........ 64.5 127.9 235.0 287.3 328.3 150.8 230.2
------ ------ ------ ------ ------ ------ ------
Gross profit............... 37.2 56.0 96.7 111.6 93.3 39.9 61.4
Selling, general &
administrative........... 38.6 64.5 113.5 115.0 124.1 57.1 84.6
Depreciation and
amortization............. 3.1 7.0 8.7 12.3 17.7 7.7 21.8
------ ------ ------ ------ ------ ------ ------
Operating loss............. (4.5) (15.5) (25.5) (15.7) (48.5) (24.9) (45.0)
Interest expense........... 3.3 5.7 8.7 11.9 16.9 7.8 13.5
Other expense, net......... (0.2) 0.6 3.4 1.4 0.6 .4 .7
Minority interest.......... (0.2) (0.2) (0.5) (1.5) (2.3) (1.1)
------ ------ ------ ------ ------ ------ ------
Net loss................... $ (7.4) $(21.6) $(37.1) $(27.5) $(63.7) $(32.0) $(59.2)
====== ====== ====== ====== ====== ====== ======
OTHER DATA:
EBITDA(2).................. $ (1.4) $ (8.5) $(16.8) $ (3.3) $(30.9) $(17.2) $(23.2)
Cash provided by (used in)
operating activities..... 2.6 7.6 (7.2) (31.7) (31.5) 2.2 (24.3)
Cash used in investing
activities............... (4.9) (3.0) (10.9) (12.0) (27.6) (16.9) (58.4)
Cash provided by (used in)
financing activities..... 3.5 (2.2) 18.9 60.5 76.3 20.0 54.2
Capital expenditures....... 24.3 8.7 19.4 22.4 81.0 21.0 16.3
GEOGRAPHIC DATA:
Net revenues:
North America............ $100.9 $171.4 $291.7 $321.8 $337.5 $147.4 $175.8
Pacific Rim.............. 0.3 7.5 24.4 58.4 55.6 29.6 25.8
Europe................... 0.5 5.0 15.6 18.7 28.5 13.7 90.0
------ ------ ------ ------ ------ ------ ------
Total.................... $101.7 $183.9 $331.7 $398.9 $421.6 $190.7 $291.6
====== ====== ====== ====== ====== ====== ======
</TABLE>
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<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, AS OF MARCH 31,
---------------------------------------------- ---------------
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ---------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 1.4 $ 3.4 $ 4.3 $ 20.9 $ 38.0 $ 9.6
Working capital (deficit)...... (15.1) (35.4) (50.4) (37.0) (37.2) (268.7)
Total assets................... 55.2 62.8 103.7 120.1 235.0 422.5
Short-term debt and capital
lease obligations............ 13.5 15.7 9.5 20.3 20.4 174.1
Long-term debt, net of current
portion...................... 24.9 24.7 49.2 99.3 129.7 71.4
Minority interest.............. -- 0.3 8.8 7.3 -- --
Total shareholders' deficit.... (8.6) (32.0) (68.9) (89.6) (35.1) (51.8)
</TABLE>
---------------
(1) Cost of services is exclusive of depreciation and amortization related to
the services network which is shown separately below.
(2) EBITDA as used in this proxy statement/prospectus is operating loss plus
depreciation and amortization expense and is presented because WorldxChange
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 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 WorldxChange, may not be
comparable to similarly titled measures reported by other companies and
could be misleading unless all companies and analysts calculate EBITDA in
the same manner.
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COMPARISON OF THE RIGHTS OF HOLDERS OF WORLD ACCESS COMMON STOCK AND
WORLDXCHANGE COMMON STOCK
This section of the joint proxy statement/prospectus summarizes differences
between the World Access common stock and WorldxChange common stock. These
differences arise from differences between the Delaware law and the California
law, and between the corporate charters and bylaws of World Access and
WorldxChange. WorldxChange stockholders should read the full text of each
state's corporate statute and each companies' respective corporate charters and
bylaws for a more complete understanding of the differences between World Access
common stock and WorldxChange common stock. For information on how to obtain
these documents, see "Where You Can Find More Information" on the inside front
cover page __.
The rights of World Access' stockholders are governed by its certificate of
incorporation, as amended, its bylaws and the laws of the State of Delaware. The
rights of WorldxChange's shareholders are currently governed by its articles of
incorporation, as amended and restated, its bylaws, as amended and restated, and
California law. Upon completion of the WorldxChange merger, the WorldxChange
shareholders will become World Access stockholders, and the WorldxChange
shareholders' rights will be governed by World Access' certificate of
incorporation, as amended, its bylaws and Delaware law.
Pursuant to the Voting and Share Transfer Restriction Agreements referred
to on page 124, the holders of WorldxChange's preferred stock have agreed to
vote in favor of the WorldxChange merger. Under the applicable certificates of
determination of preferences with respect to each series of preferred stock, if
the holder of shares of such series of preferred stock votes to approve a merger
or other business combination transaction involving WorldxChange, such holder is
deemed to have converted all of such holder's shares of such series into shares
of WorldxChange common stock immediately prior to consummation of such
transaction. Accordingly, no separate discussion of the rights of the holders of
the WorldxChange preferred stock is provided.
COMPARISON OF AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of World Access consists of 160,000,000
shares, of which 150,000,000 shares are common stock of $.01 par value per
share, and 10,000,000 shares of which are preferred stock of $.01 par value per
share. Note, however, that pursuant to this joint proxy statement/prospectus,
the World Access stockholders are being asked to approve an amendment to the
World Access certificate of incorporation which would increase the number of
shares of common stock World Access is authorized to issue to 290,000,000. As of
August 1, 2000, 61,707,277 shares of World Access common stock were outstanding,
and 584,260 shares of World Access preferred stock were outstanding.
The authorized capital stock of WorldxChange currently consists of
110,000,000 shares, of which 100,000,000 shares shall be common stock of no par
value, and 10,000,000 shares of which shall be preferred stock of no par value.
As of August 1, 2000, 42,613,954 shares of WorldxChange common stock were
outstanding, and 30,000 shares of WorldxChange preferred stock were outstanding.
COMPARISON OF CLASSES OF COMMON STOCK
World Access and WorldxChange each have one class of common stock issued
and outstanding. Holders of World Access common stock and holders of
WorldxChange common stock are each entitled to one vote for each share held.
COMPARISON OF REQUIREMENTS FOR SPECIAL MEETING OF SHAREHOLDERS
Under Delaware law, special meetings of stockholders may be called by a
corporation's board of directors or such person or persons as may be authorized
by such corporation's certificate of incorporation or bylaws. World Access'
certificate of incorporation provides that special meetings of stockholders may
be called by the board of directors or by any officer instructed by the board of
directors.
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Under California law, a special meeting of shareholders may be called by
the board of directors, the chairman of the board, the president or the holders
of shares entitled to cast not less than 10% of the votes at such meeting or
additional persons provided in the articles or bylaws. WorldxChange's bylaws
also provide that the Chief Executive Officer may call a special meeting of
shareholders.
COMPARISONS OF REQUIREMENTS FOR ACTION BY WRITTEN CONSENT IN LIEU OF
SHAREHOLDERS' MEETING
Under both California and Delaware law, shareholders may execute an action
by written consent in lieu of a shareholder meeting. Both California and
Delaware law permit a corporation in its charter to eliminate such actions by
written consent. Pursuant to World Access' certificate of incorporation, World
Access stockholders may not take action without a meeting by written consent
except for preferred stockholders. WorldxChange's articles of incorporation do
not eliminate shareholder actions by written consent.
Elimination of the ability of stockholders to act by written consent could
lengthen the amount of time required to take stockholder actions, since certain
actions by written consent are not subject to the minimum notice requirement of
a stockholders' meeting. The elimination of stockholder actions by written
consents, however, could deter hostile takeover attempts. A holder or group of
holders controlling a majority interest of World Access' common stock would not
be able to amend World Access' certificate of incorporation, World Access'
bylaws or remove directors pursuant to a stockholder action by written consent,
but instead, would have to call a stockholders' meeting and observe the notice
periods determined by the World Access board pursuant to World Access' bylaws
prior to attempting to obtain approval of any such actions.
COMPARISON OF RECORD DATE FOR DETERMINING SHAREHOLDERS
The World Access bylaws provide that the World Access 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, may not be more
than 60 days or less than ten days before the date of the meeting; and
- in the case of any other action, may not be more than 60 days before any
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 will be at the close of business on the
day next after the day that notice is given, or, if notice is waived, at
the close of business on the day after the day that the meeting is held;
and
- the record date for determining stockholders for any other purpose will
be at the close of business on the day the World Access board of
directors adopt the related resolution.
The WorldxChange bylaws provide that the board of directors may fix a time
in the future as a record date for the determination of the shareholders
entitled to notice of and to vote at any meeting of shareholders, to receive any
report, to receive any dividend or distribution, or any allotment of rights, or
to exercise rights in respect to any change, conversion or exchange of shares.
The record date will not be more than 60 days or less than ten days before the
date of any meeting, or more than 60 days before any other event for the
purposes of which it is fixed. When a record date is fixed, only shareholders of
record on that date are entitled to notice of and to vote at the meeting, to
receive any report, to receive a dividend, distribution or allotment of rights,
or to exercise the rights, as the case may be, notwithstanding any transfer of
any shares on the books of the corporation after the record date, except as
otherwise may be provided in the articles of incorporation or bylaws.
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COMPARISON OF PROCEDURES TO NOMINATE DIRECTORS
The World Access bylaws require that board nominations be made by the board
of directors or a stockholder who gives timely notice to the secretary of the
company. To give timely notice, a stockholder's nomination notice must be
received by the secretary of World Access at least 120 days before the one-year
anniversary of the date of the proxy statement in connection with the previous
year's annual meeting of stockholders. 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 if:
- no annual meeting was held in the previous year;
- the date of the upcoming annual meeting has changed by more than 30 days
from the date set forth in the previous year's proxy statement; or
- the upcoming meeting is not an annual meeting.
Under WorldxChange's bylaws, at any meeting of shareholders, a person may
be a candidate for election to WorldxChange's board only if the person is
nominated:
- by or at the direction of WorldxChange's board;
- by any nominating committee or person appointed by WorldxChange's board;
or
- by a shareholder of record entitled to vote at such meeting who complies
with certain notice procedures and has given timely notice of such
nomination in writing to WorldxChange's secretary. To be timely, a
shareholder's notice must be delivered to the Secretary no later than the
close of business on the 60th day or earlier than the close of business
on the 90th day before the meeting; provided, however, that if less than
70 days notice of the date of the meeting is given by WorldxChange,
notice by the shareholder to be timely must be delivered no later than
the 10th day after the day on which public announcement of the date of
such meeting is first made by WorldxChange.
COMPARISON OF NUMBER OF DIRECTORS
The World Access amended certificate of incorporation and bylaws provide
that the World Access board of directors may not have less than three nor more
than 12. The exact number of directors will be determined from time to time by
the World Access board of directors. Note, however, that in connection with
joint proxy statement/prospectus, World Access is seeking approval by its
stockholders of an amendment to its certificate of incorporation that would
increase the maximum number of directors to 15.
Under WorldxChange's articles of incorporation, the number of members of
the board of directors must be at least five, and not more than nine, unless
changed by an amendment to the articles of incorporation or by a bylaw duly
adopted by approval of the outstanding shares of WorldxChange. There are
currently seven members of WorldxChange's board of directors.
COMPARISON OF CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation may divide its board of directors
into various classes with staggered terms of office under its certificate of
incorporation or bylaws. World Access' board of directors is currently divided
into three classes, as nearly equal in size as possible, with one class being
elected annually. Directors are elected to a term of three years and until their
successors are elected and qualified. You should note that, in connection with
this joint proxy statement/prospectus, World Access is seeking the approval of
its stockholders to an amendment to the certificate of incorporation of World
Access which
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would eliminate World Access' staggered board of directors. If this amendment is
approved, directors would be elected annually to a term of one year. At an
annual meeting in which a quorum is present, the persons receiving a plurality
of the votes cast would be elected as the directors.
WorldxChange's board of directors is not divided into classes.
COMPARISON OF PROCEDURES FOR THE REMOVAL OF DIRECTORS
Under Delaware law a director may be removed, with or without cause, by the
holders of a majority of the outstanding shares then entitled to vote thereon
unless (i) the corporation has a classified board of directors, in which case a
director may be removed only with cause unless the certificate of incorporation
provides otherwise, or (ii) the corporation has cumulative voting, in which
case, if less than the entire board is to be removed, no director may be removed
without cause if the number of votes cast against such removal would be
sufficient to elect the director under cumulative voting. World Access' bylaws
provide for removal of directors only for cause.
Under California law, any director or the entire board of directors may be
removed without cause with the approval of a majority of the outstanding shares
entitled to vote thereon. However, no individual director may be removed (unless
the entire board is removed) if the number of votes cast against such removal
would be sufficient to elect the director under cumulative voting, whether or
not the corporation's articles of incorporation or bylaws do not otherwise
provide for cumulative voting. A corporation's board of directors may remove for
cause by declaring vacant the office of a director who has been (i) declared of
unsound mind by an order of court or (ii) convicted of a felony.
COMPARISON OF BOARD OF DIRECTORS VACANCIES
Under Delaware law, vacancies and newly created directorships may be filled
by vote of a majority of the directors then in office (even though less than a
quorum), unless (i) otherwise provided in the corporation's certificate of
incorporation or bylaws, or (ii) the certificate of incorporation directs that a
particular class is to elect such director, in which case the majority of
directors elected by such class, or a sole remaining director elected by such
class, shall fill such vacancy. World Access' bylaws provide that vacancies on
the World Access board of directors and newly created directorships resulting
from an increase in the authorized number of members of the board of directors
may be filled only by a majority of the directors then in office, even if less
than a quorum, or by a sole remaining director.
Unless otherwise provided in a corporation's articles of incorporation or
bylaws, under California law, any vacancy on a board of directors, other than
one created by removal of a director, may be filled by approval of the remainder
of the corporation's board of directors. Even if the number of remaining
directors is less than a quorum, a vacancy may be filled by the unanimous
written consent of the directors then in office or by the affirmative vote of a
majority of the directors at a meeting held pursuant to notice or waivers of
notice or by a sole remaining director. Unless the articles of incorporation or
a bylaw adopted by the shareholders provide that the board may fill vacancies
occurring in the board by reason of the removal of directors, such vacancies may
be filled only with the approval of a majority of the outstanding shares
entitled to vote thereon. WorldxChange's bylaws provide that vacancies in the
WorldxChange board of directors, except for a vacancy created by the removal of
a director, may be filled by a majority of the remaining directors, even if less
than a quorum, or by a sole remaining director. A vacancy created by the removal
of a director by the shareholders or by court order may be filled only by a vote
of the shareholders at a duly held meeting at which a quorum is present.
COMPARISON OF NOTICE REQUIREMENTS OF SPECIAL MEETINGS 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 directors.
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Special meetings of the WorldxChange board of directors for any purpose or
purposes may be called at any time by the chairman of the board, the president,
any vice president or the secretary, or by any two directors, or by one or more
shareholders holding not less than 25% of any series of preferred stock of the
corporation.
Written notice of the time and place of special meetings shall be delivered
personally to each director or communicated to each director by telephone or by
telegraph or mail, charges prepaid, addressed to him or her at his or her
address as it is shown upon the records of the corporation or, if it is not so
shown on such records or is not readily ascertainable, at the place at which
meetings of the directors are regularly held. In case such notice is mailed or
telegraphed, it shall be deposited in the United States mail or delivered to the
telegraph company in the place in which the principal executive office of the
corporation is located at least forty-eight hours prior to the time of the
holding of the meeting. In case the notice is delivered, personally or by
telephone, it be will be delivered at least twenty-four hours prior to the time
of the holding of the meeting. Such mailing, telegraphing or delivery,
personally or by telephone, as above provided, shall be due, legal and personal
notice to each such director.
COMPARISON OF PROCEDURES FOR AN AMENDMENT OF 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.
WorldxChange's articles of incorporation requires the approval of 66 2/3%
of the combined voting power of its shareholders to amend any provisions of
Article Eight, which deals with amendments, Article Four, which deals with
cumulative voting, or Article Five, which deals with the election and term of
directors.
COMPARISON OF NOTICE REQUIREMENTS OF STOCKHOLDER'S MEETINGS
World Access' bylaws provide that notice of a special meeting of
stockholders must be timely given in writing not less than ten days or more than
60 days before to the meeting. The notice must state the purposes for which the
meeting is called. The World Access bylaws require that board nominations be
made by the board of directors or a stockholder who gives timely notice to the
secretary of the company. To be timely, a stockholder's nomination notice must
be received by World Access at least 120 days before the one-year anniversary of
the date of the proxy statement in connection with the previous year's annual
meeting of stockholders. 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 if:
- no annual meeting was held in the previous year;
- 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
- the upcoming meeting is not an annual meeting.
The bylaws of WorldxChange provide that upon request in writing that a
special meeting of shareholders be called for any proper purpose, notice will be
given to shareholders entitled to vote that a meeting will be held at a time
requested by the person or persons calling the meeting, not less than 35 or more
than 60 days after receipt of the request. The notice will specify the general
nature of the business to be transacted at the meeting, and no other business
may be transacted at such meeting.
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COMPARISON OF STOCKHOLDER APPROVAL OF CERTAIN BUSINESS COMBINATIONS
World Access is subject to Section 203(a) of the Delaware General
Corporation Law, which prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years
following the time that such stockholder became an interested stockholder, with
certain exceptions, unless:
- before such time, the board of directors of the corporation approved
either the business combination or the transactions that resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transactions that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
- at or after such time, the business combination is approved by the board
of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
Section 203(c)(3) defines "business combinations" to include:
- any merger or consolidation involving the corporation and (a) any
interested stockholder, or (b) any other corporation, partnership,
unincorporated association or other entity if the merger or consolidation
is caused by the interested stockholder and as a result of such merger or
consolidation, DGCL Section 203(a) is not applicable to the surviving
entity;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 10% or more of the assets of the corporation involving the
interested stockholder, with certain exceptions;
- any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested
stockholder;
- any transaction involving the corporation that has the effect of
increasing the proportionate share of the stock of any class or series of
the corporation beneficially owned by the interested stockholder; or
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits, with certain
exceptions, provided by or through the corporation.
California law requires that holders of common stock receive common stock
of the surviving company or parent company in a merger of the corporation with
the holder of more than 50% but less than 90% of the target's or its affiliate's
common stock unless all of the target company's shareholders consent to the
transaction. This provision of California law may have the effect of making a
"cash-out" merger by a majority shareholder more difficult to accomplish.
Although Delaware law does not parallel California law in this respect, under
some circumstances Section 203 provides similar protection to stockholders
against coercive two-tiered bids for a corporation in which the stockholders are
not treated equally.
COMPARISON OF INSPECTION OF SHAREHOLDER LIST
Both Delaware and California law allow any shareholder to inspect and copy
the shareholder list for a purpose reasonably related to such person's interest
as a shareholder. Delaware law provides for inspection rights as to a list of
stockholders entitled to vote at a meeting within a ten day period preceding a
stockholders' meeting for any purpose germane to the meeting. California law
provides, in addition, for an absolute right to inspect and copy the
corporation's shareholder list by persons holding an aggregate of 5% or more of
the corporation's voting shares, or shareholders holding an aggregate of 1% or
more of such shares who have made certain filings with the Securities and
Exchange Commission.
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World Access' bylaws mirror the Delaware statutory provisions with respect
to inspection of shareholder lists. WorldxChange's bylaws mirror the California
statutory provisions with respect to inspection of shareholder lists.
COMPARISON OF DIVIDENDS AND REPURCHASES OF SHARES
Delaware law permits a corporation to declare and pay dividends out of
surplus or, if there is no surplus, out of net profits for the fiscal year in
which the dividend is declared and/or for the preceding fiscal year as long as
the amount of capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the capital represented
by the issued and outstanding stock of all classes having a preference upon the
distribution of assets. In addition, Delaware law generally provides that a
corporation may redeem or repurchase its shares only if the capital of the
corporation is not impaired and such redemption or repurchase would not impair
the capital of the corporation.
Under California law, a corporation may not make any distribution to its
shareholders unless either:
- the corporation's retained earnings immediately prior to the proposed
distribution equal or exceed the amount of the proposed distribution; or
- immediately after giving effect to such distribution, the corporation's
assets exclusive of goodwill, capitalized research and development
expenses and deferred charges, would be at least equal to 1 1/4 times its
liabilities and the corporation's current assets would be at least equal
to its current liabilities or 1 1/4 times its current liabilities if the
average pre-tax and pre-interest expense earnings for the preceding two
fiscal years were less than the average interest expense for such years.
Such tests are applied to California corporations on a consolidated
basis.
COMPARISON OF DISSOLUTION RIGHTS
Under Delaware law, unless the board of directors approves the proposal to
dissolve, the dissolution must be unanimously approved by all the shareholders
entitled to vote thereon. Only if the dissolution is initially approved by the
board of directors may the dissolution be approved by a simple majority of the
outstanding shares of the corporation's stock entitled to vote. In the event of
such a board-initiated dissolution, Delaware law allows a Delaware corporation
to include in its certificate of incorporation a supermajority (greater than a
simple majority) voting requirement in connection with dissolutions. World
Access' amended certificate of incorporation contains no such supermajority
voting requirement.
Under California law, shareholders holding 50% or more of the total voting
power may authorize a corporation's dissolution, with or without the approval of
the corporation's board of directors, and this right may not be modified by the
articles of incorporation.
157
<PAGE> 171
COMPARATIVE PER SHARE MARKET PRICE DATA FOR WORLD ACCESS, STAR AND WORLDXCHANGE
The World Access common stock is traded on the Nasdaq National Market under
the symbol "WAXS," and the STAR common stock is traded on the Nasdaq National
Market under the symbol "STRX." WorldxChange's capital stock has no established
public trading market, and therefore has no public market price.
The following table sets forth, for the calendar quarters indicated, the
high and low sale prices per share of World Access common stock and STAR common
stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
WORLD ACCESS STAR
COMMON STOCK COMMON STOCK
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1998:
First Quarter............................................. 33 1/2 21 5/8 28 3/64 13 29/32
Second Quarter............................................ 40 25 3/8 37 3/8 19 3/8
Third Quarter............................................. 30 15/16 18 3/4 23 9 11/16
Fourth Quarter............................................ 24 3/4 12 18 7 1/8
Year Ended December 31, 1999:
First Quarter............................................. 22 3/4 6 3/8 15 3/4 9 5/8
Second Quarter............................................ 14 3/8 7 1/2 11 7/8 7 7/16
Third Quarter............................................. 16 3/16 10 5/16 8 7/16 5 1/4
Fourth Quarter............................................ 22 1/4 10 5/16 8 51/64 4 11/16
Year Ending December 31, 2000:
First Quarter............................................. 26 7/8 17 1/4 8 3/8 5 1/2
Second Quarter............................................ 20 9 1/4 5 11/16 1 13/16
Third Quarter (through August 01, 2000)................... 11 3/8 8 5/8 2 7/8 2 1/2
</TABLE>
The following table sets forth the closing prices per share of World Access
common stock and STAR common stock as reported on the Nasdaq National Market on
(i) December 20, 1999, the business day preceding public announcement that World
Access and STAR had signed a letter of intent to merge and (ii) August 1, 2000,
the last full trading day for which closing prices were available at the time of
the printing of this joint proxy statement/prospectus. This table also sets
forth the equivalent price per share of STAR 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 .386595, the number of shares of
World Access common stock to be issued in exchange for each share of STAR common
stock, assuming no adjustment to the exchange ratio as provided for in the STAR
merger agreement in connection with the PT-1 sale.
<TABLE>
<CAPTION>
WORLD ACCESS
STAR COMMON EQUIVALENT PER
COMMON STOCK STOCK SHARE PRICE
------------ ------------ --------------
<S> <C> <C> <C>
December 20, 1999.................................. $8 7/8 $20 1/2 $8
August 1, 2000..................................... 2 1/2 8 11/16 3 5/14
</TABLE>
STAR and World Access believe that the STAR common stock presently trades
on the basis of the value of the World Access common stock expected to be issued
in exchange for the STAR common stock in the STAR merger, discounted primarily
for the uncertainties associated with the STAR merger. Apart from the publicly
disclosed information concerning World Access which is included in, or
incorporated by reference into, this joint proxy statement/prospectus, World
Access cannot state with certainty what factors account for changes in the
market price of the World Access common stock.
158
<PAGE> 172
STAR stockholders are advised to obtain current market quotations for World
Access common stock and STAR common stock. No assurance can be given as to the
market prices of World Access common stock or STAR common stock at any time
before the completion of the STAR merger or as to the market price of World
Access common stock at any time after the completion of the STAR merger.
World Access and STAR have never paid cash dividends on their respective
shares of capital stock. Pursuant to the STAR merger agreement, STAR has agreed
not to pay cash dividends pending the consummation of the STAR merger without
the written consent of World Access.
159
<PAGE> 173
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 under all three scenarios 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 March 31, 2000 under
all seven scenarios gives effect to the STAR, WorldxChange and TelDaFax
acquisitions as if each acquisition had occurred on March 31, 2000. The
Unaudited Pro Forma Condensed Combined Statements of Operations for the three
months ended March 31, 2000 under all seven scenarios also give effect to the
LDI acquisitions 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 leading 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 investment pools advised by
Apax Partners & Co. (the "Apax Acquisition") by issuing World Access common
stock at an exchange ratio of 1.025 shares of World Access for each share of
TelDaFax (the "Exchange Ratio"). In addition, World Access intends to make a
tender offer (the "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
"Contribution").
The completion of these transactions (the "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 proforma 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."
160
<PAGE> 174
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
WORLD STAR AND STAR WORLDXCHANGE
ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE ADJUSTMENTS
---------- -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.................. $ 333,047 $129,290 $ -- $ 462,337 $ 9,553 $ --
Short-term investments................ 43,922 1,310 -- 45,232 -- --
Restricted cash....................... 30,847 -- -- 30,847 -- --
Accounts and notes receivable......... 260,053 104,341 -- 364,394 92,172 (2,351)(17)
Prepaid expenses and other current
assets............................... 29,835 19,620 -- 49,455 26,217 (210)(17)
(25,000)(11)
Net assets held for sale.............. 104,705 -- -- 104,705 -- --
Investments........................... 70,000 -- -- 70,000 -- --
---------- -------- --------- ---------- --------- --------
Total Current Assets........... 872,409 254,561 -- 1,126,970 127,942 (27,561)
---------- -------- --------- ---------- --------- --------
Property and equipment................ 154,250 268,750 (94,000)(2) 329,000 195,923 (6,500)(11)
(68,000)(11)
Goodwill.............................. 1,081,172 1,291 (1,291)(4) 1,321,562 78,908 (78,908)(13)
240,390(2) -- 549,511(11)
Other assets.......................... 64,854 10,622 3,300(2) 78,776 19,739 29,500(11)
---------- -------- --------- ---------- --------- --------
Total Assets................... $2,172,685 $535,224 $ 148,399 $2,856,308 $ 422,512 $398,042
========== ======== ========= ========== ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt....................... $ 74,722 $ 42,299 $ -- $ 117,021 $ 174,142 $ (2,351)(17)
(25,000)(11)
Accounts payable...................... 228,721 258,136 (77,435)(6) 409,422 173,175 (2,347)(15)
Other accrued liabilities............. 101,730 8,533 3,000(2) 113,263 49,302 3,000(11)
(210)(17)
---------- -------- --------- ---------- --------- --------
Total Current Liabilities...... 405,173 308,968 (74,435) 639,706 396,619 (26,908)
Long-term debt........................ 413,989 38,567 -- 452,556 71,434 --
Other long-term liabilities........... 652 39,118 -- 39,770 6,248 --
---------- -------- --------- ---------- --------- --------
Total Liabilities.............. 819,814 386,653 (74,435) 1,132,032 474,301 (26,908)
---------- -------- --------- ---------- --------- --------
Minority interests.................... -- -- -- -- -- --
Stockholders' Equity (Deficit):
Preferred stock....................... 6 -- -- 6 78,658 (78,658)(14)
Common stock.......................... 597 58 (58)(5) 891 99,378 (99,378)(14)
227(2) 298(11)
67(6) 2(15)
Additional paid in capital............ 1,422,619 365,903 (365,903)(5) 1,793,730 -- 352,804(11)
285,604(2) 17,712(11)
8,139(2) 2,345(15)
77,368(6)
Deferred compensation................. -- (1,985) 1,985(5) -- -- --
Notes receivable from shareholders.... -- (3,785) 3,785(5) -- (1,888) 1,888(14)
Accumulated other comprehensive
loss................................. (4,368) (7,646) 7,646(5) (4,368) (6,860) 6,860(14)
Accumulated deficit................... (65,983) (203,974) 203,974(5) (65,983) (221,077) 221,077(14)
---------- -------- --------- ---------- --------- --------
Total Stockholders' Equity
(Deficit).................... 1,352,871 148,571 222,834 1,724,276 (51,789) 424,950
---------- -------- --------- ---------- --------- --------
Total Liabilities and
Stockholders' Equity......... $2,172,685 $535,224 $ 148,399 $2,856,308 $ 422,512 $398,042
========== ======== ========= ========== ========= ========
<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.................. $ 471,890 $ 50,970 $ -- $ 522,860
Short-term investments................ 45,232 -- -- 45,232
Restricted cash....................... 30,847 -- -- 30,847
Accounts and notes receivable......... 454,215 38,101 -- 492,316
Prepaid expenses and other current
assets............................... 50,462 25,173 -- 75,635
Net assets held for sale.............. 104,705 -- -- 104,705
Investments........................... 70,000 -- -- 70,000
---------- -------- -------- ----------
Total Current Assets........... 1,227,351 114,244 -- 1,341,595
---------- -------- -------- ----------
Property and equipment................ 450,423 68,244 (24,000)(22) 494,667
Goodwill.............................. 1,871,073 10,304 (10,304)(24) 2,192,242
321,169(22)
Other assets.......................... 128,015 13,723 24,000(22) 165,738
---------- -------- -------- ----------
Total Assets................... $3,676,862 $206,515 $310,865 $4,194,242
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt....................... $ 263,812 $ 7,101 $ -- $ 270,913
Accounts payable...................... 580,250 81,585 -- 661,835
Other accrued liabilities............. 165,355 6,997 5,000(22) 177,352
---------- ------- -------- ----------
Total Current Liabilities...... 1,009,417 95,683 5,000 1,110,100
Long-term debt........................ 523,990 20,907 -- 544,897
Other long-term liabilities........... 46,018 349 -- 46,367
---------- ------- -------- ----------
Total Liabilities.............. 1,579,425 116,939 5,000 1,701,364
---------- ------- -------- ----------
Minority interests.................... -- (548) -- (548)
Stockholders' Equity (Deficit):
Preferred stock....................... 6 -- -- 6
Common stock.......................... 1,191 84,017 (84,017)(25) 1,538
347(22)
Additional paid in capital............ 2,166,591 7,710 (7,710)(25) 2,562,233
395,642(22)
Deferred compensation................. -- -- -- --
Notes receivable from shareholders.... -- -- -- --
Accumulated other comprehensive
loss................................. (4,368) -- -- (4,368)
Accumulated deficit................... (65,983) (1,603) 1,603(25) (65,983)
---------- ------- -------- ----------
Total Stockholders' Equity
(Deficit).................... 2,097,437 90,124 305,865 2,493,426
---------- ------- -------- ----------
Total Liabilities and
Stockholders' Equity......... $3,676,862 $206,515 $310,865 $4,194,242
========== ======== ======== ==========
</TABLE>
161
<PAGE> 175
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA STAR AND STAR WORLDXCHANGE
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS
---------------- -------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Service revenues $264,220 $124,543 $(5,873)(7) $382,890 $148,276 $ (4,642)(16)
Operating expense:
Cost of services (exclusive
of depreciation and
amortization shown
separately below)........... 233,880 111,819 (5,873)(7) 339,826 117,663 (4,642)(16)
Selling, general and
administrative.............. 28,587 19,875 -- 48,462 35,802 --
Depreciation and
amortization................ 21,782 11,573 458(3) 30,621 12,450 5,941(12)
(3,357)(3) (325)(11)
165(3) (2,429)(12)
1,475(12)
Provision for doubtful
accounts.................... 3,281 1,214 -- 4,495 5,353 --
-------- ------- ------- -------- -------- --------
Total operating
expenses............. 287,530 144,481 (8,607) 423,404 171,268 20
-------- ------- ------- -------- -------- --------
Operating loss......... (23,310) (19,938) 2,734 (40,514) (22,992) (4,662)
Interest and other income.... 6,361 10,823 -- 17,184 -- --
Interest and other expense... (15,762) (930) -- (16,692) (7,840) --
Foreign exchange loss........ 438 -- -- 438 -- --
-------- ------- ------- -------- -------- --------
Loss from continuing
operations before
income taxes and
minority interests... (32,273) (10,045) 2,734 (39,584) (30,832) (4,662)
Provision (benefit) for
income taxes................ (1,550) (3,163) 1,309(8) (3,404) -- 524(18)
-------- ------- ------- -------- -------- --------
Loss from continuing
operations before
minority interests... (30,723) (6,882) 1,425 (36,180) (30,832) (5,186)
Minority interests........... -- -- -- -- -- --
-------- ------- ------- -------- -------- --------
Loss from continuing
operations........... (30,723) (6,882) 1,425 (36,180) (30,832) (5,186)
Preferred stock dividends.... (632) -- -- (632) -- --
-------- ------- ------- -------- -------- --------
Loss from continuing
operations available
to common
stockholders......... $(31,355) $(6,882) $ 1,425 $(36,812) $(30,832) $ (5,186)
======== ======= ======= ======== ======== ========
Loss per common share from
continuing operations:
Basic....................... $ (0.57)
========
Diluted..................... $ (0.57)
========
Weighted average shares
outstanding:
Basic....................... 55,189
========
Diluted..................... 55,189
========
<CAPTION>
PRO FORMA
WORLD ACCESS, PRO FORMA
STAR AND WORLD ACCESS, STAR
WORLDXCHANGE TELDAFAX TELDAFAX WORLDXCHANGE AND
COMBINED (21) ADJUSTMENTS TELDAFAX COMBINED
------------- -------- ----------- ------------------
<S> <C> <C> <C> <C>
Service revenues $526,524 $84,187 $ (1,357)(26) $609,354
Operating expense:
Cost of services (exclusive
of depreciation and
amortization shown
separately below)........... 452,847 69,468 (1,357)(26) 520,958
Selling, general and
administrative.............. 84,264 11,859 -- 96,123
Depreciation and
amortization................ 47,733 5,359 3,529(23) 56,964
(857)(23)
1,200(23)
Provision for doubtful
accounts.................... 9,848 557 -- 10,405
-------- -------- -------- --------
Total operating
expenses............. 594,692 87,243 2,515 684,450
-------- -------- -------- --------
Operating loss......... (68,168) (3,056) (3,872) (75,096)
Interest and other income.... 17,184 504 -- 17,688
Interest and other expense... (24,532) (363) -- (24,895)
Foreign exchange loss........ 438 -- -- 438
-------- -------- -------- --------
Loss from continuing
operations before
income taxes and
minority interests... (75,078) (2,915) (3,872) (81,865)
Provision (benefit) for
income taxes................ (2,880) (1,497) (141)(27) (4,518)
-------- -------- -------- --------
Loss from continuing
operations before
minority interests... (72,198) (1,418) (3,731) (77,347)
Minority interests........... -- 635 -- 635
-------- -------- -------- --------
Loss from continuing
operations........... (72,198) (783) (3,731) (76,712)
Preferred stock dividends.... (632) -- -- (632)
-------- -------- -------- --------
Loss from continuing
operations available
to common
stockholders......... $(72,830) $ (783) $ (3,731) $(77,344)
======== ======== ======== ========
Loss per common share from
continuing operations:
Basic....................... $ (0.51)(9)(19)(28)
========
Diluted..................... $ (0.51)(9)(19)(28)
========
Weighted average shares
outstanding:
Basic....................... 152,379(9)(19)(28)
========
Diluted..................... 152,379(9)(19)(28)
========
</TABLE>
162
<PAGE> 176
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
PRO FORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10)
---------------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Service revenues $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035
Operating expense:
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............. 132,251 91,302 -- 223,553 168,028
Depreciation and
amortization............... 93,252 38,975 3,485(3) 122,943 43,304
(13,429)(3)
660(3)
Provision for doubtful
accounts................... 13,980 16,944 -- 30,924 25,042
Merger expense.............. -- 1,867 -- 1,867 --
Restructuring and other
special charges............ 44,187 -- -- 44,187 --
---------- -------- -------- ---------- ---------
Total operating
expenses................ 1,189,606 686,983 (27,233) 1,849,356 713,691
---------- -------- -------- ---------- ---------
Operating loss........... (170,053) (70,514) 9,284 (231,283) (106,656)
Interest and other income... 10,822 3,230 -- 14,052 --
Interest and other
expense.................... (58,208) (6,194) -- (64,402) (25,385)
Foreign exchange loss....... (2,369) -- -- (2,369) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations before income
taxes and minority
interests............... (219,808) (73,478) 9,284 (284,002) (132,041)
Provision (benefit) for
income taxes............... (6,999) (11,041) 5,235(8) (12,805) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations before
minority interest....... (212,809) (62,437) 4,049 (271,197) (132,041)
Minority interest........... -- -- -- -- 1,614
---------- -------- -------- ---------- ---------
Loss from continuing
operations.............. (212,809) (62,437) 4,049 (271,197) (130,427)
Preferred stock dividends... (2,461) -- -- (2,461) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations available to
common stockholders..... $ (215,270) $(62,437) $ 4,049 $ (273,658) $(130,427)
========== ======== ======== ========== =========
Loss per common share from
continuing operations:
Basic...................... $ (4.25)
==========
Diluted.................... $ (4.25)
==========
Weighted average shares
outstanding:
Basic...................... 50,634
==========
Diluted.................... 50,634
==========
<CAPTION>
PRO FORMA PRO FORMA
WORLD ACCESS, WORLD ACCESS,
STAR AND 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 expense:
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............. -- 391,581 44,077 -- 435,658
Depreciation and
amortization............... 8,835(12) 169,968 18,369 15,453(23) 205,161
(1,300)(11) (3,429)(23)
(9,714)(12) 4,800(23)
5,900(12)
Provision for doubtful
accounts................... -- 55,966 4,681 -- 60,647
Merger expense.............. -- 1,867 -- -- 1,867
Restructuring and other
special charges............ -- 44,187 -- -- 44,187
-------- ---------- -------- -------- ----------
Total operating
expenses................ (21,880) 2,541,167 371,937 7,910 2,921,014
-------- ---------- -------- -------- ----------
Operating loss........... (3,721) (341,660) (7,898) (16,824) (366,382)
Interest and other income... -- 14,052 2,469 -- 16,521
Interest and other
expense.................... -- (89,787) (2,171) -- (91,958)
Foreign exchange loss....... -- (2,369) -- -- (2,369)
-------- ---------- -------- -------- ----------
Loss from continuing
operations before income
taxes and minority
interests............... (3,721) (419,764) (7,600) (16,824) (444,188)
Provision (benefit) for
income taxes............... 2,097(18) (10,708) (3,830) (562)(27) (15,100)
-------- ---------- -------- -------- ----------
Loss from continuing
operations before
minority interest....... (5,818) (409,056) (3,770) (16,262) (429,088)
Minority interest........... -- 1,614 774 -- 2,388
-------- ---------- -------- -------- ----------
Loss from continuing
operations.............. (5,818) (407,442) (2,996) (16,262) (426,700)
Preferred stock dividends... -- (2,461) -- -- (2,461)
-------- ---------- -------- -------- ----------
Loss from continuing
operations available to
common stockholders..... $ (5,818) $ (409,903) $(2,996) $(16,262) $ (429,161)
======== ========== ======== ======== ==========
Loss per common share from
continuing operations:
Basic...................... $ (2.90) (9)(19)(28)
==========
Diluted.................... $ (2.90) (9)(19)(28)
==========
Weighted average shares
outstanding:
Basic...................... 147,824(9)(19)(28)
==========
Diluted.................... 147,824(9)(19)(28)
==========
</TABLE>
163
<PAGE> 177
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WORLD ACCESS,
WORLD ACCESS STAR AND
WORLD STAR AND STAR WORLDXCHANGE WORLDXCHANGE
ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE ADJUSTMENTS COMBINED
---------- -------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.......... $ 333,047 $129,290 $ -- $ 462,337 $ 9,553 $ -- $ 471,890
Short-term investments........ 43,922 1,310 -- 45,232 -- -- 45,232
Restricted cash............... 30,847 -- -- 30,847 -- -- 30,847
Accounts and notes
receivable................... 260,053 104,341 -- 364,394 92,172 (2,351)(17) 454,215
Prepaid expenses and other
current assets............... 29,835 19,620 -- 49,455 26,217 (210)(17) 50,462
(25,000)(11)
Net assets held for sale...... 104,705 -- -- 104,705 -- -- 104,705
Investments................... 70,000 -- -- 70,000 -- -- 70,000
---------- -------- --------- ---------- --------- -------- ----------
Total Current Assets... 872,409 254,561 -- 1,126,970 127,942 (27,561) 1,227,351
---------- -------- --------- ---------- --------- -------- ----------
Property and equipment, net... 154,250 268,750 (94,000)(2) 329,000 195,923 (6,500)(11) 450,423
(68,000)(11)
Goodwill...................... 1,081,172 1,291 (1,291)(4) 1,321,562 78,908 (78,908)(13) 1,871,073
240,390(2) 549,511(11)
Other assets.................. 64,854 10,622 3,300(2) 78,776 19,739 29,500(11) 128,015
---------- -------- --------- ---------- --------- -------- ----------
Total Assets........... $2,172,685 $535,224 $ 148,399 $2,856,308 $ 422,512 $398,042 $3,676,862
========== ======== ========= ========== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt............... $ 74,722 $ 42,299 $ -- $ 117,021 $ 174,142 $ (2,351)(17) $ 263,812
(25,000)(11)
Accounts payable.............. 228,721 258,136 (77,435)(6) 409,422 173,175 (2,347)(15) 580,250
Other accrued liabilities..... 101,730 8,533 3,000(2) 113,263 49,302 3,000(11) 165,355
(210)(17)
---------- -------- --------- ---------- --------- -------- ----------
Total Current
Liabilities.......... 405,173 308,968 (74,435) 639,706 396,619 (26,908) 1,009,417
Long-term debt................ 413,989 38,567 -- 452,556 71,434 -- 523,990
Other long-term liabilities... 652 39,118 -- 39,770 6,248 -- 46,018
---------- -------- --------- ---------- --------- -------- ----------
Total Liabilities...... 819,814 386,653 (74,435) 1,132,032 474,301 (26,908) 1,579,425
---------- -------- --------- ---------- --------- -------- ----------
Stockholders' Equity
(Deficit):
Preferred stock............... 6 -- -- 6 78,658 (78,658)(14) 6
Common stock.................. 597 58 (58)(5) 891 99,378 (99,378)(14) 1,191
227(2) 298(11)
67(6) 2(15)
Additional paid in capital.... 1,422,619 365,903 (365,903)(5) 1,793,730 -- 352,804(11) 2,166,591
285,604(2) 17,712(11)
8,139(2) 2,345(15)
77,368(6)
Deferred compensation......... -- (1,985) 1,985(5) -- -- -- --
Notes receivable from
shareholders................. -- (3,785) 3,785(5) -- (1,888) 1,888(14) --
Accumulated other
comprehensive loss........... (4,368) (7,646) 7,646(5) (4,368) (6,860) 6,860(14) (4,368)
Accumulated deficit........... (65,983) (203,974) 203,974(5) (65,983) (221,077) 221,077(14) (65,983)
---------- -------- --------- ---------- --------- -------- ----------
Total Stockholders'
Equity (Deficit)..... 1,352,871 148,571 222,834 1,724,276 (51,789) 424,950 2,097,437
---------- -------- --------- ---------- --------- -------- ----------
Total Liabilities and
Stockholders'
Equity............... $2,172,685 $535,224 $ 148,399 $2,856,308 $ 422,512 $398,042 $3,676,862
========== ======== ========= ========== ========= ======== ==========
</TABLE>
164
<PAGE> 178
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA STAR AND STAR WORLDXCHANGE
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS
---------------- -------- ----------- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Service revenues $264,220 $124,543 $(5,873)(7) $382,890 $148,276 $ (4,642)(16)
Operating expense:
Cost of services (exclusive of
depreciation and
amortization shown
separately below)........... 233,880 111,819 (5,873)(7) 339,826 117,663 (4,642)(16)
Selling, general and
administrative.............. 28,587 19,875 -- 48,462 35,802 --
Depreciation and
amortization................ 21,782 11,573 458(3) 30,621 12,450 5,941(12)
(3,357)(3) (325)(11)
165(3) (2,429)(12)
1,475(12)
Provision for doubtful
accounts.................... 3,281 1,214 -- 4,495 5,353 --
-------- ------- ------- -------- -------- --------
Total operating
expenses............ 287,530 144,481 (8,607) 423,404 171,268 20
-------- ------- ------- -------- -------- --------
Operating loss........ (23,310) (19,938) 2,734 (40,514) (22,992) (4,662)
Interest and other income..... 6,361 10,823 -- 17,184 -- --
Interest and other expense.... (15,762) (930) -- (16,692) (7,840) --
Foreign exchange loss......... 438 -- -- 438 -- --
-------- ------- ------- -------- -------- --------
Loss from continuing
operations before
income taxes........ (32,273) (10,045) 2,734 (39,584) (30,832) (4,662)
Provision benefit for income
taxes....................... (1,550) (3,163) 1,309(8) (3,404) -- 524(18)
-------- ------- ------- -------- -------- --------
Loss from continuing
operations.......... (30,723) (6,882) 1,425 (36,180) (30,832) (5,186)
Preferred stock dividends..... (632) -- -- (632) -- --
-------- ------- ------- -------- -------- --------
Loss from continuing
operations available
to common
stockholders........ $(31,355) $(6,882) $ 1,425 $(36,812) $(30,832) $ (5,186)
======== ======= ======= ======== ======== ========
Loss per common share from
continuing operations:
Basic....................... $ (0.57)
========
Diluted..................... $ (0.57)
========
Weighted average shares
outstanding:
Basic....................... 55,189
========
Diluted..................... 55,189
========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE
COMBINED
-------------
<S> <C>
Service revenues $526,524
Operating expense:
Cost of services (exclusive of
depreciation and
amortization shown
separately below)........... 452,847
Selling, general and
administrative.............. 84,264
Depreciation and
amortization................ 47,733
Provision for doubtful
accounts.................... 9,848
--------
Total operating
expenses............ 594,692
--------
Operating loss........ (68,168)
Interest and other income..... 17,184
Interest and other expense.... (24,532)
Foreign exchange loss......... 438
--------
Loss from continuing
operations before
income taxes........ (75,078)
Provision benefit for income
taxes....................... (2,880)
--------
Loss from continuing
operations.......... (72,198)
Preferred stock dividends..... (632)
--------
Loss from continuing
operations available
to common
stockholders........ $(72,830)
========
Loss per common share from
continuing operations:
Basic....................... $ (0.62)(9)(19)
========
Diluted..................... $ (0.62)(9)(19)
========
Weighted average shares
outstanding:
Basic....................... 117,704(9)(19)
========
Diluted..................... 117,704(9)(19)
========
</TABLE>
165
<PAGE> 179
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
PRO FORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10)
---------------- -------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Service revenues $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035
Operating expense:
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.................. 132,251 91,302 -- 223,553 168,028
Depreciation and amortization..... 93,252 38,975 3,485(3) 122,943 43,304
(13,429)(3)
660(3)
Provision for doubtful accounts... 13,980 16,944 -- 30,924 25,042
Merger expense.................... -- 1,867 -- 1,867 --
Restructuring and other special
charges......................... 44,187 -- -- 44,187 --
---------- -------- -------- ---------- ---------
Total operating expenses...... 1,189,606 686,983 (27,233) 1,849,356 713,691
---------- -------- -------- ---------- ---------
Operating loss................ (170,053) (70,514) 9,284 (231,283) (106,656)
Interest and other income......... 10,822 3,230 -- 14,052 --
Interest and other expense........ (58,208) (6,194) -- (64,402) (25,385)
Foreign exchange loss............. (2,369) -- -- (2,369) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations before income
taxes and minority
interests................... (219,808) (73,478) 9,284 (284,002) (132,041)
Provision (benefit) for income
taxes........................... (6,999) (11,041) 5,235(8) (12,805) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations before minority
interest.................... (212,809) (62,437) 4,049 (271,197) (132,041)
Minority interest................. -- -- -- -- 1,614
---------- -------- -------- ---------- ---------
Loss from continuing
operations.................. (212,809) (62,437) 4,049 (271,197) (130,427)
Preferred stock dividends......... (2,461) -- -- (2,461) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations available to
common stockholders......... $ (215,270) $(62,437) $ 4,049 $ (273,658) $(130,427)
========== ======== ======== ========== =========
Loss per common share from
continuing operations:
Basic........................... $ (4.25)
==========
Diluted......................... $ (4.25)
==========
Weighted average shares
outstanding:
Basic........................... 50,634
==========
Diluted......................... 50,634
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
STAR AND
WORLDXCHANGE WORLDXCHANGE
ADJUSTMENTS COMBINED
------------ -------------
<S> <C> <C>
Service revenues $(25,601)(16) $2,199,507
Operating expense:
Cost of services (exclusive of
depreciation and amortization
shown separately below)......... (25,601)(16) 1,877,598
Selling, general and
administrative.................. -- 391,581
Depreciation and amortization..... 8,835(12) 169,968
(1,300)(11)
(9,714)(12)
5,900(12)
Provision for doubtful accounts... -- 55,966
Merger expense.................... -- 1,867
Restructuring and other special
charges......................... -- 44,187
-------- ----------
Total operating expenses...... (21,880) 2,541,167
-------- ----------
Operating loss................ (3,721) (341,660)
Interest and other income......... -- 14,052
Interest and other expense........ -- (89,787)
Foreign exchange loss............. -- (2,369)
-------- ----------
Loss from continuing
operations before income
taxes and minority
interests................... (3,721) (419,764)
Provision (benefit) for income
taxes........................... 2,097(18) (10,708)
-------- ----------
Loss from continuing
operations before minority
interest.................... (5,818) (409,056)
Minority interest................. -- 1,614
-------- ----------
Loss from continuing
operations.................. (5,818) (407,442)
Preferred stock dividends......... -- (2,461)
-------- ----------
Loss from continuing
operations available to
common stockholders......... $ (5,818) $ (409,903)
======== ==========
Loss per common share from
continuing operations:
Basic........................... $ (3.62)(9)(19)
==========
Diluted......................... $ (3.62)(9)(19)
==========
Weighted average shares
outstanding:
Basic........................... 113,149(9)(19)
==========
Diluted......................... 113,149(9)(19)
==========
</TABLE>
166
<PAGE> 180
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 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......... $ 333,047 $129,290 $ -- $ 462,337 $ 50,970 $ --
Short-term
investments......... 43,922 1,310 -- 45,232 -- --
Restricted cash...... 30,847 -- -- 30,847 -- --
Accounts and notes
receivable.......... 260,053 104,341 -- 364,394 38,101 --
Prepaid expenses and
other current
assets.............. 29,835 19,620 -- 49,455 25,173 --
Net assets held for
sale................ 104,705 -- -- 104,705 -- --
Investments.......... 70,000 -- -- 70,000 -- --
---------- -------- --------- ---------- -------- --------
Total Current
Assets...... 872,409 254,561 -- 1,126,970 114,244 --
---------- -------- --------- ---------- -------- --------
Property and
equipment........... 154,250 268,750 (94,000)(2) 329,000 68,244 (24,000)(22)
Goodwill............. 1,081,172 1,291 (1,291)(4) 1,321,562 10,304 (10,304)(24)
240,390(2) 321,169(22)
Other assets......... 64,854 10,622 3,300(2) 78,776 13,723 24,000(22)
---------- -------- --------- ---------- -------- --------
Total Assets.. $2,172,685 $535,224 $ 148,399 $2,856,308 $206,515 $310,865
========== ======== ========= ========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...... $ 74,722 $42,299 $ -- $ 117,021 $ 7,101 $ --
Accounts payable..... 228,721 258,136 (77,435)(6) 409,422 81,585 --
Other accrued
liabilities......... 101,730 8,533 3,000(2) 113,263 6,997 5,000(22)
---------- -------- --------- ---------- -------- --------
Total Current
Liabilities.. 405,173 308,968 (74,435) 639,706 95,683 5,000
Long-term debt....... 413,989 38,567 -- 452,556 20,907 --
Other long-term
liabilities......... 652 39,118 -- 39,770 349 --
---------- -------- --------- ---------- -------- --------
Total
Liabilities.. 819,814 386,653 (74,435) 1,132,032 116,939 5,000
---------- -------- --------- ---------- -------- --------
Minority interests... -- -- -- -- (548) --
Stockholders' Equity
(Deficit):
Preferred Stock...... 6 -- -- 6 -- --
Common stock......... 597 58 (58)(5) 891 84,017 (84,017)(25)
227(2) 347(22)
67(6)
Additional paid in
capital............. 1,422,619 365,903 (365,903)(5) 1,793,730 7,710 (7,710)(25)
285,604(2) 395,642(22)
8,139(2)
77,368(6)
Deferred
compensation........ -- (1,985) 1,985(5) -- -- --
Notes receivable from
shareholders........ -- (3,785) 3,785(5) -- -- --
Accumulated other
comprehensive loss.. (4,368) (7,646) 7,646(5) (4,368) -- --
Accumulated
deficit............. (65,983) (203,974) 203,974(5) (65,983) (1,603) 1,603(25)
---------- -------- --------- ---------- -------- --------
Total
Stockholders'
Equity...... 1,352,871 148,571 222,834 1,724,276 90,124 305,865
---------- -------- --------- ---------- -------- --------
Total
Liabilities
and
Stockholders'
Equity...... $2,172,685 $535,224 $ 148,399 $2,856,308 $206,515 $310,865
========== ======== ========= ========== ======== ========
<CAPTION>
PRO FORMA
WORLD ACCESS, STAR
AND TELDAFAX
COMBINED
------------------
<S> <C>
ASSETS
Cash and
equivalents......... $ 513,307
Short-term
investments......... 45,232
Restricted cash...... 30,847
Accounts and notes
receivable.......... 402,495
Prepaid expenses and
other current
assets.............. 74,628
Net assets held for
sale................ 104,705
Investments.......... 70,000
----------
Total Current
Assets...... 1,241,214
----------
Property and
equipment........... 373,244
Goodwill............. 1,642,731
Other assets......... 116,499
----------
Total Assets.. $3,373,688
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...... $ 124,122
Accounts payable..... 491,007
Other accrued
liabilities......... 125,260
----------
Total Current
Liabilities.. 740,389
Long-term debt....... 473,463
Other long-term
liabilities......... 40,119
----------
Total
Liabilities.. 1,253,971
----------
Minority interests... (548)
Stockholders' Equity
(Deficit):
Preferred Stock...... 6
Common stock......... 1,238
Additional paid in
capital............. 2,189,372
Deferred
compensation........ --
Notes receivable from
shareholders........ --
Accumulated other
comprehensive loss.. (4,368)
Accumulated
deficit............. (65,983)
----------
Total
Stockholders'
Equity...... 2,120,265
----------
Total
Liabilities
and
Stockholders'
Equity...... $3,373,688
==========
</TABLE>
167
<PAGE> 181
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA STAR AND STAR TELDAFAX
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED (21)
---------------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Service revenues........................................ $ 264,220 $124,543 $ (4,459)(7) $384,304 $84,187
Operating expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below).................. 233,880 111,819 (4,459)(7) 341,240 69,468
Selling, general and administrative..................... 28,587 19,875 -- 48,462 11,859
Depreciation and amortization........................... 21,782 11,573 458(3) 30,621 5,359
........................................................ (3,357)(3)
........................................................ 165(3)
Provision for doubtful accounts......................... 3,281 1,214 -- 4,495 557
---------- -------- -------- -------- --------
Total operating expenses....................... 287,530 144,481 (7,193) 424,818 87,243
---------- -------- -------- -------- --------
Operating loss................................. (23,310) (19,938) 2,734 (40,514) (3,056)
--------
Interest and other income............................... 6,361 10,823 -- 17,184 504
Interest and other expense.............................. (15,762) (930) -- (16,692) (363)
Foreign exchange loss................................... 438 -- -- 438 --
---------- -------- -------- -------- --------
Loss from continuing operations before income
taxes and minority interests................. (32,273) (10,045) 2,734 (39,584) (2,915)
Provision (benefit) for income taxes.................... (1,550) (3,163) 1,309(8) (3,404) (1,497)
---------- -------- -------- -------- --------
Loss from continuing operations before minority
interests.................................... (30,723) (6,882) 1,425 (36,180) (1,418)
Minority interests...................................... -- -- -- -- 635
---------- -------- -------- -------- --------
Loss from continuing operations................ (30,723) (6,882) 1,425 (36,180) (783)
Preferred stock dividends............................... (632) -- -- (632) --
---------- -------- -------- -------- --------
Loss from continuing operations available to
common stockholders.......................... $ (31,355) $ (6,882) $ 1,425 $(36,812) $ (783)
========== ======== ======== ======== ========
Loss per common share from continuing operations:
Basic................................................. $ (0.57)
==========
Diluted............................................... $ (0.57)
==========
Weighted average shares outstanding:
Basic................................................. 55,189
==========
Diluted............................................... 55,189
==========
<CAPTION>
PRO FORMA
WORLD
ACCESS,
STAR &
TELDAFAX TELDAFAX
ADJUSTMENTS COMBINED
----------- ------------
<S> <C> <C>
Service revenues........................................ $ (1,357)(26) $467,134
Operating expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below).................. (1,357)(26) 409,351
Selling, general and administrative..................... -- 60,321
Depreciation and amortization........................... 3,529(23) 39,852
........................................................ (857)(23)
........................................................ 1,200(23)
Provision for doubtful accounts......................... -- 5,052
-------- --------
Total operating expenses....................... 2,515 514,576
-------- --------
Operating loss................................. (3,872) (47,442)
-------- --------
Interest and other income............................... -- 17,688
Interest and other expense.............................. -- (17,055)
Foreign exchange loss................................... -- 438
-------- --------
Loss from continuing operations before income
taxes and minority interests................. (3,872) (46,371)
Provision (benefit) for income taxes.................... (141)(27) (5,042)
-------- --------
Loss from continuing operations before minority
interests.................................... (3,731) (41,329)
Minority interests...................................... -- 635
-------- --------
Loss from continuing operations................ (3,731) (40,694)
Preferred stock dividends............................... -- (632)
-------- --------
Loss from continuing operations available to
common stockholders.......................... $ (3,731) $(41,326)
======== ========
Loss per common share from continuing operations:
Basic................................................. $ (0.34)(9)(28)
========
Diluted............................................... $ (0.34)(9)(28)
========
Weighted average shares outstanding:
Basic................................................. 120,357(9)(28)
========
Diluted............................................... 120,357(9)(28)
========
</TABLE>
168
<PAGE> 182
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
PRO FORMA WORLD ACCESS,
WORLD ACCESS STAR AND
PRO FORMA STAR AND STAR TELDAFAX TELDAFAX TELDAFAX
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED (21) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Service revenues.......... $1,019,553 $616,469 $(17,949)(7) $1,618,073 $364,039 $ (8,914)(26) $1,973,198
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) 1,721,778
Selling, general and
administrative.......... 132,251 91,302 -- 223,553 44,077 -- 267,630
Depreciation and
amortization............ 93,252 38,975 3,485(3) 122,943 18,369 15,453(23) 158,136
(13,429)(3) (3,429)(23)
660(3) 4,800(23)
Provision for doubtful
accounts................ 13,980 16,944 -- 30,924 4,681 -- 35,605
Merger expense............ -- 1,867 -- 1,867 -- -- 1,867
Restructuring and other
special charges......... 44,187 -- -- 44,187 -- -- 44,187
---------- -------- -------- ---------- -------- ---------- ----------
Total operating
expenses............ 1,189,606 686,983 (27,233) 1,849,356 371,937 7,910 2,229,203
---------- -------- -------- ---------- -------- ---------- ----------
Operating loss........ (170,053) (70,514) 9,284 (231,283) (7,898) (16,284) (256,005)
Interest and other
income.................. 10,822 3,230 -- 14,052 2,469 -- 16,521
Interest and other
expense................. (58,208) (6,194) -- (64,402) (2,171) -- (66,573)
Foreign exchange loss..... (2,369) -- -- (2,369) -- -- (2,369)
---------- -------- -------- ---------- -------- ---------- ----------
Loss from continuing
operations before
income taxes and
minority
interests........... (219,808) (73,478) 9,284 (284,002) (7,600) (16,284) (308,426)
Provision (benefit) for
income taxes............ (6,999) (11,041) 5,235(8) (12,805) (3,830) (562)(27) (17,197)
---------- -------- -------- ---------- -------- ---------- ----------
Loss from continuing
operations before
minority
interests........... (212,809) (62,437) 4,049 (271,197) (3,770) (16,262) (291,229)
Minority interest......... -- -- -- -- 774 -- 774
---------- -------- -------- ---------- -------- ---------- ----------
Loss from continuing
operations.......... (212,809) (62,437) 4,049 (271,197) (2,996) (16,262) (290,455)
Preferred stock
dividends............... (2,461) -- -- (2,461) -- -- (2,461)
---------- -------- -------- ---------- -------- ---------- ----------
Loss from continuing
operations available
to common
stockholders........ $ (215,270) $(62,437) $ 4,049 $ (273,568) $(2,996) $ (16,262) $ (292,916)
========== ======== ======== ========== ======== ========== ==========
Loss per common share from
continuing operations:
Basic................... $ (4.25) $ (2.53)(9)(28)
========== ==========
Diluted................. $ (4.25) $ (2.53)(9)(28)
========== ==========
Weighted average shares
outstanding:
Basic................... 50,634 115,802(9)(28)
========== ==========
Diluted................. 50,634 115,802(9)(28)
========== ==========
</TABLE>
169
<PAGE> 183
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
WORLDXCHANGE WORLDXCHANGE TELDAFAX TELDAFAX
WORLD ACCESS(29) WORLDXCHANGE ADJUSTMENTS COMBINED (21) ADJUSTMENTS
---------------- ------------- ------------ ---------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents............... $ 333,047 $ 9,553 $ -- $ 342,600 $50,970 $ --
Short-term investments............. 43,922 -- -- 43,922 -- --
Restricted cash.................... 30,847 -- -- 30,847 -- --
Accounts and notes receivable...... 260,053 92,172 -- 352,225 38,101 --
Prepaid expenses and other current
assets........................... 29,835 26,217 (25,000)(11) 31,052 25,173 --
Net assets held for sale........... 104,705 -- -- 104,705 -- --
Investments........................ 70,000 -- -- 70,000 -- --
---------- --------- --------- ---------- -------- ---------
Total Current Assets....... 872,409 127,942 (25,000) 975,351 114,244 --
---------- --------- --------- ---------- -------- ---------
Property and equipment............. 154,250 195,923 (6,500)(11) 275,673 68,244 (24,000)(22)
(68,000)(11)
Goodwill........................... 1,081,172 78,908 (78,908)(13) 1,630,683 10,304 (10,304)(24)
549,511(11) 321,169(22)
Other assets....................... 64,854 19,739 29,500(11) 114,093 13,723 24,000(22)
---------- --------- --------- ---------- -------- ---------
Total Assets............... $2,172,685 $ 422,512 $ 400,603 $2,995,800 $206,515 $ 310,865
========== ========= ========= ========== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.................... $ 74,722 $ 174,142 $ (25,000)(11) $ 223,864 $ 7,101 $ --
Accounts payable................... 228,721 173,175 (2,347)(15) 399,549 81,585 --
Other accrued liabilities.......... 101,730 49,302 3,000(11) 154,032 6,997 5,000(22)
---------- --------- --------- ---------- -------- ---------
Total Current
Liabilities.............. 405,173 396,619 (24,347) 777,445 95,683 5,000
Long-term debt..................... 413,989 71,434 -- 485,423 20,907 --
Other long-term liabilities........ 652 6,248 -- 6,900 349 --
---------- --------- --------- ---------- -------- ---------
Total Liabilities.......... 819,814 474,301 (24,347) 1,269,768 116,939 5,000
---------- --------- --------- ---------- -------- ---------
Minority interests................. -- -- -- -- (548) --
Stockholders' Equity (Deficit):
Preferred Stock.................... 6 78,658 (78,658)(14) 6 -- --
Common stock....................... 597 99,378 (99,378)(14) 897 84,017 (84,017)(25)
298(11) 347(22)
2(15)
Additional paid in capital......... 1,422,619 -- 352,804(11) 1,795,480 7,710 (7,710)(25)
17,712(11) 395,642(22)
2,345(15)
Notes receivable from
shareholders..................... -- (1,888) 1,888(14) -- -- --
Accumulated other comprehensive
loss............................. (4,368) (6,860) 6,860(14) (4,368) -- --
Accumulated deficit................ (65,983) (221,077) 221,077(14) (65,983) (1,603) 1,603(25)
---------- --------- --------- ---------- ------- ---------
Total Stockholders' Equity
(Deficit)................ 1,352,871 (51,789) 424,950 1,726,032 90,124 305,865
---------- --------- --------- ---------- ------- ---------
Total Liabilities and
Stockholders' Equity..... $2,172,685 $ 422,512 $ 400,603 $2,995,800 $206,515 $ 310,865
========== ========= ========= ========== ======== =========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE
AND TELDAFAX
COMBINED
-------------
<S> <C>
ASSETS
Cash and equivalents............... $ 393,570
Short-term investments............. 43,922
Restricted cash.................... 30,847
Accounts and notes receivable...... 390,326
Prepaid expenses and other current
assets........................... 56,225
Net assets held for sale........... 104,705
Investments........................ 70,000
----------
Total Current Assets....... 1,089,595
----------
Property and equipment............. 319,917
Goodwill........................... 1,951,852
Other assets....................... 151,816
----------
Total Assets............... $3,513,180
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt.................... 230,965
Accounts payable................... 481,134
Other accrued liabilities.......... 166,029
----------
Total Current
Liabilities.............. 878,128
Long-term debt..................... 506,330
Other long-term liabilities........ 7,249
----------
Total Liabilities.......... 1,391,707
----------
Minority interests................. (548)
Stockholders' Equity (Deficit):
Preferred Stock.................... 6
Common stock....................... 1,244
Additional paid in capital......... 2,191,122
Notes receivable from
shareholders..................... --
Accumulated other comprehensive
loss............................. (4,368)
Accumulated deficit................ (65,983)
----------
Total Stockholders' Equity
(Deficit)................ 2,122,021
----------
Total Liabilities and
Stockholders' Equity..... $3,513,180
==========
</TABLE>
170
<PAGE> 184
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA WORLDXCHANGE AND WORLDXCHANGE TELDAFAX
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED (21)
---------------- ---------------- ------------ ---------------- --------
<S> <C> <C> <C> <C> <C>
Service revenues..................... $264,220 $148,276 $(3,450)(16) $409,046 $84,187
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................. 233,880 117,663 (3,450)(16) 348,093 69,468
Selling, general and
administrative..................... 28,587 35,802 -- 64,389 11,859
Depreciation and amortization........ 21,782 12,450 5,941(12) 38,894 5,359
(325)(11)
(2,429)(12)
1,475(12)
Provision for doubtful accounts...... 3,281 5,353 -- 8,634 557
-------- -------- ------- -------- -------
Total operating expenses..... 287,530 171,268 1,212 460,010 87,243
-------- -------- ------- -------- -------
Operating loss............... (23,310) (22,992) (4,662) (50,964) (3,056)
Interest and other income............ 6,361 -- -- 6,361 504
Interest and other expense........... (15,762) (7,840) -- (23,602) (363)
Foreign exchange loss................ 438 -- -- 438 --
-------- -------- ------- -------- -------
Loss from continuing
operations before income
taxes and minority
interests.................. (32,273) (30,832) (4,662) (67,767) (2,915)
Provision (benefit) for income
taxes.............................. (1,550) -- 524(18) (1,026) (1,497)
-------- -------- ------- -------- -------
Loss from continuing
operations before minority
interests.................. (30,723) (30,832) (5,186) (66,741) (1,418)
Minority interests................... -- -- -- -- 635
-------- -------- ------- -------- -------
Loss from continuing
operations................. (30,723) (30,832) (5,186) (66,741) (783)
Preferred stock dividends............ (632) -- -- (632) --
-------- -------- ------- -------- -------
Loss from continuing
operations available to
common stockholders........ $(31,355) $(30,832) $(5,186) $(67,373) $ (783)
======== ======== ======= ======== =======
Loss per common share from continuing
operations:
Basic.............................. $ (0.57)
========
Diluted............................ $ (0.57)
========
Weighted average shares outstanding:
Basic.............................. 55,189
========
Diluted............................ 55,189
========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE
TELDAFAX AND TELDAFAX
ADJUSTMENTS COMBINED
----------- -------------
<S> <C> <C>
Service revenues..................... $(1,357)(26) $491,876
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................. (1,357)(26) 416,204
Selling, general and
administrative..................... -- 76,248
Depreciation and amortization........ 3,529(23) 48,125
(857)(23)
1,200(23)
Provision for doubtful accounts...... -- 9,191
------- --------
Total operating expenses..... 2,515 549,768
------- --------
Operating loss............... (3,872) (57,892)
Interest and other income............ -- 6,865
Interest and other expense........... -- (23,965)
Foreign exchange loss................ -- 438
------- --------
Loss from continuing
operations before income
taxes and minority
interests.................. (3,872) (74,554)
Provision (benefit) for income
taxes.............................. (141)(27) (2,664)
------- --------
Loss from continuing
operations before minority
interests.................. (3,731) (71,890)
Minority interests................... -- 635
------- --------
Loss from continuing
operations................. (3,731) (71,255)
Preferred stock dividends............ -- (632)
------- --------
Loss from continuing
operations available to
common stockholders........ $(3,731) $(71,887)
======= ========
Loss per common share from continuing
operations:
Basic.............................. $ (0.59)(19)(28)
========
Diluted............................ $ (0.59)(19)(28)
========
Weighted average shares outstanding:
Basic.............................. 121,886(19)(28)
========
Diluted............................ 121,886(19)(28)
========
</TABLE>
171
<PAGE> 185
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
PRO FORMA WORLDXCHANGE WORLDXCHANGE TELDAFAX
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED (21)
---------------- ---------------- ------------ ---------------- --------
<S> <C> <C> <C> <C> <C>
Service revenues....................... $1,019,553 $ 607,035 $(23,534)(16) $1,603,054 $364,039
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................... 905,936 477,317 (23,534)(16) 1,359,719 304,810
Selling, general and administrative.... 132,251 168,028 -- 300,279 44,077
Depreciation and amortization.......... 93,252 43,304 8,835(12) 140,277 18,369
(1,300)(11)
(9,714)(12)
5,900(12)
Provision for doubtful accounts........ 13,980 25,042 -- 39,022 4,681
Restructuring and other special
charges.............................. 44,187 -- 44,187 --
---------- --------- -------- ---------- -------
Total operating expenses........... 1,189,606 713,691 (19,813) 1,883,484 371,937
---------- --------- -------- ---------- -------
Operating loss..................... (170,053) (106,656) (3,721) (280,430) (7,898)
Interest and other income.............. 10,822 -- -- 10,822 2,469
Interest and other expense............. (58,208) (25,385) -- (83,593) (2,171)
Foreign exchange loss.................. (2,369) -- -- (2,369) --
---------- --------- -------- ---------- -------
Loss from continuing operations
before income taxes and minority
interests........................ (219,808) (132,041) (3,721) (355,570) (7,600)
Provision (benefit) for income taxes... (6,999) -- 2,097(18) (4,902) (3,830)
---------- --------- -------- ---------- -------
Loss from continuing operations
before minority interest......... (212,809) (132,041) (5,818) (350,668) (3,770)
Minority interest...................... -- 1,614 -- 1,614 774
---------- --------- -------- ---------- -------
Loss from continuing operations.... (212,809) (130,427) (5,818) (349,054) (2,996)
Preferred stock dividends.............. (2,461) -- -- (2,461) --
---------- --------- -------- ---------- -------
Loss from continuing operations
available to common
stockholders..................... $ (215,270) $(130,427) $ (5,818) $ (351,515) $(2,996)
========== ========= ======== ========== =======
Loss per common share from continuing
operations:
Basic................................ $ (4.25)
==========
Diluted.............................. $ (4.25)
==========
Weighted average shares outstanding:
Basic................................ 50,634
==========
Diluted.............................. 50,634
==========
<CAPTION>
PRO FORMA
WORLD ACCESS,
WORLDXCHANGE
TELDAFAX AND TELDAFAX
ADJUSTMENTS COMBINED
----------- -------------
<S> <C> <C>
Service revenues....................... $ (8,914)(26) $1,958,179
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below).................... (8,914)(26) 1,655,615
Selling, general and administrative.... -- 344,356
Depreciation and amortization.......... 15,453(23) 175,470
(3,429)(23)
4,800(23)
Provision for doubtful accounts........ -- 43,703
Restructuring and other special
charges.............................. -- 44,187
-------- ----------
Total operating expenses........... 7,910 2,263,331
-------- ----------
Operating loss..................... (16,824) (305,152)
Interest and other income.............. -- 13,291
Interest and other expense............. -- (85,764)
Foreign exchange loss.................. -- (2,369)
-------- ----------
Loss from continuing operations
before income taxes and minority
interests........................ (16,824) (379,994)
Provision (benefit) for income taxes... (562)(27) (9,294)
-------- ----------
Loss from continuing operations
before minority interest......... (16,262) (370,700)
Minority interest...................... -- 2,388
-------- ----------
Loss from continuing operations.... (16,262) (368,312)
Preferred stock dividends.............. -- (2,461)
-------- ----------
Loss from continuing operations
available to common
stockholders..................... $(16,262) $ (370,773)
======== ==========
Loss per common share from continuing
operations:
Basic................................ $ (3.16)(19)(28)
==========
Diluted.............................. $ (3.16)(19)(28)
==========
Weighted average shares outstanding:
Basic................................ 117,331(19)(28)
==========
Diluted.............................. 117,331(19)(28)
==========
</TABLE>
172
<PAGE> 186
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents...................... $ 333,047 $129,290 $ -- $ 462,337
Short-term investments.................... 43,922 1,310 -- 45,232
Restricted cash........................... 30,847 -- -- 30,847
Accounts and notes receivable............. 260,053 104,341 -- 364,394
Prepaid expenses and other current
assets.................................. 29,835 19,620 -- 49,455
Net assets held for sale.................. 104,705 -- -- 104,705
Investments............................... 70,000 -- -- 70,000
---------- -------- --------- ----------
Total Current Assets............ 872,409 254,561 -- 1,126,970
---------- -------- --------- ----------
Property and equipment, net............... 154,250 268,750 (94,000)(2) 329,000
Goodwill.................................. 1,081,172 1,291 (1,291)(4) 1,321,562
240,390(2)
Other assets.............................. 64,854 10,622 3,300(2) 78,776
---------- -------- --------- ----------
Total Assets.................... $2,172,685 $535,224 $ 148,399 $2,856,308
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt........................... $ 74,722 $ 42,299 $ -- $ 117,021
Accounts payable.......................... 228,721 258,136 (77,435)(6) 409,422
Other accrued liabilities................. 101,730 8,533 3,000(2) 113,263
---------- -------- --------- ----------
Total Current Liabilities....... 405,173 308,968 (74,435) 639,706
Long-term debt............................ 413,989 38,567 -- 452,556
Other long-term liabilities............... 652 39,118 -- 39,770
---------- -------- --------- ----------
Total Liabilities............... 819,814 386,653 (74,435) 1,132,032
---------- -------- --------- ----------
Stockholders' Equity (Deficit):
Preferred Stock........................... 6 -- -- 6
Common stock.............................. 597 58 (58)(5) 891
227(2)
67(6)
Additional paid in capital................ 1,422,619 365,903 (365,903)(5) 1,793,730
285,604(2)
8,139(2)
77,368(6)
Deferred compensation..................... -- (1,985) 1,985(5) --
Notes receivable from shareholders........ -- (3,785) 3,785(5) --
Accumulated other comprehensive loss...... (4,368) (7,646) 7,646(5) (4,368)
Accumulated deficit....................... (65,983) (203,974) 203,974(5) (65,983)
---------- -------- --------- ----------
Total Stockholders' Equity...... 1,352,871 148,571 222,834 1,724,276
---------- -------- --------- ----------
Total Liabilities and
Stockholders' Equity.......... $2,172,685 $535,224 $ 148,399 $2,856,308
========== ======== ========= ==========
</TABLE>
173
<PAGE> 187
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA STAR AND STAR
WORLD ACCESS(29) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenues........................................ $ 264,220 $124,543 $ (4,459)(7) $ 384,304
Operating expenses:
Cost of services (exclusive of depreciation and
amortization shown separately below).................. 233,880 111,819 (4,459)(7) 341,240
Selling, general and administrative..................... 28,587 19,875 -- 48,462
Depreciation and amortization........................... 21,782 11,573 458(3) 30,621
(3,357)(3)
165(3)
Provision for doubtful accounts......................... 3,281 1,214 -- 4,495
---------- -------- -------- ----------
Total operating expenses...................... 287,530 144,481 (7,193) 424,818
---------- -------- -------- ----------
Operating loss................................ (23,310) (19,938) 2,734 (40,514)
Interest and other income............................... 6,361 10,823 -- 17,184
Interest and other expense.............................. (15,762) (930) -- (16,692)
Foreign exchange loss................................... 438 -- -- 438
---------- -------- -------- ----------
Loss from continuing operations before income
taxes....................................... (32,273) (10,045) 2,734 (39,584)
Provision (benefit) for income taxes.................... (1,550) (3,163) 1,309(8) (3,404)
---------- -------- -------- ----------
Loss from continuing operations............... (30,723) (6,882) 1,425 (36,180)
Preferred stock dividends............................... (632) -- -- (632)
---------- -------- -------- ----------
Loss from continuing operations available to
common stockholders......................... $ (31,355) $ (6,882) $ 1,425 $ (36,812)
========== ======== ======== ==========
Loss per common share from continuing operations:
Basic................................................. $ (0.57) $ (0.43)(9)
========== ==========
Diluted............................................... $ (0.57) $ (0.43)(9)
========== ==========
Weighted average shares outstanding:
Basic................................................. 55,189 85,682(9)
========== ==========
Diluted............................................... 55,189 85,682(9)
========== ==========
</TABLE>
174
<PAGE> 188
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
PRO FORMA 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..................... 132,251 91,302 -- 223,553
Depreciation and amortization........................... 93,252 38,975 3,485(3) 122,943
(13,429)(3)
660(3)
Provision for doubtful accounts......................... 13,980 16,944 -- 30,924
Merger expense.......................................... -- 1,867 -- 1,867
Restructuring and other special charges................. 44,187 -- -- 44,187
---------- -------- -------- ----------
Total operating expenses........................... 1,189,606 686,983 (27,233) 1,849,356
---------- -------- -------- ----------
Operating loss..................................... (170,053) (70,514) 9,284 (231,283)
Interest and other income............................... 10,822 3,230 -- 14,052
Interest and other expense.............................. (58,208) (6,194) -- (64,402)
Foreign exchange loss................................... (2,369) -- -- (2,369)
---------- -------- -------- ----------
Loss from continuing operations before income
taxes............................................ (219,808) (73,478) 9,284 (284,002)
Provision (benefit) for income taxes.................... (6,999) (11,041) 5,235(8) (12,805)
---------- -------- -------- ----------
Loss from continuing operations.................... (212,809) (62,437) 4,049 (271,197)
Preferred stock dividends............................... (2,461) -- -- (2,461)
---------- -------- -------- ----------
Loss from continuing operations available to common
stockholders..................................... $ (215,270) $(62,437) $ 4,049 $ (273,658)
========== ======== ======== ==========
Loss per common share from continuing operations:
Basic................................................. $ (4.25) $ (3.37)(9)
========== ==========
Diluted............................................... $ (4.25) $ (3.37)(9)
========== ==========
Weighted average shares outstanding:
Basic................................................. 50,634 81,127(9)
========== ==========
Diluted............................................... 50,634 81,127(9)
========== ==========
</TABLE>
175
<PAGE> 189
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents................. $ 333,047 $ 9,553 $ -- $ 342,600
Short-term investments............... 43,922 -- -- 43,922
Restricted cash...................... 30,847 -- -- 30,847
Accounts and notes receivable........ 260,053 92,172 -- 352,225
Prepaid expenses and other current
assets............................. 29,835 26,217 (25,000)(11) 31,052
Net assets held for sale............. 104,705 -- -- 104,705
Investments.......................... 70,000 -- -- 70,000
---------- --------- --------- ----------
Total Current Assets........ 872,409 127,942 (25,000) 975,351
---------- --------- --------- ----------
Property and equipment, net.......... 154,250 195,923 (6,500)(11) 275,673
(68,000)(11)
Goodwill............................. 1,081,172 78,908 (78,908)(13) 1,630,683
549,511(11)
Other assets......................... 64,854 19,739 29,500(11) 114,093
---------- --------- --------- ----------
Total Assets................ $2,172,685 $ 422,512 $ 400,603 $2,995,800
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................... $ 74,722 $ 174,142 $ (25,000)(11) $ 223,864
Accounts payable..................... 228,721 173,175 (2,347)(15) 399,549
Other accrued liabilities............ 101,730 49,302 3,000(11) 154,032
---------- --------- --------- ----------
Total Current Liabilities... 405,173 396,619 (24,347) 777,445
Long-term debt....................... 413,989 71,434 -- 485,423
Other long-term liabilities.......... 652 6,248 -- 6,900
---------- --------- --------- ----------
Total Liabilities........... 819,814 474,301 (24,347) 1,269,768
---------- --------- --------- ----------
Stockholders' Equity (Deficit):
Preferred Stock...................... 6 78,658 (78,658)(14) 6
Common stock......................... 597 99,378 (99,378)(14) 897
298(11)
2(15)
Additional paid in capital........... 1,422,619 -- 352,804(11) 1,795,480
17,712(11)
2,345(15)
Notes receivable from shareholders... -- (1,888) 1,888(14) --
Accumulated other comprehensive
loss............................... (4,368) (6,860) 6,860(14) (4,368)
Accumulated deficit.................. (65,983) (221,077) 221,077(14) (65,983)
---------- --------- --------- ----------
Total Stockholders' Equity
(Deficit)................. 1,352,871 (51,789) 424,950 1,726,032
---------- --------- --------- ----------
Total Liabilities and
Stockholders' Equity...... $2,172,685 $ 422,512 $ 400,603 $2,995,800
========== ========= ========= ==========
</TABLE>
176
<PAGE> 190
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA WORLDXCHANGE AND WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues............... $264,220 $148,276 $ (3,450)(16) $409,046
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)...... 233,880 117,663 (3,450)(16) 348,093
Selling, general and
administrative............... 28,587 35,802 -- 64,389
Depreciation and
amortization................. 21,782 12,450 5,941(12) 38,894
(325)(11)
(2,429)(12)
1,475(12)
Provision for doubtful
accounts..................... 3,281 5,353 -- 8,634
-------- -------- -------- --------
Total operating
expenses........... 287,530 171,268 1,212 460,010
-------- -------- -------- --------
Operating loss....... (23,310) (22,992) (4,662) (50,964)
Interest and other income...... 6,361 -- -- 6,361
Interest and other expense..... (15,762) (7,840) -- (23,602)
Foreign exchange loss.......... 438 -- -- 438
-------- -------- -------- --------
Loss from continuing
operations before
income taxes....... (32,273) (30,832) (4,662) (67,767)
Provision (benefit) for income
taxes........................ (1,550) -- 524(18) (1,026)
-------- -------- -------- --------
Loss from continuing
operations......... (30,723) (30,832) (5,186) (66,741)
Preferred stock dividends...... (632) -- -- (632)
-------- -------- -------- --------
Loss from continuing
operations
available to common
stockholders....... $(31,355) $(30,832) $ (5,186) $(67,373)
======== ======== ======== ========
Loss per common share from
continuing operations:
Basic........................ $ (0.57) $ (0.77)(19)
======== ========
Diluted...................... $ (0.57) $ (0.77)(19)
======== ========
Weighted average shares
outstanding:
Basic........................ 55,189 87,211(19)
======== ========
Diluted...................... 55,189 87,211(19)
======== ========
</TABLE>
177
<PAGE> 191
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
PRO FORMA WORLDXCHANGE WORLDXCHANGE
WORLD ACCESS(29) WORLDXCHANGE(10) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues................ $1,019,553 $ 607,035 $ (23,534)(16) $1,603,054
Operating expenses:
Cost of services (exclusive of
depreciation and amortization
shown separately below)....... 905,936 477,317 (23,534)(16) 1,359,719
Selling, general and
administrative................ 132,251 168,028 -- 300,279
Depreciation and amortization... 93,252 43,304 8,835(12) 140,277
(1,300)(11)
(9,714)(12)
5,900(12)
Provision for doubtful
accounts...................... 13,980 25,042 -- 39,022
Restructuring and other special
charges....................... 44,187 -- -- 44,187
---------- ---------- ---------- ----------
Total operating
expenses.............. 1,189,606 713,691 (19,813) 1,883,484
---------- ---------- ---------- ----------
Operating loss........... (170,053) (106,656) (3,721) (280,430)
Interest and other income....... 10,822 -- -- 10,822
Interest and other expense...... (58,208) (25,385) -- (83,593)
Foreign exchange loss........... (2,369) -- -- (2,369)
---------- ---------- ---------- ----------
Loss from continuing
operations before
income taxes and
minority interests.... (219,808) (132,041) (3,721) (355,570)
Provision (benefit) for income
taxes......................... (6,999) -- 2,097(18) (4,902)
---------- ---------- ---------- ----------
Loss from continuing
operations before
minority interest..... (212,809) (132,041) (5,818) (350,668)
Minority interest............... -- 1,614 -- 1,614
---------- ---------- ---------- ----------
Loss from continuing
operations............ (212,809) (130,427) (5,818) (349,054)
Preferred stock dividends....... (2,461) -- -- (2,461)
---------- ---------- ---------- ----------
Loss from continuing
operations available
to common
stockholders.......... $ (215,270) $ (130,427) $ (5,818) $ (351,515)
========== ========== ========== ==========
Loss per common share from
continuing operations:
Basic......................... $ (4.25) $ (4.25)(19)
========== ==========
Diluted....................... $ (4.25) $ (4.25)(19)
========== ==========
Weighted average shares
outstanding:
Basic......................... 50,634 82,656(19)
========== ==========
Diluted....................... 50,634 82,656(19)
========== ==========
</TABLE>
178
<PAGE> 192
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
TELDAFAX TELDAFAX
WORLD ACCESS(29) TELDAFAX(21) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Cash and equivalents............ $ 333,047 $ 50,970 $ -- $ 384,017
Short-term investments.......... 43,922 -- -- 43,922
Restricted cash................. 30,847 -- -- 30,847
Accounts and notes receivable... 260,053 38,101 -- 298,154
Prepaid expenses and other
current assets................ 29,835 25,173 -- 55,008
Net assets held for sale........ 104,705 -- -- 104,705
Investments..................... 70,000 -- -- 70,000
---------- --------- --------- ----------
Total Current
Assets.............. 872,409 114,244 -- 986,653
---------- --------- --------- ----------
Property and equipment.......... 154,250 68,244 (24,000)(22) 198,494
Goodwill........................ 1,081,172 10,304 (10,304)(24) 1,402,341
321,169(22)
Other assets.................... 64,854 13,723 24,000(22) 102,577
---------- --------- --------- ----------
Total Assets.......... $2,172,685 $ 206,515 $ 310,865 $2,690,065
========== ========= ========= ==========
Short-term debt................. $ 74,722 $ 7,101 $ -- $ 81,823
Accounts payable................ 228,721 81,585 -- 310,306
Other accrued liabilities....... 101,730 6,997 5,000(22) 113,727
---------- --------- --------- ----------
Total Current
Liabilities......... 405,173 95,683 5,000 505,856
Long-term debt.................. 413,989 20,907 -- 434,896
Other long-term liabilities..... 652 349 -- 1,001
---------- --------- --------- ----------
Total Liabilities..... 819,814 116,939 5,000 941,753
---------- --------- --------- ----------
Minority interests.............. -- (548) -- (548)
Stockholders' Equity (Deficit):
Preferred Stock................. 6 -- -- 6
Common stock.................... 597 84,017 (84,017)(25) 944
347(22)
Additional paid in capital...... 1,422,619 7,710 (7,710)(25) 1,818,261
395,642(22)
Accumulated other comprehensive
loss.......................... (4,368) -- -- (4,368)
Accumulated deficit............. (65,983) (1,603) 1,603(25) (65,983)
---------- --------- --------- ----------
Total Stockholders'
Equity (Deficit).... 1,352,871 90,124 305,865 1,748,860
---------- --------- --------- ----------
Total Liabilities and
Stockholders'
Equity.............. $2,172,685 $ 206,515 $ 310,865 $2,690,065
========== ========= ========= ==========
</TABLE>
179
<PAGE> 193
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS
PRO FORMA TELDAFAX AND TELDAFAX
WORLD ACCESS(29) TELDAFAX(21) ADJUSTMENTS COMBINED
---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C>
Service revenues.............. $264,220 $ 84,187 $(1,357)(26) $ 347,050
Operating expenses:
Cost of services (exclusive of
depreciation and
amortization shown
separately below)........... 233,880 69,468 (1,357)(26) 301,991
Selling, general and
administrative.............. 28,587 11,859 -- 40,446
Depreciation and
amortization................ 21,782 5,359 3,529(23) 31,013
(857)(23)
1,200(23)
Provision for doubtful
accounts.................... 3,281 557 -- 3,838
-------- -------- ------- ---------
Total operating
expenses.......... 287,530 87,243 2,515 377,288
-------- -------- ------- ---------
Operating loss...... (23,310) (3,056) (3,872) (30,238)
Interest and other income..... 6,361 504 -- 6,865
Interest and other expense.... (15,762) (363) -- (16,125)
Foreign exchange loss......... 438 -- -- 438
-------- -------- ------- ---------
Loss from continuing
operations before
income taxes and
minority
interests......... (32,273) (2,915) (3,872) (39,060)
Provision (benefit) for income
taxes....................... (1,550) (1,497) (141) (27) (3,188)
-------- -------- ------- ---------
Loss from continuing
operations before
minority
interests......... (30,723) (1,418) (3,731) (35,872)
Minority interests............ -- 635 -- 635
-------- -------- ------- ---------
Loss from continuing
operations........ (30,723) (783) (3,731) (35,237)
Preferred stock dividends..... (632) -- -- (632)
-------- -------- ------- ---------
Loss from continuing
operations
available to
common
stockholders...... $(31,355) $ (783) $(3,731) $ (35,869)
======== ======== ======= =========
Loss per common share from
continuing operations:
Basic....................... $ (0.57) $ (0.40)(28)
======== =========
Diluted..................... $ (0.57) $ (0.40)(28)
======== =========
Weighted average shares
outstanding:
Basic....................... 55,189 89,864(28)
======== =========
Diluted..................... 55,189 89,864(28)
======== =========
</TABLE>
180
<PAGE> 194
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
PRO FORMA TELDAFAX TELDAFAX
WORLD ACCESS(29) TELDAFAX(21) ADJUSTMENTS 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.................... 132,251 44,077 -- 176,328
Depreciation and amortization....... 93,252 18,369 15,453(23) 128,445
(3,429)(23)
4,800(23)
Provision for doubtful accounts..... 13,980 4,681 -- 18,661
Restructuring and other special
charges........................... 44,187 -- -- 44,187
---------- -------- -------- ----------
Total operating expenses..... 1,189,606 371,937 7,910 1,569,453
---------- -------- -------- ----------
Operating loss............... (170,053) (7,898) (16,824) (194,775)
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................. (219,808) (7,600) (16,824) (244,232)
Provision (benefit) for income
taxes............................. (6,999) (3,830) (562)(27) (11,391)
---------- -------- -------- ----------
Loss from continuing
operations before minority
interest.................. (212,809) (3,770) (16,262) (232,841)
Minority interest................... -- 774 -- 774
---------- -------- -------- ----------
Loss from continuing
operations................ (212,809) (2,996) (16,262) (232,067)
Preferred stock dividends........... (2,461) -- -- (2,461)
---------- -------- -------- ----------
Loss from continuing
operations available to
common stockholders....... $ (215,270) $ (2,996) $(16,262) $ (234,528)
========== ======== ======== ==========
Loss per common share from
continuing operations:
Basic............................. $ (4.25) $ (2.75)(28)
========== ==========
Diluted........................... $ (4.25) $ (2.75)(28)
========== ==========
Weighted average shares outstanding:
Basic............................. 50,634 85,309(28)
========== ==========
Diluted........................... 50,634 85,309(28)
========== ==========
</TABLE>
181
<PAGE> 195
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 three months ended March 31,
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 equal to $120.0 million.
