<PAGE> 1
SCHEDULE 14C INFORMATION
Information Statement Pursuant To Section 14(c)
of the Securities Exchange Act of 1934 (Amendment No. )
Check the appropriate box:
[X] Preliminary Information Statement
[ ] Confidential, for Use of the SEC Only (as permitted by Rule 14c-5(d)(2))
[ ] Definitive Information Statement
WORLDPORT COMMUNICATIONS, INC.
------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rule 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction
applies: _________________
(2) Aggregate number of securities to which transaction applies:
________________
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how it
was determined): ___________________
(4) Proposed maximum aggregate value of transaction: $463,220,200
(5) Total fee paid: $92,644
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form of Schedule and the date of its filing.
(1) Amount Previously Paid: ______________________________________
(2) Form, Schedule or Registration Statement No.: ________________
(3) Filing Party: ________________________________________________
(4) Date Filed: __________________________________________________
<PAGE> 2
WORLDPORT COMMUNICATIONS, INC.
1825 BARRETT LAKES BOULEVARD, SUITE 100
KENNESAW, GEORGIA 30144
(770) 792-8735
December 2, 1999
To all stockholders of WorldPort Communications, Inc.:
The enclosed Information Statement is being furnished to holders of the
outstanding common stock of WorldPort Communications, Inc., a Delaware
corporation ("WorldPort"), in connection with the prior approval of the
corporate actions described below. All necessary corporate approvals have been
obtained in connection with the matters referred to therein, and the enclosed
Information Statement is furnished solely for the purpose of informing
WorldPort's stockholders, in the manner required under the Securities Exchange
Act of 1934 (the "Exchange Act"), of these corporate actions before they take
effect.
The enclosed Information Statement also constitutes notice of action
taken without a meeting as required by Section 228(d) of the Delaware General
Corporation Law.
The Information Statement is being mailed on or about December 2, 1999
to all stockholders of record as of the close of business on November 11, 1999.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
Pursuant to certain agreements (collectively, the "Sale Agreements"),
WorldPort has agreed to consummate the following transactions (collectively, the
"Sale") with Energis plc, a company organized under the laws of England and
Wales ("Energis"):
- WorldPort International, Inc., a Delaware corporation (the
"Vendor") and a wholly-owned subsidiary of WorldPort, has
agreed to sell 85% of the issued and outstanding securities of
its subsidiary, WorldPort Communications Europe Holding B.V.,
a corporation organized under the laws of the Netherlands
("WCEH"), representing 100% of the securities of WCEH held by
the Vendor, to Energis, pursuant to a Sale and Purchase
Agreement
- WorldPort has agreed to sell all of the issued and outstanding
securities of its subsidiary, WorldPort Communications
Limited, a corporation organized under the laws of England and
Wales ("WCL"), to Energis, pursuant to a Share Agreement
- WorldPort has agreed to sell all of its interests in two DMS
GSP International Gateway Switches located in New York and
London to subsidiaries of Energis, pursuant to Switch
Agreements
As a result of the Sale, WorldPort will receive approximately $463.2
million in cash from Energis including the repayment of $124.8 million of
intercompany balances, and Energis will assume approximately $29.9 million of
liabilities of WorldPort.
Pursuant to the Sale, WorldPort will assign to Energis the Global
Crossing contracts, including three cross-atlantic STM-1 IRUs with a net present
value of liabilities of $15.8 million and contractual purchase commitments in
respect of future capacity in the aggregate amount of $42.7 million as of
September 30, 1999.
Concurrently with the Sale, the minority shareholder of WCEH will sell
its 15% interest in WCEH to Energis for $64.6 million in cash and Energis will
repay a minority shareholder loan and accrued interest in the aggregate amount
of $12.2 million as of September 30, 1999.
For a detailed discussion of the Sale Agreements, see "Description of
Sale Agreements" in the enclosed Information Statement.
<PAGE> 3
WorldPort anticipates that the Sale under the Sale Agreements will take
place as soon as the 21st day following the mailing of this Information
Statement to you, the WorldPort stockholders.
By Order of the Board of Directors,
Carl Grivner
Chief Executive Officer
<PAGE> 4
WORLDPORT COMMUNICATIONS, INC.
1825 BARRETT LAKES BOULEVARD, SUITE 100
KENNESAW, GEORGIA 30144
(770) 792-8735
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Special Note Regarding Forward-Looking Statements...............................................................2
Other Available Information.....................................................................................2
Summary of Information Statement................................................................................3
Introduction....................................................................................................4
Recent Events...................................................................................................6
Background of Sale Transaction..................................................................................7
Opinion of Financial Advisor....................................................................................9
Management of WorldPort's Business after the Sale and Use of Proceeds..........................................16
Description of Interests of Heico in the Sale..................................................................16
No Appraisal Rights............................................................................................16
Accounting Treatment...........................................................................................17
Federal Income Tax Consequences................................................................................17
Regulatory Approvals...........................................................................................17
Description of Sale Agreements.................................................................................17
Description of Financing of the Sale...........................................................................22
Stockholder Approval Previously Obtained.......................................................................23
Approval by the Board of Directors.............................................................................23
Voting Securities and Principal Holders........................................................................23
Market for WorldPort's Common Stock............................................................................30
Selected Consolidated Financial Information....................................................................31
Unaudited Pro Forma Financial Data.............................................................................32
Cost of Information Statement..................................................................................36
Description of WorldPort's Business............................................................................36
Description of WorldPort's Property............................................................................53
Legal Proceedings..............................................................................................53
Changes in and Disagreements with Accountants..................................................................53
Management's Discussion and Analysis of Financial Condition and Results of Operations..........................54
Quantitative and Qualitative Disclosures about Market Risk.....................................................61
Index to Financial Statements..................................................................................62
</TABLE>
<TABLE>
<S> <C>
Annex A Sale and Purchase Agreement
Annex B Share Agreement
Annex C Switch Agreements
Annex D Opinion of Financial Advisor
</TABLE>
1
<PAGE> 5
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Information Statement contains certain forward-looking statements
which can sometimes be identified by the use of forward-looking words such as
"may," "will," "anticipate", "plan," "estimate," "expect" or "intend" or
comparable terminology. These statements are subject to known and unknown risks,
uncertainties and other factors, including, but not limited to, WorldPort's
limited operating history, history of operating losses, substantial indebtedness
and substantial capital requirements, that could cause actual results to differ
materially from those contemplated by the statements. WorldPort does not
undertake to publicly update or revise its forward-looking statements even if
experience or future changes make it clear that any projected results expressed
or implied therein will not be realized. Additional information on risk factors
that could potentially affect WorldPort's financial results may be found in
WorldPort's public filings with the Securities and Exchange Commission (the
"SEC") and press releases. Certain of such filings may be accessed through the
SEC's web site, http://www.sec.gov.
OTHER AVAILABLE INFORMATION
WorldPort is subject to the reporting requirements of the Exchange Act
and, in accordance therewith, is required to file reports and other information
with the SEC relating to its business, financial condition and other matters.
Information as of particular dates concerning WorldPort's directors and
officers, their remuneration, the principal holders of WorldPort's securities
and any material interest of such persons in transactions with WorldPort is
required to be disclosed in proxy statements distributed to WorldPort
stockholders or other reports filed with the SEC. Such reports, proxy statements
and other information should be available for inspection at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located in the Citicorp Center, 500 West
Madison Street (Suite 1400), Chicago, Illinois 60661-2511 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies should be obtainable, by
mail, upon payment of the SEC's customary charges, by writing to the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. Such
material should also be available through the internet at the SEC's website.
Such documents may also be requested from WorldPort at 1825 Barret Lakes
Boulevard, Suite 100, Kennesaw, Georgia 30144, Attention: Don Hilbert.
2
<PAGE> 6
SUMMARY OF INFORMATION STATEMENT
Reasons for Sale Transaction
The Board of Directors of WorldPort believes that the Sale is in the
best interest of WorldPort, its stockholders and creditors after considering
many factors, including that the purchase price was over five times the purchase
price that WorldPort paid for EnerTel, the current balance of the Interim Loan
and the need to repay it on November 18, 1999, the impact of bankruptcy
proceedings on the prospects of WorldPort's stockholders and creditors realizing
value for their interests in or claims against WorldPort and the financial
analyses presented by Salomon Smith Barney and its written opinion referenced
below.
Opinion of Financial Advisor
On November 10, 1999, at a meeting of the WorldPort Board of Directors
held to consider the Sale, Salomon Smith Barney delivered to the WorldPort Board
of Directors a written opinion, to the effect that, as of that date and based
upon and subject to the assumptions made, matters considered and limitations on
the review undertaken, stated in the opinion, the consideration to be received
by WorldPort or one of its wholly-owned subsidiaries was fair to WorldPort from
a financial point of view. We have attached the opinion as Annex D. You should
read it completely to understand the procedures followed, assumptions made,
matters considered and limitations of the review undertaken by Salomon Smith
Barney in providing this opinion.
Stockholder Approval Previously Obtained
As of November 11, 1999, there were outstanding 27,547,092 shares of
WorldPort Common Stock, no shares of WorldPort Series A Convertible Preferred
Stock, 1,104,896 shares of WorldPort Series B Convertible Preferred Stock,
1,416,030 shares of WorldPort Series C Convertible Preferred Stock, 316,921
shares of WorldPort Series D Convertible Preferred Stock, 141,603 shares of
WorldPort Series E Convertible Preferred Stock, and no shares of WorldPort
Series F Convertible Preferred Stock, in the aggregate representing 130,239,570
votes entitled to be cast on such date. The Delaware General Corporation Law
requires that sales of substantially all the assets of a corporation be approved
by stockholders holding a majority of the votes of the outstanding voting
securities of such corporation, which, on November 11, 1999, consisted of
65,119,786 votes.
As of November 11, 1999, Heico owned or had the power to cast in the
aggregate approximately 93.8 million votes or 72.0% of the outstanding voting
securities of WorldPort entitled to vote on the matters described herein. On
November 11, 1999, Heico executed an irrevocable written consent approving the
Sale and the Sale Agreements. Such action by written consent is sufficient to
satisfy the requirements of the Delaware General Corporation Law. Therefore,
your vote is not required to approve the Sale Agreements or to consummate the
Sale.
Approval by the Board of Directors
The Board of Directors of WorldPort has unanimously determined that the
terms of the Sale are fair to, and in the best interests of, WorldPort and its
stockholders and approved the Sale Agreements and the transactions contemplated
thereby, including the Sale.
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<PAGE> 7
INTRODUCTION
PLEASE NOTE THAT THIS IS NOT A REQUEST FOR YOUR VOTE OR A PROXY
STATEMENT, BUT RATHER AN INFORMATION STATEMENT DESIGNED TO INFORM YOU OF THE
SALE THAT WILL OCCUR IF CERTAIN CONDITIONS PRECEDENT ARE MET AND TO PROVIDE YOU
WITH INFORMATION ABOUT THE SALE AND THE BACKGROUND OF THE SALE. IF THE OTHER
CONDITIONS ARE MET, THE SALE UNDER THE SALE AGREEMENT WILL TAKE PLACE AS SOON AS
THE 21ST DAY FOLLOWING THE MAILING OF THIS INFORMATION STATEMENT TO YOU,
WORLDPORT'S STOCKHOLDERS.
WorldPort's Board of Directors (the "Board") and persons owning or
otherwise having the authority to vote a majority of the outstanding voting
securities of WorldPort have approved the following transactions (collectively,
the "Sale") with Energis plc, a company organized under the laws of England and
Wales ("Energis"), pursuant to the agreements referred to below (collectively,
the "Sale Agreements"):
- the sale by WorldPort International, Inc., a Delaware
corporation and a wholly-owned subsidiary of WorldPort, of 85%
of the issued and outstanding securities of its subsidiary,
WorldPort Communications Europe Holding B.V., a corporation
organized under the laws of the Netherlands ("WCEH"),
representing 100% of the securities of WCEH held by the
Vendor, to Energis, pursuant to a Sale and Purchase Agreement
(the "Sale and Purchase Agreement")
- the sale by WorldPort of all of the issued and outstanding
securities of its subsidiary, WorldPort Communications
Limited, a corporation organized under the laws of England and
Wales ("WCL"), to Energis, pursuant to a Share Agreement (the
"Share Agreement")
- the sale by WorldPort of all of its interests in two DMS GSP
International Gateway Switches located in London and New York
to subsidiaries of Energis, pursuant to Switch Agreements (the
"Switch Agreements")
As a result of the Sale, WorldPort will receive approximately $463.2
million in cash from Energis, including the repayment of $124.8 million of
intercompany balances, and Energis will assume approximately $29.9 million of
liabilities of WorldPort.
