<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 24, 2000
REGISTRATION NO. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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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.)
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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)
MARK A. GERGEL
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)
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COPIES OF COMMUNICATIONS TO:
LEONARD A. SILVERSTEIN, ESQ.
LONG ALDRIDGE & NORMAN LLP
5300 ONE PEACHTREE CENTER
303 PEACHTREE STREET
ATLANTA, GEORGIA 30308-3201
(404) 527-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: 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 only 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, please 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, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE FEE
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Common Stock, $0.01 par value(1)............... 22,895,719(1) $6.522(3) $149,325,879.32 $39,422.03
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Common Stock, $0.01 par value(2)............... 29,848,130(2) $5.864(4) $175,029,434.32 $46,207.77
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(1) Based upon the maximum number of shares of common stock, par value $0.01 per
share, of World Access, Inc. that may be issued pursuant to the acquisition
of STAR Telecommunications, Inc.
(2) Based upon the maximum number of shares of common stock, par value $0.01 per
share, of World Access, Inc. that may be issued pursuant to the acquisition
of Communication TeleSystems International d/b/a WORLDxCHANGE
Communications.
(3) Pursuant to Rule 457(f)(1) and Rule 457(c) under the Securities Act of 1933,
as amended (the "Act"), the proposed maximum offering price and registration
fee are based upon the average of the high and low price of the STAR common
stock to be received by World Access in the STAR merger as reported on the
Nasdaq National Market on May 23, 2000.
(4) Pursuant to Rule 457(f)(2) under the Act, the maximum offering price and
registration fee have been calculated based on the book value of the
WORLDxCHANGE common stock to be received by World Access in the WORLDxCHANGE
merger as of May 23, 2000.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
WORLD ACCESS, INC.
945 E. PACES FERRY ROAD, SUITE 2200
ATLANTA, GEORGIA 30326
Dear Stockholder:
You are cordially invited to attend a special meeting in lieu of an annual
meeting of stockholders of World Access, Inc. to be held at our principal
executive offices located at 945 E. Paces Ferry Road, Atlanta, Georgia 30326, on
, 2000 at 11:00 a.m., local time.
At the special meeting, you will be asked to consider and vote upon (i) the
approval and adoption of an Agreement and Plan of Merger, dated as of February
11, 2000, among World Access, STI Merger Co., a Delaware corporation and
wholly-owned subsidiary of World Access, and STAR Telecommunications, Inc., a
Delaware corporation, and the transactions contemplated thereby and (ii) the
approval and 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. f/k/a CTI Merger Co., a Delaware corporation and
wholly-owned subsidiary of World Access, and Communication TeleSystems
International d/b/a WORLDxCHANGE Communications, a California corporation.
You are also being asked to consider and vote upon (i) an amendment to the
World Access amended certificate of incorporation to increase the number of
shares of common stock World Access has the authority to issue from 150,000,000
shares to 290,000,000 shares, (ii) an amendment to the World Access amended
certificate of incorporation to increase the maximum number of authorized
directors from 12 to 15 and eliminate the classification of the World Access
board of directors, (iii) an amendment to the World Access Directors' Warrant
Incentive Plan to increase the number of warrants issuable under the Directors'
Warrant Incentive Plan from 600,000 warrants to 1,200,000 warrants and to modify
the performance criteria of World Access common stock under the plan and (iv)
the election of the nominees for director described in the enclosed joint proxy
statement/prospectus.
Please read carefully the accompanying joint proxy statement/prospectus for
more detailed information concerning the proposals to be considered and voted
upon at the special meeting.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE STAR MERGER AND
THE WORLDXCHANGE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF WORLD ACCESS
AND HAS UNANIMOUSLY APPROVED THE STAR MERGER AGREEMENT, THE WORLDXCHANGE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF WORLD ACCESS VOTE FOR THE APPROVAL AND ADOPTION OF THE
STAR MERGER AGREEMENT, THE WORLDXCHANGE MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY. YOUR BOARD OF DIRECTORS ALSO RECOMMENDS THAT YOU VOTE FOR
THE AMENDMENTS TO OUR AMENDED CERTIFICATE OF INCORPORATION TO INCREASE THE
NUMBER OF SHARES OF COMMON STOCK WE HAVE THE AUTHORITY TO ISSUE, INCREASE THE
MAXIMUM NUMBER OF AUTHORIZED DIRECTORS AND ELIMINATE THE CLASSIFICATION OF OUR
BOARD OF DIRECTORS, FOR THE AMENDMENT TO OUR DIRECTORS' WARRANT INCENTIVE PLAN
TO INCREASE THE NUMBER OF WARRANTS ISSUABLE UNDER THE DIRECTORS' WARRANT
INCENTIVE PLAN FROM 600,000 TO 1,200,000 AND FOR THE NOMINEES FOR DIRECTOR
DESCRIBED IN THE ENCLOSED JOINT PROXY STATEMENT/PROSPECTUS.
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. You may revoke your proxy in the manner described in
the accompanying joint proxy statement/prospectus at any time before it has been
voted at the special meeting. 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. Your prompt cooperation will be greatly appreciated.
We look forward to seeing you on , 2000.
Sincerely,
/s/ John D. Phillips
John D. Phillips
Chairman and Chief Executive Officer
, 2000
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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.:
NOTICE IS HEREBY GIVEN that a special meeting in lieu of an annual meeting
of the stockholders of World Access, Inc., a Delaware corporation, will be held
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:
1. 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,
among World Access, STI Merger Co., a Delaware corporation and wholly-owned
subsidiary of World Access, and STAR Telecommunications, Inc., a Delaware
corporation, and the transactions contemplated thereby. The STAR merger
agreement provides, among other things, for the merger of STAR with and into STI
Merger Co., pursuant to which each outstanding share of STAR common stock will
be converted into the right to receive, at the election of World Access, (i)
0.3905 shares of World Access common stock, subject to adjustment as described
in the enclosed joint proxy statement/prospectus, or (ii) a combination of
shares of World Access common stock and cash.
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.
f/k/a CTI Merger Co., a Delaware corporation and wholly-owned subsidiary of
World Access, and Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, a California corporation, and the transactions contemplated
thereby. The WORLDxCHANGE merger agreement provides, among other things, for the
merger of WORLDxCHANGE with and into WORLDxCHANGE Communications, Inc. f/k/a CTI
Merger Co., pursuant to which each outstanding share of WORLDxCHANGE common
stock (including shares of preferred stock deemed to be automatically converted
into shares of common stock immediately prior to completion of the WORLDxCHANGE
merger) will be converted into the right to receive 0.6583 shares of World
Access common stock.
3. 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.
4. 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 and 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.
5. Proposal 6. 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 Directors' Warrant Incentive Plan from 600,000
warrants to 1,200,000 warrants and to modify the performance criteria of World
Access common stock under the plan.
6. Proposal 7. To elect as directors the nominees named in this joint
proxy statement/prospectus to serve (i) if Proposal 5 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 (ii) if Proposal 5 is not approved, for
a term of three years and until their successors are elected and qualified or
until their earlier resignation or removal.
7. To transact such other business as may properly come before the special
meeting or any adjournments or postponements thereof.
<PAGE> 4
The World Access stockholders are not being asked to consider and vote upon
Proposal 2 regarding the proposed sale by STAR of its wholly-owned subsidiary,
PT-1 Communications, Inc. Only the STAR stockholders will consider and vote upon
Proposal 2.
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, and World Access convertible preferred
stock, Series D, 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 in the manner described in
the accompanying joint proxy statement/prospectus at any time before it has been
voted at the special meeting. If you attend the special meeting in person, you
may vote your shares personally on all matters even if you have previously
returned a proxy card. If you sign, date and mail your proxy card without
indicating how you want to vote, World Access will vote your proxy in favor of
adopting the proposals set forth above. If you do not return your card, except
with respect to the election of the nominees for director, the effect will be a
vote against the proposals. 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]
, 2000
To the Stockholders of STAR Telecommunications, Inc.:
We have entered into a merger agreement with World Access, Inc. The STAR
merger agreement provides for a merger that would result in STAR becoming a
wholly-owned subsidiary of World Access. As a stockholder of STAR, you would
become a stockholder of World Access as a result of the STAR merger. The STAR
merger agreement also provides for the sale to a third party of PT-1
Communications, Inc., our wholly-owned subsidiary. As a result of the STAR
merger, each outstanding share of STAR common stock will be converted into the
right to receive, at the election of World Access, (a) 0.3905 shares of World
Access common stock, subject to adjustment as described in the accompanying
joint proxy statement/prospectus, or (b) a combination of shares of World Access
common stock and cash.
As further described in the joint proxy statement/prospectus, we are also
seeking stockholder approval for the PT-1 sale. We have entered into a letter of
intent with a third party, PT-1 acquiror, for the PT-1 sale and we anticipate
that we will enter into a definitive agreement with PT-1 acquiror. This joint
proxy statement/prospectus describes the PT-1 letter of intent in detail. We are
seeking stockholder approval to proceed with the PT-1 sale to PT-1 acquiror, or
in the event that we do not reach a definitive agreement with PT-1 acquiror, to
such other buyer and on such other terms as our board of directors shall
subsequently approve, subject to the minimum requirements set forth in the joint
proxy statement/prospectus, including our receipt of a sales price of at least
$ , obtaining the opinion of our financial advisor in connection with the
sale and approval by our board of directors of a definitive sale agreement
containing terms that our board of directors determines to be in the best
interests of STAR. Except as requested in the joint proxy statement/prospectus,
we will not solicit any further stockholder vote for the PT-1 sale. Accordingly,
you will not have the opportunity to vote on a definitive PT-1 sale agreement.
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 May
22, 2000 was $11 9/16 per share.
We cannot complete the STAR merger or the PT-1 sale without the approval of
our stockholders. We have scheduled a special meeting on , ,
2000 at , local time, at , to vote on these transactions. A
joint proxy statement/prospectus accompanies this letter and provides detailed
information about the special meeting, the STAR merger and the PT-1 sale. We
urge you to read the joint proxy statement/prospectus document carefully.
Your board of directors recommends that you vote to approve the STAR merger
agreement and the PT-1 sale. Please use this opportunity to take part in the
affairs of STAR by voting on these important matters. Whether or not you plan to
attend the meeting, please complete, sign, date and return the accompanying
proxy in the enclosed envelope. Returning the proxy will not deprive you of your
right to attend the special meeting and vote in person. Your vote is very
important.
Sincerely,
/s/ Mary A. Casey
Mary A. Casey
President and Secretary
<PAGE> 6
[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, subject to your approval, to merge STAR with a subsidiary
of World Access, Inc. We also have agreed with World Access to sell PT-1
Communications, Inc., our wholly-owned subsidiary, to a third party. The PT-1
sale also requires your approval. If the STAR merger agreement is approved by
our stockholders and the STAR merger is completed, each outstanding share of
STAR common stock will be converted into the right to receive, at the election
of World Access, (a) 0.3905 shares of World Access common stock, subject to
adjustment as described in the joint proxy statement/prospectus, or (b) a
combination of shares of World Access common stock and cash. If STAR does not
sell PT-1 prior to the completion of the STAR merger, or if STAR does not
receive net cash proceeds of at least $150.0 million from the PT-1 sale, then
World Access does not have to complete the STAR merger.
We will hold a special meeting of stockholders on , ,
2000 at , local time, at , for the following purposes:
1. Proposal 1. To approve the Agreement and Plan of Merger, dated as
of February 11, 2000, among World Access, STI Merger Co. and STAR, which
will result in STAR becoming a wholly-owned subsidiary of World Access;
2. Proposal 2. To consider a resolution authorizing the PT-1 sale
subject to the minimum requirements set forth in the accompanying joint
proxy statement/prospectus, including STAR's receipt of a sales price of at
least $ , obtaining the opinion of STAR's financial advisor as to the
fairness from a financial point of view of the consideration to be received
in the sale and approval by the STAR board of directors of a definitive
sale agreement containing terms that the STAR board of directors determines
to be in the best interests of STAR; and
3. To transact any other business that is properly brought before the
special meeting, or any adjournment or postponement of the special meeting.
The accompanying joint proxy statement/prospectus describes the STAR merger
agreement, the PT-1 sale and the PT-1 letter of intent pursuant to which STAR
anticipates that it will enter into a definitive agreement in detail. The STAR
merger agreement is attached as Annex A to the joint proxy statement/prospectus.
The PT-1 letter of intent is attached as Annex F to the joint proxy
statement/prospectus.
Only persons who held STAR common stock as of the close of business on
, 2000 are entitled to notice of and to vote at the special meeting. A
list of stockholders eligible to vote at the meeting will be available for
inspection at the meeting and for a period of ten days prior to the meeting
during regular business hours at STAR's corporate headquarters in Santa Barbara,
California.
Holders of STAR common stock may be entitled to appraisal rights under the
Delaware General Corporation Law in connection with the STAR merger. The
attached joint proxy statement/prospectus discusses the possible appraisal
rights of these stockholders. Holders of STAR common stock are not entitled to
appraisal rights in connection with the PT-1 sale.
<PAGE> 7
You are urged to vote upon the matters presented in this 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.
Proxies are revocable at any time prior to the vote, and the execution of your
proxy will not affect your right to 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> 8
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any jurisdiction where
the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED MAY 24, 2000.
JOINT PROXY STATEMENT/PROSPECTUS
WORLD ACCESS, INC.
STAR TELECOMMUNICATIONS, INC.
COMMUNICATION TELESYSTEMS INTERNATIONAL D/B/A WORLDXCHANGE COMMUNICATIONS
The boards of directors of World Access and STAR have approved a merger
agreement pursuant to which STAR will merge with a wholly-owned subsidiary of
World Access. Upon completion of the STAR merger, STAR will become a
wholly-owned subsidiary of World Access. The board of directors of STAR has also
approved the sale of PT-1 to a third party, subject to the minimum requirements
set forth in this joint proxy statement/prospectus.
The boards of directors of World Access and WORLDxCHANGE have approved a
merger agreement pursuant to which WORLDxCHANGE will merge with a wholly-owned
subsidiary of World Access. Upon completion of the WORLDxCHANGE merger,
WORLDxCHANGE will become a wholly-owned subsidiary of World Access.
Both the STAR merger and the WORLDxCHANGE merger 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 and World
Access Series D preferred stock entitled to vote and voting as a single class.
World Access has scheduled a special meeting of the World Access stockholders on
, 2000 to vote on the mergers and the other proposals described in
this joint proxy statement/prospectus. The STAR merger and the PT-1 sale also
require the approval of a majority of the outstanding shares of STAR common
stock. STAR has scheduled a special meeting of the STAR stockholders on
, 2000 to vote on the STAR merger and the PT-1 sale. The WORLDxCHANGE
merger also requires the approval of a majority of the outstanding shares of
WORLDxCHANGE common stock. WORLDxCHANGE IS NOT ASKING THE WORLDxCHANGE
SHAREHOLDERS FOR A PROXY, AND THE WORLDxCHANGE SHAREHOLDERS ARE REQUESTED NOT TO
SEND US A PROXY.
This document provides you with detailed information about the proposed
mergers and the PT-1 sale. This document also provides the World Access
stockholders with information about proposals to:
- approve an amendment to the World Access amended certificate of
incorporation to increase the number of shares of common stock World
Access is authorized to issue from 150,000,000 to 290,000,000;
- approve an amendment to the World Access amended certificate of
incorporation to increase the number of authorized directors from 12
to 15 and to end the division of the directors into three classes;
- approve an amendment to the World Access Directors' Warrant Incentive
Plan to increase the number of warrants issuable under the plan from
600,000 to 1,200,000 and to modify the performance criteria of World
Access common stock under the plan; and
- elect as directors the nominees named in this joint proxy
statement/prospectus.
Please read this entire document carefully. While the STAR merger is
conditioned on the PT-1 sale, neither the STAR merger nor the WORLDxCHANGE
merger is conditioned on the completion of the other 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.
<PAGE> 9
The World Access common stock is traded on the Nasdaq Stock Market under
the symbol "WAXS."
FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH YOU SHOULD CONSIDER IN
EVALUATING THE MERGERS AND THE PT-1 SALE, SEE "RISK FACTORS" BEGINNING ON PAGE
38.
This joint proxy statement/prospectus is also a prospectus of World Access
regarding its common stock to be issued to stockholders of STAR and shareholders
of WORLDxCHANGE in connection with the mergers.
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.
This joint proxy statement/prospectus is dated , 2000 and is
first being mailed to stockholders on or about , 2000.
<PAGE> 10
TABLE OF CONTENTS
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS............. 1
RISK FACTORS................................................ 38
Risk factors concerning the mergers....................... 38
Risk factors concerning World Access, STAR and
WORLDxCHANGE........................................... 41
Risk factors concerning World Access common stock......... 51
Forward-looking statements................................ 52
THE WORLD ACCESS SPECIAL MEETING............................ 53
THE STAR SPECIAL MEETING.................................... 57
PROPOSAL 1 -- THE MERGER BETWEEN WORLD ACCESS AND STAR...... 59
Background of the STAR merger............................. 59
World Access' reasons for the STAR merger................. 60
Recommendation of the World Access board of directors..... 61
STAR's reasons for the STAR merger........................ 61
Recommendation of the STAR board of directors............. 62
Opinion of World Access' financial advisor regarding the
STAR merger............................................ 62
Opinion of STAR's financial advisor regarding the STAR
merger................................................. 68
Consideration to be received in the STAR merger........... 75
Closing; effective time of the STAR merger................ 76
Certain material federal income tax consequences of the
STAR merger............................................ 76
Exchange of STAR stock certificates for World Access stock
certificates........................................... 81
Restrictions on sales of shares by affiliates of World
Access and STAR........................................ 81
Accounting treatment of the STAR merger................... 82
Regulatory filings and approvals required to complete the
STAR merger............................................ 82
Rights of dissenting STAR stockholders.................... 83
Interests of certain persons in the STAR merger........... 85
THE STAR MERGER AGREEMENT................................... 86
The STAR merger/effective time............................ 86
The STAR merger consideration............................. 87
Representations and warranties............................ 87
STAR's conduct of business before completion of the STAR
merger................................................. 88
No other negotiations involving STAR...................... 88
Treatment of STAR stock options and warrants.............. 90
Management services....................................... 90
Board of directors of World Access........................ 90
Interim financing of STAR................................. 90
Conditions to completion of the STAR merger............... 90
Termination of the STAR merger agreement.................. 92
Payment of termination fee................................ 94
Extension, waiver and amendment of the STAR merger
agreement.............................................. 94
RELATED TRANSACTION AGREEMENTS.............................. 95
Edgecomb voting agreement................................. 95
Tawfik voting agreement................................... 95
STAR credit agreements.................................... 96
PROPOSAL 2 -- THE PT-1 SALE................................. 97
Approval of the PT-1 sale................................. 97
Background of the PT-1 sale............................... 98
STAR's reasons for the PT-1 sale.......................... 99
Recommendation of the STAR board of directors............. 100
Consideration to be received in the PT-1 sale............. 101
Certain material federal income tax consequences of the
PT-1 sale.............................................. 101
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i
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Accounting treatment of the PT-1 sale..................... 101
Regulatory filings and approvals required to complete the
PT-1 sale.............................................. 101
Rights of dissenting STAR stockholders.................... 102
Interests of certain persons in the PT-1 sale............. 102
THE PT-1 LETTER OF INTENT................................... 102
Negotiation of definitive agreement with PT-1 acquiror.... 102
The PT-1 sale closing date................................ 102
Purchase price............................................ 102
Terms of the definitive agreement with PT-1 acquiror...... 103
Description of the PT-1 assets............................ 103
Assumption of liabilities................................. 103
Conduct of business before completion of the PT-1 sale.... 103
No other negotiations involving the PT-1 sale............. 103
Payment of termination fee................................ 104
Edgecomb voting agreement................................. 104
PROPOSAL 3 -- THE MERGER BETWEEN WORLD ACCESS AND
WORLDXCHANGE.............................................. 104
Background of the WORLDxCHANGE merger..................... 104
World Access' reasons for the WORLDxCHANGE merger......... 105
Recommendation of the World Access board of directors..... 106
WORLDxCHANGE's reasons for the WORLDxCHANGE merger........ 106
Opinion of World Access' financial advisor regarding the
WORLDxCHANGE merger.................................... 107
Consideration to be received in the WORLDxCHANGE merger... 114
Closing; effective time of the WORLDxCHANGE merger........ 115
Certain material federal income tax consequences of the
WORLDxCHANGE merger.................................... 115
Exchange of WORLDxCHANGE stock certificates for World
Access stock certificates.............................. 120
Restrictions on sales of shares by affiliates of World
Access and WORLDxCHANGE................................ 120
Accounting treatment of the WORLDxCHANGE merger........... 120
Regulatory filings and approvals required to complete the
WORLDxCHANGE merger.................................... 120
Rights of dissenting WORLDxCHANGE shareholders............ 121
Interests of certain persons in the WORLDxCHANGE merger... 124
PRINCIPAL SHAREHOLDERS OF WORLDxCHANGE...................... 128
THE WORLDxCHANGE MERGER AGREEMENT........................... 129
The WORLDxCHANGE merger/effective time.................... 129
The WORLDxCHANGE merger consideration..................... 129
Escrow of shares.......................................... 130
Representations and warranties............................ 130
WORLDxCHANGE's conduct of business before completion of
the WORLDxCHANGE merger................................ 131
No other negotiations involving WORLDxCHANGE.............. 131
Treatment of WORLDxCHANGE stock options and warrants...... 131
Board of directors and officers of World Access........... 132
Conditions to completion of the WORLDxCHANGE merger....... 132
Termination of the WORLDxCHANGE merger agreement.......... 134
Extension, waiver and amendment of the WORLDxCHANGE merger
agreement.............................................. 134
Post-closing indemnification.............................. 135
RELATED TRANSACTION AGREEMENTS.............................. 135
World Access voting agreement............................. 136
WORLDxCHANGE voting agreements............................ 136
Escrow agreement.......................................... 137
World Access -- WORLDxCHANGE services agreement........... 138
Foothill Capital Corporation participation agreement...... 138
COMPARATIVE PER SHARE MARKET PRICE DATA..................... 139
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS................................................ 140
</TABLE>
ii
<PAGE> 12
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPARISON OF RIGHTS OF HOLDERS OF WORLD ACCESS COMMON STOCK
AND STAR COMMON STOCK..................................... 164
Comparison of authorized and outstanding capital stock.... 164
Classes of common stock................................... 164
Special meeting of stockholders........................... 164
Action by written consent in lieu of a stockholders'
meeting................................................ 164
Voting by written ballot.................................. 165
Record date for determining stockholders.................. 165
Nomination of directors................................... 165
Number of directors....................................... 165
Classified board of directors............................. 166
Removal of directors...................................... 166
Board of directors vacancies.............................. 166
Notice of special meeting of the board of directors....... 166
Amendment of certificate of incorporation and bylaws...... 166
Preferred stock........................................... 167
CERTAIN INFORMATION REGARDING STAR.......................... 170
STAR SELECTED CONSOLIDATED FINANCIAL DATA................... 171
CERTAIN INFORMATION REGARDING WORLDxCHANGE.................. 173
Services.................................................. 173
The WORLDxCHANGE network.................................. 174
Termination arrangements.................................. 178
Sales and marketing....................................... 178
Worldwide operations...................................... 180
Employees................................................. 181
Properties................................................ 181
Legal proceedings......................................... 181
WORLDxCHANGE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS............. 183
Overview.................................................. 183
Results of operations..................................... 187
Liquidity and capital resources........................... 190
Market risk............................................... 193
Foreign currency exposure................................. 193
Euro conversion........................................... 194
Seasonality............................................... 194
Recent accounting pronouncements.......................... 194
WORLDxCHANGE SELECTED CONSOLIDATED FINANCIAL DATA........... 196
COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF WORLDxCHANGE AND
STOCKHOLDERS OF WORLD ACCESS.............................. 198
Comparison of authorized and outstanding capital stock.... 198
Comparison of rights of common stock...................... 198
Comparison of shareholder rights under Delaware and
California law......................................... 199
Preferred stock........................................... 206
MANAGEMENT OF THE COMBINED COMPANIES........................ 210
Executive officers........................................ 210
Board of directors........................................ 210
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....... 210
</TABLE>
iii
<PAGE> 13
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROPOSAL 5 -- AMENDMENT OF THE WORLD ACCESS AMENDED
CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED DIRECTORS FROM 12 TO 15 AND 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........... 211
PROPOSAL 6 -- 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 AND TO CHANGE THE PERFORMANCE CRITERIA UNDER THE
PLAN...................................................... 213
PRINCIPAL STOCKHOLDERS OF WORLD ACCESS...................... 215
PROPOSAL 7 -- ELECTION OF WORLD ACCESS DIRECTORS............ 218
Information regarding nominees and directors.............. 219
Meetings and committees of the World Access board......... 221
Director compensation..................................... 221
EXECUTIVE OFFICERS OF WORLD ACCESS.......................... 223
Information regarding executive officers.................. 223
Executive compensation.................................... 223
Executive employment agreements........................... 225
Compensation committee report............................. 228
Compensation committee interlocks and insider
participation in compensation decisions................ 229
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... 230
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 231
EXPERTS..................................................... 231
WORLD ACCESS STOCKHOLDER PROPOSALS.......................... 232
STAR STOCKHOLDER PROPOSALS.................................. 233
OTHER MATTERS THAT MAY COME BEFORE THE WORLD ACCESS SPECIAL
MEETING................................................... 233
OTHER MATTERS THAT MAY COME BEFORE THE STAR SPECIAL
MEETING................................................... 233
LEGAL MATTERS............................................... 233
WHERE YOU CAN FIND MORE INFORMATION......................... 233
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 234
ANNUAL REPORTS TO STOCKHOLDERS.............................. 234
</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 Letter of Intent
ANNEX G Delaware General Corporation Law Section 262
ANNEX H California General Corporation Law Sections 1300 through
1312
</TABLE>
iv
<PAGE> 14
SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus pertains to the merger of STI Merger
Co., a wholly-owned subsidiary of World Access, and STAR Telecommunications,
Inc., the merger of 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, as well as the sale by STAR of
its wholly-owned subsidiary, PT-1 Communications, Inc., and is being sent to the
stockholders of World Access, STAR and WORLDxCHANGE. The joint proxy
statement/prospectus also pertains to two proposals regarding amendments to the
World Access Amended Certificate of Incorporation, a proposal regarding an
amendment to the World Access Directors' Warrant Incentive Plan and the election
of the nominees named herein as World Access directors, that only the World
Access stockholders will consider and vote upon. World Access is soliciting
proxies for its special meeting in lieu of an annual meeting and is asking its
stockholders to consider and vote upon all of the proposals described in this
joint proxy statement/prospectus, other than the PT-1 sale. STAR is soliciting
proxies for its special meeting and is asking its stockholders to consider and
vote upon the proposed merger between World Access and STAR and the sale by STAR
of PT-1 described in this joint proxy statement/prospectus. WORLDxCHANGE is not
soliciting proxies or consents from its shareholders. Rather, World Access is
providing this joint proxy statement/prospectus to the WORLDxCHANGE shareholders
in connection with the issuance of World Access common stock to such
shareholders in the proposed merger between World Access and WORLDxCHANGE.
Throughout this joint proxy statement/prospectus, "we" and "us" mean World
Access and its subsidiaries after giving effect to the STAR merger and the
WORLDxCHANGE merger.
QUESTIONS AND ANSWERS
FOR WORLD ACCESS AND STAR STOCKHOLDERS
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.
After the STAR merger, assuming completion of the proposed combination of
World Access with WORLDxCHANGE, which is discussed further below, and
assuming that World Access elects to use its stock as the sole
consideration in the STAR merger to the extent possible, the stockholders
of World Access will own approximately 63.0%, the former stockholders of
STAR will own approximately 17.0%, and the former shareholders of
WORLDxCHANGE will own approximately 20.0% in voting power of the combined
companies. If the STAR merger is completed but the WORLDxCHANGE merger is
not completed, the former stockholders of STAR will own approximately 22.0%
of the combined companies.
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. 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, 0.3905 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. The exact exchange ratio
is determined by solving for "X" in the following equation:
X = 7.81 + Z
------------
20
"Z" equals the net cash proceeds in excess of $150.0 million received by
STAR at the time of the completion of the sale of PT-1, divided by
62,856,702 (the number of issued and outstanding shares
1
<PAGE> 15
of STAR common stock, plus the number of shares underlying outstanding STAR
stock options and warrants as of February 11, 2000).
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-day period ending at the close of
trading on the date of the completion of the STAR merger.
EXAMPLE: Assume that (i) you, a STAR stockholder, own 100 shares of STAR
common stock, (ii) prior to the completion of the STAR merger, STAR sells
PT-1 for net cash proceeds of $200.0 million, and (iii) the average closing
sale price of World Access common stock over a ten-day period ending at the
close of trading on the date of the completion of the STAR merger is
$25.00. In this case, the exchange ratio would be increased to 0.4305
((7.81 + 0.8)/20). Therefore, you would be entitled to receive 43 shares of
World Access common stock (100 x 0.4305) and a check for $1.25.
Instead of only issuing shares of World Access common stock to the STAR
stockholders in the STAR merger, World Access may issue, for each share of
STAR common stock, a number of shares of World Access common stock equal to
60% of the exchange ratio and an amount in cash equal to 40% of the sum of
$7.81 plus "Z." As is the case with the first form of consideration, 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-day period ending at the close of trading on
the date of the completion of the STAR merger.
EXAMPLE: Using the same assumptions described above and further assuming
that World Access elects to issue shares of World Access common stock and
cash upon completion of the STAR merger, you would be entitled to receive
25 shares of World Access common stock (0.2583 x 100) and a check for
$365.15. This check would represent cash in lieu of fractional shares (0.83
x $25) and the cash portion of the merger consideration ((40% of 7.81 +
0.8) x 100).
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 does not receive net cash proceeds of at least $150.0 million from
the PT-1 sale, then World Access does not have to complete the STAR merger.
STAR has entered into a letter of intent with PT-1 acquiror for the PT-1
sale and STAR anticipates that it will enter into a definitive agreement
with PT-1 acquiror. In the event that STAR does not reach a definitive
agreement with PT-1 acquiror, STAR will sell PT-1 to such other buyer and
on such other terms as the STAR board of directors shall subsequently
approve, subject to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at least
$ , obtaining the opinion of STAR's financial advisor in connection
with the sale and approval by the STAR board of directors of a definitive
sale agreement containing terms that the STAR board of directors determines
to be in the best interests of STAR.
Q: WHAT HAPPENS IF THE STAR STOCKHOLDERS APPROVE THE PT-1 SALE FOR A SALES
PRICE OF AT LEAST $ ?
A: If the STAR stockholders approve the PT-1 sale for a sales price of at
least $ , the minimum requirements set forth in this joint proxy
statement/prospectus have been met and negotiations have been successfully
completed with PT-1 acquiror, STAR will sell PT-1 to PT-1 acquiror. In the
event that STAR is unable to negotiate a definitive agreement with PT-1
acquiror, STAR will attempt to sell PT-1 for a sales price of at least
$ to such other buyer and on such other terms as the STAR board of
directors shall subsequently approve. The consummation of any PT-1 sale
would be subject to STAR's receipt of a sales price of at least
$ , obtaining the opinion of STAR's financial advisor in
connection with the sale and approval by the STAR board of directors of a
2
<PAGE> 16
definitive sale agreement containing terms that the STAR board of directors
determines to be in the best interests of STAR. Except as requested in the
accompanying joint proxy statement/prospectus, STAR will not solicit any
further stockholder vote for the PT-1 sale. Accordingly, STAR stockholders
will not have the opportunity to vote on a definitive PT-1 sale agreement.
Q: WHAT IS THE WORLDXCHANGE MERGER?
A: World Access has also agreed to a merger between another of its
wholly-owned subsidiaries and WORLDxCHANGE. The WORLDxCHANGE merger is
described in this joint proxy statement/ prospectus. 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.
You should be aware that if the WORLDxCHANGE merger is completed, the
business and operations of WORLDxCHANGE will be vested in WORLDxCHANGE
Communications, Inc., which will be a wholly-owned subsidiary of World
Access, and WORLDxCHANGE shareholders will become stockholders of World
Access.
This joint proxy statement/prospectus is also being sent to shareholders of
WORLDxCHANGE. 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: DOES THE BOARD OF DIRECTORS OF WORLD ACCESS RECOMMEND VOTING IN FAVOR OF
THE STAR MERGER?
A: Yes. After careful consideration, World Access' board of directors
recommends that its stockholders vote in favor of the STAR merger agreement
and the issuance of shares of World Access common stock to the stockholders
of STAR in the merger.
Q: DOES THE BOARD OF DIRECTORS OF STAR RECOMMEND VOTING IN FAVOR OF THE STAR
MERGER AND THE PT-1 SALE?
A: Yes. After careful consideration, STAR's board of directors recommends that
its stockholders vote in favor of the STAR merger agreement, the proposed
STAR merger and the proposed PT-1 sale to PT-1 acquiror or such other
buyer, subject to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at least
$ , obtaining the opinion of STAR's financial advisor as to the
fairness from a financial point of view of the consideration to be received
in the sale and approval by the STAR board of directors of a definitive
sale agreement containing terms that the STAR board of directors determines
to be in the best interests of STAR.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE STAR
MERGER AND THE PT-1 SALE?
A: Yes. In evaluating the STAR merger and the PT-1 sale, you should carefully
consider the factors discussed in the section entitled "Risk Factors" on
page 38.
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 may 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 to be voted on at the
meeting with regard to which you are entitled to vote.
3
<PAGE> 17
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 voting
agreements described herein may not revoke the proxies given by them 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 voting or conversion agreements described
herein may not revoke the proxies given by them 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 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 sale, as quickly as possible. World
Access and STAR hope to complete the STAR merger, and STAR hopes to
complete the PT-1 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
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 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) pursuant to the terms of 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 stock. In order to preserve this right,
you must follow the procedures discussed on page 83 of this joint proxy
statement/prospectus. STAR stockholders are not entitled to appraisal
rights in connection with the PT-1 sale. If you are a World Access
stockholder, you are not entitled to appraisal rights under Delaware law.
4
<PAGE> 18
Q: WHERE CAN I FIND OUT MORE INFORMATION ABOUT WORLD ACCESS AND STAR?
A: You may obtain additional information about World Access and STAR from
documents filed with the Securities and Exchange Commission at the SEC's
website (http://www.sec.gov). Additionally, you may read and copy this
information at the following SEC offices:
- Judiciary Plaza,
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
- New York Regional Office
Seven World Trade Center
Suite 1300
New York, New York 10048
- Chicago Regional Office
Northwest Atrium Center
Suite 1400
Chicago, Illinois 60661
QUESTIONS AND ANSWERS
FOR WORLD ACCESS AND WORLDXCHANGE STOCKHOLDERS
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, assuming completion of the proposed
combination of World Access with STAR, which is discussed above, the
stockholders of World Access will own approximately 63.0%, the former
shareholders of WORLDxCHANGE will own approximately 20.0%, and the former
stockholders of STAR will own approximately 17.0% in voting power of the
combined companies. If the WORLDxCHANGE merger is completed but the STAR
merger is not completed, the former shareholders of WORLDxCHANGE will own
approximately 24.0% in voting power of the combined companies.
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.
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 10-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.
EXAMPLE: If you, a WORLDxCHANGE shareholder, own 100 shares of
WORLDxCHANGE common stock, then after the completion of the WORLDxCHANGE
merger you will receive 65 shares of World Access common stock (100 x
0.6583) and a check for $20.75 (0.83 x $25.00).
5
<PAGE> 19
World Access' stock price has been volatile, and economic and market
circumstances are subject to change. As an example, the following table
sets forth the high and low closing sale prices per share of World Access
common stock on the Nasdaq National Market during the indicated months.
<TABLE>
<CAPTION>
CLOSING SALE
PRICES
PER SHARE OF
WORLD ACCESS
COMMON
STOCK
-------------
MONTH HIGH LOW
- ----- ----- ----
<S> <C> <C>
May 2000 (through May 22, 2000)............................. $17 $11 9/16
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
July 1999................................................... $15 15/16 $13 5/8
</TABLE>
Q: WHAT ARE THE STAR MERGER AND THE PT-1 SALE?
A: This joint proxy statement/prospectus contains information regarding an
additional merger, the STAR merger, and the sale by STAR 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 sale, and
the completion of the STAR merger or the PT-1 sale does not depend on the
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. DOES THE BOARD OF DIRECTORS OF WORLD ACCESS RECOMMEND VOTING IN FAVOR OF
THE WORLDXCHANGE MERGER?
A: Yes. After careful consideration, World Access' board of directors
recommends that its stockholders vote in favor of the approval and adoption
of the WORLDxCHANGE merger agreement and the transactions contemplated
thereby.
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.
6
<PAGE> 20
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 121 of this joint proxy
statement/prospectus. If you are a World Access stockholder, you are not
entitled to appraisal rights under Delaware law.
Q: WHERE CAN I FIND OUT MORE INFORMATION ABOUT WORLD ACCESS?
You may obtain additional information about World Access from documents
filed with the Securities and Exchange Commission at the SEC's website
(http://www.sec.gov). Additionally, you may read and copy this information
at the following SEC offices:
- Judiciary Plaza,
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
- New York Regional Office
Seven World Trade Center
Suite 1300
New York, New York 10048
- Chicago Regional Office
Northwest Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
7
<PAGE> 21
THE COMPANIES
World Access, Inc.
945 E. Paces Ferry Road
Suite 2200
Atlanta, Georgia 30326
(404) 231-2025
www.waxs.com World Access is focused on being a leading
provider of bundled voice, data and
Internet services to key regions of the
world. It competitively provides end-to-end
communications services through its
redundant digital network, which is capable
of supporting voice and data services,
including frame relay, Internet Protocol,
asynchronous transfer mode and multimedia
applications. Located strategically
throughout the United States and 13
European countries, the World Access
network backbone consists of gateway and
tandem switches, linked by an extensive
fiber network encompassing tens of millions
of circuit miles.
STAR Telecommunications, Inc.
223 East De La Guerra Street
Santa Barbara, California 93101
(805) 899-1962
www.startel.com STAR provides global telecommunications
services to consumers, long distance
carriers, multinational corporations and
Internet service providers worldwide. STAR
provides international and national long
distance services, international private
line, prepaid calling cards, dial-around
services and international toll free
services.
WORLDxCHANGE Communications
9999 Willow Creek Road
San Diego, California 92131
(858) 530-8116
www.worldxchange.com WORLDxCHANGE is a global telecommunications
company that specializes in providing high-
quality, low-cost services to customers in
the United States, Australia, 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.
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SUMMARY OF THE STAR MERGER
THE STAR MERGER
In the STAR merger, STAR will merge with and into a wholly-owned subsidiary
of World Access and, as a result, STAR will become a wholly-owned subsidiary of
World Access.
The STAR merger agreement is attached to this joint proxy
statement/prospectus as Annex A. World Access and STAR encourage you to read the
STAR merger agreement carefully. The STAR merger agreement is more fully
described on page 86.
World Access and STAR believe the STAR merger will permit us to realize
several benefits, including:
- potential cost savings and synergies from financial and operating
efficiencies and other synergies that would potentially result from
integrating the systems and operations of both companies;
- creation of a diversified geographic and product market position for the
combined companies which could potentially become a leading provider of
global telecommunications services with a state-of-the-art pan-European
network;
- 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.
There are potential risks to the STAR merger, including:
- profitability may not be achieved, and World Access and STAR will incur
significant merger-related expenses;
- increased cash flow may be necessary to fund capital expenditures and
meet our obligations on outstanding indebtedness;
- market share may decrease, and we may face pricing pressures if we 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 our
services and products.
The potential benefits to the STAR merger may not be achieved.
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 either World Access
or STAR is obligated to complete the STAR merger include the following, subject
to exceptions and qualifications:
- the STAR merger agreement and the STAR merger must be approved by the
requisite vote of the stockholders of World Access and STAR; and
- the registration statement with respect to the shares of World Access
common stock to be issued in the STAR merger must be declared effective
by the Securities and Exchange Commission.
The conditions that must be satisfied or waived before World Access is
obligated to complete the STAR merger include the following, subject to
exceptions and qualifications:
- holders of fewer than 1% of the shares of STAR common stock shall have
exercised dissenters' rights of appraisal under Delaware law;
- the representations and warranties of STAR must be true and correct;
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- STAR must comply with its agreements in the STAR merger agreement;
- all consents and approvals required of STAR to complete the STAR merger
must be obtained;
- no material adverse effect may occur with respect to STAR;
- World Access must receive from STAR's legal counsel a legal opinion
reasonably satisfactory to World Access;
- no laws may be adopted and no injunctions or orders may be in effect that
prevent the STAR merger or which would otherwise have a material adverse
effect on World Access;
- STAR must complete the sale of PT-1 for net cash proceeds of at least
$150.0 million pursuant to an agreement reasonably satisfactory to World
Access; and
- STAR must provide evidence satisfactory to World Access that all
obligations of STAR relating to the China-U.S. Cable Network were fully
satisfied by the reclamation of STAR's capacity in the network and that
STAR has no further obligations or liabilities with respect to the
network.
The conditions that must be satisfied or waived before STAR is obligated to
complete the STAR merger include the following, subject to exceptions and
qualifications:
- the representations and warranties of World Access must be true and
correct;
- World Access must comply with its agreements in the STAR merger
agreement;
- all consents and approvals required of World Access to complete the STAR
merger must be obtained;
- no material adverse effect may occur with respect to World Access;
- STAR must receive from World Access' legal counsel a legal opinion
reasonably satisfactory to STAR;
- no laws may be adopted and no injunctions or orders may be in effect that
prevent the STAR merger or which would otherwise have a material adverse
effect on World Access; and
- World Access must have made its required deposit of cash and stock
certificates with the exchange agent pursuant to the STAR merger
agreement.
If either World Access or STAR waives any conditions, World Access and STAR
will each consider the facts and circumstances at that time and make a
determination as to whether a resolicitation of proxies from stockholders is
appropriate.
The completion of the STAR merger is not conditioned upon the completion of
the WORLDxCHANGE 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 and Series D 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 on an as-converted to common stock basis. 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 are entitled to cast one vote per share owned as of
[ ], 2000, the STAR record date.
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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.
STAR stockholders holding [ %] of the outstanding common stock of STAR
as of the STAR record date have agreed to vote in favor of the STAR merger.
Directors and officers of STAR collectively beneficially owned approximately
[ %] of the outstanding common stock of STAR as of the STAR 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, subject to
exceptions and qualifications, include:
- by mutual written consent of World Access and STAR;
- by World Access or STAR, in the event of an uncured breach by the other
party of any of its covenants or agreements in the STAR merger agreement;
- by World Access or STAR, in the event of an uncured breach by the other
party of any of its representations or warranties in the STAR merger
agreement;
- by World Access or STAR, if the STAR merger is not completed on or before
September 30, 2000;
- by World Access or STAR if a final, nonappealable court order prohibiting
the STAR merger is issued or if a court fails to issue a court order
which is necessary to complete the STAR merger, and the failure to issue
the order is final and nonappealable;
- by World Access or STAR, if the stockholders of World Access or STAR fail
to adopt the STAR merger agreement by the requisite vote at meetings duly
called;
- by World Access, if the STAR board of directors (i) withdraws or modifies
its recommendation that the STAR stockholders approve and adopt the STAR
merger agreement and the STAR merger or (ii) approves or recommends an
alternative proposal which the STAR board of directors concludes would
result in a more favorable transaction, from a financial point of view,
to the STAR stockholders than the STAR merger;
- by STAR, at any time prior to the STAR stockholders' vote upon three
business days' prior notice to World Access, if the STAR board of
directors determines that an alternative proposal to acquire a majority
of the stock or assets of STAR or in which the continuing STAR directors
would not constitute a majority of the directors of the surviving entity
would result in a more favorable transaction, from a financial point of
view, to the STAR stockholders than the STAR merger;
- by World Access, if either STAR or any of its material subsidiaries is
the subject of (i) a voluntary or involuntary bankruptcy proceeding, (ii)
the appointment of a liquidator, receiver or similar official or (iii)
liquidation proceedings or the winding up of affairs; or
- by World Access if there is an event of default under an anticipated
credit agreement between World Access and STAR.
TERMINATION FEE
If the STAR merger agreement is terminated for certain reasons, STAR will
be required to 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 terminated by STAR because the STAR board
of directors determines that an alternative proposal to acquire a
majority of the stock or assets of STAR or in which the continuing STAR
directors would not constitute a majority of the directors of the
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surviving entity would result in a more favorable transaction, from a
financial point of view, to the STAR stockholders than the STAR merger;
- if the STAR merger agreement is terminated by World Access because the
STAR board of directors fails to recommend that the STAR stockholders
approve the STAR merger or qualifies its recommendation in a manner
adverse to World Access;
- if the STAR merger agreement is terminated by World Access because the
STAR board of directors approves or recommends an alternative proposal
which the board of directors concludes would result in a more favorable
transaction, from a financial point of view, to the STAR stockholders
than the STAR merger; or
- if the STAR merger agreement is terminated by World Access or STAR
because the stockholders of STAR have not adopted the STAR merger
agreement by the requisite vote, and STAR, within one year following the
termination, enters into a definitive agreement with respect to a
business combination of the type described in the STAR merger agreement.
NO OTHER NEGOTIATIONS INVOLVING STAR
STAR agreed that until completion of the STAR merger or unless World Access
consents in writing, STAR will not directly or indirectly take any of the
following actions:
- solicit, initiate, encourage or knowingly facilitate any inquiries
regarding the acquisition of, or the making of a proposal to acquire, a
material portion of the assets or stock of STAR or involving a business
combination with STAR;
- participate in any discussions or negotiations regarding a proposal to
acquire a material portion of the assets or stock of STAR or involving a
business combination with STAR;
- disclose any confidential information with respect to a proposal to
acquire a material portion of the assets or stock of STAR or involving a
business combination with STAR; or
- knowingly facilitate any effort or attempt to make, implement or accept a
proposal to acquire a material portion of the assets or stock of STAR or
involving a business combination with STAR.
Notwithstanding the restrictions above, STAR may, in response to an
unsolicited, bona fide written proposal to acquire a material portion of the
assets or stock of STAR or for a business combination with STAR, (i) recommend
approval by its stockholders of such proposal or withdraw, modify or qualify in
a manner adverse to World Access its recommendation that the STAR stockholders
approve the STAR merger or (ii) furnish information and engage in discussions
regarding such proposal, provided that:
- the STAR special meeting has not occurred;
- with respect to recommending approval of such a proposal or changing the
recommendation to the STAR stockholders regarding the approval of the
STAR merger, the STAR board of directors concludes that such a proposal
involving the acquisition of a majority of the assets or stock of STAR or
in which the continuing STAR directors would not constitute a majority of
the directors of the surviving entity would result in a more favorable
transaction, from a financial point of view, to the STAR stockholders
than the STAR merger and terminates the STAR merger agreement and pays
the $14.0 million termination fee described above;
- with respect to furnishing information or engaging in discussions
regarding a proposal to acquire a majority of the assets or stock of STAR
or in which the continuing STAR directors would not constitute a majority
of the directors of the surviving entity, the STAR board of directors
concludes that such proposal could reasonably be expected to result in a
more favorable transaction, from a financial point of view, to the STAR
stockholders than the STAR merger;
- prior to providing information to the third party making a proposal to
acquire a material portion of the assets or stock of STAR or for a
business combination with STAR, STAR enters into a
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confidentiality agreement with such third party having terms at least as
stringent as those contained in the confidentiality agreement between
World Access and STAR; and
- prior to providing information or entering into discussions with a third
party, STAR notifies World Access of the third party inquiries, proposals
or offers, including the identity of the third party and the material
terms of the inquiries, proposals or offers.
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.
STAR VOTING AGREEMENTS
STAR stockholders Christopher E. Edgecomb and Samer Tawfik entered into
voting and stock transfer restriction agreements with World Access. The
agreements require these STAR stockholders to vote all shares of STAR common
stock beneficially owned by them in favor of the approval and adoption of the
STAR merger agreement and approval of the STAR merger. Mr. Edgecomb and Mr.
Tawfik also agreed to restrictions on the pre-closing transfer of their shares
of STAR common stock and post-closing transfer of shares of World Access common
stock received by them in the STAR merger. Subject to restrictions, Mr. Edgecomb
was given the right to have shares of World Access common stock issued to him in
the STAR merger registered with the Securities and Exchange Commission. Mr.
Edgecomb and Mr. Tawfik collectively held approximately [ %] of the voting
power of STAR capital stock as of the STAR record date.
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, 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 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. The full
text of the written opinions of the financial advisors are attached to this
joint proxy statement/prospectus as Annex C and Annex E, respectively, and
should be read carefully in their entireties for a description of the
assumptions made, matters considered and limitations on the review undertaken.
The opinion of Donaldson, Lufkin, & Jenrette Securities Corporation is directed
to the World Access board, and the opinion of Deutsche Bank Securities, Inc. is
directed to the STAR board and was given prior to the announcement of the
WORLDxCHANGE merger agreement. These opinions do not constitute a recommendation
as to how to vote to any stockholders with respect to any matter relating to the
STAR merger.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE STAR MERGER
Neither World Access, STI Merger Co. or STAR as the corporate parties, nor
STAR stockholders will recognize gain or loss for federal income tax purposes as
a result of participating in the STAR merger, except for:
- cash received by STAR stockholders instead of fractional shares;
- cash received by dissenting STAR stockholders who exercise appraisal
rights; and
- cash received by STAR stockholders if World Access elects to pay cash as
part of the STAR merger consideration, in which case 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.
World Access has received a legal opinion to this effect.
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ACCOUNTING TREATMENT OF THE STAR MERGER
We intend to account for the STAR merger as a purchase for financial
accounting purposes in accordance with United States generally accepted
accounting principles.
INTERESTS OF CERTAIN PERSONS IN THE STAR MERGER
When considering the recommendations of World Access' and STAR's boards of
directors, you should be aware that certain World Access and STAR directors,
officers and stockholders have interests in the STAR merger that are different
from, or are in addition to, all other stockholders of World Access and STAR.
These interests include:
- STAR's non-executive stock option committee determined that upon a change
in control, all currently outstanding and future options held by Kelly
Enos, Chief Financial Officer of STAR, and David Vaun Crumly, Executive
Vice President of STAR, that have not vested, will become fully
exercisable upon a change in control. The STAR merger constitutes a
change in control under the agreement.
- STAR has entered into an employment agreement with Mr. Crumly whereby
upon the occurrence of a sale transaction, Mr. Crumly is entitled to
receive a bonus equal to $1.5 million or a percentage of the monthly
gross sales of accounts relating to customers introduced to STAR by Mr.
Crumly.
- World Access and Christopher Edgecomb have entered into a voting and
stock transfer restriction agreement pursuant to which World Access
granted to Mr. Edgecomb registration rights that entitle Mr. Edgecomb to
include the shares of World Access common stock he receives in the STAR
merger in any registration of capital stock for the account of World
Access or any selling stockholder.
- In the STAR merger agreement, World Access agreed to elect Christopher
Edgecomb, or another person designated by STAR and agreed to by World
Access, to the board of directors of World Access.
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 FCC. The FCC has approved the STAR merger.
RIGHTS OF DISSENTING STAR STOCKHOLDERS
If pursuant to the terms of the STAR merger agreement, shares of STAR
common stock are converted, at the election of World Access, into the right to
receive both shares of World Access common stock and cash, other than cash in
lieu of fractional shares, STAR stockholders will have the right to demand
appraisal for their shares of STAR common stock.
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If the STAR merger is approved by the required vote of STAR stockholders
and is not abandoned or terminated and if the STAR stockholders will receive
cash other than cash in lieu of fractional shares in the STAR merger, the
holders of STAR common stock who did not vote in favor of or consent to the STAR
merger may be entitled to exercise appraisal rights pursuant to Section 262 of
the Delaware General Corporation Law, a copy of which is attached hereto as
Annex G. In order to exercise appraisal rights, STAR stockholders must take
certain steps, including, among others:
- continuously holding the STAR common stock from the time of making a
written demand for appraisal through the effective time of the STAR
merger;
- voting against the proposal to approve and adopt the STAR merger
agreement;
- delivering a written demand for appraisal to STAR before the taking of
the vote on the STAR merger; and
- filing a petition in the Court of Chancery of the State of Delaware
demanding a determination of the fair value of the STAR common stock
within 120 days after the date of the completion of the STAR merger.
Fair value would be determined by the Court of Chancery of the State of
Delaware exclusive of any element of value arising from the STAR merger. Failure
to take any of the above actions required under Section 262 will result in a
loss of such statutory appraisal rights.
RESTRICTIONS ON THE ABILITY TO SELL WORLD ACCESS STOCK
All shares of World Access common stock received by STAR stockholders in
connection with the STAR merger will be freely transferable unless the holder is
considered an affiliate of World Access or STAR under the Securities Act of
1933.
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.
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
refer to for a more complete understanding of the STAR merger. In particular,
you should 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.
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SUMMARY OF THE PT-1 SALE
THE PT-1 SALE
As a condition to World Access' obligation to complete the STAR merger,
STAR is required to sell its wholly-owned subsidiary, PT-1 Communications, Inc.,
for net cash proceeds of at least $150.0 million.
STAR has entered into a letter of intent with a third party, PT-1 acquiror,
for the sale of certain assets of PT-1 and the assumption of certain liabilities
for $150.0 million, subject to adjustment based on the net worth of the assets
of PT-1 on the closing date. There can be no guarantee that the terms of a
definitive agreement between STAR and PT-1 acquiror, or any other buyer, will
contain the terms set forth in the PT-1 letter of intent. Further, as of the
date of this joint proxy statement/prospectus, there can be no guarantee that
completion of the sale of PT-1 to PT-1 acquiror, or any other buyer, will
satisfy the condition precedent to World Access' obligation to complete the STAR
merger.
STAR is seeking stockholder approval to proceed with the PT-1 sale to PT-1
acquiror, or in the event that STAR does not reach a definitive agreement with
PT-1 acquiror, to such other buyer and on such other terms as the STAR board of
directors shall subsequently approve, subject to the minimum requirements set
forth in the accompanying joint proxy statement/prospectus, including STAR's
receipt of a sales price of at least $ , obtaining the opinion of
STAR's financial advisor in connection with the sale and approval by the STAR
board of directors of a definitive sale agreement containing terms that the STAR
board of directors determines to be in the best interests of STAR. STAR has
entered into the PT-1 letter of intent with PT-1 acquiror for the PT-1 sale and
STAR anticipates that it will enter into a definitive agreement with PT-1
acquiror. This joint proxy statement/prospectus describes the PT-1 letter of
intent in detail. Except as requested in the accompanying joint proxy
statement/prospectus, STAR will not solicit any further stockholder vote for the
PT-1 sale. Accordingly, STAR stockholders will not have the opportunity to vote
on the definitive PT-1 sale agreement.
The PT-1 letter of intent is attached to this joint proxy
statement/prospectus as Annex F. STAR encourages the STAR stockholders to read
the PT-1 letter of intent carefully. The PT-1 letter of intent is more fully
described on page 102.
NEGOTIATION OF DEFINITIVE AGREEMENT WITH PT-1 ACQUIROR
STAR and PT-1 acquiror have agreed to proceed diligently and in good faith
to negotiate, execute and deliver a definitive agreement in connection with the
sale of PT-1 to PT-1 acquiror. The terms of the definitive agreement are subject
to negotiation and may differ substantially from the terms of the PT-1 letter of
intent. In the event that STAR and PT-1 acquiror are unable to reach a
definitive agreement, STAR will proceed with the PT-1 sale to such other buyer
and on such other terms as the STAR board of directors shall subsequently
approve, subject to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at least
$ , obtaining the opinion of STAR's financial advisor in connection
with the sale and approval by the STAR board of directors of a definitive sale
agreement containing terms that the STAR board of directors determines to be in
the best interests of STAR.
TERMS OF THE DEFINITIVE AGREEMENT WITH PT-1 ACQUIROR
STAR is currently negotiating a definitive agreement with PT-1 acquiror
based on the terms of the PT-1 letter of intent. In addition, negotiation of the
final PT-1 sale agreement is subject to satisfactory completion of a due
diligence review of PT-1 by PT-1 acquiror.
Pursuant to the PT-1 letter of intent, PT-1 acquiror has agreed to pay STAR
$150.0 million in cash for certain assets of PT-1, provided that the purchase
price may be adjusted upward or downward to the extent that the net value of the
purchased assets, less liabilities assumed by PT-1 acquiror, as set forth on the
balance sheet to be delivered as soon as practicable following the closing, is
greater than or less than $37,223,490. PT-1 acquiror will only assume PT-1's (i)
accounts payable and accrued expenses, (ii) accrued taxes payable, (iii)
short-term debt, (iv) deferred revenue and (v) long-term debt.
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The PT-1 letter of intent provides that the definitive agreement will
contain, among other things, representations and warranties, covenants,
conditions and indemnification provisions appropriate for such agreements. The
PT-1 letter of intent further provides that:
- the representations and warranties of STAR will survive the close of the
PT-1 sale for two years (other than those in respect of tax matters,
which will survive the close of the PT-1 sale until the expiration of the
applicable statute of limitations);
- STAR and PT-1 acquiror will proceed diligently and in good faith to file
all documents necessary to satisfy any applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
- STAR will obtain all material third-party consents to the transactions
contemplated by the PT-1 letter of intent, provided such condition may be
waived by PT-1 acquiror in its sole discretion;
- STAR shall use reasonable efforts to identify, with PT-1 acquiror, key
employees and to cause certain of STAR's key executives to enter into
employment agreements and non-competition agreements with PT-1 acquiror;
and
- STAR shall cause PT-1 to conduct the business and operations of PT-1 in
the ordinary course consistent with past practice.
THE PT-1 SALE CLOSING DATE
STAR and PT-1 acquiror have agreed to proceed diligently and in good faith
to complete the close of the PT-1 sale by the earlier of (i) the close of the
STAR merger or (ii) June 30, 2000.
VOTE REQUIRED FOR APPROVAL
The holders of a majority of the outstanding shares of STAR common stock
must approve the PT-1 sale. STAR stockholders are entitled to cast one vote per
share owned as of [ ], 2000, the STAR record date.
Christopher E. Edgecomb, a STAR stockholder holding [ %] of the
outstanding common stock of STAR, has agreed to vote in favor of the PT-1 sale.
Directors and officers of STAR collectively beneficially owned approximately
[ %] of the outstanding common stock of STAR as of the STAR record date.
TERMINATION FEE
Pursuant to the PT-1 letter of intent, if the PT-1 sale agreement is
terminated for certain reasons, STAR will be required to pay PT-1 acquiror a
termination fee of $5.85 million. STAR will be required to pay the termination
fee if STAR fails or refuses to consummate the PT-1 sale for any reason other
than:
- the failure to obtain necessary regulatory approval for the PT-1 sale;
- the failure of a majority of the outstanding shares of STAR common stock
to approve the PT-1 sale, provided STAR does not sell PT-1 to a third
party within twelve months of the stockholder vote;
- PT-1 acquiror's breach of the material terms and conditions of the
definitive PT-1 sale agreement; or
- the mutual written consent of STAR and PT-1 acquiror.
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NO OTHER NEGOTIATIONS INVOLVING PT-1
STAR has agreed not to:
- solicit, discuss or encourage the making of any inquiry, offer or
proposal which constitutes or is reasonably likely to lead to an
acquisition proposal; or
- accept or entertain an offer by any person other than PT-1 acquiror, or
enter into discussions with, or provide information to any person, other
than PT-1 acquiror, concerning an acquisition proposal.
STAR has agreed that it will keep PT-1 acquiror informed of any acquisition
proposal.
STAR VOTING AGREEMENT
The PT-1 letter of intent requires Mr. Edgecomb, a STAR stockholder, to
enter into a voting agreement with PT-1 acquiror. The agreement will require Mr.
Edgecomb to vote all shares of STAR common stock beneficially owned by him in
favor of the approval of the PT-1 sale. Mr. Edgecomb held approximately [ %]
of the outstanding capital stock of STAR as of the STAR record date.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PT-1 SALE
If STAR completes the PT-1 sale with PT-1 acquiror, or with another buyer
on terms like those set forth in the PT-1 letter of intent, for cash, PT-1 will
recognize substantial gain from the sale, which will only be partially offset by
STAR's net operating loss carryovers and 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 SALE
If STAR completes the sale of PT-1's assets to PT-1 acquiror, or with
another buyer on terms like those set forth in the PT-1 letter of intent, for
cash, STAR intends to account for the PT-1 sale as a sale of assets in
accordance with United States generally accepted accounting principles.
INTERESTS OF CERTAIN PERSONS IN THE PT-1 SALE
When considering the recommendation of STAR's board of directors, you
should be aware that certain STAR directors, officers and stockholders have
interests in the STAR merger, of which the PT-1 sale is a condition precedent,
that are different from, or are in addition to, all other stockholders of STAR.
These interests are described on page 85.
Kaufman Brothers, STAR's financial advisor in connection with the PT-1
sale, has been engaged to issue a fairness opinion to STAR's board of directors
in connection with sale and is entitled to certain fees and expense
reimbursements regardless of whether the PT-1 sale is consummated.
ANTITRUST AND OTHER REGULATORY APPROVAL REQUIRED TO COMPLETE THE PT-1 SALE
The PT-1 sale is subject to antitrust laws. STAR and PT-1 acquiror or such
other buyer, will make the required filings with the Department of Justice and
the Federal Trade Commission. However, the companies will not be permitted to
complete the PT-1 sale until the applicable waiting periods have expired or
terminated. The Department of Justice or the Federal Trade Commission, as well
as a state or private person, may challenge the PT-1 sale at any time before or
after its completion.
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RIGHTS OF DISSENTING STAR STOCKHOLDERS
If STAR completes the PT-1 sale to PT-1 acquiror, STAR stockholders will
not be entitled to appraisal rights under Delaware law with respect to the PT-1
sale.
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
refer to for a more complete understanding of the PT-1 sale. In particular, you
should read the documents attached to this joint proxy statement/ prospectus,
including the PT-1 letter of intent, which is attached as Annex F.
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SUMMARY OF THE WORLDXCHANGE MERGER
THE WORLDXCHANGE MERGER
In the WORLDxCHANGE merger, WORLDxCHANGE will merge into a wholly-owned
subsidiary of World Access, with the surviving company continuing as a
wholly-owned subsidiary of World Access.
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 upon the
satisfaction of the conditions for such payment contained in the WORLDxCHANGE
merger agreement and to make the necessary conforming changes. The WORLDxCHANGE
merger agreement and the amendment to the WORLDxCHANGE merger agreement are
attached to this joint proxy statement/prospectus as Annex B. The original
WORLDxCHANGE merger agreement as amended is referred to in this joint proxy
statement/prospectus as the WORLDxCHANGE merger agreement. World Access
encourages you to read the WORLDxCHANGE merger agreement carefully. The
WORLDxCHANGE merger agreement is more fully described on page 129.
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, and World Access and WORLDxCHANGE will
incur significant merger-related expenses;
- increased cash flow will be necessary to fund capital expenditures and
meet our obligations on outstanding indebtedness;
- market share may decrease, and we may face pricing pressures if we 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 our
services and products.
The potential benefits from the WORLDxCHANGE merger may not be achieved.
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.
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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 applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, must expire or be terminated;
- 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;
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;
- no material adverse effect shall have occurred with respect to the
business, financial condition or results of operations of WORLDxCHANGE;
- World Access must receive from WORLDxCHANGE's legal counsel a legal
opinion with respect to the corporate existence of WORLDxCHANGE, the
corporate power and authority of WORLDxCHANGE to perform and execute the
WORLDxCHANGE merger agreement, and the effectiveness of the WORLDxCHANGE
merger;
- no laws, injunctions or orders preventing the WORLDxCHANGE merger or
which would otherwise have a material adverse effect on World Access may
be in effect;
- the average World Access closing sale price for the ten consecutive
trading days ending on the second day prior to the completion of the
WORLDxCHANGE merger must not be below $15.00; 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;
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- all consents and approvals required of World Access to complete the
WORLDxCHANGE merger must be obtained;
- WORLDxCHANGE must receive from World Access' legal counsel a legal
opinion with respect to the corporate existence of World Access and
WORLDxCHANGE Communications, Inc. f/k/a CTI Merger Co., the corporate
power and authority of World Access and WORLDxCHANGE Communications, Inc.
f/k/a CTI Merger Co. to perform and execute the WORLDxCHANGE merger
agreement, the effectiveness of the WORLDxCHANGE merger and the issuance
of shares of World Access common stock pursuant to the WORLDxCHANGE
merger agreement; and
- no laws, injunctions or orders preventing the WORLDxCHANGE merger or
which would otherwise have a material adverse effect on World Access may
be in effect.
The completion of the WORLDxCHANGE merger is not conditioned upon the
completion of the STAR 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 and Series D 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.
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,
subject to exceptions and qualifications. The circumstances include:
- by mutual written consent of World Access and WORLDxCHANGE;
- by World Access or WORLDxCHANGE, in the event of an uncured breach by the
other party of any of its covenants or agreements in the WORLDxCHANGE
merger agreement;
- by World Access or WORLDxCHANGE, in the event of an uncured breach by the
other party of any of its representations or warranties in the
WORLDxCHANGE merger agreement;
- by World Access or WORLDxCHANGE, if the WORLDxCHANGE merger is not
completed on or before October 31, 2000;
- by World Access or WORLDxCHANGE if a final court order prohibiting the
WORLDxCHANGE merger is issued and is not appealable or if a governmental
entity fails to issue an order which is necessary to fulfill a party's
obligation to complete the WORLDxCHANGE merger, and the failure to issue
such order is final and nonappealable; or
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- by World Access or WORLDxCHANGE, if the stockholders of World Access or
WORLDxCHANGE fail to adopt the WORLDxCHANGE merger agreement by the
requisite vote or consent.
NO OTHER NEGOTIATIONS INVOLVING WORLDXCHANGE
WORLDxCHANGE has agreed that until completion of the WORLDxCHANGE merger or
unless World Access consents in writing, WORLDxCHANGE will not directly or
indirectly take any of the following actions:
- solicit, initiate, encourage or knowingly facilitate any inquiries or the
making, implementation or acceptance of a proposal regarding the
acquisition of a material portion of the stock or assets of WORLDxCHANGE
or a business combination involving WORLDxCHANGE;
- participate in any discussions or negotiations regarding a proposal to
acquire a material portion of the stock or assets of WORLDxCHANGE or a
business combination involving WORLDxCHANGE; or
- disclose any confidential information with respect to a proposal to
acquire a material portion of the stock or assets of WORLDxCHANGE or for
a business combination involving WORLDxCHANGE.
POST-CLOSING INDEMNIFICATION
Following the completion of the merger, WORLDxCHANGE must indemnify World
Access against any losses incurred by World Access in connection with, subject
to qualifications and exceptions, breaches by WORLDxCHANGE of covenants and
representations and warranties set forth in the WORLDxCHANGE merger agreement.
WORLDxCHANGE must also indemnify World Access for monetary penalties related to
a matter before the California Public Utilities Commission which are imposed in
connection with wrongful acts or omissions of WORLDxCHANGE occurring or arising
from the date of the order imposing the monetary penalties until prior to
completion of the WORLDxCHANGE merger. In order to secure these indemnification
obligations, 2,453,385 shares of World Access common stock to be issued in the
WORLDxCHANGE merger will be placed in escrow for at least one year following the
completion of the WORLDxCHANGE merger. These shares constitute World Access'
exclusive source of recovery for indemnifiable losses.
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, pursuant to which these World
Access stockholders have agreed to vote all shares of World Access capital stock
beneficially 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, subject to limited exceptions, not to
transfer or sell their shares of World Access common stock prior 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
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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.
FOOTHILL CAPITAL CORPORATION PARTICIPATION AGREEMENT
World Access has agreed to provide up to $45.0 million to Foothill Capital
Corporation to be advanced by Foothill to WORLDxCHANGE and certain subsidiaries
of WORLDxCHANGE. In the event of an acceleration by Foothill of the maturity of
the loan or the failure of WORLDxCHANGE to repay its obligations at the stated
maturity, all amounts collected by Foothill from collateral liquidation will be
applied first to amounts owed to Foothill, and then to World Access.