<TABLE>
<CAPTION>
STAR
STAR EXCLUSION OF EXCLUDING PT-1
MARCH 31, 2000 PT-1 MARCH 31, 2000
-------------- ------------ --------------
<S> <C> <C> <C>
Cash and equivalents....................... $ 14,170 $ (4,880)(i) $129,290
120,000(ii)
Short-term investments..................... 1,316 (6)(i) 1,310
Accounts and notes receivable.............. 164,935 (60,594)(i) 104,341
Prepaid expenses and other current
assets................................... 46,590 (26,970)(i) 19,620
-------- --------- --------
Total Current Assets............. 227,011 27,550 254,561
-------- --------- --------
Property and equipment, net................ 309,734 (40,984)(i) 268,750
Goodwill................................... 193,186 (191,895)(i) 1,291
Other assets............................... 11,953 (1,331)(i) 10,622
-------- --------- --------
Total Assets..................... $741,884 $(206,660) $535,224
======== ========= ========
Short-term debt............................ $ 44,284 $ (1,985)(i) $ 42,299
Accounts payable........................... 280,923 (22,787)(i) 258,136
Other accrued liabilities.................. 62,549 (54,016)(i) 8,533
-------- --------- --------
Total Current Liabilities........ 387,756 (78,788) 308,968
Long-term debt............................. 43,096 (4,529)(i) 38,567
Other long-term liabilities................ 40,964 (1,846)(i) 39,118
-------- --------- --------
Total Liabilities................ 471,816 (85,163) 386,653
-------- --------- --------
Total Stockholders' Equity....... 270,068 (121,497)(iii) 148,571
-------- --------- --------
Total Liabilities and
Stockholders' Equity........... $741,884 $(206,660) $535,224
======== ========= ========
</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
3 MONTHS 3 MONTHS
ENDED EXCLUSION OF ENDED
MARCH 31, 2000 PT-1 MARCH 31, 2000
-------------- ------------ --------------
<S> <C> <C> <C>
Carrier service revenues...................... $ 255,105 $(130,562) $ 124,543
Cost of carrier services...................... (225,840) 114,021 (111,819)
Selling, general and administrative........... (28,648) 8,773 (19,875)
Depreciation and amortization................. (13,050) 1,477 (11,573)
Provision for doubtful accounts............... (4,681) 3,467 (1,214)
Interest and other income..................... 10,885 (62) 10,823
</TABLE>
182
<PAGE> 196
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
3 MONTHS 3 MONTHS
ENDED EXCLUSION OF ENDED
MARCH 31, 2000 PT-1 MARCH 31, 2000
-------------- ------------ --------------
<S> <C> <C> <C>
Interest expense.............................. (2,924) 1,994 (930)
Benefit for income taxes...................... 2,629 534 3,163
--------- --------- ---------
Net loss............................ $ (6,524) $ (358) $ (6,882)
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
STAR
STAR EXCLUDING PT-1
12 MONTHS ENDED EXCLUSION OF 12 MONTHS 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....... (135,064) 43,762 (91,302)
Depreciation and amortization............. (44,236) 5,261 (38,975)
Provision for doubtful accounts........... (25,003) 8,059 (16,944)
Merger expense............................ (1,878) 11 (1,867)
Interest and other income................. 3,565 (335) 3,230
Interest expense.......................... (9,895) 3,701 (6,194)
Benefit for income taxes.................. 12,096 (1,055) 11,041
---------- --------- ---------
Net loss........................ $ (63,847) $ 1,410 $ (62,437)
========== ========= =========
</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 March 31,
2000(iii).............................................. $(148,571)
Intangible assets(v)...................................... (3,300)
Adjust assets and liabilities:
Eliminate historical goodwill as of March 31, 2000..... 1,291
Write-down of fixed assets to fair value............... 94,000
---------
Preliminary goodwill(iv).......................... $ 240,390
=========
</TABLE>
183
<PAGE> 197
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 March 31,
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 March 31, 2000, STAR had 3,717,665 options
outstanding; 1,774,049 of which were vested and 1,943,616 were
unvested. The vested and unvested options are convertible to 685,847
and 751,402 World Access options, respectively, totaling 1,437,249.
The fair value of the 685,847 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
184
<PAGE> 198
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
751,402 unvested options is $3.7 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) STAR pro forma stockholders' equity as of March 31, 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 three months ended March
31, 2000............................... $240,390 $ 3,005 $(2,547) $ 458
STAR -- for the year ended December 31,
1999................................... $240,390 $12,020 $(8,535) $ 3,485
</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 three months ended March 31, 2000........... $94,000 $ (3,357)
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 three months ended March 31, 2000........... $3,300 $ 165
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
185
<PAGE> 199
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7,826,000 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 $77.4 million
from accounts payable to common stock and paid-in capital for the amount
of indebtedness outstanding as of March 31, 2000.
(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 three months ended
March 31, 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>
186
<PAGE> 200
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..... (120,094) (47,934) (168,028)
Depreciation and amortization........... (23,516) (19,788) (43,304)
Provision for doubtful accounts......... (19,496) (5,546) (25,042)
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 six months ended March 31, 2000 (as shown
in the WorldxChange financial statements included in this registration
statement) to the results of operations for the three months ended March
31, 2000:
<TABLE>
<CAPTION>
EXCLUSION OF
RESULTS FOR THE RESULTS FOR THE RESULTS FOR THE
SIX MONTHS THREE MONTHS ENDED THREE MONTHS ENDED
ENDED MARCH 31, 2000 DECEMBER 31, 1999 MARCH 31, 2000
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Revenues................ $ 291,600 $(143,324) $ 148,276
Cost of services........ (230,207) 112,544 (117,663)
Selling, general and
administrative........ (73,632) 37,830 (35,802)
Depreciation and
amortization.......... (21,825) 9,375 (12,450)
Provision for doubtful
accounts.............. (10,953) 5,600 (5,353)
Interest and other
expense............... (14,255) 6,415 (7,840)
--------- --------- ---------
Net loss................ $ (59,272) $ (28,440) $ (30,832)
========= ========= =========
</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 and the liabilities assumed. The impact of such
changes could be
187
<PAGE> 201
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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)..................................... 25,000
Estimated fees and expenses............................... 3,000
--------
Total estimated purchase price.................... $398,814
Allocation to fair values:
Historical shareholders' deficit as of March 31, 2000..... $ 51,789
Intangible assets (vi).................................... (29,500)
Eliminate payable to World Access......................... (25,000)
Adjust assets and liabilities:
Eliminate historical goodwill as of March 31, 2000..... 78,908
Write-off impaired assets(iv).......................... 6,500
Write-down of fixed assets to fair value............... 68,000
--------
Preliminary goodwill(v)................................... $549,511
========
</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
March 31, 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 March 31, 2000......... 8,283
WorldxChange common shares outstanding at March 31, 2000.... 37,058
--------
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.
188
<PAGE> 202
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 March 31, 2000, WorldxChange had
3,965,531 options outstanding; 2,482,267 of which were vested and
1,483,264 were unvested. The vested and unvested options are
convertible to 1,634,076 and 976,433 World Access options
respectively, totaling 2,610,509. The fair value of the 1,634,076
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 976,433 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, $25.0 million of which had been advanced as of March 31,
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 $20.0 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 March 31, 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
$325,000 for the year ended December 31, 1999 and the three months
ended March 31, 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 three months
ended March 31, 2000................... $549,511 $ 6,869 $ (928) $5,941
WorldxChange -- For the year ended
December 31, 1999...................... $549,511 $27,476 $(18,641) $8,835
</TABLE>
189
<PAGE> 203
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 three months ended March 31, 2000... $ 68,000 $(2,429)
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 three months ended March 31, 2000... $29,500 $1,475
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 $2.3 million
from accounts payable to common stock and paid-in-capital for the
amount of indebtedness outstanding as of March 31, 2000.
(16) Elimination of intercompany carrier service revenues and related
costs.
(17) At March 31, 2000, WorldxChange had a $2,351,114 note payable plus
$209,762 interest payable to STAR. Assuming the mergers of
WorldxChange and STAR with World Access are consummated, this
adjustment is necessary to eliminate the intercompany debt and
interest payable.
(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.
190
<PAGE> 204
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 three months ended March 31, 2000
and for the year ended December 31, 1999.
The following tables represent the conversion of TelDaFax's balance sheet
as of March 31, 2000 and statements of operations for the three months and
year ended March 31, 2000 and December 31, 1999, respectively, from local
currency (deutsche marks) into U.S. dollars. The U.S. dollar equivalent was
computed by multiplying the deutsche mark balance by 0.4884, the exchange
rate as of March 31, 2000 for the balance sheet and by 0.5048 and 0.5435
which represent the average exchange rates for the three months and year
ended periods March 31, 2000 and December 31, 1999, respectively.
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX
MARCH 31, EXCHANGE MARCH 31,
2000 RATE 2000
------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C>
Cash and equivalents...................... 104,361 0.4884 $ 50,970
Accounts receivable....................... 78,012 0.4884 38,101
Prepaid expenses and other current
assets.................................. 51,541 0.4884 25,173
-------- --------
Total current assets.................. 233,914 114,244
-------- --------
Property and equipment, net............... 139,730 0.4884 68,244
Goodwill.................................. 21,098 0.4884 10,304
Other assets............................... 28,098 0.4884 13,723
-------- --------
Total assets.......................... 422,840 $206,515
======== ========
Short-term debt........................... 14,539 0.4884 $ 7,101
Accounts payable.......................... 167,046 0.4884 81,585
Other accrued liabilities................. 14,327 0.4884 6,997
-------- --------
Total current liabilities............. 195,912 95,683
-------- --------
Long-term debt............................ 42,808 0.4884 20,907
Other long-term liabilities............... 714 0.4884 349
-------- --------
Total liabilities..................... 239,434 116,939
-------- --------
Minority interests........................ (1,122) 0.4884 (548)
Stockholders' Equity (Deficit):
Common stock.............................. 172,024 0.4884 84,017
Additional paid in capital................ 15,787 0.4884 7,710
Accumulated deficit....................... (3,283) 0.4884 (1,603)
-------- --------
Total stockholders' equity............ 184,528 90,124
-------- --------
Total liabilities and stockholders'
equity.............................. 422,840 $206,515
======== ========
</TABLE>
191
<PAGE> 205
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
TELDAFAX TELDAFAX
THREE MONTHS ENDED EXCHANGE THREE MONTHS ENDED
MARCH 31, 2000 RATE MARCH 31, 2000
-------------------- -------- --------------------
(IN THOUSANDS - DM) (IN THOUSANDS - USD)
<S> <C> <C> <C>
Service revenues......................... 166,773 0.5048 $84,187
Operating expenses:
Cost of services (exclusive of
depreciation and amortization shown
separately below)................... 137,616 0.5048 69,468
Selling, general and administrative... 23,492 0.5048 11,859
Depreciation and amortization......... 10,616 0.5048 5,359
Provision for doubtful accounts....... 1,103 0.5048 557
-------- -------
Total operating expenses.............. 172,827 87,243
-------- -------
Operating loss........................ (6,054) (3,056)
Interest and other income............. 998 0.5048 504
Interest expense...................... (718) 0.5048 (363)
-------- -------
Loss from continuing operations before
income taxes and minority
interests........................... (5,774) (2,915)
Provision (benefit) for income
taxes............................... (2,965) 0.5048 (1,497)
-------- -------
Loss from continuing operations before
minority interests.................. (2,809) (1,418)
Minority interests.................... 1,258 0.5048 635
-------- -------
Loss from continuing operations....... (1,551) $ (783)
======== =======
</TABLE>
192
<PAGE> 206
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... 75,551 5,547 81,098 0.5435 44,077
Depreciation and
amortization..... 33,630 168 33,798 0.5435 18,369
Provision for
doubtful
accounts......... 8,457 156 8,613 0.5435 4,681
-------- ------- -------- --------
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 Telekommunications GmbH and NewTel
Communications GmbH, each a subsidiary of World Access, will enter
into a Contribution/Exchange
193
<PAGE> 207
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Agreement under which World Access will contribute the German
operations of Netnet and NewTel to TelDaFax in exchange for newly
issued shares of TelDaFax;
- 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
194
<PAGE> 208
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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)................. $ 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...... (90,124)
Intangible assets (iii)................................... (24,000)
Adjust assets and liabilities:
Eliminate historical goodwill.......................... 10,304
Write down of fixed assets to fair value............... 24,000
----------
Preliminary goodwill (ii)................................... $ 321,169
==========
</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.
195
<PAGE> 209
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 three months ended
March 31, 2000....................... $321,169 $ 4,014 $ 485 $ 3,529
TelDaFax -- For the year ended December
31, 1999............................. $321,169 $16,058 $ 605 $15,453
</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 three months ended March 31,
2000................................................ $24,000 $ (857)
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 three months ended March 31,
2000................................................. $24,000 $1,200
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) 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 under an Acquisition Agreement
dated October 9, 1998; 3% of the
196
<PAGE> 210
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 three
months ended March 31, 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.
197
<PAGE> 211
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA WORLD ACCESS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000:
<TABLE>
<CAPTION>
HISTORICAL
WORLD PRO FORMA WORLD
ACCESS ADJUSTMENTS ACCESS
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Cash and equivalents................................. $ 145,347 $ 187,700(0) $ 333,047
Short-term investments............................... 43,922 -- 43,922
Restricted cash...................................... 30,847 -- 30,847
Accounts and notes receivable........................ 260,053 -- 260,053
Prepaid expenses and other current assets............ 29,835 -- 29,835
Net assets held for sale............................. 238,405 (133,700)(0) 104,705
Investments.......................................... -- 70,000(0) 70,000
---------- --------- ----------
Total Current Assets....................... 748,409 124,000 872,409
---------- --------- ----------
Property and equipment, net.......................... 154,250 -- 154,250
Goodwill............................................. 1,081,172 -- 1,081,172
Other assets......................................... 64,854 -- 64,854
---------- --------- ----------
Total Assets............................... $2,048,685 $ 124,000 $2,172,685
========== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt...................................... $ 74,722 $ -- $ 74,722
Accounts payable..................................... 228,721 -- 228,721
Other accrued liabilities............................ 101,730 -- 101,730
---------- --------- ----------
Total Current Liabilities.................. 405,173 -- 405,173
Long-term debt....................................... 413,989 -- 413,989
Other long-term liabilities.......................... 652 -- 652
---------- --------- ----------
Total Liabilities.......................... 819,814 -- 819,814
---------- --------- ----------
Stockholders' Equity (Deficit):
Preferred stock...................................... 6 -- 6
Common stock......................................... 597 -- 597
Additional paid in capital........................... 1,422,619 -- 1,422,619
Accumulated other comprehensive loss................. (4,368) -- (4,368)
Accumulated deficit.................................. (189,983) 124,000(0) (65,983)
---------- --------- ----------
Total Stockholders' Equity (Deficit)....... 1,228,871 124,000 1,352,871
---------- --------- ----------
Total Liabilities and Stockholders'
Equity................................... $2,048,685 $ 124,000 $2,172,685
========== ========= ==========
</TABLE>
198
<PAGE> 212
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 THREE MONTHS ENDED MARCH 31, 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........................ $255,541 $ 8,679 $ -- $264,220
Operating expenses:
Cost of carrier services........................ 223,855 10,025 -- 233,880
Selling, general and administrative............. 21,861 6,726 -- 28,587
Depreciation and amortization................... 17,759 2,595 1,428(G) 21,782
Provision for doubtful accounts................. 1,915 1,366 -- 3,281
-------- -------- ------- --------
Total operating expenses.............. 265,390 20,712 1,428 287,530
-------- -------- ------- --------
Operating income (loss)............... (9,849) (12,033) (1,428) (23,310)
Interest and other income....................... 2,619 3,742 -- 6,361
Interest expense................................ (14,545) (6,235) 5,018(J) (15,762)
Foreign exchange loss........................... 532 (94) -- 438
-------- -------- ------- --------
Income (loss) from continuing
operations before income taxes...... (21,243) (14,620) 3,590 (32,273)
Provision (benefit) for income taxes............ (3,460) -- 1,910(K) (1,550)
-------- -------- ------- --------
Income (loss) from continuing
operations.......................... (17,783) (14,620) 1,680 (30,723)
Preferred stock dividends....................... (632) -- -- (632)
-------- -------- ------- --------
Income (loss) from continuing
operations available to common
stockholders........................ $(18,415) $(14,620) $ 1,680 $(31,355)
======== ======== ======= ========
Loss per common share from continuing
operations:
Basic......................................... $ (0.33) $ (0.57)(N)
======== ========
Diluted....................................... $ (0.33) $ (0.57)(N)
======== ========
Weighted average shares outstanding:
Basic......................................... 55,189 55,189(N)
======== ========
Diluted....................................... 55,189 55,189(N)
======== ========
</TABLE>
199
<PAGE> 213
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...... 448,305 364,773 9,923 97,867 (14,932)(F) 905,936
Selling, general and
administrative.............. 23,628 49,376 2,324 56,923 -- 132,251
Depreciation and
amortization................ 13,541 27,823 390 20,716 37,750(G) 93,252
(6,968)(H)
Provision for doubtful
accounts.................... 4,805 7,276 -- 1,899 -- 13,980
Restructuring and other
special charges............. 37,800 -- -- 6,387 -- 44,187
-------- -------- ------- -------- -------- ----------
Total operating
expenses........... 528,079 449,248 12,637 183,792 15,850 1,189,606
-------- -------- ------- -------- -------- ----------
Operating income
(loss)............. (26,998) (44,763) 1,231 (66,130) (33,393) (170,053)
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) (11,602) (219,808)
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) (21,800) (212,809)
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) $(20,244) $ (215,270)
======== ======== ======= ======== ======== ==========
Loss per common share from
continuing operations:
Basic....................... $ (0.78) $ (4.25)(N)
======== ==========
Diluted..................... $ (0.78) $ (4.25)(N)
======== ==========
Weighted average shares
outstanding:
Basic....................... 37,423 50,634(N)
======== ==========
Diluted..................... 37,423 50,634(N)
======== ==========
</TABLE>
200
<PAGE> 214
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 three months ended March 31, 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
201
<PAGE> 215
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
fair value of net assets acquired has been recorded as goodwill and is
being amortized over a 20 year period. The following summarizes the
allocation of the purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Cash...................................................... $ 56,000
Preferred stock issued.................................... 265,515
Common stock issued....................................... 15,000
Stock options issued...................................... 24,785
Fees and expenses......................................... 14,250
---------
Total purchase price.............................. 375,550
Allocation to fair value of net assets:
Current assets............................................ (183,934)
Property and equipment.................................... (116,479)
Other assets.............................................. (1,362)
Current liabilities....................................... 205,230
Other liabilities......................................... 313,148
---------
Goodwill.......................................... $ 592,153
=========
</TABLE>
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
202
<PAGE> 216
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
value of net assets acquired has been recorded as goodwill and is being
amortized over a 20 year period. the following summarizes the allocation
of the purchase price (in thousands):
<TABLE>
<S> <C>
Purchase price:
Preferred stock issued.................................... $18,539
Debt paid................................................. 3,502
Fees and expenses......................................... 800
-------
Total purchase price.............................. 22,841
Allocation to fair values of net assets:
Current assets............................................ (7,754)
Property and equipment.................................... (3,351)
Current liabilities....................................... 9,609
Other assets and liabilities, net......................... 1,368
-------
Goodwill.......................................... $22,713
=======
</TABLE>
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)
Property and equipment.................................... (17,127)
Other assets.............................................. (1,420)
Current liabilities....................................... 78,374
Other liabilities......................................... 478
--------
Goodwill.................................................... $248,347
========
</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 preferred stock preferences over common stock. The
Series D Preferred
203
<PAGE> 217
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 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 three months ended March 31, 2000:
LDI........................................ $248,347 $ 3,104 $ (1,676) $ 1,428
For the year ended December 31, 1999:
FaciliCom.................................. 592,153 29,608 (2,475) 27,133
Resurgens.................................. 127,425 6,371 (409) 5,962
LDI........................................ 248,347 12,417 (8,210) 4,207
Comm/Net................................... 22,713 1,136 (688) 448
------- -------- -------
$49,532 $(11,782) $37,750
======= ======== =======
</TABLE>
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 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>
204
<PAGE> 218
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
For the three months ended March 31, 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. In April 2000, the Company sold its Telco Systems division to BATM
Advanced Communications Limited, an Israel-based technology company,
for $260.8 million of cash and 960,000 restricted shares of BATM common
stock. The shares of BATM common stock, which had an initial value of
approximately $70.0 million, trade on the London Stock Exchange. Under
the terms of the definitive agreement, the Company may not sell,
transfer or otherwise monetize these shares for a period of one year
without the consent of BATM. Cash proceeds have been adjusted for the
estimated taxes payable on the gain realized and other fees and
expenses relating to the sale.
205
<PAGE> 219
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
206
<PAGE> 220
MANAGEMENT OF THE COMBINED COMPANY
EXECUTIVE OFFICERS
Following the consummation of the STAR merger and/or the WorldxChange
merger, John D. Phillips will serve as Chairman of the Board and Chief Executive
Officer of the combined company, and Walter J. Burmeister will serve as the
President of the combined company. It is anticipated that the other current
executive officers of World Access will continue as executive officers of the
combined company with the duties and responsibilities they currently have at
World Access. At the time of mailing this joint proxy statement/prospectus, the
companies have not yet determined which specific offices will be held by the
current executive officers of STAR and WorldxChange.
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 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 joint proxy
statement/prospectus, the director designees of STAR and WorldxChange have not
been determined.
RECENT DEVELOPMENTS INVOLVING WORLD ACCESS
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:
- Contribution. TelDaFax and Netnet Telekommunications 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;
- 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
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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
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 transactions require the approval of a majority in voting
power of the shares of World Access common stock, World Access Series A
preferred stock, World Access Series C preferred stock, World Access Series D
preferred stock and World Access Series E preferred stock entitled to vote and
voting as a single class. The World Access stockholders will consider and vote
on the TelDaFax transactions at a separate special meeting. In connection with
this meeting, World Access will file a separate registration statement with the
Securities and Exchange Commission containing a proxy statement describing the
TelDaFax transactions.
PROPOSAL 4
AMENDMENT OF THE WORLD ACCESS AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK THAT WORLD ACCESS IS ENTITLED TO ISSUE
FROM 150,000,000 SHARES TO 290,000,000 SHARES
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 merger and the WorldxChange merger.
Although neither the STAR merger agreement nor the WorldxChange merger agreement
condition the closing of the mergers on stockholder approval of an increase in
authorized shares. However, if the World Access stockholders do not approve an
increase in the authorized shares, World Access' management will determine with
which merger World Access will proceed with or if an alternative structure for
one of the mergers is feasible.
The World Access board of directors has adopted a resolution unanimously
approving and recommending to the World Access stockholders for their approval
an amendment to Article IV of World Access' amended certificate of incorporation
to provide therein for an increase in the number of shares of common stock
authorized for issuance from 150,000,000 shares to 290,000,000 shares. World
Access' authorized common stock currently consists of 150,000,000 shares of
common stock, $.01 par value per share, of which 60,101,658 were issued and
outstanding as of May 22, 2000 and approximately 46,006,000 were reserved for
issuance upon conversion of Series A preferred stock, Series C preferred stock
and Series D preferred stock, upon the conversion of Series A preferred stock
underlying options for such stock
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and upon exercise of options and warrants granted under World Access' stock
option plans and director warrant plans. Accordingly, as of May 22, 2000, World
Access had available for issuance approximately 43.9 million shares of common
stock. Upon completion of the STAR merger, World Access will issue approximately
22.9 million shares of World Access common stock as consideration to the STAR
stockholders. Upon completion of the WorldxChange merger, World Access will
issue approximately 29.8 million shares of World Access common stock as
consideration to the WorldxChange shareholders.
The World Access board of directors believes the increase in the number of
shares of common stock authorized for issuance is desirable to enhance our
flexibility in connection with possible future actions, such as public or
private offerings of shares for cash, dividends payable in our stock, corporate
mergers and acquisitions, and implementation and continuation of employee
benefit plans. Having additional authorized shares for issuance in the future
would allow shares of common stock to be issued without the expense and delay of
a special meeting of stockholders. The additional shares of common stock may be
voting or non-voting as determined in the board's sole discretion with no
further authorization by security holders required for the creation and issuance
thereof, subject to the requirements of the Nasdaq National Market that
stockholder approval be obtained for certain issuances of additional shares of
common stock in excess of 20% of the number of shares then outstanding. In
addition, if World Access issued a new series of common stock or any preferred
stock that disparately reduced the voting rights of the World Access common
stock, then the World Access common stock could be excluded from the Nasdaq
National Market. The terms of any new series of common stock or any preferred
stock subject to this proposal cannot be stated or estimated at this time.
The World Access board of directors is not proposing the increase in the
authorized number of shares of common stock with the intention of using the
shares for anti-takeover purposes. However, it is possible that the issuance of
additional shares of common stock authorized by this Proposal 4 may render more
difficult or discourage a merger, tender offer or proxy contest involving World
Access, the assumption of control of World Access by the holder of a large block
of the common stock or the removal of incumbent management. For example, the
issuance of additional shares of common stock could discourage a potential
acquiror by:
- increasing the number of shares of common stock necessary to gain control
of World Access;
- permitting World Access, through the public or private issuance of shares
of common stock, to dilute the stock ownership of a potential acquiror;
or
- permitting World Access to privately place shares of common stock with
purchasers who side with the board of directors in opposing a takeover
bid.
Except for the proposed issuance in connection with the TelDaFax
transaction, World Access does not have any current plans, agreements or
understandings under which any of the additional shares of common stock to be
authorized would be issued.
Approval of this Proposal 4 requires the affirmative vote of a majority in
voting power 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 as a single class, and a majority of the outstanding
shares of World Access common stock voting as a single class. If approved by the
World Access stockholders, the amendment to the amended certificate of
incorporation will become effective upon filing with the Secretary of the State
of Delaware a certificate of amendment to our amended certificate of
incorporation, which filing is expected to take place shortly after the World
Access special meeting.
THE WORLD ACCESS BOARD OF DIRECTORS RECOMMENDS THAT THE WORLD ACCESS
STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE WORLD ACCESS AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED FOR
ISSUANCE FROM 150,000,000 SHARES TO 290,000,000 SHARES.
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PROPOSAL 5
AMENDMENT OF THE WORLD ACCESS AMENDED CERTIFICATE
OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED DIRECTORS FROM 12 TO 15
The World Access board of directors has adopted a resolution unanimously
approving and recommending to the stockholders for their approval an amendment
to Article IX of the World Access amended certificate of incorporation to
increase the number of authorized directors from 12 to 15.
Article IX of the World Access amended certificate of incorporation
currently provides that the World Access board of directors shall consist of not
fewer than three members and not more than 12 members. The exact number of
authorized directors within this range may be fixed from time to time by a
resolution of the World Access board. The World Access board of directors
believes an increase in the maximum number of directors from 12 to 15 will
provide it greater flexibility in determining the board's composition.
Approval of this Proposal 5 requires the affirmative vote of at least 75%
in voting power 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 entitled to vote and voting as a single class. If approved by
the World Access stockholders, the amendment to the amended certificate of
incorporation will become effective upon filing with the Secretary of State of
Delaware a certificate of amendment to the World Access amended certificate of
incorporation, which filing is expected to take place shortly after the World
Access special meeting.
THE WORLD ACCESS BOARD OF DIRECTORS RECOMMENDS THAT THE WORLD ACCESS
STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE WORLD ACCESS AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED DIRECTORS FROM 12 TO 15.
PROPOSAL 6
AMENDMENT OF THE WORLD ACCESS AMENDED CERTIFICATE OF
INCORPORATION TO END THE CLASSIFICATION OF THE WORLD ACCESS
BOARD OF DIRECTORS SO THAT ALL DIRECTORS WILL SERVE TERMS
OF ONE YEAR AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED
The World Access board of directors has adopted a resolution unanimously
approving and recommending to the stockholders for their approval an amendment
to Article IX of the World Access amended certificate of incorporation to end
the classification of the World Access board of directors.
Article IX of the World Access amended certificate of incorporation
currently provides for the division of the board of directors into three classes
with each serving staggered three year terms. The purpose of dividing the
directors into three classes was to promote continuity and stability in our
management and policies by making an attempted takeover of World Access more
difficult. A classified board of directors extends the time required to make a
change in control of the board and tends to discourage any hostile takeover
because it takes at least two annual meetings to make a change in control of the
board, since only a minority of the directors are elected at each meeting.
The World Access board of directors believes that the elimination of the
classified board will allow World Access stockholders to express their views
annually regarding the board in its entirety by electing all directors annually
and also help to ensure that each director will represent the interest of all
stockholders. Further, the elimination of the classified board promotes greater
accountability by all directors each year and encourages directors to better
serve stockholders while discouraging preserving the status quo. Because there
is no limit to the number of terms an individual may serve, the continuity and
stability of the World Access board's membership and our policies and long-term
strategic planning should not be affected. Although eliminating the
classification of the World Access board may increase the risk of a hostile
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takeover, World Access' management believes the benefits of eliminating the
classification of the board provides greater potential for value to
shareholders. Further, as World Access seeks to acquire new businesses, it may,
from time to time, grant board nominees to acquired companies, for which shorter
terms are beneficial. If this proposal is approved, World Access directors will
be elected for and will serve one year terms until their successors are duly
elected and qualified or until the earlier of their death, resignation or
removal. The amendment to the World Access certificate of incorporation to
eliminate the classified board would not shorten the terms of directors elected
or appointed prior to it becoming effective. The new procedure would, however,
apply to all World Access directors as their terms expire.
Approval of this Proposal 6 requires the affirmative vote of at least 75%
in voting power 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 entitled to vote and voting as a single class. If approved by
the World Access stockholders, the amendment to the amended certificate of
incorporation will become effective upon filing with the Secretary of State of
Delaware a certificate of amendment to the World Access amended certificate of
incorporation, which filing is expected to take place shortly after the World
Access special meeting.
THE WORLD ACCESS BOARD OF DIRECTORS RECOMMENDS THAT THE WORLD ACCESS
STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE WORLD ACCESS AMENDED CERTIFICATE OF
INCORPORATION TO END THE CLASSIFICATION OF THE WORLD ACCESS BOARD OF DIRECTORS
SO THAT ALL DIRECTORS WILL SERVE TERMS OF ONE YEAR AND UNTIL THEIR SUCCESSORS
ARE DULY ELECTED AND QUALIFIED.
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PROPOSAL 7
AMENDMENT TO THE WORLD ACCESS DIRECTORS' WARRANT INCENTIVE PLAN TO INCREASE THE
NUMBER OF WARRANTS ISSUABLE UNDER THE PLAN FROM 600,000 WARRANTS TO 1,200,000
WARRANTS
In December 1994, in an effort to attract and retain the best available
personnel to serve on its board of directors, World Access established the World
Access, Inc. Directors' Warrant Incentive Plan. Other purposes of the Warrant
Plan are to provide additional incentive to the persons serving as World Access
directors, to encourage their continued service on the World Access board, and
to align director and stockholder long-term incentives. World Access directors
currently receive no cash compensation.
The Warrant Plan also represents a source of equity capital to World Access
in that directors are required to pay the warrant exercise price in the form of
cash. In addition, warrants issued under the Warrant Plan are non-qualified for
federal income tax purposes. This tax treatment is intended to provide World
Access income tax deductions equal to the difference between the aggregate
market value and aggregate exercise price of the warrants on the dates of
exercise.
DESCRIPTION OF PROPOSED AMENDMENT
The aggregate number of shares of World Access common stock currently
authorized for issuance pursuant to the Warrant Plan is 600,000. As of August 1,
2000, 450,000 shares available under the Warrant Plan had been issued or were
contingently issuable upon the exercise of outstanding warrants. To date, all
warrants under the Warrant Plan have been granted only to outside directors of
the board. On April 25, 2000, the World Access board approved, subject to and
effective upon stockholder approval, an amendment to the Warrant Plan that would
authorize an additional 600,000 shares of World Access common stock for issuance
under the Warrant Plan, so that the total shares authorized for the Warrant Plan
will be 1,200,000 shares. If the proposed amendment is approved by the World
Access stockholders, this change will be effective as of April 25, 2000.
World Access believes that the increase in the authorized shares under the
Warrant Plan is in the best interests of all stockholders and will further the
purposes of the Warrant Plan. The number of authorized shares has not been
increased since the Warrant Plan was initially adopted in December 1994. World
Access has grown significantly since that time and is forecasting significant
additional growth during the next few years. The increase in the number of
authorized shares will provide World Access with 750,000 shares available for
future issuance under the Warrant Plan. With five elected outside directors
currently serving on the World Access board of directors, these shares would
allow for three years of potential grants, assuming the performance criteria
under the Warrant Plan is met in each year.
BRIEF SUMMARY OF THE WARRANT PLAN
The Warrant Plan provides that each member of the World Access board may be
granted on an annual basis, in the discretion of the World Access board,
warrants to purchase up to 50,000 shares of World Access common stock in the
aggregate. However, no warrants may be granted under the Warrant Plan during
1999 and thereafter unless the fair market value of the World Access common
stock has increased a certain amount over the previous four years. The shares
may be authorized, but unissued, reacquired or forfeited shares of World Access
common stock. Each warrant will have a five-year term. The initial exercise
price of the warrants granted under the Warrant Plan shall be 110% of the fair
market value of the World Access common stock on the date of grant. World Access
must, at all times, keep available and reserve a number of shares sufficient to
satisfy the Warrant Plan's requirements.
The warrants shall become exercisable in one or more installments as the
World Access board may determine, but if a director has not attended at least
75% of the meetings of the World Access board for the year in which an
installment first becomes exercisable, then such installment will not become
exercisable at that time. Generally, no warrant shall be exercisable within the
first six months of its term. The warrants are exercisable only while the World
Access board member remains a member of the board, and for 60 days thereafter.
This exercise period is extended to three months if the termination of service
is
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due to a total and permanent disability. Generally, the exercise period is
extended to six months following a non-employee director's death if death occurs
while still a director, and the portion of the warrant exercisable is determined
as if the director had lived and continued service as a director for an
additional six months. If death occurs during the three months following
termination of service as a director, the warrant may be exercised during the
six months following death, but only to the extent that it had accrued at the
date of termination. Payment of the exercise price may be made in cash or check
or any combination thereof. Warrants generally may not be transferred other than
by will or by the laws of descent or distribution, or pursuant to a qualified
domestic relations order. However, the World Access board may, in its
discretion, authorize transfer to the spouse, children, or grandchildren of the
warrant holder, to a trust for such family members, to a partnership of which
such family members are the only partners, or to a charitable organization,
under certain circumstances.
The World Access board shall adjust the number of shares of World Access
common stock available for issuance under the Warrant Plan as well as the price
per share of World Access common stock covered by each outstanding warrant
proportionately for any increase or decrease in the number of issued shares of
World Access common stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the World Access common
stock, or any other increase or decrease in the number of issued shares of World
Access common stock effected without receipt of consideration by World Access
(not including the conversion of convertible securities or the issuance by World
Access of stock or convertible securities). Warrants to be issued pursuant to
the Warrant Plan will become immediately exercisable:
- if World Access is to be consolidated with or acquired by another entity
in a merger;
- upon the sale of substantially all of World Access's assets or the sale
of at least 90% of the outstanding World Access common stock to a third
party;
- upon the merger or consolidation of World Access with or into any other
corporation or the merger or consolidation of any corporation with or
into World Access in which consolidation or merger the stockholders of
World Access receive distributions of cash or securities; or
- upon the liquidation or dissolution of World Access.
The World Access board has authority to:
- determine, upon review of relevant information and in accordance with the
Warrant Plan, the fair market value of the World Access common stock;
- interpret the Warrant Plan;
- prescribe, amend and rescind rules and regulations relating to the
Warrant Plan;
- authorize any person to execute on behalf of World Access any instrument
required to effectuate the grant of a warrant previously granted under
the Warrant Plan; and
- make all other determinations deemed necessary or advisable for the
administration of the Warrant Plan.
All World Access board determinations will be final and binding on all
holders of warrants.
A warrant may be suspended or terminated if the Chief Executive Officer of
World Access reasonably believes that the warrant holder has committed an act of
misconduct. If the World Access board (excluding the relevant warrant holder)
determines that the warrant holder has committed an act of embezzlement, fraud,
dishonesty, nonpayment of an obligation owed to World Access, breach of
fiduciary duty or deliberate disregard of World Access rules resulting in loss,
damage or injury to World Access, or if the warrant holder makes unauthorized
disclosure of any World Access trade secret or confidential information, engages
in unfair competition, induces any World Access customer to breach a contract
with World Access, or induces any principal for whom World Access acts as agent
to terminate such agency relationship, such warrant holder shall not be entitled
to exercise any warrant.
The Warrant Plan will continue in effect until December 2004, unless
earlier terminated by the World Access board. The World Access board may amend
or terminate the Warrant Plan at any time, provided
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any such amendment or termination will not affect previously granted warrants,
unless otherwise agreed in writing between World Access and the holder of the
warrant.
As of August 1, 2000, there were 350,000 warrants issued and outstanding
under the Warrant Plan at exercise prices ranging from $8.25 to $25.85 per
share, all of which were exercisable. As of August 1, 2000, 100,000 warrants
have been exercised under the Warrant Plan. Current directors of World Access
have been granted warrants to acquire the following number of shares of Common
Stock under the Warrant Plan: Mr. Clearman - 150,000; Mr. Imlay - 50,000; Mr.
Phillips - 100,000; and Mr. Sanders - 50,000.
Federal Income Tax Consequences. Neither World Access nor the warrant
holder has income tax consequences from the grant of warrants under the Warrant
Plan. Generally, in the tax year when the holder exercises a warrant, the
warrant holder recognizes ordinary income in the amount by which the fair market
value of the shares at the time of exercise exceeds the exercise price for the
warrants. World Access will generally have a deduction in the same amount as the
ordinary income recognized by the warrant holder in World Access' tax year in
which or with which the warrant holder's tax year (of exercise) ends.
VOTE REQUIRED
Approval of this Proposal 7 requires the affirmative vote of a majority in
voting power 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 as a single class. If approved by the World Access
stockholders, the amendment to the Warrant Plan will become effective upon such
approval.
THE WORLD ACCESS BOARD OF DIRECTORS RECOMMENDS THAT THE WORLD ACCESS
STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE WORLD ACCESS DIRECTORS' WARRANT
INCENTIVE PLAN TO INCREASE THE NUMBER OF WARRANTS ISSUABLE UNDER THE PLAN FROM
600,000 WARRANTS TO 1,200,000 WARRANTS.
PROPOSAL 8
AMENDMENT TO THE WORLD ACCESS DIRECTORS' WARRANT INCENTIVE PLAN
TO CHANGE THE PERFORMANCE CRITERIA UNDER THE PLAN
On April 25, 2000, the World Access board approved, subject to and
effective upon stockholder approval, an amendment to the Warrant Plan that would
change the performance criteria of the World Access common stock under the
Warrant Plan. If the proposed amendment is approved by the World Access
stockholders, this change will be effective as of April 25, 2000. The previous
performance criteria dates back to the inception of the Warrant Plan in December
1994 when World Access common stock traded at $1.25 per share.
Under the current provisions of the Warrant Plan, no warrants may be
granted for a year unless the price of World Access common stock has increased
by a compounded average annual growth rate equal to or in excess of 35% for the
four years preceding the year of grant. The proposed amendment would decrease
the period over which the growth rate of World Access common stock is to be
measured to determine whether warrants may be granted for a particular year.
Under the proposed amendment, beginning in February 2001, the growth rate of the
price of World Access common stock will be measured over the previous two years
rather than the previous four years. In addition, the stock price must have
grown by a compounded average annual growth rate equal to or in excess of 10%
over the measurement period, rather than 35%, in order for the World Access
board to grant warrants under the Warrant Plan.
World Access believes that the decrease in the measurement period for the
growth rate of World Access common stock for the determination of whether
warrants may be granted is in the best interests of all stockholders and will
further the purposes of the Warrant Plan. The target price to determine
eligibility in February 2001 is approximately $26.00 under both the previous and
proposed performance criteria. The proposed revisions to the performance
criteria were designed to address the fact that the previous criteria
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requires a target price of more than $60.00 per share in February 2002. Warrants
issued under the Warrant Plan represent the only form of ongoing consideration
paid to outside directors. As a result, World Access believes the performance
criteria defined under this Warrant Plan must be reasonably defined to assist
World Access in attracting and retaining highly qualified outside directors.
VOTE REQUIRED
Approval of this Proposal 8 requires the affirmative vote of a majority in
voting power 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 as a single class. If approved by the World Access
stockholders, the amendment to the Warrant Plan will become effective upon such
approval.
THE WORLD ACCESS BOARD OF DIRECTORS RECOMMENDS THAT THE WORLD ACCESS
STOCKHOLDERS VOTE FOR THE AMENDMENT TO THE WORLD ACCESS DIRECTORS' WARRANT
INCENTIVE PLAN TO CHANGE THE PERFORMANCE CRITERIA OF WORLD ACCESS COMMON STOCK
UNDER THE PLAN.
PROPOSAL 9
ELECTION OF WORLD ACCESS DIRECTORS
The World Access amended certificate of incorporation provides that the
World Access board shall be classified into three classes as nearly equal in
number as possible, such that approximately one-third of the members of the
board shall be elected at each annual meeting of stockholders, and each director
shall serve for a three-year term. The World Access amended certificate of
incorporation further provides that the World Access board shall consist of not
fewer than three members and not more than 12 members, with the exact number of
directors within such range to be fixed from time to time by the World Access
board. If Proposal 5 is approved by the World Access stockholders at the World
Access special meeting, World Access will amend its amended certificate of
incorporation to increase the number of authorized directors from 12 to 15.
Notwithstanding these provisions, the World Access amended certificate of
incorporation provides that whenever the holders of any one or more classes or
series of stock has the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, such directors so
elected shall not be divided into classes, and the number of such directors
shall not be counted in determining the maximum number of directors permitted
under Article IX of the World Access amended certificate of incorporation,
unless expressly provided otherwise by the terms of the class or series in the
World Access amended certificate of incorporation. Messrs. Burmeister, Campbell,
Cipoletti and Sedwick are designees of the Series C preferred stock of World
Access and, as such, are not divided into classes. If Proposal 5 is approved at
the World Access special meeting, all World Access directors, including the
nominees for director named in this joint proxy statement/prospectus, will serve
terms of one year or until their successors are duly elected and qualified.
The World Access board has fixed the number of directors at 11, and the
World Access board currently is comprised of 11 members. There are three
director positions in the class whose term of office expires in 2000. Two of
these positions are currently held by Stephen J. Clearman and John D. Phillips,
who are standing for reelection. The persons named as proxies are not entitled
to vote for a greater number of persons than the number of nominees named in
this joint proxy statement/prospectus. There are no family relationships among
any World Access directors, executive officers or nominees.
The World Access board knows of no reason why the nominees may be unable to
serve as a director. If a nominee is unable to serve, the shares represented by
all valid proxies received may be voted for a substitute nominee designated by
the World Access board, or the World Access board may reduce the number of
directors. If any director resigns, dies or is otherwise unable to serve out his
or her term, or the number of directors is increased by the World Access board,
any vacancy so arising may be filled by the World Access board. A director
elected to fill a vacancy shall serve until the next election of the class of
directors to which such director belongs and until his or her successor is
elected and qualified.
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THE WORLD ACCESS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
OF WORLD ACCESS VOTE "FOR" THE ELECTION OF STEPHEN J. CLEARMAN AND JOHN D.
PHILLIPS AS DIRECTORS.
INFORMATION REGARDING NOMINEES AND DIRECTORS
Biographical information follows for the person nominated and each person
whose term of office as a director will continue after the World Access special
meeting. Directors' ages are as of May 22, 2000.
WORLD ACCESS NOMINEES FOR DIRECTOR
Stephen J. Clearman. Mr. Clearman has served as one of World Access'
directors since 1988. Mr. Clearman co-founded Geocapital Partners. Since 1984,
he has served as a general partner of six Geocapital venture capital
partnerships. Mr. Clearman currently serves as a director of MemberWorks
Incorporated and several private companies, all of which principally provide
computer software or information services. Mr. Clearman's current term as a
director of World Access is scheduled to end at the World Access special
meeting. Mr. Clearman is 49
John D. ("Jack") Phillips. Mr. Phillips has served as one of World Access'
directors since December 1994, as its Chief Executive Officer since December
1998 and as Chairman of its board of Directors since May 1999. Mr. Phillips was
Chairman of the Board and Chief Executive Officer of Cherry Communications and
Cherry U.K. d/b/a Resurgens Communications Group from October 1997 until
December 1998, when World Access acquired both companies. He was President,
Chief Executive Officer and a director of Metromedia International from November
1995 until December 1996. Metromedia International was formed in November 1995
through the merger of The Actava Group, Inc., Orion Pictures Corporation, MCEG
Sterling Incorporated and Metromedia International Telecommunications, Inc. He
served as President, Chief Executive Officer and a director of Actava from April
1994 until November 1995. In May 1989, Mr. Phillips became Chief Executive
Officer of Resurgens Communications Group, Inc. and served in this capacity
until September 1993 when Resurgens merged with Metromedia Communications
Corporation and WorldCom. Mr. Phillips' current term as a director of World
Access is scheduled to end at the World Access special meeting. Mr. Phillips is
57.
WORLD ACCESS DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
Massimo Prelz Oltramonti. Mr. Prelz has served as one of World Access'
directors since December 1999. He is a Managing Director of Gilbert Global
Equity Partners, L.L.C., a private equity firm with a diversified global
investment strategy. He previously served as Managing Director of Advent
International Corporation, the general partner of a series of global private
equity funds. In this capacity, he co-managed the media and telecom investment
activity of Advent International in Europe and was directly responsible for its
investments in Scandinavian Broadcasting Systems SA, Esat Telecom Group plc,
PrimaCom AG, Esaote S.p.A. and Jazztel SA. Prior to joining Advent International
in 1991, Mr. Prelz was a partner at Alta Berkeley Associates, a venture capital
group in London. He currently serves as Vice-Chairman of PrimaCom AG and is a
director of Esat Telecom Group plc, Jazztel SA and Iaxis N.V. Mr. Prelz's
current term as a director of World Access is scheduled to end at World Access'
2002 Annual Meeting of Stockholders. Mr. Prelz is 45.
Lawrence C. Tucker. Mr. Tucker has served as one of World Access'
directors since April 1999. He has been a General Partner of Brown Brothers
Harriman & Co., a private banking firm, since 1979 and he also serves on The
Partners' Steering Committee. Mr. Tucker serves as a director of MCI WorldCom,
Inc., the MCI WorldCom Venture Fund, US Unwired, Inc., National Healthcare
Corporation, Riverwood Holdings, Inc., VAALCO Energy Inc. and National Equipment
Services, Inc. Brown Brothers Harriman & Co. is the general partner of The 1818
Fund, L.P., The 1818 Fund II, L.P., The 1818 Fund III, L.P., and The 1818
Mezzanine Fund, L.P. Mr. Tucker serves on our board of directors as the designee
of the holder of our Series A preferred stock, and his current term as a
director of World Access is scheduled to end at World Access' 2002 Annual
Meeting of Stockholders. Mr. Tucker is 57.
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WORLD ACCESS DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
John P. Imlay, Jr. Mr. Imlay has served as one of World Access' directors
since December 1998. He is Chairman of Imlay Investments, Inc., a private
investment firm which manages capital and provides venture funds for small
technology companies. He also serves as Chairman of Dun & Bradstreet Software
Services, Inc., an application software company, and as a director of Metromedia
International Group, Inc., a global media, entertainment and communications
company. Mr. Imlay is the former Chairman of Management Science America, a
mainframe application software company that was acquired by Dun & Bradstreet in
1990. He is also a director of the Atlanta Falcons and The Gartner Group. Mr.
Imlay's current term as a director of World Access is scheduled to end at World
Access' 2001 Annual Meeting of Stockholders. Mr. Imlay is 63.
John P. Rigas. Mr. Rigas has served as one of World Access' directors
since December 1999. He is a Managing Partner of Zilkha Capital Partners L.P., a
private equity firm involved in a wide variety of venture capital and technology
investments both in the U.S. and internationally. Mr. Rigas is a founder of
Zilkha Capital Partners and has been a member of its predecessor firms for
twelve years. He currently serves as the Chairman of Advanced Interactive
Systems Inc. and as a director of New Colt Holding, Inc., Omniglow, Inc. and
Total Sports, Inc. Mr. Rigas' current term as a director of World Access is
scheduled to end at World Access' 2001 Annual Meeting of Stockholders. Mr. Rigas
is 36.
Carl E. Sanders. Mr. Sanders has served as one of World Access directors'
since December 1998. He is engaged in the private practice of law as Chairman of
Troutman Sanders LLP, a law firm based in Atlanta, Georgia. He is a former
governor of the State of Georgia. Mr. Sanders is currently a director of Carmike
Cinemas, Matria Health Care and H.I.E. Corp. Mr. Sanders' current term as a
director of World Access is scheduled to end at World Access' 2001 Annual
Meeting of Stockholders. Mr. Sanders is 74.
WORLD ACCESS DIRECTORS NOT DIVIDED INTO CLASSES
Walter J. Burmeister. Mr. Burmeister has served as World Access' President
and one of its directors since December 1999. Mr. Burmeister was one of
FaciliCom's co-founders and served as its Chief Executive Officer, President and
one of its directors from 1995 until it merged with World Access in December
1999. Prior to co-founding FaciliCom, Mr. Burmeister founded TMG, a
telecommunications consulting firm, and he has served as its Chairman from 1992
to the present. Mr. Burmeister was Vice President and Chief Financial Officer of
Bell Atlantic International from 1989 to 1992. In this position, Mr. Burmeister
was responsible for overseeing business development in Central and South
America, the Middle East and Africa, as well as managing that company's
financial affairs. During his 31 years with Bell Atlantic, Mr. Burmeister was
Vice President of Bell of Pennsylvania's and Diamond State Telephone's sales
organization and headed the C&P Telephone Operations Staff. Mr. Burmeister has
served as a director of Skysat Communications Network since 1992. Mr. Burmeister
serves on World Access board of directors as a designee of the holders of our
Series C preferred stock. Mr. Burmeister is 60.
Kirby J. Campbell. Mr. Campbell has served as one of World Access'
directors since December 1999. He served as Treasurer, Vice President and as a
director of FaciliCom from its inception in 1995 until it merged with World
Access in December 1999. Since June 1997, Mr. Campbell has been the Chief
Executive Officer of Armstrong Holdings, Inc., FaciliCom's indirect majority
stockholder, and he was previously Executive Vice President of Armstrong
Holdings. Mr. Campbell also holds various executive and board positions with
Armstrong Holdings' affiliated companies. Mr. Campbell serves on our board of
directors as a designee of the holders of our Series C preferred stock. Mr.
Campbell is 52.
Bryan Cipoletti. Mr. Cipoletti has served as one of World Access'
directors since December 1999. He served as a director of FaciliCom from
September 1997 until it merged with us in December 1999. Mr. Cipoletti has been
Chief Financial Officer of Armstrong Holdings since December 1999 and was Vice
President of Finance of Armstrong Holdings from 1993 to 1999. Mr. Cipoletti also
holds various executive and board positions with Armstrong Holdings' affiliated
companies. Mr. Cipoletti serves on our board of directors as a designee of the
holders of Series C preferred stock. Mr. Cipoletti is 39.
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Dru A. Sedwick. Mr. Sedwick has served as one of World Access' directors
since December 1999. He served as Secretary, Vice President and as a director of
FaciliCom from FaciliCom's inception in 1995 until it merged with us in December
1999. Since June 1997, Mr. Sedwick has been President of Armstrong Holdings, and
previously he was Senior Vice President of Armstrong Holdings. Mr. Sedwick also
holds various executive and board positions with Armstrong Holdings' affiliated
companies. Mr. Sedwick serves on our board of directors as a designee of the
holders of the World Access Series C preferred stock. Mr. Sedwick is 34.
MEETINGS AND COMMITTEES OF THE WORLD ACCESS BOARD
During 1999, the World Access board met seven times and took actions by
unanimous written consent 14 times. The World Access board has a standing
Executive Committee, Audit Committee and Compensation Committee. No incumbent
World Access board member attended fewer than 75% of the aggregate of (i) the
total number of meetings of the World Access board which such director was
eligible to attend during 1999 and (ii) the total number of meetings held by any
committee of the World Access board upon which such director served during 1999.
The Executive Committee was formed in December 1999 and presently consists
of Messrs. Burmeister, Campbell, Phillips and Tucker. The Executive Committee
performs such duties as are delegated to it by the board of directors, subject
to the limitations on such delegation contained in the Delaware General
Corporation Law.
The Audit Committee, which presently consists of Messrs. Cipoletti,
Oltramonti and Rigas, recommends engagement of independent auditors for World
Access, reviews and approves services performed by such auditors, reviews and
evaluates World Access' accounting system and its system of internal controls
and performs other related duties delegated to such committee by the World
Access board. The Audit Committee met two times during 1999.
The Compensation Committee, which presently consists of Messrs. Clearman,
Imlay, Sanders and Sedwick, performs such duties regarding compensation for
executive officers as the World Access board may delegate to such Committee from
time to time. The Compensation Committee met eight times during 1999.
The World Access board has not established a separate committee of its
members to nominate candidates for election as directors.
WORLD ACCESS DIRECTOR COMPENSATION
World Access' non-employee directors receive no cash compensation for their
service as directors of World Access. Their compensation is in the form of stock
warrants as discussed below. The directors are reimbursed for out-of-pocket
travel and related expenses incurred in connection with their attendance at
meetings of the World Access' board or its committees and at other World Access
events to which they are invited.
In December 1994, in an effort to attract and retain experienced executives
to serve as outside directors, the Outside Directors' Warrant Plan was adopted.
World Access' stockholders approved the Warrant Plan at the 1995 Annual Meeting
of Stockholders.
The purposes of the Warrant Plan are to attract and retain the best
available personnel for service as directors of World Access, to provide
additional incentive to the persons serving as directors, to align director and
stockholder long-term interests and to encourage continued service on the World
Access board. Warrants may be granted under the Warrant Plan only to directors
of World Access who are neither employees of World Access nor of any of its
affiliates. The aggregate number of shares of common stock authorized to be
issued pursuant to the Warrant Plan is 2,400,000, subject to adjustment in
certain instances as described below. The Warrant Plan provides that each
eligible non-employee director elected to serve as a director of World Access on
or after October 1, 1994 may be granted, in the discretion of the World Access
board, warrants to purchase no more than 450,000 shares of common stock in the
aggregate.
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The initial exercise price of the warrants will be not less than the fair market
value of the common stock subject to the warrant on the date of grant.
In June 1999, the our board granted the following directors warrants to
purchase a total of 201,000 shares of World Access' common stock at an exercise
price of $11.69 per share, the then current market price: Mr. Clearman -- 17,000
shares; Mr. Imlay -- 42,000 shares; Mr. Sanders -- 42,000 shares; and Mr.
Tucker -- 100,000 shares. These warrants, which were fully vested upon issuance,
expire on June 15, 2004.
In December 1999, Mr. Prelz and Mr. Rigas joined World Access' board and
were each granted warrants to purchase 100,000 shares of World Access' common
stock at an exercise price of $17.62 per share, the then current market price.
These warrants, which were fully vested upon issuance, expire on December 9,
2004.
In December 1994, we also adopted the Directors' Warrant Incentive Plan
pursuant to which our board may grant, beginning in February 1997, to each
non-employee director on an annual basis warrants to purchase up to 50,000
shares of common stock at an exercise price per share equal to no less than 110%
of the fair market value of the common stock at the date of grant. No warrants
may be granted under the Incentive Plan in a given year unless our common stock
has appreciated by a compounded annual average rate of return in excess of 35%
for the four-year period preceding the year of grant. The aggregate number of
shares of common stock authorized to be issued pursuant to the Incentive Plan is
600,000 subject to adjustment in certain instances as described below. Upon
stockholder approval at the World Access special meeting, 35% for the four-year
period will be amended to 10% for the two-year period and the number of
authorized shares will be increased to 1.2 million shares.
In March 1999, pursuant to the Incentive Plan, our board granted each of
Messrs. Clearman, Imlay and Sanders warrants to purchase 50,000 shares of our
common stock at an exercise price of $8.25 per share, 110% of the then current
market price. These warrants became fully vested on December 31, 1999 and expire
on March 10, 2004.
Notwithstanding the foregoing, the Warrant Plan and the Incentive Plan
provide that warrants awarded pursuant to these plans will become immediately
exercisable (i) if we are consolidated with or acquired by another entity in a
merger, (ii) upon the sale of substantially all of our assets or the sale of at
least 90% of outstanding common stock to a third party, (iii) upon our merger or
consolidation with or into any other corporation or the merger or consolidation
of any corporation with or into us (in which consolidation or merger our
stockholders received distributions of cash or securities as a result thereof),
or (iv) upon our liquidation or dissolution.
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.
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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 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.
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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.
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.
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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
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
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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 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
223
<PAGE> 237
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.
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.
The following table also sets forth information assuming the completion of
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 SHARES TOTAL 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) MERGERS MERGERS(3) MERGERS MERGERS(3)
---- ---------- ------------- ------------ ---------- ------------ ----------
<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 11.7%
One Armstrong Place
Butler, PA 16001
WorldCom Network Services,
Inc.(5).................... 7,081,444 -- 7,081,444 11.5 17,081,444 15.0
500 Clinton Center Drive
Clinton, MS 39056
</TABLE>
224
<PAGE> 238
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL 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) MERGERS MERGERS(3) MERGERS MERGERS(3)
---- ---------- ------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
The 1818 Fund III, L.P.(6)... -- 6,086,956 6,086,956 9.0 6,086,956 5.1
59 Wall Street
New York, NY 10005
Morgan Stanley & Co.
Incorporated(7)............ -- 5,685,111 5,685,111 8.4 5,685,111 4.7
1585 Broadway
New York, NY 10036
Roger B. Abbott(8)........... -- -- -- * 9,939,982 8.7
9999 Willow Creek Road
San Diego, CA 92131
Gold & Appel Transfer,
S.A.(9).................... -- -- -- * 7,691,817 6.7
Omar Hodge Building
Wickhams City
Tortola, British V.I.
Walter J.
Burmeister+++(10).......... -- 1,135,694 1,135,694 1.8 1,135,694 1.0
Kirby J. Campbell+........... -- -- -- * -- *
Bryan Cipoletti+............. -- -- -- * -- *
Stephen J. Clearman+(11)..... 1,309,044 167,000 1,476,044 2.4 1,476,044 1.3
John P. Imlay, Jr.+.......... 59,900 179,000 238,900 * 238,900 *
John D. Phillips+++(12)...... 1,312,500 1,092,000 2,404,500 3.8 2,404,500 2.1
Massimo Prelz
Oltramonti+(13)............ 1,885,251 100,000 1,985,251 3.2 1,985,251 1.7
John P. Rigas+(14)........... 1,561,958 100,000 1,661,958 2.7 1,661,958 1.5
Carl E. Sanders+(15)......... 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 5.1
W. Tod Chmar++............... 312,500 25,000 337,500 * 337,500 *
Mark A. Gergel++(16)......... 26,791 246,833 273,624 * 273,624 *
Michael F. Mies++(16)........ 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 12.9
Series A preferred stock
The 1818 Fund III, L.P....... 70,000 -- 70,000 100.0 70,000 100.0
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............ 19,161 -- 19,161 5.5 19,161 5.5
1530 Key Boulevard #306
Arlington, VA 22209
</TABLE>
225
<PAGE> 239
<TABLE>
<CAPTION>
TOTAL SHARES TOTAL 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) MERGERS MERGERS(3) MERGERS MERGERS(3)
---- ---------- ------------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
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. Luxemburg 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.
(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 MCI WorldCom, Inc., upon the final resolution of
all creditor claims against
226
<PAGE> 240
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
exchange 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) Includes 940,204 shares of World Access common stock issuable upon the
conversion of 19,161 shares of Series C preferred stock.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) Includes 2,000 shares of World Access common stock owned by Mr. Sanders'
wife, with respect to which Mr. Sanders disclaims beneficial ownership.
(16) 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> 241
EXECUTIVE OFFICERS OF WORLD ACCESS
INFORMATION REGARDING EXECUTIVE OFFICERS OF WORLD ACCESS
The information with respect to World Access' executive officers is set
forth in Item 4.5 of Part I of World Access' Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
On June 1, 2000 Bryan D. Yokley joined World Access as its Executive Vice
President and Chief Financial Officer and Mark A. Gergel was named World Access'
Executive Vice President of Corporate Development. Information concerning Mr.
Yokley is set forth in the following paragraph.
Bryan D. Yokley, 38, has served as World Access' Executive Vice President
and Chief Financial Officer since June 2000. He was a partner in the
international accounting firm of Ernst & Young LLP, prior to his employment with
World Access and had over 15 years of experience with Ernst & Young. Mr. Yokley
was a key partner in Ernst & Young's Southeast technology practice based in
Atlanta, and while at Ernst & Young, specialized in the telecommunications
industry. Mr. Yokley also served as a Practice Fellow at the Financial
Accounting Standards Board during 1995 to 1997.
WORLD ACCESS' EXECUTIVE COMPENSATION
Summary of Compensation. The following table sets forth the cash and
non-cash compensation World Access awarded or paid its named executive officers,
consisting of its Chief Executive Officer and its four most highly compensated
executive officers other than its Chief Executive Officer, during 1997, 1998 and
1999.
