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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report under Section 13 or 15(d) of the Securities
X Exchange Act of 1934 for the quarterly period ended March 31, 1999
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Or
Transition Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _______
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Commission File Number 000-25015
WORLDPORT COMMUNICATIONS, INC.
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(Exact name of registrant as specified in its charter)
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Delaware 84-1127336
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(State or other jurisdiction of incorporation or organization) (IRS Employer ID Number)
1825 Barrett Lakes Blvd.,
Suite 100, Kennesaw, Georgia 30144
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(Address of principal executive offices) (Zip Code)
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(770) 792-8735
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Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of April 30, 1999, the Registrant had 22,744,979 shares of Common Stock par
value $0.0001 outstanding.
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WORLDPORT COMMUNICATIONS, INC.
TABLE OF CONTENTS
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
March 31, 1999 (unaudited) and December 31, 1998 ........................................... 3
Condensed Consolidated Statements of Operations
For the Three Months Ended March 31,
1999 and 1998 (unaudited) ................................................................... 4
Condensed Consolidated Statements of Comprehensive Income
For the Three Months Ended March 31,
1999 and 1998 (unaudited) ................................................................... 5
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 (unaudited) ...................................... 6
Notes to Condensed Consolidated Financial Statements (unaudited) ............................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk .................................. 15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................................................... 16
Item 2. Changes in Securities ....................................................................... 16
Item 6. Exhibits and Reports on Form 8-K ............................................................ 17
SIGNATURE 18
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
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MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents ....................................................... $ 14,402 $ 9,015
Accounts receivable, net of allowance for doubtful accounts
of $1,068 and $1,054, respectively ........................................... 13,455 11,765
Receivable from related party ................................................... -- 32,500
Prepaid expenses and other current assets ....................................... 4,712 3,021
----------- -----------
Total current assets .................................................... 32,569 56,301
PROPERTY AND EQUIPMENT, net ..................................................... 105,387 91,226
OTHER ASSETS:
Capacity held for resale .................................................. 6,600 --
Goodwill, net ............................................................. 42,322 43,190
Other intangibles, net .................................................... 21,138 21,851
Other assets, net ......................................................... 4,091 7,887
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TOTAL ASSETS ................................................. $ 212,107 $ 220,455
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 16,002 $ 25,335
Accrued expenses ............................................................... 13,547 19,302
Current portion of obligations under capital leases ............................ 8,371 2,631
Current portion of notes payable ............................................... 4,833 --
Other current liabilities ...................................................... 2,115 1,952
Interim loan facility .......................................................... 120,019 110,926
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Total current liabilities ............................................... 164,887 160,146
Long-term obligations under capital leases, net of current portion .................. 18,362 17,539
Note payable, net of current portion ................................................ 20,733 12,028
Other long-term liabilities ......................................................... 11,267 11,375
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Total liabilities ...................................................... 215,249 201,088
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MINORITY INTEREST ................................................................... 642 1,845
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COMMITMENTS AND CONTINGENCIES (Note 3): ............................................. -- --
STOCKHOLDERS' (DEFICIT) EQUITY:
Undesignated preferred stock, $0.0001 par value, 4,800,000 shares
authorized, no shares issued and outstanding ............................... -- --
Series A convertible preferred stock, $0.0001 par value, 750,000 shares
authorized, 493,889 shares issued and outstanding in
1999 and 1998, respectively ................................................. -- --
Series B convertible preferred stock, $0.0001 par value, 3,000,000 shares
authorized, 2,192,109 and 2,931,613 shares issued and outstanding in
1999 and 1998, respectively ................................................. -- --
Series C convertible preferred stock, $0.0001 par value, 1,450,000 shares
authorized, 1,132,824 shares issued and outstanding in
1999 and 1998, respectively ................................................. -- --
Common stock, $0.0001 par value, 65,000,000 shares authorized,
21,349,432 and 18,228,916 shares issued and outstanding in
1999 and 1998, respectively ................................................. 2 2
Warrants ....................................................................... 31,919 28,263
Additional paid-in capital ..................................................... 77,538 77,414
Unearned compensation expense .................................................. (389) (750)
Cumulative translation adjustment .............................................. (5,172) (6,747)
Accumulated deficit ............................................................ (107,682) (80,660)
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Total stockholders' (deficit) equity ............................ (3,784) 17,522
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TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY ............ $ 212,107 $ 220,455
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
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THREE MONTHS ENDED
MARCH 31,
1999 1998
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REVENUES ....................................................... $ 18,275 $ 948
COST OF SERVICES ............................................... 12,068 891
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Gross margin .............................................. 6,207 57
OPERATING EXPENSES:
Selling, general and administrative expenses .............. 12,649 2,255
Depreciation and amortization ............................. 5,272 631
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Operating loss ............................................ (11,714) (2,829)
OTHER EXPENSE:
Interest expense, net ..................................... (15,610) (176)
Other expense ............................................. (880) --
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LOSS BEFORE MINORITY INTEREST AND INCOME
TAXES ........................................................ (28,204) (3,005)
MINORITY INTEREST .............................................. 1,203 --
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LOSS BEFORE INCOME TAXES ....................................... (27,001) (3,005)
INCOME TAX PROVISION -- --
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NET LOSS ....................................................... $ (27,001) $ (3,005)
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NET LOSS PER SHARE, BASIC AND DILUTED .......................... $ (1.43) $ (0.17)
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SHARES USED IN NET LOSS PER SHARE
CALCULATION, BASIC AND DILUTED ............................ 18,912 17,174
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED, IN THOUSANDS)
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THREE MONTHS ENDED
MARCH 31,
1999 1998
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Net loss........................................ $ (27,001) $(3,005)
Other comprehensive income, net of tax:
Foreign currency translation adjustments... 1,575 0
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Comprehensive loss.............................. $ (25,426) $(3,005)
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE DATA)
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THREE MONTHS ENDED
MARCH 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (27,001) $ (3,005)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 5,272 631
Non-cash interest expense 14,523 --
Non-cash compensation expense 257 335
Minority interest (1,203) --
Change in accounts receivable (1,690) (103)
Change in prepaid expenses and other assets (1,691) (271)
Change in accounts payable, accrued expenses and other liabilities (6,033) (663)
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Net cash used in operating activities (17,566) (3,076)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in connection with acquisitions, net of cash acquired -- (162)
Capital expenditures (8,011) (136)
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Net cash used in investing activities (8,011) (298)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on note payable - related party (150) (365)
Principal payments on short-term debt (202) --
Principal payments on obligations under capital leases (1,329) (37)
Exercise of stock options 230 --
Proceeds from issuance of preferred stock, net of offering expenses 32,500 10,085
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Net cash provided by financing activities 31,049 9,683
Effect of exchange rate changes on cash and cash equivalents (85) --
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NET INCREASE IN CASH AND CASH EQUIVALENTS 5,387 6,309
CASH AND CASH EQUIVALENTS, beginning of the period 9,015 179
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CASH AND CASH EQUIVALENTS, end of the period $ 14,402 $ 6,488
========= =========
CASH PAID DURING THE PERIOD FOR INTEREST $ 520 $ 145
========= =========
CASH PAID DURING THE PERIOD FOR INCOME TAXES $ -- $ --
========= =========
SUPPLEMENTAL SCHEDULE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable - related parties and accrued interest for
230,627 shares of Series B preferred stock $ -- $ 1,236
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Issuance of 1,000,000 shares of common stock for notes receivable $ -- $ 1,215
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Acquisition of assets under capital lease and other financing facilities $ 24,310 $ --
========= =========
Issuance of warrants in connection with Interim Loan $ 3,656 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
WorldPort Communications, Inc. (together with its subsidiaries, the
"Company"), previously known as Sage Resources, Inc., was organized as
a Colorado corporation on January 6, 1989, to evaluate, structure and
complete mergers with, or acquisitions of other entities. In October
1996, the Company changed its domicile to Delaware and changed to its
current name. The Company is a rapidly growing facilities-based global
telecommunications carrier offering voice, data and other
telecommunications services to carriers, internet service providers
("ISPs"), medium and large corporations and distributors and
resellers.
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant
to such rules and regulations; however, management believes that the
disclosures herein are adequate to make the information presented not
misleading. The financial statements and notes thereto included in
this Form 10-Q should be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
In the opinion of the Company's management, the accompanying condensed
consolidated financial statements contain all adjustments necessary to
present fairly the Company's financial position as of March 31, 1999,
and the results of operations and cash flows for the three months
ended March 31, 1999 and 1998. The results of operations for the three
months ended March 31, 1999 are not necessarily indicative of the
operating results for the full year.
Financial Condition
The Company is subject to various risks in connection with the
operation of its business including, among other things, (i) an
inability to repay the Interim Loan Facility due June 23, 1999, (ii)
changes in external competitive market factors, (iii) termination of
certain operating agreements or inability to enter into additional
operating agreements, (iv) inability to satisfy anticipated working
capital or other cash requirements, (v) changes in or developments
under domestic or foreign laws, regulations, licensing requirements or
telecommunications standards, (vi) changes in the availability of
transmission facilities, (vii) changes in the Company's business
strategy or an inability to execute its strategy due to unanticipated
changes in the market, (viii) various competitive factors that may
prevent the Company from competing successfully in the marketplace,
and (ix) the Company's lack of liquidity and its ability to raise
additional capital. The Company has incurred losses since inception,
expects to continue to incur operating losses in the near future, and
has an accumulated deficit of approximately $107.7 million as of March
31, 1999 as well as a working capital deficit of approximately $132.3
million. Funding of the Company's working capital deficit, current and
future operating losses and expansion of the Company's global network
will require substantial continuing capital investment. The Company's
strategy is to fund these cash requirements through debt facilities
and additional equity financing.
The Company's Interim Loan facility, which matures on June 23, 1999,
is secured by a lien on substantially all of the Company's assets and
certain of its subsidiaries and a pledge of the capital stock of
certain of the Company's subsidiaries. The Company is currently
pursuing several alternative financing facilities for
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repaying the Interim Loan, but to date it does not have a repayment
facility in place, nor any arrangement to extend the due date thereof.
In the event that the Interim Loan is not repaid by its due date (or
any extended maturity date as the case may be), the Interim Loan
holders have an agreement with the Company and certain of the Company's
stockholders (who held approximately 32% of the Company's outstanding
votes as of April 30, 1999 and who include certain key members of
management) pursuant to which the Company and such stockholders will be
obligated to support and use their respective best efforts to achieve
any transaction or series of transactions involving the sale of all or
any part of the Company or any subsidiary or any of their assets which
is proposed by the Interim Loan holders.
Although the Company has been able to arrange debt facilities or
equity financing to date, there can be no assurance that sufficient
debt or equity financing will continue to be available in the future
or that it will be available on terms acceptable to the Company.
Failure to obtain sufficient capital could materially affect the
Company's operations and expansion strategies. As a result of the
aforementioned factors and related uncertainties, there is substantial
doubt about the Company's ability to continue as a going concern.
Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
Loss per Share
For all periods presented, basic and diluted earnings per share are
the same as any dilutive securities had an antidilutive effect on
earnings per share.
(2) SEGMENT DISCLOSURES
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131
requires the reporting of profit and loss, specific revenue and
expense items and assets for reportable segments. It also requires the
reconciliation of total segment revenues, total segment profit or
loss, total segment assets, and other amounts disclosed for segments
to the corresponding amounts in the general purpose financial
statements. The Company adopted SFAS No.
131 during the year ended December 31, 1998.
The Company views itself as participating in one business segment -
facilities-based global telecommunications. Its operations can be
viewed as European and North American. Intersegment revenues are not
material. Financial data by geographic area for 1999 are as follows
(in thousands):
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European North American (1) Total
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Revenues $ 14,433 $ 3,842 $ 18,275
Depreciation and amortization 4,127 1,145 5,272
Operating loss (4,536) (7,178) (11,714)
Interest expense, net (15,578) (32) (15,610)
Net loss (18,911) (8,090) (27,001)
Total assets 147,425 64,682 212,107
Capital expenditures 3,301 4,710 8,011
Intangible assets, net 48,809 14,651 63,460
</TABLE>
(1) Includes all corporate overhead costs.
For the period ended March 31, 1998, all operations were North
American based.
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(3) COMMITMENTS AND CONTINGENCIES
Interim Loan Facility
To finance the EnerTel acquisition, the Company entered into a $120
million Interim Loan facility with a consortium of lenders effective
June 23, 1998, the terms of which also included the issuance of
warrants. The Interim Loan, which matures on June 23, 1999, includes
certain negative and affirmative covenants and is secured by a lien on
substantially all of the assets of the Company and certain of its
subsidiaries and a pledge of the capital stock of certain of the
Company's subsidiaries. The Interim Loan bears interest at LIBOR (as
defined in the credit agreement related to the Interim Loan) plus 6%
per annum (13.125% at March 31, 1999) increasing by 0.5% per annum at
the end of each period of three consecutive months after June 23,
1998; provided, that such interest rate shall not exceed 16% per annum
if paid in cash or 18% per annum if capitalized. As of March 31, 1999
Interim Loan holders, in aggregate, have received warrants exercisable
for 4,069,904 shares of common stock at a price per share of $0.01. In
addition to the warrants which the Interim Loan holders had received
as of March 31, 1999, such holders are entitled to receive additional
warrants on the date the Interim Loan is repaid in full, so that all
warrants issued to such holders represent 11% of the Company's
fully-diluted outstanding Common Stock on the date of such repayment.
As of March 31, 1999, the warrants were valued at an aggregate of
$31.9 million and this amount is reflected as a reduction in the
principal amount of the notes. This amount is being amortized to
interest expense over the life of the loan (1 year).
Capacity Commitments
The Company has entered into agreements with a vendor for the purchase
of STM-1's of capacity on the AC-1 cable system or STM-1 level
capacity on additional undersea cable systems under development by
this vendor. In 1998, the Company made a deposit of $2 million with
this vendor which will be applied against the Company's aggregate $66
million commitment over the next 3 years under this agreement. In
March 1999, the Company purchased undersea cable capacity from the
vendor by converting its deposit and paying an additional $4.6 million
as down-payment, and obtaining vendor financing for the remaining
$14.5 million purchase price. This vendor financing bears interest at
a rate of 11.5% and requires quarterly principal payments of $1.2
million commencing in June 1999 and ending in March 2002. The Company
intends to sell a portion of this capacity to one or more customers by
the end of the third quarter of 1999. Accordingly, the purchase cost
of this capacity is classified as "Capacity held for resale" on the
accompanying balance sheet.
In February 1999, the Company entered into an agreement with a
telecommunication carrier to sell to such carrier transmission
capacity throughout various points of presence in Europe for
approximately $8 million, payable upon acceptance of the circuits by
the carrier. The contract provides the purchaser with an indefeasible
right of use of this capacity for a period of 20 years. The Company
has entered into a separate agreement with a European
telecommunications company which gives the Company the right to
purchase capacity through these points of presence. This contract
provides for indefeasible right of use for a period of 10 years. The
Company is pursuing means to satisfy the capacity commitment to the
Company's customer for the remaining 10 years of that contract.