Pursuant to the Sale, WorldPort will assign to Energis the Global
Crossing contracts, including three cross-atlantic STM-1 IRUs with a net present
value of liabilities of $15.8 million and contractual purchase commitments in
respect of future capacity in the aggregate amount of $42.7 million as of
September 30, 1999.
Concurrently with the Sale, the minority shareholder of WCEH will sell
its 15% interest in WCEH to Energis for $64.6 million in cash and Energis will
repay a minority shareholder loan and accrued interest in the aggregate amount
of $12.2 million as of September 30, 1999.
No other votes are required or necessary. See the captions "Stockholder
Approval Previously Obtained," "Approval by the Board of Directors" and "Voting
Securities and Principal Holders."
Energis is a communications company providing a wide range of
communications services including basic telephony and advanced voice, data and
internet services in Europe. Energis's principal executive offices are located
at Carmelite, 50 Victoria Embankment, London EC4Y 0DE.
The Sale is conditioned upon, among other things, the expiration of the
20-day period following the mailing of this Information Statement to the
WorldPort stockholders as required by the Exchange Act.
Energis has entered into a separate agreement with the other
stockholder of WCEH (the "Minority Sale Agreement") to purchase the remaining
15% of outstanding WCEH securities (the "Minority Sale") simultaneously with the
Sale.
If the conditions are met and the Sale and the Minority Sale are
consummated, Energis will own 100% of the outstanding shares of WCEH, 100% of
WCL and all of WorldPort's interest in certain switches and contracts. If the
Sale is consummated, WorldPort will use a portion of the proceeds of the Sale to
repay the outstanding principal and interest payable with respect to its Interim
Loan facility, which matured November 18, 1999 but remains outstanding and which
was incurred by WorldPort in June 1998 to finance the acquisition of EnerTel
N.V., a wholly-owned subsidiary of WCEH ("EnerTel"), including a $600,000
amendment fee due on the maturity date. WorldPort is currently negotiating with
the lenders to extend the maturity date of the Interim Loan. WorldPort will
4
<PAGE> 8
consider a new strategic focus following the Sale utilizing the $200 to $215
million of net proceeds remaining following payment of WorldPort's outstanding
indebtedness, including the Interim Loan, accounts payable, taxes and
transaction costs.
Salomon Smith Barney, financial advisor to WorldPort, has delivered to
the Board of Directors its written opinion to the effect that, as of the date of
the opinion, the WorldPort Sale Consideration (as defined below) in connection
with the Sale was fair to WorldPort from a financial point of view. The full
text of the written opinion of Salomon Smith Barney containing the assumptions
made, the matters considered and the scope of the opinion is included in this
Information Statement as Annex D. Stockholders are encouraged to read the
Salomon Smith Barney opinion in its entirety.
This Information Statement is first being mailed to stockholders on or
about December 2, 1999. As of November 11, 1999, there were outstanding:
- 27,547,092 shares of WorldPort Common Stock (the "Common
Stock")
- No shares of WorldPort Series A Convertible Preferred Stock
(the "Series A")
- 1,104,896 shares of WorldPort Series B Convertible Preferred
Stock (the "Series B")
- 1,416,030 shares of WorldPort Series C Convertible Preferred
Stock (the "Series C")
- 316,921 shares of WorldPort Series D Convertible Preferred
Stock (the "Series D")
- 141,603 shares of WorldPort Series E Convertible Preferred
Stock, (the "Series E"), and
- No shares of WorldPort Series F Convertible Preferred Stock
(the "Series F")
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
5
<PAGE> 9
RECENT EVENTS
Investment by Heico
On January 25, 1999, The Heico Companies LLC ("Heico") completed a $40
million equity investment in WorldPort pursuant to the Series C Preferred Stock
Purchase Agreement (the "Series C Purchase Agreement"), dated December 31, 1998,
between WorldPort and Heico. Pursuant to the Series C Purchase Agreement, Heico
acquired an aggregate of 1,132,824 shares of WorldPort's Series C for an
aggregate purchase price of $40 million. Heico funded its investment through its
existing credit facilities. In this transaction, Heico also received an option
to acquire up to 283,206 shares of Series C for an aggregate purchase price of
$10 million and certain additional rights including, with respect to the Common
Stock issued upon conversion of the Series C, certain demand and piggyback
registration rights.
Pursuant to the Series C Purchase Agreement, on December 31, 1998,
WorldPort increased the size of its Board of Directors to eight members and
appointed four individuals designated by Heico to serve as directors. WorldPort
also agreed to cause Heico's designees to comprise at least one-half of the
boards of directors of each of its subsidiaries. In addition, WorldPort amended
its Bylaws to provide that at least one of Heico's designees and (except in the
limited situation regarding certain proposed refinancings of WorldPort's
outstanding credit facility) one of the directors who was not designated by
Heico, must approve any action presented for approval by the Board of Directors
in order for such to be properly approved by the Board of Directors. As of
November 10, 1999, as a result of three previous resignations, the Board of
Directors of WorldPort consisted of five directors, three of which are
designated by Heico.
On July 15, 1999, Heico completed an additional $15 million equity
investment in WorldPort through (i) the exercise of the Series C Option to
purchase 283,206 additional shares of Series C for an aggregate purchase price
of $10 million and (ii) the purchase of 141,603 shares of the newly-created
WorldPort Series E for an aggregate purchase price of $5 million. Heico funded
its investment through its existing credit facilities. In connection with this
investment, WorldPort granted Heico a three-year option (the "Series F Option")
to purchase 424,809 shares of the newly-created WorldPort Series F for an
aggregate purchase price of $15 million.
As a result of Heico's exercise of the Series C Option, as of July 15,
1999, Heico owned 1,416,030 shares of Series C, representing all of the issued
and outstanding shares of Series C. Heico is entitled to 40 votes per share of
Series C and is entitled to vote on all matters submitted to a vote of the
stockholders of WorldPort, voting together with the holders of Common Stock as a
single class. At Heico's option, it may convert the Series C into Common Stock
at a conversion price of $3.25 per share of Common Stock (i.e., 10.865 shares of
Common Stock for each share of Series C).
The 141,603 shares of Series E were purchased by Heico pursuant to a
Series E Preferred Stock Purchase Agreement, dated as of July 15, 1999, between
WorldPort and Heico. Such shares represent all of the issued and outstanding
shares of Series E. With respect to the Series E, Heico is entitled to that
number of votes as is equal to the number of shares of Common Stock into which
the Series E could be converted and is entitled to vote on all matters submitted
to a vote of the stockholders of WorldPort, voting together with the holders of
Common Stock as a single class. At Heico's option, it may convert the Series E
into Common Stock at a conversion price of $3.25 per share of Common Stock
(i.e., 10.865 shares of Common Stock for each share of Series E).
Upon the purchase of Series F, Heico will be entitled to that number of
votes as is equal to the number of shares of Common Stock into which the Series
F could be converted and will be entitled to vote on all matters submitted to a
vote of the stockholders of WorldPort, voting together with the holders of
Common Stock as a single class. At Heico's option, following its purchase of
Series F, it may convert the Series F into Common Stock at a conversion price of
$4.00 per share of Common Stock (i.e., 8.8275 shares of Common Stock for each
share of Series F).
In June 1999, Heico agreed to provide a bond to support a bid by
WorldPort to acquire a telecommunications company in Europe. In consideration of
the bond, WorldPort agreed to issue to Heico 25,000 shares of WorldPort Common
Stock at a purchase price of $0.01 per share. The bond provided by Heico was
returned when WorldPort's bid was unsuccessful.
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<PAGE> 10
As a result of these equity investments, as of November 11, 1999, Heico
owned directly approximately 45% of WorldPort's outstanding votes. In addition,
by virtue of a Shareholder Agreement, dated as of December 31, 1998, among
Heico, WorldPort and certain stockholders of WorldPort, and certain irrevocable
proxies granted thereunder, WorldPort believes that Heico controlled, with
respect to certain matters, including acquisitions, incurrence of debt, the
issuance or sale of equity securities and the sale of substantially all of the
assets of WorldPort, including the Sale to Energis, additional shares of capital
stock of WorldPort representing approximately 27% of WorldPort's outstanding
votes as of November 11, 1999.
Stockholder Litigation
Since July 14, 1999, WorldPort and certain of its former officers have
been named as defendants in multiple shareholder class action lawsuits filed in
the United States District Court for the Northern District of Georgia. The
plaintiffs in these lawsuits seek to represent a class of individuals who
purchased or otherwise acquired Common Stock from as early as December 31, 1998
through June 25, 1999. Among other things, the plaintiffs allege that the
defendants spoke positively about the Heico financing without disclosing the
risk that non-compliance with certain Nasdaq rules in connection with the
financing might cause WorldPort to be delisted from Nasdaq. The plaintiffs
further allege the subsequent disclosure that WorldPort might be delisted from
Nasdaq adversely affected the value of Common Stock. The plaintiffs allege
violations of Sections 10(b) and 20(a) of the Exchange Act. WorldPort intends to
defend these lawsuits vigorously, but due to inherent uncertainties of the
litigation process and the judicial system, WorldPort is unable to predict the
outcome of this litigation.
Involuntary Bankruptcy Proceeding Dismissed
On November 9, 1999, certain former employees of WorldPort filed an
involuntary bankruptcy petition against WorldPort in the U.S. Bankruptcy Court
for the Northern District of Georgia, Atlanta Division. The petition alleged
specific claims totaling $99,000 against WorldPort. On November 18, 1999, the
Court entered an order dismissing the petition under 11 U.S.C. Section 305(a).
The order dismissing the petition contained a specific finding by the Court that
consummation of the Sale was in the best interests of WorldPort and its
creditors and that dismissal of the petition would facilitate the Sale and allow
all valid claims of WorldPort's creditors to be paid in full.
BACKGROUND OF SALE TRANSACTION
Events Relating to the Sale
WorldPort acquired EnerTel in June 1998 and it became the core of
WorldPort's operations and the source of a significant portion of WorldPort's
revenues. EnerTel is the leading second network operator in the Netherlands.
EnerTel's switch-based fiber backbone network consists of three fiber optic
rings extending over 1,200 kilometers linking most of the largest cities in the
Netherlands, and together with EnerTel's interconnection agreements, passing
approximately 85% of the 5.5 million domestic households and substantially all
the domestic and multinational business community in the Netherlands.
On June 23, 1998, the Vendor entered into a Credit Agreement for the
Interim Loan with Bankers Trust Company and several additional lenders, pursuant
to which the Vendor borrowed $120 million in order to finance its acquisition of
EnerTel and for working capital. WorldPort has tried unsuccessfully to refinance
or repay the Interim Loan repeatedly since incurring it in 1998. The Interim
Loan originally provided for a maturity date of June 23, 1999 and has been
extended twice and now has a maturity date of November 18, 1999. In order to
secure the extension until November 18, 1999, among other things, WorldPort
agreed to pay the lenders an amendment fee of $600,000 at the maturity date.
WorldPort is currently negotiating with the lenders to extend the maturity date
of the Interim Loan.
WorldPort has incurred losses since inception and, as of September 30,
1999, had an accumulated deficit of approximately $175.3 million and a working
capital deficit of approximately $150.1 million.
In November 1998, WorldPort engaged Paine Webber to advise it on
financing and repayment alternatives. Paine Webber will receive a fee for its
services from the proceeds of the Sale.
On January 25, 1999, Heico completed its $40.0 million equity
investment in WorldPort. On July 15, 1999, Heico completed an additional $15.0
million equity investment in WorldPort.
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<PAGE> 11
In the first week of August 1999, Salomon Smith Barney approached Heico
as a major stockholder of WorldPort to discuss divestiture options with regard
to EnerTel. In the second week of August 1999, Heico and WorldPort asked Salomon
Smith Barney to represent WorldPort in its divestiture of EnerTel as a repayment
alternative for the Interim Loan. Later that week, Salomon Smith Barney sent
WorldPort an engagement letter to retain their services as a financial advisor.
At the end of the second week and during the beginning of the third
week of August 1999, personnel from Salomon Smith Barney's New York and London
offices met with representatives of EnerTel. On September 1, 1999, WorldPort
retained Salomon Smith Barney as its sole financial advisor.