WORLD ACCESS' SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) OPTIONS (#) COMPENSATION ($)(6)
--------------------------- ---- -------- ---------- ------------ -------------------
<S> <C> <C> <C> <C> <C>
John D. Phillips(1)................. 1999 $625,000 $1,000,000 1,267,000 $ --
Chairman and Chief Executive 1998 26,000 -- 50,000 --
Officer 1997 -- -- 50,000 --
W. Tod Chmar(2)..................... 1999 300,000 300,000 175,000 --
Executive Vice 1998 9,800 -- -- --
President and Secretary 1997 -- -- -- --
Mark A. Gergel(3)................... 1999 300,000 210,000 90,000 5,000
Executive Vice President and 1998 168,100 -- -- 4,200
Chief Financial Officer 1997 97,500 115,000 216,000 28,000
A. Lindsay Wallace(4)............... 1999 270,000 -- 160,000 36,500
President of World Access 1998 160,400 65,000 70,000 4,200
Equipment Group 1997 -- -- -- --
Michael F. Mies(5).................. 1999 150,000 45,000 50,000 5,000
Senior Vice President 1998 101,000 30,000 -- --
of Finance and Treasurer 1997 -- -- 42,500 21,500
</TABLE>
---------------
(1) Mr. Phillips joined World Access' board in December 1994, was appointed its
Chief Executive Officer in December 1998 and its Chairman in May 1999. Under
the Directors' Warrant Incentive Plan, Mr. Phillips was granted warrants to
purchase 50,000 shares of World Access common stock at $9.21 per share and
50,000 shares of common stock at $25.85 per share in 1997 and 1998,
respectively. These warrants were fully vested as of December 31, 1999.
(2) Mr. Chmar joined World Access as Executive Vice President and Secretary in
December 1998.
(3) During 1997, Mr. Gergel was paid a flat sum allowance of $25,000 for the
relocation of his household to Atlanta, Georgia.
228
<PAGE> 242
(4) Mr. Wallace joined World Access in February 1998 in connection with World
Access' acquisition of a majority interest in NACT Telecommunications, Inc.
During 1999, Mr. Wallace was paid $31,500 to reimburse him for costs
incurred in the relocation of his household to Atlanta, Georgia.
(5) During 1997, Mr. Mies was paid a flat sum allowance of $21,500 for the
relocation of his household to Atlanta, Georgia.
(6) Except as noted above, All Other Compensation represents matching
contributions that World Access provides to all eligible employees under its
401(k) benefit plan.
WORLD ACCESS OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock
options to the named executive officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE ($) AT ASSUMED
-------------------------------------- ANNUAL RATES OF
NUMBER OF % OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
John D. Phillips(1).......... 750,000 10.6% $12.75 1/12/04 $8,077,500 $11,842,500
250,000 3.5 12.75 4/16/04 2,767,500 4,127,500
17,000 .2 11.69 6/16/04 209,600 307,000
250,000 3.5 15.88 11/29/04 2,160,000 3,782,500
W. Tod Chmar(2).............. 100,000 1.4 8.19 2/12/04 1,543,000 2,059,000
75,000 1.1 15.88 11/29/04 648,000 1,134,700
Mark A. Gergel(2)............ 40,000 .6 11.69 6/16/04 493,200 722,400
50,000 .7 15.88 11/29/04 432,000 756,500
A. Lindsay Wallace(3)........ 130,000 1.8 12.75 1/12/04 1,400,100 2,052,700
30,000 .4 11.69 6/16/04 369,900 541,800
Michael F. Mies(3)........... 37,500 .5 8.19 2/12/04 578,600 772,100
12,500 .2 11.69 6/16/04 154,100 225,800
</TABLE>
---------------
(1) The 750,000 and 250,000 options granted to Mr. Phillips at $12.75 per share
were originally scheduled to vest over a four-year period. In connection
with Mr. Phillips' execution of a letter agreement with Armstrong
International Telecommunications, Inc. (see "Executive Employment
Agreements"), World Access' board elected to vest all these options in full
upon the consummation of its merger with FaciliCom in December 1999. The
17,000 options vested immediately upon issuance, and the other 250,000 of
options will vest one-third on each of the first three anniversaries from
date of grant.
(2) The first option grant indicated will vest 25% on each of the first four
anniversaries from date of grant and the second grant will vest one-third on
each of the first three anniversaries from date of grant.
(3) All options granted will vest 25% on each of the first four anniversaries
from date of grant.
(4) The 5% and 10% appreciation rates are set forth in the Securities and
Exchange Commission rules and no representation is made that common stock
will appreciate at these assumed rates or at all.
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<PAGE> 243
WORLD ACCESS' AGGREGATED OPTION AND WARRANT EXERCISES
IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning the value of director
warrants and employee options exercised by the World Access named executive
officers during 1999 and the value at December 31, 1999 of unexercised warrants
and options held by each such officer. The value of unexercised warrants and
options reflects the increase in market value of World Access' common stock from
the date of grant through December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY(2)
NUMBER OF WARRANTS AND OPTIONS WARRANTS AND OPTIONS
SHARES AT 12-31-99 AT 12-31-99
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John D. Phillips -- $ -- 1,117,000 250,000 $7,130,500 $ 842,500
W. Tod Chmar -- -- -- 175,000 -- 1,358,700
Mark A. Gergel 10,125 107,500 237,500 156,000 1,038,400 470,900
A. Lindsay Wallace -- -- 122,380 212,500 712,700 1,071,800
Michael F. Mies -- -- 17,500 71,250 37,800 582,700
</TABLE>
---------------
(1) The "value realized" represents the difference between the exercise price of
the shares and the market price of the shares on the date the warrants and
options were exercised. The value realized was determined without
considering any taxes which may have been owed.
(2) "In-the-Money" warrants and options have an exercise price less than $19.25
per share, the closing price of the World Access common stock as of December
31, 1999.
WORLD ACCESS' EXECUTIVE EMPLOYMENT AGREEMENTS
On April 16, 1999, World Access entered into new employment agreements with
each of John D. Phillips, its Chairman and Chief Executive Officer, W. Tod
Chmar, its Executive Vice President and Secretary, and Mark A. Gergel, its
Executive Vice President. On June 1, 2000, World Access entered into an
employment agreement with Bryan D. Yokley, its Executive Vice President and
Chief Financial Officer. Mr. Phillips' employment agreement provides for a base
salary of $625,000 per year. The agreement further provides that Mr. Phillips
may be awarded an annual bonus in the discretion of the World Access board
pursuant to a bonus or incentive plan or otherwise. The initial term of the
agreement is three years, with an automatic one-year extension on each
anniversary of the agreement's effective date unless either party to the
agreement gives notice of termination. If, during the term of the agreement, Mr.
Phillips' employment with World Access is terminated (i) by World Access without
cause, as defined below, or (ii) by Mr. Phillips for good reason, as defined
below, Mr. Phillips will be entitled to an amount in cash equal to two times his
base annual salary, which will be paid in bi-weekly installments over a period
of 24 months, and to his then current life insurance, disability, medical,
dental and hospitalization benefits for a period of 24 months or such longer
period as may be provided by the terms of the appropriate program, all of Mr.
Phillips' stock options, warrants and stock appreciation rights granted on or
prior to the date of his employment agreement shall become fully vested and
immediately exercisable until the first anniversary of Mr. Phillips' termination
date, and all performance units granted to Mr. Phillips at any time prior to his
termination shall become fully vested.
Mr. Chmar's employment agreement provides for a base salary of $300,000 per
year. The agreement further provides that Mr. Chmar may be awarded an annual
bonus in the discretion of the World Access board pursuant to a bonus or
incentive plan or otherwise. The initial term of the agreement is three years,
with an automatic one-year extension on each anniversary of the agreement's
effective date unless either party to the agreement gives notice of termination.
If, during the term of the agreement, Mr. Chmar's employment with World Access
is terminated (i) by World Access without cause or (ii) by Mr. Chmar for good
reason, Mr. Chmar will be entitled to an amount in cash equal to his base annual
salary, which will be paid in bi-weekly installments over a period of 12 months,
and to his then current life insurance, disability, medical, dental and
hospitalization benefits for a period of 12 months or such longer period as
230
<PAGE> 244
may be provided by the terms of the appropriate program, all of Mr. Chmar's
stock options, warrants and stock appreciation rights granted on or prior to the
date of his employment agreement shall become fully vested and immediately
exercisable until the first anniversary of Mr. Chmar's termination date, and all
performance units granted to Mr. Chmar at any time prior to his termination
shall become fully vested.
Mr. Gergel's employment agreement provides for a base salary of $300,000
per year. The agreement further provides that Mr. Gergel may be awarded an
annual bonus in the discretion of our board pursuant to a bonus or incentive
plan or otherwise. The initial term of the agreement is three years, with an
automatic one-year extension on each anniversary of the agreement's effective
date unless either party to the agreement gives notice of termination. If,
during the term of the agreement, Mr. Gergel's employment with World Access is
terminated (i) by World Access without cause or (ii) by Mr. Gergel for good
reason following a change of control, Mr. Gergel will be entitled to an amount
in cash equal to his base annual salary, which will be paid in bi-weekly
installments over a period of 12 months, and to his then current life insurance,
disability, medical, dental and hospitalization benefits for a period of 12
months or such longer period as may be provided by the terms of the appropriate
program, all of Mr. Gergel's stock options, warrants and stock appreciation
rights granted on or prior to the date of his employment agreement shall become
fully vested and immediately exercisable until the first anniversary of Mr.
Gergel's termination date, and all performance units granted to Mr. Gergel at
any time prior to his termination shall become fully vested. Notwithstanding
these provisions, if Mr. Gergel terminates his employment for any reason, in
addition to receiving the same treatment with respect to his options, warrants,
rights and performance units, he shall be entitled to an amount of cash equal to
one-half of his base annual salary and the benefits described above for a period
of six months.
Mr. Yokley's employment agreement provides for a base salary of $300,000
per year. The agreement further provides that Mr. Yokley will be paid a signing
bonus equal to the costs he incurred to leave his previous job and may be
awarded an annual bonus in the discretion of the World Access board pursuant to
a bonus or incentive plan or otherwise. The initial term of the agreement is
three years, with an automatic one-year extension on each anniversary of the
agreement's effective date unless either party to the agreement gives notice of
termination. This notwithstanding, the term of Mr. Yokley's agreement cannot
expire until 24 months after a change in control of World Access as defined in
the agreement. If, during the term of the agreement, Mr. Yokley's employment
with World Access is terminated (i) by World Access without cause or (ii) by Mr.
Yokley for good reason, Mr. Yokley will be entitled to an amount in cash equal
to two times his base annual salary, which will be paid in bi-weekly
installments over a period of 12 months, and to his then current life insurance,
disability, medical, dental and hospitalization benefits for a period of 12
months or such longer period as may be provided by the terms of the appropriate
program, all of Mr. Yokley's stock options, warrants and stock appreciation
rights granted on or prior to the date of his employment agreement which have
vested or which would vest in the two years following Mr. Yokley's termination
date shall become fully vested and immediately exercisable until the first
anniversary of Mr. Yokley's termination date, and all performance units granted
to Mr. Yokley at any time prior to his termination shall become fully vested.
For the purposes of the employment agreements with each of Messrs.
Phillips, Chmar and Gergel, the following definitions apply:
A termination of employment is for cause if the employee has been convicted
of a felony or a felony prosecution has been brought against the employee or if
the termination is evidenced by a resolution adopted in good faith by two-thirds
(2/3) of the board that the employee (i) intentionally and continually failed
substantially to perform his reasonably assigned duties, other than a failure
resulting from the employee's incapacity due to physical or mental illness or
from the employee's assignment of duties that would constitute good reason,
which failure continued for a period of at least 30 days after a written notice
of demand for substantial performance has been delivered to the employee
specifying the manner in which the employee has failed substantially to perform
or (ii) intentionally engaged in illegal conduct or gross misconduct which
results in material economic harm to World Access.
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<PAGE> 245
Good reason means a good faith determination by the employee that any one
or more of the following events has occurred, without the employee's express
written consent:
- the assignment to the employee of any duties inconsistent with the
employee's position, authority, duties or responsibilities as in effect
immediately prior to the date of his employment agreement, or any other
action by World Access that results in a material diminution in such
position, authority, duties or responsibilities;
- a reduction by World Access in the employee's base salary, or a change in
the eligibility requirements or performance criteria under any bonus,
incentive or compensation plan, program or arrangement under which the
employee is covered immediately prior to his termination date which
adversely affects the employee;
- any failure to pay the employee any compensation or benefits to which he
is entitled within five days of the date due;
- World Access' requiring the employee to be based anywhere other than
within 50 miles of the employee's job location as of the date of his
employment agreement, except for reasonably required travel on World
Access' business which is not greater than such travel requirements prior
to the date of his employment;
- the taking of any action by World Access that would materially adversely
affect the physical conditions existing in or under which the employee
performs his employment duties;
- the insolvency or the filing of a petition for bankruptcy by World
Access;
- any purported termination of the employee's employment for cause by World
Access which does not comply with his terms of his employment agreement;
or
- any breach by World Access of any provision of an employment agreement.
A change in control shall have occurred if:
- a majority of the directors of World Access shall be persons other than
persons:
- for whose election proxies shall have been solicited by the board; or
- who are then serving as directors appointed by the board to fill
vacancies on the board caused by death or resignation, but not by
removal, or to fill newly-created directorships;
- a majority of the outstanding voting power of World Access shall have
been acquired or beneficially owned by any person (other than World
Access, a subsidiary of World Access or the employee) or any two or more
persons acting as a partnership, limited partnership, syndicate, or other
group acting in concert for the purpose of acquiring, holding or
disposing of voting stock of World Access, which group does not include
the employee; or
- there shall have occurred:
- a merger or consolidation of World Access with or into another
corporation other than (1) a merger or consolidation with a subsidiary
of World Access or (2) a merger or consolidation in which (a) the
holders of voting stock of World Access immediately prior to the merger
as a class continue to hold immediately after the merger at least a
majority of all outstanding voting power of the surviving or resulting
corporation or its parent and (b) all holders of each outstanding class
or series of voting stock of World Access immediately prior to the
merger or consolidation have the right to receive substantially the same
cash, securities or other property in exchange for their voting stock of
World Access as all other holders of such class or series;
- a statutory exchange of shares of one or more classes or series of
outstanding voting stock of World Access for cash, securities or other
property;
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<PAGE> 246
- the sale or other disposition of all or substantially all of the assets
of World Access, in one transaction or a series or transactions; or
- the liquidation or dissolution of World Access; unless more than 25% of
the voting stock, or the voting equity interest, of the surviving
corporation or the corporation or other entity acquiring all or
substantially all of the assets of World Access in the case of a merger,
consolidation or disposition of assets or of World Access or its
resulting parent corporation in the case of a statutory share exchange
is beneficially owned by the employee or a group that includes the
employee.
John D. Phillips and Armstrong International Telecommunications, Inc. have
entered into a letter agreement, pursuant to which Mr. Phillips has agreed not
to sell or transfer, directly or indirectly, any shares of World Access common
stock held by him without the prior written consent of Armstrong International
Telecommunications for so long as Armstrong International Telecommunications or
any of its affiliates remains a stockholder of World Access. The provisions of
the letter agreement terminate upon:
- Mr. Phillips' death or disability;
- any decision to remove, or to not reelect, Mr. Phillips as the Chief
Executive Officer of World Access in which at least 50% of the directors
elected by the holders of World Access Series C preferred stock (or, upon
conversion into or other acquisition of World Access common stock, by 50%
of the directors nominated, designated or elected by Armstrong
International Telecommunications, Epic Interests, Inc. and BFV
Associates, Inc., or their affiliates) vote in favor of such removal or
fail to vote in favor of such reelection;
- the fifth anniversary of the closing of our merger with FaciliCom in the
event that Mr. Phillips is no longer Chief Executive Officer of World
Access for any reason; and
- upon a change of control of World Access.
On November 29, 1999, we entered into an agreement with A. Lindsay Wallace,
President of our Equipment Group, that provides incentive compensation for Mr.
Wallace in the event of the sale of specified divisions of our Equipment Group.
This agreement provides that World Access will pay to Mr. Wallace:
- a cash payment equal to 0.75% of the gross consideration received by
World Access upon the sale of the NACT Switching Division;
- a cash payment equal to 0.75% of the gross consideration received by
World Access upon the sale of the Wireless Local Loop Division; and
- 0.5% of the gross consideration received by World Access upon the sale of
the Transport and Access Division.
This agreement also provides that all stock options granted to Mr. Wallace
under our 1991 Stock Option Plan and 1998 Incentive Equity Plan will become
fully vested upon the sale of the NACT Switching Division and the Transport and
Access Division, and those options may be exercised by Mr. Wallace at any time
until the one year anniversary of the termination of Mr. Wallace's employment
with World Access. Additionally, this agreement states that if Mr. Wallace's
employment with World Access is terminated as a direct result of the sale of one
of these divisions, World Access will continue to pay Mr. Wallace's current base
salary through the second anniversary of his termination date. World Access'
obligations under this agreement are conditioned upon Mr. Wallace remaining the
President of the Equipment Group through the closing of the sales of these
divisions, his assistance in facilitating these sales and his agreement to serve
as a full-time employee or consultant with the buyer of these divisions for a
period of six months following the closing date. This agreement may be revoked
at any time by the Chief Executive Officer of World Access, in his sole
discretion.
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<PAGE> 247
WORLD ACCESS' COMPENSATION COMMITTEE REPORT
This report sets forth information on the compensation and benefits
provided to World Access' Chief Executive Officer and other executive officers
of World Access during 1999 and has been prepared by the Compensation Committee
of World Access' board of directors.
Compensation philosophy. The Compensation Committee is currently comprised
of four non-employee directors. Among other things, the Compensation Committee
reviews and approves annual executive officer compensation. In general, the
compensation policies adopted by the Compensation Committee are designed to (i)
attract and retain executives capable of leading World Access to meet its
business objectives and (ii) motivate World Access executives to enhance
long-term stockholder value.
The annual compensation of Mr. Phillips, our Chairman and Chief Executive
Officer, and our other executive officers consists of a combination of base
salary, incentive bonuses and stock options. The Compensation Committee sets
base salaries for executive officers based principally on an assessment of World
Access' short and long-term goals and the specific responsibilities of each
officer. Information on individual performance is provided to the Compensation
Committee by our Chief Executive Officer. In addition to individual performance
against goals and responsibilities, the Compensation Committee is aware of
executive compensation practices at comparable companies (i.e., companies which
are generally of the same size in related industries). The Compensation
Committee uses this information only as a general reference, however, and not to
set specific salary amounts.
Incentive bonuses. Annually, the Compensation Committee establishes the
performance goals and range of bonuses under our Short-Term Incentive Plan for
Senior Executives which was approved by our stockholders in June 1999. The
performance goals for 1999 were tied to World Access achieving predefined levels
of:
- earnings per share;
- revenue;
- earnings before interest, taxes, depreciation and amortization; and
- common stock price appreciation. Each performance goal operates
independently, so achieving or failing to achieve results from one
measurement does not reflect the eligible bonus amounts awarded for
others.
Stock options. The stock option program is a long-term incentive plan for
executive officers and other key employees. The objectives of the program are to
align executive and stockholder long-term interests by creating a strong and
direct relationship between executive compensation and stockholder returns. The
Compensation Committee strongly believes that by providing those individuals who
have substantial responsibility for the management and growth of World Access
and the maximizing of stockholder returns with an opportunity to increase their
ownership of common stock, the best interests of stockholders and executives
will be more closely aligned. World Access stock options typically vest over
three to four years, which increases the long-term value of these awards.
The Compensation Committee's determination of the number of options to
award to an individual executive officer is made in a manner similar to that
described above with respect to the setting of salaries. In addition, in
determining the number of options to be granted to an individual, the
Compensation Committee takes into account the number of options already granted
to that individual and the value of those options.
Discussion of 1999 Chief Executive Officer compensation. Based on our
actual performance against Short-Term Incentive Plan goals in 1999, as well as
Mr. Phillips' ability to complete several key strategic initiatives during the
year, the Compensation Committee awarded Mr. Phillips an incentive bonus of $1.0
million. Key strategic initiatives completed by Mr. Phillips included:
- $50.0 million investment by The 1818 Fund III;
- acquisition of Comm/Net;
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<PAGE> 248
- FaciliCom merger;
- $75.0 million private placement by institutional investors;
- pending acquisition of Long Distance International; and
- pending monetization of the Company's equipment businesses. The
Compensation Committee also considered Mr. Phillips' continued progress
in establishing a broad, experienced management team, the efficient
integration of acquired businesses and the significant increase in the
Company's market capitalization during 1999.
Submitted by the Compensation
Committee
Stephen J. Clearman
John P. Imlay, Jr.
Carl E. Sanders
Dru A. Sedwick
WORLD ACCESS' COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
World Access' Compensation Committee consists of the four persons named as
signatories to the Compensation Committee Report above. There are no
Compensation Committee interlocks.
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<PAGE> 249
WORLD ACCESS STOCK PRICE PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
World Access common stock with the cumulative total return, including reinvested
dividends, of The Nasdaq Stock Market -- United States owned companies and
Nasdaq Telecommunications Stocks for the five years ended December 31, 1999. The
Nasdaq total returns were prepared by the Center for Research in Security Prices
at the University of Chicago.
<TABLE>
<CAPTION>
WORLD ACCESS NASDAQ (U.S.) NASDAQ (TELCOM)
------------ ------------- ---------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 300.00 141.33 130.91
1996 320.00 173.89 133.86
1997 955.00 213.07 195.75
1998 855.00 300.25 322.30
1999 770.00 542.43 561.27
</TABLE>
---------------
Assumes that the value of the investment in the World Access common stock and
each index was $100 on December 31, 1994, and that all dividends were
reinvested.
(1) World Access common stock
(2) Total Return Index for The Nasdaq Stock Market (U.S. Companies)
(3) Total Return Index for Nasdaq Telecommunications Stocks
Pursuant to Securities and Exchange Commission regulations, this
performance graph is not "soliciting material," is not deemed filed with the
Commission and is not to be incorporated by reference in any of World Access'
filings under the Securities Act or the Securities Exchange Act.
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
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<PAGE> 250
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH WORLD ACCESS' DIRECTORS,
OFFICERS AND STOCKHOLDERS
During 1999, World Access paid aggregate fees of approximately $215,900 to
JDP Aircraft II, Inc. for charter flight services provided to World Access. John
D. Phillips, World Access' Chairman and Chief Executive Officer, is the sole
shareholder and an officer of JDP Aircraft II.
In April 1999, World Access issued 50,000 shares of Series C preferred
stock to The 1818 Fund III for consideration of $50.0 million. Lawrence C.
Tucker, one of World Access' directors, is a co-manager of The 1818 Fund III.
World Access paid Brown Brothers Harriman & Co. $750,000 for advisory
services in connection with a $75.0 million private placement of World Access
common stock in December 1999 and $830,000 for advisory services in connection
with an $83.1 million private placement of World Access common stock in February
2000. Additionally, World Access paid Brown Brothers Harriman & Co.
approximately $1.6 million for advisory services in connection with the sale of
Telco Systems, Inc. in April 2000. Mr. Tucker is a General Partner of Brown
Brothers Harriman.
FaciliCom, with which World Access merged in December 1999, has
historically relied on its majority stockholder, Armstrong Holdings, Inc. for
the performance of services, including customer billing. In connection with the
FaciliCom merger, an affiliate of Armstrong Holdings received 309,002 shares of
World Access' Series C preferred stock, which represented approximately 20.0% of
World Access' voting common stock at December 31, 1999. In December 1999, World
Access entered into a two-year services agreement with Armstrong Holdings. The
terms of the agreement includes professional services billed at hourly rates and
data center services based on usage and disk storage space. World Access
believes that the terms of the agreements are competitive with similar services
offered in the industry.
In December 1999, World Access sold 4,713,128 shares of restricted common
stock for $75.0 million, or $15.91 per share, in a private transaction with a
group of institutional and sophisticated investors. Entities affiliated with
Geocapital Partners, entities affiliated with Gilbert Global Equity Partners,
and Zilkha Capital Partners were the purchasers of $20.0 million, $30.0 million,
and $13.0 million of World Access common stock, respectively, in this
transaction. Stephen J. Clearman, a general partner of Geocapital Partners,
Massimo Prelz Oltramonti, a Managing Director of Gilbert Global Equity Partners,
and John P. Rigas, a Managing Partner of Zilkha Capital Partners, are members of
the World Access board of directors.
ACCOUNTING EXPERTS
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
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<PAGE> 251
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles.
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.
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> 252
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 STAR merger agreement, the WorldxChange
merger agreement and the transactions contemplated by each merger agreement and
unanimously recommends that the stockholders of World Access vote for the
approval and adoption of the STAR merger agreement and the WorldxChange merger
agreement and the transactions contemplated by each merger agreement.
In addition, the board of directors of World Access unanimously approved,
recommended and declared advisable the amendments to the World Access amended
certificate of incorporation, the amendments to the World Access Directors'
Warrant Incentive Plan and a vote for the nominees for director named in this
joint proxy statement/prospectus.
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 merger and the WorldxChange merger.
Approval of Proposal 4 by the World Access stockholders to increase the number
of shares of common stock World Access is authorized to issue is required for
World Access to have sufficient authorized shares to complete both mergers.
World Access record date; stockholders entitled to vote. As of the close
of business on , 2000, 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. Other than
the Series C preferred stock, the World Access preferred stock is entitled to
vote on the approval and adoption of all of the proposals to be considered at
the special meeting on an as converted basis with the World Access common stock
voting together as a single class. The Series C preferred stock may vote with
the holders of World Access common stock on all of the proposals except the
election of directors.
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.......................................... -- --
Series E.......................................... 9,645 --
</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.
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<PAGE> 253
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
following table sets forth the vote required for approval of each of the
proposals to be considered at the World Access special meeting.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
PROPOSAL VOTE REQUIRED
---------------------------------------------------------------------------------------
<S> <C>
Proposals 1, 3, 7 and 8 - majority in voting power of the shares of World Access
voting stock entitled to vote and voting as a single
class.
---------------------------------------------------------------------------------------
Proposal 4 - majority in voting power of the shares of World Access
voting stock entitled to vote and voting as a single
class; and
- majority of the shares of World Access common stock
entitled to vote and voting as a single class.
---------------------------------------------------------------------------------------
Proposals 5 and 6 - 75% in voting power of the shares of World Access voting
stock entitled to vote and voting as a single class.
---------------------------------------------------------------------------------------
Proposal 9 - plurality in voting power of the shares of World Access
voting stock entitled to vote for the election of
directors and voting as a single class.
---------------------------------------------------------------------------------------
</TABLE>
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 (except
with respect to the election of directors) and the Series D 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 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 proposals
described herein other than the election of nominees for director 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 joint 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
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<PAGE> 254
thereunder will have discretion to vote on such matters in accordance with their
best judgment. Proxies voting against the proposals presented in this joint
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 joint 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 fiduciaries, and World
Access will reimburse such custodians, nominees and fiduciaries for reasonable
expenses incurred in connection therewith.
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<PAGE> 255
THE STAR SPECIAL MEETING
Date, time and place of the STAR special meeting.
, 2000
11:00 A.M., LOCAL TIME
223 EAST DE LA GUERRA
SANTA BARBARA, CALIFORNIA 93101
STAR board of directors' recommendations. The board of directors of STAR
approved the STAR merger agreement, the PT-1 asset sale agreement and the
transactions considered in both the STAR merger agreement and the PT-1 asset
sale agreement, and recommends that the stockholders of STAR vote:
- for the approval and adoption of the STAR merger agreement,
- for the approval and adoption of the PT-1 asset sale agreement, and
- for the approval of the transactions considered in both the STAR merger
agreement and the PT-1 asset sale agreement.
STAR record date. The board of directors of STAR has fixed ,
2000 as the date for determination of holders of STAR common stock, who will be
entitled to notice of the STAR special meeting and to vote at the STAR special
meeting.
Stockholders entitled to vote. As of the close of business on the STAR
record date, shares of STAR common stock were outstanding, held by
approximately holders of record. Each share of outstanding STAR
common stock is entitled to one vote.
Only STAR stockholders on the close of business on the STAR record date are
entitled to notice of the STAR special meeting and to vote at the STAR special
meeting, or vote on any adjournment or postponement of the STAR special meeting.
Quorum and vote required. Each STAR stockholder on the STAR record date is
entitled to cast one vote for each share of STAR common stock held by the STAR
stockholder. The holders of a majority of the shares of STAR common stock issued
and outstanding and entitled to vote at the STAR special meeting, who are
present in person or represented by proxy, will constitute a quorum for the
transaction of business at the STAR special meeting. The approval of the STAR
merger agreement, the PT-1 asset sale agreement and the transactions considered
in both the STAR merger agreement and the PT-1 asset sale agreement require the
affirmative vote of a majority of the outstanding shares of STAR common stock.
Shares of STAR common stock that are voted "for," "against" or "withheld"
at the STAR special meeting are treated as being present at such meeting for
purposes of establishing a quorum and are also treated as votes eligible to be
cast by the holders of STAR common stock present in person or represented by
proxy at the STAR special meeting and entitled to vote on the subject matter.
Abstentions are counted for purposes of determining both the presence 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 of a quorum for the transaction of business but will
not be counted for purposes of determining the number of votes cast on the
particular proposal that the broker has expressly not voted. Because adoption
and approval of the STAR merger agreement, the PT-1 asset sale agreement, and
the transactions considered in both the STAR merger agreement and the PT-1 asset
sale agreement, require the affirmative vote of a majority of outstanding shares
of STAR common stock, abstentions and broker non-votes will have the same effect
as negative votes.
Two of STAR's stockholders holding a total of [1%] of the outstanding
common stock of STAR as of the STAR record date have agreed to vote in favor of
the STAR merger.
242
<PAGE> 256
Security ownership by STAR directors, executive officers and their
affiliates. As of the close of business on the STAR record date, directors and
executive officers of STAR and their respective affiliates were deemed to be the
owners of shares of STAR common stock representing approximately % of the
outstanding common stock of STAR.
Solicitation and revocability of proxies. This joint proxy
statement/prospectus is being provided to holders of STAR common stock in
connection with the solicitation of proxies by the board of directors of STAR
for use at the STAR special meeting. All shares of STAR common stock entitled to
vote and represented at the STAR special meeting by properly executed proxies
received before or at the meeting and not duly and timely revoked, will be voted
at the meeting pursuant to the instructions on the proxies. If the proxies do
not have instructions, the proxies will be voted for the approval and adoption
of the STAR merger agreement, the PT-1 asset sale agreement and the transactions
considered in both the STAR merger agreement and the PT-1 asset sale agreement.
If any other matters are properly presented for consideration at the STAR
special meeting or any adjournment or postponement of the STAR special meeting,
including the consideration of a motion to adjourn or postpone the STAR special
meeting to another time and/or place, the persons named in the enclosed form of
proxy will have the right to vote on such matters. However, proxies voting
against the proposals presented in this joint proxy statement/prospectus may not
be voted for an adjournment or postponement of the STAR special meeting.
Any proxy given pursuant to this solicitation may be revoked by the
stockholder giving it any time before it is voted. Proxies may be revoked by:
- filing with the Secretary of STAR at or before the taking of the vote at
the STAR special meeting a later dated written notice revoking the proxy;
- executing a later-dated proxy for the same shares and delivering it to
the Secretary of STAR before the vote is taken at the STAR special
meeting; or
- attending the STAR special meeting and voting in person. However
attendance at the STAR 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 to STAR
Telecommunications, Inc., 223 East De La Guerra Street, Santa Barbara, CA 93101,
Attention: Secretary, or hand delivered to the Secretary of STAR at or before
the taking of the vote at the STAR special meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this joint proxy statement/prospectus to stockholders of World Access,
will be paid by World Access. In addition to solicitation by mail, proxies may
be solicited by directors, officers and employees of STAR in person or by
telephone, telegram or other means. Directors, officers and employees who aid in
the solicitation will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses for such solicitation. Arrangements will also
be made with custodians, nominees and fiduciaries for forwarding proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and STAR will reimburse such custodians,
nominees and fiduciaries for reasonable expenses for such solicitation.
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
243
<PAGE> 257
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 (i) 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
(ii) 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.
STAR STOCKHOLDER PROPOSALS
Proposals of STAR stockholders submitted pursuant to Rule 14a-8 of the
Exchange Act for inclusion in the proxy statement for the 2000 annual meeting of
stockholders of STAR must be received by STAR at its principal executive offices
at 223 East De La Guerra Street, Santa Barbara, California 93101 a reasonable
time before STAR begins to print and mail the proxy materials for its 2000
annual meeting of stockholders.
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.
OTHER MATTERS THAT MAY COME BEFORE THE STAR SPECIAL MEETING
The STAR board does not know of any other matters which may come before the
STAR special meeting. If any other matters are properly presented at the STAR
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 joint proxy
statement/prospectus, including the material federal income tax consequences of
the mergers, will be passed upon for World Access by Long Aldridge & Norman LLP,
Atlanta, Georgia. Riordan & McKinzie, a Professional Corporation, Los Angeles,
California, will opine on matters with respect to the STAR merger for STAR,
including STAR's corporate existence and good standing and other matters as may
be reasonably requested by World Access. With respect to certain matters
concerning Delaware law, STAR will rely on Richards, Layton & Finger, a
Professional Corporation, Wilmington, Delaware.
244
<PAGE> 258
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
FACILICOM INTERNATIONAL, INC.
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of March 31, 2000
(Unaudited), September 30, 1999 and 1998.................. F-3
Consolidated Statements of Operations for the six months
ended March 31, 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 six months ended March
31, 2000 (Unaudited) and each of the three years in the
period ended September 30, 1999........................... F-5
Consolidated Statements of Cash Flows for the six months
ended March 31, 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 Shareholders'
Funds for the three months ended March 31, 2000
(Unaudited) and each of the three years in the period
ended December 31, 1999................................... F-31
Consolidated Statements of Cash Flows 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-32
Notes to Consolidated Financial Statements.................. F-33
</TABLE>
F-1
<PAGE> 259
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> 260
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------- --------------------
2000 1999 1998
----------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,553 $ 38,030 $ 20,917
Accounts receivable, net of allowance of $13,912 at March
31, 2000 (unaudited) and $9,590 and $10,690 at September
30, 1999 and 1998, respectively......................... 92,172 54,991 38,966
Prepaid expenses and other current assets................. 26,217 8,224 3,825
--------- --------- --------
Total current assets............................... 127,942 101,245 63,708
Equipment and leasehold improvements, net................... 195,923 114,765 49,697
Intangible assets........................................... 93,521 12,194 --
Other assets................................................ 5,126 6,798 6,724
--------- --------- --------
Total assets....................................... $ 422,512 $ 235,002 $120,129
========= ========= ========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accrued network costs..................................... $ 145,426 $ 83,993 $ 49,796
Accounts payable.......................................... 27,749 13,770 14,144
Other accrued liabilities................................. 43,213 16,333 15,377
Payable to related parties................................ 1,596 -- 468
Deferred revenue.......................................... 4,493 3,941 686
Current portion of long-term debt and subordinated
debentures.............................................. 162,012 9,799 13,421
Current portion of capital lease obligations.............. 12,130 10,582 6,851
--------- --------- --------
Total current liabilities.......................... 396,619 138,418 100,743
Long-term debt.............................................. 42,467 100,324 75,287
Subordinated debentures..................................... -- -- 1,182
Capital lease obligations................................... 28,967 29,395 22,844
Other long-term liabilities................................. 6,248 1,918 2,397
--------- --------- --------
Total liabilities.................................. 474,301 270,055 202,453
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 March 31, 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 -- 50,000 at March 31, 2000 (unaudited)
and zero at September 30, 1999 and 1998; liquidation
preference of $1,000 per share........................ 48,658 -- --
Common Stock, no par value; Authorized
shares -- 100,000,000, Issued and outstanding 37,057,182
at March 31, 2000 and -- 36,965,911 at September 30,
1999 and 28,576,552 at September 30, 1998............... 99,378 99,047 10,297
Notes receivable from shareholders........................ (1,888) (1,474) --
Accumulated other comprehensive loss...................... (6,860) (2,405) (3,529)
Accumulated deficit....................................... (221,077) (160,221) (96,368)
--------- --------- --------
Total shareholders' deficit........................ (51,789) (35,053) (89,593)
--------- --------- --------
Total liabilities and shareholders' deficit........ $ 422,512 $ 235,002 $120,129
========= ========= ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 261
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $291,600 $190,758 $421,580 $398,867 $331,660
Operating expenses:
Cost of services.......................... 230,207 150,839 328,334 287,312 235,027
Selling, general and administrative....... 84,585 57,135 124,112 114,897 113,459
Depreciation and amortization............. 21,825 7,679 17,705 12,332 8,677
-------- -------- -------- -------- --------
Total operating expenses.......... 336,617 215,653 470,151 414,541 357,163
Operating loss.............................. (45,017) (24,895) (48,571) (15,674) (25,503)
Interest expense............................ 13,528 7,802 16,883 11,947 8,682
Other expense, net.......................... 727 397 648 1,378 3,366
-------- -------- -------- -------- --------
Loss before minority interest............... (59,272) (33,094) (66,102) (28,999) (37,551)
Minority interest........................... -- 1,071 2,251 1,546 473
-------- -------- -------- -------- --------
Net loss.................................... $(59,272) $(32,023) $(63,851) $(27,453) $(37,078)
Preferred stock dividends................... 1,584 -- 2 7 13
-------- -------- -------- -------- --------
Net loss applicable to common
stockholders........................... $(60,856) $(32,023) $(63,853) $(27,460) $(37,091)
======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 262
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 ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS DEFICIT
------- ------- ------- ------- ---------- ------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996...... 82 $ 36 -- -- 27,572,000 $ 196 $ -- $ (31,817)
Repurchase of Series A Cumulative
Preferred Stock................... (59) (29) -- -- -- -- -- --
Dividends on Series A Cumulative
Preferred Stock................... -- -- -- -- -- -- -- (13)
Exercise of options/warrants....... -- -- -- -- 162,000 62 -- --
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- -- (37,078)
Foreign currency translation
adjustment........................ -- -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- ------ ------- ---------
BALANCE AT SEPTEMBER 30, 1997...... 23 7 27,734,000 258 -- (68,908)
Dividends on Series A
Preferred Stock.................... -- -- -- -- -- -- -- (7)
Issuance of Common Stock........... -- -- -- -- 788,127 10,000 -- --
Exercise of options/warrants....... -- -- -- -- 54,425 39 -- --
Comprehensive loss:
Net loss........................... -- -- -- -- -- -- -- (27,453)
Foreign currency translation
adjustment........................ -- -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- ------ ------- ---------
BALANCE AT SEPTEMBER 30, 1998...... 23 7 -- -- 28,576,552 10,297 -- (96,368)
Repurchase of Series A
Cumulative Preferred Stock......... (23) (7) -- -- -- -- -- --
Dividends on Series A
Preferred Stock.................... -- -- -- -- -- -- -- (2)
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........................... -- -- -- -- -- -- -- (63,851)
Foreign currency translation
adjustment........................ -- -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- ------- ------- ---------
BALANCE AT SEPTEMBER 30, 1999...... 30,000 $30,000 -- -- 36,965,911 $99,047 $(1,474) $(160,221)
------ ------- ------- ------- ---------- ------- ------- ---------
Dividends on Series A
Preferred Stock (unaudited)....... -- -- -- -- -- -- -- (1,584)
Issuance of Series B
Cumulative Preferred Stock, net of
issuance cost of $1,342
(unaudited)..................... -- -- 50,000 48,658 -- -- -- --
Exercise of options/warrants
(unaudited)....................... -- -- -- -- 91,271 331 -- --
Notes receivable for sales of
common stock (unaudited).......... -- -- -- -- -- -- (414) --
Comprehensive loss:
Net loss (unaudited)............... -- -- -- -- -- -- -- (59,272)
Foreign currency translation
adjustment (unaudited)............ -- -- -- -- -- -- -- --
Total comprehensive loss.....
------ ------- ------- ------- ---------- ------- ------- ---------
BALANCE AT MARCH 31, 2000
(UNAUDITED)....................... 30,000 $30,000 50,000 $48,658 37,057,182 $99,378 $(1,888) $(221,077)
====== ======= ======= ======= ========== ======= ======= =========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE TOTAL
INCOME SHAREHOLDERS'
(LOSS) DEFICIT
------------- -------------
<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1996...... $ (434) $(32,019)
Repurchase of Series A Cumulative
Preferred Stock................... -- (29)
Dividends on Series A Cumulative
Preferred Stock................... -- (13)
Exercise of options/warrants....... -- 62
Comprehensive loss:
Net loss........................... -- (37,078)
Foreign currency translation
adjustment........................ 197 197
--------
Total comprehensive loss..... (36,881)
------- --------
BALANCE AT SEPTEMBER 30, 1997...... (237) (68,880)
Dividends on Series A
Preferred Stock.................... -- (7)
Issuance of Common Stock........... -- 10,000
Exercise of options/warrants....... -- 39
Comprehensive loss:
Net loss........................... -- (27,453)
Foreign currency translation
adjustment........................ (3,292) (3,292)
--------
Total comprehensive loss..... (30,745)
------- --------
BALANCE AT SEPTEMBER 30, 1998...... (3,529) (89,593)
Repurchase of Series A
Cumulative Preferred Stock......... -- (7)
Dividends on Series A
Preferred Stock.................... -- (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)
Foreign currency translation
adjustment........................ 1,124 1,124
--------
Total comprehensive loss..... (62,727)
------- --------
BALANCE AT SEPTEMBER 30, 1999...... $(2,405) $(35,053)
------- --------
Dividends on Series A
Preferred Stock (unaudited)....... -- (1,584)
Issuance of Series B
Cumulative Preferred Stock, net of
issuance cost of $1,342
(unaudited)..................... -- 48,658
Exercise of options/warrants
(unaudited)....................... -- 331
Notes receivable for sales of
common stock (unaudited).......... -- (414)
Comprehensive loss:
Net loss (unaudited)............... -- (59,272)
Foreign currency translation
adjustment (unaudited)............ (4,455) (4,455)
--------
Total comprehensive loss..... (63,727)
------- --------
BALANCE AT MARCH 31, 2000
(UNAUDITED)....................... $(6,860) $(51,789)
======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 263
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
--------------------- ----------------------------------
2000 1999 1999 1998 1997
--------- --------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss........................................ $ (59,272) $ (32,027) $ (63,851) $ (27,453) $ (37,078)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for bad debt........................ 10,954 8,406 15,202 15,170 22,348
Depreciation and amortization................. 21,826 7,679 17,705 12,332 8,677
Deferred revenue.............................. (1,654) 1,529 3,255 (2,275) 2,714
Impairment of long-lived assets............... - - - - 659
Minority interest............................. - (1,080) (2,251) (1,546) (473)
Changes in operating assets and liabilities:
Accounts receivable......................... (19,532) (12,418) (31,227) (391) (48,411)
Receivables from related parties............ - - (1,448) (1,864) 1,317
Prepaid expenses and other assets........... (1,766) 320 (4,740) (5,551) (3,478)
Accrued network costs....................... 42,972 15,407 34,629 (12,255) 21,200
Accounts payable............................ (3,926) 13,474 (1,031) (1,584) 12,136
Other accrued liabilities................... (13,946) 921 2,208 (6,318) 13,183
--------- --------- ---------- --------- ---------
Net cash provided by (used in)
operating activities................. (24,344) 2,210 (31,549) (31,735) (7,206)
INVESTING ACTIVITIES
Acquisition of equipment and leasehold
improvements.................................. (2,629) (16,928) (27,633) (11,990) (10,871)
Acquisition of ACC Europe, net of cash
acquired...................................... (55,745) - - - -
--------- --------- ---------- --------- ---------
Net cash used in investing activities........... (58,374) (16,928) (27,633) (11,990) (10,871)
FINANCING ACTIVITIES
Proceeds from revolving credit agreement........ 187,099 111,516 283,485 256,535 154,961
Repayments on revolving credit agreement........ (197,353) (114,710) (278,407) (255,885) (128,598)
Proceeds from issuance of long-term debt........ 25,000 - - 55,152 -
Repayment of long-term debt, subordinated
debentures, loans payable and capital
leases........................................ (9,163) (18,053) (30,433) (5,299) (16,602)
Payment of dividends on Preferred Stock......... - - (2) (7) (11)
Proceeds from the issuance of Preferred Stock... 48,658 - 30,000 - -
Proceeds from issuance of Common Stock.......... - 41,278 71,648 10,039 62
Repurchase of Preferred Stock................... - - (7) - (30)
Proceeds from issuance of subsidiary common
stock to minority holders..................... - - - - 9,001
--------- --------- ---------- --------- ---------
Net cash provided by financing activities....... 54,241 20,031 76,284 60,535 18,783
Effect of exchange rate changes on cash......... - - 11 (219) 197
--------- --------- ---------- --------- ---------
Net increase (decrease) in cash................. (28,477) 5,313 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...... $ 9,553 $ 26,230 $ 38,030 $ 20,917 $ 4,326
========= ========= ========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest...................................... $ 7,749 $ 5,215 $ 9,248 $ 6,686 $ 7,176
Income taxes.................................. - - 2 8 102
NON-CASH INVESTING AND FINANCING ACTIVITIES
Assets acquired by incurring capital lease
obligations or long-term debt................. 13,714 4,075 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> 264
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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 for the next twelve months. 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 March 31, 2000 and for the six
months ended March 31, 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 March 31, 2000 are not necessarily indicative of
results for the entire year or future periods.
F-7
<PAGE> 265
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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 six months ended
March 31, 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> 266
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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 $11,278,000, and $7,717,000 for the six
months ended March 31, 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> 267
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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
F-10
<PAGE> 268
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
the combined 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 March 31, 2000 the outstanding
balance of such accounts for which WorldxChange is contingently liable was
approximately $691,902. 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,
MARCH 31, -------------------
2000 1999 1998
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Telecommunications equipment and cables............... $207,975 $125,190 $ 56,091
Computer equipment and software....................... 32,854 15,365 9,985
Office furniture, equipment and vehicles.............. 13,327 9,745 9,335
Leasehold improvements................................ 7,344 3,147 1,614
Equipment in progress................................. 448 10,266 4,932
-------- -------- --------
261,948 163,713 81,957
Accumulated depreciation and amortization............. (66,025) (48,948) (32,260)
-------- -------- --------
$195,923 $114,765 $ 49,697
======== ======== ========
</TABLE>
F-11
<PAGE> 269
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
Telecommunications equipment and cables include eight Indefeasible Rights
of Use ("IRU") 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 March 31, 2000,
WorldxChange had IRUs in cable systems amounting to $52,255,000 and ownership
interests in international cables amounting to $16,720,000. 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,
MARCH 31, ---------------
2000 1999 1998
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Deposits.................................................. $3,436 $4,240 $3,417
Debt issuance costs, net of accumulated amortization of
$2,272, $1,686 and $97 at March 31, 2000, September 30,
1999 and 1998, respectively............................. 982 1,718 3,307
Offering Costs............................................ -- 652 --
Other..................................................... 708 188 --
------ ------ ------
$5,126 $6,798 $6,724
====== ====== ======
</TABLE>
Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Accrued taxes.......................................... $16,482 $ 3,734 $ 1,766
Accrued commissions.................................... 1,169 1,575 2,311
Accrued compensation and benefits...................... 6,594 3,144 3,384
Accrued settlements (Note 11).......................... 899 1,211 2,059
Accrued interest....................................... 4,546 634 901
Other.................................................. 13,463 6,035 4,956
------- ------- -------
$43,213 $16,333 $15,377
======= ======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, --------------------------
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> 270
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, --------------------------
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.......... 20,295 -- --
Term loan due October 2000, with principal
reductions of $300,000 due monthly and interest
payable monthly at prime plus 5.00% (14.00% at
March 31, 2000) and prime plus 6.75% (15.00% at
September 30, 1999 and 1998, respectively)...... 4,700 4,600 5,125
Loan and security agreement payable upon
collections of accounts receivable with interest
payable monthly at prime rate plus 1.75% (10.75%
at March 31, 2000) and prime plus 2.75% (11.00%
at September 30, 1999 and 1998 respectively).... 16,544 24,362 21,888
Term loan due February 2001 with interest payable
at a per annum rate equal to 11.0%.............. 25,000 -- --
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%.............. 6,855 7,521 --
Notes payable due June 2004 to March 2005, with
aggregate monthly principal and interest
payments at 12% due in monthly installments of
$299,064 at March 31, 2000 and $197,222 at
September 30, 1999.............................. 14,214 8,693 --
Note payable due May 2004, with principal and
interest payments payable in monthly
installments of $322,632 at 11.5%............... 12,569 13,742 --
Note payable due August 2004, with principal and
interest payments payable in monthly
installments of $73,235 at 11.5%................ 2,988 3,247 --
Note payable due June 2004, with principal and
interest payments payable in monthly
installments of $56,777 at 10%.................. 2,351 2,568 --
Note Payable due June 2002 with quarterly payments
of $67,000...................................... 604 -- --
</TABLE>
F-13
<PAGE> 271
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, --------------------------
2000 1999 1998
----------- --------------- --------
(UNAUDITED)
<S> <C> <C> <C>
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%.......................................... 159 190 429
---------- ---------- --------
204,479 110,123 83,642
Less current portion.............................. (162,012) (9,799) (8,355)
---------- ---------- --------
$ 42,467 $ 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 $16.5 million at March 31, 2000, and $10.5 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 March 31, 2000 had an outstanding balance of approximately $4.7
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 March 31,
2000, the outstanding balance on the bridge loan was $25.0 million and $5.0
million was available for borrowing. In total, as of March 31, 2000,
WorldxChange had $46.2 million borrowed under the credit facility and $15.5
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 March 31, 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.
As of September 30, 1998 and 1999, and March 31, 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
F-14
<PAGE> 272
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 March 31, 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 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 March 31, 2000 and September 30,
1999, the outstanding balance related to this agreement was $6,855,030 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 March 31, 2000 and September
30, 1999, the outstanding balances related to this agreement were $14,213,922
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
March 31, 2000 and September 30, 1999, the aggregate outstanding balance were
approximately $15,556,864 and $16,989,000, respectively, which was comprised of
two separate notes with balances outstanding of $12,568,751 and $2,988,113 at
March 31, 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, which are inclusive of all operation and maintenance
fees. At March 31, 2000 and September 30, 1999, the outstanding balances related
to this agreement were $2,351,114 and $2,568,000 respectively.
F-15
<PAGE> 273
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
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 $4,059,000,
$4,783,000, and $3,129,000, respectively, for the six months ended March 31,
2000 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 March 31, 2000 and September 30, 1999 and 1998
assets acquired under these leases have an original cost of $51,894,739,
$42,958,000 and $40,099,000, respectively, and accumulated amortization of
$28,713,089, $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> 274
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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 March
31, 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 March
31, 2000, $7.9 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> 275
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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> 276
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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> 277
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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).............. (618,581) 618,581 $10.00-$13.00 11.64
Exercises (unaudited)........... -- (91,271) $ .42-$10.00 3.78
Cancellations (unaudited)....... 304,201 (304,201) $ 5.00-$11.00 9.33
----------- ----------- ------------- -------
Balance as of March 31, 2000
(unaudited)..................... 3,570,701 3,965,531 $ 0.42-$13.00 $ 7.34
=========== =========== ============= =======
</TABLE>
The following table summarizes significant ranges of outstanding and
exercisable options at March 31, 2000:
<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>
$0.42-$ 5.00 1,366,477 3.88 $ 2.06 1,312,370 $ 1.94
$7.00-$ 9.00 291,597 7.56 8.12 160,706 7.93
$10.00 1,591,251 8.69 10.00 538,964 10.00
$11.00-$13.00 716,206 9.55 11.20 43,623 11.00
--------- ---- ------ --------- ------
3,965,531 7.10 $ 7.34 2,055,663 $ 4.71
========= ==== ====== ========= ======
</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 six months ended March 31, 2000.
F-20
<PAGE> 278
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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 ("CPUC") issued an
order, which became effective in October 1997, revoking WorldxChange's
Certificate of Public Convenience and Necessity (the
F-21
<PAGE> 279
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
"CPCN") in California and imposing certain other fines and penalties against
WorldxChange based on the CPUC'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 CPCN, 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 CPUC directives; (ii) reimburse the CPUC 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 $899,000 remains payable at March 31, 2000.
Under the CPUC's order, the suspension of WorldxChange's CPCN and the other
sanctions and fines imposed on WorldxChange are binding on any successor of
WorldxChange. WorldxChange may apply to the CPUC for reinstatement of the CPCN
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> 280
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 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>
March 31, 2000, and for the six months then ended
(in thousands)
Sales to unaffiliated customers.................... $175,778 $25,829 $ 89,993 $ 291,600
Intersegment revenues.............................. 20,085 2,665 6,313 29,063
-------- ------- -------- ----------
Segment revenues................................... 195,863 28,494 96,306 320,663
Depreciation and amortization...................... 9,763 1,335 10,728 21,826
Segment operating loss............................. (19,424) (5,629) (19,964) (45,017)
Segment assets..................................... 611,513 27,306 387,056 1,025,875
Expenditures for long-lived assets................. 2,235 158 236 2,629
Reconciliations:
NET LOSS
Total operating loss for reportable segments....... $ (45,017)
Interest expense................................... (13,528)
Other expense, net................................. (727)
----------
Total consolidated net loss................ $ (59,272)
==========
ASSETS
Total assets for reportable segments............... $1,025,875
Elimination of intercompany receivables............ (593,363)
----------
Total consolidated assets.................. $ 432,512
==========
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999 and for the six months then ended
(in thousands)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers.................... $147,398 $29,621 $ 13,739 $ 190,758
Intersegment revenues.............................. 21,493 7,052 3,708 32,253
-------- ------- -------- ----------
Segment revenues................................... 168,891 36,673 17,447 223,011
Depreciation and amortization...................... 6,132 823 723 7,678
Segment operating loss............................. (17,164) (1,928) (5,803) (24,895)
Segment assets..................................... 287,196 21,591 45,896 354,684
Expenditures for long-lived assets................. 8,988 4,668 3,272 16,928
Reconciliations:
NET LOSS
Total operating loss for reportable segments......... $ (24,895)
Interest expense................................... (7,802)
Other expense, net................................. (397)
Minority interest.................................. 1,071
----------
Total consolidated net loss................ $ (32,023)
==========
</TABLE>
F-23
<PAGE> 281
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
Total assets for reportable segments............... $ 354,683
Elimination of intercompany receivables............ (211,532)
----------
Total consolidated assets.................. $ 143,152
==========
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)
==========
</TABLE>
F-24
<PAGE> 282
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C> <C> <C>
Total assets for reportable segments............... $ 225,266
Elimination of intercompany receivables............ (105,137)
----------
Total consolidated assets.................. $ 120,129
==========
September 30, 1997, and for the year then ended
(in thousands)
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:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
--------------- ---------------------------
2000 1999 1999 1998 1997
------ ------ ------- ------- -------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE BY REGIONS:
United States $171.5 $144.3 $330.0 $318.1 $287.4
North America (other) 4.3 3.1 7.5 3.7 4.3
------ ------ ------ ------ ------
North America total 175.8 147.4 337.5 321.8 291.7
Pacific Rim 25.8 29.6 55.6 58.4 24.4
Europe 90.0 13.8 28.5 18.7 15.6
------ ------ ------ ------ ------
Total $291.6 $190.8 $421.6 $398.9 $331.7
====== ====== ====== ====== ======
</TABLE>
F-25
<PAGE> 283
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
--------------- ---------------------------
2000 1999 1999 1998 1997
------ ------ ------- ------- -------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE BY CUSTOMERS:
Carrier $116.8 85.9 $186.9 $166.1 $163.3
Residential 124.6 75.9 185.3 161.1 116.9
Operator Services 6.7 12.9 22.9 41.1 28.7
Commercial 43.5 16.1 26.5 30.6 22.8
------ ------ ------ ------ ------
Total $291.6 $190.8 $421.6 $398.9 $331.7
====== ====== ====== ====== ======
</TABLE>
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.
F-26
<PAGE> 284
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO MARCH 31, 2000
AND FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 2000 IS UNAUDITED)
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%.
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> 285
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/ LAUER /s/ KARLIK
------------------------------ ------------------------------
Lauer Karlik
</TABLE>
F-28
<PAGE> 286
TELDAFAX GROUP
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN DM '000)
<TABLE>
<CAPTION>
DECEMBER, 31
MARCH 31, -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and equivalents...................................... 104,361 178,287 159,011
Accounts receivable, less allowance for doubtful accounts
of DM 736 as of March 31, 2000 (unaudited) and DM 1,128
and DM 3,115 as of December 31, 1999 and 1998,
respectively........................................... 78,012 80,260 63,853
Inventories............................................... 2,672 4,129 68
Prepaid expenses and other current assets................. 48,869 29,422 7,843
Total current assets.............................. 233,914 292,098 230,775
Equipment and leasehold improvements, net................... 139,730 137,929 67,355
Intangible assets........................................... 28,476 16,451 13,624
Loan to related parties..................................... 1,411 1,411 --
Deferred tax assets, net.................................... 6,680 3,255 --
Other assets................................................ 12,629 4,027 815
------- ------- -------
Total assets...................................... 422,840 455,171 312,569
======= ======= =======
Current liabilities:
Accounts payable.......................................... 167,046 196,041 90,699
Accrued expenses.......................................... 14,327 11,353 12,094
Current portion of long-term debt......................... 940 1,553 --
Current portion of capital lease obligations.............. 13,599 13,761 4,818
------- ------- -------
Total current liabilities......................... 195,912 222,708 107,611
Long-term debt.............................................. 1,558 1,572 --
Capital lease obligations................................... 41,250 44,251 10,076
Deferred tax liabilities.................................... -- -- 2,794
Other long-term liabilities................................. 714 721 753
------- ------- -------
Total long-term liabilities....................... 43,522 46,544 13,623
Minority interests.......................................... (1,122) (160) --
Shareholders' equity:
Common stock, Eur 2,60 as of March 31, 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 March 31, 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......................................... (3,283) (1,732) 6,405
------- ------- -------
Total shareholders' equity........................ 184,528 186,079 191,335
------- ------- -------
Total liabilities and shareholders' equity........ 422,840 455,171 312,569
======= ======= =======
</TABLE>
F-29
<PAGE> 287
TELDAFAX GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN DM '000, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1. Q. 2000 1. Q. 1999 1999 1998 1997
---------- ---------- ---------- ---------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................................. 166,773 168,743 611,018 263,050 32,271
Cost of services...................... (148,631) (135,022) (548,110) (202,359) (31,085)
Gross profit.......................... 18,142 33,721 62,908 60,691 1,186
Sales expenses........................ (15,734) (11,650) (50,716) (31,417) (3,434)
General administration expenses....... (7,731) (1,236) (17,723) (8,570) (2,797)
Other operating income................ 376 155 791 327 76
Other operating expenses.............. (1,107) (2,069) (9,625) (2,969) (1,448)
Operating income (loss)............... (6,054) 18,921 (14,365) 18,062 (6,417)
Financial result...................... 280 831 764 425 (1,104)
Taxes................................. 2,965 (9,165) 7,009 (9,713) 1,667
Minority interests.................... 1,258 10 1,336 -- --
Net income (loss)..................... (1,551) 10,597 (5,256) 8,774 (5,854)
Income (loss) per Common Share from
Continuing Operations:
Basic and Diluted................... (0.05) 0.31 (0.16) 0.48 (5.16)
Weighted Average Shares Outstanding:
Basic and Diluted................... 33,828,600 33,828,600 33,828,600 18,189,033 1,133,525
</TABLE>
F-30
<PAGE> 288
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................ (1,551) (1,551)
---------- ------- ------ ------ ------ -------
BALANCE AT MARCH 31, 2000.......... 33,828,600 172,024 16,121 -- (3,617) 184,528
========== ======= ====== ====== ====== =======
</TABLE>
F-31
<PAGE> 289
CONSOLIDATED STATEMENTS OF CASH FLOWS
TELDAFAX GROUP
(ALL AMOUNTS IN DM '000)
<TABLE>
<CAPTION>
1. Q. 2000 1. Q. 1999 1999 1998 1997
---------- ---------- -------- -------- -------
Unaudited Unaudited
<S> <C> <C> <C> <C> <C>
Net income (loss)...................................... (1,551) 10,597 (5,256) 8,774 (5,854)
Minority interests..................................... (1,258) (10) (1,336) -- --
Amortization and depreciation.......................... 10,617 6,407 33,630 18,086 5,040
Loss on the sale of property, plant and equipment...... 4 -- 3,800 6 --
Decrease (increase) in deferred tax assets............. (3,425) -- (3,255) -- --
Increase (decrease) in deferred tax liabilities........ -- -- (2,794) -- --
-------- -------- -------- -------- -------
4,387 16,994 24,789 26,866 (814)
-------- -------- -------- -------- -------
Decrease (increase) in accounts receivable trade, net
of bad debts......................................... 2,248 (39,170) (16,407) (59,817) (2,759)
Increase (decrease) in inventories..................... 1,457 -- (4,061) -- --
Decrease (increase) in prepaid expenses and other
current assets....................................... (19,447) (12,329) (21,579) (8,376) --
Decrease (increase) in other assets.................... (8,602) -- (3,112) 130 --
Increase (decrease) in accounts payable................ (28,995) 30,678 105,342 48,856 7,205
Increase (decrease) in other accrued liabilities....... 2,974 12,046 5,469 34,164 3,091
Increase (decrease) in tax provisions.................. -- 9,799 (6,210) 6,179 31
Increase (decrease) in provision for deferred taxes.... -- (179) -- (60) 2,854
Decrease (increase) in deferred taxes from loss
carryforwards........................................ -- -- -- 4,525 (4,525)
Increase (decrease) in other long-term liabilities..... (7) 3,869 927 2,121 (1,674)
Adjustment for effects of acquisition of
subsidiaries......................................... 341 -- 4,472 -- --
-------- -------- -------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES................... (45,644) 21,708 89,630 54,588 3,409
-------- -------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... (9,485) (14,256) (110,397) (65,796) (30,718)
Acquisitions........................................... (15,000) (30) (4,757) (350) --
-------- -------- -------- -------- -------
(24,485) (14,286) (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....................................... (627) -- -- (6) (86)
Proceeds from issuance of debt......................... -- 22 3,125 (9,519) 9,519
Payments on capital lease obligations.................. (3,163) -- -- (12,066) --
Proceeds from long-term accounts payable............... -- 7,664 43,118 10,076 --
Payments on other long-term liabilities................ (7) (6) (32) (64) --
Other proceeds from paid-in capital.................... -- -- -- -- 3,663
Proceeds from issuance of other long-term debt......... -- -- -- -- 10,546
-------- -------- -------- -------- -------
(3,797) 7,680 44,800 163,540 33,353
-------- -------- -------- -------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (73,926) 15,102 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............. 104,361 174,113 178,287 159,011 7,029
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: 10,521 502 26,812 5,468 1,106
Interest............................................. 797 357 3,415 5,425 1,106
Income taxes......................................... 9,724 145 23,397 43 --
NON-CASH INVESTING AND FINANCING ACTIVITIES............ 515 8,182 57,695 10,821 9,519
Assets acquired by incurring capital lease obligations
or................................................... 525 8,182 56,086 20,340 --
long term debt......................................... (10) -- 1,609 (9,519) 9,519
</TABLE>
F-32
<PAGE> 290
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 telecommuncations 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 ("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 March 31, 2000 and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three month periods ended March 31, 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 three month periods ended March 31, 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> 291
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 March 31, 2000 and December 31, 1999, 1998 and 1997, net of accumulated
amortization, was DM 21,238, 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 March 31, 2000 and December 31, 1999, 1998 and
1997, net of accumulated amortization, was DM 1,042, 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 three month period ended March
31, 2000 and 1999 and the years ended December 31, 1999, 1998 and 1997.
F-34
<PAGE> 292
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 4,862, DM 5,041, DM 24,696, DM 12,321 and DM 3,434 for the three month
periods ended March 31, 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>
MARCH 31, DECEMBER 31,
----------- ------------
2000 1999 1998
----------- ----- ----
(UNAUDITED)
<S> <C> <C> <C>
Raw materials............................................... -- -- 68
Work-in-progress............................................ -- 1,027 --
Finished goods.............................................. 2,672 3,102 --
----- ----- --
2,672 4,129 68
===== ===== ==
</TABLE>
F-35
<PAGE> 293
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>
MARCH 31, DECEMBER 31,
----------- --------------
2000 1999 1998
----------- ------ -----
(UNAUDITED)
<S> <C> <C> <C>
Contractual claim of purchase reduction for traffic
services.................................................. 11,068 -- --
Prepaid income taxes........................................ 20,860 16,858 --
Short-term portion of prepaid commissions................... 5,028 5,090 --
Other....................................................... 11,913 7,474 7,843
------ ------ -----
Total............................................. 48,869 29,422 7,843
====== ====== =====
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost, consist of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
----------- -----------------
2000 1999 1998
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
Technical equipment, plant and machinery.................. 167,797 160,723 75,755
Other equipment, operational and office equipment......... 19,917 18,769 8,657
Construction in progress.................................. 2,078 578 570
------- ------- -------
Total cost...................................... 189,792 180,070 84,982
Accumulated depreciation and amortization................. (50,062) (42,141) (17,627)
------- ------- -------
Net book value.................................. 139,730 137,929 67,355
======= ======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31, 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 %................... 58 72 --
Term loan due September, 2003 with interest payable at per
annum rate equal to 6.75 %................................ 1,500 1,500 --
----- ----- -----
Total............................................. 1,558 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> 294
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> 295
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 the Company 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> 296
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 in the Company 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
The Company and certain of its suppliers have entered into legal
proceedings regarding the cost, functionality and period of services provided.
The Company 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 the Company'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 the
Company.
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.
F-39
<PAGE> 297
TELDAFAX AG
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TelDaFax recorded the acquisition in accordance with purchase accounting
resulting in goodwill of DM 3,414.
Previously, the financial statements reflected the acquisition of Demuth &
Dietl from January 1, 1999 in accordance with the terms to the agreement between
the Company 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> 298
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>
THREE MONTH ENDED MARCH 31, 1999
---------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................. 168,157 586 -- 168,743
Intersegment revenues....................................... -- -- -- --
Segment revenues............................................ 168,157 586 -- 168,743
Depreciation and amortization............................... (6,385) (22) -- (6,407)
Segment operating profit (loss)............................. 18,805 (39) -- 18,766
Segment assets.............................................. 383,951 1,156 -- 385,107
Expenditures for long-lived assets.......................... 13,872 414 -- 14,286
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ 18,766
Other income.............................................. 155
Financial result.......................................... 831
Other expense, net........................................ (9,165)
Minority interest......................................... 10
Total consolidated profit (loss).................. 10,597
ASSETS
Total assets for reportable segments...................... 385,107
Elimination of intercompany receivables................... (272)
Total consolidated assets......................... 384,835
</TABLE>
<TABLE>
<CAPTION>
THREE MONTH ENDED MARCH 31, 2000
---------------------------------------
FIXED CELLULAR
NETWORK INTERNET SERVICE TOTAL
------- -------- -------- -------
(IN THOUSAND DM)
<S> <C> <C> <C> <C>
Sales to unaffiliated customers............................. 142,234 1,993 22,546 166,773
Intersegment revenues....................................... -- -- -- --
Segment revenues............................................ 142,234 1,993 22,546 166,773
Depreciation and amortization............................... (9,610) (179) (828) (10,617)
Segment operating profit (loss)............................. (1,548) (4,356) (526) (6,430)
Segment assets.............................................. 420,122 2,472 26,360 448,954
Expenditures for long-lived assets.......................... 24,047 85 353 24,485
Reconciliations:
NET RESULT
Total operating result for the reportable segments........ (6,430)
Other income.............................................. 376
Financial result.......................................... 280
Other expense, net........................................ 2,965
Minority interest......................................... 1,258
Total consolidated profit (loss).................. (1,551)
ASSETS
Total assets for reportable segments...................... 448,954
Elimination of intercompany receivables................... (26,114)
Total consolidated assets......................... 422,840
</TABLE>
F-41
<PAGE> 299
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> 300
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. The
Company'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 the
Company.
14. SUBSEQUENT EVENTS
Investment in Netztel Plus Drillish AG
On February 3, 2000, TelDaFax acquired an 81.9% of the stock of Netztel
Plus Drillisch 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> 301
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
WORLD ACCESS, INC.
STAR TELECOMMUNICATIONS, INC.
AND
STI MERGER CO.
<PAGE> 302
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (this
"Agreement"), is made and entered into among WORLD ACCESS, INC., a Delaware
corporation ("WAXS"), STI Merger Co., a Delaware corporation and wholly-owned
subsidiary of WAXS ("Merger Sub"), and STAR TELECOMMUNICATIONS, INC., a Delaware
corporation ("STAR").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of STAR and WAXS deem it advisable and in
the best interests of each corporation and its respective stockholders that STAR
and WAXS engage in a business combination in order to advance the long-term
strategic business interests of STAR and WAXS;
WHEREAS, the combination of STAR and WAXS shall be effected by the terms of
this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of
STAR, Merger Sub and WAXS have approved the Merger, upon the terms and subject
to the conditions set forth in this Agreement, pursuant to which each share of
common stock, par value $0.001 per share, of STAR ("STAR Common Stock") issued
and outstanding immediately prior to the Effective Time (as defined in Section
1.3) will be converted into the right to receive the consideration set forth in
Section 1.6;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder; and
WHEREAS, simultaneously with the execution and delivery of this Agreement,
WAXS and Christopher E. Edgecomb and Samer Tawfik (the "Principal Stockholders")
are entering into an agreement (the "Voting and Stock Transfer Restriction
Agreement") pursuant to which each Principal Stockholder will agree to, among
other things, vote in favor of the Merger and certain restrictions on the
transfer of the consideration received in the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the General Corporation Law of the State
of Delaware (the "DGCL"), STAR shall be merged with and into Merger Sub at the
Effective Time (as defined below). Following the Merger, the separate corporate
existence of STAR shall cease and Merger Sub shall continue as the surviving
corporation (the "Surviving Corporation").
1.2 Closing. Subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger and the transactions contemplated
by this Agreement (the "Closing") will take place on the second business day
following the satisfaction or waiver of such conditions, unless another time or
date is agreed to in writing by the parties hereto (the date of the Closing
being referred to herein as the "Closing Date"). The Closing shall be held at
the offices of Long Aldridge & Norman LLP, 303 Peachtree Street, Suite 5300,
Atlanta, Georgia 30303, unless another place is agreed to by the parties hereto.
1.3 Effective Time. On the Closing Date the parties shall (i) file a
certificate of merger (the "Certificate of Merger") in such form as is required
by, and executed in accordance with, the relevant provisions of the DGCL and
(ii) make all other filings or recordings required under the DGCL in
A-1
<PAGE> 303
connection with the Merger. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State or
at such subsequent time as WAXS and STAR shall agree and as shall be specified
in the Certificate of Merger (the date and time the Merger becomes effective
being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger
will have the effects set forth in the DGCL. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time all the property,
rights, privileges, powers, licenses, authorizations and franchises of Merger
Sub and STAR shall be vested in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub and STAR shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation/Bylaws. The certificate of incorporation
and bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the certificate of incorporation and bylaws of the Surviving
Corporation, until thereafter changed or amended as provided therein or by
applicable law.
1.6 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of WAXS, Merger Sub, STAR or the
holders of any of the following securities:
(a) [Intentionally omitted.]
(b) Each share of STAR Common Stock issued and outstanding and
directly or indirectly owned or held by STAR or a Subsidiary thereof at the
Effective Time shall, by virtue of the Merger, cease to be outstanding and
shall be canceled and retired and no capital stock of WAXS or other
consideration shall be delivered in exchange therefor.
(c) Subject to Section 2.4, each share of STAR Common Stock issued and
outstanding immediately prior to the Effective Time (other than the
Dissenter's Shares (as defined in Section 8.12)) shall be converted into
the right to receive, at the election of WAXS by written notice to STAR
prior to the Closing, (i) the number of shares of WAXS Common Stock
obtained by solving for "X" in the following formula (the "Exchange
Ratio"):
X = 7.81 + Z
--------
20
or (ii) such number of shares of WAXS Common Stock as shall equal sixty percent
(60%) of the Exchange Ratio and an amount in cash equal to forty percent (40%)
of the sum of $7.81 plus "Z" (as defined below); provided, however, that WAXS
and STAR expressly agree that, notwithstanding anything in this Agreement to the
contrary, in order to ensure that the Merger satisfies the continuity of
interest requirement under Treasury Regulation Section 1.368-1(e), that in no
event shall WAXS issue cash for more than forty-five percent (45%) of the
outstanding shares of STAR Common Stock, including for purposes of this
calculation cash paid for fractional shares pursuant to Section 2.4 and cash
paid for Dissenters' Shares.
For purposes of this Section 1.6, "Z" shall equal the PT-1 Excess Proceeds (as
defined in Section 8.12) divided by 62,856,702. All shares of STAR Common Stock,
at the Effective Time, shall no longer be outstanding and shall automatically be
canceled and retired and each holder of a certificate representing any such
shares (a "Certificate") shall cease to have any rights with respect thereto,
except as set forth in this Section 1.6(c), Section 2.4 or at law. The shares of
WAXS Common Stock issued pursuant to this Section 1.6(c) together with any cash
in lieu of fractional shares paid pursuant to Section 2.4 shall be referred to
herein as the "Merger Consideration."
1.7 STAR Stock Options.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of STAR, WAXS, Merger Sub or the holder of any
outstanding option, warrant or other right to acquire STAR capital stock (a
"STAR Stock Option"), each STAR Stock Option will be automatically
converted into a WAXS Stock Option (as defined in Section 3.1(b)) to
purchase shares of WAXS Common Stock in an amount equal to the number of
shares of STAR Common Stock covered under
A-2
<PAGE> 304
such STAR Stock Option multiplied by the Exchange Ratio (rounded to the
nearest whole number of shares of WAXS Common Stock) at a price per share
of WAXS Common Stock equal to the per share option exercise price specified
in the STAR Stock Option divided by the Exchange Ratio (rounded to the
nearest whole cent). Each such WAXS Stock Option shall contain terms and
provisions which are substantially similar to those terms, conditions and
provisions governing the original STAR Stock Option, except that references
to STAR in such STAR Stock Option will be deemed to refer to WAXS and the
date of grant of the STAR Stock Option shall be deemed to be the date of
grant of such WAXS Stock Option. At the Effective Time, for purposes of
interpretation of such new WAXS Stock Option, (i) all references in any
stock option plan of STAR shall be deemed to refer to WAXS; (ii) any stock
option plan of STAR which governs the STAR Stock Option shall continue to
govern the WAXS Stock Option substituted therefor; and (iii) WAXS shall, as
soon as practicable after the Effective Time, issue to each holder of an
outstanding STAR Stock Option a document evidencing the foregoing issued
and substituted WAXS Stock Option by WAXS. It is the intention of the
parties: (1) that, subject to applicable law, STAR Stock Options assumed by
WAXS qualify, following the Effective Time, as incentive stock options, as
defined in Section 422 of the Code, to the extent that STAR Stock Options
qualified as incentive stock options prior to the Effective Time, (2) that
each holder of a STAR Stock Option shall receive a new WAXS Stock Option
which preserves (but does not increase) the excess of the fair market value
of the shares subject to such STAR Stock Option immediately before the
Effective Time over the aggregate option price of such shares immediately
before the Effective Time, if any such excess then exists, (3) that the
terms, conditions, restrictions and provisions of the WAXS Stock Option be
substantially similar to the terms, conditions, restrictions and provisions
of the STAR Stock Option, and (4) any terms conditions, restrictions or
provisions of a STAR Stock Option applicable to a number of shares rather
than a percentage or fraction of shares should be appropriately adjusted
based upon the Exchange Ratio. Without the prior written consent of WAXS
(which may be withheld in its discretion), no new options shall be issued
by STAR on or after the date hereof, including, without limitation, under
any stock option plan currently maintained by STAR.
(b) With respect to each STAR Stock Option converted into a WAXS Stock
Option pursuant to Section 1.7(a), and with respect to the shares of WAXS
Common Stock underlying such option, WAXS shall file and keep current all
requisite registration statements, on Form S-8 or other appropriate form,
for as long as such options remain outstanding, which registration
statement shall include a prospectus meeting the requirements of General
Instruction C to Form S-8 with respect to affiliates of STAR, subject at
all times to compliance with all applicable federal and state securities
laws.
(c) After the date of this Agreement, STAR agrees that it will not
grant any restricted stock, stock appreciation rights or limited stock
appreciation rights and also agrees that it will not permit cash payments
to holders of STAR Stock Options in lieu of the substitution therefor of
WAXS Stock Options, as described in this Section 1.7.
1.8 Certain Adjustments. If between the date hereof and the Effective
Time, the outstanding WAXS Common Stock or STAR Common Stock shall have been
changed into a different number of shares or different class by reason of any
reclassification, recapitalization, stock split, split-up, combination, exchange
of shares or similar capital stock event or a stock dividend or dividend payable
in any other securities shall be declared with a record date within such period,
or any similar event shall have occurred, the Exchange Ratio shall be
appropriately adjusted to provide to the holders of STAR Common Stock and the
holders of STAR Stock Options the same economic effect as contemplated by this
Agreement prior to such event.