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. The full text of the written
opinion of World Access' financial advisor is attached to this joint proxy
statement/prospectus as Annex D and should be read carefully in its entirety for
a description of the assumptions made, matters considered and limitations on the
review undertaken. The opinion of Donaldson, Lufkin & Jenrette Securities
Corporation is directed to the Word Access board. This opinion does not
constitute a recommendation as to how to vote to any stockholders with respect
to any matter relating to the WORLDxCHANGE merger.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE WORLDXCHANGE MERGER
Neither World Access, WORLDxCHANGE Communications, Inc. f/k/a CTI Merger
Co., nor WORLDxCHANGE as the corporate parties, nor WORLDxCHANGE shareholders
will recognize gain or loss for federal income tax purposes as a result of
participating in the WORLDxCHANGE merger, except for:
- cash received by WORLDxCHANGE shareholders instead of fractional shares;
- cash received by WORLDxCHANGE shareholders who exercise dissenters'
rights; and
- the portion of the World Access common stock WORLDxCHANGE shareholders
received in payment of accrued and unpaid dividends on their WORLDxCHANGE
preferred stock, but only if the IRS takes the position that their
receipt of such stock is not part of the reorganization for federal
income tax purposes.
ACCOUNTING TREATMENT OF THE WORLDXCHANGE MERGER
World Access intends to account for the WORLDxCHANGE merger as a purchase
for financial accounting purposes in accordance with U.S. generally accepted
accounting principles.
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INTERESTS OF CERTAIN PERSONS 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:
- Under the terms of the WORLDxCHANGE merger agreement, World Access has
agreed to cause one designee of WORLDxCHANGE to be elected to the World
Access board of directors. 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 record date for determining the WORLDxCHANGE shareholders
entitled to approve the WORLDxCHANGE merger, executive officers and
directors of WORLDxCHANGE and Gold & Appel Transfer S.A. and Atocha, L.P.
collectively beneficially owned a total of shares of WORLDxCHANGE
common stock (not including any shares subject to outstanding options or
warrants beneficially owned by these individuals or entities). Under the
WORLDxCHANGE merger agreement, these shares will be converted in the
WORLDxCHANGE merger into a total of shares of World Access common
stock with an aggregate value of $ (assuming a per share value of
World Access common stock equal to $20.38). In addition, as of the record
date for determining the WORLDxCHANGE shareholders entitled to approve
the WORLDxCHANGE merger, these individuals and entities collectively
owned options and warrants to purchase a total of shares of
WORLDxCHANGE common stock at exercise prices ranging from $ to
$ per share. Under the WORLDxCHANGE merger agreement, these options
and warrants will be converted into the right to acquire shares of World
Access common stock in accordance with the WORLDxCHANGE merger agreement.
- Each of Roger Abbott, Chief Executive Officer and director of
WORLDxCHANGE, Edward Soren, Executive Vice President and director of
WORLDxCHANGE, Gold & Appel Transfer S.A. and Atocha L.P. has agreed in
his or its voting and stock transfer restriction agreement with World
Access not to sell or otherwise transfer the World Access shares received
by him or it in the WORLDxCHANGE merger until six months after the
completion of the WORLDxCHANGE merger. However, Mr. Soren's agreement
permits Mr. Soren immediately to sell up to 750,000 shares of World
Access common stock to be received by Mr. Soren in the WORLDxCHANGE
merger without restriction. In addition, Mr. Abbott's agreement permits
Mr. Abbott immediately to sell such number of shares of World Access
common stock to be received by Mr. Abbott in the WORLDxCHANGE merger as
would provide Mr. Abbott with gross proceeds of up to $30.0 million.
- Under Mr. Abbott's employment agreement with WORLDxCHANGE, if, in
connection with a change of control of WORLDxCHANGE or otherwise, Mr.
Abbott's employment with WORLDxCHANGE is terminated other than for cause,
death or disability, or if Mr. Abbott's employment is constructively
terminated, Mr. Abbott will be entitled to the payment of any earned but
unpaid salary and/or bonus under the agreement and a lump sum cash
payment in an amount equal to the amount he would have earned under the
agreement from the date of termination through July 31, 2002 (currently
$50,000 per month) plus the cost for Mr. Abbott to obtain benefits
equivalent to those in effect at the time of the termination through July
31, 2002. The WORLDxCHANGE merger is a change of control under Mr.
Abbott's employment agreement and the employment agreements discussed
below.
- Patrick Aelvoet, WORLDxCHANGE's Chief Financial Officer, has an
employment agreement with WORLDxCHANGE that provides for the payment of a
$50,000 severance payment to Mr. Aelvoet if, in connection with a change
of control of WORLDxCHANGE or otherwise,
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WORLDxCHANGE terminates Mr. Aelvoet's employment without cause and
without at least 90 days' advance notice of such termination. In
addition, Mr. Aelvoet's employment agreement provides for the payment of
a $25,000 bonus to Mr. Aelvoet if the WORLDxCHANGE merger is completed
prior to May 30, 2000, regardless of whether Mr. Aelvoet's employment is
terminated following the WORLDxCHANGE merger.
- Pursuant to three separate stock option agreements with WORLDxCHANGE, Mr.
Aelvoet has options to purchase an aggregate of 150,000 shares at prices
ranging from $9.00 per share to $11.00 per share. Under the WORLDxCHANGE
merger agreement, all of these options will, to the extent not exercised
by Mr. Aelvoet as of immediately prior to the WORLDxCHANGE merger, be
converted into the right to acquire shares of World Access common stock
in accordance with the merger agreement. Under Mr. Aelvoet's option
agreements, if his employment with WORLDxCHANGE is involuntarily
terminated within 12 months following a change of control of
WORLDxCHANGE, his unvested options would become immediately fully vested
and remain exercisable until the earlier of one year from the date of
such termination or ten years from the applicable grant date.
- Eric G. Lipoff, WORLDxCHANGE's Vice President and General Counsel, has an
employment agreement with WORLDxCHANGE that provides that, if in
connection with a change of control of WORLDxCHANGE or otherwise,
WORLDxCHANGE terminates Mr. Lipoff's employment without cause or there is
otherwise an involuntary termination of Mr. Lipoff's employment, Mr.
Lipoff will be entitled to the payment of any earned but unpaid salary
and/or bonus under the agreement and the amount of compensation that he
would have earned under the agreement from the date of such termination
through December 31, 2002 (currently $16,666 per month) plus the cost for
Mr. Lipoff to obtain benefits equivalent to those in effect at the time
of the termination through December 31, 2002.
- Mr. Lipoff has an option to purchase a total of 150,000 shares of
WORLDxCHANGE common stock at $10.00 per share. Under the WORLDxCHANGE
merger agreement, this option will be converted into the right to acquire
shares of World Access common stock in accordance with the WORLDxCHANGE
merger agreement. Pursuant to Mr. Lipoff's option agreement, this option
will fully vest on December 31, 2002, except that the options will
immediately fully vest if Mr. Lipoff's employment with WORLDxCHANGE is
terminated without cause or there is otherwise an involuntary termination
of Mr. Lipoff's employment at any time prior to December 31, 2002.
Options the vesting of which is so accelerated would remain exercisable
until 90 days from the date Mr. Lipoff's employment is so terminated.
- Effective January 3, 2000, each of Sen. Paul Laxalt and Dann Angeloff,
who are directors of WORLDxCHANGE, received an option to purchase 12,500
shares of WORLDxCHANGE common stock at $10.00 per share. Under the
WORLDxCHANGE merger agreement, these options will, to the extent not
exercised by Sen. Laxalt and Mr. Angeloff, as applicable, as of the
effective time of the WORLDxCHANGE merger, be converted into the right to
acquire shares of World Access common stock in accordance with the
WORLDxCHANGE merger agreement. The option agreements with respect to
these options provide for the immediate vesting in full of these options
upon a change of control of WORLDxCHANGE. If the vesting of these options
is so accelerated, they would remain exercisable until the earlier of the
day before the first anniversary of the termination of the optionee as a
WORLDxCHANGE director following such change of control or ten years from
the option grant date.
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
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boards. However, the companies are not permitted to complete the WORLDxCHANGE
merger until the 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.
RIGHTS OF DISSENTING WORLDXCHANGE SHAREHOLDERS
The WORLDxCHANGE shareholders may be entitled to exercise dissenters'
rights pursuant to Chapter 13 of the California Corporations Code, a copy of
which is attached hereto as Annex H. 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
WORLDxCHANGE 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.
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. 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/or whether the
shares qualify as dissenting shares.
Dissenting shares lose their status as dissenting shares and the holders of
dissenting shares cease to be dissenting shareholders and cease to be entitled
to require WORLDxCHANGE to purchase their shares if:
- the WORLDxCHANGE merger is abandoned;
- 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 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.
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RESTRICTIONS ON THE ABILITY TO SELL WORLD ACCESS STOCK
All shares of World Access common stock received by WORLDxCHANGE
shareholders in connection with the WORLDxCHANGE merger will be freely
transferable unless the holder is considered an affiliate of World Access or
WORLDxCHANGE under the Securities Act of 1933.
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.
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
refer to for a more complete understanding of the WORLDxCHANGE merger. In
particular, you should 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.
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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..................... -- -- -- 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
Restricted cash.................. -- -- -- -- 47,201 -- 32,042
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(2)...................... $ (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
</TABLE>
- ---------------
(1) Includes the results of operations for the following businesses from their
respective dates of acquisition: Cherry U.S. and Cherry U.K. -- December
1998; Comm/Net -- May 1999; and FaciliCom -- December 1999.
(2) EBITDA from continuing operations consists of earnings (loss) before net
interest expense (income), income taxes, foreign exchange gains or losses,
depreciation and amortization. EBITDA should not be considered as a
substitute for operating earnings, net income (loss), cash flow or other
combined statement of operations or cash flow data computed in accordance
with generally accepted accounting principles or as a measure of our results
of operations or liquidity. EBITDA is widely used as a measure of a
company's operating performance and its ability to service its indebtedness
because it
29
<PAGE> 43
assists in comparing performance on a consistent basis across companies, which
can vary significantly. 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>
STAR SELECTED HISTORICAL FINANCIAL INFORMATION
The selected financial information for each of the five years ended
December 31, 1999 set forth below has been derived from and should be read in
conjunction with the audited 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....... 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)
</TABLE>
30
<PAGE> 44
<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>
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)(1)......... $ 478 $ (7,416) $ (1,958)
======= ======== ========
Income (loss) per common
share(2)
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)(2)
Basic and Diluted...... $ 0.02 $ (0.31) $ (0.06)
======= ======== ========
Weighted average number
of common shares
outstanding -- basic(2)
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>
31
<PAGE> 45
<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>
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
OTHER CONSOLIDATED
FINANCIAL AND
OPERATING DATA:
Capital
expenditures(3).... $ 2,922 $ 14,810 $ 26,584 $ 147,236 $ 150,588 $ 32,021 $ 10,387
North American
wholesale billed
minutes of use(4).. 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(5).......... $0.4102 $ 0.4288 $ 0.3612 $ 0.3145 $ 0.2084 $ 0.2468 $ 0.1682
</TABLE>
- ---------------
(1) 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.
(2) 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.
(3) Includes assets financed with capital leases, notes and vendor financing
arrangements.
(4) 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
f/k/a United Digital Network, Inc., a subsidiary of STAR, for all years
presented.
(5) 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.
32
<PAGE> 46
The following table reconciles STAR's income (loss) from continuing
operations to EBITDA from continuing operations (in thousands):
<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>
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>
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............................ 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 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>
33
<PAGE> 47
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------ -------------------
1997 1998 1999 1999 2000
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(1)................................... $(16,826) $ (3,342) $(30,866) $(17,216) $(23,192)
Net cash provided by (used in) operating
activities................................ (7,206) (31,735) (31,549) 2,210 (24,344)
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) EBITDA represents operating loss plus depreciation and amortization expense.
WORLDxCHANGE has included information concerning EBITDA herein because such
information is commonly used in the telecommunications industry as one
measure of an issuer's operating performance and historical ability to
service debt. EBITDA is not determined in accordance with generally accepted
accounting principles, is not indicative of cash provided by operating
activities, is not necessarily comparable to similarly titled measures of
other companies, 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.
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 merger of STI Merger Co., a
wholly-owned subsidiary of World Access, and STAR, the merger of 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, as well as the sale by STAR of its wholly-owned subsidiary,
PT-1, to PT-1 acquiror. 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 and WORLDxCHANGE,
which, in the case of WORLDxCHANGE, are included in this document and, in the
case of World Access, FaciliCom, Comm/Net, LDI and STAR, are incorporated herein
by reference.
34
<PAGE> 48
The selected pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the financial position or
operating results that would have occurred if the transactions given retroactive
effect therein had been consummated as of the dates indicated, nor is it
necessarily indicative of future financial conditions or operating results. See
"Unaudited Pro Forma Condensed Combined Financial Statements."
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
<S> <C> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS DATA:
Carrier service revenues.................................... $2,199,507 $526,524
Operating expenses:
Cost of carrier services.................................... 1,877,598 452,847
Selling, general and administrative......................... 434,388 84,471
Depreciation and amortization............................... 193,583 53,637
Provision for doubtful accounts............................. 13,980 9,848
Merger expense.............................................. 1,867 --
Restructuring and other special charges..................... 44,187 --
---------- --------
Total operating expenses.......................... 2,565,603 600,803
---------- --------
Operating loss.................................... (366,096) (74,279)
Interest and other income................................... 14,052 16,991
Interest and other expense.................................. (89,787) (24,339)
Foreign exchange loss....................................... (2,369) 438
---------- --------
Loss from continuing operations before income
taxes and minority interests.................... (444,200) (81,189)
Provision (benefit) for income taxes........................ (17,843) (4,665)
---------- --------
Loss from continuing operations before minority
interest.......................................... (426,357) (76,524)
Minority interest........................................... 1,614 --
---------- --------
Loss from continuing operations................... (424,743) (76,524)
Preferred stock dividends................................... (2,461) (632)
---------- --------
Loss from continuing operations available to
common stockholders............................... $ (427,204) $(77,156)
========== ========
Loss per common share from continuing operations:
Basic.................................................. $ (4.13) $ (0.72)
========== ========
Diluted................................................ $ (4.13) $ (0.72)
========== ========
Weighted average shares outstanding:
Basic.................................................. 103,353 107,908
========== ========
Diluted................................................ 103,353 107,908
========== ========
</TABLE>
35
<PAGE> 49
<TABLE>
<CAPTION>
AT MARCH 31,
2000
---------------
<S> <C>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA:
Current Assets
Cash and equivalents........................................ $ 269,190
Short-term investments...................................... 45,232
Restricted cash............................................. 30,847
Accounts receivable......................................... 454,215
Prepaid expenses and other current assets................... 75,462
Net assets held for sale.................................... 238,405
----------
Total Current Assets.............................. 1,113,351
Property and equipment, net................................. 612,423
Goodwill and other intangibles, net......................... 2,011,741
Other assets................................................ 77,267
----------
Total Assets...................................... $3,814,782
==========
Current Liabilities
Short-term debt............................................. $ 288,812
Accounts payable............................................ 542,779
Other accrued liabilities................................... 282,608
----------
Total Current Liabilities......................... 1,114,199
Long-term debt.............................................. 523,990
Other long-term liabilities................................. 46,018
----------
Total Liabilities................................. 1,684,207
----------
Stockholders' Equity (Deficit)
Preferred stock............................................. 6
Common stock................................................ 1,124
Additional paid in capital.................................. 2,326,679
Deferred compensation....................................... (2,883)
Accumulated other comprehensive loss........................ (4,368)
Accumulated deficit......................................... (189,983)
----------
Total Stockholders' Equity (Deficit).............. 2,130,575
----------
Total Liabilities and Stockholders' Equity........ $3,814,782
==========
</TABLE>
36
<PAGE> 50
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 CommNet 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:
Loss per share from continuing operations(2):
Basic.................................................. $(4.13) $(0.72)
Diluted................................................ (4.13) (0.72)
Book value per common share(3)............................ 19.06
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- --------------
<S> <C> <C>
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
</TABLE>
<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>
- ---------------
(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.
37
<PAGE> 51
RISK FACTORS
THE STAR MERGER, INCLUDING THE PT-1 SALE, AND THE WORLDXCHANGE MERGER
INVOLVE A HIGH DEGREE OF RISK. UPON COMPLETION OF THE STAR MERGER AND THE
WORLDXCHANGE MERGER, THE STAR STOCKHOLDERS AND WORLDXCHANGE SHAREHOLDERS WHO DO
NOT PERFECT DISSENTERS' RIGHTS WILL RECEIVE WORLD ACCESS COMMON STOCK. AN
INVESTMENT IN WORLD ACCESS COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. 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 MERGERS
WE MAY NOT ACHIEVE ANTICIPATED BENEFITS FROM INTEGRATION OF OPERATIONS.
The mergers require the integration in a timely manner of three companies
that previously operated independently. We will have to combine our workforces
and integrate our offices. We may require some employees to relocate as part of
this process. We expect that we will, as a result of our increased size and
requirements, be able to consolidate our purchasing and obtain more favorable
prices from suppliers. However, our ability to do so may be limited by changes
in the purchasing power or practices of our competitors and other market
dynamics. No assurance can be given that we will be able to integrate our
operations without encountering difficulties or experiencing the loss of key
employees or that the cost savings and synergies expected from integration will
be realized. The consolidation of operations will require substantial attention
from management. The diversion of management's attention and any difficulties
encountered in the transition and integration process could have a material
adverse effect on our revenues, levels of expenses and operating results and
damage our relationship with our key customers and employees.
WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY.
On a pro forma basis, after giving effect to the mergers and certain other
transactions, World Access would have had a loss from continuing operations for
the three months ended March 31, 2000 of $0.72 per diluted share as compared to
the $0.56 loss per diluted share from continuing operations for the same period
on a stand alone basis. Despite anticipated benefits of the mergers, we may not
achieve profitability.
WORLD ACCESS, STAR AND WORLDXCHANGE WILL INCUR SIGNIFICANT MERGER-RELATED
CHARGES.
We will incur significant consolidation and integration expenses. In
addition, World Access, STAR and WORLDxCHANGE will incur merger-related expenses
of approximately $6.0 million, including investment banking, legal and
accounting fees and financial printing and other related charges. The foregoing
amounts are preliminary, and the actual amounts may be higher or lower.
Moreover, we may incur additional unanticipated expenses in connection with the
integration of our businesses.
WE MAY NOT SUCCESSFULLY INTEGRATE THE NETWORKS OF STAR AND WORLDXCHANGE INTO THE
WORLD ACCESS NETWORK.
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 our business if not completed in a timely and efficient manner. Extended
network downtime could have a material adverse effect on our revenues and our
relationships with our customers. No assurance can be given that we will be able
to successfully integrate the networks of STAR and WORLDxCHANGE into the World
Access network.
OUR INCREASED FINANCIAL LEVERAGE WILL SUBJECT US TO SIGNIFICANT OPERATING AND
FINANCIAL RESTRICTIONS.
Immediately subsequent to the consummation of the mergers, we 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
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million of long-term debt and negative stockholders' equity. Based on World
Access' pro forma balance sheet at March 31, 2000, as a result of the
consummation of the mergers and certain other transactions, we would have had
long-term debt of $524.0 million and a total debt to equity ratio of 38.1%.
Our combined indebtedness could have serious negative consequences. For
example, it could:
- limit our ability to obtain additional financing for working capital,
capital expenditures or other purposes or to obtain such financing on
favorable terms;
- require us to dedicate a substantial portion of our cash flow from
operations to service payments on our debt, which will reduce the funds
that would otherwise be available for operations and future business
opportunities;
- make it difficult for us to meet our debt service requirements or force
us to modify our operations if there is a substantial decrease in
operating income and cash flows or an increase in expenses;
- limit our flexibility to react to changes in our businesses and the
industry in which we operate and make us more vulnerable to downturns and
competitive pressures in our businesses; and
- require us to redeem a substantial portion of our outstanding debt
securities upon the sale of certain portions of the World Access
Equipment Group.
There is no assurance that we will be able to meet the obligations on our
outstanding indebtedness. World Access anticipates that its 2000 pro forma debt
service payments will be approximately $415.0 million exclusive of any
obligation to redeem our outstanding debt securities. If we are unable to
generate sufficient cash flow or to otherwise obtain funds necessary to meet our
obligations, or if we do not comply with the various covenants under our
indebtedness, we will be in default under the terms of that debt. If we default,
the holders of indebtedness can accelerate the maturity of the indebtedness that
is owed to them, and this could cause defaults under our other indebtedness.
DECREASED CASH FLOW MAY LIMIT OUR ABILITY TO CONTINUE TO MAKE CAPITAL
EXPENDITURES FOR THE ACQUISITION AND DEVELOPMENT OF OUR INTERNATIONAL
TELECOMMUNICATIONS NETWORK.
We believe that we must continue to enhance and expand our network and
build out our telecommunications network infrastructure in order to maintain our
competitive position and continue to meet the increasing demands for service
quality, capacity and competitive pricing. We will need to raise additional
capital from equity or debt sources if our cash flow from operations is
insufficient to meet our capital expenditure and working capital requirements.
If our available cash flow substantially decreases as a result of lower
telecommunications prices or for other reasons, we may have limited ability to
continue to make capital expenditures for the acquisition and development of our
international telecommunications network. If cash flow from operations is not
sufficient to satisfy our capital expenditure requirements, there can be no
assurance that additional debt or equity financing or other sources of capital
will be available to meet our requirements.
VOTING INTERESTS OF CURRENT WORLD ACCESS STOCKHOLDERS WILL BE SUBSTANTIALLY
DILUTED.
Following the completion of the mergers, the current World Access
stockholders (i) will own shares representing approximately 63.0% of our total
voting power and (ii) will own 65.0% of the total number of outstanding shares
of our common stock on a fully diluted basis. 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. 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 (i) will own shares representing approximately 78.0%
of the total voting power of World Access after completion of the STAR merger
and (ii) will own 80.0% of the total number of outstanding shares of World
Access common stock on a fully diluted basis after completion of STAR merger. If
only the WORLDxCHANGE merger is completed, the current World Access stockholders
(i) will own shares representing approximately 76.0% of the total voting power
of World Access after
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completion of the WORLDxCHANGE merger and (ii) will own 77.0% of the total
number of outstanding shares of World Access common stock on a fully diluted
basis after completion of the WORLDxCHANGE merger.
SALES OF LARGE AMOUNTS OF OUR SHARES FOLLOWING THE MERGERS COULD ADVERSELY
AFFECT THE PRICE OF OUR COMMON STOCK.
The market price of our common stock could fall significantly if
stockholders sell large amounts of stock in the public market following the
mergers. These sales, or the possibility that these sales may occur, could make
our stockholders unable to realize the value of the merger consideration
received, as measured prior to completion of the mergers, and may make it more
difficult for us to sell equity or equity-related securities in the future.
After the mergers, all of the shares of our stock issued in the mergers will be
eligible for immediate sale except shares held by affiliates of the companies
that will be subject to limitations on the volume of sales under federal
securities laws. In addition, some of our stockholders will have the right to
demand registration of their shares for resale after the mergers.
BENEFITS OF THE STAR MERGER OR THE WORLDXCHANGE MERGER WILL NOT BE AVAILABLE TO
WORLD ACCESS STOCKHOLDERS IF EITHER OF THESE MERGERS IS NOT COMPLETED.
None of the benefits identified by World Access and STAR as reasons for the
STAR merger will be realized by World Access stockholders if the STAR merger is
not completed. Likewise, none of the benefits identified by World Access and
WORLDxCHANGE as reasons for the WORLDxCHANGE merger will be realized by World
Access stockholders if the WORLDxCHANGE merger is not completed. Nevertheless,
neither merger is conditioned on the completion of the other merger.
IF THE PT-1 SALE IS NOT COMPLETED PRIOR TO THE CLOSING OF THE STAR MERGER, OR IF
STAR DOES NOT RECEIVE NET CASH PROCEEDS OF AT LEAST $150.0 MILLION FROM THE PT-1
SALE, THE STAR MERGER MAY NOT CLOSE.
On March 29, 2000, STAR entered into a letter of intent with a third party,
PT-1 acquiror, for the sale of all of the assets of PT-1. Pursuant to the terms
of the PT-1 letter of intent, PT-1 acquiror will pay $150.0 million in cash for
the assets of PT-1, less certain liabilities and subject to a purchase price
adjustment based on the results of a final audit to be conducted after the close
of the PT-1 sale. While STAR expects that it will successfully complete the PT-1
sale, there can be no assurance that STAR will complete the PT-1 sale or that
STAR will find another purchaser for PT-1. Further, there can be no assurance
that STAR will complete the PT-1 sale to PT-1 acquiror, or to any other
purchaser, for net cash proceeds of at least $150.0 million, as required by the
STAR merger agreement.
If STAR does not successfully complete the PT-1 sale to PT-1 acquiror, STAR
will attempt to sell PT-1 to an alternative buyer subject to the minimum
requirements set forth in this joint proxy statement/prospectus, including
STAR's receipt of a sales price of at least $ , obtaining the opinion of
STAR's financial advisor in connection with the sale and approval by the STAR
board of directors of a definitive sale agreement containing terms that the STAR
board of directors determines to be in the best interests of STAR.
Pursuant to the terms of the STAR merger agreement, if STAR fails to sell
PT-1 for net cash proceeds of at least $150.0 million, then World Access does
not have to complete the STAR merger. 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 may need to obtain
additional capital. STAR is not certain that it will be able to raise additional
capital on favorable terms or at all.
While STAR believes it will complete the PT-1 sale to PT-1 acquiror, the
completion of the PT-1 sale is subject to certain conditions, including, among
others: (i) negotiation of a definitive PT-1 sale agreement, (ii) the expiration
of the waiting period applicable to the PT-1 sale under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and (iii) the receipt of all
material third party
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consents and approvals required of PT-1 to complete the PT-1 sale. Accordingly,
there can be no assurance that all such conditions will be satisfied. In
addition, the PT-1 letter of intent provides that the PT-1 sale will be subject
to termination under certain circumstances, including, among others: (i) by the
nonbreaching party in the event of a breach of any material terms or conditions
contained in the PT-1 sale agreement, (ii) if the necessary regulatory approvals
are not obtained or (iii) if the PT-1 sale agreement is not approved by STAR's
stockholders. STAR cannot guarantee that the PT-1 sale will be consummated with
PT-1 acquiror or any other buyer. If STAR does not enter into a definitive PT-1
sale agreement with PT-1 acquiror 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 a definitive PT-1 sale agreement is negotiated with
PT-1 acquiror and subsequently terminated, STAR may face significant costs
associated with the failed PT-1 sale, including a termination fee of $5.85
million.
In addition, the completion of the PT-1 sale to PT-1 acquiror for cash
proceeds of at least $150.0 million is dependent, in part, on the results of a
final audit to be conducted after the close of the PT-1 sale. There can be no
assurance that the net value of the assets of PT-1 will be greater than or equal
to the value of the assets as originally presented to PT-1 acquiror, which may
result in cash proceeds of less than $150.0 million for the PT-1 sale. If STAR
fails to complete the PT-1 sale prior to the close of the STAR merger or to sell
the assets of PT-1 for net cash proceeds of greater than $150.0 million, the
STAR merger may not close.
RISK FACTORS CONCERNING WORLD ACCESS, STAR AND WORLDXCHANGE
OUR INABILITY TO INTEGRATE ACQUIRED COMPANIES COULD RESULT IN SUBSTANTIAL COSTS
AND MAY DAMAGE OUR RELATIONSHIPS WITH OUR KEY CUSTOMERS AND EMPLOYEES.
An element of our growth strategy is to acquire companies that complement
or expand our existing business. If we are unable to successfully integrate
acquired businesses, we may not be able to realize anticipated cost
efficiencies, operational and other benefits in a timely manner, and we may
incur substantial costs and delays or other operational, technical or financial
problems. In addition, the failure to successfully integrate acquisitions may
divert management's attention from our existing business and may damage our
relationships with our key customers and employees.
FUTURE ACQUISITIONS MAY SIGNIFICANTLY DECREASE OUR STOCKHOLDERS' PERCENTAGE
OWNERSHIP, REDUCE OUR PROFITABILITY AND HINDER OUR ABILITY TO RAISE CAPITAL.
We may issue securities in future acquisitions that could significantly
reduce our stockholders' equity ownership and reduce our earnings on a per share
basis. We also may incur additional debt and amortization expense related to
goodwill and other intangible assets acquired in future acquisitions. This
additional debt and amortization expense may reduce significantly our
profitability and hinder our ability to raise capital in the future.
WE MAY BE UNABLE TO MANAGE EFFECTIVELY OUR RAPID GROWTH, WHICH MAY MATERIALLY
ADVERSELY AFFECT THE QUALITY OF OUR PRODUCTS AND SERVICES AND OUR ABILITY TO
RETAIN KEY PERSONNEL.
Our rapid growth from recent acquisitions and the expansion of our
operations has placed significant demands on our resources. In addition, we
expect that our 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 we are unable to manage our growth effectively, the quality of our
products and services and our ability to retain key personnel could be adversely
affected. To successfully manage our growth, we must
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continue to improve our operational, financial and management information
systems and to motivate and effectively manage our employees.
WE MAY SUSTAIN MATERIAL LIABILITY AS A RESULT OF STOCKHOLDER SUITS AGAINST US.
Following 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. We may have to pay substantial damages if
the plaintiffs are successful in their actions.
RESTRICTIONS UNDER OUR CREDIT FACILITY MAY REQUIRE US TO MAKE BUSINESS DECISIONS
THAT ARE ADVERSE TO OUR LONG TERM INTERESTS AND THE INTERESTS OF OUR
STOCKHOLDERS.
Restrictions under our $100.0 million revolving line of credit facility may
require us to make business decisions that are adverse to our long term
interests and to the interests of the holders of our common stock. For example,
we generally must obtain the lenders' consent and sometimes prepay a portion of
the outstanding debt under the credit facility before we can issue securities,
enter into acquisitions for cash or securities, dispose of our assets or incur
additional debt. We also must maintain certain operating ratios and achieve
specified financial thresholds.
Upon a default under our credit facility, the lenders may require us to
immediately repay the entire amount outstanding under the credit facility. If we
cannot repay these borrowings, we may need to seek the protection of the federal
bankruptcy laws to continue operating our business, and possibly sell our
assets, which would have a material adverse effect on our business and our
relationships with customers, suppliers and employees. Even if we were able to
repay all amounts owed under the credit facility, our business, financial
condition and results of operations would be materially adversely affected due
to the resulting loss in liquidity. In addition, in the event of a default under
the credit facility that we do not cure, the lenders could foreclose on the
collateral securing our obligations, which would result in the lenders owning
and having effective control over our operations and possibly in the sale of our
assets, which would have a material adverse effect on our business and our
relationships with customers, suppliers and employees.
IF STAR'S LENDERS ACCELERATE PAYMENT OF THE AMOUNTS STAR OWES THEM, STAR COULD
BECOME INSOLVENT OR BE FORCED TO FILE FOR BANKRUPTCY.
STAR is subject to certain restrictions under its financing arrangements,
including its financing arrangements with WorldCom Network Services, Inc. and
RFC Capital Corporation and its anticipated financing arrangement with World
Access. 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 accelerate payment on any of STAR's debt, it could force STAR to file
for bankruptcy or reorganize its business. Under STAR's financing arrangements
with WorldCom and its anticipated financing arrangement with World Access, 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, World
Access and WorldCom can accelerate payment of the outstanding balance. STAR's
anticipated financing arrangement with World Access will provide for a
predetermined initial advance with additional advances to be made solely in
World Access' discretion. 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.
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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 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.
STAR MAY NOT HAVE SUFFICIENT CASH FLOW FROM ITS BUSINESS TO PAY ITS DEBT.
The amount of STAR's outstanding debt is large compared to its cash flow
and the net book value of its assets. STAR has substantial repayment obligations
under its outstanding debt. As of March 31, 2000, STAR had:
- Total consolidated debt of approximately $184.3 million, including
$82.0 million outstanding pursuant to its financing arrangement with
RFC and including its financing arrangement with WorldCom which was
entered into on April 12, 2000; and
- Stockholders' equity of approximately $270.1 million.
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The following chart shows the aggregate 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 accelerate payment of the amounts due
under its financing arrangements. Also, because the interest rates under some of
its financing 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 may
not generate enough cash from its operations to meet these obligations. STAR has
entered into a letter of intent with PT-1 acquiror to sell the assets of PT-1
for cash proceeds of $150.0 million less certain liabilities and subject to a
purchase price adjustment. In the event that STAR does not reach a definitive
agreement with PT-1 acquiror, STAR will attempt to sell PT-1 to another buyer
subject to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at least
$ , obtaining the opinion of STAR's financial advisor in connection
with the sale and approval by the STAR board of directors of a definitive sale
agreement containing terms that the STAR board of directors determines to be in
the best interests of STAR. STAR expects that the proceeds it receives from the
sale 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 sale to
PT-1 acquiror will close, that STAR will find an alternative buyer for PT-1 or
that the proceeds STAR receives from the PT-1 sale will be sufficient.
AS A HOLDING COMPANY, OUR LIQUIDITY COULD BE ADVERSELY AFFECTED IF OUR
SUBSIDIARIES ARE UNABLE TO DISTRIBUTE MONEY TO US.
As a holding company without significant income from operations, we are
dependent upon the income from our operating subsidiaries to meet our operating
expenses. If our operating subsidiaries are unable to pay dividends or otherwise
distribute amounts to us sufficient to cover our operating expenses, then we may
be subject to liquidity problems, even if, on a consolidated basis, our
operating subsidiaries are profitable.
WE MAY LOSE MARKET SHARE AND FACE PRICING PRESSURES IF WE ARE NOT ABLE TO
COMPETE SUCCESSFULLY WITH OTHER TELECOMMUNICATIONS FIRMS.
The segments of the telecommunications industry in which we operate are
intensely competitive. We believe that competition will continue to increase,
placing downward pressure on prices, thus adversely affecting our gross margins.
Many of the companies with whom we compete have significantly more extensive
engineering, manufacturing, marketing, financial and technical resources than we
have. We are uncertain whether we can continue to compete successfully or retain
market share.
IF WE FAIL TO ADEQUATELY RESPOND TO TECHNOLOGICAL CHANGES IN THE
TELECOMMUNICATIONS INDUSTRY, WE MAY LOSE MARKET SHARE.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of competitive product and service
offerings, such as the utilization of the Internet for international voice and
data communications. We may fail to adequately respond to the technological
changes in the telecommunications industry and thus lose market share.
Technological developments by
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our competitors may challenge our competitive position or increase the amount of
expenditures that will be required for us to respond to a rapidly changing
technological environment.
IF WE CANNOT ATTRACT AND RETAIN QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL, WE
MAY FAIL TO SUCCESSFULLY OPERATE OUR BUSINESS.
We are highly dependent on the services of several key executive officers
and technical employees, particularly John D. Phillips, World Access' Chief
Executive Officer, and Walter J. Burmeister, World Access' President. In
addition, we will need to hire additional skilled personnel to support the
continued growth of our business. The market for skilled personnel, especially
those with the technical abilities we require, is currently very competitive,
and we must compete with much larger companies with significantly greater
resources to attract and retain these persons. If we are unable to retain the
services of Mr. Phillips, Mr. Burmeister, and other key management and technical
personnel or to attract such personnel in the future, we may not be able to
successfully operate our business.
GOVERNMENT REGULATORY POLICIES AND INDUSTRY CONSOLIDATION IN EUROPE MAY DECREASE
PROFIT MARGINS AND INCREASE PRICING PRESSURES IN OUR INDUSTRY AND DECREASE
DEMAND FOR OUR SERVICES AND PRODUCTS.
We expect that government regulatory policies, including the
Telecommunications Act of 1996, are likely to continue to have a major impact on
the pricing of both existing and new public network services and possibly
accelerate the entrance of new competitors and consolidation of the industry. In
addition, industry consolidation, especially in Europe, may decrease profit
margins. These trends may decrease demand for our services and products that
support these services. Lower prices may affect the cost effectiveness of our
deployment of public network services. User uncertainty regarding future
policies may also decrease demand for our telecommunications products and
services.
OUR 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, we intend to
increase our international sales. Our 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;
- difficulty in accounts receivable collection;
- potentially adverse tax consequences of international tax laws;
- dependence on foreign partners; and
- fluctuations in foreign currency values.
WE MAY FACE LIABILITY UNDER THE FOREIGN CORRUPT PRACTICES ACT.
Our international operations are subject to the Foreign Corrupt Practices
Act, which generally prohibits U.S. companies and their intermediaries from
bribing foreign officials for the purpose of obtaining or keeping business. We
may face liability under the Foreign Corrupt Practices Act as a result of past
or future actions taken without our knowledge by our agents, strategic partners
and other intermediaries.
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WE MAY NOT BE ABLE TO LEASE TRANSMISSION FACILITIES AT HISTORICAL RATES.
Our future profitability will be based in part upon our 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. As a result of the mergers, we will be able to utilize World Access'
network facilities, STAR's network facilities and WORLDxCHANGE's network
facilities. However, our experience in providing data transmission services to
date has been limited and, consequently, we can provide no assurance that we
will be successful in the data transmission business. Our ability to
successfully enter the data transmission business will depend upon, among other
things, our ability to:
- select new equipment and software and integrate these into our network;
- hire and train qualified personnel; and
- enhance our billing, back-office and information systems to accommodate
data transmission services and customer acceptance of our service
offerings.
If we are not successful, there may be a material adverse effect on our
business, financial condition and operations. Also, a substantial portion our
transmission capacity is obtained on a variable, per minute and short-term
basis, subjecting us to the possibility of unanticipated price increases and
service cancellations. Since we 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, our gross margins are
subject to significant fluctuations. Competitive pricing pressures for these
facilities may also negatively impact us in the longer term. In providing these
services, we will be dependent upon vendors for assistance in the planning and
deployment of our data product offerings, as well as ongoing training and
support. In Europe, there are a number of different protocols for data
transmission. Our network will need to be able to handle all of these protocols,
which will pose technical difficulties.
DELAYS AND INCONSISTENCIES IN IMPLEMENTATION OF THE WORLD TRADE ORGANIZATION
AGREEMENT AND OTHER COMPETITIVE DIRECTIVES MAY ADVERSELY AFFECT OUR BUSINESS 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. Our ability to expand our operations
internationally will be limited if any signatory country to the World Trade
Organization Agreement fails to implement its obligations on a timely basis.
These factors and other obstacles which could develop in connection with the
deregulation of telecommunications services could have a material adverse effect
on our operations by slowing down our rate of expansion.
The national governments of the European Union member states in which we
currently operate, and in which we may operate in the future, 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. In certain cases this has been
done on an inconsistent, and sometimes unclear, basis. In addition, 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 other obstacles which
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could develop in connection with deregulation of telecommunications services
could have a material adverse effect on our operations by slowing down the rate
of our expansion.
WE CANNOT ASSURE YOU THAT OUR PLANNED ENTRY INTO THE INTERNET AND DATA BUSINESS
IN EUROPE WILL BE SUCCESSFUL.
The market for Internet connectivity and related services is extremely
competitive. Our primary competitors will include other Internet service
providers, or ISPs, that have a significant national or international presence.
Many of these carriers have substantially greater resources, capital and
operational experience than we do. We also expect we will experience increased
competition from traditional telecommunications carriers that expand into the
market for Internet services. In addition, we will require substantial
additional capital to make investments in our Internet operations, and we may
not be able to obtain that capital on favorable terms or at all.
Even if we are able to establish and expand our Internet business, we will
face numerous risks that may adversely affect the operations of our Internet
business. These risks include:
- competition in the market for Internet services;
- our limited operating history as an ISP;
- our ability to adapt and react to rapid changes in technology related to
our Internet business;
- uncertainty relating to the continuation of the adoption of the Internet
as a medium of commerce and communications;
- vulnerability to unauthorized access, computer viruses and other
disruptive problems;
- adverse regulatory developments;
- potential liability for information disseminated over our network; and
- difficulties managing the growth of our Internet business, including the
need to enter into agreements with other providers of infrastructure
capacity and equipment and to acquire other ISPs and Internet-related
businesses on acceptable terms.
AS WE EXPAND OUR FOCUS ON RETAIL CUSTOMERS AND EMERGING CARRIERS, OUR LEVEL OF
UNCOLLECTIBLE DEBT MAY INCREASE.
As a wholesale provider of international long distance services, we will
depend upon traffic from other long distance providers, and upon the collection
of receivables from these customers. If we experience difficulties in the
collection of our accounts receivable from our major customers, our cash flow
may be substantially reduced. In addition, we may expend considerable resources
to collect receivables from customers who fail to make timely payments.
In our experience, a large percentage of the revenues generated by retail
customers and from emerging carriers is uncollectible. Therefore, if the
percentage of our revenues derived from retail operations and from sales to
emerging carriers increases, our level of uncollectible debt is likely to
increase.
WORLD ACCESS' CERTIFICATE OF INCORPORATION AND BYLAWS COULD MAKE IT LESS LIKELY
THAT ITS STOCKHOLDERS RECEIVE A PREMIUM FOR THEIR SHARES IN AN UNSOLICITED
TAKEOVER ATTEMPT.
If World Access stockholders do not approve Proposals 4 and 5 in this joint
proxy statement/ prospectus, some provisions of World Access' amended
certificate of incorporation and its bylaws could discourage unsolicited
acquisition proposals or delay or prevent a change in control resulting in its
stockholders receiving a lower premium for their shares in any such attempt or
in our market price per share and the voting and other rights of its
stockholders being adversely affected. Currently, those provisions include a
classified board of directors, a prohibition on written consents in lieu of
meetings of
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the stockholders and the authorization to issue up to 150,000,000 shares of
common stock and up to 10,000,000 shares of preferred stock, with the board
having the authority to designate the rights, preferences and limitations of the
preferred stock.
TERMINATION OF WORLD ACCESS' CARRIER SERVICE AGREEMENT WITH WORLDCOM NETWORK
SERVICES COULD MATERIALLY ADVERSELY AFFECT OUR REVENUES.
World Access entered into a Carrier Service Agreement with WorldCom Network
Services, Inc., a wholly-owned subsidiary of MCI WorldCom, under which WorldCom
Network Services purchases international long distance services from us on a
wholesale basis. WorldCom Network Services presently provides a significant
portion of our service revenues. Termination of the service agreement, or any
reduction in the services provided, could materially decrease our revenues.
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. Revenues attributable to the Service Agreement for 1999
comprised approximately 53.4% of total 1999 revenues of World Access for this
period.
TECHNICAL DIFFICULTIES WITH OR FAILURES IN OUR TELECOMMUNICATIONS NETWORK COULD
RESULT IN DISSATISFIED CUSTOMERS AND LOST REVENUE.
Technical difficulties with or failures in our telecommunications network
could result in dissatisfied customers and lost revenue. For example, a failure
in a portion of our network could prevent us from delivering telephone calls
initiated by our customers. Additionally, technical difficulties with the
network could cause the loss of call detail record information, which is the
basis for our ability to process and substantiate customer billings. Components
of our networks have failed in the past which have had a material adverse effect
on our operating results. There can be no assurance that similar or other
failures will not occur in the future.
THE GROWTH OF OUR TELECOMMUNICATIONS NETWORK WILL BE COSTLY, AND WE MAY NOT BE
ABLE TO INCREASE OUR NETWORK CAPACITY AT A RATE THAT IS COMMENSURATE WITH THE
DEMANDS OF OUR CUSTOMER BASE.
We are currently in the process of expanding our network, and as we expand
our network and the volume of our network traffic, our 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 our operating
margins may decrease. If our traffic volume were to decrease, or fail to
increase to the extent expected or necessary to make efficient use of our
network, our costs as a percentage of revenues would increase significantly,
which could have a material adverse effect on our business, financial condition
or results of operations.
In addition, our business depends in part on our ability to obtain
transmission facilities on a cost-effective basis. We may not be able to obtain
sufficient transmission facilities or access to undersea fiber optic cable on
economically viable terms. Our failure to obtain telecommunications facilities
that are sufficient to support our network traffic in a manner that ensures the
reliability and quality of our telecommunications services could have a material
adverse effect on our business, financial condition or results of operations.
Undersea fiber optic cables typically take several years to plan and construct,
and carriers generally make investments well in advance, based on a forecast of
anticipated traffic. Therefore, our operations are subject to the risk that we
will not adequately anticipate the amount of traffic over our network and may
not procure sufficient cable capacity or network equipment in order to ensure
the cost-effective transmission of customer traffic. We do not control the
construction of these facilities and must obtain access to these facilities
through partial ownership positions. If ownership positions are not available,
we must obtain access to these facilities through lease arrangements on
negotiated terms that may vary with industry and market conditions.
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FOREIGN GOVERNMENTS MAY ATTEMPT TO PREVENT US FROM CONDUCTING OUR BUSINESS.
Governments of many countries exercise substantial influence over various
aspects of the telecommunications market. In some cases, the government owns or
controls companies that are or may become our competitors or companies, such as
national telephone companies, upon which we and our foreign partners may depend
for required interconnections to local telephone networks and other services.
Accordingly, government actions in the future could have a material adverse
effect on our operations. In highly regulated countries in which we are not
dealing directly with the dominant local exchange carrier, the dominant carrier
may have the ability to route service to our foreign partner and, if this
occurs, we may not receive the revenues from the services and have limited or no
recourse. In countries where competition is not yet fully established and we are
dealing with an alternative operator, foreign laws may prohibit or impede new
operators from offering services in these markets.
We currently plan to expand our foreign operations as these markets
increasingly permit competition. The nature, extent and timing of our foreign
operations, however, will be determined, in part, by the actions taken by
foreign governments to permit competition and the response of incumbent carriers
to these efforts. The regulatory authorities in these countries may not provide
us with practical opportunities to compete in the near future, or at all, and we
may not be able to take advantage of any such liberalization in a timely manner.
RECENT FEDERAL COMMUNICATIONS COMMISSION ACTIONS MAY ADVERSELY AFFECT US BY
INCREASING COMPETITION, WHICH MAY INCREASE PRICING PRESSURES AND DECREASE DEMAND
FOR OUR SERVICES.
Recent FCC rulemaking orders and other actions have lowered the entry
barriers for new carriers and resale international carriers by streamlining the
processing of new applications and by eliminating the international settlements
policy for arrangements with foreign carriers that lack market power and on
other selected routes. In addition, the FCC's rules implementing the World Trade
Organization Basic Telecommunications Agreement presume that competition will be
advanced by the U.S. entry of carriers and resale carriers from World Trade
Organization member countries, thus further increasing the number of potential
competitors in the U.S. market and the number of carriers which may also offer
end-to-end services. Increased competition may increase pricing pressures,
reduce our margins and decrease demand for our services.
FCC INTERVENTION REGARDING THE SETTLEMENT RATES CHARGED BY FOREIGN CARRIERS MAY
DISRUPT OUR TRANSMISSION ARRANGEMENTS TO CERTAIN COUNTRIES.
The FCC recently has sought to reduce the foreign routing costs of U.S.
international carriers by prescribing maximum or benchmark settlement rates
which foreign carriers may charge U.S. carriers for routing telecommunications
traffic. The FCC's benchmarks order was recently upheld by the U.S. Court of
Appeals for the District of Columbia circuit. The FCC's action may reduce our
settlement costs, although the costs of other U.S. international carriers also
may be reduced in a similar fashion. The FCC has not stated how it will enforce
the new settlement benchmarks if U.S. carriers are unsuccessful in negotiating
settlement rates at or below the prescribed benchmarks. Any future FCC
intervention could disrupt our transmission arrangements to certain countries or
require us to modify our existing arrangements.
A RECENT FCC ORDER MAY ADVERSELY AFFECT OUR ABILITY TO COMPETITIVELY PRICE OUR
SERVICE OFFERINGS.
The Telecommunications Act of 1996 permits the FCC to forbear enforcement of the
tariff provisions in such act, which apply to all interstate and international
carriers, and the U.S. Court of Appeals for the District of Columbia Circuit
recently upheld an FCC order directing all domestic interstate carriers to de-
tariff their offerings. The FCC's order only applies to domestic services.
However, the FCC may forbear its current tariff rules for U.S. international
carriers such as us, or order these carriers to de-tariff their services. Any
such FCC action would likely afford non-dominant international carriers greater
flexibility in pricing service offerings, which would increase our competition.
The FCC routinely reviews the contribution rate for various levels of regulatory
fees, including the rate for fees levied to support universal
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service, which fees may be increased in the future for various reasons,
including the need to support the universal service programs mandated by the
Telecommunications Act of 1996, the total costs for which are still under review
by the FCC.
OUR FAILURE TO COMPLY WITH STATE REGULATIONS COULD RESULT IN PENALTIES,
INCLUDING REVOCATION OF ONE OF OUR CERTIFICATES OF AUTHORITY.
Various state laws and regulations impose prior certification,
notification, registration, tariff and/or other requirements on our intrastate
long distance telecommunications operations and our subsidiaries. The vast
majority of states require that we and our subsidiaries apply for certification
to provide intrastate telecommunications services. In most jurisdictions, we
also must file and obtain prior regulatory approval of tariffs for intrastate
services. State regulatory authorities can generally condition, modify or revoke
certificates of authority or impose fines and other penalties for failure to
comply with state laws and regulations.
REGULATION OF CUSTOMERS MAY MATERIALLY ADVERSELY AFFECT OUR REVENUES BY
DECREASING THE VOLUME OF TRAFFIC WE RECEIVE FROM MAJOR CUSTOMERS.
Our customers are also subject to actions taken by domestic or foreign
regulatory authorities that may affect the ability of customers to deliver
traffic to us. Regulatory sanctions have been imposed on certain of our
customers in the past. Future regulatory actions could materially adversely
affect the volume of traffic received from a major customer, which could
materially decrease our revenues.
DELAYS AND COSTS INCURRED IN ACHIEVING COMPLIANCE WITH GOVERNMENT REGULATIONS
AND EVOLVING INDUSTRY STANDARDS FOR OUR PRODUCTS COULD ADVERSELY AFFECT OUR
REVENUES.
Our products' failure to comply with the various existing and evolving
regulations and industry standards or the delays and costs incurred in achieving
compliance with these regulations and standards could materially decrease our
revenues, increase our costs and reduce our profitability. Our products must
meet a significant number of voice and data communications regulations and
standards, some of which are evolving as new technologies are deployed. In the
United States, these products and services must comply with various regulations
promulgated by the FCC, as well as with standards established by Bell
Communications Research. Internationally, our products and services must comply
with standards established by telecommunications authorities in various
countries, as well as with recommendations of the International
Telecommunications Union.
OUR BUSINESS IS DEPENDENT UPON THE INTEGRITY AND EXPANSION OF OUR NETWORK AND
TELECOMMUNICATIONS FACILITIES, WHICH PUTS OUR OPERATIONS AT RISK TO OUTSIDE
FORCES BEYOND OUR CONTROL.
Any system or network failure that interrupts our operations could have a
material adverse effect on our business, financial condition or results of
operations. Our operations are dependent on our ability to successfully expand
our network and integrate new and emerging technologies and equipment into our
network, which are likely to increase the risk of system failure and to cause
strain upon the networks. Our operations also depend on our ability to protect
our 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. We cannot be certain that our 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 our
relationships with our customers and our business, operating results and
financial condition.
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RISK FACTORS CONCERNING WORLD ACCESS COMMON STOCK
THE PRICE OF WORLD ACCESS COMMON STOCK HAS BEEN VOLATILE AND COULD CONTINUE TO
FLUCTUATE SUBSTANTIALLY.
World Access common stock is traded on the Nasdaq National Market. The
market price of World Access common stock has been volatile and could fluctuate
substantially based on a variety of factors, including the following:
- announcements of new products or technological innovations by us or
others;
- variations in our results of operations;
- individual sales of large amounts of shares;
- the gain or loss of significant customers;
- the timing of acquisitions of businesses or technology licenses;
- the issuance by World Access of significant amounts of common stock in
connection with acquisitions or otherwise;
- legislative or regulatory changes;
- general trends in the industry;
- market conditions; and
- analysts' estimates and other events in our industry.
In addition, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market price for many
technology companies and that have often been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of World Access common stock.
SIGNIFICANT VARIANCE IN OUR QUARTERLY OPERATING RESULTS COULD ADVERSELY AFFECT
THE PRICE OF WORLD ACCESS COMMON STOCK.
In future quarters, our results of operations may fail to meet the
expectations of market analysts and investors, which may adversely affect the
price of our common stock. World Access quarterly operating results have varied
significantly in the past and 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. Our revenues in any given period can vary due to factors such
as:
- call volume fluctuations, particularly in regions with relatively high
per-minute rates;
- the addition or loss of major customers, whether through competition or
merger;
- the loss of economically beneficial routing options for the termination
of our traffic; and
- technical difficulties with or failures of portions of our network that
impact our ability to provide service to or bill our customers.
Our 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 our 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 our sales incentive plans; and
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- costs associated with changes in staffing levels of sales, marketing,
technical support and administrative personnel.
In addition, our operating results can vary due to factors such as:
- changes in routing due to variations in the quality of vendor
transmission capability;
- our loss of favorable routing options;
- the amount of, and the accounting policy for, return traffic under
operating agreements;
- actions by domestic or foreign regulatory entities;
- the level, timing and pace of our expansion in international and retail
markets; and
- general domestic and international economic and political conditions.
Further, we obtain a substantial portion of our transmission capacity on a
variable, per minute and short-term basis; therefore, we may experience
unanticipated price increases and service cancellations. Since we do 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, our gross margins may also fluctuate significantly over short periods of
time.
In response to competitive pressures or new product and service
introductions, we may take certain pricing or marketing actions that could
materially adversely affect our quarterly operating results. We base our expense
levels, in part, on our expectations of future sales. If future sales levels are
below expectations, then we may be unable to adjust spending sufficiently in a
timely manner to compensate for the unexpected sales shortfall.
Accordingly, we believe that you should not rely upon period-to-period
comparisons of our operating results as an indication of our future performance.
In addition, the operating results of any quarterly period are not indicative of
results that you should expect for a full fiscal year. Historically, 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 these companies'
assessment of a number of risks and uncertainties, and their actual results
could differ materially from the results anticipated in these forward-looking
statements. Any forward-looking statement speaks only as of the date of this
joint proxy statement/prospectus or the documents incorporated by reference, and
none of World Access, STAR, or WORLDxCHANGE undertakes any obligation to update
any forward-looking statements to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of an unanticipated
event.
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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.
Matters to be considered. At the World Access special meeting,
stockholders of record of World Access as of the close of business on the World
Access record date will be asked to consider and vote upon the following
proposals:
- Proposal 1. To approve and adopt the STAR merger agreement and the
transactions contemplated thereby. Under the STAR merger agreement, (i)
each outstanding share of STAR common stock will be converted into the
right to receive, at the election of World Access, (a) 0.3905 shares of
World Access common stock, subject to adjustment, also referred to as the
exchange ratio, or (b) that number of shares of World Access common stock
equal to 60% of the exchange ratio and 40% of the sum of 7.81 plus the
net cash proceeds in excess of $150.0 million received by STAR upon the
sale of its subsidiary, PT-1 Communications, Inc., divided by 62,856,702;
and (ii) STAR will become a wholly-owned subsidiary of World Access;
- Proposal 3. To approve and adopt the WORLDxCHANGE merger agreement and
the transactions contemplated thereby. Under the WORLDxCHANGE merger
agreement, (i) each outstanding share of WORLDxCHANGE common stock
(including shares of preferred stock deemed to be automatically converted
into common stock) will be converted into the right to receive 0.6583
shares of World Access common stock; and (ii) WORLDxCHANGE will become a
wholly-owned subsidiary of World Access;
- Proposal 4. To approve an amendment to Article IV of World Access'
amended certificate of incorporation to increase the number of shares of
common stock that World Access is authorized to issue from 150,000,000
shares to 290,000,000 shares;
- Proposal 5. To approve an amendment to Article IX of World Access'
amended certificate of incorporation to increase the number of authorized
directors from 12 to 15 and to end the division of World Access' board of
directors into three classes so that all directors will serve terms of
one year or until their successors are duly elected and qualified or
until their earlier resignation or removal;
- Proposal 6. To approve an amendment to World Access' Directors' Warrant
Incentive Plan to increase the number of warrants issuable under the
Directors' Warrant Incentive Plan from 600,000 warrants to 1,200,000
warrants and to modify the performance criteria of World Access common
stock under the plan;
- Proposal 7. To elect as directors the two nominees named herein to serve
(i) if Proposal 5 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 (ii) if Proposal 5 is not approved, for a term
of three years and until their successors are elected and qualified or
until their earlier resignation or removal; and
- to transact such other business as may properly come before the World
Access special meeting or any adjournments or postponements thereof.
The stockholders of record of the World Access Series C preferred stock
will not be entitled to consider and vote upon Proposal 7.
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.
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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 thereby 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 thereby.
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 to increase the number of shares of common stock
World Access has the authority to issue, increase the maximum number of
authorized World Access directors and eliminate the classification of the World
Access board of directors. The board also recommends a vote for the amendment to
the World Access Directors' Warrant Incentive Plan to increase the number of
warrants issuable under the Directors' Warrant Incentive Plan from 600,000 to
1,200,000 and for the nominees for director described in this joint proxy
statement/prospectus.
World Access record date. The board of directors of World Access has fixed
, 2000 as the record date for determination of holders of World
Access voting stock entitled to notice of, and to vote at, the World Access
special meeting.
Stockholders entitled to vote. As of the close of business on the 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 has 50,000 shares of Series A preferred stock issued and
outstanding. Each share of Series A preferred stock is convertible at the option
of the holder into World Access common stock in accordance with a conversion
formula contained in the World Access amended certificate of incorporation. The
Series A preferred stock is entitled to vote on the approval and adoption 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. Therefore, the
holders of the Series A preferred stock may vote with the holders of World
Access common stock on the proposals described herein as if they held 4,347,826
shares of World Access common stock.
World Access also has 350,259.875 shares of Series C preferred stock issued
and outstanding. Each share of Series C 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. Except with respect to the election of directors, the Series C
preferred stock is entitled to vote on the approval and adoption 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. Therefore, the
holders of the Series C preferred stock may vote with the holders of World
Access common stock on the proposals described herein (except with respect to
the election of directors) as if they held 17,186,451 shares of World Access
common stock.
World Access also has 184,000 shares of Series D preferred stock issued and
outstanding. Each share of Series D preferred stock is convertible at the option
of the holder into World Access common stock in accordance with a conversion
formula contained in the World Access amended certificate of incorporation. The
Series D preferred stock is entitled to vote on the approval and adoption 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. Therefore, the
holders of the Series D preferred stock may vote with the holders of World
Access common stock on the proposals described herein as if they held 10,222,222
shares of World Access common stock.
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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Quorum; vote required. Each holder of record of World Access common stock
on the World Access record date is entitled to cast one vote for each share of
World Access common stock held thereby. 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 election of the nominees for director will require the affirmative
vote of a 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.
Pursuant to the World Access amended certificate of incorporation, the
stockholders of record of the World Access Series C preferred stock will not be
entitled to consider and vote upon the election of the nominees for director.
The approval and adoption of the STAR merger agreement and the transactions
contemplated thereby and the WORLDxCHANGE merger agreement and the transactions
contemplated thereby, the approval of the amendment to the World Access
Directors' Warrant Incentive Plan to increase the number of warrants issuable
under the Directors' Warrant Incentive Plan and the approval of the amendment to
the World Access amended certificate of incorporation to increase the number of
shares of common stock World Access is authorized to issue will require the
affirmative vote of a majority in voting power of the shares of World Access
voting stock entitled to vote and voting as a single class. The approval of the
amendment to the World Access amended certificate of incorporation to increase
the number of shares of common stock World Access is authorized to issue will
also require the affirmative vote of a majority of the shares of World Access
common stock entitled to vote and voting as a single class. The approval of the
amendment to the World Access amended certificate of incorporation to increase
the maximum number of authorized directors and to eliminate the classification
of the World Access board of directors will require the affirmative vote of at
least 75% in voting power of the shares of World Access voting stock entitled to
vote and voting as a single class. The total outstanding shares of World Access
common stock for purposes of calculating the number of shares constituting a
quorum and needed for approval includes the number of shares of World Access
common stock issuable upon conversion of the Series A preferred stock, the
Series C preferred stock (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
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adjourn or postpone such meeting to another time and/or place (including,
without limitation, for the purpose of soliciting additional proxies), the
persons named in the enclosed form of proxy and voting thereunder will have
discretion to vote on such matters in accordance with their best judgment;
provided, however, that 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 (although
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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THE STAR SPECIAL MEETING
Date, time and place of the STAR special meeting.
, 2000 [DATE]
[TIME]
[STREET ADDRESS]
[CITY, STATE, ZIP]
Matters to be considered. At the STAR special meeting, stockholders of
record of STAR as of the close of business on , 2000, the STAR
record date, will be asked to consider and vote upon the following proposals:
- Proposal 1. To approve and adopt the STAR merger agreement and the
transactions contemplated by the STAR merger agreement;
- Proposal 2. To consider a resolution authorizing the PT-1 sale subject
to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at
least $ , obtaining the opinion of STAR's financial advisor as
to the fairness from a financial point of view of the consideration to
be received in the sale and approval by the STAR board of directors of a
definitive sale agreement containing terms that the STAR board of
directors determines to be in the best interests of STAR; and
- To transact any other business that is properly brought before the STAR
special meeting, or any adjournment or postponement of the STAR special
meeting.
STAR board of directors' recommendations. The board of directors of STAR
approved the STAR merger agreement, the transactions contemplated by the STAR
merger agreement and the PT-1 sale, including either the sale of PT-1 to PT-1
acquiror pursuant to the terms of PT-1 letter of intent or to such other buyer
and on such terms as the STAR board of directors shall subsequently approve,
subject to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at least $
, obtaining the opinion of STAR's financial advisor in connection with
the sale and approval by the STAR board of directors of a definitive sale
agreement containing terms that the STAR board of directors determines to be in
the best interests of STAR, and recommends that the stockholders of STAR vote
FOR the approval and adoption of the STAR merger agreement, FOR the approval of
the PT-1 sale and FOR the approval of the transactions contemplated by the STAR
merger agreement and the PT-1 sale.
STAR record date. The board of directors of STAR has fixed ,
2000 as the record date for determination of holders of STAR common stock
entitled to notice of and to vote at the STAR special meeting.
Stockholders entitled to vote. As of the close of business on the 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 holders of record of STAR common stock as of the close of business on
the STAR record date are entitled to notice of and to vote at the special
meeting, or any adjournment or postponement of the STAR special meeting.
Quorum; vote required. Each holder of record of STAR common stock on the
STAR record date is entitled to cast one vote for each share of STAR common
stock held thereby. 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 sale and the transactions contemplated by the STAR
merger agreement and the PT-1 sale will require the affirmative vote of a
majority of the outstanding shares of STAR common stock.
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Shares of STAR common stock that are voted "FOR," "AGAINST" or "WITHHELD"
at the STAR 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 STAR common stock present in person or represented by proxy at
the STAR special meeting and entitled to vote on the subject matter. Abstentions
will be 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 with respect to the
particular proposal on which the broker has expressly not voted. Because
adoption and approval of the STAR merger agreement, the PT-1 sale, and the
transactions contemplated by the STAR merger agreement and the PT-1 sale,
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.
Security ownership by certain beneficial owners and management. As of the
close of business on the record date, directors and executive officers of STAR
and their respective affiliates were deemed to be the beneficial 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 furnished to holders of STAR common stock in
connection with the solicitation of proxies by and on behalf of the board of
directors of STAR for use at the STAR special meeting. All shares of STAR common
stock that are entitled to vote and are represented at the STAR 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 the proxies. If no instructions are indicated, the
proxies will be voted FOR the approval and adoption of the STAR merger
agreement, the PT-1 sale and the transactions contemplated by the STAR merger
agreement and the PT-1 sale.
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, among other things, consideration of a motion to adjourn or postpone
the STAR special meeting to another time and/or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy and voting thereunder will have discretion to vote
on such matters in accordance with their best judgment; provided, however, that
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 person
giving it any time before it is voted. Proxies may be revoked by (i) filing with
the Secretary of STAR at or before the taking of the vote at the STAR special
meeting a written notice of revocation bearing a later date than the proxy, (ii)
duly executing a later-dated proxy relating to the same shares and delivering it
to the Secretary of STAR before the taking of the vote at the STAR special
meeting, or (iii) attending the STAR special meeting and voting in person
(although 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 so as to be delivered 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 borne by World Access. In addition to solicitation by use of the mails,
proxies may be solicited by directors, officers and employees of STAR 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 STAR
will reimburse such custodians, nominees and fiduciaries for reasonable expenses
incurred in connection therewith.
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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 the consideration of
the World Access stockholders and the STAR stockholders, voting separately.
While we believe that the description covers the material terms of the STAR
merger and the related transactions, this summary may not contain all of the
information that is important to you. You should carefully read this entire
document and the other documents we refer to for a more complete understanding
of the STAR merger.
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, significant capital costs were being incurred in connection with the
expansion of STAR's business into Germany and the development of its retail long
distance operations. During this time period, Goldman Sachs Credit Partners LP,
Kaufman Brothers, Lehman Brothers, Morgan Stanley Dean Witter and Deutsche Bank
Securities Inc. were retained to pursue a possible high yield bond offering and
to provide financial advice on potential transactions with strategic merger
partners. STAR ultimately concluded that a high yield bond offering would not be
an effective means of raising necessary capital.
During this same period, STAR also consulted with each of Goldman Sachs,
Kaufman Brothers, 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. Market conditions in the telecommunications business and the capital
position of STAR made such contemplated transactions infeasible.
STAR received several acquisition proposals in the last quarter of 1999,
but each proposal was limited to the acquisition of STAR's German operations.
These proposals were not considered attractive by the STAR board of directors as
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 overall 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 as STAR was subject to a prior
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 whereby World Access proposed to 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 infuse cash in the
form of a bridge loan upon the signing of a definitive agreement. During the due
diligence period contemplated by the letter of intent, World Access discovered
that for a variety of reasons, STAR would require significant, near term capital
infusion. As a result of this unexpected need by STAR for capital, World Access
and STAR representatives met to renegotiate the terms of the merger in light of
STAR's capital requirements. On February 2, 2000, the parties agreed to a
repricing of the 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 and agreed to provide STAR with significant interim financing. Based on
this agreement, the parties issued a joint press release announcing the
repricing and proceeded to finalize the 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
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shortage and the unavailability of superior offers, management was instructed to
continue negotiations with World Access.
On February 8, 2000, the board of directors of World Access met by
telephonic conference call 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 again
met by telephonic conference call 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, DLJ
gave its oral opinion as to the fairness of the consideration to be paid by
World Access pursuant to the STAR merger agreement. The board of directors also
received summaries of the results of World Access' due diligence investigation
of STAR. After the foregoing, the World Access board of directors unanimously
approved the STAR merger agreement and the transactions contemplated thereby and
unanimously agreed to recommend its adoption to the stockholders of World
Access. On February 11, 2000, DLJ forwarded its written opinion regarding the
fairness of the consideration to be paid by World Access pursuant to 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 with respect to 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 the current financial
condition of STAR, the decline in margins in its core business due to increased
competition and the significant capital required to accomplish management's
program of diversification. The STAR board of directors voted to approve the
STAR merger agreement and the transactions contemplated thereby and voted to
recommend that the stockholders of STAR vote for the approval and adoption of
the STAR merger agreement and the transactions contemplated thereby. In
approving the STAR merger, the STAR board of directors considered the potential
benefits of the merger, including relevant business, financial, legal and market
factors, some of which are discussed below under the heading "STAR's reasons for
the STAR merger."
WORLD ACCESS' REASONS FOR THE STAR MERGER
The World Access board of directors believes that the STAR merger is fair
to and in the best interests of World Access and its stockholders. After
consideration of relevant business, financial, legal and market factors, the
board of directors unanimously approved the STAR merger agreement and the
transactions contemplated thereby and voted to recommend that the stockholders
of World Access vote FOR the approval and adoption of the STAR merger agreement
and the transactions contemplated thereby.