During the first two weeks of September, Salomon Smith Barney solicited
interest from various potential purchasers. During the month of September 1999,
Salomon Smith Barney contacted over 55 potential buyers. During September and
October, 1999 Salomon Smith Barney obtained confidentiality agreements and sent
information memoranda to over 45 potential buyers. In October, eight potential
buyers visited the data room established by WorldPort and attended presentations
by management of EnerTel.
On October 29, 1999, Energis submitted a bid to WorldPort. WorldPort
identified Energis as the preferred potential buyer on October 29, 1999. From
November 1 through November 11, 1999, WorldPort continued negotiating with
Energis through a series of meetings and conference calls involving WorldPort,
Energis and their respective representatives.
On November 10, 1999, the Board of Directors of Energis approved the
proposed Sale and Sale Agreements.
On November 10, 1999, the Board of Directors of WorldPort held a
meeting to discuss the transactions proposed by Energis and alternatives to such
transactions. At that meeting, Salomon Smith Barney submitted its written
opinion to the Board of Directors of WorldPort that the WorldPort Sale
Consideration (as defined below) proposed by Energis was fair to WorldPort from
a financial point of view. During the meeting, the Board of Directors of
WorldPort approved the Sale and authorized WorldPort's Chief Executive Officer
to complete and execute the Sale Agreements.
By irrevocable written consent in lieu of a meeting, dated November 11,
1999, Heico consented to the Sale as to all shares it directly owned or over
which it had voting power (representing approximately 72% of WorldPort's
outstanding votes).
On November 11, 1999, WorldPort entered into the definitive Sale
Agreements with Energis.
Reasons for the Sale
The Board of Directors of WorldPort believes that the Sale is in the
best interest of WorldPort, its stockholders and creditors. Prior to reaching
its conclusions, the Board of Directors of WorldPort reviewed the proposed Sale
with Salomon Smith Barney and its accountants and legal advisors. The following
are the material factors considered by the Board of Directors in reaching its
conclusions:
- that the purchase price was over five times the purchase price
that WorldPort paid for EnerTel less than two years ago
- the current balance of the Interim Loan and its maturity date
of November 18, 1999, as well as the prospects of refinancing
or otherwise repaying the debt
- the impact that bankruptcy proceedings, if initiated, could
have on the prospects of WorldPort's stockholders and
creditors realizing value for their interests in or claims
against WorldPort
- the impact on WorldPort and its business of the uncertainties
associated with its financial problems, including risks that
customers and suppliers would stop doing business with
WorldPort on customary trade terms and that employees might
leave; and the increased risk that if WorldPort was forced to
seek protection from its creditors under the bankruptcy laws,
it might not be able to continue its business
8
<PAGE> 12
- presentations from, and discussions with, senior executives of
WorldPort, representatives of Salomon Smith Barney and
representatives of WorldPort's outside counsel regarding the
business, financial and accounting aspects and a review of the
terms and conditions of the Sale Agreements
- the financial analyses presented by Salomon Smith Barney and
its written opinion as to the fairness of the WorldPort Sale
Consideration to WorldPort from a financial point of view (a
copy of this opinion, dated November 10, 1999, is attached to
this Information Statement as Annex D)
- information concerning the historical and prospective
financial condition, results of operations, prospects and
business of WorldPort, including the revenue and profitability
of WorldPort
- the recommendation of the senior management of WorldPort that
the proposed Sale be approved
The Board of Directors also considered the risk that the proposed Sale
would not be consummated, the substantial management time and effort that will
be required to consummate the Sale, and the possibility that certain provisions
of the Sale Agreements and the irrevocable consent granted by Heico and other
stockholders may have the effect of discouraging other persons potentially
interested in EnerTel from pursuing such a transaction. In the judgment of the
Board of Directors, the potential benefits of the Sale outweighed these
considerations.
This discussion of the information and factors considered by the Board
of Directors of WorldPort is not intended to be exhaustive. In view of the
variety of the factors considered in connection with its evaluation, the Board
of Directors did not quantify or otherwise attempt to assign relative weights to
specific factors considered in reaching its determination. In addition,
individual members of the Board of Directors may have given different weights to
different factors.
OPINION OF FINANCIAL ADVISOR
Opinion of Salomon Smith Barney
Salomon Smith Barney was retained by WorldPort to act as its financial
advisor in connection with the proposed transactions. In connection with its
engagement, WorldPort requested that Salomon Smith Barney evaluate the fairness,
from a financial point of view, to WorldPort, of the consideration (the
"WorldPort Sale Consideration") to be received by WorldPort or one of its
wholly-owned subsidiaries, in connection with (i) the sale of stock (the "WCEH
Sale") of WCEH on the terms set forth in Draft "5" of the Sale and Purchase
Agreement dated November 9, 1999, (ii) the sale of stock (the "WCL Sale") of WCL
on the terms set forth in Draft "5" of the Share Agreement dated as of November
9, 1999, and (iii) the sale of DMS GSP International gateway switches (together
with WCEH and WCL, the "Business"), on the terms set forth in Draft "5" of the
Switch Agreements, both dated November 9, 1999. On November 10, 1999, at a
meeting of the WorldPort Board of Directors held to consider the Sale, Salomon
Smith Barney delivered to the WorldPort board a written opinion, to the effect
that, as of that date and based upon and subject to the assumptions made,
matters considered and limitations on the review undertaken, stated in the
opinion, the WorldPort Sale Consideration was fair to WorldPort from a financial
point of view.
In arriving at its opinion, Salomon Smith Barney:
- - reviewed drafts of the Sale Agreements and related documents;
- - reviewed certain publicly available information concerning the
Business and WorldPort;
- - reviewed certain other financial information concerning the Business,
including financial forecasts, that were provided to Salomon Smith
Barney by WorldPort;
- - discussed the past and current business operations, financial
condition and prospects of the Business with certain officers and
employees of WorldPort; and
- - considered other information, financial studies, analyses,
investigations and financial, economic and market criteria that
Salomon Smith Barney deemed relevant.
9
<PAGE> 13
In Salomon Smith Barney's review and analysis and in arriving at its
opinion, Salomon Smith Barney assumed and relied upon the accuracy and
completeness of the information reviewed by it for the purpose of its opinion.
Salomon Smith Barney did not assume any responsibility for independent
verification of such information. With respect to the financial forecasts of
the Business, Salomon Smith Barney was advised by the management of WorldPort
that such forecasts had been reasonably prepared on bases reflecting their best
then available estimates and judgements, and Salomon Smith Barney expressed no
opinion with respect to such forecasts or the assumptions on which they were
based. Salomon Smith Barney also assumed that the Sale will be consummated in
accordance with the terms of Draft "5" of the Sale Agreements reviewed by
Salomon Smith Barney and that there will not be any post-closing adjustment to
the WorldPort Sale Consideration. Salomon Smith Barney has not assumed any
responsibility for any independent evaluation or appraisal of any of the assets
(including properties and facilities) or liabilities of the Business.
Salomon Smith Barney's opinion is necessarily based upon conditions as
they existed and could be evaluated on the date thereof. Salomon Smith Barney
has no obligation to update its opinion to take into account any subsequent
changes or events. Salomon Smith Barney's opinion does not address WorldPort's
underlying business decision to effect the Sale, and Salomon Smith Barney
expressed no view on the effect on WorldPort of the Sale and related
transactions. Salomon Smith Barney's opinion is directed only to the fairness,
from a financial point of view, of the WorldPort Sale Consideration to
WorldPort. Although Salomon Smith Barney evaluated the WorldPort Sale
Consideration from a financial point of view, Salomon Smith Barney was not
asked to and did not recommend the specific consideration payable in connection
with the Sale, which was determined through negotiation between WorldPort and
Energis. No other instructions or limitations were imposed by WorldPort on
Salomon Smith Barney with respect to the investigations made or procedures
followed by Salomon Smith Barney in rendering its opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S WRITTEN OPINION DATED NOVEMBER
10, 1999, WHICH DESCRIBES THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS DOCUMENT AS ANNEX D
AND SHOULD BE READ CAREFULLY IN ITS ENTIRETY. SALOMON SMITH BARNEY'S OPINION IS
DIRECTED TO WORLDPORT AND RELATES ONLY TO THE FAIRNESS OF THE WORLDPORT SALE
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, AND DOES NOT ADDRESS ANY OTHER
ASPECT OF THE SALE. THE SUMMARY OF SALOMON SMITH BARNEY'S OPINION INCLUDED IN
THIS DOCUMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE
OPINION.
In preparing its opinion, Salomon Smith Barney performed a variety of
financial and comparative analyses, including those described below. The summary
of these analyses is not a complete description of the analyses underlying
Salomon Smith Barney's opinion. The preparation of a fairness opinion is a
complex analytic process involving various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances and, therefore, a fairness opinion
is not readily susceptible to summary description. Accordingly, Salomon Smith
Barney believes that its analyses must be considered as a whole and that
selecting portions of its analyses and factors or focusing on information
presented in tabular format, without considering all the analyses and factors
set forth below or the narrative description of the analyses, could create a
misleading or incomplete view of the processes underlying its analyses and
opinion.
In its analyses, Salomon Smith Barney considered industry performance,
general business, economic, market and financial conditions and other matters
existing on the date of its opinion, many of which are beyond the control of
WorldPort. No company, transaction or business used in those analyses as a
comparison is identical to the Business or the Sale, nor is an evaluation of
those analyses entirely mathematical; rather, the analyses involve complex
considerations and judgements concerning financial and operating characteristics
and other factors that could affect the Sale, public trading or other values of
the companies, business segments or transactions being analyzed. The estimates
contained in Salomon Smith Barney's analyses and the valuation ranges resulting
from any particular analysis are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by its analyses. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
Salomon Smith Barney's opinion and analyses were only one of many
factors considered by the WorldPort Board of Directors in its evaluation of the
Sale and should not be viewed as determinative of the views of the WorldPort
Board of Directors or management with respect to the WorldPort Sale
Consideration or the Sale.
Salomon Smith Barney has acted as financial advisor to WorldPort in
connection with the Sale and will receive a fee for its services which is
contingent upon consummation of the Sale. In the ordinary course of business,
Salomon Smith Barney and its affiliates may hold or actively trade the
securities of WorldPort or Energis for its own account and for the accounts of
customers and, accordingly, may
10
<PAGE> 14
at any time hold a long or short position in such securities. In addition,
Salomon Smith Barney and its affiliates have previously rendered certain
investment banking and financial advisory services to WorldPort and its
affiliates, and Energis for which Salomon Smith Barney has received customary
compensation. In the ordinary course of their businesses, Salomon Smith Barney
and its affiliates (including Citigroup Inc.) may have other business
relationships with WorldPort or Energis or their respective affiliates.
Financial Analyses of Salomon Smith Barney
The following is a summary of the material financial analyses Salomon
Smith Barney used in connection with providing its opinion to the WorldPort
Board of Directors.
THE FINANCIAL ANALYSES SUMMARIZED BELOW INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. IN ORDER TO FULLY UNDERSTAND THE FINANCIAL ANALYSES OF
SALOMON SMITH BARNEY, THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF EACH
SUMMARY. THE TABLES ALONE DO NOT CONSTITUTE A COMPLETE DESCRIPTION OF THE
FINANCIAL ANALYSES. CONSIDERING THE DATA SET FORTH BELOW WITHOUT CONSIDERING THE
FULL NARRATIVE DESCRIPTION OF THE FINANCIAL ANALYSES, INCLUDING THE
METHODOLOGIES AND ASSUMPTIONS UNDERLYING THE ANALYSES, COULD CREATE A MISLEADING
OR INCOMPLETE VIEW OF THE FINANCIAL ANALYSES OF SALOMON SMITH BARNEY.
In connection with the preparation of its opinion, Salomon Smith Barney
noted that WorldPort acquired the Business in June 1998 for $109 million and
that the WorldPort Sale Consideration represented approximately five times
WorldPort's original cost of acquiring the Business.
Salomon Smith Barney also noted that the three minority shareholders of
WCEH sold their 15% minority shareholdings in WCEH to Heico on November 10,
1999, for approximately $3.8 million. As part of this transaction, Heico also
purchased $12.2 million of WCEH debt from the minority shareholders. Heico also
agreed to pay the minority shareholders an additional $1.3 million in aggregate
if the difference between its initial purchase price for the minority
shareholding and the price received by Heico in a subsequent sale of the WCEH
stock exceeds a certain threshold. The total aggregate purchase price
represented approximately 1.3 times the minority shareholders' original cost of
acquiring their shareholding.
