SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
Annual Report Pursuant to Section 13 or 15(d) of the Securities
[root] Exchange Act of 1934 [Fee required] For the fiscal year ended
December 31, 1996
- ---------------
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No fee required]
- ---------------
For the Transition Period from __________ to __________
Commission File Number 33-32341-D
WORLDPORT COMMUNICATIONS, INC.
(Name of Small Business Issuer as Specified in its Charter)
Sage Resources, Inc.
(Previous name of Registrant)
Delaware 84-1127336
(State or other jurisdiction of (IRS Employer ID Number)
incorporation of organization)
9601 Katy Freeway, Suite 200, Houston, Texas 77024
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (281) 615-3233
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Name of each exchange on which registered
N/A
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(b) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
YES [root] NO
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ [root] ]
The Issuer's revenues for its most recent fiscal year were $34,399,
consisting of interest income.
The Issuer is unable to calculate the aggregate market value of the
common stock of the Registrant held by nonaffiliates because no market for the
common stock has yet developed.
As of December 31, 1996, 9,053,667 shares of common stock were
outstanding.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format
(Check one):
Yes _______ No __X___
<PAGE>
PART I
Item 1. Description of Business
General
WorldPort Communications, Inc. (the "Company") is a publicly held
Delaware corporation that is implementing a strategy to become an international
telecommunications services provider through strategic acquisitions of
telecommunications companies and assets. The Company, previously known as Sage
Resources, Inc., was originally organized as a Colorado corporation on January
6, 1989, to evaluate, structure and complete a merger with, or acquisition of
other entities. In October 1996, the Company changed its domicile to Delaware
and changed its name to WorldPort Communications, Inc.
Recent Developments
In March 1997, the Company closed a private placement offering under
Regulation D (the "Offering") of 3,333,333 shares of common stock at $0.75 per
share pursuant to an offering memorandum dated November 1, 1996. The Company
received $2,500,000 of proceeds from the Offering. The Offering granted the
investors certain demand and incidental registration rights. The Company
anticipates using the proceeds from the Offering for possible acquisitions and
for general working capital purposes. Prior to December 31, 1996, $800,000 of
the proceeds were loaned to Global Star International, Inc. ("GSI") pursuant to
a letter of intent for the acquisition of GSI by the Company with an additional
$100,000 loaned in January 1997 (the "GSI Note"). On March 3, 1997, final
negotiations to acquire GSI were terminated and GSI repaid the loaned amount
plus all accrued interest.
On April 7, 1997 the Company agreed to terms on a one year employment
agreement with Mr. W. Dean Spies to serve as the Company's Chief Financial
Officer and Treasurer commencing on or before May 1, 1997. See "Employment
Agreements." Concurrently, Mr. Jonathan Hicks resigned as the Company's Vice
President and Treasurer.
On April 8,1997, the Company entered into an employment agreement with
Mr. John Dalton, the Company's new President and Chief Executive Officer. See
"Employment Agreements." Concurrently with the hiring of Mr. Dalton, Mr. Edward
Mooney resigned as the Company's President and Chief Executive Officer.
On April 4, 1997 the Company entered into a Letter of Intent to acquire
substantially all of the operating assets, liabilities and operations of
Telenational Communications Ltd, a Nebraska limited partnership
("Telenational"). The purchased assets are expected to include a
telecommunications switch and other network equipment, customer and vendor
contracts, an FCC section 214 license, and other assets which the Company
believes will be sufficient (a) to continue the ongoing business of Telenational
and (b) to commence the Company's overall telecommunications operating strategy.
Telenational provides domestic and international long distance services and is a
switch-based reseller of interexchange carrier services. Telenational currently
operates a telecommunications switch and operator services platform in Omaha,
Nebraska.
In connection with the Letter of Intent, the Company loaned to
Telenational $650,000 pursuant to a promissory note secured by a pledge of 80%
of the shares of the sole general partner of Telenational and a guaranty by the
controlling shareholder of the general partner of Telenational for the full
payment of the principal and interest of the promissory note as well as all
costs and expenses of collection and enforcement, when and as the same shall
become due and payable, pursuant to the terms of the promissory note (the
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"Loan"). The Letter of Intent is subject to completion of an asset purchase
agreement that will contain certain representations and warranties and customary
closing conditions. There can be no assurance that the Company will be
successful in acquiring the assets of Telenational.
Description of Business
The Company is currently in the development stage and has no
significant assets except for the proceeds from the Offering discussed above,
the GSI note, and a note receivable from Com Tech International Corporation
("Com Tech"). The Company anticipates using a significant portion of the
proceeds of the Offering to acquire a telecommunications company or
telecommunications assets with which to commence its overall telecommunications
strategy.
The Company seeks to identify potential acquisition targets with
long-term growth potential and strategic positions in local, regional, or
international telecommunication services markets. At the present time, other
than the Telenational letter of intent, the Company has no specific agreements
with respect to future acquisitions, but is continually investigating potential
acquisition prospects. See "Recent Developments."
Strategy for Acquisitions and Business Development
The Company's strategy is to become a facilities-based international
telecommunications service provider through the acquisition of operating
telecommunications companies or strategic telecommunications assets, or both,
that will provide the Company with the capability to (a) carry long distance
traffic between points in the United States, between points in the United States
and points in foreign countries, and between international destinations and (b)
offer high-growth, value-added telecommunications services such as pre-paid
calling card services.
The Company will primarily seek acquisition candidates that exhibit one
or more of the following competitive advantages: (a) an established network
infrastructure for voice and/or data transmissions including, but not limited
to, telecommunications switches and fiberoptic or satellite routes for domestic
and international telecommunications traffic; (b) carrier, reseller or marketing
agreements that enable the Company to generate revenues by providing services
over networks installed and operated by third parties; (c) an existing customer
base consisting of: (i) other telecommunications carriers and companies, (ii)
corporate or other high volume customers, and (iii) residential, small
office/home office, mobile and other individual end-user customers; (d) valuable
governmental licenses, concessions and operating agreements with foreign
carriers and other agreements enabling the Company to co-locate its
telecommunications equipment or to interconnect its circuits with other
carriers; (e) billing systems and other customer service and support systems;
and (f) experienced executive and operational management, particularly with
proven experience in high growth international telecommunications markets and
business segments.
Once the Company has acquired or developed its initial
telecommunications network capabilities, the Company's strategy is to rapidly
grow its business through both internal business development and acquisitions.
Specifically, the Company will seek to (a) rapidly expand its sales through the
recruitment and management of marketing agents able to originate significant
traffic volumes for transport over the Company's network; (b) acquire or deploy
switches and dedicated circuits between points where it has high traffic volumes
in order to maintain the highest level of service quality while maximizing its
margins; and (c) acquire additional telecommunications businesses that can add
significant customer bases, positive cash flow, and complementary network
infrastructure.
Through one or more acquisitions, and through internal business
development, the Company seeks to position itself to pursue business
opportunities in niche markets in the United States and in international markets
where deregulation and privatization are creating opportunities for early
competitive market entry.
Depending upon, among other things, the target company's assets and
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liabilities, the Company's shareholders will in all likelihood hold a lesser
percentage ownership interest in the Company following any merger or
acquisition. The percentage ownership may be subject to significant reduction in
the event the Company acquires a target company with substantial assets. Any
merger or acquisition effected by the Company can be expected to have a
significant dilutive effect on the percentage of shares held by the Company's
then-shareholders.
Management anticipates that the Company will have to seek additional
financing in order to fully implement its acquisition and development strategy.
See "Strategy for Acquisitions and Business Development."
The Market Opportunity
According to TeleGeography, a noted industry research organization, the
international long distance market grew from 15.6 billion minutes per year in
1985 to 53.3 billion minutes per year in 1994, representing a 15% compound
annual growth rate. The Company estimates that this international long distance
market currently represents over $50 billion in annual revenues. Initially,
through acquisitions, and later through internal business development, the
Company will likely focus its strategy on developing a presence in the U.S., the
United Kingdom, Western Europe, and Mexico, which regions combine to generate
nearly 75% of all international long distance traffic.
Competition
The Company is seeking to enter the U.S. and international
telecommunications industry through one or more acquisitions of operating
companies providing telecommunications services such as domestic and
international long distance services. When and if the Company acquires an
operating telecommunications company or telecommunications equipment and other
assets required to provide long distance services to customers, it will likely
compete with numerous companies, most of which may have assets and resources
greater than those of the Company.
The telecommunications industry is highly competitive and market
participants compete primarily on the basis of price. The U.S. long distance
industry, for example, has relatively insignificant barriers to entry for
resellers, numerous entities competing for the same customers and a high average
end-user attrition rate, as customers frequently change long distance carriers.
Increasingly, however, other factors such as network transmission quality and
responsiveness to the service and financial needs of customers are becoming
important aspects of competitiveness among carriers such as the Company. The
Company will seek to identify acquisition targets whose size, strategy and
market position enable them to be extremely flexible and responsive to customer
needs. The Company believes that flexibility and responsiveness may enable the
Company to pursue niche market opportunities and new customer relationships that
require timely provisioning of services and uniquely-structured business
relationships.
Employees
The Company presently has the following five employees: John Dalton,
its President and Chief Executive Officer, W. Dean Spies, its Chief Financial
Officer and Treasurer, two administrative personnel, and Jonathan Y.
Hicks, who continues to serve as the Company's Corporate Secretary.
Item 2. Description of Property
The Company maintains its offices at 9601 Katy Freeway, Suite 200, Houston,
Texas 77024, pursuant to a three-year lease agreement dated April 9, 1997. The
Company's lease payment for the office space, which includes basic utilities, is
initially $2,000 per month, increasing to $3,906 per month after six months.
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Item 3. Legal Proceedings
On November 8, 1996, the Company filed a lawsuit against Com Tech in
the United States District Court in the Northern District of California (Case
No. C-96-4055). The Company filed the lawsuit to collect $500,000 plus interest
and attorney's fees for amounts that Com Tech borrowed from the Company that is
now due, owing and unpaid (the "Com Tech Note"). On February 11, 1997, the
Company filed and served a motion for summary judgment requesting the court to
enter summary judgment in the Company's favor, and against Com Tech, on the
grounds that the Company loaned Com Tech $500,000, the maturity date of the loan
has passed, and the principal and interest, together with attorney's fees and
costs in pursuing this action, are now due and owing.
Item 4. Submission of Matters to a Vote of Security Holders
An annual and special meeting of the shareholders of the Company was
held on September 30, 1996. At the meeting, the shareholders approved (a) the
change of domicile and reincorporation of the Company from Colorado to Delaware,
(b) the adoption of the WorldPort Communications, Inc. Long Term Incentive Plan
for employees and consultants of the Company, and (c) the election of Jonathan
Y. Hicks, Edward P. Mooney, and Daniel P. McGinnis as the new Board of
Directors.
Effective February 10, 1997, Mr. McGinnis resigned from the Board of
Directors and Mr. Phillip S. Magiera was appointed to the Board of Directors to
serve as an interim Director until the next annual meeting or until his
successor is elected and qualified.
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
(a) Market Information. To date, no market for the Company's common
stock has developed.
(b) Holders. The number of holders of record of the Company's common
stock as of March 25, 1997 was 50. This does not include shareholders who hold
stock in nominee or street name. As of March 25, 1997, 10,883,333 shares of the
Company's common stock were issued and outstanding.
(c) Dividend Policy. The Company has not declared or paid cash
dividends on its common stock. The Company currently intends to retain any
future earnings to finance the growth and development of its business and
therefore does not anticipate paying cash dividends in the foreseeable future.
Any future determination to pay cash dividends will be made by the Board of
Directors in light of the Company's earnings, financial position, capital
requirements and such other factors as the Board of Directors deems relevant.
Item 6. Management's Discussion and Analysis or Plan of Operations.
Plan of Operations
The Company is a development stage company that has not generated
revenues other than interest income since inception. The Company's current
operations consist entirely of identifying, analyzing and negotiating with
suitable acquisition candidates in the U.S. and international telecommunications
industry. The Company's strategy is to develop its business through strategic
acquisitions of telecommunication services companies. Thus, Management
anticipates that the Company will not earn any revenues until after the
conclusion of a merger or acquisition, if any. Interest income for the year
ended December 31, 1996 was $34,399 compared to $611 for the same period in
1995. The increase was due to the interest from (a) the Com Tech Note which has
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been accrued but currently not yet been paid, and (b) the GSI Note which was
paid in full subsequent to year end.
Liquidity and Capital Resources
In connection with the Offering described above, as of year end, the
Company had received $2,387,750 in exchange for 3,183,667 shares of common
stock. See "Recent Developments." At year end, the Company had approximately
$1,500,000 in working capital, not including funds loaned to GSI. Failure to
obtain additional sufficient capital in the future could adversely affect the
Company's overall acquisition strategy. Additionally, there can be no assurance
that the Company will be able to obtain additional financing on reasonable
terms, if at all.
On July 1, 1996 the Company borrowed $500,000 from Maroon Bells Capital
Partners, Inc. (the "Maroon Bells Note") and loaned this amount to Com Tech. The
Maroon Bells Note bore interest at 10% per annum, was collateralized by an
assignment of the Com Tech Note and was due on April 1, 1997. On October 3,
1996, the Company was notified by Maroon Bells that it had assigned $80,000
principal amount of the Maroon Bells Note, to certain nonaffiliated entities
(the "Assignees"). In March 1997, the Maroon Bells Note was cancelled in
exchange for issuance of stock and certain indemnifications. See "Management's
Discussion and Analysis or Plan of Operations--Subsequent Events."
On October 15, 1996, the Company negotiated a conversion of the $80,000
of assigned debt in exchange for the issuance of 1,000,000 shares of Company
common stock to the Assignees pursuant to Regulations S.
The Com Tech Note was due October 26, 1996, bears interest at 10% per
annum and is collateralized by an assignment of all rights, title and interest
that Com Tech has pursuant to a joint venture agreement between Com Tech and
DataMax de Mexico, S.A. de C.V. The Com Tech Note is currently in default and
represents a material credit risk. However, Maroon Bells has agreed to indemnify
the Company for losses incurred in connection with the Com Tech Note. See
"Certain Relationships and Related Transactions." Failure to collect all or part
of the Com Tech Note and accrued interest could result in a loss of up to
$500,000 plus interest and collection expenses. The value of the collateral has
not been fully determined. The ultimate resolution of the matter and the related
loss, if any, cannot presently be determined. See "Legal Proceedings."
On July 15, 1996, the Company entered into certain consulting
agreements with various consultants, some of whom at the time were also
shareholders of the Company, in which the consultants agreed to render certain
consulting services in exchange for a total of 650,000 shares of common stock.
On October 1, 1996, two of the consultants, Jonathan Y. Hicks and Edward P.
Mooney, were appointed to serve as officers and directors of the Company. On
February 8, 1997, the Company filed a Form S-8 registration statement
registering for resale 650,000 shares of common stock pursuant to the consulting
agreements.
On October 31, 1996, the Company entered into an agreement with Dinton
Trader S.A. ("Dinton Trader") under which Dinton Trader will provide certain
financial advisory services to the Company in exchange for an advisory fee of
$360,000 payable no later than June 30, 1997.
Subsequent Events
On March 13, 1997, the Company closed the Offering of 3,333,333 shares
of common stock at $0.75 per share pursuant to an offering memorandum dated
November 1, 1996. The Company received $2,500,000 of proceeds from the Offering,
all of which was received prior to year end, except for $112,250 which was
received on March 13, 1997. The Offering granted the investors certain demand
and incidental registration rights. See "Recent Developments."
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On March 7, 1997, Maroon Bells agreed to cancel $420,000 of principal
plus accrued interest on certain debt and to indemnify the Company with regards
to the Com Tech Note in exchange for 1,680,000 shares of Company common stock.
See "Certain Relationships and Related Transactions."
Factors That May Affect Future Results
There are a number of factors that may affect the future results of the
Company, including, but not limited to, (a) difficulties in identifying and
acquiring profitable businesses, (b) the Company lacking any significant
operations or assets; (c) the lack of a public market for the Company's stock;
and (d) the Company's need to raise significant future financing. In addition,
the telecommunications industry is subject to national and worldwide economic
and political influences such as recession and political instability.
This annual report contains both historical facts and forward-looking
statements. Any forward-looking statements involve risks and uncertainties,
including, but not limited to, those mentioned above. Moreover, future revenue
and margin trends cannot be reliably predicted.
Item 7. Financial Statements
Please see pages F-1 through F-15.
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
There have been no disagreements between the Company and its
independent accountants on any matter of accounting principles or practices or
financial statement disclosure.