In deciding to approve the STAR merger agreement and to recommend approval
and adoption of the STAR merger agreement by the World Access stockholders, the
World Access board of directors considered a number of factors, including
particularly the factors listed 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 specific factors considered
in reaching its determination. The World Access board of directors viewed its
position and recommendation as being based on the totality of the information
and factors presented to and considered by it. In addition, individual directors
may have given different weight to different information and factors.
The financial terms of the STAR merger. The World Access board of
directors considered information concerning the business, earnings, operations,
financial condition and prospects of World
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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 thereby based on its consideration of these
factors without taking into account the WORLDxCHANGE merger. The board of
directors also considered the opinion of Donaldson, Lufkin & Jenrette Securities
Corporation as to the fairness to World Access, from a financial point of view,
of the consideration to be paid by World Access pursuant to the STAR merger
agreement. The directors also considered their own knowledge of World Access and
STAR and their respective businesses.
STAR's extensive facilities-based network. The World Access board of
directors considered STAR's strong international network presence, which
connects more than 51 countries worldwide and includes 24 international gateway
switches, 17 transoceanic cable systems, a North American fiber network
connecting 30 cities and ownership in a planned German fiber optic network
connecting approximately 23 German cities.
Industry trend toward consolidation. The World Access board of directors
considered the status of the international telecommunications services industry
and the likely trend toward consolidation of service providers. It also
considered the importance of market position in the global telecommunications
services industry. The World Access board of directors considered the potential
significant cost savings to be achieved as a result of the STAR merger in
providing global retail telecommunications services at competitive rates.
STAR's established customer base. The World Access board of directors
considered the compatibility of STAR's established base of wholesale customers
with World Access' existing customer base. STAR's customer base includes 14 of
the top 40 global carriers, and STAR was the first carrier in the emerging
carrier marketplace to be selected by AT&T for overflow capacity.
Ability to accelerate plans to become a leading provider of bundled voice,
data and internet services to key international markets. The World Access board
of directors considered the additional services offered by STAR, which would be
made available to current and future customers of World Access. Specifically,
the board of directors 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.
RECOMMENDATION OF THE WORLD ACCESS BOARD OF DIRECTORS
The World Access board of directors has carefully 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 BOARD OF DIRECTORS OF WORLD
ACCESS HAS UNANIMOUSLY APPROVED THE STAR MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS OF WORLD
ACCESS VOTE FOR THE APPROVAL AND ADOPTION OF THE STAR MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
STAR'S REASONS FOR THE STAR MERGER
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 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 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 relevant
business, financial, legal and market factors, some of which are discussed
below.
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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 a number of factors, including the following:
The potential cost savings and synergies. The STAR board of directors
considered the potential cost savings and synergies that would be achieved by
the combination of World Access and STAR. Among the benefits from integration
that the STAR board of directors considered were the potential financial and
operating efficiencies and other synergies that would result from integrating
the systems and operations of both companies. In addition, the STAR board of
directors considered the enhanced capabilities that the combined management team
would provide to STAR's operations.
Diversified geographic and product market position. The STAR board of
directors considered the complementary geographic network coverage of each
company and the enhanced European presence that would be obtained by the
integration of STAR's network assets and licenses in Germany with World Access'
existing European operations. The board of directors' analysis included the
potential positioning of the combined company as a leading provider of global
telecommunications services with a state-of-the art pan-European network in 14
Western European countries and ownership positions in 26 international fiber
optic cable networks.
The financial condition of STAR. The STAR board of directors examined the
current financial condition of STAR and considered the potential benefits of a
sale transaction to a company with greater financial resources than that of
STAR. The STAR board of directors was particularly concerned about the current
debt load of STAR and its weak capital position. The STAR board of directors
considered the availability of interim financing in connection with the STAR
merger and the lack of a superior offer prior to the approval of the STAR merger
agreement.
The foregoing discussion of the information and factors considered by the
STAR board of directors is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the STAR
merger agreement and the STAR merger, the STAR board of directors did not find
it practical to, nor did it attempt to, quantify, rank or otherwise attempt to
assign relative weights to the specific factors considered in reaching its
determination. In addition, the STAR board of directors did not undertake to
make a specific determination as to whether any particular factor was favorable
or unfavorable to the board of directors, or assign any particular weight to any
factor, but rather conducted an overall analysis of the factors described above,
including thorough discussion with and questioning of STAR's management and
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.
RECOMMENDATION OF THE STAR BOARD OF DIRECTORS
The STAR board of directors has 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 HAS
APPROVED THE STAR MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE STAR
MERGER AGREEMENT AND RECOMMENDS THAT THE STOCKHOLDERS OF STAR VOTE FOR THE
APPROVAL AND ADOPTION OF THE STAR MERGER AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY.
OPINION OF WORLD ACCESS' FINANCIAL ADVISOR REGARDING THE STAR MERGER
The board of directors of World Access engaged Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ") to act as its financial advisor in connection
with the STAR merger. On February 11, 2000, DLJ 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
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of view. As described above under "World Access' reasons for the STAR merger,"
DLJ's opinion was only one of many factors taken into consideration by the board
of directors of World Access in making its determination to approve the STAR
merger agreement.
THE FULL TEXT OF DLJ'S OPINION IS INCLUDED AS ANNEX C TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO READ CAREFULLY DLJ'S OPINION IN ITS ENTIRETY FOR THE DESCRIPTIONS OF
THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN IN ARRIVING AT THE OPINION. DLJ'S OPINION
WAS PREPARED FOR AND ADDRESSED TO WORLD ACCESS' BOARD OF DIRECTORS AND ONLY
ADDRESSES THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO
BE PAID BY WORLD ACCESS. DLJ'S OPINION DOES NOT:
(1) ADDRESS THE MERITS OF THE UNDERLYING DECISION BY WORLD ACCESS TO
ENGAGE IN THE STAR MERGER OR OTHER BUSINESS STRATEGIES CONSIDERED
BY WORLD ACCESS;
(2) CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW THAT
STOCKHOLDER SHOULD VOTE AT THE STOCKHOLDERS' MEETING; OR
(3) CONSTITUTE AN OPINION AS TO THE PRICE AT WHICH WORLD ACCESS COMMON
STOCK WILL ACTUALLY TRADE AT ANY TIME.
The type and amount of consideration was determined in arms-length
negotiations between World Access and STAR. No restrictions or limitations were
imposed by World Access upon DLJ with respect to the investigations made or the
procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ, among other things:
- reviewed the draft, dated February 6, 2000, of the STAR merger agreement
and assumed that the final form of that agreement would not vary in any
respect that would be material to DLJ'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; and
- compared selected 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 DLJ deemed appropriate for purposes of its
opinion.
In rendering its opinion, DLJ 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. DLJ
relied upon the estimates of the management of World Access of the operating
synergies achievable as a result of the STAR merger. DLJ 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, DLJ relied upon and
assumed net cash proceeds of $150.0 million from the sale of PT-1 by STAR. DLJ
expressed no opinion with respect to such forecasts or the assumptions on which
they were based, and DLJ 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
DLJ. DLJ 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. DLJ assumed that the STAR merger would be accounted for as a pooling of
interests under generally accepted accounting principles and that it would
qualify as a tax-free reorganization for U.S. federal income tax purposes.
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The preparation of a fairness opinion is a complex process that is not
necessarily susceptible to partial analysis or summary description and involves
determinations about the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
DLJ performed each of the analyses summarized below in order to provide a
different perspective on the STAR merger and add to the total mix of information
available. However, although the separate analyses are summarized below, DLJ
believes that its analyses must be considered as a whole. Selecting portions of
the analyses or of the summary set forth below, without considering the analyses
as a whole, could create an incomplete or misleading view of the processes
underlying DLJ's opinion. DLJ 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 and did not attempt to
assign specific weights to particular analyses or factors considered. Rather, in
arriving at its opinion, DLJ considered the results of each of these analyses
together, in their totality and in light of each of the other analyses and made
qualitative judgements as to the significance and relevance of all of the
factors and analyses considered in arriving at its opinion.
In performing its analyses, DLJ made numerous assumptions with respect to
industry performance, business and regulatory, financial, economic, monetary,
political and market conditions and other matters, many of which are beyond the
control of World Access or STAR. In addition, analyses relating to the value of
businesses or securities are not appraisals and do not reflect the prices at
which the businesses or securities can actually be sold. Stockholders should
understand that no company or transaction used in DLJ's analyses as a comparison
is directly comparable to World Access or STAR or to the STAR merger. It should
also be understood that analyses based upon projections or forecasts of future
results are not necessarily indicative of actual future results, which may be
significantly more or less favorable than suggested by those analyses. Because
these analyses are inherently subject to uncertainty, being based upon numerous
factors or events beyond the control of the parties, none of World Access, STAR
or DLJ or any other person assumes responsibility if future results are
different from those forecast. See "Risk Factors" elsewhere in this joint proxy
statement/prospectus.
DLJ's opinion is necessarily based upon economic, market, financial and
other conditions as they existed on, and on information available to DLJ as of,
the date of its opinion. It should be understood that, although subsequent
developments may affect its opinion, DLJ does not have any obligation to update,
revise or reaffirm its opinion as a result of changes in such conditions or
otherwise.
The following is a brief summary of the principal analyses performed by DLJ
in connection with DLJ's opinion and included in its presentation to World
Access' board of directors. For purposes of the following analyses, DLJ (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 DLJ 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.
Included in the discussion below are summaries of some of the statistical
information appearing in that discussion presented in a tabular format. While
these tables are presented for the purpose of clarity and ease of reference,
they are not substitutes for, and must be read along with, all of the
information appearing under the captions immediately preceding them as well as
all of the information set forth in this document.
1. CONSIDERATION PAID ANALYSIS
DLJ 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, DLJ 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.
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2. COMPARABLE COMPANY ANALYSIS
To provide comparative market information, DLJ compared selected historical
and projected operating and financial ratios of STAR to the corresponding data
and ratios of selected publicly traded companies that operate businesses
reasonably similar to STAR.
For purposes of these analyses, DLJ compared STAR relative to the following
five companies deemed by DLJ to be reasonably comparable to STAR:
<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>
However, no other company utilized in DLJ's analysis of comparable publicly
traded companies is identical to World Access or STAR. Accordingly, this
analysis necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of each of World Access
and STAR and other factors that could affect the public trading values of World
Access, STAR or any other comparable company included in this analysis.
Historical financial information used with respect to the comparable
companies was as of the most recent financial statements publicly available for
each company as of February 9, 2000. DLJ examined certain publicly available
financial data of the comparable companies including enterprise value (defined
as market value of common equity plus book value of total debt and preferred
stock less cash) as multiples of the latest publicly available last quarter
annualized revenues, estimated 2000 revenues taken from various analysts
research reports, gross property, plant and equipment and net property, plant
and equipment.
DLJ 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 at
February 9, 2000. In addition, DLJ compared the enterprise value of STAR to the
implied enterprise values obtained by the above mentioned ratios of the
comparable companies 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.
COMPARABLE COMPANY ANALYSIS
($ IN MILLIONS)
<TABLE>
<CAPTION>
COMPARABLE
COMPANIES REFERENCE RANGE(1)
----------------- -------------------
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(2)....... 1.1x 1.9x 0.7x 1.5x 1.0x
Enterprise Value/Gross PP&E....................... 1.6x 7.5x 2.5x 4.5x 3.5x
Enterprise Value/Net PP&E......................... 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 PP&E...................................... 619.7 2,882.5 943.3 1,718.4 1,336.5
Net PP&E........................................ 619.7 2,786.4 924.5 1,742.9 1,426.0
</TABLE>
- ---------------
(1) In comparing the ratio of STAR's enterprise value to its last quarter
annualized revenues, estimated 2000 revenues, gross property, plant and
equipment and net property, plant and equipment to those of the comparable
companies at February 9, 2000, DLJ also determined a reference range for the
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<PAGE> 79
comparable companies. The reference range represents a tighter range of the
ratios as deemed reasonable by DLJ for comparative purposes.
(2) Source of Projections:
- IDT Corporation: Lazard Freres research report dated December 6, 1999;
- Pacific Gateway Exchange, Inc.: Jefferies research report dated
November 17, 1999;
- PRIMUS Telecommunications Group, Incorporated: Jefferies research
report dated December 1, 1999;
- RSL Communications, Inc.: DLJ research report dated December 1, 1999;
and
- STAR: projections provided by World Access management.
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.
3. ANALYSIS OF SELECTED M&A TRANSACTIONS.
DLJ reviewed selected mergers and acquisitions transactions of companies
that operate businesses reasonably similar to that of STAR. Of these selected
M&A transactions, the following mergers and acquisitions transactions were
deemed most relevant by DLJ:
- Viatel, Inc.'s acquisition of Destia Communications, Inc.
- PRIMUS Telecommunications Group, Incorporated's acquisition of TresCom
International, Inc.
However, no company, transaction or business utilized in DLJ's analysis of
selected M&A transactions is identical to World Access, STAR or the STAR merger.
Accordingly, this analysis necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
companies and other factors that could affect the acquisition, public trading or
other values of the companies or transactions being analyzed.
DLJ performed this analysis in order to compare STAR's ratios of the
implied transaction value to its last twelve months revenues, last quarter
annualized revenues and net property, plant and equipment to those of the
selected mergers and acquisitions transactions. In addition, DLJ compared the
transaction value of STAR to the implied transaction values obtained by the
above mentioned ratios of the selected mergers and acquisitions transactions and
STAR's last twelve months revenues, last quarter annualized revenues and net
property, plant and equipment.
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>
Transaction Value/Last Twelve Months
Revenues..................................... 1.1x 16.5x 1.1x 3.3x 1.1x
Transaction Value/Last Quarter Annualized
Revenues..................................... 1.0x 4.0x 1.2x 2.6x 1.2x
Transaction Value/Net PP&E..................... 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 PP&E..................................... 619.7 13,307.0 1,876.5 1,971.8 1,876.5
</TABLE>
- ---------------
* For purposes of this analysis, DLJ compared STAR's ratios of the implied
transaction value to its last twelve months revenues, last quarter annualized
revenues and net property, plant and equipment to those
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<PAGE> 80
of the selected mergers and acquisitions transactions deemed most relevant by
DLJ. In addition, DLJ compared the transaction value of STAR to the implied
transaction values obtained by the above mentioned ratios of the selected
mergers and acquisitions transactions deemed most relevant by DLJ and STAR's
last twelve months revenues, last quarter annualized revenues and net
property, plant and equipment.
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, DLJ 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. DLJ 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. DLJ calculated EBITDA for
STAR. EBITDA is earnings before interest, taxes, depreciation and amortization
and other items. DLJ calculated the terminal value of STAR at the end of the
forecast period, by applying a range of estimated EBITDA multiples selected in
DLJ'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 DLJ's subjective estimate of the terminal values based on
management's projected EBITDA were then discounted to the present using a range
of discount rates selected in DLJ'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 is not a complete description of the analyses
performed by DLJ, but describes, in summary form, the principal elements of the
analyses made by DLJ in arriving at DLJ's opinion. The preparation of a fairness
opinion involves 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 summarized.
ENGAGEMENT LETTER
World Access selected DLJ to render an opinion in connection with the STAR
merger based upon DLJ's qualifications, expertise and reputation, including the
fact that DLJ, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
Pursuant to the terms of an engagement letter dated January 12, 2000, World
Access agreed to pay DLJ a fee of $400,000 at the time that DLJ delivered to the
World Access board of directors its opinion,
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<PAGE> 81
irrespective of the conclusion reached in the opinion, and to pay DLJ 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 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 STAR, or otherwise.
In addition, World Access agreed to reimburse DLJ for all of its out-of-pocket
expenses, including the reasonable fees and expenses of counsel incurred by DLJ
in connection with its engagement, and to indemnify DLJ for liabilities and
expenses arising out of DLJ's engagement, including liabilities under federal
securities laws.
The terms of the fee arrangement with DLJ, which DLJ and World Access
believe are customary in transactions of this nature, were negotiated at
arms-length between World Access and DLJ. World Access' board of directors was
aware of such arrangement, including the fact that a significant portion of the
aggregate fee payable to DLJ is contingent upon consummation of the STAR merger.
DLJ 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. DLJ has
performed investment banking and other services for World Access in the past and
has been compensated for such services. DLJ 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. DLJ 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. has 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 WRITTEN OPINION, DATED FEBRUARY 7, 2000,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITS ON THE REVIEW UNDERTAKEN BY DEUTSCHE BANK IN CONNECTION WITH THE
OPINION, IS ATTACHED AS ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF STAR ARE URGED TO READ
DEUTSCHE BANK'S OPINION IN ITS ENTIRETY. THE SUMMARY OF DEUTSCHE BANK'S OPINION
SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF DEUTSCHE BANK'S OPINION.
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;
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<PAGE> 82
- 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 or the letter of intent for the
sale of PT-1 Communications was signed. Deutsche Bank did not consider the
WORLDxCHANGE merger or the terms of the proposed sale of PT-1 when analyzing the
fairness, from a financial point of view, of the 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 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.
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<PAGE> 83
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 and the results derived from these 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, collectively, the "selected
comparable 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.
Such financial information and valuation measurements included, among other
things:
- total enterprise value, or TEV;
- ratios of TEV to sales for the third quarter of 1999 annualized, or LQA;
- ratios of TEV to estimated sales for the year 2000;
- ratios of TEV to EBITDA for the LQA;
- ratios of TEV to property, plant and equipment, or PP&E, net of
depreciation; and
- ratios of TEV to gross PP&E.
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.
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<PAGE> 84
For each of the selected comparable companies, Deutsche Bank calculated
five trading multiples: TEV to sales of the LQA and for 2000 estimated; TEV to
EBITDA of LQA; and TEV to PP&E net of depreciation and to gross PP&E. This
analysis indicated the following medians and means:
<TABLE>
<CAPTION>
TEV/ TEV/ TEV/ TEV/ TEV/
COMPANY OR GROUP OF COMPANIES LQA SALES 2000E SALES LQA EBITDA NET PP&E GPP&E
- ----------------------------- ---------- -------------- -------------- ---------- ------------
<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
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 GPP&E multiple were based solely on the
GPP&E multiple of Global Telesystems because the GPP&E 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.
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Deutsche Bank calculated (i) the implied TEV 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 TEV,
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>
TEV AS A MULTIPLE OF
-------------------------------------------
LQA REVENUE 2000E REVENUE GROSS PP&E
------------- ------------- -------------
($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 TEV.................................. 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-$11.96
</TABLE>
Deutsche Bank also calculated (i) the implied TEV of World Access on a
stand alone basis; (ii) the implied equity value of World Access on a stand
alone basis; and (iii) the implied equity value per share of World Access on a
stand alone basis, in each case based on a comparable trading multiple range
Deutsche Bank deemed appropriate from the multiples of the three categories of
Selected Comparable Companies. The implied TEV, implied equity value and implied
equity value per share for World Access, in each case based on the multiple
ranges Deutsche Bank deemed appropriate, are as follows:
<TABLE>
<CAPTION>
TEV AS A MULTIPLE OF
--------------------------------
LQA REVENUE 2000E REVENUE
--------------- ---------------
($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 TEV........................................... 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 PP&E 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 TEV as a multiple of the gross PP&E.
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 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) by former STAR stockholders and by the
stockholders of World Access before the STAR merger of 20.6%
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and 79.4%, respectively, and approximately 28.9% and 71.1%, respectively, of the
combined company's TEV (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).
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 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 TEVs,
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 TEVs, 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
TEV................................ $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>
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
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>
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
date and four weeks prior to announcement date. The premium to STAR's share
price was calculated
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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>
Other considerations and analyses. In connection with its opinion Deutsche
Bank also considered, among other things, (i) 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, (ii) historical
exchange ratios of World Access and STAR based on historical trading prices,
(iii) STAR cumulative price histogram, and (iv) 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 and factors 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 and factors considered
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 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
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<PAGE> 88
board of directors. As described above, the opinion and presentation of Deutsche
Bank to the STAR board of directors were only two 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 TO BE RECEIVED 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 outstanding share of STAR
common stock will be converted into the right to receive the number of
shares of World Access common stock obtained by solving for "X" in the
following equation:
X = 7.81 + Z
--------
20
"Z" equals the net cash proceeds in excess of $150.0 million received by
STAR upon completion of the sale of its subsidiary, PT-1 (i.e., cash
proceeds net of all taxes, fees, expenses and costs incurred in
connection with such sale), divided by 62,856,702 (initially calculated
to be the number of issued and outstanding shares of STAR common stock,
plus the number of shares underlying outstanding STAR stock options and
warrants as of February 11, 2000). World Access and STAR can give you no
assurance that PT-1 can be sold or that it can be sold for net cash
proceeds in excess of $150.0 million; therefore, we can give you no
assurance that "Z" will be greater than zero. The number of shares of
World Access common stock to be issued for each share of STAR common
stock is referred to as the exchange ratio.
The sale of PT-1 is a condition to World Access' obligation to complete
the STAR merger. If, however, such sale is not completed by the date on
which the STAR merger is to be completed
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<PAGE> 89
and World Access decides to proceed with the STAR merger, the exchange
ratio will be modified by deleting "Z." Further, in such event, a holder
of STAR common stock and STAR stock options or warrants will have the
right to receive an additional number of shares of World Access common
stock upon completion of such sale or exercise of such options or
warrants equal to the net cash proceeds from the PT-1 sale in excess of
$150.0 million divided by 20. You should note that the decision to waive
the sale of PT-1 as a closing condition is a matter within World Access'
sole and exclusive discretion, and World Access is under no obligation
to waive such condition.
- Under the second form of merger consideration, each share of STAR common
stock would be converted into the right to receive the number of shares
of World Access common stock equal to 60% of the exchange ratio and an
amount in cash equal to 40% of the sum of $7.81 plus "Z."
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, in lieu 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 acquire 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. The exercise price will be the exercise price specified in the
STAR stock option or warrant multiplied by the exchange ratio. 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.
CLOSING; EFFECTIVE TIME OF THE STAR MERGER
The closing of the STAR merger will occur on the second business day
following the satisfaction or waiver of all conditions to the completion of the
STAR merger, or at such other time as World Access and STAR agree. On the date
of the closing of the STAR merger, World Access and STAR will file a certificate
of merger with the Secretary of State of the State of Delaware, at which time
the STAR merger will be effective, unless World Access and STAR agree to and
specify a subsequent effective time in the certificate of merger.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE STAR MERGER
The following is a summary of certain material federal income tax
consequences of the STAR 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, as disclosed herein, to the extent the
following discussion summarizes matters of law or legal conclusions, it is
accurate in all material respects under the federal income tax laws as now in
effect. The following discussion is general in nature and does not purport to be
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: (i) an insurance company; (ii) a tax-exempt organization;
(iii) an employee stock ownership plan; (iv) a bank; (v) a broker, dealer or
financial institution; (vi) 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; (vii) a holder that has a "functional currency"
other than the United States dollar; (viii) a holder subject to the alternative
minimum tax; (ix) 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; (x) a holder who acquired shares of STAR
common stock
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pursuant to the exercise of options or otherwise as compensation or through a
tax-qualified retirement plan; or (xi) 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 (for example, 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 summary assumes that as
a STAR stockholder, you hold your STAR common stock as a "capital asset"
(generally, property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended, or the Code. This summary is
based on the Code and final, temporary and proposed treasury regulations
promulgated thereunder, 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 continuity and validity of this summary.
We have not requested a ruling from the IRS with respect to the federal
income tax consequences of the STAR merger nor is consummation 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 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 accuracy of 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 tax discussion set forth below.
The opinion represents such counsel's best judgment as to the tax treatment
of the STAR merger, but neither binds the IRS nor precludes it from adopting a
contrary position, and no assurance can be given that contrary positions will
not be successfully asserted by the IRS 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 STAR merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and that STAR completes the sale of PT-1
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. Under Section 354 of the
Code, 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 time under Delaware corporate law when the STAR merger becomes effective.
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<PAGE> 91
Receipt of World Access stock and cash. If World Access exercises its
right to pay you cash as part of the STAR merger consideration, the amount of
cash World Access can elect to pay has been limited so that the aggregate amount
of such cash payments will not result in the STAR merger failing to constitute a
"reorganization" within the meaning of Section 368(a) of the Code. 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
for federal income tax purposes (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, such loss cannot be recognized by you.
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 as a result of the receipt of cash 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 Section 356 of the
Code, in which case the gain will be characterized as ordinary income to the
extent of your ratable share of the accumulated and undistributed earnings and
profits of STAR.
To determine whether any such recognized gain is capital gain or ordinary
income, 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 amount 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, under the redemption tests of Section 302 of the Code, and for
this purpose, taking into consideration the stock ownership attribution rules of
Section 318 of the Code not only World Access stock directly owned by you, but
also World Access stock owned by certain of your family members and other
entities in which you have an interest, and any World Access stock you have a
right or option to acquire, 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 interest in World
Access. If either of these redemption tests under Section 302(b) of the Code is
satisfied, then "exchange" treatment occurs under Section 302(a) of the Code,
and such 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. The Section 302 redemption tests and the application of the
stock ownership attribution rules are complex and the tax consequences to you
will depend upon your particular facts and circumstances as a STAR stockholder.
You are urged to consult with your tax advisor with respect to these matters.
If none of the redemption tests under Section 302 of the Code is satisfied,
when you exchange shares of STAR common stock for a combination of cash and
shares of World Access common stock, you will be treated as having received a
dividend distribution in that exchange under Section 301 of the Code. 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
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<PAGE> 92
and profits (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" under Section 243 of the
Code; such dividend distribution may, however, also be subject to the
"extraordinary dividend" provisions of Section 1059 of the Code.
Cash for fractional shares. Irrespective of whether World Access elects to
pay cash to STAR stockholders as part of the STAR merger consideration, it will
pay cash in lieu of fractional shares. Based on the current published ruling
position of the IRS, the cash you receive in lieu of a fractional share interest
in World Access common stock will be treated as received in "exchange" for such
fractional share interest under Section 302(a) of the Code. 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, subject to the provisions and
limitations of Section 302 of the Code. If, as a result of such redemption, you
own no World Access stock either directly or through the application of the
stock ownership attribution rules of Section 318 of the Code, then "exchange"
treatment occurs under Section 302(a) of the Code. If exchange treatment
applies, 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
IRS 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.
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. Under
Section 162(m) of the Code, World Access may not be allowed to deduct
compensation payable to a STAR employee in connection with the STAR merger to
the extent that the aggregate compensation exceeds $1.0 million under certain
circumstances. No determination can be made at this time whether Section 162(m)
will apply, and therefore, Long Aldridge & Norman LLP has expressed no opinion
with respect to this matter.
The PT-1 sale. Among other statutory and judicial requirements, in order
for the STAR merger to qualify as a "reorganization," STI Merger Co. must
acquire "substantially all" of STAR's assets within the meaning of Section
368(a)(2)(D) of the Code. For private letter ruling purposes, the IRS has
indicated that the transfer of seventy percent (70%) of the fair market value of
the target corporation's gross assets and ninety percent (90%) of the fair
market value of the target corporation's net assets will be deemed
"substantially all." Judicial decisions have been substantially more lenient,
and in addition to the percentage of property transferred, have focused on the
nature of the assets retained by the target corporation and the purpose for
their retention in making this determination. Under the STAR merger agreement,
STAR's completion of the PT-1 sale is a closing condition to World Access'
obligation to consummate the STAR merger.
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The IRS has also issued a published ruling holding that a pre-merger sale
of fifty percent (50%) of its historic business assets by the acquired
corporation for cash did not violate the "substantially all" requirement because
all the remaining assets (including the cash proceeds) were transferred to the
acquiring corporation. Based on STAR's representations that the IRS private
letter ruling requirements regarding the "substantially all" requirement will be
met, the IRS published ruling position on pre-merger asset sales by an acquired
corporation and other IRS and judicial authority, the "substantially all"
requirement should be met in the STAR merger.
In this regard, World Access must also satisfy the "continuity of business
enterprise" requirement set forth in Section 1.368-1(d) of the treasury
regulations in order for the STAR merger to qualify as a "reorganization" under
Section 368(a) of the Code. This test is satisfied if STI Merger Co. continues
STAR's "historic business" or uses a significant portion of STAR's historic
assets in a business. World Access has represented to counsel that STI Merger
Co. will satisfy this test, notwithstanding the PT-1 sale. Based on such World
Access representations and the other available IRS and judicial authority, the
"continuity of business enterprise" requirement should also be met with respect
to the STAR merger.
Limitation on STAR tax attributes. Under Section 381 of the Code, STI
Merger Co. will succeed to the net operating losses ("NOLs"), 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 Sections 381, 382, 383, 384 of the 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" (the "SRLY")
rules. Under Section 382 of the Code, special limitations apply following an
"ownership change" to the use of NOLs and "net unrealized built-in losses" in
excess of a threshold amount recognized during the five-year period following an
ownership change. 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 NOLs 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 IRS (5.84%
for May 2000). The Section 382 limitation for any post-ownership change year
will generally be zero unless the loss corporation satisfies the "continuity of
business enterprise" requirement (described in the immediately prior paragraph)
for the two-year period following the ownership change.
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
consummation of the STAR merger. The World Access consolidated group's ability
to utilize the STAR loss subgroup's NOL carryover as of December 31, 1999, and
any additional NOL carryover of such loss subgroup arising in STAR's taxable
year beginning January 1, 2000 during the period prior to the effective time of
the STAR merger, after taking into account the PT-1 sale (collectively, the
"pre-change STAR loss subgroup NOLs") against future World Access consolidated
federal taxable income will be subject to an annual loss subgroup Section 382
limitation. Successive ownership changes with respect to the STAR loss subgroup
or members thereof may result in an additional, lesser (but never in a greater)
Section 382 limitation with respect to previously limited NOLs.
An additional limitation may apply under which the pre-change STAR loss
subgroup tax NOLs can only be used to the extent of the "qualifying SRLY
subgroup" members' aggregate, cumulative contribution to World Access
consolidated taxable income (the "SRLY limitation"). Because the STAR loss
subgroup and its SRLY NOL subgroup should be treated as co-extensive, and the
Section 382 ownership change and SRLY event will occur at the same time, the
SRLY limitation should be eliminated with respect to the STAR loss subgroup
NOLs. However, the STAR subgroup for built-in losses may not be co-extensive
with the STAR loss subgroup and its SRLY NOL subgroup and, if not, then if such
STAR subgroup built-in losses exceed a specified threshold amount, such built-in
losses recognized during the five-year period following the SRLY event may still
be subject to limitation under
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the SRLY rules. Notwithstanding the foregoing, it is anticipated that any NOL
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 NOL, and has a
consolidated NOL carryover. As such, it constitutes a "loss group." Although it
is currently unclear whether the World Access loss group will undergo a Section
382 ownership change as a result of consummating either or both the STAR merger
and the WORLDxCHANGE merger, 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 NOL carryover as of December 31, 1999,
and certain "recognized built-in losses" against its future consolidated federal
taxable income years 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 NOLs will be subject to the lowest amount of Section 382 limitation
which results from any of such successive ownership changes. If instead,
consummation 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
to former STAR stockholders a letter of transmittal and instructions for use in
surrendering STAR stock certificates in exchange for the applicable STAR merger
consideration. When STAR stockholders deliver their STAR stock certificates to
the exchange agent along with an executed letter of transmittal and any other
required documents, their STAR stock certificates will be canceled and they will
receive the number of full shares of World Access common stock to which they are
entitled under the STAR merger agreement and a check in an amount equal to the
cash consideration to which such stockholder is entitled, if any. STAR
stockholders also will receive payment of cash in lieu of any fractional shares
of World Access common stock which would have been otherwise issuable to them in
the STAR merger. If World Access elects to pay cash as part of the merger
consideration, STAR stockholders will also receive the amount of cash to which
they are entitled under the STAR merger agreement upon delivery to the exchange
agent of their STAR stock certificates, an executed letter of transmittal and
any other required documents.
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.
RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF WORLD ACCESS AND STAR
The shares of World Access common stock to 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 of World Access common
stock issued to any person who is an affiliate of either World Access or STAR.
Persons who may be deemed to be affiliates include individuals or entities that
control, are controlled by, or are under common control of, either World Access
or STAR 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 STAR merger except pursuant to (i)
an effective registration statement under the Securities Act of 1933 covering
the resale of those shares, (ii) Rule 145 under the Securities Act of 1933 or
(iii) any other applicable exemption under the Securities Act of 1933.
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ACCOUNTING TREATMENT OF THE STAR MERGER
We intend 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, or the HSR, 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, STAR 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 March 16, 2000. No
further action under the HSR 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. Accordingly, at any time before or after
the completion of the STAR merger, either the Antitrust Division of the
Department of Justice or the Federal Trade Commission could take action under
the antitrust laws. 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, 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 STAR merger under the
antitrust laws will not be made or that, if a challenge is made, it would not be
successful.
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 notification is considered by
the German Cartel Office to be complete. During the initial one month waiting
period, the German Cartel Office may decide to open a further investigation of
the STAR merger. If a further investigation is instituted, the STAR merger may
not be completed until a further three month period has expired or the STAR
merger has been cleared. At any time during the period, the German Cartel Office
may act to block the STAR merger or impose conditions upon its completion. There
can be no assurance that a challenge to the STAR merger on competition law
grounds will not be made or that, if such a challenge is made, it would not be
successful in Germany. 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 FCC
require prior notice or approval of the STAR merger. Applications or notices, as
required, requesting either approval or providing notification of the STAR
merger have been filed on behalf of World Access and STAR in 48 states and with
the FCC. The governing 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 FCC has approved the STAR merger.
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Other than approvals by state and federal authorities having jurisdiction
over telecommunications activities conducted by World Access or STAR, we are not
aware of any other material governmental or regulatory approval required for
completion of the STAR 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.
RIGHTS OF DISSENTING STAR STOCKHOLDERS
If, pursuant to the terms of the STAR merger agreement, 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, any holder of STAR common stock
who does not wish to accept this consideration has the right to demand the
appraisal of and to be paid, in cash, the fair value of the shares of STAR
common stock under Section 262 of the General Corporation Law of the State of
Delaware. The fair value of the STAR common stock will exclude any element of
value arising from the completion or expectation of the STAR merger. The
following discussion represents only a summary of the material provisions of
Section 262 and is qualified in its entirety by reference to the full text of
Section 262, which is reprinted in its entirety as Annex G to this joint proxy
statement/prospectus. A person having a beneficial interest in STAR common stock
as of the STAR record date held of record in the name of another person, such as
a nominee, and who wishes to exercise his or her right to appraisal to the
extent such right exist, must act promptly to cause the record holder to follow
the steps summarized below and set forth in Annex G properly and in a timely
manner to perfect any appraisal rights provided under Section 262.
THIS JOINT PROXY STATEMENT/PROSPECTUS SHALL CONSTITUTE THE NOTICE REQUIRED
BY SECTION 262. ANY HOLDER OF STAR COMMON STOCK WHO WISHES TO EXERCISE APPRAISAL
RIGHTS SHOULD REVIEW THE FOLLOWING DISCUSSION AND ANNEX G CAREFULLY BECAUSE
FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED WILL RESULT
IN THE LOSS OF APPRAISAL RIGHTS UNDER SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE AND WILL RESULT IN SUCH STOCKHOLDER RECEIVING THE
CONSIDERATION PROVIDED FOR IN THE STAR MERGER AGREEMENT.
Under Section 262, a record holder of STAR common stock who will receive a
combination of World Access common stock and cash (other than cash paid in lieu
of fractional share) pursuant to the terms of the STAR merger agreement, who
makes the demand described below with respect to such shares, who continuously
is the record holder of such shares from the time of making a written demand for
appraisal through the effective time of the STAR merger, who otherwise complies
with the statutory requirements set forth in Section 262, and who neither votes
in favor of approval of the STAR merger nor consents thereto in writing will be
entitled to have his or her STAR stock appraised by the Court of Chancery of the
State of Delaware and to receive payment of the "fair value" of such shares as
described below. STAR stockholders considering seeking appraisal should
recognize that the fair value of shares could be determined to be more, the same
or less than the value of the consideration provided for in the STAR merger
agreement.
A record holder of STAR common stock wishing to exercise appraisal rights
must deliver to STAR at the address below, before the taking of the
stockholders' vote on the STAR merger, a written demand for appraisal of his or
her STAR common stock. A proxy or vote against the STAR merger agreement will
not constitute a demand for appraisal. A written demand is essential. Such
written demand must inform STAR of the stockholder's identity and that such
stockholder intends thereby to demand appraisal of the stockholder's shares. All
written demands for appraisal of STAR common stock should be sent or delivered
to STAR at 223 East De La Guerra Street, Santa Barbara, California 93101,
Attention: Corporate Secretary. In addition, a record holder of STAR common
stock wishing to exercise his or her appraisal rights must hold such shares of
record on the record date, on the date the written demand for appraisal rights
is made and must hold such shares continuously through the effective time of the
STAR merger. Stockholders who hold their STAR common stock in nominee form and
who wish to exercise appraisal rights must take all necessary steps in order
that a demand for appraisal is made by the record holder of such shares and are
urged to consult with their nominee to determine the appropriate procedures for
the making of a demand for appraisal by the record holder.
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Within ten days after the effective time of the STAR merger, World Access
must send a notice as to the effectiveness of the STAR merger to each person who
has satisfied the appropriate provisions of Section 262. Within 120 days after
the effective time of the STAR merger, any former holder of STAR stock who has
complied with the requirements for exercise of appraisal rights under Section
262 will be entitled, upon written request, to receive from World Access a
statement setting forth (i) the aggregate number of shares of STAR stock not
voted in favor of the STAR merger agreement and with respect to which demands
for appraisal have been received and (ii) the aggregate number of holders of
such shares. Any such statement must be mailed within ten days after a written
request therefor has been received by World Access or within ten days after
expiration of the period for delivery of demand for appraisal, whichever is
later.
Within 120 days after the effective time of the STAR merger, World Access
or any record holder of STAR stock who has complied with the requirements of
Section 262 may file a petition in the Court of Chancery of the State of
Delaware demanding a determination of the "fair value" of such shares. World
Access is not under any obligation to file this petition and does not currently
intend to file such petition. Accordingly, it is the obligation of the holders
of STAR common stock to initiate all necessary action to perfect their appraisal
rights within the time prescribed in Section 262. A record holder of STAR common
stock will fail to perfect, or effectively lose, his or her right to appraisal
if no petition for appraisal of share of STAR common stock is filed within 120
days after the effective time of the STAR merger.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court of Chancery of the State of Delaware will determine the
holders of STAR common stock entitled to appraisal rights and thereafter will
appraise the "fair value" of the STAR stock, exclusive of any element of value
arising from the completion or expectation of the STAR merger. The Court of
Chancery may require the stockholders who have demanded an appraisal for their
shares and who had stock represented by certificates to submit their stock
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings. If any stockholder fails to comply with such
direction, the Court of Chancery may dismiss the proceedings as to such
stockholder.
In determining fair value, the Court of Chancery is to take into account
all relevant factors. In Weinberger v. UOP Inc., the Delaware Supreme Court
discussed the factors that could be considered in determining fair value in an
appraisal proceeding, stating that "proof of value by any techniques or methods
which are generally considered acceptable in the financial community and
otherwise admissible in court" should be considered, and that "fair price
obviously requires consideration of all relevant factors involving the value of
a company." The Delaware Supreme Court stated that in making this determination
of fair value the court must consider market value, asset value, dividends,
earning prospects, the nature of the enterprise and any other factors which
could be ascertained as of the date of the merger which throw light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the Merger and not the
product of speculation, may be considered." Section 262, however, provides that
fair value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the Merger."
The Court of Chancery will also determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose STAR common stock
has been appraised. The costs of the action may be determined by such court and
imposed upon the parties as the court deems equitable in the circumstances. Upon
application of a stockholder, the Court of Chancery may also order that all or a
portion of the expenses incurred by any holder of STAR common stock in
connection with an appraisal, including without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the STAR common
stock entitled to appraisal.
If any record holder of STAR common stock who demands appraisal of his or
her shares under Section 262 fails to perfect, or effectively withdraws or loses
his or her right to appraisal, as provided in the General Corporation Law of the
State of Delaware, the STAR common stock of such stockholder will
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be entitled to receive the consideration provided for in the STAR merger
agreement. A holder may withdraw his or her demand for appraisal by delivering
to World Access a written withdrawal of his or her demand for appraisal and
acceptance of the consideration provided for in the STAR merger agreement,
except that any such attempt to withdraw made more than 60 days after the
effective time of the STAR merger will require the written approval of World
Access. Notwithstanding the foregoing, no appraisal proceeding filed in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the court. Failure to follow the steps required by Section 262 for perfecting
appraisal rights may result in the loss of such rights.
Any record holder of STAR common stock who has duly demanded an appraisal
in compliance with Section 262 will not, after the effective time of the STAR
merger, be entitled to vote the STAR common stock subject to such demand for any
purpose or be entitled to the payment of dividends or other distributions on
those shares, except dividends or other distributions payable to record holders
of shares of STAR common stock as of a date prior to the effective time of the
STAR merger.
INTERESTS OF CERTAIN PERSONS IN THE STAR MERGER
Option plans and change in control arrangements
In connection with the recommendation of STAR's board of directors, STAR's
stockholders should be aware that certain executive officers and directors have
certain 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, upon the grant of stock
options, stock appreciation rights, or SARs, stock units or restricted shares,
the administrator of the plan, which is a committee of the board of directors,
may provide for the acceleration of the stock options, SARs, stock units or
restricted shares granted to employees and outside directors in the event of a
change in control. Under the plan and the 1996 Outside Director Nonstatutory
Stock Option Plan, the definition of a change in control includes a merger or
consolidation of STAR, certain changes in the composition of the board of
directors or the acquisition of 50% or more of the combined voting power of
STAR's outstanding stock. The STAR merger constitutes a change in control under
the plan.
Pursuant to STAR's 1996 Outside Director Nonstatutory Stock Option Plan, if
a change in control has occurred or if the board of directors has in good faith
determined that a change in control is about to occur, the board of directors
may decide that it is necessary or desirable to accelerate the exercisability of
outstanding options granted under the plan and provide an exercise period during
which the accelerated options may be exercised. The board of directors also has
the discretion to terminate any outstanding options that have been accelerated
but not exercised during the exercise period. In the event of a merger of STAR
into another corporation in which holders of common stock receive cash for their
shares, the board of directors may provide that all outstanding options granted
under the plan shall automatically convert into the right to receive cash equal
to the difference between the exercise price and the amount paid to holders of
common stock pursuant to the merger. The STAR merger constitutes a change in
control under the 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, upon a change in control, all currently outstanding and future options
held by Kelly Enos that have not vested will become exercisable on a date that
is five business days prior to the consummation of the change in control. The
STAR merger constitutes a change in control. As of , 2000, Ms. Enos
held options to purchase shares that were not exercisable. These
options will accelerate upon the STAR merger.
On January 3, 2000 STAR's non-executive stock option committee determined
that, upon a change in control, all currently outstanding and future options
held by David Vaun Crumly that have not vested will
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become exercisable on a date that is five business days prior to the
consummation of the change in control. The STAR merger constitutes a change in
control. As of , 2000, Mr. Crumly held options to purchase
shares that were not exercisable. These options will accelerate
upon the STAR merger.
Change in control agreement
In January 1996, STAR entered into an employment agreement with David Vaun
Crumly, whereby Mr. Crumly became Executive Vice President.
The agreement provides that in the event of a sale transaction, in lieu of
commissions on STAR's accounts, 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 the
sale transaction. The percentage is either ten, twenty or thirty percent,
depending on the size of the monthly gross sales. A sale transaction is the
acquisition of more than 75% of the voting securities of STAR pursuant to a
tender offer or exchange approved in advance by the board of directors. 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 may 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.
Registration rights under voting agreement of Christopher Edgecomb
World Access and Christopher Edgecomb entered into a voting and stock
transfer restriction agreement pursuant to which World Access granted to Mr.
Edgecomb unlimited "piggyback" registration rights. Subject to certain
exceptions and qualifications, these registration rights entitle Mr. Edgecomb 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 bear all expenses of Mr.
Edgecomb 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.
THE STAR MERGER AGREEMENT
This section of the joint proxy statement/prospectus describes the STAR
merger agreement. While we believe that the description covers the material
terms of the STAR merger agreement, this summary 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, and we urge you to read it
carefully.
THE STAR MERGER/EFFECTIVE TIME
The STAR merger agreement provides that upon completion of the STAR merger,
STAR will be merged with and into STI Merger Co., which is a wholly-owned
subsidiary of World Access. STI Merger Co. will survive the merger. On the
closing date of the STAR merger, World Access and STAR will file a certificate
of merger with the Secretary of State of the State of Delaware. At the time of
the filing of the certificate of merger, the STAR merger will be effective
unless World Access and STAR agree to and specify a subsequent effective time in
the certificate of merger.
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THE STAR MERGER CONSIDERATION
Upon completion of the STAR merger, each outstanding share of STAR common
stock held by STAR or a subsidiary of STAR will no longer be outstanding and
will be canceled and retired, and no consideration will be delivered for such
shares.
Upon completion of the STAR merger, each outstanding share of STAR common
stock not held by STAR or a subsidiary of STAR will be automatically canceled
and converted into the right to receive, at the election of World Access, one of
the following forms of consideration:
- the number of shares of World Access common stock obtained by solving for
"X" in the following formula which is the exchange ratio:
X = 7.81 + Z
--------
20
"Z" equals (i) the net cash proceeds in excess of $150.0 million
received by STAR upon the completion of the sale of its subsidiary,
PT-1, net of all taxes, fees, expenses and costs incurred in connection
with such sale, divided by (ii) 62,856,702 (initially calculated to be
the number of issued and outstanding shares of STAR common stock, plus
the number of shares underlying outstanding STAR stock options and
warrants as of February 11, 2000). World Access and STAR can give you no
assurance that PT-1 can be sold or that it can be sold for net cash
proceeds in excess of $150.0 million; therefore, we can give you no
assurance that "Z" will be greater than zero.
The sale of PT-1 is a condition to World Access' obligation to complete
the STAR merger. If, however, such sale is not completed by the date on
which the STAR merger is to be completed and World Access decides to
proceed with the STAR merger, the exchange ratio will be modified by
deleting "Z." Further, in such event, a holder of STAR common stock and
STAR stock options or warrants will have the right to receive an
additional number of shares of World Access common stock upon completion
of such sale or exercise of such options or warrants equal to the net
cash proceeds from the PT-1 sale in excess of $150.0 million divided by
20. You should note that the decision to waive the sale of PT-1 as a
closing condition is a matter within World Access' sole and exclusive
discretion, and World Access is under no obligation to waive such
condition.
- the number of shares of World Access common stock equal to 60% of the
exchange ratio and an amount in cash equal to 40% of the sum of $7.81
plus "Z," as defined above.
No fractional shares will be issued. Instead, STAR stockholders will receive
cash based on the market price of World Access common stock. In addition, shares
of STAR common stock for which dissenters' rights of appraisal have been
perfected pursuant to the General Corporation Law of the State of Delaware will
not be entitled to receive the merger consideration described above.
REPRESENTATIONS AND WARRANTIES
World Access, STI Merger Co. and STAR each made representations and
warranties in the STAR merger agreement regarding aspects of their businesses,
financial condition, structure and other facts pertinent to the STAR merger,
including:
- corporate structure;
- capitalization;
- consents and approvals necessary to complete the STAR merger;
- required filings and reports with the Securities and Exchange Commission;
- information to be supplied for inclusion in this joint proxy
statement/prospectus;
- pending or threatened litigation;
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- permits and licenses necessary for the operation of business;
- compliance with applicable laws;
- changes in business or the occurrence of certain events since December
31, 1998;
- intellectual property;
- fairness opinions to be received by financial advisors;
- tax matters; and
- material contracts.
In addition, STAR made representations and warranties regarding employees
and employee benefits matters.
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 and its subsidiaries will carry on their
respective businesses in the ordinary course in all material respects and will
use reasonable efforts to preserve intact their lines of business, maintain
their rights and franchises and preserve their 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 and its subsidiaries will conduct their
respective businesses in compliance with specific restrictions relating to the
following:
- the issuance and redemption of securities;
- employees and employee benefits and remuneration;
- the issuance of dividends or other distributions;
- modification of certificates of incorporation or bylaws;
- the acquisition of assets or other entities;
- the disposition of assets;
- capital expenditures or other investments;
- the incurrence of indebtedness;
- the settlement of litigation;
- the entering into of contracts;
- accounting policies and procedures; and
- actions which would jeopardize the tax treatment of the STAR merger.
NO OTHER NEGOTIATIONS INVOLVING STAR
Until the STAR merger is completed or the STAR merger agreement is
terminated, STAR has agreed that neither it nor its subsidiaries will, and that
it will cause its employees, officers, directors, affiliates, agents, and
representatives not to, directly or indirectly take any of the following actions
without the prior written consent of World Access:
- solicit, initiate, encourage or knowingly facilitate (including by way of
furnishing information or engaging in discussions or negotiations) any
inquiries regarding or the making of an acquisition proposal, as defined
below;
- 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 or attempt to make, implement or accept
an acquisition proposal.
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Notwithstanding the limitations on STAR's actions, STAR may, in response to
an unsolicited, bona fide written acquisition proposal, (i) recommend approval
by its stockholders of such proposal or withdraw, modify or qualify in a manner
adverse to World Access its recommendation that the STAR stockholders approve
the STAR merger or (ii) furnish information and engage in discussions regarding
such proposal, provided that:
- the STAR stockholders meeting has not occurred;
- with respect to recommending approval of such acquisition proposal or
changing the recommendation to the STAR stockholders regarding the
approval of the STAR merger, the STAR board of directors concludes that
such acquisition proposal is a superior proposal, as defined below, and
terminates the STAR merger agreement and pays the termination fee
described below;
- with respect to furnishing information or engaging in discussions
regarding such acquisition proposal, the STAR board of directors
concludes that such proposal could reasonably be expected to result in a
superior proposal;
- prior to providing information to the third party making an acquisition
proposal, STAR enters into a confidentiality agreement with such third
party having terms at least as stringent as those contained in the
confidentiality agreement between World Access and STAR; and
- prior to providing information or entering into discussions with such
third party, STAR notifies World Access of such third party inquiries,
proposals or offers, including the identity of the third party and the
material terms of the inquiries, proposals or offers.
STAR has agreed that it will keep World Access informed of the state of
acquisition proposals. STAR also agreed that it and its subsidiaries would, and
would cause their officers, directors, affiliates, employees, agents and
representatives to, discontinue any discussions or negotiations regarding an
acquisition proposal in effect on February 11, 2000.
An "acquisition proposal" is any proposal or offer regarding:
- a business combination or similar action involving STAR;
- any purchase or sale of a material portion of the assets 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.
A "superior proposal" is a written proposal by a person unaffiliated with
STAR which is for:
- a business combination or similar action involving STAR as a result of
which STAR's stockholders prior to such action no longer own 50% of the
voting securities of the surviving entity or the individuals serving on
the board of directors of STAR prior to such action do not constitute a
majority of the board of directors of the surviving entity;
- a sale, lease, exchange, transfer or other disposition (in one or a
series of transactions) of at least 50% of the assets of STAR and its
subsidiaries, taken as a whole; or
- the acquisition of at least 50% of the common stock of STAR through a
business combination, exchange offer or otherwise.
In addition, to be a "superior proposal," such proposal must be on terms which
the STAR board of directors concludes (after consultation with its financial
advisors and outside legal counsel), taking into account all legal, financial,
regulatory and other aspects of the proposal, would result in a more favorable
transaction, from a financial point of view, to the STAR stockholders than the
STAR merger and is reasonably capable of being concluded.
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TREATMENT OF STAR STOCK OPTIONS AND WARRANTS
Upon completion of the STAR merger, each outstanding option or warrant to
purchase STAR common stock 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. 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.
World Access will file all required registration statements (on Form S-8 or
another appropriate form) with respect to each STAR stock option or warrant
converted into a World Access stock option, as well as the shares of World
Access common stock underlying such option. World Access will keep such
registration statements current for so long as such options remaining
outstanding.
MANAGEMENT SERVICES
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.
BOARD OF DIRECTORS OF WORLD ACCESS
World Access and STAR have agreed that immediately following the completion
of the STAR merger, World Access will cause one STAR designee to be elected to
the World Access board of directors. The STAR designee will be Christopher E.
Edgecomb, or such other person designated by STAR and agreed to by World Access
prior to the completion of the STAR merger.
INTERIM FINANCING OF STAR
World Access and STAR have agreed that World Access will make available up
to $25.0 million in secured financing to STAR and up to $10.0 million in secured
financing to STAR's subsidiary, STAR Telecommunications GmbH. This financing
will mature at the earlier of one year from February 11, 2000 and 90 days after
the termination of the STAR merger agreement. In the event of a breach or
default by STAR under the STAR merger agreement, all such financing will become
immediately due and payable.
CONDITIONS TO COMPLETION OF THE STAR MERGER
The respective obligations of World Access and STAR to complete the STAR
merger are subject to the satisfaction or waiver of each of the following
conditions before completion of the STAR merger:
- the waiting period (and any extension thereof) applicable to the STAR
merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, must be terminated or must expire;
- the STAR merger agreement and the STAR merger must be approved by the
requisite vote of the stockholders of World Access and STAR; and
- the registration statement with respect to the shares of World Access
common stock to be issued in the STAR merger must be declared effective
by the Securities and Exchange Commission, and the registration statement
must not be subject to a stop order or a threatened proceeding with
respect to a stop order.
World Access' obligations to complete the STAR merger are subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the STAR merger:
- STAR's representations and warranties must be true and correct as of
February 11, 2000 and as of the date of the completion of the STAR
merger, except to the extent the representations and
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warranties speak only as of a particular date and except where any
failure to be true and correct would not have a material adverse effect
(as defined below) on World Access or the surviving corporation;
- STAR 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;
- all consents and approvals required of STAR to complete the STAR merger,
the failure of which to obtain would have a material adverse effect on
World Access or the surviving corporation, must be obtained. However, if
the failure of World Access to use reasonable efforts to obtain such
consents and approvals is the cause of the failure to obtain such
consents and approvals, World Access must complete the STAR merger
(assuming all other conditions to World Access' obligations are fulfilled
or waived);
- no material adverse effect with respect to STAR, taken as a whole with
its subsidiaries, shall have occurred since February 11, 2000, 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 relating specifically to STAR, or (iii) to the
trading price of STAR common stock;
- World Access must receive from STAR's legal counsel a legal opinion
reasonably satisfactory to World Access with respect to certain matters;
- no laws may be adopted or injunctions or orders issued by a court or
other governmental entity having the effect of making the STAR merger
illegal or prohibiting the completion of the STAR merger or which would
otherwise have a material adverse effect on World Access or the surviving
corporation. However, World Access must complete the STAR merger
(assuming all other conditions to its obligations are fulfilled or
waived) if its failure to use reasonable efforts to complete the STAR
merger was the cause of, or resulted in, any such order or injunction;
- STAR must comply with all procedures and requirements applicable to it
under the dissenters' rights section of the General Corporation Law of
the State of Delaware, the period for exercising dissenters' rights of
appraisal in connection with the STAR merger must expire, and fewer than
1% of the shares of STAR common stock must have exercised dissenters'
rights of appraisal;
- STAR must complete the sale of PT-1 for net cash proceeds of at least
$150.0 million pursuant to an agreement reasonably satisfactory to World
Access. However, if such sale has not been completed prior to the closing
date of the STAR merger (but STAR has entered into a definitive agreement
satisfactory to World Access with respect to such sale) and World Access
decides in its sole discretion to waive the sale of PT-1 as a closing
condition and proceed with the STAR merger, the parties have agreed as
follows:
- the formula used to determine the exchange ratio will be modified by
deleting "Z"; and
- a holder of STAR common stock and STAR stock options or warrants will
have the right to receive an additional number of "contingent" shares
of World Access common stock (if and when the sale of PT-1 is
completed, or in the case of a holder of stock options or warrants,
when such stock option or warrant is exercised), equal to the net cash
proceeds from the sale in excess of $150.0 million divided by 20; and
- STAR must provide evidence satisfactory to World Access that all
obligations of STAR relating to the China-U.S. Cable Network were fully
satisfied by the reclamation of STAR's capacity in the network and that
STAR has no further obligations or liabilities with respect to the
network.
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STAR's obligations to complete the STAR merger and the other transactions
are subject to the satisfaction or waiver of each of the following additional
conditions before completion of the STAR merger:
- World Access' representations and warranties must be true and correct as
of February 11, 2000 and as of the date of the completion of the STAR
merger, except to the extent the representations and warranties speak
only as of a particular date and except where any failure to be true and
accurate would not have a material adverse effect on World Access;
- World Access 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;
- all consents and approvals required of World Access to complete the STAR
merger, the failure of which to obtain would have a material adverse
effect on World Access or the surviving corporation, must be obtained.
However, if the failure of STAR to use reasonable efforts to obtain such
consents and approvals is the cause of the failure to obtain such
consents and approvals, STAR must complete the STAR merger (assuming all
other conditions to STAR's obligations are fulfilled or waived);
- no material adverse effect with respect to World Access shall have
occurred since February 11, 2000, 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 World Access operates and not
relating specifically to World Access, or (iii) to the trading price of
World Access common stock;
- STAR must receive from World Access' legal counsel a legal opinion
reasonably satisfactory to STAR;
- no laws may be adopted or injunctions or orders issued by a court or
other governmental entity having the effect of making the STAR merger
illegal or prohibiting the completion of the STAR merger or which would
otherwise have a material adverse effect on World Access. However, STAR
must complete the STAR merger (assuming all other conditions to its
obligations are fulfilled or waived) if its failure to use reasonable
efforts to complete the STAR merger was the cause of, or resulted in, any
such order or injunction; and
- the exchange agent to be appointed pursuant to the STAR merger agreement
must certify to STAR that the requisite deposit of cash in lieu of
fractional shares and stock certificates to be made by World Access with
the escrow agent has been made.
A "material adverse effect" means, with respect to any entity, any change,
circumstance or effect or any breach of the provisions of the STAR merger
agreement that, individually or in the aggregate, is or would reasonably be
expected to be materially adverse to the business, financial condition or
results of operations of such entity and its subsidiaries, taken as a whole, or
the ability of such entity to complete the STAR merger.
TERMINATION OF THE STAR MERGER AGREEMENT
The STAR merger agreement may be terminated at any time prior to completion
of the STAR merger for any of the following reasons:
- by written consent of World Access and STAR;
- by either World Access or STAR, if the other party fails to comply in any
material respect with any of its material covenants or agreements in the
STAR merger agreement, which failure to comply is uncured within ten
business days following receipt of a notice of breach. However, if any
breach is curable by the breaching party through the exercise of
reasonable efforts, the non-breaching party may not terminate the STAR
merger agreement for so long as the breaching party continues to use
reasonable efforts to cure the breach. In addition, no party may
terminate the
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STAR merger agreement if such party is then failing to comply in any
material respect with any of its covenants or agreements in the STAR
merger agreement;
- by either World Access or STAR, if the other party has breached any of
its representations or warranties, which breach is uncured within ten
business days following receipt of a notice of breach. However, if any
breach is curable by the breaching party through the exercise of
reasonable efforts, the non-breaching party may not terminate the STAR
merger agreement for so long as the breaching party continues to use
reasonable efforts to cure the breach. In addition, no party may
terminate the STAR merger agreement with respect to such breaches which
would not have a material adverse effect on World Access or the surviving
corporation;
- by either World Access or STAR, if the STAR merger is not completed on or
before September 30, 2000. However, no party may terminate the STAR
merger agreement if the failure of the STAR merger to be completed by
such date is caused by the failure of such party to fulfill any of its
obligations under the STAR merger agreement and such failure to fulfill
any of its obligations constitutes a breach of the STAR merger agreement;
- by either World Access or STAR if any governmental entity has issued a
final and nonappealable order, decree or ruling permanently enjoining or
prohibiting the STAR merger or has failed to issue an order, decree or
ruling (which failure to issue is final and nonappealable), which, in
either case, is necessary to fulfill a party's obligation to complete the
STAR merger. However, no party may terminate the STAR merger agreement if
such party's failure to fulfill any obligation under the STAR merger
agreement is the cause of such action or inaction by the governmental
entity;
- by World Access or STAR, if the stockholders of World Access or STAR fail
to adopt the STAR merger agreement by the requisite vote, in each case
upon the taking of a vote at a duly held meeting;
- by World Access, if the STAR board of directors (prior to the STAR
stockholders meeting) makes an adverse change in the STAR recommendation,
as defined below, or approves or recommends a superior proposal;
- by STAR, at any time prior to the STAR stockholders vote, upon three
business days' prior notice to World Access, if its board of directors
determines that an acquisition proposal is a superior proposal. However,
STAR may not terminate the STAR merger agreement unless:
- prior to termination, STAR negotiates with World Access regarding a
revised proposal by World Access, if negotiations are requested 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 termination fee described below; or
- by World Access, if:
- either STAR or any of its material subsidiaries (i) commences a
voluntary case under any applicable bankruptcy, insolvency or similar
law or consents to the entry of an order for relief in an involuntary
case under any such law, (ii) consents to the appointment of a
receiver, liquidator, custodian, trustee or similar official of STAR
or a subsidiary of STAR or for all or a material portion of the
property or assets of STAR or a subsidiary of STAR or (iii) effects
any general assignment of the benefit of creditors;
- a governmental entity enters a decree or order for (i) relief of STAR
or any of its material subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law, (ii)
appointment of a receiver, liquidator, custodian, trustee or similar
official of STAR or a subsidiary of STAR or for all or a material
portion of the property or assets of STAR or a subsidiary of STAR or
(iii) the winding up or liquidation of the affairs of STAR or any of
its
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material subsidiaries and, in each case, such decree or order remains
unstayed and in effect for 30 consecutive days; or
- there is an event of default under the anticipated credit agreements
between World Access and STAR.
An "adverse change in the STAR recommendation" would occur if STAR withdraws,
modifies or materially qualifies, in any manner adverse to World Access, its
recommendation that the STAR stockholders adopt the merger agreement, or takes
any action or makes any statement in connection with the STAR stockholders
meeting materially inconsistent with such recommendation.
PAYMENT OF TERMINATION FEE
STAR must pay World Access a termination fee of $14.0 million if the STAR
merger agreement is terminated under the following circumstances:
- if the STAR merger agreement is terminated by STAR because the STAR board
of directors determines that an acquisition proposal is a superior
proposal, then STAR must pay the termination fee prior to termination of
the STAR merger agreement;
- 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, then STAR
must pay the termination fee within three days following the termination
of the STAR merger agreement; or
- if the STAR merger agreement is terminated by World Access or STAR
because the stockholders of STAR have not adopted the STAR merger
agreement by the requisite vote and STAR enters into a definitive
agreement with respect to a business combination, as defined below,
within 12 months following termination, then STAR must pay the
termination fee prior to or at the closing of the business combination.
A "business combination" means:
- a business combination or similar transaction involving STAR as a result
of which (i) STAR's stockholders no longer own 65% of the voting
securities of the surviving entity or any person owns at least 20% of the
voting securities of the surviving entity or (ii) individuals comprising
the STAR board of directors prior to the completion of the transaction do
not constitute a majority of the board of directors of the surviving
entity;
- a sale, lease, exchange, transfer or other disposition (in one or a
series of related transactions) of at least 50% of the assets of STAR and
its subsidiaries, taken as a whole; or
- the acquisition by a person of at least 20% of the common stock of STAR,
whether by business combination, exchange offer or otherwise.
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 which requires further approval by the World Access and STAR
stockholders in accordance with law or the rules of any relevant stock exchange.
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 and waive compliance with
any of the agreements of the other party contained in the STAR merger agreement.
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RELATED TRANSACTION AGREEMENTS
This section of the joint proxy statement/prospectus describes agreements
related to the STAR merger agreement, including the voting agreements of
Christopher E. Edgecomb and Samer Tawfik and the anticipated STAR credit
agreements. While we 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.
EDGECOMB VOTING AGREEMENT
World Access and Christopher E. Edgecomb have entered into a voting and
stock transfer restriction agreement, dated February 11, 2000, pursuant to which
Mr. Edgecomb agreed, among other things, to vote all of his shares of STAR
common stock in favor of the STAR merger and against any action that would
impede, delay, postpone, or would reasonably be expected to discourage, the STAR
merger, or that would result in a breach of a covenant or a representation or
warranty of STAR under the STAR merger agreement.
Except in limited circumstances, until the earlier of the completion of the
STAR merger and the termination of the voting and stock transfer restriction
agreement, Mr. Edgecomb may not:
- sell, hypothecate, transfer, pledge, encumber, assign or otherwise
dispose of, a "transfer", or enter into any contract or understanding
with respect to a transfer of, any of his shares of STAR common stock;
- trade or take any position, hedge or otherwise, with respect to his
shares of STAR common stock;
- enter into any voting arrangement or understanding with respect to such
shares; or
- take any action that would make his representations or warranties untrue
or prevent or impede him from performing any of his obligations.
For the longer of six months following the completion of the STAR merger
and such time as Mr. Edgecomb is a member of the World Access board of
directors, Mr. Edgecomb may not transfer, or enter into any contract or
understanding with respect to the transfer of, any of the shares of World Access
common stock issued to Mr. Edgecomb pursuant to the STAR merger agreement, or
trade or take any position, hedge or otherwise, with respect to such shares of
World Access common stock. If, at any time after six months and within 18 months
following the completion of the STAR merger, Mr. Edgecomb is otherwise permitted
and desires to take any such action, a "proposed action," he must provide notice
to World Access. World Access has the first right to assist in the private
disposition of the shares specified in the notice of a proposed action to an
"accredited investor" or "qualified institutional buyer," as such terms are
defined in the Securities Exchange Act of 1934, as amended. However, if World
Access is unable to arrange for such private disposition within 30 days, Mr.
Edgecomb may complete the proposed action.
Subject to limitations, World Access has also agreed to provide Mr.
Edgecomb piggyback registration rights with respect to the shares of World
Access common stock issued to Mr. Edgecomb in the STAR merger and not publicly
saleable by Mr. Edgecomb under the Securities and Exchange Commission's Rule
144. However, in order to exercise these rights, Mr. Edgecomb must request the
inclusion in such registration of at least 25% of such shares or shares having a
value of at least $2.0 million.
Subject to limited exceptions, Mr. Edgecomb also agreed to specific
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 agreed, among other things, to vote all of his shares of STAR common
stock in favor of the STAR merger and against any action that would
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impede, delay, postpone, or would reasonably be expected to discourage, the STAR
merger, or that would result in a breach of a covenant or a representation or
warranty of STAR under the STAR merger agreement.
Until the earlier of the completion of the STAR merger and the termination
of the voting and stock transfer restriction agreement, Mr. Tawfik may not:
- sell, hypothecate, transfer, pledge, encumber, assign or otherwise
dispose of, a "transfer," or enter into any contract or understanding
with respect to a transfer of, any of his shares of STAR common stock,
except that Mr. Tawfik is expressly permitted to transfer up to 2,430,000
shares of his STAR common stock to unaffiliated third parties;
- trade or take any position, hedge or otherwise, with respect to his
shares of STAR common stock;
- enter into any voting arrangement or understanding with respect to such
shares; or
- take any action that would make his representations or warranties untrue
or prevent or impede him from performing any of his obligations.
For six months following the completion of the STAR merger, Mr. Tawfik may
not transfer, or enter into any contract or understanding with respect to the
transfer of, any of the shares of World Access common stock issued to Mr. Tawfik
pursuant to the STAR merger agreement, or trade or take any position, hedge or
otherwise, with respect to such shares of World Access common stock. If, at any
time after six months and within 18 months following the completion of the STAR
merger, Mr. Tawfik is otherwise permitted and desires to take any such action, a
"proposed action", he must provide notice to World Access. World Access has the
first right to assist in the private disposition of the shares specified in the
notice of a proposed action to an "accredited investor" or a "qualified
institutional buyer," as such terms are defined in the Securities Exchange Act
of 1934, as amended. However, if World Access is unable to arrange for such
private disposition within 30 days, Mr. Tawfik may complete the proposed action.
The voting and stock transfer restriction agreement terminates upon the
termination of the STAR merger agreement in accordance with its terms.