Salomon Smith Barney analyzed the value of the Business using several
methodologies, including WorldPort's historic stock trading analysis, discounted
cash flow analyses, a public market valuation analysis and a private market
valuation analysis.
Historic Stock Trading Analysis
Salomon Smith Barney reviewed WorldPort's total firm value implied by
the historic trading prices for WorldPort common stock on a fully diluted basis
and WorldPort's quarterly net debt position. The table below summarizes the
results of Salomon Smith Barney's analysis:
11
<PAGE> 15
<TABLE>
<CAPTION>
TIME PERIOD IMPLIED FIRM VALUE RANGE (A)
----------- ----------------------------
(In Millions)
LOW HIGH
--- ----
<S> <C> <C>
From move to OTC $225 $251
Bulletin Board to date
(August to October, 1999)
From maturity of Interim $225 $423
Loan, to move to OTC
Bulletin Board (June to
August, 1999)
From November 11, 1998 $423 $670
to maturity of Interim
Loan (November, 1998, to
June, 1999)
</TABLE>
(a) Based on the high and low monthly average share price for the
indicated period.
As the Sale constitutes the sale of all of WorldPort's material assets,
Salomon Smith Barney compared the historic implied firm value range to the
WorldPort Sale Consideration of $548.3 million being the value represented by
Energis's offer minus amounts to be paid to the minority shareholder for its 15%
participation in WCEH (comprising (i) $64.6 million for its 15% stake in WCEH,
(ii) $12.2 million in repaid shareholders loans, and (iii) $3.3 million of WCEH
pro rata net debt).
Discounted Cash Flow Analyses
Using a discounted cash flow methodology, Salomon Smith Barney calculated
the present value of the projected future cash flows for the Business as a going
concern based on the WorldPort Assets business plan (the "Business Plan")
provided to Salomon Smith Barney by the management of WorldPort. According to
the Business Plan, the Business was expected to experience strong growth in
connection with, among other things, the development of Internet service
provider solutions and the European roll-out, outpacing the growth of some of
its peers in the first three years. The period of growth was followed by slower
growth toward the end of the Business Plan reflecting the maturity of the
Business. Although Salomon Smith Barney reviewed the Business Plan, Salomon
Smith Barney did not review market assumptions inherent in such plan.
As part of Salomon Smith Barney's evaluation of the fairness of the
WorldPort Sale Consideration, the discounted cash flow analysis was used to
generate a reference range for the total value of the Business (including the
15% of WCEH held by the minority shareholder), which was then compared to the
total value represented by the offer from Energis of $628.4 million (which
$628.4 million includes (i) the payment of $463.2 million in cash, (ii) the
assumption of $29.9 million of debt by Energis, (iii) $15.8 million related to
the assumption of debt pursuant to WorldPort's contract with Global Crossing
Ltd., (iv) $42.7 million of contractual commitments to purchase capacity
pursuant to WorldPort's contract with Global Crossing Ltd. and (v) $76.8 million
related to the 15% minority shareholding in WCEH and outstanding shareholder
loans payable to the minority shareholder), assuming no post-closing adjustment
to the purchase price. As the Business Plan was prepared based on ownership of
all of the assets comprising the Business, the assets were evaluated as a group
rather than separately.
The following table sets forth the firm value range of the Business as of
September 30, 1999, based on the Business Plan.
12
<PAGE> 16
<TABLE>
<CAPTION>
FIRM VALUATION RANGE
--------------------
LOW HIGH METHODOLOGY
--- ---- -----------
(IN MILLIONS)
<S> <C> <C> <C>
14.5% to 15.5% Weighted
Average Cost of Capital
BUSINESS PLAN 5.5x to 6.5x Terminal
DISCOUNTED CASH FLOW $571 $690 (2008) EBITDA Multiple
</TABLE>
Based on the foregoing discounted cash flow analysis, as of September 30,
1999, the firm value of the Business was within a range of $571 to $690 million
based on the Business Plan.
Salomon Smith Barney noted that the Business Plan required substantial
funding over the first 18 month period, in particular to finance expansion into
new product and service areas and new geographic markets. Hence, Salomon Smith
Barney conducted a sensitivity analysis to the Business Plan, limiting the
forecasts to include only those products and services and geographic markets
that would not require additional funding from external sources (the "Business
Plan Sensitivity").
The following table shows the firm value of the Business as of September
30, 1999, based on the Business Plan Sensitivity.
<TABLE>
<CAPTION>
FIRM VALUATION RANGE
--------------------
LOW HIGH METHODOLOGY
--- ---- -----------
(IN MILLIONS)
<S> <C> <C> <C>
14.5% to 15.5% Weighted
Average Cost of Capital
BUSINESS PLAN SENSITIVITY 5.5x to 6.5x Terminal
DISCOUNTED CASH FLOW $160 $199 (2008) EBITDA Multiple
</TABLE>
Based on the foregoing discounted cash flow analysis, as of September 30,
1999, the firm value of the Business was within a range of $160 million to $199
million based on this sensitivity analysis.
In the aforementioned discounted cash flow analyses Salomon Smith Barney
applied a range of weighted average costs of capital for the Business of 14.5%
to 15.5%. This range was based on an analysis of the cost of capital for certain
comparable companies, including Energis, Global Telesystems Group, Inc.,
Versatel Telecom International NV and Viatel Inc.
Furthermore, Salomon Smith Barney used a terminal firm value-to-EBITDA
multiple range of 5.5x to 6.5x. This range was based on an analysis of the
wireline telecommunications businesses of selected established European
telecommunications companies, including Deutsche Telekom AG, British
Telecommunications PLC, France Telecom SA, Telefonica d'Espana SA, Swisscom AG,
KPN NV and TeleDanmark A/S.
Public Market Valuation Analysis
Salomon Smith Barney reviewed and compared certain financial information,
ratios and public market multiples relating to the Business to corresponding
financial data for the following publicly traded comparable companies with a
focus on the following European facilities-based alternative telecommunications
operators: Energis, Global Telesystems Group, Inc., Versatel Telecom
International NV and Viatel Inc.
Salomon Smith Barney calculated and compared the estimated firm
value-to-revenues and estimated firm value-to-net property, plant and equipment
multiples for each such company for 1999 and 2000 based on then current share
prices. Estimates of revenues and net property, plant and equipment were based
on estimates prepared by equity research analysts for the respective comparable
companies.
13
<PAGE> 17
The following table sets forth the median and mean firm value-to-revenues
(1999 and 2000 estimated) and firm value-to-net property, plant and equipment
(1999 and 2000 estimated) multiples for the comparable public companies selected
by Salomon Smith Barney.
<TABLE>
<CAPTION>
FIRM VALUE / REVENUES FIRM VALUE / NET PROPERTY
PLANT & EQUIPMENT
--------------------------------------------------------
1999 2000 1999 2000
(ESTIMATED) (ESTIMATED) (ESTIMATED) (ESTIMATED)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Median 10.1x 5.7x 7.7x 5.0x
Mean 10.4 6.0 6.6 5.0
</TABLE>
Salomon Smith Barney compared the median and mean estimated firm
value-to-revenues and estimated firm value-to-net property, plant and equipment
multiples for the comparable public companies to the firm value-to-revenues and
firm value-to-net property, plant and equipment multiples for the Business
implied by the $628.4 million firm value for the Business represented by the
offer from Energis, as set forth in the following table.
<TABLE>
<CAPTION>
FIRM VALUE / REVENUES FIRM VALUE / NET PROPERTY
PLANT & EQUIPMENT
---------------------------------------------------------
1999 2000 1999 2000
(ESTIMATED) (ESTIMATED) (ESTIMATED) (ESTIMATED)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multiples Implied by $628.4 10.2X 5.4X 6.3X 3.8X
Million Firm Value for the
Business
</TABLE>
Private Market Valuation Analysis
Salomon Smith Barney found few comparable private market transactions in
the facilities-based "alternative network" segment. However, Salomon Smith
Barney analyzed the estimated firm value-to-revenues and estimated firm
value-to-net property, plant and equipment multiples of the following two
selected recent transactions involving European facilities-based operators:
Global Telesystems Group, Inc.'s acquisition of Esprit Telecom Group PLC in
December 1998 and Global Crossing Ltd.'s proposed acquisition of Racal
Electronics PLC's telecommunications business announced in September 1999.
The following table sets forth the mean firm value-to-revenues and firm
value-to-net property, plant and equipment multiples derived by Salomon Smith
Barney in its analysis of the aforementioned comparable private transactions.
14
<PAGE> 18
<TABLE>
<CAPTION>
FIRM VALUE / REVENUES FIRM VALUE / NET PROPERTY
PLANT & EQUIPMENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Mean Valuation Multiple 6.0x 7.4x
</TABLE>
Salomon Smith Barney compared the results of the foregoing analysis of
comparable private market transactions to the implied firm value-to-revenues and
implied firm value-to-net property, plant and equipment multiples for the
Business implied by the $628.4 million firm value offered by Energis, as set
forth in the following table.
<TABLE>
<CAPTION>
FIRM VALUE / REVENUES FIRM VALUE / NET PROPERTY
PLANT & EQUIPMENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Multiples Implied by 9.4X 6.3X
$628.4 Million Firm
Value for the
Business
- -------------------------------------------------------------------------------------------------
</TABLE>
Miscellaneous
Salomon Smith Barney, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. WorldPort
selected Salomon Smith Barney because it is an internationally recognized
investment banking firm that has substantial experience in transactions similar
to the Sale.
Under a letter agreement dated September 1, 1999, WorldPort agreed to pay
Salomon Smith Barney $6.534 million, payable as follows: (i) $100,000 payable
upon the signing of the letter agreement, (ii) $250,000 payable following
delivery of its fairness opinion and (iii) the remainder payable (x) 50% upon
the execution of a definitive agreement to effect the Sale and (y) 50% upon
closing of the Sale.
WorldPort has also agreed to reimburse Salomon Smith Barney for its
reasonable out-of-pocket expenses, and to indemnify Salomon Smith Barney and
related parties against certain liabilities, including liabilities under federal
securities laws relating to or arising out of its engagement.
15
<PAGE> 19
MANAGEMENT OF WORLDPORT'S BUSINESS AFTER THE SALE AND
USE OF PROCEEDS
WorldPort will use a portion of the proceeds of the Sale to repay the
outstanding principal and interest payable with respect to its Interim Loan
facility, which was incurred by WCEH in June 1998 to finance the acquisition of
EnerTel N.V., a wholly-owned subsidiary of WCEH ("EnerTel"), including a
$600,000 amendment fee due on the maturity date. The maturity date of the
Interim Loan is November 18, 1999 and WorldPort is currently negotiating with
the lenders to extend this maturity date. WorldPort will consider a new
strategic focus following the Sale utilizing the $200 to $215 million of
estimated net proceeds remaining following payment of WorldPort's outstanding
indebtedness, accounts payable, taxes and transaction costs. The Board of
Directors of WorldPort currently intends to meet in mid-December, 1999 to
consider WorldPort's strategic direction on an on-going basis.
DESCRIPTION OF INTERESTS OF HEICO IN THE SALE
WorldPort Communications Europe Holdings
Heico is the minority shareholder of WCEH, owning 15% of its
outstanding capital stock. Simultaneously with the execution of the Sale
Agreements by WorldPort, on November 11, 1999, Heico entered into an agreement
with Energis to sell its 15% interest in WCEH for $64.6 million in cash and
Energis will repay the minority shareholder loan and accrued interest in the
aggregate amount of $12.2 million as of September 30, 1999. This transaction is
expected to be completed contemporaneously with the Sale. Additionally, Heico
holds approximately $620,000 of accounts receivable of EnerTel.
Interim Loan
Heico is one of the lenders participating in the Interim Loan to
WorldPort. Heico will receive approximately $18.6 million in principle plus
accrued interest thereon pursuant to the Sale Agreements upon consummation of
the Sale when the Interim Loan is paid in full. In connection Heico's
participation in the Interim Loan, Heico was granted warrants to purchase
416,240 shares of WorldPort Common Stock for $.01 per share at any time.
Reimbursable Expenses
In connection with the service of its designees on WorldPort's Board of
Directors, Heico has incurred various expenses which are reimbursable by
WorldPort. Heico will be reimbursed for these expenses from the proceeds
received by WorldPort from the Sale.