PART III
Item 9. Directors, Executive Officers, and Control Persons
The Directors and Officers of the Company are as follows:
NAME AGE POSITION TENURE
John Dalton 49 President and April 8, 1997 to Present
Chief
Executive
Officer
Jonathan Y. Hicks 30 Director September 30, 1996 to Present
Phillip S. Magiera 41 Director February 10, 1997 to Present
Edward P. Mooney 37 Director September 30, 1996 to Present
W. Dean Spies 30 Chief April 7, 1997 to Present
Financial
Officer and
Treasurer
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John Dalton - Mr. Dalton agreed to join the Company as its President
and Chief Executive Officer, effective April 8, 1997. From 1990 through the
present, Mr. Dalton has served as President of the Wallace Wade Company, a
telecommunications marketing consulting firm which produced and implemented
marketing strategies for clients ranging from small companies to large corporate
clients. In this position, Mr. Dalton consulted on telecommunications network
solutions involving virtual private networks, international telecommunications
services, and data transmission. Mr. Dalton is the former chief executive
officer and a former director of GSI.
Jonathan Y. Hicks - Since October 1996, Mr. Hicks has served as the
Vice President, Secretery, Treasurer, and Director of the Company; however, as
of April 7, 1997, Mr. Hicks serves only as Secretery and Director of the
Company. Since 1994, Mr. Hicks has served as an Associate Director of Maroon
Bells Capital Partners, Inc. ("Maroon Bells"), an international merchant bank
which concentrates on the financing of emerging telecommunications and
technology businesses. At Maroon Bells, Mr. Hicks specializes in strategic
analysis, business planning and corporate valuation, with a focus on emerging
businesses in the United States and Latin America. In 1993, Mr. Hicks served as
a market analyst at ARDIS, a wireless data operator now wholly owned by
Motorola. Mr. Hicks joined Maroon Bells after completing a Masters of Management
at Northwestern's J.L. Kellogg Graduate School of Management (1992 - 1994).
Between 1988 and 1992, Mr. Hicks was involved in international trade through
positions with Sea-Land Service, Inc., an international transportation operator,
and Tradefin, S.A., an Argentine trading company. Mr. Hicks received his
bachelors degree from Georgetown University in 1988.
Phillip S. Magiera - Since 1996, Mr. Magiera has been a Principal of
Maroon Bells. Mr. Mageria is the founder and former president of the Applied
Telecommunications Technologies I-IV Funds which have invested over $100 million
of debt and equity in over thirty-five (35) emerging telecommunications service
providers and manufacturers in industries such as cellular service and Internet
access. Prior to founding the Applied Telecommunications Technologies Fund, Mr.
Magiera was Vice President of Fidelity Ventures, Inc., a wholly owned venture
capital subsidiary of Fidelity Investments.
Edward P. Mooney - Since 1993, Mr. Mooney has served as an Associate
Director of Maroon Bells. For Maroon Bells, Mr. Mooney specializes in strategic
planning, corporate valuations, corporate governance, and financial analysis.
From October 1996 to April 7, 1997, Mr. Mooney served as the President, Chief
Executive Officer, and Director of the Company. However, as of April 8, 1997,
Mr. Mooney serves only as a Director of the Company. From 1989 until 1992, Mr.
Mooney served as Director of Research for American Business Ventures, Inc., a
business development and management consulting firm that was responsible for the
creation, development, financing and executive management of publicly-traded and
privately-held companies. From 1984 to 1989, Mr. Mooney was a research assistant
for A.B. Laffer Associates, an economic research and consulting firm which
advises investment funds, banks and other financial institutions with regard to
asset allocation, portfolio strategies and public policy trends. Mr. Mooney
holds a Bachelor of Arts degree in Geography from San Francisco State University
and a Master of Arts degree in Education from California State University, Long
Beach.
W. Dean Spies - Mr. Spies agreed to join the Company as its Chief
Financial Officer and Treasurer, effective April 7, 1997. From 1995 until
joining the Company, Mr. Spies served as Manager of Financial Reporting for
American REF-FUEL Company, where he was responsible for a wide range of
accounting and financial controls, reporting and audits. Prior to 1995, Mr.
Spies served over six years with Arthur Andersen L.L.P. in Houston, Texas, most
recently as a Manager. His areas of responsibility included valuation analysis,
financial and business modeling, and all aspects of public company financial
reporting, including SEC filings and related regulatory compliance. Mr. Spies
graduated in 1989 from Baylor University Summa Cum Laude with a Bachelor of
Business Administration degree in Accounting and Finance and is a Certified
Public Accountant.
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Item 10. Executive Compensation
Executive Compensation
Edward P. Mooney and Jonathan Y. Hicks each received $1,250 per month
from the Company for management services rendered to the Company until April 7,
1997. Beginning April 7, 1997, Mr. Hicks will receive an annual salary of
$15,000, Mr. Spies will receive an annual salary of $82,000, and Mr. John Dalton
will receive an annual salary of $156,000. Effective April 7, 1997, Mr. Mooney
resigned as President and Chief Executive Officer, but will continue to serve as
a Director of the Company.
Board of Director Meetings and Committees
The Board of Directors held seven (7) meetings during 1996, including
any and all written actions in lieu of a meeting. All directors attended all of
the meetings of the Board.
On March 27, 1997, the Company's Board of Directors established an
Audit Committee and a Compensation Committee. The function of the Audit
Committee is to review the results and scope of the audit and other services
provided by the Company's independent auditors, review and evaluate the
Company's internal audit and control functions and monitor transactions between
the Company and its employees, officers and directors. The function of the
Compensation Committee is to administer the Company's equity incentive plans and
designate compensation levels for officers and directors of the Company.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee of the Company's Board of
Directors are Messrs. Mooney and Magiera. Mr. Magiera is a non-employee
director. Until April 8, 1997, Mr. Mooney was the President and Chief Executive
Officer, whose compensation was $15,000 per year. Beginning April 8, 1997, Mr.
Mooney will serve on the Compensation Committee of the Company's Board of
Directors as a non-employee director.
On March 27, 1997, the Board of Directors granted each director 50,000
stock options and 15,000 stock options for each board committee upon which the
director served, all of which shares have an exercise price of $0.75 per share.
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Summary Compensation Table
The following table sets forth the aggregate cash compensation paid by
the Company for services rendered during the last three years to the Company by
its Chief Executive Officer and to each of the Company's other executive
officers whose annual salary, bonus and other compensation exceeded $100,000 in
1996.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other
Annual Restricted
Compen- stock Options/ LTIP
sation Award(s) SARs Payouts
Name and Principal Position Year Salary ($) Bonus ($) ($)(1) ($) (#) ($)
--------------------------- ---- ---------- --------- ------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Edward P. Mooney
President and CEO 1996 $ 2,500 $ 2,500 $ --- $ --- 25,000 $ ---
</TABLE>
- -------------------
(1)Mr. Mooney commenced his employment with the Company as of October 7, 1996
and was replaced as President and Chief Executive Officer on April 8, 1997 by
Mr. John Dalton. See "Employment Agreements" and "Certain Relationships and
Related Transactions."
Compensation of Directors
During the 1996 fiscal year, directors who were also Company employees
received no additional or special remuneration for serving as directors other
than out-of-pocket expenses, if any, for each meeting of the Board of Directors.
Beginning March 27, 1997, all directors of the Company, including non-employee
directors and employee directors, will receive stock options.
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Employment Agreements
Until April 7, 1997, the Company had employment agreements with Edward
P. Mooney and Jonathan Y. Hicks, which were effective as of October 7, 1996.
Pursuant to these agreements, the Company paid $1,250 per month to Mr. Mooney
and to Mr. Hicks for management services, beginning November 1, 1996. The
Company paid Mr. Mooney and Mr. Hicks an initial bonus of $2,500 each upon
execution of the employment agreements. Effective April 7, 1997, Mr. Mooney
resigned as President and Chief Executive Officer of the Company. Mr. Hicks'
employment agreement is still effective with an annual salary of $15,000.
On April 7, 1997 the Company agreed to terms on a one-year employment
agreement with Mr. W. Dean Spies to serve as the Company's Chief Financial
Officer and Treasurer commencing on or before May 1, 1997. Mr. Spies will earn a
base salary of $82,000 per year and will be eligible to earn incentive bonuses
during the next 12 months of up to $20,500 based on criteria to be established
by the Board of Directors. In addition, pursuant to Mr. Spies' employment
agreement, Mr. Spies was granted options to purchase 120,000 shares of common
stock based on the following vesting schedule: 40,000 options vested as of April
7, 1997 at an exercise price of $0.75 per share; 40,000 options vested as of
April 7, 1998 at an exercise price of $1.00 per share; and 40,000 options vested
as of April 7, 1999 at an exercise price of $1.50 per share. Mr. Spies is the
nephew of Mr. Dalton, the Chief Executive Officer of the Company.
On April 8, 1997, the Company entered into a three-year employment
agreement with Mr. John Dalton whereby Mr. Dalton has agreed to serve as the
Company's President and Chief Executive Officer. Mr. Dalton will earn a base
salary of $156,000 per year, and will be eligible to earn performance incentive
bonuses up to $100,000 during the next 12 months based on certain business
development and growth criteria. In addition, Mr. Dalton was granted options to
purchase common stock of the company at an exercise price of $2.00 per share,
based on the following vesting schedule: 100,000 options vested after one year
of service to the Company and 100,000 options vested after two years of service
to the Company.
The Company has no other employment agreements.
Long-Term Incentive Plan
On October 1, 1996, the Company adopted the WorldPort Communications,
Inc. Long-Term Incentive Plan (the "Incentive Plan") for employees and
consultants of the Company. The Company will use the Incentive Plan as a means
to promote the success and enhance the value of the Company through (a) linking
the personal interests of its key employees and consultants to those of the
shareholders, (b) providing employees with an incentive for outstanding
performance, and (c) providing the Company flexibility in its ability to attract
and retain the services of its employees and contractors. The Incentive Plan
authorizes grants of Incentive Stock Options, Non-qualified Stock Options, Stock
Appreciation Rights, Restricted Stock, Performance Shares, and Dividend
Equivalents. The Company has reserved 2,000,000 shares of the Company's common
stock for use as grants under the Incentive Plan. As of March 25, 1997, the
Company had issued stock options under the Incentive Plan to acquire 50,000
shares of common stock.
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Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, all individuals known to beneficially
own 5% or more of the Company's common stock, and all officers and directors of
the registrant, with the amount and percentage of stock beneficially owned, as
of March 25, 1997.
Amount and
Name and Address Nature of Bene- Percent
of Beneficial Owner ficial Ownership of Class
Maroon Bells Capital Partners, Inc. 2,280,000 20.59%
United Overseas Bank 1,670,000 15.34%
Theodore H. Swindells1 766,666 7.04%
DuLac Consultants, Ltd. 700,000 6.43%
BNP International Financial Services 667,000 6.13%
Paul A. Moore1 500,000 4.59%
Phillip S. Magiera1 300,000 2.76%
Jonathan Y. Hicks2 50,000 0.46%
Edward P. Mooney3 50,000 0.46%
Officers and Directors as
a Group 1,2,3 400,000 3.66%
- --------
1Excludes 2,280,000 shares held by Maroon Bells Capital Partners, Inc.,
of which Messrs. Swindells, Moore, and Magiera disclaim beneficial ownership.
Messrs. Swindells, Moore, and Magiera are the sole principals of Maroon Bells
Capital Partners, Inc.
2Includes 25,000 shares which are subject to an option to purchase such
shares from the Company at $0.08 per share.
3Includes 25,000 shares which are subject to an option to purchase such
shares from the Company at $0.08 per share.
12
<PAGE>
Item 12. Certain Relationships and Related Transactions
All of the Company's directors and Jonathan Y. Hicks are either
employees or affiliates of Maroon Bells. The Company and Maroon Bells have been
parties to the transactions identified below.
Stock Purchase Agreement
On June 26, 1996, Maroon Bells, its principals, and certain non-
affiliated investors entered into a stock purchase agreement to purchase
newly-issued shares of the Company's common stock representing approximately
98.5% of the outstanding shares of the Company as of the date of the Agreement
for $110,000 in cash. Prior to the stock purchase agreement, the Company had no
operations and little or no assets or liabilities. Effective upon this change of
control, the Company adopted a business strategy to enter the international
telecommunications services industry. Subsequent to its initial investment in
the Company, Maroon Bells allocated substantial amounts of its own internal
corporate resources to the development and implementation of the Company's
overall operating strategy, including legal, travel and other expenses and the
contribution to the Company of certain business development opportunities for
which Maroon Bells received no additional compensation from the Company.
Office Space
From October 1, 1996 until April 10, 1997, the Company maintained its
offices in space provided at no charge to the Company by Maroon Bells, pursuant
to a month-to-month agreement, at 100 California Street, Suite 1400, San
Francisco, California 94111. The Company paid no rental or lease payments for
the office space, basic telephone expenses, supplies or utilities.
Consulting Agreements
In July, 1996, the Company entered into consulting agreements with Paul
Moore, Theodore Swindells, Phillip Magiera, Edward Mooney and Jonathan Hicks
(the "Consultants"). Messrs. Moore, Swindells and Magiera are principals of
Maroon Bells and Messrs. Hicks and Mooney are employees of Maroon Bells.
Pursuant to the consulting agreements, a total of 650,000 shares of the
Company's common stock were earned by the Consultants for services rendered to
the Company. On February 8, 1997, the Company filed a form S-8 registration
statement with the Securities and Exchange Commission (Registration No.
333-21549) to register these 650,000 shares.
Maroon Bells Capital Partners, Inc.'s Loan to the Company
On July 1, 1997, Maroon Bells loaned to the Company $500,000 pursuant
to the Maroon Bells Loan. The Maroon Bells Loan was collateralized by the Com
Tech Note. On October 15, 1996, $80,000 of the Maroon Bells Loan, which had been
assigned to two non-affiliated offshore entities, was converted into shares of
the Company's common stock, resulting in the issuance of 1,000,000 shares of the
Company's common stock. The remaining $420,000 principal amount due to Maroon
Bells was due and payable on November 1, 1996. Maroon Bells subsequently agreed
to an extension of the maturity date of the Maroon Bells Loan until April 1,
1997. As consideration for such an extension, the Company agreed to pay to
Maroon Bells all accrued interest under the Maroon Bells Loan as of January 16,
1997.
On March 7, 1997, Maroon Bells and the Company entered into a Stock
Issuance and Indemnification Agreement whereby Maroon Bells agreed to (a) cancel
the $420,000 outstanding principal and all accrued, but unpaid, interest as of
that date in exchange for 1,680,000 shares (the "Indemnification Shares") of the
Company's common stock, (b) indemnify the Company for an amount up to $460,000
(payable either in (i) cash, (ii) the Indemnification Shares, (iii) by return of
other Company shares (based on $0.25 per share), or (iv) a combination thereof,
in the event that the Company is unsuccessful in securing repayment from the Com
Tech Loan, and (c) divide equally with the Company any proceeds, assets or other
consideration in excess of $540,000 received by the Company as a result of the
enforcement of the Com Tech Loan. Maroon Bells also agreed to refrain from
transferring or selling the Indemnification Shares until such time as the
disposition of the Com Tech Loan is determined.
13
<PAGE>
Management
Edward P. Mooney, the Company's former Chief Executive Officer and
President, is an employee of Maroon Bells. Jonathan Y. Hicks, the Company's
former Vice President and Treasurer and current Secretary is an employee of
Maroon Bells. Mr. Mooney and Mr. Hicks continue to serve as directors of the
Company.
On October 10, 1996, Mr. Mooney and Mr. Hicks were each granted options
to purchase 25,000 shares of the Company's common stock at an exercise price of
$0.08 per share. On February 10, 1997, Phillip S. Magiera joined the Board of
Directors of the Company to fill a vacancy created by the resignation of Daniel
McGinnis. Mr. Magiera is a principal of Maroon Bells.
Advisory Agreements
On March 7, 1997, the Company and Maroon Bells entered into a twelve
(12) month agreement (the "Advisory Agreement") wherein Maroon Bells agreed to
provide certain services to the Company in exchange for (a) a monthly retainer
of $10,000 per month (accrued but not yet payable until such time as the Company
successfully raises cumulative proceeds of $5,000,000 in equity or debt
financing) and (b) certain success fees payable when and if Maroon Bells
successfully assists the Company in certain transactions including, but not
limited to, mergers and acquisitions. As part of the Advisory Agreement, the
Company agreed to reimburse Maroon Bells for certain travel and out-of-pocket
expenses incurred by Maroon Bells on behalf of the Company.