A-3
<PAGE> 305
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. At least five (5) days prior to the mailing of the
Joint Proxy Statement/Prospectus (as defined in Section 5.1), WAXS shall
appoint a commercial bank or trust company reasonably acceptable to STAR to act
as exchange agent hereunder (the "Exchange Agent") for the purpose of exchanging
Certificates for the Merger Consideration. Immediately prior to the Effective
Time, WAXS shall deposit with the Exchange Agent, in trust for the benefit of
holders of shares of STAR Common Stock, cash payable and certificates
representing the WAXS Common Stock issuable pursuant to Section 1.6 in exchange
for outstanding shares of STAR Common Stock. WAXS agrees to deposit with the
Exchange Agent from time to time as needed, cash sufficient to pay cash in lieu
of fractional shares pursuant to Section 2.4 and any dividends and other
distributions pursuant to Section 2.3. Any cash and certificates of WAXS Common
Stock deposited with the Exchange Agent shall hereinafter be referred to as the
"Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, WAXS shall cause the Exchange Agent to mail to each holder of a
Certificate (other than to holders of Dissenter's Shares) (i) a letter of
transmittal which shall advise such holder of the effectiveness of the Merger
and specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent, and which letter shall be in customary form and have such other
provisions as WAXS may reasonably specify and (ii) instructions for effecting
the surrender of such Certificates in exchange for the applicable Merger
Consideration. Upon surrender of a Certificate to the Exchange Agent together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be required
by the Exchange Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor promptly (A) one or more shares of WAXS Common
Stock (which shall be in uncertificated book entry form unless a physical
certificate is requested) representing, in the aggregate, the whole number of
shares that such holder has the right to receive pursuant to Section 1.6 (after
taking into account all shares of STAR Common Stock then held by such holder),
and (B) a check in the amount equal to the cash that such holder has the right
to receive pursuant to the provisions of Section 1.6(c), if any, and this
Article II, including cash in lieu of any additional shares of WAXS Common Stock
pursuant to Section 2.4 and dividends and other distributions pursuant to
Section 2.3. No interest will be paid or will accrue on any cash payable
pursuant to 1.6(c), Section 2.3 or Section 2.4. In the event of transfer of
ownership of STAR Common Stock which is not registered in the transfer records
of STAR, one or more shares of WAXS Common Stock evidencing, in the aggregate,
the proper number of shares of WAXS Common Stock, a check in the proper amount
of cash in lieu of any additional shares of WAXS Common Stock pursuant to
Section 2.4, a check in the proper amount of cash pursuant to Section 1.6(c) and
any dividends or other distributions to which such holder is entitled pursuant
to Section 2.3, may be issued with respect to such STAR Common Stock to such a
transferee if the Certificate representing such shares of STAR Common Stock is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and to evidence that any applicable stock
transfer taxes have been paid.
2.3 Distributions with Respect to Unexchanged Certificates. No dividends
or other distributions declared or made with respect to shares of WAXS Common
Stock with a record date after the Effective Time shall be paid to the holder of
any unexchanged Certificate with respect to the shares of WAXS Common Stock that
such holder would be entitled to receive upon surrender of such Certificate and
no cash payment in lieu of fractional shares of WAXS Common Stock shall be paid
to any such holder pursuant to Section 2.4 until such holder shall surrender
such Certificate in accordance with Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to such holder of shares of WAXS Common Stock issuable in exchange
therefor, without interest, (a) promptly after the time of such surrender, the
amount of any cash payable in lieu of fractional shares of WAXS Common Stock to
which such holder is entitled pursuant to Section 2.4 and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of WAXS Common Stock, and (b)
at the appropriate payment date, the amount of
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dividends or other distributions with a record date after the Effective Time but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such shares of WAXS Common Stock.
2.4 No Fractional Shares of WAXS Common Stock.
(a) No certificates or scrip or shares of WAXS Common Stock
representing fractional shares of WAXS Common Stock or book-entry credit of
the same shall be issued upon the surrender for exchange of Certificates
and such fractional share interests will not entitle the owner thereof to
vote or to have any rights of a stockholder of or a holder of shares of
WAXS Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder
of shares of STAR Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of WAXS
Common Stock (after taking into account all Certificates delivered by such
holder) shall receive, in lieu thereof, cash (without interest) in an
amount equal to the product of (i) such fractional part of a share of WAXS
Common Stock multiplied by (ii) the average of the daily closing price for
a share of WAXS Common Stock on the Nasdaq for the ten (10) consecutive
trading days in which such shares are traded on the Nasdaq, ending at the
close of trading on the date of the Effective Time or, if such date is not
a business day, the business day immediately preceding the date on which
the Effective Time occurs. As promptly as practicable after the
determination of the amount of cash, if any, to be paid to holders of
fractional interests, the Exchange Agent shall so notify WAXS, and WAXS
shall promptly deposit such amount with the Exchange Agent and shall cause
the Exchange Agent to promptly forward payments to such holders of
fractional interests subject to and in accordance with the terms hereof.
2.5 No Further Ownership Rights in STAR Common Stock. As applicable, all
shares of WAXS Common Stock issued and cash paid upon conversion of shares of
STAR Common Stock in accordance with the terms of Article I and this Article II
(including any cash paid pursuant to Section 2.4) shall be deemed to have been
issued or paid in full satisfaction of all rights pertaining to the shares of
STAR Common Stock.
2.6 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six (6) months after
the Effective Time shall be delivered to the Surviving Corporation or otherwise
on the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and WAXS for the Merger
Consideration with respect to the shares of STAR Common Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.6
and Section 2.2, any cash in lieu of fractional shares of WAXS Common Stock to
which such holders are entitled pursuant to Section 2.4 and any dividends or
distributions with respect to shares of WAXS Common Stock to which such holders
are entitled pursuant to Section 2.3. Any such portion of the Exchange Fund
remaining unclaimed by holders of shares of STAR Common Stock five (5) years
after the Effective Time (or such earlier date immediately prior to such time as
such amounts would otherwise escheat to or become property of any Governmental
Entity (as defined in Section 3.1(c)(3)) shall, to the extent permitted by law,
become the property of the Surviving Corporation free and clear of any claims or
interest of any Person previously entitled thereto.
2.7 No Liability. None of WAXS, Merger Sub, STAR, the Surviving
Corporation or the Exchange Agent shall be liable to any Person in respect of
any Merger Consideration from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
2.8 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by the Surviving Corporation on a
daily basis. Any interest and other income resulting from such investments shall
promptly be paid to the Surviving Corporation.
2.9 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as
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the Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such Certificate, the Exchange Agent will
deliver in exchange for such lost stolen or destroyed Certificate the applicable
Merger Consideration with respect to the shares of STAR Common Stock formerly
represented thereby, any cash in lieu of fractional shares of WAXS Common Stock,
and unpaid dividends and distributions on shares of WAXS Common Stock
deliverable in respect thereof, pursuant to this Agreement.
2.10 Withholding Rights. Each of the Surviving Corporation and WAXS shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of STAR Common Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or WAXS, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of STAR Common Stock
in respect of which such deduction and withholding was made by the Surviving
Corporation or WAXS, as the case may be.
2.11 Stock Transfer Books. The stock transfer books of STAR shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of shares of STAR Common Stock thereafter on the
records of STAR. On or after the Effective Time, any Certificates presented to
the Exchange Agent or WAXS for any reason shall be converted as provided in
Articles I and II hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of WAXS and Merger Sub. Except as set
forth in the WAXS SEC Reports (as defined below) filed and publicly available
prior to the date hereof or the WAXS Disclosure Schedule delivered by WAXS to
STAR prior to the execution of this Agreement (the "WAXS Disclosure Schedule")
(each section of which qualifies the correspondingly numbered representation and
warranty or covenant to the extent specified therein), WAXS and Merger Sub
represent and warrant to STAR as follows:
(a) Organization; Standing and Power; Subsidiaries.
(1) Each of WAXS, its Subsidiaries (as defined in Section 8.12) and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or
organization, has the requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted, except where the failure to be so organized, existing and in
good standing or to have such power and authority would not have a
Material Adverse Effect on WAXS, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary other than in such jurisdictions where the
failure to so qualify or to be in good standing would not have a
Material Adverse Effect on WAXS. The copies of the certificate of
incorporation and bylaws of WAXS and Merger Sub which were previously
furnished or made available to STAR are true, complete and correct
copies of such documents as in effect on the date of this Agreement.
(2) Exhibit 21.1 to WAXS's Annual Report on Form 10-K for the year
ended December 31, 1998 includes all the Subsidiaries of WAXS which as
of the date of this Agreement are Significant Subsidiaries (as defined
in Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares
of capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable
and are owned directly or indirectly by WAXS, free and clear of all
pledges, claims, liens, charges, encumbrances and security interests of
any kind or nature whatsoever (collectively "Liens") and free of any
other restriction (including any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other ownership
interests). Neither WAXS nor any of its Subsidiaries directly or
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indirectly owns any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, joint venture or
other business association or entity (other than the Subsidiaries of
WAXS) that is or would reasonably be expected to be material to WAXS and
its Subsidiaries taken as a whole.
(b) Capital Structure. As of February 7, 2000:
(1) The authorized capital stock of WAXS consists of (A)
150,000,000 shares of WAXS Common Stock, of which 53,787,805 shares are
outstanding and no shares are held in the treasury of WAXS and (B)
10,000,000 shares of Preferred Stock, par value $.01 per share, of which
50,000 shares designated as 4.25% Cumulative Senior Perpetual
Convertible Preferred Stock, Series A, par value $.01 per share (the
"Series A Preferred Stock"), and 350,259.875 shares designated as
Convertible Preferred Stock, Series C (the "Series C Preferred Stock"),
are outstanding. WAXS has reserved or has available 4,347,827 shares of
WAXS Common Stock for issuance upon conversion of the Series A Preferred
Stock and 18,027,478 shares of WAXS Common Stock for issuance upon
conversion of the Series C Preferred Stock. All issued and outstanding
shares of the capital stock of WAXS are duly authorized, validly issued,
fully paid and nonassessable, and no class of capital stock is entitled
to preemptive rights. In addition to the rights described in Section
3.1(b) of the WAXS Disclosure Schedule, there are outstanding options,
warrants or other rights (a "WAXS Stock Option") to acquire 13,133,837
shares of capital stock from WAXS.
(2) No bonds, debentures, notes or other indebtedness of WAXS
having the right to vote on any matters on which holders of capital
stock of WAXS may vote ("WAXS Voting Debt") are issued or outstanding.
(3) Except as otherwise set forth in this Section 3.1(b) and as
contemplated by Section 1.5 and Section 1.6, there are no securities,
options, warrants, calls, rights, commitments, agreements, arrangements
or undertakings of any kind to which WAXS or any of its Subsidiaries is
a party or by which any of them is bound obligating WAXS or any of its
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered
or sold, additional shares of capital stock or other voting securities
of WAXS or any of its Subsidiaries or obligating WAXS or any of its
Subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call right, commitment, agreement, arrangement or
undertaking. There are no outstanding obligations of WAXS or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
capital stock of WAXS or any of its Subsidiaries.
(c) Authority; No Conflicts.
(1) WAXS and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the Merger and
the other transactions contemplated hereby, subject, in the case of
WAXS, to the approval by the stockholders of WAXS by the Required WAXS
Vote (as defined in Section 3.1(g)) of this Agreement, the Merger and
the other transactions contemplated hereby and, in the case of Merger
Sub, the affirmative vote of WAXS, as sole stockholder thereof, of this
Agreement, the Merger and the other transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
Merger and the other transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of WAXS and
Merger Sub, subject, in the case of WAXS, to the approval by the
stockholders of WAXS of this Agreement, the Merger and the transactions
contemplated hereby by the Required WAXS Vote and subject, in the case
of Merger Sub, to the affirmative vote of WAXS, as sole stockholder
thereof, of this Agreement, the Merger and the other transactions
contemplated hereby. This Agreement has been duly executed and delivered
by WAXS and Merger Sub and constitutes a valid and binding agreement of
each of WAXS and Merger Sub, enforceable against it in accordance with
its terms, except to the extent that its enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors' rights
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generally or by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(2) Subject, in the case of WAXS, to the approval by the
stockholders of WAXS of this Agreement, the Merger and the transactions
contemplated hereby by the Required WAXS Vote and, in the case of Merger
Sub, the affirmative vote of WAXS, as sole stockholder thereof, of this
Agreement, the Merger and the other transactions contemplated hereby,
the execution and delivery of this Agreement by WAXS and Merger Sub does
not, and the consummation by WAXS and Merger Sub of the Merger and the
other actions contemplated hereby will not, conflict with, or result in
any violation of, or constitute a default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation or the loss of
a material benefit under, or the creation of a Lien on any assets (any
such conflict, violation, default, right of termination, amendment,
cancellation or acceleration, loss or creation, a "Violation") of: (A)
any provision of the certificate of incorporation or bylaws of WAXS, any
Subsidiary of WAXS or Merger Sub, or (B) except as would not have a
Material Adverse Effect on WAXS and subject to obtaining or making the
consents, approvals, orders, authorizations, registrations, declarations
and filings referred to in paragraph (3) below, any loan or credit
agreement, note, mortgage, bond, indenture, lease, or other agreement,
obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to WAXS, any Subsidiary of WAXS or their respective
properties or assets.
(3) No consent, approval, order or authorization of, or
registration, declaration or filing with, any supranational, national,
state, municipal, local or foreign government, any instrumentality,
subdivision, court, administrative agency or commission or other
authority thereof, or any quasi-governmental or private body exercising
any supranational, national, state, municipal, local or foreign
regulatory, taxing, importing or other governmental or
quasi-governmental authority (a "Governmental Entity"), is required by
or with respect to WAXS, any Subsidiary of WAXS or Merger Sub in
connection with the execution and delivery of this Agreement by WAXS or
Merger Sub or the consummation of the Merger and the other transactions
contemplated hereby, except for those required under or in relation to
(A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"), (B) state securities or "blue sky" laws (the "Blue Sky
Laws"), (C) the Communications Act of 1996, as amended (the
"Communications Act"), and all applicable state public utilities laws,
(D) the Securities Act, (E) the Exchange Act, (F) the DGCL with respect
to the filing of the Certificate of Merger, (G) rules and regulations of
Nasdaq, (H) antitrust or other competition laws of other jurisdictions,
(I) such consents, approvals, orders, authorizations, registrations,
declarations and filings as are required by applicable laws, regulations
and rules governing the telecommunications business including, without
limitation, those of the United States Federal Communication Commission
(the "FCC"), (J) any filings and approvals expressly contemplated by
this Agreement, and (K) such consents, approvals, orders,
authorizations, registrations, declarations and filings the failure of
which to make or obtain would not have a Material Adverse Effect on
WAXS. Consents, approvals, orders, authorizations, registrations,
declarations and filings required under or in relation to any of the
foregoing clauses (A) through (K) are hereinafter referred to as
"Necessary Consents".
(d) Reports and Financial Statements.
(1) WAXS has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it under the federal securities laws with the
SEC since January 1, 1998 (collectively, including all exhibits thereto,
the "WAXS SEC Reports"). No Subsidiary of WAXS, including, without
limitation Merger Sub, is required to file any form, report,
registration statement, prospectus or other document with the SEC not
otherwise filed with a WAXS SEC Report. As of the respective times such
documents were filed or, as applicable, became effective, or as
subsequently amended, the WAXS SEC Reports
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complied as to form and content, in all material respects, with the
requirements of the Securities Act and the Exchange Act, as the case may
be, and the rules and regulations promulgated thereunder and, taken as a
whole, the WAXS SEC Reports do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements (including the related notes) included in the WAXS
SEC Reports (or, if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) presents fairly, in
all material respects, the consolidated financial position and
consolidated results of operations and cash flows of WAXS and its
Subsidiaries as of the respective dates or for the respective periods
set forth therein all in conformity with GAAP consistently applied
during the periods involved except as otherwise noted therein, and
subject, in the case of the unaudited interim financial statements, to
normal and recurring year-end adjustments that have not been and are not
expected to be material in amount. All of such WAXS SEC Reports, as of
their respective dates (or as of the date of any amendment to the
respective WAXS SEC Report filed prior to the date of this Agreement),
complied or will comply as to form in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder.
(2) Since December 31, 1998, WAXS and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to
be disclosed on a balance sheet of WAXS and its Subsidiaries or the
footnotes thereto prepared in conformity with GAAP, other than (A)
liabilities incurred in the ordinary course of business or (B)
liabilities that would not have a Material Adverse Effect on WAXS.
(e) Information Supplied. None of the information supplied or to be
supplied by WAXS for inclusion or incorporation by reference in the Joint
Proxy Statement/Prospectus (as defined herein) will, on the date it is
first mailed to WAXS's and STAR's stockholders, as applicable, or at the
time of the WAXS Stockholders Meeting or the STAR Stockholders Meeting, as
applicable, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. The Joint Proxy Statement/Prospectus will,
on the date it is first mailed to WAXS's and STAR's stockholders and at the
time of the WAXS Stockholders Meeting and the STAR Stockholders Meeting,
comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder.
(f) WAXS Board Approval. The Board of Directors of WAXS, by
resolutions duly adopted by unanimous vote at a meeting duly called and
held and not subsequently rescinded or modified in any way (the "WAXS Board
Approval"), has duly (i) determined that this Agreement, the Merger and the
other transactions contemplated hereby are fair to and in the best
interests of WAXS and its stockholders, (ii) approved this Agreement, the
Merger and the other transactions contemplated hereby and (iii) declared
the advisability of this Agreement, the Merger and the other transactions
contemplated hereby, and, further, (iv) recommended that the stockholders
of WAXS approve and adopt this Agreement, the Merger and the other
transactions contemplated hereby and directed that this Agreement and the
transactions contemplated hereby be submitted for consideration by WAXS's
stockholders at the WAXS Stockholders Meeting.
(g) Required WAXS Stockholder Vote. The affirmative vote of holders
of shares of WAXS Common Stock, Series A Preferred Stock and Series C
Preferred Stock, voting together as a single class, representing a majority
of the outstanding shares of WAXS Common Stock, Series A Preferred Stock
and Series C Preferred Stock (the "Required WAXS Vote"), is the only vote
of the holders of any class or series of WAXS capital stock necessary to
adopt this Agreement and approve the Merger and the other transactions
contemplated hereby.
(h) Required Merger Sub Board Approval. The Board of Directors of
Merger Sub, by resolutions duly adopted by a unanimous written consent and
not subsequently rescinded or modified
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in any way, has duly (i) determined that this Agreement, the Merger and the
other transactions contemplated hereby are fair to and in the best
interests of Merger Sub and its sole stockholder, WAXS, (ii) approved this
Agreement, the Merger and the other transactions contemplated hereby and
(iii) declared the advisability of this Agreement, the Merger and the other
transactions contemplated hereby, and, further, (iv) recommended that WAXS
adopt this Agreement and approve the Merger and the other transactions
contemplated hereby and directed that this Agreement and the transactions
contemplated hereby be submitted for consideration by WAXS at a meeting
duly called.
(i) Required Merger Sub Stockholder Vote. The affirmative vote of
WAXS, as sole stockholder of Merger Sub, is the only vote of the holders of
any class or series of Merger Sub capital stock necessary to adopt this
Agreement and approve the Merger and the other transactions contemplated
hereby.
(j) Litigation: Compliance with Laws.
(1) There is no suit, investigation, action or proceeding pending
or, to the Knowledge of WAXS, threatened, against or affecting WAXS or
any Subsidiary of WAXS having, or which would have a Material Adverse
Effect on WAXS, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against WAXS
or any Subsidiary of WAXS having, or which would have a Material Adverse
Effect on WAXS.
(2) Except as would not have a Material Adverse Effect on WAXS,
WAXS and its Subsidiaries hold all permits, licenses, variances,
authorizations, exemptions, orders and approvals of all Governmental
Entities including, without limitation, the FCC and state public
utilities commissions, which are necessary for the operation of the
businesses of WAXS and its Subsidiaries (the "WAXS Permits"). Such WAXS
permits are valid and in full force and effect and WAXS and its
Subsidiaries are in compliance with the terms of the WAXS Permits,
except where the failure to be valid and in full force and effect or to
so comply would not have a Material Adverse Effect on WAXS. The
businesses of WAXS and its Subsidiaries are not being conducted in
violation of, and WAXS has not received any notices of violations with
respect to, any law, ordinance or regulation of any Governmental Entity,
except for possible violations which would not have a Material Adverse
Effect on WAXS. WAXS is not aware of any threatened suspension,
cancellation or invalidation of any such WAXS Permit. Except as set
forth in the WAXS SEC Reports or except as would not have a Material
Adverse Effect on WAXS, neither WAXS nor any of its Subsidiaries has
received notice from either the FCC or any state public utilities
commissions of any complaint filed therewith concerning WAXS or any of
its Subsidiaries, operations or services.
(k) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, and except as permitted by Section 4.1, since December 31, 1998
through and including the date hereof, (i) WAXS and its Subsidiaries have
conducted, in all material respects, their business only in the ordinary
course and (ii) there has not been any change, circumstance or event which
has had, or would reasonably be expected to have, a Material Adverse Effect
on WAXS, other than any change, circumstance or effect relating (A) to the
economy or financial markets in general, or (B) in general to the
industries in which WAXS and its Subsidiaries operate and not specifically
relating to WAXS and its Subsidiaries.
(l) Intellectual Property. Except as would not have a Material
Adverse Effect on WAXS: (i) WAXS and each of its Subsidiaries owns, or is
licensed to use (in each case, free and clear of any Liens, or claim of
rights therein by any third party) all Intellectual Property (as defined
below) used in or necessary for the conduct of its business as currently
conducted, (ii) the use of any Intellectual Property by WAXS and its
Subsidiaries does not infringe on or otherwise violate the rights of any
Person and is in accordance with any applicable license pursuant to which
WAXS or any Subsidiary acquired the right to use any Intellectual Property;
(iii) to the Knowledge of WAXS, no Person is challenging, infringing on or
otherwise violating any right of WAXS or any of its Subsidiaries with
respect to any Intellectual Property owned by and/or licensed to WAXS or
its
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Subsidiaries; and (iv) neither WAXS nor any of its Subsidiaries has
received any written notice of any pending claim with respect to any
Intellectual Property used by WAXS and its Subsidiaries and to WAXS's
Knowledge no Intellectual Property owned and/or licensed by WAXS or its
Subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual
Property. For purposes of this Agreement, "Intellectual Property" shall
mean trademarks, service marks, brand names, certification marks, trade
dress and other indications of origin, the goodwill associated with the
foregoing and registrations in any jurisdiction of, and applications in any
jurisdiction to register, the foregoing, including any extension,
modification or renewal of any such registration or application;
inventions, discoveries and ideas, whether patentable or not, in any
jurisdiction; patents, applications for patents (including, without
limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; non-public information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or
not, in any jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; any
similar intellectual property or proprietary rights; and any claims or
causes of action arising out of or relating to any infringement or
misappropriation of any of the foregoing.
(m) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of WAXS, except Donaldson,
Lufkin & Jenrette Securities Corporation (the "WAXS Financial Advisor"),
whose fees and expenses will be paid by WAXS in accordance with WAXS's
agreement with such firm, a copy of which has been, or will be promptly
when available, provided to STAR.
(n) Opinion of WAXS Financial Advisor. WAXS has received the opinion
of the WAXS Financial Advisor, dated the date of this Agreement, to the
effect that as of such date, the Merger Consideration is fair, from a
financial point of view, to WAXS and its stockholders, a copy of which has
been provided to STAR.
(o) Taxes.
(1) (i) All material Tax Returns of WAXS and each of its
Subsidiaries have been filed, or requests for extensions have been
timely filed and have not expired; (ii) all Tax Returns filed by WAXS
and its Subsidiaries are complete and accurate in all material respects;
(iii) all Taxes shown to be due on such Tax Returns or on subsequent
assessments with respect thereto have been paid or adequate reserves
have been established for the payment of such Taxes, and no other
material Taxes are payable by WAXS or any of its Subsidiaries with
respect to items or periods covered by such Tax Returns (whether or not
shown on or reportable on such Tax Returns) or with respect to any
period prior to the date of this Agreement; (iv) there are no material
liens on any of the assets of WAXS or any of its Subsidiaries with
respect to Taxes, other than liens for Taxes not yet due and payable or
for Taxes that WAXS and its Subsidiaries is contesting in good faith
through appropriate proceedings and for which appropriate reserves have
been established; and (v) there is no audit, examination, deficiency or
refund litigation or matter in controversy with respect to any Taxes of
WAXS and its Subsidiaries that might reasonably be expected to result in
a Tax determination which would have a Material Adverse Effect on WAXS.
(2) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of WAXS or any of its Subsidiaries that,
individually or collectively, could give rise to the payment of any
amount (or portion thereof) that would not be deductible pursuant to
Sections 280G, 404, or 162 of the Code.
(3) Neither WAXS nor any of its Subsidiaries is a party to a Tax
Sharing Agreement.
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(p) Certain Contracts. Neither WAXS nor any of its Subsidiaries is a
party to or bound by (i) any "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any noncompetition
agreement or any other agreement or arrangement that limits or otherwise
restricts WAXS or any of its Subsidiaries or any successor thereto, from
engaging or competing in any line of business or in any geographic area,
which agreement or arrangement would have a Material Adverse Effect on WAXS
or the Surviving Corporation after giving effect to the Merger, or (iii)
any agreement or arrangement between WAXS or any of its Subsidiaries, on
the one hand, and any affiliates, directors or officers of WAXS or its
Subsidiaries, on the other hand, that is not on arm's-length terms. All
contracts filed with the WAXS SEC Reports and the contracts listed on
Section 3.1(p) of the WAXS Disclosure Schedule are valid, binding and are
in full force and effect and enforceable in accordance with their
respective terms, except to the extent that such enforceability may be
subject to applicable bankruptcy, insolvency, moratorium, reorganization,
or other laws affecting the enforcement or creditors' rights generally or
by general equitable principles, and other than such contracts which by
their terms are no longer in force or effect. Neither WAXS nor its
Subsidiaries are in violation or breach of or default under any such
contract, nor to WAXS's and its Subsidiaries' Knowledge, is any other party
to any such contract in violation or breach or other default under any such
contract, except for any such violation, breach or default which would not
have a Material Adverse Effect on WAXS.
3.2 Representations and Warranties of STAR. Except as set forth in the
STAR SEC Reports (as defined below) filed and publicly available prior to the
date hereof or the STAR Disclosure Schedule delivered by STAR to WAXS prior to
the execution of this Agreement (the "STAR Disclosure Schedule") (each section
of which qualifies the correspondingly numbered representation and warranty or
covenant to the extent specified therein), STAR represents and warrants to WAXS
as follows:
(a) Organization; Standing and Power; Subsidiaries.
(1) Each of STAR and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the requisite power
and authority to own, lease and operate its properties and to carry on
its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power and
authority would not have a Material Adverse Effect on STAR, and is duly
qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification necessary, other than in such
jurisdictions where the failure to so qualify or to be in good standing
would not have a Material Adverse Effect on STAR. The copies of the
certificate of incorporation and bylaws of STAR which were previously
furnished or made available to WAXS are true, complete and correct
copies of such documents as in effect on the date of this Agreement.
(2) Exhibit 21.1 to STAR's Annual Report on Form 10-K for the year
ended December 31, 1998 includes all the Subsidiaries of STAR which as
of the date of this Agreement are Significant Subsidiaries (as defined
in Rule 1-02 of Regulation S-X of the SEC). All the outstanding shares
of capital stock of, or other equity interests in, each such Significant
Subsidiary have been validly issued and are fully paid and nonassessable
and are owned directly or indirectly by STAR, free and clear of all
Liens and free of any other restriction (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or
other ownership interests). Neither STAR nor any of its Subsidiaries
directly or indirectly owns any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for any equity
or similar interest in, any corporation, partnership, joint venture or
other business association or entity (other than the Subsidiaries of
STAR), that is or would reasonably be expected to be material to STAR
and its Subsidiaries taken as a whole.
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(b) Capital Structure.
(1) The authorized capital stock of STAR consists of (A) 50,000,000
shares of STAR Common Stock, of which 58,683,131 shares are outstanding
and no shares are held in the treasury of STAR and (B) 5,000,000 shares
of preferred stock, par value $0.001 per share, of which no shares are
outstanding. All issued and outstanding shares of the capital stock of
STAR are duly authorized, validly issued, fully paid and nonassessable,
and no class of capital stock is entitled to preemptive rights. There
are outstanding options, warrants or other rights to acquire 4,173,571
shares of capital stock from STAR. Section 3.2(b) of the STAR Disclosure
Schedule lists the exercise price and vesting schedule for each STAR
Stock Option.
(2) No bonds, debentures, notes or other indebtedness of STAR
having the right to vote on any matters on which holders of capital
stock of STAR may vote ("STAR Voting Debt") are issued or outstanding.
(3) Except as otherwise set forth in this Section 3.2(b), there are
no securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which STAR or
any of its Subsidiaries is a party or by which any of them is bound
obligating STAR or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital
stock or other voting securities of STAR or any of its Subsidiaries or
obligating STAR or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. There are no outstanding
obligations of STAR or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of STAR or any of its
Subsidiaries.
(c) Authority; No Conflicts.
(1) STAR has all requisite corporate power and authority to enter
into this Agreement and to consummate the Merger and the other
transactions contemplated hereby, subject to the approval by the
stockholders of STAR by the Required STAR Vote (as defined in Section
3.2(g)) of this Agreement, the Merger and the other transactions
contemplated hereby. The execution and delivery of this Agreement and
the consummation of the Merger and the other transactions contemplated
hereby have been duly authorized by all necessary corporate action on
the part of STAR, subject to the approval by the stockholders of STAR of
this Agreement and the Merger and the other transactions contemplated
hereby by the Required STAR Vote. This Agreement has been duly executed
and delivered by STAR and constitutes a valid and binding agreement of
STAR, enforceable against it in accordance with its terms, except to the
extent that its enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting the
enforcement of creditors' rights generally or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(2) Subject to the approval by the stockholders of STAR of this
Agreement, the Merger and the other transactions contemplated hereby by
the Required STAR Vote, the execution and delivery of this Agreement by
STAR does not, and the consummation by STAR of the Merger and the other
actions contemplated hereby will not, conflict with, or result in a
Violation of: (A) any provision of the certificate of incorporation or
bylaws of STAR or a Shareholder or any Subsidiary of STAR or (B) except
as would not have a Material Adverse Effect on STAR, subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (3)
below, any loan or credit agreement, note, mortgage, bond, indenture,
lease, or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to STAR, any Subsidiary of STAR or their
respective properties or assets.
(3) No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity is
required by or with respect to STAR or any Subsidiary of
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STAR in connection with the execution and delivery of this Agreement by
STAR, or the consummation of the Merger and the other transactions
contemplated hereby, except the Necessary Consents and such consents,
approvals, orders, authorizations, registrations, declarations and
filings the failure of which to make or obtain would not have a Material
Adverse Effect on STAR.
(d) Reports and Financial Statements.
(1) STAR has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it under the federal securities laws with the
SEC since January 1, 1998 (collectively, including all exhibits thereto,
the "STAR SEC Reports"). No Subsidiary of STAR is required to file any
form, report, registration statement or prospectus or other document
with the SEC not otherwise filed with an STAR SEC Report. As of the
respective times such documents were filed or, as applicable, became
effective, or as subsequently amended, the STAR SEC Reports complied as
to form and content, in all material respects, with the requirements of
the Securities Act and the Exchange Act, as the case may be, and the
rules and regulations promulgated thereunder, and, taken as a whole, the
STAR SEC Reports do not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Each of the financial
statements (including the related notes) included in the STAR SEC
Reports (or, if amended or superseded by a filing prior to the date of
this Agreement, then on the date of such filing) presents fairly, in all
material respects, the consolidated financial position and consolidated
results of operations and cash flows of STAR and its Subsidiaries as of
the respective dates or for the respective periods set forth therein,
all in conformity with GAAP consistently applied during the periods
involved except as otherwise noted therein, and subject, in the case of
the unaudited interim financial statements, to normal and recurring
year-end adjustments that have not been and are not expected to be
material in amount. All of such STAR SEC Reports, as of their respective
dates (or as of the date of any amendment to the respective STAR SEC
Report filed prior to the date of this Agreement), complied or will
comply as to form in all material respects with the applicable
requirements of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder.
(2) Since December 31, 1998, STAR and its Subsidiaries have not
incurred any liabilities that are of a nature that would be required to
be disclosed on a balance sheet of STAR and its Subsidiaries or the
footnotes thereto prepared in conformity with GAAP, other than (A)
liabilities incurred in the ordinary course of business or (B)
liabilities that would not have a Material Adverse Effect on STAR.
(e) Information Supplied. None of the information supplied or to be
supplied by STAR for inclusion or incorporation by reference in the Joint
Proxy Statement/Prospectus will, on the date it is first mailed to WAXS's
or STAR's stockholders, as applicable, or at the time of the WAXS
Stockholders Meeting (as defined in Section 5.1) or the STAR Stockholders
Meeting, as applicable, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(f) Board Approval. The Board of Directors of STAR, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "STAR Board Approval"),
has duly (i) determined that this Agreement, the Merger and the other
transactions contemplated hereby are fair to and in the best interests of
STAR and its stockholders, (ii) approved this Agreement, the Merger and the
other transactions contemplated hereby and (iii) declared the advisability
of this Agreement, the Merger and the other transactions contemplated
hereby, and, further, (iv) recommended that the stockholders of STAR
approve and adopt this Agreement, the Merger and the other transactions
contemplated hereby and directed that
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this Agreement and the transactions contemplated hereby be submitted for
consideration by STAR's stockholders.
(g) Required Stockholder Vote. The affirmative vote of the holders of
a majority of the outstanding shares of STAR Common Stock (the "Required
STAR Vote") is the only vote of the holders of any class or series of STAR
capital stock necessary to adopt this Agreement and approve the Merger and
the other transactions contemplated hereby.
(h) Litigation: Compliance with Laws.
(1) There is no suit, investigation, action or proceeding pending
or, to the Knowledge of STAR, threatened, against or affecting STAR or
any Subsidiary of STAR having, or which would have a Material Adverse
Effect on STAR, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against STAR
or any Subsidiary of STAR having, or which would have a Material Adverse
Effect on STAR.
(2) Except as would not have a Material Adverse Effect on STAR,
STAR and its Subsidiaries hold all permits, licenses, variances,
authorizations, exemptions, orders and approvals of all Governmental
Entities including, without limitation, the FCC and state public
utilities commissions, necessary for the operation of the businesses of
STAR and its Subsidiaries (the "STAR Permits"). Such STAR permits are
valid and in full force and effect and STAR and its Subsidiaries are in
compliance with the terms of the STAR Permits, except where the failure
to be valid and in full force and effect or to so comply would not have
a Material Adverse Effect on STAR. The businesses of STAR and its
Subsidiaries are not being conducted in violation of, and STAR has not
received any notices of violations with respect to, any law, ordinance
or regulation of any Governmental Entity, except for possible violations
which would not have a Material Adverse Effect on STAR. STAR is not
aware of any threatened suspension, cancellation or invalidation of any
STAR Permit. Except as set forth in the STAR SEC Reports or except as
would not have a Material Adverse Effect on STAR, STAR has not received
notice from either the FCC or any state public utilities commissions of
any complaint filed therewith concerning STAR or any of its
Subsidiaries, operations or services.
(i) Absence of Certain Changes or Events. Except for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby, except as disclosed in the STAR SEC Reports filed prior to the date
of this Agreement, and except as permitted by Section 4.2, since December
31, 1998 through and including the date hereof, (i) STAR and its
Subsidiaries have conducted, in all material respects, their business only
in the ordinary course and (ii) there has not been any change, circumstance
or event which has had, or would reasonably be expected to have, a Material
Adverse Effect on STAR, other than any change, circumstance or effect
relating (A) to the economy or financial markets in general, or (B) in
general to the industries in which STAR and its Subsidiaries operate and
not specifically relating to STAR and its Subsidiaries.
(j) Employee Benefits Matters.
(1) Section 3.2(j)(l) of the STAR Disclosure Schedule sets forth a
list of all material agreements, arrangements, commitments, and policies
(i) which relate to employee benefits; (ii) which pertain to present or
former employees, retirees, directors or independent contractors (or
their beneficiaries, dependents or spouses) of STAR; and (iii) which are
currently or expected to be adopted, maintained by, sponsored by, or
contributed to by STAR or any other employer (a "STAR Affiliate") which,
under Section 414 of the Code, would constitute a single employer with
STAR (collectively referred to as "STAR Employee Benefit Plans"),
including, but not limited to, all: (A) employee benefit plans as
defined in Section 3(3) of ERISA; and (B) all other deferred
compensation, incentive, profit-sharing, thrift, stock ownership, stock
appreciation rights, bonus, stock option, stock purchase, vacation, or
other benefit plans or arrangements.
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(2) STAR and all STAR Affiliates have complied with their
respective substantive obligations with respect to all STAR Employee
Benefit Plans (including, but not limited to, (i) filing or distributing
all reports or notices required by ERISA or the Code and (ii) complying
with all requirements of Part 6 of Title I of ERISA and Code Section
4980B) and have maintained the STAR Employee Benefit Plans in compliance
with all applicable laws and regulations (including, but not limited to,
ERISA and the Code), except where the failure to comply with such
obligations would not result in a Material Adverse Effect on STAR. Each
STAR Employee Benefit Plan that is intended to qualify under Code
Section 401(a) has received a favorable determination letter (or other
ruling indicating its tax-qualified status) from the IRS, and the IRS
has not threatened or taken any action to revoke any favorable
determination letter issued with respect to any such STAR Employee
Benefit Plan. No statement, either oral or written, has been made by
STAR or any STAR Affiliate (or any agent of either) to any Person
regarding any STAR Employee Benefit Plans that is not in accordance with
the terms of that plan that would have a Material Adverse Effect on
STAR.
(3) STAR has made available to WAXS true, correct and complete
copies of all of the current documents relating to the STAR Employee
Benefit Plans, including, but not limited to: (i) all plan texts
(including any subsequent amendments), trust instruments and other
funding arrangements adopted or entered into in connection with each of
the STAR Employee Benefit Plans; (ii) the notices and election forms
used to notify employees and their dependents of their continuation
coverage rights under group health plans (under Code Section 4980B(f)
and ERISA Section 606), if applicable; and (iii) the most recent Form
5500 annual reports (including all schedules thereto), summary plan
descriptions and favorable determination letters, if applicable, for
Employee Benefit Plans. Since the date such documents were supplied to
WAXS, no plan amendments have been adopted and no such amendments or
changes shall be adopted or made prior to the Closing Date without
WAXS's approval, except as required by applicable law after the date
hereof.
(4) Neither STAR nor any STAR Affiliate has any agreement,
arrangement, commitment or understanding to create any additional STAR
Employee Benefit Plans or to continue, modify, change or terminate any
existing STAR Employee Benefit Plans that could have a Material Adverse
Effect on STAR.
(5) None of the STAR Employee Benefit Plans (i) is currently under
investigation, audit or review by the U.S. Department of Labor, the IRS,
the Pension Benefit Guaranty Corporation or any other federal or state
agency or (ii) is liable for any federal, state, local or foreign taxes
that would have a Material Adverse Effect on STAR. Except for such
liabilities that would not have a Material Adverse Effect on STAR, there
is no transaction in connection with which STAR or any STAR Affiliate
could be subject to either a civil penalty assessed pursuant to ERISA
Section 502, a tax imposed by Code Section 4975 or liability for a
breach of fiduciary responsibility under ERISA.
(6) Other than routine claims for benefits payable to participants
or beneficiaries in accordance with the terms of the STAR Employee
Benefit Plans, or relating to qualified domestic relations orders (as
defined in Section 414(p) of the Code), there are no claims, pending or
threatened, by any participant or beneficiary against any of the STAR
Employee Benefit Plans or any fiduciary of any of the STAR Employee
Benefit Plans that could have a Material Adverse Effect on STAR.
(7) Neither STAR nor any STAR Affiliate has at any time maintained,
sponsored or contributed to any "pension plan" as defined in ERISA
Section 3(2) which is subject to Title IV of ERISA or contributed to any
pension plan which is a "multiemployer plan" as defined in ERISA Section
3(37)(A).
(8) Section 3.2(j)(8) of the STAR Disclosure Schedule sets forth a
list of all agreements, arrangements, commitments and STAR Employee
Benefit Plans, under which (i) any benefits
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will be increased, (ii) the vesting or exercisability of benefits will
be accelerated, (iii) amounts will become immediately payable, and/or
(iv) the immediate funding for any benefits is required, upon the
occurrence of the transaction contemplated by this Agreement. Section
3.2(j)(8) of the STAR Disclosure Schedule sets forth an estimate of the
total value and/or cost of any such change in control benefits and/or
funding and the time periods in which such payments must be made and/or
funding obligations must be met, including but not limited to the value
and/or costs of any gross up payments for tax purposes.
(9) To the Knowledge of STAR, no key employee, or group of
employees of STAR has any plans to terminate employment with STAR other
than employees with plans to retire. STAR has complied in all material
respects with all laws relating to the employment of labor, including
provisions thereof relating to wages, hours and equal opportunity, and
it does not have any material labor relations problems (including
threatened or actual strikes or work stoppages or material grievances).
(10) Neither STAR nor any of its Subsidiaries is a party to any
collective bargaining agreement.
(k) Intellectual Property. Except as would not have a Material
Adverse Effect on STAR: (i) STAR and each of its Subsidiaries owns, or is
licensed to use (in each case, free and clear of any Liens, or claims of
rights therein by any third party), all Intellectual Property used in or
necessary for the conduct of its business as currently conducted, (ii) the
use of any Intellectual Property by STAR and its Subsidiaries does not
infringe on or otherwise violate the rights of any Person and is in
accordance with any applicable license pursuant to which STAR or any
Subsidiary acquired the right to use any Intellectual Property; (iii) to
the Knowledge of STAR, no Person is challenging, infringing on or otherwise
violating any right of STAR or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to STAR or its Subsidiaries;
and (iv) neither STAR nor any of its Subsidiaries has received any written
notice of any pending claim with respect to any Intellectual Property used
by STAR and its Subsidiaries and to STAR's Knowledge, no Intellectual
Property owned and/or licensed by STAR or its Subsidiaries is being used or
enforced in a manner that would result in the abandonment, cancellation or
unenforceability of such Intellectual Property.
(l) Brokers or Finders. No agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any
broker's or finder's fee or any other similar commission or fee in
connection with any of the transactions contemplated by this Agreement,
based upon arrangements made by or on behalf of STAR except Deutsche Bank
Alex Brown (the "STAR Financial Advisor"), whose fees and expenses will be
paid by STAR in accordance with STAR's agreement with such firm, a copy of
which has been, or will be promptly when available, provided to WAXS.
(m) Opinion of STAR Financial Advisor. STAR has received the opinion
of the STAR Financial Advisor, dated the date of this Agreement, to the
effect that as of such date, the Merger Consolidation is fair, from a
financial point of view, to STAR and its stockholders, a copy of which has
been provided to WAXS.
(n) Taxes.
(1) (i) All material Tax Returns of STAR and each of its
Subsidiaries have been filed, or requests for extensions have been
timely filed and have not expired; (ii) all Tax Returns filed by STAR
and its Subsidiaries are complete and accurate in all material respects;
(iii) all Taxes shown to be due on such Tax Returns or on subsequent
assessments with respect thereto have been paid or the STAR SEC Reports
reflect that adequate reserves have been established for the payment of
such Taxes, and no other material Taxes are payable by STAR and its
Subsidiaries with respect to items or periods covered by such Tax
Returns (whether or not shown on or reportable on such Tax Returns) or
with respect to any period prior to the date of this Agreement; (iv)
STAR and each of its Subsidiaries have disclosed on its federal income
Tax Return all positions taken therein that could give rise to a
substantial understatement of income
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Tax within the meaning of Section 6662 of the Code; (v) there are no
material liens on any of the assets of STAR or any of its Subsidiaries
with respect to Taxes, other than liens for Taxes not yet due and
payable or for Taxes that STAR or any of its Subsidiaries is contesting
in good faith through appropriate proceedings and for which the STAR SEC
Reports reflect that appropriate reserves have been established; (vi) no
power of attorney to deal with Tax matters or waiver or extension of any
statute of limitations with respect to Taxes has been granted by STAR or
any of its Subsidiaries; and (vii) there is no (X) audit, examination,
deficiency or refund litigation or matter in controversy with respect to
any Taxes of STAR and its Subsidiaries nor (Y) has the IRS nor any other
Tax authority asserted any claim for Taxes in writing, or to the
knowledge of STAR, is threatening to assert any claim for Taxes, that
might reasonably be expected to result in a Tax determination which
would have a Material Adverse Effect on STAR.
(2) [Intentionally omitted.]
(3) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering
any employee or former employee of STAR or any of its Subsidiaries that,
individually or collectively, could give rise to the payment of any
amount (or portion thereof) that would not be deductible pursuant to
Sections 280G, 404, or 162 of the Code.
(4) Neither STAR nor any of its Subsidiaries is a party to (A) a
Tax Sharing Agreement, (B) transactions which have produced deferred
intercompany gains, losses or other intercompany items or excess loss
accounts (within the meaning of Treas. Reg. sec. 1.1502-13 or 1.1502-19,
respectively, or any predecessor regulations or any comparable items for
state, local or non-United States Tax purposes), or (C) any joint
venture, partnership, limited liability company or other arrangement or
contract that should be treated as a partnership for federal income Tax
purposes or as to which, an election has been made under Treas. Reg.
sec. 301.7701-3 to have the entity disregarded for federal income Tax
purposes as an entity separate from its owner.
(5) None of STAR and its Subsidiaries (A) has or has had operations
or assets outside the United States taxable as a "branch" by the United
States or as a "permanent establishment" by any foreign country, (B) has
received written notice of any claim made by a Tax authority in a
jurisdiction where STAR or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to Taxes in such jurisdiction, (C)
does business in or derives income from any state, local territorial or
non-United States taxing jurisdiction other than those for which Tax
Returns have been filed and made available to WAXS pursuant to Section
3.2 (n)(6) hereof, (D) is a "passive foreign investment company" within
the meaning of the Code, (E) has participated in or cooperated with an
international boycott or has been requested to do so in connection with
any prior transaction or the transactions contemplated by this
Agreement, and (F) has availed itself of any Tax amnesty, Tax holiday or
similar relief in any jurisdiction.
(6) STAR has made available to WAXS true copies of (A) all material
Tax Returns that STAR or its Subsidiaries have filed since January 1,
1994 and (B) all material correspondence, including without limitation,
closing agreements, private letter rulings, advance pricing agreements
and gain recognition agreements and other written submissions to or
communications with any Tax authorities.
(o) Certain Contracts. Neither STAR nor any of its Subsidiaries is a
party to or bound by (i) any "material contract" (as such term is defined
in Item 601(b)(10) of Regulation S-K of the SEC), (ii) any noncompetition
agreement or any other agreement or arrangement that limits or otherwise
restricts STAR or any of its Subsidiaries or any successor thereto or that
would, after the Effective Time, limit or restrict WAXS or the Surviving
Corporation or any of its affiliates or any successor thereto, from
engaging or competing in any line of business or in any geographic area,
which agreement or arrangement would have a Material Adverse Effect on WAXS
or the Surviving Corporation, (iii) any agreement or arrangement between
STAR or any of its Subsidiaries, on the one hand, and any affiliates,
directors or officers of STAR or its Subsidiaries, on the other hand, that
is
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not on arm's-length terms or (iv) any agreement or arrangement that may
require the payment of money or provision of services in excess of $500,000
annually or $1,000,000 over the term of such agreement or arrangement. All
contracts filed with the STAR SEC Reports and the contracts listed on
Section 3.2(o) of the STAR Disclosure Schedule are valid binding and are in
full force and effect and enforceable in accordance with their respective
terms, except to the extent that such enforceability may be subject to
applicable bankruptcy, insolvency, moratorium, reorganization, or other
laws affecting the enforcement of creditors' rights generally or by general
equitable principles, and other than such contracts which by their terms
are no longer in force or effect. Neither STAR nor its Subsidiaries are in
violation or breach of or default under any such contract, nor to STAR's
Knowledge, is any other party to any such contract in violation or breach
or other default under any such contract, except for any such violation,
breach or default which would not have a Material Adverse Effect on STAR.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 Covenants of STAR. During the period from the date of this Agreement
and continuing until the Effective Time, STAR agrees as to itself and its
Subsidiaries that (except as expressly required, contemplated or permitted by
this Agreement or the STAR Disclosure Schedule or as required by a Governmental
Entity of competent jurisdiction or any law or regulation or to the extent that
WAXS shall otherwise consent in writing, which consent shall not be unreasonably
withheld, delayed or conditioned):
(a) Ordinary Course. STAR and its Subsidiaries shall carry on their
respective businesses in the usual, regular and ordinary course in all
material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their
present lines of business, maintain their rights and franchises and
preserve their relationships with customers, suppliers and others having
significant business dealings with them.
(b) Dividends; Changes in Share Capital. STAR shall not, and shall
not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, except for dividends by wholly-owned Subsidiaries
of STAR, (ii) split, combine or reclassify any of its capital stock or
issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for, shares of its capital stock,
except for any such action by a wholly-owned Subsidiary of STAR which
remains a wholly-owned Subsidiary after consummation of such transaction,
or (iii) repurchase, redeem or otherwise acquire any shares of capital
stock of STAR or any of its Subsidiaries or any securities convertible into
or exercisable for any shares of such capital stock except for the purchase
from time to time by STAR of STAR Common Stock in the ordinary course of
business consistent with past practice in connection with the STAR Employee
Benefit Plans.
(c) Issuance of Securities. STAR shall not, and shall not permit any
of its Subsidiaries to, issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock of any
class, any STAR Voting Debt or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such
shares or STAR Voting Debt, or enter into any agreement with respect to any
of the foregoing, other than (i) the issuance of STAR Common Stock upon the
exercise of STAR Stock Options or in connection with other stock-based
Benefits Plans outstanding on the date hereof, in each case in accordance
with their present terms, or (ii) issuances by a wholly-owned Subsidiary of
STAR of capital stock to such Subsidiary's parent or another wholly-owned
subsidiary of STAR.
(d) Governing Documents. Except to the extent required by the rules
and regulations of the Nasdaq, neither STAR nor any of its Subsidiaries
shall amend or propose to amend their respective certificates of
incorporation, by-laws or other governing documents.
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(e) Acquisitions. STAR shall not, and shall not permit any of its
Subsidiaries to acquire or agree to acquire, by merging or consolidating
with, or by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or any
corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets (other
than the acquisition of assets used in the operations of the business of
STAR and its Subsidiaries in the ordinary course).
(f) Sales. Except as set forth in Section 4.1(f) of the STAR
Disclosure Schedule, STAR shall not, and shall not permit any of its
Subsidiaries to, sell or agree to sell by merging or consolidating with, or
by selling or substantial equity interest in or a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof
or otherwise sell or agree to sell any assets (other than the sale of
assets used in the operations of the business of STAR and its Subsidiaries
in the ordinary course; provided, however, STAR may enter into a definitive
agreement for (and consummate) the PT-1 Sale on terms and conditions which
would satisfy the condition set forth in Section 6.2(h) hereof).
(g) Investments; Indebtedness. STAR shall not, and shall not permit
any of its Subsidiaries to, (i) make any loans, advances or capital
commitments to, or investments in, any other Person, other than (x) by STAR
or a Subsidiary of STAR to or in STAR or in any Subsidiary of STAR or (y)
pursuant to any contract or other legal obligation of STAR or any of its
Subsidiaries existing at the date hereof or (ii) create, incur, assume or
suffer to exist any indebtedness, issuances of debt or securities,
guarantees, loans or advances not in existence as of the date hereof except
pursuant to credit facilities, indentures and other arrangements in
existence on the date hereof or in the ordinary course of business
consistent with past practice, in each case as such credit facilities,
indentures and other arrangements may be amended, extended, modified,
refunded, renewed or refinanced after the date hereof.
(h) Compensation. Other than as contemplated by Section 4.1(h) of the
STAR Disclosure Schedule, STAR shall not increase the amount of
compensation of any director or executive officer except in the ordinary
course of business consistent with past practice or as required by an
existing agreement, make any increase in or commitment to increase any
employee benefits, issue any additional STAR Stock Options, adopt or make
any commitment to adopt any additional employee benefit plan or make any
contribution, other than regularly scheduled contributions, to any Employee
Benefit Plan.
(i) Accounting Methods; Income Tax Matters. STAR shall not change its
methods of accounting in effect on December 31, 1998, except as required by
changes in GAAP as concurred in by STAR's independent auditors. STAR shall
not (i) change its fiscal year, (ii) make any material tax election, (iii)
adopt or change any Tax accounting method, (iv) enter into any closing
agreement, (v) settle or compromise a Tax liability with a Tax authority,
(vi) surrender any right to claim a refund of Taxes, or (vii) take (or
permit any Subsidiary of STAR to take) any other action which would have
the effect of materially increasing the Tax liability or materially
decreasing any Tax Asset of STAR or any of its Subsidiaries, other than in
the ordinary course of business consistent with past practice.
(j) Certain Agreements. STAR shall not, and shall not permit any of
its Subsidiaries to, enter into any agreement or arrangement that limits or
otherwise restricts STAR or any of its Subsidiaries or any of their
respective affiliates or any successor thereto, or that could, after the
Effective Time, limit or restrict WAXS or the Surviving Corporation or any
of their respective affiliates or any successor thereto, from engaging or
competing in any line of business or, in any geographic area which
agreement or arrangement would reasonably be expected to have a Material
Adverse Effect on WAXS or the Surviving Corporation.
(k) Other Actions. Notwithstanding the fact that STAR may take
certain actions as permitted under Article IV hereof, STAR agrees not to
take any action which could reasonably be expected to
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cause the Merger to fail to qualify as a reorganization within the meaning
of Section 368(a) of the Code.
(l) Litigation. STAR shall not and shall not permit any of its
Subsidiaries to settle or, compromise any litigation, except where the
amount paid or payable, in each case, does not exceed $200,000.
4.2 Control of STAR's Business. Except as provided in Section 5.9, nothing
contained in this Agreement shall give WAXS, directly or indirectly, the right
to control or direct STAR's operations prior to the Effective Time. Prior to the
Effective Time, STAR shall exercise, consistent with the terms and conditions of
this Agreement, complete control and supervision over its operations.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Preparation of Proxy Statement: Stockholders Meetings.
(a) As promptly as reasonably practicable following the date hereof,
WAXS and STAR shall prepare (in form and substance reasonably satisfactory
to each of WAXS and STAR) and file with the SEC proxy materials which shall
constitute the joint proxy statement and prospectus in connection with the
WAXS Stockholders Meeting and the STAR Stockholders Meeting (such proxy
statement and prospectus, and any amendments or supplements thereto, the
"Joint Proxy Statement/Prospectus") and WAXS shall prepare (in form and
substance reasonably satisfactory to each of WAXS and STAR) and file a
registration statement on Form S-4 with respect to the issuance of WAXS
Common Stock in the Merger (the "Registration Statement"). The Joint Proxy
Statement/Prospectus will be included in and will constitute a part of the
Registration Statement as WAXS's prospectus. The Registration Statement and
the Joint Proxy Statement/Prospectus shall comply as to form in all
material respects with the applicable provisions of the Securities Act and
the Exchange Act and the rules and regulations thereunder. Each of WAXS and
STAR shall use reasonable efforts to have the Registration Statement
declared effective by the SEC as promptly as reasonably practicable after
filing with the SEC and to keep the Registration Statement effective as
long as is necessary to consummate the Merger and the actions contemplated
thereby. WAXS and STAR shall, as promptly as practicable after receipt
thereof, provide the other party copies of any written comments and advise
the other party of any oral comments, with respect to the Joint Proxy
Statement/Prospectus received from the SEC. WAXS will provide STAR with a
reasonable opportunity to review and comment on any amendment or supplement
to the Registration Statement prior to filing such with the SEC, and will
provide STAR with a copy of all such filings made with the SEC.
Notwithstanding any other provision herein to the contrary, no amendment or
supplement (including by incorporation by reference) to the Joint Proxy
Statement/Prospectus or the Registration Statement shall be made without
the approval of both parties, which approval shall not be unreasonably
withheld or delayed; provided, that with respect to documents filed by a
party which are incorporated by reference in the Registration Statement or
Joint Proxy Statement/Prospectus, this right of approval shall apply only
with respect to information relating to the other party or its business,
financial condition or results of operations. WAXS will use reasonable
efforts to cause the Joint Proxy Statements/Prospectus to be mailed to
WAXS's stockholders, and STAR will use reasonable efforts to cause the
Joint Proxy Statement/Prospectus to be mailed to STAR's stockholders, in
each case as promptly as practicable after the Registration Statement is
declared effective under the Securities Act. WAXS shall also take any
action (other than qualifying to do business in any jurisdiction in which
it is not now so qualified or to file a general consent to service of
process) required to be taken under any applicable state securities laws in
connection with the issuance of WAXS Common Stock and STAR shall furnish
all information concerning STAR and the holders of STAR Common Stock as may
be reasonably requested in connection with any such action. Each party will
advise the other party, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective, the issuance of
any stop order, the suspension
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of the qualification of the WAXS Common Stock issuable in connection with
the Merger for offering or sale in any jurisdiction, or any request by the
SEC for amendment of the Joint Proxy Statement/Prospectus or the
Registration Statement. If at any time prior to the Effective Time any
information relating to WAXS or STAR, or any of their respective
affiliates, officers or directors, should be discovered by WAXS or STAR
which should be set forth in an amendment or supplement to any of the
Registration Statement or the Joint Proxy Statement/Prospectus so that any
of such documents would not include any misstatement of a material fact or
omit to state any material fact necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
the party which discovers such information shall promptly notify the other
party hereto and, to the extent required by law, rules or regulations, an
appropriate amendment or supplement describing such information shall be
promptly filed with the SEC and disseminated to the stockholders of WAXS
and STAR.
(b) Subject to Section 5.4, STAR shall, as promptly as reasonably
practicable following the execution of this Agreement, duly take all lawful
action to call, give notice of, convene and hold a meeting of its
stockholders (the "STAR Stockholders Meeting") (which meeting the parties
intend to be held no later than thirty (30) days following the date on
which the Registration Statement has been declared effective by the SEC)
for the purpose of obtaining the Required STAR Vote with respect to the
actions contemplated by this Agreement and shall take all lawful action to
solicit the adoption of this Agreement by the Required STAR Vote. Subject
to Section 5.4, the Board of Directors of STAR shall recommend adoption of
this Agreement by the stockholders of STAR to the effect as set forth in
Section 3.2(f), and shall not withdraw, modify or materially qualify in any
manner adverse to WAXS such recommendation or take any action or make any
statement in connection with the STAR Stockholders Meeting materially
inconsistent with such recommendation (collectively, an "Adverse Change in
the STAR Recommendation"); provided, however, that the foregoing shall not
prohibit accurate disclosure of factual information regarding the business,
financial condition or results of operations of WAXS or STAR or the fact
that an Acquisition Proposal has been made, the identity of the party
making such proposal or the material terms of such proposal (provided, that
the Board of Directors of STAR does not withdraw, modify or materially
qualify in any manner adverse to WAXS its recommendation) in the
Registration Statement or the Joint Proxy Statement/Prospectus, to the
extent such information, facts, identity or terms is required to be
disclosed therein under applicable law.
(c) WAXS shall, as promptly as reasonably practicable following the
execution of this Agreement, duly take all lawful action to call, give
notice of, convene and hold a meeting of its stockholders (the "WAXS
Stockholders Meeting") (which meeting the parties intend to be held no
later than thirty (30) days following the date on which the Registration
Statement has been declared effective by the SEC) for the purpose of
obtaining the Required WAXS Vote with respect to the transactions
contemplated by this Agreement and shall take all lawful action to solicit
the approval of the transactions contemplated hereby by the Required WAXS
Vote. The Board of Directors of WAXS shall recommend approval of the
transactions contemplated hereby by the stockholders of WAXS to the effect
as set forth in Section 3.1(f), and shall not withdraw, modify or
materially qualify in any manner adverse to STAR such recommendation or
take any action or make any statement in connection with the WAXS
Stockholders Meeting materially inconsistent with such recommendation;
provided, however, that the foregoing shall not prohibit accurate
disclosure of factual information regarding the business, financial
condition or operations of WAXS or STAR.
5.2 Access to Information. Upon reasonable notice, each of STAR and WAXS
shall (and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
party hereto reasonable access during normal business hours, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers and employees and, during such period, each of
STAR and WAXS shall (and shall cause its Subsidiaries to) furnish promptly to
the other party hereto (a) a copy of each report, schedule, registration
statement and other document filed, published, announced or received by it
during such period pursuant to the
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requirements of federal or state securities laws, as applicable (other than
documents which such party is not permitted to disclose under applicable law),
and (b) consistent with its legal obligations, all other information concerning
it and its business, properties and personnel as such other party may reasonably
request; provided, however, that either STAR or WAXS may restrict the foregoing
access to the extent that any law, treaty, rule or regulation of any
Governmental Entity applicable to such party requires such party or its
Subsidiaries to restrict access to any properties or information. The parties
will hold any such information which is non-public in confidence to the extent
required by, and in accordance with, the provisions of the Confidentiality
Agreement, dated December 17, 1999, between STAR and WAXS (the "Confidentiality
Agreement"). Any investigation by WAXS or STAR shall not affect the
representations and warranties made herein of STAR or WAXS, as the case may be.
5.3 Reasonable Efforts.
(a) Subject to the terms and conditions of this Agreement, each party
will use reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Merger and the other
transactions contemplated by this Agreement as soon as practicable after
the date hereof, including (i) preparing and filing as promptly as
practicable all documentation to effect all necessary applications,
notices, petitions, filings, and other documents and to obtain as promptly
as practicable all consents, waivers, licenses, orders, registrations,
approvals, permits and authorizations necessary or advisable to be obtained
from any third party and/or any Governmental Entity in order to consummate
the Merger or any of the other transactions contemplated by this Agreement
and (ii) taking all reasonable steps as may be necessary to obtain all such
material consents, waivers, licenses, registrations, permits,
authorizations, tax rulings, orders and approvals. The parties each shall
keep the other apprised of the status of matters relating to completion of
the transactions contemplated hereby, including promptly furnishing the
other with copies of notices or other communications received by it or any
of its Subsidiaries or affiliates from any Governmental Entity or third
party with respect to the Merger or any of the other transactions
contemplated by this Agreement, in each case, to the extent permitted by
law or regulation or any applicable confidentiality agreements existing on
the date hereof.
(b) Promptly following execution of this Agreement, STAR and WAXS
shall promptly prepare and file any required notifications with the United
States Department of Justice and the Federal Trade Commission as required
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the "HSR Act"). The parties shall cooperate with each other in connection
with the preparation of such notifications and related matters, including
sharing information concerning sales and ownership and such other
information as may be needed to complete such notification, and providing a
copy of such notifications to the other prior to filing; provided, that
WAXS and STAR shall have the right to redact any dollar revenue information
from the copies of such notifications provided to the other parties. The
parties shall keep all information about the other obtained in connection
with the preparation of such notification confidential pursuant to the
terms of the Confidentiality Agreement. Each Person shall pay the filing
fee required under the regulations promulgated pursuant to the HSR Act with
respect to its own filing thereunder.
5.4 Acquisition Proposals. Without the prior written consent of WAXS,
pending the Effective Time or earlier termination of this Agreement pursuant to
Section 7.1, STAR agrees that neither it nor any of its Subsidiaries shall, and
that it shall use its reasonable efforts to cause its employees, officers,
directors, affiliates, agents and representatives (including any investment
banker, financial advisor, attorney or accountant retained by any of them) not
to, directly or indirectly, initiate, solicit, encourage or knowingly facilitate
(including by way of furnishing information or engaging in discussions or
negotiations) any inquiries or the making of any proposal or offer with respect
to a merger, reorganization, share exchange, consolidation, business
combination, recapitalization, liquidation, dissolution or similar action
involving STAR, or any purchase or sale of a material portion of the assets of
(including stock of Subsidiaries) of STAR, taken as a whole, or any purchase or
sale of, or tender or exchange offer for, a material portion of the equity
securities of STAR (any such proposal or offer being hereinafter referred to as
an "Acquisition Proposal"). STAR further agrees that neither it nor any of its
Subsidiaries shall, and that it shall use its
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reasonable efforts to cause it and its Subsidiaries' officers, directors,
affiliates, employees, agents and representatives (including any investment
banker, financial advisor, attorney or accountant retained by it or any of its
Subsidiaries) not to, directly or indirectly, have any discussion with or
provide any confidential information or data to any Person relating to an
Acquisition Proposal, or engage in any negotiations concerning an Acquisition
Proposal, or knowingly facilitate any effort or attempt to make or implement an
Acquisition Proposal or accept an Acquisition Proposal. STAR agrees that it and
its Subsidiaries will, and will cause its officers, directors, affiliates,
employees, agents and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any parties conducted heretofore with respect to any
Acquisition Proposal. STAR agrees that it will promptly inform its directors,
officers, affiliates, key employees, agents and representatives of the
obligations undertaken in this Section 5.4. Notwithstanding anything contained
in this Section 5.4 or otherwise in this Agreement to the contrary, STAR or its
Board of Directors shall be permitted to (A) in response to an unsolicited bona
fide written Acquisition Proposal by any Person, recommend approval of such an
unsolicited bona fide written Acquisition Proposal to its stockholders or effect
an Adverse Change in the STAR Recommendation or (B) engage in any discussions or
negotiations with, or provide any information to, any person in response to an
unsolicited bona fide written Acquisition Proposal by any such Person, if and
only to the extent that, in any such case as is referred to in clause (A) or
(B), (i) the STAR Stockholders Meeting shall not have occurred, (ii) its Board
of Directors (x) in the case of clause (A) above, concludes in good faith that
such Acquisition Proposal constitutes a Superior Proposal (as defined in Section
8.12) and terminates this Agreement pursuant to Section 7.1 (h) or (y) in the
case of clause (B) above concludes in good faith that such Acquisition Proposal
could reasonably be expected to result in a Superior Proposal, (iii) prior to
providing any information or data to any Person in connection with an
Acquisition Proposal by any such Person, its Board of Directors receives from
such Person an executed confidentiality agreement containing confidentiality
terms at least as stringent as those contained in the Confidentiality Agreement,
and (iv) prior to providing any information or data to any Person or entering
into discussions or negotiations with any such Person regarding such Acquisition
Proposal, its Board of Directors notifies WAXS promptly of such inquiries,
proposals or offers received by, any such information requested from, or any
such discussions or negotiations sought to be initiated or continued with, any
of its representatives indicating, in connection with such notice, the name of
such Person and the material terms and conditions of any inquiries, proposals or
offers. STAR agrees that it will promptly keep WAXS informed of the status and
terms of any such proposals or offers and the status and terms of any such
discussions or negotiations. STAR agrees that it will, and will cause its
officers, directors and representatives to, immediately cease and cause to be
terminated any activities, discussions or negotiations existing as of the date
of this Agreement with any parties conducted heretofore with respect to any
Acquisition Proposal. STAR agrees that it will promptly inform its directors,
officers, key employees, agents and representative of the obligations undertaken
in this Section 5.4. Nothing in this Section 5.4 shall (x) permit STAR or WAXS
to terminate this Agreement (except as specifically provided in Article VII
hereof) or (y) affect any other obligation of STAR or WAXS under this Agreement.
5.5 Fees and Expenses. All Expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such Expenses. As used in this Agreement, "Expenses" includes all
out-of-pocket expenses (including all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a party hereto and its
affiliates) incurred by a party or on its behalf in connection with or related
to the authorization, preparation, negotiation, execution and performance of
this Agreement and the transactions contemplated hereby.
5.6 Public Announcements. Neither WAXS nor STAR shall, without the prior
consent of the other party, issue a press release or any other public statement
with respect to this Agreement or the transactions contemplated hereby except
pursuant to a joint communications plan, unless otherwise required by applicable
law or by obligations pursuant to any listing agreement with, or rules of, any
securities exchange, in which case the parties shall use reasonable efforts to
consult with each other before issuing any press release or otherwise making any
public statement with respect to this Agreement or the transactions contemplated
hereby.
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5.7 Listing. So long as WAXS Common Stock is quoted on the Nasdaq or
listed on any national securities exchange, WAXS, prior to the Effective Time,
will cause to be quoted or listed, upon official notice of issuance, and keep
quoted or listed on such system or exchange, all WAXS Common Stock issuable
pursuant to Article I hereof.
5.8 Termination of Tax Sharing Agreement. As of the Effective Time, STAR
shall cause all Tax Sharing Agreements to which STAR or any of its Subsidiaries
is a party to be terminated and of no further force and effect after the
Effective Time, thereby extinguishing any rights or obligations of any party
thereunder.
5.9 Management Services. Subject to obtaining any necessary regulatory or
third party consents and to the extent permitted under applicable law, WAXS and
STAR intend to enter into a management agreement pursuant to which WAXS will
provide, under the supervision and direction of the STAR board of directors,
certain management services to STAR. Neither party shall have any obligation
under this Section 5.9 and the provision of the foregoing services shall be
subject to the negotiation of a definitive agreement satisfactory to each of
WAXS and STAR in its sole discretion.
5.10 New Director of WAXS. WAXS shall take all appropriate action such
that, immediately following the Effective Time, and without further action by
WAXS, one (1) designee of STAR shall be elected to the Board of Directors of
WAXS. Such STAR designee shall be Christopher E. Edgecomb, or such other person
designated by STAR and agreed to by WAXS prior to the Effective time.
5.11 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of STAR or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
STAR or Merger Sub, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all rights, properties,
or assets acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger.
5.12 Directors' and Officers' Indemnification and Insurance.
(a) From the Effective Time through the sixth (6th) anniversary of the
date on which the Effective Time occurs, WAXS shall indemnify and hold
harmless each present (as of the Effective Time) or former officer or
director of STAR and its Subsidiaries (the "Indemnified Parties"), against
all claims, losses, liabilities, damages, judgments, fines and reasonable
fees, costs and expenses, including attorneys' fees and disbursements
(collectively, "Costs"), incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative
or investigative, arising out of or pertaining to (i) the fact that the
Indemnified Party is or was an officer or director of STAR or any of its
Subsidiaries or (ii) matters existing or occurring at or prior to the
Effective Time (including this Agreement and the transactions and actions
contemplated hereby), whether asserted or claimed prior to, at or after the
Effective Time, to the fullest extent permitted under applicable law;
provided that no Indemnified Party may settle any such claim without the
prior approval of WAXS (which approval shall not be unreasonably withheld
or delayed). Each Indemnified Party will be entitled to advancement of
expenses incurred in the defense of any claim, action, suit, proceeding or
investigation from WAXS within ten (10) business days of receipt by WAXS
from the Indemnified Party of a request therefor; provided that any person
to whom expenses are advanced provides an undertaking, to the extent
required by the DGCL, to repay such advances if it is ultimately determined
that such person is not entitled to indemnification.
(b) WAXS shall maintain, at no expense to the beneficiaries, in effect
for six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by STAR with
respect to matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement); provided that
WAXS may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less advantageous
to any beneficiary thereof; and provided, further, that in no event shall
WAXS be
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required to pay annual premiums for such insurance in excess of 125% of the
annual premiums currently paid by STAR for such insurance.
(c) Notwithstanding anything herein to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising before, at or
after the Effective Time) is made against any Indemnified Party, on or
prior to the sixth (6th) anniversary of the Effective Time, the provisions
of this Section 5.12 shall continue in effect until the final disposition
of such claim, action, suit, proceeding or investigation.
(d) The covenants contained in this Section 5.12 are intended to be
for the benefit of, and shall be enforceable by, each of the Indemnified
Parties and their respective heirs and legal representatives and shall not
be deemed exclusive of any other rights to which an Indemnified Party is
entitled, whether pursuant to law, contract or otherwise.
(e) In the event that the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other Person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any Person, then, and in each such
case, proper provision shall be made so that the successors or assigns of
the Surviving Corporation or the purchaser of such properties and assets
shall succeed to the obligations set forth in this Section 5.12.
5.13 Confidentiality. The parties each agree that the Confidentiality
Agreement shall continue in full force and effect until the Effective Time, and
if this Agreement is terminated or if the Merger is not consummated for any
reason whatsoever, such Confidentiality Agreement shall thereafter remain in
full force and effect in accordance with its terms.
5.14 Compliance with Dissenters' Rights Statute. STAR shall comply with
all procedures and requirements applicable to it under Section 262 of the DGCL.
5.15 Interim Financing. The parties have agreed that WAXS will make
available up to $25,000,000 in secured financing to STAR and up to $10,000,000
in secured financing to STAR's subsidiary, STAR Telecommunications GmbH,
(collectively, the "Interim Financing") pursuant to the terms of the Loan
Documents (as defined below). The Interim Financing will mature at the earlier
of one year from the date hereof and ninety (90) days after any termination of
this Agreement (other than a termination due to STAR's breach or default under
this Agreement which will result in the Interim Financing becoming immediately
due and payable). The Interim Financing will be made pursuant to, and subject to
the finalization of, appropriate loan and security documents (the "Loan
Documents") substantially in the form of, and as contemplated by, the draft Loan
Documents distributed to STAR on or prior to the date hereof.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of STAR and WAXS to effect the Merger are subject to the
satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(b) Stockholder Approval. WAXS shall have obtained the Required WAXS
Vote in connection with the approval of this Agreement and the Merger and
STAR shall have obtained the Required STAR Vote in connection with the
approval of this Agreement and the Merger.
(c) Registration Statement. The Registration Statement shall have
been declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been
initiated or, to the Knowledge of WAXS or STAR, threatened by the SEC.
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6.2 Additional Conditions to Obligations of WAXS. The obligations of WAXS
to effect the Merger are subject to the satisfaction of, or waiver by WAXS, on
or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of STAR set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent in either case that such
representations and warranties speak as of another date, in which case any
such representations and warranties shall be true and correct as of such
date), except where any failures to be true and correct would not have a
Material Adverse Effect on WAXS or the Surviving Corporation, and WAXS
shall have received a certificate of the chief executive officer and the
chief financial officer of STAR to such effect.
(b) Performance of Obligations of STAR. STAR shall have performed or
complied in all material respects with all material agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date, and WAXS shall have received a certificate of the
chief executive officer and the chief financial officer of STAR to such
effect.
(c) Consents and Approvals. Other than the filing provided for under
Section 1.3, all consents, approvals and actions of, filings with and
notices to any Governmental Entity required to consummate the Merger and
the other transactions contemplated hereby, or of any other third party
required of STAR or any of its Subsidiaries to consummate the Merger and
the other transactions contemplated hereby, the failure of which to be
obtained or taken would have a Material Adverse Effect on WAXS or the
Surviving Corporation, shall have been obtained; provided, however, that
the provisions of this Section 6.2(c) shall not be available to WAXS, if
its failure to fulfill its obligations pursuant to Section 5.3 shall have
been the cause of, or shall have resulted in, the failure to obtain such
consent or approval.
(d) No Material Change. STAR and its Subsidiaries, taken as a whole,
shall not have suffered, since the date hereof, a Material Adverse Effect,
other than any change, circumstance or effect relating (i) to the economy
or financial markets in general, (ii) in general to the industries in which
STAR operates and not specifically relating to STAR or (iii) the trading
price of STAR Common Stock.
(e) Opinion of Counsel to STAR. WAXS shall have received from Riordan
& McKinzie an opinion, dated the Closing Date, in form and substance
reasonably satisfactory to WAXS.
(f) No Injunctions or Restraints; Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect (i) having the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS
or the Surviving Corporation; provided, however, that the provisions of
this Section 6.2(f) shall not be available to WAXS if its failure to
fulfill its obligations pursuant to Section 5.3 shall have been the cause
of, or shall have resulted in any such order or injunction.
(g) Dissenters' Rights. STAR shall have complied with all procedures
and requirements applicable to it under Section 262 of the DGCL, the period
for exercising dissenters' rights of appraisal pursuant to the DGCL in
connection with the Merger shall have expired, and holders of less than one
percent (1%) of the shares of STAR Common Stock issued and outstanding
immediately prior to the Closing shall have exercised such dissenters'
rights of appraisal, and WAXS shall have received a certificate from an
officer of STAR to all such effects.
(h) Sale of PT-1. STAR shall have consummated the sale of the capital
stock of PT-1 Communications, Inc. ("PT-1"), or the assets of PT-1 on a
substantially equivalent basis, for Net PT-1 Sale Proceeds (as defined in
Section 8.12 ) of at least $150,000,000 pursuant to an agreement in form
and substance reasonably satisfactory to WAXS (the "PT-1 Sale"); provided,
however, if
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(i) the PT-1 Sale has not been consummated prior to the Closing Date, (but
STAR has entered into a definitive agreement, in form and substance
satisfactory to WAXS, for the PT-1 Sale) and (ii) WAXS determines in its
sole discretion to waive compliance with this Section 6.2(h) and proceed
with the Merger, then WAXS and STAR agree that in such event, they shall
amend this Agreement to provide that (A) the formula used to determine the
Exchange Ratio shall be modified by deleting "Z" therefrom and (B) a holder
of STAR Common Stock and STAR Stock Options immediately prior to the
Effective Time shall have a right to receive such holder's pro rata share
of an aggregate number of additional "contingent" shares of WAXS Common
Stock, if and when the PT-1 Sale is consummated pursuant to such definitive
agreement (or, in the case of a holder of STAR Stock Option, when such
option is exercised), equal to the PT-1 Excess Proceeds divided by twenty
(20) (the "Contingent Shares") and that the provisions of any such
amendment to this Agreement concerning the issuance of such Contingent
Shares will satisfy the requirements of Section 3.03 of IRS Revenue
Procedure 77-37, as it has been amplified and superseded, which established
the circumstances under which the Internal Revenue Service previously
issued advanced rulings on contingent stock arrangements in mergers
intended to qualify as "reorganizations" under Section 368(a) of the Code.