STAR CREDIT AGREEMENTS
World Access anticipates entering into a credit agreement with STAR
pursuant to which World Access will make bridge loans to STAR in the aggregate
amount of up to $25.0 million. The loan will consist of an initial advance to
STAR in an amount to be determined prior to execution of the credit agreement
and additional advances, to be made at the election and sole discretion of World
Access, in an aggregate amount not to exceed $25.0 million. The loan will be
secured by a blanket security interest in all personal property of STAR, PT-1
Communications, Inc., 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
loan will bear interest at the rate of LIBOR plus 4% per annum, with all
principal and accrued interest being payable on the earlier of (i) one year from
the date of the STAR credit agreement or (ii) 90 calendar days after any
termination of the STAR merger agreement, or on such other date as the loan
shall become due by acceleration.
World Access also anticipates entering into a credit agreement with STAR
Telecommunications Holding GmbH, a German GmbH, pursuant to which World Access
will make certain bridge loans to STAR GmbH in the aggregate maximum amount of
$10.0 million. This loan will consist of an initial advance to STAR GmbH in an
amount to be determined prior to execution of the credit agreement and of
additional advances, to be made at the election and sole discretion of World
Access, in an aggregate amount of up to $10.0 million. The loan will be secured
by a blanket security interest in all personal property of STAR GmbH, including
all accounts, accounts receivable, contract rights, equipment,
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inventory, chattel paper and general intangibles; and by a pledge of all capital
stock owned by STAR in STAR GmbH and by a pledge of all capital stock owned by
STAR GmbH in STAR Telecommunications Deutschland GmbH and STAR
Telecommunications Network GmbH. The loan will bear interest at the rate of
LIBOR plus 4% per annum, with all principal and accrued interest being payable
on the earlier of (i) one year from the date of the STAR GmbH credit agreement
or (ii) 90 calendar days after any termination of the STAR merger agreement, or
on such other date as the loan shall become due by acceleration.
PROPOSAL 2
THE PT-1 SALE
This section of the joint proxy statement/prospectus describes the proposed
sale by STAR of its wholly-owned subsidiary, PT-1, to a third party, subject to
the minimum requirements set forth in this joint proxy statement/prospectus,
including STAR's receipt of a sales price of at least $ , obtaining the
opinion of STAR's financial advisor in connection with the sale and approval by
the STAR board of directors of a definitive sale agreement containing terms that
the STAR board of directors determines to be in the best interests of STAR. This
section of the joint proxy statement/prospectus also describes the terms of a
letter of intent between STAR and PT-1 acquiror pursuant to which STAR
anticipates entering into a definitive agreement for the sale of PT-1. This
proposal is for the consideration of the STAR stockholders. While we believe
that the description covers the material terms of the proposed PT-1 sale and the
related transactions, this summary may not contain all of the information that
is important to you. You should carefully read this entire document and the
other documents we refer to for a more complete understanding of the PT-1 sale.
APPROVAL OF THE PT-1 SALE
As a condition to World Access' obligation to complete the STAR merger,
STAR is required to sell its wholly-owned subsidiary, PT-1, for net cash
proceeds of at least $150.0 million. As of the date of this joint proxy
statement/prospectus, there can be no guarantee that completion of the sale of
PT-1 to PT-1 acquiror, or any other buyer, will satisfy this condition.
STAR is seeking stockholder approval to proceed with the PT-1 sale to PT-1
acquiror, or in the event that STAR does not reach a definitive agreement with
PT-1 acquiror, to such other buyer and on such other terms as the STAR board of
directors shall subsequently approve, subject to the minimum requirements set
forth in this joint proxy statement/prospectus, including STAR's receipt of a
sales price of at least $ , obtaining the opinion of STAR's financial
advisor in connection with the sale and approval by the STAR board of directors
of a definitive sale agreement containing terms that the STAR board of directors
determines to be in the best interests of STAR.
STAR has entered into the PT-1 letter of intent with PT-1 acquiror for the
sale of certain assets and the assumption of certain liabilities of PT-1 to PT-1
acquiror and STAR anticipates that it will enter into a definitive agreement
with PT-1 acquiror. This joint proxy statement/prospectus describes the PT-1
letter of intent in detail.
The terms of the definitive agreement are subject to negotiation and may
differ substantially from the terms of the PT-1 letter of intent. If a
definitive agreement is reached with PT-1 acquiror, STAR will sell certain
assets of PT-1 to PT-1 acquiror for cash proceeds of $150.0 million dollars plus
the assumption of certain liabilities, subject to adjustment based on the net
worth of the assets of PT-1 on the closing date of the PT-1 sale. In the event
that STAR does not reach a definitive agreement with PT-1 acquiror, STAR will
seek other buyers for PT-1 with the aid of Kaufman Brothers, STAR's financial
advisor.
In determining the minimum sale price range for PT-1, the STAR board of
directors consulted with STAR's management, counsel and financial advisors. In
making its determination, the STAR board of directors reviewed and analyzed the
historical financial results and future prospects of PT-1's operations and
assessed comparable valuations of businesses similar to those of PT-1 to the
extent that comparable
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information was available. The STAR board of directors and management estimated
potential transaction values using standard industry methodologies as well as
subjective factors relating specifically to PT-1 and the reasons for its sale.
The industry standard methodologies included analysis of trading multiples of
comparable public companies, analysis of valuation multiples of transactions
involving comparable companies and discounted cash flow analysis.
The estimates contained in such 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 such 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, such analyses and estimates are inherently subject to
substantial uncertainty. The analyses were only one of many factors considered
by the STAR board of directors in its evaluation of the sale of PT-1 and should
not be viewed as determinative of the view of the STAR board of directors or
management with respect to the consideration to be paid for the sale of PT-1.
The STAR board of directors considers it essential to give management the
flexibility to consummate a sale of PT-1 in a timely manner. In connection with
the execution of a definitive purchase agreement with a buyer of PT-1, STAR will
request an opinion from Kaufman Brothers as to the fairness, from a financial
point of view, to STAR of the consideration to be received by STAR in the sale
of PT-1.
Except as requested in this joint proxy statement/prospectus, STAR will not
solicit any further stockholder vote for the PT-1 sale. Accordingly, STAR
stockholders will not have the opportunity to vote on the definitive PT-1 sale
agreement.
BACKGROUND OF THE PT-1 SALE
PT-1 constitutes 90% of the 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. STAR has entered into a letter
of intent with PT-1 acquiror to sell to PT-1 acquiror certain assets of PT-1,
including the assumption of certain liabilities, for cash proceeds of $150.0
million, subject to adjustment based on the net worth of the assets of PT-1 on
the closing date. In the event that STAR does not reach a definitive agreement
with PT-1 acquiror pursuant to the terms of the PT-1 letter of intent, STAR will
attempt to sell PT-1 to such other buyer and on such other terms as the STAR
board of directors shall subsequently approve, subject to the minimum
requirements set forth in this joint proxy statement/prospectus, including
STAR's receipt of a sales price of at least $ , obtaining the opinion of
STAR's financial advisor in connection with the sale and approval by the STAR
board of directors of a definitive sale agreement containing terms that the STAR
board of directors determines to be in the best interests of STAR. If STAR does
not receive net cash proceeds of at least $150.0 million from the PT-1 sale,
then World Access does not have to complete the STAR merger.
On February 14, 2000, STAR and World Access issued a joint press release
announcing the definitive STAR merger agreement and indicating that the sale of
certain STAR assets would be required. As a result of the press release, STAR
began to receive inquiries from potential purchasers regarding PT-1, including
an inquiry from PT-1 acquiror. Following a series of preliminary telephonic
discussions between representatives of STAR and representatives of PT-1
acquiror, on February 22, 2000, a representative of STAR met with
representatives of PT-1 acquiror at an industry conference in California to
discuss the potential acquisition of the PT-1 assets by PT-1 acquiror.
On February 29, 2000, STAR engaged Kaufman Brothers, L.P., to act as its
exclusive financial and merger advisor and investment banker in connection with
the PT-1 sale. Kaufman Brothers reviewed the inquiries from potential acquirors
of PT-1 generated by the February 14, 2000 press release and proceeded to
familiarize 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
proposal was for the separate acquisition of PT-1's dial around business, the
second proposal was for PT-1's prepaid calling card operations, and the third
offer was made by PT-1 acquiror for the entire operations of PT-1. Working with
Kaufman Brothers, STAR
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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 evidenced by the fact that the combined
value of the two offers for component business of PT-1 was less than the offer
STAR had received from PT-1 acquiror 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 PT-1 acquiror in New York to discuss
further PT-1 acquiror's interest in PT-1. Representatives and financial advisors
of STAR and PT-1 acquiror attended the meeting. At the meeting, PT-1 acquiror
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 PT-1 acquiror. STAR was unwilling to commit to an
exclusive arrangement at that time, but permitted PT-1 acquiror to begin due
diligence. On March 18, 2000, STAR met with PT-1 acquiror in Toronto, Canada, to
continue discussions. Following 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 resolved to continue
negotiations with PT-1 acquiror and to seek World Access' approval as required
by the STAR merger agreement. STAR and PT-1 acquiror executed the letter of
intent on March 29, 2000.
On May , 2000, the STAR board of directors met to consider the PT-1 sale.
At the meeting, the STAR board of directors concluded that the sale of PT-1 to
PT-1 acquiror pursuant to the terms of the PT-1 letter of intent, or in the
event that STAR did not reach a definitive agreement with PT-1 acquiror, to such
other buyer and on such other terms as the STAR board of directors shall
subsequently approve, subject to the minimum requirements set forth in this
joint proxy statement/prospectus, including STAR's receipt of a sales price of
at least $ , obtaining the opinion of STAR's financial advisor in
connection with the sale and approval by the STAR board of directors of a
definitive sale agreement containing terms that the STAR board of directors
determines to be in the best interests of STAR was fair to and in the best
interests of STAR and its stockholders. The STAR board of directors considered
numerous factors in reaching its conclusion, including the necessity of
completing the sale of PT-1 prior to and in connection with the close of the
STAR merger and considered the potential benefits of the PT-1 sale, including
relevant business, financial, legal and market factors, some of which are
discussed below under the heading "STAR's reasons for the PT-1 sale." The STAR
board of directors voted to approve the PT-1 sale and transactions contemplated
thereby and voted to recommend that the stockholders of STAR vote FOR the
approval of the PT-1 sale on such terms as the STAR board of directors shall
determine to be in the best interests of STAR and contingent on the negotiation
of a definitive agreement with PT-1 acquiror or such other buyer as the STAR
board of directors shall subsequently approve, subject to the minimum
requirements set forth in this joint proxy statement/prospectus, including
STAR's receipt of a sales price of at least $ , obtaining the opinion
of STAR's financial advisor in connection with the sale and approval by the STAR
board of directors of a definitive sale agreement containing terms that the STAR
board of directors determines to be in the best interests of STAR.
Except as requested in this joint proxy statement/prospectus, STAR will not
solicit any further stockholder vote for the PT-1 sale. Accordingly, STAR
stockholders will not have the opportunity to vote on a definitive PT-1 sale
agreement.
STAR'S REASONS FOR THE PT-1 SALE
At the meeting held on May , 2000, the STAR board of directors concluded
that the PT-1 sale was fair to and in the best interests of STAR and its
stockholders. The board of directors of STAR voted to approve the PT-1 sale to
PT-1 acquiror or such other buyer as the STAR board of directors shall
subsequently approve, subject to the minimum requirements set forth in this
joint proxy statement/prospectus, including STAR's receipt of a sales price of
at least $ , obtaining the opinion of STAR's financial advisor in
connection with the sale and approval by the STAR board of directors of a
definitive sale agreement containing terms that the STAR board of directors
determines to be in the best
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interests of STAR and voted to recommend that the stockholders of STAR vote for
the approval of the PT-1 sale and such transactions as may be contemplated
thereby.
After due deliberation, the STAR board of directors concluded that the PT-1
sale to PT-1 acquiror or such other buyer as the STAR board of directors shall
subsequently approve, subject to the minimum requirements set forth in this
joint proxy statement/prospectus, including STAR's receipt of a sales price of
at least $ , obtaining the opinion of STAR's financial advisor in
connection with the sale and approval by the STAR board of directors of a
definitive sale agreement containing terms that the STAR board of directors
determines to be in the best interests of STAR, was fair to and in the best
interest of STAR and its stockholders based on a number of factors, including
the following:
The PT-1 sale 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. If STAR fails to sell PT-1 for net cash proceeds
of at least $150.0 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
required the sale of certain non-core segments of STAR's operations. The
PT-1 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 sale, STAR expects that the sale 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 sale of PT-1 would enable STAR to
focus on its wholesale international long distance business and continue to
expand its network in order to improve operating margins.
The foregoing discussion of the information and factors considered by the
STAR board of directors is not intended to be exhaustive. In view of the wide
variety of factors considered in connection with its evaluation of the PT-1
sale, the STAR board of directors did not find it practical to, nor did it
attempt to, quantify, rank or otherwise attempt to assign relative weights to
the specific factors considered in reaching its determination. In addition, the
STAR board of directors did not undertake to make a specific determination as to
whether any particular factor was favorable or unfavorable to the board of
directors' ultimate determination or assign any particular weight to any factor,
but rather conducted an overall analysis of the factors described above,
including thorough discussion with and questioning of STAR's management and
management's analysis of the PT-1 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.
RECOMMENDATION OF THE STAR BOARD OF DIRECTORS
The STAR board of directors has carefully considered the advisability of
the PT-1 sale and believes that the PT-1 sale and such transactions as may be
contemplated thereby are fair to and in the best interests of STAR and its
stockholders. THE STAR BOARD OF DIRECTORS HAS APPROVED THE PT-1 SALE AND SUCH
TRANSACTIONS AS MAY BE CONTEMPLATED THEREBY AND RECOMMENDS THAT THE STOCKHOLDERS
OF STAR VOTE FOR THE APPROVAL OF THE PT-1 SALE AND SUCH TRANSACTIONS AS MAY BE
CONTEMPLATED THEREBY.
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CONSIDERATION TO BE RECEIVED IN THE PT-1 SALE
STAR has entered into the PT-1 letter of intent with PT-1 acquiror pursuant
to which STAR has agreed to sell certain assets of PT-1 to PT-1 acquiror for
$150.0 million in cash provided that the purchase price may be adjusted upward
or downward to the extent that the net value of the purchased assets, less
liabilities assumed by PT-1 acquiror, as set forth on the balance sheet to be
delivered as soon as practicable following the closing, is greater than or less
than $37,223,490. PT-1 acquiror will only assume PT-1's (i) accounts payable and
accrued expenses, (ii) accrued taxes payable, (iii) short-term debt, (iv)
deferred revenue and (v) long-term debt. The terms of the definitive agreement
are subject to negotiation and may differ substantially from the terms of the
PT-1 letter of intent.
In the event that STAR is unable to negotiate a definitive agreement with
PT-1 acquiror, STAR will proceed with the PT-1 sale to such other buyer and on
such other terms as the board of directors of STAR shall subsequently approve,
subject to STAR's receipt of a sales price of at least $ , obtaining
the opinion of STAR's financial advisor in connection with the sale and approval
by the STAR board of directors of the terms of any definitive sale agreement.
Except as requested in the accompanying joint proxy statement/prospectus, STAR
will not solicit any further stockholder vote for the PT-1 sale. Accordingly,
STAR stockholders will not have the opportunity to vote on a definitive PT-1
sale agreement.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE PT-1 SALE
If STAR completes the sale of PT-1 to PT-1 acquiror, or another buyer on
terms like those set forth in the PT-1 letter of intent, for cash, the PT-1 sale
will be a taxable transaction to STAR. STAR expects that the net proceeds of the
PT-1 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 SALE
If STAR completes the sale of PT-1's assets to PT-1 acquiror, or another
buyer for cash, the PT-1 sale will be accounted for by STAR 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.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE PT-1 SALE
STAR anticipates that the PT-1 sale will be subject to the requirements of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or HSR,
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. The HSR requirements will be satisfied if the PT-1 sale is completed
within one year from the termination of the waiting period.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the PT-1 sale on antitrust grounds either before or
after expiration of the waiting period. Accordingly, at any time before the
completion of the PT-1 sale, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws. Other persons could take action under the antitrust laws, including
seeking to enjoin the PT-1 sale. Additionally, at any time before or after the
completion of the PT-1 sale, 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 PT-1 sale under the antitrust laws
will not be made or that, if a challenge is made, it would not be successful.
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RIGHTS OF DISSENTING STAR STOCKHOLDERS
STAR stockholders will not be entitled to dissenters' rights under Delaware
law in connection with the PT-1 sale.
INTERESTS OF CERTAIN PERSONS IN THE PT-1 SALE
When considering the recommendation of the STAR board of directors, you
should be aware that certain STAR directors, officers and stockholders have
interests in the STAR merger, of which the PT-1 sale is a condition precedent,
that are different from, or are in addition to, all other stockholders of STAR.
These interests are described on page 85.
Kaufman Brothers, STAR's financial advisor, has been engaged to issue a
fairness opinion to STAR's board of directors in connection with the PT-1 sale.
Upon consummation of the PT-1 sale, Kaufman Brothers will receive a transaction
fee equal to 1% of the PT-1 sales price. Regardless of whether the PT-1 sale is
consummated, STAR has agreed to reimburse Kaufman Brothers for reasonable fees
and disbursements of Kaufman Brothers' counsel and all of Kaufman Brothers'
reasonable travel and other out-of-pocket expenses incurred in connection with
the PT-1 sale.
THE PT-1 LETTER OF INTENT
This section of the joint proxy statement/prospectus describes the terms of
the PT-1 letter of intent between STAR and PT-1 acquiror. While we believe that
the description covers the material terms of the PT-1 letter of intent, this
summary may not contain all of the information that is important to you. The
PT-1 letter of intent is attached to this joint proxy statement/prospectus as
Annex F and we urge you to read it carefully. There can be no guarantee that the
terms of a definitive agreement between STAR and PT-1 acquiror or any other
buyer will contain the terms set forth below.
NEGOTIATION OF DEFINITIVE AGREEMENT WITH PT-1 ACQUIROR
STAR and PT-1 acquiror have agreed to proceed diligently and in good faith
to negotiate, execute and deliver definitive agreements in connection with the
sale of PT-1 to PT-1 acquiror. STAR has agreed to make all reasonable efforts to
facilitate PT-1 acquiror in certain aspects of negotiations with World Access
related to the PT-1 sale and in identifying and recruiting key officers and
employees of STAR and PT-1 for employment by PT-1 acquiror or the entity
operating the business of PT-1. In the event that STAR and PT-1 are unable to
reach a definitive agreement, STAR will proceed with the PT-1 sale to such other
buyer and on such other terms as the STAR board of directors shall subsequently
approve, subject to the minimum requirements set forth in this joint proxy
statement/prospectus, including STAR's receipt of a sales price of at least
$ , obtaining the opinion of STAR's financial advisor in connection
with the sale and approval by the STAR board of directors of a definitive sale
agreement containing terms that the STAR board of directors determines to be in
the best interests of STAR.
THE PT-1 SALE CLOSING DATE
The parties have agreed to proceed diligently and in good faith to close
the PT-1 sale by the earlier of (i) the closing of the STAR merger or (ii) June
30, 2000.
PURCHASE PRICE
PT-1 acquiror will purchase certain PT-1 assets for $150.0 million in cash,
subject to adjustment upward or downward to the extent that the net value of the
assets being purchased, less the liabilities being assumed of PT-1 as of the
closing date, is greater or less than $37,223,490. PT-1 acquiror will purchase
substantially all the assets of PT-1. PT-1 acquiror will only assume PT-1's (i)
accounts payable and accrued expenses, (ii) accrued taxes payable, (iii)
short-term debt, (iv) deferred revenue and (v) long-term debt. The amount paid
by PT-1 acquiror on the closing date will be $150.0 million. After the closing,
the amount will be adjusted as indicated above.
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TERMS OF THE DEFINITIVE AGREEMENT WITH PT-1 ACQUIROR
STAR is currently negotiating a definitive agreement with PT-1 acquiror
based on the terms of the PT-1 letter of intent. The terms of the definitive
agreement are subject to negotiation and may differ substantially from the terms
of the PT-1 letter of intent.
The PT-1 letter of intent provides that the definitive agreement will
contain, among other things, representations and warranties, covenants,
conditions and indemnification provisions appropriate for such agreements. The
PT-1 letter of intent further provides that:
- the representations and warranties of STAR will survive the close of the
PT-1 sale for two years (other than those in respect of tax matters,
which will survive the close of the PT-1 asset sale until the expiration
of the applicable statute of limitations);
- STAR and PT-1 acquiror will proceed diligently and in good faith to file
all documents necessary to satisfy any applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended;
- STAR will obtain all material third-party consents to the transactions
contemplated by the PT-1 letter of intent, provided such condition may be
waived by PT-1 acquiror in its sole discretion;
- STAR shall use reasonable efforts to identify, with PT-1, key employees
and to cause certain of STAR's key executives to enter into employment
agreements and non-competition agreements with PT-1 acquiror; and
- STAR shall cause PT-1 to conduct the business and operations of PT-1 in
the ordinary course consistent with past practice.
DESCRIPTION OF THE PT-1 ASSETS
PT-1 has agreed, on the terms set forth in the PT-1 letter of intent, to
sell to PT-1 acquiror all of the assets that relate to and are used in the debit
card and dial around businesses of PT-1 and PT-1's subsidiaries.
ASSUMPTION OF LIABILITIES
Concurrently with its purchase of the assets of PT-1's debit card and dial
around telecom businesses, PT-1 acquiror will assume those liabilities itemized
on the balance sheet of PT-1 as of the closing date, as (i) accounts payable and
accrued expenses, (ii) accrued taxes payable, (iii) short-term debt, (iv)
defined revenue and (v) long-term debt.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE PT-1 SALE
STAR has agreed to cause PT-1 and its subsidiaries to carry on their
respective businesses in the ordinary course and consistent with past practice.
NO OTHER NEGOTIATIONS INVOLVING THE PT-1 SALE
STAR has agreed not to:
- 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 any person, other than PT-1 acquiror, or
enter into discussions with, or provide information to any person, other
than PT-1 acquiror, concerning an acquisition proposal.
PT-1 has agreed that it will keep PT-1 acquiror informed of any acquisition
proposal.
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PAYMENT OF TERMINATION FEE
Pursuant to the PT-1 letter of intent, if STAR fails or refuses to
consummate the PT-1 sale for any reason, other than the following, STAR will be
required to pay PT-1 acquiror a termination fee of $5.85 million in cash upon
demand:
- the failure to obtain the necessary regulatory approvals for the PT-1
sale;
- the failure of a majority of STAR's stockholders entitled to vote to
approve the transactions contemplated (provided that STAR does not sell
the PT-1 assets to another purchaser within twelve months of such failure
to approve the asset sale to PT-1 acquiror);
- PT-1 acquiror's breach of the material terms of the PT-1 sale agreement;
or
- upon the mutual written consent of PT-1 acquiror and STAR.
EDGECOMB VOTING AGREEMENT
The PT-1 letter of intent requires Mr. Edgecomb to enter into a voting
agreement with PT-1 acquiror. The agreement will require Mr. Edgecomb, as a STAR
stockholder, to vote all shares of STAR common stock beneficially owned by him
in favor of the approval of the PT-1 sale. Mr. Edgecomb held approximately
[ %] of the outstanding capital stock of STAR as of the STAR record date.
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.
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.
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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 DLJ 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, DLJ 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
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. After
consideration of relevant business, financial, legal and market factors, the
board of directors unanimously approved the WORLDxCHANGE merger agreement and
the transactions contemplated thereby and voted to recommend that the
stockholders of World Access vote FOR the approval and adoption of the
WORLDxCHANGE merger agreement and the transactions contemplated thereby.
In deciding to approve the WORLDxCHANGE merger agreement and to recommend
approval and adoption of the WORLDxCHANGE merger agreement by the World Access
stockholders, the World Access board of directors considered a number of
factors, including particularly the factors listed 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 specific factors considered in reaching its determination. The
World Access board of directors viewed its position and recommendation as being
based on the totality of the information and factors presented to and considered
by it. In addition, individual directors may have given different weight to
different information and factors.
The financial terms of the 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 DLJ 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. The directors also considered
their own knowledge of World Access and WORLDxCHANGE and their respective
businesses.
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 of directors also
considered the technical capabilities, cost effectiveness, expansion
possibilities and available capacity of WORLDxCHANGE's switches in multiple
countries,
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ownership interest in undersea cable systems, IRUs in additional undersea cable
systems comprising more than 370 E-1 circuits and seven satellite earth stations
in the U.S. and abroad.
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. The board of
directors also considered the importance of market position in the global
telecommunications services industry. 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
interconnection agreements in Belgium, Chile, France, Germany and Guatemala in
light of potential expansion.
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.
RECOMMENDATION OF THE WORLD ACCESS BOARD OF DIRECTORS
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 THEREBY AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF WORLD ACCESS VOTE FOR THE APPROVAL AND ADOPTION OF THE
WORLDXCHANGE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
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;
- 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 a number of factors,
including:
- historical information concerning World Access' and WORLDxCHANGE's
respective businesses, financial performance and condition, operations,
management and competitive position;
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- WORLDxCHANGE management's assessment of the business and financial
prospects of World Access and WORLDxCHANGE as a combined company. In this
regard, the WORLDxCHANGE board considered financial market and industry
conditions and the potential synergies and opportunities for growth
inherent in a combined company. In light of these factors, the
WORLDxCHANGE board concluded that the long-term business and financial
prospects of a combined company were superior to those of WORLDxCHANGE as
an independent company;
- the terms and conditions of the WORLDxCHANGE merger agreement, which the
WORLDxCHANGE board believes to be fair, and in the best interests of, the
WORLDxCHANGE shareholders;
- WORLDxCHANGE's prior experience with other potential acquirors or
strategic partners;
- the ability of WORLDxCHANGE, as an independent company, to meet its near-
and longer-term operating cash needs and fund capital expenditures
necessary to achieve future growth;
- the current and historical market prices and trading information with
respect to World Access' common stock; and
- the impact of the WORLDxCHANGE merger on WORLDxCHANGE's customers and
employees.
The WORLDxCHANGE board also considered certain potentially negative factors
in assessing the proposed WORLDxCHANGE merger. These factors include:
- the risk that the value of World Access' common stock to be received at
the closing of the WORLDxCHANGE merger would be less than the value of
the World Access common stock reflected in the WORLDxCHANGE merger
exchange ratio due to potential declines in the trading price of World
Access' shares;
- the risk that the WORLDxCHANGE merger will not be completed in a timely
manner or at all and the effect of the public announcement on
WORLDxCHANGE's ability to attract and retain key employees; and
- the risk that a strategic alternative more favorable to the WORLDxCHANGE
merger will be presented or become available to WORLDxCHANGE prior to the
closing of the WORLDxCHANGE merger, which alternative WORLDxCHANGE would
be prohibited from pursuing under the terms of the WORLDxCHANGE merger
agreement.
The above factors are not intended to represent an exhaustive list of all
of the factors considered by the WORLDxCHANGE board. However, they are believed
to include all of the material factors considered. In light of the variety of
factors considered, the WORLDxCHANGE board did not find it practicable to, and
did not, quantify or otherwise assign relative weight to any one or more of the
factors it considered in reaching its determination. In addition, individual
WORLDxCHANGE directors may have given different weights to different factors.
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
The board of directors of World Access engaged DLJ to act as its financial
advisor in connection with the WORLDxCHANGE merger. On February 11, 2000, DLJ
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 of view. As described above under "World
Access' reasons for the WORLDxCHANGE merger," DLJ's opinion was
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only one of many factors taken into consideration by the board of directors of
World Access in making its determination to approve the WORLDxCHANGE merger
agreement.
THE FULL TEXT OF DLJ'S OPINION IS INCLUDED AS ANNEX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO READ CAREFULLY DLJ'S OPINION IN ITS ENTIRETY FOR THE DESCRIPTIONS OF
THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, OTHER MATTERS CONSIDERED AND
LIMITATIONS OF THE REVIEW UNDERTAKEN IN ARRIVING AT THE OPINION. DLJ'S OPINION
WAS PREPARED FOR AND ADDRESSED TO WORLD ACCESS' BOARD OF DIRECTORS AND ONLY
ADDRESSES THE FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO
BE PAID BY WORLD ACCESS. DLJ'S OPINION DOES NOT:
(1) ADDRESS THE MERITS OF THE UNDERLYING DECISION BY WORLD ACCESS TO ENGAGE
IN THE WORLDXCHANGE MERGER OR OTHER BUSINESS STRATEGIES CONSIDERED BY
WORLD ACCESS;
(2) CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW THAT
STOCKHOLDER SHOULD VOTE AT THE STOCKHOLDERS' MEETING; OR
(3) CONSTITUTE AN OPINION AS TO THE PRICE AT WHICH WORLD ACCESS COMMON
STOCK WILL ACTUALLY TRADE AT ANY TIME.
The type and amount of consideration was determined in arms-length
negotiations between World Access and WORLDxCHANGE. No restrictions or
limitations were imposed by World Access upon DLJ with respect to the
investigations made or the procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ, among other things:
- reviewed the draft, dated February 10, 2000, of the WORLDxCHANGE merger
agreement and assumed that the final form of that agreement would not
vary in any respect that would be material to DLJ'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; and
- compared selected 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 and WORLDxCHANGE, reviewed prices
paid in selected other business combinations and conducted other
financial studies, analyses and investigations as DLJ deemed appropriate
for purposes of its opinion.
In rendering its opinion, DLJ 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. DLJ
relied upon the estimates of the management of World Access of the operating
synergies achievable as a result of the WORLDxCHANGE merger. DLJ 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. DLJ
expressed no opinion with respect to such forecasts or the assumptions on which
they were based, and DLJ 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
DLJ. DLJ also did not assume any responsibility for making any independent
investigation of any legal matters affecting World Access or WORLDxCHANGE 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
WORLDxCHANGE merger. DLJ assumed that the WORLDxCHANGE merger would be accounted
for as a pooling of interests under generally accepted accounting principles and
that it would qualify as a tax-free reorganization for U.S. federal income tax
purposes.
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The preparation of a fairness opinion is a complex process that is not
necessarily susceptible to partial analysis or summary description and involves
determinations about the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances.
DLJ performed each of the analyses summarized below in order to provide a
different perspective on the WORLDxCHANGE merger and add to the total mix of
information available. However, although the separate analyses are summarized
below, DLJ believes that its analyses must be considered as a whole. Selecting
portions of the analyses or of the summary set forth below, without considering
the analyses as a whole, could create an incomplete or misleading view of the
processes underlying DLJ's opinion. DLJ 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 and did not attempt to
assign specific weights to particular analyses or factors considered. Rather, in
arriving at its opinion, DLJ considered the results of each of these analyses
together, in their totality and in light of each of the other analyses and made
qualitative judgements as to the significance and relevance of all of the
factors and analyses considered in arriving at its opinion.
In performing its analyses, DLJ made numerous assumptions with respect to
industry performance, business and regulatory, financial, economic, monetary,
political and market conditions and other matters, many of which are beyond the
control of World Access or WORLDxCHANGE. In addition, analyses relating to the
value of businesses or securities are not appraisals and do not reflect the
prices at which the businesses or securities can actually be sold. Stockholders
should understand that no company or transaction used in DLJ's analyses as a
comparison is directly comparable to World Access, WORLDxCHANGE or the
WORLDxCHANGE merger. It should also be understood that analyses based upon
projections or forecasts of future results are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by those analyses. Because these analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties, none of World Access, WORLDxCHANGE or DLJ or any other person
assumes responsibility if future results are different from those forecast. See
"RISK FACTORS" elsewhere in this joint proxy statement/prospectus.
DLJ's opinion is necessarily based upon economic, market, financial and
other conditions as they existed on, and on information available to DLJ as of,
the date of its opinion. It should be understood that, although subsequent
developments may affect its opinion, DLJ does not have any obligation to update,
revise or reaffirm its opinion as a result of changes in such conditions or
otherwise.
The following is a brief summary of the principal analyses performed by DLJ
in connection with DLJ's opinion and included in its presentation to World
Access' board of directors. For purposes of the following analyses, DLJ used the
February 9, 2000 closing price of the World Access common stock of $22.88 per
share. It should be understood that DLJ makes no prediction, and there can be no
assurance, as to what the closing price of World Access common stock will
actually be.
Included in the discussion below are summaries of some of the statistical
information appearing in that discussion presented in a tabular format. While
these tables are presented for the purpose of clarity and ease of reference,
they are not substitutes for, and must be read along with, all of the
information appearing under the captions immediately preceding them as well as
all of the information set forth in this document.
1. CONSIDERATION PAID ANALYSIS
DLJ 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 (the "Initial
Exchange Ratio") for the ten-day period ending at the close of trading on the
second trading day preceding the closing (the "Averaging 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
(the "Maximum Exchange Ratio"). In reviewing the consideration to be
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paid by World Access, DLJ 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 COMPANY ANALYSIS
To provide comparative market information, DLJ compared selected historical
and projected operating and financial ratios of WORLDxCHANGE to the
corresponding data and ratios of selected publicly traded companies that operate
businesses reasonably similar to WORLDxCHANGE.
For purposes of these analyses, DLJ compared WORLDxCHANGE relative to the
following five companies deemed by DLJ to be reasonably comparable to
WORLDxCHANGE:
<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>
However, no company utilized in DLJ's analysis of comparable publicly
traded companies is identical to World Access or WORLDxCHANGE. Accordingly, this
analysis necessarily involves complex considerations and judgments concerning
differences in financial and operating characteristics of each of World Access
and WORLDxCHANGE and other factors that could affect the public trading values
of World Access, WORLDxCHANGE or any other comparable company included in this
analysis.
Historical financial information used with respect to the comparable
companies was as of the most recent financial statements publicly available for
each company as of February 9, 2000. DLJ examined certain publicly available
financial data of the comparable companies including enterprise value (defined
as market value of common equity plus book value of total debt and preferred
stock less cash) as multiples of the latest publicly available last quarter
annualized revenues, estimated 2000 revenues taken from various analysts
research reports, gross property, plant and equipment and net property, plant
and equipment.
DLJ 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 at
February 9, 2000. For purposes of this analysis, DLJ 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, DLJ 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
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.
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COMPARABLE COMPANY ANALYSIS
($ IN MILLIONS)
<TABLE>
<CAPTION>
COMPARABLE COMPANIES REFERENCE RANGE(1)
-------------------- --------------------
WORLDXCHANGE HIGH LOW HIGH LOW
------------ --------- ------- -------- --------
($ IN MILLIONS)
<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(2).................... 1.2x 1.9x 0.7x 1.5x 1.0x
Enterprise Value/Gross PP&E...... 3.2x 7.5x 2.5x 4.5x 3.5x
Enterprise Value/Net PP&E........ 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 PP&E..................... 924.5 2,173.8 711.4 1,295.9 1,007.9
Net PP&E....................... 924.5 1,705.1 565.7 1,066.5 872.6
</TABLE>
- ---------------
(1) In comparing the ratio of WORLDxCHANGE's enterprise value (based on the
Initial Exchange Ratio) to its last quarter annualized revenues, estimated
2000 revenues, gross property, plant and equipment and net property, plant
and equipment to those of the comparable companies at February 9, 2000, DLJ
also determined a reference range for the comparable companies. The
reference range represents a tighter range of the ratios as deemed
reasonable by DLJ for comparative purposes.
(2) Source of Projections:
- IDT Corporation: Lazard Freres research report dated December 6, 1999;
- Pacific Gateway Exchange, Inc.: Jefferies research report dated November
17, 1999;
- PRIMUS Telecommunications Group, Incorporated: Jefferies research report
dated December 1, 1999;
- RSL Communications, Inc.: DLJ research report dated December 1, 1999;
- WORLDxCHANGE: projections provided by World Access management.
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.
3. ANALYSIS OF SELECTED M&A TRANSACTIONS
DLJ reviewed selected mergers and acquisitions transactions of companies
that operate businesses reasonably similar to that of WORLDxCHANGE. Of these
selected M&A transactions, the following mergers and acquisitions transactions
were deemed most relevant by DLJ:
- Viatel, Inc.'s acquisition of Destia Communications, Inc.
- PRIMUS Telecommunications Group, Incorporated's acquisition of TresCom
International, Inc.
However, no company, transaction or business utilized in DLJ's analysis of
selected M&A transactions is identical to World Access, WORLDxCHANGE or the
WORLDxCHANGE merger. Accordingly, this analysis necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of companies and other factors that could affect the
acquisition, public trading or other values of the companies or transactions
being analyzed.
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DLJ performed this analysis in order to compare WORLDxCHANGE's ratios of
the implied transaction value (based on the Initial Exchange Ratio) to its last
quarter annualized revenues and net property, plant and equipment to those of
the selected mergers and acquisitions transactions. In addition, DLJ compared
the transaction value of WORLDxCHANGE (based on the Initial Exchange Ratio) to
the implied transaction values obtained by the above mentioned ratios of the
selected mergers and acquisitions transactions and WORLDxCHANGE's last quarter
annualized revenues and net property, plant and equipment.
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SELECTED MERGERS AND ACQUISITIONS TRANSACTIONS
($ IN MILLIONS)
<TABLE>
<CAPTION>
ALL SELECTED M&A KEY SELECTED M&A
TRANSACTIONS TRANSACTIONS
-------------------- --------------------
WORLDXCHANGE HIGH LOW HIGH LOW
------------ -------- -------- -------- --------
($ IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Transaction Value/Last Quarter
Annualized Revenues........... 1.5x 4.0x 1.2x 2.6x 1.2x
====== ======== ======== ======== ========
Transaction Value/Net PP&E...... 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 PP&E...................... 924.5 8,143.1 1,148.3 1,206.6 1,148.3
</TABLE>
- ---------------
* For purposes of this analysis, DLJ compared WORLDxCHANGE's ratios of the
implied transaction value (based on the Initial Exchange Ratio) to its last
quarter annualized revenues and net property, plant and equipment to those of
the selected mergers and acquisitions transactions deemed most relevant by
DLJ. In addition, DLJ compared the transaction value of WORLDxCHANGE (based on
the Initial Exchange Ratio) to the implied transaction values obtained by the
above mentioned ratios of the selected mergers and acquisitions transactions
deemed most relevant by DLJ and WORLDxCHANGE's last quarter annualized
revenues and net property, plant and equipment.
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, DLJ 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. DLJ 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. DLJ calculated
EBITDA for WORLDxCHANGE. EBITDA is earnings before interest, taxes, depreciation
and amortization and other items. DLJ calculated the terminal value of
WORLDxCHANGE at the end of the forecast period, by applying a range of estimated
EBITDA multiples selected in DLJ'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 DLJ's subjective estimate of
the terminal values based on management's projected EBITDA were then discounted
to the present using a range of discount rates selected in DLJ'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>
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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 is not a complete description of the analyses
performed by DLJ, but describes, in summary form, the principal elements of the
analyses made by DLJ in arriving at DLJ's opinion. The preparation of a fairness
opinion involves 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 summarized.
ENGAGEMENT LETTER
World Access selected DLJ to render an opinion in connection with the
WORLDxCHANGE merger based upon DLJ's qualifications, expertise and reputation,
including the fact that DLJ, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, underwritings, sales and distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes.
Pursuant to the terms of an engagement letter dated January 18, 2000, World
Access agreed to pay DLJ a fee of $850,000 at the time that DLJ delivered to the
World Access board of directors its opinion, irrespective of the conclusion
reached in the opinion, and to pay DLJ 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 DLJ for all of its out-of-pocket expenses, including the
reasonable fees and expenses of counsel incurred by DLJ in connection with its
engagement, and to indemnify DLJ for liabilities and expenses arising out of
DLJ's engagement, including liabilities under federal securities laws.
The terms of the fee arrangement with DLJ, which DLJ and World Access
believe are customary in transactions of this nature, were negotiated at
arms-length between World Access and DLJ. World Access' board of directors was
aware of such arrangement, including the fact that a significant portion of the
aggregate fee payable to DLJ is contingent upon consummation of the WORLDxCHANGE
merger.
DLJ 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. DLJ has performed
investment banking and other services for World Access in the past and has been
compensated for such services. DLJ 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. DLJ is currently acting as financial advisor to World
Access in connection with its proposed acquisition of STAR. Further, DLJ 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 TO BE RECEIVED 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.
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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.
CERTAIN MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE WORLDXCHANGE MERGER
The following is a summary of certain 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, as disclosed herein, to the
extent the following discussion summarizes matters of law or legal conclusions,
it is accurate in all material respects under the federal income tax laws as now
in effect. The following discussion is general in nature and does not purport to
be 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 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: (i) an insurance company; (ii) a
tax-exempt organization; (iii) an employee stock ownership plan; (iv) a bank;
(v) a broker, dealer or financial institution; (vi) 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; (vii) a
holder that has a "functional currency" other than the United States dollar;
(viii) a holder subject to the alternative minimum tax; (ix) 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; (x) 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 (xi) 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 (for example, 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 summary assumes that as a
WORLDxCHANGE shareholder, you hold your WORLDxCHANGE capital stock as a "capital
asset" (generally, property held for investment) within the meaning of Section
1221 of the Internal Revenue Code of 1986, as amended, or the Code. This summary
is based on the Code and final, temporary and proposed treasury regulations
promulgated thereunder, 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 summary.
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We have not requested a ruling from the IRS with respect to the federal
income tax consequences of the WORLDxCHANGE merger nor is consummation 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 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 accuracy of
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 tax discussion
set forth below.
The opinion represents such counsel's best judgment as to the tax treatment
of the WORLDxCHANGE merger, but neither binds the IRS nor precludes it from
adopting a contrary position, and no assurance can be given that contrary
positions will not be successfully asserted by the IRS 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 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
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. Under Section
354 of the Code, 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 IRS as a dividend
distribution to you under Section 301 of the Code, 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 IRS, the cash you receive in lieu of a fractional share interest in World
Access common stock will be treated as received in "exchange" for such
fractional share interest under Section 302(a) of the Code. You will recognize
gain or loss measured by the difference between the amount of cash received and
the portion of the tax basis of
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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 agreed upon 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 under
Section 354 of the Code. Upon a return of any such shares to World Access, your
tax basis in your pro rata share of the returned 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 under Section
354 of the Code 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 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 (the
"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 IRS 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 under Section 354 of the Code. Moreover, dividends
have not been declared on any of the shares of the WORLDxCHANGE preferred stock
and will not be declared as of the effective time of the WORLDxCHANGE merger,
and, in general, which 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 IRS 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
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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 IRS 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 under Section 301 of the Code, and therefore taxable as
ordinary income to the extent of your allocable portion of the accumulated
earnings and profits (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"
under Section 243 of the Code, and may possibly be subject to the "extraordinary
dividend" provisions of Section 1059 of the 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 IRS 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 IRS has been sought nor has any opinion of tax counsel been issued
regarding this issue. 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 IRS.
Cash received by dissenting WORLDxCHANGE shareholders. Cash received by
WORLDxCHANGE shareholders who exercise appraisal rights will be treated as
having been received in redemption of your WORLDxCHANGE common stock, subject to
the provisions and limitations of Section 302 of the Code. If, as a result of
such redemption, you own no World Access stock either directly or through the
application of the stock ownership attribution rules of Section 318 of the Code,
then "exchange" treatment occurs under Section 302(a) of the Code. If exchange
treatment applies, 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 IRS 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.
Tax considerations for the corporate parties
World Access, WORLDxCHANGE Communications, Inc. f/k/a CTI Merger Co. and
WORLDxCHANGE. No gain or loss will be recognized by World Access, WORLDxCHANGE
Communications, Inc. f/k/a CTI Merger Co., or WORLDxCHANGE as a result of the
WORLDxCHANGE merger. However, 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" within the meaning of Section 280G of the
Code. Excess parachute payments are not deductible in accordance with Section
280G. No determination can be made at this time whether any amounts will be
determined to be excess parachute payments, and therefore, Long Aldridge &
Norman LLP has expressed no opinion with respect to this matter.
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Limitation on WORLDxCHANGE tax attributes. Under Section 381 of the Code,
WORLDxCHANGE Communications, Inc. f/k/a CTI Merger Co. will succeed to the net
operating losses ("NOLs"), 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 Sections 381, 382, 383,
384 of the 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" (the "SRLY") rules. Under Section 382 of the Code, special
limitations apply after an "ownership change" to the use of NOLs and "net
unrealized built-in losses" in excess of a threshold amount recognized during
the five-year period after such ownership change. 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 NOLs 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 IRS (5.84% for May 2000). The Section 382 limitation
for any post-ownership change year will generally be zero unless the loss
corporation satisfies a "continuity of business enterprise" requirement for the
two-year period following the ownership change.
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. f/k/a CTI Merger Co.
as WORLDxCHANGE's corporate successor) will constitute a "loss subgroup" which
will undergo a Section 382 ownership change upon consummation of the
WORLDxCHANGE merger. Consequently, the World Access consolidated group's ability
to utilize such loss subgroup's NOL carryover as of September 30, 1999, and any
additional loss subgroup's NOL carryover of such loss subgroup arising in
WORLDxCHANGE's fiscal year beginning October 1, 1999 during the period prior to
the effective time of the WORLDxCHANGE merger (collectively, the "pre-change
WORLDxCHANGE loss subgroup NOLs") against future World Access consolidated
federal taxable income will be subject to an annual loss subgroup Section 382
limitation. If there is a prior Section 382 limitation, then successive
ownership changes may result in an additional, lesser (but never in a greater)
Section 382 limitation with respect to previously limited NOLs.
An additional limitation may apply under which the pre-change WORLDxCHANGE
loss subgroup NOLs can only be used to the extent of the "qualifying SRLY
subgroup" members' aggregate, cumulative contribution to World Access
consolidated taxable income (the "SRLY limitation"). Because the WORLDxCHANGE
loss subgroup and its SRLY NOL subgroup should be treated as co-extensive, and
the Section 382 ownership change and SRLY event will occur at the same time, the
SRLY limitation should be eliminated with respect to the WORLDxCHANGE loss
subgroup NOLs. However, the WORLDxCHANGE subgroup for built-in losses may not be
co-extensive with the WORLDxCHANGE loss subgroup and its SRLY NOL subgroup and,
if not, then if such WORLDxCHANGE subgroup built-in losses exceed a specified
threshold amount, such built-in losses recognized during the five-year period
following the SRLY event may still be subject to limitation under the SRLY
rules.
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 NOL, and has a
consolidated NOL carryover. As such, it constitutes a "loss group." Although it
is currently unclear whether the World Access loss group will undergo a Section
382 ownership change as a result of consummating either or both the WORLDxCHANGE
merger and the STAR merger, 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 NOL carryover as of December 31, 1999, and
certain "recognized built-in losses" against its future consolidated federal
taxable income may already be subject to an annual loss group Section 382
limitation.
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If consummation 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 NOLs 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.
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 (i) an effective
registration statement under the Securities Act of 1933 covering the resale of
those shares, (ii) Rule 145 under the Securities Act of 1933 or (iii) 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, or HSR, which
prevents transactions from being completed until
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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 HSR 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 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 FCC
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 FCC. 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
FCC 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
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Corporation Law, or the CGCL. This summary is not a complete statement of the
law relating to dissenters' rights and is qualified in its entirety by reference
to the full text of Chapter 13 of the CGCL. A copy of Chapter 13 of the CGCL is
attached as Annex I to this joint proxy statement/prospectus and is incorporated
herein by reference. Failure to comply with the procedures set forth in Chapter
13 of the CGCL will result in the loss or waiver of dissenters' rights.
Therefore, this discussion and Chapter 13 of the CGCL 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 who complies with the provisions and
procedures of Chapter 13 of the CGCL, 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 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 in consequence of the
proposed WORLDxCHANGE merger (i.e., valuing the WORLDxCHANGE shares as if the
WORLDxCHANGE merger had not occurred) but adjusted for any stock split, reverse
stock split or share dividend that becomes effective thereafter. A failure to
vote affirmatively against the WORLDxCHANGE merger will not constitute a waiver
of dissenters' rights set forth in Chapter 13 of the CGCL. 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 WORLDxCHANGE
merger.
The WORLDxCHANGE merger agreement provides that WORLDxCHANGE will not be
the surviving corporation in the WORLDxCHANGE merger. Under the CGCL, the
surviving corporation will assume WORLDxCHANGE's obligations under Chapter 13 of
the CGCL.
To qualify as a dissenting share under the CGCL, 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 ten days after the date of the approval of
the WORLDxCHANGE merger by the required WORLDxCHANGE shareholder vote or consent
to mail a notice of the approval of the WORLDxCHANGE 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 CGCL, 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 such dissenting
shareholder's shares. WORLDxCHANGE must receive such 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
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mailed to dissenting shareholders. The demand must set forth the number and
class of shares held of record by such shareholder 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 WORLDxCHANGE merger. The statement of fair
market value in such demand by the dissenting shareholder constitutes an offer
by the shareholder to sell the shares at such 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, such dissenting
shareholder must also submit to WORLDxCHANGE at its principal office or the
office of any transfer agent thereof share certificates representing any
dissenting shares that the dissenting shareholder demands that WORLDxCHANGE
purchase, so that such dissenting shares may either be stamped or endorsed with
the statement that the shares are dissenting shares or 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. Such 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
consummation 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/or whether the shares qualify as dissenting shares.
The costs and expenses of the action, including reasonable compensation to
the appraisers, will be fixed and shall be assessed or apportioned as the court
considers equitable, but, 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 CGCL and Section 1306 of the CGCL,
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 the above mentioned provisions of the CGCL prohibit cash
payments to holders of dissenting shares who exercise and perfect their
dissenters' rights of their fair market value, such dissenting shareholders will
become creditors of WORLDxCHANGE for an amount equal to the fair market value of
their shares as to which the dissenters' rights are perfected plus interest
accrued thereon at the legal rate on judgments until the date of payment. The
rights of such dissenting shareholders, however, will be subordinate to the
rights of all other creditors of WORLDxCHANGE in any liquidation proceeding,
with such 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 CGCL fails to perfect, or effectively withdraws or loses his,
her or its right to such purchase, the shares of such
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holder will be converted into a right to receive the applicable merger
consideration with respect thereto in accordance with the terms of the
WORLDxCHANGE merger agreement.
Dissenting shares lose their status as dissenting shares, and the holders
of dissenting shares cease to be dissenting shareholders and cease to be
entitled to require WORLDxCHANGE to purchase their shares if:
- the WORLDxCHANGE merger is abandoned, in which case WORLDxCHANGE shall
pay on demand to any dissenting shareholder who has initiated proceedings
in good faith under Chapter 13 of the CGCL all necessary expenses
incurred in such 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 such request for withdrawal.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 13 OF THE CGCL 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 WITH RESPECT TO SUCH DISSENTING SHARES IN ACCORDANCE WITH THE
WORLDXCHANGE MERGER AGREEMENT). IN VIEW 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.
INTERESTS OF CERTAIN PERSONS IN THE WORLDXCHANGE MERGER
Under the terms of the WORLDxCHANGE merger agreement, World Access has
agreed to cause one designee of WORLDxCHANGE to be elected to the World Access
board of directors. 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 record date for determining the WORLDxCHANGE shareholders
entitled to approve the WORLDxCHANGE merger, executive officers and directors of
WORLDxCHANGE and Gold & Appel Transfer S.A. and Atocha, L.P. collectively
beneficially owned a total of shares of WORLDxCHANGE common stock (not
including any shares subject to outstanding options or warrants beneficially
owned by these individuals or entities). Under the WORLDxCHANGE merger
agreement, these shares will be converted in the WORLDxCHANGE merger into a
total of shares of World Access common stock with an aggregate value
of $ (assuming a per share value of World Access common stock equal to
$20.38). In addition to the foregoing, WORLDxCHANGE executive officers and
directors and Gold & Appel Transfer S.A. and Atocha, L.P. beneficially owned
options and warrants to purchase an aggregate of shares of
WORLDxCHANGE common stock. These options and
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warrants had exercise prices ranging from $ to $ per share. Pursuant
to the WORLDxCHANGE merger agreement, these options and warrants, to the extent
not exercised as of immediately prior to the WORLDxCHANGE merger, will be
converted into the right to acquire shares of World Access common stock in
accordance with the WORLDxCHANGE merger agreement. Each of Roger Abbott, Chief
Executive Officer and a director of WORLDxCHANGE, and Edward Soren, Executive
Vice President and a director of WORLDxCHANGE, have agreed with World Access to
vote his shares in favor of the WORLDxCHANGE merger. In addition, affiliates of
Walter Anderson, WORLDxCHANGE's Chairman of the board, and Thomas Cirrito, a
WORLDxCHANGE director, have agreed with World Access to vote their shares in
favor of the WORLDxCHANGE merger.
Each of Mr. Abbott, Mr. Soren, Gold & Appel Transfer S.A. and Atocha L.P.
has agreed in his or its voting and stock transfer restriction agreement with
World Access not to sell or otherwise transfer the World Access shares received
by him or it in the WORLDxCHANGE merger until six months after the completion of
the WORLDxCHANGE merger. However, Mr. Soren's agreement permits Mr. Soren
immediately to sell up to 750,000 shares of World Access common stock to be
received by Mr. Soren in the WORLDxCHANGE merger without restriction. In
addition, Mr. Abbott's agreement permits Mr. Abbott immediately to sell such
number of shares of World Access common stock to be received by Mr. Abbott in
the WORLDxCHANGE merger as would provide Mr. Abbott with aggregate gross cash
proceeds of up to $30.0 million. In no event will Mr. Abbott be permitted to
sell more than $30.0 million worth of World Access common stock received by him
in the WORLDxCHANGE merger prior to the expiration of the six-month transfer
restriction period under his voting and stock transfer restriction agreement
with World Access.
Under Mr. Abbott's employment agreement with WORLDxCHANGE, if, in
connection with a change of control of WORLDxCHANGE or otherwise, Mr. Abbott's
employment with WORLDxCHANGE is terminated other than for cause, death or
disability, or if Mr. Abbott's employment is constructively terminated, Mr.
Abbott will be entitled to:
- the payment of any earned but unpaid salary and/or bonus under the
agreement; and
- a lump sum cash payment in an amount equal to the amount he would have
earned under the agreement from the date of termination through July 31,
2002 (currently $50,000 per month) plus the cost for Mr. Abbott to obtain
benefits equivalent to those in effect at the time of the termination
through July 31, 2002.
Mr. Abbott's employment agreement defines "cause" to include:
- Mr. Abbott's conviction of a felony;
- fraudulent conduct by Mr. Abbott in connection with the business of
WORLDxCHANGE; and
- Mr. Abbott's bad faith refusal to perform his duties as WORLDxCHANGE's
Chief Executive Officer.
Mr. Abbott's employment agreement defines "constructive termination" as:
- a material reduction in the kind or level of Mr. Abbott's employee
benefits;
- the relocation of Mr. Abbott to a location more than 40 miles from
WORLDxCHANGE's current offices in San Diego without Mr. Abbott's prior
consent;
- the failure of WORLDxCHANGE to have Mr. Abbott's employment agreement
assumed by any successor entity; or
- any circumstances which would constitute a constructive termination of
Mr. Abbott's employment under California law.
The WORLDxCHANGE merger would constitute a change of control of WORLDxCHANGE
under Mr. Abbott's employment agreement.
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Patrick Aelvoet, WORLDxCHANGE's Chief Financial Officer, has an employment
agreement with WORLDxCHANGE that provides for the payment of a $50,000 severance
payment to Mr. Aelvoet if, in connection with a change of control of
WORLDxCHANGE or otherwise, WORLDxCHANGE terminates Mr. Aelvoet's employment
without cause and without at least 90 days' advance notice of such termination.
Mr. Aelvoet's employment agreement defines "cause" to include:
- personal dishonesty;
- incompetence;
- willful misconduct;
- abandonment of employment or extensive absences;
- conflict of interest or breach of fiduciary duty involving intent for or
obtainment of material personal or family profit;
- violation of any law (other than minor traffic offenses and the like);
- a court order prohibiting Mr. Aelvoet's continued employment with
WORLDxCHANGE;
- a final cease-and-desist order issued by a regulatory agency; or
- any material, uncured breach by Mr. Aelvoet of his employment agreement.
The completion of the WORLDxCHANGE merger would constitute a change of
control of WORLDxCHANGE under Mr. Aelvoet's employment agreement.
Pursuant to three separate stock option agreements with WORLDxCHANGE, Mr.
Aelvoet has options to purchase 50,000 WORLDxCHANGE shares at $9.00 per share,
25,000 shares at $10.00 per share, and 75,000 shares at $11.00 per share. Of the
options to purchase 50,000 shares, options to purchase 25,000 shares are
currently vested, with the remainder vesting at the rate of 3,125 shares per
quarter commencing on July 1, 2000. Of the options to purchase 25,000 shares,
options to purchase 7,812.5 shares are currently vested, with the remainder
vesting at the rate of 1,562.5 shares per quarter commencing on August 1, 2000.
Of the options to purchase 75,000 shares, options to purchase 14,062.5 shares
are currently vested, with the remainder vesting at the rate of 4,687.5 shares
per quarter commencing on July 1, 2000. Under Mr. Aelvoet's option agreements,
if his employment with WORLDxCHANGE is involuntarily terminated within 12 months
following a change of control of WORLDxCHANGE, his options would become
immediately fully vested and remain exercisable until the earlier of one year
from the date of such termination or ten years from the applicable grant date.
Mr. Aelvoet's stock option agreements define "involuntary termination" as:
- Mr. Aelvoet's involuntary dismissal or discharge for reasons other than
misconduct; or
- Mr. Aelvoet's voluntary resignation following:
- a material reduction in Mr. Aelvoet's responsibilities;
- a 15% or greater decrease in Mr. Aelvoet's total compensation; or
- a relocation of Mr. Aelvoet's place of employment by more than 50 miles
without Mr. Aelvoet's consent.
Eric G. Lipoff, WORLDxCHANGE's Vice President and General Counsel, has an
employment agreement with WORLDxCHANGE that provides that, if in connection with
a change of control of WORLDxCHANGE or otherwise, WORLDxCHANGE terminates Mr.
Lipoff's employment without
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cause or there is otherwise an involuntary termination of Mr. Lipoff's
employment, Mr. Lipoff will be entitled to:
- the payment of any earned but unpaid salary and/or bonus under the
agreement; and
- the amount of compensation that he would have earned under the agreement
from the date of termination through December 31, 2002 (currently $16,666
per month) plus the cost for Mr. Lipoff to obtain benefits equivalent to
those in effect at the time of the termination through December 31, 2002.
Mr. Lipoff's employment agreement defines "cause" to include:
- willful misconduct of a serious nature in connection with his employment;
- abandonment of employment or excessive absences after reasonable notice;
- conflict of interest or breach of fiduciary duty involving his
responsibilities as an employee involving intent for or obtainment of
material personal or family profit;
- conviction of any felony criminal offense; or
- the issuance by any court or other governmental entity of an order
prohibiting Mr. Lipoff's continued employment with WORLDxCHANGE which is
not vacated within ten days after its entry.
The agreement defines an "involuntary termination" as:
- the relocation of Mr. Lipoff to a facility or location outside the
California counties of Orange or San Diego without Mr. Lipoff's consent;
- the failure of WORLDxCHANGE to have Mr. Lipoff's employment agreement
assumed by any successor entity; or
- any circumstances that would constitute a constructive termination of Mr.
Lipoff's employment under California law.
The completion of the WORLDxCHANGE merger would constitute a change of control
of WORLDxCHANGE under Mr. Lipoff's employment agreement.
Mr. Lipoff also has an option to purchase a total of 150,000 shares of
WORLDxCHANGE common stock at $10.00 per share. Under the WORLDxCHANGE merger
agreement, all of these options will be converted into the right to acquire
shares of World Access common stock in accordance with the WORLDxCHANGE merger
agreement. Pursuant to Mr. Lipoff's option agreement, this option will fully
vest on December 31, 2002, except that the option will immediately fully vest if
Mr. Lipoff's employment with WORLDxCHANGE is terminated without cause at any
time prior to December 31, 2002. Mr. Lipoff's stock option agreement defines
"cause" as it is defined in his employment agreement. If the vesting of this
option is so accelerated, Mr. Lipoff will have 90 days following the termination
of his employment to exercise the option.
Effective January 3, 2000, each of Sen. Paul Laxalt and Dann Angeloff, who
are directors of WORLDxCHANGE, received an option to purchase 12,500 shares of
WORLDxCHANGE common stock at $10.00 per share. Under the WORLDxCHANGE merger
agreement, all of these options will, to the extent not exercised by Sen. Laxalt
and Mr. Angeloff, as applicable, as of the effective time of the WORLDxCHANGE
merger, be converted into the right to acquire shares of World Access common
stock in accordance with the WORLDxCHANGE merger agreement. These options are
each currently vested as to 1,041.67 shares and vest at the rate of an
additional 1,041.67 shares per month until fully vested. However, upon a change
of control of WORLDxCHANGE, these options will each immediately fully vest and
remain exercisable until the earlier of one year after the termination of these
directors following a change of control of WORLDxCHANGE or ten years from the
date of grant. The completion of the WORLDxCHANGE merger would constitute a
change of control of WORLDxCHANGE under the terms of the options.
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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 March 22, 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 March 22, 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)....................................... 15,099,472 40.8%
Edward S. Soren(3).......................................... 7,311,812 19.8
Gold & Appel Transfer, S.A.(4).............................. 4,790,428 12.9
Atocha, L.P.(5)............................................. 3,833,672 10.4
Eric G. Lipoff(6)........................................... 277,820 *
Christopher Bantoft(7)...................................... 200,000 *
Patrick M. Aelvoet(7)....................................... 48,876 *
Dann V. Angeloff(7)......................................... 49,167 *
Paul Laxalt(7).............................................. 49,167 *
All directors and executive officers as a group (10
persons)(2)(3)(4)(5)(6)(7)................................ 30,702,934 81.2
</TABLE>
- ---------------
* Less than 1%.
(1) Percentage calculation is based upon 37,022,683 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) 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., Walter 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. Does not include a total of 6,893,937 shares of
common stock issuable upon conversion of the WORLDxCHANGE Series A
Convertible Preferred Stock and
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WORLDxCHANGE Series B Convertible Preferred Stock held by Gold & Appel
Transfer, S.A. If such shares of preferred stock were to be fully converted,
Gold & Appel Transfer, S.A. will beneficially own 11,684,365 shares, or
approximately 27.0%, of WORLDxCHANGE's common stock. The address for each of
Gold & Appel Transfer, S.A. and Walt Anderson is c/o Gold & Appel Transfer,
S.A., Omar Hodge Building, Wickhams Cay, Road Town, Tortula, British Virgin
Islands.
(5) Tom Cirrito, a WORLDxCHANGE director, is a general partner of Atocha, L.P.,
and as a result may be deemed to have beneficial ownership of these shares.
The address for each of Atocha, L.P. and Tom Cirrito is c/o Atocha, L.P.,
6429 Georgetown Pike, McLean, Virginia 22101. Does not include a total of
1,388,889 shares of common stock issuable upon conversion of the
WORLDxCHANGE Series B Convertible Preferred Stock held by Atocha. If such
shares of WORLDxCHANGE Series B Convertible Preferred Stock were to be fully
converted, Atocha would beneficially own 5,222,561 shares or approximately
13.6% of WORLDxCHANGE's common stock.
(6) Includes a total of 250,000 shares issuable pursuant to options that were
exercisable as of March 22, 2000 or within 60 days of such date.
(7) Represents shares issuable pursuant to options that were exercisable as of
March 22, 2000, or within 60 days of that date.
THE WORLDXCHANGE MERGER AGREEMENT
This section of the joint proxy statement/prospectus describes 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 upon the satisfaction of the conditions for such payment
contained in the WORLDxCHANGE merger agreement and to make the necessary
conforming changes. The original WORLDxCHANGE merger agreement, as amended, is
referred to in this joint proxy statement/prospectus as the WORLDxCHANGE merger
agreement. While World Access and WORLDxCHANGE believe that the description
covers the material terms of the WORLDxCHANGE merger agreement, this summary may
not contain all of the information that is important to you. The WORLDxCHANGE
merger agreement is attached to this joint proxy statement/prospectus as Annex
B, and World Access and WORLDxCHANGE urge you to read it carefully.
THE WORLDXCHANGE MERGER/EFFECTIVE TIME
The WORLDxCHANGE merger agreement provides that upon completion of the
merger, WORLDxCHANGE will be merged with and into WORLDxCHANGE Communications,
Inc. f/k/a CTI Merger Co., a wholly-owned subsidiary of World Access.
WORLDxCHANGE Communications, Inc. f/k/a CTI Merger Co. will survive the merger.
On the closing date 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. Upon the filing of
the certificate of merger and the agreement of merger, the WORLDxCHANGE merger
will be effective.
THE WORLDXCHANGE MERGER CONSIDERATION
Each share of WORLDxCHANGE capital stock owned or held by WORLDxCHANGE or a
subsidiary of WORLDxCHANGE will no longer be outstanding and will be canceled
and retired, and no consideration will be delivered for such shares.
Each share of WORLDxCHANGE capital 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.
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ESCROW OF SHARES
Of the shares of World Access common stock to be issued to the WORLDxCHANGE
shareholders in the WORLDxCHANGE merger, 2,453,385 of such shares will be
delivered to SunTrust Bank, Atlanta, as escrow agent. These shares will be held
by SunTrust Bank as security for claims by World Access for indemnification
pursuant to the WORLDxCHANGE merger agreement and the applicable escrow
agreement. The shares of World Access common stock held in escrow constitute
World Access' exclusive source of recovery for indemnification claims.
At the closing of the WORLDxCHANGE merger, 49,068 of the shares of World
Access common stock to be issued to the WORLDxCHANGE shareholders will be
delivered to a corporate escrow agent. Such shares will be used by the
WORLDxCHANGE shareholder representative to pay the costs associated with
fulfilling his obligations under the WORLDxCHANGE merger agreement and the
WORLDxCHANGE escrow agreement, including the settlement of World Access
indemnification claims.
REPRESENTATIONS AND WARRANTIES
World Access, WORLDxCHANGE Communications, Inc. f/k/a CTI Merger Co. 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 structure;
- due authorization by each such party of the WORLDxCHANGE merger
agreement, the escrow agreement and the transactions contemplated
thereby;
- capitalization;
- financial statements;
- undisclosed liabilities;
- compliance with laws;
- absence of conflicts between each party's obligations under the
WORLDxCHANGE merger agreement and its charter, bylaws, and material
contracts, and applicable law;
- pending or threatened litigation;
- tax matters;
- consents and approvals required to complete the WORLDxCHANGE merger;
- changes in business or the occurrence of certain events since September
30, 1999 (in the case of WORLDxCHANGE) or December 31, 1999 (in the case
of World Access);
- required approvals by their respective boards of directors and
stockholders; and
- financial advisors.
WORLDxCHANGE made additional representations and warranties regarding its,
and its subsidiaries' real and personal property, intellectual property,
employee benefits and other employee matters, licenses and permits necessary for
the operation of its business, and material contracts. World Access made
additional representations and warranties with respect to required filings and
reports with the Securities and Exchange Commission and the valid issuance by
World Access of its shares in the WORLDxCHANGE merger.
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WORLDXCHANGE'S CONDUCT OF BUSINESS BEFORE COMPLETION OF THE WORLDXCHANGE MERGER
WORLDxCHANGE has agreed that until the completion of the WORLDxCHANGE
merger, it will, and will cause its subsidiaries to, conduct business in the
usual, regular and ordinary course, substantially in accordance with past
practice in all material respects.
WORLDxCHANGE also agreed that subject to exceptions as contemplated by the
WORLDxCHANGE merger agreement, until the completion of the WORLDxCHANGE merger,
it would, and would cause its subsidiaries to, conduct business in compliance
with specific restrictions relating to:
- the issuance and redemption of securities;
- employees and employee benefits and remuneration;
- the issuance of dividends or other distributions;
- the modification of certificates of incorporation or bylaws;
- the acquisition of assets or other entities;
- the disposition of assets;
- the incurrence of indebtedness;
- capital expenditures and other investments;
- entering into contracts;
- accounting policies and procedures; and
- the settlement of litigation.