Familial Relationships
Mr. Spies, the Company's Chief Financial Officer and Treasurer, is the
nephew of Mr. Dalton, the Company's President and Chief Executive Officer.
PART IV
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C> <C>
3.1 Certificate of Incorporation for WorldPort Communications, 1
Inc., previously filed with Form 10-QSB for the fiscal quarter
ended September 30, 1996, and incorporated herein by reference.
3.2 Bylaws of WorldPort Communications, Inc., previously 1
filed with Form 10-QSB for the fiscal quarter ended
September 30, 1996, and incorporated herein by reference.
10.1 Financial Advisory Agreement between the Registrant and 1
Dinton Trader S.A. dated October 31, 1996, previously filed
with Form 10-QSB for the fiscal quarter ended September
30, 1996, and incorporated herein by reference.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C> <C>
10.2 Loan Agreement between Com Tech International 1
Corporation and the Registrant dated June 27, 1996, previously
filed with Form 10-QSB for the fiscal quarter ended September
30, 1996, and incorporated herein by reference.
10.3 Assignment, Pledge & Security Agreement between Com 1
Tech International Corporation and the Registrant dated June
27, 1996, previously filed with Form 10-QSB for the fiscal
quarter ended September 30, 1996, and incorporated herein
by reference.
10.4 Convertible Secured Promissory Note between the 1
Registrant and Maroon Bells Capital Partners, Inc. dated
July 1, 1996, previously filed with Form 10-QSB for the
fiscal quarter ended September 30, 1996, and incorporated
herein by reference.
10.5 Loan Agreement between the Registrant and Maroon Bells 1
Capital Partners, Inc. dated July 1, 1996, previously filed
with Form 10-QSB for the fiscal quarter ended September
30, 1996, and incorporated herein by reference.
10.6 Assignment, Pledge & Security Agreement between the 1
Registrant and Maroon Bells Capital Partners, Inc. dated
July 1, 1996, previously filed with Form 10-QSB for the
fiscal quarter ended September 30, 1996, and incorporated
herein by reference.
10.7 Secured Promissory Note between the Registrant and Com 1
Tech International Corporation dated June 27, 1996,
previously filed with Form 10-QSB for the fiscal quarter
ended September 30, 1996, and incorporated herein by
reference.
10.8 Maroon Bells Capital Partners, Inc. Advisory Agreement for 1
WorldPort Communications, Inc. dated March 7, 1997.
10.9 Stock Issuance and Indemnification Agreement by and 1
between Maroon Bells Capital Partners, Inc. and WorldPort
Communications, Inc. dated March 7, 1997.
10.10 Pledge Agreement, Secured Promissory Note, and Guaranty 1
between Edmund Blankenau and the Registrant dated April
4, 1997.
10.11 Letter Agreement by and between W. Dean Spies and the 1
Registrant dated April 7, 1997.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description Location
----------- ----------- --------
<S> <C> <C> <C>
10.12 Employment Agreement by and between John Dalton and 1
the Registrant dated April 8, 1997.
22.1 Notice of Annual and Special Meeting of Shareholders and 1
Proxy Statement dated September 18, 1996, previously filed
with Form 10-QSB for the fiscal quarter ended September
30, 1996, and incorporated herein by reference.
23.1 Consent of Schumacher & Associates, Inc., Independent 1
Certified Public Accountant.
27 Financial Data Schedule 1
</TABLE>
(b) No Current Reports on Form 8-K were filed during the last
quarter of the period covered by this Report.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated this 15th day of April, 1997
WORLDPORT COMMUNICATIONS, INC.
By /s/John Dalton
-------------------------------------
John Dalton
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/John Dalton
- ---------------------- President, Chief Executive Officer April 15, 1997
John Dalton (Principal Executive Officer)
/s/Edward P. Mooney
- ---------------------- Director April 15, 1997
Edward P. Mooney
/s/Jonathan Y. Hicks
- ---------------------- Director and Secretary April 15, 1997
Jonathan Y. Hicks
/s/Phillip S. Magiera
- ---------------------- Director April 14, 1997
Phillip S. Magiera
/s/W. Dean Spies
- ---------------------- Chief Financial Officer and April 15, 1997
W. Dean Spies Treasurer (Principal Financial
Officer and Principal Accounting
Officer).
17
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
with
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1996 and 1995
Page
Financial Statements:
Report of Independent Certified Public
Accountants F-2
Balance Sheet F-3
Statements of Operations F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows F-7
Notes to Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
WorldPort Communications, Inc. (A Development Stage Company)
San Francisco, California
We have audited the accompanying balance sheet of WorldPort Communications, Inc.
(A Development Stage Company) as of December 31, 1996, and the related
statements of operations, stockholders' equity and cash flows for the two years
then ended and from inception to December 31, 1996. These financial statements
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WorldPort Communications, Inc.
(A Development Stage Company) as of December 31, 1996 and the results of its
operations, changes in its stockholders' equity and its cash flows for the two
years then ended December 31, 1996 and 1995, and from inception to December 31,
1996 in conformity with generally accepted accounting principles.
Schumacher & Associates, Inc.
Certified Public Accountants
12835 E. Arapahoe Road, Tower II, Suite 110
Englewood, CO 80112
March 27, 1997
F-2
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
Current Assets:
<S> <C>
Cash $1,552,829
Note receivable (Notes 2 and 6) 800,000
Other 6,329
----------
Total Current Assets 2,359,158
Other Assets:
Note receivable, including accrued
interest (Note 6) 527,806
Deferred offering costs (Note 9) 2,068
----------
Total Assets $2,889,032
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C>
Accounts payable $ 75,936
Accrued interest payable (Note 2) 23,706
Other 100
----------
Total Current Liabilities 99,742
Note payable (Notes 2 and 6) 420,000
----------
Total Liabilities 519,742
----------
Stockholders' Equity (Note 10):
Preferred stock, $.0001 par value,
10,000,000 shares authorized,
none issued and outstanding -
Common Stock, $.0001 par value,
65,000,000 shares authorized,
9,053,667 shares issued and
outstanding 905
Additional paid-in capital 2,664,291
Deficit accumulated during
development stage (295,906)
Total Stockholders' Equity 2,369,290
Total Liabilities and Stockholders'
Equity $2,889,032
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
January 6,
1989
Year Year (Inception)
ended ended to
December December December
31, 1996 31, 1995 31 ,1996
Revenue:
<S> <C> <C> <C>
Interest income $ 34,399 $ 611 $ 40,871
---------- ----------- ----------
Operating Expenses:
Consulting fees, related party 110,000 - 110,000
Stock issued for consulting fees 36,740 - 36,740
Legal and accounting 105,461 2,540 120,065
Interest 23,706 - 23,706
Salaries 10,000 - 10,000
Rent (Note 2) 1,000 3,000 20,750
Travel - 1,832 3,292
Other 7,390 271 12,224
---------- ----------- ----------
Total Operating Expenses 294,297 7,643 336,777
---------- ----------- ----------
Net (Loss) $ (259,898) $ (7,032) $ (295,906)
========== ========== ==========
Per Share $ (.11) $ (.12) $ (.86)
========== ========== ==========
Weighted Average Shares Outstanding 2,358,334 60,000 344,003
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
------------------------- Paid-in Development
Shares Amount Capital Stage Total
-------- -------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balances at inception January 6, 1989 - $ - $ - $ - $ -
Issuance of stock to officers and
directors January, 1989 (note 3)
for cash ($.005 per share) 40,000 200 - - 200
Issuance of stock April, 1989
for cash ($1.00 per share) 8,000 8,000 - - 8,000
Net loss for period ended
December 31, 1989 - - - (1,551) (1,551)
--------- -------- ---------- ---------- ----------
Balance at December 31, 1989 48,000 8,200 - (1,551) 6,649
Issuance of stock in public
offering, net of expenses
of $17,653 12,000 42,347 - - 42,347
Net (loss) for year ended
December 31, 1990 - - - (4,398) (4,398)
--------- --------- ----------- ----------- ----------
Balance at December 31, 1990 60,000 50,547 - (5,949) 44,598
Net (loss) for year ended
December 31, 1991 - - - (4,670) (4,670)
--------- --------- ----------- ----------- ----------
Balance at December 31, 1991 60,000 50,547 - (10,619) 39,928
Net (loss) for year ended
December 31, 1992 - - - (5,281) (5,281)
--------- --------- ----------- ----------- ----------
Balance at December 31, 1992 60,000 50,547 - (15,900) 34,647
Net (loss) for year ended
December 31, 1993 - - - (5,644) (5,644)
--------- --------- ----------- ----------- ----------
Balance at December 31, 1993 60,000 50,547 - (21,544) 29,003
Net (Loss) for year ended
December 31, 1994 - - - (7,432) (7,432)
---------- ----------- ------------- ----------- ----------
Balance at December 31, 1994 60,000 50,547 - (28,976) 21,571
Net (Loss) for year ended
December 31, 1995 - - - (7,032) (7,032)
---------- ----------- ------------- ----------- ----------
Balance at December 31, 1995 60,000 50,547 - (36,008) 14,539
Reorganization, October 1, 1996 - (50,541) 50,541 - -
Issuance of stock June, 1996
for cash ($.0275 per share) 4,000,000 400 109,600 - 110,000
Issuance of stock July, 1996
for services ($.0275 per share) 160,000 16 4,384 - 4,400
Issuance of stock July, 1996
for services ($.05 per share) 650,000 65 32,435 - 32,500
Issuance of stock October, 1996
for cash ($.08 per share) 1,000,000 100 79,900 - 80,000
</TABLE>
F-5
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
------------------------- Paid-in Development
Shares Amount Capital Stage Total
--------- ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Issuance of stock November, 1996
for cash ($.75 per share) 446,667 45 334,955 - 335,000
Issuance of stock December, 1996
for cash ($.75 per share) 2,737,000 273 2,052,476 - 2,052,749
Net (Loss) for year ended
December 31, 1996 - - - (259,898) (259,898)
---------- ----------- ------------- ----------- ----------
Balance at December 31, 1996 9,053,667 $ 905 $ 2,664,291 $ (295,906) $2,369,290
========== =========== ============= =========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
January 6,
1989
(Inception)
Year ended Year ended to
December December December
31, 1996 31, 1995 31, 1996
---------- ---------- ---------
Cash flows from operating activities:
<S> <C> <C> <C>
Net (Loss) $ (259,898) $ (7,032) $ (295,906)
Adjustments to reconcile net (loss) to net
cash used by operating activities:
Amortization - - 200
Changes in liabilities:
(Increase) in accrued interest receivable (34,135) - (34,135)
Increase (decrease) in accounts payable
and accrued expenses 97,674 (1,334) 97,674
---------- ---------- ----------
Net Cash (Used in) Operating Activities (196,359) (8,366) (232,167)
---------- ---------- ----------
Cash flows from investing activities:
Investment in notes receivable (1,300,000) - (1,300,000)
Organization costs - (200)
---------- ---------- ----------
Net Cash (Used in) Investing Activities (1,300,000) (1,300,200)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from note payable 500,000 - 500,000
Proceeds from issuance of common stock 2,534,649 - 2,602,849
Deferred offering costs - - (17,653)
---------- ---------- ----------
Net Cash Provided by Financing Activities 3,034,649 3,085,196
---------- ---------- ----------
Net increase (decrease) in cash
and cash equivalents 1,538,290 (8,366) 1,552,829
Cash at Beginning of Period 14,539 22,905 -
---------- ---------- ----------
Cash at End of Period $1,552,829 $ 14,539 $1,552,829
========== ========== ==========
Interest Paid $ - $ - $ -
========== ========== ==========
Income Taxes Paid $ - $ - $ -
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of WorldPort
Communications, Inc. (formerly Sage Resources, Inc.) (Worldport or the
Company) is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management who is responsible for
their integrity and objectivity. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Organization
The Company is a publicly held Delaware corporation that is
implementing a strategy to become an international telecommunications
service provider through strategic acquisitions of telecommunications
companies and assets. The Company, previously known as Sage Resources,
Inc., was originally organized as a Colorado corporation on January 6,
1989, to evaluate, structure and complete a merger with, or acquisition
of other entities. In October 1996, the Company changed its domicile to
Delaware and changed its name to WorldPort Communications, Inc. The
Company's current strategy is to develop its business through strategic
acquisitions of telecommunication services companies.
The Company is currently in development stage. As such, there are a
number of factors that may affect the future results of the Company,
including, but not limited to (a) difficulties in identifying and
acquiring profitable businesses, (b) the Company lacking any
significant operations or assets, (c) the lack of a public market for
the Company's stock, and (d) the Company's need to raise significant
future financing. In addition, the telecommunications industry is
subject to national and worldwide economic and political influences
such as recession and political instability.
Organizational Costs
Organizational costs are being amortized on a straight-line basis over
five years.
F-8
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,
CONTINUED
Deferred Offering Costs
The Company has incurred offering costs in connection with an offering
memorandum (Note 9). Upon successful completion of the offering, these
costs will be charged as a reduction of the offering proceeds.
Cash and Cash Equivalents
For purposes of the Statements of Cash Flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
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.
Fair Value of Financial Instruments
The carrying amount approximates fair value of cash and short-term
financial instruments (all of which are held for nontrading purposes).
The Company has no long-term financial instruments.
Concentrations of Credit Risks
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and cash equivalents and trade accounts receivables. At
December 31, 1996, the Company had $1,552,829 of its cash and cash
equivalents in financial institutions, all but $100,000 of which were
in excess of amounts insured by agencies of the U.S. Government. All
secured notes receivable are from companies where the Company had
entered into letters of intent for acquisition which are involved in
the telecommunication industry.
F-9
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
2. RELATED PARTY TRANSACTIONS
All of the Company's officers and directors are either employees or
affiliates of Maroon Bells Capital Partners, Inc. (Maroon Bells).
WorldPort and Maroon Bells have been parties to the following
transactions and/or agreements:
Stock Purchase Agreement. On June 25, 1996, Maroon Bells entered into a
stock purchase agreement to purchase 4,000,000 shares of WorldPort
common stock for an aggregate purchase price of $110,000.
Maroon Bells Loan to WorldPort. On July 1, 1996 Maroon Bells loaned to
WorldPort $500,000 pursuant to a promissory note (the Maroon Bells
Note). The Maroon Bells Note was collateralized by a promissory note
between WorldPort and Com Tech International Corp. (the Com Tech Note).
On October 3, 1996, the Company was notified by Maroon Bells that it
had assigned $80,000 principal amount of the Maroon Bells Note, to
certain non affiliated entities (the Assignees).
On October 15, 1996, $80,000 of the Maroon Bells Note held by the
Assignees was converted into shares of WorldPort common stock,
resulting in the issuance of 1,000,000 shares of WorldPort common
stock.
The remaining $420,000 principal amount due to Maroon Bells was due and
payable November 1, 1996. Beginning on October 31, 1996 Maroon Bells
agreed to extensions of the maturity date of the Maroon Bells Note,
including an agreement between Maroon Bells and WorldPort on January
16, 1997 whereby Maroon Bells agreed to extend the maturity date of the
Maroon Bells Note until April 1, 1997. As consideration for such an
extension, WorldPort agreed to pay to Maroon Bells all accrued interest
under the Maroon Bells Note as of January, 1997.
On March 7, 1997 Maroon Bells and WorldPort entered into a Stock
Issuance and Indemnification Agreement whereby (a) Maroon Bells agreed
to cancel the $420,000 outstanding principal and all accrued but unpaid
interest as of that date in exchange for 1,680,000 shares (the
"Indemnification Shares") of WorldPort common stock, (b) Maroon Bells
agreed to indemnify WorldPort for an amount up to $460,000 in cash, the
Indemnification Shares or other WorldPort shares (based on $.25 per
share), or a combination thereof, in the event that WorldPort is
unsuccessful in securing repayment from the Com
F-10
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
2. RELATED PARTY TRANSACTIONS, CONTINUED
Tech Note, and (c) Maroon Bells and WorldPort agreed to divide equally
any proceeds, assets or other consideration received by WorldPort as a
result of the Com Tech Note in excess of $540,000. Maroon Bells agreed
to refrain from transferring or selling the Indemnification Shares
until such time as the disposition of the Com Tech Note is determined.