(i) STAR shall have provided evidence satisfactory to WAXS that any
and all obligations of STAR (or any of its affiliates) relating to or
arising in connection with the China-U.S. Cable Network were fully
satisfied by the reclamation of STAR's capacity in such network and neither
STAR nor any of its affiliates has any further obligation or liability with
respect thereto, including without limitation payment of the amounts
claimed and owing by STAR according to that letter dated January 11, 2000
from Kou Yinsen, Director, CBP to Jim Kolsrud.
6.3 Additional Conditions to Obligations of STAR. The obligations of STAR
to effect the Merger are subject to the satisfaction of, or waiver by STAR, on
or prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of WAXS set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent in either case that such
representations and warranties speak as of another date, in which case any
such representations and warranties shall be true and correct as of such
date), except where any failures to be true and correct would not have a
Material Adverse Effect on WAXS, and STAR shall have received a certificate
of the chief executive officer and the chief financial officer of WAXS to
such effect.
(b) Performance of Obligations of WAXS. WAXS shall have performed or
complied in all material respects with all material agreements and
covenants required to be performed by it under this Agreement at or prior
to the Closing Date, and STAR shall have received a certificate of the
chief executive officer and the chief financial officer of WAXS to such
effect.
(c) Consents and Approvals. Other than the filing provided for under
Section 1.3, all consents, approvals and actions of, filings with and
notices to any Governmental Entity required to consummate the Merger and
the other transactions contemplated hereby, or of any other third party
required of WAXS or any of its Subsidiaries to consummate the Merger and
the transactions contemplated hereby, the failure of which to be obtained
or taken would have a Material Adverse Effect on WAXS, shall have been
obtained; provided, however, that the provisions of this Section 6.3(c)
shall not be available to STAR if its failure to fulfill any of its
obligations pursuant to Section 5.3 shall have been the cause of, or shall
have resulted in, the failure to obtain such consent or approval.
(d) No Material Change. WAXS shall not have suffered, since the date
hereof, a Material Adverse Effect, other than any change, circumstance or
effect relating (i) to the economy or financial markets in general, (ii) in
general to the industries in which WAXS operates and not specifically
relating to WAXS or (iii) the trading price of WAXS Common Stock.
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(e) Opinion of Counsel to WAXS. STAR shall have received from Long
Aldridge & Norman LLP an opinion, dated the Closing Date, in form and
substance reasonably satisfactory to STAR.
(f) No Injunctions or Restraints; Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other Governmental
Entity of competent jurisdiction shall be in effect (i) having the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS
after giving effect to the Merger; provided, however, that the provisions
of this Section 6.3(g) shall not be available to STAR if its failure to
fulfill its obligations pursuant to Section 5.3 shall have been the cause
of, or shall have resulted in any such order or injunction.
(g) Exchange Fund. An officer of the Exchange Agent shall have
certified in writing to STAR that the deposit required to be made by WAXS
into the Exchange Fund pursuant to Section 2.1 has been made in connection
with the establishment thereof.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, by action taken or authorized by the Board of Directors of the
terminating party or parties:
(a) By mutual written consent of WAXS and STAR;
(b) By either WAXS or STAR, if the other party shall have failed to
comply in any material respect with any of its material covenants or
agreements contained in this Agreement, which failure to so comply has not
been cured within ten (10) business days following receipt by such other
party of written notice of such failure to comply; provided, however, that
if any such breach is curable by the breaching party through the exercise
of the breaching party's reasonable efforts and for so long as the
breaching party shall be so using its reasonable efforts to cure such
breach, the non-breaching party may not terminate this Agreement pursuant
to this paragraph; and provided, further, that no party shall have the
right to terminate this Agreement pursuant to this Section 7.1(b) if such
party is then failing to comply in any material respect with any of its
covenants or agreements contained in this Agreement;
(c) By either WAXS or STAR, if there has been a breach by the other
party of any representations or warranties, which breach has not been cured
within ten (10) business days following receipt by such other party of
written notice of such failure to comply; provided, however, that if any
such breach is curable by the breaching party through the exercise of the
breaching party's reasonable efforts and for so long as the breaching party
shall be so using reasonable efforts to cure such breach, the non-breaching
party may not terminate this Agreement pursuant to this paragraph; and
provided further, that this provision shall not apply to such breaches
which would not have a Material Adverse Effect on WAXS or the Surviving
Corporation;
(d) By either STAR or WAXS, if the Effective Time shall not have
occurred on or before September 30, 2000 (the "Termination Date");
provided, however, that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to any party whose action or failure
to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date and any such action or failure constitutes a breach of
this Agreement by such party;
(e) By either STAR or WAXS if any Governmental Entity (i) shall have
issued an order, decree or ruling or taken any other action (which the
parties shall have used their reasonable efforts to resist, resolve or
lift, as applicable, in accordance with Section 5.3) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling, or other
action shall have become final and nonappealable or (ii) shall have failed
to
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issue an order, decree or ruling or to take any other action (which order,
decree, ruling or other action the parties shall have used their reasonable
efforts to obtain, in accordance with Section 5.3), which, in the case of
each of (i) and (ii) is necessary to fulfill the conditions set forth in
Section 6.2(f) with respect to WAXS or Section 6.3(g) with respect to STAR,
and such denial of a request to issue such order, decree, ruling or take
such other action shall have become final and nonappealable; provided,
however, that the right to terminate this Agreement under this Section
7.1(e) shall not be available to any party whose action or failure to
fulfill any obligation under this Agreement has been the cause of such
action or inaction and any such action or failure constitutes a breach of
this Agreement by such party;
(f) By WAXS or STAR if the adoption of this Agreement by the
stockholders of WAXS or the stockholders of STAR shall not have been
obtained by reason of the failure to obtain the Required WAXS Vote or the
Required STAR Vote, as applicable, in each case upon the taking of such
vote at a duly held meeting of stockholders of WAXS or STAR, or at any
adjournment thereof;
(g) By WAXS if the Board of Directors of STAR, prior to the Required
STAR Vote, shall make an Adverse Change in the STAR Recommendation (other
than in connection with STAR's termination of this Agreement pursuant to
Section 7.1(b)) or approve or recommend a Superior Proposal pursuant to
Section 5.4 or shall resolve to take any such actions;
(h) By STAR, at any time prior to the Required STAR Vote upon three
(3) business days' prior notice to WAXS, if its Board of Directors shall
have determined as of the date of such notice that an Acquisition Proposal
is a Superior Proposal; provided, however, that (i) STAR shall have
complied with Section 5.4, (ii) prior to such termination, STAR shall, if
requested by WAXS in connection with a revised proposal by it, negotiate in
good faith for such three (3) business day period with WAXS and (iii) the
Board of Directors of STAR shall have concluded in good faith, as of the
effective date of such termination, after taking into account any revised
proposal by WAXS during such three (3) business day period, that an
Acquisition Proposal is a Superior Proposal; and provided, further, that it
shall be a condition to termination by STAR pursuant to this Section 7.1(h)
that STAR shall have made the payment of the fee to WAXS pursuant to
Section 7.2(b);
(i) By WAXS, if (X) either STAR or any of its material Subsidiaries
(1) commences a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or consents to the entry
of an order for relief in an involuntary case under any such law, (2)
consents to the appointment of or taking possession by a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official
of STAR or any of its Subsidiaries or for all or a material portion of the
property or assets of STAR or any of its Subsidiaries or (3) effects any
general assignment for the benefit of creditors or (Y) a Governmental
Entity having jurisdiction enters a decree or order for (a) relief in
respect of STAR or any of its material Subsidiaries in an involuntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, (b) appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of STAR or any of its
Subsidiaries or for all or a material portion of the property and assets of
STAR or any of its Subsidiaries or (c) the winding up or liquidation of the
affairs of STAR or any of its material Subsidiaries and, in each case, such
decree or order shall remain unstayed and in effect for a period of 30
consecutive days; or
(j) By WAXS if there has been an Event of Default under the Credit
Agreement, of even date herewith, between WAXS and STAR.
7.2 Effect of Termination.
(a) In the event of any termination of this Agreement by either STAR
or WAXS, as provided in Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of WAXS or
STAR or their respective officers or directors except with respect to
Section 3.1(m), Section 3.2(l), the second sentence of Section 5.2, Section
5.5, Section 5.6, this Section 7.2, and Article VIII, which provisions
shall survive such termination and except that,
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notwithstanding anything to the contrary contained in this Agreement,
neither WAXS nor STAR shall be relieved or released from any liabilities or
damages arising out of its breach of this Agreement;
(b) If this Agreement is terminated by STAR pursuant to Section
7.1(h), STAR shall, prior to such termination, pay to WAXS $14,000,000 in
immediately available funds (the "Termination Fee");
(c) If this Agreement is terminated by WAXS pursuant to Section
7.1(g), STAR shall, within three (3) days following such termination, pay
to WAXS the Termination Fee; and
(d) If this Agreement is terminated by WAXS or STAR pursuant to
Section 7.1(f) because STAR's stockholders have failed to adopt this
Agreement by the Required Star Vote and STAR enters into a definitive
agreement with respect to a Business Combination within twelve (12) months
following such termination, then STAR shall pay to WAXS the Termination Fee
prior to or at the consummation thereof.
7.3 Amendment. This Agreement may be amended by STAR and WAXS, by action
taken or authorized by their respective Boards of Directors or representatives
or authorized officers, at any time before or after approval of the matters
presented in connection with the Merger by the stockholders of STAR and WAXS
(including, without limitation, an amendment as described in Section 6.2(h)),
but, after any such approval, no amendment shall be made which by law or in
accordance with the rules of any relevant stock exchange or automatic quotations
system requires further approval by such stockholders without such further
approval. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of STAR and WAXS.
7.4 Extension, Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, representatives or authorized officers, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and other agreements in this
Agreement or in any instrument delivered pursuant to this Agreement including
any rights arising out of any breach of such representations, warranties,
covenants and other agreements, shall survive the Effective Time, except for
those covenants and agreements contained herein and therein that by their terms
apply or are to be performed in whole or in part after the Effective Time and
this Article VIII.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, or by telecopy or facsimile, upon confirmation of receipt, (b) on
the first business day following the date of dispatch if delivered by a
recognized next day courier service, or (c) on the tenth business day following
the date of mailing if delivered by registered or certified mail return receipt
requested, postage prepaid All notices hereunder
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shall be delivered as set forth below, or pursuant to such other instructions as
may be designated in writing by the party to receive such notice:
(a) If to WAXS or Merger Sub, to:
World Access, Inc.
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, Georgia 30326
Facsimile No.: (404) 233-2280
Attention: John D. Phillips
with a copy to
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Facsimile No.: (404) 527-4198
Attention: H. Franklin Layson
(b) If to STAR to:
STAR Telecommunications, Inc.
223 East De La Guerra
Santa Barbara, California 93101
Facsimile No.: (805) 884-1137
Attention: Christopher E. Edgecomb
with a copy to
Riordan & McKinzie
Twenty-Ninth Floor
300 South Grand Avenue
Los Angeles, California 90071
Facsimile No.: (213) 229-8550
Attention: Richard J. Welch
8.3 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits, the WAXS Disclosure Schedule or the STAR Disclosure
Schedule, such reference shall be to a Section of or Exhibit or schedule to this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". All Exhibits, the WAXS
Disclosure Schedule and the STAR Disclosure Schedule are incorporated herein and
made a part hereof.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 Entire Agreement; No Third Party Beneficiaries.
(a) This Agreement and the Confidentiality Agreement constitute the
entire agreement and supersede all prior agreements and understandings,
both written and oral, including, without limitation, that certain Letter
of Intent, dated December 17, 1999, between WAXS and STAR, among the
parties with respect to the subject matter hereof.
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(b) This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any right,
benefit or remedy of any nature whatsoever under or by reason of this
Agreement, except as provided for in Section 5.12.
8.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware (without giving effect to
choice of law principles thereof).
8.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law or public policy, all
other terms and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the actions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
8.8 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto, in whole
or in part (whether by operation of law or otherwise), without the prior written
consent of the other parties, and any attempt to make any such assignment
without such consent shall be null and void. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
8.9 Submission to Jurisdiction; Waivers. Each of WAXS and STAR irrevocably
agrees that any legal action or proceeding with respect to this Agreement or for
recognition and enforcement of any judgment in respect hereof brought by the
other party hereto or its successors or assigns may be brought and determined in
the Chancery or other Courts of the State of Delaware, and each of WAXS and STAR
hereby irrevocably submits with regard to any such action or proceeding for
itself and in respect to its property, generally and unconditionally, to the
nonexclusive jurisdiction of the aforesaid courts. Each of WAXS and STAR hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this
Agreement, (i) any right to trial by jury with respect to any action, suit or
proceeding arising out of or relating to this Agreement, the Merger or any other
transaction contemplated hereby, (ii) any claim that it is not personally
subject to the jurisdiction of the above named courts for any reason other than
the failure to lawfully serve process, (iii) that it or its property is exempt
or immune from jurisdiction of any such court or from any legal process
commenced in such courts (whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment, execution of judgment or
otherwise), and (iv) to the fullest extent permitted by applicable law, that (a)
the suit, action or proceeding in any such court is brought in an inconvenient
forum, (b) the venue of such suit, action or proceeding is improper and (c) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
8.10 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms. It is accordingly agreed that the parties
shall be entitled to specific performance of the terms hereof, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.11 Headings. The headings contained in this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
8.12 Definitions. As used in this Agreement:
(a) "beneficial ownership" or "beneficially own" shall have the
meaning under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(b) "Board of Directors" means the Board of Directors of any specified
Person and any committees thereof.
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(c) "Business Combination" means (i) a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving a party as a
result of which either (A) such party's stockholders prior to such
transaction (by virtue of their ownership of such party's shares) in the
aggregate cease to own at least 65% of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent entity
thereof) or, regardless of the percentage of voting securities held by such
stockholders, if any Person shall beneficially own, directly or indirectly,
at least 20% of the voting securities of such ultimate parent entity, or
(B) the individuals comprising the board of directors of such party prior
to such transaction do not constitute a majority of the board of directors
of such ultimate parent entity, (ii) a sale, lease, exchange, transfer or
other disposition of at least 50% of the assets of such party and its
Subsidiaries, taken as whole, in a single transaction or a series of
related transactions, or (iii) the acquisition, directly or indirectly, by
a Person of beneficial ownership of 20% or more of the common stock of such
party whether by merger, consolidation, share exchange, business
combination, tender or exchange offer or otherwise.
(d) "Dissenters' Shares" means shares of STAR Common Stock for which
dissenter's rights of appraisal have been exercised pursuant to the DGCL.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(f) "GAAP" means United States generally accepted accounting
principles.
(g) "Known" or "Knowledge" means, with respect to any party, the
knowledge of such party's executive officers after reasonable inquiry.
(h) "Material Adverse Effect" means, with respect to any entity, any
change, circumstance or effect or any breach of the provisions of this
Agreement that, individually or in the aggregate with all other changes,
circumstances and effects or breaches, is or would reasonably be expected
to be materially adverse to (i) the business, financial condition or
results of operations of such entity and its Subsidiaries taken as a whole,
or (ii) the ability of such entity (or the party owning such entity) to
consummate the transactions contemplated by this Agreement.
(i) "Nasdaq" means the National Market System of the NASDAQ Stock
Market.
(j) "Net PT-1 Proceeds" means the cash proceeds received by STAR at
the consummation of the PT-1 Sale, net of all Taxes, fees, expenses and
costs incurred in connection with the PT-1 Sale, including, without
limitation:
(1) fees or expenses for investment banking or other financial
services;
(2) agency, brokerage, finder's or other similar fees or
commissions;
(3) legal, accounting, consulting or other professional fees or
expenses;
(4) the cost of any remedial or corrective actions or measures;
(5) the costs associated with the transfer or termination of any
PT-1 employees; or
(6) the costs of any right or obligation the vesting of which is
accelerated by the PT-1 Sale.
(k) "Person" means an individual, corporation, limited liability
company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(l) "Pre-Closing Price" means the closing price of WAXS Common Stock
as reported on the Nasdaq for the trading day (in which such shares are
traded on the Nasdaq) ending at the close of trading on the second (2nd)
trading day preceding the Closing.
(m) "PT-1 Excess Proceeds" means the Net PT-1 Proceeds in excess of
$150,000,000.
(n) "SEC" means the Securities and Exchange Commission.
(o) "Securities Act" means the Securities Act of 1933, as amended.
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<PAGE> 336
(p) "Subsidiary", when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which
held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of
the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the Board of Directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and one or more of
its Subsidiaries.
(q) "Superior Proposal" means a written proposal made by a Person
unaffiliated with STAR which is for (I) (i) a merger, reorganization,
consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or similar transaction involving STAR as a result
of which either (A) STAR's stockholders prior to such action (by virtue of
their ownership of STAR's shares) in the aggregate cease to own at least
50% of the voting securities of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof) or (B) the individuals
comprising the board of directors of STAR prior to such transaction do not
constitute a majority of the board of directors of such ultimate parent
entity, (ii) a sale, lease, exchange, transfer or other disposition of at
least 50% of the assets of STAR and its Subsidiaries, taken as a whole, in
a single transaction or a series of related transactions, or (iii) the
acquisition, directly or indirectly, by a Person of beneficial ownership of
50% or more of the common stock of STAR whether by merger, consolidation,
share exchange, business combination, tender or exchange offer or
otherwise, and which is (II) otherwise on terms which the Board of
Directors of STAR in good faith concludes (after consultation with its
financial advisors and outside legal counsel), taking into account among
other things, all legal, financial, regulatory and other aspects of the
proposal and the Person making the proposal, (i) would, if consummated,
result in a transaction that is more favorable to its stockholders (in
their capacities as stockholders), from a financial point of view, than the
transactions contemplated by this Agreement and (ii) is reasonably capable
of being completed.
(r) "Tax" (and, with correlative meaning, "Taxes" shall mean: (i) all
taxes, charges, fees, levies or other assessments, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including, but not limited
to, federal income taxes and state income taxes), payroll and employee
withholding taxes, unemployment insurance, social security taxes, sales and
use taxes, ad valorem taxes, excise taxes, employer tax, estimated,
severance, telecommunications, occupation, goods and services, capital,
profits, value added taxes, franchise taxes, gross receipts taxes, business
license taxes, occupation taxes, real and personal property taxes, stamp
taxes, environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges, and
other obligations of the same or of a similar nature to any of the
foregoing, which the Person is required to pay, withhold or collect; and
(ii) any liability for the payment of any amounts described in clause (i)
as a result of being a successor to or transferee of any individual or
entity or a member of an affiliated, consolidated or unitary group for any
period (including pursuant to Treas. Reg. sec. 1.1502-6 or comparable
provisions of state, local or foreign tax law); and (iii) any liability for
the payment of amounts described in clause (i) or clause (ii) as a result
of any express or implied obligation to indemnify any Person or as a result
of any obligations under agreements or arrangements with any Person.
(s) "Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any
other credit or tax attribute which could reduce Taxes (including, without
limitation, credits related to alternative minimum Taxes).
(t) "Tax Return" shall mean all reports, estimates, declarations of
estimated tax, information statements and returns (including any attached
schedules) or similar statement relating to, or required
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<PAGE> 337
to be filed in connection with, any Taxes, including information returns or
reports with respect to backup withholding and other payments to third
parties.
(u) "Tax Sharing Agreement" shall mean any and all existing Tax
sharing agreements, or arrangements written or unwritten, express or
implied, binding two or more Persons with respect to the payment of Taxes,
including any agreements or arrangements which afford any other Person the
right to receive any payment from one or more other Persons in respect to
any Taxes or the benefit of any Tax Asset of one or more other Persons or
require or permit the transfer or assignment of any income, revenue,
receipts or gains.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE> 338
IN WITNESS WHEREOF, WAXS, Merger Sub and STAR have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first above written.
WAXS:
WORLD ACCESS, INC.
By: /s/ John D. Phillips
------------------------------------
Name: John D. Phillips
Title: Chairman and Chief
Executive Officer
STAR:
STAR TELECOMMUNICATIONS, INC.
By: /s/ Christopher E. Edgecomb
------------------------------------
Name: Christopher E. Edgecomb
Title: President
MERGER SUB:
STI MERGER CO.
By: /s/ John D. Phillips
------------------------------------
Name: John D. Phillips
Title: Chairman and Chief
Executive Officer
A-37
<PAGE> 339
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"), dated as
of June 7, 2000, by and among World Access, Inc., a Delaware corporation
("WAXS"), STI Merger Co., a Delaware corporation and wholly-owned subsidiary of
WAXS ("Merger Sub"), and STAR Telecommunications, Inc., a Delaware corporation
("STAR").
WITNESSETH:
WHEREAS, WAXS, Merger Sub and STAR are parties to that certain Agreement
and Plan of Merger, dated as of February 11, 2000 (the "Merger Agreement"),
pursuant to which STAR will merge with and into Merger Sub;
WHEREAS, the parties have agreed to make certain amendments to the Merger
Agreement; and
WHEREAS, capitalized terms used, but not otherwise defined herein, shall
have the meanings given to such terms in the Merger Agreement.
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties to hereby mutually agree as follows:
1. Section 1.6(c) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"Subject to Section 2.4, each share of STAR Common Stock issued and
outstanding immediately prior to the Effective Time (other than the
Dissenter's Shares (as defined in Section 8.12)) shall be converted into
the right to receive, at the election of WAXS by written notice to STAR
prior to the Closing, (i) the number of shares of WAXS Common Stock
obtained by solving for "X" in the following formula (the "Exchange
Ratio"):
<TABLE>
<S> <C> <C> <C> <C>
X = 7.7319 + Z
-------------
20
</TABLE>
or (ii) such number of shares of WAXS Common Stock as shall equal up to
sixty percent (60%) of the Exchange Ratio and an amount in cash equal up
to forty percent (40%) of the average closing price of the WAXS Common
Stock on Nasdaq for the ten (10) trading day period ending at the close
of trading on the trading day immediately preceding the Closing Date
multiplied by "X"; provided, however, that WAXS and STAR expressly agree
that, notwithstanding anything in this Agreement to the contrary, in
order to ensure that the Merger satisfies the continuity of interest
requirement under Treasury Regulation Section 1.368-l(e), in no event
shall WAXS issue cash for more than forty-five percent (45%) of the
outstanding shares of STAR Common Stock, including for purposes of this
calculation cash paid for fractional shares pursuant to Section 2.4 and
cash paid for Dissenters' Shares.
For purposes of this Section 1.6, "Z" shall equal the PT-1 Excess
Proceeds (as defined in Section 8.12) divided by 62,856,702. All shares
of STAR Common Stock, at the Effective Time, shall no longer be
outstanding and shall automatically be canceled and retired and each
holder of a certificate representing any such shares (a "Certificate")
shall cease to have any rights with respect thereto, except as set forth
in this Section 1.6(c), Section 2.4 or at law. The shares of WAXS Common
Stock issued pursuant to this Section 1.6(c) together with any cash in
lieu of fractional shares paid pursuant to Section 2.4 shall be referred
to herein as the "Merger Consideration."
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<PAGE> 340
2. Section 5.15 of the Merger Agreement is hereby amended by appending
the following to the end of such section:
"Notwithstanding the foregoing, the amount of the Interim Financing
available to STAR and STAR Telecommunications GmbH shall be reduced on a
dollar-for-dollar basis for each dollar of additional financing provided
to STAR or its Subsidiaries by MCI WorldCom Network Services, Inc., or
any of its affiliates, from the date hereof, up to an aggregate of
$30,000,000."
3. Section 6.2(d) of the Merger Agreement is hereby amended by
deleting the word "or" prior to "(iii)"; and by appending the following to
the end of such section:
"or (iv) to an action taken by STAR at the specific request of
World Access."
4. Section 6.2(h) of the Merger Agreement is hereby amended by
appending the following sentence to the end of such section:
"The condition set forth in this Section 6.2(h) shall be deemed
satisfied provided that (a) STAR shall have consummated the sale of the
assets of PT-1 pursuant to the terms and conditions of that certain
Asset Purchase Agreement, dated as of June 6, 2000, between Counsel
Communications LLC, a Delaware limited liability company, PT-1, and
STAR, set forth as Schedule 6.2(h) hereto (the "Sale to Counsel") and
(b) the Sale to Counsel shall have resulted in the Net PT-1 Sale
Proceeds of at least $120,000,000. Solely for the purposes of
determining whether the Sale to Counsel results in Net PT-1 Sale
Proceeds of at least $120,000,000, the parties have agreed that with
respect to the following items (and not to any other Tax, fee, expense
or cost for which no agreement has been reached, including, without
limitation, Taxes due with respect to the Sale to Counsel) the cost
attributable to such items will be fixed at the amounts set forth below:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ----------
<C> <S> <C>
(i) Switch Partition Services Agreement
Credit............................... $1,000,000
(ii) Tax refunds forgone in order to apply
1999 net operating losses against any
gain which results from the Sale to
Counsel.............................. $6,700,000"
</TABLE>
5. Section 6.2(i) of the Merger Agreement is hereby deleted in its
entirety and replaced with the following:
"STAR (or any of its affiliates) shall not have received
notification, and WAXS shall not have any reasonable reason to believe,
that any and all obligations of STAR (or any of its affiliates) relating
to or arising in connection with the China-U.S. Cable Network were not
fully satisfied by the reclamation of STAR's capacity in such network
and that neither STAR nor any of its affiliates has any further
obligation or liability with respect thereto."
6. Except as expressly set forth in this Amendment, the Merger
Agreement shall remain in full force and effect and shall not be deemed to
have been modified or amended by this Amendment.
7. This Amendment constitutes the entire understanding of the parties
with respect to the subject matter hereof, and any other prior or
contemporaneous agreements, whether written or oral, with respect thereto
are expressly superseded hereby.
8. This Amendment may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE> 341
IN WITNESS WHEREOF, WAXS, Merger Sub and STAR have caused this Amendment to
be signed by their respective officers thereunto duly authorized, all as of the
date first above written.
WAXS:
WORLD ACCESS, INC.
By: /s/ W. TOD CHMAR
------------------------------------
Name: W. Tod Chmar
Title: Executive Vice President
STAR:
STAR TELECOMMUNICATIONS, INC.
By: /s/ CHRISTOPHER E. EDGECOMB
------------------------------------
Name: Christopher E. Edgecomb
Title: Chief Executive Officer
MERGER SUB:
STI MERGER CO.
By: /s/ W. TOD CHMAR
------------------------------------
Name: W. Tod Chmar
Title: President
A-40
<PAGE> 342
ANNEX B
AGREEMENT AND PLAN OF MERGER
AMONG
WORLD ACCESS, INC.
COMMUNICATION TELESYSTEMS INTERNATIONAL D/B/A
WORLDXCHANGE COMMUNICATIONS
<PAGE> 343
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of February 11, 2000 (this
"Agreement"), by and among World Access, Inc., a Delaware corporation ("WAXS"),
CTI Merger Co., a Delaware corporation and wholly-owned subsidiary of WAXS
("Merger Sub"), and Communication TeleSystems International d/b/a WorldxChange
Communications, a California corporation ("CTI").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of CTI and WAXS deem it advisable and in
the best interests of each corporation and its respective stockholders that CTI
and WAXS engage in a business combination in order to advance the long-term
strategic business interests of CTI and WAXS;
WHEREAS, the combination of CTI and WAXS shall be effected by the terms of
this Agreement through a merger as outlined below (the "Merger");
WHEREAS, in furtherance thereof, the respective Boards of Directors of CTI,
Merger Sub and WAXS have approved the Merger, upon the terms and subject to the
conditions set forth in this Agreement, pursuant to which each share of common
stock, par value $.01 per share, of CTI ("CTI Common Stock"), each share of
preferred stock, Series A, no par value per share, of CTI (the "CTI Series A
Preferred Stock") and each share of preferred stock, Series B, no par value per
share, of CTI (the "CTI Series B Preferred Stock") (the CTI Series A Preferred
Stock and the CTI Series B Preferred Stock are collectively referred to herein
as the "CTI Preferred Stock" and the CTI Preferred Stock and the CTI Common
Stock are collectively referred to herein as the "CTI Capital Stock") issued and
outstanding immediately prior to the Effective Time (as defined in Section 1.3)
will be converted into the right to receive the consideration set forth in
Section 1.7;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
promulgated thereunder; and
WHEREAS, simultaneously with the execution and delivery of this Agreement,
WAXS is entering into an agreement with each of Roger Abbott and Rosalind
Abbott, Atocha, L.P., Gold & Appel Transfer S.A. and Edward Soren (the
"Principal Stockholders") pursuant to which each Principal Stockholder will
agree to, among other things, vote in favor of the Merger and certain
restrictions on the transfer of the consideration received in the Merger.
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<PAGE> 344
NOW, THEREFORE, in consideration of the mutual representations, warranties
and covenants contained herein, and upon and subject to the terms and the
conditions hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL") and the California General Corporation Law (the "CGCL"), CTI shall be
merged with and into Merger Sub at the Effective Time (as defined below).
Following the Merger, the separate corporate existence of CTI shall cease and
Merger Sub shall continue as the surviving corporation (the "Surviving
Corporation").
1.2 Closing. Subject to the satisfaction or waiver of the conditions set
forth in Article VII, the closing of the Merger and the transactions
contemplated by this Agreement (the "Closing") will take place on the second
business day following the satisfaction or written waiver of such conditions,
unless another time or date is agreed to in writing by the parties hereto (the
date of the Closing being referred to herein as the "Closing Date"). The Closing
shall be held at the offices of Long Aldridge & Norman LLP, 303 Peachtree
Street, Suite 5300, Atlanta, Georgia 30303.
1.3 Effective Time. On the Closing Date the parties shall (i) file a
certificate of merger in such form as is required by, and executed in accordance
with, the relevant provisions of the DGCL (the "Delaware Certificate of Merger")
and an agreement of merger in such form as is required by, and executed in
accordance with, the relevant provisions of the CGCL (the "California Agreement
of Merger") and (ii) make all other filings or recordings required under the
DGCL and the CGCL in connection with the Merger. The Merger shall become
effective at such time as the Delaware Certificate of Merger and the California
Agreement of Merger are duly filed with the Delaware Secretary of State and the
California Secretary of State, respectively, or at such subsequent time as WAXS
and CTI shall agree and as shall be specified in the Delaware Certificate of
Merger and the California Agreement of Merger (the date and time the Merger
becomes effective being the "Effective Time").
1.4 Effects of the Merger. At and after the Effective Time, the Merger
will have the effects set forth in the DGCL and the CGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers, licenses, authorizations and franchises of
Merger Sub and CTI shall be vested in the Surviving Corporation, and all debts,
liabilities and duties of Merger Sub and CTI shall become the debts, liabilities
and duties of the Surviving Corporation.
1.5 Articles of Incorporation/Bylaws. The articles of incorporation and
bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the articles of incorporation and bylaws of the Surviving Corporation,
until thereafter changed or amended as provided therein or by applicable law.
1.6 New Directors of WAXS. Immediately following the Effective Time, WAXS
shall cause one (1) designee of CTI to be elected to the Board of Directors of
WAXS. Such CTI designee shall be Walt Anderson, or such other person designated
by Gold & Appel Transfer S.A. and reasonably acceptable to WAXS.
1.7 Conversion of Securities. At the Effective Time, by virtue of the
Merger and without any action on the part of WAXS, Merger Sub, CTI or the
holders of any of the following securities:
(a) [Intentionally Omitted.]
(b) Each share of CTI Capital Stock issued and outstanding and
directly or indirectly owned or held by CTI or a Subsidiary (as defined in
Section 3.1(b)) thereof at the Effective Time shall, by virtue of the
Merger, cease to be outstanding and shall be canceled and retired and no
capital stock of WAXS or other consideration shall be delivered in exchange
therefor.
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<PAGE> 345
(c) Subject to Sections 2.4, 2.5 and 2.14 hereof, each share of CTI
Capital Stock issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive 0.6583 (the "Exchange
Ratio") shares of common stock, par value $.01 per share, of WAXS ("WAXS
Common Stock"). All shares of CTI Capital Stock, as of the Effective Time,
shall no longer be outstanding and shall automatically be canceled and
retired and each holder of a certificate representing any such shares (a
"Certificate") shall cease to have any rights with respect thereto, except
as set forth in this Section 1.7(c), Section 2.4, Section 2.5 and/or
Section 2.14 and as provided under applicable law. The shares of WAXS
Common Stock issuable pursuant to Section 1.7(c) and, if applicable, the
Contingent Shares issuable pursuant to Section 1.7(d), together with any
cash in lieu of fractional shares paid pursuant to Section 2.4, shall be
referred to herein collectively as the "Merger Consideration."
(d) In the event that the average of the closing prices of WAXS Common
Stock as reported on the National Market System of the Nasdaq Stock Market
(the "Nasdaq") for the ten (10) trading-day period ending at the close of
trading on the second (2nd) trading day preceding the Closing (the
"Averaging Period") is less than $20.38, then in addition to the shares of
WAXS Common Stock issued pursuant to Section 1.7(c), each CTI stockholder
who receives shares of WAXS Common Stock pursuant to Section 1.7(c) shall
be entitled to receive, subject to Section 2.5, the amount, if any (the
"Contingent Amount"), by which the Target Price (as defined below) exceeds
the greater of (X) the Current Market Price (as defined below) on the first
anniversary of the Effective Time (the "Maturity Date") and (Y) the Floor
Price (as defined below), multiplied by the number of shares of WAXS Common
Stock issued to such holder pursuant to Section 1.7(c). The maximum number
of Contingent Shares that may be issued to CTI stockholders pursuant to
this Section 1.7(d) shall in all events be less than fifty percent (50%) of
the sum of the shares of WAXS Common Stock issued pursuant to Section
1.7(c) plus the number of Contingent Shares issued pursuant to this Section
1.7(d). The Contingent Amount shall only be paid in shares of WAXS Common
Stock (the "Contingent Shares"), which shares shall be valued for purposes
hereof at the greater of the Current Market Price as of the Maturity Date
and the Floor Price and rounded to the nearest whole share. Notwithstanding
anything to the contrary contained in this Agreement, any and all rights
in, or to receive, the Contingent Amount shall terminate and be of no
further force or effect if, at any time on or prior to the Maturity Date,
the Current Market Price is greater than the Target Price. The parties
further acknowledge and agree that if any shares of WAXS Common Stock
constituting part of the Escrow Fund (as defined in Section 2.5) are
released to WAXS in accordance with the Escrow Agreement (as defined in
Section 7.1(e)), then the right to receive the Contingent Amount with
respect to such shares of WAXS Common Stock shall terminate and be of no
further force or effect. Neither the right to receive the Contingent Shares
nor any interest therein shall be transferable or assignable by a holder of
CTI Capital Stock except by operation of law. The terms and conditions
relating to the Contingent Shares have been negotiated by WAXS and CTI so
as to satisfy, to the extent possible, the specific requirements of Section
3.03 of the IRS Revenue Procedure 77-37, as it has been amplified and
superseded, which established the circumstances under which the Internal
Revenue Service (the "IRS") previously issued advance rulings on contingent
stock arrangements in mergers intended to qualify as "reorganizations"
under Section 368(a) of the Code. Solely for purposes of this Agreement's
compliance with such Revenue Procedure, the maximum number of shares of
WAXS Common Stock issuable pursuant to Sections 1.7(c) and 2.6(b), and as
Contingent Shares pursuant to this Section 1.7(d) is 58,146,739 shares of
WAXS Common Stock.
For purposes hereof, (a) the "Target Price" means $20.38 per share of
WAXS Common Stock; provided, however, that if the Nasdaq Composite Index
(the "IXIC") at the close of trading on the Maturity Date is eighty-five
percent (85%), or less, of the IXIC at the close of trading on the date of
the Effective Time (the difference between one hundred percent (100%) and
such percentage being referred to as the "Market Correction Percentage"),
then the Target Price shall be reduced by a percentage equal to that
portion of the Market Correction Percentage in excess of fifteen percent
(15%); (b) the "Current Market Price" means, as of any date specified
herein, the average of the daily closing trading prices of WAXS Common
Stock, as reported on the Nasdaq, for the
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<PAGE> 346
twenty (20) consecutive trading days (in which such shares are traded on
the Nasdaq) ending at the close of trading on such date; (c) the "Floor
Price" means $11.50 per share of WAXS Common Stock; and (d) references to
the "close of trading" as of or on a particular date shall mean such date,
or if such date is not a trading day or no shares of WAXS Common stock are
traded on the Nasdaq on such date, the last trading day preceding such date
on which shares of WAXS Common Stock were traded on the Nasdaq.
1.8 CTI Stock Options.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of CTI, WAXS, Merger Sub or the holder of any
outstanding CTI Stock Option (as defined in Section 3.2), each CTI Stock
Option will be automatically converted into (i) an option to purchase
shares of WAXS Common Stock (a "WAXS Stock Option") in an amount equal to
the number of shares of CTI Common Stock covered under such CTI Stock
Option multiplied by the Exchange Ratio (rounded to the nearest whole
number of shares of WAXS Common Stock) at a price per share of WAXS Common
Stock equal to the per share option exercise price specified in the CTI
Stock Option divided by the Exchange Ratio (rounded to the nearest whole
cent) and (ii) if applicable, the right to acquire for no additional
consideration such number of Contingent Shares as is equal to the number of
Contingent Shares the holder of such CTI Stock Option would be entitled to
receive pursuant to Section 1.7(d) if such CTI Stock Option had been
exercised immediately prior to the Effective Time. Each WAXS Stock Option
shall contain terms and provisions which are substantially similar to those
terms, conditions and provisions governing the original CTI Stock Option,
except that references to CTI in such CTI Stock Option will be deemed to
refer to WAXS and the date of grant of the CTI Stock Option shall be deemed
to be the date of grant of such WAXS Stock Option. At the Effective Time,
for purposes of interpretation of such new WAXS Stock Option, (i) all
references in any stock option plan of CTI (including, without limitation,
CTI's 1996 and 1999 Stock Option/Stock Purchase Plans) shall be deemed to
refer to WAXS; (ii) any stock option plan of CTI which governs the CTI
Stock Option shall continue to govern the WAXS Stock Option substituted
therefor; and (iii) WAXS shall, as soon as practicable after the Effective
Time, issue to each holder of an outstanding CTI Stock Option such
documentation as appropriately evidences the foregoing issued and
substituted WAXS Stock Option by WAXS. It is the intention of the parties:
(1) that, subject to applicable law, CTI Stock Options assumed by WAXS
qualify, following the Effective Time, as incentive stock options, as
defined in Section 422 of the Code, to the extent that CTI Stock Options
qualified as incentive stock options prior to the Effective Time, (2) that
each holder of a CTI Stock Option shall receive a new WAXS Stock Option
which preserves (but does not increase) the excess of the fair market value
of the shares subject to such CTI Stock Option immediately before the
Effective Time over the aggregate option price of such shares immediately
before the Effective Time, if any such excess then exists, (3) that the
terms, conditions, restrictions and provisions of the WAXS Stock Option be
substantially similar to the terms, conditions, restrictions and provisions
of the applicable CTI Stock Option, including without limitation, the same
vesting schedule (other than to the extent accelerated pursuant to the
existing terms of such CTI Stock Option or plan under which such Stock
Option was granted), and (4) any terms conditions, restrictions or
provisions of a CTI Stock Option applicable to a number of shares rather
than a percentage or fraction of shares should be appropriately adjusted
based upon the Exchange Ratio.
(b) With respect to each CTI Stock Option converted into a WAXS Stock
Option pursuant to Section 1.8(a), and with respect to the shares of WAXS
Common Stock and Contingent Shares, if any, in respect of such shares of
WAXS Common Stock underlying such option, WAXS shall file and keep current
all requisite registration statements, on Form S-8 or other appropriate
form(s), and comply in all other material respects with applicable state
and federal requirements for as long as such options remain outstanding.
(c) After the date of this Agreement, CTI agrees that it will not (x)
grant any options, warrants or other rights to acquire any shares of CTI
Capital Stock (except as set forth on SCHEDULE 5.1(C)),
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including any restricted stock, stock appreciation rights, limited stock
appreciation rights or any other stock rights, (y) permit cash payments to
holders of CTI Stock Options in lieu of the substitution therefor of WAXS
Stock Options, as described in this Section 1.8 or (z) modify the vesting
rules under any CTI Stock Option outstanding on the date hereof or take any
other action (other than the transactions contemplated in this Agreement)
which in any way would have the effect of accelerating the vesting of the
options granted thereunder.
(d) A holder of a WAXS Stock Option into which a CTI Stock Option has
been converted in accordance with this Section 1.8 may exercise such option
in whole or in part in accordance with its terms by delivering a properly
executed notice of exercise to WAXS, together with the consideration
therefor and the federal withholding tax information, if any, required in
accordance with the related stock option plan.
1.9 Certain Adjustments. If between the date hereof and the Effective
Time, the outstanding WAXS Common Stock or CTI Capital Stock shall have been
changed into a different number of shares or different class by reason of any
reclassification, recapitalization, stock split, split-up, combination or
exchange of shares or a stock dividend or dividend payable in any other
securities shall be declared with a record date within such period, or any
similar event shall have occurred, the Exchange Ratio shall be appropriately
adjusted to provide to the holders of CTI Capital Stock and CTI Stock Options
the same economic effect as contemplated by this Agreement prior to such event.
ARTICLE II
EXCHANGE OF CERTIFICATES
2.1 Exchange Fund. Prior to the Effective Time, WAXS shall appoint a
commercial bank or trust company reasonably acceptable to CTI to act as exchange
agent hereunder (the "Exchange Agent") for the purpose of exchanging
Certificates for the Merger Consideration. At or prior to the Effective Time,
WAXS shall deposit with the Exchange Agent, in trust for the benefit of holders
of shares of CTI Capital Stock, certificates representing the WAXS Common Stock
issuable pursuant to Section 1.7 in exchange for outstanding shares of CTI
Capital Stock. WAXS agrees to make available to the Exchange Agent from time to
time as needed, cash sufficient to pay cash in lieu of fractional shares
pursuant to Section 2.4 and any dividends and other distributions pursuant to
Section 2.3. Any cash, certificates of WAXS Common Stock deposited with the
Exchange Agent shall hereinafter be referred to as the "Exchange Fund".
2.2 Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of a Certificate (i) a letter of transmittal which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Exchange Agent, and
which letter shall be in customary form and have such other provisions as WAXS
may reasonably specify and (ii) instructions for effecting the surrender of such
Certificates in exchange for the applicable Merger Consideration. Upon surrender
of a Certificate to the Exchange Agent together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, and
such other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate shall be entitled to receive in exchange therefor (A)
one or more shares of WAXS Common Stock (which shall be in uncertificated book
entry form unless a physical certificate is requested) representing, in the
aggregate, the whole number of shares that such holder has the right to receive
pursuant to Section 1.7 (after taking into account all shares of CTI Capital
Stock then held by such holder), and (B) a check in the amount equal to the cash
that such holder has the right to receive pursuant to this Article II, including
cash in lieu of any additional shares of WAXS Common Stock pursuant to Section
2.4 and dividends and other distributions pursuant to Section 2.3. No interest
will be paid or will accrue on any cash payable pursuant to Section 2.3 or
Section 2.4. In the event of transfer of ownership of CTI Capital Stock which is
not registered in the transfer records of CTI, one or more certificates
evidencing, in the aggregate, the proper number of shares of WAXS Common Stock,
a check in the proper amount of cash in lieu of any additional shares of
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WAXS Common Stock pursuant to Section 2.4, and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.3, may be
issued with respect to such CTI Capital Stock to such a transferee if the
Certificate representing such shares of CTI Capital Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid.
2.3 Distributions with Respect to Unexchanged Shares. No dividends or
other distributions declared or made with respect to shares of WAXS Common Stock
with a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of WAXS Common Stock that
such holder would be entitled to receive upon surrender of such Certificate and
no cash payment in lieu of fractional shares of WAXS Common Stock shall be paid
to any such holder pursuant to Section 2.4 until such holder shall surrender
such Certificate in accordance with Section 2.2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to such holder of shares of WAXS Common Stock issuable in exchange
therefor, without interest, (a) promptly after the time of such surrender, the
amount of any cash payable in lieu of fractional shares of WAXS Common Stock to
which such holder is entitled pursuant to Section 2.4 and the amount of
dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of WAXS Common Stock, and (b)
at the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such shares of
WAXS Common Stock.
2.4 No Fractional Shares of WAXS Common Stock.
(a) No certificates or scrip or shares of WAXS Common Stock
representing fractional shares of WAXS Common Stock or book-entry credit of
the same shall be issued upon the surrender for exchange of Certificates,
and such fractional share interests will not entitle the owner thereof to
vote or to have any rights of a stockholder of WAXS.
(b) Except for Contingent Shares, if any, notwithstanding any other
provision of this Agreement, each holder of a Certificate exchanged for
Merger Consideration who would otherwise have been entitled to receive a
fraction of a share of WAXS Common Stock (after taking into account all
Certificates delivered by such holder) shall receive, in lieu thereof, cash
(without interest) in an amount equal to the product of (i) such fractional
part of a share of WAXS Common Stock multiplied by (ii) the average closing
price of WAXS Common Stock on the Nasdaq over the Averaging Period. As
promptly as practicable after the determination of the amount of cash, if
any, to be paid to holders of fractional interests, the Exchange Agent
shall so notify WAXS, and WAXS shall cause the Surviving Corporation to
deposit such amount with the Exchange Agent and shall cause the Exchange
Agent to forward payments to such holders of fractional interests subject
to and in accordance with the terms hereof.
2.5 Escrow of Shares.
(a) At the Closing, 2,453,385 of the shares of WAXS Common Stock to be
issued to CTI's stockholders pursuant to Section 1.7(c) (collectively, the
"Escrow Fund") shall be delivered to SunTrust Bank, Atlanta (the "Escrow
Agent"), which Escrow Fund shall serve as the sole and exclusive source of
recovery for any WAXS Protected Party (as defined in Section 8.1) for any
indemnification claims hereunder. The Escrow Fund shall be held in escrow
and released pursuant to the terms and conditions of the Escrow Agreement
(as defined in Section 7.1(e)). The terms and conditions of the Escrow
Agreement have been structured by WAXS and CTI so as to satisfy the
specific requirements of Section 3.06 of IRS Revenue Procedure 77-37, as it
has been amplified and superseded, which established the circumstances
under which the IRS previously issued advance rulings on the escrow of
stock in mergers intended to qualify as "reorganizations" under Section
368(a) of the Code.
(b) If any Contingent Shares are issued at a time that shares of WAXS
Common Stock remain in escrow pursuant to the Escrow Agreement (as defined
in Section 7.1(d)), then any Contingent
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Shares that are issued with respect to such shares of WAXS Common Stock
shall be delivered to the Escrow Agent and shall be held and released in
accordance with the terms and conditions of Section 4 of the Escrow
Agreement.
2.6 No Further Ownership Rights in CTI Capital Stock.
(a) All shares of WAXS Common Stock issued and cash paid upon
conversion of shares of CTI Capital Stock in accordance with the terms of
this Article II (including any cash paid pursuant to Section 2.4) shall be
deemed to have been issued or paid in full satisfaction of all rights
pertaining to the shares of CTI Capital Stock.
(b) Any accrued and unpaid dividends owed upon consummation of the
Merger to any holder of CTI Preferred Stock in connection with the
automatic conversion of such CTI Preferred Stock under the articles of
incorporation of CTI shall be paid, at the Closing, solely in shares of
WAXS Common Stock (valued at $20.38 per share). Any such shares so issued
to any holder of CTI Preferred Stock shall not affect the Exchange Ratio.
2.7 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of Certificates for six months after the
Effective Time shall be delivered to the Surviving Corporation or otherwise on
the instruction of the Surviving Corporation, and any holders of the
Certificates who have not theretofore complied with this Article II shall
thereafter look only to the Surviving Corporation and WAXS for the Merger
Consideration with respect to the shares of CTI Capital Stock formerly
represented thereby to which such holders are entitled pursuant to Section 1.7
and Section 2.2, any cash in lieu of fractional shares of WAXS Common Stock to
which such holders are entitled pursuant to Section 2.4 and any dividends or
distributions with respect to shares of WAXS Common Stock to which such holders
are entitled pursuant to Section 2.3. Any such portion of the Exchange Fund
remaining unclaimed by holders of shares of CTI Capital Stock five years after
the Effective Time (or such earlier date immediately prior to such time as such
amounts would otherwise escheat to or become property of any Governmental Entity
(as defined in Section 3.6) shall, to the extent permitted by law, become the
property of the Surviving Corporation free and clear of any claims or interest
of any person previously entitled thereto.
2.8 No Liability. None of WAXS, Merger Sub, CTI, the Surviving Corporation
or the Exchange Agent shall be liable to any person in respect of any Merger
Consideration from the Exchange Fund delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
2.9 Investment of the Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund as directed by the Surviving Corporation on a
daily basis. Any interest and other income resulting from such investments shall
promptly be paid to the Surviving Corporation.
2.10 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will deliver in exchange for such lost stolen or destroyed Certificate the
applicable Merger Consideration with respect to the shares of CTI Capital Stock
formerly represented thereby, any cash in lieu of fractional shares of WAXS
Common Stock, and unpaid dividends and distributions on shares of WAXS Common
Stock deliverable in respect thereof, pursuant to this Agreement.
2.11 Withholding Rights. Each of the Surviving Corporation and WAXS shall
be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of CTI Capital Stock such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations promulgated
thereunder, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or WAXS, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as
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having been paid to the holder of the shares of CTI Capital Stock in respect of
which such deduction and withholding was made by the Surviving Corporation or
WAXS, as the case may be.
2.12 Further Assurances. At and after the Effective Time, the officers and
directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of CTI or Merger Sub, any deeds, bills of
sale, assignments or assurances and to take and do, in the name and on behalf of
CTI or Merger Sub, any other actions and things to vest, perfect or confirm of
record or otherwise in the Surviving Corporation any and all right, title and
interest in, to and under any of the rights, properties or assets acquired or to
be acquired by the Surviving Corporation as a result of, or in connection with,
the Merger.
2.13 Stock Transfer Books. The stock transfer books of CTI shall be closed
immediately upon the Effective Time and there shall be no further registration
of transfers of shares of CTI Capital Stock thereafter on the records of CTI. On
or after the Effective Time, any Certificates presented to the Exchange Agent or
WAXS for any reason shall be converted into the Merger Consideration with
respect to the shares of CTI Capital Stock formerly represented thereby, any
cash in lieu of fractional shares of WAXS Common Stock to which the holders
thereof are entitled pursuant to Section 2.4 and any dividends or other
distributions to which the holders thereof are entitled pursuant to Section 2.3.
2.14 Further Holdback. At the Closing, separately from the shares of WAXS
Common Stock comprising the Escrow Fund (which shall be deposited with the
Escrow Agent pursuant to the Escrow Agreement), a total of 49,068 of the shares
of WAXS Common Stock to be issued to CTI's stockholders pursuant to Section
1.7(c) (the "Expense Fund") shall be deemed delivered to each CTI stockholder
and at the deemed direction of each such stockholder delivered to an escrow
agent to be designated in writing by CTI not less than five (5) days prior to
the Closing Date. Any and all escrow provisions with respect to the Expense Fund
shall in all aspects satisfy the specific requirements of Section 3.06 of IRS
Revenue Procedure 77-37, as it has been amplified and superseded by the IRS. The
CTI stockholders as of immediately prior to the Effective Time shall be the
holders of record with full voting rights to all of the shares of WAXS Common
Stock held in the Expense Fund. The CTI stockholders as of immediately prior to
the Effective Time shall be entitled to exercise such voting rights until such
time, if any, as such shares of WAXS Common Stock are sold to pay
Representative's Costs pursuant to this Section 2.14. The escrow agent shall
deliver to the CTI stockholders as of immediately prior to the Effective Time
such proxies or other documents as may be necessary to enable such CTI
stockholders to exercise such voting rights. Further, the CTI stockholders as of
immediately prior to the Effective Time shall be entitled to promptly receive
any dividend distribution with respect to the shares of WAXS Common Stock held
in the Expense Fund. Any such dividends paid with respect to such shares shall
be distributed by the escrow agent to the CTI stockholders as of immediately
prior to the Effective Time as holders of record of such shares. The Expense
Fund shall be available in the good faith discretion of the Shareholder
Representative to pay the costs and expenses, if any, incurred by the
Shareholder Representative in defending (including, without limitation, assuming
the defense of any third party claims pursuant to Section 8.5) or otherwise
responding to, on behalf of the stockholders of CTI, any claims for
indemnification by any WAXS Protected Party pursuant to Article VIII hereof, or
otherwise in the performance of its duties hereunder, including, without
limitation, the reasonable fees, costs and expenses of attorneys, accountants
and other professionals engaged by the Shareholder Representative for such
purpose (collectively, the "Representative Costs"). The Shareholder
Representative shall have the authority to direct the sale from time to time of
such number of shares from the Expense Fund as may be necessary to reimburse the
Shareholder Representative for any Representative's Costs, which shall be
reimbursed to the Shareholder Representative from the Expense Fund promptly
after the escrow agent's receipt of a request therefor. The Shareholder
Representative shall also be entitled to have any Representative's Costs
advanced to the Shareholder Representative from the Expense Fund upon request
therefor, provided that any such advanced amounts not actually expended by the
Shareholder Representative to pay Representative's Costs shall be promptly
returned to the Expense Fund or returned to the stockholders of CTI as of
immediately prior to the Effective Time on a pro rata basis. All shares of WAXS
Common Stock or any cash amounts returned to the Expense Fund pursuant to the
immediately preceding sentence which are remaining in the
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Expense Fund at the later to occur of (i) the expiration of the period for
asserting claims pursuant to Section 8.2(b) or (ii) the first date on which
there are no pending claims from any WAXS Protected Party shall be distributed
by the escrow agent to the stockholders of CTI as of immediately prior to the
Effective Time on a pro rata basis. CTI shall have authority to negotiate, and
the Shareholder Representative shall have authority to enter into an agreement
with the escrow agent designated by CTI, which shall effectuate the foregoing.
WAXS agrees that, notwithstanding any contrary provision of this Agreement, any
voting agreement between WAXS and any Principal Stockholder or any other
agreement entered into in connection herewith or therewith, any shares of WAXS
Common Stock comprising the Expense Fund may be sold from time to time at the
discretion of the Shareholder Representative as contemplated hereby. The
provisions of Section 8.7 shall apply to all actions taken by the Shareholder
Representative as contemplated hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CTI
CTI hereby represents and warrants to WAXS as follows:
3.1 Organization and Authorization.
(a) Each of CTI and its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation or organization, as applicable, and has the corporate
power and authority to carry on and conduct its business as it is now being
conducted and to own or lease its properties and assets, and is duly
qualified and in good standing. Each of CTI and its Subsidiaries is duly
qualified and in good standing in every state of the United States and in
such other jurisdictions (within or outside of the United States) in which
the conduct of its business or the ownership of its properties and assets
requires it to be so qualified except where the failure to be so qualified
would not have a Material Adverse Effect (as defined in Section 3.6) on
CTI.
(b) SCHEDULE 3.1(B) sets forth (i) every entity in which CTI owns
fifty percent (50%) or more of the outstanding equity, directly or
indirectly (each a "Subsidiary" and collectively, the "Subsidiaries"), and
(ii) the equity interest in such entity that is owned by CTI. Except as
noted on SCHEDULE 3.1(B), all outstanding shares of capital stock of the
Subsidiaries (the "Subsidiary Shares") are owned by CTI, directly or
indirectly, free and clear of all liens, restrictions, claims, equities,
charges, options, rights of first refusal or encumbrances. Except as set
forth on SCHEDULE 3.1(B), CTI has full power, right and authority to vote
all of the shares of capital stock of each Subsidiary which are owned or
held by CTI. Except as set forth on SCHEDULE 3.1(B), CTI is not a party to
or bound by any agreement prohibiting or restricting its right to transfer
or vote the shares of capital stock of any Subsidiary which are owned or
held by CTI.
(c) Subject to the approval of this Agreement, the Merger and the
other transactions contemplated hereby by the stockholders of CTI by the
Required CTI Stockholder Vote, CTI has the corporate power to execute,
deliver and perform this Agreement and to consummate the transactions and
perform its obligations contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
action on the part of CTI, subject to the approval of this Agreement, the
Merger and the other transactions contemplated hereby by the stockholders
of CTI by the Required CTI Stockholder Vote. This Agreement has been duly
and validly executed and delivered by CTI and constitutes CTI's legal,
valid and binding obligation, enforceable in accordance with its terms,
except to the extent such enforcement may be limited by applicable
bankruptcy, reorganization, moratorium or other such laws affecting the
enforcement of creditors' rights generally.
3.2 Authorized and Outstanding Stock. The authorized capital stock of CTI,
the number of issued and outstanding shares thereof and the record holders of
such issued and outstanding shares of CTI's capital stock are set forth on
SCHEDULE 3.2. All of such issued and outstanding shares of capital stock of CTI
are validly issued, fully paid and nonassessable. There are outstanding options,
warrants or other
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rights, to acquire an aggregate of 4,029,110 shares of capital stock of CTI
(each, a "CTI Stock Option"). SCHEDULE 3.2 lists the exercise price and vesting
schedule for each CTI Stock Option.
3.3 Absence of Other Claims. Except as set forth on SCHEDULE 3.2, there is
not outstanding, nor is CTI bound by, any subscriptions, options, preemptive
rights, warrants, calls, commitments or agreements or rights of any character
requiring CTI to issue or entitling any person or entity to acquire any
additional shares of capital stock or any other equity security of CTI,
including any right of conversion or exchange under any outstanding security or
other instrument, and CTI is not obligated to issue or transfer any shares of
its capital stock for any purpose. There are no outstanding obligations of CTI
to repurchase, redeem or otherwise acquire any outstanding shares of capital
stock of CTI.
3.4 Financial Statements. SCHEDULE 3.4 contains true, correct and complete
copies of (i) the audited consolidated balance sheet of CTI as of September 30,
1998, and the related audited statement of income, retained earnings, and cash
flows for the year then ended, and the related notes thereto; (ii) the audited
consolidated balance sheet of CTI as of September 30, 1999, and the related
audited statement of income, retained earnings, and cash flows for the year then
ended, and the related notes thereto; and (iii) the unaudited consolidated
balance sheet of CTI for the three (3) month period ending December 31, 1999,
and the related unaudited statement of income, retained earnings, and cash flows
for the period then ended (the "Interim Financial Statements") (collectively,
the "Financial Statements"). The Financial Statements present fairly, in all
material respects, the consolidated financial position of CTI, as of the dates
thereof, and the related results of its operations for the periods then ended.
Except as set forth on SCHEDULE 3.4, the Financial Statements have been prepared
in accordance with GAAP on a basis consistent with prior periods subject, in the
case of the Interim Financial Statements, to the absence of any notes thereto
and to normal and recurring year-end adjustments, which adjustments will not,
individually or in the aggregate, be material in amount.
3.5 No Undisclosed Liabilities. Except (i) as and to the extent reflected
and adequately reserved against in the Financial Statements, (ii) for
liabilities and obligations of a type not required under GAAP to be disclosed in
the Financial Statements and which were incurred in the ordinary course of
business, consistent with past practice or (iii) as shown on SCHEDULE 3.5, as of
September 30, 1999, CTI had no liabilities or obligations whatsoever, whether
accrued, absolute, contingent or otherwise. Since September 30, 1999, CTI has
not incurred any liability or obligation whatsoever, except for (i) liabilities
and obligations incurred in the ordinary course of business consistent with past
practice or (ii) as reflected on SCHEDULE 3.5.
3.6 No Violation of Law. Except as set forth on SCHEDULE 3.6, neither CTI
nor any of its Subsidiaries is or has been (by virtue of any past or present
action, omission to act, contract to which it is a party or any occurrence or
state of facts whatsoever) in violation of, or has received any notices of
violation with respect to, any applicable local, state, federal or international
law, ordinance, regulation, order, injunction or decree, or any other
requirement of any supranational, national, state, municipal, local or foreign
government, instrumentality, subdivision, court, administrative agency,
commission or authority thereof, or any quasi-governmental or private body
exercising any supranational, national, state, municipal, local or foreign
regulatory, taxing, importing or other governmental or quasi-governmental
authority (a "Governmental Entity") binding on it, or relating to its assets or
business, except where such violation or loss, liability, penalty or expense by
virtue thereof would not have a Material Adverse Effect on CTI. For purposes of
this Agreement, "Material Adverse Effect" means, with respect to any specified
entity, any change, circumstance or effect or breach of any of the provisions of
this Agreement that, individually or in the aggregate with all other changes,
circumstances and effects or breaches, is or would reasonably be expected to be
materially adverse to (i) the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole, or (ii) the
ability of such entity (or the party owning such entity) to consummate the
transactions contemplated by this Agreement.
3.7 Property. Except where it would not have a Material Adverse Effect on
CTI:
(a) Each of CTI and its Subsidiaries (i) has marketable fee simple
title to all of its material real property and has valid title to all
personal and mixed, tangible and intangible properties and
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assets which it purports to own, including all such real and personal
properties and assets reflected, but not shown as leased or encumbered, in
the Financial Statements (except for inventory and assets sold in the
ordinary course of business consistent with past practice and supplies
consumed in the ordinary course of business consistent with past practice);
and (ii) except for Permitted Liens (as defined hereafter), owns such real
and personal property free and clear of objections, liens, restrictions,
claims, charges, security interests, easements or other encumbrances of any
nature whatsoever, including any mortgages, leases, chattel mortgages,
conditional sales contracts, collateral security arrangements and other
title or interest retention arrangements. "Permitted Liens" shall mean (x)
the security interests, easements or other encumbrances described in
SCHEDULE 3.7 and (y) liens for Taxes not yet due and payable. All
properties and assets of CTI and its Subsidiaries are in the possession or
control of CTI or its Subsidiaries, as applicable.
(b) Except as would not have a Material Adverse Effect on CTI, the
plants, structures and equipment owned or leased by CTI or any of its
Subsidiaries are structurally sound with no known defects, are in good and
safe operating condition and repair and are adequate for the uses to which
they are being put.
(c) Except as would not have a Material Adverse Effect on CTI, the
rights, properties and other assets presently owned, leased or licensed by
CTI or any of its Subsidiaries include all rights, properties and other
assets necessary to permit CTI and its Subsidiaries to conduct their
business in the same manner as their business has been conducted in prior
periods, without any need for replacement, refurbishment or extraordinary
repair.
3.8 [Intentionally Omitted.]
3.9 [Intentionally Omitted.]
3.10 Intellectual Property.
(a) Generally. SCHEDULE 3.10(A) sets forth a complete and accurate
list of (i) all material patents, trademarks, service marks, trademark and
service mark registrations, trademark and service mark registration
applications, label filings, copyrights, inventions, patents and patent
applications owned by CTI or any of its Subsidiaries and all agreements
with respect thereto, (ii) all material trade names owned by CTI or any of
its Subsidiaries and (iii) all contracts, agreements or understandings
pursuant to which CTI or any of its Subsidiaries has authorized any person
to use or any person has the right to use, in any business or commercial
activity, any of the items listed in clauses (i) and (ii) above that are
owned by CTI or any of its Subsidiaries. Except as would not have a
Material Adverse Effect on CTI or as set forth on SCHEDULE 3.10(A), neither
CTI nor any of its Subsidiaries has heretofore infringed upon, and is not
now infringing upon, any patent, service mark, trade name, trademark,
copyright, trade secret, or other intellectual property belonging to any
other person. Except as would not have a Material Adverse Effect on CTI or
as set forth on SCHEDULE 3.10(A), CTI does not know of any person
infringing upon any of CTI's or its Subsidiaries' patents, service marks,
trademarks, copyrights, trade secrets, or other intellectual property. CTI
has made available to Buyer true, correct and complete copies of each
trademark and service mark registration or application therefor, patent or
patent application or other item listed in SCHEDULE 3.10(A) and each
assignment or license with respect to any thereof.
(b) Computer Software and Databases. SCHEDULE 3.10(B) accurately
identifies all material proprietary computer software and databases
internally developed or acquired by CTI or any of its Subsidiaries
(excluding generally available "shrink wrap" software and databases).
Except as would not have a Material Adverse Effect on CTI, CTI and its
Subsidiaries have all computer software and databases that are necessary to
conduct the business of CTI and its Subsidiaries as presently conducted and
all documentation relating to all such computer software and databases.
Except as would not have a Material Adverse Effect on CTI, all such
computer software and databases perform in accordance with the
documentation related thereto or used in connection therewith and are free
of defects in programming and operation. SCHEDULE 3.10(B) identifies each
person to whom CTI or any
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of its Subsidiaries, in the last two (2) years, has sold, licensed, leased
or otherwise transferred or granted any interest or rights to any of the
computer software and databases described above and the date of each such
sale, license, lease or other transfer or grant. CTI has made available to
WAXS true, correct and complete copies of all documents relating to each
such sale, license, lease or other transfer or grant.
(c) Year 2000 Compliance. Except as would not have a Material Adverse
Effect on CTI, all computer hardware and software (including all computer
hardware and software contained in imbedded systems) used in the business
of CTI and its Subsidiaries or included in products previously or currently
manufactured by CTI or any of its Subsidiaries (whether such hardware and
software is owned by CTI or any of its Subsidiaries or is licensed from
third parties) (collectively, the "Technology Systems") is designed to be
used during and after the calendar year 2000 and such hardware and software
will continue to operate during each such time period to accurately process
date data (including, but not limited to calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first
centuries, including leap year calculations ("Year 2000 Compliance").
Except as would not have a Material Adverse Effect on CTI, the occurrence
of the calendar year 2000 will not adversely affect the Technology Systems
of CTI or any of its Subsidiaries or of third parties using products
manufactured, or services provided, by CTI or any of its Subsidiaries. No
expenditures in excess of currently budgeted items are necessary to cause
Technology Systems to operate properly during and after the calendar year
2000. CTI and its Subsidiaries have taken reasonable steps to determine
whether the failure of any third parties with which CTI or any of its
Subsidiaries has a relationship to achieve Year 2000 Compliance could have
a Material Adverse Effect on CTI. Except as would not have a Material
Adverse Effect on CTI, all computer hardware and software embedded in
products manufactured, or services provided, by CTI or any of its
Subsidiaries, when used in combination with, or interfacing with computer
hardware and software of any other person, shall accurately accept, release
and exchange date data, and shall continue to function in the same manner
as it performs today and shall not otherwise impair the accuracy or
function ability of such person's computer hardware or software.
3.11 Litigation. SCHEDULE 3.11 sets forth all litigation, claims, suits,
actions, investigations, indictments or informations, proceedings or
arbitrations, grievances or other procedures (including grand jury
investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) pending, or to the knowledge of CTI,
threatened, before any court, commission, arbitration tribunal, or judicial,
governmental or administrative department, body, agency, administrator or
official, grand jury, or any other forum for the resolution of grievances,
against CTI or any of its Subsidiaries or involving any of its or their assets
or business, except for such matters as would not have a Material Adverse Effect
on CTI. Further, except as set forth in SCHEDULE 3.11 and for matters which
would not have a Material Adverse Effect on CTI, there are no material
judgments, orders, writs, injunctions, decrees, indictments or informations,
grand jury subpoenas or civil investigative demands, plea agreements,
stipulations or awards (whether rendered by a court, commission, arbitration
tribunal, or judicial, governmental or administrative department, body, agency,
administrator or official, grand jury or any other forum for the resolution of
grievances) against or relating to CTI or any of its Subsidiaries or involving
any of its or their assets or business. CTI has made available to WAXS all
information requested by WAXS with respect to each pending litigation, claim,
suit, action, investigation, indictment or information, proceeding, arbitration,
grievance or other procedure listed in SCHEDULE 3.11, and the judgements and
informations, grand jury subpoenas and civil investigative demands, plea
agreements, stipulations and awards listed in said Schedule.
3.12 Employment Matters and Benefit Plans.
(a) SCHEDULE 3.12(A) sets forth a list of all material agreements,
arrangements, commitments, and policies (1) which relate to employee
benefits; (2) which pertain to present or former employees, officers,
retirees, directors or independent contractors (or their beneficiaries,
dependents or spouses) of CTI or any of its Subsidiaries; and (3) which are
currently in effect or expected to be adopted, maintained by, sponsored by,
or contributed to by CTI or any other employer (a "CTI Affiliate")
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which, under Section 414 of the Code, would constitute a single employer
with CTI (collectively referred to as "CTI Employee Benefit Plans",
including, but not limited to, all: (A) employee benefit plans as defined
in Section 3(3) of ERISA; and (B) all other deferred compensation,
incentive, profit-sharing, thrift, stock ownership, stock appreciation
rights, bonus, stock option, stock purchase, vacation, or other benefit
plans or arrangements.
(b) CTI and all CTI Affiliates have complied with their respective
substantive obligations with respect to all CTI Employee Benefit Plans
(including, but not limited to, (1) filing or distributing all reports or
notices required by ERISA or the Code and (2) complying with all
requirements of Part 6 of Title I of ERISA and Code Section 4980B) and have
maintained the CTI Employee Benefit Plans in compliance with all applicable
laws and regulations (including, but not limited to, ERISA and the Code),
except where the failure to comply with such obligations would not result
in a Material Adverse Effect on CTI. Each CTI Employee Benefit Plan that is
intended to qualify under Code Section 401(a) has received a favorable
determination letter (or other ruling indicating its tax-qualified status)
from the IRS which is current with respect to all plan provisions required
under applicable law for which such a letter can be obtained under IRS
procedures, and the IRS has not threatened or taken any action to revoke
any favorable determination letter issued with respect to any such CTI
Employee Benefit Plan. No statement, either oral or written, has been made
or administrative action has been taken by CTI or any CTI Affiliate (or any
agent of either) to any Person regarding any CTI Employee Benefit Plans
that is not in accordance with the terms of that plan that would have a
Material Adverse Effect on CTI.
(c) CTI has made available to WAXS true, correct and complete copies
of all of the current documents relating to the CTI Employee Benefit Plans,
including, but not limited to (1) all plan texts (including any subsequent
amendments), trust instruments and other funding arrangements adopted or
entered into in connection with each of the CTI Employee Benefit Plans; (2)
the notices and election forms used to notify employees and their
dependents of their continuation coverage rights under group health plans
(under Code Section 4980B(f) and ERISA Section 606), if applicable; and (3)
the most recent Form 5500 annual reports (including all schedules thereto),
summary plan descriptions and favorable determination letters, if
applicable, for Employee Benefit Plans. Since the date such documents were
supplied to WAXS, no plan amendments have been adopted and no such
amendments or changes shall be adopted or made prior to the Closing Date
without WAXS's approval, except as required by applicable law after the
date hereof.
(d) Except as listed in SCHEDULE 3.12(D), neither CTI nor any CTI
Affiliate has any material agreement, arrangement, commitment or
understanding to create any additional CTI Employee Benefit Plans or to
continue, modify, change or terminate any existing CTI Employee Benefit
Plans.
(e) None of the CTI Employee Benefit Plans (1) is currently under
investigation, audit or review by the U.S. Department of Labor, the IRS,
the Pension Benefit Guaranty Corporation or any other federal or state
agency or (2) is liable for any federal, state, local or foreign taxes that
would have a Material Adverse Effect on CTI. Except for such liabilities
that would not have a Material Adverse Effect on CTI, there is no
transaction in connection with which CTI or any CTI Affiliate could be
subject to either a civil penalty assessed pursuant to ERISA Section 502, a
tax imposed by Code Section 4975 or liability for a breach of fiduciary
responsibility under ERISA.
(f) Other than routine claims for benefits payable to participants or
beneficiaries in accordance with the terms of the CTI Employee Benefit
Plans, or relating to qualified domestic relations orders (as defined in
Section 414(p) of the Code), there are no claims, pending or threatened, by
any participant or beneficiary against any of the CTI Employee Benefit
Plans or any fiduciary of any of the CTI Employee Benefit Plans that would
have a Material Adverse Effect on CTI.
(g) Neither CTI nor any CTI Affiliate has at any time maintained,
sponsored or contributed to any "pension plan", as defined in ERISA Section
3(2), which is subject to Title IV of ERISA or contributed to any pension
plan which is a "multiemployer plan" as defined in ERISA Section 3(37)(A).
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(h) SCHEDULE 3.12(H) sets forth a list of all agreements,
arrangements, commitments and CTI Employee Benefit Plans, under which (1)
any benefits will be increased, (2) the vesting or exercisability of
benefits will be accelerated, (3) amounts will become immediately payable,
and/or (4) the immediate funding for any benefits is required, upon the
occurrence of the transactions contemplated by this Agreement. Except with
respect to CTI Stock Options, SCHEDULE 3.12(H) also sets forth a good faith
estimate of the total value and/or cost of any such change in control
benefits and/or funding and a statement of the time periods in which such
payments must be made and/or funding obligations must be met, including but
not limited to the value and/or costs of any gross up payments for tax
purposes.
(i) To the knowledge of CTI, no key employee, or group of employees of
CTI has any plans to terminate employment with CTI or any of its
Subsidiaries other than employees with plans to retire. CTI and its
Subsidiaries have complied with all laws relating to the employment of
labor, including provisions thereof relating to wages, hours and equal
opportunity, and it does not have any labor relations problems (including
threatened or actual strikes or work stoppages or grievances), except for
such failures or problems that would not have a Material Adverse Effect on
CTI.
3.13 Collective Bargaining. Except as set forth on SCHEDULE 3.13, there
are no labor contracts, collective bargaining agreements, letters of
understanding or other arrangements, formal or informal, with any union or labor
organization covering any of CTI's or its Subsidiaries' employees and none of
said employees are represented by any union or labor organization. CTI has made
available to Buyer a true, correct, and complete copy of each agreement listed
on SCHEDULE 3.13.
3.14 Labor Disputes. CTI and its Subsidiaries are in compliance with all
federal and state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, except where the failure to be in
compliance would not have a Material Adverse Effect on CTI. No unfair labor
practice complaint against CTI or any of its Subsidiaries is pending before the
National Labor Relations Board. CTI does not know of any labor strike or other
labor trouble actually pending, being threatened against, or affecting CTI or
any of its Subsidiaries. Relations between management and labor are amicable and
there have not been, nor are there presently, any attempts to organize non-union
employees, nor are there plans for any such attempts.
3.15 Investments. Except for the Subsidiary Shares and as disclosed on
SCHEDULE 3.15, neither CTI nor any of its Subsidiaries owns any capital stock or
other securities or have any other material investment in any person or other
entity.
3.16 Tax Matters. Except as set forth on SCHEDULE 3.16:
(a) (i) All material Tax Returns required to be filed under applicable
law by CTI and each of its Subsidiaries have been filed, or requests for
extensions have been timely filed and have not expired; (ii) all such Tax
Returns filed by CTI and its Subsidiaries are complete and accurate in all
material respects; (iii) all Taxes shown to be due on such Tax Returns or
on subsequent assessments with respect thereto have been paid or the
Financial Statements reflect that adequate reserves have been established
for the payment of such Taxes, and no other material Taxes are payable by
CTI and its Subsidiaries with respect to items or periods covered by such
Tax Returns (whether or not shown on or reportable on such Tax Returns) or
with respect to any period prior to the date of this Agreement; (iv) CTI
and each of its Subsidiaries has disclosed on their federal income Tax
Return all positions taken therein that could give rise to a substantial
understatement of income Tax within the meaning of Section 6662 of the
Code; (v) there are no material liens on any of the assets of CTI or any of
its Subsidiaries with respect to Taxes, other than liens for Taxes not yet
due and payable or for Taxes that CTI or any of its Subsidiaries is
contesting in good faith through appropriate proceedings and for which the
Financial Statements reflect that appropriate reserves have been
established; (vi) no power of attorney to deal with Tax matters or waiver
or extension of any statute of limitations with respect to Taxes has been
granted by CTI or any of its Subsidiaries; and (vii) there is no (X) audit,
examination, deficiency or refund litigation or matter in controversy with
respect to any Taxes of CTI and its Subsidiaries nor (Y) has the IRS nor
any other Tax authority asserted any claim for Taxes in
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writing, or to the knowledge of CTI, is threatening to assert any claim for
Taxes, that might reasonably be expected to result in a Tax determination
which would have a Material Adverse Effect on CTI.
(b) SCHEDULE 3.16 sets forth the names of the Subsidiaries of CTI
which are or have been a member of an affiliated group of corporations
filing a consolidated federal income Tax Return (or a group of corporations
filing a consolidated, combined or unitary income Tax Return under
comparable provisions of state, local or foreign Tax law) other than a
group the common parent of which was CTI;
(c) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of CTI or any of its Subsidiaries that,
individually or collectively, could give rise to the payment of any amount
(or portion thereof) that would not be deductible pursuant to Section 280G
of the Code.