Heico Designated Directors
The Board of Directors of WorldPort consists of five directors, three
of which were designated by Heico. All five directors have approved the Sale
pursuant to the Sale Agreements.
NO APPRAISAL RIGHTS
Under Delaware General Corporation Law, holders of WorldPort capital
stock are not entitled to appraisal rights in connection with the Sale.
16
<PAGE> 20
ACCOUNTING TREATMENT
WorldPort estimates that it will recognize approximately a $262.6
million gain for accounting purposes as a result of the Sale, based on gross
proceeds of approximately $463.2 million.
FEDERAL INCOME TAX CONSEQUENCES
WorldPort expects to recognize a gain as a result of the Sale to the
extent the amount realized on the Sale exceeds WorldPort's adjusted basis in the
securities and assets sold. WorldPort also anticipates recognizing gain as a
result of Energis assuming certain liabilities in connection with the Sale.
WorldPort will pay approximately $87 million in taxes on the gain realized.
WorldPort does not anticipate any federal income tax consequences to its
stockholders as a result of the Sale.
This summary of tax consequences is for general information only. All
stockholders should consult their own tax advisors as to the particular tax
consequences of the Sale to them, including the applicability and effect of any
state, local or foreign laws.
REGULATORY APPROVALS
United States Antitrust Laws. The Federal Trade Commission (the "FTC")
and the Antitrust Division of the United States Department of Justice frequently
scrutinize the legality under the antitrust laws of transactions such as the
proposed Sale. WorldPort, the Vendor and Energis have concluded that the Sale is
not subject to the filing and waiting period requirements of the
Hart-Scott-Rodino Antitrust Improvement Act of 1976. However, at any time before
the consummation of the Sale, the Antitrust Division or the FTC could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Private parties may also bring legal action under the antitrust laws
under certain circumstances. There can be no assurance that a challenge to the
Sale on antitrust grounds will not be made or, if such a challenge is made, of
the results thereof.
Dutch Laws. The Sale may be subject to approval by certain Dutch
regulatory agencies. However, any such approval is not a condition to
consummation of the Sale.
DESCRIPTION OF SALE AGREEMENTS
The following is a summary of material provisions of the Sale and
Purchase Agreement, the Share Agreement and the Switch Agreements, copies of
which are attached to this Information Statement and are incorporated in this
Information Statement by reference. This summary is qualified in its entirety by
reference to each of the Sale and Purchase Agreement, the Share Agreement and
the Switch Agreements, respectively. Capitalized terms used but not otherwise
defined in this Information Statement shall have the meanings set forth in the
Sale and Purchase Agreement, the Share Agreement and the Switch Agreements, as
the case may be.
The Sale and Purchase Agreement
Purchase and Sale of Shares. The Sale and Purchase Agreement provides
that, upon the terms and subject to the conditions of the Sale and Purchase
Agreement, the Vendor will sell to Energis all of its capital shares of WCEH.
The purchase price for the Vendor's shares of WCEH on the basis of 100% of
WCEH's firm value is equal to $585 million, including approximately $486.1
million to be paid in cash to the Vendor at the closing of the transaction,
$76.8 million to be paid in cash to the minority shareholder and $22.1 million
of debt of WCEH that will be assumed by Energis on the Completion Date
(collectively, the "WCEH Consideration"). The cash portion of the purchase price
is subject to adjustment as described under the heading "Purchase Price
Adjustment" immediately below.
Included in the cash to be paid on closing to the Vendor by Energis are
intercompany balances payable by WCEH to the Vendor in the aggregate amount of
$120.1 million as of September 30, 1999. Included in the cash to be paid on
closing to the minority shareholder are shareholder loans and accrued interest
of $12.2 million in aggregate as of September 30, 1999.
17
<PAGE> 21
The Completion Date is scheduled to occur on or before January 31, 2000
(the "Longstop Date"), unless such date is extended to a date (i) no later than
February 28, 2000 by either Energis or the Vendor giving written notice to the
other on or before January 31, 2000, subject to WorldPort extending certain
insurance arrangements to at least February 28, 2000, or (ii) if extended to
February 28, 2000, no later than March 31, 2000, if the Vendor gives notice to
Energis on or before February 28, 2000, provided that the only reason for the
condition not having occurred by February 28, 2000 is that the SEC will, despite
WorldPort and the Vendor having used all reasonable efforts to dispatch the
Information Statement to its stockholders, not have permitted such Information
Statement to be dispatched in sufficient time and in such case, WorldPort will
be obligated to extend the insurance arrangements referred to above to March 30,
2000.
The Vendor currently owns 85% of the outstanding capital shares of
WCEH, and, following the Completion Date, neither the Vendor nor WorldPort will
retain any interest in WCEH.
Purchase Price Adjustment. Following the Completion Date, the parties
will prepare an audited combined balance sheet of WCEH and WCEH's wholly owned
subsidiary, EnerTel, as of the Completion Date and an audited profit and loss
account of WCEH and EnerTel for the period from December 31, 1998 to the
Completion Date (the "Completion Accounts"), which will be completed within 60
days after the Completion Date and which will be audited jointly by WCEH's
auditors and Energis's auditors. The parties will instruct WCEH, WCEH's auditors
and Energis's auditors to prepare a "Net Assets Statement" from the Completion
Accounts and will deliver to the Vendor and Energis copies of the Completion
Accounts and Completion Balance Sheet and of their calculation of any
adjustments within 14 days of the preparation of the Completion Accounts.
If the value of Net Assets as of Completion is a negative figure which
is greater than a negative figure of NLG(47,748,000), the Vendor will repay to
Energis an amount equal to the excess and the WCEH Consideration will be reduced
by the amount of that repayment, provided that the amount of the repayment will
not exceed $20 million. If the value of the Net Assets is less than
NLG(47,748,000), Energis will pay to the Vendor in cash an amount equal to the
deficiency and the Consideration will be increased by the amount of this
additional payment, provided that the amount of the additional payment will not
exceed $20 million. Any such payments will be made in cash within 28 days after
delivery of the Net Assets Statement. Any amount due under the relevant
provisions of the Share Agreement may be offset against any amount due under
this clause.
Warranties. In the Sale and Purchase Agreement, WorldPort and WCEH have
extended customary warranties to Energis (the "WCEH Warranties"). The WCEH
Warranties relate, among other things, to authorization; enforceability; title
to the securities of WCEH and EnerTel; necessary consent; conduct of Salomon
Smith Barney; solvency; Year 2000 compliance; the preparation of the Last
Accounts and the Management Accounts of WCEH; deferred taxation; the accounting
reference date; books and records of WCEH and EnerTel; management accounts;
assumed debt; identity of directors of WCEH; options and securities ownership;
taxation; capital commitments; dividends and distributions; indebtedness; bank
accounts; no material changes; no adverse effect resulting from the sale; joint
ventures; claims and litigation; business names; power of attorney; licenses and
consents; material contracts; defaults; employee matters; ownership of assets;
insurance; leasehold properties; pensions; intellectual property rights and
specific information.
Obligations upon Breach of Warranty. As part of the Sale and Purchase
Agreement, the Vendor and WorldPort have warranted to Energis that except as set
forth in the WCEH disclosure letter, the WCEH Warranties are accurate in all
material requests as of the date of the Sale and Purchase Agreement and will be
accurate in all material respects at the Completion Date, except to the extent
that such warranties are not accurate in all material respects as of the
Completion Date as a result of certain specific circumstances.
In the event of a breach of any of the WCEH Warranties, Energis may
have a claim against the Vendor and WorldPort for the amount of damages suffered
by Energis due to such breach, subject to certain limitations as set out in the
Sale and Purchase Agreement. In order for the Vendor and WorldPort to make any
claim of breach of the WCEH Warranties, Energis must have given written notice
of such claim (a) in respect of claims in relation to Taxation, not later than a
date following expiry of five full accounting periods following the Completion
Date, and (b) in respect of all other claims, by not later than September 30,
2001. In addition, in order for Energis to be entitled to any such payments,
either (a) the amount payable in respect of the relevant claim must be agreed by
the Vendor and/or WorldPort within 12 months of the date of notice of the claim,
or (b) legal proceedings must be instituted against the Vendor in respect of
such claim within 12 months after the date of notice of the claim, unless
extended by agreement between the parties.
18
<PAGE> 22
The Vendor and WorldPort will not be liable in respect of any claim
under the WCEH Warranties unless the aggregate liability in respect of that
claim exceeds $10,000,000, in which case only the excess is recoverable. In
addition, the aggregate liability of the Vendor and WorldPort under the WCEH
Warranties and the WCL Warranties will not (in respect of claims made in the
period ending September 30, 2000) exceed $150,000,000 and (in respect of claims
made thereafter) exceed $100,000,000 (including claims made in the period from
the Completion Date to September 30, 2000).
The Vendor and WorldPort will not be liable in respect of any claim
under the WCEH Warranties in respect of any breach or claim: (a) to the extent
that such breach or claim would not have arisen but for some voluntary act,
omission, transaction or arrangement, which could reasonably have been avoided
and which is not required by law, carried out after the Completion Date by
Energis or WCEH; (b) to the extent that such breach or claim would not have
arisen or occurred but for the coming into force of any legislation not
effective on the Completion Date; (c) to the extent that WCEH recovers against
any loss or damage suffered arising out of such breach or claim under its
insurance policies; or (d) to the extent that such breach or claim arises as a
result of any change in the accounting practices by WCEH on or after the
Completion Date.
If the Vendor or WorldPort incurs any obligation for a breach of any
WCEH Warranty and Energis recovers from a third party any amount in respect of
the matter giving rise to that claim, the amount of such recovery will promptly
be repaid to or applied against the amount due from the Vendor or WorldPort,
less all costs, charges and expenses reasonably incurred by Energis in
recovering such sum. Similarly, where under the provisions of the tax laws or
otherwise Energis and/or WCEH is entitled to recover from some other person or
governmental authority any sum or benefit in respect of any matter giving rise
or which may give rise to a claim against the Vendor or WorldPort under the WCEH
Warranties, Energis will notify the Vendor in writing of such entitlement, and
at the request of the Vendor or WorldPort and subject to being indemnified and
secured to its reasonable satisfaction against all losses, liabilities, costs
and expenses which they may suffer or incur thereby, take all appropriate and
reasonable steps to enforce recovery at the sole cost of the Vendor or WorldPort
including without limitation the institution of proceedings in the name of WCEH.
Year 2000. In the event of a material disruption in the business of
WCEH or EnerTel or WCL prior to Completion resulting from either entity not
being Year 2000 Compliant (as defined in the Sale and Purchase Agreement),
Energis shall notify the Vendor of such occurrence as soon as is reasonably
practicable and shall indicate if its estimation of Energis's claim for damages
resulting from such disruption will exceed $100,000,000. If Energis indicates
that its claim will exceed $100,000,000, the Vendor will have the right to
terminate the Sale and Purchase Agreement by notice in writing to Energis. If
Energis indicates that its claim will not exceed $100,000,000, following the
Completion Date, Energis may not make a claim exceeding $100,000,000 under the
Purchase and Sale Agreement on the assumption that the $10,000,000 limitation
does not apply in these circumstances. In the event of a Year 2000 compliance
claim made prior to March 31, 2000, the maximum claim amount described above
will be increased by $50,000,000.
Indemnification. As part of the Sale and Purchase Agreement, the Vendor
and WorldPort have agreed to indemnify Energis in respect of any liability
(including any costs incurred) in relation to: (i) the current review by the
Dutch Treasury of the pension scheme of EnerTel; (ii) any claim by Mr. Bahman
Zolfagharpour; (iii) any Dutch capital duty payable by either WCEH or EnerTel in
respect of events or transactions occurring on or prior to the Completion; and
(iv) any liability of WCEH or EnerTel to pay any amount in respect of tax or
social security contributions or to pay an amount to an employee, director,
ex-employee or ex-director through additional salary in certain circumstances
provided that certain limitations contained in the Sale and Purchase Agreement
will apply to this indemnity set out in this paragraph.