Legal
On May 14, 1999, the Company, John W. Dalton ("Dalton"), a former
director of the Company and its former President and Chief Executive
Officer, and the other parties entered into a negotiated settlement of
all claims asserted in an arbitration proceeding initiated by the
Company against Dalton. In that proceeding, the Company sought the
rescission and cancellation of 1.2 million shares of its Common Stock
that were issued to Dalton in connection with the Company's acquisition
of a company formerly owned by Dalton. In the same proceeding, Dalton
asserted a claim against the Company and others alleging among other
things that those parties engaged in breach of contract, tortious
interference and breach of fiduciary duty in connection with the
termination of Dalton's employment contract. Under the settlement
agreement, Dalton is required to return to the Company 500,000 shares
of its Common Stock that were previously issued to him. Additionally, a
$175,000 promissory note and 265,000 options claimed by Dalton were
cancelled. All other claims of the parties were released.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTE ON "FORWARD-LOOKING" STATEMENTS
The information set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") contains
certain "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended, Section 21E of the
Securities Exchange Act of 1934, as amended, and the Private
Securities Litigation Reform Act of 1995, including, among others (i)
expected changes in the Company's revenues and profitability (ii)
prospective business opportunities and (iii) the Company's strategy
for expanding and financing its business. Forward-looking statements
are statements other than historical information or statements of
current condition. Some forward-looking statements may be identified
by use of terms such as "believes", "anticipates", "intends" or
"expects". These forward-looking statements relate to the plans,
objectives and expectations of the Company for future operations.
Although the Company believes that its expectations with respect to
the forward-looking statements are based upon reasonable assumptions
within the bounds of its knowledge of its business and operations, in
light of the risks and uncertainties inherent in all future
projections, the inclusion of forward-looking statements in this
report should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be
achieved.
The Company's revenues and results of operations could differ
materially from those projected in the forward-looking statements as a
result of numerous factors, including, but not limited to, the
following: (i) an inability to repay the Interim Loan Facility due
June 23, 1999, (ii) changes in external competitive market factors,
(iii) termination of certain operating agreements or inability to
enter into additional operating agreements, (iv) inability to satisfy
anticipated working capital or other cash requirements, (v) changes in
or developments under domestic or foreign laws, regulations, licensing
requirements or telecommunications standards, (vi) changes in the
availability of transmission facilities, (vii) changes in the
Company's business strategy or an inability to execute its strategy
due to unanticipated changes in the market, (viii) various competitive
factors that may prevent the Company from competing successfully in
the marketplace, and (ix) the Company's lack of liquidity and its
ability to raise additional capital. In light of these risks and
uncertainties, there can be no assurance that actual results,
performance or achievements of the Company will not differ materially
from any future results, performance or achievements expressed or
implied by such forward-looking statements. The foregoing review of
important factors should not be construed as exhaustive. The Company
undertakes no obligation to release publicly the results of any future
revisions it may make to forward-looking statements to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto included
under Item 1 of this Form 10-Q. In addition, reference should be made
to the Financial Statements and Notes thereto and related Management's
Discussion and Analysis of Financial Condition and Results of
Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
OVERVIEW
The Company is a rapidly growing facilities-based global
telecommunications carrier offering voice, data and other
telecommunications services to carriers, ISPs, medium and large
corporations and distributors and resellers.
The Company's growth to date has occurred principally through
acquisitions, most notably its acquisition of EnerTel. The Company
acquired EnerTel in June 1998, for consideration consisting of
approximately $92 million and the payment of certain EnerTel
indebtedness of approximately $17 million. In November 1998 the Company
sold a 15% interest in the direct parent of EnerTel to former
shareholders of EnerTel for approximately $14.8 million, of which
approximately $2.8 million was an equity investment in the subsidiary
and approximately $12 million was in the form of a shareholder note.
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The principal on this shareholder note is payable ten years after the
Company's repayment of the Interim Loan, which financed the Company's
acquisition of EnerTel.
In addition to the Company's EnerTel operations, during 1998 the
Company acquired International InterConnect, Inc.("IIC") and
Intercontinental Exchange, Inc. ("ICX") which serve distributors and
resellers focused on international calling card and private line
services. The Company believes that these operations help it to expand
its name recognition and traffic volumes in emerging markets. Formerly
based in the San Francisco Bay area, ICX provides telecommunication
services principally through a network of agents and distributors in
Japan and other Asian countries. During the first quarter of 1999,
ICX's operations were integrated with the Company's Omaha, Nebraska
based calling card operation and its traffic was migrated to the
Company's Omaha switch. The Company acquired the assets and operations
of ICX in April 1998, in exchange for 400,000 shares of Common Stock.
In August 1998, the Company acquired the assets and operations of IIC.
The purchase consideration was 879,442 shares of Common Stock and
$750,000. Based in Rockledge, Florida, IIC specializes in providing
international long distance services primarily in Latin America. IIC's
customer base consists primarily of resellers, multinational
corporations, foreign embassies, and other businesses.
In February 1998, the Company commenced operations in the Netherlands
through the acquisition of MathComp B.V., whose name was changed to
WorldPort Communications Europe, B.V. ("WorldPort Europe"). In
connection with this acquisition, the Company issued 150,000 shares of
Common Stock and paid $250,000 in cash. The former shareholder of
WorldPort Europe is eligible to earn an additional 2,350,000 shares of
common stock contingent upon the attainment of certain future revenue
and gross margin requirements during the first and second quarters of
1999. Following the acquisition of EnerTel, the Company recorded
charges of approximately $5.2 million in the fourth quarter of 1998
for the wind down of the WorldPort Europe operations in 1999. See
"Legal Proceedings."
As of April 30, 1999, the Company had 22,744,979 shares of its Common
Stock outstanding, or 54,282,701 shares on a fully diluted basis. The
number of shares outstanding on a fully-diluted basis takes into
account (i) all outstanding shares of Common Stock, (ii) all
outstanding shares of the Company's convertible preferred stock,
together with all options to acquire such stock and all shares of such
stock which the Company has committed to issue, (iii) all outstanding
warrants to acquire the Company's Common Stock, together with such
number of additional warrants which the Company would have been
required to issue to the Interim Loan holders had the Interim Loan been
repaid on April 30, 1999 so that such holders would hold warrants
exercisable into 11% of the fully-diluted outstanding Common Stock on
such date (as contemplated by the Interim Loan facility), and (iv) all
outstanding options which had vested as of April 30, 1999 and which had
an exercise price at or below the market price on such date. The April
30, 1999, 54,282,701 number of shares outstanding on a fully-diluted
basis includes 3,077,032 shares related to an option held by an
investor and due to expire upon repayment of the Interim Loan, 500,000
shares recovered on May 14, 1999 as a result of the Dalton arbitration
settlement (see "Legal Proceedings"), and 442,106 warrants which the
Interim Loan holders would be entitled to receive as a result of the
issuance of those shares.
Capacity Commitments
The Company has entered into agreements with a vendor for the purchase
of STM-1's of capacity on the AC-1 cable system or STM-1 level
capacity on additional undersea cable systems under development by
this vendor. In 1998, the Company made a deposit of $2 million with
this vendor which will be applied against the Company's aggregate $66
million commitment over the next 3 years under this agreement. In
March 1999, the Company purchased undersea cable capacity from the
vendor by converting its deposit and paying an additional $4.6 million
as down-payment, and obtaining vendor financing for the remaining
$14.5 million purchase price. This vendor financing bears interest at
a rate of 11.5% and requires quarterly principal payments of $1.2
million commencing in June 1999 and ending in March 2002. The company
intends to sell a portion of this capacity to one or more customers by
the end of the third quarter of 1999. Accordingly, the purchase cost
of this capacity is classified as "Capacity held for resale" on the
accompanying balance sheet.
In February 1999, the Company entered into an agreement with a
telecommunication carrier to sell to such carrier transmission
capacity throughout various points of presence in Europe for
approximately $8 million,
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<PAGE> 12
payable upon acceptance of the circuits by the carrier. The contract
provides the purchaser with an indefeasible right of use of this
capacity for a period of 20 years. The Company has entered into a
separate agreement with a European telecommunications company which
gives the Company the right to purchase capacity through these points
of presence. This contract provides for indefeasible right of use for
a period of 10 years. The Company is pursuing means to satisfy the
capacity commitment to the Company's customer for the remaining 10
years of that contract.
RESULTS OF OPERATIONS
During the three months ended March 31, 1999, the Company incurred a
loss of approximately $27 million compared to a loss of approximately
$3 million during the same period in 1998. Included in the losses
incurred during the three months ended March 31, 1999 are the
operating results of EnerTel, IIC and ICX, including amortization of
the purchased intangibles and recording of financing costs related to
the Company's acquisition of EnerTel, as well as general expenses
related to the Company's worldwide business development and financing
activities. The operating results for ICX and IIC did not have a
material impact on the losses incurred by the Company in 1999. To
address and remedy historical operating losses and to increase its
competitiveness, revenues and gross margins, the Company has taken
various steps to improve each subsidiary's operating efficiency,
network capability and carrier cost structure. The Company believes
these cost-reduction and revenue-enhancing initiatives will have a
positive impact on the Company's future operating results. However, as
its business remains in the early growth stage, the Company
anticipates that it will continue to incur operating losses and cash
flow deficiencies for the near future.
Revenues
Revenues for the three months ended March 31, 1999 were $18.3 million
compared to $948,000 for the three months ended March 31, 1998. The
increase in revenues is primarily attributed to the inclusion of the
results of operations of EnerTel, acquired in June 1998. EnerTel's
revenues were $14.4 million during the three months ended March 31,
1999. Also contributing to the increase over the prior year is the
inclusion of ICX and IIC acquired in April and July 1998,
respectively. Combined, these two entities contributed approximately
$3 million in total revenues during the quarter ended March 31, 1999.
EnerTel primarily generates revenue from the transmission of both
domestic and international switched minutes in the Netherlands.
EnerTel also derives revenues from the fixed monthly rental of private
line circuits. The growth in EnerTel's revenues during 1998 and the
first three months of 1999 included growth in all EnerTel product
lines including virtual point of presence (VPOP) internet access;
direct access local, national and international switched services; and
800/900 products as well as the wholesale portion of the Bel 1600
business, a residential services business which the Company sold in
1998.
Gross Margin
Gross margin for the three months ended March 31, 1999 was $6.2
million compared to $57,000 for the three months ended March 31, 1998.
The increase in gross margin was primarily due to the inclusion of the
results of operations of EnerTel, ICX and IIC. The Company's primary
costs of sales are its cost of terminating switched minutes through
third parties, as well as its cost to access circuits used to connect
its customers in the Netherlands.
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<PAGE> 13
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $12.6
million from $2.3 million for the three months ended March 31, 1999
and 1998, respectively. The increase is primarily due to (i) the
inclusion of the selling, general and administrative expenses
associated with the operation of EnerTel, IIC and ICX, (ii) increased
business development and expansion activity, and (iii) growth in the
Company's U.S.
operations, marketing and corporate staff.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended March
31, 1999 was $5.3 million compared to $631,000 for the three months
ended March 31, 1998. The increase was due to (i) depreciation on the
assets acquired in connection with the EnerTel, IIC and ICX
acquisitions, (ii) amortization of goodwill and other intangible
assets associated with the EnerTel, IIC and ICX acquisitions, and
(iii) depreciation on additional switching and network equipment
acquired during 1998 and 1999.
Other Income (Expense)
Interest expense, net increased to $15.6 million from $176,000 for the
three months ended March 31, 1999 and 1998, respectively. The increase
in interest expense is due primarily to the Interim Loan, which
accounted for $15 million of interest expense during the three months
ended March 31, 1999. Interest expense also included interest for (i)
the debt the Company assumed in connection with the EnerTel and IIC
acquisitions, and (ii) the acquisition of switching equipment subject
to capital lease.
Other expense, net for the three months ended March 31, 1999 was
$880,000 compared to $0 for the three months ended March 31, 1998.
This amount represents the costs incurred to exit certain commitments
and relationships which are no longer considered in line with the
Company's core strategy.
LIQUIDITY AND CAPITAL RESOURCES
The Company is an emerging international telecommunications service
provider executing a global business plan that requires substantial
capital. The Company currently has a working capital deficit and has
operated at a loss since its inception. Funding of the working capital
deficit, current and future operating losses, expansion of the
Company's global network, and repayment of the Interim Loan facility
will require substantial continuing capital investment.
As of March 31, 1999 and December 31, 1998 the Company had a working
capital deficit of $132.3 million and $103.8 million respectively. The
working capital deficit at March 31, 1999 is due to (i) the Interim
Loan, (ii) the assumption of certain liabilities assumed in
conjunction with the Enertel, IIC and ICX acquisitions, the majority
of which were trade payables and short-term debt obligations, (iii)
the acquisition of additional switching and peripheral equipment and
transatlantic capacity, the majority of which is being financed
pursuant to capital leases and vendor financing, and (iv) the
operating losses of the Company. Trade receivables increased to $13.5
million at March 31, 1999 from $11.8 million at December 31, 1998
largely due to increases in customer revenue.
Operations used $17.6 million during the three months ended March 31,
1999 due primarily to the (i) operating losses, and (ii) increased
business development and expansion activity.
Investing activities used $8 million during the three months ended
March 31, 1999. Investing activities during the three months ended
March 31, 1999 consisted entirely of capital spending.
Financing activities provided $31 million during the three months
ended March 31, 1999. Financing activities during the three months
ended March 31, 1999 consisted primarily of proceeds from the issuance
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<PAGE> 14
of 920,419 shares of the Series C convertible preferred stock and the
exercise of employee stock options, reduced by principal payments on
capital leases and notes payable.
To finance the EnerTel acquisition, the Company entered into a $120
million Interim Loan facility with a consortium of lenders effective
June 23, 1998, the terms of which also included the issuance of
warrants. The Interim Loan, which matures on June 23, 1999, includes
certain negative and affirmative covenants and is secured by a lien on
substantially all of the assets of the Company and certain of its
subsidiaries and a pledge of the capital stock of certain of the
Company's subsidiaries. The Interim Loan bears interest at LIBOR (as
defined in the credit agreement related to the Interim Loan) plus 6%
per annum increasing by 0.5% per annum at the end of each period of
three consecutive months after June 23, 1998; provided, that such
interest rate shall not exceed 16% per annum if paid in cash or 18%
per annum if capitalized. As of March 31, 1999 Interim Loan holders,
in aggregate, have received warrants exercisable for 4,069,904 shares
of common stock at a price per share of $0.01. In addition to the
warrants which the Interim Loan holders had received as of March 31,
1999, such holders are entitled to receive additional warrants on the
date the Interim Loan is repaid in full, so that all warrants issued
to such holders represent 11% of the Company's fully-diluted
outstanding Common Stock on the date of such repayment. As of March
31, 1999, the warrants were valued at an aggregate of $31.9 million
and this amount is reflected as a reduction in the principal amount of
the notes. This amount is being amortized to interest expense over the
life of the loan (1 year).