(d) Neither CTI nor any of its Subsidiaries is a party to (i) a Tax
Sharing Agreement, (ii) transactions which have produced deferred
intercompany gains, losses or other intercompany items or excess loss
accounts (within the meaning of Treas. Reg. sec. 1.1502-13 or 1.1502-19,
respectively, or any predecessor regulations or any comparable items for
state, local or non-United States Tax purposes), or (iii) any joint
venture, partnership, limited liability company or other arrangement or
contract that should be treated as a partnership for federal income Tax
purposes or as to which, an election has been made under Treas. Reg. sec.
301.7701-3 to have the entity disregarded for federal income Tax purposes
as an entity separate from its owner.
(e) None of CTI and its Subsidiaries (i) has or has had operations or
assets outside the United States taxable as a "branch" by the United States
or as a "permanent establishment" by any foreign country, (ii) has received
written notice of any claim made by a Tax authority in a jurisdiction where
CTI or any of its Subsidiaries does not file Tax Returns that it is or may
be subject to Taxes in such jurisdiction, (iii) is a "passive foreign
investment company" within the meaning of the Code, (iv) has participated
in or cooperated with an international boycott or has been requested to do
so in connection with any prior transaction or the transactions
contemplated by this Agreement, and (v) has availed itself of any Tax
amnesty, Tax holiday or similar relief in any jurisdiction.
(f) CTI has made available to WAXS true copies of (i) all material Tax
Returns that CTI or its Subsidiaries have filed since its fiscal year ended
September 30, 1995, and (ii) all material correspondence, including without
limitation, closing agreements, private letter rulings, advance pricing
agreements and gain recognition agreements and other written submissions to
or communications with any Tax authorities.
(g) (i) There is no plan or intention on the part of holders of CTI
Capital Stock who own five percent (5%) or more of the CTI Capital Stock by
vote or value (the "5% CTI stockholders"), nor have any of such 5% CTI
stockholders entered any agreement, and to the knowledge of CTI, there is
no plan or intention on the part of the remaining holders of CTI Capital
Stock to sell, exchange or otherwise dispose of a number of shares of WAXS
Common Stock received in the Merger (excluding the Contingent Shares, if
any) to any person related to WAXS within the meaning of Treas. Reg. sec.
1.368-1(e)(3) that would reduce the CTI stockholders' aggregate ownership
of such WAXS Common Stock to a number of shares of WAXS Common Stock having
a value, as of the Effective Time of the Merger, of less than fifty percent
(50%) of the value of all of the formerly outstanding CTI Capital Stock as
of the Effective Time. For purposes of this representation, shares of WAXS
Common Stock exchanged for cash or other property, surrendered by
dissenters or exchanged for cash in lieu of fractional shares of WAXS
Common Stock will be treated as outstanding CTI Capital Stock as of the
Effective Time. Any third party who may acquire WAXS Common Stock from
Roger Abbott and Rosalind Abbott as former CTI stockholders after the
Merger as contemplated in the Voting and Stock Transfer Restriction
Agreement dated as of the date hereof between WAXS and Roger Abbott and
Rosalind Abbott (the "Abbott Voting and Stock Transfer Restriction
Agreement"), will not be a person related to WAXS within the meaning of
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Treas. Reg. sec. 1.368-1(e)(3), and there are no facts and circumstances
indicating that the cash to be used by each such third party to purchase
the WAXS Common Stock from such former CTI stockholders receiving WAXS
Common Stock in the Merger will in substance be exchanged by WAXS or any of
its Subsidiaries for CTI Capital Stock.
(ii) The fair market value of the WAXS Common Stock (inclusive of
Contingent Shares, if any) and cash in lieu of fractional shares of
Parent Common Stock, if any, together with any cash paid or shares of
WAXS Common Stock issued, as the case may be, in satisfaction of accrued
unpaid dividends on CTI Preferred Stock, received by each holder of CTI
Capital Stock in the Merger will be approximately equal to the fair
market value of the shares of CTI Capital Stock surrendered in the
Merger by each CTI stockholder.
(iii) CTI is not a regulated investment company, a real estate
investment trust, or a corporation fifty percent (50%) or more of the
value of whose total assets (excluding cash, cash items, receivables and
U.S. government securities) are stock or securities and eighty percent
(80%) or more of the value of whose total assets are assets held for
investment. For purposes of the fifty percent (50%) and eighty percent
(80%) determinations under the preceding sentence, stock and securities
in any subsidiary corporation shall be disregarded and the parent
corporation shall be deemed to own its ratable share of the subsidiary's
assets. A corporation shall be considered a subsidiary for purposes of
this paragraph if the parent owns fifty percent (50%) or more of the
combined voting power of all classes of stock entitled to vote, or fifty
percent (50%) or more of the total value of shares of all classes of
stock outstanding.
(iv) In the Merger, CTI will transfer to Merger Sub at least ninety
percent (90%) of the fair market value of its net assets, and at least
seventy percent (70%) of the fair market value of its gross assets held
immediately prior to the Merger. For purposes of this representation,
amounts paid by CTI to dissenters or to CTI stockholders who receive
cash or other property, CTI assets used by CTI to pay reorganization
expenses, and CTI assets used for redemptions and distributions
(excluding regular, normal dividends) made by CTI prior to the Effective
Time will be included as assets of CTI held immediately prior to the
Merger.
(v) None of the compensation received by any stockholder-employee
of CTI will be separate consideration for, or allocable to, any of the
shares of CTI Capital Stock held by such stockholder-employee; none of
the shares of WAXS Common Stock issued in the Merger and received by any
stockholder-employee of CTI will be separate consideration for, or
allocable to, any employment agreement, agreement not to compete or any
other compensation owed or owing to such stockholder-employee; and the
compensation paid to any stockholder-employee of CTI will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(vi) CTI and each of its stockholders will pay their respective
expenses, if any, incurred in connection with the Merger.
(vii) There is no intercorporate indebtedness existing between WAXS
and CTI or between CTI and the Merger Sub that was issued, acquired, or
will be settled at a discount.
(viii) At the Effective Time of the Merger, the fair market value
of the assets of CTI transferred to Merger Sub will equal or exceed the
sum of its liabilities assumed by Merger Sub, plus (without duplication)
the amount of liabilities, if any, to which the transferred assets of
CTI are subject.
(ix) The liabilities of CTI assumed by Merger Sub and the
liabilities of CTI to which the transferred assets of CTI are subject
were incurred by CTI in the ordinary course of its business.
(x) CTI is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
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(xi) The business carried on by CTI at the Effective Time is its
"historic business" within the meaning of Treas. Reg. sec. 1.368-1(d).
(xii) Prior to the Effective Time, CTI has not distributed the
stock of any corporation in a distribution qualifying for Tax-free
treatment under Section 355 of the Code.
(xiii) During the five (5) year period ending as of the Effective
Time, neither CTI nor any persons related to CTI within the meaning of
Treas. Reg. sec. 1.368-1(e)(3) (but without regard to Treas. Reg. sec.
1.368-1(e)(3)(i)(A)) will have directly or through any transaction,
agreement, or arrangement with any other person, (A) acquired CTI
Capital Stock with consideration other than shares of WAXS capital stock
or CTI Capital Stock or (B) made any "extraordinary distributions" with
respect to CTI Capital Stock within the meaning of Treas. Reg. sec.
1.368-1T(e)(1)(ii)(A).
(xiv) The principal purposes of CTI for participating in the Merger
are bona fide purposes unrelated to Taxes, and the terms of this
Agreement are the product of arm's-length negotiations.
(xv) CTI and each of its Subsidiaries are not currently, have not
been within the last five (5) years, and do not anticipate becoming a
"United States real property holding corporation" within the meaning of
Section 897(c) of the Code.
(xvi) There is a valid business reason underlying the Section
1.7(d) provisions concerning the possible issuance of Contingent Shares
and the provisions of this Agreement relating to Contingent Shares
satisfy the specific requirements of Section 3.03 of IRS Revenue
Procedure 77-37, as it has been amplified and superseded by the IRS.
(xvii) There is a valid business reason for the escrow of shares of
WAXS Common Stock, including Contingent Shares, if any, pursuant to
Section 2.5 of this Agreement and the Escrow Agreement described in
Section 7.1(d), and the escrow provisions of this Agreement and the
Escrow Agreement satisfy the specific requirements of Section 3.06 of
IRS Revenue Procedure 77-37, as it has been amplified and superseded by
the IRS.
(xviii) There is a valid business reason for the escrow of shares
of WAXS Common Stock comprising the Expense Fund pursuant to Section
2.14 of this Agreement, and the escrow provisions of Section 2.14
satisfy the specific requirements of Section 3.06 of IRS Revenue
Procedure 77-37, as it has been amplified and superseded by the IRS.
(h) For purposes of this Agreement:
(i) "Tax" (and, with correlative meaning, "Taxes" shall mean: (i)
all taxes, charges, fees, levies or other assessments, however
denominated, including any interest, penalties or other additions to tax
that may become payable in respect thereof, imposed by any federal,
territorial, state, local or foreign government or any agency or
political subdivision of any such government, which taxes shall include,
without limiting the generality of the foregoing, all income or profits
taxes (including, but not limited to, federal income taxes and state
income taxes), payroll and employee withholding taxes, unemployment
insurance, social security taxes, sales and use taxes, ad valorem taxes,
excise taxes, employer tax, estimated, severance, telecommunications,
occupation, goods and services, capital, profits, value added taxes,
franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, Pension
Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which the Person is required to pay, withhold or collect; and
(ii) any liability for the payment of any amounts described in clause
(i) as a result of being a successor to or transferee of any individual
or entity or a member of an affiliated, consolidated or unitary group
for any period (including pursuant to Treas. Reg. sec. 1.1502-6 or
comparable provisions of state, local or foreign tax law); and (iii) any
liability for the payment of amounts
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described in clause (i) or clause (ii) as a result of any express or
implied obligation to indemnify any Person or as a result of any
obligations under agreements or arrangements with any Person;
(ii) "Tax Asset" means any net operating loss, net capital loss,
investment tax credit, foreign tax credit, charitable deduction or any
other credit or tax attribute which could reduce Taxes (including,
without limitation, credits related to alternative minimum Taxes);
(iii) "Tax Return" shall mean all reports, estimates, declarations
of estimated tax, information statements and returns (including any
attached schedules) or similar statement relating to, or required to be
filed in connection with, any Taxes, including information returns or
reports with respect to backup withholding and other payments to third
parties; and
(iv) "Tax Sharing Agreement" shall mean any and all existing
written Tax sharing agreements, or arrangements binding two or more
persons with respect to the payment of Taxes, including any written
agreements or arrangements which afford any other person the right to
receive any payment from one or more other persons in respect to any
Taxes or the benefit of any Tax Asset of one or more other persons or
require or permit the transfer or assignment of any income, revenue,
receipts or gains.
3.17 Required Licenses and Permits. Except as would not have a Material
Adverse Effect on CTI, CTI and its Subsidiaries have all licenses, tariffs,
permits, variances, exemptions, orders, approvals and other authorizations of
all Governmental Entities necessary for the operation of the business of CTI and
its Subsidiaries (the "CTI Permits"). CTI and its Subsidiaries are in compliance
with the terms of the CTI Permits, except where the failure to so be in
compliance would have a Material Adverse Effect on CTI. The businesses of CTI
and its Subsidiaries are not being conducted in violation of, and neither CTI
nor any of its Subsidiaries have received any notices of violations with respect
to, any law, ordinance or regulation of any Governmental Entity, except for
possible violations which would not have a Material Adverse Effect on CTI. CTI
has made available to WAXS true, correct, and complete copies of all CTI
Permits.
3.18 Contracts and Commitments. Except as set forth or described in
SCHEDULES 3.12, 3.13 or 3.18:
(a) Neither CTI nor any of its Subsidiaries is a party to any
agreement or contract, the absence of which would have a Material Adverse
Effect on CTI;
(b) No contracts or commitments of CTI or any of its Subsidiaries have
unexpired terms of more than twelve (12) months from the date hereof or
require payments or the provision of services having a value individually
in excess of $1,000,000 (or, as to any series of related contracts or
commitments, $1,000,000 in the aggregate);
(c) Neither CTI not any of its Subsidiaries have any contract, written
or oral, relating to the employment of any person by CTI or any Subsidiary
thereof, or any consulting or similar kind of contract, that is not
cancelable by CTI as a Subsidiary thereof, on notice of not longer than one
hundred twenty (120) days and without liability of any kind, except
liabilities which arise as a matter of law upon termination of employment,
or any agreement or arrangement providing for the payment of any bonus or
commission based on sales or earnings;
(d) Except for negotiable instruments in the process of collection,
neither CTI nor any of its Subsidiaries has any unexpired power of attorney
outstanding or any contract, commitment or liability (whether absolute,
accrued, contingent or otherwise), as guarantor, surety, co-signer,
endorser, co-maker, indemnitor in respect of the contract or commitment of
any other person, corporation, partnership, joint venture, association,
organization or other entity (other than a Subsidiary of CTI) with respect
to an amount exceeding $2,000,000;
(e) There are no contracts or agreements with any director, officer or
shareholder of CTI or a Subsidiary thereof, or with any person related to
any such person or with any company or other organization in which any
director, officer, or shareholder of CTI or a Subsidiary thereof, or anyone
related to any such person, has a material direct or indirect financial
interest;
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(f) Neither CTI nor any of its Subsidiaries is subject to any contract
or agreement containing covenants limiting the freedom of CTI or any of its
Subsidiaries to compete in any line of business in any geographic area or
requiring CTI or any of its Subsidiaries to share any profits;
(g) Neither CTI nor any of its Subsidiaries has any outstanding
contract or agreement for variable cost service (excluding point-to-point
service obtained pursuant to a lease or IRU arrangement) which is of a
"take-or-pay" or similar variety and which requires payments or the
provision of services having a value in excess of $50,000 per year or
$1,000,000 over the term of the contract or agreement; and
(h) CTI has made available to WAXS true, correct and complete copies
of each of the agreements listed on SCHEDULE 3.18 (such agreements,
together with any agreements set forth or described in or required to be
set forth or described in any of SCHEDULES 3.12 or 3.13 being referred to
as the "Material Contracts");
3.19 No Conflict. Subject to obtaining any required consents or approvals
set forth on SCHEDULE 3.21, the execution and delivery of this Agreement by CTI,
the consummation of the transactions contemplated herein by CTI, and the
performance of the covenants and agreements hereunder of CTI will not, with or
without the giving of notice or the lapse of time, or both, (i) violate or
conflict with any of the provisions of any charter document or bylaw of CTI or a
Subsidiary thereof, (ii) except as set forth in SCHEDULE 3.19, violate, conflict
with or result in a breach or default under or give rise to a right of
termination, amendment, cancellation or acceleration of any term, condition or
obligation under any material mortgage, indenture, contract, license, permit,
instrument, trust document, will, or other agreement, document or instrument to
which CTI or a Subsidiary thereof is a party or by which CTI, any Subsidiary
thereof or its or their assets may be bound, (iii) violate any provision of law,
statute, regulation, court order or ruling of any governmental authority to
which CTI or a Subsidiary thereof is a party or by which its or their assets may
be bound or (iv) result in the creation or imposition of any lien, claim,
charge, restriction, security interest or encumbrance of any kind whatsoever
upon any asset, except, with respect to the foregoing clauses (ii), (iii) or
(iv), where there would arise no Material Adverse Effect on CTI therefrom.
3.20 Agreements in Full Force and Effect. Except as expressly set forth in
SCHEDULE 3.20, all Material Contracts are valid and binding and in full force
and effect and are enforceable in accordance with their terms, except to the
extent that such enforceability may be limited due to laws relating to
bankruptcy, reorganization, moratorium or other such laws. CTI does not have
knowledge of any pending or threatened bankruptcy, insolvency or similar
proceeding with respect to any party to such agreements. No event has occurred
with respect to any agreement or contract to which CTI or a Subsidiary thereof
is a party which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute a default thereunder by CTI
or a Subsidiary thereof, or to the knowledge of CTI, any other party thereto,
except where such default would not have a Material Adverse Effect on CTI.
3.21 Required Consents and Approvals. Except as set forth on SCHEDULE
3.21, no consent or approval is required by virtue of the execution hereof by
CTI or the consummation of any of the transactions contemplated herein by CTI to
avoid the violation or breach of, or the default under, or the creation of a
lien on any asset of CTI or a Subsidiary thereof pursuant to the terms of, any
regulation, order, decree or award of any Governmental Entity or any lease,
agreement, contract, mortgage, note, license, permit, tariff, authorization or
any other instrument to which CTI or a Subsidiary thereof is a party or to which
it or any of its property or any of its capital stock is subject, except where
the failure to obtain such consent or approval would not have a Material Adverse
Effect on CTI.
3.22 Absence of Certain Changes and Events. Except as set forth on
SCHEDULE 3.22, since September 30, 1999, each of CTI and its Subsidiaries has
conducted its business only in the ordinary course, and has not:
(a) made any declaration, setting aside or payment of any dividend or
other distribution of assets (whether in cash, stock or property) with
respect to the capital stock of CTI or a Subsidiary thereof,
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or any direct or indirect redemption, purchase or other acquisition of such
stock, or otherwise made any payment of cash or any transfer of other
assets, to any shareholder or affiliate thereof (including, without
limitation, the repayment of or on any indebtedness or other obligation);
or transferred any assets from a Subsidiary to CTI;
(b) suffered any Material Adverse Effect;
(c) except for customary increases based on term of service or regular
promotion of non-officer employees, increased (or announced any increase
in) the compensation payable or to become payable to any employee or
increased (or announced any increase in) any bonus, insurance, pension or
other employee benefit plan, payment or arrangement for such employees, or
entered into or amended any material employment, consulting, severance or
similar agreement;
(d) incurred, assumed or guaranteed any liability or obligation
(absolute, accrued, contingent or otherwise) other than in the ordinary
course of business consistent with past practice;
(e) paid, discharged, satisfied or renewed any material claim,
liability or obligation other than in the ordinary course of business and
consistent with past practice;
(f) permitted any asset to be subjected to any mortgage, lien,
security interest, restriction, charge or other encumbrance of any kind
except for Permitted Liens;
(g) waived any material claims or rights;
(h) sold, transferred or otherwise disposed of any material asset,
except in the ordinary course of business consistent with past practice;
(i) made any single capital expenditure or investment in excess of
$1,000,000;
(j) made any change in any method, practice or principle of financial
or tax accounting;
(k) paid, loaned, advanced, sold, transferred or leased any asset to
any employee, except for normal compensation involving salary and benefits
or expenses reimbursed in the ordinary course of business, consistent with
past practice;
(l) issued or sold any of its capital stock or issued any warrant,
option or other right to purchase shares of its capital stock, or any
security convertible into its capital stock;
(m) entered into any material commitment or transaction, other than in
the ordinary course of business consistent with past practice, affecting
the business of CTI or its Subsidiaries; or
(n) agreed in writing, or otherwise, to take any action described in
this Section 3.22.
3.23 Brokers and Advisers. Except for Gerard Klauer Mattison & Co., Inc.,
no broker, agent or finder has rendered financial services to CTI in connection
with the transactions contemplated by this Agreement.
3.24 Information Supplied. None of the information supplied or to be
supplied by CTI for inclusion or incorporation by reference in the Proxy
Statement/Prospectus and the Registration Statement (each as defined herein)
will, on the date it is first mailed to WAXS's stockholders or at the time of
the WAXS Stockholders Meeting (in the case of the Proxy Statement/Prospectus) or
on the date it is filed or declared effective by the SEC (in the case of the
Registration Statement) contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. None of the information supplied or to be supplied by
CTI to its stockholders in connection with such stockholders' adoption of this
Agreement and approval of the Merger and the other transactions contemplated
hereby will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
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3.25 CTI Board Approval. The Board of Directors of CTI, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "CTI Board Approval"), has
duly (i) determined that this Agreement, the Merger and the other transactions
contemplated hereby are fair to and in the best interests of CTI and its
stockholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) declared the advisability of this
Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that the stockholders of CTI approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby and
directed that this Agreement and the transactions contemplated hereby be
submitted for consideration by CTI's stockholders.
3.26 Required CTI Stockholder Vote. The affirmative vote of holders of
shares of CTI Common Stock, CTI Series A Preferred Stock and CTI Series B
Preferred Stock voting as three (3) separate classes, representing a majority of
the outstanding shares of each such class (the "Required CTI Stockholder Vote"),
are the only votes of the holders of any class or series of CTI capital stock
necessary to adopt this Agreement and approve the Merger and the other
transactions contemplated hereby.
3.27 Disclosure. No representations or warranties by CTI in this Agreement
(as qualified by the corresponding Schedules delivered by CTI pursuant hereto)
contain any untrue statement of material fact, or omit to state any fact
necessary, in light of the circumstances under which it was made, in order to
make the statements herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF WAXS AND MERGER SUB
WAXS and Merger Sub hereby represent and warrant to CTI as follows:
4.1 Organization. WAXS and Merger Sub are corporations duly organized,
validly existing and in good standing under the laws of the state of their
incorporation and have all requisite corporate power and authority to effect the
transactions and perform their obligations as contemplated hereunder. Except as
set forth on SCHEDULE 4.1, Exhibit 21.1 to WAXS's Annual Report on Form 10-K for
the year ended December 31, 1998 includes all the Subsidiaries of WAXS which as
of the date of this Agreement are Significant Subsidiaries (as defined in Rule
1-02 of Regulation S-X of the Securities and Exchange Commission (the "SEC")).
Except as disclosed on SCHEDULE 4.1 or in the WAXS SEC Reports (as defined
herein), all the outstanding shares of capital stock of, or other equity
interest in, each such Significant Subsidiary owned or held by WAXS have been
validly issued and are fully paid and nonassessable and are owned directly or
indirectly by WAXS, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever and free of
any other restriction (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests), except
for such matters as would not have a Material Adverse Effect on WAXS. Neither
WAXS nor any of its Subsidiaries directly or indirectly owns any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for any equity or similar interest in, any corporation, partnership,
joint venture or other business association or entity (other than the
Subsidiaries of WAXS) that is or would reasonably be expected to be material to
WAXS and its Subsidiaries taken as a whole.
4.2 Authorization. Subject to the approval of this Agreement, the Merger
and the other transactions contemplated hereby by the stockholders of WAXS by
the Required WAXS Vote, WAXS has the right, power and authority to execute,
deliver and perform this Agreement and the Escrow Agreement and to consummate
the transactions contemplated hereby and thereby, including the issuance of the
WAXS Common Stock as contemplated hereunder. The execution, delivery and
performance of this Agreement and the Escrow Agreement, and the consummation of
the transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action on the part of WAXS, subject to the
approval of this Agreement, the Merger and the other transactions contemplated
hereby by the stockholders of WAXS by the Required WAXS Vote. This Agreement and
the Escrow Agreement have
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been duly and validly executed and delivered by WAXS and constitute a legal,
valid and binding obligation of WAXS, enforceable in accordance with their
terms, except to the extent such enforceability may be limited by applicable
bankruptcy, reorganization, moratorium or other such laws affecting the rights
of creditors generally. Merger Sub has the right, power and authority to
execute, deliver and perform this Agreement and to consummate the transactions
contemplated hereunder. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Merger Sub. This Agreement has been duly and validly executed and delivered by
Merger Sub and constitutes a legal, valid and binding obligation of Merger Sub,
enforceable in accordance with its terms, except to the extent such
enforceability may be limited by applicable bankruptcy, reorganization,
moratorium or other such laws affecting the rights of creditors generally.
4.3 No Conflict. The execution and delivery of this Agreement and the
Escrow Agreement by WAXS, the execution and delivery of this Agreement by Merger
Sub, the consummation of the transactions contemplated herein and therein by
WAXS and Merger Sub, as applicable, and the performance of the covenants and
agreements of WAXS and Merger Sub will not, with or without the giving of notice
or the lapse of time, or both, (i) violate or conflict with any of the
provisions of any charter document or bylaw of WAXS or Merger Sub, (ii) except
as set forth in SCHEDULE 4.3, violate, conflict with or result in a breach or
default under or give rise to a right of termination, amendment, cancellation or
acceleration of any term, condition or obligation under any material mortgage,
indenture, contract, license, permit, instrument, trust document, or other
agreement, document or instrument to which WAXS or Merger Sub is a party or by
which WAXS or Merger Sub or any of its or their properties may be bound, (iii)
violate any provision of law, statute, rule, regulation, court order, judgment
or decree, or ruling of any Governmental Entity, to which WAXS or Merger Sub is
a party or by which WAXS or Merger Sub or any of its or their properties may be
bound or (iv) result in the creation or imposition of any lien, claim, charge,
restriction, security interest or encumbrance of any kind whatsoever upon any
asset of WAXS or Merger Sub, except, with respect to the foregoing clauses (ii),
(iii) or (iv), where there would arise no Material Adverse Effect on WAXS or
Merger Sub therefrom.
4.4 Validity of Issuance. The shares of WAXS Common Stock, when issued in
accordance with Section 1.7 hereof, will be duly authorized, validly issued,
fully paid and nonassessable.
4.5 Capital Structure. As of February 11, 2000:
(a) The authorized capital stock of WAXS consists of (A) 150,000,000
shares of WAXS Common Stock, of which 53,787,805 shares are outstanding and
no shares are held in treasury of WAXS and (B) 10,000,000 shares of
Preferred Stock, par value $.01 per share, of which 50,000 shares
designated as 4.25% Cumulative Senior Perpetual Convertible Preferred
Stock, Series A, par value $.01 per share (the "Series A Preferred Stock"),
and 350,259.875 shares designated as Convertible Preferred Stock, Series C
(the "Series C Preferred Stock"), are outstanding. WAXS has reserved or has
available 4,347,827 shares of WAXS Common Stock for issuance upon
conversion of the Series A Preferred Stock and 18,027,478 shares of WAXS
Common Stock for issuance upon conversion of the Series C Preferred Stock.
All issued and outstanding shares of the capital stock of WAXS are duly
authorized, validly issued, fully paid and nonassessable, and no class of
capital stock is entitled to preemptive rights. In addition to the option
described in Item 1 of SCHEDULE 4.5, there are outstanding options,
warrants or other rights (a "WAXS Stock Option") to acquire 13,133,837
shares of capital stock from WAXS.
(b) No bonds, debentures, notes or other indebtedness of WAXS having
the right to vote on any matters on which holders of capital stock of WAXS
may vote are issued or outstanding.
(c) Except as otherwise set forth in this Section 4.5, the WAXS SEC
Reports (as defined below) or SCHEDULE 4.5 and as contemplated by Section
1.5 and Section 1.6, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any kind
to which WAXS or any of its Subsidiaries is a party or by which any of them
is bound obligating WAXS or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold,
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additional shares of capital stock or other voting securities of WAXS or
any of its Subsidiaries or obligating WAXS or any of its Subsidiaries to
issue, grant, extend or enter into any such security, option, warrant, call
right, commitment, agreement, arrangement or undertaking. Except as set
forth on SCHEDULE 4.5 or the WAXS SEC Reports, there are no outstanding
obligations of WAXS or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of WAXS or any of its
Subsidiaries.
4.6 Reports and Financial Statements.
(a) WAXS has filed all required registration statements, prospectuses,
reports, schedules, forms, statements and other documents required to be
filed by it under the federal securities laws with the SEC since January 1,
1998 (collectively, including all exhibits thereto, the "WAXS SEC
Reports"). No Subsidiary of WAXS is required to file any form, report,
registration statement, prospectus or other document with the SEC not
otherwise filed with a WAXS SEC Report. None of the WAXS SEC Reports, as of
their respective dates (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing), contained or
will contain any untrue statement of a material fact or omitted or will
omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. The WAXS SEC Reports, taken as a whole, do not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances existing as of the time of filing of
such reports, not misleading. Each of the financial statements (including
the related notes) included in the WAXS SEC Reports (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing) presents fairly, in all material respects, the
consolidated financial position and consolidated results of operations and
cash flows of WAXS and its Subsidiaries as of the respective dates or for
the respective periods set forth therein all in conformity with GAAP
consistently applied during the periods involved except as otherwise noted
therein, and subject, in the case of the unaudited interim financial
statements, to normal and recurring year-end adjustments that have not been
and will not be material in amount. All of such WAXS SEC Reports, as of
their respective dates (or as of the date of any amendment to the
respective WAXS SEC Report filed prior to the date of this Agreement),
complied as to form in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder.
(b) Except as disclosed on SCHEDULE 4.6 or in the WAXS SEC Reports,
since December 31, 1999, WAXS and its Subsidiaries have not incurred any
liabilities that are of a nature that would be required to be disclosed on
a balance sheet of WAXS and its Subsidiaries or the footnotes thereto
prepared in conformity with GAAP, other than (A) liabilities incurred in
the ordinary course of business or (B) liabilities that would not have a
Material Adverse Effect on WAXS.
4.7 Brokers and Advisers. Except for Donaldson, Lufkin & Jenrette
Securities Corporation, no broker, agent or finder has rendered financial
services to WAXS in connection with the transactions contemplated by this
Agreement.
4.8 Information Supplied. None of the information supplied or to be
supplied by WAXS for inclusion or incorporation by reference in the Proxy
Statement/Prospectus (as defined herein) will, on the date it is first mailed to
WAXS's stockholders, or at the time of the WAXS Stockholders Meeting contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus will, on the date it is first mailed to WAXS's stockholders
and at the time of the WAXS Stockholders Meeting, comply as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations promulgated thereunder.
4.9 WAXS Board Approval. The Board of Directors of WAXS, by resolutions
duly adopted by unanimous vote at a meeting duly called and held and not
subsequently rescinded or modified in any way (the "WAXS Board Approval"), has
duly (i) determined that this Agreement, the Merger and the other
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transactions contemplated hereby are fair to and in the best interests of WAXS
and its stockholders, (ii) approved this Agreement, the Merger and the other
transactions contemplated hereby and (iii) declared the advisability of this
Agreement, the Merger and the other transactions contemplated hereby, and,
further, (iv) recommended that the stockholders of WAXS approve and adopt this
Agreement, the Merger and the other transactions contemplated hereby and
directed that this Agreement and the transactions contemplated hereby by
submitted for consideration by WAXS's stockholders at the WAXS Stockholders
Meeting.
4.10 Required WAXS Stockholder Vote. Except as set forth on SCHEDULE 4.10,
the affirmative vote of holders of shares of WAXS Common Stock, Series A
Preferred Stock and Series C Preferred Stock, voting together as a single class,
representing a majority of the outstanding shares of WAXS Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (the
"Required WAXS Vote"), is the only vote of the holders of any class or series of
WAXS capital stock necessary to adopt this Agreement and approve the Merger and
the other transactions contemplated hereby.
4.11 Required Merger Sub Board Approval. The Board of Directors of Merger
Sub, by resolutions duly adopted by a unanimous written consent and not
subsequently rescinded or modified in any way, has duly (i) determined that this
Agreement, the Merger and the other transactions contemplated hereby are fair to
and in the best interests of Merger Sub and its sole stockholder, WAXS, (ii)
approved this Agreement, the Merger and the other transactions contemplated
hereby and (iii) declared the advisability of this Agreement, the Merger and the
other transactions contemplated hereby, and, further, (iv) recommended that WAXS
adopt this Agreement and approve the Merger and the other transactions
contemplated hereby.
4.12 Required Merger Sub Stockholder Vote. The affirmative vote of WAXS,
as sole stockholder of Merger Sub, is the only vote of the holders of any class
or series of Merger Sub capital stock necessary to adopt this Agreement and
approve the Merger and the other transactions contemplated hereby. WAXS, in its
capacity as sole stockholder of Merger Sub, has, by resolutions duly adopted by
written consent (the "Merger Sub Stockholder Resolutions") adopted this
Agreement and approved the Merger and the other transactions contemplated
hereby.
4.13 Litigation; Compliance with Laws.
(a) Except as disclosed on SCHEDULE 4.13 or in the WAXS SEC Report,
there is no suit, investigation, action or proceeding pending or, to the
knowledge of WAXS, threatened, against or affecting WAXS or any Subsidiary
of WAXS having, or which would have a Material Adverse Effect on WAXS, nor
is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against WAXS or any
Subsidiary of WAXS having, or which would have a Material Adverse Effect on
WAXS.
(b) Except as would not have a Material Adverse Effect on WAXS, WAXS
and its Subsidiaries hold all permits, licenses, variances, authorizations,
exemptions, orders and approvals of all Governmental Entities which are
necessary for the operation of the businesses of WAXS and its Subsidiaries
(the "WAXS Permits"). WAXS and its Subsidiaries are in compliance with the
terms of the WAXS Permits, except as disclosed in the WAXS SEC Reports or
where the failure to be valid and in full force and effect or to so comply
would not have a Material Adverse Effect on WAXS. The businesses of WAXS
and its Subsidiaries are not being conducted in violation of, and WAXS has
not received any notices of violations with respect to, any law, ordinance
or regulation of any Governmental Entity, except as disclosed in the WAXS
SEC Reports or for violations which would not have a Material Adverse
Effect on WAXS.
4.14 Absence of Certain Changes or Events. Except as disclosed on SCHEDULE
4.14 or in the WAXS SEC Reports and except for liabilities incurred in
connection with this Agreement or the transactions contemplated hereby, since
December 31, 1998 through and including the date hereof, (i) WAXS and its
Subsidiaries have conducted, in all material respects, their business only in
the ordinary course and (ii) there has not been any change, circumstance or
event which has had, or would reasonably be expected
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to have, a Material Adverse Effect on WAXS, other than any change, circumstance
or effect relating (A) to the economy or financial markets in general, or (B) in
general to the industries in which WAXS and its Subsidiaries operate and not
specifically relating to WAXS and its Subsidiaries.
4.15 Tax Matters. Except as set forth on SCHEDULE 4.15:
(a) (i) All material Tax Returns required to be filed under applicable
law by WAXS and each of its Subsidiaries have been filed, or requests for
extensions have been timely filed and have not expired; (ii) all such Tax
Returns filed by WAXS and its Subsidiaries are complete and accurate in all
material respects; (iii) all Taxes shown to be due on such Tax Returns or
on subsequent assessments with respect thereto have been paid or the WAXS
SEC Reports reflect that adequate reserves have been established for the
payment of such Taxes, and no other material Taxes are payable by WAXS or
any of its Subsidiaries with respect to items or periods covered by such
Tax Returns (whether or not shown on or reportable on such Tax Returns) or
with respect to any period prior to the date of this Agreement; (iv) there
are no material liens on any of the assets of WAXS or any of its
Subsidiaries with respect to Taxes, other than liens for Taxes not yet due
and payable or for Taxes that WAXS and its Subsidiaries is contesting in
good faith through appropriate proceedings and for which the WAXS SEC
Reports reflect that appropriate reserves have been established; and (v)
there is no audit, examination, deficiency or refund litigation or matter
in controversy with respect to any Taxes of WAXS and its Subsidiaries that
might reasonably be expected to result in a Tax determination which would
have a Material Adverse Effect on WAXS.
(b) There are no contracts, agreements, plans or arrangements,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of WAXS or any of its Subsidiaries that,
individually or collectively, could give rise to the payment of any amount
(or portion thereof) that would not be deductible pursuant to Section 280G
of the Code.
(c) Neither WAXS nor any of its Subsidiaries is a party to a Tax
Sharing Agreement.
(d) (i) During the five (5) year period beginning as of the Effective
Time, neither WAXS nor any person "related" to WAXS within the meaning of
Treas. Reg. sec. 1.368-1(e)(3) will (A) be under any obligation and will
have entered into any agreement to redeem or repurchase any of the WAXS
Common Stock issued in the Merger or to make any "extraordinary
distributions" within the meaning of Treas. Reg. sec. 1.368-1T(e)(1)(ii)(A)
in respect of the WAXS Common Stock and (B) have a plan or intention to
reacquire any of the WAXS Common Stock issued in the Merger either directly
or through any transaction, agreement or arrangement with any other person,
except (X) for escrowed shares of WAXS Common Stock, if any, which may be
returned to WAXS pursuant to the Escrow Agreement and (Y) that WAXS may
repurchase shares of WAXS Common Stock on the open market through a broker
for the prevailing market price pursuant to an open-market repurchase
program as described in Rev. Rul. 99-58, 1999-52 I.R.B. 701. To the
knowledge of WAXS, any third party who may acquire WAXS Common Stock from
Roger Abbott and Rosalind Abbott as former CTI stockholders after the
Merger as contemplated by the Abbott Voting and Stock Transfer Restriction
Agreement will not be a person related to WAXS within the meaning of Treas.
Reg. sec. 1.368-1(e)(3) and to the knowledge of WAXS, there are no facts
and circumstances indicating that the cash to be used by any such third
party to purchase the WAXS Common Stock from such former CTI stockholders
receiving such WAXS Common Stock in the Merger will in substance be
exchanged by WAXS or any of its Subsidiaries for CTI Capital Stock.
(ii) As of the Effective Time, neither WAXS nor any person related
to WAXS within the meaning of Treas. Reg. sec. 1.368-1(e)(3) will own
beneficially or of record, nor will have owned during the past five (5)
years, any CTI Capital Stock or securities of CTI or options or
instruments giving the holder thereof the right to acquire CTI Capital
Stock or securities of CTI.
(iii) Prior to or in the Merger, neither WAXS nor any person
related to WAXS within the meaning of Treas. Reg. sec. 1.368-1(e)(3)
will have acquired directly or through any transaction,
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agreement or arrangement with any other person, any capital stock of CTI
with consideration other than shares of WAXS Common Stock.
(iv) The fair market value of the WAXS Common Stock (inclusive of
Contingent Shares, if any) and cash in lieu of fractional shares of WAXS
Common Stock, if any, together with any cash paid or shares of WAXS
Common Stock issued, as the case may be, in satisfaction of accrued
unpaid dividends on CTI Preferred Stock, received by each holder of CTI
Capital Stock in the Merger will be approximately equal to the fair
market value of the shares of CTI Capital Stock surrendered in the
Merger by each CTI stockholder.
(v) Following the Merger, WAXS will cause Merger Sub to continue
CTI's "historic business" within the meaning of Treas. Reg. sec.
1.368-1(d) or use a significant portion of CTI's historic business
assets in a business. For purposes of this representation, Merger Sub
will be treated as conducting CTI's historic business or using a
significant portion of CTI's historic business assets in a business if
(a) the members of the WAXS "qualified group" (as defined below in this
Section 4.15(d)(viii)), in the aggregate, continue the historic business
of CTI or use a significant portion of CTI's historic business assets in
a business, or (b) the foregoing activities are undertaken by a
partnership in which (1) the members of the WAXS qualified group, in the
aggregate, own at least a thirty-three and one third percent (33 1/3%)
interest in the partnership, or (ii) one or more members of the
qualified group has active and substantial management functions as a
partner with respect to the partnership business and the members of the
qualified group, in the aggregate, own at least a twenty percent (20%)
interest in the partnership.
(vi) On and prior to the Effective Time, WAXS will be in "control"
of Merger Sub within the meaning of Section 368(c) of the Code, which is
a newly-formed corporation that was organized for the sole purpose of
facilitating the Merger.
(vii) WAXS has no plan or intention, and WAXS has no plan or
intention to cause the Merger Sub, to issue additional shares of its
capital stock following the Merger, or take any other action, that would
result in WAXS losing "control" of the Merger Sub within the meaning of
Section 368(c) of the Code.
(viii) WAXS has no plan or intention following the Merger to
liquidate the Merger Sub; to merge the Merger Sub with and into another
corporation; to sell or otherwise dispose of the stock of the Merger
Sub; or to cause the Merger Sub to sell or otherwise dispose of any of
the assets acquired from CTI, except for dispositions made in the
ordinary course of business or for transfers or successive transfers of
all or part of the assets acquired from CTI to a member(s) of the WAXS
qualified group or to a partnership that has a member(s) of the
qualified group as a partner who own, in the aggregate, at least a
thirty-three and one third percent (33 1/3%) interest in the
partnership, or (ii) one or more members of the qualified group has
active and substantial management functions as a partner with respect to
the partnership business and the members of the qualified group, in the
aggregate, own at least a twenty percent (20%) interest in the
partnership. For purposes of this Section 4.15(d) and as set forth under
Treas. Reg. sec. 1.368-1(d)(4)(ii), the term "qualified group" shall
mean one or more chains of corporations connected through stock
ownership with WAXS, but only if WAXS owns directly stock meeting the
requirements of Section 368(c) of the Code in at least one other
corporation, and stock meeting the requirements of Section 368(c) of the
Code in each of the corporations (except WAXS) is owned directly by one
of the other corporations.
(ix) WAXS and Merger Sub will pay their respective expenses, if
any, incurred in connection with the Merger.
(x) There is no intercorporate indebtedness existing between WAXS
and CTI or between the Merger Sub and CTI that was issued, acquired, or
will be settled at a discount.
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(xi) Neither WAXS nor Merger Sub is a regulated investment company,
a real estate investment trust, or a corporation fifty percent (50%) or
more of the value of whose total assets (excluding cash, cash items,
receivables and U.S. government securities) are stock or securities and
eighty percent (80%) or more of the value of whose total assets are
assets held for investment. For purposes of the fifty percent (50%) and
eighty percent (80%) determinations under the preceding sentence, stock
and securities in any subsidiary corporation shall be disregarded and
the parent corporation shall be deemed to own its ratable share of the
subsidiary's assets. A corporation shall be considered a subsidiary for
purposes of this paragraph if the parent owns fifty percent (50%) or
more of the combined voting power of all classes of stock entitled to
vote, or fifty percent (50%) or more of the total value of shares of all
classes of stock outstanding.
(xii) No stock of the Merger Sub will be issued in the Merger.
(xiii) Neither WAXS nor the Merger Sub is under the jurisdiction of
a court in a Title 11 or similar case within the meaning of Section
368(a)(3)(A) of the Code.
(xiv) In the Merger, to the knowledge of WAXS, the Merger Sub will
acquire at least ninety percent (90%) of the fair market value of CTI's
net assets, and at least seventy percent (70%) of the fair market value
of CTI's gross assets held immediately prior to the Merger. For purposes
of this representation, amounts paid by CTI to dissenters or to CTI
stockholders who receive cash or other property, CTI assets used by CTI
to pay reorganization expenses, and CTI assets used for redemptions and
distributions (excluding regular, normal dividends) made by CTI prior to
the Effective Time will be included as assets of CTI held immediately
prior to the Merger.
(xv) None of the compensation received by any stockholder-employee
of CTI will be separate consideration for, or allocable to, any of the
shares of CTI Capital Stock held by such stockholder-employee; none of
the shares of WAXS Common Stock issued in the Merger and received by any
stockholder-employee of CTI will be separate consideration for, or
allocable to, any employment agreement, agreement not to compete or any
other compensation owed or owing to such stockholder-employee; and the
compensation paid to any stockholder-employee of CTI will be for
services actually rendered and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
(xvi) The payment of cash in lieu of fractional shares of WAXS
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to WAXS of issuing fractional shares and does not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the Merger to CTI stockholders
instead of issuing fractional shares of WAXS Common Stock will not
exceed one percent (1%) of the total Merger Consideration that will be
issued in the Merger.
(xvii) Prior to the Effective Time, neither WAXS nor any Subsidiary
of WAXS has distributed the stock of any corporation in a distribution
of stock qualifying for Tax-free treatment under Section 355 of the
Code.
(xviii) The principal purposes of WAXS for participating in the
Merger are bona fide purposes unrelated to Taxes, and the terms of this
Agreement are the product of arm's-length negotiations.
(xix) To the extent of the shares of WAXS Common Stock, including
Contingent Shares, if any, that are placed in escrow under the Escrow
Agreement for possible return to WAXS under the conditions specified in
such Escrow Agreement and this Agreement: (1) there is a valid business
reason for establishing the escrow arrangement; (2) the shares of WAXS
Common Stock subject to the Escrow Agreement at the Effective Date,
including the Contingent Shares, if any, which are issued pursuant to
Section 1.7(d) hereunder and subsequently become subject to the Escrow
Agreement, will each appear as issued and outstanding on the balance
sheet of
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WAXS and such shares will be legally outstanding under applicable state
law; (3) all dividends paid on such stock by WAXS will be distributed to
the former CTI stockholders; (4) all voting rights of such stock held
under the Escrow Agreement will be exercisable by the former CTI
stockholders or on their behalf by the Shareholder Representative; (5)
such stock will not be subject to restrictions requiring its return to
WAXS because of the death, failure to continue employment or similar
restrictions; (6) all such stock will be released from the Escrow
Agreement within five (5) years after the Effective Time (except where
there is a bona fide dispute as to whom such stock should be released);
(7) the return of such stock to WAXS will not be triggered by an event
the occurrence or nonoccurrence of which is within the control of the
CTI stockholders; (8) the return of such stock to WAXS will not be
triggered by the payment of additional Tax or reduction in Taxes paid as
a result of an IRS audit of the CTI stockholders, Merger Sub or WAXS
either (x) with respect to the Merger or (y) when the Merger involves a
related person within the meaning of Section 267(c)(4) of the Code; (9)
the mechanism for the calculation of the number of shares of WAXS Common
Stock to be returned to WAXS from the Escrow Fund is objective and
readily ascertainable; and (10) at least fifty percent (50%) of the
number of shares of WAXS Common Stock issued as of Effective Time to the
CTI stockholders will not be subject to the Escrow Agreement or the
Expense Fund.
(xx) As to the Contingent Shares, if any, which may be issued by
WAXS pursuant to Section 1.7(d) hereunder: (1) all the Contingent Shares
will be issued by WAXS pursuant to Section 1.7(d) of this Agreement
within five (5) years from the Effective Time and as to any Contingent
Shares which are placed in escrow under the Escrow Agreement, such
Contingent Shares will be released from the Escrow Agreement within five
(5) years after the Effective Time (except where there is a bona fide
dispute as to whom such stock should be released); (2) there is a valid
business reason for the provisions in Section 1.7(d) concerning the
possible issuance of Contingent Shares; (3) the maximum number of
Contingent Shares that may be issued is stated hereunder; (4) at least
fifty percent (50%) of the maximum number of shares of WAXS Common Stock
(inclusive of the Contingent Shares) will be issued as of the Effective
Time pursuant to Section 1.7(c) hereunder; (5) the Section 1.7(d)
provisions concerning the possible right to receive Contingent Shares
after the Effective Time prohibit assignment of such rights except by
operation of law; (6) the Section 1.7(d) provisions can give rise only
to the receipt of additional WAXS Common Stock; (7) such stock issuance
will not be triggered by an event the occurrence or nonoccurrence of
which is within the control of the CTI stockholders; (8) such stock
issuance will not be triggered by the payment of additional Tax or
reduction in Taxes paid as a result of an IRS audit of the CTI
shareholders or WAXS either (x) with respect to the Merger or (y) when
the Merger involves related persons within the meaning of Section
267(c)(4) of the Code; and (9) the mechanism in Section 1.7(d) hereunder
for the calculation of Contingent Shares to be issued is objective and
readily ascertainable.
(xxi) To the knowledge of WAXS, there is a valid business reason
for the escrow of shares of WAXS Common Stock comprising the Expense
Fund pursuant to Section 2.14 of this Agreement, and to the knowledge of
WAXS, the escrow provisions of Section 2.14 satisfy the specific
requirements of Section 3.06 of IRS Revenue Procedure 77-37, as it has
been amplified and superseded by the IRS.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
5.1 Covenants of CTI. During the period from the date of this Agreement
and continuing until the Effective Time, CTI agrees as to itself and its
Subsidiaries that:
(a) Ordinary Course. Except with respect to any of the matters
described on any of the Schedules to Sections 5(b), (c), (e), (f), (g), (h)
or (j), CTI and its Subsidiaries shall carry on
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their respective businesses in the usual, regular and ordinary course,
substantially in accordance with past practice, in all material respects.
(b) Dividends; Changes in Share Capital. Except as set forth on
SCHEDULE 5.1(B), CTI shall not, and shall not permit any of its
Subsidiaries to, and shall not propose to, (i) declare or pay any dividends
on or make other distributions in respect of any of its capital stock,
except for dividends by wholly-owned Subsidiaries of CTI (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for, shares of its capital stock, except for any such
action by a wholly-owned Subsidiary of CTI which remains a wholly-owned
Subsidiary after consummation of such transaction, or (iii) repurchase,
redeem or otherwise acquire any shares of capital stock of CTI or any of
its Subsidiaries or any securities convertible into or exercisable for any
shares of such capital stock except for the purchase from time to time by
CTI of CTI Common Stock in the ordinary course of business consistent with
past practice in connection with the CTI Employee Benefit Plans.
(c) Issuance of Securities. Except as set forth on SCHEDULE 5.1(C),
CTI shall not, and shall not permit any of its Subsidiaries to, issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of,
any shares of its capital stock of any class, or any securities convertible
into or exercisable for, or any rights, warrants or options to acquire, any
such shares, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of CTI Common Stock upon the
exercise of CTI Stock Options or in connection with other stock-based
benefits plans outstanding on the date hereof, in each case in accordance
with their present terms or (ii) issuances by a wholly-owned Subsidiary of
CTI of capital stock to such Subsidiary's parent or another wholly-owned
subsidiary of CTI.
(d) Governing Documents. Neither CTI nor any of its Subsidiaries
shall amend or propose to amend their respective certificates of
incorporation, bylaws or other governing documents.
(e) Acquisitions. Except as set forth on SCHEDULE 5.1(E), CTI shall
not, and shall not permit any of its Subsidiaries to acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire or
agree to acquire any assets (other than the acquisition of assets used in
the operations of the business of CTI and its Subsidiaries in the ordinary
course).
(f) Sales. Except as set forth on SCHEDULE 5.1(F), CTI shall not, and
shall not permit any of its Subsidiaries to, sell or agree to sell by
merging or consolidating with, or by selling a substantial equity interest
in or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise sell or agree to sell any
assets (other than the sale of assets used in the operations of the
business of CTI and its Subsidiaries in the ordinary course).
(g) Investments; Indebtedness. Except as set forth on Schedule
5.1(g), CTI shall not, and shall not permit any of its Subsidiaries to make
any capital expenditures or capital investments or make any loans, advances
or capital commitments to, or investments in, any other person, in excess
of $5,000,000 in the aggregate other than (x) by CTI or a Subsidiary of CTI
to or in CTI or in any Subsidiary of CTI or (y) pursuant to any contract or
other legal obligation of CTI or any of its Subsidiaries existing at the
date hereof. Except as set forth on SCHEDULE 5.1(G), CTI shall not, and
shall not permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any indebtedness, issuances of debt guarantees, loans or
advances not in existence as of the date hereof except pursuant to credit
facilities, indentures and other arrangements in existence on the date
hereof (as such credit facilities, indentures and other arrangements may be
amended, extended, modified, refunded, renewed or refinanced after the date
hereof) or in the ordinary course of business consistent with past
practice.
(h) Compensation. Other than as contemplated by SCHEDULE 5.1(H) or
SCHEDULE 5.1(C), CTI shall not (i) increase the amount of compensation of
any director or executive officer except in the
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ordinary course of business consistent with past practice or as required by
an existing agreement, (ii) make any increase in or commitment to increase
any employee benefits, except in the ordinary course of business,
consistent with past practice or as required by an agreement existing on
the date hereof, (iii) issue any options, warrants or other rights to
acquire any shares of CTI Capital Stock or adopt or make any commitment to
adopt any agreement, arrangement, commitment or policy which, if in affect
as of the date hereof, would constitute a CTI Employee Benefit Plan under
Section 3.12(a) hereof or (iv) make any contribution, other than regularly
scheduled contributions, to any CTI Employee Benefit Plan.
(i) Accounting Methods; Income Tax Matters. CTI shall not change its
methods of accounting in effect on December 31, 1999, except as required by
changes in GAAP as concurred in by CTI's independent auditors. CTI shall
not (i) change its fiscal year, (ii) make any material tax election, (iii)
adopt or change any Tax accounting method, (iv) enter into any closing
agreement, settle or compromise a Tax liability with a Tax authority, (v)
surrender any right to claim a refund of Taxes, or (vi) take (or permit any
Subsidiary of CTI to take) any other action which would have the effect of
materially increasing the Tax liability or materially decreasing any Tax
asset of CTI or any of its Subsidiaries, other than in the ordinary course
of business consistent with past practice.
(j) Certain Agreements. Except as set forth on SCHEDULE 5.1(J) and
except for extensions or renewals of agreements in existence on the date
hereof, CTI shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of WAXS (which consent shall not be unreasonably
withheld or delayed), enter into any agreement or arrangement which, if it
had been entered into prior to the execution of this Agreement, would have
been a Material Contract.
(k) Litigation. CTI shall not and shall not permit any of its
Subsidiaries to settle or, compromise any litigation, except where the
amount paid or payable, in each case, does not exceed $1,000,000.
5.2 Control of CTI's Business. Nothing contained in this Agreement shall
give WAXS, directly or indirectly, the right to control CTI's operations prior
to the Effective Time. Prior to the Effective Time, CTI shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision over its operations.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Proxy Statement: Stockholders Meetings.
(a) As promptly as reasonably practicable following the date hereof,
WAXS shall prepare and file with the Securities and Exchange Commission
(the "SEC") materials which shall constitute its proxy statement and
prospectus in connection with the WAXS Stockholders Meeting (such proxy
statement and prospectus, and any amendments or supplements thereto, the
"Proxy Statement/Prospectus") and WAXS shall prepare and file a
registration statement on Form S-4 with respect to the issuance of all WAXS
Common Stock in the Merger, including, without limitation, the Contingent
Shares and the shares of WAXS Common Stock issuable to the holders of CTI
Preferred Stock as contemplated by Section 2.6(b) (the "Registration
Statement"). The Proxy Statement/Prospectus will be included in and will
constitute a part of the Registration Statement as WAXS's prospectus. The
Registration Statement and the Proxy Statement/Prospectus shall comply as
to form in all material respects with the applicable provisions of the
Securities Act and the Exchange Act and the rules and regulations
thereunder. WAXS shall use reasonable efforts to have the Registration
Statement declared effective by the SEC as promptly as reasonably
practicable after filing with the SEC and to keep the Registration
Statement effective as long as is necessary to consummate the Merger and
the actions contemplated thereby. CTI shall use its reasonable best efforts
to cooperate with and assist WAXS in connection with the preparation and
amendment of the Proxy Statement/Prospectus and the Registration Statement.
WAXS will provide CTI with a
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reasonable opportunity to review and comment on any amendment or supplement
to the Registration Statement prior to filing such with the SEC, and will
provide CTI with a copy of all such filings made with the SEC. WAXS will
use reasonable efforts to cause the Joint Proxy Statements/Prospectus to be
mailed to WAXS's stockholders as promptly as practicable after the
Registration Statement is declared effective under the Securities Act. WAXS
shall also take any action (other than qualifying to do business in any
jurisdiction in which it is not now so qualified or to file a general
consent to service of process) required to be taken under any applicable
state securities laws in connection with the issuance of WAXS Common Stock
and CTI shall furnish all information concerning CTI and the holders of CTI
Capital Stock as may be reasonably requested in connection with any such
action. WAXS will advise CTI promptly after it receives notice thereof, of
the time when the Registration Statement has become effective, the issuance
of any stop order or the suspension of the qualification of the WAXS Common
Stock issuable in connection with the Merger for offering or sale in any
jurisdiction or any request by the SEC for amendment of the Registration
Statement. If at any time prior to the Effective Time any information
relating to WAXS or CTI, or any of their respective affiliates, officers or
directors, should be discovered by WAXS or CTI which should be set forth in
an amendment or supplement to the Registration Statement or the Proxy
Statement/Prospectus so that any of such documents would not include any
misstatement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, the party which discovers such
information shall promptly notify the other party hereto and, to the extent
required by law, rules or regulations, an appropriate amendment or
supplement describing such information shall be promptly filed with the SEC
and disseminated to the stockholders of WAXS and CTI.
(b) CTI shall, as promptly as reasonably practicable following the
execution of this Agreement, (i) duly take all lawful action to call, give
notice of, convene and hold a meeting of its stockholders (which meeting
the parties intend to be held no later than 30 days following the date on
which the Registration Statement has been declared effective by the SEC)
for the purpose of obtaining or (ii) duly take all lawful action to obtain
by written consent pursuant to the CGCL, the required vote of its
stockholders with respect to the actions contemplated by this Agreement and
shall take all lawful action to solicit the adoption of this Agreement by
the stockholders of CTI by written consent or otherwise. The Board of
Directors of CTI shall recommend adoption of this Agreement by the
stockholders of CTI and shall not withdraw, modify or materially qualify in
any manner adverse to WAXS such recommendation or take any action or make
any statement materially inconsistent with such recommendation
(collectively, an "Adverse Change in the CTI Recommendation"); provided,
however, that the foregoing shall not prohibit accurate disclosure of
factual information regarding the business, financial condition or results
of operations of WAXS or CTI or the fact that an Acquisition Proposal (as
defined in Section 6.4) has been made, the identity of the party making
such proposal or the material terms of such proposal (provided, that the
Board of Directors of CTI does not withdraw, modify or materially qualify
in any manner adverse to WAXS its recommendation) in the Registration
Statement or the Proxy Statement/Prospectus, to the extent such
information, facts, identity or terms is required to be disclosed therein
under applicable law.
(c) WAXS shall, as promptly as reasonably practicable following the
execution of this Agreement, duly take all lawful action to call, give
notice of, convene and hold a meeting of its stockholders (the "WAXS
Stockholders Meeting") (which meeting the parties intend to be held no
later than 30 days following the date on which the Registration Statement
has been declared effective by the SEC) for the purpose of obtaining the
required vote of its stockholders with respect to the transactions
contemplated by this Agreement and shall take all lawful action to solicit
the approval of the transactions contemplated hereby by the stockholders of
WAXS. The Board of Directors of WAXS shall recommend approval of the
transactions contemplated hereby by the stockholders of WAXS and shall not
withdraw, modify or materially qualify in any manner adverse to CTI such
recommendation or take any action or make any statement in connection with
the WAXS Stockholders Meeting materially inconsistent with such
recommendation; provided, however, that the
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foregoing shall not prohibit accurate disclosure of factual information
regarding the business, financial condition or operations of WAXS or CTI.
6.2 Access to Information. Upon reasonable notice, each of CTI and WAXS
shall (and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel, financial advisors and other representatives of the other
parties hereto reasonable access during normal business hours, during the period
prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers and employees and, during such period, each of
CTI and WAXS shall (and shall cause its Subsidiaries to) furnish promptly to the
other parties hereto (a) a copy of each report, schedule, registration statement
and other document filed, published, announced or received by it during such
period pursuant to the requirements of federal or state securities laws, as
applicable (other than documents which such party is not permitted to disclose
under applicable law), and (b) consistent with its legal obligations, all other
information concerning it and its business, properties and personnel as such
other party may reasonably request; provided, however, that either CTI or WAXS
may restrict the foregoing access to the extent that any law, treaty, rule or
regulation of any governmental entity applicable to such party requires such
party or its Subsidiaries to restrict access to any properties or information.
The parties will hold any such information which is non-public in confidence to
the extent required by, and in accordance with, the provisions of the
Confidentiality Agreement, dated January 6, 2000, between CTI and WAXS (the
"Confidentiality Agreement"). Any investigation by WAXS or CTI shall not affect
the representations and warranties made herein of CTI or WAXS, as the case may
be.
6.3 Reasonable Efforts.
(a) Subject to the terms and conditions of this Agreement, each party
will use reasonable efforts to take, or cause to be taken, all actions and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the Merger and the other
transactions contemplated by this Agreement as soon as practicable after
the date hereof, including (i) preparing and filing as promptly as
practicable all documentation to effect all necessary applications,
notices, petitions, filings, and other documents and to obtain as promptly
as practicable all consents, waivers, licenses, orders, registrations,
approvals, permits and authorizations necessary or advisable to be obtained
from any third party and/or any governmental entity in order to consummate
the Merger or any of the other transactions contemplated by this Agreement
and (ii) taking all reasonable steps as may be necessary to obtain all such
material consents, waivers, licenses, registrations, permits,
authorizations, tax rulings, orders and approvals. The parties each shall
keep the other apprised of the status of matters relating to completion of
the transactions contemplated hereby, including promptly furnishing the
other with copies of notices or other communications received by it or any
of its Subsidiaries or affiliates from any governmental entity or third
party with respect to the Merger or any of the other transactions
contemplated by this Agreement, in each case, to the extent permitted by
law or regulation or any applicable confidentiality agreements existing on
the date hereof.
(b) The parties shall promptly prepare and file any required
notifications with the United States Department of Justice (the "DOJ") and
the Federal Trade Commission (the "FTC") as required by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The parties shall cooperate with each other in connection with the
preparation of such notifications and related matters, including sharing
information concerning sales and ownership and such other information as
may be needed to complete such notification, and providing a copy of such
notifications to the other prior to filing; provided, that WAXS and CTI
shall have the right to redact any dollar revenue information from the
copies of such notifications provided to the other parties. The parties
shall keep all information about the other obtained in connection with the
preparation of such notification confidential pursuant to the terms of the
Confidentiality Agreement. Each party shall pay the filing fee required
under the regulations promulgated pursuant to the HSR Act with respect for
the notification for which such party is the "Acquiring Person" (as defined
in the regulations promulgated to the HSR Act).
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6.4 Acquisition Proposals. Without the prior written consent of WAXS,
pending the Closing, CTI agrees that neither it nor any of its Subsidiaries
shall, and that it shall cause its employees, officers, directors, affiliates,
agents and representatives (including any investment banker, financial advisor,
attorney or accountant retained by any of them) not to, directly or indirectly,
initiate, solicit, encourage or knowingly facilitate (including by way of
furnishing information or engaging in discussions or negotiations) any inquiries
or the making of any proposal or offer with respect to a merger, reorganization,
share exchange, consolidation, business combination, recapitalization,
liquidation, dissolution or similar action involving CTI, or any purchase or
sale of a material portion of the assets of (including stock of Subsidiaries) of
CTI, taken as a whole, or any purchase or sale of, or tender or exchange offer
for, a material portion of the equity securities of CTI (any such proposal or
offer being referred to herein as an "Acquisition Proposal"). CTI further agrees
that neither it nor any of its Subsidiaries shall, and that it shall cause it
and its Subsidiaries' officers, directors, affiliates, employees, agents and
representatives (including any investment banker, financial advisor, attorney or
accountant retained by it or any of its Subsidiaries) not to, directly or
indirectly, have any discussion with or provide any confidential information or
data to any Person relating to an Acquisition Proposal, or engage in any
negotiations concerning an Acquisition Proposal, or knowingly facilitate any
effort or attempt to make or implement an Acquisition Proposal or accept an
Acquisition Proposal. CTI agrees that it and its Subsidiaries will, and will
cause its officers, directors, affiliates, employees, agents and representatives
to, immediately cease and cause to be terminated any activities, discussions or
negotiations existing as of the date of this Agreement with any parties
conducted heretofore with respect to any Acquisition Proposal. CTI agrees that
it will promptly inform its directors, officers, affiliates, key employees,
agents and representatives of the obligations undertaken in this Section 6.4.
6.5 Fees and Expenses. All Expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such Expenses. As used in this Agreement, "Expenses" includes all
out-of-pocket expenses (including all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a parry hereto and its
affiliates) incurred by a party or on its behalf in connection with or related
to the authorization, preparation, negotiation, execution and performance of
this Agreement and the transactions contemplated hereby.
6.6 Public Announcements. Neither WAXS nor CTI shall, without the prior
consent of the other party, issue a press release or any other public statement
with respect to this Agreement or the transactions contemplated hereby except
pursuant to a joint communications plan, unless otherwise required by applicable
law or by obligations pursuant to any listing agreement with or rules of any
securities exchange, in which case the parties shall use reasonable efforts to
consult with each other before issuing any press release or otherwise making any
public statement with respect to this Agreement or the transactions contemplated
hereby.
6.7 Listing. So long as WAXS Common Stock is quoted on the Nasdaq or
listed on any national securities exchange, WAXS, if permitted by the rules of
such system or exchange, will quote or list and keep quoted or listed on such
system or exchange, all WAXS Common Stock issuable pursuant to Article I hereof.
WAXS shall not voluntarily cause or take any steps to voluntarily cause WAXS
Common Stock to fail to be quoted on the Nasdaq or a national securities
exchange.
6.8 Termination of Tax Sharing Agreements. As of the Effective Time, CTI
shall cause all Tax Sharing Agreements to which CTI or any of its Subsidiaries
is a party to be terminated and of no further force and effect after the
Effective Time, thereby extinguishing any rights or obligations of any party
thereunder.
6.9 Bridge Financing. WAXS agrees to make funds available to Borrower (as
defined in that certain Participation Agreement, of even date herewith, between
Foothill Capital Corporation and WAXS (the "Participation Agreement")) on and
subject to the terms and conditions set forth in the Participation Agreement.
6.10 Tax Treatment; Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Treas. Reg.
sec.1.368-2(g). During the period from the date of this
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Agreement through the Effective Time, unless the parties shall otherwise agree
in writing, none of WAXS, CTI or any of their respective Subsidiaries shall
knowingly take or fail to take any action which action or failure to act which
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code. After the
Merger and pursuant to the plan of reorganization set forth in this Agreement,
WAXS expects to transfer some or all of the assets of the Surviving Corporation
in a manner permitted under Section 368(a)(2)(C) of the Code and Treas. Reg.
sec.1.368-2(k). WAXS and CTI agree to treat the Merger as a reorganization
within the meaning of Section 368(a) of the Code. To this end, none of WAXS, CTI
nor Merger Sub, nor, after the Merger, the Surviving Corporation will take any
position on any federal, state or local income or franchise Tax Return, or take
any other Tax reporting position that is inconsistent with the treatment of the
Merger as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code, unless otherwise required by a "determination" (as
defined in Section 1313(a)(1) of the Code) or by applicable state or local
income or franchise Tax law.
6.11 Directors' and Officers' Indemnification and Insurance.
(a) From the Effective Time through the sixth (6th) anniversary of the
date on which the Effective Time occurs, WAXS shall indemnify and hold
harmless each present (as of the Effective Time) or former officer or
director of CTI and its Subsidiaries (the "Indemnified Parties"), against
all claims, losses, liabilities, damages, judgments, fines and reasonable
fees, costs and expenses, including attorneys' fees and disbursements
(collectively, "Costs"), incurred in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal, administrative
or investigative, arising out of or pertaining to (i) the fact that the
Indemnified Party is or was an officer or director of CTI or any of its
Subsidiaries or (ii) matters existing or occurring at or prior to the
Effective Time (including those related to this Agreement and the
transactions and actions contemplated hereby), whether asserted or claimed
prior to, at or after the Effective Time, to the fullest extent permitted
under applicable law; provided that no Indemnified Party may settle any
such claim without the prior approval of WAXS (which approval shall not be
unreasonably withheld or delayed). Each Indemnified Party will be entitled
to advancement of expenses incurred in the defense of any claim, action,
suit, proceeding or investigation from WAXS within ten (10) business days
of receipt by WAXS from the Indemnified Party of a request therefor;
provided that any person to whom expenses are advanced provides an
undertaking, to the extent required by the CGCL, to repay such advances if
it is ultimately determined that such person is not entitled to
indemnification.
(b) WAXS shall maintain, at no expense to the beneficiaries, in effect
for six years from the Effective Time the current policies of the
directors' and officers' liability insurance maintained by CTI with respect
to matters existing or occurring at or prior to the Effective Time
(including the transactions contemplated by this Agreement); provided that
WAXS may substitute therefor policies of at least the same coverage
containing terms and conditions which are not materially less advantageous
to any beneficiary thereof; and provided, further, that in no event shall
WAXS be required to pay annual premiums for such insurance in excess of
125% of the annual premiums currently paid by CTI for such insurance.
Notwithstanding the foregoing, if the insurance policies that WAXS would be
required to maintain pursuant to this Section 6.11(b) would require the
payment of aggregate annual premiums in excess of 125% of the aggregate
annual premiums in effect under such policies of CTI as of the date hereof
(the "CTI Policies"), then WAXS shall be obligated to use commercially
reasonable efforts to obtain and maintain such substitute policies of
insurance as are the best available as to amount and other coverage terms
and conditions for annual premiums equal to 125% of the aggregate annual
premiums in respect of the CTI Policies.
(c) Notwithstanding anything herein to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising before, at or
after the Effective Time) is made against any Indemnified Party, on or
prior to the sixth (6th) anniversary of the Effective Time, the provisions
of this Section 6.11 shall continue in effect until the final disposition
of such claim, action, suit, proceeding or investigation.
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(d) The covenants contained in this Section 6.11 are intended to be
for the benefit of, and shall be enforceable by, each of the Indemnified
Parties and their respective heirs and legal representatives and shall not
be deemed exclusive of any other rights to which an Indemnified Party is
entitled, whether pursuant to law, contract or otherwise.
(e) In the event that WAXS or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors or assigns of WAXS or the
purchaser of such properties and assets shall succeed to the obligations
set forth in this Section 6.11.
6.12 Merger Sub Stockholder Resolutions. Pending the Closing, WAXS shall
not rescind or modify in any material respect the Merger Sub Stockholder
Resolutions.
6.13 Compliance with Dissenters' Rights Statute. CTI shall comply with all
procedures and requirements applicable to CTI under Chapter 13 of the CGCL.
6.14 Good Faith. The parties shall perform and exercise their respective
obligations and rights provided for hereunder in good faith.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of CTI, Merger Sub and WAXS to effect the Merger are
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions:
(a) HSR Act. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or
shall have expired.
(b) Stockholder Approval. The stockholders of WAXS shall have
approved this Agreement and the Merger by the Required WAXS Vote and the
stockholders of CTI shall have approved this Agreement and the Merger by
the Required CTI Vote.
(c) Registration Statement. The Registration Statement shall have
been declared effective by the SEC under the Securities Act. No stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall have been
initiated or, to the knowledge of WAXS or CTI, threatened by the SEC.
(d) Escrow Agreement. WAXS, CTI and the Escrow Agent shall have
executed and delivered an escrow agreement in the form attached hereto as
Exhibit A (the "Escrow Agreement").
7.2 Additional Conditions to Obligations of WAXS. The obligations of WAXS
to effect the Merger are subject to the satisfaction of, or waiver by WAXS, on
or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the representations and
warranties of CTI set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent that such representations
and warranties speak as of another date, in which case any such
representations and warranties shall be true and correct as of such date),
except where any failures to be true and correct would not have a Material
Adverse Effect on WAXS or the Surviving Corporation, and WAXS shall have
received a certificate of the chief executive officer and the chief
financial officer of CTI to such effect.
(b) Performance of Obligations of CTI. CTI shall have performed or
complied in all material respects with all material agreements and
covenants required to be performed by it under this
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Agreement at or prior to the Closing Date, and WAXS shall have received a
certificate of the chief executive officer and the chief financial officer
of CTI to such effect.
(c) Consents and Approvals. All consents, approvals and actions of,
filings with and notices to any governmental entity required to consummate
the Merger and the other transactions contemplated hereby, or of any other
third party required of CTI or any of its Subsidiaries to consummate the
Merger and the other transactions contemplated hereby shall have been
obtained, except where the failure to obtain any such consent or approval
would not have a Material Adverse Effect on WAXS or the Surviving
Corporation; provided, however, that the provisions of this Section 7.2(c)
shall not be available to WAXS if WAXS's failure to fulfill its obligations
pursuant to Section 6.3 shall have been the cause of, or shall have
resulted in, the failure to obtain any such consent or approval.
(d) No Material Change. CTI and its Subsidiaries, taken as a whole,
shall not have suffered, since the date hereof, a Material Adverse Effect,
other than any change, circumstance or effect relating (i) to the economy
or financial markets in general, or (ii) in general to the industries in
which CTI operates and not specifically relating to CTI.
(e) Opinion of Counsel to CTI. WAXS shall have received from
O'Melveny & Myers LLP an opinion, dated the Closing Date, in the form
attached hereto as Exhibit B.
(f) No Injunctions or Restraints; Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other governmental
entity of competent jurisdiction shall be in effect (i) having the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would have a Material Adverse Effect on WAXS
or the Surviving Corporation; provided, however, that the provisions of
this Section 7.2(f) shall not be available to WAXS if its failure to
fulfill its obligations pursuant to Section 6.3 shall have been the cause
of, or shall have resulted in any such order or injunction.
(g) Trading Price. The average of the closing prices of WAXS Common
Stock as reported on the Nasdaq for the ten (10) consecutive trading days
ending at the close of trading on the second (2nd) trading day preceding
the Closing shall not be below $15.00.
(h) Dissenters' Rights. CTI shall have complied with all procedures
and requirements applicable to it under Chapter 13 of the CGCL, the period
for exercising dissenters' rights pursuant to the CGCL in connection with
the Merger shall have expired and holders of less than one percent (1%) of
the shares of CTI Capital Stock issued and outstanding immediately prior to
the Closing shall have exercised such dissenters' rights, and WAXS shall
have received a certificate from an officer of CTI to all such effects.
(i) Approval of CTI Preferred Stock. All of the shares of outstanding
CTI Preferred Stock shall have been voted in favor of this Agreement, the
Merger and the other transactions contemplated hereby (which vote shall not
have been rescinded or modified in any way) and such shares have been
converted into not more than 8,282,829 shares of CTI Common Stock pursuant
to the terms and conditions of the Certificate of Determination of
Preferences of the CTI Series A Preferred Stock and the CTI Series B
Preferred Stock, as applicable.
7.3 Additional Conditions to Obligations of CTI. The obligations of CTI to
effect the Merger are subject to the satisfaction of, or waiver by CTI, on or
prior to the Closing Date of the following additional conditions:
(a) Representations and Warranties. Each of the representations and
warranties of WAXS set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date (except to the extent that such representations
and warranties speak as of another date, in which case any such
representations and warranties shall be true and correct as of such date),
except where any failures to be true and correct
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would not have a Material Adverse Effect on WAXS, and CTI shall have
received a certificate of the chief executive officer and the chief
financial officer of WAXS to such effect.
(b) Performance of Obligations of WAXS. WAXS shall have performed or
complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the
Closing Date, and CTI shall have received a certificate of the chief
executive officer and the chief financial officer of WAXS to such effect.
(c) Consents and Approvals. All consents, approvals and actions of,
filings with and notices to any governmental entity required to consummate
the Merger and the other transactions contemplated hereby, or of any other
third party required of WAXS or any of its Subsidiaries to consummate the
Merger and the transactions contemplated hereby shall have been obtained,
except where the failure to obtain any such consent or approval would not
have a Material Adverse Effect on WAXS or the Surviving Corporation;
provided, however, that the provisions of this Section 7.3(c) shall not be
available to CTI if its failure to fulfill any of its obligations pursuant
to Section 6.3 shall have been the cause of, or shall have resulted in, the
failure to obtain any such consent or approval.
(d) Opinion of Counsel to WAXS. CTI shall have received from Long
Aldridge & Norman LLP an opinion, dated the Closing Date, in the form
attached hereto as Exhibit C.
(e) [Intentionally omitted.]
(f) No Injunctions or Restraints; Illegality. No laws shall have been
adopted or promulgated, and no temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other governmental
entity of competent jurisdiction shall be in effect (i) having the effect
of making the Merger illegal or otherwise prohibiting consummation of the
Merger or (ii) which otherwise would have a material adverse effect on the
business, financial condition or operations of WAXS and its Subsidiaries
taken as a whole; provided, however, that the provisions of this Section
7.3(g) shall not be available to CTI if its failure to fulfill its
obligations pursuant to Section 6.3 shall have been the cause of, or shall
have resulted in any such order or injunction.
ARTICLE VIII
POST-CLOSING INDEMNIFICATION; SHAREHOLDER REPRESENTATIVE
8.1 Remedies. Subject to the terms of this Article VIII, from and after
the Effective Time, WAXS shall be indemnified and held harmless from and against
any and all claims, losses, liabilities, damages, costs (including court costs)
and expenses (including reasonable attorneys' and accountants' fees) suffered or
incurred by WAXS, its successors or assigns, and their respective officers,
employees, consultants and agents (the "WAXS Protected Parties") (hereinafter
"Loss" or "Losses"), as a result of, or with respect to, (i) except as otherwise
provided in Section 8.2, any breach or inaccuracy of any representation or
warranty of CTI set forth in this Agreement (without regard to any Material
Adverse Effect qualification contained in any such representation or warranty,
except such qualification contained in the representation and warranty in
Section 3.18(a)), whether such breach or inaccuracy exists or is made on the
date of this Agreement or as of the Closing Date; (ii) any breach or inaccuracy
of any representation or warranty of CTI set forth in the certificates to be
provided to WAXS pursuant to Sections 7.2(a) and (b), without regard to the
Material Adverse Effect qualification contained in such certificate or the
underlying representations or warranties referenced therein (except such
qualification contained in the representation and warranty in Section 3.18(a));
(iii) any breach of or noncompliance by CTI prior to the Effective Time with any
covenant or agreement of CTI contained in this Agreement; and (iv) any
imposition of the suspended $17.6 million fine, or other monetary penalty,
imposed in connection with or related to the matter described in item 1 of
SCHEDULE 3.6, but only to the extent that such imposition arises out of wrongful
acts or omissions of CTI which occur after the effective date of the order
referred to in item 1 of SCHEDULE 3.6 and prior to the Closing Date.
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8.2 Indemnity Claims.