Management Agreements. Mr. Edward Mooney (the Company's Chief Executive
Officer, President and Director) and Mr. Jonathan Hicks (the Company's
Vice President, Secretary and Treasurer) are employees of Maroon Bells
and each also hold employment agreements with WorldPort whereby they
are each paid $1,250 per month for providing management services to
WorldPort. These agreements expire on October 1, 1997. Mr. Mooney and
Mr. Hicks were each granted options to purchase 25,000 shares of
WorldPort common stock during 1996 at an exercise price of $.08 per
share. Management believes that the fair value of the shares did not
exceed $.08 per share on the date of the grant. In 1997, Mr. Phillip
Magiera joined the Board of Directors to fill a vacancy created by the
resignation of Mr. Daniel McGinnis. Mr. Magiera is a principal of
Maroon Bells.
Offices. From October 1, 1996 until April 10, 1997 the Company has
utilized as its corporate headquarters the offices of Maroon Bells.
During this period, Maroon Bells has not assessed WorldPort any rental
or lease charges for office space, telephone expenses, supplies or
utilities. Prior to October 1, 1996, the Company maintained its offices
in space provided by the Company's former president pursuant to an oral
agreement for $250 per month including basic telephone and receptionist
services commencing June 1, 1989. For the years ended December 31, 1996
and 1995, rent of $1,000 and $3,000 respectively was paid to the former
president.
Consulting Agreements. In July, 1996 WorldPort entered into consulting
agreements with Paul Moore, Theodore Swindells, Phillip Magiera, Edward
Mooney and Jonathan Hicks (the "Consultants"). Messrs. Moore, Swindells
and Magiera are principals of Maroon Bells, and Messrs. Mooney and
Hicks are employees of Maroon Bells. Pursuant to the consulting
agreements, a total of 650,000 shares of WorldPort common stock were
earned by the Consultants for services rendered to the Company. On
February 8, 1997 WorldPort filed a form S-8 registration statement for
these 650,000 shares. These shares were valued at $.05 per share based
upon other stock transactions at the time the services were rendered.
F-11
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
2. RELATED PARTY TRANSACTIONS, CONTINUED
Advisory Agreement. On March 7, 1997 WorldPort and Maroon Bells entered
into a 12-month Advisory Agreement wherein Maroon Bells agreed to
provide certain services to the Company in exchange for (a) a monthly
retainer of $10,000 per month (commencing when and if WorldPort is
successful in raising cumulative proceeds of $5,000,000 in equity or
debt financing) and (b) certain success fees payable when and if Maroon
Bells successfully assists WorldPort in certain transactions including,
but not limited to, mergers and acquisitions. As part of the Advisory
Agreement, WorldPort agreed to reimburse Maroon Bells for certain
travel and out-of-pocket expenses incurred by Maroon Bells on behalf of
WorldPort.
3. STOCKHOLDER'S EQUITY
Preferred Stock
The Company authorized 10,000,000 shares of $.0001 par value preferred
stock. No preferred stock is issued or outstanding.
Common Stock
In January of 1989, the Company sold 40,000 Units to its former
officers and directors for $200. Each Unit consisted of one share of no
par value restricted common stock, one Class A Warrant and one Class B
Warrant. The Class A and Class B Warrants were included in the public
offering (Note 4).
Long-Term Incentive Plan
The Company adopted an incentive stock option plan for Company
employees and consultants. The Company has reserved 2,000,000 common
shares for issuance pursuant to the plan. As of December 31, 1996,
there were 50,000 outstanding options under the Plan at an exercise
price of $.08 per share.
Other
Additionally, prior to year end, the Company issued 25,000 additional
stock options which had been previously authorized pursuant to a grant
by the Board of Directors. In March 1997, the Company authorized a
total of 210,000 stock options for directors with an exercise price of
$.75 per share.
F-12
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
4. PUBLIC OFFERING
In October of 1990, the Company completed a public offering of 12,000
Units at $5.00 per Unit through an officer and director.
Gross proceeds from offering $ 60,000
Offering costs paid directly,
e.g. legal, accounting, etc. (17,653)
Net stockholders' equity from
the offering $ 42,347
========
Each Unit consisted of one share of the Company's common stock and one
Class C Warrant to purchase one share of common stock at $100 per share
through the period ending April 24, 1997. The common stock and Class C
Warrants included in the Units became separately transferable
immediately after the closing of the public offering.
Included in this offering were 40,000 Class A Common Stock Purchase
Warrants and 40,000 Class B Common Stock Purchase Warrants (the A & B
Warrants) offered by certain warrant holders of the Company (Note 3).
If the founding shareholders (present holders of the A and B Warrants)
were to sell the A & B Warrants, the Company would not receive any of
the proceeds from the sale.
One Class A Warrant entitles the holder to purchase one share of the
Company's common stock at $25 per share through the period ending April
24, 1997. One Class B Warrant entitles the holder to purchase one share
of the Company's common stock at $50 per share through the period
ending April 24, 1997. The A & B Warrants were sold at a price
determined by the public demand therefore, not to exceed $5 per
warrant. The selling warrant holders did not pay any of the offering
expenses.
The Company may redeem the Class C Warrants at any time, at $.01 per
Warrant upon 30 days written notice to the Warrantholders.
5. INCOME TAXES
As of December 31, 1996, net operating loss carryforwards of
approximately $296,000 are available to reduce future taxable income,
expiring in 2004 through 2010. Deferred tax assets of approximately
$86,485 (an increase of $79,185 from December 31, 1995) have not been
recognized for the tax benefits of the net operating loss carryforwards
due to the uncertainty of their realization. The Company has provided a
F-13
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
5. INCOME TAXES, CONTINUED
valuation allowance for the entire $296,000. Recent changes in stock
ownership of the Company could result in limitations on the Company's
ability to utilize the net operating loss carryforward.
6. NOTES RECEIVABLE
At December 31, 1996, notes receivable consisted of the following:
Com Tech International Corporation,
interest at 12.0%, due
October 27, 1996, collateralized
by borrowers right, title and
interest in Datamax de Mexico,
S.A. de C.V. including accrued
interest of $27,806 $ 527,806
Global Star International, Inc. ("GSI"),
interest at 10.0%, secured by pledge
of 100% of the stock of GSI 800,000
----------
$1,327,806
The Com Tech Note and accrued interest has been classified as
non-current in the accompanying financial statements. As described in
Note 2, on March 7, 1997, the Company entered into a Stock Issuance and
Indemnification Agreement with Maroon Bells, whereby Maroon Bells
agreed to indemnify the Company for an amount up to $460,000 in cash or
the Company's $.0001 par value common stock, or a combination of both,
in event that the Company is unsuccessful in securing repayment from
the Com Tech Note.
The Global Star International, Inc. note receivable was repaid in full
on March 6, 1997.
7. ADVISORY AGREEMENT
On October 31, 1996, the Company entered into an advisory agreement
with Dinton Trader S.A. (Dinton Trader). The agreement provides among
other things, that Dinton Trader will assist the Company in the
identification of potential merger or acquisition candidates, and
assist in the development and implementation of a corporate financial
strategy. The Company agreed to pay Dinton Trader an advisory fee of
$360,000 for services provided, when and if such services are completed
F-14
<PAGE>
WORLDPORT COMMUNICATIONS, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
7. ADVISORY AGREEMENT, CONTINUED
in a manner satisfactory to the Company, payable no later than June 30,
1997. On January 14, 1997, the Company paid Dinton Trader $150,000.
8. CHANGE IN CONTROL
On June 26, 1996, the Company entered into a stock purchase agreement
with Maroon Bells and certain other investors to purchase 4,000,000
shares of the Company's common stock, approximately 98% of the
outstanding common stock of the Company after issuance.
9. SUBSEQUENT EVENT
In March 1997, the Company closed the offering (the Offering) of
3,333,333 shares of common stock at $ .75 per share pursuant to an
offering memorandum dated November 1, 1996. The Company received total
proceeds of $2,500,000 from the offering, of which $2,387,750
(3,183,667 shares) had been raised as of December 31, 1996.
10. COMMON STOCK SUBSCRIBED
At December 31, 1996, the Company was obligated to issue 3,833,667
shares of its common stock for services rendered in 1996 and for common
stock subscribed in connection with the Offering. These shares are
shown as outstanding in the accompanying financial statements.
F-15
Maroon Bells Capital Partners, Inc.
101 Waukegan Road, Suite 930
Lake Bluff, Illinois 60044
Tel: 847-295-8490 Fax: 847-295-8035
Maroon Bells Capital Partners, Inc. Advisory Agreement For
WorldPort Communications, Inc.
This Agreement, when executed by both parties, will represent an exclusive
Agreement between Maroon Bells Capital Partners, Inc., a Delaware Corporation
("MBCP") and WorldPort communications, Inc. ("WorldPort") for the twelve month
period commencing March 7, 1997. During the aforesaid 12-month period (and
during subsequent period, if any pursuant to the renewal provisions of this
Agreement), MBCP will perform certain financial consulting services for
WorldPort. For the purposes of this Agreement, "MBCP" shall refer to MBCP and
its affiliates and assignees. WorldPort shall reserve the right to approve of
MBCP's affiliates and assignees. For the purposes of the Agreement, "WorldPort"
shall refer to WorldPort Communications, Inc. and its subsidiaries, if any.
i. Services to be Rendered by MBCP
MBCP will perform financial advisory services for WorldPort, including, but
not limited to, assisting WorldPort in its financial structuring, equity and
debt financing, mergers and acquisitions and corporate partnership development.
MBCP along with appropriate counsel, accountants or other professionals required
for a given transaction and approved by WorldPort, will assist WorldPort in the
preparation of documentation and financial analysis required to complete the
financial transactions referred to in the previous sentence. Such documentation
may include business plans, business valuations, promotional materials,
prospectuses, press releases and any other corporate financial and public
relations documents that are deemed necessary by mutual agreement of WorldPort
and MBCP.
MBCP will act in good faith to develop the business of WorldPort as it would its
own business and to offer WorldPort advice in areas where the professionals of
MBCP hold expertise.
<PAGE>
MBCP/WorldPort Advisory Agreement
March 7, 1997; Page 2
II. Fees for Services Rendered
A. Retainer:
As compensation for its efforts in preparing documentation as described
above, conducting required due diligence and financial analysis, and
contributing business development recommendations to WorldPort on a regular
basis, WorldPort agrees to pay MBCP $10,000 on the first day of the first month
following the signing of this Agreement and thereafter on the first day of every
month that this Agreement is in effect. In consideration of WorldPort's
financial status at the time of execution of this Agreement, MBCP agrees to
accrue this retainer (i.e. $10,000.00 per month) until such time as WorldPort
has received cumulative gross proceeds of $5 million dollars in equity
financing, whereupon WorldPort will pay to MBCP all accrued retainer fees as of
the date, and all monthly retainers that subsequently become due. WorldPort
acknowledges that as of the date of this Agreement, WorldPort has raised $2.5
million of the $5 million in gross proceeds described in the preceding sentence.
B. Equity Financing Success Fee:
MBCP will assist WorldPort to obtain equity financing as required by WorldPort
under terms and conditions approved by WorldPort. In advance of any such equity
financing in which WorldPort requests the assistance of MBCP, WorldPort and MBCP
will agree upon a flat fee to be paid to MBCP as compensation for MBCP's
assistance in structuring and obtaining such financing. The flat fee may include
a combination of cash and stock purchase warrants, to be agreed upon in advance
by MBCP and WorldPort, and shall be paid upon the closing of such equity
financing.
C. Debt Financing Success Fee:
MBCP will assist WorldPort to obtain debt or project financing as required by
WorldPort under terms and conditions approved by WorldPort. For debt or project
financing received by WorldPort with the direct assistance of MBCP or from a
source introduced to WorldPort by MBCP, WorldPort will pay MBCP immediately at
the close of such debt or project financing in cash equal to 1.5% of the gross
proceeds from the financing.
D. Merger and Acquisition Success Fee:
MBCP will assist WorldPort in mergers and acquisitions wherein WorldPort either
acquires control of another corporate entity or sells control in WorldPort to
another corporate entity. For such transactions conducted with the assistance of
MBCP, WorldPort will pay to MBCP immediately at the close an M&A Success Fee
consisting of a (a) $100,000.00 (one hundred thousand dollars) in cash, and (b)
<PAGE>
a Lehman formula (5% of the 1st million, 4% of the second million, 3% of the
third million, 2% of the fourth million, 1% of all amounts thereafter) for the
cash or cash equivalent value of the transaction, except as otherwise agreed to
by MBCP and WorldPort. All M&A Success Fees described herein are payable in cash
at the closing of each such transaction.
E. Currency:
All cash fees paid to MBCP by WorldPort according to the terms of this Agreement
will be paid to MBCP in U.S. Dollars, except as otherwise designated in advance
by MBCP.
III. Expenses
WorldPort agrees to reimburse MBCP for reasonable and necessary out-of-pocket
expenses related to MBCP's performance of the services described in this
Agreement (i.e. pre-approved domestic United States and international travel and
lodging for MBCP professionals to destinations where WorldPort has requested the
presence of MBCP professionals; reasonable and necessary out-of-pocket costs
related to due diligence, offering documents, marketing materials, etc.).
WorldPort acknowledges that prior to the execution of this Agreement, MBCP has
incurred $68,276.96 in reasonable out-of-pocket expenses on behalf of WorldPort
and WorldPort agrees to reimburse at least fifty percent (50%) this amount to
MBCP upon the execution of this Agreement, with the balance to be paid by
WorldPort at the earlier of (a) when WorldPort has received, on a cumulative
basis, $5,000,000.00 in gross proceeds from debt or equity financings
($2,500,000.00 of which has been received by WorldPort as of the date of this
Agreement) or (b) when WorldPort's financial status warrants and enables the
repayment of the balance of the MBCP accrued expenses.
IV. MBCP Equity Incentive
WorldPort acknowledges that its Board of Directors may in the future implement a
performance-based equity incentive plan, whereby MBCP (and other advisors and
agents) may earn equity in WorldPort upon achieving certain business development
and growth goals delineated by the Board. WorldPort agrees that MBCP may be
compensated and earn equity in WorldPort both through this Agreement and through
provisions of any such performance incentive plan that may be implemented by the
Board, without conflict.
V. Term of Agreement
The term of the Agreement shall be for a 12-month period, commencing upon the
execution of this Agreement. This Agreement shall automatically be renewed for
an additional 12-month period unless terminated by either party, upon written
notice to the other party given prior to the expiration of any applicable
12-month period. Changes in the terms and conditions of this Agreement may be
enacted only with the written consent of both parties.
<PAGE>
VI. Indemnification
In consideration of this Agreement, WorldPort hereby agrees to indemnify and
hold harmless MBCP and its affiliates, the respective directors, officers,
principals, partners, agents and employees of MBCP and its affiliates from any
and all losses, claims, damages or liabilities (or actions in respect thereof)
related to or arising out of WorldPort's actions or omissions taken or omitted
in good faith in connection with this engagement save and except for any claims,
liabilities, losses, damages or expenses that result solely from bad faith,
gross negligence or willful misconduct by MBCP or any of its affiliates or
approved assignees. WorldPort will also reimburse MBCP for all reasonable
expenses (including legal fees) as they are incurred by MBCP in connection with
pending or threatened litigation arising out of this agreement in which MBCP is
a party and for which WorldPort is obligated to indemnify MBCP pursuant to the
preceding sentence.
MBCP hereby represents and warrants that during the course of its engagement it
will not knowingly make any misstatement of material fact or omit to state any
material fact necessary to make any statement not misleading, to induce an
investor to purchase WorldPort's securities, nor will MBCP take any action
deemed to be a general solicitation of securities other than in connection with
the transaction contemplated pursuant to this engagement agreement. MBCP hereby
agrees to indemnify, defend, and hold harmless WorldPort and its directors,
officers, agents and employees from any and all losses, claims, damages or
liabilites (or actions in respect thereof) related to or arising out of a breach
by MBCP of the representations and warranties made in the preceeding sentence or
by any act of gross negligence or intentional misconduct on the part of MBCP or
its principals, directors, and employees.
MBCP and WorldPort, and in particular the signatories hereto, affirm that they
each have all requisite corporate authority to execute and deliver this
engagement agreement for the services contemplated herein, and the execution and
delivery of this engagement letter by MBCP and WorldPort and the engagement for
performance of services contemplated herein does not constitute a material
breach or violate the provisions of any agreement, engagement, law, rule,
regulation, or court order to which MBCP or WorldPort or any of their respective
assets, properties, or representatives are bound.