NO OTHER NEGOTIATIONS INVOLVING WORLDXCHANGE
Until the WORLDxCHANGE merger is completed, WORLDxCHANGE has agreed that
neither it nor its subsidiaries will, and that it will cause its employees,
officers, directors, affiliates, agents and representatives not to, directly or
indirectly take any of the following actions without the prior written consent
of World Access:
- solicit, initiate, encourage or knowingly facilitate (including by way of
furnishing information or engaging in discussions or negotiations) any
inquiries regarding or the making, implementation or acceptance of an
Acquisition Proposal, as defined below;
- 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 and its subsidiaries would, and would
cause it officers, directors, affiliates, employees, agents and representatives
to, immediately discontinue any discussions or negotiations regarding an
Acquisition Proposal in effect on February 11, 2000.
An "Acquisition Proposal" is any offer or proposal with respect to (i) a
business combination or similar action involving WORLDxCHANGE, (ii) any purchase
or sale of a material portion of the assets of WORLDxCHANGE, taken as a whole,
or (iii) any purchase or sale of, or tender or exchange offer for, a material
portion of the equity securities of WORLDxCHANGE.
TREATMENT OF WORLDXCHANGE STOCK OPTIONS AND WARRANTS
Upon completion of the WORLDxCHANGE merger, each outstanding option or
warrant to purchase WORLDxCHANGE capital stock 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 WORLDxCHANGE common stock covered under such
WORLDxCHANGE stock option or warrant multiplied by 0.6583 at a per share price
equal to the exercise price specified in the WORLDxCHANGE option or warrant
divided
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by 0.6583. Each newly-issued World Access stock option will contain terms
substantially similar to the terms governing the original STAR stock option or
warrant.
World Access will file a registration statement on Form S-8 (or another
appropriate form) with respect to each WORLDxCHANGE stock option or warrant
converted into a World Access stock option, and with respect to shares of World
Access common stock in respect of shares of World Access common stock underlying
such option. World Access will maintain the effectiveness of the registration
statement for as long as any of the options remain outstanding.
BOARD OF DIRECTORS AND OFFICERS OF WORLD ACCESS
World Access and WORLDxCHANGE have agreed that, immediately following the
completion of the WORLDxCHANGE merger, World Access will cause one WORLDxCHANGE
designee to be elected to the World Access board of directors. The WORLDxCHANGE
designee will be Walter Anderson, or such other person designated by Gold &
Appel Transfer S.A. and reasonably acceptable to World Access. Gold & Appel S.A.
is a shareholder of WORLDxCHANGE.
CONDITIONS TO COMPLETION OF THE WORLDXCHANGE MERGER
The respective obligations of WORLDxCHANGE, World Access and WORLDxCHANGE
Communications, Inc. f/k/a CTI Merger Co. to complete the WORLDxCHANGE merger
are subject to the satisfaction or waiver of each of the following conditions
before completion of the WORLDxCHANGE merger:
- the waiting period (and any extension thereof) applicable to the
WORLDxCHANGE merger under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, must have been terminated or must have expired;
- the WORLDxCHANGE merger agreement and the WORLDxCHANGE merger must be
approved by the requisite vote of the stockholders of World Access and
WORLDxCHANGE;
- the registration statement with respect to the shares of World Access
common stock to be issued in the WORLDxCHANGE merger must have been
declared effective by the Securities and Exchange Commission, and the
registration statement must not be subject to a stop order or a
threatened proceeding with respect to a stop order; 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 and
to be held in escrow.
WORLDxCHANGE's obligations to complete the WORLDxCHANGE merger are subject
to the satisfaction or waiver of each of the following additional conditions
before completion of the WORLDxCHANGE merger:
- World Access' representations and warranties must be true and correct as
of February 11, 2000 and as of the date the WORLDxCHANGE merger is to be
completed except to the extent World Access' representations and
warranties address matters only as of a particular date and except where
any failure to be true and correct would not have a Material Adverse
Effect (as defined below) on World Access or the surviving corporation;
- World Access must perform or comply in all material respects with all of
its agreements and covenants required by the WORLDxCHANGE merger
agreement to be performed or complied with by World Access at or before
completion of the WORLDxCHANGE merger;
- all covenants and approvals required of World Access to complete the
WORLDxCHANGE merger must be obtained, except where the failure to obtain
any such consent or approval would not have a Material Adverse Effect on
World Access or the surviving corporation;
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- World Access' legal counsel must have delivered to WORLDxCHANGE a legal
opinion pertaining to the corporate existence of World Access and
WORLDxCHANGE Communications, Inc. f/k/a CTI Merger Co., the corporate
power and authority of World Access and WORLDxCHANGE Communications, Inc.
f/k/a CTI Merger Co. to execute and perform the WORLDxCHANGE merger
agreement, the effectiveness of the WORLDxCHANGE merger and the issuance
of World Access common stock pursuant to the WORLDxCHANGE merger
agreement; and
- no law, order or injunction must be adopted or issued which has the
effect of making the WORLDxCHANGE merger illegal or prohibiting
completion of the WORLDxCHANGE merger or which would otherwise have a
Material Adverse Effect on World Access and its subsidiaries taken as a
whole.
World Access' obligations to complete the WORLDxCHANGE merger are subject
to the satisfaction or waiver of each of the following additional conditions
before completion of the WORLDxCHANGE merger:
- WORLDxCHANGE's representations and warranties must be true and correct as
of February 11, 2000 and as of the date the WORLDxCHANGE merger is to be
completed except to the extent WORLDxCHANGE's representations and
warranties address matters only as of a particular date and except where
any failure to be true and correct would not have a Material Adverse
Effect on World Access or the surviving corporation;
- WORLDxCHANGE must perform or comply in all material respects with all of
its agreements and covenants required by the WORLDxCHANGE merger
agreement to be performed or complied with by WORLDxCHANGE at or before
completion of the WORLDxCHANGE merger;
- no Material Adverse Effect with respect to WORLDxCHANGE and its
subsidiaries taken as a whole shall have occurred since February 11,
2000, except any change, circumstance or effect relating to the economy
or financial markets in general or in general to the industries in which
WORLDxCHANGE operates and not specifically relating to WORLDxCHANGE;
- all consents and approvals required of WORLDxCHANGE to complete the
WORLDxCHANGE merger must be obtained, except where the failure to obtain
any such consent or approval would not have a Material Adverse Effect on
World Access or the surviving corporation;
- WORLDxCHANGE's legal counsel must have delivered to World Access a legal
opinion pertaining to the corporate existence of WORLDxCHANGE, the
corporate power and authority of WORLDxCHANGE to execute and perform the
WORLDxCHANGE merger agreement, and the effectiveness of the WORLDxCHANGE
merger;
- no law, order or injunction must be adopted or issued which has the
effect of making the WORLDxCHANGE merger illegal or prohibiting
completion of the merger or which would otherwise have a Material Adverse
Effect on World Access and its subsidiaries taken as whole;
- the average World Access closing sale price for the ten consecutive
trading days ending at the close of trading day on the second trading day
prior to the completion of the WORLDxCHANGE merger was not below $15.00;
- 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 all transactions contemplated
thereby (including the WORLDxCHANGE merger), and such shares shall have
been deemed converted into not more than 8,282,829 shares of WORLDxCHANGE
common stock.
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A "Material Adverse Effect" is any change, circumstance or effect or breach
of any of the provisions of the WORLDxCHANGE merger agreement that individually,
or in the aggregate, is or would reasonably be expected to be materially adverse
to the business, financial condition or results of operations of an entity taken
as a whole with its subsidiaries or the ability of such entity to complete the
transactions contemplated by the WORLDxCHANGE merger agreement.
TERMINATION OF THE WORLDXCHANGE MERGER AGREEMENT
The WORLDxCHANGE merger agreement may be terminated at any time prior to
completion of the WORLDxCHANGE merger:
- by mutual written consent of World Access and WORLDxCHANGE;
- by World Access or WORLDxCHANGE, if the other party fails to comply in
any material respects with any of its covenants or agreements in the
WORLDxCHANGE merger agreement, which failure to comply is not cured
within 30 days following receipt of notice of breach. However, if a
breach is curable through the use of reasonable efforts, the
non-breaching party may not terminate the WORLDxCHANGE merger agreement
so long as the breaching party is using reasonable efforts to cure the
breach. Further, no party may terminate the WORLDxCHANGE merger agreement
if such party is then failing to comply in any material respect with any
of its covenants and agreements;
- by World Access or WORLDxCHANGE, if the other party has breached any of
its representations or warranties, which breach has not been cured within
30 days following receipt of written notice of the breach. However, if
the breach is curable through the use of reasonable efforts, the non-
breaching party may not terminate the WORLDxCHANGE merger agreement so
long as the breaching party is using reasonable efforts to cure the
breach. Further, no party may terminate the WORLDxCHANGE merger agreement
unless the breach would have a Material Adverse Effect on World Access,
the surviving corporation in the WORLDxCHANGE merger or World Access and
such surviving corporation;
- by World Access or WORLDxCHANGE, if the WORLDxCHANGE merger is not
completed before October 31, 2000 except that the right to terminate the
WORLDxCHANGE merger agreement is not available to any 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 October 31, 2000 and such
action or failure to act constitutes a breach of the WORLDxCHANGE merger
agreement;
- by World Access or WORLDxCHANGE if any governmental entity has issued a
final and nonappealable order, decree or ruling permanently enjoining or
prohibiting the WORLDxCHANGE merger or has failed to issue an order,
decree or ruling (which failure to issue is final and nonappealable),
which, in either case, is necessary to fulfill a party's obligation to
complete the WORLDxCHANGE merger. However, no party may terminate the
WORLDxCHANGE merger agreement if such party's failure to fulfill any
obligation under the WORLDxCHANGE merger agreement is the cause of such
action or inaction by the governmental entity; or
- by World Access or WORLDxCHANGE, if the WORLDxCHANGE merger agreement
fails to receive the requisite vote for adoption 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 (whether
before or after adoption of the WORLDxCHANGE merger agreement by the
stockholders of World Access and WORLDxCHANGE). However, following stockholder
approval, no amendment may be made which, by law or in accordance with rules of
any relevant stock exchange or automatic quotations system, requires
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<PAGE> 148
further approval by the stockholders. World Access and WORLDxCHANGE may, at any
time prior to completion of the WORLDxCHANGE merger, 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 (the "WAXS Protected Parties") as a result of
any of the following:
- a breach of any representation or warranty of WORLDxCHANGE in the
WORLDxCHANGE merger agreement (except with respect to certain tax matters
and, except in limited circumstances, without regard to materiality
qualifications contained in such representation or warranty);
- 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 as set forth in the WORLDxCHANGE merger
agreement (without regard, except in limited circumstances, to any
materiality qualification contained in such representation or warranty);
- 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
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.
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 the WAXS Protected
Parties may claim indemnification for the amount of losses (in each case net of
$150,000) in excess of $3.0 million. The sole remedy of any WAXS Protected Party
for a breach of a representation or warranty of WORLDxCHANGE is the right to
receive indemnification pursuant to the WORLDxCHANGE merger agreement, and the
shares of World Access common stock to be held in escrow will constitute the
sole source of recovery for the WAXS Protected Parties.
Upon approval of the WORLDxCHANGE merger agreement and the transactions
contemplated thereby 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 and all actions and make
any and all decisions required or permitted to be taken or made by the
WORLDxCHANGE shareholders under the WORLDxCHANGE merger agreement and the escrow
agreement (including those related to indemnification).
RELATED TRANSACTION 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
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<PAGE> 149
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, W. Tod Chmar 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 (i) the termination of the WORLDxCHANGE
merger agreement in accordance with the termination provisions of the
WORLDxCHANGE merger agreement, (ii) the completion of the WORLDxCHANGE merger
and (iii) 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, beneficially or of record, shares of World Access capital stock
representing approximately % of the voting stock of World Access voting
together as a single class. A copy of the voting and stock transfer restriction
agreement is attached as Annex J to this joint proxy statement/prospectus.
WORLDXCHANGE VOTING AGREEMENTS
World Access has entered into separate voting and stock transfer
restriction agreements with the following WORLDxCHANGE shareholders: Atocha,
L.P.; Roger B. Abbott and Rosalind Abbott, whose shares of WORLDxCHANGE capital
stock are owned jointly; Gold & Appel Transfer S.A.; 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 (i) sell, hypothecate,
transfer, pledge, encumber, assign or otherwise dispose of (collectively,
"Transfer"), or enter into any contract or understanding with respect to
the Transfer of, any shares of WORLDxCHANGE capital stock or options to
acquire shares, (ii) trade or take any position, hedge or otherwise, with
respect to shares of WORLDxCHANGE capital stock or options to acquire
such shares, (iii) enter into any voting arrangement with respect to
shares of WORLDxCHANGE capital stock or options to acquire such shares or
(iv) take any action that would make any of such WORLDxCHANGE
shareholder's representations or warranties untrue to
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<PAGE> 150
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 or (ii) the
expiration of the post-closing stock transfer restrictions set forth in
the voting and stock transfer restriction agreements.
While the voting and stock transfer restriction agreements are
substantially similar, they do contain some differences. Edward S. Soren is
permitted to Transfer up to 750,000 shares of World Access common stock issued
to him in the WORLDxCHANGE merger. In addition, Roger B. Abbott and Rosalind
Abbott will be permitted to sell, in the aggregate, shares of World Access
common stock issued to them in the WORLDxCHANGE merger having aggregate gross
cash proceeds of up to $30.0 million.
As of the WORLDxCHANGE record date, these WORLDxCHANGE shareholders own,
beneficially or of record, shares of WORLDxCHANGE capital stock representing
approximately % of the voting stock of WORLDxCHANGE on a fully-diluted
basis.
ESCROW AGREEMENT
As a condition to each party's obligations to complete the WORLDxCHANGE
merger, World Access and WORLDxCHANGE must enter into an escrow agreement to
secure the indemnification obligations of WORLDxCHANGE under the WORLDxCHANGE
merger agreement.
The escrow agreement contemplates that 2,453,385 shares of World Access
common stock will be delivered to the escrow agent upon completion of the
WORLDxCHANGE merger.
The escrow agreement provides a mechanism for the release to World Access
of World Access common stock in the event of undisputed claims by World Access
of an indemnifiable loss. If a claim by World Access of a loss is disputed, no
shares may be released by the escrow agent except as directed by a final,
nonappealable decision of a court of competent jurisdiction or a notice in
writing signed by World Access and the WORLDxCHANGE shareholder representative.
On the first anniversary of the completion of the WORLDxCHANGE merger, the
escrow agent must release to the WORLDxCHANGE shareholders their pro rata
portion of the remaining shares of World Access common stock held in escrow, if
no notice of an indemnifiable loss by World Access is pending at such time. If
one or more notices of loss are pending at such time, the escrow agent will
retain in escrow such number of shares as is sufficient to satisfy the amount
claimed in such notice or notices of loss. The escrow agent will release to the
WORLDxCHANGE shareholders all shares remaining in escrow upon final resolution
of all claims for indemnity.
For purposes of determining the number of shares of World Access common
stock to be released from, or retained in, escrow, each share will be valued at
$20.38.
The escrow agreement will terminate on the first to occur of (i) the later
of (a) ten days after the first anniversary of the completion of the
WORLDxCHANGE merger, (b) the satisfaction of all indemnification claims pending
on the first anniversary of the completion of the WORLDxCHANGE merger and (c)
the disbursement of the entire escrow fund in accordance with the escrow
agreement or (ii) a mutual consent signed by World Access and the WORLDxCHANGE
shareholder representative.
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WORLD ACCESS -- WORLDXCHANGE SERVICES AGREEMENT
On February 14, 2000, World Access and WORLDxCHANGE entered into a services
agreement, pursuant to which each party may provide the other party with
operations services pending the completion of the WORLDxCHANGE merger. The World
Access -- WORLDxCHANGE services agreement terminates at the earlier of (i) 90
days following the termination of the WORLDxCHANGE merger agreement or such
earlier time as agreed by the parties, (ii) a written agreement of the parties
terminating the services agreement or (iii) the completion of the WORLDxCHANGE
merger.
FOOTHILL CAPITAL CORPORATION PARTICIPATION AGREEMENT
On February 11, 2000, World Access entered into a participation agreement
with Foothill Capital Corporation, which, as amended, provides for World Access
to provide up to $45.0 million to be advanced by Foothill to WORLDxCHANGE and
certain of its subsidiaries, including WORLDxCHANGE Communications, Inc., CTS
Telecom Holdings, Inc. and CTS Telecom, Inc. pursuant to the terms of an
existing credit facility evidenced by a Loan and Security Agreement dated as of
March 11, 1997, as thereafter amended, between Foothill, WORLDxCHANGE and the
subsidiaries. The Foothill loan to WORLDxCHANGE and its subsidiaries is
structured as a term loan which bears interest at a rate of 11% per annum,
payable monthly in arrears, and matures on February 11, 2001, subject to
extension by World Access up to October 1, 2003. Both the term loan and the
existing indebtedness to Foothill under the credit facility will be secured by a
blanket security interest in all personal property of WORLDxCHANGE and the
subsidiaries. The participation interest of World Access in the term loan is a
last-out participation, such that at any time after an acceleration by Foothill
of the maturity of the obligations under the credit facility, or the failure of
WORLDxCHANGE and the subsidiaries to repay such obligations in full upon their
stated maturity, all amounts collected or received by Foothill from collateral
liquidation or otherwise will be applied first to repayment of all principal,
interest and costs owing to Foothill, and thereafter, to repayment of amounts
owing to World Access.
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COMPARATIVE PER SHARE MARKET PRICE DATA
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 Ended December 31, 2000:
First Quarter............................................. 26 7/8 17 1/4 8 3/8 5 1/2
Second Quarter (through May 23, 2000)..................... 20 11 1/16 5 3/4 2 3/8
</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) May 23, 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 .3905, 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
May 23, 2000....................................... 2 3/8 11 1/16 4 5/16
</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.
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.
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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 three different
scenarios, that World Access has completed or are currently contemplated. The
first scenario assumes World Access acquires both STAR and WORLDxCHANGE. The
second scenario assumes World Access acquires STAR but not WORLDxCHANGE. The
third scenario assumes World Access acquires WORLDxCHANGE but not STAR. 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 CommNet 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 three scenarios gives effect to the STAR and WORLDxCHANGE 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 three scenarios also give effect to the LDI acquisitions as if
the acquisition had occurred on January 1, 2000.
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 and
WORLDxCHANGE and the related notes thereto. See "Incorporation of Certain
Documents by Reference" and "Available Information."
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WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA WORLD ACCESS,
HISTORICAL WORLD ACCESS STAR AND
WORLD STAR AND STAR WXC WXC
ACCESS STAR(1) ADJUSTMENTS COMBINED WXC(10) ADJUSTMENTS COMBINED
---------- -------- ----------- ------------ --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents.............. $ 145,347 $159,290 $ -- $ 304,637 $ 9,553 $(45,000)(11) $ 269,190
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) 75,462
Net assets held for sale.......... 238,405 -- -- 238,405 -- -- 238,405
---------- -------- --------- ---------- --------- -------- ----------
Total Current Assets....... 748,409 284,561 -- 1,032,970 127,942 (47,561) 1,113,351
---------- -------- --------- ---------- --------- -------- ----------
Property and equipment, net....... 154,250 268,750 -- 423,000 195,923 (6,500)(11) 612,423
Goodwill and other intangibles,
net.............................. 1,081,172 196,521 (196,521)(5) 1,441,412 93,521 (93,521)(14) 2,011,741
360,240(2) 570,329(11)
Other assets...................... 64,854 7,287 -- 72,141 5,126 -- 77,267
---------- -------- --------- ---------- --------- -------- ----------
Total Assets............... $2,048,685 $757,119 $ 163,719 $2,969,523 $ 422,512 $422,747 $3,814,782
========== ======== ========= ========== ========= ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt................... $ 74,722 $42,299 $ -- $ 117,021 $ 174,142 $ (2,351)(17) $ 288,812
Accounts payable.................. 228,721 140,883 -- 369,604 173,175 -- 542,779
Other accrued liabilities......... 101,730 125,786 3,000(2) 230,516 49,302 3,000(11) 282,608
(210)(17)
---------- -------- --------- ---------- --------- -------- ----------
Total Current
Liabilities.............. 405,173 308,968 3,000 717,141 396,619 439 1,114,199
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 3,000 1,209,467 474,301 439 1,684,207
---------- -------- --------- ---------- --------- -------- ----------
Stockholders' Equity (Deficit):
Preferred stock................... 6 -- -- 6 78,658 (78,658)(15) 6
Common stock...................... 597 58 (58)(6) 826 99,378 (99,378)(15) 1,124
229(2) 298(11)
Additional paid in capital........ 1,422,619 365,903 (365,903)(6) 1,956,435 -- 352,532(11) 2,326,679
514,657(2) 17,689(11)
16,299(2) 23(13)
2,860(4)
Deferred compensation............. -- (1,985) 1,985(6) (2,860) -- (23)(13) (2,883)
(2,860)(4)
Notes receivable from
shareholders..................... -- (3,785) 3,785(6) -- (1,888) 1,888(15) --
Accumulated other comprehensive
loss............................. (4,368) (7,646) 7,646(6) (4,368) (6,860) 6,860(15) (4,368)
Accumulated deficit............... (189,983) 17,921 (17,921)(6) (189,983) (221,077) 221,077(15) (189,983)
---------- -------- --------- ---------- --------- -------- ----------
Total Stockholders' Equity
(Deficit)................ 1,228,871 370,466 160,719 1,760,056 (51,789) 422,308 2,130,575
---------- -------- --------- ---------- --------- -------- ----------
Total Liabilities and
Stockholders' Equity..... $2,048,685 $757,119 $ 163,719 $2,969,523 $ 422,512 $422,747 $3,814,782
========== ======== ========= ========== ========= ======== ==========
</TABLE>
141
<PAGE> 155
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
PRO FORMA WORLD ACCESS,
WORLD ACCESS STAR AND
PRO FORMA STAR AND STAR WXC WXC
WORLD ACCESS(20) STAR(1) ADJUSTMENTS COMBINED WXC(10) ADJUSTMENTS COMBINED
---------------- ------- ----------- ------------ -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Carrier service revenues $264,220 $124,543 $(5,873)(7) $382,890 $148,276 $ (4,642)(16) $526,524
Operating expense:
Cost of carrier services..... 233,880 111,819 (5,873)(7) 339,826 117,663 (4,642)(16) 452,847
Selling, general and
administrative............. 28,587 19,875 200(4) 48,662 35,802 7(13) 84,471
Depreciation and
amortization............... 21,782 11,573 1,956(3) 35,311 12,450 6,201(12) 53,637
(325)(11)
Provision for doubtful
accounts................... 3,281 1,214 -- 4,495 5,353 -- 9,848
-------- -------- ------- -------- -------- -------- --------
Total operating
expenses........... 287,530 144,481 (3,717) 428,294 171,268 1,241 600,803
-------- -------- ------- -------- -------- -------- --------
Operating loss....... (23,310) (19,938) (2,156) (45,404) (22,992) (5,883) (74,279)
Interest and other income.... 6,361 10,823 -- 17,184 (193) -- 16,991
Interest and other expense... (15,762) (930) -- (16,692) (7,647) -- (24,339)
Foreign exchange loss........ 438 -- -- 438 -- -- 438
-------- -------- ------- -------- -------- -------- --------
Loss from continuing
operations before
income taxes and
minority
interests.......... (32,273) (10,045) (2,156) (44,474) (30,832) (5,883) (81,189)
Benefit for income taxes..... (1,550) (3,163) (82)(8) (4,795) -- 130(18) (4,665)
-------- -------- ------- -------- -------- -------- --------
Net loss from
continuing
operations before
minority
interest........... (30,723) (6,882) (2,074) (39,679) (30,832) (6,013) (76,524)
Preferred stock dividends.... (632) -- -- (632) -- -- (632)
-------- -------- ------- -------- -------- -------- --------
Loss from continuing
operations
available to common
stockholders....... $(31,355) $(6,882) $(2,074) $(40,311) $(30,832) $ (6,013) $(77,156)
======== ======== ======= ======== ======== ======== ========
Loss per common share from
continuing operations:
Basic...................... $ (0.57) $ (0.72)(9)(19)
======== ========
Diluted.................... $ (0.57) $ (0.72)(9)(19)
======== ========
Weighted average shares
outstanding:
Basic...................... 55,189 107,908(9)(19)
======== ========
Diluted.................... 55,189 107,908(9)(19)
======== ========
</TABLE>
142
<PAGE> 156
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(20) STAR(1) ADJUSTMENTS COMBINED WXC(10)
---------------- -------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Carrier service revenues $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035
Operating expense:
Cost of carrier services.... 905,936 537,895 (17,949)(7) 1,425,882 477,317
Selling, general and
administrative............ 132,251 108,246 798(4) 241,295 193,070
Depreciation and
amortization.............. 93,252 38,975 9,477(3) 141,704 43,304
Provision for doubtful
accounts.................. 13,980 -- -- 13,980 --
Merger expense.............. -- 1,867 -- 1,867 --
Restructuring and other
special charges........... 44,187 -- -- 44,187 --
---------- -------- -------- ---------- ---------
Total operating
expenses.............. 1,189,606 686,983 (7,674) 1,868,915 713,691
---------- -------- -------- ---------- ---------
Operating loss.......... (170,053) (70,514) (10,275) (250,842) (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) (10,275) (303,561) (132,041)
Provision (benefit) for
income taxes.............. (6,999) (11,041) (327)(8) (18,367) --
---------- -------- -------- ---------- ---------
Net loss from continuing
operations before
minority interest..... (212,809) (62,437) (9,948) (285,194) (132,041)
Minority interest........... -- -- -- -- 1,614
Preferred stock dividends... (2,461) -- -- (2,461) --
---------- -------- -------- ---------- ---------
Loss from continuing
operations available
to common
stockholders.......... $ (215,270) $(62,437) $ (9,948) $ (287,655) $(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
WXC WXC
ADJUSTMENTS COMBINED
----------- -------------
<S> <C> <C>
Carrier service revenues $(25,601)(16) $2,199,507
Operating expense:
Cost of carrier services.... (25,601)(16) 1,877,598
Selling, general and
administrative............ 23(13) 434,388
Depreciation and
amortization.............. 9,875(12) 193,583
(1,300)(11)
Provision for doubtful
accounts.................. -- 13,980
Merger expense.............. -- 1,867
Restructuring and other
special charges........... -- 44,187
-------- ----------
Total operating
expenses.............. (17,003) 2,565,603
-------- ----------
Operating loss.......... (8,598) (366,096)
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.... (8,598) (444,200)
Provision (benefit) for
income taxes.............. 524(18) (17,843)
-------- ----------
Net loss from continuing
operations before
minority interest..... (9,122) (426,357)
Minority interest........... -- 1,614
Preferred stock dividends... -- (2,461)
-------- ----------
Loss from continuing
operations available
to common
stockholders.......... $ (9,122) $ (427,204)
======== ==========
Loss per common share from
continuing operations:
Basic..................... $ (4.13)(9)(19)
==========
Diluted................... $ (4.13)(9)(19)
==========
Weighted average shares
outstanding:
Basic..................... 103,353(9)(19)
==========
Diluted................... 103,353(9)(19)
==========
</TABLE>
143
<PAGE> 157
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL WORLD ACCESS
------------ STAR AND STAR
WORLD ACCESS STAR(1) ADJUSTMENTS COMBINED
------------ -------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents........................... $ 145,347 $159,290 $ -- $ 304,637
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....................... 238,405 -- -- 238,405
---------- -------- --------- ----------
Total Current Assets................. 748,409 284,561 -- 1,032,970
---------- -------- --------- ----------
Property and equipment, net.................... 154,250 268,750 -- 423,000
Goodwill and other intangibles, net............ 1,081,172 196,521 (196,521)(5) 1,441,412
360,240(2)
Other assets................................... 64,854 7,287 -- 72,141
---------- -------- --------- ----------
Total Assets......................... $2,048,685 $757,119 $ 163,719 $2,969,523
========== ======== ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt................................ $ 74,722 $ 42,299 $ -- $ 117,021
Accounts payable............................... 228,721 140,883 -- 369,604
Other accrued liabilities...................... 101,730 125,786 3,000(2) 230,516
---------- -------- --------- ----------
Total Current Liabilities............ 405,173 308,968 3,000 717,141
Long-term debt................................. 413,989 38,567 -- 452,556
Other long-term liabilities.................... 652 39,118 -- 39,770
---------- -------- --------- ----------
Total Liabilities.................... 819,814 386,653 3,000 1,209,467
---------- -------- --------- ----------
Stockholders' Equity (Deficit):
Preferred Stock................................ 6 -- -- 6
Common stock................................... 597 58 (58)(6) 826
229(2)
Additional paid in capital..................... 1,422,619 365,903 (365,903)(6) 1,956,435
514,657(2)
16,299(2)
2,860(4)
Deferred compensation.......................... -- (1,985) 1,985(6) (2,860)
(2,860)(4)
Notes receivable from shareholders............. -- (3,785) 3,785(6) --
Accumulated other comprehensive loss........... (4,368) (7,646) 7,646(6) (4,368)
Accumulated deficit............................ (189,983) 17,921 (17,921)(6) (189,983)
---------- -------- --------- ----------
Total Stockholders' Equity........... 1,228,871 370,466 160,719 1,760,056
---------- -------- --------- ----------
Total Liabilities and Stockholders'
Equity............................. $2,048,685 $757,119 $ 163,719 $2,969,523
========== ======== ========= ==========
</TABLE>
144
<PAGE> 158
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(20) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Carrier service revenues................................ $ 264,220 $124,543 $ (4,459)(7) $ 384,304
Operating expenses:
Cost of carrier services................................ 233,880 111,819 (4,459)(7) 341,240
Selling, general and administrative..................... 28,587 19,875 200(4) 48,662
Depreciation and amortization........................... 21,782 11,573 1,956(3) 35,311
Provision for doubtful accounts......................... 3,281 1,214 -- 4,495
---------- -------- -------- ----------
Total operating expenses...................... 287,530 144,481 (2,303) 429,708
---------- -------- -------- ----------
Operating loss................................ (23,310) (19,938) (2,156) (45,404)
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) (2,156) (44,474)
Provision (benefit) for income taxes.................... (1,550) (3,163) (82)(8) (4,795)
---------- -------- -------- ----------
Net loss from continuing operations........... (30,723) (6,882) (2,074) (39,679)
Preferred stock dividends............................... (632) -- -- (632)
---------- -------- -------- ----------
Loss from continuing operations available to
common stockholders......................... $ (31,355) $ (6,882) $ (2,074) $ (40,311)
========== ======== ======== ==========
Loss per common share from continuing operations:
Basic................................................. $ (0.57) $ (0.52)(9)
========== ==========
Diluted............................................... $ (0.57) $ (0.52)(9)
========== ==========
Weighted average shares outstanding:
Basic................................................. 55,189 78,083(9)
========== ==========
Diluted............................................... 55,189 78,083(9)
========== ==========
</TABLE>
145
<PAGE> 159
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(20) STAR(1) ADJUSTMENTS COMBINED
---------------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Carrier service revenues................................ $1,019,553 $616,469 $(17,949)(7) $1,618,073
Operating expenses:
Cost of carrier services................................ 905,936 537,895 (17,949)(7) 1,425,882
Selling, general and administrative..................... 132,251 108,246 798(4) 241,295
Depreciation and amortization........................... 93,252 38,975 9,477(3) 141,704
Provision for doubtful accounts......................... 13,980 -- -- 13,980
Merger expense.......................................... -- 1,867 -- 1,867
Restructuring and other special charges................. 44,187 -- -- 44,187
---------- -------- -------- ----------
Total operating expenses........................... 1,189,606 686,983 (7,674) 1,868,915
---------- -------- -------- ----------
Operating loss..................................... (170,053) (70,514) (10,275) (250,842)
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) (10,275) (303,561)
Provision (benefit) for income taxes.................... (6,999) (11,041) (327)(8) (18,367)
---------- -------- -------- ----------
Net loss from continuing operations................ (212,809) (62,437) (9,948) (285,194)
Preferred stock dividends............................... (2,461) -- -- (2,461)
---------- -------- -------- ----------
Loss from continuing operations available to common
stockholders..................................... $ (215,270) $(62,437) $ (9,948) $ (287,655)
========== ======== ======== ==========
Loss per common share from continuing operations:
Basic................................................. $ (4.25) $ (3.91)(9)
========== ==========
Diluted............................................... $ (4.25) $ (3.91)(9)
========== ==========
Weighted average shares outstanding:
Basic................................................. 50,634 73,528(9)
========== ==========
Diluted............................................... 50,634 73,528(9)
========== ==========
</TABLE>
146
<PAGE> 160
WORLD ACCESS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
WORLD ACCESS AND
HISTORICAL WXC WXC
WORLD ACCESS WXC(10) ADJUSTMENTS COMBINED
------------ --------- ----------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents...................... $ 145,347 $ 9,553 $ (45,000)(11) $ 109,900
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 -- 56,052
Net assets held for sale.................. 238,405 -- -- 238,405
---------- --------- --------- ----------
Total Current Assets............ 748,409 127,942 (45,000) 831,351
---------- --------- --------- ----------
Property and equipment, net............... 154,250 195,923 (6,500)(11) 343,673
Goodwill and other intangibles, net....... 1,081,172 93,521 (93,521)(14) 1,651,501
570,329(11)
Other assets.............................. 64,854 5,126 -- 69,980
---------- --------- --------- ----------
Total Assets.................... $2,048,685 $ 422,512 $ 425,308 $2,896,505
========== ========= ========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term debt........................... $ 74,722 $ 174,142 $ -- $ 248,864
Accounts payable.......................... 228,721 173,175 -- 401,896
Other accrued liabilities................. 101,730 49,302 3,000(11) 154,032
---------- --------- --------- ----------
Total Current Liabilities....... 405,173 396,619 3,000 804,792
Long-term debt............................ 413,989 71,434 -- 485,423
Other long-term liabilities............... 652 6,248 -- 6,900
---------- --------- --------- ----------
Total Liabilities............... 819,814 474,301 3,000 1,297,115
---------- --------- --------- ----------
Stockholders' Equity (Deficit):
Preferred Stock........................... 6 78,658 (78,658)(15) 6
Common stock.............................. 597 99,378 (99,378)(15) 895
298(11)
Additional paid in capital................ 1,422,619 -- 352,532(11) 1,792,863
17,689(11)
23(13)
Deferred compensation..................... -- -- (23)(13) (23)
Notes receivable from shareholders........ -- (1,888) 1,888(15) --
Accumulated other comprehensive loss...... (4,368) (6,860) 6,860(15) (4,368)
Accumulated deficit....................... (189,983) (221,077) 221,077(15) (189,983)
---------- --------- --------- ----------
Total Stockholders' Equity
(Deficit)..................... 1,228,871 (51,789) 422,308 1,599,390
---------- --------- --------- ----------
Total Liabilities and
Stockholders' Equity.......... $2,048,685 $ 422,512 $ 425,308 $2,896,505
========== ========= ========= ==========
</TABLE>
147
<PAGE> 161
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 AND
PRO FORMA WXC WXC
WORLD ACCESS(20) WXC(10) ADJUSTMENTS COMBINED
---------------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
Carrier service revenues............... $264,220 $148,276 $ (3,450)(16) $409,046
Operating expenses:
Cost of carrier services............... 233,880 117,663 (3,450)(16) 348,093
Selling, general and administrative.... 28,587 35,802 7(13) 64,396
Depreciation and amortization.......... 21,782 12,450 6,201(12) 40,108
(325)(11)
Provision for doubtful accounts........ 3,281 5,353 -- 8,634
-------- -------- -------- --------
Total operating expenses..... 287,530 171,268 2,433 461,231
-------- -------- -------- --------
Operating loss............... (23,310) (22,992) (5,883) (52,185)
Interest and other income.............. 6,361 (193) -- 6,168
Interest and other expense............. (15,762) (7,647) -- (23,409)
Foreign exchange loss.................. 438 -- -- 438
-------- -------- -------- --------
Loss from continuing
operations before income
taxes and minority
interests.................. (32,273) (30,832) (5,883) (68,988)
Provision (benefit) for income taxes... (1,550) -- 130(18) (1,420)
-------- -------- -------- --------
Net loss from continuing
operations before minority
interest................... (30,723) (30,832) (6,013) (67,568)
Preferred stock dividends.............. (632) -- -- (632)
-------- -------- -------- --------
Loss from continuing
operations available to
common stockholders........ $(31,355) $(30,832) $ (6,013) $(68,200)
======== ======== ======== ========
Loss per common share from continuing
operations:
Basic................................ $ (0.57) $ (0.80)(19)
======== ========
Diluted.............................. $ (0.57) $ (0.80)(19)
======== ========
Weighted average shares outstanding:
Basic................................ 55,189 85,014(19)
======== ========
Diluted.............................. 55,189 85,014(19)
======== ========
</TABLE>
148
<PAGE> 162
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 WXC WXC
WORLD ACCESS(20) WXC(10) ADJUSTMENTS COMBINED
---------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Carrier service revenues............ $1,019,553 $ 607,035 $ (23,534)(16) $1,603,054
Operating expenses:
Cost of carrier services............ 905,936 477,317 (23,534)(16) 1,359,719
Selling, general and
administrative.................... 132,251 193,070 23(13) 325,344
Depreciation and amortization....... 93,252 43,304 9,875(12) 145,131
(1,300)(11)
Provision for doubtful accounts..... 13,980 -- -- 13,980
Restructuring and other special
charges........................... 44,187 -- 44,187
---------- ---------- ---------- ----------
Total operating expenses..... 1,189,606 713,691 (14,936) 1,888,361
---------- ---------- ---------- ----------
Operating loss............... (170,053) (106,656) (8,598) (285,307)
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) (8,598) (360,447)
Provision (benefit) for income
taxes............................. (6,999) -- 524(18) (6,475)
---------- ---------- ---------- ----------
Net loss from continuing
operations before minority
interest.................. (212,809) (132,041) (9,122) (353,972)
Minority interest................... -- 1,614 -- 1,614
Preferred stock dividends........... (2,461) -- -- (2,461)
---------- ---------- ---------- ----------
Loss from continuing
operations available to
common stockholders....... $ (215,270) $ (130,427) $ (9,122) $ (354,819)
========== ========== ========== ==========
Loss per common share from
continuing operations:
Basic............................. $ (4.25) $ (4.41)(19)
========== ==========
Diluted........................... $ (4.25) $ (4.41)(19)
========== ==========
Weighted average shares outstanding:
Basic............................. 50,634 80,459(19)
========== ==========
Diluted........................... 50,634 80,459(19)
========== ==========
</TABLE>
149
<PAGE> 163
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 $150.0 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) $159,290
150,000(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 57,550 284,561
-------- --------- --------
Property and equipment, net................ 309,734 (40,984)(i) 268,750
Goodwill and other intangibles, net........ 197,518 (997)(i) 196,521
Other assets............................... 7,621 (334)(i) 7,287
-------- --------- --------
Total Assets..................... $741,884 $ 15,235 $757,119
======== ========= ========
Short-term debt............................ $ 44,284 $ (1,985)(i) $ 42,299
Accounts payable........................... 162,758 (21,875)(i) 140,883
Other accrued liabilities.................. 180,714 (54,928)(i) 125,786
-------- --------- --------
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....... 270,068 100,398(iii) 370,466
-------- --------- --------
Total Liabilities and
Stockholders' Equity........... $741,884 $ 15,235 $757,119
======== ========= ========
</TABLE>
(i) Represents the historical asset and liability amounts for PT-1.
(ii) Represents the assumed net cash proceeds for the sale of PT-1.
(iii) Represents the assumed gain on the sale of PT-1 (excluding the
effect of PT-1 goodwill recorded by STAR).
<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)
</TABLE>
150
<PAGE> 164
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>
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
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....... (160,067) 51,821 (108,246)
Depreciation and amortization............. (44,236) 5,261 (38,975)
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
151
<PAGE> 165
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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).................. $ 514,886
Fair value of World Access options issued in exchange for
STAR options(ii)....................................... 16,299
Estimated fees and expenses............................... 3,000
---------
Total estimated purchase price.................... $ 534,185
Allocation to fair values:
Pro forma stockholders' equity as of March 31,
2000(iii).............................................. $(370,466)
Adjust assets and liabilities:
Eliminate historical goodwill as of March 31, 2000..... 196,521
---------
Preliminary goodwill.............................. $ 360,240
=========
</TABLE>
-----------------------
(i) In accordance with the merger agreement, each share of STAR common
stock issued and outstanding shall be converted into the right to
receive .3905 shares of World Access Common Stock. At March 31,
2000, approximately 22,894,000 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 March 31, 2000............ 58,627
Multiplied by: Exchange ratio............................... 0.3905
--------
Shares of World Access Common Stock assumed to be
exchanged................................................. 22,894
Multiplied by: Average market price(a)...................... $ 22.49
--------
Value of World Access Common Stock exchanged................ $514,886
========
</TABLE>
---------------------------
(a) The average market price represents the average market price of
World Access Common Stock for the three trading days prior and
the three trading days subsequent to February 14, 2000, the date
economic terms of the merger were announced.
(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. Any
intrinsic value that is allocated to unearned compensation is
deducted from the fair value of the unvested options.
In accordance with the merger agreement, each STAR option is to be
converted into an option to purchase 0.3905 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
692,766 and 758,982 World Access options, respectively, totaling
1,451,748.
The fair value of the 692,766 vested options is $9.9 million
computed using the Black-Scholes Option Pricing Model and is
included in the purchase price. The fair value of the 758,982
unvested options is $9.3 million computed using the Black-Scholes
Option Pricing Model. Of this amount, $2.9 million was allocated to
unearned compensation and $6.4
152
<PAGE> 166
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
million is included in the purchase price. 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 $150.0 million.
(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............................... $360,240 $ 4,503 $(2,547) $1,956
STAR -- for the year ended December 31,
1999................................... $360,240 $18,012 $(8,535) $9,477
</TABLE>
(4) The issuance of World Access unvested options in exchange for STAR
unvested options resulted in unearned compensation of $2.9 million
which will be recognized as compensation cost over the remaining
future vesting period of the unvested options. The weighted average
remaining vesting period for the unvested options is 43 months,
resulting in compensation cost of $798,000 for the year ended December
31, 1999 and $200,000 for the three months ended March 31, 2000.
(5) Elimination of STAR's historical goodwill and other intangibles.
(6) Elimination of STAR's pro forma stockholders equity accounts.
(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 22,894,000
shares of common stock to complete the STAR merger. 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.
153
<PAGE> 167
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.................... (124,112) 27,952 (43,430) (139,590)
Depreciation and amortization....... (17,705) 3,564 (9,375) (23,516)
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>
On November 4, 1999, WORLDxCHANGE acquired the outstanding shares
of certain European subsidiaries of ACC Corp. (ACC), a subsidiary of
AT&T. The historical results of operations of WORLDxCHANGE includes
ACC's results for the two months ended December 31, 1999. The results of
ACC for the period from January 1, 1999 to October 31, 1999 have been
added to the WORLDxCHANGE historical results of operations as follows:
<TABLE>
<CAPTION>
WXC WXC
YEAR ENDED ACC FOR YEAR ENDED
DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999
INCLUDING 1/1/99 TO INCLUDING
2 MONTHS OF ACC 10/31/99 12 MONTHS OF ACC
----------------- ---------- -----------------
<S> <C> <C> <C>
Revenues................................ $ 474,980 $ 132,055 $ 607,035
Cost of services........................ (369,957) (107,360) (477,317)
Selling, general and administrative..... (139,590) (53,480) (193,070)
Depreciation and amortization........... (23,516) (19,788) (43,304)
Interest and other expense.............. (19,717) (5,668) (25,385)
Minority interest....................... 1,614 -- 1,614
--------- --------- ---------
Net loss...................... $ (76,186) $ (54,241) $(130,427)
========= ========= =========
</TABLE>
154
<PAGE> 168
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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........ (84,585) 43,430 (41,155)
Depreciation and
amortization.......... (21,825) 9,375 (12,450)
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 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).................. $352,830
Fair value of World Access options issued in exchange for
WxC options(ii)........................................ 17,689
Bridge financing(iii)..................................... 45,000
Estimated fees and expenses............................... 3,000
--------
Total estimated purchase price.................... $418,519
Allocation to fair values:
Historical shareholders' deficit as of March 31, 2000..... $ 51,789
Adjust assets and liabilities:
Eliminate historical intangible assets as of March 31,
2000.................................................. 93,521
Write-off impaired assets(iv).......................... 6,500
--------
Preliminary goodwill...................................... $570,329
========
</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 29,824,610 shares of World
155
<PAGE> 169
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.... 37,023
--------
Total WxC common shares outstanding............... 45,306
Multiplied by: Exchange ratio............................... 0.6583
--------
Shares of World Access Common Stock assumed to be
exchanged................................................. 29,825
Multiplied by: Average market price (a)..................... $ 11.83
--------
Value of World Access Common Stock exchanged................ $352,830
========
</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. Any
intrinsic value that is allocated to unearned compensation is
deducted from the fair value of the unvested options.
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. Of this amount,
$23,000 was allocated to unearned compensation and $5.0 million is
included in the purchase price. 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) World Access has issued WORLDxCHANGE a $45 million revolving
credit facility. For purposes of the unaudited pro forma
information, we have assumed that World Access will provide
WORLDxCHANGE with $45 million of funding before the merger is
consummated. As of March 31, 2000, $25 million had been advanced
to WORLDxCHANGE.
(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.
156
<PAGE> 170
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(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................... $570,329 $ 7,129 $ (928) $6,201
WORLDxCHANGE -- For the year ended
December 31, 1999...................... 570,329 28,516 (18,641) 9,875
</TABLE>
(13) The issuance of World Access unvested options in exchange for
WORLDxCHANGE unvested options resulted in unearned compensation of
$23,000 which will be recognized as compensation cost over the
remaining future vesting period of the unvested options. The weighted
average remaining vesting period for the unvested options is 10
months, resulting in compensation cost of $23,000 for the year ended
December 31, 1999 and $7,000 for the three months ended March 31,
2000.
(14) Elimination of WORLDxCHANGE's historical goodwill and other
intangibles.
(15) Elimination of WORLDxCHANGE's historical shareholders' deficit
accounts.
(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
29,824,610 shares issued to complete the WORLDxCHANGE merger. 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
(20) 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 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
157
<PAGE> 171
WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
158
<PAGE> 172
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>
159
<PAGE> 173
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>
160
<PAGE> 174
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.
C. This column represents the historical results of operations of Comm/Net
for the period January 1, 1999 to April 30, 1999.
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 February 11, 2000, 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) Represents the fair value, as determined by World Access
management, of the 185,000 shares of Series D Convertible Preferred
Stock, as of December 17, 1999, the date the acquisition was announced
to the public, issued as part of the LDI merger consideration. The
Series D Preferred Stock bears no dividend and is convertible into
shares of World Access Common Stock at a conversion rate of $18 per
common share of World Access Common Stock, subject to adjustment in the
event of below market issuances of World Access Common Stock, stock
dividends, subdivisions, combinations, reclassifications and other
distributions with respect to World Access common stock. If the closing
trading price of World Access Common Stock exceeds $18 per share for 60
consecutive trading days, the Series D Preferred Stock will
automatically convert into World Access Common Stock.
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WORLD ACCESS, INC.
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(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>
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<PAGE> 176
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.
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<PAGE> 177
COMPARISON OF RIGHTS OF HOLDERS OF
WORLD ACCESS COMMON STOCK AND
STAR COMMON STOCK
This section of the joint proxy statement/prospectus describes certain
differences between STAR common stock and World Access common stock. While World
Access and STAR believe that the description covers the material differences
between the two, this summary may not contain all of the information that is
important to STAR stockholders, including the information set forth in the
certificates of incorporation and bylaws of each company. STAR stockholders
should read this entire document and the other documents referred to carefully
for a more complete understanding of the differences between STAR common stock
and World Access common stock.
The rights of stockholders of STAR are currently governed by STAR's
certificate of incorporation, as amended and restated, and STAR's bylaws. After
the completion of the STAR merger, STAR stockholders will become stockholders of
World Access. The rights of stockholders of World Access are governed by World
Access' certificate of incorporation, as amended, and World Access' bylaws.
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 the General Corporation Law of the State of Delaware. The following
paragraphs compare certain 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 STAR consists of 100,000,000 shares of
common stock, of which shares were outstanding as of May 22, 2000 and 5,000,000
shares of preferred stock, of which no shares were outstanding as of May 22,
2000.
The authorized capital stock of World Access currently consists of
160,000,000 shares, of which 150,000,000 shares shall be common stock of $.01
par value per share, and 10,000,000 shares of which shall be preferred stock of
$.01 par value per share. Note, however, that 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 May 22, 2000, 60,101,658 shares of World Access
common stock were outstanding and 584,260 shares of World Access preferred stock
were outstanding.
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.
SPECIAL MEETING OF STOCKHOLDERS
Special meetings of World Access may be called by a majority of World
Access' board of directors or an officer instructed by the board of directors to
call a meeting.
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 the majority of
the board of directors.
ACTION BY WRITTEN CONSENT IN LIEU OF A STOCKHOLDERS' MEETING
World Access stockholders may not take action without a meeting by written
consent except for preferred stockholders pursuant to the World Access
certificate of incorporation.
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> 178
VOTING BY WRITTEN BALLOT
World Access' bylaws and STAR's certificate of incorporation both provide
that the election of directors need not be by written ballot.
RECORD DATE FOR DETERMINING STOCKHOLDERS
Both the World Access bylaws and the STAR bylaws provide that their
respective 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, shall not be more
than 60 days nor less than ten days before the date of the meeting; and
- in the case of any other action, shall not be more than 60 days prior to
such action.
Furthermore, the World Access bylaws provide that if the World Access board of
directors does not fix a record date in the manner described above, then:
- the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on
which the meeting is held; and
- the record date for determining stockholders for any other purpose shall
be at the close of business on the same day on which the World Access
board of directors adopts the related resolution.
NOMINATION OF DIRECTORS
The STAR certificate of incorporation and bylaws are silent with respect to
the nomination of persons for election to the STAR board of 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 be timely, a stockholder's nomination notice must be received by
World Access at least 120 days prior to the one-year anniversary of the date of
the proxy statement in connection with the previous year's annual meeting of
stockholders. If (i) no annual meeting was held in the previous year, (ii) the
date of the upcoming annual meeting has changed by more than 30 days from the
date contemplated in the previous year's proxy statement or (iii) the upcoming
meeting is not an annual meeting, a nominating stockholder's notice must be
received by World Access no later than the close of business on the tenth day
following the earlier of:
- the day on which notice of the upcoming meeting was mailed or given to
the World Access stockholders; or
- the day on which public disclosure of the date of the upcoming meeting
was made by World Access.
NUMBER OF DIRECTORS
The World Access amended certificate of incorporation and bylaws provide
that the World Access board of directors must consist of not fewer than three
and not more than 12 directors, with the exact number to be fixed from time to
time by the World Access board of directors. Note, however, that in connection
with this joint proxy statement/prospectus, World Access is seeking approval by
its stockholders of an amendment to the certificate of incorporation which would
increase the maximum number of directors to 15.
The STAR certificate of incorporation and bylaws provide that the number of
directors will be fixed from time to time by the STAR board of directors.
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CLASSIFIED BOARD OF DIRECTORS
Delaware law provides that a corporation's board of directors may be
divided into various classes with staggered terms of office. Each of World
Access' and STAR's board of directors is divided into three classes, as nearly
equal in size as possible, with one class being elected annually. Directors of
STAR and World Access are elected to a term of three years 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 an amendment to the certificate of incorporation of World Access which would
eliminate World Access' classified board of directors. If this amendment is
approved by the requisite vote of the World Access stockholders, all World
Access directors would be elected annually to a term of one year. 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.
REMOVAL OF DIRECTORS
Delaware law provides that any director or the entire board of directors of
STAR may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
The World Access bylaws provide that any director or the entire board of
directors may be removed at any time, with cause, by the holders of a majority
of the voting power of the shares entitled to vote at an election of directors,
voting together as a single class.
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.
NOTICE OF SPECIAL MEETING OF THE BOARD OF DIRECTORS
The World Access bylaws provide that the chairman of the board, the
vice-chairman of the board, the president or a majority of directors then in
office may call special meetings of the board of directors. The bylaws do not
require a specific notice period, but only require that the notice provide
sufficient time for the convenient assembly of the directors.
The 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.
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.
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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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, and 184,000 shares designated as
Series D preferred stock are issued and outstanding. The material terms of the
Series A preferred stock, the Series C preferred stock and the Series D
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.
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
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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.
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
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<PAGE> 182
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 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
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<PAGE> 183
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.
CERTAIN INFORMATION REGARDING STAR
STAR is a leading facilities-based international telecommunications
company. 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 page 234.
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<PAGE> 184
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.............................. 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)(1)...... $ 478 $ (7,416) $ (1,958)
======= ======== ========
Income (loss) per common share(2)
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)(2)
Basic and Diluted............................. $ 0.02 $ (0.31) $ (0.06)
======= ======== ========
Weighted average number of common shares
outstanding -- basic(2)
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:
Capital expenditures(3)....... $ 2,922 $ 14,810 $ 26,584 $ 147,236 $ 150,588 $ 32,021 $ 10,387
North American wholesale
billed minutes of use(4).... 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(5)...................... $0.4102 $ 0.4288 $ 0.3612 $ 0.3145 $ 0.2084 $ 0.2468 $ 0.1682
</TABLE>
- ---------------
(1) 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.
(2) 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 STAR 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.
(3) Includes assets financed with capital leases, notes and vendor financing
arrangements. See Note 2 of Notes to Consolidated Financial Statements of
STAR.
(4) 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.
(5) 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.
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CERTAIN 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 ten countries. WORLDxCHANGE connects its switches
with a network of owned and leased undersea and land-based fiber optic cables.
WORLDxCHANGE's services currently include international and domestic long
distance telephone service, pre-paid calling card services, operator services,
Internet access and e-commerce services. 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, Internet access and e-commerce services. 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 e-commerce services in the United States and Canada, as well
as 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 pre-subscribed to WORLDxCHANGE's
service may access the WORLDxCHANGE network by dialing a prefix. U.S. customers
who have pre-subscribed to WORLDxCHANGE's service may use the service by dialing
"1+," and U.S. customers who have not pre-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 retail customers for a fixed monthly price.
e-Commerce services. WORLDxCHANGE has implemented several e-commerce
services. For example, in July 1999, WORLDxCHANGE introduced "Virtual PIN," a
program under which North American customers are able to purchase and recharge
prepaid calling cards exclusively through the WORLDxCHANGE website, which may be
accessed at www.worldxchange.com. In addition, North American customers are also
offered the "iPlan" billing option, under which they can receive a discount by
having their bills rendered over the Internet instead of by paper invoice. Other
features allow North American customers, via the Internet, to sign up for
WORLDxCHANGE services and make changes to
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the services they select, view their call data, generate customized billing
reports, and make billing and service inquiries.
WORLDxCHANGE's e-commerce strategy also includes the "xPectations ML"
marketing program. Under this program, independent representatives can obtain
their own website, which WORLDxCHANGE hosts. This allows the representatives to
use a professionally-designed website to market WORLDxCHANGE's services to
potential customers and the xPectations ML program to prospective new
representatives while allowing WORLDxCHANGE to retain control over the
advertising content on the site.
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.
- 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;
- IRUs in more than 25 million DS-0 miles of on-land fiber optic cable
capacity in the United States;
- seven satellite earth stations at locations in the United States and
abroad; and
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- an international transmission network consisting of direct ownership
interests and indefeasible rights of use, which are commonly referred to
as IRUs, comprising more than 370 E-1 circuits, including rights on the
following undersea cables:
<TABLE>
<CAPTION>
SERVICE STATUS OR
PLANNED CALENDAR MIU/ TOTAL E1
UNDERSEA CABLE QUARTER SERVICE DATE IRU CAPACITY
- -------------- -------------------- ---- --------
<S> <C> <C> <C>
Americas-I....................................... In Service MIU 1
APCN............................................. In Service IRU 2
Atlantic Crossing................................ In Service IRU 126
Cantat 3......................................... In Service MIU 2
Canus 1.......................................... In Service IRU 2
Columbus II...................................... In Service MIU 1
F.L.A.G.......................................... In Service IRU 7
Guam-Philippines................................. In Service MIU 3
HAW-5............................................ In Service IRU 1
Jasuraus......................................... In Service IRU 2
PacRim East...................................... In Service MIU 9
Pan American..................................... In Service MIU 10
PTAT............................................. In Service IRU 1
Taino-Caribe..................................... In Service IRU 1
Tasman 2......................................... In Service IRU 3
TAT-12/TAT-13.................................... In Service MIU 26
TPC-5............................................ In Service MIU 4
UK-Belgium 6..................................... In Service IRU 3
UK-Germany 6..................................... In Service MIU 168
UK-Japan......................................... In Service MIU 3
UK-Netherlands 12................................ In Service IRU 1
</TABLE>
WORLDxCHANGE also has arrangements to connect with the telecommunications
networks of dominant 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
local exchange 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 direct interconnection 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
interconnecting with the dominant national carriers. In addition, these
interconnections 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, IRUs in 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 undersea
cables and/or IRUs that connect network cities with substantial calling traffic
between them. However, WORLDxCHANGE has used leased lines in regions where IRUs
are either too expensive or if WORLDxCHANGE believes IRU prices will decline, or
where IRUs are not available. In some cases, WORLDxCHANGE uses compression or
multiplexing equipment to further increase the capacity of its IRUs.
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Other. In addition to the cost of origination, transmission and
termination, the other costs of the WORLDxCHANGE network relate primarily to
switching equipment, compression equipment, WORLDxCHANGE's Internet protocol
overlay and facility/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 infrastructure.
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 effecting least-cost routing. WORLDxCHANGE has installed a wide area
network linking all its switch sites, which coordinates the use of
WORLDxCHANGE's systems.
TCIB 2000 feature platform. The TCIB 2000 performs switching, billing and
customer care functions. These services are integrated with other platforms like
the Siemens EWSD or Ericsson AXE-10 switch. The TCIB 2000 system is used in the
operation of WORLDxCHANGE's operating subsidiaries in Belgium, Guatemala, The
Netherlands and New Zealand.
North American network
WORLDxCHANGE has switches in each of the ten cities listed below that are
connected with a fiber optic backbone. WORLDxCHANGE expects to relocate its
switch in Seattle to San Francisco by approximately July 1, 2000.
<TABLE>
<S> <C> <C>
Chicago Montreal Vancouver
Dallas New York City Washington D.C.
Los Angeles Seattle
Miami Toronto
</TABLE>
WORLDxCHANGE connects the North American portion of its network with other
regions of the world through direct ownership interests or IRUs 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 approximately 17.5
million route miles of fiber optic transmission capacity, representing most of
its U.S. transmission capacity, from MCI WorldCom. As those leases expired, they
were converted to long-term IRU arrangements covering the same capacity. The IRU
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 covering approximately 19.4 million route miles of fiber optic
transmission capacity. This lease is convertible into a 15-year IRU on the same
capacity at the end of the lease.
European network
WORLDxCHANGE uses two TCIB 2000 switches in continental Europe, and
Ericsson AXE-10 switches in the United Kingdom and Germany. WORLDxCHANGE
connects the European portion of its network with other regions of the world
through direct ownership interests or IRUs 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.
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ACC Acquisition. In November 1999, WORLDxCHANGE acquired the operations of
ACC Corp. in France, Germany and the United Kingdom, and a switch in Italy.
WORLDxCHANGE is in the process of integrating the operations and network
equipment and capacity 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 five TCIB 2000 switches in Australia, as well
as Siemens EWSD switches in Sydney, Melbourne, Perth and Brisbane in Australia.
WORLDxCHANGE is interconnected with Telstra through Telstra's National Access
interconnection program. WORLDxCHANGE connects the Asia Pacific portion of its
network with other regions of the world through direct ownership interests or
IRUs 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 TCIB 2000 switch in Guatemala City, Guatemala and
Santiago, Chile. WORLDxCHANGE connects the Latin American portion of its network
through a direct ownership interest in the Pan American undersea cable, as well
as via satellite services.
Network hardware and software
North America. WORLDxCHANGE uses Siemens DC0-CS and EWSD switches
throughout its North American network. These switches enable WORLDxCHANGE to
handle large, simultaneous call volumes, provide high quality service to
customers and seamlessly interconnect with local operators.
WORLDxCHANGE has installed the Siemens EWSD switch at its Dallas, Los
Angeles and New York switch sites. The Siemens EWSD switch in Dallas has 15,000
ports, the Los Angeles switch has 21,000 ports, and the EWSD switch in New York
has 31,000 ports. The Siemens DC0-CS switch has approximately 5,760 ports. A
Siemens EWSD switch with 21,000 ports can simultaneously handle 21,000 calls.
WORLDxCHANGE may replace the DC0-CS switches as capacity limits on those
switches are approached.
During the fourth quarter of 1998, WORLDxCHANGE experienced technical
problems with the new Siemens EWSD 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 Siemens to fix the problems and has
implemented new procedures to detect any similar problems that may arise with
the Siemens EWSD switches in the future. Siemens has agreed to provide
WORLDxCHANGE with additional future lease financing for third-party equipment,
free software and deferred lease payments on most of the EWSD and DC0-CS
switches in the United States. There can be no assurance that WORLDxCHANGE will
not experience additional problems with the EWSD or other switching equipment in
the future.
Overseas operations. WORLDxCHANGE uses a combination of TCIB 2000, Siemens
EWSD and Ericsson AXE-10 switching equipment in certain markets outside of North
America. The TCIB 2000 is a personal computer-based, integrated telephony
hardware and software platform designed by WORLDxCHANGE that combines standard
switching functions with customer care 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 platform in place of the faulty ACC system in the United Kingdom.
However, there can be no assurance that this replacement billing platform will
not also experience problems.
Least cost routing. WORLDxCHANGE uses a combination of network 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 change.
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<PAGE> 191
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 Ascend Communications MAX/TNT random access server in Los
Angeles. The modems interface with a Radius server in Los Angeles. The Radius
server verifies the customer's account number and password. Once the Radius
server verifies the customer's account information, the call goes to a Cisco
Series 7206 router for connection to the Internet backbone. WORLDxCHANGE uses
Navais software to monitor the integrity of 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's correspondent
relationships or through the third party itself. 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 of that carrier's network. The carrier
would then terminate the call in Afghanistan either through a correspondent
relationship that it has with a carrier with facilities in Afghanistan or
directly through its own local facilities.
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 FCC 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 FCC 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.
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<PAGE> 192
Direct mail. WORLDxCHANGE has developed a number of different direct mail
programs, each tailored 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.
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 several e-commerce services, such
as the "Virtual PIN" program under which our 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
distilled from 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,
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independent agents also market WORLDxCHANGE's long distance services to Belgian
commercial customers.
WORLDxCHANGE is in the process of establishing a sales and marketing
infrastructure 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
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. These foreign operating subsidiaries are briefly discussed below.
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.
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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 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 December 31, 1999, WORLDxCHANGE employed approximately 1,312 people,
including officers, administrative and sales personnel.
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 (the "CPUC") issued
an order revoking WORLDxCHANGE's authority to provide intrastate calling service
in California and imposing certain
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other fines and penalties, including, among other things, a $19.6 million fine,
against WORLDxCHANGE based on the CPUC'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 CPUC directives. Under the CPUC's order, the sanctions and fines are
binding on any successor to WORLDxCHANGE, unless the CPUC orders otherwise.
WORLDxCHANGE has implemented a number of policies and procedures designed to
help reduce the likelihood of future allegations of the kind leading to the
CPUC'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
CPUC directives, WORLDxCHANGE would be subject to paying the $17.6 million
portion of the CPUC 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 CPUC 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 CPUC 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. In addition to historical
information, the following discussion and other parts of this prospectus contain
forward-looking information that involves risks and uncertainties.
WORLDxCHANGE's actual results could differ materially from those anticipated by
forward-looking information due to factors discussed under "Business" and
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 and non-recurring fees that are 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.
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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>
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, known as "MIUs," and long-term rights of use in cables or other
facilities, known as "IRUs," 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 MIUs or IRUs reduces its utilization of leased
lines and the facilities of other long distance carriers, WORLDxCHANGE believes
the increase in depreciation expense associated with the MIUs or IRUs 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
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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
- MIU or IRU 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.
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>
PROFORMA 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
------- ------ ------- ------- ------- -------
EBITDA................. (16.9) (16.5) (16.3) (16.0) (14.7) (10.6)
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
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revenues. Cost of 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. 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 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.
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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.
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.
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
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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 due to efficiencies gained as
WORLDxCHANGE's revenues increased.
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.
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
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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 CPUC subject to
WORLDxCHANGE's refraining from committing any violations of statutes or CPUC
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.
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.
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
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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 or AIF. 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 AIF 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, 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
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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 capacity on 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 indefeasible 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.
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 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 under the loan 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.
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. The remaining $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.
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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 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
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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.
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)
<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........... 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(1).................. $ (1.4) $ (8.5) $(16.8) $ (3.3) $(30.9) $(17.2) $(23.2)
Net cash provided by (used
in) operating
activities............... 2.6 7.6 (7.2) (31.7) (31.5) 2.2 (24.3)
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)
<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>
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(1) EBITDA represents operating loss plus depreciation and amortization expense.
WORLDxCHANGE has included information concerning EBITDA herein because such
information is commonly used in the telecommunications industry as one
measure of an issuer's operating performance and historical ability to
service debt. EBITDA is not determined in accordance with generally accepted
accounting principles, is not indicative of cash provided by operating
activities, is not necessarily comparable to similarly titled measures of
other companies, 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.
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COMPARISON OF THE RIGHTS OF SHAREHOLDERS OF WORLDXCHANGE
AND STOCKHOLDERS OF WORLD ACCESS
The rights of WORLDxCHANGE's shareholders are governed by its articles of
incorporation, as amended and restated, its bylaws, as amended and restated, and
the laws of the State of California. 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. Upon completion of the WORLDxCHANGE merger, the
WORLDxCHANGE shareholders will become World Access stockholders, and their
rights will be governed by World Access' certificate of incorporation, as
amended, its bylaws and the laws of the State of Delaware.
The following is a summary of the material differences between the rights
of holders of WORLDxCHANGE capital stock and the rights of holders of World
Access capital stock at the date hereof. These differences arise from
differences between the Delaware General Corporation Law, or DGCL, and the
California General Corporation Law, or CGCL, and between the respective
corporate charters and bylaws of WORLDxCHANGE and World Access. This summary is
not a complete comparison of rights that may be of interest to you; therefore,
you should read the full text of each state's corporate statute and the
respective corporate charters and bylaws of WORLDxCHANGE and World Access. For
information on how to obtain these documents, see "WHERE YOU CAN FIND MORE
INFORMATION" on page .
Pursuant to the Voting and Share Transfer Restriction Agreements referred
to on page 136, 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 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 March 22, 2000, 37,022,683 shares of WORLDxCHANGE common stock were
outstanding, and 80,000 shares of WORLDxCHANGE preferred stock were outstanding.
The authorized capital stock of World Access consists of 160,000,000
shares, of which 150,000,000 shares shall be common stock of $.01 par value per
share, and 10,000,000 shares of which shall be preferred stock of $.01 par value
per share. Note, however, that 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 , shares of World Access
common stock were outstanding, and shares of World Access preferred stock
were outstanding.
COMPARISON OF RIGHTS OF COMMON STOCK
The holders of WORLDxCHANGE common stock are entitled to one vote per
share. The holders of WORLDxCHANGE common stock are entitled to receive
dividends when and as declared by the board of directors out of funds legally
available for the payment of dividends. The holders of WORLDxCHANGE common stock
have no preemptive rights or redemption rights.
The holders of World Access common stock are entitled to one vote per
share. The holders of common stock are entitled to receive such dividends as may
be declared from time to time by the board of directors. The holders of World
Access common stock have no preemptive rights or redemption rights.
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COMPARISON OF SHAREHOLDER RIGHTS UNDER DELAWARE AND CALIFORNIA LAW
Number of directors. World Access' bylaws provide for a board of directors
of not less than three nor more than 12, with the exact number to be fixed 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 the certificate of incorporation
which would increase the maximum number of directors to 15. World Access' board
currently consists of 11 members. Following the completion of the WORLDxCHANGE
merger, the World Access board of directors will consist of 11 members.