(a) Survival. The representations and warranties of CTI contained
herein or in any certificate or other document delivered pursuant hereto or
in connection herewith shall not be extinguished by the Closing but shall
survive the Closing, subject to the limitations set forth in Section 8.2(b)
hereof with respect to the time periods within which claims for indemnity
must be asserted, and the covenants and agreements of the parties contained
herein shall survive without limitation as to time except as may be
otherwise specified herein. Notwithstanding the foregoing, none of the
representations and warranties of CTI contained in Section 3.16(g) hereof
or in the CTI certificate required pursuant to Section 7.2(a) with respect
to Section 3.16(g) hereof shall survive the Closing and no WAXS Protected
Party shall be entitled to indemnification pursuant to this Article VIII
for any breach or alleged breach by CTI of such representations and
warranties. No investigation or other examination of CTI by WAXS shall
affect the term of survival of any representation or warranty contained
herein or in any certificate or other document delivered pursuant hereto or
in connection herewith.
(b) Time to Assert Claims. All claims for indemnification hereunder
shall be asserted no later than one (1) year after the Effective Time
provided; however, that if a notice of claim which conforms, in all
material respects, as to form and substance with the requirements set forth
in Section 8.4 is given pursuant to Section 8.4 prior to such one-year
anniversary of the Effective Time, such representation or warranty shall
continue indefinitely with respect to the claims in such notice until such
claims are resolved pursuant to this Article VIII. Nothing herein shall be
deemed to prevent a WAXS Protected Party from making a claim for a Loss
hereunder for potential or contingent claims or demands provided the notice
of Loss sets forth the specific basis for any such potential or contingent
claim or demand to the extent then feasible and the party making the claim
has reasonable grounds to believe that such a claim or demand may become
actual.
8.3 Deductible. Notwithstanding any other provision hereof, the WAXS
Protected Parties shall make no claim against CTI for indemnification hereunder
(except pursuant to Section 8.1(a)(iv)) unless and until the amount of each
individual Loss in excess of $150,000 (the "Subdeductible Amount") exceeds
$3,000,000 in the aggregate (the "Deductible Amount"), in which event the WAXS
Protected Parties may claim indemnification for the amount of such Losses (in
each case net of the Subdeductible Amount) in excess of the Deductible Amount.
8.4 Notice of Claim. A WAXS Protected Party shall notify the Shareholder
Representative (as defined in Section 8.7), in writing, of any claim for
indemnification, specifying in reasonable detail the nature of the Loss, and, if
known, the amount, or an estimate of the amount, of the liability arising
therefrom. The WAXS Protected Party shall provide to the Shareholder
Representative as promptly as practicable thereafter such information and
documentation as may be reasonably requested to support and verify the claim
asserted, so long as such disclosure would not violate the attorney-client
privilege of the WAXS Protected Party.
8.5 Defense. If the facts pertaining to a Loss arise out of the claim of
any third party, or if there is any claim against a third party available by
virtue of the circumstances of the Loss, the Shareholder Representative may
assume the defense or the prosecution thereof by prompt written notice to the
WAXS Protected Party, including the employment of counsel or accountants, at its
cost and expense. The WAXS Protected Party shall have the right to employ
counsel separate from counsel employed by the Shareholder Representative in any
such action and to participate therein, but the fees and expenses of such
counsel employed by the WAXS Protected Party shall be at its expense. The
Shareholder Representative shall not be liable for any settlement of any such
claim effected without its prior written consent, which shall not be
unreasonably withheld or delayed. The Shareholder Representative shall not agree
to a settlement of any claim which provides for any relief, other than the
payment of monetary damages, which would have a material precedential impact or
effect on the business or financial condition of any WAXS Protected Party
without the WAXS Protected Party's prior written consent. Whether or not the
Shareholder Representative chooses to so defend or prosecute such claim, the
parties hereto shall reasonably cooperate
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in the defense or prosecution thereof and shall furnish such records,
information and testimony, and attend such conferences, discovery proceedings,
hearings, trials and appeals, as may be reasonably requested in connection
therewith. The Shareholder Representative shall be subrogated to all rights and
remedies of any WAXS Protected Party.
8.6 Satisfaction of Obligations. Notwithstanding anything else herein or
otherwise to the contrary (except as set forth in Section 10.1), (i) the sole
remedy of any WAXS Protected Party for any breach by CTI of a representation or
warranty of CTI hereunder shall be the right to receive indemnification from CTI
pursuant to this Article VIII and (ii) the Escrow Fund shall constitute the WAXS
Protected Parties' sole source of recovery for claims for indemnification
arising under this Article VIII, and none of CTI, its Subsidiaries or any of
their respective officers, directors, employees or shareholders shall have any
personal liability whatsoever with respect thereto.
8.7 Shareholder Representative.
(a) Upon approval by the stockholders of CTI of the Merger, this
Agreement and the other transactions contemplated hereby, the stockholders
of CTI will be deemed to have appointed, as of the Effective Time, Edward
S. Soren (the "Shareholder Representative") as their representative under
this Agreement and the Escrow Agreement, including for purposes of the
indemnification obligations set forth in this Article VIII, and as
attorney-in-fact and agent for and on behalf of such CTI stockholders with
authority to take any and all actions and make any and all decisions
required or permitted to be taken or made by them under this Agreement and
the Escrow Agreement (including the settling of claims for indemnity). The
Shareholder Representative shall have full power and authority as agent of
the CTI stockholders to represent the CTI stockholders, and their
successors, heirs, representatives, and assigns with respect to all matters
arising under this Agreement and the Escrow Agreement and any other matters
concerning the transactions contemplated by this Agreement and the Escrow
Agreement after the Closing, and all action taken by the Shareholder
Representative shall be binding upon the CTI stockholders and their
successors, heirs, representatives and assigns as if expressly confirmed
and ratified by each of them.
(b) The Shareholder Representative shall act in good faith in
undertaking his duties set forth herein. The Shareholder Representative,
acting in such capacity, shall not incur any liability with respect to any
action or inaction taken by him except those involving his own willful
misconduct or gross negligence. The Shareholder Representative may, in all
questions arising under this Agreement, rely on the advice of counsel and
for anything done, omitted or suffered in good faith by the Shareholder
Representative based on such advice, the Shareholder Representative shall
not be liable to anyone, except to the extent such action or inaction
involves the Shareholder Representative's own willful misconduct or gross
negligence. Nothing set forth in this Section 8.7(b) shall in any way
relieve the Shareholder Representative in his capacity as a CTI Stockholder
of his obligations under this Article VIII.
(c) In the event of the death or permanent disability of the
Shareholder Representative or his resignation as the Shareholder
Representative, a successor Shareholder Representative shall be appointed
by Roger Abbott. Prompt notice of such appointment shall be delivered in
writing by Roger Abbott to WAXS and the Escrow Agent.
ARTICLE IX
TERMINATION PRIOR TO CLOSING
9.1 Termination of Agreement. This Agreement may be terminated at any time
prior to the Closing:
(a) By mutual written consent of WAXS and CTI;
(b) By either WAXS or CTI, if the other party shall have failed to
comply in any material respect with any of its material covenants or
agreements contained in this Agreement, which failure to so comply has not
been cured within thirty (30) days following receipt by such other party of
written
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notice of such failure to comply; provided, however, that if any such
breach is curable by the breaching party through the exercise of the
breaching party's reasonable efforts and for so long as the breaching party
shall be so using its reasonable efforts to cure such breach, the
non-breaching party may not terminate this Agreement pursuant to this
paragraph; and provided, further, that no party shall have the right to
terminate this Agreement pursuant to this Section 9.1(b) if such party is
then failing to comply in any material respect with any of its covenants or
agreements contained in this Agreement;
(c) By either WAXS or CTI, if there has been a breach by the other
party of any representations or warranties, which breach has not been cured
within thirty (30) days following receipt by such other party of written
notice of such failure to comply; provided, however, that if any such
breach is curable by the breaching party through the exercise of the
breaching party's reasonable efforts and for so long as the breaching party
shall be so using reasonable efforts to cure such breach, the non-breaching
party may not terminate this Agreement pursuant to this paragraph; and
provided further, that this provision shall only apply to such breaches
which would have a Material Adverse Effect on (i) WAXS (after giving effect
to the Merger), (ii) the Surviving Corporation or (iii) WAXS (after giving
effect to the Merger) and the Surviving Corporation;
(d) By either CTI or WAXS, if the Effective Time shall not have
occurred on or before October 31, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section
9.1(d) shall not be available to any party whose action or failure to
fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur on or before the
Termination Date and any such action or failure constitutes a breach of
this Agreement;
(e) By either CTI or WAXS if any governmental entity (i) shall have
issued an order, decree or ruling or taken any other action (which the
parties shall have used their reasonable efforts to resist, resolve or
lift, as applicable, in accordance with Section 6.3) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement, and such order, decree, ruling, or other
action shall have become final and nonappealable or (ii) shall have failed
to issue an order, decree or ruling or to take any other action (which
order, decree, ruling or other action the parties shall have used their
reasonable efforts to obtain, in accordance with Section 6.3), which, in
the case of each of (i) and (ii) is necessary to fulfill the conditions set
forth in Section 7.2(f) with respect to WAXS or Section 7.3(g) with respect
to CTI, and such denial of a request to issue such order, decree, ruling or
take such other action shall have become final and nonappealable; provided,
however, that the right to terminate this Agreement under this Section
9.1(e) shall not be available to any party whose action or failure to
fulfill any obligation under this Agreement has been the cause of such
action or inaction and any such action or failure constitutes a breach of
this Agreement; or
(f) By WAXS or CTI if the adoption of this Agreement by the
stockholders of WAXS or the stockholders of CTI shall not have been
obtained by reason of the failure to obtain the required vote of the WAXS
or CTI stockholders, in each case, upon the taking of such vote.
9.2 Effect of Termination. In the event of any termination of this
Agreement by either CTI or WAXS, as provided in Section 9.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of WAXS or CTI or their respective officers or directors except with
respect to Sections 6.2, 6.5, 6.6, this Section 9.2 and Section 10.7, which
provisions shall survive such termination and except that, notwithstanding
anything to the contrary contained in this Agreement, neither WAXS nor CTI shall
be relieved or released from any liabilities or damages arising out of its
breach of this Agreement.
9.3 Amendment. This Agreement may be amended by CTI and WAXS, by action
taken or authorized by their respective Boards of Directors or representatives
or authorized officers, at any time before or after approval of the matters
presented in connection with the Merger by the stockholders of CTI and WAXS,
but, after any such approval, no amendment shall be made which by law or in
accordance with the rules of any relevant stock exchange or automatic quotations
system requires further
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approval by such stockholders without such further approval. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
CTI and WAXS.
9.4 Extension, Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, representatives or authorized officers, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in a written
instrument signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of those rights.
ARTICLE X
MISCELLANEOUS
10.1 Survival of Representations and Warranties and Covenants;
Fraud/Misrepresentation. Except as otherwise provided herein, no representation
or warranty of any party made in this Agreement or in any certificate delivered
by such party pursuant hereto shall survive the Closing. Except as otherwise
provided in Section 9.2, all covenants and agreements of the parties hereto
shall survive the Closing. Notwithstanding anything in this Agreement to the
contrary, nothing contained in Article VIII or in any other provision hereof
shall limit, modify or otherwise affect the rights or remedies of WAXS or CTI,
at law or in equity, arising prior to the Effective Time or against any person
or entity for fraud or intentional misrepresentation.
10.2 Entire Agreement. This Agreement (including the Schedules and
Exhibits), the Escrow Agreement and the Confidentiality Agreement constitute the
sole understanding of the parties with respect to the subject matter hereof;
provided, however, that this provision is not intended to abrogate any other
written agreement between the parties executed with or after this Agreement.
10.3 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of WAXS, CTI may not assign its
rights, duties or obligations hereunder or any part thereof to any other person
or entity. WAXS may assign its rights and duties hereunder in whole or in part
(before or after the Effective Time) to one or more affiliates but if it does
so, it shall remain liable for all WAXS' obligations hereunder.
10.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
10.5 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
10.6 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar).
B-41
<PAGE> 384
10.7 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally (including by overnight courier or express mail
service) or sent by registered or certified mail, postage or fees prepaid,
if to CTI to:
WorldxChange Communications
9999 Willow Creek Road
San Diego, California 92131
Attention: Eric Lipoff, Esq.
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
if to WAXS to:
World Access, Inc.
945 E. Paces Ferry Road, Suite 2200
Atlanta, Georgia 30326
Attention: W. Tod Chmar
with a copy to:
Long Aldridge & Norman LLP
Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: H. Franklin Layson, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is addressed
and mailed in the manner herein provided shall be conclusively presumed to have
been duly given to the party to which it is addressed at the close of business,
local time of the recipient, on the fourth business day after the day it is so
placed in the mail or, if earlier, the time of actual receipt.
10.8 Governing Law. This Agreement is executed by Buyer in, and shall be
construed in accordance with and governed by the laws of the State of Delaware
without giving effect to the principles of conflicts of law thereof.
10.9 No Third-Party Beneficiaries. With the exception of the parties to
this Agreement and the WAXS Protected Parties and the Seller Protected Parties,
there shall exist no right of any person to claim a beneficial interest in this
Agreement or any rights occurring by virtue of this Agreement.
10.10 "Including." Words of inclusion shall not be construed as terms of
limitation herein, so that references to "included" matters shall be regarded as
non-exclusive, non-characterizing illustrations.
10.11 Schedules and Exhibits. Each of the Schedules and Exhibits referred
to in this Agreement are and shall be incorporated herein and made a part
hereof.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
B-42
<PAGE> 385
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed on its behalf as of the date indicated on the first page
hereof.
WAXS:
World Access, Inc.
By: /s/ W. Tod Chmar
------------------------------------
Name: W. Tod Chmar
Title: Executive Vice President
MERGER SUB:
CTI Merger Co.
By: /s/ W. Tod Chmar
------------------------------------
Name: W. Tod Chmar
Title: President
CTI:
Communication TeleSystems
International d/b/a WORLDXCHANGE
Communications
By: /s/ Edward S. Soren
------------------------------------
Name: Edward S. Soren
Title: Executive Vice President
B-43
<PAGE> 386
FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this "Amendment"), dated as
of May 23, 2000, by and among World Access, Inc., a Delaware corporation
("WAXS"), WorldxChange Communications, Inc., a Delaware corporation f/k/a CTI
Merger Co. ("Merger Sub"), and Communication TeleSystems International d/b/a
WorldxChange Communications, a California corporation ("CTI").
W I T N E S S E T H :
WHEREAS, WAXS, Merger Sub and CTI are parties to that ceratin Agreement and
Plan of Merger, dated as of February 11, 2000 (the "Merger Agreement"), pursuant
to which CTI will merger with and into Merger Sub;
WHEREAS, the parties have agreed to make certain amendments to the Merger
Agreement; and
WHEREAS, capitalized terms used, but not otherwise defined herein, shall
have the meanings given to such terms in the Merger Agreement;
NOW THEREFORE, in consideration of the mutual covenants contained herein
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties do hereby mutually agree as follows:
1. Notwithstanding anything in the Merger Agreement to the contrary,
no CTI stockholder and no holder of any CTI Stock Option shall have the
right to receive, or have any other interest in or to, the Contingent
Amount or any Contingent Shares.
2. The last sentence of Section 1.7(c) of the Merger Agreement is
hereby amended by deleting the phrase "and, if applicable, the Contingent
Shares issuable pursuant to Section 1.7(d)" contained therein.
3. Section 1.7(d) of the Merger Agreement is hereby deleted in its
entirety and replaced with "[INTENTIONALLY OMITTED.]".
4. The first sentence of Section 1.8(a) is hereby deleted in its
entirety and replaced with the following:
"At the Effective Time by virtue of the Merger and without any further
action on the part of CTI, WAXS, Merger Sub or the holder of any
outstanding CTI Stock Option (as defined in Section 3.2), each CTI Stock
Option will be automatically converted into an option to purchase shares
of WAXS Common Stock (a "WAXS Stock Option") in an amount equal to the
number of shares of CTI Common Stock covered under such CTI Stock Option
multiplied by the Exchange Ratio (rounded to the nearest whole number of
shares of WAXS Common Stock) at a price per share of WAXS Common Stock
equal to the per share option exercise price specified in the CTI Stock
Option divided by the Exchange Ratio (rounded to the nearest whole
cent)."
5. Section 1.8(b) is hereby amended by deleting the phrase "and
Contingent Shares, if any," contained therein.
6. Section 2.4(b) of the Merger Agreement is hereby amended by
deleting the phrase "Except for Contingent Shares, if any, notwithstanding"
and substituting therefor the word "Notwithstanding".
7. Section 2.5(b) of the Merger Agreement is hereby deleted in its
entirety and replaced with "[INTENTIONALLY OMITTED.]".
8. Section 3.16(g)(i) of the Merger Agreement is hereby amended by
deleting the phrase "(excluding the Contingent Shares, if any)" in the
first sentence of such section.
9. Section 3.16(g)(ii) of the Merger Agreement is hereby amended by
deleting the phrase "(inclusive of Contingent Shares, if any)" contained
therein.
B-44
<PAGE> 387
10. Section 3.16(g)(xvi) of the Merger Agreement is hereby deleted in
its entirety and replaced with "[INTENTIONALLY OMITTED.]".
11. Section 3.16(g)(xvii) of the Merger Agreement is hereby amended by
deleting the phrase ", including Contingent Shares, if any," contained
therein.
12. Section 4.15(d)(iv) of the Merger Agreement is hereby amended by
deleting the phrase "(inclusive of Contingent Shares, if any)" contained
therein.
13. Section 4.15(d)(xix) of the Merger Agreement is hereby amended by
deleting the phrases ", including Contingent Shares, if any," and ",
including the Contingent Shares, if any, which are issued pursuant to
Section 1.7(d) hereunder and subsequently become subject to the Escrow
Agreement, will each" and replacing the second such phrase with the word
"will".
14. Section 4.15(d)(xx) of the Merger Agreement is hereby deleted in
its entirety and replaced with "[INTENTIONALLY OMITTED.]".
15. Section 6.1(a) of the Merger Agreement is hereby amended by
deleting the phrase "the Contingent Shares and" contained in the first
sentence thereof.
16. Except as expressly set forth in this Amendment, the Merger
Agreement shall remain in full force and effect and shall not be deemed to
have been modified or amended by this Amendment.
17. This Amendment constitutes the entire understanding of the parties
with respect to the subject matter hereof, and any other prior or
contemporaneous agreements, whether written or oral, with respect thereto
are expressly superseded hereby.
18. This Amendment may be executed in two or more counterparts, each
of which shall for all purposes be deemed to be an original and all of
which shall constitute the same instrument.
(SIGNATURES APPEAR ON FOLLOWING PAGE)
B-45
<PAGE> 388
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement and Plan of Merger as of the date first above written.
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
------------------------------------
Name: W. Tod Chmar
Title: Executive Vice President
WORLDXCHANGE
COMMUNICATIONS, INC.
By: /s/ W. Tod Chmar
------------------------------------
Name: W. Tod Chmar
Title: President
COMMUNICATION TELESYSTEMS
INTERNATIONAL D/B/A
WORLDXCHANGE
COMMUNICATIONS
By: /s/ Eric Lipoff
------------------------------------
Name: Eric Lipoff
Title: Senior Vice President
B-46
<PAGE> 389
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Second Amendment to Agreement and Plan of Merger (this "Amendment") is
entered into this 1(st) day of August, 2000 by and among World Access, Inc., a
Delaware corporation ("WAXS"), WORLDxCHANGE Communications, Inc. f/k/a CTI
Merger Co., a Delaware corporation ("Merger Sub"), and Communication TeleSystems
International d/b/a WorldxChange Communications, a California corporation
("CTI").
WITNESSETH:
WHEREAS, the parties hereto have previously entered into an Agreement and
Plan of Merger dated as of February 11, 2000, as amended by that certain First
Amendment to Agreement and Plan of Merger among such parties dated May 23, 2000
(as so amended, the "Merger Agreement");
WHEREAS, CTI and WAXS have agreed, subject to their concurrent entering
into of this Amendment, to enter into a certain Executive Management Services
Agreement (the "Management Agreement"), pursuant to which WAXS has agreed to
manage the operations and business affairs of CTI on the terms specified
therein;
WHEREAS, in connection with the Management Agreement, CTI, Merger Sub and
WAXS have agreed to further amend the Merger Agreement, as provided in this
Amendment; and
WHEREAS, the Boards of Directors of each of CTI, Merger Sub and WAXS have
determined that it is in the best interest of each such corporation and its
shareholders, or shareholder, to enter into this Amendment.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which is hereby acknowledged
by each of the parties hereto, the parties agree as follows:
1. Amendments to the Merger Agreement. The Merger Agreement is hereby
amended as follows:
(a) Section 5.2. Section 5.2 of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"5.2 Management Agreement. WAXS and CTI have entered into that
certain Executive Management Services Agreement, dated August 1, 2000
(the "Management Agreement"). Pursuant to the Management Agreement, WAXS
has agreed to manage the operations and business affairs of CTI on the
terms specified therein. In light of the foregoing and notwithstanding
any other term or provision of this Agreement, WAXS hereby agrees that
CTI shall have no liability whatsoever for any breach by CTI of any one
or more of its covenants stated in this Agreement (including, without
limitation, any covenant or agreement of CTI set forth in Section 5.1
(Covenants of CTI) or any Section or Article VI) to the extent such
breach is caused by any action or omission of WAXS pursuant to the
Management Agreement."
(b) Section 7.2(a). Section 7.2(a) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"(a) Representations and Warranties. Each of the representations
and warranties of CTI set forth in this Agreement shall be true and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent that
such representations and warranties speak as of another date, in which
case any such representations and warranties shall be true and correct
as of such date), except (i) where any failures to be true and correct
as of the Closing Date have been caused by or result from any act or
omission of WAXS pursuant to the Management Agreement occurring from and
after the date of the Management Agreement through and including the
Closing Date or (ii) where any such failures to be true and correct
would not have a Material Adverse Effect on WAXS or the Surviving
Corporation, and WAXS shall have received a certificate of the chief
executive officer and the chief financial officer of CTI to such
effect."
B-47
<PAGE> 390
(c) Section 7.2(b). Section 7.2(b) of the Merger Agreement is hereby
amended to delete the period at the end of such Section and in place
thereof insert the following text:
"; provided, that the foregoing condition shall be deemed satisfied
notwithstanding any failure by CTI to have performed or complied in any
material respect with any of its material agreements or covenants
required to be performed by it hereunder to the extent such failure is
caused by any act or omission of WAXS pursuant to the Management
Agreement occurring from and after the date of the Management Agreement
through and including the Closing Date."
(d) Section 7.2(c). Section 7.2(c) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"(c) Consents and Approvals. All consents, approvals and actions
of, filings with and notices to any governmental entity required to
consummate the Merger and the other transactions contemplated hereby, or
of any other third party required of CTI or any of its Subsidiaries to
consummate the Merger and the other transactions contemplated hereby
shall have been obtained, except where the failure to obtain any such
consent or approval would not have a Material Adverse Effect on WAXS or
the Surviving Corporation; provided, however, that the provisions of
this Section 7.2(c) shall not be available to WAXS if the failure to
obtain any consent or approval shall have been caused by or as a result
of any act or omission of WAXS pursuant to the Management Agreement
occurring from and after the date of the Management Agreement through
and including the Closing Date."
(e) Section 7.2(d). Section 7.2(d) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"(d) [Reserved]".
(f) Section 7.2(g). Section 7.2(g) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"(g) [Reserved]".
(g) Section 8.1. Section 8.1 of the Merger Agreement is hereby
amended by adding the following text after the end of such Section:
"Notwithstanding the foregoing, CTI shall not have any liability
for, and shall not be required to indemnify any WAXS Protected Party
with respect to any of the matters set forth in the foregoing clauses
(i), (ii), (iii) or (iv), in each case to the extent that such breach,
inaccuracy or noncompliance, or imposition of any part or all of the
suspended fine, is caused by or results from any act or omission of WAXS
pursuant to the Management Agreement occurring from and after the date
of the Management Agreement through and including the Closing Date."
(h) Section 9.1(b). Section 9.1(b) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"(b) By either WAXS or CTI, if the other party shall have failed to
comply in any material respect with any of its material covenants or
agreements contained in this Agreement, which failure to so comply has
not been cured within thirty (30) days following receipt by such other
party of written notice of such failure to comply; provided, however,
that if any such breach is curable by the breaching party through the
exercise of the breaching party's reasonable efforts and for so long as
the breaching party shall be so using its reasonable efforts to cure
such breach, the non-breaching party may not terminate this Agreement
pursuant to this paragraph; and provided, further, that (i) no party
shall have the right to terminate this Agreement pursuant to this
Section 9.1(b) if such party is then failing to comply in any material
respect with any of its covenants or agreements contained in this
Agreement and (ii) WAXS shall not have the right to terminate this
Agreement pursuant to this Section 9.1(b) if CTI's failure to comply in
any material respect with any of its material covenants or agreements
contained in this Agreement is caused by or results from any act or
omission of WAXS pursuant to the Management Agreement occurring from and
after the date of the Management Agreement through and including the
Closing Date;"
B-48
<PAGE> 391
(i) Section 9.1(c). Section 9.1(c) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following text:
"(c) By either WAXS or CTI, if there has been a breach by the other
party of any representations or warranties, which breach has not been
cured within thirty (30) days following receipt by such other party of
written notice of such failure to comply; provided, however, that if any
such breach is curable by the breaching party through the exercise of
the breaching party's efforts to cure such breach, the non-breaching
party may not terminate this Agreement pursuant to this paragraph; and
provided further, that (i) this provision shall only apply to such
breaches which would have a Material Adverse Effect on (A) WAXS (after
giving effect to the Merger), (B) the Surviving Corporation or (C) WAXS
(after giving effect to the Merger) and the Surviving Corporation and
(ii) WAXS shall not have the right to terminate this Agreement pursuant
to this Section 9.1(c) if CTI's breach of any of its representations and
warranties stated herein is caused by or results from any act or
omission of WAXS pursuant to the Management Agreement occurring from and
after the date of the Management Agreement through and including the
Closing Date;"
(j) Section 9.1(d). Section 9.1(d) of the Merger Agreement is hereby
amended by changing the date "October 31, 2000" therein to "December 31,
2000".
2. No Other Changes. Except as expressly set forth herein, the Merger
Agreement shall not be amended, revised or changed in any respect whatsoever and
shall remain in full force and effect.
3. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall for all purposes be deemed an original and all
of which shall constitute the same instrument.
[Signatures appear on the following page]
B-49
<PAGE> 392
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
duly executed on its behalf as of the date indicated on the first page hereof.
WAXS:
WORLD ACCESS, INC.
By:
------------------------------------
Name:
Title:
MERGER SUB:
CTI MERGER CO.
By:
------------------------------------
Name:
Title:
CTI:
Communication TeleSystems
International d/b/a
WORLDxCHANGE
Communications
By:
------------------------------------
Name:
Title:
B-50
<PAGE> 393
ANNEX C
February 11, 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") of the consideration to be paid by
the Company pursuant to the terms of the Agreement and Plan of Merger, dated as
of February 11, 2000 (the "Agreement"), by and among the Company, STI Merger
Co., a wholly-owned subsidiary of the Company ("Merger Sub"), and STAR
Telecommunications, Inc. ("STAR"), pursuant to which STAR will be merged (the
"Merger") with and into Merger Sub.
Pursuant to the Agreement, each share of common stock, par value $0.001 per
share, of STAR ("STAR Common Stock") issued and outstanding will be converted
into, at the election of the Company by written notice to STAR prior to the
Closing, the following consideration (the "Merger Consideration"): (i) the right
to receive the number of shares of common stock, par value $.01 per share, of
the Company ("WAXS Common Stock") obtained by solving for "X" in the following
formula (the "Exchange Ratio"): X = (7.81 + Z) / 20.00, or (ii) the right to
receive, at the option of the holder, either (x) the number of shares of WAXS
Common Stock equal to the Exchange Ratio or (y) such number of shares of WAXS
Common Stock as shall equal sixty percent (60%) of the Exchange Ratio and an
amount in cash equal to forty percent (40%) of the sum of ($7.81 + Z) (the "Cash
and Stock Election"); provided, however, that in no event shall more than
forty-five percent (45%) of the outstanding shares of STAR Common Stock receive
the Cash and Stock Election. For the purposes of the Agreement and this opinion,
(a) in determining the Exchange Ratio, "Z" shall equal the PT-1 Excess Proceeds
(as defined below) divided by the number of issued and outstanding STAR
shares/options and (b) "PT-1 Excess Proceeds" means the cash proceeds received
by STAR at the consummation of the sale of PT-1, net of all taxes, fees and
expenses in connection with the sale of PT-1 ("Net PT-1 Proceeds") in excess of
$150.0 million.
In arriving at our opinion, we have reviewed the draft dated February 6,
2000 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company and STAR,
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 STAR for the period
beginning January 1, 2000 and ending December 31, 2004 prepared by the
management of the Company and certain financial projections of the Company for
the period beginning January 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 the Company and STAR with various other companies whose
securities are traded in public markets, reviewed the historical stock prices
and trading volumes of the common stock of the Company and STAR, 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 STAR or their
respective representatives, or that was otherwise reviewed by us. In particular,
we have relied upon the estimates of the management of the Company of the
operating synergies achievable as a result of the Merger. With respect to the
financial projections supplied to us, we have relied on representations that
they have been reasonably prepared on the basis reflecting the best
<PAGE> 394
currently available estimates and judgments of the management of the Company as
to the future operating and financial performance of the Company and STAR. In
addition, we have relied upon and assumed Net PT-1 Proceeds of $150.0 million
from the sale of PT-1. We have not assumed any responsibility for making any
independent evaluation of any assets of liabilities or for making any
independent verification of any of the information reviewed by us. We have
assumed that the Merger will be accounted for as a purchase under generally
accepted accounting principles and that it will qualify as a tax-free
reorganization for U.S. federal income tax purposes.
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 nay obligation to update,
revise or reaffirm this opinion. We are expressing no opinion as to the prices
at which the WAXS Common Stock will actually trade at any time. Our opinion does
not address the relative merits of the Merger 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 Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("Donaldson, Lufkin &
Jenrette"), 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.
Donaldson, Lufkin & Jenrette has performed investment banking and other services
for the Company in the past and has been compensated for such services.
Donaldson, Lufkin & Jenrette acted as financial advisor to the Company in
connection with its acquisition of FaciliCom International, Inc. ("FaciliCom"),
and acted as solicitation agent in connection with the consent solicitation for
FaciliCom's outstanding senior notes. Donaldson, Lufkin & Jenrette is currently
acting as financial advisor to the Company in connection with its proposed
acquisition of Communication TeleSystems International d/b/a WorldxChange
Communications. Further, Donaldson, Lufkin & Jenrette is currently providing
advisory services in connection with the exploration of a possible sale of the
Company's NACT Telecommunications Inc. and Telco Systems Inc. subsidiaries and
the Company's Wireless Local Loop Division.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Merger Consideration to be paid by the Company 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
Vice President
C-2
<PAGE> 395
ANNEX D
February 11, 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") of the consideration to be paid by
the Company pursuant to the terms of the Agreement and Plan of Merger, dated as
of February 11, 2000 (the "Agreement"), by and among the Company, CTI Merger
Co., a wholly-owned subsidiary of the Company ("Merger Sub"), and Communication
TeleSystems International d/b/a WorldxChange Communications, ("CTI"), pursuant
to which CTI will be merged (the "Merger") with and into Merger Sub.
Pursuant to the Agreement, each share of common stock, par value $.01 per
share, of CTI, each share of preferred stock, Series A, no par value per share,
of CTI and each share of preferred stock, Series B, no par value per share, of
CTI, issued and outstanding, will be converted into the right to receive 0.6583
shares of common stock, par value $.01 per share, of the Company ("WAXS Common
Stock") (such shares and the Contingent Shares referred to below are referred to
as the "Merger Consideration"). In the event that the average of the closing
prices of WAXS Common Stock for the ten (10) trading-day period ending at the
close of trading on the second trading day preceding the Closing is less than
$20.38, then, in addition to the shares of WAXS Common Stock issued pursuant to
the above, each CTI stockholder who receives shares of WAXS Common Stock shall
be entitled to receive the amount, if any (the "Contingent Amount"), by which
the Target Price (as defined below) exceeds the greater of (i) the Current
Market Price (as defined below) on the first anniversary of the Effective Time
(the "Maturity Date") and (ii) $11.50, multiplied by the number of shares of
WAXS Common Stock issued to such holder pursuant to the prior sentence. The
Contingent Amount shall only be paid in shares of WAXS Common Stock (the
"Contingent Shares"), which shares shall be valued for purposes hereof at the
greater of the Current Market Price as of the Maturity Date and $11.50 and
rounded to the nearest whole share. Any and all rights in, or to receive, the
Contingent Amount shall terminate and be of no further force or effect if, at
any time on or prior to the Maturity Date, the Current Market Price is greater
than the Target Price.
For purposes hereof, (a) the Target Price means $20.38 per share of WAXS
Common Stock; provided, however, that if the Nasdaq Composite Index (the "IXIC")
at the close of trading on the Maturity Date is eighty-five percent (85%) or
less than the "IXIC" at the close of trading on the date of the Effective Time
(the difference between one hundred percent (100%) and such percentage being
referred to as the "Market Correction Percentage"), then the Target Price shall
be reduced by a percentage equal to that portion of the Market Correction
Percentage in excess of fifteen percent (15%); and (b) the Current Market Price
means, as of any date specified herein, the average of the daily closing trading
prices of WAXS Common Stock for the twenty (20) consecutive trading days ending
at the close of trading on such date.
In arriving at our opinion, we have reviewed the draft dated February 10,
2000 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company and CTI 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 CTI for the period beginning
January 1, 2000 and ending December 31, 2004 prepared by the management of the
Company, and certain financial projections of the Company for the
<PAGE> 396
period beginning January 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 the Company and CTI with various other companies whose
securities are traded in public markets, 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 CTI or their
respective representatives, or that was otherwise reviewed by us. In particular,
we have relied upon the estimates of the management of the Company of the
operating synergies achievable as a result of the Merger. With respect to the
financial projections supplied to us, we have relied on representations that
they have been reasonably prepared on the basis reflecting the best currently
available estimates and judgments of the management of the Company and CTI as to
the future operating and financial performance of the Company and CTI. 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. We have assumed that the Merger will be accounted
for as a purchase under generally accepted accounting principles and that it
will qualify as a tax-free reorganization for U.S. federal income tax purposes.
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 the WAXS Common Stock will actually trade at any time. Our opinion does
not address the relative merits of the Merger and the other business strategies
being considered by the Company's Board of Directors, not does it address the
Board's decision to proceed with the Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("Donaldson, Lufkin &
Jenrette"), 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.
Donaldson, Lufkin & Jenrette has performed investment banking and other services
for the Company in the past and has been compensated for such services.
Donaldson, Lufkin & Jenrette acted as financial advisor to the Company in
connection with its acquisition of FaciliCom International, Inc. ("FaciliCom"),
and acted as solicitation agent in connection with the consent solicitation for
FaciliCom's outstanding senior notes. Donaldson, Lufkin & Jenrette is currently
acting as financial advisor to the Company in connection with its proposed
acquisition of STAR Telecommunications, Inc. Further, Donaldson, Lufkin &
Jenrette is currently providing advisory services in connection with the
exploration of a possible sale of the Company's NACT Telecommunications Inc. and
Telco Systems Inc. subsidiaries and the Company's Wireless Local Loop Division.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Merger Consideration to be paid by the Company 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
Vice President
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ANNEX E
February 7, 2000
Board of Directors
Star Telecommunications, Inc.
223 East De La Guerra
Santa Barbara, CA 93101
Ladies and Gentlemen:
Deutsche Bank Securities Inc. ("Deutsche Bank") has acted as financial
advisor to Star Telecommunications, Inc. ("STAR") in connection with the
proposed merger of STAR and World Access, Inc. ("World Access") pursuant to the
Agreement and Plan of Merger (the "Merger Agreement") to be entered into among
World Access, STAR and STI Merger Co., a wholly owned subsidiary of World Access
("Acquiror Sub"), which provides, among other things, for the merger of STAR
with and into Acquiror Sub (the "Transaction"), as a result of which STAR will
become a wholly owned subsidiary of World Access. As set forth more fully in the
Merger Agreement, as a result of the Transaction, each share of the Common
Stock, par value $0.001 per share, of STAR ("STAR Common Stock") not owned
directly or indirectly by World Access or STAR will be converted into the right
to receive the "Merger Consideration" described below. The "Merger
Consideration" is (A) a number of shares of Common Stock, par value $0.01 per
share, of World Access ("World Access Common Stock") equal to a fraction (the
"Exchange Ratio") (1) the numerator of which is the sum of (a) $7.81 and (b) an
amount equal to the "PT-1 Excess Proceeds" (as defined in the Merger Agreement)
divided by the total number of issued and outstanding shares of STAR Common
Stock and shares of STAR common stock underlying issued and outstanding options
with exercise prices of $7.81 or less (the "PT-1 Excess Proceeds Per Share") and
(2) the denominator of which is $20.00; or, at the election of World Access by
written notice to STAR, (B) (1) a number of shares of World Access Common Stock
equal to 60 percent of the Exchange Ratio and (2) an amount in cash equal to 40
percent of the sum of (a) $7.81 and (b) the PT-1 Excess Proceeds Per Share. The
terms and conditions of the Transaction are more fully set forth in the Merger
Agreement.
You have requested Deutsche Bank's opinion, as investment bankers, as to
the fairness, from a financial point of view, to the holders of STAR Common
Stock of the Merger Consideration to be received by such stockholders pursuant
to the Merger Agreement.
In connection with Deutsche Bank's role as financial advisor to, and in
arriving at its opinion, Deutsche Bank has reviewed certain publicly available
financial and other information concerning STAR and World Access and certain
internal analyses and other information furnished to it by STAR and World
Access. Deutsche Bank has also held discussions with members of the senior
managements of STAR and World Access regarding the businesses and prospects of
their respective companies and the joint prospects of a combined company. In
addition, Deutsche Bank has (i) reviewed the reported prices and trading
activity for STAR Common Stock and World Access Common Stock, (ii) compared
certain financial and stock market information for STAR and World Access with
similar information for certain other companies whose securities are publicly
traded, (iii) reviewed the financial terms of certain recent business
combinations which it deemed comparable in whole or in part, (iv) reviewed the
terms of the February 6, 2000 draft of the Merger Agreement, and (v) performed
such other studies and analyses and considered such factors as it deemed
appropriate.
Deutsche Bank has not assumed responsibility for independent verification
of, and has not independently verified, any information, whether publicly
available or furnished to it, concerning STAR or World Access, including,
without limitation, any financial information, forecasts or projections
considered in connection with the rendering of its opinion. Accordingly, for
purposes of its opinion, Deutsche Bank has assumed and relied upon the accuracy
and completeness of all such information and Deutsche Bank has not conducted a
physical inspection of any of the properties or assets, and has not prepared or
obtained any independent evaluation or appraisal of any of the assets or
liabilities, of STAR or World Access. With respect to the financial forecasts
and projections, including the analyses and forecasts of certain cost
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savings, operating efficiencies, revenue effects and financial synergies
expected by STAR and World Access to be achieved as a result of the Transaction
(collectively, the "Synergies"), made available to Deutsche Bank and used in its
analyses, Deutsche Bank has assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of the
management of STAR or World Access, as the case may be, as to the matters
covered thereby. In rendering its opinion, Deutsche Bank expresses no view as to
the reasonableness of such forecasts and projections, including the Synergies,
or the assumptions on which they are based. Deutsche Bank's opinion is
necessarily based upon economic, market and other conditions as in effect on,
and the information made available to it as of, the date hereof. We undertake no
obligation to update this opinion to reflect any developments occurring after
the date hereof. We express no opinion as to the price or range of prices at
which World Access Common Stock may trade subsequent to the announcement or
consummation of the Transaction.
For purposes of rendering its opinion, Deutsche Bank has assumed that the
final terms of the Merger Agreement would not vary from the February 6, 2000
draft that Deutsche Bank reviewed in any respect that would be material to
Deutsche Bank's analysis. Further, Deutsche Bank has assumed that, in all
respects material to its analysis, the representations and warranties of STAR,
World Access and Acquiror Sub contained in the Merger Agreement are true and
correct, STAR, World Access and Acquiror Sub will each perform all of the
covenants and agreements to be performed by it under the Merger Agreement and
all conditions to the obligations of each of STAR, World Access and Acquiror Sub
to consummate the Transaction will be satisfied without any waiver thereof.
Deutsche Bank has also assumed that all material governmental, regulatory or
other approvals and consents required in connection with the consummation of the
Transaction will be obtained and that in connection with obtaining any necessary
governmental, regulatory or other approvals and consents, or any amendments,
modifications or waivers to any agreements, instruments or orders to which
either STAR or World Access is a party or is subject or by which it is bound, no
limitations, restrictions or conditions will be imposed or amendments,
modifications or waivers made that would have a material adverse effect on STAR
or World Access or materially reduce the contemplated benefits of the
Transaction to STAR or its stockholders. In addition, you have informed Deutsche
Bank, and accordingly for purposes of rendering its opinion Deutsche Bank has
assumed, that the Transaction will be tax-free to each of the STAR, World
Access, World Access's stockholders and, to the extent they receive World Access
Common Stock, STAR's stockholders.
In connection with our engagement, we have not been authorized by STAR or
its Board of Directors to solicit, nor have we solicited, any alternative
transactions to the Transaction.
This opinion is addressed to, and for the use and benefit of, the Board of
Directors of STAR and is not a recommendation to the stockholders of STAR to
approve the Transaction. This opinion is limited to the fairness, from a
financial point of view, to the stockholders of STAR of the consideration to be
received by such stockholders pursuant to the Merger Agreement in the
Transaction, and Deutsche Bank expresses no opinion as to the merits of the
underlying decision by STAR to engage in the Transaction.
Deutsche Bank will be paid a fee for its services as financial advisor to
STAR in connection with the Transaction, a substantial portion of which is
contingent upon consummation of the Transaction. We are an affiliate of Deutsche
Bank AG (together with its affiliates, the "DB Group"). One or more members of
the DB Group have, from time to time, provided investment banking, commercial
banking (including extension of credit) and other financial services to STAR and
World Access or their respective affiliates for which it has received
compensation. A portion of the proceeds of a bridge loan to be provided by World
Access to STAR pursuant to the Merger Agreement may be used to repay
indebtedness of STAR which has been extended by one or more members of the DB
Group. In the ordinary course of business, members of the DB Group may actively
trade in the securities and other instruments and obligations of STAR and World
Access for their own accounts and for the accounts of their customers.
Accordingly, the DB Group may at any time hold a long or short position in such
securities, instruments and obligations.
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Based upon and subject to the foregoing, it is Deutsche Bank's opinion as
investment bankers that, as of the date hereof, the Merger Consideration to be
received pursuant to the Merger Agreement by holders of STAR Common Stock in the
Transaction is fair, from a financial point of view, to such stockholders.
Very truly yours,
DEUTSCHE BANK SECURITIES INC.
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<PAGE> 400
ANNEX F
ASSET PURCHASE AGREEMENT dated as of June 6, 2000 among Counsel
Communications LLC, a Delaware limited liability company (the "Purchaser"), PT-1
Communications, Inc., a New York corporation (the "Seller" or the "Company") and
STAR Telecommunications, Inc., a Delaware corporation and the sole shareholder
of the Seller (the "Parent").
WHEREAS, the Purchaser desires to purchase the Assets (as defined below)
and to assume the Assumed Liabilities (as defined below) from the Seller, on the
following terms and conditions;
WHEREAS, the Seller desires to sell the Assets and to assign the Assumed
Liabilities to the Purchaser (the "Asset Sale"), on the following terms and
conditions; and
WHEREAS, the Parent is being merged (the "Parent Merger") into a
wholly-owned subsidiary of World Access, Inc., a Delaware corporation ("Waxs")
and, as a condition precedent thereto, desires that the Seller sell the Assets
and assign the Assumed Liabilities.
NOW, THEREFORE, in consideration of the premises and the respective
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.01 Defined Terms. The following terms, not defined elsewhere in
this Agreement, shall have the following meanings:
"Assets" shall mean all assets and properties of the Seller and each
of its Subsidiaries, of every kind and description, wherever located, real,
personal or mixed, tangible or intangible, owned, held or used in the
conduct of the Business by Seller (excluding the Excluded Assets),
including, without limitation:
(a) all Balance Sheet Assets;
(b) all real property, if any, and leases of, and other interests
in, real property, in each case together with all buildings, fixtures,
and improvements erected thereon, including without limitation the items
listed on Schedule 5.13;
(c) all personal property and interests therein, including
machinery, equipment, switches, furniture, office equipment (including
without limitation computers, software codes and servers),
communications equipment, vehicles, storage tanks, spare and replacement
parts, fuel and other tangible property;
(d) all raw materials, work-in-process, finished goods, supplies
and other inventories;
(e) all rights under all Contracts;
(f) all accounts, notes and other receivables (including Liens in
respect thereof, but excluding intercompany receivables);
(g) all prepaid expenses, including but not limited to ad valorem
taxes, leases and rentals;
(h) all petty cash located at operating facilities of the Business;
(i) all of Seller's rights, claims, credits, causes of action or
rights of set-off against third parties relating to the Assets,
including, without limitation, unliquidated rights under manufacturers'
and vendors warranties (excepting any of the foregoing to the extent
related to Excluded Assets or Excluded Liabilities);
(j) all Proprietary Property, including without limitation the
items listed on Schedule 5.16;
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(k) all bank accounts used exclusively in the Business or in the
name of the Company;
(l) all transferable licenses, permits or other governmental
authorization, including without limitation the items listed on Schedule
5.06 (except to the extent not transferable as indicated on such
Schedule);
(m) all books, records, files and papers, whether in hard copy or
computer format, including, without limitation, engineering information,
sales and promotional literature, software documentation, manuals and
data, sales and purchase correspondence, lists of present and former
suppliers, lists of present and former customers, personnel and
employment records, and copies of any information relating to any Tax
imposed on the Assets (but excluding the corporate charter,
qualifications to conduct business as a foreign corporation and
arrangements with agents with respect thereto, taxpayer and other
identification numbers, tax returns, tax records, seals, minute books,
stock transfer books, blank stock certificates and other documents
relating to the organization, maintenance and existence of the Company
and each Subsidiary as a corporation or other entity and any records or
documents relating to any Excluded Asset or Excluded Liability, provided
that the Company shall provide copies of the foregoing if reasonably
requested by the Purchaser);
(n) to the extent provided in Schedule 5.11, all assets and rights
relating to Seller's employee benefit arrangements, plans or other
arrangements in respect of Transferred Employees;
(o) all rights and Contracts of the Seller and the Parent relating
to the Feature Group D network; and
(p) all goodwill associated with the Business or the Assets,
together with the right to represent to third parties that the Purchaser
is the successor to the Business.
"Assumed Liabilities" shall mean only those liabilities (i) itemized
on the Closing Balance Sheet as accounts payable and accrued expenses,
accrued taxes payable (other than accrued taxes payable set forth as
"Transaction Taxes Payable" with respect to any debit card sales and use
tax as set forth on the general ledger of the Seller), short-term debt,
deferred revenue and long-term debt, (ii) for Permitted Encumbrances to the
extent specifically set forth in this Agreement; (iii) relating to actions
or claims for payphone compensation but only to the extent of the amount
accrued and set forth on the Closing Balance Sheet (the "Payphone
Compensation"); and (iv) obligations arising after the Closing Date under
the agreements, contracts, leases, licenses and other arrangements included
in the Assets being acquired by the Purchaser (other than obligations or
liabilities attributable to any failure by the Company or the Parent to
comply with the terms of such agreements, contracts, leases, licenses and
other arrangements prior to the Closing Date). Reference is hereby made to
Section 3.01 for certain clarifications regarding the manner of assuming
Assumed Liabilities constituting accrued taxes and accrued Payphone
Compensation.
"Asset Sale" shall have the meaning set forth in the preamble hereto.
"Balance Sheet" shall mean the balance sheet of the Company as of
December 31, 1999.
"Balance Sheet Assets" shall mean all of the assets set forth on the
Closing Balance Sheet other than the Excluded Assets, including, without
limitation: current assets (cash and cash equivalents, short-term
investments, gross trade accounts receivable, allowance for doubtful
accounts, due from carriers, inventory and prepaid expenses), investments,
operating equipment, furniture and equipment, leasehold improvements,
accumulated depreciation, deposits, officer loans receivable, intangible
assets, Star cable asset and deferred offering costs.
"Base Net Assets" shall have the meaning set forth in Section 2.04(a).
"Business" shall mean the debit-card and dial-around telecom
businesses of the Company and its Subsidiaries.
"Business Corporation Law" shall mean the New York Business
Corporation Law.
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"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which banks are authorized to be closed in New York City.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Closing" shall mean the closing of the Asset Sale contemplated by
this Agreement.
"Closing Balance Sheet" shall have the meaning set forth in Section
2.03(b).
"Closing Date" shall mean the date of Closing.
"Company Taxes" shall mean all federal, state, local, foreign or other
governmental income, excise, franchise, payroll, F.I.C.A., unemployment,
withholding, real property, personal property, sales, payroll, disability
and all other taxes imposed on the Company or any Subsidiary or with
respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof.
"Contracts" shall mean all contracts, agreements, leases, licenses
(other than regulatory licenses and licenses set forth in the definition of
Proprietary Property), commitments, sales and purchase orders and other
instruments, including without limitation the items listed on Schedule
5.19.
"Days Accounts Payable and Receivable" shall mean, for any period (i)
the days accounts payable of the Seller for such period (calculated by
multiplying (x) the quotient of (A) accounts payable at the end of such
period divided by (B) net purchases for such period by (y) the number of
days in such period) and (ii) the days accounts receivable of the Seller
for such period (calculated by multiplying (x) the quotient of (A) net
accounts receivable at the end of such period divided by (B) net sales for
such period by (y) the number of days in such period); provided that any
adjustment to the accounts receivable of the Seller as a result of any
credit or settlement of the Seller with its distributor TSI shall not
affect the foregoing calculation of days accounts receivable.
"Deferred Tax Assets" shall mean those assets itemized on the Closing
Balance Sheet under the line item "deferred tax asset."
"Encumbrances" shall mean all liens (including liens for Company
Taxes), mortgages, security interests, charges, claims, leases, survey
exceptions, options, rights of first refusal or first offer, easements,
restrictions, rights-of-way or other similar encumbrances of any nature
whatsoever.
"Escrow Amount" shall mean $22,500,000.
"Excluded Assets" shall mean (i) the Deferred Tax Assets; and (ii) all
real property leases, employees and other obligations with respect to the
Satellite Offices.
"Excluded Liabilities" shall mean each and every liability and
obligation of the Seller except for the Assumed Liabilities, including,
without limitation:
(a) any obligation or liability for Company Taxes with respect to
periods prior to the Closing Date (except to the extent expressly
included in the Assumed Liabilities and accrued on the Closing Balance
Sheet) and/or Company Income Taxes in connection with the transaction
contemplated hereby (provided that, for the avoidance of doubt, the
Purchaser shall pay the sales and transfer taxes contemplated by Section
11.01);
(b) any liabilities or obligations relating to employee,
post-employment or retiree benefits or compensation arrangements
existing on or prior to the Closing Date, including, without limitation,
any liabilities or obligations under any of Seller's employee benefit
agreements, plans or other arrangements listed on Schedule 5.11 and any
retention bonus payments in respect of the transactions contemplated
hereby;
(c) all obligations and liabilities arising from any action, suit,
investigation, or proceeding relating to or arising out of the Business
or the Assets that are pending on the Closing Date, or arise from the
acts or omissions of Seller, or strict liability or liability under law
or contract
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imposed on Seller, prior to the Closing Date, against Seller or any
Asset before any court or arbitrator or any governmental body, agency or
official, including but not limited to any liability under any
Environmental Law and/or any and all litigation listed on Schedule 5.07
or arising after the Closing Date but relating to actions of the
Business prior to the Closing Date (but excluding the Payphone
Compensation only to the extent accrued and set forth on the Closing
Balance Sheet); and
(d) any liability or obligation relating to an Excluded Asset.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time; provided that for comparative purposes
any reference to GAAP shall require consistent application.
"Income Taxes" shall mean all Company Taxes on or measured by net
income, gross profits or net profits, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority, domestic or foreign.
"Independent Public Accountants" shall mean Arthur Andersen LLP.
"Independent Third Party" shall mean any nationally recognized
accounting firm jointly selected by the Purchaser and the Parent.
"Net Assets" shall have the meaning set forth in Section 2.03(b).
"Permitted Encumbrances" shall mean, to the extent applicable,
Encumbrances which (a) are liens for Company Taxes not yet due and payable
or (b) are liens such as materialsman and workman liens for work not yet
due and payable which do not, individually or in the aggregate, materially
detract from the value of the individual property or Asset subject thereto
or interfere with the present or future use or disposition thereof.
"Person" shall mean any natural person, corporation, association,
partnership, joint venture or other entity.
"Proprietary Property" shall mean all trade names, trademarks, service
marks, copyrights, trade names, brand names, software and proprietary and
other technical information, including all contracts, agreements and
licenses relating thereto, owned by the Company or the Subsidiaries or in
which any of them has any rights.
"Required Regulatory Approvals" shall have the meaning set forth in
Section 7.03.
"Satellite Offices" shall mean those certain satellite distribution
centers operated by the Company and, not less than 10 days prior to
Closing, identified and requested by the Purchaser to be closed at the
Seller's expense.
"Subsidiary" shall mean all direct and indirect domestic and foreign
subsidiaries of the Company.
"Transferred Employees" shall mean all employees of the Seller
transferred to the Purchaser as described in Section 2.07.
SECTION 1.02 Accounting Terms. Any accounting terms used in this Agreement
shall, unless otherwise specifically provided, have the meanings given them in
accordance with, and all financial computations hereunder shall, unless
otherwise specifically provided, be computed in accordance with GAAP.
SECTION 1.03 Other Rules of Construction. References in this Agreement to
sections, schedules and exhibits are to sections of, and schedules and exhibits
to, this Agreement unless otherwise indicated. Words in the singular include the
plural and in the plural include the singular. The word "or" is not exclusive.
The words "including", "includes", "included" and "include", when used, are
deemed to be followed by the words "without limitation".
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ARTICLE II
PURCHASE AND SALE
SECTION 2.01 Purchase and Sale. Upon the terms and subject to the
conditions set forth in this Agreement, the Seller agrees to, and to cause each
of its Subsidiaries to, sell, assign, transfer, convey and deliver the Assets to
the Purchaser or its designated affiliates, and the Purchaser agrees to purchase
and accept the Assets from the Seller and such Subsidiaries, on the Closing
Date.
SECTION 2.02 Delivery of Instruments of Transfer. (a) On the Closing Date,
the Seller and each of its relevant Subsidiaries shall deliver to the Purchaser
such specific assignments, bills of sale, endorsements, leases and other good
and sufficient instruments of conveyance and transfer, in form and substance
satisfactory to the Purchaser, the Seller and their respective counsel, as shall
be reasonably requested by the Purchaser to effectively vest in the Purchaser
title to all the Assets, including, but not limited to the bill of sale and
assignment and assumption agreement (including, without limitation, appropriate
assignments of trademarks, copyrights and patents, if applicable), dated the
Closing Date, substantially in the form of Exhibit A (the "Bill of Sale")
(provided that, for the avoidance of doubt, the third-party consents set forth
on Schedule 8.05 shall be the only third-party consents with respect to Material
Contracts required for Closing, provided further that the Seller and the Parent
shall use best efforts consistent with Section 2.02(b) to obtain any other
third-party consents following Closing). Simultaneously with the delivery of
such instruments and agreements, the Parent and Seller shall put the Purchaser
in actual possession and operating control of the Assets, free and clear of all
Encumbrances, except Permitted Encumbrances.
(b) Anything in this Agreement to the contrary notwithstanding, this
Agreement shall not constitute an agreement to assign any Asset or any claim or
right or any benefit arising thereunder or resulting therefrom if such
assignment, without the consent of a third party thereto, would constitute a
breach or other contravention of such Asset or in any way adversely affect the
rights of the Purchase or the Seller thereunder. The Purchaser, the Seller and
the Parent shall use their best efforts (but without the payment of money by the
Seller, the Parent or the Purchaser) to obtain the consent of the other parties
to any such Asset or claim or right or any benefit arising thereunder for the
assignment thereof to the Purchaser as the Purchaser may request. If such
consent is not obtained, or if an attempted assignment thereof would be
ineffective or would adversely affect the rights of the Seller thereunder so
that the Purchaser would not in fact receive all such rights, the Seller, the
Parent and the Purchaser shall cooperate in a mutually agreeable arrangement
under which the Purchaser would obtain the benefits and assume the obligations
thereunder in accordance with this Agreement, including subcontracting,
sublicensing, or subleasing to the Purchaser, or under which the Seller would
enforce for the benefit of the Purchaser, with the Purchaser assuming the
Seller's obligations, any and all rights of the Seller against a third party
thereto. The Seller and the Parent shall promptly pay to the Purchaser when
received all monies received by the Seller or the Parent under any Asset or any
claim or right or any benefit arising thereunder.
SECTION 2.03 Purchase Price; Escrow Amount. (a) The consideration (the
"Purchase Price") to be paid to the Parent by the Purchaser for the Assets shall
be $150,000,000, which shall be paid, less the Escrow Amount and the Closing
Reduction Amount (if any), on the Closing Date in cash by wire transfer of
immediately available funds to a bank account of the Seller designated by the
Seller to the Purchaser in writing not less than two Business Days prior the
Closing. The Purchase Price is subject to adjustment as set forth in Section
2.03(b) and Section 2.04. On the Closing Date the Purchaser shall deposit the
Escrow Amount into escrow pursuant to a mutually agreed-upon escrow agreement
(the "Escrow Agreement"). The Escrow Amount, less any amounts thereof that are
subject to, or previously paid to the Purchaser in respect of, claims for
indemnification by the Purchaser hereunder, shall be released to the Seller as
to 25% thereof on each 6-month anniversary of the Closing; provided that 100% of
the Escrow Amount, less any amounts thereof that are subject to, or previously
paid to the Purchaser in respect of, claims for indemnification that have been
made by the Purchaser under this Agreement, shall be released to the Seller upon
the closing of the Parent Merger and the express written assumption by Waxs of
the Seller's and the Parent's indemnification and other obligations hereunder.
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(b) (i) Five Business Days prior to Closing the Parent and the Seller shall
deliver to the Purchaser their best estimate of the cash, accounts payable and
accounts receivable (together with an estimate of sales and purchases of the
Company for the thirty days prior to Closing and such information reasonably
necessary for the Purchaser to evaluate all of the foregoing items) (the
"Estimated Closing Statement") of the Company as of such date. During the three
Business Days commencing with the delivery of the the Estimated Closing
Statement the parties shall, together with their respective accountants, work
together to agree upon the calculation set forth in the Estimated Closing
Statement and whether the Days Accounts Payable and Receivable for the 30 days
prior to Closing vary materially from the Days Accounts Payable and Receivable
for the 30 days prior to December 31, 1999. If the parties reach agreement as to
the foregoing calculation and agree that the respective Days Accounts Payable
and Receivable for the foregoing periods vary materially, the Purchase Price
shall be automatically reduced to the extent such variance would result in lower
accounts receivable being purchased and/or higher accounts payable being assumed
by the Purchaser, such reduction to be calculated based on the accounts
receivable and accounts payable of the Seller that would have existed at Closing
had such variance not existed, and such amount shall be deemed the "Closing
Reduction Amount". If the parties are unable to reach agreement by the date that
is two Business Days prior to Closing, the parties shall submit the matter for
resolution by an Independent Third Party, together with the parties' respective
calculations. The Independent Third Party shall be instructed to render its
determination of the correct Estimated Closing Statement and the amount, if any,
by which the Purchase Price should be reduced (such amount then being deemed the
"Closing Reduction Amount") within such two Business Day period and by Closing,
and such determination shall be binding on the parties at Closing. The costs and
expenses of the Independent Third Party hereunder shall be borne equally by the
parties hereto.
(ii) As promptly as practicable, but no later than 60 days, after the
Closing Date, the Parent will cause to be prepared and delivered to the
Purchaser the Closing Balance Sheet (as defined below), and a certificate signed
by the Controller or Chief Financial Officer of Seller based on such Closing
Balance Sheet setting forth the Parent's calculation of Net Assets (as defined
below). The Closing Balance Sheet (the "Closing Balance Sheet") shall (x) fairly
present the Assets and Assumed Liabilities as at the close of business on the
Closing Date in accordance with GAAP applied on a basis consistent with those
used in the preparation of the Balance Sheet, any (y) include line items
substantially consistent with those in the Balance Sheet. "Net Assets" shall
mean an amount equal to (i) the Assets minus (ii) the Assumed Liabilities.
(c) If the Purchaser disagrees with the Parent's calculation of Net Assets
delivered pursuant to Section 2.03(b)(ii) the Purchaser may, within 60 days
after delivery of the documents referred to in Section 2.03(b)(ii), deliver a
notice to the Parent disagreeing with such calculation and setting forth the
Purchaser's calculation of such amount. Any such notice of disagreement shall
specify those items or amounts as to which the Purchaser disagrees.
(d) If a notice of disagreement shall be duly delivered pursuant to Section
2.03(c), the Purchaser and the Parent shall, during the 30 days following such
delivery, use their best efforts to reach agreement on the disputed items or
amounts in order to determine, as may be required, the amount of Net Assets,
which amount shall not be more than the amount thereof shown in the Parent's
calculations delivered pursuant to Section 2.03(b)(ii) nor less than the amount
thereof shown in the Purchaser's calculation delivered pursuant to Section
2.03(c). If during such period, the Purchaser and the Parent are unable to reach
such agreement, they shall promptly thereafter cause the Independent Third Party
promptly to review this Agreement and the disputed items or amounts for the
purpose of calculating Net Assets. In making such calculation, the Independent
Third Party shall consider only those items or amounts in the Closing Balance
Sheet or the Parent's calculation of Net Assets as to which the Purchaser has
disagreed as specified in the notice delivered pursuant to Section 2.03(c). The
Independent Third Party shall deliver to the Purchaser and the Parent, as
promptly as practicable, a report setting forth such calculation. Such report
shall be final and binding upon the Purchaser and the Parent and the Seller. The
cost of such review and report shall be borne (i) by the Parent if the
difference between Final Net Assets (as defined in Section 2.04(a)) and Net
Assets as set forth in the Parent's calculation of Net Assets delivered
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pursuant to Section 2.03(b)(ii) is greater than the difference between Final Net
Assets and Net Assets as set forth in the Purchaser's calculation of Net Assets
delivered pursuant to Section 2.03(c), (ii) by the Purchaser if the first such
difference is less than the second such difference and (iii) otherwise equally
by the Purchaser and the Parent.
(e) The Purchaser, the Parent and the Seller agree that they will, and
agree to cause their respective independent accountants to, cooperate and assist
in the preparation of the Closing Balance Sheet and the calculation of Net
Assets and in the conduct of the audits and reviews referred to in this Section
2.03, including without limitation, the making available to the extent necessary
of books, records, work papers and personnel.
SECTION 2.04 Adjustment of Purchase Price. (a) If Base Net Assets exceeds
Final Net Assets, the Parent shall pay to the Purchaser, as an adjustment to the
Purchase Price, in the manner and with interest as provided in Section 2.04(b),
the amount of such excess. If Final Net Assets exceeds Base Net Assets, the
Purchaser shall pay to the Parent, in the manner and with interest as provided
in Section 2.04(b), the amount of such excess. "Base Net Assets" means
$47,589,862 (i.e., the sum of (i) $37,223,490 plus (ii) $10,366,372), and has
been calculated as set forth on Schedule 2.04(a). "Final Net Assets" means Net
Assets (i) as shown in the Parent's calculation delivered pursuant to Section
2.03(b) if no notice of disagreement with respect thereto is duly delivered
pursuant to Section 2.03(c); or (ii) if such a notice of disagreement is
delivered, (A) as agreed by the Purchaser and the Parent pursuant to Section
2.03(d) or (B) in the absence of such agreement, as shown in the Independent
Third Party's calculation delivered pursuant to Section 2.03(d); provided that
in no event shall Final Net Assets be more than the Parent's calculation of Net
Assets delivered pursuant to Section 2.03(b) or less than the Purchaser's
calculation of Net Assets delivered pursuant to Section 2.03(c); and provided
further that the Parent shall receive a credit for any payments to be made by it
under this Section 2.04(a) of up to $10,366,372 (the amount of transaction taxes
payable in respect of debit-card sales and use taxes included in the Balance
Sheet and not assumed by the Purchaser), it being understood that (x) the
Closing Reduction Amount shall be recalculated pursuant to the terms hereof and
any increase thereto shall reduce Final Net Assets dollar for dollar to the
extent of such increase and the foregoing credit shall not be applied against
any such reduction, (y) any decrease in the Closing Reduction Amount pursuant to
such recalculation shall increase Final Net Assets dollar for dollar to the
extent of such decrease (but not above the original Closing Reduction Amount
determined at Closing) and (z) any unused portion of such credit shall not be
applied against any other payments to be made by the Seller or the Parent under
any other provision of this Agreement.
(b) Any payment pursuant to Section 2.04(a) shall be made at a mutually
convenient time and place within 10 days after Final Net Assets has been
determined by delivery by the Purchaser or the Parent, as the case may be, of a
certified or official bank check payable in immediately available funds to the
other party or by causing such payments to be credited by wire transfer to such
account of such other party as may be designated by such other party.
(c) Notwithstanding anything in this Agreement to the contrary, the
Purchaser, the Parent and the Seller agree that the Purchase Price shall not be
adjusted in connection with, and the Purchaser shall not have the right to
disagree with, the financial accounting used by the Company with respect to the
two DS-3s on undersea cable Atlantic Crossing -- 1 ("AC-1").
SECTION 2.05 The Closing. The Closing shall take place at 10:00 a.m. at
the offices of Wollmuth Maher & Deutsch LLP, 500 Fifth Avenue, New York, New
York 10110, as soon as possible after all Required Regulatory Approvals are
obtained, but in no event later than 5 Business Days after satisfaction of the
conditions set forth in Articles VIII and IX, or at such other time or place as
may be mutually agreed by the parties.
SECTION 2.06 Further Assurances. From and after the Closing, upon written
request from any party to this Agreement, the requested party shall execute,
acknowledge and deliver all such further acts, assurances, deeds, assignments,
transfers, conveyances and other instruments and papers as may be
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reasonably required to sell, assign, transfer, convey and deliver the Assets to
the Purchaser and for the Purchaser to assume the Assumed Liabilities and the
Seller to retain the Excluded Liabilities.
SECTION 2.07 Employees. As of the Closing Date, the Purchaser shall hire
(or make offers to hire) all or substantially all of the Seller's employees as
employees of the Purchaser (the "Transferred Employees"). The Purchaser shall
take all such reasonable actions as are necessary to allow the Transferred
Employees, as of the Closing Date and to the extent such employees are eligible,
to participate in the benefit programs of the Purchaser, and shall use
reasonable efforts to ensure that such benefit plans are substantially similar
to those of the Seller.
ARTICLE III
ASSUMPTION OF LIABILITIES
SECTION 3.01 Assumed Liabilities; Manner of Assumption of Accrued Taxes and
Accrued Payphone Compensation. In addition to the payment of the Purchase
Price, the Purchaser shall, subject to the provisions hereof, assume at the
Closing the Assumed Liabilities. Notwithstanding any provision in this Agreement
or any other writing to the contrary, the Purchaser is assuming only the Assumed
Liabilities and is not assuming the Excluded Liabilities including any other
liability or obligation of Seller (or any predecessor of Seller or any prior
owner of all or part of its businesses and assets) of whatever nature, whether
presently in existence or arising hereafter. All such other liabilities and
obligations shall be retained by and remain obligations and liabilities of
Seller. The parties hereto acknowledge and agree that any Assumed Liabilities
constituting accrued taxes payable and accrued Payphone Compensation shall
remain primarily obligations of the Seller subject to reimbursement, or payment
on the Seller's behalf, by the Purchaser upon its receipt from the Seller of
evidence reasonably satisfactory to the Purchaser that such amounts are required
to be paid (i.e., the Purchaser shall not, without limitation, be required to
file any tax returns or be named a party to any litigation or other
proceedings).
SECTION 3.02 Bill of Sale. On the Closing Date, the Purchaser shall
execute and deliver to the Seller the Bill of Sale.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT
The Parent represents and warrants to the Purchaser as of the date hereof
and as of the Closing Date as follows:
SECTION 4.01 Ownership and Title to the Shares. The Parent is the record
and beneficial owner of 100% of the shares of the Common Stock (as defined
below) and has good and valid title in and to such securities.
SECTION 4.02 Corporate Organization; Subsidiaries. The Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware with all requisite corporate power and authority to
own, operate and lease its properties and to carry on its business as it is now
being conducted, and, except as set forth on Schedule 4.02 (which exceptions
shall remain indemnifiable obligations of the Parent), is qualified or licensed
to do business and is in good standing in each jurisdiction in which the failure
to be so qualified or licensed, in the aggregate, would have a Company Material
Adverse Effect (as defined below). True and correct copies of the Certificate of
Incorporation and the Bylaws of the Parent have been delivered or made available
to the Purchaser.
SECTION 4.03 Authority Relative to Agreement. The Parent has the full
power and authority to execute this Agreement and the other transactions
contemplated on its part hereby. The Parent has taken, or prior to the Closing
will have taken, all steps (including obtaining any necessary shareholder
action) that may be necessary to duly authorize the execution and delivery by
the Parent of this Agreement and the consummation of the transactions
contemplated on its part hereby, and no other action on the part of
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the Parent (other than the obtaining of shareholder approval, which shall be
sought prior to Closing) is necessary to authorize the execution and delivery of
this Agreement by the Parent or the consummation of the transactions
contemplated on its part hereby. This Agreement has been duly executed and
delivered by the Parent, and constitutes a legal, valid and binding obligation
of the Parent, enforceable against the Parent in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles. Each other agreement to be
executed in connection with this Agreement by the Parent on or prior to the
Closing Date will be duly executed and delivered by the Parent and will
constitute a legal, valid and binding obligation of the Parent, enforceable
against the Parent in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
SECTION 4.04 No Violations or Consents. The execution, delivery and
performance of this Agreement by the Parent and the consummation of the
transactions contemplated hereby will not (i) materially violate, conflict with
or result in a breach of or the acceleration of any obligation under, or
constitute a default (or an event which with notice or the lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any property or asset of the Parent pursuant to any provision of
any contract to which the Parent is bound, or (ii) materially violate or
conflict with any law, rule, regulation, permit, ordinance or regulation
applicable to the Parent or by which any property or asset of the Parent is
bound or affected.
SECTION 4.05 Proxy Statement; Other Information. The information supplied
or to be supplied in writing by the Parent specifically for inclusion in the
proxy materials relating to the Asset Sale which shall constitute part of the
joint proxy statement and prospectus in connection with the stockholders meeting
for the Parent and Waxs (such proxy statement and prospectus, as amended or
supplemented, the "Parent Proxy Statement") and any other documents to be filed
with the Securities and Exchange Commission (the "SEC") or any other regulatory
agency in connection with the transactions contemplated hereby will, at the
respective times such documents are filed, or, as applicable, declared
effective, and on the effective time, and, with respect to the Parent Proxy
Statement, when first published, sent or given to stockholders of the Parent,
not be false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements therein relating to
the Asset Sale not misleading or, in the case of the Parent Proxy Statement or
any amendment thereof or supplement thereto, be false or misleading with respect
to any material fact, or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
any proxy for such meeting relating to the Asset Sale.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE PARENT
The Company and the Parent jointly and severally represent and warrant to
the Purchaser as of the date hereof and as of the Closing Date as follows:
SECTION 5.01 Corporate Organization; Subsidiaries.
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
York with all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being
conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the failure to be so qualified or
licensed, in the aggregate, would have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company and its Subsidiaries (as defined below), taken as a whole (a
"Company Material Adverse Effect"). True and correct copies of the
Certificate of Incorporation and the Bylaws of the Company and each
Subsidiary have been delivered or made available to the Purchaser.
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(b) Subsidiaries. Schedule 5.01(b) contains a true and complete list
of all of the Subsidiaries, listing the name and jurisdiction of
incorporation or organization of each such Subsidiary. Except as set forth
on Schedule 5.01(b), each Subsidiary is a corporation duly organized and
validly existing and in good standing under the laws of its respective
jurisdiction of incorporation, has the corporate power and authority to
own, operate or lease the properties and assets now owned, operated or
leased by such Subsidiary and to carry on its business as now being
conducted by such Subsidiary, is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction set forth on
Schedule 5.01(b), which are all of the jurisdictions in which the failure
so to qualify would have a Company Material Adverse Effect. The Company
owns the requisite amount of the issued and outstanding capital stock of
each Subsidiary, free and clear of any and all Encumbrances except as set
forth on Schedule 5.01(b), necessary to cause the transfer by the
Subsidiaries to the Purchaser of any Assets held by them without the
consent of any third party, except as set forth on Schedule 5.05. The
Company does not own, directly or indirectly, any stock, partnership
interest, joint venture interest or other security, investment or interest
in any other corporation, organization or entity, other than the
Subsidiaries.
SECTION 5.02 Capital Stock. As of the date hereof, the authorized capital
stock of the Company" consists in its entirety of 1,000 shares of common stock,
par value $.001 per share (the "Common Stock") of which 1,000 shares are issued
and outstanding. Except as set forth in this Section 5.02, there are no voting
trusts or other outstanding securities of the Company entitled to vote on the
Asset Sale.
SECTION 5.03 Reserved.
SECTION 5.04 Authority Relative to Agreement. The Company has full
corporate power and authority to execute and deliver this Agreement and to
consummate the Asset Sale and the other transactions contemplated on its part
hereby. The execution and delivery by the Company of this Agreement and the
consummation of the transactions contemplated on its part hereby have been duly
authorized by its Board of Directors and the Parent, as the sole stockholder of
the Company, such authorization being in compliance with the provisions of
Section 909 of the Business Corporation Law, and no other corporate proceeding
on the part of the Company or, except for the stockholder vote of the Parent,
the Parent is necessary to authorize the execution and delivery of this
Agreement by the Company or the consummation of the transactions contemplated on
its part hereby. This Agreement has been duly executed and delivered by the
Company, and constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as may be
limited by applicable bankruptcy, insolvency, moratorium, reorganization or
other laws affecting the enforcement of creditors' rights generally or by
general equitable principles. Each other agreement to be executed in connection
with this Agreement by the Company on or prior to the Closing Date will be duly
executed and delivered by the Company, and will constitute a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
SECTION 5.05 No Violations or Consents. Except as set forth on Schedule
5.05, the execution, delivery and performance of this Agreement by the Company
and the consummation of the transactions contemplated hereby will not (i)
violate or conflict with any provision of any charter or bylaws of the Company
or any Subsidiary, (ii) require the consent, waiver, approval, license or
authorization of or any filing by the Company or any Subsidiary with any third
party or public authority (other than (a) the filing of a pre-merger
notification report under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder (the "HSR
Act"), (b) in connection with or in compliance with the provisions of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act of 1933, as amended (the "Securities Act"), the Communications Act of 1934,
as amended (the "Communications Act") and the rules and regulations arising
thereunder, the Business Corporation Law or the "public utilities" laws of
various states, (iii) violate, conflict with or result in a breach of or the
acceleration of any obligation under, or constitute a default (or an event which
with notice or the lapse of time or both would become a default) under, or give
to others any right of
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termination, amendment, acceleration or cancellation of, or result in the
creation of an Encumbrance on any property or asset of the Company or any
Subsidiary pursuant to any provision of any Material Contract (as defined
below), lien, order, judgment or decree to which any such party is subject or by
which the Company or any Subsidiary or any of their property or assets is bound,
or (iv) violate or conflict with any law, rule, regulation, permit, ordinance or
regulation applicable to the Company or any Subsidiary or by which any property
or asset of the Company or any Subsidiary is bound or affected except, in each
of the instances set forth in items (i) through (iv) above, where failure to
give such notice, make such filings, or obtain such authorizations, consents or
approvals, or where such violations, conflicts, breaches or defaults, in the
aggregate, would not have a Company Material Adverse Effect.
SECTION 5.06 Governmental Authorizations and Regulations. Set forth on
Schedule 5.06 is a true and complete list of all material governmental licenses,
franchises, permits and other authorizations, including without limitation any
and all licenses issued to the Company or any Subsidiary by the United States
Federal Communications Commission (the "FCC"), by state public utilities
commissions and by all applicable foreign telecommunications regulatory entities
(the "Foreign Agencies") ("Company Permits") held by the Company and the
Subsidiaries. Such Company Permits are all governmental licenses, franchises,
permits and other authorizations necessary to the conduct of the business of the
Company and the Subsidiaries as presently conducted. Such Company Permits are
valid and in full force and effect and the Company knows of no threatened
suspension, cancellation or invalidation of any such Company Permit. Except as
set forth on Schedule 5.06, the Company has not received notice from any of the
FCC, any state public utilities commissions or any Foreign Agencies of any
complaint filed therewith concerning the Company, its operations or services
and, to the best knowledge of the Company and the Parent, there is no reasonable
basis for the filing of any such complaint. Neither the Company nor any
Subsidiary is in conflict with, or is in default or violation of, any tariffs,
law, rule, regulation, order, judgment, Company Permit, ordinance, regulation or
decree applicable to the Company or any Subsidiary or by which any property or
asset of either of them is bound or affected, except where such conflicts,
defaults or violations, in the aggregate, would not have a Company Material
Adverse Effect.