Covenants Relating to Conduct of the Vendor's Business. As part of the
Sale and Purchase Agreement, the Vendor has undertaken between November 11, 1999
and the Completion Date that (i) each of WCEH and EnerTel will carry on the
business of WCEH and EnerTel, respectively, in the ordinary course, (ii) neither
WCEH nor EnerTel will (a) declare or pay any dividend, (b) enter into any
contract or commitment of an unusual nature, not in the ordinary course or which
provides for an annual expenditure exceeding $250,000, or (c) incur or agree to
incur any capital commitment or any debt obligation or liability outside the
ordinary course or exceeding $6,000,000 in aggregate and (iii) the Vendor will
permit Engergis to (x) convene a meeting jointly with WCEH and/or EnerTel with
their customers relating to marketing and communications, (y) convene a meeting
of employees of WCEH and EnerTel to explain the Sale and (z) nominate a person
to attend all board meetings of WCEH and EnerTel as an observer and receive all
materials provided to such directors. In addition, WCEH and WorldPort have
agreed to continue negotiations in respect of seven outstanding local loop lease
agreements with relevant Dutch regional electricity companies and negotiate the
renewal of a interconnection agreement between EnerTel and KPN Telecom. In
connection with such covenants, Energis has acknowledged and agreed that the
Vendor or WorldPort will be under no obligation to provide further financing to
WCEH or EnerTel and the expression "ordinary course of trading" will be
construed accordingly.
19
<PAGE> 23
Conditions Precedent. The respective obligations of each party to
consummate the transactions contemplated by the Sale and Purchase Agreement are
subject to the satisfaction prior to the Completion Date of certain conditions.
The only remaining conditions to be satisfied are due distribution of this
Information Statement and the expiration of the required 20-day waiting period
following the distribution thereof, and the continued effectiveness of the Sale
and Purchase Agreement, the Share Agreement and the Switch Agreements.
The obligation of the Vendor to consummate the transactions
contemplated by the Sale and Purchase Agreement is subject to the fulfillment at
or prior to the Completion Date of the following additional conditions: Energis
will have performed all of its obligations under the Sale and Purchase Agreement
in all material respects; no litigation proceedings will have been commenced
which are reasonably likely to have a material adverse effect on the Vendor's or
WorldPort's anticipated benefits under the Sale and Purchase Agreement; and
Energis will have made certain deliveries contemplated under the Sale and
Purchase Agreement.
The obligations of Energis to consummate the transactions contemplated
by the Sale and Purchase Agreement is subject to the fulfillment at or prior to
the Completion Date of the following additional conditions: the Vendor will have
performed all of its obligations under the Sale and Purchase Agreement in all
material respects; the warranties of the Vendor contained in the Sale and
Purchase Agreement were true and correct when made and will be true and correct
in all material respects on and as of the Completion Date as if made on and as
of such date (except for events beyond the control of the Vendor or WorldPort,
or which resulted from an act or omission of Energis, or which result from an
action by WCEH or EnerTel in the ordinary course of business); no litigation
proceedings will have been commenced which are reasonably likely to have a
material adverse effect on Energis' anticipated benefits under the Sale and
Purchase Agreement; the Vendor will have made certain deliveries contemplated
under the Sale and Purchase Agreement; and the distribution of this Information
Statement to Worldport stockholders and the expiration of the applicable 20-day
waiting period.
Termination. The Sale and Purchase Agreement provides that it may be
terminated at any time prior to the Completion Date: (a) by mutual written
consent of Energis and the Vendor; (b) by either the Vendor or Energis in the
event the closing of the transactions contemplated by the Sale and Purchase
Agreement have not occurred on or before 11:59 p.m. on the Longstop Date;
provided that such right to terminate will not be available to a party whose
breach of a representation or warranty or failure to fulfil any material
obligation under the Sale and Purchase Agreement is the cause of or results in
the failure of the Completion Date to occur on or prior to such date.
In addition, the Sale and Purchase Agreement may be terminated at any
time prior to the Completion Date by the Vendor if: (a) there has been a
material breach by Energis of any of its representations or warranties contained
in the Sale and Purchase Agreement; or (b) Energis commits a material breach of
any of its covenants or agreements set forth in the Sale and Purchase Agreement,
and the breach is not cured within 30 days after written notice of such breach
from the Vendor to Energis.
Finally, the Sale and Purchase Agreement may be terminated at any time
prior to the Completion Date by Energis if: (a) there has been a material breach
by the Vendor or WorldPort of any of its representations or warranties contained
in the Sale and Purchase Agreement; or (b) the Vendor commits a material breach
of any of its covenants or agreements set forth in the Sale and Purchase
Agreement, and the breach is not cured within 30 days after written notice of
such breach from Energis to the Vendor.
Fees and Expenses. All costs and expenses incurred in connection with
Sale and Purchase Agreement and the transactions contemplated thereby will be
paid by the party incurring such costs and WCEH will not have any liability
whatsoever in respect to such amounts.
Governing Law and Consent to Jurisdiction. The Sale and Purchase
Agreement is governed by the laws of England, and the parties have submitted to
the non-exclusive jurisdiction of the English courts.
The Share Agreement
The Share Agreement is substantially similar to the Sale and Purchase
Agreement except in the following respects:
20
<PAGE> 24
Purchase and Sale of Shares. The Share Agreement provides that, upon
the terms and subject to the conditions of the Share Agreement, WorldPort will
sell to Energis all of its capital shares of WCL. The purchase price for
WorldPort's shares of WCL is equal to $433,700 paid in cash at the consummation
of the transaction on the basis that the firm value is equal to $8.0 million,
including $5.1 million paid in cash and $2.9 million of debt of WCL and
WorldPort assumed by Energis on the Completion Date (the "WCL Consideration").
The cash portion of the purchase price is subject to adjustment as described
under the heading "Purchase Price Adjustment" immediately below. Included in
the cash to be paid on the Completion Date by Energis are intercompany balances
payable by WCL to WorldPort in the aggregate principal amount of $4.7 million
as of September 30, 1999.
Purchase Price Adjustment. If the value of Net Assets is a negative
figure which is greater than (pound)(1,443,000), the Vendor will repay to
Energis an amount equal to the excess and the consideration will be reduced by
the amount of that repayment, provided that the amount of the repayment will not
exceed $20 million. If the value of the Net Assets is a negative figure which is
less than (pound)(1,443,000), Energis will pay to the Vendor in cash an amount
equal to the deficiency and the Consideration will be increased by the amount of
this additional payment, provided that the amount of the additional payment will
not exceed $20 million. Any such payments will be made in cash within 28 days
after delivery of the Net Assets Statement. Any amount due under relevant
provisions of the Sale and Purchase Agreement may be offset against any amount
due under this clause.
Obligations upon Breach of Warranties. In the event of a breach of any
of the WCL Warranties, Energis may have a claim against the Vendor and WorldPort
for the amount of damages suffered by Energis due to such breach, subject to the
limitations described in the Sale and Purchase Agreement. In order for the
Vendor and WorldPort to make any claim of breach of the WCL Warranties, Energis
must have given written notice of such claim (a) in respect of claims in
relation to Taxation, not later than the seventh anniversary of the Completion
Date, and (b) in respect of all other claims, by not later than September 30,
2001. In addition, in order for Energis to be entitled to any such payments,
either (a) the amount payable in respect of the relevant claim must be agreed to
by the Vendor and/or WorldPort within 12 months of the date of notice of the
claim, or (b) legal proceedings must be instituted against the Vendor in respect
of such claim within 12 months after the date of notice of the claim, unless
extended by agreement between the parties.
The Switch Agreements
The Agreements. WorldPort has entered into two switch agreements: (i)
with Unisource Carrier Service USA, Inc. ("Unisource"), a subsidiary of Energis,
relating to the sale of its interest in the DMS GSP US International Gateway
Switch located in New York City and (ii) with Energis (through WCL) relating to
the sale of its interest in the Nortel 250 DMS GSP Switch located in London
(collectively, the "Switches").
Purchase and Sale of Assets. The Switch Agreements provide that, upon
the terms and subject to the conditions of the Switch Agreements, WorldPort will
sell to Energis all of its interests in the Switches, together with the benefit
of certain contracts (the "Contracts") relating thereto (the Switches and
Contracts being referred to collectively as the "Assets"). WorldPort shall sell
the Assets to Energis free and clear of any Encumbrances, subject only to the
terms of the Contracts. The purchase price for the New York Switch is $1,990,000
in cash, on the basis that the firm value is equal to $7.0 million, including
approximately $2.0 million to be paid in cash and $5.0 million of debt of
WorldPort assumed by Energis on the Completion Date. The purchase price is
subject to adjustment as described under the heading "Purchase Price Adjustment
for New York Switch" below. The consideration for the London Switch is as set
forth in the WCL Share Agreement.
The closing is scheduled to occur at the same time as the completion of
the Sale and Purchase Agreement. Following the closing, WorldPort will not
retain any interest in the Assets.
Purchase Price Adjustment for New York Switch. If the value of the net
asset is less than $130,000, the purchase price will be reduced by the amount of
the shortfall provided that the amount of the shortfall will not exceed $20
million. If the value of the net asset is more than $130,000 then the purchase
price will be increased by the amount of this additional payment provided that
the amount of the additional payment will not exceed $20 million. Any such
payments will be made in cash within 28 days after delivery of a net asset
statement. The amount due under the relevant provisions of the Sale and Purchase
Agreement and the Share Agreement may be off-set against any amount due under
this clause.
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<PAGE> 25
Warranties. In each of the Switch Agreements, WorldPort has made
warranties to Energis. The warranties of WorldPort relate, among other things,
to title to the Assets; compliance with applicable regulations; intellectual
property rights; Year 2000 compliance; the effectiveness of the Contracts; and
that discussions have taken place with certain parties concerning the sale
and/or lease of the New York Switch and the novation of certain Contracts.
Conditions Precedent. The respective obligations of each party to
consummate the transactions contemplated by the Switch Agreements are subject to
the satisfaction (unless waived by each party) prior to the Completion Date of
certain conditions, indicating the consummation of the transactions contemplated
by the Share Agreement.
In addition, the obligations of Energis (through Unisource or WCL) to
consummate the transactions contemplated by the Switch Agreements are subject to
the fulfillment at or prior to the Completion Date of the following conditions:
the warranties of WorldPort contained in the Switch Agreements were true and
correct in all material respects when made and will be true and correct on and
as of the Completion Date as if made on and as of such date (except for certain
events beyond the control of WorldPort, or which resulted from an act or
omission of Energis, or which result from an action by WorldPort in the ordinary
course of business); and WorldPort shall have executed an agreement reasonably
satisfactory to Energis granting Energis access to the Switches.
Governing Law and Consent to Jurisdiction. The Switch Agreements are
governed by the laws of England, and the parties have submitted to the
non-exclusive jurisdiction of the English courts.
Global Crossing Novation
As part of the Sale, WorldPort will assign to Energis the Global
Crossing contracts pursuant to a novation agreement between Atlantic Crossing
Ltd., GT Landing Corp., GT U.K. Ltd., Global Telesystems GmbH, GT Netherlands
B.V., WorldPort and EnerTel (the "Novation"). Pursuant to the Novation,
WorldPort will pay Energis $30.0 million for its agreement for the Global
Crossing contracts to be assigned to Energis. This payment obligation will be
applied to reduce the amount payable by Energis to WorldPort under the Sale and
Purchase Agreement. Energis will assume the obligations under the Global
Crossing contracts including three cross-atlantic STM-1 IRUs with a net present
value of liabilities of $15.8 million and contractual purchase commitments in
respect of future capacity in the aggregate amount of $42.7 million as of
September 30, 1999. The Novation will take effect on the Completion Date.
DESCRIPTION OF FINANCING OF SALE
Placing Agreement
Under the terms of a placing agreement, dated November 11, 1999 (the
"Placing Agreement"), between Energis and Kleinwort Benson Securities Limited
("DrKB"), DrKB, as agent for Energis, secured subscribers for 14,706,070 new
ordinary shares of 50p each in the capital of Energis at a price of (pound)21.25
per share for an aggregate consideration (net of commissions and expenses) to
Energis of (pound)303,000,000.
Revolving Loan and Guarantee Facility
Under the terms of a revolving loan and guarantee facility agreement,
dated November 11, 1999, between Energis, as borrower, and Dresdner Bank AG
London Branch ("Dresdner Bank"), as arranger, initial lender, agent and issuing
bank, Dresdner Bank provided to Energis a revolving loan and guarantee facility
(the "Facility") in a maximum principal amount of (pound)400,000,000. Energis
obtained the Facility as a short-term bridging facility for the purpose of
funding the Sale. Following the share placement, Energis expects to borrow
approximately (pound)30,000,000 in connection with the Sale, which will bear
interest at a floating rate. The Facility is subject to customary
representations, warranties and covenants given by Energis.