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 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.
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.
Removal of directors. 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.
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.
Filling new seats or vacancies on the board of directors. 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.
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.
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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.
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.
Indemnification and limitation of liability. California and Delaware have
similar laws governing indemnification by a corporation of its officers,
directors, employees and other agents. The laws of both states permit, with
certain exceptions, a corporation to adopt charter provisions eliminating the
liability of its directors to the corporation or its shareholders for monetary
damages for breach of the directors' fiduciary duty of care. There are
nonetheless certain differences between the laws of the two states and the
charters of WORLDxCHANGE and World Access with respect to indemnification and
limitation of liability, which are summarized below.
WORLDxCHANGE's articles of incorporation eliminate the liability of
directors to the corporation to the fullest extent permissible under California
law. California law does not permit the elimination of monetary liability where
such liability is based on: (i) intentional misconduct or knowing and culpable
violation of law; (ii) acts or omissions that a director believes to be contrary
to the best interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director; (iii) receipt by the director
of an improper personal benefit; (iv) acts or omissions that show reckless
disregard for the director's duty to the corporation or its shareholders, where
the director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (v)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (vi) transactions between the corporation and a director who has a
material financial interest in such transaction; and (vii) liability for
improper distributions, loans or guarantees.
World Access' certificate of incorporation eliminates the liability of
directors to World Access or its stockholders for monetary damages for breach of
fiduciary duty as a director to the fullest extent permissible under Delaware
law, as it may be amended and supplemented. Under Delaware law, such provision
may not eliminate or limit a director's monetary liability for: (i) breaches of
the director's duty of loyalty to the corporation or its stockholders; (ii) acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law; (iii) the payment of unlawful dividends or unlawful stock
repurchases or redemptions; or (iv) transaction in which the director received
an improper personal benefit. Such limitation of liability provisions also may
not limit a director's liability for violation of, or otherwise relieve World
Access or its directors from the necessity of complying with, federal or state
securities laws, or affect the availability of nonmonetary remedies such as
injunctive relief or rescission.
California and Delaware law require indemnification of a present or former
director or officer of the corporation when the individual has defended
successfully any action on the merits. Delaware law generally permits
indemnification of expenses, including attorneys' fees, actually and reasonably
incurred in the defense or settlement of a derivative or third-party action,
provided there is a determination by a majority vote of a disinterested quorum
of the directors, by independent legal counsel or by a majority vote of a quorum
of the stockholders that the person seeking indemnification acted in good faith
and in a manner reasonably believed to be in the best interests of the
corporation. California law generally permits the same. Under Delaware law, no
indemnification may be made in respect of any derivative action or action in
which the individual has been adjudged to be liable to the corporation, unless
the court so authorizes. Under California law, no indemnification may be made
(i) in respect of any derivative action or action in which the individual has
been adjudged liable to the corporation, unless the court so authorizes, (ii) of
amounts paid in settling or otherwise disposing of a pending action without
court approval, or (iii) of
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expenses incurred in defending a pending action which is settled or otherwise
disposed of without court approval.
Expenses incurred by an officer or director in defending an action may be
paid in advance, under Delaware law and California law, if such director or
officer undertakes to repay such amounts if it is ultimately determined that he
or she is not entitled to indemnification. In addition, the laws of both states
authorize a corporation's purchase of indemnity insurance for the benefit of its
officers, directors, employees and agents whether or not the corporation would
have the power to indemnify against the liability covered by the policy.
WORLDxCHANGE's bylaws authorize the purchase of such insurance.
California law permits a California corporation to provide rights to
indemnification beyond those provided therein to the extent such additional
indemnification is authorized in the corporation's articles of incorporation.
Thus, if so authorized, rights to indemnification may be provided pursuant to
agreements or bylaw provisions which make mandatory the permissive
indemnification provided by California law. In addition, Delaware law states
that the indemnification provided by statute shall not be deemed exclusive of
any other rights under any bylaw, agreement, vote of shareholders, or of
disinterested directors, or otherwise.
Interested director transactions. Under both California and Delaware law,
certain contracts or transactions in which one or more of a corporation's
directors have an interest are not void or voidable because of such interest if
certain conditions are met. With certain exceptions, the conditions are similar
under California and Delaware law. Under California and Delaware law, (i) either
the shareholders or the board of directors must approve any such contract or
transaction after full disclosure of the material facts, and, in the case of
board approval, the contract or transaction must also be "just and reasonable"
(in California) or "fair" (in Delaware) to the corporation, or (ii) the contract
or transaction must have been "just and reasonable" or "fair" (as applicable) as
to the corporation at the time it was approved. In the latter case, California
law explicitly places the burden of proof on the interested director. Under
California law, if shareholder approval is sought, the interested director is
not entitled to vote his shares at a shareholder meeting with respect to any
action regarding such contract or transaction. If board approval is sought, the
contract or transaction must be approved by a majority vote of a quorum of the
directors, without counting the vote of any interested directors (except that
interested directors may be counted for purposes of establishing a quorum).
Under Delaware law, if stockholder approval is sought generally, the contract or
transaction must be approved in good faith by a majority of stockholders. If
board approval is sought, the contract or transaction must be approved by a
majority of the disinterested directors (even though less than a majority of a
quorum). Therefore, certain transactions that the WORLDxCHANGE board of
directors might not be able to approve because of the number of interested
directors could, in the case of World Access, be approved by a majority of the
disinterested directors of World Access, although less than a majority of a
quorum.
Loans to officers and employees. Under California law, a corporation
cannot make any loan or guaranty to or for the benefit of a director or officer
of the corporation or its parent unless such loan or guaranty, or a plan
providing for such loan or guaranty, is approved by shareholders owning a
majority of the outstanding shares of the corporation. However, under California
law, any corporation with 100 or more shareholders of record may seek approval,
by vote of the majority of outstanding shares, of a bylaw provision authorizing
the board of directors alone to approve loans or guaranties to or on behalf of
officers (whether or not such officers are directors) if the board determines
that any such loan or guaranty may reasonably be expected to benefit the
corporation. WORLDxCHANGE's bylaws do not authorize the WORLDxCHANGE board of
directors to approve such loans or guaranties.
Under Delaware law, a corporation may make loans to, guaranty the
obligations of, or otherwise assist its officers or other employees and those of
its subsidiaries (including directors who are also officers or employees) when
such action, in the judgment of the directors, may reasonably be expected to
benefit the corporation.
Shareholder derivative suits. California law provides that a shareholder
bringing a derivative action on behalf of a corporation need not have been a
shareholder at the time of the transaction in question,
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provided that certain tests are met. Under Delaware law, a stockholder may bring
a derivative action on behalf of the corporation only if the stockholder was a
stockholder of the corporation at the time of the transaction in question or his
or her stock thereafter devolved upon him or her by operation of law. California
law also provides that the corporation or the defendant in a derivative suit may
make a motion to the court for an order requiring the plaintiff shareholder to
furnish a security bond. Delaware does not have a similar bonding requirement.
Elimination of actions by written consent of shareholders. 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. WORLDxCHANGE's articles of incorporation do not eliminate shareholder
actions by written consent. In contrast, except with respect to actions by
preferred stockholders pursuant to World Access' certificate of incorporation,
World Access stockholder actions may not be taken 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.
Power to call special meeting of shareholders. 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.
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.
Notice procedures. World Access' bylaws provide that notice of a special
meeting of stockholders must be timely given in writing not less than ten days
nor more than 60 days prior 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 prior to the one-year
anniversary of the date of the proxy statement in connection with the previous
year's annual meeting of stockholders. If (i) no annual meeting was held in the
previous year, (ii) the date of the upcoming annual meeting has changed by more
than 30 days from the date contemplated in the previous year's proxy statement
or (iii) the upcoming meeting is not an annual meeting, a nominating
stockholder's notice must be received by World Access no later than the close of
business on the tenth day following the earlier of:
- the day on which notice of the upcoming meeting was mailed or given to
the World Access stockholders; or
- the day on which public disclosure of the date of the upcoming meeting
was made by World Access.
The bylaws of WORLDxCHANGE provide that upon request in writing that a
special meeting of shareholders be called for any proper purpose, notice shall
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 nor
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more than 60 days after receipt of the request. The notice shall specify the
general nature of the business to be transacted at the meeting, and no other
business may be transacted at such meeting.
Supermajority voting requirements. 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 (Amendments), Article
Four (No Cumulative Voting) or Article Five (Election and Term of Directors).
World Access' certificate of incorporation requires the approval of the holders
of at least 75% of the combined voting power of its stockholders to alter, amend
or repeal Article IX (Management) of the certificate of incorporation, or to
adopt any provision in the certificate of incorporation or bylaws that would be
inconsistent with that article.
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:
(i) prior to 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;
(ii) 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
(iii) at or subsequent to 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:
(i) 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;
(ii) 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;
(iii) any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder;
(iv) 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
(v) 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.
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Inspection of shareholder list. Both California and Delaware law allow any
shareholder to inspect and copy the shareholder list for a purpose reasonably
related to such person's interest as a shareholder. 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. Delaware law also 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. However, Delaware
law contains no provisions comparable to the absolute right of inspection
provided by California law to certain large shareholders.
WORLDxCHANGE's bylaws mirror the California statutory provisions with
respect to inspection of shareholder lists. World Access' bylaws mirror the
Delaware statutory provisions with respect to inspection of shareholder lists.
Dividends and repurchases of shares. California law dispenses with the
concepts of par value of shares as well as statutory definitions of capital,
surplus and the like. The concepts of par value, capital and surplus exist under
Delaware law.
Under California law, a corporation may not make any distribution to its
shareholders unless either: (i) the corporation's retained earnings immediately
prior to the proposed distribution equal or exceed the amount of the proposed
distribution; or (ii) 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 (not including deferred taxes, deferred income and other
deferred credits), 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.
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.
Mergers. Both California and Delaware law generally require that a
majority of the holders of the stock of each of the acquiring and target
corporations approve statutory mergers. Delaware law does not require a
stockholder vote of the surviving corporation in a merger (unless the
corporation provides otherwise in its certificate of incorporation) if (i) the
merger agreement does not amend the existing certificate of incorporation, (ii)
each share of the surviving corporation outstanding before the merger is an
identical outstanding share after the merger, and (iii) either (a) no shares of
common stock of the surviving corporation and no shares, securities or
obligations convertible into such stock are to be issued or delivered under the
plan of merger, or (b) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger. California law contains a similar exception to
its voting requirements for reorganizations where shareholders or the
corporation itself, or both, immediately prior to the reorganization own
immediately after the reorganization equity securities constituting more than
five-sixths of the voting power of the surviving or acquiring corporation or its
parent entity.
Both California and Delaware law also require that a sale of all or
substantially all of the assets of a corporation be approved by a majority of
the voting shares of the corporation transferring such assets.
With certain exceptions, California law also requires that mergers,
reorganizations, certain sales of assets and similar transaction be approved by
a majority vote of each class of shares outstanding. By contrast, Delaware law
generally does not require class voting, except in certain transactions
involving an
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amendment to the certificate of incorporation which adversely affects a specific
class of shares. World Access' certificate of incorporation does not, except in
limited circumstances, require class voting.
Dissenters'/Appraisal rights. Under both California and Delaware law, a
shareholder of a corporation participating in certain major corporate
transactions may, under varying circumstances, be entitled to dissenters' rights
pursuant to which such shareholder may receive cash in the amount of the fair
market value of his, her or its shares in lieu of the consideration he, she or
it would otherwise receive in the transaction. Under Delaware and California law
such fair market value is determined exclusive of any element of value arising
from the accomplishment or expectation of the merger or consolidation.
Under Delaware law, appraisal rights are not available (i) with respect to
the sale, lease or exchange of all or substantially all of the assets of a
corporation, (ii) with respect to a merger or consolidation by a corporation
whose shares are either listed on a national securities exchange or are held of
record by more than 2,000 holders if such stockholders receive only shares of
the surviving corporation or shares of any other corporation which are either
listed on a national securities exchange or held of record by more than 2,000
holders, plus cash in lieu of fractional shares, or (iii) to stockholders of a
corporation surviving a merger if, among other conditions, no vote of the
stockholders of the surviving corporation is required to approve the merger
because the merger agreement does not amend the existing certificate of
incorporation, each share of the surviving corporation outstanding prior to the
merger is an identical outstanding or treasury share after the merger, and the
number of shares to be issued in the merger does not exceed 20% of the shares of
the surviving corporation outstanding immediately prior to the merger, unless
otherwise provided in the certificate of incorporation.
The limitations on the availability of appraisal rights under California
law are different from those under Delaware law. Shareholders of a California
corporation whose shares are listed on a national securities exchange generally
do not have such appraisal rights unless the holders of at least 5% of the class
of outstanding shares claim the right or the corporation or any law restricts
the transfer of such shares. Appraisal rights are also unavailable if the
shareholders of a corporation or the corporation itself, or both, immediately
prior to the merger will own immediately after the reorganization equity
securities constituting more than 83.3% (or five-sixths) of the voting power of
the surviving or acquiring corporation or its parent entity. California law
generally affords appraisal rights in sale of assets reorganizations.
Dissolution. 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. 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.
The foregoing is an attempt to summarize the material differences in the
corporation laws of California and Delaware, the WORLDxCHANGE articles of
incorporation and the World Access amended certificate of incorporation, the
WORLDxCHANGE bylaws and the World Access bylaws, and does not purport to be a
complete list of differences in the rights and remedies of holders of shares of
California, as opposed to Delaware, corporations and shareholders or
stockholders of WORLDxCHANGE and World Access in particular. Such differences
can be determined in full by reference to California law, to Delaware law and to
the WORLDxCHANGE articles of incorporation and the World Access amended
certificate of incorporation and the WORLDxCHANGE bylaws and the World Access
bylaws. In addition, the laws of California and Delaware provide that provisions
in the charter or bylaws of the corporation may modify the statutory provisions
that affect various rights of holders of shares.
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PREFERRED STOCK
The World Access amended certificate of incorporation authorizes the board
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 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, and 184,000 shares designated as Series D preferred stock are
issued and outstanding. The material terms of the Series A preferred stock, the
Series C preferred stock and the Series D 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.
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
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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.
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
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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 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
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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.
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MANAGEMENT OF THE COMBINED COMPANIES
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 companies, and Walter J. Burmeister will serve as the
President of the combined companies. It is anticipated that the other current
executive officers of World Access will continue as executive officers of the
combined companies 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.
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
The World Access board of directors has adopted a resolution unanimously
approving, deeming advisable 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.
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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 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 43,892,342 shares of common stock.
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. In addition, an increase in the number of shares of common stock
authorized for issuance is required in order for World Access to complete both
the STAR merger and the WORLDxCHANGE merger. 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.
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 and Series D 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 APPROVES, RECOMMENDS AND DEEMS ADVISABLE
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.
PROPOSAL 5
AMENDMENT OF THE WORLD ACCESS AMENDED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED DIRECTORS
FROM 12 TO 15 AND 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, deeming advisable 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 and
to end the classification of the World Access board of directors.
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
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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.
In addition, 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. 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.
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 and Series D 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 the 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 APPROVES, RECOMMENDS AND DEEMS ADVISABLE
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 AND 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 6
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 AND TO CHANGE THE PERFORMANCE CRITERIA UNDER THE PLAN
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 (the "Warrant 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.
DESCRIPTION OF PROPOSED THIRD 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 May 22,
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
(i) 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 and (ii) change the performance criteria
of World Access common stock under the Warrant Plan. If the proposed amendment
is approved by the World Access stockholders, these changes will be effective as
of April 25, 2000.
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, and 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 increase in the authorized shares under the
Warrant Plan and 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 Warrant Plan will provide World Access with
approximately $4.7 million of new capital in the future, assuming full exercise
of all outstanding warrants. In addition, the nonqualified nature of the
warrants may result in significant future tax deductions for World Access equal
to the difference between the market value and exercise price of the warrants on
the dates of exercise.
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.
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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 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 (i) if World Access is to
be consolidated with or acquired by another entity in a merger, (ii) 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, (iii) 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 as a result thereof), or (iv) upon the
liquidation or dissolution of World Access.
The World Access board has authority to: (i) determine, upon review of
relevant information and in accordance with the Warrant Plan, the fair market
value of the World Access common stock, (ii) interpret the Warrant Plan, (iii)
prescribe, amend and rescind rules and regulations relating to the Warrant Plan,
(iv) 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 (v) 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 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.
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As of May 22, 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 May 22, 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 6 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 and Series D preferred stock, voting
as a single class. If approved by the World Access stockholders, the amendment
to the World Access Directors' Warrant Incentive Plan will become effective upon
such approval.
THE WORLD ACCESS BOARD OF DIRECTORS APPROVES AND 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 AND TO CHANGE THE PERFORMANCE
CRITERIA OF WORLD ACCESS COMMON STOCK UNDER THE PLAN.
PRINCIPAL STOCKHOLDERS OF WORLD ACCESS
World Access' only issued and outstanding classes of voting securities are
common stock, Series A preferred stock, Series C preferred stock and Series D
preferred stock. As of May 22, 2000, there were 60,101,658 shares of World
Access common stock issued and outstanding; 50,000 shares of Series A preferred
stock issued and outstanding (convertible to 4,347,826 shares of World Access
common stock); 350,260 shares of Series C preferred stock issued and outstanding
(convertible into 17,186,451 shares of World Access common stock) and 184,000
shares of Series D preferred stock issued and outstanding (convertible into
10,222,222 shares of World Access common stock).
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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 May 22, 2000 for (i) each person who beneficially
owns more than 5% of the World Access common stock, (ii) each World Access
director individually, (iii) each World Access executive officer who would be a
named executive officer under Rule 402 of Regulation S-K and (iv) all directors
and executive officers of World Access as a group.
<TABLE>
<CAPTION>
SHARES UNDERLYING TOTAL SHARES
SHARES DERIVATIVE BENEFICIALLY PERCENTAGE
NAME OWNED(1) SECURITIES(2) OWNED(1) OWNED
- ---- ---------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
World Access common stock
Armstrong International
Telecommunications, Inc.(3)........... -- 15,162,015 15,162,015 20.3%
One Armstrong Place
Butler, PA 16001
WorldCom Network Services, Inc.(4)...... 6,327,344 -- 6,327,344 10.6
500 Clinton Center Drive
Clinton, MS 39056
The 1818 Fund III, L.P.(5).............. -- 6,086,956 6,086,956 9.3
59 Wall Street
New York, NY 10005
Morgan Stanley & Co. Incorporated(6).... -- 5,685,111 5,685,111 8.7
1585 Broadway
New York, NY 10036
Walter J. Burmeister+++(7).............. -- 1,135,694 1,135,694 1.9
Kirby J. Campbell+...................... -- -- -- *
Bryan Cipoletti+........................ -- -- -- *
Stephen J. Clearman+(8)................. 1,309,044 167,000 1,476,044 2.5
John P. Imlay, Jr.+..................... 59,900 179,000 238,900 *
John D. Phillips+++(9).................. 1,312,500 1,117,000 2,429,500 4.0
Massimo Prelz Oltramonti+(10)........... 1,885,251 100,000 1,985,251 3.3
John P. Rigas+(11)...................... 816,942 100,000 916,942 1.5
Carl E. Sanders+(12).................... 62,000 179,000 241,000 *
Dru A. Sedwick+......................... -- -- -- *
Lawrence C. Tucker+(5).................. -- 6,186,956 6,186,956 9.4
W. Tod Chmar++.......................... 312,500 25,000 337,500 *
Mark A. Gergel++(13).................... 26,791 237,500 264,291 *
Michael F. Mies++(13)................... 2,267 28,750 31,017 *
All directors and executive officers as
a group (15 persons).................. 5,787,195 9,455,900 15,243,095 16.1
Series A preferred stock
The 1818 Fund III, L.P.................. 50,000 20,000 70,000 100.0
Series C preferred stock
Armstrong International
Telecommunications, Inc............... 309,002 -- 309,002 88.2
Walter J. Burmeister.................... 19,161 -- 19,161 5.5
Juan Carlos Valls....................... 19,161 -- 19,161 5.5
1530 Key Boulevard #306
Arlington, VA 22209
</TABLE>
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<TABLE>
<CAPTION>
SHARES UNDERLYING TOTAL SHARES
SHARES DERIVATIVE BENEFICIALLY PERCENTAGE
NAME OWNED(1) SECURITIES(2) OWNED(1) OWNED
- ---- ---------- ----------------- ------------ ----------
<S> <C> <C> <C> <C>
Series D preferred stock
Morgan Stanley & Co. Incorporated....... 102,332 -- 102,332 55.6
AIM High Yield Fund..................... 16,851 -- 16,851 9.1
11 Greenway Plaza, #1919
Houston, TX 77046
NETnet International S.A................ 14,800 -- 14,800 8.0
Siege Social; L-1611
41 Avenue de la Gare
R.C. Luxemburg B49615
Kemper High Yield Series................ 11,794 -- 11,794 6.4
222 South Riverside Plaza
Chicago, IL 60606
</TABLE>
- ---------------
* Less than one percent
+ Director
++ Named executive officer
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act. Unless otherwise noted, we believe that
all persons named in the table have sole voting and investment power with
respect to all shares of 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 July 21, 2000.
(3) Represents 15,162,015 shares of World Access common stock issuable upon the
conversion of 309,002 shares of Series C preferred stock.
(4) 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 Cherry Communications in U.S. Bankruptcy Court.
WorldCom Network Services directs the voting of these shares while they are
held in escrow.
(5) Includes 4,347,826 shares of World Access common stock issuable upon the
conversion of 50,000 shares of Series A preferred stock owned of record by
The 1818 Fund III, a private equity partnership, and 1,739,130 shares of
World Access common stock reserved for issuance upon the conversion of
20,000 shares of Series A preferred stock which is subject to an option
held by The 1818 Fund III. The general partner of the 1818 Fund III is
Brown Brothers Harriman & Co. Mr. Tucker, a partner at Brown Brothers
Harriman, is deemed to be the beneficial owner of these shares due to his
role as co-manager of The 1818 Fund III.
(6) Represents 5,685,111 shares of World Access common stock issuable upon the
conversion of 102,332 shares of Series D preferred stock.
(7) Includes 940,204 shares of World Access common stock issuable upon the
conversion of 19,161 shares of Series C preferred stock.
(8) 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.
(9) 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
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held in the name of Mr. Phillips' wife as custodian for two of Mr.
Phillips' minor children, with respect to which Mr. Phillips disclaims
beneficial ownership.
(10) Represents 1,443,887 shares of 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, is deemed to be the beneficial owner of these
shares.
(11) Represents 816,942 shares of World Access common stock owned by Zilkha
Capital Partners, L.P. Mr. Rigas, a Managing Partner of Zilkha Capital
Partners, is deemed to be the beneficial owner of these shares.
(12) Includes 2,000 shares of World Access common stock owned by Mr. Sanders'
wife, with respect to which Mr. Sanders disclaims beneficial ownership.
(13) Includes the following shares of World Access common stock acquired through
voluntary employee contributions to our 401(k) Plan and contributed to the
401(k) Plan under a matching contribution program offered to all 401(k)
Plan participants: Mr. Gergel -- 4,041 shares and Mr. Mies -- 517 shares.
PROPOSAL 7
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
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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.
THE BOARD OF DIRECTORS OF WORLD ACCESS 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.
NOMINEES FOR DIRECTOR
Stephen J. Clearman. Mr. Clearman (age 49) 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.
John D. ("Jack") Phillips. Mr. Phillips (age 57) 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.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2002 ANNUAL MEETING
Massimo Prelz Oltramonti. Mr. Prelz (age 45) 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.
Lawrence C. Tucker. Mr. Tucker (age 57) 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
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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.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
John P. Imlay, Jr. Mr. Imlay (age 63) 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.
John P. Rigas. Mr. Rigas (age 36) 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.
Carl E. Sanders. Mr. Sanders (age 74) 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.
DIRECTORS NOT DIVIDED INTO CLASSES
Walter J. Burmeister. Mr. Burmeister (age 60) 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.
Kirby J. Campbell. Mr. Campbell (age 52) 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.
Bryan Cipoletti. Mr. Cipoletti (age 39) 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
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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.
Dru A. Sedwick. Mr. Sedwick (age 34) 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.
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.
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
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neither employees of World Access nor of any of its affiliates. The aggregate
number of shares of common stock authorized to be issued pursuant to the Warrant
Plan is 2,400,000, subject to adjustment in certain instances as described
below. The Warrant Plan provides that each eligible non-employee director
elected to serve as a director of World Access on or after October 1, 1994 may
be granted, in the discretion of the World Access board, warrants to purchase no
more than 450,000 shares of common stock in the aggregate. The initial exercise
price of the warrants will be not less than the fair market value of the common
stock subject to the warrant on the date of grant.
In June 1999, the 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 $8.25 per share, 110% of the then current
market price. These warrants became fully vested on December 31, 1999 and expire
on March 10, 2004.
Notwithstanding the foregoing, the Warrant Plan and the Incentive Plan
provide that warrants awarded pursuant to these plans will become immediately
exercisable (i) if we are consolidated with or acquired by another entity in a
merger, (ii) upon the sale of substantially all of our assets or the sale of at
least 90% of outstanding common stock to a third party, (iii) upon our merger or
consolidation with or into any other corporation or the merger or consolidation
of any corporation with or into us (in which consolidation or merger our
stockholders received distributions of cash or securities as a result thereof),
or (iv) upon our liquidation or dissolution.
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EXECUTIVE OFFICERS OF WORLD ACCESS
INFORMATION REGARDING EXECUTIVE OFFICERS
The information with respect to World Access' executive officers is set
forth in Item 4.5 of Part I of World Access' Annual Report on Form 10-K for the
fiscal year ended December 31, 1999.
EXECUTIVE COMPENSATION
Summary of Compensation. The following table sets forth the cash and
non-cash compensation World Access awarded or paid its named executive officers,
consisting of its Chief Executive Officer and its four most highly compensated
executive officers other than its Chief Executive Officer, during 1997, 1998 and
1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
---------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS ($) 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.
(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 $21,500 for the
relocation of his household to Atlanta, Georgia.
(6) Except as noted above, All Other Compensation represents matching
contributions that World Access provides to all eligible employees under its
401(k) benefit plan.
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<PAGE> 237
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information regarding the grant of stock
options to the named executive officers during 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE ($) 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> 238
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.
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 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 may
be provided by the terms of the appropriate program, all of Mr. Chmar's stock
options, warrants and
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<PAGE> 239
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.
For the purposes of the employment agreements with each of Messrs.
Phillips, Chmar and Gergel, the following definitions apply:
A termination of employment is for cause if the employee has been convicted
of a felony or a felony prosecution has been brought against the employee or if
the termination is evidenced by a resolution adopted in good faith by two-thirds
(2/3) of the board that the employee (i) intentionally and continually failed
substantially to perform his reasonably assigned duties, other than a failure
resulting from the employee's incapacity due to physical or mental illness or
from the employee's assignment of duties that would constitute good reason,
which failure continued for a period of at least 30 days after a written notice
of demand for substantial performance has been delivered to the employee
specifying the manner in which the employee has failed substantially to perform
or (ii) intentionally engaged in illegal conduct or gross misconduct which
results in material economic harm to World Access.
Good reason means a good faith determination by the employee that any one
or more of the following events has occurred, without the employee's express
written consent:
(i) the assignment to the employee of any duties inconsistent with the
employee's position, authority, duties or responsibilities as in effect
immediately prior to the date of his employment agreement, or any other
action by World Access that results in a material diminution in such
position, authority, duties or responsibilities; (ii) a reduction by World
Access in the employee's base salary, or a change in the eligibility
requirements or performance criteria under any bonus, incentive or
compensation plan, program or arrangement under which the employee is
covered immediately prior to his termination date which adversely affects
the employee; (iii) any failure to pay the employee any compensation or
benefits to which he is entitled within five days of the date due; (iv)
World Access' requiring the employee to be based anywhere other than within
50 miles of the employee's job location as of the date of his employment
agreement, except for reasonably required travel on World Access' business
which is not greater than such travel requirements prior to the date of his
employment; (v) the taking of any action by World Access that would
materially adversely affect the physical conditions existing in or under
which the employee performs his employment duties; (vi) the insolvency or
the filing of a petition for bankruptcy by World Access; (vii) any
purported termination of the employee's employment for cause by World
Access which does not comply with his terms of his employment agreement; or
(viii) any breach by World Access of any provision of an employment
agreement.
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<PAGE> 240
A change in control shall have occurred if: (i) a majority of the directors
of World Access shall be persons other than persons: (A) for whose election
proxies shall have been solicited by the board, or (B) who are then serving as
directors appointed by the board to fill vacancies on the board caused by death
or resignation, but not by removal, or to fill newly-created directorships; (ii)
a majority of the outstanding voting power of World Access shall have been
acquired or beneficially owned by any person (other than World Access, a
subsidiary of World Access or the employee) or any two or more persons acting as
a partnership, limited partnership, syndicate, or other group acting in concert
for the purpose of acquiring, holding or disposing of voting stock of World
Access, which group does not include the employee; or (iii) there shall have
occurred: (A) a merger or consolidation of World Access with or into another
corporation (other than (1) a merger or consolidation with a subsidiary of World
Access or (2) a merger or consolidation in which (a) the holders of voting stock
of World Access immediately prior to the merger as a class continue to hold
immediately after the merger at least a majority of all outstanding voting power
of the surviving or resulting corporation or its parent and (b) all holders of
each outstanding class or series of voting stock of World Access immediately
prior to the merger or consolidation have the right to receive substantially the
same cash, securities or other property in exchange for their voting stock of
World Access as all other holders of such class or series); (B) a statutory
exchange of shares of one or more classes or series of outstanding voting stock
of World Access for cash, securities or other property; (C) the sale or other
disposition of all or substantially all of the assets of World Access, in one
transaction or a series or transactions; or (D) the liquidation or dissolution
of World Access; unless more than 25% of the voting stock, or the voting equity
interest, of the surviving corporation or the corporation or other entity
acquiring all or substantially all of the assets of World Access (in the case of
a merger, consolidation or disposition of assets) or of World Access or its
resulting parent corporation (in the case of a statutory share exchange) is
beneficially owned by the employee or a group that includes the employee.
John D. Phillips and Armstrong International Telecommunications, Inc. have
entered into a letter agreement, pursuant to which Mr. Phillips has agreed not
to sell or transfer, directly or indirectly, any shares of World Access common
stock held by him without the prior written consent of Armstrong International
Telecommunications for so long as Armstrong International Telecommunications or
any of its affiliates remains a stockholder of World Access. The provisions of
the letter agreement terminate upon (i) Mr. Phillips' death or disability, (ii)
any decision to remove, or to not reelect, Mr. Phillips as the Chief Executive
Officer of World Access in which at least 50% of the directors elected by the
holders of World Access Series C preferred stock (or, upon conversion into or
other acquisition of World Access common stock, by 50% of the directors
nominated, designated or elected by Armstrong International Telecommunications,
Epic Interests, Inc. and BFV Associates, Inc., or their affiliates) vote in
favor of such removal or fail to vote in favor of such reelection, (iii) the
fifth anniversary of the closing of our merger with FaciliCom in the event that
Mr. Phillips is no longer Chief Executive Officer of World Access for any
reason, and (iv) upon a change of control of World Access.
On November 29, 1999, we entered into an agreement with A. Lindsay Wallace,
President of our Equipment Group, that provides incentive compensation for Mr.
Wallace in the event of the sale of specified divisions of our Equipment Group.
This agreement provides that World Access will pay to Mr. Wallace: (i) a cash
payment equal to 0.75% of the gross consideration received by World Access upon
the sale of the NACT Switching Division; (ii) a cash payment equal to 0.75% of
the gross consideration received by World Access upon the sale of the Wireless
Local Loop Division; and (iii) 0.5% of the gross consideration received by World
Access upon the sale of the Transport and Access Division. This agreement also
provides that all stock options granted to Mr. Wallace under our 1991 Stock
Option Plan and 1998 Incentive Equity Plan will become fully vested upon the
sale of the NACT Switching Division and the Transport and Access Division, and
those options may be exercised by Mr. Wallace at any time until the one year
anniversary of the termination of Mr. Wallace's employment with World Access.
Additionally, this agreement states that if Mr. Wallace's employment with World
Access is terminated as a direct result of the sale of one of these divisions,
World Access will continue to pay Mr. Wallace's current base salary through the
second anniversary of his termination date. World Access' obligations under this
agreement are conditioned upon Mr. Wallace remaining the President of the
Equipment Group through the closing of the sales of these divisions, his
assistance in facilitating these sales and his
227
<PAGE> 241
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.
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 (i) earnings per share; (ii) revenue; (iii) earnings before interest, taxes,
depreciation and amortization; and (iv) common stock price appreciation. Each
performance goal operates independently, so achieving or failing to achieve
results from one measurement does not reflect the eligible bonus amounts awarded
for others.
Stock Options. The stock option program is a long-term incentive plan for
executive officers and other key employees. The objectives of the program are to
align executive and stockholder long-term interests by creating a strong and
direct relationship between executive compensation and stockholder returns. The
Compensation Committee strongly believes that by providing those individuals who
have substantial responsibility for the management and growth of World Access
and the maximizing of stockholder returns with an opportunity to increase their
ownership of common stock, the best interests of stockholders and executives
will be more closely aligned. World Access stock options typically vest over
three to four years, which increases the long-term value of these awards.
The Compensation Committee's determination of the number of options to
award to an individual executive officer is made in a manner similar to that
described above with respect to the setting of salaries. In addition, in
determining the number of options to be granted to an individual, the
Compensation Committee takes into account the number of options already granted
to that individual and the value of those options.
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<PAGE> 242
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: (i) $50.0
million investment by The 1818 Fund III; (ii) acquisition of Comm/Net; (iii)
FaciliCom merger; (iv) $75.0 million private placement by institutional
investors; (v) pending acquisition of Long Distance International; and (vi)
pending monetization of the Company's equipment businesses. The Compensation
Committee also considered Mr. Phillips' continued progress in establishing a
broad, experienced management team, the efficient integration of acquired
businesses and the significant increase in the Company's market capitalization
during 1999.
Submitted by the Compensation
Committee
Stephen J. Clearman
John P. Imlay, Jr.
Carl E. Sanders
Dru A. Sedwick
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
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> 243
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
230
<PAGE> 244
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
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.
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 accountants during the period covered by this joint proxy
statement/prospectus and such accountants' report on the financial statements
for each of the past two years did not contain an adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit scope or
accounting principles.
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedules included in our Annual Report on Form 10-K
for the years ended December 31, 1999 and 1998,
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<PAGE> 245
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 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, 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 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.
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.
WORLD ACCESS STOCKHOLDER PROPOSALS
Proposals of World Access stockholders submitted pursuant to Rule 14a-8 of
the Exchange Act for inclusion in the proxy statement for the 2001 annual
meeting of stockholders of World Access must be received by World Access at its
principal executive offices at 945 E. Paces Ferry Road, Suite 2200, Atlanta,
Georgia 30326 a reasonable time before World Access begins to print and mail the
proxy materials for its 2001 annual meeting of stockholders.
Under the World Access amended certificate of incorporation, stockholders
desiring to nominate persons for election as directors at an annual meeting must
notify the Secretary of World Access in writing not less than 120 calendar days
in advance of the date which is one year later than the date of World Access
proxy statement released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that if no annual meeting of
stockholders was held in the previous year or if the date of the forthcoming
annual meeting of stockholders has been changed by more than 30 calendar days
from the date contemplated at the time of the previous year's proxy statement or
if the forthcoming meeting is not an annual meeting of stockholders, then to be
timely such stockholders' notice must be so received not later than the close of
business on the tenth day following the earlier of (i) the day on which notice
of the date of the forthcoming meeting was mailed or given to stockholders by or
on behalf of
232
<PAGE> 246
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 2001 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 2001
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 certain material federal income tax consequences
of the mergers, will be passed upon for World Access by Long Aldridge & Norman
LLP, Atlanta, Georgia. Certain matters with respect to the offering of World
Access common stock pursuant to this joint proxy statement/prospectus will be
passed upon for STAR by Riordan & McKinzie, a Professional Corporation, Los
Angeles, California. With respect to certain matters concerning Delaware law,
STAR will rely on Richards, Layton & Finger, a Professional Corporation,
Wilmington, Delaware.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities laws require World Access and STAR to file information
with the Securities and Exchange Commission concerning our business and
operations. Accordingly, we 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 public reference facility maintained by the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You can also
do so at the following regional offices of the SEC:
New York Regional Office
Seven World Trade Center
Suite 1300
New York, New York 10048
233
<PAGE> 247
Chicago Regional Office
Northwest Atrium Center
500 West Madison Street
Suite 1400
Chicago, Illinois 60661
You can get additional information about the operation of the 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 our filings and the
reports, proxy and information statements and other information regarding other
companies. 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 CERTAIN DOCUMENTS BY REFERENCE
The SEC allows World Access and STAR to "incorporate by reference" the
information each files with it, which means that World Access and STAR can
disclose information to you by referring to those documents. The information
incorporated by reference is considered part of this 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 (i) the World Access special
meeting, with respect to the World Access stockholders, (ii) the STAR special
meeting, with respect to the STAR stockholders, and (iii) 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 this exchange offer:
World Access SEC Filings (Commission File No. 0-29782):
- Current Report on Form 8-K/A on April 26, 2000 (event date:
February 11, 2000;)
- Current Report on Form 8-K 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);
- Current Report on Form 8-K filed on December 22, 1999, as amended
by Form 8-K/A filed on February 22, 2000 (event date: December 7,
1999);
- Current Report on Form 8-K filed on February 9, 2000 (event
date: February 2, 2000);
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Annual Report on Form 10-K for the fiscal year ended December 31,
1999; and
- The description of the World Access common stock included in World
Access' Registration Statement on Form S-4 (No. 333-67025), as
filed with the SEC on November 10, 1998.
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.
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.
234
<PAGE> 248
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.
235
<PAGE> 249
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-1
<PAGE> 250
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 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-2
<PAGE> 251
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-3
<PAGE> 252
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-4
<PAGE> 253
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
D.B.A.
WORLDXCHANGE COMMUNICATIONS
CONSOLIDATED STATEMENT 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-5
<PAGE> 254
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-6
<PAGE> 255
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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. Estimated credit
losses are provided for in the financial statements at the same time the
corresponding revenue is recognized. 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, including equipment under capital
leases, 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) or the term of the related lease (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.
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
F-7
<PAGE> 256
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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)
network services with certain operator services customers. These costs are
amortized using the straight-line method over three years.
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.
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.
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.
F-8
<PAGE> 257
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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)
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. ("CTS") and WORLDxCHANGE Limited ("WxL"), 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 WxL. The accompanying pooled consolidated
financial statements are derived from the combined historical financial
statements of CTS, WxL and WORLDxCHANGE. All significant intercompany accounts
and transactions have been eliminated.
F-9
<PAGE> 258
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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)
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>
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
F-10
<PAGE> 259
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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)
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 $ -- $ --
Secured subordinated note, balance due November
2000 with interest payable quarterly at 12.5%... 45,200 45,200 55,000
</TABLE>
F-11
<PAGE> 260
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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>
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-12
<PAGE> 261
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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
F-13
<PAGE> 262
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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)
discussed in Note 3. WORLDxCHANGE's obligations under this agreement are secured
by a first position in substantially all of its assets, excluding equipment
where encumbrances already exist.
From May through August 1998, WORLDxCHANGE issued and sold subordinated
promissory notes in the aggregate principal amounts of $55.0 million. These
notes bear interest at 12.5% per annum, provide for quarterly payments of
interest only and mature on November 30, 2000. These notes provide the lender
the right to require WORLDxCHANGE to use a portion of the net proceeds from any
private placement or public offering of WORLDxCHANGE's common stock to repay the
notes. As such, the outstanding balance at September 30, 1999 has been reduced
to $45,200,000. As of 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-14
<PAGE> 263
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-15
<PAGE> 264
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-16
<PAGE> 265
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-17
<PAGE> 266
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-18
<PAGE> 267
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-19
<PAGE> 268
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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 subject to limitations.
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.
F-20
<PAGE> 269
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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 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 "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-21
<PAGE> 270
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-22
<PAGE> 271
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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-23
<PAGE> 272
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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,
--------------- ---------------------------
1999 2000 1999 1998 1997
------ ------ ------- ------- -------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE BY REGIONS:
United States................................. $144.3 $171.5 $330.0 $318.1 $287.4
North America (other)......................... 3.1 4.3 7.5 3.7 4.3
------ ------ ------ ------ ------
North America total........................... 147.4 175.8 337.5 321.8 291.7
Pacific Rim................................... 29.6 25.8 55.6 58.4 24.4
Europe........................................ 13.8 90.0 28.5 18.7 15.6
------ ------ ------ ------ ------
Total............................... $190.8 $291.6 $421.6 $398.9 $331.7
====== ====== ====== ====== ======
</TABLE>
F-24
<PAGE> 273
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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,
--------------- ---------------------------
1999 2000 1999 1998 1997
------ ------ ------- ------- -------
(UNAUDITED) (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
REVENUE BY CUSTOMERS:
Carrier....................................... 85.9 $116.8 $186.9 $166.1 $163.3
Residential................................... 75.9 124.6 185.3 161.1 116.9
Operator Services............................. 12.9 6.7 22.9 41.1 28.7
Commercial.................................... 16.1 43.5 26.5 30.6 22.8
------ ------ ------ ------ ------
Total............................... $190.8 $291.6 $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.
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
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<PAGE> 274
COMMUNICATIONS TELESYSTEMS INTERNATIONAL
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)
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. Total payments totaling monthly of
which $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%.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
WORLD ACCESS, INC.
STAR TELECOMMUNICATIONS, INC.
AND
STI MERGER CO.
<PAGE> 276
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
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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
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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.
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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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(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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to be filed in connection with, any Taxes, including information returns or
reports with respect to backup withholding and other payments to third
parties.
(u) "Tax Sharing Agreement" shall mean any and all existing Tax
sharing agreements, or arrangements written or unwritten, express or
implied, binding two or more Persons with respect to the payment of Taxes,
including any agreements or arrangements which afford any other Person the
right to receive any payment from one or more other Persons in respect to
any Taxes or the benefit of any Tax Asset of one or more other Persons or
require or permit the transfer or assignment of any income, revenue,
receipts or gains.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, WAXS, Merger Sub and STAR have caused this Agreement to
be signed by their respective officers thereunto duly authorized, all as of the
date first above written.
WAXS:
WORLD ACCESS, INC.
By: /s/ John D. Phillips
------------------------------------
Name: John D. Phillips
Title: Chairman and Chief
Executive Officer
STAR:
STAR TELECOMMUNICATIONS, INC.
By: /s/ Christopher E. Edgecomb
------------------------------------
Name: Christopher E. Edgecomb
Title: President
MERGER SUB:
STI MERGER CO.
By: /s/ John D. Phillips
------------------------------------
Name: John D. Phillips
Title: Chairman and Chief
Executive Officer
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ANNEX B
AGREEMENT AND PLAN OF MERGER
AMONG
WORLD ACCESS, INC.
COMMUNICATION TELESYSTEMS INTERNATIONAL D/B/A
WORLDXCHANGE COMMUNICATIONS
<PAGE> 314
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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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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(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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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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<PAGE> 354
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).
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<PAGE> 355
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]
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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
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<PAGE> 357
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.
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<PAGE> 358
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)
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<PAGE> 359
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
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<PAGE> 360
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> 361
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 ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. DLJ 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. DLJ 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, DLJ 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> 362
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> 363
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 ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. DLJ 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. DLJ is currently acting as financial
advisor to the Company in connection with its proposed acquisition of STAR
Telecommunications, Inc. Further, DLJ 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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<PAGE> 364
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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<PAGE> 365
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.
E-3
<PAGE> 367
ANNEX F
[Name of PT-1 acquiror]
March 29, 2000
Star Telecommunications, Inc.
223 E. De La Guerra Street
Santa Barbara, California 93101
Ladies and Gentlemen:
This letter of intent (the "Letter") sets forth our binding agreement with
respect to the acquisition by [PT-1 acquiror] or one of its affiliates ("[PT-1
acquiror]") from Star Telecommunications, Inc. or one of its affiliates (the
"Seller", and together with [PT-1 acquiror], the "Parties") of all of the assets
relating to or used in connection with the debit card and dial-around businesses
(the "Businesses") operated by the Seller's wholly-owned subsidiary PT-1
Communications, Inc. (together with any subsidiaries thereof, "PT-1"). The
assets acquired by [PT-1 acquiror] hereunder are referred to as the "Assets".
1. Terms.
[PT-1 acquiror] will pay to the Seller at the closing of the transactions
contemplated hereby (the "Closing") a purchase price of $150,000,000 in cash
(the "Purchase Price") in exchange for the Seller transferring to [PT-1
acquiror] the Assets, including, without limitation, all cash, cash equivalents,
accounts receivable and other line item asset categories (except for deferred
tax assets) in respect of the Assets set forth on the Balance Sheet (as defined
below) and for the period of PT-1's operation from December 31, 1999 through
Closing; provided that the Purchase Price shall be adjusted upward or downward
to the extent at Closing the net value of the Assets (i.e., total Assets (not
including any deferred tax asset) less Assumed Liabilities (as defined below) as
set forth on an audited balance sheet of PT-1 to be delivered by the accounting
firm of Arthur Andersen as soon as practicable following Closing, and subject to
[PT-1 acquiror's] right to dispute the accuracy of such audited balance sheet)
is greater than or less than $37,223,490 (i.e., the net value thereof set forth
on the Balance Sheet as of December 31, 1999); and provided further that if the
Seller is able, or is reasonably determined by an independent third party
jointly selected by the Parties to be able, to utilize any benefit from its
deferred tax asset set forth on the Balance Sheet, the Purchase Price shall be
reduced by an amount equal to 50% of such benefit (or if such benefit is
determined to be realizable after the Closing, the Seller shall promptly pay
such amount to [PT-1 acquiror] in cash). At Closing [PT-1 acquiror] will assume
only liabilities of PT-1 in respect of the following line items on the Balance
Sheet: (i) Accounts payable and accrued expenses; (ii) Accrued taxes payable;
(iii) Short-Term debt; (iv) Deferred Revenue; and (v) Long-term debt (the
"Assumed Liabilities"). All pre-Closing liabilities other than the Assumed
Liabilities will remain obligations of the Seller.
2. Financial Information. The Seller represents and warrants to [PT-1
acquiror] that (a) the balance sheet of PT-1 attached as Exhibit A as of
December 31, 1999 (the "Balance Sheet") and the income statement of PT-1 for the
year ended December 31, 1999 are true and accurate, have been prepared from the
books and records of PT-1 in accordance with United States generally accepted
accounting principles ("GAAP") consistently applied and fairly present in all
material respects the financial condition of PT-1, (b) the Balance Sheet shows
all material liabilities, absolute or contingent, of PT-1 required to be
recorded thereon, (c) the assets shown on the Balance Sheet consist only of the
Assets and (d) since the date of the Balance Sheet, (i) PT-1 has incurred no
liabilities or obligations other than liabilities or obligations incurred in the
ordinary course of business, consistent with the past practices of PT-1 and
which do not and could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, financial condition
or results of operations of PT-1, the Assets or the Businesses (a "Material
Adverse Effect"), (ii) there has been no Material Adverse Effect and (iii) there
has not occurred any other event, circumstance or condition that has had or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
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<PAGE> 368
3. Negotiation of Definitive Agreements; Exclusivity.
(a) Good Faith. The Parties will proceed diligently and in good faith to
negotiate, execute and deliver definitive agreements (including, without
limitation, an asset purchase agreement, employment agreements with key
executives, a shared network services agreement, and other necessary or
desirable services agreements (collectively, the "Agreements")), the present
intent of the Parties being to deliver such Agreements by April 21, 2000
(provided that the failure to so deliver the Agreements by such date shall not
constitute a breach of this Letter), subject in all respects to the approval of
the Parties, verification of legal and factual issues deemed relevant to the
Parties and receipt of requisite regulatory and other approvals or consents. The
Seller shall make all reasonable efforts (i) to assist [PT-1 acquiror] in
identifying key executives of the Seller and PT-1, and recruiting such key
employees and other officers and employees of the Seller and PT-1 identified by
[PT-1 acquiror] for employment by the entity operating the Businesses following
the Closing and (ii) to facilitate conversations and meetings between [PT-1
acquiror] and World Access, Inc. ("WAI") with a view to securing for [PT-1
acquiror] a right of first refusal for the purchase of any business competitive
with the Businesses that is owned and offered for sale by WAI at any time after
the date hereof.
(b) Terms of the Agreements. The Agreements will contain, among other
things, representations and warranties, covenants, conditions and
indemnification provisions appropriate for such agreements; provided that (i)
the representations and warranties of the Seller will survive the Closing for
two years (other than those in respect of tax matters, which will survive the
Closing until the expiration of the applicable statute of limitations); (ii) the
Parties will proceed diligently and in good faith to file all documents
necessary to satisfy any applicable waiting period under the Hart-Scott-Rodino
Act; (iii) the Seller will obtain all material third-party consents to the
transactions contemplated hereby prior to Closing (which condition may be waived
by [PT-1 acquiror] in its absolute discretion); (iv) the Seller will represent
and warrant (and hereby represents and warrants) that the accounts receivable of
PT-1 shown on the Balance Sheet and any more recent financial statements
furnished to [PT-1 acquiror] are valid, genuine and fully collectible, and
adequate reserves have been provided therefor under GAAP; and (v) the Seller
shall use its reasonable commercial efforts to identify, with [PT-1 acquiror],
and to cause certain of the Seller's key executives to enter into exclusive
employment agreements with [PT-1 acquiror], or to agree to not, directly or
indirectly, engage in any business competitive with the Businesses and [PT-1
acquiror], and the Seller will not, and shall use its reasonable commercial
efforts to cause such key executives to not, solicit or hire away any of the
employees of [PT-1 acquiror] or its affiliates, in the case of each of the
foregoing for a period of three years following the Closing. Promptly following
the execution of this Letter, Christopher Edgecomb, the Chief Executive Officer
of the Seller, shall deliver his agreement, in his capacity as a shareholder, to
at all times vote his shares of the Seller in favor of the transactions
contemplated hereby.
(c) No Other Arrangements. None of the Seller or its 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
[PT-1 acquiror], or enter into discussions with, or provide information to any
person, other than [PT-1 acquiror], concerning any Transaction Proposal. The
Seller agrees that it will promptly notify [PT-1 acquiror] after receipt of any
Transaction Proposal of the material terms thereof and any ongoing developments
with respect thereto. For purposes of this Letter, "Transaction Proposal" shall
mean any proposal or offer to acquire an equity interest in, or a substantial
portion of, PT-1, the Businesses or the Assets, whether by merger, sale of
equity interests, asset purchase or other transaction, other than pursuant to
the transactions contemplated by this Letter.
4. Due Diligence; Access.
The transactions contemplated herein are subject to the completion by [PT-1
acquiror] of a due diligence review of PT-1, the Businesses and the Assets
satisfactory to [PT-1 acquiror] in its absolute discretion. [PT-1 acquiror] will
have the right to, and Seller shall provide to [PT-1 acquiror], reasonable
access during normal business hours to the facilities, personnel, records,
contracts and other documents of
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<PAGE> 369
PT-1, including, without limitation, information related to financial,
accounting, commercial, legal, environmental, regulatory and employee benefits
matters as reasonably requested and necessary to complete such review. Any
investigation pursuant to this Section shall be conducted so as not to interfere
unreasonably with the conduct of the business of PT-1.
5. Confidentiality; Public Announcements.
The Parties agree (i) not to disclose (and to cause their affiliates and
their directors, officers, employers and agents not to disclose) to any third
party (other than to WAI and to directors, officers, employers and agents on a
need to know basis) any matters in respect of this Letter, and (ii) not to make
any announcement regarding the transactions contemplated hereby without the
prior written consent of the other Party.
6. Closing Date; Interim Operations.
The parties shall proceed diligently and in good faith to complete the
Closing (including by completing and facilitating the completion of all
pre-Closing actions required or contemplated hereby) by the earlier of (i) the
closing of the acquisition of the Seller by WAI or (ii) June 30, 2000. At all
times prior to the Closing of the transactions contemplated hereby, the Seller
shall, and shall cause PT-1 to, conduct the business and operations of PT-1 in
the ordinary course consistent with past practice.
7. Miscellaneous.
(a) Injunctive Relief; Liquidated Damages. Each Party acknowledges and
agrees that the other Party would be irreparably damaged in the event that any
of the terms of this Letter are not performed in accordance with their specific
terms or are otherwise breached. Accordingly, each Party agrees that the other
party shall be entitled to an injunction, specific performance or other
equitable relief to prevent breaches of the terms of this Letter and to enforce
specifically such terms in addition to any other remedies to which the Parties
may be entitled, at law or in equity. Without limiting the foregoing, each Party
agrees to indemnify and hold harmless the other Party (the "Indemnified Party")
with respect to any losses or damages suffered by the Indemnified Party arising
out of any breach of the terms of this Letter; provided that in addition to and
not in limitation of the foregoing indemnity and the other remedies available to
[PT-1 acquiror], and in order to induce [PT-1 acquiror] to enter into this
Letter, the Seller hereby agrees that in the event that the Seller fails or
refuses to consummate the transactions contemplated hereby with [PT-1 acquiror]
for any reason (other than (i) the failure to obtain necessary regulatory
approval for the transactions contemplated hereby, (ii) the failure of a
majority of the Seller's shareholders entitled to vote to approve the
transactions contemplated hereby (provided that if within 12 months of such
failure to approve the Assets or PT-1 are directly or indirectly sold to a third
party other than [PT-1 acquiror], the exclusion contained in this clause (ii)
shall not apply), (iii) [PT-1 acquiror's] breach of the material terms and
conditions of the Agreements, or (iv) the mutual written consent of the
Parties), the Seller shall promptly upon demand pay to [PT-1 acquiror]
$5,850,000 in cash as liquidated damages (the "Liquidated Damages Amount"). The
Seller hereby acknowledges that the Liquidated Damages Amount is reasonable and
not punitive in nature.
(b) Authorization. Each Party represents and warrants to the other Party
that this Letter has been duly authorized by such Party and constitutes its
valid and binding agreement.
(c) Governing Law. This Letter shall be governed by the laws of the State
of New York without regard to the conflicts of law principles thereof and shall
be enforceable in the state and federal courts of the State of New York, to
which exclusive jurisdiction the Parties hereby submit.
(d) Counterparts. This Letter may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same document.
(e) Assignment. This Letter may not be assigned by any party hereto
without the prior written consent of the other Party hereto.
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<PAGE> 370
In this Letter accurately describes our agreement with respect to the
foregoing, please so indicate by executing and returning the enclosed copy of
this Letter, whereupon it will become a binding agreement between us.
Very truly yours,
[PT-1 acquiror]
By
--------------------------------------
Accepted and agreed to as
of the date first above written:
STAR TELECOMMUNICATIONS, INC.
By
- ------------------------------------------------------
F-4
<PAGE> 371
ANNEX G
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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<PAGE> 372
(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 H
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).
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.
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.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
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.
5.1* -- Opinion of Long Aldridge & Norman LLP regarding legality of
common stock.
8.1* -- Opinion of Long Aldridge & Norman LLP regarding certain tax
matters.
8.2* -- Opinion of O'Melveny & Myers LLP regarding certain tax
matters.
10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.1 to Amendment No. 1 to WA Telco
Systems' Registration Statement on Form S-8, filed on July
25, 1991, No. 33-41255-A).
10.2 -- Amendment to World Access, Inc. 1991 Stock Option Plan
(incorporated by reference to Exhibit 10.2 to WA Telco
Systems' Form 10-K for the year ended December 31, 1993,
filed March 31, 1994).
10.3 -- Second Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.3 to WA Telco Systems' Form 10-K for
the year ended December 31, 1993, filed March 31, 1994).
10.4 -- Third Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.26 to WA Telco Systems' Form S-2,
Amendment No. 2, filed on February 14, 1995, No. 33-87026).
10.5 -- World Access, Inc., Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.40 to WA Telco
Systems' Form 10-K for the year ended December 31, 1995,
filed April 10, 1996).
10.6 -- Directors' Warrant Incentive Plan (incorporated by reference
to Exhibit 10.41 to WA Telco Systems' Form 10-K for the year
ended December 31, 1995, filed April 10, 1996).
10.7 -- Fourth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.32 to WA Telco Systems' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.8 -- Fifth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.33 to WA Telco Systems' Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.9 -- Amendment One to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.33 to WA Telco
Systems' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.10 -- Amendment One to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.31 to WA Telco
Systems' Form 10-K for the year ended December 31, 1996,
filed April 11, 1997).
10.11 -- Amendment Two to Outside Directors' Warrant Plan
(incorporated by reference to Exhibit 10.21 to WA Telco
Systems' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.12 -- Amendment Two to Directors' Warrant Incentive Plan
(incorporated by reference to Exhibit 10.22 to WA Telco
Systems' Form 10-K for the year ended December 31, 1997,
filed April 15, 1998).
10.13 -- Sixth Amendment to 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.22 to WA Telco Systems' Form 10-K
for the year ended December 31, 1997, filed April 15, 1998).
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).
</TABLE>
II-3
<PAGE> 383
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
10.16 -- Executive Employment Agreement between World Access, Inc.
and Mark A. Gergel dated as of December 14, 1998
(incorporated by reference to Exhibit 10.23 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.17 -- World Access, Inc. 1998 Incentive Equity Plan, as amended
(incorporated by reference to Exhibit 10.25 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.18 -- Assignment and Assumption Agreement dated October 29, 1998
between World Access, Inc. and WA Telcom Products Co., Inc.
(incorporated by reference to Exhibit 10.1 to World Access'
Form 8-K filed October 28, 1998).
10.19 -- Form of Indemnification Agreement with directors and
officers (incorporated by reference to Appendix H to World
Access' Joint Proxy Statement/Prospectus dated November 10,
1998 relating to the Special Meeting of Stockholders held on
November 30, 1998).
10.20 -- Schedule of all officers and directors who have signed an
Indemnification Agreement referred to in Exhibit 10.19
(incorporated by reference to Exhibit 10.28 to World Access'
Form 10-K for the year ended December 31, 1998, filed April
9, 1999).
10.21 -- First Amended and Restated Credit Agreement dated as of
December 7, 1999 between Telco Systems, Inc., World Access
Holdings, Inc. and Bank of America, N.A. as Administrative
Agent and Fleet National Bank as Syndication Agent and Bank
Austria Creditanstalt Corporate Finance, Inc. as
Documentation Agent and Banc of America Securities LLC as
Lead Arranger and Book Running Manager (incorporated by
reference to Exhibit 10.20 to World Access' Form 10-K for
the year ended December 31, 1999, filed March 30, 2000).
10.22 -- Guaranty dated as of December 30, 1998 between World Access,
Telco Systems, World Access Holdings, Inc., NationsBank,
N.A. as Administrative Agent and the lenders party to the
Credit Agreement referred to in Exhibit 10.21 (incorporated
by reference to Exhibit 10.30 to World Access' Form 10-K for
the year ended December 31, 1998, filed April 9, 1999).
10.23 -- Pledge Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.21 (incorporated by reference to Exhibit 10.31 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.24 -- Security Agreement dated as of December 31, 1998 by World
Access in favor of NationsBank, N.A. as Administrative Agent
and the lenders party to the Credit Agreement referred to in
Exhibit 10.21 (incorporated by reference to Exhibit 10.32 to
World Access' Form 10-K for the year ended December 31,
1998, filed April 9, 1999).
10.25 -- Disbursement Agreement dated as of December 14, 1998 by and
among World Access, Inc., Cherry Communications Incorporated
(d/b/a Resurgens Communications Group) and William H.
Cauthen, Esq. (incorporated by reference to Exhibit 10.33 to
World Access' Form 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).
</TABLE>
II-4
<PAGE> 384
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C> <C>
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.
10.36* -- Services Agreement dated as of February 14, 2000 by and
between World Access, Inc. and Communication TeleSystems
International d/b/a WORLDxCHANGE Communications.
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).
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.
II-5
<PAGE> 385
(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
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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) 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.
(4) The undersigned registrant hereby undertakes 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.
(5) The undersigned registrant hereby undertakes 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.
II-6
<PAGE> 386
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on May 23, 2000.
WORLD ACCESS, INC.
By: /s/ JOHN D. PHILLIPS
------------------------------------
John D. Phillips
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints John D. Phillips and Mark A. Gergel, and each of
them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated as of May 23, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ JOHN D. PHILLIPS Chairman and Chief Executive Officer (Principal
- --------------------------------------------------- Executive Officer)
John D. Phillips
/s/ MARK A. GERGEL Executive Vice President and Chief Financial
- --------------------------------------------------- Officer (Principal Financial Officer)
Mark A. Gergel
/s/ MARTIN D. KIDDER Vice President and Corporate Controller
- --------------------------------------------------- (Principal Accounting Officer)
Martin D. Kidder
/s/ WALTER J. BURMEISTER President and Director
- ---------------------------------------------------
Walter J. Burmeister
/s/ KIRBY J. CAMPBELL Director
- ---------------------------------------------------
Kirby J. Campbell
/s/ BRYAN CIPOLETTI Director
- ---------------------------------------------------
Bryan Cipoletti
/s/ STEPHEN J. CLEARMAN Director
- ---------------------------------------------------
Stephen J. Clearman
/s/ JOHN P. IMLAY, JR. Director
- ---------------------------------------------------
John P. Imlay, Jr.
/s/ MASSIMO PRELZ OLTRAMONTI Director
- ---------------------------------------------------
Massimo Prelz Oltramonti
</TABLE>
II-7
<PAGE> 387
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<C> <S>
/s/ JOHN P. RIGAS Director
- ---------------------------------------------------
John P. Rigas
/s/ CARL E. SANDERS Director
- ---------------------------------------------------
Carl E. Sanders
/s/ DRU A. SEDWICK Director
- ---------------------------------------------------
Dru A. Sedwick
/s/ LAWRENCE C. TUCKER Director
- ---------------------------------------------------
Lawrence C. Tucker
</TABLE>
II-8
<PAGE> 1
EXHIBIT 4.4
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT (this
"Agreement"), dated as of February 11, 2000, is made and entered into among
World Access, Inc., a Delaware corporation ("WAXS"), and Samer Tawfik
("Stockholder").
WHEREAS, WAXS and STAR Telecommunications, Inc. ("STAR") propose to
enter into an Agreement and Plan of Merger, dated as of the date hereof (as the
same may be amended or supplemented, the "Merger Agreement"; capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement ), providing for a business combination between WAXS and STAR (the
"Transaction"), upon the terms and subject to the conditions set forth in the
Merger Agreement;
WHEREAS, Stockholder owns 9,183,711 shares of STAR Common Stock (such
shares of STAR Common Stock, together with any other shares of STAR capital
stock of which Stockholder acquires beneficial ownership after the date hereof
and during the term of this Agreement whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or exchangeable
securities, or by means of purchase, dividend, distribution or otherwise, being
collectively referred to herein as the "STAR Subject Shares");
WHEREAS, in connection with its approval of the Merger Agreement and
the Transaction, the Board of Directors of STAR has approved this Agreement in
accordance with Section 203 of the DGCL; and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, WAXS has requested that Stockholder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of Stockholder. Stockholder
hereby represents and warrants to WAXS as follows:
(a) Authority; No Conflicts. Stockholder has the legal
capacity and all requisite power and authority to enter into this
Agreement, to perform his obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder enforceable in accordance
with its terms. No filing with, and no permit, authorization, consent
or approval of, any Governmental Entity or any other Person
<PAGE> 2
is necessary for the execution of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby and none of
the execution and delivery of this Agreement by Stockholder, the consummation
of the transactions contemplated hereby or compliance with the terms hereof by
Stockholder will conflict with, or result in any violation of, or default (with
or without notice or lapse of time or both) under any provision of any
agreement to which Stockholder is a party, including any voting agreement,
stockholders agreement, voting trust, trust agreement, pledge agreement, loan
or credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license or violate any judgment,
order, notice, decree, statute, law, ordinance, rule or regulation applicable
to Stockholder or to his property or assets.
(b) The STAR Subject Shares. Stockholder is the record and
beneficial owner of, and has good and marketable title to, 9,183,711 shares of
STAR Common Stock, free and clear of any encumbrances, agreements, adverse
claims, liens or other arrangements with respect to the ownership of or the
right to vote or dispose of such shares of STAR Common Stock, other than with
respect to various margin positions taken by Stockholder with respect to a
portion of such shares that have been pledged pursuant to the margin loan
agreements set forth on Schedule 1 hereto (the "Margin Requirements"). Other
than such 9,183,711 shares of STAR Common Stock, Stockholder does not
beneficially or of record own any shares of STAR capital stock or securities
convertible or exchangeable for shares of STAR capital stock. Stockholder has
the sole right and power to vote and, subject to the Margin Requirements,
dispose of such shares of STAR Common Stock. None of such 9,183,711 shares of
STAR Common Stock are subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting or transfer of any of the
shares of STAR Common Stock, except as contemplated by this Agreement and
except with respect to the Margin Requirements.
(c) STAR Stock Options. Stockholder does not own, as of the date
hereof, and will not acquire prior to the Effective Time, any STAR Stock
Options.
2. Covenants of Stockholder. Until the termination of this Agreement
in accordance with Section 4 hereof, Stockholder agrees as follows:
(a) Voting of STAR Subject Shares. At any meeting of stockholders
of STAR or at any adjournment thereof or in any other circumstances upon which
Stockholder's vote, consent or other approval (including by written consent) is
sought, Stockholder shall vote all of the STAR Subject Shares then beneficially
owned by Stockholder (i) in favor of the Transaction and the adoption and the
approval of the Merger Agreement and each of the other transactions
contemplated by the Merger Agreement, (ii) against any action or agreement that
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of STAR under the Merger Agreement and (iii)
against any action or agreement that would impede, interfere with, delay or
postpone or that would reasonably be expected to discourage the Transaction,
including, but not limited to: (A) any
2
<PAGE> 3
extraordinary corporate transactions (other than the Transaction), such as a
merger, consolidation or other business combination involving STAR or its
Subsidiaries, a sale or transfer of a material amount of assets of STAR or its
Subsidiaries or a reorganization, recapitalization or liquidation of STAR or
its Subsidiaries; (B) any amendment of STAR's certificate of incorporation or
bylaws or other proposal or transaction involving STAR or any of its
Subsidiaries, which amendment or other proposal or transaction would in any
manner impede, prevent or nullify the Transaction, the Merger Agreement or any
of the other transactions contemplated by the Merger Agreement or change in any
manner the voting rights of any class of STAR capital stock; or (C) any change
in the management or board or directors of STAR.
(b) [INTENTIONALLY OMITTED.]
(c) Pre-Closing Transfer Restrictions. Stockholder agrees not to
(i) sell, hypothecate, transfer, pledge, encumber, assign or otherwise dispose
of (including by gift) (collectively, "Transfer"), or enter into any contract,
option, put, call or other arrangement or understanding (including any profit
sharing arrangement) with respect to the Transfer of, any of the STAR Subject
Shares to any Person, other than with respect to the Margin Requirements, (ii)
trade or take any position, hedge or otherwise, with respect to the STAR
Subject Shares, (iii) enter into any voting arrangement or understanding,
whether by proxy, voting agreement or otherwise, with respect to any of the
STAR Subject Shares or (iv) take any action that would make any of its
representations or warranties contained herein untrue or incorrect or have the
effect of preventing or impeding Stockholder from performing any of his
obligations under this Agreement; provided, however, that Stockholder may,
prior to the Effective Time and subject to compliance with all applicable legal
requirements (including, without limitation, all applicable securities laws,
rules, regulations and requirements), Transfer up to 2,430,671 shares of
Stockholder's STAR Common Stock to unaffiliated third parties in one or more
arms-length transactions.