Funding of the Company's working capital deficit, current and future
operating losses and execution of its global growth plans will require
substantial continuing capital investment. The Company's strategy is
to fund these cash requirements through debt facilities and additional
equity financing. In addition, the Company currently has approximately
$41 million in equipment lease facilities.
The Company's Interim Loan facility, which matures on June 23, 1999, is
secured by a lien on substantially all of the Company's assets and
certain of its subsidiaries and a pledge of the capital stock of
certain of the Company's subsidiaries. The Company is currently
pursuing several alternative financing facilities for repaying the
Interim Loan, but to date it does not have a repayment facility in
place, nor any arrangement to extend the due date thereof. In the event
that the Interim Loan is not repaid by its due date (or any extended
maturity date as the case may be), the Interim Loan holders have an
agreement with the Company and certain of the Company's stockholders
(who held approximately 32% of the Company's outstanding votes as of
April 30, 1999 and who include certain key members of management
pursuant to which the Company and such stockholders will be obligated
to support and use their respective best efforts to achieve any
transaction or series of transactions involving the sale of all or any
part of the Company or any subsidiary or any of their assets which is
proposed by the Interim Loan holders.
Although the Company has been able to arrange debt facilities or
equity financing to date, there can be no assurance that sufficient
debt or equity financing will continue to be available in the future
or that it will be available on terms acceptable to the Company.
Failure to obtain sufficient capital could materially affect the
Company's operations and expansion strategies. As a result of the
aforementioned factors and related uncertainties, there is substantial
doubt about the Company's ability to continue as a going concern.
YEAR 2000 ISSUE
The efficient operation of the Company's business is dependent in part
on computer software programs and operating systems. These programs
and systems are used in network trafficking, call origination and
termination, pricing, sales, billing and financial reporting, as well
as various administrative functions. Recognizing the importance and
need for an integrated information systems solution, the Company has
developed an implementation plan for upgrading its systems
architecture. This plan also addresses the functionality of its
systems beyond December 31, 1999 ("Year 2000 compliance"). Typically
the Company's upgrades made for additional functionality also remedy
any Year 2000 deficiencies in the related software. However, the
Company does not consider the cost of such upgrades to be year 2000
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<PAGE> 15
related, as it has not accelerated any upgrades to remedy a Year 2000
deficiency.
The Company does not anticipate additional material expenditures for
Year 2000 compliance issues. As WorldPort is a relatively new company,
commencing operations in late 1997, Year 2000 compliance has been a
requirement in all system related procurement. In circumstances where
acquired subsidiaries' systems are not compliant, remediation via
upgrades or system change-out is on-going. The Company's new systems
implementation is expected to be completed by September 30, 1999.
Management believes that the Company's remaining information
technology ("IT") systems and other non IT systems are either Year
2000 compliant or will be compliant by September 30, 1999 after
applying vendor supplied upgrades to these systems. The cost of the
upgrades are not considered to be material.
The Company is in the process of obtaining documentation from its
suppliers, customers, financial institutions and others as to the
status of their Year 2000 compliance programs and the possibility of
any interface difficulties relating to Year 2000 compliance that may
affect the Company. While few significant concerns were identified,
each has been addressed with a program of remediation. All programs
are targeted for completion by September 1, 1999. However, Year
2000-related operating problems or expenses may arise in connection
with the Company's computer systems and software or in connection with
the Company's interface with the computer systems and software of its
suppliers, customers, financial institutions and others. Because such
third-party systems or software may not be Year 2000 compliant, the
Company is in the process of developing contingency plans to address
Year 2000 failures of the entities with which it interfaces. The
Company could be required to incur unanticipated expenses to remedy
any problems, which could have a material adverse effect on its
business, results of operation and financial conditions.
The Company's worst case scenario does not contemplate a major
business disruption from internal systems. The Company believes that
it has exercised reasonable diligence to assess whether external
systems and interfaces are adequately prepared.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which is effective for fiscal years beginning after June
15, 1999. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and transactions involving hedge
accounting. The Company has not yet determined the impact this
statement will have on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market rate fluctuations on
its investments is nominal due to the short-term nature of those
investments. To the extent the Interim Loan is outstanding, the
Company has market risk relating to such amounts because the interest
rates under the Interim Loan are variable. The Company does not
believe its exposure represents a material risk to the financial
statements.
WorldPort's operations in Europe, principally in the Netherlands,
expose the Company to currency exchange rates risks. To manage the
volatility attributable to these exposures, the Company nets the
exposures to take advantage of natural offsets. Currently, the Company
does not enter into any hedging arrangements to reduce this exposure.
The Company is not aware of any facts or circumstances that would
significantly impact such exposures in the near-term. If, however,
there was a 10 percent sustained decline of the Dutch Gilder versus
the U.S. dollar, then the consolidated financial statements could be
materially effected as our Dutch operations represented approximately
69% of our total assets as of March 31, 1999 and 79% and 73% of our
total revenues and net loss for the three months ended March 31, 1999,
respectively.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 17, 1998, the Company was served with a summons and complaint
from MC Liquidating Corporation f/k/a MIDCOM Communications, Inc.
("MIDCOM"). Both the Company and TNC, its wholly-owned subsidiary are
named as defendants, as are Telenational Communications, Limited
Partnership, the former owner of the TNC assets ("TCLP"), and Edmund
Blankenau, a principal of TCLP and one of the Company's former
directors. In its complaint, filed on April 8, 1998 in the U.S.
Bankruptcy Court for the Eastern District of Michigan, Southern
Division, MIDCOM seeks payment of over $600,000 for services allegedly
provided to TCLP and the Company, together with other damages,
attorney fees and costs. The parties are currently engaging in
discovery. The Company believes the claims are without merit and
intends to vigorously defend against them.
The Company and WorldPort Communications Europe, B.V., one of the
Company's European subsidiaries ("WorldPort Europe"), are defendants
in litigation filed in the Sub-District and District courts of The
Hague, located in Rotterdam, Netherlands. The cases, filed in January,
1999, by Mr. Bahman Zolfagharpour, allege that the Company breached
agreements with Mr. Zolfagharpour in connection with its purchase of
MathComp B.V. (now WorldPort Europe) from Mr. Zolfagharpour and its
subsequent purchase of EnerTel. The litigation seeks damages in an
amount exceeding $20 million and the award of 2,500,000 shares of the
Company's common stock to Mr. Zolfagharpour. The Company believes that
the litigation is wholly without merit and intends to defend the case
vigorously. Earlier claims filed by Mr. Zolfagharpour with respect to
his employment agreement with WorldPort Europe have been resolved.
On May 14, 1999, the Company, John W. Dalton ("Dalton"), a former
director of the Company and its former President and Chief Executive
Officer, and the other parties entered into a negotiated settlement of
all claims asserted in an arbitration proceeding initiated by the
Company against Dalton. In that proceeding, the Company sought the
rescission and cancellation of 1.2 million shares of its Common Stock
that were issued to Dalton in connection with the Company's acquisition
of a company formerly owned by Dalton. In the same proceeding, Dalton
asserted a claim against the Company and others alleging among other
things that those parties engaged in breach of contract, tortious
interference and breach of fiduciary duty in connection with the
termination of Dalton's employment contract. Under the settlement
agreement, Dalton is required to return to the Company 500,000 shares
of its Common Stock that were previously issued to him. Additionally, a
$175,000 promissory note and 265,000 options claimed by Dalton were
cancelled. All other claims of the parties were released.
From time to time, the Company is involved in various other lawsuits
or claims arising from the normal course of business. In the opinion
of management, none of these lawsuits or claims will have a material
adverse effect on the Company's financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES
In the first quarter of 1999, the Company made the following issuances
of securities without registration under the Securities Exchange Act
of 1934, as amended ("Securities Act"). All such issuances were made
to "accredited investors" as defined in the Securities Act and its
regulations and were exempt from registration under Section 4(2) of
the Securities Act:
In December 1998, the Company entered into a Series C Preferred Stock
Purchase Agreement (the "Purchase Agreement") with an investor,
pursuant to which the investor acquired 1,132,824 shares of Series C
for an aggregate purchase price of $40 million ($32.5 million was
received for 920,419 shares in January 1999). Pursuant to the Purchase
Agreement, the investor also received an option to acquire up to
283,206 shares of Series C Preferred Stock for an aggregate purchase
price of $10 million. This option
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<PAGE> 17
expires upon the repayment or refinancing of the Interim Loan.
During the quarter, various holders of Series B Preferred Stock
converted their shares into 3.1 million shares of the Company's Common
Stock in accordance with the terms of the Series B Preferred Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.1 * Network Service Agreement dated February 19, 1999 between
Star Telecommunications, Inc. and the Company, together with an
addendum and side letter thereto
27.1 Financial Data Schedule
</TABLE>
* Confidential treatment requested for certain portions of this exhibit.
REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed during the period covered by this
Report.
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<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDPORT COMMUNICATIONS, INC.
Date: May 14, 1999 By: /s/ Phillip S. Magiera
--------------------------------------
Phillip S. Magiera
Chief Financial Officer and Secretary
18
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL TREATMENT REQUESTED FOR PORTIONS OF THIS DOCUMENT.
PORTIONS FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED ARE DENOTED BY [ECONOMIC
TERMS OMITTED]. MATERIAL OMITTED HAS BEEN FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION.
NETWORK SERVICES AGREEMENT
Standard Terms and Conditions
This Agreement has been made on this 19 February 1999 by and between:
STAR TELECOMMUNICATIONS, INC., a company incorporated under the laws of
Delaware having its principal place of business located at 223 East De La Guerra
Street, Santa Barbara, California 93101 ("STAR");
And,
WORLDPORT COMMUNICATIONS INC., a company incorporated under the laws of
Delaware, U.S.A., having its principal place of business located at 1825 Barrett
Lakes Boulevard, Suite 100, Kennesaw, Georgia 30144, U.S.A.
("WORLDPORT").
WHEREAS, WORLDPORT operates a telecommunications network with various
points of presence ("POPs") in Europe ("WORLDPORT Network"); and
WHEREAS, WORLDPORT wishes to provide dedicated, fixed, point-to-point,
digital transmission capacity over the WORLDPORT Network to STAR; and
WHEREAS, STAR is a telecommunications service provider/operator wishing
to obtain from WORLDPORT such transmission capacity;
NOW THEREFORE, WORLDPORT and STAR agree as follows:
1. DEFINITIONS
In this Agreement the following terms shall (unless the context
otherwise requires) have the following meanings:
"AGREEMENT" means this Agreement and the Addendum and annexes attached
hereto. In the event of conflict between the provisions of any annex and the
standard terms and conditions of this Agreement, the terms and conditions of the
Addendum shall prevail.
"COMMERCIAL OPERATIONS DATE" means the date that the Service Period
commences being the date of successful completion of the acceptance testing.
"CONFIDENTIAL INFORMATION" means all know-how, techniques, ideas,
principles and concepts which underlie any of the Services and business or
commercial information and all other information in whatever form obtained by
either Party directly or indirectly from the other Party pursuant to this
Agreement or prior to and in contemplation of it.
"WORLDPORT EQUIPMENT" means any telecommunications equipment which is
supplied by WORLDPORT for the provision of the Services to STAR.
"FORCE MAJEURE" means in relation to either Party an event or set of
circumstances which is beyond its reasonable control including but not limited
to: any default or delay in the performance of the respective obligations of the
Parties under this Agreement caused by fire,
<PAGE> 2
strike, riot, insurrection or civil disorder, war, national or local emergency,
act or omission of God, government or other competent authority.
"GROUP COMPANY" means, in relation to either Party, any holding company
or subsidiary or any subsidiary of such holding company.
"RING" means the telecommunications network (SDH resilient ring)
deployed or to be deployed by WORLDPORT on a defined route and including major
cities in Europe as listed under Annex 1. This list may be amended from time to
time by WORLDPORT to reflect changes in WORLDPORT Network roll out. Such
amendment will be notified to STAR in writing.
"SERVICE PERIOD" means a twenty (20) year period as measured from the
Commercial Operations Date.
"SERVICES" means the telecommunications services provided by WORLDPORT
to STAR (comprising the provision of managed bandwidth and maintenance services)
as specified in the Annexes to this Agreement.
"SERVICE CONSIDERATION" means the payment of the charges by STAR to
WORLDPORT as set forth in Annex I and the relevant Service Order Forms attached
under Annex II in return for the provision by WORLDPORT of the Services.
"SERVICE DELIVERY DATE" means the date agreed between the Parties for
the delivery of the Services as specified on the relevant Service Order Form.
"SERVICE LEVEL AGREEMENT" means the quality standards of the Services
as defined under Annex III.
"TERM" is the period of validity of this Agreement as set forth in
Section 3.
"UNDERLYING STAR CONSENTS" means any and all permissions, consents,
approvals, easements, wayleaves, and permits in legally acceptable form as are
necessary to enable STAR and its employees, agents, or sub-contractors to
operate the telecommunications systems of STAR and to enable STAR to use the
Services to be provided under this Agreement.
"UNDERLYING NETWORK CONSENTS" means any and all permissions, consents,
approvals, easements, wayleaves, rights, authorizations, supplier agreements or
any other underlying requirement as are necessary to enable WORLDPORT and its
employees, agents or sub-contractors to construct, operate and maintain the
WORLDPORT Network and provide the Services herein described.
2. SCOPE OF AGREEMENT
In return for the Service Consideration provided by STAR, WORLDPORT
shall provide the Services as specified in this Agreement.
WORLDPORT shall be free to contract for the Services from such
telecommunications operators as it may consider necessary in order to provide
the Services on the basis that WORLDPORT will continue to achieve the service
levels detailed in Annex III.
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<PAGE> 3
3. TERM OF AGREEMENT
[SEE ADDENDUM]
4. STAR'S OBLIGATIONS
(a) STAR shall provide the Service Consideration to
WORLDPORT in accordance with this Agreement and the relevant Service Order Forms
attached under Annex II.
(b) STAR shall provide WORLDPORT, its employees, agents
and subcontractors with access to STAR's premises (including access to
third-party controlled premises) to the extent reasonably necessary for
WORLDPORT to provide the Services hereunder.
(c) STAR shall provide WORLDPORT and its employees,
agents and subcontractors at no charge, with such equipment as may be mutually
agreed, and space, suitable environment and operational conditions as is
reasonably required for WORLDPORT to provide the Services hereunder.
(d) STAR shall not take any action that could contribute
to the degradation of the WORLDPORT Equipment or WORLDPORT Network.
(e) STAR shall comply with any applicable law,
regulation, order, decision or other government or judicial act relating to the
Services to be provided and used hereunder.