22
<PAGE> 26
STOCKHOLDER APPROVAL PREVIOUSLY OBTAINED
As of November 11, 1999, there were 27,547,092 shares of WorldPort
Common Stock, no shares of WorldPort Series A Convertible Preferred Stock,
1,104,896 shares of WorldPort Series B Convertible Preferred Stock, 1,416,030
shares of WorldPort Series C Convertible Preferred Stock, 316,921 shares of
WorldPort Series D Convertible Preferred Stock, 141,603 shares of WorldPort
Series E Convertible Preferred Stock, and no shares of WorldPort Series F
Convertible Preferred Stock, in the aggregate representing 130,239,570 votes
entitled to be cast on such date.
The Delaware General Corporation Law requires that sales of
substantially all the assets of a corporation be approved by stockholders
holding a majority of the votes of the outstanding voting securities of such
corporation, which, on November 11, 1999, consisted of approximately 65,119,786
million votes.
As of November 11, 1999, Heico owned or had the power to vote 300,000
shares (1.1%) of WorldPort's outstanding Common Stock, 882,827 shares (79.9%) of
WorldPort's outstanding Series B, 1,416,030 shares (100%) of WorldPort's
outstanding Series C, no shares (0%) of WorldPort's outstanding Series D, and
141,603 shares (100%) of WorldPort's outstanding Series E, representing in the
aggregate approximately 93.8 million votes or 72.0% of the outstanding voting
securities of WorldPort entitled to vote on the matters described herein as a
class. On November 11, 1999, Heico executed an irrevocable written consent
approving the Sale and the Sale Agreements. Such action by written consent is
sufficient to satisfy the requirements of the Delaware General Corporation Law.
Therefore, your vote is not required to approve the Sale Agreements or to
consummate the Sale.
Accordingly, you will not be asked to take further action on this
corporate action at any future meeting. However, since stockholder approval was
obtained by written consent rather than at a stockholders' meeting, the Exchange
Act will not permit the action to become effective until the expiration of 20
calendar days from the date this Information Statement is mailed to all
WorldPort stockholders who did not execute the written consent. Upon the
expiration of this 20-day period, subject to the other provisions of the Sale
Agreements, WorldPort intends to consummate the Sale.
APPROVAL BY THE BOARD OF DIRECTORS
The Board of Directors of WorldPort has unanimously determined that the
terms of the Sale are fair to, and in the best interests of, WorldPort and its
stockholders and has approved the Sale Agreements and the transactions
contemplated thereby, including the Sale. For a description of the Board's
considerations in approving the Sale, see "Background of Sale Transaction."
VOTING SECURITIES AND PRINCIPAL HOLDERS
As of November 11, 1999, WorldPort had authorized 65,000,000 shares of
Common Stock, $.0001 par value, and 10,000,000 shares of Preferred Stock, $.0001
par value. Of the 10,000,000 shares of Preferred Stock, 750,000
shares have been designated Series A, 3,000,000 shares have been designated
Series B, 1,450,000 shares have been designated Series C, 650,000 shares have
been designated Series D, 145,000 shares have been designated Series E, 425,000
shares have been designated Series F and 3,580,000 shares remain undesignated.
Common Stock
The following table sets forth certain information as of November 11,
1999 (except as otherwise indicated) regarding the beneficial ownership of
Common Stock by (i) all individuals known to beneficially own 5% or more of the
outstanding shares of Common Stock, (ii) each of WorldPort's named executive
officers and directors and (iii) all of WorldPort's executive officers and
directors as a group, in each case to the best of WorldPort's knowledge. Except
as otherwise indicated, WorldPort believes that the beneficial owners of Common
Stock listed below have sole investment and voting power with respect to such
shares.
23
<PAGE> 27
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner
and Nature of Beneficial Ownership(1) Number of Shares(2) Percent of Class(2)
- ------------------------------------- ------------------- -------------------
<S> <C> <C>
The Heico Companies, LLC(3)........................................ 21,414,924 44.0%
Michael E. Heisley, Sr.(4)......................................... 21,414,924 44.0%
Paul A. Moore(5)................................................... 4,911,355 15.4%
Anderlit, Ltd.(6).................................................. 2,985,076 10.1%
Phillip S. Magiera(7).............................................. 1,580,000 5.6%
Carl Grivner(8).................................................... 85,935 *
John Hanson........................................................ -- --
Stanley H. Meadows................................................. 64,584 *
Andrew Sage........................................................ -- --
Peter A. Howley(9)................................................. 164,628 *
Executive officers and directors as a group
(9 people)(10)............................................... 27,072,187 78.7%
</TABLE>
- -----------------
* Less than 1%.
(1) Unless otherwise indicated, the address of the stockholders named is
that of WorldPort's principal offices.
(2) Based on 27,547,092 shares of Common Stock outstanding as of November
11, 1999 and, with respect to each individual or group, such number of
shares of Common Stock, as are issuable upon conversion of convertible
securities or exercise of options owned by such individual or group, in
each case if such are convertible or exercisable within 60 days.
(3) Includes (i) 15,385,165 shares issuable upon conversion of 1,416,030
shares of WorldPort's Series C Preferred Stock, (ii) 1,538,517 shares
issuable upon conversion of 141,603 shares of WorldPort's Series E
Preferred Stock, (iii) 3,750,001 shares issuable upon conversion of
424,809 shares of WorldPort's Series F Preferred Stock which may be
acquired pursuant to an option exercisable within 60 days and (iv)
441,240 shares which may be acquired pursuant to options and warrants
exercisable within 60 days. The address of this stockholder is 5600
Three First National Plaza, Chicago, Illinois 60602.
(4) Includes all shares beneficially owned by The Heico Companies, LLC, an
entity which Mr. Heisley controls.
(5) Includes (i) 1,000,000 shares of Common Stock and 1,985,076 shares
issuance upon conversion of 496,269 shares of Series B Preferred Stock
held by owned by Anderlit, Ltd., (ii) all shares beneficially owned by
Maroon Bells Capital Partners, Inc. ("MBCP") (which includes 84,540
shares issuable upon conversion of 21,135 shares of WorldPort's Series
B Preferred Stock and 316,921 shares issuable upon conversion of
316,921 shares of WorldPort's Series D Preferred Stock), (iii) 19,072
shares issuable upon conversion of 4,768 shares of WorldPort's Series B
Preferred Stock which are owned by Moore Investments, (iv) 500,000
shares issuable upon conversion of 125,000 shares of WorldPort's Series
B Preferred Stock held by Mr. Moore and (v) 580,000 shares which may be
acquired pursuant to options which are exercisable within 60 days. Mr.
Moore holds an irrevocable proxy to vote all shares owned by Anderlit.
Mr. Moore is a principal of MBCP and the controlling stockholder of
Moore Investments. Mr. Moore resigned as a director of WorldPort in
July 1999.
(6) Represents shares issuable upon conversion of 496,269 shares of
WorldPort's Series B Preferred Stock. The stockholder's address is Palm
Chambers No. 3, P.O. Box 3152, Road Town, Tortola, British Virgin
Islands.
(7) Includes (i) 500,000 shares issuable upon conversion of 125,000 shares
of WorldPort's Series B Preferred Stock, (ii) 405,000 shares which may
be acquired pursuant to options which are exercisable within 60 days
and (iii) 425,000 shares owned by Mr. Magiera's children.
(8) Represents shares issuable upon exercise of options which are
exercisable within 60 days.
(9) Includes 90,000 shares which may be acquired pursuant to options which
are exercisable within 60 days and 74,628 shares issuable upon
conversion of 18,657 shares of WorldPort's Series B Preferred Stock.
(10) Includes (i) all shares beneficially owned by Heico, (ii) all shares
beneficially owned by Anderlit, (iii) all shares beneficially owned by
MBCP (which includes 250,000 shares which may be acquired pursuant to
an option which is exercisable within 60 days and 84,540 shares
issuable upon conversion of 21,135 shares of WorldPort's Series B
Preferred Stock)) and (iv) 1,630,000 additional shares, which may be
acquired pursuant to options which are exercisable within 60 days.
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<PAGE> 28
Preferred Stock
Series A Preferred Stock
As of November 11, 1999, there were no shares of Series A outstanding.
Series B Preferred Stock
The Series B votes as a single class with the Common Stock with each
share entitled to 40 votes per share. The Series B is convertible on a 1:4 basis
into the Common Stock and is subject to mandatory conversion upon the date on
which 70% of the Series B has been converted. The conversion price is $1.34, as
adjusted from time to time. Under certain circumstances, after a sale of
substantially all the assets, but not as a result of the Sale, the Series B is
no longer convertible into shares of Common Stock, but instead is convertible
into the kind and amount of securities or property which would have been owned
if the shares were converted into Common Stock just prior to the sale.
Dividends, equal to 7% of the stated value per annum, accrue and are payable in
cash or shares of Common Stock.
The following table sets forth certain information as of November 11,
1999 regarding the beneficial ownership of Series B Preferred Stock by (i) all
individuals known to beneficially own 5% or more of the outstanding shares of
Series B Preferred Stock, and (ii) each of WorldPort's named executive officers
and directors and (iii) all of WorldPort's executive officers and directors as a
group. Except as otherwise indicated, WorldPort believes that the beneficial
owners of Series B Preferred Stock listed below have sole investment and voting
power with respect to such shares.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner
and Nature of Beneficial Ownership(1) Number of Shares Percent of Class(2)
- ------------------------------------ ----------------- -------------------
<S> <C> <C>
The Heico Companies, LLC(3)........................................ 882,827 79.9%
Michael E. Heisley, Sr.(4)......................................... 882,827 79.9%
Paul A. Moore(5)................................................... 647,172 58.7%
Anderlit, Ltd.(6).................................................. 496,269 44.9%
Forsythe Technology, Inc. (7)...................................... 139,254 12.6%
Phillip S. Magiera................................................. 125,000 11.3%
Theodore Swindells................................................. 110,655 10.0%
Carl Grivner....................................................... -- --
John Hanson........................................................ -- --
Stanley H. Meadows................................................. -- --
Andrew Sage........................................................ -- --
Peter A. Howley.................................................... 18,657 *
Executive officers and directors as a group (9 people) 901,484 81.6%
</TABLE>
- -----------------
*Less than 1%.
(1) Unless otherwise indicated, the address of the stockholders named is
that of WorldPort's principal offices.
(2) Based on 1,104,896 shares of WorldPort's Series B outstanding as of
November 11, 1999.
(3) Represents shares beneficially owned by Paul A. Moore, Phillip S.
Magiera, Theodore H. Swindells and MBCP. Heico has entered into a
shareholder agreement with such stockholders and WorldPort which, among
other things, gives Heico a proxy to vote such shares in certain
circumstances. The address of this stockholder is 5600 Three First
National Plaza, Chicago, Illinois 60602.
(4) Includes all shares beneficially owned by Heico, an entity which Mr.
Heisley controls.
(5) Includes (i) 496,269 shares beneficially owned by Anderlit, (ii) 21,135
shares beneficially owned by MBCP and (iii) 4,768 shares held in the
name of Moore Investments. Mr. Moore holds an irrevocable proxy to vote
all of the shares owned by Anderlit. Mr. Moore is a principal of MBCP
and controlling stockholder of Moore Investments. Mr. Moore resigned as
a director of WorldPort in July 1999.
(6) The stockholder's address is Palm Chambers No. 3, P.O. Box 3152, Road
Town, Tortola, British Virgin Islands.
(7) Includes 59,627 shares owned by Forsythe Technologies/Lunn. The
shareholder's address is 7500 Frontage Road, Skokie, IL 60077.
25
<PAGE> 29
Series C Preferred Stock
The Series C votes as a single class with the Common Stock with each
share entitled to 40 votes per share. The Series C is convertible on a 1:10.865
basis into Common Stock and is subject to mandatory conversion upon the date on
which 70% of the Series C has been converted. The conversion price is $3.25, as
adjusted from time to time. Under certain circumstances, after a sale of
substantially all the assets, but not as a result of the Sale, the Series C is
no longer convertible into shares of Common Stock, but instead is convertible
into the kind and amount of securities or property which would have been owned
if the shares were converted into Common Stock just prior to the sale.
Dividends, equal to 7% of the stated value per annum, accrue and are payable in
cash or shares of Common Stock.