VII. Arbitration
This engagement agreement is governed and construed under the laws of the United
States, and specifically the State of California. Any controversy or claim
arising out of or relating to this Agreement, or Breech thereof, shall be
settled by arbitration in California, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association and the judgment upon
the award rendered by the Arbitrator(s) may be entered in any court having
jurisdiction thereof. Such arbitration shall be held within sixty days after
Notice of Arbitration is served on either party and the prevailing party shall
be entitled to recover its reasonable legal fees and the costs of arbitration
from the other party.
VIII. Termination; Survivorship Rights for MBCP
This Agreement may be terminated by WorldPort or by MBCP at any time, with or
without cause, with sixty (60) days written notice to that effect by the
terminating party. If MBCP is terminated by WorldPort without cause MBCP will be
entitled to the compensation described in this agreement when and if WorldPort
receives proceeds or contributions within eighteen months of such termination
from (a) one or more corporate partners, equity investors, or debt financing
providers directly introduced to WorldPort by MBCP, or (b) an equity financing
conducted by an underwriter or third party investment banking firm directly
introduced to WorldPort by MBCP, or (c) a merger or acquisition (including the
sale of any or all of WorldPort or its assets) completed with a party introduced
to WorldPort by MBCP, or any combination of (a), (b) and (c).
<PAGE>
MBCP/WorldPort Advisory Agreement
March 7, 1997; Page 5
IX. Entire Agreement
This Agreement constitutes the entire Agreement between MBCP and WorldPort
relating to the subject matter set forth herein and supersedes any prior
agreement between such parties relating to the subject matter set forth herein.
X. Signatures
By their signatures below, the parties agree to be bound by the terms,
conditions, and obligations detailed above, effective upon the Closing.
ACCEPTED FOR WORLDPORT COMMUNICATIONS, INC.:
/s/Edward P. Mooney Date: March 7, 1997
- ---------------------------
Edward P. Mooney
Chief Executive Officer
ACCEPTED FOR MAROON BELLS CAPITAL PARTNERS, INC. BY:
/s/ Theodore H. Swindells Date: March 7, 1997
- ---------------------------
Name: Theodore H. Swindells
Its: Principal
STOCK ISSUANCE AND INDEMNIFICATION AGREEMENT
This agreement, when executed below, will set forth the terms and conditions
whereby Maroon Bells Capital Partners, Inc. ("MBCP") will agree to cancel a
certain Promissory Note issued to MBCP by WorldPort Communications, Inc.
("WorldPort"), formerly Sage Resources, Inc.
("Sage"), and to provide WorldPort with certain indemnifications.
A. RECITALS
WHEREAS, on July 1, 1996 MBCP loaned to Sage the sum of $500,000.00
(five hundred thousand dollars), pursuant to a Loan Agreement and Promissory
Note (the "Loan");
AND WHEREAS the due date of the Loan was November 1, 1996 (which due
date was extended by agreement of MBCP to December 1, 1996 and then to April 1,
1997);
AND WHEREAS, Sage used the proceeds of the Loan to enter into a secured
Loan Agreement and Promissory Note with Com Tech International Corporation (the
"ComTech Loan") with a due date of October 26, 1996;
AND WHEREAS, on October 1, 1996 MBCP assigned to third parties $80,000
of the $500,000 principal amount under the Loan. Such assignment did not include
interest payable to MBCP under any portion of the Loan;
AND WHEREAS as of the date of this Agreement the principal amount due
to MBCP is $420,000.00 (four hundred and twenty thousand dollars);
AND WHEREAS, as of January 16, 1997 all interest due to MBCP through
that date under the Loan agreement has been paid in full;
AND WHEREAS as of the date of this Agreement the Loan between WorldPort
and ComTech is in default and WorldPort has commenced litigation in U.S. Federal
Court;
AND WHEREAS WorldPort and MBCP mutually agree that it is their
respective best interests to convert the $420,000 principal amount due to MBCP
into shares of common stock of WorldPort;
AND WHEREAS MBCP seeks to provide WorldPort with certain
indemnifications with regards to the Com Tech Note;
THEN the parties agree as follows,
<PAGE>
Agreement; Page 2
B. AGREEMENT
1. WorldPort agrees to issue 1,680,000 shares of the common stock of WorldPort
(the "Shares") to MBCP upon execution of this Agreement by both parties in
exchange for:
(i) the cancellation and surrender by MBCP of the Promissory Note
representing $420,000 principal amount and forgiveness of all unpaid interest
accrued since January 17, 1997; and
(ii) certain indemnifications with regards to the Com Tech Note, as
described below.
2. The shares of common stock to be issued to MBCP (the "Shares") will have no
registration rights, and will bear a restrictive legend, as follows:
The shares represented by this certificate have not been registered
under the securities act of 1933 ("1933 Act") or the securities laws of any
state and are issued in reliance on exemptions from the registration requirement
of the 1933 Act and such state laws. The shares have not been approved or
disapproved by the Securities and Exchange Commission, any state securities
commission or other regulatory authority. Any representation to the contrary is
unlawful.
3. MBCP agrees that issuance of the Shares will constitute full repayment of all
$420,000.00 principal amount due under the Loan and all interest accrued since
January 17, 1997, and will serve as adequate consideration for the MBCP
Indemnification, as defined below.
4. MBCP agrees to surrender the original copy of the Promissory Note to
WorldPort prior to receipt of the Shares.
C. INDEMNIFICATION OF WORLDPORT BY MBCP
1. In the event that at least $420,000.00 due to WorldPort pursuant to the
ComTech Loan and litigation (including payments by Com Tech of principal and
interest) are not repaid to WorldPort or otherwise recovered by WorldPort within
12 months of the date of this Agreement, then MBCP agrees to indemnify WorldPort
(the "MBCP Indemnification") for such unrecoverable amounts, at its option, with
(a) cash, (b) the Shares or (c) other shares of WorldPort common stock (the
"Shares") based on a value of $.25 per share, or some combination of (a), (b)
and (c) at MBCP's sole discretion;
2. MBCP further agrees to indemnify WorldPort up to an additional $40,000.00 for
legal fees and other out-of-pocket collection costs actually incurred by
WorldPort;
3. For a total maximum indemnification of $460,000.00 (the "MBCP
Indemnification").
<PAGE>
Agreement; Page 3
4. MBCP agrees that until such time as 1.) and 2.) are determined, it will not
sell or transfer the Shares to be issued to MBCP pursuant to this Agreement.
5. WorldPort agrees to notify MBCP in writing within three business days of
receipt of any repayment of principal amount, any interest payments,
reimbursement of legal expenses, shares of stock or other non-cash settlements,
or any other consideration (in all the "Com Tech Repayment") received by
WorldPort pursuant to the ComTech Loan, which notice shall include the amount
and date of receipt of the Com Tech Repayment.
6. At the end of the 12-month period specified herein, WorldPort will notify
MBCP in writing with regards to the total amount of the ComTech Repayment to
date and the amount of MBCP Indemnification , if any. Thereafter, MBCP will have
six (6) months to satisfy its obligations under this MBCP Indemnification
through cash, the Shares or other WorldPort shares, at MBCP's sole discretion,
in the method described above.
7. When and if the ComTech Repayment totals $460,000 (four hundred and sixty
thousand dollars) in cash and/or other consideration, MBCP's obligations under
this Agreement and Indemnification will immediately and forever thereafter be
deemed to have been satisfied in full. For purposes of this Agreement, any
non-cash consideration received by WorldPort as Com Tech repayment (including
the value of assets of Com Tech received by WorldPort) shall have a value
agreed-upon by MBCP and WorldPort. If such parties cannot agree, such value
shall be determined by an independent third party acceptable to each of MBCP and
WorldPort.
8. WorldPort further agrees that if the ComTech Repayment and/or the value of
any collateral or other assets obtained by WorldPort from ComTech exceeds
$540,000 then WorldPort will distribute to MBCP in cash:
i) fifty percent (50%) of any ComTech Repayment in excess of
$540,000; and
ii) fifty percent (50%) of the value of any collateral or assets
obtained from Com Tech in excess of $540,000; or
iii) a combination of i) and ii) above.
D. INVESTMENT REPRESENTATION
1. MBCP hereby represents that (a) it is an "Accredited Investor" as defined
under the Securities Act of 1933, as Amended, (b) it has had an opportunity to
examine the public filings of WorldPort and conduct sufficient other due
diligence with respect to WorldPort, the Shares, Com Tech and the respective
Notes and Loans.
2. MBCP represents that it is acquiring the Shares for its own account and for
investment purposes only, and not with the intent to distribute, sell or
transfer the Shares.
<PAGE>
Agreement; Page 4
E. OTHER
1. Legal Proceedings
(a) Mediation. Any claim, dispute, or controversy between the Parties
arising in connection with or relating to this Agreement or the making,
performance or interpretation thereof shall, if not settled by negotiation, be
submitted to non-binding mediation under the Procedure for Mediation of Business
Disputes of the Center for Public Resources, Inc. then in effect. Any demand for
mediation shall be made in writing and served upon the other Party in the same
manner as otherwise provided for notice in this Agreement. The demand shall set
forth with reasonable specificity the basis of the dispute and the performance
or relief sought. The Parties shall, within thirty (30) days of receipt of a
demand to mediate, confer and select a mediator. The mediation shall take place
at a time and location in San Francisco, California mutually agreeable to the
parties and the mediator, but not later than 60 days after a demand for
mediation is received.
(b) Exclusive Jurisdiction in California. Any claim, dispute or
controversy not settled by mediation shall be resolved in the federal or state
courts located in the State of California. The Parties hereby irrevocably submit
and agree that they are exclusively subject to the jurisdiction of the state and
federal courts located in the State of California with respect to any suit,
action or proceeding brought against any Party by any other Party and arising
out of or relating to this Agreement, and that no court in a State other than
California shall have jurisdiction to hear any such suit, action or proceeding.
Each Party agrees that, during the pendency of any such suit, action or
proceeding commenced in accordance with the provisions of this Section E.1. (b),
it will only bring any counter-claims arising out of or relating to this
Agreement (whether or not related to the matter currently the subject of
litigation) in the court in which such suit, action or proceeding is pending.
Each Party hereby irrevocably waives, to the fullest extent permitted by law,
any objection that it may now have or hereafter have to the laying of the venue
in the State of California of any such suit, action or proceeding in the court
contemplated under this Section E.1 (b), and waives and agrees not to assert any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
(C) Service of Process and Appointment of Agent for Service of Process.
Each and every party to this Agreement irrevocably consents to service of
process in the same manner as otherwise provided for notice in this Agreement,
and hereby waives any and all objections to service of process that might
otherwise accrue to it, so long as the manner of serving process satisfies the
requirements of providing notice as set forth in Section E.4.
<PAGE>
Agreement; Page 5
2. Attorney's Fees. In any action or proceeding arising out of or related to
this Agreement, the prevailing party shall be entitled to its reasonable
attorney fees and related costs, including fees and costs incurred prior to
formal initiation of an action or proceeding, and including fees and costs
incurred for collecting or attempting to collect any judgement or award. In any
action or proceeding arising out of or related to this Agreement, the prevailing
party shall be entitled to its reasonable attorney fees and related costs,
including fees and costs incurred prior to formal initiation of an action or
proceeding, and including fees and costs incurred for collecting or attempting
to collect any judgement or award.
3. Severability. If any term or provision of this Agreement, including the
schedules and exhibits hereto, or the application thereof to any person,
property or circumstances, shall to any extent be invalid or unenforceable, the
remainder of this Agreement, including the schedules and exhibits or the
application of such term or provision to persons, property or circumstances
other than those as to which it is invalid and unenforceable, shall not be
affected thereby, and each term and provision of this Agreement and the exhibits
shall be valid and enforced to the fullest extent permitted by law.
4. Notice. Any notices, requests or consents hereunder shall be deemed given,
and any instrument delivered, two days after they have been mailed by first
class mail, postage prepaid, or twelve hours after such notice has been sent by
telecopier or telegram, telegraphic charges prepaid, or upon receipt if
delivered personally. Notices required under this Agreement, or otherwise
required by the parties, shall be sent in writing as follows:
To WorldPort at WorldPort Communications, Inc.
100 California Street, Suite 1400
San Francisco, California 94111
To MBCP at Maroon Bells Capital Partners, Inc.
100 California Street, Suite 1400
San Francisco, California 94111
5. Counterparts. This Agreement may be executed in counterparts, including
facsimile copies.
<PAGE>
Agreement; Page 6
SIGNATURES
The undersigned have full authority to enter into this Agreement, and to take
all such actions as necessary to implement the Agreement.
FOR MAROON BELLS CAPITAL PARTNERS, INC. BY:
/S/ Theodore H.Swindells
- --------------------------------------
By: Mr. Theodore H. Swindells
Its: Principal
Date: March 7 , 1997
FOR WORLDPORT COMMUNICATIONS, INC. BY
/S/ Edward Mooney
- --------------------------------------
By: Mr. Edward Mooney
Its: President
Date: March 7, 1997
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made and entered into this April 4, 1997, by
and between Edmund Blankenau (the "Pledgor") and WORLDPORT COMMUNICATIONS, INC.,
a Delaware corporation with principal offices at 100 California Street, Suite
1400, San Francisco, California 94111 (fax: (415) 393-0721), or its successors
or assigns (the "Creditor").
WHEREAS, TeleNational Communications, Ltd., a Nebraska limited
partnership (the "Debtor") has issued to the Creditor a Secured Promissory Note
in the principal amount of $650,000 (the "Note"); and
WHEREAS, the Pledgor has granted the full performance of the Debtor's
obligations under the Note;
WHEREAS, the Pledgor owns 60,000 shares of common stock of
International Message Telephone Service, Inc. ("General Partner") which is the
sole general partner of the Debtor, which represents 80% of the fully-diluted
outstanding capital stock of General Partner (the "Pledged Shares"); and
WHEREAS, the Pledgor owns real property in the St. Thomas, the U.S.
Virgin Islands (the "Pledged Property");
WHEREAS, Pledgor hereby wishes to grant the Creditor a security
interest in the Pledged Shares and the Pledged Property (together the
"Collateral") in order to induce the Creditor to advance funds to the Debtor as
evidenced by the Note;
NOW, THEREFORE, in consideration of the premises and promises herein
contained, the parties agree as follows:
1. Pledge. The Pledgor hereby pledges, hypothecates, assigns,
transfers, delivers and grants to the Creditor a lien upon and a continuing
security interest in the following (the "Collateral"):
(a) the Pledged Shares and the certificates representing the
Pledged Shares, and all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of the Pledged Shares;
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(b) all additional shares of stock of any issuer of the
Pledged Shares from time to time acquired by the Pledgor in any manner,
the certificates representing such additional shares, and all
dividends, cash, instruments and other property from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any or all of such shares;
(c) the real property owned by Pledgor located at 4-A Estate
St. Joseph Rosendahl, St. Thomas in the U.S. Virgin Islands (the
"Pledged Property"); and
(d) proceeds of any of the foregoing.
TO HAVE AND TO HOLD the Collateral, together with all rights, title, interests,
privileges and preferences appertaining or incidental thereto, unto the
Creditor, its successors and assigns, forever, subject to the terms and
conditions set forth herein.
2. Security for Obligations. This Pledge Agreement and the security
interests granted hereby secure the payment and performance of all obligations
of the Pledgor and the Debtor to the Creditor now or hereafter existing,
including, without limitation, obligations of the Debtor under the Note and
obligations of the Pledgor under the Guaranty attached to the Note and under
this Pledge Agreement (all such obligations of the Debtor and the Pledgor being
referred to herein as the "Obligations"). The Pledgor waives notice of the
existence or creation of any Obligations.
3. Delivery of Collateral. Concurrently with the execution and delivery
of this Agreement, all certificates or instruments representing or evidencing
the Pledged Shares shall be delivered to the Creditor in suitable form for
transfer by delivery or shall be accompanied by duly executed instruments of
transfer or assignment in blank, all in form and substance reasonably
satisfactory to the Creditor.
4. Registration. The Creditor, at any time and at its sole option, may
have any or all of the Collateral registered in its name or that of its nominee,
as a proxy pursuant to the terms of Section 5 below and the Pledgor agrees to
cause the General Partner to effect such registration.
5. Irrevocable Proxy In the Event of Default. The Pledgor hereby grants
to the Creditor or its nominee, with respect to the Collateral, during the term
of this Pledge Agreement, an irrevocable proxy, coupled with an interest, to,
subject to the provisions of Section 9 hereto, exercise all voting rights and
all other corporate rights and all conversion, exchange, subscription or other
rights, privileges or options pertaining thereto as the absolute owner thereof,
including the right to exchange any or all of the Collateral upon the merger,
consolidation, reorganization, recapitalization or other readjustment of the
General Partner, and to deliver any of the Collateral to any depository,
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transfer agent, registrar or other designated agency upon such terms and
conditions as it may determine, all without liability, except to account for
property actually received by it, and pursuant to such proxy, the Creditor shall
be entitled to vote or consent with respect to the Collateral in its sole
discretion. The Creditor agrees not to exercise this proxy prior to the
occurrence of an Event of Default.
6. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Pledgor has, and has duly exercised, all requisite
capacity, power and authority to enter into this Pledge Agreement, to
pledge the Collateral, and to carry out the transactions contemplated
hereby;
(b) The execution, delivery and performance of this Pledge
Agreement by the Pledgor will not result in a violation of the Articles
of Incorporation or By-laws of the General Partner or of any mortgage,
instrument or other agreement or any order, law, rule or regulation to
which the Pledgor, the General Partner or the Debtor is subject, or be
in conflict with, or result in a breach of or constitute a default
under any such mortgage, instrument or agreement;
(c) This Pledge Agreement constitutes the legal, valid and
binding obligation of the Pledgor, enforceable in accordance with its
terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency or other similar laws affecting
creditors' rights generally and principles of equity;
(d) There are no outstanding options, rights, warrants,
conversion rights or other agreements or commitments to which the
General Partner or Debtor is a party or binding upon the General
Partner or Debtor providing for the issuance of additional shares of
the capital stock of the General Partner or partnership interests in
Debtor or for any other adjustment or transfer affecting the
outstanding shares or partnership interests and there are no rights in
or claims possessed by any person enforceable against the General
Partner or Debtor in law or equity to compel such an issuance,
adjustment or transfer, except the Note;
(e) The Pledgor is the sole legal, record and beneficial owner
of the Pledged Shares and has good and marketable title thereto, free
and clear of any lien, hypothecation, security interest, option or
other charge or encumbrance;
(f) The Pledgor is the sole legal, record and beneficial owner
of the Pledged Property and to the best of its knowledge has good and
marketable title thereto, free and clear of any lien, hypothecation,
security interest, option or other charge or Debtor agrees that if any
other invalid liens appear on records or title searches as Worldport
attempts to perfect its lien, debtor will take all required actions to
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clear the records within 14 days, except for the security interest
created by this Pledge Agreement. Pledgor, to the best of its
knowledge, has full right to pledge, assign, transfer and deliver the
Collateral;
(g) The pledge of the Collateral hereunder creates a valid
first lien upon and a perfected security interest in the Collateral;
(h) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for either (i) the pledge of the Collateral pursuant to
this Pledge Agreement or for the execution, delivery or performance of
this Pledge Agreement or (ii) the exercise by the Creditor of its
rights or remedies pursuant to this Pledge Agreement (except as may be
required by laws affecting the offering and sale of securities
generally); and
(i) None of the Pledged Shares are subject to or restricted
by, nor will the assignment, transfer or delivery of the Collateral
give rise to or result in the breach of, any pledge, lien, mortgage,
security interest, voting trust, stockholder or other agreement,
transfer restriction or other restriction or encumbrance, and upon
transfer of the Pledged Shares to the Creditor pursuant to this Pledge
Agreement, Creditor will have full, valid and marketable title to such
shares of stock.
7. Covenants of Pledgor. The Pledgor hereby covenants that, until
all Obligations have been paid in full:
(a) The Pledgor will not sell, convey or otherwise dispose of
any Collateral or any interest therein or create, incur or permit to
exist any pledge, mortgage, lien, charge, security interest or other
encumbrance with respect to the Collateral or the proceeds thereof,
other than that created hereby;
(b) The Pledgor will deliver promptly to the Creditor any
property received in exchange for or as a dividend or distribution on
or with respect to the Collateral;
(c) The Pledgor will promptly execute and deliver all further
instruments and documents, and take all further action that may be
necessary or desirable, or that Creditor may reasonably request, in
order to perfect and protect any security interest intended to be
granted hereby or to enable Creditor to exercise and enforce its rights
and remedies hereunder with respect to any Collateral; and
(d) Until such time as a Demand for repayment is made, neither
the Pledgor, nor any of its affiliates will, and none of them will
permit their respective agents or representatives to, solicit,
encourage (including by way of furnishing any non-public information
concerning the operations, properties or assets of the Debtor),
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entertain or enter into any discussions or negotiations with respect to
any proposal to acquire the General Partner or Debtor or any
substantial portion of its assets (a "Proposal"). If such a proposal is
received, the Pledgor will promptly notify the Creditor of its terms
and the identity of the party making the proposal.
8. Dividends. During the term of this Pledge Agreement, the
Creditor shall be entitled to hold any and all dividends or other distributions
paid in respect of the Collateral and such dividends or other distributions
shall form part of the Collateral.
9. Events of Default. The following shall constitute events of
default ("Events of Default") under this Pledge Agreement:
(a) the failure to pay in full any amount due under the Note
within 30 days after it is due thereunder or the occurrence of a non-
payment default under the Note;
(b) the Pledgor shall fail to perform or observe any term,
covenant or agreement contained in this Pledge Agreement;
(c) any representation or warranty made by the Pledgor in this
Pledge Agreement shall be incorrect in any material respect as of the
date made and such breach is not cured within fourteen days after
notice thereof to Pledgor;
(d) a notice of lien, levy, attachment or assessment is filed
or recorded with respect to the Collateral and the enforcement thereof
is not enjoined or restrained and such lien, levy attachment or
assessment is not removed within fourteen days; or
(e) the dissolution, insolvency, inability to pay debts as
they mature, suspension of usual business, appointment of a receiver
for any part of property, assignment for the benefit of creditors, the
commencement of any proceedings under any bankruptcy or insolvency laws
by or against with respect to the Pledgor, the General Partner or the
Debtor, or other material adverse change in the financial condition or
means or ability to pay thereof.
10. Remedies. If any Event of Default shall have occurred and be
continuing:
(a) The Creditor may exercise all of the rights and remedies
of a secured party under the Uniform Commercial Code of the State of
Illinois (the "Code") in effect at that time. The Creditor may also,
without notice (except as specified below), sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any
exchange, broker's board or at any of Creditor's offices or elsewhere,
for cash, on credit or for future delivery, and upon such other terms
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<PAGE>
as Creditor may deem commercially reasonable and may purchase all or
any part of the Collateral at public or private sale, and in lieu of
actual payment of the purchase price, may set-off the amount of such
purchase price against the Obligations. Any notice required to be given
by the Creditor of a sale, disposition or other intended action by the
Creditor with respect to any of the Collateral, which is made at least
two (2) days prior to such proposed action shall constitute fair and
reasonable notice to the Pledgor. The Creditor shall not be obligated
to make any sale of Collateral regardless of notice of sale having
been given. The Creditor may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and
such sale may, without further notice, be made at the time and place to
which it was so adjourned. The commencement of any action, legal or
equitable, or the rendering of any judgment or decree of any deficiency
shall not affect the Creditor's security interest in the Collateral
until the Obligations are fully paid. The Pledgor hereby waives the
benefit of all valuation, appraisal and exemption laws; and
(b) Any cash held by the Creditor as Collateral and all cash
proceeds received by the Creditor in respect of any sale or other
disposition of the Collateral shall be applied to payment of the
Obligations, in whatever order the Creditor may elect, regardless of
when such Obligations were incurred or arose. Any surplus proceeds held
by the Creditor after payment in full of all the Obligations shall be
paid over to the Pledgor or to whomsoever may be lawfully entitled to
receive such surplus.
Each right, power and remedy of the Creditor provided for in this Pledge
Agreement or any related agreement now or hereafter existing at law or in equity
or by statute or otherwise shall be cumulative and concurrent and shall be in
addition to every other such right, power or remedy. The exercise or beginning
of the exercise by the Creditor of any one or more of the rights, powers or
remedies provided for in this Pledge Agreement or related agreement shall not
preclude the simultaneous or later exercise by the Creditor of any other rights,
powers or remedies, and no failure or delay on the part of the Creditor to
exercise any such right, power or remedy shall operate as a waiver thereof.
11. Private Sale. In view of the fact that federal and state securities
laws may impose certain restrictions upon the method by which a sale of Pledged
Shares may be effected, it is agreed that upon and after an Event of Default,
the Creditor may from time to time attempt to sell all or any part of the
Collateral by means of a private placement, restricting the bidders and
prospective purchasers to those who will represent and agree that they are
purchasing for investment only and not for distribution. In so doing, the
Creditor may solicit offers to buy Collateral, for cash or otherwise, from a
limited number of investors deemed by Creditor to be responsible parties who
might be interested in purchasing such Pledged Shares, and if Creditor solicits
such offers from not less than three such investors, then the acceptance by
Creditor of the highest offer obtained therefrom shall be deemed to be a
commercially reasonable method of disposing of any Collateral. Pledgor
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acknowledges that such private sales may be at prices and on terms less
favorable to the seller than if the Collateral were sold at a public sale and
that the Creditor has no obligation to delay the sale of any Collateral to
permit the registration of the Collateral for public sale under any securities
law.
12. Reasonable Care. Except for the exercise of reasonable care to
assure the safe custody of any Collateral in its possession and the accounting
of moneys actually received by it, the Creditor shall have no duty or liability,
except as set forth in the Code, with respect to the Collateral. The Creditor
shall have no responsibility for ascertaining or taking action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Collateral, whether or not the Creditor has or is deemed to have knowledge
of such matters.
13. Power of Attorney. The Pledgor hereby appoints the Creditor the
Pledgor's agent and attorney-in-fact, with full power and authority in the name,
place and stead of the Pledgor or otherwise to take any action and to execute
any instrument which Creditor may reasonably deem necessary or advisable to
fulfill Pledgor's obligations hereunder, to pursue its rights and remedies or to
accomplish the purposes of this Pledge Agreement, including to receive, endorse
and collect all instruments made payable to the Pledgor representing any
dividend, payment or other distribution in respect of the Collateral and to give
full discharge for the same. The Creditor shall have the absolute right to
exchange any of the Collateral for other property upon a reorganization,
recapitalization or other readjustment and in connection therewith to deposit
any of the Collateral with any committee or depositary upon such terms as the
Creditor may reasonably determine. This appointment is irrevocable and
continuing and is coupled with an interest of the Pledgor. The Pledgor hereby
ratifies and confirms all that Creditor may lawfully do by virtue of this Power
of Attorney.
14. Indemnity and Expenses.
(a) The Pledgor agrees to indemnify and hold the Creditor, its
officers, directors, employees and agents harmless from and against any
and all actions, claims, reasonable expenses, losses and liabilities
related to or arising from this Pledge Agreement (including enforcement
hereof) with interest thereon at the rate then applicable to payments
on the Note, except expenses, losses or liabilities resulting from
Creditor's gross negligence or willful misconduct. The Creditor shall
not be liable for any acts of commission or omission hereunder nor for
any error of judgment or mistake of law or fact.
(b) Pledgor shall upon demand pay to Creditor any and all
reasonable costs and expenses, including court costs and reasonable
fees of attorneys, experts and agents, which Creditor may incur in
connection with (i) the administration of this Pledge Agreement, (ii)
the custody, preservation, use or sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or
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enforcement of its rights of Creditor hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof.
(c) All obligations provided for in this Section shall survive
any termination of this Pledge Agreement.
15. Security Interest Absolute. All rights of Creditor and
security interests hereunder, and all obligations of the Pledgor hereunder,
shall be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of this Pledge
Agreement, the Note or any other agreement or instrument relating
thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, any Obligation, or any other amendment or waiver
of or any consent to any departure from the Note or agreements
ancillary thereto;
(c) any acceptance, exchange, release or nonperfection of any
other collateral, or any release, amendment or waiver of or consent to
departure from any guaranty, for any Obligation;
(d) any delay, extension of time, release, substitution,
renewal, compromise or other indulgence granted by the Creditor with
respect to any Obligation;
(e)failure by Creditor to resort to any other security or
guaranty for any of the Obligations before resorting to the Collateral;
or
(f) any other event or circumstance which might otherwise
constitute a defense available to, or a discharge of, the Debtor in
respect of its Obligations or the Pledgor in respect of this Pledge
Agreement.
This Pledge Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until payment or
performance in full of the Obligations, (ii) be binding upon the Pledgor, its
successors, heirs and assigns, and (iii) inure, together with the rights and
remedies of Creditor hereunder, to the benefit of Creditor and its successors.
16. Amendment and Waiver. This Pledge Agreement contains the entire
agreement of the parties and may be amended only in a writing signed by the
parties hereto. No waiver of any provision of this Pledge Agreement nor consent
to any departure by the Pledgor herefrom shall be effective, unless the same
shall be in writing and signed by Creditor, and then such waiver or consent
shall be effective only in the specific instance and for the specific purpose
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for which given. No course of dealing between Pledgor and Creditor, nor any
delay or failure to exercise any right hereunder by Creditor, shall operate as a
waiver.
17. Notice. All notices hereunder shall be in writing and mailed by
registered or certified mail to the address set forth above or such other
address as may be designated by like notice. All such notices shall be effective
when deposited in the mails addressed as aforesaid.
18. Termination. This Pledge Agreement shall terminate when all of the
liabilities and obligations of Pledgor and Debtor to Creditor have been fully
paid and performed, at which time Creditor shall reassign and redeliver to
Pledgor such of the Collateral, if any, as shall not have been sold or otherwise
applied pursuant to the terms hereof. Any such reassignment shall be without
recourse upon or warranty by the Creditor and at the expense of Pledgor.
19. Miscellaneous. This Pledge Agreement shall be governed by, and
construed in accordance with, the internal substantive laws of the State of
Illinois, and the undersigned hereby irrevocably consent and submit to the
jurisdiction of Illinois courts over all matters relating to this Pledge
Agreement. Unless otherwise defined herein, terms defined in Article 9 of the
Code in the State of Illinois are used herein as defined therein. Should any
provisions of this Pledge Agreement be invalid, void or unenforceable for any
reason, the remaining provisions shall remain in full force and effect. The
section headings herein are for convenience only and shall not define or limit
the contents thereof.
IN WITNESS WHEREOF, the parties have caused this Pledge
Agreement to be duly executed and delivered as of the date first written above.
PLEDGOR:
/s/Edmund Blankenau
-----------------------------------------
Edmund Blankenau
WORLDPORT COMMUNICATIONS, INC.
By:/s/Edward P. Mooney
--------------------------------------
Its:President
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ACKNOWLEDGED: 04/04, 1997
By: /s/Patricia A. Alger
- ------------------------
Its:Notary Public
STATE OF NEBRASKA )
) SS
COUNTY OF DOUGLAS )
On this 4th day of April, 1997 before the undersigned,
a Notary Public in and for said state, personally appeared Edmund H. Blankenau,
who being duly sworn stated that he executed this Pledge Agreement and that the
statements contained therein were true.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal, the day and year last written above.
/s/Edmund Blankenau
----------------------------------------
Edmund Blankenau
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SECURED PROMISSORY NOTE
$650,000 April 4, 1997
FOR VALUE RECEIVED, TELENATIONAL COMMUNICATIONS, LTD., a
Nebraska limited partnership (together with its successors and assigns, herein
called the "Debtor"), promises to pay to WORLDPORT COMMUNICATIONS, INC., a
Delaware corporation, or its successors or assigns (herein called the "Holder"),
upon demand, the principal sum of SIX HUNDRED FIFTY THOUSAND AND 00/100 DOLLARS
($650,000.00), or such lesser amount as may have been advanced to the Debtor by
the Holder, together with accrued interest on the unpaid principal hereof at a
rate of 10% per annum, subject to the terms and conditions set forth herein.
The Debtor shall pay all outstanding principal due under this
Note and all accrued and unpaid interest no later than 30 days after demand for
payment is made by Holder. Upon such demand, the interest rate on the unpaid
principal hereof shall be at a rate of 15% per annum until paid in full. In the
event that all principle and interest due on this Note shall not have been paid
by the end of such 30-day period, the Holder shall be able to exercise all of
its rights pursuant to the Guaranty and the Pledge Agreement described below.
Payments of both principal and interest under this Secured
Promissory Note (as amended, modified, refinanced or refunded in whole or in
part from time to time, herein called this "Note") are to be made at the
Holder's address at 100 California Street, Suite 1400, San Francisco, California
94111, or at such other place as the Holder shall designate in writing, in
lawful money of the United States of America.