5. WORLDPORT'S OBLIGATIONS
(a) WORLDPORT will use its best endeavors to provide the
Services on the Service Delivery Dates as set forth in the relevant Service
Order Form.
(b) In performing any obligation under this Agreement,
WORLDPORT's duty is to exercise the reasonable skill and care of a competent
telecommunications network operator. The quality of the Services provided shall
be consistent with industry standards, government regulations, sound business
practices and Annex III.
(c) Except as expressly provided in this Agreement, all
warranties, conditions, or other terms implied by statute or common law are
excluded to the fullest extent permitted by law.
6. ORDERING AND COMMISSIONING OF SERVICES
The procedures, terms and conditions for ordering and commissioning the
Services are specified in Annex IV.
7. OPERATIONS AND MAINTENANCE
The procedures, terms and conditions for the provision by WORLDPORT of
Operations and Maintenance support are specified in Annex III, the Service Level
Agreement.
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<PAGE> 4
8. EQUIPMENT
(a) Title to the WORLDPORT Equipment shall not pass to
STAR and STAR shall not remove, tamper with or obliterate any identification
mark(s) affixed to such equipment or to any part thereof.
(b) WORLDPORT reserves the right at any time to make any
modification, change, addition to or replacement of any part of the WORLDPORT
Equipment where it is required to conform with any applicable safety or other
statutory requirements or where such modification, change, addition or
replacement does not detract from, reduce or impair the overall quality or
performance of the Services. In the performance of its rights hereunder,
WORLDPORT shall bear all costs and shall use best efforts to cause as little
disruption to STAR's use of the Services as possible.
9. SERVICE CONSIDERATION
(a) The charges payable by STAR for the provision of the
Services are set out in Annex I to this Agreement. Furthermore, WORLDPORT will
ensure that if STAR orders additional Services under this Agreement, (other than
those contemplated herein) the charges offered to STAR for those additional
Services will remain highly competitive in the marketplace and will not, in any
event, be higher than comparable prices offered hereunder as of the Effective
Date.
(b) The timely payment of all sums due to WORLDPORT under
this Agreement shall be the essence of this Agreement. Any overdue amount shall
accrue interest, to the extent permitted by applicable law, at a fixed interest
rate of two percent (2%) per annum above the National Westminster Bank plc base
rate, then in force on the day following the day payment of the invoice was due,
until payment in full is received.
(c) All charges payable under this Agreement shall be
calculated in accordance with this Agreement and made in the currency specified
in Annex I and in the relevant Service Order Form and are expressed exclusive of
VAT or any other similar sales tax, and shall be charged in accordance with the
relevant regulations in force in the home of the supplier and shall be paid by
STAR.
(d) In the event that STAR disputes an invoice and the
amount disputed is greater than five per cent (5%) of the value of the relevant
invoice (excluding taxes), then STAR shall issue WORLDPORT a notice in writing
within ten (10) days of the receipt of the relevant invoice specifying the
nature of the dispute. The Parties shall then use their best endeavors to
resolve the dispute according to the dispute resolution procedures set forth in
Section 30 hereunder.
10. LIMITATION OF LIABILITY
(a) This clause 10 sets out each Party's entire liability
in respect of any obligation, duty, or liability whatsoever to the other Party
(including liability, if any, or the acts or omissions of its employees, agents
or subcontractors) in connection with this Agreement (including the attached
Service Level Agreement) whether in contract, tort, or otherwise, including
(without limitation) any liability for negligence howsoever arising.
4
<PAGE> 5
(b) Notwithstanding Section (d) below, nothing in this
Agreement shall exclude or restrict either Party's liability for death or
personal injury resulting from negligence by it or by its employees while acting
in the course of their employment.
(c) NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER
IN RESPECT OF THIS AGREEMENT IN CONTRACT, TORT OR OTHERWISE INCLUDING (WITHOUT
LIMITATION) ANY LIABILITY FOR NEGLIGENCE HOWSOEVER ARISING: (I) FOR ANY LOSS OR
REVENUE, BUSINESS, CONTRACTS, ANTICIPATED SAVINGS OR PROFITS; OR (II) ANY
INDIRECT, SPECIAL OR CONSEQUENTIAL LOSS.
(d) The Parties' entire liability to each other whether
in contract, tort or otherwise including (without limitation) any liability for
negligence howsoever arising in connection with this Agreement shall be limited
to the value associated with the affected circuit(s) in the aggregate in respect
of any one or more incidents in any year (a year being twelve months from the
date of this Agreement and from each anniversary thereof).
(e) The provisions of this Section shall survive the
expiry or termination of this Agreement.
11. CONFIDENTIALITY
Each Party shall at all times use their best endeavors to keep
confidential (and to ensure that its employees and agents shall keep
confidential): (a) the terms of this Agreement; and, (b) shall not use or
disclose (save in the performance of its obligations under this Agreement) any
Confidential Information which it may acquire in relation to the business or
affairs of the other Party, for the whole duration of this Agreement and for two
(2) years following its termination or expiry, save for any information:
(a) Which is publicly available or becomes publicly
available through no act of the first receiving Party; or
(b) Which was in the possession of the receiving Party
free of restriction prior to its disclosure; or
(c) Which is disclosed to that Party by a third party who
did not acquire that information under an obligation of confidentiality; or
(d) Which has been independently developed by the
receiving Party prior to this Agreement; or
Which is disclosed under operation of law or for financing purposes,
except that the receiving Party shall disclose only such Information as is
legally required and shall provide to the disclosing Party prompt written notice
of each such requirement, to the extent practicable, so that the disclosing
Party may seek an appropriate protective order.
12. INTELLECTUAL PROPERTY
Nothing in this Agreement shall be deemed to confer on either Party any
rights or licenses in respect of any intellectual property of the other.
5
<PAGE> 6
13. FORCE MAJEURE
(a) If either Party is affected by Force Majeure, it
shall promptly notify the other Party of the nature and extent of the
circumstances in question.
(b) Notwithstanding any provision of this Agreement,
neither Party shall be deemed to be in breach of this Agreement, or otherwise be
liable to the other (except for the payment of charges due or provision of other
consideration due), for any delay in performance or other non-performance of any
of its obligations under the Agreement to the extent that such delay or
non-performance is due to Force Majeure of which it has notified the other
Party, and the time for performance of that obligation shall be extended
accordingly. Without prejudice to subsection 13(c) below, the Party prevented
from performance shall use reasonable efforts under the circumstances to avoid
or remove such causes of non-performance and shall proceed to perform with
reasonable dispatch whenever such causes are removed, alleviated or cease.
(c) If an event of Force Majeure lasts for more than
thirty (30) consecutive days which prevents either Party from fulfilling any of
its obligations under this Agreement, either Party shall be entitled to
terminate this Agreement by giving not less than fourteen (14) days written
notice to the other immediately upon the expiry of the 30-day period, provided
that such notice will be of no effect if the party prevented from fulfilling its
obligations notifies the other in writing before the expiry of the 14-day notice
period that it is no longer affected by Force Majeure.
14. SUSPENSION OF SERVICES
(a) WORLDPORT may, at its sole discretion, suspend the
provision of the Services until further notice (i) if WORLDPORT has a right to
terminate this Agreement pursuant to Section 15; or (ii) if WORLDPORT needs to
carry out Emergency Works on the WORLDPORT Network (see Annex III); or (iii) if
WORLDPORT is required to comply with a government, administrative or judicial
order, decision or other such requirement that would prevent WORLDPORT from
providing the Services.
(b) In the event that WORLDPORT exercises its right to
suspend the Services it shall provide advance notice to STAR where it is
reasonably practicable to do so, or as soon as reasonably practicable following
suspension.
(c) WORLDPORT shall not be liable for any loss, damage or
inconvenience suffered by STAR as a result of any suspension made pursuant to
Section 14 (a) except for service credits due as specified in Annex III.
15. TERMINATION OF AGREEMENT
(a) Either Party shall be entitled to terminate this
Agreement upon prior written notice if the Party against whom termination is
sought:
(b) commits a material breach of any provision of this
Agreement (save for any breach which is caused by the Party seeking to rely on
it) and, in the case of a breach which is capable of remedy, fails to remedy the
same within thirty (30) days after receipt of written notice giving full
particulars of the breach and requiring the breach to be remedied;
6
<PAGE> 7
(c) fails to pay any sum due under this Agreement within
thirty (30) days of its due date as in 9(c).
(d) an administrative order is made or an effective
resolution is passed for the dissolution or discontinuation or termination of
the other party except for the purposes of a consolidation, merger or
restructuring and said order or resolution is not vacated or dismissed within
fourteen (14) days;
(e) an encumbrance takes possession or a receiver is
appointed over the whole or a substantial part of the undertaking or assets of
the other party;
(f) the other party becomes insolvent or makes any
special arrangements or any special assignment for the benefit of its creditors,
or is the subject of a voluntary or involuntary filing under the insolvency or
bankruptcy laws of any jurisdiction
(g) makes a proposal for a voluntary arrangement within
Part I of the UK Insolvency Act 1986 or other similar statutory arrangement; or
(h) ceases, or threatens to cease, to carry on business.
(i) Upon the termination of this Agreement for any
reason, subject as otherwise provided in this Agreement and to any rights and/or
obligations which have accrued prior to termination, neither Party shall have
any further obligation to the other under this Agreement, except as to those
obligations of a continuing nature.
16. NOTICES
All notices given under this Agreement must be in writing and may be
sent by facsimile with a copy by post to the following contacts:
STAR: Star Telecommunications, Inc.
223 East De La Guerra Street
Santa Barbara, California 93101
Attn: Director of Contracts
(805) 899-2972
WORLDPORT: WORLDPORT COMMUNICATIONS, INC.
1825 Barrett Lakes Boulevard, Suite 100
Kennesaw, Georgia 30144
Attn: Director of Contracts
770 792-0676 (fax)
Any Party may change contact information by giving the other Party
prior written notice.
17. ASSIGNMENT
(a) This Agreement is personal to WORLDPORT and STAR and
it shall not be assigned, delegated, transferred or otherwise disposed of
without the prior written consent of the other Party, such consent shall not be
unreasonably withheld or delayed. Notwithstanding the foregoing, WORLDPORT shall
have the right to use subcontractors to perform some of the duties and/or
obligations hereunder, subject to Section 2(b).
7
<PAGE> 8
(b) For the avoidance of doubt, either Party may assign
the benefit of this Agreement to any Group Company (for so long as they remain a
Group Company) and nothing shall prevent STAR from using the Services on a
commercial basis.
18. NO PARTNERSHIP
Nothing in this Agreement shall create, or be deemed to have created, a
partnership between the Parties.
19. NO WAIVER
Any waiver by either Party of a breach of any provision of this
Agreement shall not be considered as a waiver of any subsequent breach of the
same or any other provision.
20. ENTIRE AGREEMENT
This Agreement contains the entire agreement between the Parties with
respect to its subject matter, and supersedes all previous agreements and
understandings between the Parties, and may not be modified except by an
instrument in writing signed by the duly authorized representatives of the
Parties.
21. NO WARRANTY
Each Party acknowledges that, in entering into this Agreement, it does
not do so on the basis of or rely on any representation, warranty or other
provision except as expressly provided in this Agreement, and accordingly, all
conditions, warranties or other terms implied by statute or common law are
hereby excluded to the fullest extent permitted by law.
22. SEVERABILITY
If any provision of this Agreement is held by any court or other
competent authority to be void or unenforceable in whole or part, the other
provisions shall continue to be valid, unless either Party decides in its
absolute discretion to treat this Agreement as terminated.
23. STATUTORY INTERPRETATION
References to statutory provisions shall, except when the context
requires otherwise, be construed as references to those provisions as
respectively amended or re-enacted or as their application is modified by other
provisions (whether before or after the date hereof) from time to time.
24. HEADING
Headings are inserted for convenience only and shall not affect the
construction of the Agreement.
25. PUBLICITY
Neither party shall issue a public notice or news release concerning
this Agreement and the transactions contemplated hereby without the prior
approval of the other, which approval shall not be unreasonably withheld or
delayed.
8
<PAGE> 9
26. SURVIVAL
Any Section or subpart of this Agreement of a continuing nature shall
survive the termination of this Agreement including but not limited to Sections
11, 12, 13, 29 (b).
27. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of California.
28. EXECUTION AND COUNTERPARTS
This Agreement may be executed in two or more counterparts, all of
which taken together shall constitute one instrument.
30. DISPUTE RESOLUTION AND ARBITRATION
In the event there is a controversy or claim between the Parties
arising out of or relating to this Agreement, the disputing Party shall give the
other Party written notice of the dispute. The Parties shall make best endeavors
to resolve the controversy promptly through discussions between themselves at
the operational level. If the Parties fail to resolve such controversy or claim
within fifteen (15) days of the disputing Party's notice, either Party may seek
arbitration as set forth below.
Any controversy or claim arising out of or relating to this contract,
or the breach thereof, which cannot be resolved through the internal dispute
resolution process, shall be settled by arbitration administered by the American
Arbitration Association under its Commercial Arbitration Rules, and judgement on
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The arbitration will be held at a mutually agreeable
location and, in the event the parties cannot agree on a location for the
arbitration, the location will be determined in accordance with the American
Arbitration Association's Commercial Arbitration Rules. Nothing herein limits a
party's right to seek and obtain, from a court of competent jurisdiction, a
preliminary injunction or such other preliminary judicial relief to avoid
irreparable damage or harm, however, should a party take such action, both
parties will continue to participate in good faith in the procedures specified
in clause 30 (a).
As WITNESS the hands of the Parties (or their duly authorized
representatives) the day and year first about written:
SIGNED FOR AND ON BEHALF OF SIGNED FOR AND ON BEHALF OF
STAR TELECOMMUNICATIONS, WORLDPORT COMMUNICATIONS, INC.
BY: /s/ JAMES KOLSRUD BY: /s/ DAN LAZAREK
------------------------------ ------------------------------------
NAME: JAMES KOLSRU NAME: DAN LAZAREK
------------------------------ ------------------------------------
TITLE: EVP - OPS/ENG TITLE: EXECUTIVE VICE PRESIDENT
------------------------------ ------------------------------------
DATE: 2/19/99 DATE: 2/19/99
------------------------------ ------------------------------------
9
<PAGE> 10
PAYMENT TERMS AND SERVICE VARIATION ANNEX I
PRICING STRUCTURE
STAR may purchase STM-1 circuits from Point-to-Point on the WORLDPORT
Network as follows:
<TABLE>
<CAPTION>
City Pairs Price Delivery London -
---------------------------------------------------------------------------------
<S> <C> <C>
[ECONOMIC TERMS OMITTED]
</TABLE>
Local access circuits are included from cable landing to WORLDPORT's
POP at Telehouse facility (Docklands) in London.
O&M charges for the [ECONOMIC TERMS OMITTED] circuits set forth above
shall be $[ECONOMIC TERMS OMITTED] for the Service Period for all [ECONOMIC
TERMS OMITTED] circuits, inclusive, and shall be due and payable within three
working days after signing of the Agreement.