(d) Post-Closing Transfer Restrictions. Stockholder agrees not to
(i) Transfer, or enter into any contract, option, put, call or other
arrangement or understanding (including any profit sharing arrangement) with
respect to the Transfer of, any of the shares of WAXS Common Stock issued to
Stockholder pursuant to the Merger Agreement to any Person, or (ii) trade or
take any position, hedge or otherwise, with respect to such shares of WAXS
Common Stock, for six (6) months following the Effective Time. If, at any time
after six (6) months and within eighteen (18) months following the Effective
Time, Stockholder desires to take any action referred to in clauses (i) or (ii)
above (a "Proposed Action"), Stockholder shall give prior written notice of
such Proposed Action to WAXS, specifying the number of shares subject to the
Proposed Action. Stockholder acknowledges and agrees that WAXS shall have the
first right to assist in the private disposition of the shares specified in
such notice of Proposed Action to an "accredited investor" or "qualified
institutional buyer" (as such terms are defined in Exchange Act). If WAXS is
unable to arrange such a private disposition on terms reasonably satisfactory
to Stockholder within thirty (30) days after
3
<PAGE> 4
receipt of notice of the Proposed Action, Stockholder shall be free to
consummate the Proposed Action.
3. Assignment. Neither this Agreement nor any of the right,
interests or obligations hereunder may be assigned by any party hereto without
the prior written consent of the other party hereto. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
4. Termination. This Agreement shall terminate, and no party
hereto shall have any rights or obligations hereunder, upon the termination of
the Merger Agreement in accordance with its terms.
5. General Provisions.
(a) Amendments. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy or by registered or certified mail (postage
prepared, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to Stockholder, to:
Samer Tawfik
27-10 Little Neck Boulevard
Bayside, NY 11360
with a copy to:
Herrick, Feinstein LLP
Two Park Avenue
New York, NY 10016
Attention: John R. Goldman
Facsimile: (212) 889-7577
4
<PAGE> 5
if to WAXS, to:
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
(c) Interpretation. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Wherever the words "include", "includes" or "including" are
used in this Agreement, they shall be deemed to be followed by the words
"without limitation".
(d) 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 of the counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
each party need not sign the same counterpart.
(e) Governing Law; Jurisdiction; Waiver. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
Delaware regardless of the laws that might otherwise govern under applicable
principles of conflicts or law. Each of WAXS and Stockholder 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
Stockholder 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 Stockholder 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, (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
5
<PAGE> 6
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.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse
to any party. Upon any 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 to the end that transactions contemplated hereby are
fulfilled to the extent possible.
(g) Action as Stockholder; No Limitation. Stockholder has
agreed to the terms and conditions of this Agreement solely in his
capacity as a holder of shares of STAR Common Stock. WAXS acknowledges
and agrees that none of the provisions of this Agreement shall be
deemed to limit, restrict or otherwise hinder the ability of
Stockholder, in his capacity as a member of the Board of Directors of
STAR, to exercise his fiduciary duties under applicable law.
6. 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 or were otherwise breached.
It is accordingly agreed that, in addition to any other remedy to which it may
be entitled, at law or in equity, the parties shall be entitled to the remedy
of specific performance of the covenants and agreements contained herein and
injunctive and other equitable relief.
7. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto. Except as provided in the
preceding sentence, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies or
any nature whatsoever under or by reason of this Agreement.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE.]
6
<PAGE> 7
IN WITNESS WHEREOF, Stockholder and WAXS have caused this Agreement to
be signed by its signatory thereunto duly authorized, as of the date first
written above.
STOCKHOLDER
/s/ Samer Tawfik
-----------------------------------------------
Samer Tawfik
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
--------------------------------------------
Name: W. Tod Chmar
<PAGE> 8
SCHEDULE 1
MARGIN LOAN AGREEMENTS
None.
8
<PAGE> 1
EXHIBIT 4.5
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT (this
"Agreement"), dated as of February 11, 2000, is made and entered into among
World Access, Inc., a Delaware corporation ("WAXS"), and Christopher E. Edgecomb
("Stockholder").
WHEREAS, WAXS and STAR Telecommunications, Inc. ("STAR") propose to
enter into an Agreement and Plan of Merger, dated as of the date hereof (as the
same may be amended or supplemented, the "Merger Agreement"; capitalized terms
used but not defined herein shall have the meanings set forth in the Merger
Agreement ), providing for a business combination between WAXS and STAR (the
"Transaction"), upon the terms and subject to the conditions set forth in the
Merger Agreement;
WHEREAS, Stockholder owns 13,166,256 shares of STAR Common Stock (such
shares of STAR Common Stock, together with any other shares of STAR capital
stock of which Stockholder acquires beneficial ownership after the date hereof
and during the term of this Agreement whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or exchangeable
securities, or by means of purchase, dividend, distribution or otherwise, being
collectively referred to herein as the "STAR Subject Shares");
WHEREAS, in connection with its approval of the Merger Agreement and
the Transaction, the Board of Directors of STAR has approved this Agreement in
accordance with Section 203 of the DGCL; and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, WAXS has requested that Stockholder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of Stockholder. Stockholder
hereby represents and warrants to WAXS as follows:
(a) Authority; No Conflicts. Stockholder has the legal
capacity and all requisite power and authority to enter into this
Agreement, to perform his obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder enforceable 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. No filing
<PAGE> 2
with, and no permit, authorization, consent or approval of, any Governmental
Entity or any other Person is necessary for the execution of this Agreement by
Stockholder and the consummation by Stockholder of the transactions contemplated
hereby and none of the execution and delivery of this Agreement by Stockholder,
the consummation of the transactions contemplated hereby or compliance with the
terms hereof by Stockholder will conflict with, or result in any violation of,
or default (with or without notice or lapse of time or both) under any provision
of any agreement to which Stockholder is a party, including any voting
agreement, stockholders agreement, voting trust, trust agreement, pledge
agreement, loan or credit agreement, note, bond, mortgage, indenture, lease or
other agreement, instrument, permit, concession, franchise or license or violate
any judgment, order, notice, decree, statute, law, ordinance, rule or regulation
applicable to Stockholder or to his property or assets.
(b) The STAR Subject Shares. Stockholder is the record and
beneficial owner of 13,166,256 shares of STAR Common Stock, free and clear of
any encumbrances, agreements, adverse claims, liens or other arrangements with
respect to the ownership of or the right to vote or dispose of such shares of
STAR Common Stock, other than with respect to various margin positions taken by
Stockholder with respect to a portion of such shares that have been pledged
pursuant to the margin loan agreements set forth on Schedule 1 hereto (the
"Margin Requirements"). Other than such 13,166,256 shares of STAR Common Stock,
Stockholder does not beneficially or of record own any shares of STAR capital
stock or securities convertible or exchangeable for shares of STAR capital
stock. Stockholder has the sole right and power to vote and, subject to the
Margin Requirements, dispose of such STAR Subject Shares. None of such STAR
Subject Shares are subject to any voting trust or other agreement, arrangement
or restriction with respect to the voting or transfer thereof, except as
contemplated by this Agreement and except with respect to the Margin
Requirements.
(c) STAR Stock Options. Stockholder does not own, as of the date
hereof, and will not acquire prior to the Effective Time, any STAR Stock
Options.
2. Covenants of Stockholder. Until the termination of this Agreement in
accordance with Section 7 hereof, Stockholder agrees as follows:
(a) Voting of STAR Subject Shares. At any meeting of stockholders
of STAR or at any adjournment thereof or in any other circumstances upon which
Stockholder's vote, consent or other approval (including by written consent) is
sought, Stockholder shall vote all of the STAR Subject Shares then beneficially
owned by Stockholder (i) in favor of the Transaction and the adoption and the
approval of the Merger Agreement and each of the other transactions contemplated
by the Merger Agreement, (ii) against any action or agreement that would result
in a breach of any covenant, representation or warranty or any other obligation
or agreement of STAR under the Merger Agreement and (iii) against any action or
agreement that would impede, interfere with, delay or postpone or that would
reasonably be expected to discourage the Transaction, including, but not limited
to: (A) any
2
<PAGE> 3
extraordinary corporate transactions (other than the Transaction), such as a
merger, consolidation or other business combination involving STAR or its
Subsidiaries, a sale or transfer of a material amount of assets of STAR or its
Subsidiaries or a reorganization, recapitalization or liquidation of STAR or its
Subsidiaries; (B) any amendment of STAR's certificate of incorporation or bylaws
or other proposal or transaction involving STAR or any of its Subsidiaries,
which amendment or other proposal or transaction would in any manner impede,
prevent or nullify the Transaction, the Merger Agreement or any of the other
transactions contemplated by the Merger Agreement or change in any manner the
voting rights of any class of STAR capital stock; or (C) any change in the
management or board or directors of STAR. Stockholder shall not hereafter,
unless and until this Agreement terminates pursuant to Section 7 hereof, purport
to grant (other than through the irrevocable proxy granted in Section 2(b)) any
proxy or power of attorney with respect to any of the STAR Subject Shares,
deposit any of the STAR Subject Shares into a voting trust or enter into any
agreement (other than this Agreement), arrangement or understanding with any
Person, directly or indirectly, to vote, grant any proxy or give instructions
with respect to the voting of any of the STAR Subject Shares. Stockholder
further agrees not to commit or agree to take any action inconsistent with the
foregoing.
(b) Proxy. Stockholder hereby grants to and appoints WAXS and any
individual designated in writing by WAXS, as Stockholder's proxy and
attorney-in-fact (with full power of substitution), for and in the name, place
and stead of Stockholder, a proxy to vote, or to grant a consent or approval in
respect of and to represent, all of the STAR Subject Shares then beneficially
owned by Stockholder in the manner indicated in Section 2(a) above to the same
extent as Stockholder may have under applicable law, rules and regulations.
Stockholder agrees that this proxy shall be irrevocable and coupled with an
interest and may under no circumstances be revoked, agrees to take such further
action or execute such other instruments as may be necessary to effectuate the
intent of this proxy and hereby revokes any proxy previously granted by
Stockholder with respect to any of the STAR Subject Shares. Such irrevocable
proxy is executed and intended to be irrevocable in accordance with the
provisions of Section 212(e) of the DGCL.
(c) Pre-Closing Transfer Restrictions. Stockholder agrees that,
until the earlier of the Effective Time and the termination of this Agreement,
Stockholder will not (i) sell, hypothecate, transfer, pledge, encumber, assign
or otherwise dispose of (including by gift) (collectively, "Transfer"), or enter
into any contract, option, put, call or other arrangement or understanding
(including any profit sharing arrangement) with respect to the Transfer of, any
of the STAR Subject Shares to any Person, other than with respect to the Margin
Requirements, (ii) trade or take any position, hedge or otherwise, with respect
to the STAR Subject Shares, (iii) enter into any voting arrangement or
understanding, whether by proxy, voting agreement or otherwise, with respect to
any of the STAR Subject Shares or (iv) take any action that would make any of
its representations or warranties contained herein untrue or incorrect or have
the effect of preventing or impeding Stockholder from performing any of his
obligations under this Agreement.
3
<PAGE> 4
(d) Post-Closing Transfer Restrictions. Stockholder agrees not to
(i) Transfer, or enter into any contract, option, put, call or other arrangement
or understanding (including any profit sharing arrangement) with respect to the
Transfer of, any of the shares of WAXS Common Stock issued to Stockholder
pursuant to the Merger Agreement to any Person, or (ii) trade or take any
position, hedge or otherwise, with respect to such shares of WAXS Common Stock,
for the longer of (x) six (6) months following the Effective Time and (y) such
time as Stockholder is a member of the Board of Directors of WAXS. If, at any
time after six (6) months and within eighteen (18) months following the
Effective Time, Stockholder desires to take any action referred to in clauses
(i) or (ii) above (a "Proposed Action"), Stockholder shall give prior written
notice of such Proposed Action to WAXS, specifying the number of shares subject
to the Proposed Action. Stockholder acknowledges and agrees that WAXS shall have
the first right to assist in the private disposition of the shares specified in
such notice of Proposed Action to an "accredited investor" or "qualified
institutional buyer" (as such terms are defined in Exchange Act). If WAXS is
unable to arrange such a private disposition on terms reasonably satisfactory to
Stockholder within thirty (30) days after receipt of notice of the Proposed
Action, Stockholder shall be free to consummate the Proposed Action.
3. Registration Rights.
(a) Definitions. For purposes of this Section 3, the terms
"register", "registered" and "registration" refer to a registration effected by
preparing and filing with the Securities and Exchange Commission (the
"Commission") a registration statement or similar document in compliance with
the Securities Act of 1933, as amended (the "Securities Act"), and using
commercially reasonable efforts to obtain from the Commission the declaration or
ordering of effectiveness of such registration statement or document.
(b) Piggyback Registration. If at any time WAXS shall propose to
register any of its capital stock for sale or disposition (i) for its own
account for cash under the Securities Act in a public offering, other than a
registration relating to acquisitions or employee benefit plans, or (ii) for the
account of any selling stockholder, WAXS shall, to the extent permitted under
any agreements existing on the date hereof:
(i) Promptly give Stockholder at least ten (10) days'
written notice prior to the filing thereof, which notice shall include the
proposed date on which the registration statement is to be filed, the proposed
price per share and a list of the jurisdictions in which WAXS intends to attempt
to qualify such securities under the applicable blue sky or other state
securities laws ("Blue Sky Laws"); and
(ii) Include in such registration (and any related
qualification under Blue Sky Laws), and in any underwriting involved therein,
all of the shares of WAXS Common Stock then held by Stockholder which were
acquired pursuant to the Merger Agreement and
4
<PAGE> 5
which are not publicly saleable under the Commission's Rule 144 (the "Remaining
Shares") and which are specified in a written request or requests made by
Stockholder within ten (10) days after receipt of such written notice from WAXS;
provided, however, that in no event shall Stockholder request that WAXS include
either less than twenty-five percent (25%) of such Remaining Shares or Remaining
Shares then held by Stockholder having a value of less than $2,000,000 in such
registration.
(c) Underwriting Agreement. The right of Stockholder to
registration pursuant to this Section 3 shall be conditioned upon Stockholder's
participation in any underwriting relating to WAXS's registered public offering.
Stockholder shall (together with WAXS) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected by WAXS.
Notwithstanding any provision of this Section 3, if the managing underwriter in
its reasonable judgment determines that marketing factors require a limitation
of the number of securities to be underwritten, the underwriter may exclude some
or all of the Remaining Shares for which Stockholder seeks registration from
inclusion in the registration and underwriting; provided, however, that if WAXS
proposes to include in such registration shares of capital stock held by
shareholders of WAXS other than Stockholder ("Other Holders"), then the number
of shares to be so excluded shall be allocated among Stockholder and the Other
Holders pro rata based upon the number of shares of capital stock proposed to be
included in the registration by each of them, so long as such allocation is
consistent with any existing agreements between WAXS and a third party.
(d) Expenses of Registration. WAXS shall bear all registration
costs and expenses related to any registration and underwriting contemplated by
this Section 3, except that Stockholder shall bear (i) all underwriting
commissions (and transfer taxes, if any) relating to the Remaining Shares
registered and (ii) the fees and expenses of legal counsel and accountants to
Stockholder.
(e) Indemnification. In the event any Remaining Shares are
included in a registration statement under this Section 3:
(i) To the extent permitted by law, WAXS will indemnify
and hold harmless Stockholder against any losses, claims, damages or liabilities
to which he may become subject under the Securities Act, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), any Blue Sky Laws, or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
action in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively, a "Violation"): (x) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (y) the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading, or
(z) any violation or alleged violation by WAXS of the Securities Act, the
Exchange Act, any Blue Sky Laws or any rule or regulation promulgated under the
5
<PAGE> 6
Securities Act, the Exchange Act or any Blue Sky Law. Notwithstanding the
preceding, WAXS shall not be liable in any such case to Stockholder for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon written information
furnished by Stockholder expressly for use in connection with such registration.
(ii) To the extent permitted by law, Stockholder will indemnify and
hold harmless WAXS, each of its directors, officers, agents and affiliates and
each person, if any, who controls any of the foregoing within the meaning of the
Securities Act, and any underwriter, against any losses, claims, damages or
liabilities to which WAXS or any such director, officer, controlling person, or
underwriter may become subject, under the Securities Act, the Exchange Act, any
Blue Sky Laws or other federal or state law, but only insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs solely in reliance upon and in conformity
with written information relating to the Remaining Shares furnished by
Stockholder expressly for use in connection with such registration.
(iii) Notwithstanding the preceding, the indemnity agreements
contained in this Section 3 shall not apply to amounts paid in settlement of any
loss, claim, damage, liability or action if such settlement is effected without
the consent of the indemnifying party, which consent shall not be unreasonably
withheld.
(iv) Promptly after receipt by an indemnified party under this
Section 3 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 3, deliver to
the indemnifying party a written notice of the commencement thereof. Following
receipt of such notice, the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve such indemnifying party of any liability to the indemnified party under
this Section 3 unless, and to the extent, that the indemnifying party can
demonstrate that such failure was materially prejudicial to its ability to
defend such action.
6
<PAGE> 7
(v) The obligations of WAXS and Stockholder
under this Section 3 shall survive the completion of any offering of
Remaining Shares in a registration statement under this Section 3.
(f) Stockholder's Obligations. Whenever registration of
any of Stockholder's Remaining Shares is being effected, WAXS may
require Stockholder to furnish WAXS with the information required by
Item 507 of Regulation S-K promulgated by the Commission (or any
equivalent provision subsequently promulgated by the Commission),
together with such other information as WAXS may reasonably request
in writing.
4. Rule 16b-3 Approval. WAXS will cause its Board of Directors to
take any and all necessary and appropriate action under Rule 16b-3 promulgated
by the Commission in order to make the acquisition of WAXS Common Stock by
Stockholder pursuant to the Merger Agreement exempt under Section 16 of the
Exchange Act.
5. STAR Employees.
(a) Non-Solicitation. Stockholder shall not, for one (1)
year following the Effective Time, solicit for employment, directly or
on behalf of any other party, any persons who (i) are employed by STAR
(or any of its affiliates) on the date hereof or (ii) were employed by
STAR (or any of its affiliates) during the three (3) months prior to
the date hereof, through and including the Effective Time (such persons
collectively being referred to as "STAR Employees"), or induce or
attempt to induce the termination of any such person's employment with
WAXS (or any of its affiliates).
(b) Employment. For one (1) year following the Effective
Time, without the prior written consent of WAXS (i) neither Stockholder
nor any entity controlled by Stockholder shall hire or employ any STAR
Employee and (ii) Stockholder shall use reasonable best efforts to
cause any entity with which Stockholder is then affiliated not to hire
or employ any STAR Employee.
(c) Exception. Paragraphs (a) and (b) above notwithstanding,
Stockholder may solicit and employ Susan Mire at any time.
6. Assignment. Neither this Agreement nor any of the right,
interests or obligations hereunder may be assigned by any party hereto without
the prior written consent of the other party hereto. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties hereto and their respective successors and permitted
assigns.
7. Termination. This Agreement shall terminate, and no party
hereto shall have any rights or obligations hereunder, upon the termination of
the Merger Agreement in accordance with its terms.
7
<PAGE> 8
8. General Provisions.
(a) Amendments. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy or by registered or certified mail (postage
prepared, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to Stockholder, to:
Christopher E. Edgecomb
PMB 12
133 East De La Guerra Street
Santa Barbara, CA 93101-2247
Facsimile: (805) 682-2150
with a copy to:
Seed, Mackall & Cole LLP
1332 Anacapa Street, Suite 200
Santa Barbara, CA 93101
Attention: John R. Mackall
Facsimile: (805) 962-1404
if to WAXS, to:
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
8
<PAGE> 9
(c) Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) 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 of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Governing Law; Jurisdiction; Waiver. This Agreement
shall be governed by, and construed in accordance with, the laws of the
State of Delaware regardless of the laws that might otherwise govern
under applicable principles of conflicts or law. Each of WAXS and
Stockholder 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 Stockholder
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 Stockholder 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, (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.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon any 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
9
<PAGE> 10
the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the extent
possible.
(g) Action as Stockholder; No Limitation. Stockholder
has agreed to the terms and conditions of this Agreement solely in his
capacity as a holder of shares of STAR Common Stock. WAXS acknowledges
and agrees that none of the provisions of this Agreement shall be
deemed to limit, restrict or otherwise hinder the ability of
Stockholder, in his capacity as a member of the Board of Directors of
STAR, to exercise his fiduciary duties under applicable law.
(h) Attorneys' Fees. Should any action or proceeding be
brought to construe or enforce the terms and conditions of this
Agreement or the rights of the parties hereunder, the losing party
shall pay to the prevailing party all court costs and reasonable
attorneys' fees and costs incurred in such action or proceeding.
Attorneys' fees incurred in enforcing any judgment in respect of this
Agreement are recoverable as a separate item. The preceding sentence is
intended to be severable from the other provisions of this Agreement
and to survive any judgment and, to the maximum extent permitted by
law, shall not be deemed merged into any such judgment.
(i) 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 or
were otherwise breached. It is accordingly agreed that, in addition to
any other remedy to which it may be entitled, at law or in equity, the
parties shall be entitled to the remedy of specific performance of the
covenants and agreements contained herein and injunctive and other
equitable relief.
(j) Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto. Except as
provided in the preceding sentence, nothing in this Agreement, express
or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies or any nature whatsoever under or by
reason of this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
10
<PAGE> 11
IN WITNESS WHEREOF, Stockholder and WAXS have caused this Agreement to
be signed by its signatory thereunto duly authorized, as of the date first
written above.
STOCKHOLDER
/s/ Christopher E. Edgecomb
-------------------------------------------------
Christopher E. Edgecomb
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
----------------------------------------------
Name: W. Tod Chmar
11
<PAGE> 12
Schedule 1
Margin Loan Agreements
1. Command Account Margin Agreement between Prudential Securities
Incorporated and Christopher Edgecomb, Trustee of Christopher E.
Edgecomb Living Trust (not dated).
2. Cash Management Account Agreement between Merrill Lynch and Christopher
Edgecomb, Trustee of Christopher E. Edgecomb Living Trust (not dated).
12
<PAGE> 1
EXHIBIT 4.6
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT (this "Agreement),
dated as of February 11, 2000 (this "Agreement"), is made and entered into among
World Access, Inc., a Delaware corporation ("WAXS"), and Roger B. Abbott and
Rosalind Abbott (Roger B. Abbott and Rosalind Abbott are sometimes referred to
collectively herein as "Stockholder").
WHEREAS, WAXS and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications ("CTI") propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement), providing for
a business combination between WAXS and CTI (the "Transaction"), upon the terms
and subject to the conditions set forth in the Merger Agreement;
WHEREAS, Roger B. Abbott and Rosalind Abbott jointly own 14,214,857
shares of CTI Common Stock (such shares of CTI Common Stock, together with any
other shares of CTI capital stock of which Stockholder acquires beneficial
ownership after the date hereof and during the term of this Agreement whether
upon the exercise of options, warrants or rights, the conversion or exchange of
convertible or exchangeable securities, or by means of purchase, dividend,
distribution or otherwise, being collectively referred to herein as the "CTI
Subject Shares"); and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, WAXS has requested that Stockholder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of Stockholder. Except as set
forth on Schedule 1 attached hereto, Stockholder hereby represents and warrants
to WAXS as follows:
(a) Authority; No Conflicts. Stockholder has the legal
capacity and all requisite power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder enforceable in accordance
with its terms. No filing with, and no permit, authorization, consent
or approval of, any governmental authority or any other person is
necessary for the execution of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby and
none of the execution and delivery of this Agreement by Stockholder,
the consummation of the transactions contemplated hereby or compliance
with the terms hereof by Stockholder will conflict with, or result in
any violation of, or default (with or without notice or lapse of time
or both) under any provision of any agreement to which Stockholder is a
party, including any voting agreement, stockholders agreement, voting
trust, trust agreement,
<PAGE> 2
pledge agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license or violate any judgment, order, notice, decree,
statute, law, ordinance, rule or regulation applicable to Stockholder
or to its property or assets except (i) where the failure to make such
filings or obtain such permits, authorizations, consents or approvals
would not prevent or delay the performance by Stockholder of its
obligations under this Agreement or (ii) for any such conflicts,
violations, defaults or other occurrences that would not prevent or
delay the performance by Stockholder of its obligations under this
Agreement.
(b) CTI Subject Shares. Stockholder is the record and
beneficial owner of, and has good and marketable title to, 14,214,857
shares of CTI Common Stock, free and clear of any encumbrances,
agreements, adverse claims, liens or other arrangements with respect to
the ownership of or the right to vote or dispose of such shares of CTI
Common Stock. Other than such shares of CTI Common Stock, Stockholder
does not beneficially or of record own any shares of CTI capital stock
or securities convertible or exchangeable for shares of CTI capital
stock. Stockholder has the sole right and power to vote and dispose of
such shares of CTI Common Stock. None of such shares of CTI Common
Stock are subject to any voting trust or other agreement, arrangement
or restriction with respect to the voting or transfer of any of the
shares of CTI Common Stock, except as contemplated by this Agreement.
(c) CTI Stock Options. Neither Roger B. Abbott nor
Rosalind Abbott own any CTI Stock Options.
2. Covenants of Stockholder. Until the termination of this
Agreement in accordance with Section 4 hereof, Stockholder agrees as follows:
(a) Voting of CTI Subject Shares. At any meeting of
stockholders of CTI or at any adjournment thereof or in any other
circumstances upon which Stockholder's vote, consent or other approval
(including by written consent) is sought, Stockholder shall vote all of
the CTI Subject Shares then beneficially owned by Stockholder (i) in
favor of the Transaction and the adoption and approval of the Merger
Agreement and each of the other transactions contemplated by the Merger
Agreement and (ii) against any action or agreement that would result in
a material breach of any covenant, representation or warranty or any
other obligation or agreement of CTI under the Merger Agreement.
Stockholder shall not hereafter, unless and until this Agreement
terminates pursuant to Section 4 hereof, purport to grant any proxy or
power of attorney with respect to any of the CTI Subject Shares,
deposit any of the CTI Subject Shares into a voting trust or enter into
any agreement (other than this Agreement), arrangement or understanding
with any person, directly or indirectly, to vote, grant any proxy or
give instructions with respect to the voting of any of the CTI Subject
Shares. Stockholder further agrees not to commit or agree to take any
action inconsistent with the foregoing.
(b) Pre-Closing Transfer Restrictions. Except as
contemplated by this Agreement or the Merger Agreement, Stockholder
agrees not to (i) sell, hypothecate, transfer, pledge, encumber, assign
or otherwise dispose of (including by gift)
2
<PAGE> 3
(collectively, "Transfer"), or enter into any contract, option, put,
call or other arrangement or understanding (including any profit
sharing arrangement) with respect to the Transfer of, any of the CTI
Subject Shares to any person, (ii) trade or take any position, hedge or
otherwise, with respect to the CTI Subject Shares, (iii) enter into any
voting arrangement or understanding, whether by proxy, voting agreement
or otherwise, with respect to any of the CTI Subject Shares or (iv)
take any action that would make any of its representations or
warranties contained herein untrue or incorrect to a material extent or
have the effect of preventing or materially impeding Stockholder from
performing any of its obligations under this Agreement. Notwithstanding
the foregoing, Stockholder may Transfer any of the CTI Subject Shares
to any person who (x) is, at the time of such Transfer, already subject
to an agreement with WAXS substantially identical in form and substance
hereto (in which case, the CTI Subject Shares subject to the Transfer
shall be governed by such substantially identical agreement) or (y)
delivers to WAXS a counterpart of this Agreement duly executed by such
person and otherwise agrees to be bound by all the terms and conditions
hereof, and WAXS is otherwise reasonably satisfied that this Agreement
is fully enforceable against such person; provided, however, that
Stockholder shall not be entitled to Transfer any of the CTI Subject
Shares unless immediately following such Transfer, the aggregate number
of CTI Subject Shares subject to the terms and conditions hereof and/or
to the terms and conditions of a substantially identical agreement or
agreements with WAXS shall be at least equal to the aggregate number of
CTI Subject Shares which are subject to the terms and conditions of
this Agreement as of the date of the Merger Agreement.
(c) Post-Closing Transfer Restrictions. Until six (6)
months following the Effective Time, Stockholder agrees not to (i)
Transfer or enter into any contract, option, put, call or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of any of the shares of WAXS Common Stock
issued to Stockholder pursuant to the Merger Agreement to any person,
or (ii) trade or take any position, hedge or otherwise, with respect to
the shares of WAXS Common Stock issued to Stockholder pursuant to the
Merger Agreement. Notwithstanding the foregoing, Stockholder shall be
entitled to enter into one or more Qualifying Transactions (as defined
below). If, on or prior to fifteen (15) days following the Effective
Time (the "Sale Deadline"), (i) Stockholder shall have complied with
its covenants set forth below in this Section 2(c), and (ii)
Stockholder shall not have sold shares of WAXS Common Stock acquired by
Stockholder pursuant to the Merger Agreement to a third party or third
parties unrelated to WAXS (within the meaning of Treas. Reg. Sec. 1.368
3(e)(3)) for a per share price equal to at least the Resale Price (as
defined below), in one or more transactions (each, a "Qualifying
Transaction"), and (iii) the aggregate Gross Cash Proceeds (as defined
below) to Stockholder of all such Qualifying Transactions are less than
$30,000,000, then Stockholder shall have the right to sell, subject to
compliance with the provisions below in this Section 2(c), WAXS Common
Stock which yields Gross Cash Proceeds equal to not more than the
Unsold Amount (as defined below). Stockholder shall give WAXS written
notice promptly after the consummation of any Qualifying Transaction.
Stockholder shall be obligated to accept any bona fide offer for, and
use commercially reasonable efforts to consummate on or prior to the
Sale Deadline, one or more Qualifying Transactions which provide for a
per share price at least equal to
3
<PAGE> 4
the Resale Price resulting in aggregate Gross Cash Proceeds to
Stockholder of up to $30,000,000. If Stockholder shall be entitled to
sell shares of WAXS Common Stock in respect of any Unsold Amount
pursuant to this Section 2(c), Stockholder shall give written notice to
WAXS so stating (and stating the number of shares of WAXS Common Stock
that Stockholder is so entitled to sell) not less than five days prior
to any such permitted sale of shares of WAXS Common Stock. As used
herein, (i) the "Resale Price" equals (x) the market price of WAXS
Common Stock as of the time a written commitment to purchase shares of
WAXS Common Stock has been received by Stockholder (the "Commitment
Price") or (y) a variable price equal to the market price of WAXS
Common Stock at the time of the closing of the applicable Qualifying
Transaction, provided that such price is between fifteen percent (15%)
below or fifteen percent (15%) above the Commitment Price; (ii) the
"Unsold Amount" means the difference between $30,000,000 and the Gross
Cash Proceeds to Stockholder of all Qualifying Transactions competed
prior to the Sale Deadline; and (iii) "Gross Cash Proceeds" means the
gross cash proceeds to Stockholder from the consummation of any
Qualifying Transaction hereunder, net of reasonable and customary
expenses incurred by Stockholder in connection with such transaction
(but not net of any taxes incurred by Stockholder in connection with
any such Qualifying Transaction).
3. No Ownership Interest. Except as set forth in Section 2,
nothing contained in this Agreement shall be deemed to vest in anyone other than
Stockholder any direct or indirect ownership or incidents of ownership of or
with respect to any of the CTI Subject Shares. All rights, ownership and
economic benefits of and relating to the CTI Subject Shares shall remain and
belong to Stockholder, and no one shall have any authority to manage, direct,
restrict, regulate, govern, or administer any of the policies or operations of
CTI or exercise any power or authority to direct the voting of any of the CTI
Subject Shares as a result of this Agreement, except to the extent set forth in
Section 2(a).
4. Assignment. Except as otherwise specifically provided herein,
neither this Agreement nor any of the right, interests or obligations hereunder
may be assigned by any of the parties hereto without the prior written consent
of the other parties hereto.
5. Termination. This Agreement shall terminate, and no party
hereto shall have any rights or obligations hereunder, upon the earlier to occur
of (i) the termination of the Merger Agreement pursuant to Article IX thereof or
(ii) the lapse of the restrictions set forth in Section 2(c) hereof.
6. General Provisions.
(a) Amendments. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy or by registered or certified mail
4
<PAGE> 5
(postage prepared, return receipt requested) to the respective parties
at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Stockholder, to:
9999 Willow Creek Road
San Diego, California 92131
Facsimile: (858) 452-3780
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile: (949) 823-6994
if to WAXS, to:
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
(c) Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the
5
<PAGE> 6
parties and delivered to the other party, it being understood that each
party need not sign the same counterpart.
(e) Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts or law.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon any 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 to the end that the transactions contemplated hereby
are fulfilled to the extent possible.
7. 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 or were otherwise breached. It
is accordingly agreed that, in addition to any other remedy to which it may be
entitled, at law or in equity, the parties shall be entitled to the remedy of
specific performance of the covenants and agreements contained herein and
injunctive and other equitable relief.
8. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto. Except as provided in the
preceding sentence, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies or any
nature whatsoever under or by reason of this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
6
<PAGE> 7
IN WITNESS WHEREOF, Stockholder and WAXS have caused this Agreement to
be duly and validly executed as of the date first written above.
"STOCKHOLDER":
/s/ Roger Abbott
-------------------------------------
Roger Abbott
/s/ Rosalind Abbott
-------------------------------------
Rosalind Abbott
"WAXS":
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
------------------------------------------
Name: W. Tod Chmar
------------------------------------
Title: Executive Vice President
------------------------------------
<PAGE> 8
SCHEDULE I
1. In connection with the Security Agreement by and between CTI and Gerard
Klauer Mattison & Co., ("GKM") dated as of August 24, 1998, which was
assigned to Tel-Save Holdings, Inc. ("Tel-Save") pursuant to the Assignment
Agreement by and between GKM and Tel-Save dated as of August 25, 1999 and
which was subsequently assigned to Mark Pavol, as Trustee of that certain
D&K Grantor Retained Annuity Trust dated June 15, 1998, Mr. Abbott pledged
3,022,368 shares as security for that loan.
2. Mr. Abbott has entered into a Voting Trust Agreement with Edward Soren in
favor of Mr. Abbott for one million shares of Mr. Soren's stock of CTI
dated as of March 1, 1998.
3. Mr. Abbott has granted certain co-sale rights to Gold & Appel pursuant to
the Stock Purchase Agreement, dated September 29, 1998, by and between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications,
Roger B. Abbott, Rosalind Abbott, Edward S. Soren and Gold and Appel
Transfer S.A.
4. Mr. Abbott has granted certain co-sale rights to Atocha pursuant to the
Stock Purchase Agreement, dated September 29, 1998, by and between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications,
Roger B. Abbott, Rosalind Abbott, Edward S. Soren and Atocha, L.P.
5. Mr. Abbott has granted certain co-sale rights to the TVG Asian
Communications Fund pursuant to the Stock Purchase Agreement, dated August
24, 1998, by and between Communication TeleSystems International d/b/a
WORLDxCHANGE Communications, WorldxChange B.V.B.A., WXL
International-Australia, Inc., The TVG Asian Communications Fund, Warna
Gerakan Sdn Bhd, WorldxChange Pty., Ltd, and certain individuals named
therein.
<PAGE> 1
EXHIBIT 4.7
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT (this "Agreement),
dated as of February 11, 2000 (this "Agreement"), is made and entered into among
World Access, Inc., a Delaware corporation ("WAXS"), and Atocha, L.P., a Texas
limited partnership ("Stockholder").
WHEREAS, WAXS and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications ("CTI") propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement), providing for
a business combination between WAXS and CTI (the "Transaction"), upon the terms
and subject to the conditions set forth in the Merger Agreement;
WHEREAS, Stockholder owns 3,833,672 shares of CTI Common Stock, [___]
shares of CTI Series A Preferred Stock and 12,500 shares of CTI Series B
Preferred Stock (such shares of CTI Common Stock and CTI Preferred Stock,
together with any other shares of CTI capital stock of which Stockholder
acquires beneficial ownership after the date hereof and during the term of this
Agreement whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution or otherwise, being collectively referred to
herein as the "CTI Subject Shares") and CTI Stock Options to acquire 0 shares of
CTI Common Stock; and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, WAXS has requested that Stockholder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of Stockholder. Except as set
forth on Schedule 1 attached hereto, Stockholder hereby represents and warrants
to WAXS as follows:
(a) Authority; No Conflicts. Stockholder has the legal
capacity and all requisite power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder enforceable in accordance
with its terms. No filing with, and no permit, authorization, consent
or approval of, any governmental authority or any other person is
necessary for the execution of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby and
none of the execution and delivery of this Agreement by Stockholder,
the consummation of the transactions contemplated hereby or compliance
with the terms hereof by Stockholder will conflict with, or result in
any violation of, or default (with or without notice or lapse of time
or both) under any provision of any agreement to which Stockholder is a
party, including any voting agreement, stockholders agreement, voting
trust, trust agreement, pledge agreement, loan or credit agreement,
note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license or violate any
<PAGE> 2
judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to Stockholder or to its property or assets.
(b) CTI Subject Shares. Stockholder is the record and
beneficial owner of, and has good and marketable title to, 3,833,672
shares of CTI Common Stock, 0 shares of CTI Series A Preferred Stock
and 12,500 shares of CTI Series B Preferred Stock, free and clear of
any encumbrances, agreements, adverse claims, liens or other
arrangements with respect to the ownership of or the right to vote or
dispose of such shares of CTI Capital Stock. Other than such shares of
CTI Capital Stock, Stockholder does not beneficially or of record own
any shares of CTI capital stock or securities convertible or
exchangeable for shares of CTI capital stock. Stockholder has the sole
right and power to vote and dispose of such shares of CTI Capital
Stock. None of such shares of CTI Capital Stock are subject to any
voting trust or other agreement, arrangement or restriction with
respect to the voting or transfer of any of the shares of CTI Capital
Stock, except as contemplated by this Agreement.
(c) CTI Stock Options. Stockholder owns CTI Stock Options
to acquire 0 shares of CTI Common Stock. Other than such CTI Stock
Options, Stockholder has no options, warrants or other rights to
acquire shares of CTI capital stock or securities convertible into
shares of CTI capital stock.
2. Covenants of Stockholder. Until the termination of this
Agreement in accordance with Section 4 hereof, Stockholder agrees as follows:
(a) Voting of CTI Subject Shares. At any meeting
of stockholders of CTI or at any adjournment thereof or in any other
circumstances upon which Stockholder's vote, consent or other approval
(including by written consent) is sought, Stockholder shall vote all of
the CTI Subject Shares then beneficially owned by Stockholder (i) in
favor of the Transaction and the adoption and approval of the Merger
Agreement and each of the other transactions contemplated by the Merger
Agreement and (ii) against any action or agreement that would result in
a material breach of any covenant, representation or warranty or any
other obligation or agreement of CTI under the Merger Agreement.
Stockholder shall not hereafter, unless and until this Agreement
terminates pursuant to Section 5 hereof, purport to grant any proxy or
power of attorney with respect to any of the CTI Subject Shares,
deposit any of the CTI Subject Shares into a voting trust or enter into
any agreement (other than this Agreement), arrangement or understanding
with any person, directly or indirectly, to vote, grant any proxy or
give instructions with respect to the voting of any of the CTI Subject
Shares. Stockholder further agrees not to commit or agree to take any
action inconsistent with the foregoing.
(b) Pre-Closing Transfer Restrictions. Except as
contemplated by this Agreement or the Merger Agreement, Stockholder
agrees not to (i) sell, hypothecate, transfer, pledge, encumber, assign
or otherwise dispose of (including by gift) (collectively, "Transfer"),
or enter into any contract, option, put, call or other arrangement or
understanding (including any profit sharing arrangement) with respect
to the Transfer of, any of the CTI Subject Shares or CTI Stock Options
to any person, (ii) trade or take any position, hedge or otherwise,
with respect to the CTI Subject Shares, (iii) enter into
2
<PAGE> 3
any voting arrangement or understanding, whether by proxy, voting
agreement or otherwise, with respect to any of the CTI Subject Shares
or (iv) take any action that would make any of its representations or
warranties contained herein untrue or incorrect to a material extent or
have the effect of preventing or materially impeding Stockholder from
performing any of its obligations under this Agreement. Notwithstanding
the foregoing, Stockholder may Transfer any of the CTI Subject Shares
or CTI Stock Options to any person who (x) is, at the time of such
Transfer, already subject to an agreement with WAXS substantially
identical in form and substance hereto (in which case, the CTI Subject
Shares or CTI Stock Options subject to the Transfer shall be governed
by such substantially identical agreement) or (y) delivers to WAXS a
counterpart of this Agreement duly executed by such person and
otherwise agrees to be bound by all the terms and conditions hereof,
and WAXS is otherwise reasonably satisfied that this Agreement is fully
enforceable against such person; provided, however, that Stockholder
shall not be entitled to Transfer any of the CTI Subject Shares or CTI
Stock Options unless immediately following such Transfer, the aggregate
number of CTI Subject Shares and CTI Stock Options subject to the terms
and conditions hereof and to the terms and conditions of other
agreements with WAXS substantially similar in form and substance hereto
shall be at least equal to the aggregate number of CTI Subject Shares
and CTI Stock Options which are subject to the terms and conditions of
such agreements as of the date of the Merger Agreement.
(c) Post-Closing Transfer Restrictions. Until
six (6) months after the Effective Time, Stockholder agrees not to (i)
Transfer or enter into any contract, option, put, call or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of any of the shares of WAXS Common Stock
issued to Stockholder pursuant to the Merger Agreement to any person,
or (ii) trade or take any position, hedge or otherwise, with respect to
the shares of WAXS Common Stock issued to Stockholder pursuant to the
Merger Agreement.
3. No Ownership Interest. Except as set forth in Section 2,
nothing contained in this Agreement shall be deemed to vest in anyone other than
Stockholder any direct or indirect ownership or incidents of ownership of or
with respect to any of the CTI Subject Shares or the CTI Stock Options. All
rights, ownership and economic benefits of and relating to the CTI Subject
Shares and the CTI Stock Options shall remain and belong to Stockholder, and no
one shall have any authority to manage, direct, restrict, regulate, govern, or
administer any of the policies or operations of CTI or exercise any power or
authority to direct the voting of any of the CTI Subject Shares as a result of
this Agreement, except to the extent otherwise expressly provided herein.
4. Assignment. Except as otherwise specifically provided herein,
neither this Agreement nor any of the right, interests or obligations hereunder
may be assigned by any of the parties hereto without the prior written consent
of the other parties hereto.
5. Termination. This Agreement shall terminate, and no party
hereto shall have any rights or obligations hereunder, upon the earlier to occur
of (i) the termination of the Merger Agreement pursuant to Article IX thereof or
(ii) the lapse of the restrictions set forth in Section 2(c) hereof.
3
<PAGE> 4
6. Conversion of Preferred Stock. Stockholder acknowledges and
agrees that any accrued and unpaid dividends owed to Stockholder in respect of
its shares CTI Preferred Stock in connection with the automatic conversion of
such CTI Preferred Stock under the articles of incorporation of CTI upon
consummation of the Merger shall be paid solely in shares of WAXS Common Stock
(valued at $20.38 per share).
7. General Provisions.
(a) Amendments. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy or by registered or certified mail (postage
prepared, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to Stockholder, to:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
with a copy to:
--------------------------------
--------------------------------
--------------------------------
--------------------------------
if to WAXS, to:
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
4
<PAGE> 5
(c) Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) 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 of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts or law.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse to
any party. Upon any 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 to the end that the transactions contemplated hereby
are fulfilled to the extent possible.
8. 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 or were otherwise breached. It
is accordingly agreed that, in addition to any other remedy to which it may be
entitled, at law or in equity, the parties shall be entitled to the remedy of
specific performance of the covenants and agreements contained herein and
injunctive and other equitable relief.
9. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto. Except as provided in the
preceding sentence, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies or any
nature whatsoever under or by reason of this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
5
<PAGE> 6
IN WITNESS WHEREOF, Stockholder and WAXS have caused this Agreement to
be duly and validly executed as of the date first written above.
ATOCHA, L.P.
By: /s/ Thomas J. Cirrito
------------------------------------------
Name: Thomas J. Cirrito
------------------------------------
Title: General Partner
------------------------------------
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
------------------------------------------
Name: W. Tod Chmar
------------------------------------
Title: Executive Vice President
------------------------------------
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<PAGE> 7
SCHEDULE I
1. In order to convert preferred stock owned by stockholder, clearance under
Hart Scott Rodino Antitrust Act of 1976, as amended, may be required.
2. Atocha has the right to subscribe to certain additional issuances of shares
of capital stock, convertible securities or option grants of the Company
pursuant to (i) the Stock Purchase Agreement, dated September 29, 1998, by
and between Communication TeleSystems International d/b/a WORLDxCHANGE
Communications, Roger B. Abbott, Rosalind Abbott, Edward S. Soren and
Atocha, L.P. ("Atocha"), (ii) the Stock Purchase Agreement, dated February
3, 1999, Atocha and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications and (iii) the Stock Purchase Agreement, dated
November 1, 1999, Atocha and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications.
3. Atocha has certain co-sale rights pursuant to the Stock Purchase Agreement,
dated September 29, 1998, among Communication TeleSystems International
d/b/a WORLDxCHANGE Communications, Atocha, L.P., Roger B. Abbott, Rosalind
Abbott and Edward S. Soren.
<PAGE> 1
EXHIBIT 4.8
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT (this "Agreement),
dated as of February 11, 2000 (this "Agreement"), is made and entered into among
World Access, Inc., a Delaware corporation ("WAXS"), and Gold & Appel Transfer
S.A., an entity organized under the laws of the British Virgin Islands
("Stockholder").
WHEREAS, WAXS and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications ("CTI") propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement), providing for
a business combination between WAXS and CTI (the "Transaction"), upon the terms
and subject to the conditions set forth in the Merger Agreement;
WHEREAS, Stockholder owns 4,505,043 shares of CTI Common Stock, 30,000
shares of CTI Series A Preferred Stock and 37,500 shares of CTI Series B
Preferred Stock (such shares of CTI Common Stock and CTI Preferred Stock,
together with any other shares of CTI capital stock of which Stockholder
acquires beneficial ownership after the date hereof and during the term of this
Agreement whether upon the exercise of options, warrants or rights, the
conversion or exchange of convertible or exchangeable securities, or by means of
purchase, dividend, distribution or otherwise, being collectively referred to
herein as the "CTI Subject Shares") and CTI Stock Options to acquire 170,000
shares of CTI Common Stock; and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, WAXS has requested that Stockholder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of Stockholder. Except as set
forth on Schedule 1 attached hereto, Stockholder hereby represents and warrants
to WAXS as follows:
(a) Authority; No Conflicts. Stockholder has the legal
capacity and all requisite power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder enforceable in accordance
with its terms. No filing with, and no permit, authorization, consent
or approval of, any governmental authority or any other person is
necessary for the execution of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby and
none of the execution and delivery of this Agreement by Stockholder,
the consummation of the transactions contemplated hereby or compliance
with the terms hereof by Stockholder will conflict with, or result in
any violation of, or default (with or without notice or lapse of time
or both) under any provision of the certificate of incorporation,
bylaws or
<PAGE> 2
analogous documents of Stockholder or any agreement to which
Stockholder is a party, including any voting agreement, stockholders
agreement, voting trust, trust agreement, pledge agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license or
violate any judgment, order, notice, decree, statute, law, ordinance,
rule or regulation applicable to Stockholder or to its property or
assets except (i) where the failure to make such filings or obtain such
permits, authorizations, consents or approvals would not prevent or
delay the performance by Stockholder of its obligations under this
Agreement or (ii) for any such conflicts, violations, defaults or other
occurrences that would not prevent or delay the performance by
Stockholder of its obligations under this Agreement.
(b) CTI Subject Shares. Stockholder is the record and
beneficial owner of, and has good and marketable title to, 4,505,043
shares of CTI Common Stock, 30,000 shares of CTI Series A Preferred
Stock and 37,500 shares of CTI Series B Preferred Stock, free and clear
of any encumbrances, agreements, adverse claims, liens or other
arrangements with respect to the ownership of or the right to vote or
dispose of such shares of CTI Capital Stock. Other than such shares of
CTI Capital Stock, Stockholder does not beneficially or of record own
any shares of CTI capital stock or securities convertible or
exchangeable for shares of CTI capital stock. Stockholder has the sole
right and power to vote and dispose of such shares of CTI Capital
Stock. None of such shares of CTI Capital Stock are subject to any
voting trust or other agreement, arrangement or restriction with
respect to the voting or transfer of any of the shares of CTI Capital
Stock, except as contemplated by this Agreement.
(c) CTI Stock Options. Stockholder owns CTI Stock Options
to acquire 170,000 shares of CTI Common Stock. Other than such CTI
Stock Options, Stockholder has no options, warrants or other rights to
acquire shares of CTI capital stock or securities convertible into
shares of CTI capital stock.
2. Covenants of Stockholder. Until the termination of this
Agreement in accordance with Section 4 hereof, Stockholder agrees as follows:
(a) Voting of CTI Subject Shares. At any meeting of
stockholders of CTI or at any adjournment thereof or in any other
circumstances upon which Stockholder's vote, consent or other approval
(including by written consent) is sought, Stockholder shall vote all of
the CTI Subject Shares then beneficially owned by Stockholder (i) in
favor of the Transaction and the adoption and approval of the Merger
Agreement and each of the other transactions contemplated by the Merger
Agreement and (ii) against any action or agreement that would result in
a material breach of any covenant, representation or warranty or any
other obligation or agreement of CTI under the Merger Agreement.
Stockholder shall not hereafter, unless and until this Agreement
terminates pursuant to Section 4 hereof, purport to grant any proxy or
power of attorney with respect to any of the CTI Subject Shares,
deposit any of the CTI Subject Shares into a voting trust or enter into
any agreement (other than this Agreement), arrangement or understanding
with any person, directly or indirectly, to vote, grant any proxy or
give instructions with respect to
2
<PAGE> 3
the voting of any of the CTI Subject Shares. Stockholder further agrees
not to commit or agree to take any action inconsistent with the
foregoing.
(b) Pre-Closing Transfer Restrictions. Except as
contemplated by this Agreement or the Merger Agreement, Stockholder
agrees not to (i) sell, hypothecate, transfer, pledge, encumber, assign
or otherwise dispose of (including by gift) (collectively, "Transfer"),
or enter into any contract, option, put, call or other arrangement or
understanding (including any profit sharing arrangement) with respect
to the Transfer of, any of the CTI Subject Shares or CTI Stock Options
to any person, (ii) trade or take any position, hedge or otherwise,
with respect to the CTI Subject Shares, (iii) enter into any voting
arrangement or understanding, whether by proxy, voting agreement or
otherwise, with respect to any of the CTI Subject Shares or (iv) take
any action that would make any of its representations or warranties
contained herein untrue or incorrect to a material extent or have the
effect of preventing or materially impeding Stockholder from performing
any of its obligations under this Agreement. Notwithstanding the
foregoing, Stockholder may Transfer any of CTI Subject Shares or CTI
Stock Options to any person who (x) is, at the time of such Transfer,
already subject to an agreement with WAXS substantially identical in
form and substance hereto (in which case, the CTI Subject Shares or CTI
Stock Options subject to the Transfer shall be governed by such
substantially identical agreement) or (y) delivers to WAXS a
counterpart of this Agreement duly executed by such person and
otherwise agrees to be bound by all the terms and conditions hereof,
and WAXS is otherwise reasonably satisfied that this Agreement is fully
enforceable against such person; provided, however, that Stockholder
shall not be entitled to Transfer any of the CTI Subject Shares or CTI
Stock Options unless immediately following such Transfer, the aggregate
number of CTI Subject Shares and CTI Stock Options subject to the terms
and conditions hereof and/or to the terms and conditions of a
substantially identical agreement or agreements with WAXS shall be at
least equal to the aggregate number of CTI Subject Shares and CTI Stock
Options which are subject to the terms and conditions of this Agreement
as of the date of the Merger Agreement.
(c) Post-Closing Transfer Restrictions. Until six (6)
months following the Effective Time, Stockholder agrees not to (i)
Transfer or enter into any contract, option, put, call or other
arrangement or understanding (including any profit sharing arrangement)
with respect to the Transfer of any of the shares of WAXS Common Stock
issued to Stockholder pursuant to the Merger Agreement to any person,
or (ii) trade or take any position, hedge or otherwise, with respect to
the shares of WAXS Common Stock issued to Stockholder pursuant to the
Merger Agreement.
3. No Ownership Interest. Except as set forth in Section 2,
nothing contained in this Agreement shall be deemed to vest in anyone other than
Stockholder any direct or indirect ownership or incidents of ownership of or
with respect to any of the CTI Subject Shares or the CTI Stock Options. All
rights, ownership and economic benefits of and relating to the CTI Subject
Shares and the CTI Stock Options shall remain and belong to Stockholder, and no
one shall have any authority to manage, direct, restrict, regulate, govern, or
administer any of the
3
<PAGE> 4
policies or operations of CTI or exercise any power or authority to direct the
voting of any of the CTI Subject Shares as a result of this Agreement, except to
the extent set forth in Section 2(a).
4. Assignment. Except as otherwise specifically provided herein,
neither this Agreement nor any of the right, interests or obligations hereunder
may be assigned by any of the parties hereto without the prior written consent
of the other parties hereto.
5. Termination. This Agreement shall terminate, and no party
hereto shall have any rights or obligations hereunder, upon the earlier to occur
of (i) the termination of the Merger Agreement pursuant to Article IX thereof or
(ii) the lapse of the restrictions set forth in Section 2(c) hereof.
6. Conversion of Preferred Stock. Stockholder acknowledges and
agrees that any accrued and unpaid dividends owed to Stockholder in respect of
its shares of CTI Preferred Stock in connection with the automatic conversion of
such CTI Preferred Stock under the articles of incorporation of CTI upon
consummation of the Merger shall be paid solely in shares of WAXS Common Stock
(valued at $20.38 per share).
7. General Provisions.
(a) Amendments. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy or by registered or certified mail (postage
prepared, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to Stockholder, to:
Gold & Appel Transfer S.A.
Post Office Box 985
Wickhams Cay Road Town
Tortula, British Virgin Islands
Facsimile: (202) 736-5065
with a copy to:
Mr. Walt Anderson
1023 31st Street
Washington, D.C. 20007
Facsimile: (202) 736-5065
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<PAGE> 5
and
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile: (949) 823-6994
if to WAXS, to:
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
(c) Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts or law.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other
5
<PAGE> 6
conditions and provisions of this Agreement shall nevertheless remain
in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon any 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 to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
8. 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 or were otherwise breached. It
is accordingly agreed that, in addition to any other remedy to which it may be
entitled, at law or in equity, the parties shall be entitled to the remedy of
specific performance of the covenants and agreements contained herein and
injunctive and other equitable relief.
9. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto. Except as provided in the
preceding sentence, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies or any
nature whatsoever under or by reason of this Agreement.
[Signatures appear on following page]
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<PAGE> 7
IN WITNESS WHEREOF, Stockholder and WAXS have caused this Agreement to
be duly and validly executed as of the date first written above.
"STOCKHOLDER":
GOLD & APPEL TRANSFER S.A.
By: /s/ Walter Anderson
-----------------------------------------
Name: Walter Anderson
-----------------------------------
Title: Power of Attorney in fact
-----------------------------------
"WAXS":
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
-----------------------------------------
Name: W. Tod Chmar
-----------------------------------
Title: Executive Vice President
-----------------------------------
<PAGE> 8
SCHEDULE I
1. In order to convert preferred stock owned by stockholder, clearance under
Hart Scott Rodino Antitrust Act of 1976, as amended, may be required.
2. Gold & Appel has certain co-sale rights pursuant to the Stock Purchase
Agreement, dated September 29, 1998, among Communication TeleSystems
International d/b/a WORLDxCHANGE Communications, Gold & Appel, L.P., Roger
B. Abbott, Rosalind Abbott and Edward S. Soren.
3. Gold & Appel has the right to subscribe to certain additional issuances of
shares of capital stock, convertible securities or option grants of the
Company pursuant to (i) the Stock Purchase Agreement, dated September 29,
1998, by and between Communication TeleSystems International d/b/a
WORLDxCHANGE Communications, Roger B. Abbott, Rosalind Abbott, Edward S.
Soren and Gold and Appel Transfer S.A., ("Gold & Appel"), (ii) the Stock
Purchase Agreement, dated May 10, 1999, between Gold & Appel and
Communication TeleSystems International d/b/a WORLDxCHANGE Communications,
(iii) the Stock Purchase Agreement, dated August 16, 1999, between Gold &
Appel and Communication TeleSystems International d/b/a WORLDxCHANGE
Communications and (iv) the Stock Purchase Agreement, dated November 1,
1999, between Gold & Appel and Communication TeleSystems International
d/b/a WORLDxCHANGE Communications.
<PAGE> 1
EXHIBIT 4.9
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT (this
"Agreement"), dated as of February 11, 2000 (this "Agreement"), is made and
entered into among World Access, Inc., a Delaware corporation ("WAXS"), and
Edward S. Soren ("Stockholder").
WHEREAS, WAXS and Communication TeleSystems International d/b/a
WORLDxCHANGE Communications ("CTI") propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as the same may be amended or
supplemented, the "Merger Agreement"; capitalized terms used but not defined
herein shall have the meanings set forth in the Merger Agreement), providing
for a business combination between WAXS and CTI (the "Transaction"), upon the
terms and subject to the conditions set forth in the Merger Agreement;
WHEREAS, Stockholder owns 7,331,812 shares of CTI Common Stock, (such
shares of CTI Common Stock, together with any other shares of CTI capital stock
of which Stockholder acquires beneficial ownership after the date hereof and
during the term of this Agreement whether upon the exercise of options,
warrants or rights, the conversion or exchange of convertible or exchangeable
securities, or by means of purchase, dividend, distribution or otherwise, being
collectively referred to herein as the "CTI Subject Shares"); and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, WAXS has requested that Stockholder enter into this Agreement;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of Stockholder. Except as set forth
on Schedule 1 attached hereto, Stockholder hereby represents and warrants to
WAXS as follows:
(a) Authority; No Conflicts. Stockholder has the legal
capacity and all requisite power and authority to enter into this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by Stockholder and constitutes a
valid and binding obligation of Stockholder enforceable in accordance
with its terms. No filing with, and no permit, authorization, consent
or approval of, any governmental authority or any other person is
necessary for the execution of this Agreement by Stockholder and the
consummation by Stockholder of the transactions contemplated hereby
and none of the execution and delivery of this Agreement by
Stockholder, the consummation of the transactions contemplated hereby
or compliance with the terms hereof by Stockholder will conflict with,
or result in any violation of, or default (with or without notice or
lapse of time or both) under any provision of any agreement to which
Stockholder is a party, including any voting agreement, stockholders
agreement, voting trust, trust agreement, pledge agreement, loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license or
violate any
<PAGE> 2
judgment, order, notice, decree, statute, law, ordinance, rule or
regulation applicable to Stockholder or to its property or assets
except (i) where the failure to make such filings or obtain such
permits, authorizations, consents or approvals would not prevent or
delay the performance by Stockholder of its obligations under this
Agreement or (ii) for any such conflicts, violations, defaults or
other occurrences that would not prevent or delay the performance by
Stockholder of its obligations under this Agreement.
(b) CTI Subject Shares. Stockholder is the record and
beneficial owner of, and has good and marketable title to, 7,331,812
shares of CTI Common Stock, free and clear of any encumbrances,
agreements, adverse claims, liens or other arrangements with respect
to the ownership of or the right to vote or dispose of such shares of
CTI Common Stock. Other than such shares of CTI Common Stock,
Stockholder does not beneficially or of record own any shares of CTI
capital stock or securities convertible or exchangeable for shares of
CTI capital stock. Stockholder has the sole right and power to vote
and dispose of such shares of CTI Common Stock. None of such shares of
CTI Common Stock are subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting or transfer of
any of the shares of CTI Common Stock, except as contemplated by this
Agreement.
(c) CTI Stock Options. Stockholder does not own any CTI Stock
Options.
2. Covenants of Stockholder. Until the termination of this Agreement
in accordance with Section 4 hereof, Stockholder agrees as follows:
(a) Voting of CTI Subject Shares. At any meeting of
stockholders of CTI or at any adjournment thereof or in any other
circumstances upon which Stockholder's vote, consent or other approval
(including by written consent) is sought, Stockholder shall vote all
of the CTI Subject Shares then beneficially owned by Stockholder (i)
in favor of the Transaction and the adoption and approval of the
Merger Agreement and each of the other transactions contemplated by
the Merger Agreement and (ii) against any action or agreement that
would result in a material breach of any covenant, representation or
warranty or any other obligation or agreement of CTI under the Merger
Agreement. Stockholder shall not hereafter, unless and until this
Agreement terminates pursuant to Section 4 hereof, purport to grant
any proxy or power of attorney with respect to any of the CTI Subject
Shares, deposit any of the CTI Subject Shares into a voting trust or
enter into any agreement (other than this Agreement), arrangement or
understanding with any person, directly or indirectly, to vote, grant
any proxy or give instructions with respect to the voting of any of
the CTI Subject Shares. Stockholder further agrees not to commit or
agree to take any action inconsistent with the foregoing.
(b) Pre-Closing Transfer Restrictions. Except as contemplated
by this Agreement or the Merger Agreement, Stockholder agrees not to
(i) sell, hypothecate, transfer, pledge, encumber, assign or otherwise
dispose of (including by gift) (collectively, "Transfer"), or enter
into any contract, option, put, call or other arrangement or
understanding (including any profit sharing arrangement) with respect
to the Transfer
2
<PAGE> 3
of, any of the CTI Subject Shares to any person, (ii) trade or take
any position, hedge or otherwise, with respect to the CTI Subject
Shares, (iii) enter into any voting arrangement or understanding,
whether by proxy, voting agreement or otherwise, with respect to any
of the CTI Subject Shares or (iv) take any action that would make any
of its representations or warranties contained herein untrue or
incorrect to a material extent or have the effect of preventing or
materially impeding Stockholder from performing any of its obligations
under this Agreement. Notwithstanding the foregoing, Stockholder may
Transfer any of the CTI Subject Shares to any person who (x) is, at
the time of such Transfer, already subject to an agreement with WAXS
substantially identical in form and substance hereto (in which case,
the CTI Subject Shares subject to the Transfer shall be governed by
such substantially identical agreement) or (y) delivers to WAXS a
counterpart of this Agreement duly executed by such person and
otherwise agrees to be bound by all the terms and conditions hereof,
and WAXS is otherwise reasonably satisfied that this Agreement is
fully enforceable against such person; provided, however, that
Stockholder shall not be entitled to Transfer any of the CTI Subject
Shares unless immediately following such Transfer, the aggregate
number of CTI Subject Shares subject to the terms and conditions
hereof and/or to the terms and conditions of a substantially identical
agreement or agreements with WAXS shall be at least equal to the
aggregate number of CTI Subject Shares which are subject to the terms
and conditions of this Agreement as of the date of the Merger
Agreement.
(c) Post-Closing Transfer Restrictions. Until six (6) months
following the Effective Time, Stockholder agrees not to (i) Transfer
or enter into any contract, option, put, call or other arrangement or
understanding (including any profit sharing arrangement) with respect
to the Transfer of any of the shares of WAXS Common Stock issued to
Stockholder pursuant to the Merger Agreement to any person, or (ii)
trade or take any position, hedge or otherwise, with respect to the
shares of WAXS Common Stock issued to Stockholder pursuant to the
Merger Agreement. Notwithstanding the foregoing, at any time following
the Effective Time, Stockholder shall be permitted to Transfer, in
accordance with applicable laws, up to 750,000 shares of the WAXS
Common Stock issued to Stockholder pursuant to the Merger Agreement.
3. No Ownership Interest. Except as set forth in Section 2, nothing
contained in this Agreement shall be deemed to vest in anyone other than
Stockholder any direct or indirect ownership or incidents of ownership of or
with respect to any of the CTI Subject Shares. All rights, ownership and
economic benefits of and relating to the CTI Subject Shares shall remain and
belong to Stockholder, and no one shall have any authority to manage, direct,
restrict, regulate, govern, or administer any of the policies or operations of
CTI or exercise any power or authority to direct the voting of any of the CTI
Subject Shares as a result of this Agreement, except to the extent set forth in
Section 2(a).
4. Assignment. Except as otherwise specifically provided herein,
neither this Agreement nor any of the right, interests or obligations hereunder
may be assigned by any of the parties hereto without the prior written consent
of the other parties hereto.
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<PAGE> 4
5. Termination. This Agreement shall terminate, and no party hereto
shall have any rights or obligations hereunder, upon the earlier to occur of
(i) the termination of the Merger Agreement pursuant to Article IX thereof or
(ii) the lapse of the restrictions set forth in Section 2(c) hereof.
6. General Provisions.
(a) Amendments. This Agreement may not be amended except by
an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in
person, by telecopy or by registered or certified mail (postage
prepared, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to Stockholder, to:
9999 Willow Creek Road
San Diego, California 92131
Facsimile: (858) 452-3780
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile: (949) 823-6994
if to WAXS, to:
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
4
<PAGE> 5
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
(c) Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the
words "include", "includes" or "including" are used in this Agreement,
they shall be deemed to be followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in two or
more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts or law.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner materially adverse
to any party. Upon any 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 to the end that the transactions contemplated hereby
are fulfilled to the extent possible.
7. 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 or were otherwise breached. It is
accordingly agreed that, in addition to any other remedy to which it may be
entitled, at law or in equity, the parties shall be entitled to the remedy of
specific performance of the covenants and agreements contained herein and
injunctive and other equitable relief.
8. Parties in Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto. Except as provided in the preceding
sentence, nothing in this
5
<PAGE> 6
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies or any nature whatsoever under or by
reason of this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE> 7
IN WITNESS WHEREOF, Stockholder and WAXS have caused this Agreement to
be duly and validly executed as of the date first written above.
"STOCKHOLDER":
/s/ Edward S. Soren
-----------------------------------
Edward S. Soren
"WAXS"
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
-------------------------------
Name: W. Tod Chmar
Title: Executive Vice President
<PAGE> 8
SCHEDULE I
1. In connection with the Security Agreement by and between CTI and Gerald
Klauer Mattison & Co., ("GKM") dated as of August 25, 1998, which was
assigned to Tel-Save Holdings, Inc. ("Tel-Save") pursuant to the Assignment
Agreement by and between GKM and Tel-Save dated as of August 25, 1999 and
which was subsequently assigned to Mark Pavol, as Trustee of that certain
D&K Grantor Retained Annuity Trust dated June 15, 1998, Mr. Soren pledged
1,156,977 shares as security for that loan.
2. Mr. Soren has entered into a Voting Trust Agreement with Roger Abbott, and
in favor of Roger Abbott, for one million shares of his stock of CTI dated
as of March 1, 1998.
3. Mr. Soren has granted certain co-sale rights to Gold & Appel pursuant to
the Stock Purchase Agreement, dated September 29, 1998, by and between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications,
Roger B. Abbott, Rosalind Abbott, Edward S. Soren and Gold and Appel
Transfer S.A.
4. Mr. Soren has granted certain co-sale rights to Atocha pursuant to the
Stock Purchase Agreement, dated September 29, 1998, by and between
Communication TeleSystems International d/b/a WORLDxCHANGE Communications,
Roger B. Abbott, Rosalind Abbott, Edward S. Soren and Atocha, L.P.
5. Mr. Soren has granted certain co-sale rights to the TVG Asian
Communications Fund pursuant to the Stock Purchase Agreement, dated August
24, 1998, by and between Communication TeleSystems International d/b/a
WORLDxCHANGE Communications, WorldxChange B.V.B.A., WXL International-
Australia, Inc., The TVG Asian Communications Fund, Warna Gerakan Sdn Bhd,
WorldxChange Pty., Ltd. and certain individuals named therein.
<PAGE> 1
EXHIBIT 4.10
VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT
This VOTING AND STOCK TRANSFER RESTRICTION AGREEMENT, dated as of
February 11, 2000 (this "Agreement"), is made and entered into among
Communication TeleSystems International d/b/a WORLDxCHANGE Communications, a
California corporation ("CTI"), and the parties listed on Exhibit A attached
hereto (each, a "WAXS Stockholder" and collectively, the "WAXS Stockholders").