The Debtor represents and warrants to the Holder that: (i) the
Debtor is a limited partnership duly formed, validly existing, and in good
standing under the laws of Nebraska, the sole general partner of the Debtor is
International Message Telephone Service, Inc. (the "General Partner"), the
entire outstanding equity interest in the General Partner consists of 75,000
shares, 60,000 of which are owned of record and beneficially by Edmund Blankenau
and the Debtor has delivered to Holder an accurate and complete copy of its
Agreement of Limited Partnership; (ii) the execution, delivery, and performance
by the Debtor of this Note have been duly authorized by all necessary
partnership action and do not and will not and the execution, delivery and
performance of the Guaranty and Pledge Agreement described below do not and will
not (A) contravene the Debtor's Agreement of Limited Partnership; (B) violate or
cause a breach or default of any provision of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award applicable to the
Debtor; or (C) violate or result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease, or
instrument to which the Debtor or the General Partner is a party or by which it
or its properties may be bound or affected; and (iii) this Note is the legal,
valid, and binding obligation of the Debtor enforceable against the Debtor in
accordance with its terms, except to the extent that such enforcement may be
limited by applicable bankruptcy, insolvency, and other similar laws affecting
creditors' rights generally and principles of equity.
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This Note is guaranteed by Edmund Blankenau as set forth in
the Guaranty attached hereto, which Guaranty is supported by a pledge of 80% of
the outstanding stock in the General Partner pursuant to a Pledge Agreement and
real property owned by Edmund Blankenau located in the U.S. Virgin Islands.
So long as any amount of principal or interest under this Note shall
remain un paid or outstanding, except as otherwise agreed to in writing by
Holder: (i) the Debtor will preserve and maintain its partnership existence and
good standing in the jurisdiction of its formation; (ii) The Debtor will not
amend its Agreement of Limited Partnership or admit any new partner or allow any
transfer of any partnership interest therein; (ii) the Debtor will conduct its
businesses and operations only in, and not take any action except in, the
ordinary course of business consistent with past practice, including, but not
limited to, the following: (A) not grant or issue any partnership interest or
any preemptive, conversion or other rights, or other options, warrants or
agreements for the purchase, redemption or acquisition of its partnership
interests; (B) not make any payment of any distribution to any partner, or
otherwise redeem or acquire any partnership interest; (C) not enter into, amend
or terminate, or agree to enter into, amend or terminate, any material agreement
except in the ordinary course of business and consistent with past practice; (D)
not sell, lease or otherwise dispose of or agree to sell, lease or otherwise
dispose of, any assets, properties, rights or claims, except in the ordinary
course of business and at prices and on terms consistent with past practice; or
(E) not incur or become subject to, nor agree to incur or become subject to, any
debt, obligation or liability, contingent or otherwise, except current
liabilities in the ordinary course of business and consistent with past
practice.
Debtor shall have the right to prepay this Note in whole or in
part at any time, without penalty or premium.
Debtor hereby waives diligence, presentment, demand for
payment, protest and notice of any kind whatsoever in connection with this Note,
now or hereafter required by applicable law.
Debtor hereby agrees to pay all of Holder's costs and expenses
related to this Note, the Guaranty, the Pledge Agreement and the related
documents and transactions, upon demand, up to a maximum amount of $40,000.
Debtor hereby agrees to pay all costs of collection, including reasonable
attorneys' fees and all costs of suit incurred by Holder in any proceeding for
the collection of the debt evidenced hereby, or in any litigation or controversy
arising from or connected with this Note.
This Note may not be changed orally, but only by an agreement
in writing, signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought.
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This Note shall bind and inure to the benefit of Debtor and
Holder and their respective executors, administrators, legal representatives,
heirs, distributees, legatees, successors and assigns.
This Note shall be governed by and construed in accordance
with the internal laws of the State of Illinois.
IN WITNESS WHEREOF, Debtor has signed and delivered this Note as of the
day and year first above written.
TELENATIONAL COMMUNICATIONS, LTD.
By:/s/Edmund H Blankenau
--------------------------------
Name: Edmund H. Blankenau
----------------------------
Title: CEO
---------------------------
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GUARANTY
The undersigned (the "Guarantor"), irrevocably and unconditionally
guarantees to the holder of the Note upon which this Guaranty is endorsed, the
due and punctual full payment of the principal of and interest on this Note as
well as all costs and expenses of collection and enforcement, when and as the
same shall become due and payable, all in accordance with the terms of the Note.
The Guarantor hereby agrees that his obligations hereunder shall be
unconditional, irrespective of the validity, regularity or enforceability of the
Note; the absence of any action to enforce the same; any waiver or consent by
the holder of the Note with respect to any provisions thereof; any dispute,
claim, counterclaim, defense or other right which the Debtor may have to assert
against the holder; or any other circumstance which might otherwise constitute a
legal or equitable discharge or defense of a guarantor. The Guarantor hereby
waives diligence, presentment, demand of payment, filing of claims with a court
in the event of insolvency or bankruptcy of the Debtor, any right to require a
proceeding first against the Debtor, protest, notice and all demands whatsoever
and covenants that this Guaranty will not be discharged, except by complete
performance of the obligations contained in the Note and in this Guaranty.
The Guarantor hereby certifies and warrants that all acts, conditions
and things required to be done and performed and to have happened precedent to
the creation and issuance of this Guaranty to constitute the same, the valid,
binding and enforceable obligation of the Guarantor have been done and performed
in due compliance with all applicable laws. This Guaranty shall be governed by
and construed in accordance with the laws of the State of Illinois.
/s/Edmund H. Blankenau
- --------------------------
Edmund Blankenau
-14-
WorldPort Communications, Inc.
100 California Street, Suite 1400
San Francisco, California 94111
Telephone (415) 393-0724
Facsimile (415) 393-0721
Aprio 4, 1997
Mr. Dean Spies
507 Knoll Forest Drive
Sugarland, Texas 77479
Telephone (281) 343-9125
Telephone (281) 584-4692
Dear Mr. Spies:
I am pleased to present below the terms and conditions under which WorldPort
Communications, Inc. is prepared to offer you the position of Chief Financial
Officer.
1. Base Salary of $82,000.00 annually;
2. $200.00 monthly car allowance;
3. One year employment term;
4. One-month termination notice with a total severance equal to six months
base salary;
5. Company-paid benefits;
6. Stock Options as follows:
40,000 shares upon effective date of employment; exercise price $0.75
per share
40,000 shares after one year of service; exercise price $1.00 per
share
40,000 shares after two years of service; exercise price $1.50 per
share
7. Annual Bonus: Up to 25% of Annual Base Salary, based on performance
criteria to be determined by the Board of Directors. Bonus to be
determined and paid semi-annually.
Please sign below if you agree to these terms and conditions, whereupon we will
immediately prepare a formal employment agreement for your review and signature.
We look forward to working with you.
Sincerely,
/s/ Edward Mooney
Edward Mooney
Chief Executive Officer
Accepted by:
/s/ Dean Spies
- ----------------------------------------- Date: April 7, 1997
Dean Spies
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into as
of April 8, 1997 by and between WorldPort Communications, Inc. a Delaware
Corporation ("WorldPort" or the "Company"), and Mr. John Dalton (hereinafter
referred to as the "Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to have the benefit of the Executive's
efforts and services;
WHEREAS, the Executive is willing to commit himself to serve the
Company, on the terms and conditions herein provided; and
WHEREAS, in order to effect the foregoing, the Company and the
Executive wish to enter into an employment agreement on the terms and conditions
set forth below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto mutually
covenant and agree as follows:
1. DEFINITIONS.
Whenever used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Accrued Benefits" shall mean the amount payable not later
than ten (10) days following an applicable Termination Date, which
shall be equal to the sum of the following amounts:
(i) All salary earned or accrued through the
Termination Date;
(ii) Reimbursement for any and all monies advanced
in connection with the Executive's employment for reasonable
and necessary expenses incurred by the Executive through the
Termination Date;
(iii) Any and all other cash benefits previously
earned through the Termination Date and deferred at the
election of the Executive or pursuant to any deferred
compensation plans then in effect;
(iv) All other payments and benefits to which the
Executive may be entitled under the terms of any benefit plan
<PAGE>
of the Company or otherwise, including, but not limited to,
any bonus declared by the Board, any compensation for earned,
but unused, vacation days, and any unpaid automobile
allowance.
(b) "Affiliate" shall have the same meaning as given to that
term in Rule 12b-2 of Regulation 12B promulgated under the Securities
Exchange Act of 1934, as amended.
(c) "Board" shall mean the Board of Directors of the Company
(d) "Disability" shall mean a physical or mental condition
whereby the Executive is unable to perform on a full-time, continuous
basis the customary duties of the Executive under this Agreement.
(e) "Notice of Termination" shall mean the notice described
in Section 9 hereof;
(f) "Termination Date" shall mean, except as otherwise
provided in Section 8 hereof,
(i) The Executive's date of death;
(ii) Thirty (30) days after the delivery of the
Notice of Termination terminating the Executive's employment
on account of Disability pursuant to Subsection 8(b) hereof,
unless the Executive returns on a full-time basis to the
performance of Executive's duties prior to the expiration of
such period;
(iii) Thirty (30) days after the delivery of the
Notice of Termination if the Executive's employment is
terminated by the Executive voluntarily; and
(iv) Fifteen (15) days after the delivery of the
Notice of Termination if the Executive's employment is
terminated by the Company for any reason other than death or
Disability.
2. EMPLOYMENT.
The Company hereby agrees to employ the Executive and the Executive
hereby agrees to serve the Company, on the terms and conditions set forth
herein.
3. TERM.
The Company's employment of the Executive under the provisions of this
Agreement shall commence on the date hereof and end on the third anniversary of
the Closing, unless further extended or sooner terminated as hereinafter
provided. On the third anniversary of the Closing and on the last day of
February of each year thereafter, the term of the Executive's employment shall,
unless sooner terminated as hereinafter provided, be automatically extended for
<PAGE>
an additional one year period from the date thereof unless, at least thirty (30)
days before such date, the Company shall have delivered to the Executive or the
Executive shall have delivered to the Company written notice that the term of
the Executive's employment hereunder will not be extended beyond its existing
duration.
4. POSITIONS AND DUTIES.
The Executive shall serve as Chief Executive Officer and President of
WorldPort Communications, Inc. and in such additional capacities as may be
reasonably assigned to the Executive by the Board. In his capacity as Chief
Executive Officer and President of the Company, the Executive shall have such
duties, responsibilities and authority as are usual and customary for executives
who hold the same or a substantially similar position with companies of
comparable size in the same industry as the Company. In connection with any
capacities, the Executive shall have such duties, responsibilities and authority
as may from time to time be reasonably assigned to the Executive by the Board.
The Executive shall devote substantially all the Executive's working time and
efforts to the business and affairs of the Company.
5. PLACE OF PERFORMANCE.
In connection with the Executive's employment by the Company, the
Executive shall be based at the Company's corporate offices in Houston, Texas
except for required travel on Company business, and expect as otherwise
agreed-to between the Executive and the Company.
6. COMPENSATION AND RELATED MATTERS.
(a) Commencing on the date hereof, and during Executive's
employment, the Company shall pay to the Executive an annual salary of
$156,000 per annum payable at a rate of $10,500 per month for the first
three months of employment and $13,833 for the next nine months of
employment and thereafter at $13,000 per month, payable on the 15th and
last day of each month (or in such other installments consistent with
the Company's policies and procedures and as agreed to by the
Executive). Within 90 days from the date hereof, the Board shall
conduct a performance review of the Executive, after which the Board,
in its sole discretion, may increase the annual salary of the Executive
based upon such performance review. In addition to any increases in
salary specified in this Agreement, the Executive's salary may be
increased from time to time in accordance with normal business
practices of the Company at the full discretion of the Board.
(b) During the Executive's employment, the Executive shall
receive all bonuses if, when and as declared by the Board, including,
but not limited to, a performance bonus of $50,000 six months from the
date of this agreement and $50,000 12 months from the date of this
agreement, based upon the successful completion of the following
events: (i) execution of an Agreement between WorldPort and the
Scitor/Equant organization on terms acceptable to the WorldPort board
of directors and (ii) new WorldPort revenues directly attributable to
business development efforts of the Executive averaging $500,000 per
<PAGE>
month during the last six months of the first year of this Agreement.
After the first year of this agreement the Executive's bonuses will
be paid based upon performance objectives and related compensation
amounts as determined by the Board.
(c) During the Executive's employment hereunder, the Executive
shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive in performing services hereunder,
including all business, travel, and living expenses while away from
home on business or at the request of and in the service of the
Company, provided that such expenses are incurred and accounted for in
accordance with the Company's policies and procedures.
(d) The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation for earned but unused
vacation days, determined in accordance with the Company's vacation
plan or policy. The Executive shall also be entitled to all paid
holidays provided by the Company to its other executives.
(e) The Executive shall receive a car allowance of $800 per
month, with any annual increase to be determined by the Board, payable
in accordance with the Company's policies and proceedures
(f) The Executive shall be entitled to such other benefits,
including, but not limited to, medical insurance, life insurance, and
disability insurance determined in accordance with the Company's
benefit plan or policy.
(g) The Executive shall be granted four-year stock purchase
options to purchase 200,000 (two hundred thousand) shares of the
Company's common stock at an exercise price of $2.00 per share, based
on the following vesting schedule:
100,000 options vested after one year of service to
the Company; 100,000 options vested after two years
of service to the Company.
7. OFFICES.
The Executive agrees to serve without additional compensation, if
elected or appointed thereto, as a member of the Board or as a member of the
board of directors of any subsidiary of the Company; provided, however, that the
Executive is indemnified for serving in any and all such capacities to the
fullest extent provided by applicable law.
8. TERMINATION
(a) As a result of death: If the Executive shall die during
the term of this Agreement, the Executive's employment shall terminate
on the Executive's date of death, and the Executive's surviving spouse,
<PAGE>
or the Executive's estate if the Executive dies without a surviving
spouse, shall be entitled to the Executive's Accrued Benefits as of the
Termination Date.
(b) As a result of Disability: If, as a result of the
Executive's Disability, the Executive shall have been unable to perform
the Executive's duties hereunder on a full-time, continuous basis for
two (2) consecutive months or for an aggregate of three (3) months
within any twelve (12) month period and if within thirty (30) days
after the Company provides the Executive with a Termination Notice, the
Executive shall not have returned to the performance of the Executive's
duties on a full-time basis, the Company may terminate the Executive's
employment, subject to Section 9 hereof. During the term of the
Executive's Disability prior to termination, the Executive shall
continue to receive all salary and benefits payable under Section 6
hereof, including participation in all employee benefit plans,
programs, and arrangements in which the Executive was entitled to
participate immediately prior to the Disability; provided, however,
that the Executive's continued participation is permitted under the
terms and provisions of such plans, programs, and arrangements. In the
event that the Executive's participation in any such plan, program, or
arrangement is barred as the result of such Disability, the Executive
shall be entitled to receive an amount equal to the contributions,
payments, credits, or allocations which would have been paid by the
Company to the Executive, to the Executive's account, or on the
Executive's behalf under any such plan, program, or arrangement. In the
event the Executive's employment is terminated on account of the
Executive's Disability in accordance with this Section 8, the Executive
shall receive the Executive's Accrued Benefits as of the Termination
Date and shall remain eligible for all benefits provided by any
long-term disability program of the Company in effect at the time of
such termination. The payment of the Accrued Benefits by the Company to
the Executive shall be in addition to, and not in lieu of, any benefits
payable by reason of the Executive's Disability to the extent provided
under any long-term disability program of the Company in effect at the
time of the Executive's termination, or under any disability insurance
policy, or otherwise.
(c) Termination Without Cause: Either party to this Agreement
may terminate the Executive's employment hereunder without cause at any
time upon notice to the other party, and upon any such termination, the
Executive shall be entitled to receive his Accrued Benefits. In the
event that the Company terminates the Executive's employment pursuant
to this Subsection 8(c), the Executive shall receive from the Company
on the Termination Date a lump-sum cash payment (the "Severance
Payment"), as severance, in an amount equal to one hundred percent
(100%) of the greater of (i) the Executive's annual salary at the time
of such termination, or (ii) the Executive's annual salary, as set
forth in Subsection 6(a) hereof.