Installation charges are waived for these [ECONOMIC TERMS OMITTED]
circuits.
* STAR commits to order, take delivery and remit payment for these circuits by
the first anniversary of the commencement date of this Agreement.
For escrow terms, see addendum
"INFORMATION ON THIS PAGE SUBJECT TO CONFIDENTIAL TREATMENT REQUEST."
10
<PAGE> 11
MANAGED BANDWIDTH SERVICE ORDER FORM ANNEX II
STAR DETAILS
Address
City
Postal code
Country
SERVICE CONFIGURATION
Service Quantity 1 X STM-1 Bit rate 155Mbits/s
SERVICE DELIVERY DETAILS
Service is provided between Network Termination Points (NTPs), which are the
points of connection to the WORLDPORT Network, normally located at WORLDPORT
Point of Presence (POP).
NTP, "A" end To be determined
NTP, "B" end to be determined
Service Commencement Date Before To be determined
TARIFF AND PAYMENT DETAILS
Contract term 20 years
Billing term 10% upon execution of this Service Order Form
(non-refundable), 90% on the Commercial Operations Date
Billing currency U.S. Dollars
Charge $[ECONOMIC TERMS OMITTED]
STAR SIGNATURE: DATE:
---------------------------------
WORLDPORT SIGNATURE: /S/ DAN LAZAREK DATE: 2/19/99
--------------------------------
WORLDPORT CONTACT DETAILS
Commercial contact Russ Matulich
Address WORLDPORT Communications, Inc.
1825 Barrett Lakes Boulevard, Suite 100
City Kennesaw, Georgia 30144, USA
Telephone (+1) 770-792-5850
Facsimile (+1) 770-792-5801
Email
STAR CONTACT DETAILS
- -------------------------
"INFORMATION ON THIS PAGE SUBJECT TO CONFIDENTIAL TREATMENT REQUEST."
<PAGE> 12
ANNEX III
SERVICE LEVEL AGREEMENT
The purpose of this Service Level Agreement ("SLA") is to establish the
procedures for installation and acceptance of the Services as well as for
preventative and corrective maintenance.
Definitions
"EMERGENCY OUTAGE" means an outage that is not planned or for which the
Parties do not have prior advanced notice and which requires the suspension of
or disruption to the Services in order to restore the Services.
"WORLDPORT HELP DESK" means the Help Desk operated twenty-four (24)
hours a day every day during the Service Period by WORLDPORT.
"FAULT CLEARANCE PROCEDURES" means the procedures for operation and
maintenance of the Services (as specified hereunder) provided by WORLDPORT in
co-operation with STAR in order to correct Service Affecting and Non-Service
Affecting Faults ("Fault Repair").
"NETWORK CONTROL CENTRE" means the service centre operated by WORLDPORT
in order to control, maintain and configure the WORLDPORT Network.
"NON SERVICE AFFECTING FAULT" means any failure, interruption or
disruption of the SDH Network, which does not affect normal traffic transmission
over such network.
"PLANNED OUTAGE" means suspension of or disruption to the Services, the
occurrence of which has been agreed in advance by the Parties or of which the
Parties have prior advance notice.
"SERVICE AFFECTING FAULT" means any failure, interruption or disruption
of the SDH Network, which materially affects normal traffic transmission over
such network.
"SERVICE AVAILABILITY" means the period of time in which the Services
are available for use by STAR in comparison to the period of time in which the
Services are not so available.
"SERVICE CREDITS" means such credit serving as compensation to STAR in
the event that the targeted service availability levels (as specified hereunder)
are not met by WORLDPORT.
Installation and Acceptance Procedures
Prior to the provision of the Services, WORLDPORT and STAR shall agree
upon an installation plan specifying the required responsibilities, procedures,
acceptance criteria and timetables.
Following completion of acceptance testing, WORLDPORT will supply STAR
with the test results. Thereafter, STAR will have 5 days in order to conduct its
own acceptance testing.
<PAGE> 13
Unless STAR notifies WORLDPORT that the Services do not comply with
specifications, the expiry of the 5-day period marks the date of acceptance by
STAR of the test results, which, in turn, marks the Commercial Operations Date.
Service Availability and Performance Levels
WORLDPORT will use best endeavors to provide the Services at a service
availability level of at least 99.95%.
Service Credits
Without prejudice to Section 8 and Section 9 of this Service Level
Agreement, WORLDPORT shall provide STAR with Service Credits (as specified
below) in the event that the stipulated availability level is not met where such
does not result from the failure of STAR to comply with the terms and conditions
of this Agreement or from any Service Variations as defined under Annex I to the
Agreement.
(a) PoP to PoP
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Service Level Guarantee (%) Credits Calculation if service
level is not met
- --------------------------------------------------------------------------------
<S> <C> <C>
Availability (monthly) 99.95 - 99.5 20% of monthly equivalent rate of
purchase price plus
O&M charge
Below 99.5 - 99.0
40% of monthly equivalent rate of
purchase price plus
Below 99.0 - 97.5 O&M charge
Below 97.5 60% of monthly equivalent rate of
purchase price plus
O&M charge
100% of monthly equivalent rate
of purchase price plus
O&M charge
- --------------------------------------------------------------------------------
</TABLE>
A. (b). Availability Measurements
Availability is calculated on a monthly basis as follows:
(Total time - Sum of all events of unavailable time as agreed during
fault clearance) * 100
Total time.
Performance Reports
Performance reports will be provided to STAR on a monthly basis. These
will include a log of any faults, reported by STAR, or detected at the Network
Control Centre, giving details of the progress and timing of any fault clearance
activity.
Fault Reporting
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<PAGE> 14
STAR shall report faults by contacting by telephone the WORLDPORT Help
Desk at the telephone numbers set forth below ("Fault Reports").
Upon receipt of the Fault Report, WORLDPORT will allocate a job ticket
number and a priority level to the fault.
The Parties shall reference the job ticket number in all communications
that relate to the Fault Report.
The Priority Level will characterize the fault as either a Service
Affecting or Non-Service Affecting Fault which will determine the Fault
Clearance Procedures to be taken.
Non-Service Affecting Fault Clearance Procedures
If a Non-Service Affecting Fault is detected by the Network Control
Centre the Services will be automatically switched to an alternative route.
WORLDPORT will only notify STAR of Non-Service Affecting Faults in the
monthly reporting procedure.
Service Affecting Fault Clearance Procedures
WORLDPORT shall use best endeavors to clear Service-Affecting Faults
within 4 hours of receiving Fault Report from STAR or detection of the Fault by
the Network Control Centre.
In the event of a Service-Affecting Fault, WORLDPORT shall keep STAR
informed of fault clearance activity and shall promptly notify STAR when the
fault(s) has/have been cleared.
If Service-Affecting Faults are not cleared within 4 hours, fault
clearance activities will be escalated through the WORLDPORT management
structure to the Director of Networks.
Planned Outage
From time-to-time there will be a need to undertake planned work on the
WORLDPORT Network, in order to perform preventive maintenance, or to increase
network capacity and/or coverage. Planned outages will be carried out in
maintenance windows which will be notified to STAR 28 days in advance. If such
planned work is of a nature that is likely to be Service-Affecting, WORLDPORT
shall provide STAR with as much advanced notice as is reasonable under the
circumstance, with such notice normally being not less than 28 days prior to the
commencement of the planned works. In such an event, STAR shall provide
WORLDPORT all necessary assistance and co-operation in order to complete the
planned works efficiently. For the avoidance of doubt, no Service Credits or
claim to damages may be made by STAR for Planned Outages except where there is a
loss of Services.
EMERGENCY OUTAGE
In the event of an Emergency Outage, WORLDPORT shall provide STAR with
such notice (as may be deemed reasonable under the circumstances), indicating
the nature of the
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<PAGE> 15
outage and its expected duration. In return, STAR shall provide WORLDPORT with
such assistance and co-operation as may be necessary for the restoration of the
Services. For the avoidance of doubt, no Service Credits or claim to damages may
be made by STAR for loss of Services due to Emergency Outages that result from a
Force Majeure event. In all cases, however, when WorldPort receives a credit
from its underlying capacity supplier, WorldPort will, as a minimum, pass any
such credit on to STAR on a proportional basis.
4
<PAGE> 16
ANNEX IV
SERVICE ORDER PROCEDURE
Placing an Order
STAR shall place a service order by using the WORLDPORT Service Order
Form designed for the managed bandwidth services.
WORLDPORT will acknowledge receipt of the service order within one
working day.
On receipt of the service order, WORLDPORT will verify the service
requested, determine whether the requested service delivery date is feasible
taking into account, among others, the status of the required POPs on the
relevant RING(s), and confirm or review the date with STAR within one week
CONFIRMING AN ORDER
Upon completion of verification procedures by WORLDPORT, the Parties
shall then sign the Service Order Form. In order for the service order to remain
valid, the Parties shall sign it within one month of agreement of the service
delivery date or at the date at which the relevant PoPs are "live" and available
whichever is the earliest.
If the Service Order details (including Start date) cannot be verified
within one week of order receipt, then WORLDPORT will keep STAR informed of
progress on a weekly basis during verification.
<PAGE> 17
ADDENDUM TO NETWORK SERVICES AGREEMENT
This Addendum to Network Services Agreement is attached to and
incorporated in that certain Network Services Agreement dated February _19__,
1999 (this "Agreement"), by and between STAR TELECOMMUNICATIONS, INC., a
Delaware corporation ("STAR"), and WORLDPORT COMMUNICATIONS, INC. ("WORLDPORT"),
a Delaware corporation.
1. GRANT OF IRU IN WORLDPORT NETWORK
1.1 IRU Grant. Worldport hereby grants to STAR indefeasible rights
of use ("IRU") in the STM-1s supplied by Worldport between the following City
pairs in Europe ("Capacity"):
[ECONOMIC TERMS OMITTED]
Notwithstanding any other provisions of this Agreement, STAR shall have the
right to assign some or all of its rights and obligations under this Agreement,
including, without limitation, any or all rights and obligations relating to any
STM-1 comprising the Capacity, to one or more of its Affiliates. The term
"Affiliate" means any person (i) which directly or indirectly controls or is
controlled by, or is under common control with, a party hereto, or (ii) 10% of
which is held beneficially or of record by a party hereto or one of its
subsidiaries. In the event of any said assignment by STAR to any of its
Affiliates, where applicable, references in this Agreement to STAR shall mean
and refer to said Affiliates.
1.2 Capacity Requirements. All Capacity shall include all required
circuits (POP-to-POP as defined in Exhibit B) and shall be provided by network
facilities inclusive of all circuits and the use of all electronics and other
equipment necessary for the intended operation of the Capacity.
1.3 Interconnection. All Capacity shall be delivered to STAR at
the optical and/or electrical connection between Worldport and STAR at the
European DSX standard cross-connect panels ("POIs") in the physical locations
listed on Exhibit A where Worldport terminates lines before connecting to other
carriers and customers ("POPs"). All Capacity terminating in London shall
terminate at Worldport's POP located at Telehouse, [insert address]. All
Capacity terminating in other cities shall terminate at Worldport's POPs located
at the facilities to be designated by Worldport, subject to the prior written
approval of STAR and Worldport's compliance with the provisions of Section 7.3
of this Addendum.
1.4 Upgrades. If, Worldport upgrades all or any part of the
Capacity, Worldport shall notify STAR in writing of the planned upgrade (the
"Upgrade Notification Date"). Upon notification of the upgrade, STAR shall have
the option (the "Technology Option") to increase the Capacity affected by any
upgrade by delivery to Worldport of written notice of STAR's exercise of the
Technology Option. The Technology Option shall be exercised on a date (the
"Upgrade Exercise Date") on or before ninety (90) days from the Upgrade
Notification Date. In
"INFORMATION ON THIS PAGE SUBJECT TO CONFIDENTIAL TREATMENT REQUEST"
1
<PAGE> 18
the event STAR wishes to exercise the Technology Option in connection with such
Worldport upgrade, the Capacity increase acquired pursuant to the Technology
Option shall be proportional to STAR's share of the same fibers on which the
Capacity is provided. Payment by STAR to Worldport for its proportional share of
the increased Capacity acquired pursuant to exercise of the Technology Option
shall be made at the later of: (1) the receipt of the Worldport invoice, or (2)
thirty (30) days after the Acceptance Date. STAR and its representatives shall
have the right to audit the books, records and documentation regarding the
upgrade of the Capacity and the costs thereof.
1.5 Representations, Warranties and Conditions to Purchase.
Worldport represents and warrants the following: (i) Worldport is party to one
or more agreements pursuant to which Worldport shall supply the Capacity
("Master Agreements"); (ii) the Capacity will be available to Worldport under
the Master Agreements for at least ten (10) years from the date hereof, and
(iii) the Capacity will be supplied as part of a resilient SDH loop or
SONET-based ring.
1.6 Additional Capacity. STAR shall have the right, but not the
obligation, to purchase additional Capacity on the Worldport Network at
preferential prices and in no case greater than the prices for like Capacity
offered by Worldport to similarly situated customers and furnished under this
agreement and upon such other terms and conditions as may be mutually agreed
upon by the parties.
2. CONSIDERATION FOR GRANT OF IRU
2.1 Price. The purchase price ("Purchase Price") for the Capacity
is as follows:
<TABLE>
<S> <C>
[ECONOMIC TERMS OMITTED] The escrow agreement shall also
provide for release of the escrow
To WorldPort in the event of
default
</TABLE>
In addition, STAR shall pay to Worldport a one time operations and maintenance
fee in the amount of $[ECONOMIC TERMS OMITTED] ("O&M Fee") to be added to and
included in the Purchase Price for the Capacity.
2.2 Payment. The Purchase Price for the Capacity shall be payable
as provided in this Section.
(1) Concurrently with the execution and delivery of this
Agreement, STAR shall pay into an escrow account 10%
of the Purchase Price plus the O&M Fee ("Initial
Payment").
(2) Within ten (10) days of the Acceptance Date for each
STM-1 comprising the Capacity, STAR shall pay to
Worldport the balance of the Purchase Price for said
STM-1.
These monies shall be deposited in escrow with a bank or other escrow
holder suitable to WorldPort. Escrow funds to be released to WorldPort
when the service is available. If one leg is available, then the funds
to be released shall be the downpayment for that leg ($[ECONOMIC TERMS
OMITTED]) plus the full $[ECONOMIC TERMS OMITTED] O&M payment.
"INFORMATION ON THIS PAGE SUBJECT TO CONFIDENTIAL TREATMENT REQUEST."
2
<PAGE> 19
2.3 Cancellation of STM-1. The Initial Payment shall be
non-refundable, except in the event of a material default by Worldport, and in
the event that STAR cancels the delivery of any STM-1 prior to the Target Date
as described in Section 1.1 of this Addendum, Worldport shall have the right to
retain the portion of the Initial Payment applicable to the cancelled STM-1 and
STAR's obligation to pay to Worldport the balance of the Purchase Price with
respect to the cancelled STM-1 shall terminate.