WHEREAS, World Access, Inc., a Delaware corporation ("WAXS"), and CTI
propose to enter into an Agreement and Plan of Merger, dated as of the date
hereof (as the same may be amended or supplemented, the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement), providing for a business combination between WAXS and
CTI (the "Transaction"), upon the terms and subject to the conditions set forth
in the Merger Agreement;
WHEREAS, each WAXS Stockholder owns, of record or beneficially, the
number of shares of WAXS Common Stock or other capital stock of WAXS (such
shares of WAXS Common Stock and other capital stock of WAXS being referred to as
"WAXS Capital Stock") set forth opposite such WAXS Stockholder's name on Exhibit
A attached hereto (such shares of WAXS Capital Stock, together with any other
shares of WAXS Capital Stock of which such WAXS Stockholder acquires beneficial
ownership after the date hereof and during the term of this Agreement, whether
upon the exercise of options, warrants or rights, the conversion or exchange of
convertible or exchangeable securities, or by means of purchase, dividend,
distribution or otherwise, being collectively referred to herein as the "Subject
Shares"); and
WHEREAS, as a condition to its willingness to enter in the Merger
Agreement, CTI has requested that the WAXS Stockholders enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements contained herein, the parties agree
as follows:
1. Representations and Warranties of the WAXS Stockholders.
Except as set forth on Exhibit A attached hereto, each WAXS Stockholder hereby
represents and warrants to CTI as to itself as follows:
(a) Authority; No Conflicts. Such WAXS Stockholder has
the legal capacity and all requisite power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by such WAXS Stockholder and
constitutes a valid and binding obligation of such WAXS Stockholder
enforceable in accordance with its terms. No filing with, and no
permit, authorization, consent or approval of, any governmental
authority or any other person is necessary for the execution of this
Agreement by such WAXS Stockholder and the consummation by such WAXS
Stockholder of the transactions contemplated hereby and none of the
execution and delivery of this Agreement by such WAXS Stockholder, the
consummation of the
<PAGE> 2
transactions contemplated hereby or compliance with the terms hereof by
such WAXS Stockholder will conflict with, or result in any violation
of, or default (with or without notice or lapse of time or both) under
any provision of, as applicable, the certificate of incorporation,
bylaws or analogous documents of such WAXS Stockholder or any agreement
to which such WAXS Stockholder is a party, including any voting
agreement, stockholders agreement, voting trust, trust agreement,
pledge agreement, loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession,
franchise or license or violate any judgment, order, notice, decree,
statute, law, ordinance, rule or regulation applicable to such WAXS
Stockholder or to its property or assets except (i) where the failure
to make such filings or obtain such permits, authorizations, consents
or approvals would not prevent or delay the performance by such WAXS
Stockholder of its obligations under this Agreement or (ii) for any
such conflicts, violations, defaults or other occurrences that would
not prevent or delay the performance by such WAXS Stockholder of its
obligations under this Agreement.
(b) Subject Shares. Except as set forth on Exhibit A
hereto, such WAXS Stockholder is the record and beneficial owner of
(or, in the case of John D. Phillips, has sole direct or indirect
voting and dispositive power over), and has good and marketable title
to, the number of Subject Shares set forth opposite such WAXS
Stockholder's name on Exhibit A hereto, free and clear of any
encumbrances, agreements, adverse claims, liens or other arrangements
with respect to the ownership of or the right to vote or dispose of
such Subject Shares. Other than such Subject Shares, such WAXS
Stockholder does not beneficially or of record own any shares of WAXS
Capital Stock or securities convertible into or exchangeable for shares
of WAXS Capital Stock. Except as set forth on Exhibit A hereto, such
WAXS Stockholder has the sole right and power to vote and dispose of
such Subject Shares. Except as set forth on Exhibit A hereto, none of
such Subject Shares are subject to any voting trust or other agreement,
arrangement or restriction with respect to the voting or transfer of
any of the Subject Shares, except as contemplated by this Agreement.
2. Voting and Transfer of Subject Shares.
(a) Until the termination of this Agreement in accordance
with Section 5 hereof, each WAXS Stockholder agrees as to itself that
at any meeting of stockholders of WAXS or at any adjournment thereof or
in any other circumstance upon which the WAXS Stockholders' vote,
consent or other approval (including by written consent) is sought,
such WAXS Stockholder shall vote all of the Subject Shares then
beneficially owned by such WAXS Stockholder (i) in favor of the
Transaction and the adoption and the approval of the Merger Agreement
and each of the other transactions contemplated by the Merger Agreement
and (ii) against any action or agreement that would result in a
material breach of any covenant, representation or warranty or any
other obligation or agreement of WAXS under the Merger Agreement. No
WAXS Stockholder shall hereafter, unless and until this Agreement
terminates pursuant to Section 5 hereof, purport to grant any proxy or
power of attorney with respect to any of the Subject Shares set forth
opposite such WAXS Stockholder's name on Exhibit A, deposit any of such
Subject Shares into a voting trust or enter into any agreement (other
than this
2
<PAGE> 3
Agreement), arrangement or understanding with any person, directly or
indirectly, to vote, grant any proxy or give instructions with respect
to the voting of any of such Subject Shares, in each case only to the
extent it relates to the matters referred to in the first sentence of
this Section 2(a). Each WAXS Stockholder further agrees not to commit
or agree to take any action inconsistent with the foregoing.
(b) Prior to the termination of this Agreement in
accordance with Section 5 hereof, each WAXS Stockholder agrees not to
sell, hypothecate, transfer, pledge, encumber, assign or otherwise
dispose of (including by gift) (collectively, "Transfer") any of the
Subject Shares or WAXS Stock Options held by such WAXS Stockholder
(beneficially or of record) except Transfers pursuant to bona fide
transactions with unaffiliated persons or entities.
3. No Ownership Interest. Except as set forth in Section 2,
nothing contained in this Agreement shall be deemed to vest in anyone other than
the WAXS Stockholders any direct or indirect ownership or incidents of ownership
of or with respect to any of the Subject Shares or WAXS Stock Options. All
rights, ownership and economic benefits of and relating to the Subject Shares
and the WAXS Stock Options shall remain and belong to the WAXS Stockholders, and
no one shall have any authority to manage, direct, restrict, govern or
administer any of the policies or operations of WAXS or exercise any power or
authority to direct the voting of any of the Subject Shares as a result of this
Agreement, except to the extent set forth in Section 2(a).
4. Assignment. Except as otherwise specifically provided herein,
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by any of the parties hereto without the prior written consent
of the other parties hereto.
5. Termination. This Agreement shall terminate, and no party
hereto shall have any rights or obligations hereunder, upon the first to occur
of (i) the termination of the Merger Agreement pursuant to Article IX thereof,
(ii) the Effective Time and (iii) October 31, 2000.
6. General Provisions.
(a) Amendments. This Agreement may not be amended except
by an instrument in writing signed by each of the parties hereto.
(b) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given
(and shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy or by registered or certified mail (postage
prepared, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
if to a WAXS Stockholder, to the address set forth beside such
WAXS Stockholder's name on Exhibit A hereto.
3
<PAGE> 4
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Attention: H. Franklin Layson
Facsimile: (404) 527-4198
if to CTI, to:
WORLDxCHANGE Communications
9999 Willow Creek Road
San Diego, California 92131
Attention: Eric Lipoff, Esq.
Facsimile: (858) 452-3780
with a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile: (949) 823-6994
(c) Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this
Agreement unless otherwise indicated. The headings contained in this
Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Wherever the words
"include", "includes" or "including" are used in this Agreement, they
shall be deemed to be followed by the words "without limitation".
(d) Counterparts. This Agreement may be executed in two
or more counterparts, all of which shall be considered one and the same
agreement, and shall become effective when one or more of the
counterparts have been signed by each of the parties and delivered to
the other party, it being understood that each party need not sign the
same counterpart.
(e) Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware
regardless of the laws that might otherwise govern under applicable
principles of conflicts or law.
(f) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any
rule or law, or public policy, all other conditions and provisions of
this Agreement shall nevertheless remain in full force and effect so
long as the economic or legal substance of the transactions
contemplated hereby
4
<PAGE> 5
is not affected in any manner materially adverse to any party. Upon any
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 to the end
that transactions contemplated hereby are fulfilled to the extent
possible.
7. 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 or were otherwise breached. It
is accordingly agreed that, in addition to any other remedy to which it may be
entitled, at law or in equity, the parties shall be entitled to the remedy of
specific performance of the covenants and agreements contained herein and
injunctive and other equitable relief.
8. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto. Except as provided in the
preceding sentence, nothing in this Agreement, express or implied, is intended
to or shall confer upon any other person any rights, benefits or remedies or any
nature whatsoever under or by reason of this Agreement.
[SIGNATURES ON THE FOLLOWING TWO PAGES]
5
<PAGE> 6
IN WITNESS WHEREOF, the WAXS Stockholders and CTI have caused this
Agreement to be duly and validly executed as of the date first written above.
ARMSTRONG INTERNATIONAL
TELECOMMUNICATIONS, INC.
By:
---------------------------------------------
Name:
Title:
------------------------------------------------
John D. Phillips
WORLDCOM NETWORK SERVICES, INC.
By:
---------------------------------------------
Name:
Title:
THE 1818 FUND III, L.P.
By: Brown Brothers Harriman & Co.,
Its General Partner
By:
---------------------------------------------
Name:
Title:
COMMUNICATIONS TELESYTEMS
INTERNATIONAL D/B/A WORLDxCHANGE
COMMUNICATIONS
By:
---------------------------------------------
Name:
Title:
<PAGE> 7
-----------------------------------------------
W. Tod Chmar
RESURGENS PARTNERS, LLC
By: Renaissance Partners II,
Its Manager
By:
--------------------------------------------
Name: John D. Phillips
Title: Partner
<PAGE> 8
EXHIBIT A
WAXS Stockholder (including address) Subject Shares
WorldCom Network Services, Inc. 1,750,322 shares of
500 Clinton Center Drive WAXS Common Stock
Clinton, Mississippi 39056
Attention: David Myers
Facsimile: (601) 460-8190
The 1818 Fund III, L.P. 50,000 shares of the
c/o Brown Brothers Harriman & Co. Series A Preferred Stock (1) (2)
59 Wall Street
New York, New York 10005
Attention: Lawrence C. Tucker
Facsimile: (212) 493-8429
John D. Phillips 1,412,500 shares of
World Access, Inc. WAXS Common Stock (3) (4)
Resurgens Plaza, Suite 2210
945 E. Paces Ferry Road
Atlanta, Georgia 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
W. Tod Chmar 312,500 shares of
World Access, Inc. WAXS Common Stock
Resurgens Plaza, Suite 2210
945 E. Paces Ferry Road
Atlanta, Georgia 30326
Facsimile: (404) 233-2280
- ----------------------------------
(1) The 1818 Fund III, L.P. reports shared voting and dispositive power
over such securities with Brown Brothers Harriman & Co., Lawrence C.
Tucker and T. Michael Long.
(2) The 1818 Fund III, L.P. also holds an option to purchase up to an
additional 20,000 shares of the Series A Preferred Stock.
(3) Of the shares indicated, 625,000 shares are owned directly by John D.
Phillips. The remainder of such shares, or 787,500, are owned by
Resurgens Partners, LLC, a Georgia liability company. Renaissance
Partners II, a Georgia general partnership, is the manager of Resurgens
Partners, LLC. John D. Phillips beneficially owns a majority of the
general partnership interests of Renaissance Partners II and, as such,
has sole voting and dispositive power (subject to compliance with all
applicable securities laws) over the shares of WAXS Common Stock owned
of record by Resurgens Partners, LLC.
(4) John D. Phillips has options and warrants to acquire 1,367,000 shares
of WAXS Common Stock.
<PAGE> 9
Resurgens Partners, LLC 787,500 shares of
Resurgens Plaza, Suite 2210 WAXS Common Stock
945 E. Paces Ferry Road
Atlanta, Georgia 30326
Attention: W. Tod Chmar
Facsimile: (404) 233-2280
Armstrong International Telecommunications, Inc. 309,001.882 shares
One Armstrong Place of Series C Preferred Stock
Butler, Pennsylvania 16001
Attention: Kirby J. Campbell
Facsimile: (724) 283-2602
<PAGE> 1
EXHIBIT 4.11
ESCROW AGREEMENT
THIS ESCROW AGREEMENT (this "Agreement") is made and entered into as
of the ___ day of _______, 2000, by and among World Access, Inc., a Delaware
corporation ("WAXS"), Edward S. Soren (the "Shareholder Representative") and
SunTrust Bank, Atlanta, a Georgia banking corporation (the "Escrow Agent").
W I T N E S S E T H:
WHEREAS, WAXS and Communications TeleSystems International d/b/a
WORLDxCHANGE Communications ("CTI") are parties to an Agreement and Plan of
Merger, dated February __, 2000 (the "Merger Agreement"), pursuant to which
WAXS has agreed to acquire CTI on the terms and conditions set forth in the
Merger Agreement;
WHEREAS, the Merger Agreement provides for the establishment of an
escrow to secure the indemnification obligations under the Merger Agreement of
the shareholders of CTI listed on Schedule 1 hereto (the "CTI Shareholders");
WHEREAS, the Shareholder Representative has been appointed the
representative and agent of the CTI Shareholders for purposes of actions and
decisions required or permitted to be taken or made by the CTI Shareholders
under the Merger Agreement or this Agreement;
WHEREAS, it is the intent of the parties hereto that the CTI
Shareholders be considered the beneficial owners of both the shares of WAXS
Common Stock constituting the Escrow Fund (as defined below) as well as the
Contingent Shares, if any, held by the Escrow Agent hereunder and which are not
part of the Escrow Fund, for income tax purposes, including, without
limitation, under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), so that both the shares of WAXS Common Stock as well as
the Contingent Shares, if any, will be treated as having been received by the
CTI Shareholders at the time set forth in the Merger Agreement for Section
368(a) purposes; and
WHEREAS, capitalized terms used but not otherwise defined herein shall
have the meanings given to them in the Merger Agreement.
NOW, THEREFORE, for and 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 hereto do hereby
mutually agree as follows:
<PAGE> 2
1. Escrow of Security.
(a) As security for the indemnification obligations of the
CTI Shareholders under the Merger Agreement, 2,453,385 shares of WAXS Common
Stock (the "Escrow Fund") have been delivered to the Escrow Agent, which shares
shall be held and released by the Escrow Agent in accordance with the terms
hereof.
(b) If any Contingent Shares are issued at a time that shares
of WAXS Common Stock remain in escrow pursuant hereto, then any Contingent
Shares that are issued with respect to such shares of WAXS Common Stock held
hereunder shall be delivered to the Escrow Agent and shall be held and released
in accordance with the terms of Section 4 hereof.
2. Loss Incurred.
(a) In the event that WAXS claims to have suffered a Loss for
which it believes it is entitled to indemnification pursuant to Article VIII of
the Merger Agreement, it shall notify the Escrow Agent and the Shareholder
Representative in a writing providing the information required pursuant to
Section 8.4 of the Merger Agreement (a "Notice of Loss").
(b) Within twenty (20) days following delivery of a Notice of
Loss, the Shareholder Representative shall provide to WAXS, with a copy to the
Escrow Agent, a written response (a "Response Letter") in which the Shareholder
Representative shall (i) agree that all of the amounts claims as a Loss in such
Notice of Loss may be released from the Escrow Fund, (ii) agree that part, but
not all, of the amounts claimed as a Loss in such Notice of Loss may be
released from the Escrow Fund to WAXS or (iii) dispute that any of the amounts
claimed as a Loss in such Notice of Loss may be released from the Escrow Fund
to WAXS. If no Response Letter is delivered by the Shareholder Representative
within such 20-day period, the Shareholder Representative shall be deemed to
have disputed that any of the amounts claimed as a Loss in such Notice of Loss
may be released from the Escrow Fund to WAXS.
(c) If the Shareholder Representative agrees that all or part
of the amounts claimed as a Loss in such Notice of Loss may be released from
the Escrow Fund to WAXS (the "Agreed Amount"), the Escrow Agent shall release
to WAXS from the Escrow Fund an amount of shares of WAXS Common Stock equal to
the Agreed Amount.
(d) In the event that the Shareholder Representative disputes
(or is deemed to have disputed) the claim by WAXS of a Loss pursuant to Section
2(b) above, the Escrow Agent shall not pay the disputed amount of such claim to
WAXS except as it may be directed (A) by a final decision of a court of
competent jurisdiction, which decision has not been appealed within any
applicable time periods for such appeal or with respect to which no appeal is
available, or (B) by a notice in writing signed by WAXS and the Shareholder
Representative. Such disputed claims of a Loss are hereinafter referred to as
"Disputed Unpaid Losses." For purposes hereof, Disputed Unpaid Losses will be
deemed to have been resolved upon the Escrow Agent paying
2
<PAGE> 3
the claim of Loss in accordance with clauses (A) or (B) above or upon a
determination that WAXS is not entitled to be paid by the Escrow Agent any
amount claimed as a Loss contained (X) in a final decision of a court of
competent jurisdiction, which decision has not been appealed within any
applicable time periods for such appeal or with respect to which no appeal is
available, or (Y) in a notice in writing signed by WAXS and the Shareholder
Representative.
3. Release of Funds. In the event that on the first (1st)
anniversary of the Closing Date no Notice of Loss is pending, the Escrow Agent
shall release for transfer to the CTI Shareholders their pro rata portion of
the balance of the Escrow Fund, if any. If on such date one or more Notices of
Loss are pending, the Escrow Agent shall retain in escrow, from such amount to
be released pursuant to this Section 3, such number of shares of WAXS Common
Stock from the Escrow Fund as shall be sufficient to satisfy the amount of the
Loss(es) specified in such Notice(s) of Loss, and release for transfer to the
CTI Shareholders their pro rata portion of the remaining balance, if positive.
Upon resolution of all Disputed Unpaid Losses, the Escrow Agent shall release
to the CTI Shareholders their pro rata portion of the balance, if any, of the
Escrow Fund.
4. Valuation of Escrow Fund; Release of Contingent Shares.
(a) For purposes of this Agreement, including, without
limitation, the satisfaction of any claims pursuant to Section 2 hereof, the
value of each share of WAXS Common Stock constituting a part of the Escrow Fund
shall equal $20.38.
(b) The Contingent Shares, if any, that are delivered to the
Escrow Agent pursuant to Section 1(b) hereof shall not constitute a part of the
Escrow Fund. Each Contingent Share shall be released at such time as, and to
the party entitled to receive, the underlying share of WAXS Common Stock with
respect to which such Contingent Share was issued pursuant to the Merger
Agreement is released pursuant to Section 3.
5. Voting Rights; Dividends. The CTI Shareholders shall be the
holders of record with full voting rights to both the shares of WAXS Common
Stock as well as the Contingent Shares, if any, described in Section 1(b)
hereof and held by the Escrow Agent hereunder and which are not part of the
Escrow Fund. The CTI Shareholders shall be entitled to exercise such voting
rights until such time, if any, as such shares of WAXS Common Stock are
forfeited to WAXS in payment of a Loss pursuant to Section 2 hereof. The Escrow
Agent shall deliver to the CTI Shareholders such proxies or other documents as
may be necessary to enable the CTI Shareholders to exercise such voting rights.
Further, the CTI Shareholders shall be entitled to promptly receive any
distribution with respect to the shares of WAXS Common Stock and Contingent
Shares including, without limitation, any distribution which constitutes a
"dividend" within the meaning of Section 316 of the Code. Any such
distributions paid with respect to such shares shall be distributed by the
Escrow Agent to the CTI Shareholders as the holders of record of such shares.
3
<PAGE> 4
6. Rights and Obligations of the Escrow Agent.
(a) In performing any of its duties under this Agreement, or
upon the claimed failure to perform its duties hereunder, the Escrow Agent
shall not be liable to anyone for any damages, losses, or expenses which they
may incur as a result of the Escrow Agent so acting, or failing to act;
provided, however, that the Escrow Agent shall be liable for damages arising
out of its willful misconduct or gross negligence under this Agreement.
Accordingly, the Escrow Agent shall not incur any such liability with respect
to (i) any action taken or omitted to be taken in good faith upon advice of its
counsel given with respect to any questions relating to the duties and
responsibilities of the Escrow Agent hereunder, or (ii) any action taken or
omitted to be taken in reliance upon any document, including any written notice
or instructions provided for in this Agreement, not only as to such document's
due execution and to the validity and effectiveness of its provisions, but also
as to the truth and accuracy of any information contained therein, which the
Escrow Agent shall in good faith believe to be genuine, to have been signed or
presented by a proper person or persons, and to conform with the provisions of
this Agreement.
(b) The Escrow Agent shall be bound only by the terms of this
Agreement and shall not be bound by or incur any liability with respect to the
Merger Agreement or any other agreement or understanding between WAXS and the
Shareholder Representative to which the Escrow Agent is not a party. The Escrow
Agent shall not have any duties hereunder except those specifically set forth
herein.
(c) In case any property deposited under this Agreement shall
be attached, garnished or levied upon or pursuant to any order of court, or the
delivery thereof shall be stayed or enjoined by an order or court, or any other
order, judgment or decree shall be made or entered by any court affecting such
property, or any part thereof, or any act of the Escrow Agent, the Escrow Agent
is hereby expressly authorized to obey and comply with all final writs, orders,
judgments, or decrees so entered or issued by any court without the necessity
of inquiry whether such court had jurisdiction; and, if the Escrow Agent obeys
or complies with any such writ, order, judgment, or decree, it shall not be
liable to any of the parties hereto or to any other person, firm, or
corporation by reason of such compliance.
7. Fees of Escrow Agent. The Escrow Agent shall be entitled to
reasonable fees for its services hereunder in an amount set forth on Schedule 2
hereto, which fees shall be paid by WAXS.
8. Removal or Resignation of Escrow Agent.
(a) WAXS and the Shareholder Representative, acting jointly,
shall have the right, upon written notice to the Escrow Agent, to remove the
Escrow Agent and appoint a successor. Upon acceptance of the duties of Escrow
Agent hereunder, a successor escrow agent shall be entitled to all of the
rights and powers as if originally named herein.
4
<PAGE> 5
(b) The Escrow Agent may resign at any time by delivering
written notice of such resignation to WAXS and the Shareholder Representative,
in which event WAXS and the Shareholder Representative shall designate a
successor escrow agent. Upon appointment of a successor escrow agent by the
parties, and delivery of any cash held by the Escrow Agent to such successor,
the Escrow Agent shall be discharged from all further duties and liabilities
under this Agreement.
(c) If upon the effective date of any such removal or
resignation, no successor escrow agent shall have been designated, the Escrow
Agent shall have the right to tender into the registry or custody of any court
of competent jurisdiction any part or all of the Escrow Fund; provided,
however, that the Escrow Agent shall be entitled to its compensation earned
prior thereto and the provisions of Section 7 hereof shall survive any such
removal, resignation or tender.
9. Termination. This Agreement shall terminate on the first to
occur of (i) the later of (a) ten (10) days after the first (1st) anniversary
of the Closing Date, (b) the satisfaction of all claims pending on the first
(1st) anniversary of the Closing Date and (c) the disbursement of the entire
Escrow Fund in accordance with the terms hereof or (ii) a mutual consent signed
by WAXS and the Shareholder Representative.
10. Notices and Instructions. All notices and other communications
given or made pursuant hereto must be in writing and will be deemed to have
been duly given or made if delivered personally or sent by registered or
certified mail (postage prepaid, return receipt requested) or by facsimile to
the parties at the following addresses:
(a) If to the Shareholder Representative:
Post Office Box 7051
Rancho Santa Fe, California 92067
Facsimile No.:
Telephone No.:
With a copy to:
O'Melveny & Myers LLP
610 Newport Center Drive
Newport Beach, California 92660
Attention: David A. Krinsky, Esq.
Facsimile No.: (949) 823-6994
Telephone No.: (949) 823-7172
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<PAGE> 6
(b) If to WAXS:
World Access, Inc.
Resurgens Plaza, Suite 2210
945 E. Paces Ferry Road
Atlanta, GA 30326
Attention: W. Tod Chmar
Facsimile No.: (404) 233-2280
Telephone No.: (404) 261-6190
With a copy to:
Long Aldridge & Norman LLP
Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: H. Franklin Layson, Esq.
Facsimile No.: (404) 527-4198
Telephone No.: (404) 527-4052
(c) If to the Escrow Agent:
--------------------------------
--------------------------------
Attention:
----------------------
Facsimile No.:
------------------
Telephone No.:
------------------
or to such other persons or at such other addresses as furnished by either
party by like notice to the other, and such notice or communication will be
deemed to have been given or made as of the date so delivered.
11. Entire Agreement; Amendment. This Agreement and the Merger
Agreement contain the entire agreement of the parties with regard to the
matters set forth herein and this Agreement may not be amended or modified
except in writing signed by the parties hereto.
12. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
and the escrow shall be administered at the offices of the Escrow Agent.
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<PAGE> 7
13. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their successors and
assigns. This Agreement shall not be assignable by any of the parties hereto
without the prior written consent of the other parties, except that the Escrow
Agent may be changed in accordance with the provisions of Section 8 hereof.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute but a single instrument.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year first above written.
"BUYER":
WORLD ACCESS, INC.
By:
-----------------------
Name:
Title:
"ESCROW AGENT":
By:
-----------------------
Name:
Title:
"SHAREHOLDER REPRESENTATIVE":
-----------------------------
Edward S. Soren
<PAGE> 9
SCHEDULE 1
CTI SHAREHOLDERS
<TABLE>
<CAPTION>
Percentage of CTI
Capital Stock
Name Address Held by Shareholder
- ---- ------- -------------------
<S> <C> <C>
</TABLE>
<PAGE> 10
SCHEDULE 2
SCHEDULE OF FEES
<PAGE> 1
EXHIBIT 10.34
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (this "Agreement") is made as of
February 11, 2000 by and between FOOTHILL CAPITAL CORPORATION, having an office
at 11111 Santa Monica Boulevard, Suite 1500, Los Angeles, California 90025-3333
("Lender"), and WORLD ACCESS, INC., a Delaware corporation, having an office at
2240 Resurgens Plaza, 945 E. Paces Ferry Road, Atlanta, Georgia 30326
("Participant").
WHEREAS, Lender has previously entered into the Loan
Agreement with Borrower, pursuant to which Lender has made certain loans to
Borrower;
WHEREAS, Lender is entering into the Eleventh Amendment,
pursuant to which Lender has made and/or hereafter may make Term Loan B to
Borrower;
WHEREAS, Participant wishes to purchase, and Lender desires
to sell an ongoing participation interest in Term Loan B, upon the terms and
conditions set forth below; and
WHEREAS, Lender desires to preserve its right to sell to
other participants other participations in the Obligations that are not
inconsistent with the participation sold herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is hereby agreed as follows:
1. DEFINITIONS
"Advances" - all loans and advances (including, without
limitation, "Advances" (as such term is defined in the Loan Agreement)) other
than Term Loan B made or to be made by Lender to or on behalf of Borrower
pursuant to any of the Transaction Agreements, and all other items (other than
interest or other compensation) chargeable to Borrower pursuant to any of the
Transaction Agreements.
"Agreement" has the meaning set forth in the preamble hereto.
"Amendment Fee" shall mean the fee payable pursuant to
Section 4 of the Eleventh Amendment.
"Anniversary Facility Fee" shall mean any fee payable
pursuant to Section 2.8(b) of the Loan Agreement.
"Borrower" means, individually and collectively, jointly and
severally, Communication Telesystems International, dba WorldxChange
Communications, a California corporation ("WXCC"), WorldxChange Communications,
Inc., a Canadian corporation, CTS Telcom Holdings, Inc., a Delaware
corporation, and CTS Telcom, Inc., a Florida corporation
"Business Days" - has the meaning set forth in the Loan
Agreement.
<PAGE> 2
"Closing Facility Fee" shall mean any fee payable pursuant to
Section 2.8(a) of the Loan Agreement.
"Collateral" - means all property, security interests, and/or
guarantees received by, or for the benefit of, Lender or Participant pursuant
to the Transaction Agreements or otherwise acquired by, or for the benefit of,
Lender or Participant in connection with the Transactions.
"Collections" - means all monies received by, or for the
benefit of, Lender from Borrower or from other sources (including any
guarantors) on account of the Obligations or as proceeds of the Collateral, or
as a result of the exercise of any right of setoff by Lender or any of its
affiliates.
"Eleventh Amendment" means that certain Amendment Number
Eleven to Loan and Security Agreement dated as of February 11, 2000, entered
into between Borrower and Lender.
"Eleventh Amendment Effective Date" has the meaning set forth
in the Loan Agreement.
"Loan Agreement" - means that certain Loan and Security
Agreement dated as of August 4, 1998 , entered into between Lender and
Borrower, as amended, supplemented, or otherwise modified from time to time.
"Maximum Amount" - means, as of any date of determination,
the Maximum Revolving Amount plus the Maximum Term Loan B Amount.
"Maximum Participant Commitment" - $30,000,000
"Maximum Revolving Amount" - means $35,000,000, reduced
cumulatively on the first and fifteenth day of each calendar month, commencing
on the first such date to occur after the Eleventh Amendment Effective Date, by
a bi-monthly reduction of $150,000, but not reduced to less than $30,000,000.
"Maximum Term Loan B Amount" - $30,000,000.
"Obligations" - has the meaning set forth in the Loan
Agreement.
"Outstanding Amount" means, on any date that a determination
thereof is to be made, the outstanding principal balance of the Advances plus
the outstanding principal balance of Term Loan B.
"Overadvance" - has the meaning set forth in the Loan
Agreement.
"Participant Expenses" - has the meaning set forth in the
Loan Agreement.
"Participant's Commitment" - Participant's obligation to
Lender to purchase from time to time its pro-rata share (based on Participant's
Ratable Share of Term Loan B) of Term
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<PAGE> 3
Loan B, which participation interest vis-a-vis the other Obligations shall be
on a last-out basis, in a maximum aggregate principal amount equal to the
Maximum Participant Commitment.
"Participant's Investment" - Participant's initial purchase
price paid hereunder, plus all additional sums paid by Participant to Lender
hereunder, less all principal payments received and retained by Participant in
connection with the Transactions.
"Participant's Percentage" - means 100.00%.
"Participant's Ratable Share" - means (a) with respect to
Lender's obligation to make Term Loan B and receive payments relative thereto,
the Participant's Percentage; and (b) with respect to all other matters, the
result (expressed as a percentage) of (i) the Maximum Participant Commitment,
divided by (ii) the Maximum Amount.
"Term Loan B" has the meaning set forth in the Loan Agreement.
"Transaction Agreements" - the Loan Agreement, and all
related written agreements, promissory notes, instruments, financing
statements, or other documents entered into or to be entered into among Lender,
Borrower, and/or any guarantor (and/or other parties, including any third-party
providers of collateral), providing for credit to Borrower in an aggregate
principal amount not to exceed the Maximum Amount, copies of which have been
delivered by Lender to Participant, as they may hereafter from time to time be
amended, supplemented, restated, and/or renewed.
"Transactions" - all actions taken and to be taken by Lender,
Borrower, the guarantors, and/or any other party in connection with the
Transaction Agreements, including, without limitation, any Advances and/or the
Term Loan B.
"Unused Line Fee" shall mean the fee payable pursuant to
Section 2.8(d) of the Loan Agreement.
2. SALE OF PARTICIPATION
2.1 (a) Lender hereby sells to Participant, and Participant hereby
purchases from Lender, makes Participant's Commitment to Lender with respect to
the continuing acquisition of, and accepts, an undivided interest in Term Loan
B equal to the Participant's Percentage, and in the Agreements, Transactions,
Obligations, Collateral, and Collections (subject to the "last out" provisions
hereof), equal to Participant's Ratable Share, which participation vis-a-vis
the other Obligations shall be on a last-out basis.
(b) Promptly after the execution and delivery of this Agreement by
Participant and Lender, Participant shall cause immediately available funds in
the amount of the portion of Term Loan B to be made to Borrower on the Eleventh
Amendment Effective Date to be sent to Lender. Upon receipt of such funds,
Lender shall make the amount of such funds available to Borrower.
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<PAGE> 4
(c) At any time after the Eleventh Amendment Effective Date that a
portion of Term Loan B is to be made to Borrower, Participant shall cause
immediately available funds in the amount of such portion of Term Loan B to be
made available to Lender prior to the date on which such portion of Term Loan B
is to be made to Borrower. Upon receipt of such funds, Lender shall make the
amount of such funds available to Borrower.
3. PROCEDURE
3.1 Lender will keep records of all Obligations and Collateral that is
in its possession, appropriately marked to show the interest of Participant
therein, and Participant or its designees may inspect or copy same at
reasonable times during normal business hours. Lender will, from time to time,
promptly following the execution thereof, furnish Participant with copies of
future Transaction Agreements relating to Term Loan B, and with such additional
information as Lender may have and may deem appropriate to provide to
Participant with respect to such Transaction Agreements; provided, however,
that Lender shall not be liable to Participant for any damages resulting from
Lender's failure to provide such copies of such future Transaction Agreements
or such information, except if Lender's failure is the result of gross
negligence or willful misconduct.
3.2 During the term of this Agreement, Lender will deliver monthly
statements to Participant showing the status of the Term Loan B Transactions
and the Obligations as of the last day of the preceding month and the activity
during such preceding month. Any accounting rendered by Lender to Participant
presumptively shall be deemed correct and binding unless Participant notifies
Lender by certified mail, return receipt requested, to the contrary, within 30
days after the date when each such accounting is mailed or otherwise delivered
to Participant.
3.3 Participant acknowledges that Lender has not made and does not
make any representations or warranties, express or implied, as to Borrower's
financial condition, or with respect to the validity, enforceability,
collectibility, priority, or perfection of any of the Transaction Agreements,
the Transactions, or the Collateral, and that Participant is fully familiar
with and has made its own independent evaluation and determination thereof.
Lender represents and warrants to Participant that Lender is the legal owner of
the interest in Term Loan B being conveyed hereunder, that Lender has the full
right, power and authority to assign, transfer and convey such interest, and
that such interest is being transferred free and clear of any claims, liens or
interests of any third parties. Participant expressly acknowledges: (a) that,
except as expressly provided hereinabove, Lender has not made any
representations or warranties to it of any sort whatsoever and that no act by
Lender hereafter taken, including any review of the affairs of Borrower or of
any guarantors, shall be deemed to constitute any representation or warranty by
Lender to Participant; (b) that Participant will continue to make its own
independent investigation of the financial condition and affairs, and its own
appraisal of the creditworthiness, of Borrower or any guarantors in connection
with the Transactions; and (c) that Lender shall have no duty or
responsibility, either initially or on a continuing basis, to provide
Participant with any credit or other information except as expressly provided
for herein.
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<PAGE> 5
3.4 Because Participant's Investment is a "last-out" participation, it
is expected that Participant's Investment will remain fully funded at all times
prior to the Term Loan B Maturity Date (as such term is defined in the Loan
Agreement). Except as provided in Section 5.1 hereof in the event that (i)
Lender shall have accelerated the maturity of the Obligations based on
Borrower's default under the Transaction Agreements, or (ii) the Obligations
shall have matured in accordance with their terms and not have been repaid in
full, Participant hereby agrees with Lender that all amounts received by
Lender, whether by Collections or otherwise, shall be applied to Borrower's
loan account with Lender at such time and in such manner as is provided in the
Transaction Agreements, and shall be applied to the repayment of the
Obligations as follows:
(a) first, to the repayment of all Obligations then due and payable
to Lender (including, without limitation, all accrued and unpaid interest with
respect to Obligations other than Term Loan B then due and payable to Lender
and all accrued and unpaid Foothill Expenses (as defined in the Loan Agreement)
then due and payable to Lender (other than Participant Expenses), but excluding
Obligations in respect of Term Loan B);
(b) second, to the repayment of all accrued interest with respect to
Term Loan B then due and payable with respect to Term Loan B;
(c) third, to the repayment of all accrued and unpaid fees
(including, without limitation, the Amendment Fee) and all Participant Expenses
in each case then due and payable with respect to Term Loan B;
(d) fourth, to the repayment of all outstanding Obligations (other
than Obligations in respect of Term Loan B); and
(f) fifth, to the repayment of all unpaid principal of, or other
Obligations in respect of, Term Loan B.
All payments hereunder shall be made by wire transfer according to
wiring instructions delivered by each party to the other party hereto.
3.5 (a) Participant's Investment hereunder shall accrue interest in
accordance with the terms and conditions of the Loan Agreement. Except as
provided in Section 5.1 hereof in the event that (i) Lender shall have
accelerated the maturity of the Obligations based on Borrower's default under
the Transaction Agreements, or (ii) the Obligations shall have matured in
accordance with their terms and not have been repaid in full, Lender agrees
that, upon receipt by Lender of payments in respect of Obligations then due and
payable with respect to Term Loan B, all such amounts with respect to
Participant's Investment hereunder shall be promptly paid to Participant in
United States Dollars, in accordance with this Section 3.5. Under any
circumstances in which Participant shall not be entitled to receive payments
with respect to Participant's Investment as herein provided, then Participant's
right to the return of Participant's Investment thereafter shall be subject to
Section 5.1 hereof without regard to Lender's declaration of Borrower's loan
account to be in liquidation pursuant to Section 5.1 hereof.
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<PAGE> 6
(b) Participant shall not be entitled to any compensation
based upon any float, or any similar charges provided under the Transaction
Agreements, nor shall Participant share in the Closing Facility Fee, any
Anniversary Facility Fee, any Unused Line Fee, any Servicing Fees, or any other
fees paid by Borrower to Lender, except for the Amendment Fee as provided
herein. Participant shall not share in any financial examination, documentation
or appraisal fees paid to Lender. Participant shall not share in any recovery
by Lender of out-of-pocket expenses incurred by Lender and reimbursable by
Borrower except to the extent that such expenses are "extraordinary expenses"
(as hereinbelow defined) with respect to which Participant theretofore paid to
Lender its pro-rata share (based on Participant's Ratable Share of the
Obligations) thereof.
(c) Participant shall be entitled to the entire portion of
the Amendment Fee (in the amount of $225,000) that is due and payable on
November 1, 2000 (except to the extent such portion of the Amendment Fee shall
not be payable by Borrower under the terms of the Eleventh Amendment), as and
when such Portion of the Amendment Fee shall be due and payable by Borrower.
(d) Participant shall be entitled, if and to the extent that
such amounts are received in cash by Lender, to all Participant Expenses paid
or incurred by Participant and which are subject to reimbursement by Borrower
in accordance with the provisions of the Eleventh Amendment or the Loan
Agreement as amended thereby.
3.6 In the event that Lender is required, for any reason, to refund or
repay to Borrower or any other person all or any portion of any payment
previously made to Lender with respect to Term Loan B and which has been paid
to Participant and applied to reduce Participant's Investment therein,
Participant shall remit to Lender such amount as was previously paid to
Participant that is required to be so refunded or repaid by Lender, and
Participant's Investment shall be increased accordingly.
3.7 Lender shall not have, and does not assume, any liability to
Participant for the repayment of Participant's Investment or interest and fees
thereon, or reimbursement of expenses in connection therewith, to the extent
that such funds are not received from Borrower or collected from the proceeds
of the Collateral, except for losses occasioned by Lender's gross negligence or
willful misconduct.
3.8 Lender shall bear all costs and expenses of managing and servicing
the Transactions except for extraordinary expenses, which shall be borne by
Lender and Participant pro-rata (based upon Participant's Ratable Share of the
Obligations), and for which Participant shall reimburse Lender upon demand for
Participant's pro-rata share (based upon Participant's Ratable Share of the
Obligations) thereof. The term "extraordinary expenses" shall consist of any
reasonable out-of-pocket costs and expenses, and shall include, but not be
limited to, reasonable attorneys fees and disbursements, court costs and
reasonable fees of any outside agency, incurred in connection with the
enforcement of any of Lender's rights and remedies after the date of this
Agreement against Borrower or any guarantors, arising under the Transaction
Agreements, or with regard to any of the Collateral, or in defending any action
or opposing any claim asserted at any time by Borrower or any of its
stockholders or any guarantors or any receiver or trustee in
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<PAGE> 7
bankruptcy, or by any other party against Lender or Participant caused by any
alleged claim of usury, ultra vires act or invalidity, any alleged preferential
or fraudulent transfer, or any other claim (other than a claim resulting from
Lender's gross negligence or willful misconduct) in connection with the
Transactions or the Collateral or any recovery on account of such claim;
provided, however, that Participant will be liable only if such fees or costs
are incurred on or after the Eleventh Amendment Closing Date, or such claims
relate to Transactions occurring on or after the Eleventh Amendment Closing
Date and prior to the effective date of termination of this Agreement, or such
fees or costs are incurred or arise while, or relate to Transactions or
Collateral occurring or existing while, Borrower's loan account shall be in a
liquidation declared prior to the effective date of termination of this
Agreement. Lender promptly shall provide Participant with notice of the
assertion of any action or claim described in the immediately preceding
sentence; provided, however, that Lender shall not be liable to Participant,
nor shall Participant be relieved of its obligations under this Section 3.8,
unless Lender fails to provide such notice willfully or as a result of gross
negligence. Extraordinary expenses shall not include any expenses of ordinary
overhead or ordinary payments made to clerical personnel or executives of
Lender. Participant also shall reimburse Lender, on demand, for Participant's
pro-rata share (based upon Participant's Ratable Share of the Obligations) of
all amounts paid by Lender in settlement or compromise of any such claim or
action (subject to the same provisos as set forth above), except in the event,
and in such case then except only to the extent, that such claim or action
arose out of the gross negligence or willful misconduct of Lender. Any such
settlement or compromise shall require the prior written approval of
Participant (which approval shall not be unreasonably withheld, conditioned, or
delayed). If Borrower's loan account is not in liquidation under Section 5.1,
prior to requiring Participant to pay its share of any extraordinary expenses,
Lender first shall make reasonable endeavors to charge same to Borrower and
collect same from Borrower, provided that if no revolving Advances are
available to Borrower under the Transaction Agreements and Borrower fails or
refuses to pay same promptly upon demand by Lender, Lender may require
Participant to pay its share without having to first declare Borrower's loan
account in liquidation, commence legal proceedings against Borrower, or proceed
against Collateral. If and to the extent that Participant defaults in its
obligations to make any payment to Lender as required pursuant to this Section
3.8, such amount shall be deducted from the amount of Participant's Investment
hereunder.
3.9 If Participant defaults in its obligations to make any payment to
Lender as required hereunder, including without limitation the failure to make
payment of any extraordinary expenses (as that term is defined in Section 3.8
hereof), within 15 Business Days of the date on which notice of Participant's
failure to make such payment is received by Participant, then the amount of any
such payment, including without limitation any such unpaid extraordinary
expenses, shall be deducted from the amounts otherwise payable to Participant
in repayment of Participant's Investment or from any other amounts to which it
might otherwise be entitled hereunder. All amounts that would have been
distributed to Participant before the preceding sentence will instead be
retained by Lender and applied to reduce amounts advanced by Lender under the
Transaction Agreements in connection with any such unpaid extraordinary
expenses for which Participant has failed to fund its pro rata share (based
upon Participant's Ratable Share of the Obligations).
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<PAGE> 8
4. MANAGEMENT
4.1 (a) Participant acknowledges that its interest in Term Loan B,
together with the Agreements, Transactions, Obligations, Collateral, and
Collections in respect of Term Loan B, is derivative of Lender's interest in
the same, and that, as between Participant and Lender, Lender shall have the
sole right and authority in all respects to make decisions with respect to the
same, to deal with Borrower with respect to the same, and to administer
(including making legal claims with respect to the same and appearing in court
in connection with the enforcement of, or on account of, such claims) Lender's
and Participant's interest in the same. All of the Obligations and other
Transactions shall be made and conducted in Lender's name, and all of the
Collateral and Collections shall be held by or on behalf of Lender in Lender's
name. Lender shall have the right to administer the Transaction Agreements, to
perform and enforce the terms thereof, and to exercise all privileges and
rights exercisable or enforceable by Lender thereunder, according to Lender's
discretion and in the exercise of its normal business judgment. Lender hereby
expressly appoints Participant as Lender's agent for the purpose of perfecting
Lender's security interest in any of the Collateral that may at any time come
into the possession of Participant. Lender shall have the continuing and sole
right to enter into and agree to amendments, waivers, modifications, and
releases with respect to the Transaction Agreements, the Transactions, and the
Collateral. In the event of a bankruptcy filing by Borrower or against
Borrower, and in the event of any other insolvency proceeding involving
Borrower, Lender, and not Participant, shall have the sole right and authority
to file a claim on account of the interest of Lender and Participant in Term
Loan B, or the Agreements, Transactions, Obligations, Collateral, and
Collections in respect of Term Loan B, to appear in bankruptcy court or other
court on account of the same, and to otherwise take such action as Lender may
deem appropriate in order to collect on the same. Lender shall not be liable to
Participant for any action taken or omitted or for any error in judgment,
except for its own gross negligence or willful misconduct.
(b) Anything contained herein to the contrary
notwithstanding, for so long as there shall be any outstanding Obligations with
respect to Term Loan B, Lender shall not, without the prior written consent of
Participant, (i) agree to any amendment, modification or waiver of any of the
rate of interest, principal amount, or maturity of Term Loan B, or the
Amendment Fee, or (ii) make any additional Advances under and as defined in the
Loan Agreement in excess of the aggregate amount of $40,000,000 principal at
any one time outstanding.
(c) Anything contained herein to the contrary
notwithstanding, if at any time all Obligations of Borrower to Lender (other
than with respect to Term Loan B) have been paid in full in cash (or as
otherwise agreed by Lender in its discretion) and there shall remain any
outstanding Obligations with respect to Term Loan B, Lender shall assign to
Participant or Participant's designee, without any representation, recourse, or
warranty whatsoever, except as expressly set forth below in this paragraph,
Participant's Percentage in Lender's right, title, and interest with respect to
the Transactions and the Transaction Agreements and all security interests
granted therein with respect to Term Loan B, at no expense to Participant other
than the reimbursement by Participant (to the extent not paid by Borrower) of
the reasonable out-of-pocket expenses of Lender and its legal counsel in
connection with documenting and effecting
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<PAGE> 9
such assignment, such documentation and assignment to be in such form as Lender
and Participant shall mutually agree, whereupon Lender shall be relieved from
any further duties, obligations, or liabilities to Participant pursuant to this
Agreement. In connection with any assignment by Lender pursuant to this
paragraph, Lender shall be deemed to have warranted to the assignee that Lender
is the legal owner of the interests being assigned, that Lender has the full
right, power and authority to assign, transfer and convey such interests, and
that such interests are being transferred free and clear of any claims, liens
or interests of any third parties (other than Participant or Participant's
designee).
(d) Anything contained herein to the contrary
notwithstanding, for so long as there shall be any outstanding Obligations with
respect to Term Loan B, in all matters in respect of the portion of the
Amendment Fee payable to Participant (including, without limitation, the form
of payment thereof), and with respect to any extension of the Term Loan B
Maturity Date to a date not later than October 1, 2003, Lender shall at all
times act pursuant to the instructions of Participant.
(e) Anything contained herein to the contrary
notwithstanding, for so long as there shall be any outstanding Obligations with
respect to Term Loan B, Lender shall not release any lien of Lender in any
material portion of the Collateral securing Term Loan B except in accordance
with the Transaction Documents and in connection with the receipt by Borrower
or Lender of proceeds in amount not less than the fair market value of all
assets subject to such lien release, such proceeds to be applied to the
Obligations.
4.2 Subject to the last sentence of Section 4.1 hereof, Lender shall
exercise the same care and discretion in managing and servicing the Obligations
(including, without limitation, Term Loan B) and other Transactions, in making
Collections in connection therewith, and in entering into any compromise or
settlement with Borrower in connection therewith, as it would ordinarily
exercise with respect to loans for which it has no participant. To the extent
of Participant's interests hereunder, Lender is not, and shall not under any
circumstances be deemed to be, a fiduciary for Participant in administering and
servicing the Transaction Agreements or in any other capacity. Nothing
contained herein shall confer upon either Lender or Participant any proprietary
interest in, or subject either of them to any liability for or with respect to,
the business, assets, profits, losses, or obligations of the other, except only
as to the Obligations and other Transactions to the extent of the participation
hereby created.
4.3 Participant shall not sell, pledge, assign, sub-participate, or
otherwise transfer all or any part of its interest hereunder to any third
person without Lender's prior written consent. Lender may further participate
or otherwise transfer or assign its interest in the Obligations, the
Collateral, the Collections, or the Transactions to any third person at any
time (in any such case a "Sale") without the consent of participant; provided,
however, that should Lender offer to make any such Sale to any third person,
(i) notwithstanding any such Sales, Lender shall at all times retain the right
to vote or otherwise control any such third party's share with respect to any
right of any such third party's share to consent to any amendment,
modification, waiver or consent under the Transaction Agreements, and (ii) any
such Sale shall be made subject to Participant's rights and Lender's
obligations under this Agreement.
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<PAGE> 10
4.4 All payments with respect to the Obligations (including, without
limitation, any payment by way of setoff, banker's lien, counterclaim,
realization on Collateral or otherwise) received by Participant at any time,
from any source other than Lender as provided in this Agreement, shall be
immediately forwarded to Lender for application pursuant to the terms of this
Agreement; provided that, if Lender has outright assigned the Term Loan B to
Participant, this Section 4.4 shall not apply to payments received by
Participant with respect to the Term Loan B from and after the effectiveness of
such assignment.
4.5 In the event a voluntary or involuntary bankruptcy case is
commenced by or against Borrower, and provided that Lender has not outright
assigned the Term Loan B to Participant, Lender shall file a proof of claim in
such bankruptcy case with respect to the Term Loan B (which may be separate
from the proof of claim filed with respect to the other Obligations) and Lender
shall, following the final and full payment of all other Obligations other than
the Term Loan B as provided in this Agreement, remit to Participant any
property or other distribution received by Lender on account of such claim with
respect to the Term Loan B. Notwithstanding the foregoing, in the event of such
bankruptcy case and provided that Lender has not outright assigned the Term
Loan B to Participant, subject to Lender's duties set forth in Section 4.2 of
this Agreement, Participant agrees that Lender shall have no liability to
Participant for, and Participant waives any claim it may hereafter have against
Lender arising out of, (a) Lender's consent to the use of cash collateral
pursuant to Section 363 of the United States Bankruptcy Code (Title 11 U.S.C.
101 et seq., as amended from time to time, the "Bankruptcy Code"), (b) Lender's
agreement to extend additional credit to Borrower, as debtor-in-possession, or
to a trustee, pursuant to Section 364 of the Bankruptcy Code, (c) pursuant to
the provisions of this Agreement, Lender's application of payments received in
such case, including the application to Obligations accruing after the
commencement of such case (including without limitation interest, fees, costs
and other charges, whether or not allowed as claims in such case), and (d)
Lender's election made pursuant to Section 1111(b)(2) of the Bankruptcy Code.
5. LIQUIDATION
5.1 If at any time (i) Lender shall have accelerated the maturity of
the Obligations based on Borrower's default under the Transaction Agreements,
or (ii) the Obligations shall have matured in accordance with their terms and
not have been repaid in full, Lender may, at its option, declare Borrower's
loan account in liquidation. Thereafter, notwithstanding the provisions of
Section 3.4 hereof, all Collections received shall be applied:
(a) first, to the payment of all of Lender's share of all
accrued and unpaid expenses to the extent earned or due and payable in
accordance with the Loan Agreement (including the reimbursement of
extraordinary expenses, financial examination expenses, and loan documentation
review charges, and including any such expenses that, but for the provision of
the Bankruptcy Code would have accrued or otherwise been payable) in respect of
the Obligations other than Term Loan B owing by Borrower, until paid in full in
cash;
(b) Second, to the payment of all of Lender's share of all
accrued and unpaid interest and any unpaid fees to the extent earned or due and
payable in accordance with the Loan
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Agreement (including any interest or unpaid fees that, but for the provision of
the Bankruptcy Code would have accrued or otherwise been payable) in respect of
the Obligations other than Term Loan B, until paid in full in cash;
(c) Third, to the payment of all of Lender's share of the
unpaid Obligations other than Term Loan B, until paid in full in cash;
(d) Fourth, to the extent that Lender has funded any part of
Term Loan B, to the payment of all of Lender's share of all accrued and unpaid
expenses to the extent earned or due and payable in accordance with the Loan
Agreement (including the reimbursement of extraordinary expenses, financial
examination expenses, and loan documentation review charges, and including any
such expenses that, but for the provision of the Bankruptcy Code would have
accrued or otherwise been payable) in respect of the Obligations consisting of
Term Loan B, until paid in full in cash;
(e) Fifth, to the extent that Lender has funded any part of
Term Loan B, to the payment of all of Lender's share of all accrued and unpaid
interest and any unpaid fees to the extent earned or due and payable in
accordance with the Loan Agreement (including any interest or unpaid fees that,
but for the provision of the Bankruptcy Code would have accrued or otherwise
been payable) in respect of the Obligations consisting of Term Loan B, until
paid in full in cash;
(f) Sixth, to the extent that Lender has funded any part of
Term Loan B, to the payment of all of Lender's share of the Obligations
consisting of Term Loan B, until paid in full in cash;
(g) Seventh, to the payment of all of Participant's share of
all accrued and unpaid expenses to the extent earned or due and payable in
accordance with the Loan Agreement (including the reimbursement of
extraordinary expenses, and including any such expenses that, but for the
provision of the Bankruptcy Code would have accrued or otherwise been payable)
in respect of the Obligations consisting of Term Loan B, until paid in full in
cash;
(h) Eighth, to the payment of all of Participant's share of
all accrued and unpaid interest and any unpaid fees to the extent earned or due
and payable in accordance with the Loan Agreement (including any interest or
unpaid fees that, but for the provision of the Bankruptcy Code would have
accrued or otherwise been payable) in respect of Obligations consisting of Term
Loan B, until paid in full in cash; and
(i) Ninth, to the payment of Participant's share of the
Obligations consisting of Term Loan B.
Participant understands that Participant's participation is a
last-out participation as to Participant's Investment, subject only to
Participant's right to receive any amounts due to Participant pursuant to
Section 3.5 when Borrower's Obligations have not been accelerated.
11
<PAGE> 12
6. TERMINATION
6.1 Except during any period when Borrower's loan account shall be in
liquidation, this Agreement and the participation hereby created shall
terminate on the full and final repayment in cash of all Obligations of
Borrower to Lender under the Transaction Agreements in accordance with their
terms and payment in full in cash of Participant's investment in Term Loan B
and all other amounts due to Participant hereunder. Any termination hereunder
notwithstanding, Participant's obligations to make payments under the
provisions of Section 3.6 hereof arising during the effectiveness of this
Agreement shall survive any such termination of this Agreement. If, prior to
the effective date of such termination, Lender declares Borrower's loan account
to be in liquidation, then the provisions of Section 5.1 hereof shall govern
notwithstanding the provisions of this Section 6, and the Collections shall
thereafter be distributed pursuant to the provisions of Section 5.1, based on
the amount of Participant's Investment, as of the date the liquidation is
declared by Lender.
6.2 In the event that the Obligations shall have matured in accordance
with their terms and not have been repaid in full, anything contained herein to
the contrary notwithstanding, Lender shall have the option on or after such
date to repay to Participant the outstanding balance of Participant's
Investment, plus Participant's accrued interest and fees (including, without
limitation, the Amendment Fee), plus any unreimbursed Participant Expenses due
and payable pursuant to the Eleventh Amendment or the Loan Agreement as amended
thereby, calculated pursuant to Section 3.5 hereof, to the date of purchase.
Upon repayment in full to Participant, each party shall thereupon be relieved
of any liability to the other party in connection herewith, except that the
provisions of Section 3.6 hereof shall survive after termination. In the event
that Lender shall not exercise its option to repay Participant pursuant to this
Section 6.2, all Obligations and other Transactions in existence or entered
into on or after the maturity of the Obligations in accordance with their terms
shall be accounted for as if Borrower's loan account were in liquidation under
Section 5.1. If Borrower's loan account is in or shall thereafter go into
liquidation, the Collections shall thereafter be distributed pursuant to the
provisions of Section 5.1, based on the amount of Participant's Investment, as
of the date the liquidation is declared by Lender.
7. GENERAL
7.1 All notices provided for herein shall be in writing and mailed to
the respective parties at the addresses set forth next to their signatures
below, or at such other addresses as either of them shall have specified to the
other in writing.
7.2 This Agreement (a) shall be binding upon and inure to the benefit
of the parties hereunder and their respective legal representatives,
successors, and permitted assigns, (b) shall be governed, construed, and
interpreted in all respects in accordance with the laws of the State of
California, and (c) may not be modified, amended, terminated, or otherwise
changed orally or by any course of dealing or in any manner except by an
agreement in writing signed by the duly authorized officer of the party to be
charged.
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<PAGE> 13
7.3 Each of the parties hereby expressly submits and consents in
advance to the non-exclusive jurisdiction of the Superior Court of the State of
California in the County of Los Angeles and jurisdiction of the United States
District Court for the Central District of California in any action or
proceeding commenced by the other in such court with reference to any claim or
dispute between the parties pertaining directly or indirectly to this Agreement
or to any matter arising therefrom. Each of the parties hereby waives the right
to trial by jury in any such action or proceeding, and personal service of any
summons, complaint, writ, process, or other papers may be by registered or
certified mail addressed to the party to be served at the address to which
notices are to be sent pursuant to Section 7.1 hereof.
7.4 If any action at law or equity is brought to enforce or interpret
the provisions of this Agreement, the prevailing party shall be entitled to
recover its reasonable attorneys fees, which may be determined by the court in
the same action or in a separate action brought for that purpose, in addition
to any other relief to which that party may be entitled.
7.5 No term or provision contained in this Agreement, and no other
agreement between the parties hereto, is intended to be, or shall it be
construed to be, the formation of a partnership or joint venture between Lender
and Participant.
7.6 It is understood and agreed that Lender and Participant, or any
affiliate of either thereof may, from time to time, lend money to or otherwise
generally engage in any business with Borrower and any affiliate of Borrower.
7.7 This Agreement and the duties and obligations contained herein
shall be solely for the benefit of the parties hereto, their affiliates, and
future participants; no third party shall have any rights hereunder as a third
party beneficiary or otherwise.
7.8 To the extent that any payment of any amount by Lender to
Participant is deferred as the result of a liquidation pursuant to Section 5.1
hereof, Participant's ultimate right to collect such amount, or to attempt to
collect such amount, from Borrower (subject to Lender's prior right to be
repaid its share of the Obligations in full as more particularly provided
hereinabove) shall not be deemed to have been waived or forfeited vis-a-vis
Borrower, but merely deferred to the prior rights of Lender.
7.9 Unless the context of this Agreement clearly requires otherwise,
references to the plural include the singular, references to the singular
include the plural, the term "including" is not limiting, and the term "or"
has, except where otherwise indicated, the inclusive meaning represented by the
phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and
similar terms in this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. Section, subsection, clause,
schedule, and exhibit references are to this Agreement unless otherwise
specified. Any reference in this Agreement to the Loan Agreement or any of the
Loan Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions, and supplements, thereto
and thereof, as applicable.
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<PAGE> 14
7.10 This Agreement may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Agreement. Delivery of an
executed counterpart of this Agreement by telefacsimile shall be equally as
effective as delivery of a manually executed counterpart of this Agreement. Any
party delivering an executed counterpart of this Agreement by telefacsimile
also shall deliver a manually executed counterpart of this Agreement but the
failure to deliver a manually executed counterpart shall not affect the
validity, enforceability, and binding effect of this Agreement.
7.11 Participant is not purchasing Participant's Investment on behalf
of one or more employee benefit plans, or with proceeds which constitute "plan
assets," as defined in the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
7.12 (a) If Lender is sued or threatened with suit by a receiver or
trustee in any bankruptcy or other insolvency proceeding involving Borrower or
any other Obligor (i) on account of any alleged preferential or fraudulent
transfer received or alleged to have been received, directly or indirectly,
from Borrower or any other such Person, to the extent attributable to Term Loan
B or Participant's Investment, or (ii) relating to the equitable subordination
of the Obligations or the recharacterization of any of the Obligations as
equity, to the extent attributable to Term Loan B or the Participant's
Investment, then Participant shall (A) indemnify, defend and hold Lender
harmless from any such suit, claim or action and (B) repay or reimburse Lender
for all expenses, costs and reasonable attorneys fees paid or incurred, or
payments made by Lender, in connection therewith. To the extent that any
amounts previously paid in respect of the Obligations are recovered from
Lender, such amounts shall be reinstated as part of the Obligations, repayable
in accordance with the priorities established herein and in the Loan Agreement.
(b) Participant hereby indemnifies Lender against, and agrees
to hold Lender harmless from, any and all claims, demands, actions,
controversies, suits, liabilities, losses, damages, judgments, awards, costs
and expenses (collectively, "Losses"), including, without limitation, all
reasonable attorneys fees and disbursements and reasonable time charges of
in-house counsel of Lender, arising by reason of or resulting from (i) any
breach of Participant's representations, warranties or covenants contained
herein, (ii) any Losses described in Section 7.12(a) above, (iii) any Losses
directly arising from the making, administration, collection or enforcement of
the Term Loan B or any interest in Collateral securing the Term Loan B, or that
would not have occurred but for the Participant's Investment or the entering
into of this Agreement, in each case save and except for any such Losses
resulting from the gross negligence or willful misconduct of Lender, (iv) any
sale, assignment or transfer of, or grant of a subparticipation in, all or any
part of the Participant's Investment, or (v) Lender's following any direction
or request of Participant with respect to the Participant's Investment.
Participant's obligation to indemnify Lender under this Agreement, including,
without limitation, under Section 7.12(a) hereof, will continue notwithstanding
any termination or expiration of this
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<PAGE> 15
Agreement or the Loan Agreement, or any outright assignment of the Term Loan B
from Lender to Participant.
[Signature page follows.]
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized officers on the day and year first set
forth above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
-------------------------------------
Title:
----------------------------------
WORLD ACCESS, INC.,
a Delaware corporation
By:
-------------------------------------
Title:
----------------------------------
16
<PAGE> 1
EXHIBIT 10.35
AMENDMENT NUMBER ONE TO
PARTICIPATION AGREEMENT
This AMENDMENT NUMBER ONE TO PARTICIPATION AGREEMENT (this "Amendment")
is entered into as of May 23, 2000, by and between FOOTHILL CAPITAL CORPORATION,
a California corporation ("Foothill"), and, WORLD ACCESS, INC., a Delaware
corporation ("Participant"), with reference to the following:
WHEREAS, Foothill and Participant are parties to that certain
Participation Agreement, dated as of February 11, 2000 (the "Participation
Agreement");
WHEREAS, Borrower has requested Foothill to amend the terms and
conditions of the Loan Agreement as set forth in that certain Amendment Number
Twelve to Loan and Security Agreement, dated as of the date hereof (the "Twelfth
Amendment"), substantially in the form delivered to Participant;
WHEREAS, Foothill has requested that Participant consent to the
execution and delivery by Foothill of the Twelfth Amendment and Participant is
willing to consent to Foothill entering into the Twelfth Amendment; and
WHEREAS, it is a condition to the effectiveness of the Twelfth
Amendment that Foothill and Participant amend the Participation Agreement as set
forth herein and Participant is willing to so amend the Participation Agreement;
NOW, THEREFORE, in consideration of the above recitals and the mutual
promises contained herein, Foothill and Participant hereby agree as follows:
1. Initially Capitalized Terms.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Participation Agreement, as amended hereby.
2. Amendments to the Participation Agreement.
a. Section 1 of the Participation Agreement hereby is amended by
amending and restating the following defined term in its entirety:
"Maximum Participant Commitment" - $45,000,000.
3. Representations and Warranties. Participant hereby represents and
warrants to Foothill that (a) the execution, delivery, and performance of this
Amendment and of the Participation Agreement, as amended by this Amendment, are
within its corporate powers, have been duly authorized by all necessary
corporate action, and are not in contravention of any law, rule, or regulation,
or any order, judgment, decree, writ, injunction, or award of any arbitrator,
court, or governmental authority, or of the terms of its charter or
1
<PAGE> 2
bylaws, or of any contract or undertaking to which it is a party or by which
any of its properties may be bound or affected, and (b) this Amendment and the
Participation Agreement, as amended by this Amendment, constitute Participant'
legal, valid, and binding obligation, enforceable against Participant in
accordance with its terms.
4. Consent. Participant hereby consents to the execution and delivery by
Foothill of the Twelfth Amendment.
5. Effect on Participation Agreement. The Participation Agreement, as
amended hereby, shall be and remain in full force and effect in accordance with
its respective terms and hereby is ratified and confirmed in all respects. The
execution, delivery, and performance of this Amendment shall not operate as a
waiver of or, except as expressly set forth herein, as an amendment of, any
term of the Participation Agreement. The consents contained herein are limited
to the specifics hereof, shall not apply with respect to any facts or
occurrences other than those on which each such consents are based.
6. Further Assurances. Participant shall execute and deliver all
agreements, documents, and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill may reasonably request from time to
time, to fully consummate the transactions contemplated under this Amendment
and the Participation Agreement, as amended by this Amendment.
7. Miscellaneous.
a. Upon the effectiveness of this Amendment, each reference in the
Participation Agreement to "this Agreement", "hereunder", "herein", "hereof" or
words of like import referring to the Participation Agreement shall mean and
refer to the Participation Agreement as amended by this Amendment.
b. This Amendment may be executed in any number of counterparts,
all of which taken together shall constitute one and the same instrument and
any of the parties hereto may execute this Amendment by signing any such
counterpart. Delivery of an executed counterpart of this Amendment by fax shall
be equally as effective as a manually executed counterpart. Any party
delivering an executed counterpart of this Amendment by fax shall also deliver
a manually executed counterpart, but the failure to so deliver a manually
executed counterpart shall not affect the effectiveness or validity hereof.
[Remainder of page left intentionally blank.]
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<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first written above.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By:
-------------------------
Title:
-------------------------
WORLD ACCESS, INC.,
a Delaware corporation
By:
-------------------------
Title:
-------------------------
3
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of World Access, Inc.
and subsidiaries for the registration of its common stock and to the
incorporation by reference therein of our report dated March 20, 2000, with
respect to the consolidated financial statements and schedules of World Access,
Inc. and subsidiaries included in its Annual Report (Form 10-K) for the year
ended December 31, 1999, filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Atlanta, Georgia
May 23, 2000
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 of our report dated March 5, 1998, except for the
discontinued operations reclassifications in the Consolidated Statements of
Operations and Note C, which are as of March 14, 2000, relating to the financial
statements and financial statement schedules of World Access, Inc. for the year
ended December 31, 1997, which appears in World Access Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1999. We also consent to the
reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Atlanta, Georgia
May 23, 2000
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
World Access, Inc. on Form S-4 of our report, dated December 7, 1999, on the
consolidated financial statements of FaciliCom International, Inc. and
subsidiaries, appearing in the Current Report on Form 8-K dated December 22,
1999 of World Access, Inc., and to the reference to us under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
/s/ Deloitte & Touche LLP
Pittsburgh, Pennsylvania
May 23, 2000
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Prospectus of World Access, Inc.
and subsidiaries for the registration of its common stock and to the
incorporation by reference therein of our report dated March 10, 2000, with
respect to the consolidated financial statements of Long Distance
International, Inc. included in the World Access, Inc. and subsidiaries Current
Report (Form 8-K) dated April 26, 2000, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
West Palm Beach, Florida
May 23, 2000
<PAGE> 1
EXHIBIT 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report, which includes a
matter of emphasis, dated April 14, 2000, included in the STAR
Telecommunications, Inc.'s Form 10-K for the year ended December 31, 1999 and to
all references to our Firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
Los Angeles, California
May 23, 2000
<PAGE> 1
EXHIBIT 23.7
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated December 10, 1999 (except for the fourth paragraph of
Note 5 and sixth paragraph of Note 13, as to which the date is May 22, 2000),
with respect to the financial statements of Communications Telesystems
International d.b.a. WORLDxCHANGE Communications included in the Registration
Statement (Form S-4) and related Prospectus of World Access, Inc. for the
registration of shares of its common stock expected to be filed on or about May
25, 2000.
/s/ ERNST & YOUNG LLP
San Diego, California
May 22, 2000