(d) Termination as a result of cause. The Company may
terminate the Executive for cause, upon the occurrence of any one or
more of the following acts or omissions:
<PAGE>
(i) The determination in a binding and final
judgment, order, or decree by a court or administrative agency
of competent jurisdiction, that the Executive has engaged in
fraudulent conduct, and the determination by the Board, in its
sole discretion, that such fraudulent conduct has a
significant adverse impact on the Company;
(ii) The conviction of the Executive on a felony or
misdemeanor involving moral turpitude (as evidenced by a
binding and final judgment, order, or decree of a court of
competent jurisdiction) an the determination by the Board, in
its sole discretion, that such conviction has a significant
adverse impact on the Company;
(iii) The refusal by the Executive to perform the
Executive's duties or responsibilities (unless significantly
changed without the Executive's consent) and after notice from
the Company to the Executive, the Executive's continuing
refusal to perform his duties or responsibilities during the
48-hour period following the giving of such notice;
(iv) The performance by the Executive of his duties
or responsibilities in a manner constituting gross negligence
(unless such duties or responsibilities have been
significantly changed without the Executive's consent).
(v) In the event of termination for cause, as set
forth above, the Executive will be entitled to receive his
Accrued Benefits, but will not be entitled to the Severance
Payment, except as otherwise provided by Texas law.
9. TERMINATION NOTICE.
Any termination by the Company or the Executive of the Executive's
employment hereunder shall be communicated by written Notice of Termination to
the Executive, if such Notice of Termination is delivered by the Company, and to
the Company, if such Notice of Termination is delivered by the Executive. The
Notice of Termination shall indicate the specific termination provision in this
Agreement relied upon and shall set forth the Termination Date.
10. NONDISCLOSURE OF PROPRIETARY INFORMATION.
Recognizing that the Company is presently engaged, and may hereafter
continue to be engaged, in the research and development of processes, the
manufacturing of products, or the performance of services, which involve
experimental and inventive work and that the success of its business depends
upon the protection of such processes, products, and services by patent,
copyright, or secrecy and that the Executive has had, or during the course of
Executive's engagement as an employee or consultant may have, access to
Proprietary Information, as hereinafter defined, of the Company and that the
<PAGE>
Executive has furnished, or during the course of the Executive's engagement may
furnish, Proprietary Information to the Company, the Executive agrees that:
(a) "Proprietary Information" shall mean any and all methods,
inventions, improvements or discoveries, whether or not patentable or
copyrightable, and any other information of a secret, proprietary,
confidential, or generally undisclosed nature relating to the Company,
its products, customers, processes, and services, including information
relating to testing research, development, manufacturing, marketing,
and selling, disclosed to the Executive or otherwise made known to the
Executive as a consequence of or through the Executive's engagement by
the Company (including information originated by the Executive) in any
technological area previously developed by the Company or developed,
engaged in, or researched, by the Company during the term of the
Executive's engagement, including, but not limited to, trade secrets,
processes, products, formulae, apparatus, techniques, know-how,
marketing plans, data, improvements, strategies, forecasts, customer
lists, and technical requirements of customers, unless such information
is in the public domain to such an extent as to be readily available to
the Company's competitors.
(b) The Executive acknowledges that the Company has exclusive
property rights to all Proprietary Information, and the Executive
hereby assigns all rights that the Executive might otherwise possess in
any Proprietary Information to the Company. Except as required in the
performance of the Executive's duties to the Company, the Executive
will not at any time during or after the term of the Executive's
engagement, which term shall include any time in which the Executive
may be retained by the Company as a consultant, directly or indirectly
use, communicate, disclose, or disseminate any Proprietary Information.
(c) All documents, records, notebooks, notes, memoranda, and
similar repositories of, or containing, Proprietary Information made or
compiled by the Executive at any time or made available to the
Executive prior to or during the term of Executive's engagement by the
Company, including any and all copies thereof, shall be the property of
the Company, shall be held by the Executive in trust solely for the
benefit of the Company, and shall be delivered to the Company by the
Executive on the termination of the Executive's engagement or at any
other time on the request of the Company.
(d) The Executive will not assert any rights under any
inventions, copyrights, discoveries, concepts, or ideas, or
improvements thereof, or know-how related thereto, as having been made
or acquired by the Executive prior to the Executive's being engaged by
the Company or during the term of the Executive's engagement if based
on or otherwise related to Proprietary Information.
11. ASSIGNMENT OF INVENTIONS.
(a) For purposes of this Section 11, the term "Inventions"
shall mean discoveries, concepts, and ideas, whether patentable or
<PAGE>
copyrightable or not, including, but not limited to, improvements,
know-how, data, processes, methods, formulae, and techniques, as well
as improvements thereof, or know-how related thereto, concerning any
past, present, or prospective activities of the Company, which the
Executive makes, discovers, or conceives (whether or not during the
hours of the Executive's engagement or with the use of the Company's
facilities, materials, or personnel), either solely or jointly with
others during the Executive's engagement by the Company or any
Affiliate of the Company and, if based on or related to Proprietary
Information, at any time after termination of such engagement.
All Inventions shall be the sole property of the Company, and the
Executive agrees to perform the provisions of this Section 11 with
respect thereto without the payment by the Company of any royalty or
any consideration therefor, other than the regular compensation paid
to the Executive in his capacity of as an employee or consultant.
(b) The Executive shall maintain written notebooks in which
the Executive shall set forth, on a current basis, information as to
the Inventions, describing in detail the procedures employed and the
results achieved, as well as information as to any studies or research
projects undertaken on the Company's behalf. The written notebooks
shall at all times be the property of the Company and shall be
surrendered to the Company upon termination of the Executive's
engagement or, upon request of the Company, at any time prior thereto.
(c) The Executive shall apply, at the Company's request and
expense, for United States and foreign letters patent or copyrights,
either in the Executive's name or otherwise as the Company shall
desire.
(d) The Executive hereby assigns to the Company all of the
Executive's rights to the Inventions and to applications for United
States and/or foreign letters patent or copyrights and to United States
and/or foreign letters patent or copyrights granted in respect of the
Inventions.
(e) The Executive shall acknowledge and deliver promptly to
the Company, without charge to the Company, but at its expense, such
written instruments (including applications and assignments) and do
such other acts, such as giving testimony in support of the Executive's
inventorship, as may be necessary in the opinion of the Company to
obtain, maintain, extend, reissue, and enforce United States and/or
foreign letters patent and copyrights relating to the Inventions and to
vest the entire right and title thereto in the Company or its nominee.
The Executive acknowledges and agrees that any copyright developed or
conceived of by the Executive during the term of the Executive's
employment which is related to the business of the Company shall be a
"work for hire" under the copyright law of the United States and other
applicable jurisdictions.
(f) The Executive represents that the Executive's performance
of all of the terms of this Agreement and as an employee of or
consultant to the Company does not and will not breach any trust
existing prior to the Executive's employment by the Company.
<PAGE>
The Executive agrees not to enter into any agreement, either written or
oral, in conflict herewith and represents and agrees that the Executive
has not brought and will not bring with the Executive to the Company or
use in the performance of the Executive's responsibilities at the
Company any materials or documents of a former employer which are not
generally available to the public, unless the Executive has obtained
written authorization from the former employer for their possession and
use, and the Executive has provided a copy of such written
authorization to the Company.
(g) No provision of this Section 11 shall be deemed to limit
the restrictions applicable to the Executive under Section 10 hereof.
12. SHOP RIGHTS.
The Company shall also have the royalty-free right to use in its
business, and to make, use, and sell products, processes, and/or services
derived from any inventions, discoveries, concepts, and ideas, whether or not
patentable, including, but not limited to, processes, methods, formulas, and
techniques, as well as improvements thereof or know-how related thereto,
concerning any past, present, or prospective activities of the Company, which
are not within the scope of Inventions as defined in Section 11 hereof, but
which are conceived or made by the Executive during the period that the
Executive is engaged by the Company with the use or assistance of the Company's
facilities, materials, or personnel.
13. NON-COMPETE.
This Non-Compete provision does not become effective until WorldPort
and the Wallace Wade Company ("WWC") have entered into a Definitive Acquisition
Agreement, except that this Non-Compete provision is binding in the event that
WWC, for any reason, elects not to enter into the Definitive Acquisition
Agreement pursuant to the terms and conditions contained in the Letter of Intent
executed between the parties on April 8, 1997. Upon execution of such an
Acquisition Agreement, this provision shall be be binding upon the Executive
unless (a) the Executive has been wrongfully terminated or (b) the Company has
not fulfilled its obligations as required under the Acquisition Agreement,
specifically the issuance by the Company to the Executive of (i) a one-year
Promissory Note with a principal amount of $250,000 and (ii) 1,400,000 shares of
WorldPort common stock ("the WWC Shares"), of which 900,000 WWC Shares are to be
held in escrow until the successful performance of certain business development
activities by Wallace Wade Company and/or Mr. John Dalton, as defined in the
Acquisition Agreement. The Company shall not be deemed to be in non-performance
of its obligations under the Acquisition Agreement if Wallace Wade Company
and/or Mr. Dalton has not met its or his performance criteria required for the
release of WWC Shares from escrow.
The Executive hereby agrees that during the Executive's employment, and
for a period of one year from the termination thereof, the Executive will not,
without the written consent of the Company:
<PAGE>
(a) Within any jurisdiction or marketing area in which the
Company or any subsidiary thereof is doing business, own, manage,
operate, or control any Business, provided, however, that for purposes
of this Subsection 13(a), ownership of securities of not in excess of
five percent (5%) of any class of securities of a public company shall
not be considered as owning, managing, operating, or controlling any
Business; or
(b) Within any jurisdiction or marketing area in which the
Company or any subsidiary thereof is doing business, act as, or become
employed as, an officer, director, employee, consultant or agent of any
Business; or
(c) Solicit any Business for, or sell any products that are in
competition with the Company's products to, any company, which is a
customer or client of the Company or any of its subsidiaries as of the
Termination Date; or
(d) Solicit the employment of, or hire, any full time employee
employed by the Company or its subsidiaries as of the Termination Date.
The term "Business," as used in this Section 13, shall mean any person
or entity which is an international facilities-based telecommunications carrier
or any of the services which are necessarily provided by an international
facilities-based telecommunications carrier to its customers.
14. REMEDIES AND JURISDICTION.
(a) The Executive hereby acknowledges and agrees that a breach
of the agreements contained in Section 13 of this Agreement will cause
irreparable harm and damage to the Company, that the remedy at law for
the breach or threatened breach of the agreements set forth in Section
13 of this Agreement will be inadequate, and that, in addition to all
other remedies available to the Company for such breach or threatened
breach (including, without limitation, the right to recover damages),
the Company shall be entitled to injunctive relief for any breach or
threatened breach of the agreements contained in Section 13 of this
Agreement.
(b) All claims, disputes and other matters in question between
the parties arising under this Agreement, except those pertaining to
Section 13 hereof, shall, unless otherwise provided herein, be decided
by arbitration in the State of Texas in accordance with the National
Rules for the Resolution of Employment Disputes of the American
Arbitration Association (including such procedures governing selection
of the specific arbitrator or arbitrators), unless the parties
otherwise agree. The Company shall pay the costs of any such
arbitration. The award by the arbitrator or arbitrators shall be final,
and judgment may be entered upon it in accordance with applicable law
in any state or federal court having proper jurisdiction.
<PAGE>
15. INDEMNIFICATION.
The Company agrees to indemnify and hold the Executive harmless from
and against any and all losses, liabilities, or costs (including, but not
limited to, reasonable attorney's fees), which the Executive may sustain, incur,
or assume as a result of, or relative to, any allegation, claim, civil or
criminal action, proceeding, charge, or prosecution, which may be alleged, made,
instituted, or maintained against the Executive or the Company, jointly or
severally, arising out of or based upon the Executive's employment with the
Company, to the fullest extent permitted by applicable law including, but not
limited to, any injury to person(s) or damage to property or business by reason
of any cause whatsoever, regardless of whether any such injury or damage is
caused by negligence on the part of the Executive. THIS INDEMNITY PROVISION IS
INTENDED TO INDEMNIFY THE EXECUTIVE (A) AGAINST THE CONSEQUENCES OF HIS OWN
NEGLIGENCE OR FAULT, REGARDLESS OF WHETHER THE EXECUTIVE IS SOLELY NEGLIGENT OR
CONTRIBUTORILY, PARTIALLY, JOINTLY, COMPARATIVELY, OR CONCURRENTLY NEGLIGENT
WITH ANY OTHER PERSON, AND (B) AGAINST ANY LIABILITY OF THE EXECUTIVE BASED ON
APPLICABLE DOCTRINE OF STRICT LIABILITY. Not withstanding the foregoing, the
Company will not, however, indemnify the Executive for any claims, liabilities,
losses, damages or expenses that result solely from bad faith, gross negligence
or willful misconduct by the Executive.
16. ATTORNEYS' FEES.
In the event that either party hereunder institutes any legal
proceedings in connection with its rights or obligations under this Agreement,
the prevailing party in such proceeding shall be entitled to recover from the
other party all costs incurred in connection with such proceeding, including
reasonable attorneys' fees, together with interest thereon as provided by
applicable law.
17. SUCCESSORS.
This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, estate, executors, administrators, heirs, or beneficiaries. In
the event of the Executive's death, all amounts payable to the Executive under
this Agreement shall be paid to the Executive's surviving spouse, if the
Executive dies without a surviving spouse, to the Executive's estate. This
Agreement shall inure to the benefit of, be binding upon, and be enforceable by
or against, any successor, surviving or resulting corporation, or other entity
or any assignee of the Company to which all or substantially all of the business
and assets of the Company is transferred whether by merger, consolidation,
exchange, assignment, sale, lease, or other disposition or action.
18. ENFORCEMENT.
The provisions of this Agreement shall be regarded as divisible, and if
any of such provisions or any part hereof is declared invalid or unenforceable
<PAGE>
by a court of competent jurisdiction, the validity and enforceability of the
remainder of such provisions or the parts hereof and the applicability thereof
shall not be affected thereby.
19. AMENDMENT OR TERMINATION.
This Agreement may not be amended or terminated during its term, except
by written instrument executed by both the Company and the Executive.
20. SURVIVABILITY.
The provisions of Sections 10, 11, 12, 13 and 15 hereof and the
provisions hereof relating to the payment of the Accrued Benefits and the
Severance Payment shall survive the termination of this Agreement.
21. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement between the Executive
and the Company with respect to the subject matter hereof and supersedes all
prior oral or written agreements, negotiations, commitments, and understandings
with respect thereto.
22. GOVERNING LAW; VENUE.
This Agreement and the respective rights and obligations of the
Executive and the Company hereunder shall be governed by and construed in
accordance with the laws of the State of Texas without giving effect to the
provisions, principles, or policies thereof relating to choice of law or
conflict of laws. Venue of any arbitration or other legal proceeding or action
relating to this Agreement shall be proper in Harris County, Texas.
23. NOTICE.
Notices given pursuant to this Agreement shall be in writing and shall
be deemed given when received, and if mailed, shall be mailed by United States
registered or certified mail, return receipt requested, postage prepaid, if to
the Company, to:
WorldPort Communications, Inc.
100 California Street, Suite 1400
San Francisco, CA 94111
Tel: 415-393-0724
Fax: 415-393-0721
with a copy to corporate counsel for the Company to:
<PAGE>
Snell & Wilmer LLP
Attn: Mr. William C. Gibbs, Esq.
111 East Broadway, Suite 900
Salt Lake City, Utah 84111
Tel: 801-237-1907
Fax: 801-237-1950
or to such other address as the Company shall have given to the Executive or, if
to the Executive, to:
John W. Dalton
326 5th Avenue
Sealy, Texas 77474
Tel: (409) 885-2622
with a copy to counsel for the Executive to:
Andrew G. Shebay
One Riverway, Suite 1400
Houston, Texas 77027
Tel: (713) 623-6200
or to such other address as the Executive shall have given to the Company.
24. NO WAIVER.
No waiver by either party at any time of any breach by the other party
of, or any failure by the other party to comply with, any condition or provision
of this Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or at any prior
or subsequent time.
25. HEADINGS.
The headings herein contained are for reference only and shall not
affect the meaning or interpretation of any provision of this Agreement.
26. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer, and the Executive has executed this
Agreement, on the date and year first above written.
<PAGE>
THE COMPANY:
WORLDPORT COMMUNICATIONS, INC.
/s/Edward P. Mooney
-----------------------------------
EDWARD P. MOONEY
DIRECTOR AND CHIEF EXECUTIVE OFFICER
EXECUTIVE:
/s/John Dalton
-----------------------------------
JOHN DALTON
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the use of our reports dated March 27, 1997, accompanying
the financial statements of WorldPort Communications, Inc. as of December 31,
1996, included in the Company's Annual Report on Form 10-KSB.
/s/Schumacher & Associates, Inc.
Schumacher & Associates, Inc.
April 14, 1997
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