SECTION 5.07 Litigation. Except as set forth on Schedule 5.07 hereto,
there are no actions, proceedings, claims, complaints, grievances, unfair labor
practice complaints or investigations (collectively, "Actions") pending or, to
the best knowledge of the Company and the Parent, threatened against the Company
or the Parent or any of the assets or properties of the Company before any court
or governmental or regulatory authority or body or arbitrator, which, if such
Action were determined adversely to the Company, would have, individually or in
the aggregate, a Company Material Adverse Effect. There are no Actions pending
or, to the best knowledge of the Company and the Parent, threatened against the
Company or the Parent challenging the validity or propriety of the transactions
contemplated by this Agreement. Except as set forth on Schedule 5.07 (which
exceptions will not result in a Company Material Adverse Effect), none of the
assets, property or other rights of the Company or any Subsidiaries thereof is
subject to any order, judgment, injunction, writ or decree, which would have,
individually or in the aggregate, a Company Material Adverse Effect.
SECTION 5.08 Financial Statements and Reports; Material Liabilities;
Projections.
(a) Financial Statements and Reports. The Company's audited balance
sheets and its audited statements of operations, stockholder's equity and
cash flows as of and for the fiscal years ended March 31, 1998 and December
31, 1999 (the "Audited Financials"), as well as the Company's unaudited
balance sheet and unaudited statements of operations (the "March Statement
of Operations"), as of and for the quarter ended March 31, 2000
(collectively with the Audited Financials, the "Company Financial
Statements") were prepared from and are in accordance with the books and
records of the Company and were prepared in accordance with GAAP applied on
a consistent basis and (except as may be indicated therein or in the notes
thereto) present fairly in all material respects the consolidated financial
position, results of operations and cash flows of the Company and its
consolidated subsidiaries as of the dates and for the periods indicated;
provided that the March Statement of Operations is subject to normal
year-end adjustments and lacks footnotes and other presentations.
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(b) Material Liabilities. Except as set forth on the Balance Sheet or
disclosed in the notes thereto, the Company has no material liabilities or
obligations (whether fixed, accrued, contingent or otherwise, but not
including the Excluded Liabilities) that are not fully reflected or
provided for on, or disclosed in the notes to, the Company Financial
Statements, except for (i) liabilities in the ordinary course of business
that could not be reasonably expected to have a Company Material Adverse
Effect or (ii) liabilities incurred in the ordinary course of business that
are not required by GAAP to be reflected thereon and which, individually
and in the aggregate, are not material.
SECTION 5.09 Absence of Certain Changes. Except as set forth on Schedule
5.09 or as otherwise expressly permitted under this Agreement, since December
31, 1999, the Company has conducted its business in the ordinary course and
there has not been any:
(a) material adverse change in the financial condition, assets,
liabilities, business or results of operations of the Company or any
Subsidiary;
(b) addition to or modification of employee benefits plans,
arrangements or practices, other than in the ordinary course of business;
(c) sale, assignment or transfer of any of the material assets of the
Company or any Subsidiary, other than in the ordinary course of business,
consistent with past practice;
(d) cancellation of any indebtedness owed to the Company in an
aggregate amount greater than Seventy-five Thousand Dollars ($75,000), or
waiver of any rights of similar value to the Company relating to any of its
business activities or properties, other than in the ordinary course of
business;
(e) material amendment, cancellation or termination of any Material
Contract, other than in the ordinary course of business, consistent with
past practice;
(f) any material breach of, or default under, any Material Contract by
the Company or any Subsidiary;
(g) change in accounting methods, principles or practices by the
Company materially affecting its assets, liabilities or results of
operations;
(h) material revaluation by the Company or any Subsidiary of its
assets, including without limitation, any material write-offs, material
increases in any reserves or any material write-up of the value of
inventory, property, equipment or any other asset;
(i) material damage, destruction or loss (if not covered by insurance)
affecting any office or other facility maintained by the Company or any
other material asset of the Company and resulting in a loss in an aggregate
amount in excess of One Hundred Thousand Dollars ($100,000);
(j) Encumbrance with respect to any assets of the Company or any
Subsidiary, except Permitted Encumbrances;
(k) declaration, setting aside or payment of any dividend or other
distribution or payment (whether in cash, stock or property) with respect
to any shares of Common Stock, or any redemption, purchase or other
acquisition of any of such shares, or any other payment to the stockholders
of the Company with respect to the shares of Common Stock held thereby
other than intercompany payments in the ordinary course of business
consistent with past practices;
(l) issuance by the Company of, or commitment by it to issue, any
shares of Common Stock or other equity securities or any securities
convertible into or exchangeable or exercisable for shares of the Common
Stock or other equity securities;
(m) indebtedness for borrowed money incurred by the Company or any
Subsidiary or any commitment to incur indebtedness for borrowed money
entered into by the Company or any Subsidiary, or any loans made or agreed
to be made by the Company, including without limitation, any loans made to
any of the Company's executive officers;
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(n) incurrence of other liabilities by the Company or any Subsidiary
involving an aggregate amount in excess of One Hundred Fifty Thousand
Dollars ($150,000) or more, except in the ordinary course of business, or
any material increase or change in any assumptions underlying, or methods
of calculating, any bad debt, contingency or other reserves;
(o) payment, discharge or satisfaction of any liabilities other than
the payment, discharge or satisfaction in the ordinary course of business,
consistent with past practice, of liabilities reserved against in the
Financial Statements or of liabilities incurred in the ordinary course of
business, consistent with past practice, since such date or of other
liabilities involving Fifty Thousand Dollars ($50,000) or less individually
and One Hundred Fifty Thousand Dollars ($150,000) or less in the aggregate;
(p) increase in the compensation of officers or employees (including
any such increase pursuant to any bonus, pension, profit sharing or other
plan or commitment) or any increase in the compensation payable or to
become payable to any officer or employee or any severance or termination
pay, except for increases in the ordinary course of business, consistent
with past practice or as required by law or any existing agreement;
(q) granting of any bonus, incentive compensation, service, award or
other like benefit to any officer or employee except in accordance with
plans or arrangements disclosed on Schedule 5.11; or
(r) other event or condition of any character which in any one case or
in the aggregate could be reasonably expected to have a Company Material
Adverse Effect.
SECTION 5.10 Benefit Plans. Except as disclosed on Schedule 5.10, the
Company does not have outstanding any employment agreement with any officer or
employee of the Company or any Subsidiary or any bonus, incentive compensation,
deferred compensation, profit sharing, stock option, stock bonus, stock
purchase, savings, severance, salary continuation, consulting, retirement
(including health and life insurance benefits provided after retirement) or
pension plan (including Company Employee Benefit Plans, as defined in Section
5.11 hereof) or arrangement with or for the benefit of any officer, employee or
other person, or for the benefit of any group of officers, employees or other
persons that provides for payment of more than $100,000 in annual benefits.
Neither the Company nor any Subsidiary has made, or entered into any agreement
to make, any payment that becomes payable as a result of the consummation of the
transactions contemplated by this Agreement which would be treated as an "excess
parachute payment" as defined in Section 280G of the Code. There are no such
agreements, plans or other arrangements entered into with or provided for any
independent contractors with whom the Company or any Subsidiary has a business
relationship.
SECTION 5.11 ERISA. Set forth on Schedule 5.11 are all of the employee
benefit plans, as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), but without regard to whether any
such plan is in fact subject to ERISA, that is sponsored, or is being maintained
or contributed to, by the Company or any Subsidiary that provides for payment of
more than $25,000 in annual benefits (the "Company Employee Benefit Plans").
None of the Company Employee Benefit Plans are "multiemployer plans" as defined
in Section 3(37) of ERISA. The Company has furnished or made available or will
promptly after the date hereof make available to the Purchaser (a) a true and
complete copy of the plan document and summary plan description for each Company
Employee Benefit Plan, (b) a true and complete copy of the most recently filed
Form 5500 (including the related schedules) with respect to each Company
Employee Benefit Plan for which such form is required to be filed, (c) a true
and complete copy of any trust agreement, insurance contract or other agreement
or arrangement serving as a source of funding any benefits payable under any
Company Employee Benefit Plan, and (d) the most recently issued financial
statement and actuarial report, if any, for each Company Employee Benefit Plan.
No "prohibited transactions" (as such term is defined in Section 4975 of the
Code, or in Part 4 of Subtitle B of Title I of ERISA) have occurred with respect
to any Company Employee Benefit Plan that could result in the imposition of
taxes or penalties that, in the aggregate, would have a Company Material Adverse
Effect. With respect to each of the Company Employee Benefit Plans that is
intended to qualify for favorable income tax treatment under Section 401(a) of
the Code,
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(i) the Internal Revenue Service ("IRS") has issued a favorable determination
letter with respect to such plan; (ii) except as set forth on Schedule 5.11, the
Company has furnished the Purchaser with a copy of the determination letter most
recently issued by the IRS with respect to such plan and the application filed
with the IRS for such determination letter; and (iii) to the best knowledge of
the Company, no event has occurred from the date of each such favorable
determination letter that would adversely affect the tax-qualified status of the
plan in question. Each Company Employee Benefit Plan has been administered in
compliance with the applicable requirements of ERISA and the Code, and in
compliance with all other applicable provisions of law, except for such
noncompliance, if any, that, in the aggregate, would not have a Company Material
Adverse Effect. With respect to each Company Employee Benefit Plan, neither the
Company nor any Subsidiary has incurred liabilities which, in the aggregate,
could have a Company Material Adverse Effect as a result of the violation of or
the failure to comply with any applicable provision of ERISA, the Code, any
other applicable provision of law, or any provision of such plan. None of the
Company Employee Benefit Plans which is an "employee pension benefit plan", as
that term is defined in Section 3(2) of ERISA (a "Company Employee Pension
Benefit Plan"), has incurred an "accumulated funding deficiency," within the
meaning of Section 3(2) of ERISA or Section 412 of the Code. Neither the Company
nor any Subsidiary has failed to make any contribution to, or to make any
payment under, any Company Employee Benefit Plan that it was required to make
pursuant to the terms of the plan or pursuant to applicable law in any amount
which, in the aggregate, could have a Company Material Adverse Effect. To the
best knowledge of the Company, no "reportable events," with respect to which a
notice must be filed with the Pension Benefit Guaranty Corporation ("PBGC"), has
occurred with respect to any Company Employee Pension Benefit Plan subject to
Title IV of the ERISA. No proceedings by the PBGC to terminate an y Company
Employee Pension Benefit Plan pursuant to Subtitle C of Title IV of ERISA have
to the best of the Company's knowledge, been instituted or threatened. Except
for any liabilities in an amount which, in the aggregate, would not have a
Company Material Adverse Effect, neither the Company nor any Subsidiary (1) has
incurred any liability to the PBGC in connection with any Company Employee
Pension Benefit Plan, including any liability under Section 4069 of ERISA and
any penalty imposed under Section 4071 of ERISA, (2) has terminated any Company
Employee Pension Benefit Plan, or ceased operations at any facility or withdrawn
from any Company Employee Pension Benefit Plan, in a manner that could subject
it to liability or any liens under Section 4062, 4063, 4064 or 4068 of ERISA or
(3) has any knowledge as to the existence of any state of facts, or as to the
occurrence of any transactions, that might reasonably be anticipated to result
in any liability of the Company or any Subsidiary to the PBGC under any other
provision of Title IV of ERISA. There is no pending or, to the best knowledge of
the Company, threatened legal action, proceeding or investigation against or
involving any Company Employee Benefit Plan which could result in liabilities to
the Plan, the Company or any Subsidiary. Except as disclosed on Schedule 5.11,
the present value of accrued benefits of each Company Employee Benefit Plan that
is a defined benefit plan as defined in Section 3(35) of ERISA does not exceed
the value of the assets of such plan available to pay such benefits by an amount
that, in the aggregate for all such plans, could have a Company Material Adverse
Effect. All representations made by the Company in this Section 5.11 are
likewise true with respect to each Subsidiary.
SECTION 5.12 Environmental Matters. "Company Real Properties" shall mean
all real property now or previously owned, operated or leased by the Company,
any Subsidiary or any predecessor-in-interest. Except as set forth on Schedule
5.12: (i) the Company, each of the Subsidiaries, and to the best of the
Company's knowledge, each of the Company Real Properties is in compliance with,
and has no liability under any federal, state, or local law, statute, rule or
regulation, or the common law governing or relating to the environment or to
occupational health and safety ("Environmental Law"), (ii) none of the Company,
any Subsidiary or any of the Company Real Properties has been alleged in writing
by any governmental agency or third party to be in violation of, to be liable
under, or to be subject to any administrative or judicial proceeding pursuant
to, any Environmental Law, and (iii) there are no facts or circumstances which
could reasonably form the basis for the assertion of any claims against the
Company or any Subsidiary relating to environmental matters, except, in any such
case, where the failure to comply or such liability could not be reasonably
expected to have a Company Material Adverse Effect.
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SECTION 5.13 Real Estate Leases. Schedule 5.13 sets forth a complete and
accurate list, copies of which have been delivered to the Purchaser, of (i) all
leases and subleases under which the Company or any Subsidiary is lessor or
lessee of any real property, together with all amendments, supplements,
nondisturbance agreements and other agreements pertaining thereto; (ii) all
material options held by the Company or any Subsidiary or contractual
obligations on the part of the Company or any Subsidiary to purchase or acquire
any interest in real property; and (iii) all options granted by the Company or
any Subsidiary or contractual obligations on the part of the Company or any
Subsidiary to sell or dispose of any material interest in real property in each
such instance in items (i) through (iii) above, which provides for a payment of
more than $25,000. Such leases, subleases and other agreements are in full force
and constitute binding obligations of the Company and, to the best of its
knowledge, the other parties thereto, and (i) there are no defaults thereunder
by the Company or any Subsidiary or, to the best of Company's knowledge, by any
other party thereto and (ii) no event has occurred which (with notice, lapse of
time or both or occurrence of any other event) would constitute a default by the
Company or any Subsidiary or, to the best of the Company's knowledge, by any
other party thereto, except, in either such instance, for defaults or events
that could not be reasonably expected to have a Company Material Adverse Effect.
The Company or a Subsidiary has good, valid and insurable leasehold title to all
such leased property, free and clear of all Encumbrances, except for Permitted
Encumbrances.
SECTION 5.14 Title to Properties; Absence of Liens and Encumbrances. None
of the Company or any of its Subsidiaries owns any real property. Except for
leased assets, the Company and the Subsidiaries have good and insurable title to
all of their material tangible personal property used in their businesses,
including, without limitation, those reflected in the Balance Sheet (other than
assets disposed of in the ordinary course of business since December 31, 1999)
or other imperfections of title, if any, as would not, in the aggregate, have a
Company Material Adverse Effect on the operation of the business of the Company
or any Subsidiary, and except as reflected or disclosed in the Balance Sheet, or
on Schedule 5.14. On the Closing Date the Seller shall transfer to the Purchaser
the Assets free and clear of all Encumbrances, except Permitted Encumbrances.
SECTION 5.15 Tax Matters. Except as set forth on Schedule 5.15, the
Company has paid, or the Balance Sheet contains adequate provision for, all
Company Taxes for the Company taxable period ended on the date of the Balance
Sheet and all fiscal periods of the Company prior thereto. Company Taxes paid
and/or incurred from the date of the Balance Sheet until the Closing Date will
include only Company Taxes incurred in the ordinary course of business
determined in the same manner as in the taxable period ending on the date of the
Balance Sheet. Except as disclosed on Schedule 5.15, the Company and each of its
Subsidiaries have timely filed all income tax, excise tax, sales tax, use tax,
gross receipts tax, franchise tax, employment and payroll related tax, property
tax, and all other tax returns which the Company and/or each Subsidiary (as the
case may be) are required to file ("Tax Returns"), and have paid or provided for
all the amounts shown to be due thereon. Except as set forth on Schedule 5.15,
(i) neither the Company nor any Subsidiary has filed or entered into, or is
otherwise bound by, any election, consent or extension agreement that extends
any applicable statute of limitations with respect to taxable periods of the
Company, (ii) the Company is not a party to any contractual obligation requiring
the indemnification or reimbursement of any person with respect to the payment
of any Tax, (iii) no claim has ever been made or threatened by an authority in a
jurisdiction where the Company or any Subsidiary do not file Tax Returns that
they are or may be subject to taxes by that jurisdiction, (iv) no issues have
been raised by the relevant taxing authorities on audit that are of a recurring
nature and that would have an effect upon the Taxes of the Company or any
Subsidiary. Except as set forth on Schedule 5.15, to the best of the Company's
and each Subsidiary's knowledge, no action or proceeding is pending or
threatened by any governmental authority for any audit, examination, deficiency,
assessment or collection from the Company or any Subsidiary of any Company
Taxes, no unresolved claim for any deficiency, assessment or collection of any
Company Taxes has been asserted against the Company or any Subsidiary, and all
resolved assessments of Company Taxes have been paid or are reflected in the
Balance Sheet.
SECTION 5.16 Proprietary Property. Schedule 5.16 contains a complete and
accurate list of all material Proprietary Property. To the Company's knowledge,
none of the Company or the Subsidiaries has
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infringed or is now infringing on any Proprietary Property belonging to any
other person, firm or corporation. The Company and the Subsidiaries own or hold
adequate licenses or other rights to use all Proprietary Property necessary for
them to conduct their respective businesses as they are being conducted,
including without limitation, all such rights relating to all software and
related Proprietary Property used in and necessary for the operation of the
Company's debit card platform and the Company's billing system relating to its
1010XXX program, except where the failure to hold such rights could not be
reasonably expected to result in a Company Material Adverse Effect. Except as
disclosed on Schedule 5.16, none of the Company or the Subsidiaries has granted
any licenses with respect to any of their respective Proprietary Property. None
of the Company or the Subsidiaries has received any notice of, nor does the
Company have any knowledge with respect to, any claim of infringement or other
conflict or claimed conflict with respect to the rights of others to the use of
the corporate name of the Company or any Subsidiary or any of their Proprietary
Property, except such conflicts or claimed conflicts which, in the aggregate,
would not result in a Company Material Adverse Effect. No Proprietary Property
is subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Company or any Subsidiary or restricting the
licensing thereof by the Company or any Subsidiary to any Person. Except as set
forth on Schedule 5.16, neither the Company nor any Subsidiary has entered into
any agreement to indemnify any other party against any charge of infringement of
any patent, trademark, service mark or copyright. Except as set forth on
Schedule 5.16, no Proprietary Property contains any restriction regarding its
use over the internet or with respect to VOIP activities.
SECTION 5.17 Labor Matters. Neither the Company nor any Subsidiary is a
party to any collective bargaining agreement with respect to any of their
employees. None of the employees of the Company or any Subsidiary are
represented by any labor union and, as of the date hereof, neither the Company
nor any Subsidiary has any knowledge of any union organizational efforts
involving the Company's employees during the past five years. Except as set
forth on Schedule 5.17, neither the Company nor any Subsidiary has received
written notice of any claim, or has knowledge of any facts which are likely to
give rise to any claim, that they have not complied in any material respect with
any laws relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and similar taxes, equal employment opportunity, employment
discrimination or employment safety.
SECTION 5.18 Insurance. Schedule 5.18 lists, as of the date of this
Agreement, all material policies of fire, products liability, general liability,
vehicle, worker's compensation, directors' and officers' liability, title and
other insurance owned or held by or covering the Company or any Subsidiary or
any of their property or assets which are material to the business of the
Company and any Subsidiary, taken as a whole. As of the date hereof, all of such
policies are in full force and effect, except as to matters or defaults which,
in the aggregate, would not have a Company Material Adverse Effect, and no
written notice of cancellation or termination has been received with respect to
any such policy which has not been replaced or cannot be replaced on
substantially similar terms prior to the date of such cancellation or
termination.
SECTION 5.19 Material Contracts. Schedule 5.19 lists, as of the date of
this Agreement, the following contracts or agreements to which the Company or a
Subsidiary is a party or is bound (collectively, the "Material Contracts"), (i)
all contracts or other agreements, whether or not made in the ordinary course of
business, which are material to the business of the Company and the Subsidiaries
taken as a whole; (ii) all contracts in the nature of mortgages, indentures,
promissory notes, loan or credit agreements or similar instruments under which
the Company and the Subsidiaries have borrowed or may borrow at least
$1,000,000; (iii) any personal property lease providing for annual rentals of
$500,000 or more; (iv) any agreement with a term of at least one year for the
purchase of materials, supplies, goods, services, equipment or other assets
providing for either annual payments by the Company and the Subsidiaries of
$500,000 or more or aggregate payments by the Company and the Subsidiaries of
$1,000,000 or more; (v) any sales, distribution or other similar agreement with
a term of at least six months, providing for the sale by the Company or any
Subsidiary of materials, supplies, goods, services, equipment or other assets
that provides for (A) annual payments to the Company and the Subsidiaries of
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$200,000 or more and (B) does not by its terms permit the Company or any
Subsidiary to pass any increase in the costs of such materials, supplies, goods,
services, equipment or other assets on to the counterpart thereto; (vi) any
material partnership, joint venture or other similar agreement or arrangement;
(vii) any material agreement relating to the acquisition or disposition of any
business (whether by cash sale, sale of stock, sale of assets or otherwise);
(viii) any and all carrier services agreements, operating agreements and
agreements with vendors; (ix) any material option, license, franchise or similar
agreement; (x) any material agency, dealer, sales representative, marketing or
other similar agreement; (xi) any agreement that limits the freedom of the
Company or any Subsidiary to compete in any line of business or with any Person
or in any area or which would so limit the freedom of the Company or any
Subsidiary after the Closing Date; (xii) all agreements with qualified
independent distributors; (xiii) any agreement with any person directly or
indirectly owning, controlling or holding with power to vote, 5% or more of the
outstanding voting securities of the Company. Except as set forth on Schedule
5.19, each of the Material Contracts is valid and binding and in full force and
effect, enforceable by the Company in accordance with its terms, except to the
extent that such enforceability may be subject to applicable bankruptcy,
insolvency, moratorium, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles. Except as set
forth on Schedule 5.19, none of the Company or any of the Subsidiaries or, to
the best knowledge of the Parent and the Company, any other party thereto, is in
default in any respect, and no event has occurred which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute a default of the Company or any Subsidiary or, to the knowledge of
the Company, any third party, under any of the Material Contracts, except such
defaults which, in the aggregate, would not result in a Company Material Adverse
Effect, and all accounts payable with respect to the Material Contracts and any
material suppliers and vendors of the Company and its Subsidiaries that do not
also materially apply to or service the Parent are current and have been and are
being paid per the terms of such contracts or agreements, excluding all amounts
being disputed in good faith (which disputed amounts, for the avoidance of
doubt, shall remain obligations of the Seller and the Parent). True and complete
copies of each of the Material Contracts have been delivered or made available
to the Purchaser.
SECTION 5.20 Brokers. Except as set forth in Schedule 5.20, neither the
Company nor any Subsidiary has paid or become obligated to pay any fee or
commission to any broker, finder, investment banker or other intermediary in
connection with this Agreement.
SECTION 5.21 Transactions with Affiliated Parties. Schedule 5.21 sets
forth a true and complete list and description of all transactions engaged in
since the date of the Balance Sheet between the Company and any affiliate
(including, without limitation, the Parent), director, officer, employee,
stockholder, partner or agent of the Company, or any of their respective spouses
or children, any trust of which any such person is the grantor, trustee or
beneficiary, any corporation of which any such person or party is a stockholder,
employee, officer or director, or any partnership or other person in which any
such person or party owns an interest (all such persons, trusts, corporations
and partnerships being herein referred to collectively as "Affiliated Parties"
and individually as an "Affiliated Party"). No Affiliated Party is a party to
any agreement, contract or commitment with the Company except as set forth in
Schedule 5.21.
SECTION 5.22 Distributors. Schedule 5.22 hereto sets forth the Company's
five (5) largest distributors for the fiscal year ended December 31, 1999 and
for the fiscal quarter ended March 31, 2000.
SECTION 5.23 Accounts Receivable. The accounts receivable of the Company
set forth on the Balance Sheet, and all accounts receivable of the Company at
the Closing Date which are included in the Assets will have arisen only from
bona fide transactions in the ordinary course of business, are and will be
valid, genuine and fully collectible (net of reserves), and the reserves
provided therefor on the Balance Sheet and on the Closing Date are and will be
adequate pursuant to GAAP. The services sold and delivered that gave rise to
such accounts were sold and delivered in conformity in all material respects
with applicable Material Contracts and, except as set forth on Schedule 5.23, as
of March 31, 2000 there were no refunds, rebates, discounts or other adjustments
payable with respect to any such accounts receivable other than in the normal
course of business consistent with past practices.
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SECTION 5.24 Inventory. As of the date of the Balance Sheet, inventories
set forth on the Balance Sheet consisted in all material respects of items of a
quantity and quality saleable in the ordinary course of business net of
applicable reserves. All such inventories are valued on the Balance Sheet in
accordance with GAAP applied on a basis consistent with past practices.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller as of the date hereof
and as of the Closing Date as follows:
SECTION 6.01 Organization and Good Standing. The Purchaser is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware. As of the date hereof Counsel Corporation, an
Ontario corporation, is the record and beneficial owner of 100% of the
outstanding equity interests of the Purchaser and has good and valid title in
such equity interest (provided that at Closing Counsel Corporation may directly
or indirectly through a wholly-owned subsidiary own less than such percentage of
the outstanding equity interests of the Purchaser, but in no event shall Counsel
Corporation own less than a controlling direct or indirect, through a
wholly-owned subsidiary, interest in the Purchaser).
SECTION 6.02 Authority; No Conflicts. The Purchaser has the full power and
authority to execute and deliver this Agreement and the other agreements and
instruments to be executed and delivered by the Purchaser, pursuant hereto and
to consummate the transactions contemplated hereby and thereby. All acts and
other proceedings required to be taken by or on the part of the Purchaser to
authorize such execution, delivery and consummation have, or by the Closing Date
will have, been duly and properly taken. This Agreement has been duly executed
and delivered by the Purchaser and constitutes, and such other agreements and
instruments when duly executed and delivered by the Purchaser will constitute,
legal, valid and binding obligations of the Purchaser enforceable against them
in accordance with their respective terms. The execution and delivery by the
Purchaser of this Agreement and the execution and delivery by the Purchaser of
such other agreements and instruments and the consummation by the Purchaser of
the transactions contemplated hereby and thereby will not (i) violate or
conflict with any provision of the certificate of formation or limited liability
company agreement of the Purchaser, (ii) require the consent, waiver, approval,
license or authorization of or any filing by the Purchaser with any public
authority, other than (a) the filing of a notification report under the HSR Act,
(b) in connection with or in compliance with the provisions of the Exchange Act,
the Securities Act, the Communications Act and the rules and regulations arising
thereunder, the rules and regulations of The Nasdaq Stock Market, or the "public
utilities" laws of various states, all of which will be completed prior to
Closing, and (c) any other filings and approvals expressly contemplated by this
Agreement, (iii) violate, conflict with or result in a breach of or the
acceleration of any obligation under, or constitute a default (or an event which
with notice or the lapse of time or both would become a default) under, or give
to others any right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of the Purchaser pursuant to any provision of any indenture, mortgage,
lien, lease, agreement, instrument, order, judgment or decree to which the
Purchaser is subject or by which the Purchaser or any of its property or assets
is bound, or (iv) violate or conflict with any law, rule, regulation, permit,
ordinance or decree applicable to the Purchaser or by which any of its property
or assets is bound or affected except, in each of the instances set forth in
items (i) through (iv) above, where failure to give such notice, make such
filings, or obtain such authorizations, consents or approvals, or where such
violations, conflicts, breaches or defaults, in the aggregate, would not have a
material adverse effect on the financial condition, results of operations,
business or properties of the Purchaser, taken as a whole, or the ability of the
Purchaser to consummate the transactions hereunder (a "Purchaser Material
Adverse Effect").
SECTION 6.03 No Legal Proceedings. There is no action, suit, order,
judgment or proceeding pending or, to the knowledge of the Purchaser, threatened
against or affecting the Purchaser that,
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individually or when aggregated with one or more other actions, suits, orders,
judgments or proceedings, has or might reasonably be expected to have a material
adverse effect on the Purchaser's ability to perform any of its obligations
hereunder or under any of the other agreements and instruments to be executed
and delivered by the Purchaser in connection herewith.
SECTION 6.04 Financing. The Purchaser will have available to it sufficient
cash, available lines of credit or other sources of immediately available funds
to enable it to pay the Purchase Price on the Closing Date.
SECTION 6.05 Brokers. Neither the Purchaser nor any affiliate of the
Purchaser has paid or become obligated to pay any fee or commission to any
broker, finder, investment banker or other intermediary in connection with this
Agreement, except to CIBC World Markets Corp. or its affiliates.
ARTICLE VII
FURTHER COVENANTS AND AGREEMENTS
SECTION 7.01 Conduct of Business of the Seller. From the date hereof and
prior to the Closing Date, and except as otherwise contemplated by this
Agreement or with the specific prior written consent of the Purchaser, each of
the Seller and the Parent jointly and severally covenants and agrees (and the
Seller agrees to cause the Company and its Subsidiaries to comply) with respect
to the Business of the Seller as follows:
(a) The Seller and its Subsidiaries shall conduct the business of the
Seller and such Subsidiaries in the ordinary course, consistent with past
practices, and shall make no dividend payments, intercompany payments,
loans, advances or other distributions, except pursuant to existing
agreements set forth on the Schedules hereto or in the ordinary course
consistent with past practices, without the consent of the Purchaser;
(b) Neither the Seller nor any Subsidiary shall enter into any
contract or commitment, or make any expenditures, for property, plant or
equipment in excess of $1,000,000 in the aggregate with respect to the
Business; provided that the Parent and the Company agree to make
advertising expenditures in respect of the dial-around portion of the
Business in an amount not less than (i) $2,000,000 for the fiscal quarter
ending June 30, 2000 and (ii) $1,500,000 for the month of July 2000;
(c) The Seller and each Subsidiary will continue to use its reasonable
efforts, consistent with past practices, to substantially preserve the
Business intact and the goodwill of customers and others having business
relations with the Seller and such Subsidiaries and to keep available the
employees of the Seller and the Subsidiaries for employment by the
Purchaser;
(d) The Seller and each Subsidiary will continue to maintain its real
and personal properties in substantial accordance with past practices;
(e) Neither of the Seller nor any Subsidiary will terminate or
materially modify any leases, contracts, governmental licenses, permits, or
other authorizations or agreements affecting the real and/or personal
properties of the Business or the operation thereof or any additional lease
or contract of any nature affecting such properties or the operation
thereof, except in the ordinary course of business consistent with past
practice;
(f) No material debts of or claims against others held by the Seller
or any Subsidiary and owing in respect of the Business shall be canceled or
released and no such rights shall be waived or abandoned, except in the
ordinary course of business consistent with past practice;
(g) Neither of the Seller nor any Subsidiary will make any change in
any method of accounting principles or practices with respect to the
Business;
(h) The Seller will promptly notify the Purchaser of any Company
Material Adverse Change, after the date hereof and prior to the Closing
Date; and
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(i) The Seller will not take, or agree to take, any action or engage,
or agree to engage, in any transaction or activity which would render any
representation and warranty of the Seller inaccurate in any material
respect as of the Closing Date.
SECTION 7.02 Access; Information; Confidentiality. From the date hereof to
and including the Closing Date, the Seller shall afford to the officers,
employees, attorneys, accountants and other authorized representatives of the
Purchaser reasonable access, during normal business hours, to the offices,
plants, properties, books and records of the Business of the Seller in order
that the Purchaser may have the full opportunity to make such legal, financial,
accounting and other reviews or investigations of the Business of the Seller and
the Assets as the Purchaser shall desire to make. The Purchaser also covenants
and agrees to comply with all confidentiality undertakings heretofore agreed to
between the Purchaser and the Seller, its affiliates or their representatives
relating to the business of the Seller or the transactions contemplated by this
Agreement.
SECTION 7.03 Consents and Conditions to Closing. From the date hereof to
and including the Closing Date, each of the parties hereto agrees (i) to take
all reasonable actions necessary to obtain (and to cooperate with each other in
obtaining) all material consents, authorizations, orders, exemptions and
approvals of any third parties, including, without limitation, from governmental
bodies and other third parties and in respect of laws and regulations, Material
Contracts, Company Permits and Proprietary Property, required to be obtained by
it in connection with any of the transactions contemplated hereby, (ii) to take
all reasonable actions necessary to comply promptly with all material legal
requirements which may be imposed on or applicable to it with respect to the
Closing and (iii) to promptly cooperate with and furnish information to each
other in connection with any such legal and contractual requirements.
Notwithstanding the foregoing, the Purchaser shall, with the cooperation of the
Seller and the Parent as set forth in Section 7.06 below, use its best efforts
to file (i) within 8 Business Days of the complete execution and delivery of
this Agreement, the appropriate and complete documents (or, if any documents are
required to be filed consecutively after receipt of certain approvals such as
authority to do business within a state, promptly following receipt of such
approval) necessary to obtain such authorizations, consents, certifications or
other approvals necessary from the FCC and the state public utility commissions
in the states of New York, California, Florida, New Jersey and Texas to operate
the Business on and after the Closing Date and (ii) within 10 days (or if such
10th day is not a Business Day, by the next succeeding Business Day after such
10th day) of the complete execution and delivery of this Agreement, a
notification report under the HSR Act (collectively, the "Required Regulatory
Approvals"). Notwithstanding anything to the contrary contained herein,
following Closing, to the extent any consents to Material Contracts not set
forth on Schedule 8.05 have not yet been obtained, the Seller and the Parent
shall use best efforts consistent with Section 2.02(b), and cooperate with the
Purchaser, to obtain any such outstanding consents.
SECTION 7.04 Notification of Certain Matters. The Seller and the Parent
shall give prompt written notice to the Purchaser, and the Purchaser shall give
prompt written notice to the Seller and the Parent, as the case may be, of (i)
the occurrence, or failure to occur, of any event that would be likely to cause
any representation or warranty by such notifying party contained in this
Agreement to be untrue or inaccurate in any material respect at any time between
or including the date of this Agreement and the Closing Date, (ii) any knowledge
of or discovery by the notifying party of the inaccuracy of any representation
or warranty by the non-notifying party contained in this Agreement and (iii) any
failure of the non-notifying party to comply with or satisfy, in any material
respect, any covenant condition or agreement to be complied with or satisfied by
it under this Agreement.
SECTION 7.05 Shareholder Support. Mr. Christopher Edgecomb, solely in his
capacity as a stockholder of the Parent, shall vote his shares in the Parent in
favor of the Asset Sale and all of the transactions contemplated hereby.
SECTION 7.06 Use of Name; Change of Name. On the Closing Date, the Seller
shall, and hereby agrees to, unconditionally, irrevocably and in perpetuity,
relinquish to the Purchaser all rights to, and cease the use of, the names
"PT-1", "PT-1 Communications Inc.", "PT-1 Long Distance" and any and all
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derivative forms thereof. Promptly after the execution and delivery of this
Agreement the Seller and the Parent shall execute and deliver to the Purchaser
such consents necessary for the Purchaser to form operating subsidiaries having
names with the term "PT-1" included therein and to enable the Purchaser to make
its filings in respect of the Required Regulatory Approvals in such names
(provided that, for the avoidance of doubt, the Seller shall not be obligated to
cease its use of such names as provided in the immediately preceding sentence
until Closing).
SECTION 7.07 Proxy Statement and Special Meeting of the Parent. The Parent
and Waxs are preparing the Parent Proxy Statement in connection with the Parent
Merger and the Asset Sale. In connection with the execution of this Agreement,
the Parent shall, if required, as expeditiously as possible, prepare and file
with the SEC an amendment to the Parent Proxy Statement and all other filings
relating to the special meeting as required by the Exchange Act and the rules
and regulations of the SEC promulgated thereunder and, in that regard, the
Purchaser will provide all necessary assistance as may be requested by the
Parent with respect to such filing. The Parent will notify the Purchaser
promptly of the receipt of any comments from the SEC or its staff relating to
the Asset Sale and of any request by the SEC or its staff for amendments or
supplements to the Parent Proxy Statement relating to the Asset Sale or for
additional information in respect thereof, and will supply the Purchaser and its
legal counsel with copies of all correspondence between the Parent or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Parent Proxy Statement which relate to the Asset Sale.
SECTION 7.08 Transaction Proposals. None of the Parent, the Seller or
their respective affiliates, officers, directors, employees or other agents
shall (i) directly or indirectly, solicit, discuss or encourage the making of
any inquiry, offer or proposal which constitutes or is reasonably likely to lead
to any Transaction Proposal (as defined below); or (ii) accept or entertain an
offer by any person, other than the Purchaser, or enter into discussions with,
or provide information to any person, other than the Purchaser, concerning any
Transaction Proposal. Each of the Parent and the Seller agrees that it will
promptly notify the Purchaser after receipt of any Transaction Proposal of the
material terms thereof and any ongoing developments with respect thereto. For
purposes of this Agreement, "Transaction Proposal" shall mean any proposal or
offer to acquire an equity interest in, or a substantial portion of, the
Company, the Business or the Assets, whether by merger, sale of equity
interests, asset purchase or other transaction, other than pursuant to the
transactions contemplated by this Agreement. The Seller and the Parent shall,
and shall cause the Parent's and the Company's and each Subsidiary's directors,
officers, employees, financial advisors and other agents or representatives to,
cease immediately and cause to be terminated all activities, discussions or
negotiations, if any, with any persons heretofore conducted with respect to any
Transaction Proposal.
SECTION 7.09 Right of First Refusal. The Parent shall make reasonable
efforts to facilitate conversations and meetings between the Purchaser and Waxs
with a view to securing for the Purchaser a right of first refusal for the
purchase of any business competitive with the Business that is owned and offered
for sale by Waxs at any time after the Closing Date.
SECTION 7.10 Satellite Offices. The Seller and the Parent shall take all
steps necessary to close the Satellite Offices prior to Closing (or as soon as
reasonably practicable thereafter) without any liability to the Purchaser or any
adverse effect on the Assets.
SECTION 7.11 New York Pool Agreement. The Seller and the Parent shall
before and after Closing continue to perform any obligations under that certain
agreement with the New York debit card distributors (the "New York Pool
Agreement").
SECTION 7.12 Key Executives; Non-Solicitation. The Parent and the Seller
agree (i) to use reasonable commercial efforts to cause certain of the Seller's
key executives identified by the Purchaser to enter into exclusive employment
agreements with the Purchaser, or to agree to not, directly or indirectly,
engage in any business competitive with the Business and the Purchaser for a
period of 18 months following Closing, and (ii) to refrain from, and shall use
reasonable commercial efforts to cause the
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Seller's key executives to refrain from, directly or indirectly soliciting or
hiring away any of the Purchaser's or its affiliates employees for a period of
three years following the Closing.
SECTION 7.13 Retention Bonuses. The Parent agrees to pay a retention bonus
to Sidney Huang in the amount of $154,000 and Srdjan Strbanovic in the amount of
$216,000 prior to Closing; provided, however, that the Parent shall not be
obligated to make any such payment unless and until the individual entitled to
such payment has entered into an employment agreement with the Purchaser.
SECTION 7.14 Equipment Lease. The Purchaser agrees that it shall be solely
responsible for obtaining any consent required under that certain
telecommunications equipment capital lease among Chase Equipment Leasing the
Seller and the other parties thereto, dated February 20, 1998, with respect to
Nortel DMS 250 switch equipment in Flushing, New York and Jersey City, New
Jersey.
SECTION 7.15 Management Services. Subject to obtaining any necessary
regulatory or third party consents and to the extent permitted under applicable
law, the Purchaser, on the one hand, and the Seller and the Parent, on the other
hand, intend to enter into a management agreement pursuant to which the
Purchaser will provide, under the supervision and direction of the Parent's
board of directors, certain management services to the Parent and the Seller.
Neither party shall have any obligation under this Section 7.15 until the
execution and delivery of, and the provision of the foregoing services shall be
subject to the negotiation, execution and delivery of, a definitive agreement
satisfactory to each of the Purchaser and the Parent in its sole discretion.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PURCHASER
All obligations of the Purchaser to effect the Closing hereunder are, at
the option of the Purchaser, subject to the conditions precedent that, at the
Closing:
SECTION 8.01 Performance by the Seller and Parent. All the terms,
covenants, agreements and conditions of this Agreement to be complied with and
performed by the Seller and the Parent on or before the Closing shall have been
complied with and performed in all material respects.
SECTION 8.02 Representations and Warranties. The representations and
warranties made by the Seller and the Parent in this Agreement shall have been
true and correct in all material respects at the date hereof and as of the
Closing with the same force and effect as though all such representations and
warranties had been made as of the Closing.
SECTION 8.03 No Injunctions. There shall not be any pending or seriously
threatened injunction or restraining order issued by a court of competent
jurisdiction against the consummation of the sale and purchase of the Assets
pursuant to this Agreement.
SECTION 8.04 Officer's Certificate. The Purchaser shall have received from
the Seller and Parent, in form and substance reasonably satisfactory to the
Purchaser and its counsel, certificates, dated the Closing Date, of the CEO or
the President of the Seller and the Parent, as to the satisfaction of the
conditions set forth in Sections 8.01 and 8.02.
SECTION 8.05 Instruments of Transfer; Third Party Consents. The Purchaser
shall have received from the Seller and the Parent (i) an executed copy of the
Escrow Agreement, (ii) the appropriate instruments of transfer required pursuant
to Section 2.02, including but not limited to the Bill of Sale and (iii) any
third party consents required to transfer to the Purchaser all rights and
benefits under the Material Contracts and Proprietary Property set forth on
Schedule 8.05; provided, however, that this clause (iii) shall not apply to any
such third party consents that are unable to be obtained solely and demonstrably
due to the condition, financial or otherwise, of the Purchaser (provided that
the Seller and the Parent shall remain obligated under Section 2.02(b) with
respect to any such consents that are not obtained by Closing).
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SECTION 8.06 Services Agreements.
(a) Network Services Agreement. The Parent and the Purchaser shall enter
into a Shared Network Services Agreement in a form mutually agreed among the
parties.
(b) Switch Partition Services Agreement. The Parent and the Purchaser shall
enter into a Switch Partition Services Agreement mutually agreed between the
parties pursuant to which the Parent shall provide the Purchaser a $5,000,000
credit over five (5) years (or, if necessary to allow the Purchaser to utilize
the entire amount of such credit, for successive one-year terms thereafter) for
the Parent's standard switch partition services at the Parent's best available
rate as of the date of this Agreement. The Purchaser shall not be entitled to a
rebate for any unused portion of such credit.
SECTION 8.07 Consents. All applicable waiting periods, and any extensions
thereof under the HSR Act shall have expired or otherwise been terminated, and
the Purchaser and the Seller shall have received the Required Regulatory
Approvals; provided, however, that this provision shall not be available to any
party whose failure to fulfill its obligations under Section 7.03 or this
Section 8.07 or whose condition, financial or otherwise, or whose act or
omission, or other failure for any reason to satisfy any requirements necessary
to obtain such approvals shall have been the primary cause of, or shall have
primarily resulted in, such failure.
SECTION 8.08 Approval. The Asset Sale contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the common stock of
the Parent.
SECTION 8.09 Accounts Receivable. The Purchaser shall have received
written evidence from the distributors under the New York Pool Agreement and
TSI, satisfactory to the Purchaser in its sole discretion, that the accounts
receivable set forth on the Balance Sheet and the March Statement of Operations
are accurate, valid, genuine and fully-collectible (net of reserves set forth on
such financial statements).
SECTION 8.10 Estimated Closing Statement. The Purchaser shall have
received from the Parent and the Seller a copy of the Estimated Closing
Statement and the parties or the Independent Third Party shall have determined
the amount and applicability of any Closing Reduction Amount pursuant to Section
2.03(b)(i).
SECTION 8.11 Other Documents. The Purchaser shall have received all
documents it may reasonably request relating to the existence of the Parent, the
Company and each Subsidiary and the authority of each of them for this Agreement
and the Asset Sale, all in form and substance reasonably satisfactory to the
Purchaser.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER
All obligations of the Seller to effect the Closing hereunder are, at the
option of the Seller, subject to the conditions precedent that, at the Closing:
SECTION 9.01 Performance by the Purchaser. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
the Purchaser on or before the Closing shall have been complied with and
performed in all material respects.
SECTION 9.02 Representations and Warranties. The representations and
warranties made by the Purchaser in this Agreement shall have been true and
correct in all material respects at the date hereof and as of the Closing with
the same force and effect as though all such representations and warranties had
been made as of the Closing.
SECTION 9.03 No Injunctions. There shall not be any pending or seriously
threatened injunction or restraining order issued by a court of competent
jurisdiction against the consummation of the sale and purchase of the Assets
pursuant to this Agreement.
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SECTION 9.04 Officer's Certificate. The Seller shall have received from
the Purchaser, in form and substance reasonably satisfactory to the Seller and
its counsel, a certificate, dated the Closing Date, of the President or any Vice
President of the Purchaser, certifying as to the satisfaction of the conditions
set forth in Sections 9.01 and 9.02.
SECTION 9.05 Escrow Agreement; Bill of Sale. The Seller shall have
received a duly executed copy of (i) the Escrow Agreement and (ii) the Bill of
Sale referred to in Section 3.02 from the Purchaser.
SECTION 9.06 Consents. All applicable waiting periods, and any extensions
thereof under the HSR Act shall have expired or otherwise been terminated, and
the Purchaser and the Seller shall have received the Required Regulatory
Approvals; provided, however, that this provision shall not be available to any
party whose failure to fulfill its obligations under Section 7.03 or this
Section 9.06 or whose condition, financial or otherwise, or whose act or
omission, or other failure for any reason to satisfy any requirements necessary
to obtain such approvals shall have been the primary cause of, or shall have
primarily resulted in, such failure.
SECTION 9.07 Approval. The Asset Sale contemplated hereby shall have been
approved and adopted by the requisite vote of the holders of the common stock of
the Parent.
SECTION 9.08 Services Agreements. The Parent and the Purchaser shall enter
into each of the Shared Network Services Agreement and Switch Partition Services
Agreement referred to in Section 8.06 above.
SECTION 9.09 Other Documents. The Parent shall have received all documents
it may reasonably request relating to the existence of the Purchaser and the
authority of the Purchaser for this Agreement and the Asset Sale, all in form
and substance reasonably satisfactory to the Parent.
ARTICLE X
SURVIVAL, INDEMNIFICATION AND LIQUIDATED DAMAGES
SECTION 10.01 Survival of Representations, Etc.; Exclusive Remedies. The
representations, warranties, covenants and agreements contained in this
Agreement, and in any agreements, certificates or other instruments delivered
pursuant to this Agreement, shall survive the Closing and shall remain in full
force and effect, but subject to all limitations and other provisions contained
in this Agreement (including Section 10.06).
SECTION 10.02 Indemnification by the Seller and the Parent. Subject to the
other provisions of this Article X, Seller and the Parent hereby jointly and
severally agree to indemnify and hold the Purchaser and its affiliates,
officers, directors, employees, agents and representatives harmless from and
against any and all claims, damages, liabilities, liens, losses or other
obligations whatsoever, together with costs and expenses, including fees and
disbursements of counsel and expenses of investigation (collectively, "Losses"),
arising out of, based upon or caused by (i) the inaccuracy of any representation
or the breach of any warranty of the Seller or the Parent contained in this
Agreement, (ii) any breach or nonperformance by the Seller or the Parent of any
of its covenants or agreements contained in this Agreement or in any agreement,
certificate or other instrument delivered by the Seller or Parent pursuant to
this Agreement (other than Christopher Edgecomb's covenant under Section 7.05
which shall remain solely his responsibility hereunder), or (iii) any Excluded
Liability; provided, however, that no indemnification shall be made hereunder
unless and until the amount of all claims for all Losses in the aggregate shall
be equal to at least $250,000, in which case the Seller and the Parent shall
indemnify the Purchaser for the full amount of such Losses, including the
initial $250,000 in Losses; provided further that the aggregate amount of all
Losses payable under this Section 10.02 by the Seller and the Parent shall not
exceed the amount of the Purchase Price; and provided further, that no claim may
be made against the Seller or the Parent for indemnification relating to the
financial accounting used by the Company with respect to the two DS-3's on AC-1.
The Purchaser acknowledges and agrees that the foregoing indemnification and the
provisions of Section 10.06 shall be the exclusive remedy of the
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Purchaser and its affiliates, officers, directors, employees, agents and
representatives for any Losses under this Agreement, except in the event of
fraud or willful misconduct.
SECTION 10.03 Indemnification by the Purchaser. Subject to the other
provisions of this Article X, the Purchaser hereby agrees to indemnify and hold
the Seller and the Parent and their respective affiliates, officers, directors,
employees, agents and representatives harmless, from and against any and all
Losses arising out of, based upon or caused by (i) the inaccuracy of any
representation or the breach of any warranty of the Purchaser contained in this
Agreement or in any agreement, certificate or other instrument delivered by the
Purchaser pursuant to this Agreement, (ii) any breach or nonperformance by the
Purchaser of any of its covenants or agreements contained in this Agreement or
in any agreement, certificate or other instrument delivered by the Purchaser
pursuant to this Agreement, (iii) the operation of the Business or the use or
ownership of the Assets after the Closing Date (other than with respect to items
for which the Seller or the Parent are responsible to indemnify the Purchaser),
or (iv) any of the Assumed Liabilities pursuant to Article III; provided,
however, that no indemnification shall be made hereunder unless and until the
amount of all claims for all Losses in the aggregate shall be at least equal to
$250,000, in which case the Purchaser shall indemnify the foregoing Persons for
the full amount of such Losses, including the initial $250,000 in Losses; and
provided further that the aggregate amount of all Losses payable under this
Section 10.03 shall not exceed the amount of the Purchase Price. Each of the
Parent and the Seller acknowledges and agrees that the foregoing indemnification
shall be the exclusive remedy of the Parent and the Seller and their respective
affiliates, officers, directors, employees, agents and representatives for any
Losses under this Agreement, except in the event of fraud or willful misconduct.
SECTION 10.04 Notice; Cooperation; Defense; Etc. The indemnified party
agrees to give the indemnifying party prompt written notice of any action,
claim, demand, discovery of fact, proceeding or suit (collectively, "Claims")
for which such indemnified party intends to assert a right to indemnification
under this Agreement; provided, however, that failure to give such notification
after such notice is required shall not adversely affect the indemnified party's
entitlement to indemnification hereunder except to the extent that the
indemnifying party shall have been actually prejudiced as a result of such
failure. The indemnified party shall take all reasonable or necessary steps to
cooperate in the defense of such Claims, including retaining and providing to
the indemnifying party all documents, records and other information that may be
relevant to such Claims and making employees available to the extent reasonably
requested to fully cooperate in the resolution or defense of such Claims and
provide any additional information (including explanations and interpretations
of any other materials or information provided) that they are able to provide
with respect thereto. The indemnifying party shall have the right to participate
jointly with the indemnified party in the indemnified party's defense,
settlement or other disposition of any Claim at the indemnifying party's expense
and, with respect to any Claim that is not likely to result in the indemnified
party's becoming subject to injunctive or other similar relief, the indemnifying
party shall have the sole right (but not the obligation) to defend, settle or
otherwise dispose of such Claim on such terms as the indemnifying party, in its
sole discretion, shall deem appropriate; provided, however, that in each case
the indemnifying party shall acknowledge in writing its obligation to indemnify
the indemnified party hereunder with respect to such Claim prior to exercising
any right to participate in or control the defense, settlement or disposition of
such Claim hereunder. The indemnifying party shall obtain the written consent of
the indemnified party, which shall not be unreasonably withheld or delayed,
prior to ceasing to defend any Claim if it has theretofore elected to exercise
its sole right to defend, settle or otherwise dispose of such Claim.
SECTION 10.05 Time Limitations; Recoverable Damages. Notwithstanding
anything to the contrary contained herein, the obligation of each of the parties
hereto to indemnify or otherwise hold harmless the other party(ies) or its
(their) affiliates, officers, directors, employees, agents or representatives
(i) for any Losses arising out of, based upon or caused by the inaccuracy of any
representation or the breach of any warranty (except the representations and
warranties set forth in Section 5.15), and shall, except as otherwise provided
in the next sentence, terminate at 11:59 p.m., New York City time, on the second
anniversary of the Closing, and (ii) for any Losses arising out of, based upon
or caused by the inaccuracy of any representation or the breach of any warranty
set forth in Section 5.15, and shall, except as otherwise
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provided in the next sentence terminate on the expiration of the statue of
limitations (and any extensions thereof) applicable to the Company Tax in
respect of which indemnification is being sought without the assertion of a
deficiency in respect thereof by the applicable governmental entity. Claims
(with all relevant and necessary information and particulars to support such
Claims) properly made in accordance with the provisions of this Article X on or
prior to the expiration of the two year time period specified above may continue
to be asserted following such two year period.
SECTION 10.06 Injunctive Relief; Liquidated Damages. Each party
acknowledges and agrees that the other parties would be irreparably damaged in
the event that any of the terms of this Agreement are not performed in
accordance with their specific terms or are otherwise breached. Accordingly,
each party agrees that the indemnified party shall be entitled to an injunction,
specific performance or other equitable relief to prevent breaches of the terms
of this Agreement and to enforce specifically such terms in addition to any
other remedies to which the indemnified party may be entitled, at law or in
equity. Notwithstanding the foregoing, each of the Parent and the Seller hereby
agrees that in the event that the Seller fails or refuses to consummate the
transactions contemplated by this Agreement with the Purchaser for any reason
(other than (i) the failure, after good faith efforts, to obtain necessary
regulatory approval for the transactions contemplated hereby, (ii) the failure,
after good faith efforts by the Board of the Parent, of a majority of the
Parent's shareholders entitled to vote to approve the transactions contemplated
hereby (provided that if within 12 months of such failure to approve the Asset
Sale, the Assets are directly or indirectly sold to a third party other than the
Purchaser, the exclusion contained in this clause (ii) shall not apply), (iii)
the Purchaser's breach of the material terms and conditions of this Agreement,
or (iv) the mutual written consent of the Purchaser, Seller and Parent), the
Seller shall promptly upon demand pay to the Purchaser $5,850,000 in cash as
liquidated damages (the "Liquidated Damages Amount") by wire transfer to a bank
account designated by the Purchaser to the Parent. Each of the Parent and the
Seller hereby acknowledges that the Liquidated Damages Amount is reasonable and
not punitive in nature. The Purchaser acknowledges and agrees that the payment
of the Liquidated Damages Amount shall be the exclusive remedy of the Purchaser
for such failure or refusal by the Seller referred to in this Section 10.05;
provided that the payment of the Liquidated Damages Amount shall not be the
Purchaser's exclusive remedy in respect of the foregoing in the event (i) the
Parent or the Seller willfully breaches the terms of this Agreement or (ii) the
Parent or the Seller fails to pay the Liquidated Damages Amount within 10
Business Days of the Purchaser's demand therefor absent a good faith, reasonable
basis dispute between the parties as to the legitimacy of the Purchaser's
demand.
SECTION 10.07 Escrow Amount. The Purchaser shall be entitled to satisfy
any indemnifiable claims or Liquidated Damages Amount under this Article X out
of the Escrow Amount without limiting any of its other rights or remedies
against the Seller and the Parent hereunder in excess of the Escrow Amount.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01 Expenses. Except as otherwise specifically provided in this
Agreement, each party will pay its own expenses incident to this Agreement and
the transactions contemplated hereby, including legal and accounting fees and
disbursements. Any payments for sales, transfer or other taxes or fees
applicable to the conveyance and transfer to the Purchaser of the Assets arising
as a result of the transactions contemplated by this Agreement shall be borne by
the Purchaser. The provisions of this Section shall survive any termination of
this Agreement.
SECTION 11.02 Financial Records and Product History Files. (a) If at any
time it is necessary that a party be furnished with additional information,
documents or records relating to the Assets or the Business in order properly to
prepare or support any Action (other than an Action in which the parties hereto
are opposed in interest) or its Company Tax returns or other documents or
reports required to be filed with governmental authorities or any securities
exchanges or otherwise for any reasonably legitimate purpose, and such
information, documents or records are in the possession or control of another
party, such
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other party agrees to use all reasonable efforts (at the expense of the
requesting party) to furnish or make available such information, documents or
records (or copies thereof) and personnel; and
(b) Each party to this Agreement hereby agrees that it shall cooperate with
the other by executing and/or filing or causing to be executed and/or filed any
required documents and by making available to the other, without limitation, all
work papers, records and notes of any kind, at all reasonable times, for the
purpose of allowing the appropriate party to complete Tax returns, respond to
audits, obtain refunds, make any determination required under this Agreement,
verify issues and negotiate settlements with Tax authorities or defend or
prosecute Tax claims. In the case of Income Taxes relating to the Business, the
Seller and the Parent shall be exclusively responsible for handling the
compliance and audits for Income Taxes for periods prior to and including the
Closing Date, except to the extent included in the Assumed Liabilities, and the
Purchaser shall be exclusively responsible for handling the compliance and
audits for Income Taxes for periods after the Closing Date and in connection
with the Assumed Liabilities, subject to the cooperation required from the other
party under this Section 11.02.
SECTION 11.03 Amendments and Waivers. The parties hereto may, by written
agreement signed by the parties, modify any of the covenants or agreements or
extend the time for the performance of any of the obligations contained in this
Agreement or in any document delivered pursuant to this Agreement. Any party
hereto may waive, by written instrument signed by such party, any inaccuracies
in the representations and warranties of another party or compliance by another
party with any of its obligations contained in this Agreement or in any document
delivered pursuant to this Agreement. This Agreement may be amended only by
written instrument signed by the parties hereto.
SECTION 11.04 Transferability. The respective rights and obligations of
each party hereto shall not be assignable by either such party without the
written consent of the other party hereto (and any purported assignment without
such written consent shall be void and of no effect); provided, however, that
the Purchaser may assign its rights and obligations to any of its affiliates,
provided, however, that the Purchaser shall remain jointly and severally liable
with such affiliate for all of the Purchaser's obligations under this Agreement.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assignees.
SECTION 11.05 Termination. The Purchaser or the Seller may terminate this
Agreement if the Closing has not occurred by August 31, 2000 (provided that no
party may terminate this Agreement if by such date the only conditions to
Closing remaining to be satisfied pertains to the receipt of the Required
Regulatory Approvals) or if at any time prior to Closing there shall be any law
or regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited; provided, however, that any party that has
failed to perform any covenant hereunder, which failure has resulted in the
failure of a condition in Articles VIII or IX, shall not be entitled to
terminate this Agreement except with the prior written consent of the other
party hereto. In the event of the termination of this Agreement, except as may
otherwise be specifically provided in this Agreement none of the parties shall
have any obligation or liability of any nature whatsoever to the other party
hereto, and all expenses incurred by any party hereto shall be for its own
account; provided, however, that notwithstanding any termination of this
Agreement, no party hereto shall be deemed to have waived any rights it may have
arising from the breach of this Agreement or any provision contained herein by
the other party hereto and such rights shall specifically survive any such
termination of this Agreement.
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SECTION 11.06 Notices. Any notice, request or other document to be given
hereunder to a party hereto shall be effective when received and shall be given
in writing and delivered in person or sent by overnight courier, registered or
certified mail, postage prepaid, or by telecopy (receipt confirmed) as follows:
If to the Purchaser, addressed to it at:
Counsel Communications LLC
280 Park Avenue, 28th Floor - West Building
New York, New York 10017
Tel: (212) 286-5001
Fax: (212) 867-3226
Attention of the President
with a copy to:
Wollmuth Maher & Deutsch LLP
500 Fifth Avenue
New York, New York 10110
Tel: (212) 382-3300
Fax: (212) 382-0050
Attention of David H. Wollmuth and Mason H. Drake
and
If to the Seller or the Parent, addressed to them at:
STAR Telecommunications, Inc.
223 E. De La Guerra Street
Santa Barbara, California 93101
Tel: (805) 963-1619
Fax: (805) 884-1137
Attention of Christopher E. Edgecomb
with a copy to:
Riordan & McKinzie
600 Anton Blvd, 18th Floor
Costa Mesa, California 92626
Tel: (714) 433-2900
Fax: (714) 549-3244
Attention of Elaine R. Levin
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties
hereto.
SECTION 11.07 Governing Law; Choice of Forum. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York
(without regard to conflict of laws doctrines). The parties agree that the
exclusive place of jurisdiction for any action, suit or proceeding relating to
this Agreement shall be in the Federal courts sitting in the Borough of
Manhattan in the City of New York or, if such courts shall not have jurisdiction
over the subject matter thereof, in the courts of the State of New York sitting
therein, and each such party hereby irrevocably and unconditionally agrees to
submit to the jurisdiction of such courts for purposes of any such action, suit
or proceeding. Each party irrevocably waives any objection it may have to the
venue of any action, suit or proceeding brought in such courts or to the
convenience of the forum. Final judgment in any such action, suit or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment, a certified or true copy of which shall be conclusive evidence of the
fact and the amount of any indebtedness or liability of any party therein
described.
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SECTION 11.08 Partial Invalidity. In the event that any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof.
SECTION 11.09 Section Headings. The section headings and table of contents
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 11.10 Disclosure. The information set forth in the Schedules to
this Agreement is qualified in its entirety by reference to the specific
provisions of this Agreement and is not intended to (i) in any way create
Assumed Liabilities or affect the Purchase Price Adjustment provisions of this
Agreement or (ii) constitute, and shall not be construed as constituting,
representations or warranties of the party to which such Schedules relate,
except as and to the extent provided in this Agreement. Inclusion of information
in the Schedules shall not be construed as an admission that such information is
material for purposes of the specific provisions of this Agreement to which such
information relates. Information included in the Schedules that is not required
to be so included under the specific provisions of this Agreement shall be
deemed to be included for information purposes only and information of a similar
nature need not be included elsewhere, at the discretion of the party providing
such information. All information included in the Schedules as exceptions to the
representations and warranties of the Parent and the Seller set forth in this
Agreement shall, unless expressly assumed by the Purchaser hereunder, remain
liabilities and indemnifiable obligations of the Seller and the Parent.
SECTION 11.11 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of which
together shall constitute one and the same instrument.
SECTION 11.12 Entire Agreement. This Agreement, together with the
schedules and exhibits and the agreements, certificates and instruments
delivered pursuant hereto, contain the entire agreement among the parties
hereto, and supersede all prior agreements and undertakings (written and oral)
between the parties hereto, relating to the subject matter hereof.
SECTION 11.13 Publicity. No party shall issue any press release or make
any other public announcement with respect to this Agreement or the transactions
contemplated hereby without obtaining the prior review and approval of the other
parties (which will not be unreasonably withheld or delayed), except as may be
required by law or the regulations of any securities exchange.
SECTION 11.14 Parties in Interest. Nothing in this Agreement, express or
implied, is intended to confer on any person other than the parties and their
respective successors and assigns any rights or remedies under or by virtue of
this Agreement, and no person shall assert any rights as a third party
beneficiary hereunder.
SECTION 11.15 Bulk Transfer Laws. The Purchaser hereby waives compliance
by the Seller with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Assets. Subject to the
requirements of Article III of this Agreement and the Bill of Sale contemplated
thereby, each of the Parent and the Seller agrees to indemnify and hold harmless
the Purchaser against any and all liabilities, including costs and expenses,
that may be asserted by third parties against the Purchaser as a result of any
non-compliance by the Seller with any such bulk transfer law.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
PURCHASER:
COUNSEL COMMUNICATIONS LLC
By: /s/ GARY J. WASSERSON
------------------------------------
Name: Gary J. Wasserson
Title: President and CEO
SELLER:
PT-1 COMMUNICATIONS, INC.
By: /s/ MARY CASEY
------------------------------------
Name: Mary Casey
Title: CEO
PARENT:
STAR TELECOMMUNICATIONS INC.
By: /s/ CHRISTOPHER EDGECOMB
------------------------------------
Name: Christopher Edgecomb
Title: CEO
CHRISTOPHER EDGECOMB,
in his individual capacity
as to Section 7.05 only
By: /s/ CHRISTOPHER EDGECOMB
------------------------------------
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ANNEX G
May 25, 2000
To the Board of Directors of
Star Telecommunications, Inc.
223 E. De La Guerra Street
Santa Barbara, California 93101
Gentlemen:
We understand that Star Telecommunications, Inc. (the "Star") and PT-1
Communications, Inc., a wholly-owned subsidiary of Star ("PT-1"), propose to
enter into a Asset Purchase Agreement (the "Asset Purchase Agreement") with
Counsel Communications LLC ("Counsel"), pursuant to which PT-1 will sell certain
of its assets to Counsel for an aggregate purchase price of $150 million (the
"Transaction"). In addition, Counsel will assume certain of the liabilities of
PT-1. Consummation of the Transaction is subject to, among other things, the
approval of the shareholders of Star. The terms of the Transaction are more
fully described in the Asset Purchase Agreement.
In connection with your review and analysis of the Transaction, you have
requested our opinion, as investment bankers, as to the fairness, from a
financial point of view, of the consideration to be paid by Counsel to Star in
the Transaction (including the assumption of liabilities) to the shareholders of
Star.
Kaufman Bros., L.P., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements of public and private companies
and valuations for corporate and other purposes.
In conducting our analysis and arriving at our opinion as expressed herein,
we have reviewed, among other things, the following:
- a draft of the Asset Purchase Agreement, dated May 23, 2000, by and among
Star, PT-1 and Counsel;
- a draft of the Joint Proxy Statement/Prospectus, dated May , 2000,
relating to the Transaction;
- certain documents and reports filed by Star and Counsel with the
Securities and Exchange Commission;
- certain internal information and documents relating to PT-1 provided to
us by Star's and PT-1's respective managements, including historical
financial information and financial forecasts;
- certain publicly available information concerning certain other companies
engaged in businesses which we believe to be reasonably comparable to
PT-1; and
- information concerning certain other business transactions which we
believe to be reasonably comparable to the Transaction.
We have also discussed with certain officers and employees of Star and PT-1
the business and operations, assets, present condition and future prospects of
PT-1, and performed such analyses as we deemed appropriate.
We visited the PT-1 facility in Flushing, New York, but have not made,
obtained or been provided with any independent evaluation or appraisal of the
properties and facilities or of any of the assets or liabilities of PT-1
(contingent or otherwise). We have assumed and relied upon the accuracy and
completeness of the financial and other information used by us in arriving at
our opinion, and upon the assurances of the managements of Star and PT-1 that
they are not aware of any information that would make the information provided
to us incomplete or misleading, and have not attempted to independently
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verify such information. With respect to financial forecasts, we were advised by
the management of Star, and we assumed without independent investigation, that
they were reasonably prepared and reflected, as of the times they were delivered
to us, the best currently available estimates and judgment as to the expected
future financial performance of PT-1. We have also assumed, with your permission
and without independent investigation, that:
- The Transaction will be consummated in accordance with the terms set
forth in the draft of the Asset Purchase Agreement, dated May 23, 2000,
without any amendment thereto and without any waiver by any of the
parties of any of the conditions to their respective obligations; and
- All regulatory and other approvals and third party consents required for
consummation of the Transaction will be obtained without material cost to
Star or PT-1.
Our opinion is necessarily based upon financial, economic, market and other
conditions as they exist, and the information available to us, as of the date
hereof. We disclaim any undertakings or obligation to advise any person of any
change in any fact or matter affecting this opinion which may come or be brought
to our attention after the date hereof. Although we evaluated the consideration
to be paid by Counsel to PT-1 in the Transaction from a financial point of view,
Kaufman was not asked to and did not recommend the specific consideration
payable in the Transaction, which was determined through negotiations between
Star and Counsel.
In the ordinary course of our business, we may hold and actively trade
securities of Star for our own account and for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
Our opinion does not constitute a recommendation as to any action the Board
of Directors or any shareholder of Star should take in connection with the
Transaction or any aspect thereof and is not a recommendation to any person on
how such person should vote in his or her consideration of the Transaction. Our
opinion relates solely to the fairness, as of the date hereof, from a financial
point of view, of the consideration to be paid by Counsel to PT-1 in the
Transaction to the shareholders of Star. We express no opinion herein as to the
structure, terms or effect of any other aspect of the Transaction, the merits of
the underlying decision of Star or PT-1 to enter into the Transaction or any
other transactions or business strategies discussed by the Boards of Directors
of Star or PT-1 as alternatives to the Transaction. Without limiting the
generality of the foregoing, we express no opinion as to any aspect of the
proposed merger among Star, World Access, Inc. and STI Merger Co.
This opinion has been prepared at the request of, and for the information
of, the Board of Directors of Star solely for its use in evaluating the
fairness, from a financial point of view, of the consideration to be paid by
Counsel to PT-1 in the Transaction to the shareholders of Star. It may not be
used for any other purpose, published, reproduced, summarized, described or
referred to or given to any other person or otherwise made public without our
prior written consent.
Based upon and subject to the foregoing, it is our opinion, as investment
bankers, that, as of the date hereof, the consideration to be paid by Counsel to
PT-1 in the Transaction (including the assumption of liabilities) is fair, from
a financial point of view, to the shareholders of Star.
Very truly yours,
KAUFMAN BROS., L.P.
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ANNEX H
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
sec. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sec.sec. 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated
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therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date
of the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the day
next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
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submitted such stockholder's certificates of stock to the Register in Chancery,
if such is required, may participate fully in all proceedings until it is
finally determined that such stockholder is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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ANNEX I
SECTIONS 1300 THROUGH 1312 OF THE CALIFORNIA GENERAL CORPORATION LAW
Section 1300. Shareholder in short-form merger; Purchase at fair market
value; "Dissenting shares"; "Dissenting shareholder"
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the National Market System of the NASDAQ
Stock Market, and the notice of meeting of shareholders to act upon the
reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares
with respect to which there exists any restriction on transfer imposed by
the corporation or by any law or regulation; and provided, further, that
this provision does not apply to any class of shares described in
subparagraph (A) or (B) if demands for payment are filed with respect to 5
percent or more of the outstanding shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1) (without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
Section 1301. Notice to holder of dissenting shares of reorganization
approval; Demand for purchase of shares; Contents of demand
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the shareholder's
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right under such sections. The statement of price constitutes an offer by the
corporation to purchase at the price stated any dissenting shares as defined in
subdivision (b) of Section 1300, unless they lose their status as dissenting
shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
Section 1302. Stamping or endorsing dissenting shares
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
Section 1303. Dissenting shareholder entitled to agreed price with
interest thereon; When price to be paid
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
Section 1304. Action by dissenters to determine whether shares are
dissenting shares or fair market value of dissenting shares or both; Joinder of
shareholders; Consolidation of actions; Determination of issues; Appointment of
appraisers
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision
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(i) of Section 1110 was mailed to the shareholder, but not thereafter, may file
a complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of
the dissenting shares or both or may intervene in any action pending on such a
complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
Section 1305. Duty and report of appraisers; Court's confirmation of
report; Determination of fair market value by court; Judgment, and payment;
Appeal; Costs of action
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
Section 1306. Prevention of payment to holders of dissenting shares of
fair market
value; Effect
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
Section 1307. Disposition of dividends upon dissenting shares
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
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Section 1308. Rights and privileges of dissenting shares; Withdrawal of
demand for payment
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
Section 1309. When dissenting shares lose their status
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
Section 1310. Suspension of proceedings for compensation or valuation
pending
litigation
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
Section 1311. Shares to which chapter inapplicable
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
Section 1312. Attack on validity of reorganization or short-form merger;
Rights of shareholders; Burden of proof
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such
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shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form merger set aside or rescinded, the
shareholder shall not thereafter have any right to demand payment of cash for
the shareholder's shares pursuant to this chapter. The court in any action
attacking the validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain or
enjoin the consummation of the transaction except upon 10 days' prior notice to
the corporation and upon a determination by the court that clearly no other
remedy will adequately protect the complaining shareholder or the class of
shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of any party so controlled.
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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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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
------- ----------------------
<S> <C> <C>
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 Annex B to World Access' joint
proxy statement/prospectus contained in this Registration
Statement).
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 (incorporated by reference to Annex B to
World Access' joint proxy statement/prospectus contained in
this Registration Statement).
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
Annex A to World Access' joint proxy statement/prospectus
contained in this Registration Statement).
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 -- 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.
4.4** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between World Access, Inc. and Samer
Tawfik.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
4.5** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between World Access, Inc. and Christopher
E. Edgecomb.
4.6** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between World Access, Inc. and Roger B.
Abbott and Rosalind Abbott.
4.7** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between World Access, Inc. and Atocha,
L.P.
4.8** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between World Access, Inc. and Gold &
Appel Transfer S.A.
4.9** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between World Access, Inc. and Edward S.
Soren.
4.10** -- Voting and Stock Transfer Restriction Agreement dated as of
February 11, 2000 between Communication TeleSystems
International d/b/a WorldxChange Communications and WorldCom
Network Services, Inc., The 1818 Fund III, L.P., John D.
Phillips, W. Tod Chmar, Resurgens Partners, LLC and
Armstrong International Telecommunications, Inc.
4.11** -- Form of Escrow Agreement between World Access, Inc., Edward
S. Soren and SunTrust Bank, Atlanta.
4.12 -- Form of Voting and Stock Transfer Restriction Agreement
among Communication TeleSystems International d/b/a
WORLDxCHANGE Communications and Geocapital V, L.P,
Geocapital Advisors, L.P., Geocapital Investors V, L.P.,
Clay C. Long, Gregory A. Somers, Kelli J. Somers, Water J.
Burmeister, Gilbert Global Equity Partners, L.P., Gilbert
Global Equity Partners (Bermuda), L.P., Morgan Stanley & Co.
Incorporated, SSCM, LLC, R2 Investments, Ltd, Erie Indemnity
Company, Erie Insurance Exchange, John P. Imlay, Comm/Net
Holding Liquidating Trust, Michael Billingsley, Teleplus
Telecommunications, Inc., Carl E. Sanders and Zilkha Capital
Partners.
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 in connection with the merger of STAR
Telecommunications, Inc. with and into STI Merger Co., a
wholly-owned subsidiary of World Access.
8.2 -- Opinion of Long Aldridge & Norman LLP regarding certain tax
matters in connection with the merger of Communication
Telesystems International d/b/a WorldxChange Communications
with and into WorldxChange Communications, Inc. f/k/a CTI
Merger Co., a wholly-owned subsidiary of World Access.
8.3 -- Opinion of O'Melveny & Myers LLP regarding certain tax
matters in connection with the merger of Communication
Telesystems International d/b/a WorldxChange Communications
with and into WorldxChange Communications, Inc. f/k/a CTI
Merger Co., a wholly-owned subsidiary of World Access.
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).
</TABLE>
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<PAGE> 444
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
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).
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).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
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 10-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).
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** -- Participation Agreement dated as of February 11, 2000 by and
between Foothill Capital Corporation and World Access, Inc.
10.35** -- Amendment Number One To Participation Agreement dated as of
May 23, 2000 by and between Foothill Capital Corporation and
World Access, Inc.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C> <C>
10.36 -- Executive Management Services Agreement dated as of August
1, 2000 by and between World Access, Inc. and Communication
TeleSystems International d/b/a WorldxChange Communications.
10.37 -- Executive Employment Agreement between World Access, Inc.
and Bryan D. Yokley dated as of June 1, 2000.
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.
23.8 -- Consent of BDO Deutsche Warentreuhand with respect to the
financial statements of TelDaFax AG.
23.9 -- Consent of Deutsche Bank Securities, Inc. with respect to
the financial opinion of Deutsche Bank Securities, Inc.
23.10 -- Consent of Kaufman Bros., L.P. with respect to the financial
opinion of Kaufman Bros., L.P.
23.11 -- Consent of Donaldson, Lufkin & Jenrette Securities
Corporation with respect to the financial opinions 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 proxy for STAR stockholders.
99.3 -- Form of Letter of Transmittal for STAR stockholders.
99.4 -- Form of Letter of Transmittal for WorldxChange shareholders.
</TABLE>
---------------
* To be filed by amendment.
** Previously filed.
(B) Financial Statement Schedules. The financial statement schedules that
are required by Regulation S-X are incorporated herein by reference to our
Annual Report on Form 10-K for the year ended December 31, 1999.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered
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<PAGE> 447
(if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(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 registrant includes in the
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 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> 448
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, State of Georgia, on August 3, 2000.
WORLD ACCESS, INC.
By: /s/ JOHN D. PHILLIPS
------------------------------------
John D. Phillips
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the registration statement has been signed by the following persons in
the capacities indicated as of August 3, 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
* President and Director
---------------------------------------------------
Walter J. Burmeister
* Director
---------------------------------------------------
Kirby J. Campbell
* Director
---------------------------------------------------
Bryan Cipoletti
* Director
---------------------------------------------------
Stephen J. Clearman
* Director
---------------------------------------------------
John P. Imlay, Jr.
* Director
---------------------------------------------------
Massimo Prelz Oltramonti
* Director
---------------------------------------------------
John P. Rigas
* Director
---------------------------------------------------
Carl E. Sanders
</TABLE>
II-8
<PAGE> 449
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
* Director
---------------------------------------------------
Dru A. Sedwick
* Director
---------------------------------------------------
Lawrence C. Tucker
*By: /s/ MARK A. GERGEL
----------------------------------------------
Mark A. Gergel
Attorney-in-fact
</TABLE>
II-9