3. TESTING OF CAPACITY
3.1 Availability Dates. Worldport shall use its best efforts to
make (or cause to have made) the Capacity available to STAR on the dates
specified below (the "Availability Dates"):
[ECONOMIC TERMS OMITTED]
3.2 Target Dates. STAR shall deliver to Worldport at least thirty
(30) days prior written notice of the required delivery dates ("Target Dates")
for the STM-1s comprising the Capacity, provided that the Target Dates specified
in said written notices shall be within one (1) year from the date of this
Agreement. Worldport shall use its best efforts to deliver the Capacity to STAR
on or before the Target Dates specified in said written notices.
3.3 Testing. At delivery the Capacity shall comply with the
specifications set forth in Exhibit B attached hereto. Worldport shall test the
Capacity in accordance with the procedures specified in Exhibit B to verify that
the Capacity is operating in accordance with the applicable specifications
described in Exhibit B. Worldport shall provide STAR with reasonable advance
notice of the date and time (but no less than seven (7) calendar days prior
written notice) of each Capacity acceptance test (each of which shall take place
during normal business hours) such that STAR shall have the right, but not the
obligation, to have a person or persons present to observe the tests.
3.4 Parameters. In the event the results of any Capacity
acceptance test show that the Capacity is not operating within the parameters of
the applicable requirements and specifications set forth in Exhibit B, Worldport
shall expeditiously take such action as shall be reasonably necessary, with
respect to such portion of the Capacity as does not operate within the
parameters of the applicable requirements and specifications, to bring the
operating standards of such portion of the Capacity within such parameters.
3.5 Acceptance Date. If and when Worldport notifies STAR that the
test results of the Capacity acceptance test are within the parameters of the
requirements and specifications set forth in Exhibit B with respect to the
tested Capacity, STAR shall provide Worldport with a written notice accepting
such Capacity. The date of such notice of acceptance of the Capacity shall be
the "Acceptance Date" for that Capacity.
"INFORMATION ON THIS PAGE SUBJECT TO CONFIDENTIAL TREATMENT REQUEST"
3
<PAGE> 20
4. TERM
4.1 Commencement. The term of this Agreement (the "Term") shall
begin on the date of this Agreement (provided that the grant of the IRU
hereunder with respect to any STM-1 comprising the Capacity shall not become
effective until the Acceptance Date for that STM-1); and shall continue until
the earlier of:
(1) twenty (20) years from the last Acceptance Date of
the last STM-1 (provided that the grant of IRU
hereunder with respect to any STM-1 shall not be
longer than twenty (20) years from the Acceptance
Date for that STM-1); or
(2) the date on which STAR notifies Worldport in writing
that the STM-1 has, in STAR's discretion, reached the
end of its economically useful life and that STAR
desires to not retain the IRU in such STM-1.
5. NETWORK ACCESS AND CAPACITY CONFIGURATION
5.1 Access. Worldport will provide STAR with reasonable access to
the Capacity at the designated POPs.
5.2 Reconfiguration. In the event that STAR desires to reconfigure
the location or quantity of Capacity, STAR shall notify Worldport of its desired
reconfiguration. Subject to availability, Worldport will implement the
reconfiguration of the Capacity as requested by STAR. STAR shall reimburse
Worldport for the reasonable costs of said reconfiguration.
6. MAINTENANCE AND RESTORATION OF CAPACITY
6.1 Worldport, at its sole expense, will provide or cause to be
provided maintenance for the Capacity using its standard maintenance procedures,
which procedures shall be consistent with the highest telecommunications
industry standards, or the maintenance standards under the Master Agreements,
whichever is higher. Worldport shall, at all times, protect and restore the
Capacity. Notwithstanding any other provision of this Agreement, all operating
and maintenance charges for the Capacity are included in the Purchase Price
specified in Section 2 of this Addendum, and in no event shall STAR have any
obligation to pay any additional costs, expenses, charges, fees or other amounts
with respect to the maintenance or operation of the Capacity, including, without
limitation, any costs, expenses, charges, fees or other amounts payable under
the Master Agreements.
7. ACCESS TO WORLDPORT POPS
7.1 Interconnection. STAR and its designees (such as local
telecommunications providers) shall have access, according to standards
reasonable in the telecommunications industry, to the Worldport POPs at the
Worldport termination points on the Worldport Network, and shall have the right
to interconnect with the Capacity according to telecommunications industry
standards and procedures which may be established from time to time.
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7.2 Bundling. If STAR establishes additional POPs near the
Worldport Network, Worldport, at Worldport's expense, will endeavor to implement
the most technically sound means of interconnection at STAR's request.
7.3 Location of POPS. Each of the Worldport designated POPs for
the Capacity shall be located as described on Exhibit A hereto.
8. REPRESENTATIONS AND WARRANTIES
8.1 Worldport Representations and Warranties. Worldport
represents, warrants and covenants to STAR as follows: (i) Worldport is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and Worldport and/or its affiliates are duly qualified
or licensed to do business as a foreign corporation and in good standing in all
jurisdictions in which the licensing or qualification is required for the
ownership and operation of the Worldport Network, the conduct of the IPL
business by Worldport, the performance of this Agreement, including the grant to
STAR of the IRUs in the Capacity pursuant to this Agreement, and as is required
under the Master Agreements; (ii) Worldport has all necessary corporate power
and authority to own its properties and assets and to carry on its business as
now conducted; (iii) the execution, delivery and performance of this Agreement
by Worldport has been duly authorized by all necessary corporate action on the
part of Worldport; (iv) this Agreement constitutes the legally valid and binding
obligations of Worldport enforceable against Worldport in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors rights generally; (v) the execution, delivery
and performance of this Agreement by Worldport and the consummation of the
transactions contemplated hereby will not (a) violate, or constitute a breach or
default (whether upon lapse of time and/or the occurrence of any act or event or
otherwise) under, the certificate of incorporation or bylaws of Worldport or any
agreement, contract, instrument, mortgage, lien or other document binding upon
Worldport, including, without limitation, the Master Agreements, or its assets
or properties, or (b) result in the imposition of any lien or encumbrance
against any of the assets or properties of Worldport, or (c) violate any statute
or other law, rule or regulation of any governmental authority or any order,
decree or judgment of any court, tribunal or governmental authority binding on
Worldport or its assets or properties; (vi) Worldport has obtained, is
maintaining and shall at all times maintain in effect and in good standing all
approvals, consents, authorizations, licenses and permits from all governmental
authorities and third parties, including, without limitation, the underlying
owners of the Capacity under the Master Agreements ("Owners"), and all
applicable statutes, rules, regulations, laws and governmental orders in
connection with the execution, delivery and performance of this Agreement by
Worldport; (vii) the audited financial statements of Worldport for the fiscal
years ended December 31, 1996 and 1997, together with the reports of the
independent certified public accountant with respect thereto, and the unaudited
financial statements for the fiscal year ended December 31, 1998 that have been
certified by the Chief Financial Officer of Worldport, fairly present the
financial condition as of the end of said fiscal years and the results of the
operations of Worldport for the periods then ended; (viii) since December 31,
1998, there has been no change in or event affecting Worldport or its business,
assets or properties that has had or may
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reasonably be expected to have a material adverse effect on Worldport's ability
to perform this Agreement or the Master Agreements or any aspect of the
transactions contemplated by this Agreement or the Master Agreements; (ix)
Worldport is solvent; and (x) there is no decree, injunction, judgment, order,
ruling, assessment or writ, action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, issued by or
pending before any arbitrator or governmental authority, or, to the best
knowledge of Worldport, threatened, against or affecting Worldport or its
properties or assets that individually or when aggregated with one or more other
such matters might reasonably be expected to have a material adverse effect
Worldport's ability to perform this Agreement or the Master Agreements or any
aspect of the transactions contemplated by this Agreement or the Master
Agreements.
8.2 STAR's Representations and Warranties. STAR represents,
warrants and covenants to Worldport as follows: (i) STAR is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and STAR or its Affiliates, as applicable, shall be duly organized or
qualified or licensed to do business as foreign corporations and in good
standing in all jurisdictions in which organization or qualification or
licensing is required for the purchase of Capacity by STAR or its Affiliates, as
applicable, pursuant to this Agreement; (ii) the execution, delivery and
performance of this Agreement by STAR has been duly authorized by all necessary
corporate action on the part of STAR; (iii) this Agreement constitutes the
legally valid and binding obligations of STAR enforceable against STAR in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws and
equitable principles relating to or limiting creditors rights generally; (iv)
the execution, delivery and performance of this Agreement by STAR and the
consummation of the transactions contemplated hereby will not (a) violate, or
constitute a breach or default (whether upon lapse of time and/or the occurrence
of any act or event or otherwise) under, the certificate of incorporation or
bylaws of STAR or any agreement, contract, instrument, mortgage, lien or other
document binding upon STAR or its assets or properties, or (b) result in the
imposition of any lien or encumbrance against any of the assets or properties of
STAR, or (c) violate any statute or other law, rule or regulation of any
governmental authority or any order, decree or judgment of any court, tribunal
or governmental authority binding on STAR or its assets or properties; and (v)
STAR or its Affiliates have obtained, are maintaining and shall at all times
maintain in effect and in good standing all approvals, consents, authorizations,
licenses and permits from all governmental authorities and third parties and all
applicable statutes, rules, regulations, laws and governmental orders in
connection with the execution, delivery and performance of this Agreement by
STAR or its Affiliates.
9. MASTER AGREEMENTS
9.1 Representations and Warranties. Worldport represents and
warrants to STAR as follows: (i) there are no defaults, or events, acts or
omissions that with notice, the passage of time or both would constitute
defaults under the Master Agreements; and (ii) Worldport and the Owners have
performed all of their respective material obligations under the Master
Agreements.
9.2 Compliance by Worldport. Worldport shall perform and comply
with all of the duties and obligations of Worldport under the Master Agreements.
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9.3 Compliance by Owner. Worldport shall use due diligence in
attempting to cause the Owners under the Master Agreements to perform all of the
Owners' duties and obligations thereunder in accordance with the provisions
thereof. In the event any Owner defaults or fails or refuses to perform any such
duties or obligations, then, upon the request of STAR, Worldport shall use its
commercially reasonable best efforts to replace capacity and/or assign to STAR
all of its claims, causes of action or remedies with respect thereto, whether at
law or in equity or under the applicable Master Agreement. Any such assignment,
and acceptance thereof by STAR, shall not constitute a waiver of, or otherwise
affect, any rights or remedies of STAR at law or in equity or under this
Agreement. In the event that STAR does not request an assignment of any claims,
causes of action or remedies related to such default, failure or refusal,
Worldport shall pursue such remedies as are available to Worldport under the
applicable Master Agreement or at law or in equity to cause the defaulting Owner
to perform all of its duties and obligations under the applicable Master
Agreement.
9.4 Notices of Default. Worldport shall deliver to STAR prompt
written notice in the event of a default or breach by Worldport or any Owner
under the Master Agreements, and Worldport shall deliver to STAR copies of all
notices of default received or delivered by Worldport with respect to the Master
Agreements promptly upon the receipt or delivery thereof.
9.5 Estoppel; Nondisturbance. Within 30 days of the execution and
delivery of this Agreement, Worldport shall deliver to STAR the following
documents:
(1) Certificates. Certificates, in form approved by STAR,
duly executed by each of the Owners with respect to
each Master Agreement, (1) certifying to STAR that
(A) the Master Agreement consists only of those
agreements identified in Section 9.1 (iv) of this
Addendum, (B) the Master Agreement is in full force
and effect without any existing default thereunder by
Worldport known to Owner, and (C) there are no acts,
events or omissions known to Owner which, with the
giving of notice, passage of time, or both, could
constitute a default by Worldport thereunder, and (2)
stating the expiration date of the term of the Master
Agreement with respect to the Initial Capacity.
(2) Recognition and Nondisturbance Agreements.
Recognition and Nondisturbance Agreements, in form
approved by STAR, duly executed by each of the Owners
and Worldport with respect to each Master Agreement,
and providing that (1) the Owner consents to the
supplying of the Capacity by STAR pursuant to this
Agreement, (2) the Owner shall deliver to STAR any
notice of default or notice of termination which the
Owner delivers to Worldport under the terms of the
Master Agreement, (3) the Owner shall not accept a
termination or cancellation of the Master Agreement,
or an abandonment or voluntary surrender by Worldport
of the Capacity acquired by Worldport under the
Master Agreement, without the prior written consent
of STAR, (4) upon the termination of this Agreement
prior to the expiration of the term of the Master
Agreement,
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<PAGE> 24
the Owner shall not disturb the rights of STAR with
respect to the Capacity acquired by STAR under this
Agreement and shall recognize STAR as a direct
purchaser and grantee of Owner under the terms of
this Agreement so long as STAR performs the
obligations of STAR under this Agreement, (5) if the
Master Agreement is terminated for any reason not
related to a default by STAR under this Agreement or
through an involuntary act pertaining to Worldport,
that the Owner shall enter into a new agreement with
STAR for the Capacity acquired by STAR under this
Agreement on the same terms and conditions as are
contained in this Agreement for the remaining term of
this Agreement.
10. INDEMNIFICATION
10.1 Release by Worldport. Subject to the provisions of Section 11
of this Addendum, Worldport hereby releases and agrees to indemnify, defend,
protect and hold harmless STAR and its Affiliates and their respective
employees, officers, directors, agents, shareholders and Affiliates, from and
against, and assumes liability for:
(1) Any injury, loss or damage to any person, tangible
property or facilities of any person or entity
(including reasonable attorneys' fees and costs) to
the extent arising out of or resulting from the acts
or omissions, negligent or otherwise, of Worldport,
its officers, employees, servants, affiliates,
agents, contractors, licensees, invitees or vendors
arising out of or in connection with a default by
Worldport in the performance of its obligations under
this Agreement;
(2) Any claims, liabilities or damages arising out of any
violation by Worldport of any regulation, rule,
statute or court order of any local, state or federal
governmental agency, court or body in connection with
the performance of its obligations under this
Agreement; and
(3) Any claims, liabilities or damages arising out of any
interference with or infringement of the rights of
any third party as a result of STAR's or its
Affiliates' use of the IRU and the Capacity in
accordance with the provisions of this Agreement.
10.2 Release by STAR. Subject to the provisions of Section 11 of
this Addendum, STAR hereby releases and agrees to indemnify, defend, protect and
hold harmless Worldport, its employees, officers, directors, agents,
shareholders and Affiliates, from and against, and assumes liability for:
(1) Any injury, loss or damage to any person, tangible
property or facilities of any person or entity
(including reasonable attorneys' fees and costs) to
the extent arising out of or resulting from the acts
or omissions, negligent or otherwise, of STAR or its
Affiliates or their respective officers, employees,
servants, affiliates, agents, contractors, licensees,
invitees or
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vendors arising out of or in connection with a
default by STAR or its Affiliates in the performance
of STAR's obligations under this Agreement;
(2) Any claims, liabilities or damages arising out of any
violation by STAR or its Affiliates of any
regulation, rule, statute or court order of any
local, state or federal governmental agency, court or
body in connection with its use of the IRU and/or the
Capacity under this Agreement; and
(3) Any claims, liabilities or damages arising out of any
interference with or infringement of the rights of
any third party as a result of STAR's or its
Affiliates' use of the IRU and/or the Capacity not in
accordance with the provisions of this Agreement.
10.3 Arbitration. The parties hereby expressly recognize and agree
that each party's said obligation to indemnify, defend, protect and save the
other harmless is not a material obligation to the continuing performance of the
parties' other obligations, if any, hereunder. In the event that a party shall
fail for any reason to so indemnify, defend, protect and save the other
harmless, the injured party hereby expressly recognizes that its sole remedy in
such event shall be the right to bring an arbitration proceeding pursuant to the
terms of this Agreement against the other party for its damages as a result of
the other party's said failure to indemnify, defend, protect and save harmless.
These obligations shall survive the expiration or termination of this Agreement.
10.4 Third Parties. Nothing contained herein shall operate as a
limitation on the right of either party hereto to bring an action for damages
against any third party, including indirect, special or consequential damages,
based on any acts or omissions of such third party as such acts or omissions may
affect the construction, operation or use of the Capacity or the Worldport
Network; provided, however, that each party hereto shall assign such rights or
claims, execute such documents and do whatever else may be reasonably necessary
to enable the other party to pursue any such action against such third party.
11. LIMITATION OF LIABILITY; DISCLAIMER OF WARRANTIES
11.1 Standards. Worldport represents, warrants and covenants that
the Capacity shall operate in accordance with the standards established by
Worldport for the Worldport Network generally, including, without limitation,
those technical specifications set forth at Exhibit C (hereinafter the
"Technical Standards"). If Worldport determines that the Capacity is not being
provided in accordance with the Technical Standards or STAR gives Worldport
notice of the nonconformance of the Capacity with the Technical Standards,
Worldport, at Worldport's expense, shall use commercially reasonable efforts
under the circumstances to conform the Capacity to the Technical Standards.
11.2 Limitations.
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(1) Except as expressly set forth elsewhere in this
Agreement, in no event shall Worldport or any of its
Affiliates be liable to STAR or any of its Affiliates
or employees or to any third party for any loss of
profit or revenue, or for any indirect,
consequential, incidental, or similar or additional
damages, whether incurred or suffered as a result of
unavailability of facilities or Capacity,
performance, non-performance, termination, breach, or
other action or inaction under this Agreement, or for
any other reason, even if STAR advises Worldport of
the possibility of such loss or damage.
(2) Except as expressly set forth elsewhere in this
Agreement, in no event shall STAR or any of its
Affiliates be liable to Worldport or any of its
Affiliates or employees or to any third party for any
loss of profit or revenue, or for any indirect,
consequential, incidental, or similar or additional
damages, whether incurred or suffered as a result of
performance, non-performance, termination, breach, or
other action or inaction under this Agreement, or for
any other reason, even if Worldport advises STAR of
the possibility of such loss or damage.
12. INSURANCE
During the term of this Agreement, each party shall obtain and
maintain, at its expense, an appropriate insurance policy with terms and
coverage thresholds equal to or greater than the industry standard for major
global telecommunications carriers for protection against all risks associated
with the Capacity as reasonably deemed necessary by each party acting
reasonably.
13. LIMITATIONS ON IRU GRANT
Although the IRU permits non-cancellable use thereof, the IRU granted
in this Agreement does not provide STAR with any ownership or other possessory
interests in any real property, conduit, fiber, or equipment in or on the
Worldport Network or along the route of the Worldport Network.
14. TAXES, FEES AND OTHER GOVERNMENTAL IMPOSITIONS
Notwithstanding any other provision of this Agreement, each party shall
be independently responsible for any and all taxes, fees, levies, imposts,
duties, charges or withholdings of any nature (including, without limitation,
gross receipts taxes and franchise, license and permit fees), together with any
penalties, fines or interest thereon arising out of the transactions
contemplated by this Agreement and/or imposed by any federal, state or local
government or other public taxing authority to the extent properly payable with
respect to the Capacity. Further, the parties agree that they will cooperate
with each other and coordinate their mutual efforts concerning audits, or other
such inquiries, filings, reports, etc., as may relate solely to the activities
or transactions arising from or under this Agreement, which may be required or
initiated from or by any duly authorized governmental tax authority.
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15. NOTICE
15.1 Addresses. Unless otherwise provided herein, all notices and
communications concerning this Agreement shall be addressed to the other party
as follows:
If to Worldport: Worldport Communications, Inc.
ATTENTION: Executive Vice President
1825 Barrett Lakes Boulevard, Suite 100
Kennesaw, Georgia 30144
Telephone No.: (770) 792-8735
Facsimile No.: (770) 792-7926
With a copy to: Worldport Communications, Inc.
ATTENTION: Director of Contracts
1825 Barrett Lakes Boulevard, Suite 100
Kennesaw, Georgia 30144
Telephone No.: (770) 792-8735
Facsimile No.: (770) 792-7926
If to STAR: STAR Telecommunications, Inc.
Attention: Executive Vice-President of
Network Services (James Kolsrud)
223 East De La Guerra
Santa Barbara, California 93101
Telephone No.: (805) 899-1962
Facsimile No.: (805) 899-1972
With a copy to: John R. Mackall
Seed, Mackall & Cole LLP
1332 Anacapa Street, Suite 200
Santa Barbara, CA 93101
Telephone No.: (805) 963-0669
Facsimile No.: (805) 962-1404
or at such other address as either party may designated from time to time in
writing to the other party.
15.2 Delivery. Unless otherwise provided herein, notices shall be
hand delivered, sent by registered or certified U.S. mail, postage prepaid, or
by commercial overnight delivery service, or transmitted by facsimile, and shall
be deemed served or delivered to the addressee or its office when received at
the address for notice specified above when hand delivered, upon confirmation of
sending when sent by fax, on the day after being sent when sent by overnight
delivery service, or three (3) days after deposit in the mail when sent by U.S.
mail.
16. CONFIDENTIALITY
16.1 Information. Worldport and STAR hereby agree that if either
party provides confidential or proprietary information to the other party
("Proprietary Information"),
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such Proprietary Information shall be held in confidence, and the receiving
party shall afford such Proprietary Information the same care and protection as
it affords generally to its own confidential and proprietary information (which
in any case shall be not less than reasonable care) in order to avoid disclosure
to or unauthorized use by any third party. This Agreement, including all of the
terms, conditions and provisions hereof, constitutes Proprietary Information,
and all information disclosed by either party to the other in connection with or
pursuant to this Agreement shall be deemed to be Proprietary Information,
provided that written information is clearly marked in a conspicuous place as
confidential or proprietary, and verbal information is indicated as being
confidential or proprietary when given or promptly confirmed in writing as such
thereafter. All Proprietary Information, unless otherwise specified in writing,
shall remain the property of the disclosing party, shall be used by the
receiving party only for the intended purpose, and such written Proprietary
Information, including all copies thereof, shall be returned to the disclosing
party or destroyed after the receiving party's need for it has expired or upon
the request of the disclosing party. Proprietary Information shall not be
reproduced except to the extent necessary to accomplish the purposes and intent
of this Agreement, or as otherwise may be permitted in writing by the disclosing
party.
16.2 Exceptions. The foregoing provisions of Section 16.1 of this
Addendum shall not apply to any Proprietary Information which (i) becomes
publicly available other than through the recipient; (ii) is required to be
disclosed by a governmental or judicial law, order, rule or regulation; (iii) is
independently developed by the disclosing party; or (iv) becomes available to
the disclosing party without restriction from a third party. If any Proprietary
Information is required to be disclosed pursuant to the foregoing clause (ii),
the party required to make such disclosure shall promptly inform the other party
of the requirements of such disclosure.
16.3 Disclosure. Notwithstanding Sections 16.1 and 16.2 of this
Addendum, either party may disclose Proprietary Information to its employees,
agents, and legal, financial, and accounting advisors and providers (including
its lenders and other financiers) to the extent necessary or appropriate in
connection with the negotiation and/or performance of this Agreement or its
obtaining of financing, provided that each such party is notified of the
confidential and proprietary nature of such Proprietary Information and is
subject to or agrees to be bound by similar restrictions on its use and
disclosure.
16.4 Survival. The provisions of this Section 16 shall survive
expiration or termination of this Agreement.
17. DEFAULT
17.1 Notice. A party shall be in default under this Agreement
thirty (30) days after the non-defaulting party shall have given written notice
of such default unless the defaulting party shall have cured such default or
such default is otherwise waived by the non-defaulting party within such thirty
(30) days; provided, however, that where any such default other than the payment
of money cannot reasonably be cured within such 30-day period, if the defaulting
party shall proceed promptly to cure the same and prosecute such cure with due
diligence, the time for curing such default shall be extended for such period of
time not to exceed ninety (90) days as may be necessary to complete such cure.
If STAR assigns any of its rights under this Agreement
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to its lender as collateral security, and at the time of such assignment or
thereafter Worldport receives written notice of such assignment, co-signed by
both such lender and by STAR, Worldport agrees that any written notice of
default by Worldport delivered to STAR under this Section shall be accompanied
by a copy of such notice being delivered simultaneously to such lender, and that
such lender shall have the right to cure any such default on the same basis that
STAR would have the right to cure such default hereunder.
17.2 Remedies. Upon failure to make any payment or other default by
a party, after notice thereof and the above opportunity to cure, the
non-defaulting party may (i) take such action as it determines, in its sole
discretion, to be necessary to correct the default, and/or (ii) pursue any
remedies it may have under applicable law or principles of equity relating to
such default. Notwithstanding the above, if the defaulting party certifies in
good faith to the non-defaulting party in writing that a default has been cured,
such default shall be deemed to be cured unless the non-defaulting party
otherwise notifies the defaulting party in writing within fifteen (15) days of
receipt of such notice.
18. TERMINATION
18.1 Mutuality. Either party may terminate this Agreement upon the
failure of the other party to cure an event of default as required by Section 17
of this Addendum.
18.2 Existing Defaults. Notwithstanding the foregoing, no
termination or expiration of this Agreement shall affect the rights or
obligations of any party hereto with respect to any then existing defaults or
the obligation to make any payment hereunder for services rendered prior to the
date of termination or expiration.
18.3 Non-cancellable IRUs. Notwithstanding any other provision of
this Agreement, there shall be no termination or cancellation of any IRU for any
Capacity for which the entire Purchase Price has been paid..
19. FORCE MAJEURE
21. RULES OF CONSTRUCTION
21.1 Headings. The captions or headings in this Agreement are
strictly for convenience and shall not be considered in interpreting this
Agreement or as amplifying or limiting any of its content. Words in this
Agreement which import the singular connotation shall be interpreted as plural,
and words which import the plural connotation shall be interpreted as singular,
as the identity of the parties or objects referred to may require.
21.2 Telecommunications Industry Usage. Unless expressly defined
herein, words having well known technical or trade meanings shall be so
construed. All listing of items shall not be taken to be exclusive, but shall
include other items, whether similar or dissimilar to those listed, as the
context reasonably requires.
21.3 Cumulative Remedies. Except as set forth to the contrary
herein, any right or remedy of STAR or Worldport shall be cumulative and without
prejudice to any other right or remedy, whether contained herein or not.
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21.4 Negotiations. This Agreement has been fully negotiated between
and jointly drafted by the parties.
21.5 Conflicts. In the event of any inconsistency or conflict
between the provisions of this Addendum and the provisions of this Agreement,
the provisions of this Addendum shall govern. In the event of any inconsistency
or conflict between the provisions of this Addendum or this Agreement and the
provisions of any Exhibits, the provisions of this Addendum and this Agreement
shall govern. Each Exhibit described herein is attached hereto and incorporated
herein by this reference.
21.6 Time Is of the Essence. All actions, activities, consents,
approvals and other undertakings of the parties in this Agreement shall be
performed in a reasonable and timely manner, it being expressly acknowledged and
understood that time is of the essence in the performance of obligations
required to be performed by a date expressly specified herein. Except as
specifically set forth herein, for the purpose of this Section the normal
standards of performance within the telecommunications industry in the relevant
market shall be the measure of whether a party's performance is reasonable and
timely.
22. PUBLICITY
The parties shall cooperate in developing the content and timing of all
press releases and all other publicity related to the subject matter of this
Agreement.
23. ASSIGNMENT
Each party may assign its rights and obligations under this Agreement
without the consent of the other party. All the rights and benefits of this
Agreement shall inure to any successor and assign of either party hereunder,
except that in the event either party assigns this Agreement such party shall
remain liable for its duties and obligations as set forth herein.
24. NO PERSONAL LIABILITY
Each action or claim against any party arising under or relating to
this Agreement shall be made only against such party as a corporation, and any
liability relating thereto shall be enforceable only against the corporate
assets of such party. No party shall seek to pierce the corporate veil or
otherwise seek to impose any liability relating to, or arising from, this
Agreement against any shareholder, employee, officer or director of the other
party. Each of such persons is an intended beneficiary of the mutual promises
set forth in this Section and shall be entitled to enforce the obligations of
this Section.
25. RELATIONSHIP OF THE PARTIES
The relationship between STAR and Worldport shall not be that of
partners, agents, or joint venturers for one another, and nothing contained in
this Agreement shall be deemed to constitute a partnership or agency agreement
between them for any purposes, including but not limited to federal income tax
purposes. STAR and Worldport, in performing any of their obligations hereunder,
shall be independent contractors or independent parties and shall discharge
their contractual obligations at their own risk.
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26. SEVERABILITY
If any term, covenant or condition contained herein shall, to any
extent, be invalid or unenforceable in any respect under the laws governing this
Agreement, the remainder of this Agreement shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
27. COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which taken together shall constitute one and the same instrument.
28. ENTIRE AGREEMENT; AMENDMENT
This Agreement constitutes the entire and final agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements relating to the subject matter hereof, which are
of no further force or effect. This Addendum and the Exhibits referred to in
this addendum and this Agreement are integral parts of this Agreement and are
hereby made a part of this Agreement. This Agreement may only be modified or
supplemented by an instrument in writing executed by a duly authorized
representative of each party.
IN WITNESS WHEREOF the parties have executed this Addendum as of the
date of the Agreement.
"Worldport":
WORLDPORT COMMUNICATIONS, INC., a Georgia corporation
By: /s/ Dan Lazarek
-----------------------------------------
Name: Dan Lazarek
----------------------------------------
Title: Executive Vice-President
--------------------------------------
"STAR":
STAR TELECOMMUNICATIONS, INC., a Delaware corporation
By: /s/ James Kolsrud,
-----------------------------------------
James Kolsrud, EVP
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EXHIBIT A
WORLDPORT EUROPEAN CITIES
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EXHIBIT B
SYSTEM PERFORMANCE STANDARDS AND SPECIFICATIONS
AND PROTECTION AND RESTORATION STANDARDS
Capacity Specifications and Acceptance Testing
System Performance Standards and Specifications. Worldport at all times will
ensure that the Worldport Network meets or exceeds the following System
Performance Standards and Specifications:
A. SYSTEM DESCRIPTIONS FOR OC-3/STM-1 FOLLOW:
GENERAL DESCRIPTION: The requirements in this Agreement were
developed to establish a practical OC-3/STM-1 interface. Compliance with these
specifications should provide a satisfactory OC interface in a high percentage
of installations. Worldport will allow and encourage STAR's and its Affiliates'
participation to ensure an orderly, functional and mutually trouble-free
interface at all locations. This Technical Reference ("TR") describes physical,
protocol and performance requirements at the Point of Interface ("POI")
necessary for compatible operation between the Worldport and the STAR and its
Affiliates' Installation. Specifically, this TR describes the OC-3/STM-1 optical
interfaces offered by Worldport. The POI specifications have been established
based upon Industry Standards developed by the American National Standards
Institute (ANSI) and Bellcore. This TR articulates Worldport's interpretation of
these standards and provides clarification of interface requirements as
necessary.
OC-3/STM-1: The ANSI SONET (Synchronous Optical Network)
transmission standard for high capacity optical telecommunications, whose line
rate is 155.52 Mbps. One OC-3 is comprised of 3 STS-1 Synchronous Transport
Signal Level 1 signals whose transport overheads are frame aligned, but whose
associated Synchronous payload envelopes are not necessarily aligned. Each
STS-1, at 51.84 Mbps represents the lowest level SONET signal. The STS-1 is
defined at the electrical level prior to optical conversion. These SONET
standards and elements are further defined in the "Bellcore Synchronous Optical
Network (SONET) Transport Systems: Common Generic Criteria GR-253-CORE, Issue 2,
December, 1995."
SONET SIGNAL FORMAT: The signal format at the SONET interface
is based on the SONET frame structure as specified in Bellcore GR-253-CORE,
Synchronous Optical Network (SONET) Transport Systems: Common Criteria Physical
Layer, and ANSI T1.105, Digital Hierarchy B Optical Interface Rates and Formats
Specifications (SONET).
B. TECHNICAL SPECIFICATIONS
1. INTERCONNECT SPECIFICATIONS:
1.1 The STAR's and its Affiliates' interconnection point
of DS-1 & DS-3 signals at the Worldport (SPT) location will be
at an industry standard (DSX-1) &
17
<PAGE> 34
(DSX-3) digital cross-connect panels and will be referred to
as the Worldport Network Interface in this document.
1.2 The DS-1 & DS-3 signals terminating at the Worldport
digital cross-connect panels will meet the electrical
specifications as defined in AT&T Compatibility Bulletin (CB)
No. 119, Issue 3, October, 1979.
1.3 The Worldport Digital Network will be compatible with
the Bell System hierarchical clock synchronization methods and
stratum levels as described in Bellcore Technical Advisory
(GR436-Core).
1.4 STAR's or its Affiliates' equipment must also meet
the interconnect specifications listed above and shall comply
with jitter requirements of AT&T Technical Reference PUB
63411.
18
<PAGE> 35
1. Performance Objectives:
2.1 DS1, DS3, and OC-3/STM-1 circuit performance will be
measured using two parameters: Availability and Error-Free
Seconds.
The following assumptions apply to the derived data:
The circuits originate and terminate on the Worldport
backbone
High speed protection switching: 1 for N, where N=2
MTTR for SONET equipment: 2 hours
MTTR for fiber optic cable: 12 hours (Bellcore
Standard)
Cable cut rate: 4.39 /year/1,000 sheath miles
(Bellcore Standard)
2.2 Availability is a measure of the relative amount of
time during which the circuit is available for use. According
to CCITT and ANSI definitions, unavailability begins when the
Bit Error Ratio (BER) in each second is worse than 1.0 E-3 for
a period of 10 consecutive seconds.
INTER OFFICE CHANNEL (IOC) : An Inter Office Channel refers to
the Worldport Communications network between the points of
presence (POP).
OPTICAL CARRIER LEVEL 1 (OC-1) : The optical signal that
results from an optical conversion of an electrical STS-1
signal (51.840 Mb/s). This signal forms the basis of the
interface.
OC-3/STM-1: Optical Carrier level 3 signal operating
at 155.520 Mb/s.
POINT OF PRESENCE (POP) : A physical
location where a long distance carrier terminates lines before
connecting to the local exchange carrier, another carrier, or
directly to a customer.
2.3 The availability objective for all circuits between
Worldport Network Interface points specified above is to
provide performance levels over a 12 month period as follows:
V&H KILOMETERS
DS1, DS3, AND OC-3/STM-1
0-2500
99.999%
2501-4000
99.998%
19
<PAGE> 36
This excludes any customer provided access links to the
Worldport digital network.
2.4 Outages attributable to incidental damage to or
severage of outside fiber optic cable plant, or scheduled
maintenance is excluded from the performance objective stated
above.
2.5 Error-Free Seconds (EFS) and Error Seconds (ES) are
the primary measure of error performance. An Error-Free Second
is defined as any second in which no bit errors are received.
Conversely, an Error Second is any second in which one or more
bit errors are received.
SONET : Synchronous Optical Network is a family of optical transmission
rates and interface standards allowing internetworking of products from
different vendors. Base optical rate is 51.840 Mb/s. Higher rates are
direct multiples.
SONET TRANSPORT : Services associated with carrying OC-1 or higher
level signals.
SYNCHRONOUS TRANSPORT SIGNAL LEVEL 1 (STS-1) : The basic logical
building block electrical signal with a rate of 51.840 Mb/s.
SYNCHRONOUS TRANSPORT SIGNAL LEVEL N (STS-N) : This electrical signal
is obtained by byte interleaving N STS-1 signals together. The rate of
the STS-N is N times 51.840 Mb/s.
TERMINATING MULTIPLEX (TM) : Provides the multiplex functions for
multiplexing and demultiplexing between the DS1 or higher signal level
and the SONET OC-N level.
ACCEPTANCE CRITERIA. The acceptance criteria for DS1, DS3, and
OC-3/STM-1 circuits between Worldport Network Interface points is to
provide the performance levels shown below during a 60 minute test
period. If no errors are observed during the first 15 minutes of the
test, the facility may be considered acceptable. Access connections to
customer location will be tested in accordance with Bell Publication
62508.
The tables below are based on QCC owned fiber optic network
only and on the Bellcore Specifications of the SONET delivery
of DS1, DS3, and OC-3/STM-3 directly off the SONET Backbone.
If the DS1, DS3, and OC-3/STM-1 service is delivered at the
STS1 level then the general performance objectives fall into
the industry standard.
20
<PAGE> 37
DS1, DS3
The table below defines the general performance objectives for DS1
service operating at 1.544 Mb/s, and the general performance objectives
for DS3 service operating at 45 Mb/s.
V&H KILOMETERS
EFS
BER
<TABLE>
<S> <C>
0 - 250
99.988 %
10-15
251 - 500
99.983 %
10-15
501 - 1000
99.971%
10-15
1001 - 1500
99.959%
10-15
1501 - 2000
99.948%
10-15
2001 - 2500
99.936%
10-15
2501 - 3000
99.925%
10-15
3001 - 3500
99.913%
10-15
3501 - 4000
99.902%
10-15
</TABLE>
21
<PAGE> 38
OC-3/STM-1
The table below defines the general performance objectives for
OC-3/STM-1.
V&H KILOMETERS
EFS
BER
<TABLE>
<S> <C>
0 - 250
99.989%
10-15
251 - 500
99.984%
10-15
501 - 1000
99.974%
10-15
1001 - 1500
99.964%
10-15
1501 - 2000
99.954%
10-15
2001 - 2500
99.944%
10-15
2501 - 3000
99.933%
10-15
3000 - 3500
99.923%
10-15
3501 - 4000
99.913%
10-15
</TABLE>
22
<PAGE> 39
1. Protection and Restoration of Service. Worldport at all times will
protect and restore STAR's Capacity as follows:
a. In the event of a total or partial failure of Worldport's
Network which includes or in any way affects the performance of the Capacity,
Worldport will take immediate action to restore the full and complete use of the
Capacity via redundant and diverse terrestrial fiber optic cable facilities.
Restoration of the Capacity will have the same priority as that of Worldport's
Network including capacity which may be assigned and used by Worldport or its
Affiliates. The complete restoration of the Capacity provided under this
Agreement will be implemented by Worldport in a manner consistent with industry
standards and shall be immediate and complete in scope and to STAR's and its
Affiliates' satisfaction. In the event a failure occurs to the Capacity which
interrupts, i.e., results in the Capacity being unrestored for any period,
Worldport will provide outage credits to STAR and its Affiliates according to
the provisions of this Agreement.
b. To ensure damage prevention, Worldport will take reasonable
and customary steps to protect the physical integrity of its network.
c. In all cases Worldport shall provide fiber optic transmission
systems equipped with both a working system and a stand-by protection system,
commonly referred to as one-for-one protection, which automatically implements a
switch to the stand-by fiber facility/channel upon a failure of the working
channel. In the event of an electronics/optronics equipment failure on the
working system, the system will switch to the standby or protection hardware.
d. Worldport will provide when available network monitoring and
surveillance and monitor the fiber routes by monitoring for the loss of optical
signal on Worldport-maintained electronics installed on the fiber, subject to
Worldport and STAR and its Affiliates executing a mutually acceptable agreement.
This will be done through a Worldport-operated Network Operations Center (NOC)
which operates seven (7) days a week, twenty-four (24) hours per day.
Worldport's NOC will utilize a network management system which provides this
function and will provide STAR with remote access capability to their OC3/STM-1
level capacity from Worldport's network management system.
e. Worldport will hold regular unannounced fiber restoration
drills to determine the level of readiness of personnel to respond to any
outages. Additionally, Worldport will ensure that all of its operating
facilities are equipped to provide for emergency power in the event that
commercial power is unavailable for any reason. Such emergency power equipment
will be engineered to support the circuit performance needs throughout the
duration of the power outage and until normal operating conditions have been
restored. All of Worldport's operating facilities will be engineered to
withstand hazardous conditions (e.g., hurricanes, floods, etc.).
f. Worldport will provide to STAR an Escalation List to be
attached to this Agreement as Exhibit 1 to provide STAR with an escalation
process in the event of emergency or dispute.
23
<PAGE> 40
EXHIBIT 1: WORLDPORT ESCALATION AND CONTACT LIST
ESCALATION AND CONTACT LIST
24 Hours Response
"HOT-LINE" ----------------
SPECIALIST ON DUTY DIRECT LINE
-----------------
Ring Operations Center FACSIMILE
-----------------
1st Level Escalation
On Duty Supervisor
--------------------
Ring Operations Center
2nd Level Escalation
-----------------------
Manager, Ring Operations Center
OFF#
------------------------
PGR#
------------------------
E-MAIL
------------------------
3rd Level Escalation
--------------------
Acting Director B Ring Operations Center
OFF#
------------------------
PGR#
------------------------
CELL#
------------------------
E-MAIL
------------------------
ESCALATION TO VP OPS/ROC.........THROUGH MANAGER OR DIRECTOR
4th Level Escalation
------------------
Vice President - Network Services
OFF#
------------------------
PGR#
------------------------
E-MAIL
------------------------
ESCALATION BEYOND 4TH LEVEL........ THROUGH V.P. OPS/ROC
24
<PAGE> 41
EXHIBIT C
WORLDPORT TECHNICAL STANDARDS
25
<PAGE> 42
Worldport Communications, Inc.
1825 Barrett Lakes Boulevard, Suite 100
Kennesaw, Georgia 30144
February 19, 1999
STAR Telecommunications, Inc.
223 East De La Guerra
Santa Barbara, CA 93101
Ladies and Gentlemen:
We refer to that certain Network Services Agreement dated as of
February 19, 1999 (the "Agreement"), by and between STAR TELECOMMUNICATIONS,
INC., a Delaware corporation ("STAR"), and WORLDPORT COMMUNICATIONS, INC.
("WORLDPORT"), a Delaware corporation. Terms not otherwise defined herein shall
have the meanings assigned thereto in the Agreement. Pursuant to the terms of
the Agreement, Worldport has agreed to provide to Star the Capacity on the terms
and conditions set forth therein.
In addition to the Capacity to be provided under the Agreement, we
agree to provide, and you agree to accept, the following:
1. Worldport shall grant to STAR a credit for interim capacity up
to $[ECONOMIC TERMS OMITTED], at a monthly rate of $[ECONOMIC TERMS OMITTED] up
front, on a prorated basis, beginning March 1, 1999. This credit may be setoff
against the amounts owed by STAR to Worldport in connection with the initial
downpayment due under the Agreement.
2. In the event that the STM-1 for London to Frankfurt is not
made available to STAR on or prior to the scheduled Availability Date of April
22, 1999, Worldport shall provide to STAR a credit for Capacity at a monthly
rate of $[ECONOMIC TERMS OMITTED] until the London-to-Frankfurt capacity is made
available to STAR.
3. These credits shall be applicable to any payment owing by STAR
to Worldport at any time, either under the agreement or otherwise.
"INFORMATION ON THIS PAGE SUBJECT TO CONFIDENTIAL TREATMENT REQUEST."
<PAGE> 43
STAR Telecommunications, Inc.
February 19, 1999
Page 2
This letter shall inure to the benefit of the successors and assigns of
the parties.
If you agree to the terms set forth in this letter, please so indicate
by signing below and returning a copy of this letter to us.
WORLDPORT COMMUNICATIONS, INC.
By: /s/ Dan Lazarek
-------------------------------
Its: Executive Vice-President 2/19/99
-------------------------------
Agreed and accepted
STAR TELECOMMUNICATIONS, INC.
By: /s/ James Kolsrud
--------------------------
Its: EVP
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDPORT COMMUNICATIONS, INC. FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,402
<SECURITIES> 0
<RECEIVABLES> 14,523
<ALLOWANCES> 1,068
<INVENTORY> 0
<CURRENT-ASSETS> 32,569
<PP&E> 115,766
<DEPRECIATION> 10,379
<TOTAL-ASSETS> 212,107
<CURRENT-LIABILITIES> 164,887
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> (3,786)
<TOTAL-LIABILITY-AND-EQUITY> 212,107
<SALES> 0
<TOTAL-REVENUES> 18,275
<CGS> 0
<TOTAL-COSTS> 12,068
<OTHER-EXPENSES> 12,649
<LOSS-PROVISION> 114
<INTEREST-EXPENSE> 15,610
<INCOME-PRETAX> (28,204)
<INCOME-TAX> 0
<INCOME-CONTINUING> (27,001)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,001)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