The following table sets forth certain information as of November 11,
1999 regarding the beneficial ownership of Series C Preferred Stock by (i) all
individuals known to beneficially own 5% or more of the outstanding shares of
Series C Preferred Stock, (ii) each of WorldPort's named executive officers and
directors and (iii) all of WorldPort's executive officers and directors as a
group. Except as otherwise indicated, WorldPort believes that the beneficial
owners of Series C Preferred Stock listed below have sole investment and voting
power with respect to such shares.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner
and Nature of Beneficial Ownership(1) Number of Shares(2) Percent of Class(2)
- ------------------------------------- ------------------- -------------------
<S> <C> <C>
The Heico Companies, LLC(3)......................... 1,416,030 100%
Michael E. Heisley, Sr.(4).......................... 1,416,030 100%
Carl Grivner........................................ -- --
John Hanson......................................... -- --
Stanley H. Meadows.................................. -- --
Andrew Sage......................................... -- --
Peter A. Howley..................................... -- --
Executive officers and directors as a group
(9 people)(3)................................. 1,416,030 100%
</TABLE>
- -----------------
(1) Unless otherwise indicated, the address of the stockholders named is
that of WorldPort's principal offices.
(2) Based on 1,132,824 shares of WorldPort's Series C outstanding as of
November 11, 1999 and 283,206 shares which may be acquired upon
exercise of a currently exercisable option.
(3) Includes 283,206 shares which may be acquired pursuant to an option
exercisable within 60 days. The address of this stockholder is 5600
Three First National Plaza, Chicago, Illinois 60602.
(4) Includes all shares owned by Heico, an entity which Mr. Heisley
controls.
26
<PAGE> 30
Series D Preferred Stock
The Series D votes as a single class with the Common Stock with each
share entitled to one vote per share. The Series D is convertible on a 1:1 basis
into the Common Stock and is subject to mandatory conversion upon the date on
which 221,845 shares of the Series D have been converted. The conversion price
is $3.25 per share, as adjusted from time to time. Under certain circumstances,
after a sale of substantially all the assets, but not as a result of the Sale,
the Series D is no longer convertible into shares of Common Stock, but instead
is convertible into the kind and amount of securities or property which would
have been owned if the shares were converted into common stock just prior to the
sale. Dividends, equal to 7% of the stated value per annum, accrue and are
payable in cash or shares of Common Stock.
The following table sets forth certain information as of November 11,
1999 regarding the beneficial ownership of Series D by (i) all individuals known
to beneficially own 5% or more of the outstanding shares of Series D, (ii) each
of WorldPort's named executive officers and directors and (iii) all of
WorldPort's executive officers and directors as a group. Except as otherwise
indicated, WorldPort believes that the beneficial owners of Series D Preferred
Stock listed below have sole investment and voting power with respect to such
shares.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner
and Nature of Beneficial Ownership(1) Number of Shares Percent of Class(2)
- ------------------------------------- ------------------- -------------------
<S> <C> <C>
Maroon Bells Capital Partners, Inc. (3)............. 316,921 100%
Michael E. Heisley, Sr.............................. -- --
Carl Grivner........................................ -- --
John Hanson......................................... -- --
Stanley H. Meadows.................................. -- --
Andrew Sage......................................... -- --
Peter A. Howley..................................... -- --
Executive officers and directors as a group (9 people) -- --
</TABLE>
- -----------------
(1) Unless otherwise indicated, the address of the stockholders named is
that of WorldPort's principal offices.
(2) Based on 316,921 shares of WorldPort's Series D Preferred Stock
outstanding as of November 11, 1999.
(3) The address of this stockholder is 100 California Street, Suite 1160,
San Francisco, California 94111.
27
<PAGE> 31
Series E Preferred Stock
The Series E votes as a single class with the Common Stock with each
share entitled to 10.865 votes per share. The Series E is convertible on a
1:10.865 basis into the Common Stock and is subject to mandatory conversion upon
the date on which 70% of the Series E has been converted. The conversion price
is $3.25, as adjusted from time to time. Under certain circumstances, after a
sale of substantially all the assets, but not as a result of the Sale, the
Series E is no longer convertible into shares of Common Stock, but instead is
convertible into the kind and amount of securities or property which would have
been owned if the shares were converted into common stock just prior to the
sale. Dividends, equal to 7% of the stated value per annum, accrue and are
payable in cash or shares of Common Stock.
The following table sets forth certain information as of November 11,
1999 regarding the beneficial ownership of Series E Preferred Stock by (i) all
individuals known to beneficially own 5% or more of the outstanding shares of
Series E Preferred Stock, (ii) each of WorldPort's named executive officers and
directors and (iii) all of WorldPort's executive officers and directors as a
group. Except as otherwise indicated, WorldPort believes that the beneficial
owners of Series E Preferred Stock listed below have sole investment and voting
power with respect to such shares.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner
and Nature of Beneficial Ownership(1) Number of Shares Percent of Class(2)
- ------------------------------------- ------------------- -------------------
<S> <C> <C>
The Heico Companies, LLC(3)......................... 141,603 100%
Michael E. Heisley, Sr.(4).......................... 141,603 100%
Carl Grivner........................................ -- --
John Hanson......................................... -- --
Stanley H. Meadows.................................. -- --
Andrew Sage......................................... -- --
Peter A. Howley..................................... -- --
Executive officers and directors as a group (9 people) 141,603 100%
</TABLE>
- -----------------
(1) Unless otherwise indicated, the address of the stockholders named is
that of WorldPort's principal offices.
(2) Based on 141,603 shares of WorldPort's Series E Preferred Stock
outstanding as of November 11, 1999.
(3) The address of this stockholder is 5600 Three First National Plaza,
Chicago, Illinois 60602.
(4) Includes all shares owned by Heico, an entity which Mr. Heisley
controls.
28
<PAGE> 32
Series F Preferred Stock
As of November 11, 1999, no shares of Series F were outstanding. The
Series F votes as a single class with the Common Stock but are entitled to
8.8275 votes per share. The Series F is convertible on a 1:8.8275 basis into the
Common Stock and is subject to mandatory conversion upon the date on which 70%
of the Series F has been converted. The conversion price is $4.00, as adjusted
from time to time. Under certain circumstances, after a sale of substantially
all the assets, but not as a result of the Sale, the Series F is no longer
convertible into shares of common stock, but instead is convertible into the
kind and amount of securities or property which would have been owned if the
shares were converted into Common Stock just prior to the sale. Dividends, equal
to 7% of the stated value per annum, accrue and are payable in cash or shares of
Common Stock.
The following table sets forth certain information as of July 15, 1999
regarding the beneficial ownership of Series F Preferred Stock by (i) all
individuals known to beneficially own 5% or more of the outstanding shares of
Series F Preferred Stock, (ii) each of WorldPort's Named Executive Officers and
directors and (iii) all of WorldPort's executive officers and directors as a
group. Except as otherwise indicated, we believe that the beneficial owners of
Series F Preferred Stock listed below have sole investment and voting power with
respect to such shares.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner
and Nature of Beneficial Ownership(1) Number of Shares(2) Percent of Class(2)
- ------------------------------------- ---------------- -------------------
<S> <C> <C>
The Heico Companies, LLC(3)......................... 424,809 100%
Michael E. Heisley, Sr.(4).......................... 424,809 100%
Carl Grivner........................................ -- --
John Hanson......................................... -- --
Stanley H. Meadows.................................. -- --
Andrew Sage......................................... -- --
Peter A. Howley..................................... -- --
Executive officers and directors as a group (9 people)(3) 424,809 100%
</TABLE>
- -----------------
(1) Unless otherwise indicated, the address of the stockholders named is
that of WorldPort's principal offices.
(2) The Heico Companies, LLC holds an option to acquire 424,809 shares for
an aggregate amount of $15,000,000. No shares of WorldPort's Series F
Preferred Stock were outstanding as of November 11, 1999.
(3) Represents shares subject to an option which is exercisable at any time
until July 15, 2002. The address of this stockholder is 5600 Three
First National Plaza, Chicago, Illinois 60602.
(4) Includes all shares subject to the option held by Heico, an entity
which Mr. Heisley controls.
29
<PAGE> 33
MARKET FOR WORLDPORT'S COMMON STOCK
On November 10, 1999, the date preceding the public announcement of the
Sale, the high sale price was $1.4375 and the low sale price was $1.2188.
Since August 4, 1999, the Common Stock has traded on the OTC Bulletin
Board under the symbol "WRDP.OB." From November 23, 1998 until August 4, 1999,
the Common Stock traded on the Nasdaq SmallCap Market under the symbol
"WRDP.OB." From June 17, 1997 until November 23, 1998, the Common Stock traded
on the OTC Bulletin Board. Prior to June 17, 1997, there was no public market
for the Common Stock.
The table below sets forth the high and low sales prices for the Common
Stock (as reported on the OTC since August 5, 1999 and from June 17, 1997 to
November 23, 1998 and as reported on the Nasdaq SmallCap Market from November
23, 1998 to August 4, 1999) during the periods indicated. The OTC quotations
reflect high and low bid information and reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
PRICE RANGE OF COMMON STOCK
HIGH LOW
-------- -------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999:
First Quarter................................................... $11.2500 $6.5625
Second Quarter.................................................. 12.3750 3.2500
Third Quarter (through August 4, 1999).......................... 6.0625 2.6250
Third Quarter (from August 5, 1999)............................. 3.0000 0.4844
Fourth Quarter (through December __, 1999) ..................... _______ ______
YEAR ENDED DECEMBER 31, 1998:
First Quarter................................................... $ 7.6200 $6.5000
Second Quarter.................................................. 14.5000 6.7500
Third Quarter .................................................. 17.5000 8.7500
Fourth Quarter (through November 20, 1998)...................... 11.1250 6.7500
Fourth Quarter (since November 23, 1998)........................ 10.8750 7.5000
YEAR ENDED DECEMBER 31, 1997:
Second Quarter (from June 17, 1997)............................. $ 3.6250 $ 2.000
Third Quarter................................................... 4.7500 3.2500
Fourth Quarter.................................................. 7.3750 3.2500
</TABLE>
As of November 11, 1999, there were approximately 163 stockholders of
record of Common Stock. WorldPort has never declared or paid any cash dividends
on its capital stock, although the Series A accrued dividends from its issuance
to its conversion. In addition, the Interim Loan prevents the payment of cash
dividends under certain circumstances.
30
<PAGE> 34
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected statements of operations data for the period from
inception (January 6, 1989) to December 31, 1995 and each of the years ended
December 31, 1996, 1997 and 1998 and the selected balance sheet data for the
periods then ended have been derived from WorldPort's Consolidated Financial
Statements audited by Arthur Andersen LLP, included herein. You should read the
following selected financial data in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and WorldPort's
Consolidated Financial Statements and Notes thereto, included herein.
<TABLE>
<CAPTION>
FOR THE PERIOD
FROM INCEPTION
(JANUARY 6, 1989) TO NINE MONTHS ENDED
DECEMBER 31, YEARS ENDED DECEMBER 31 SEPTEMBER 30,
-------------------- ------------------------------- -------------------
1995 1996 1997(1) 1998(2) 1998 1999
-------------------- ------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIO AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ................................................. $ -- $ -- $ 2,776 $ 28,591 $ 14,410 $ 65,263
Cost of services ......................................... -- -- 2,605 21,849 10,980 44,860
------ ------- -------- -------- -------- --------
Gross margin ............................................. 171 6,742 3,430 20,403
Other operating expenses:
Selling, general and administrative ................. 43 270 2,723 39,147 20,349 41,459
Depreciation and amortization ....................... -- -- 818 11,069 5,778 17,127
Asset impairment .................................... -- -- -- 4,842 -- 12,842
------ ------- -------- -------- -------- --------
Operating loss ........................................... (43) (270) (3,370) (48,316) (22,697) (51,025)
Other:
Interest income (expense), net ........................... 7 10 (128) (24,570) (10,202) (44,190)
Other .................................................... -- -- 6 (4,789) -- (1,286)
------ ------- -------- -------- -------- --------
Loss before minority interest and income tax provision ... (36) (260) (3,492) (77,675) (32,899) (96,501)
Minority interest ........................................ -- -- -- 903 -- 1,845
Loss before income tax provision ......................... (36) (260) (3,492) (76,772) (32,899) (94,656)
Income tax provision ..................................... -- -- -- -- -- --
------ ------- -------- -------- -------- --------
Net loss ................................................. $ (36) $ (260) $ (3,492) $(76,772) $(32,899) $(94,656)
====== ======= ======== ======== ========
Basic and diluted net loss per common share .............. $(0.60) $ (0.11) $ (0.26) $ (4.47) $ (1.95) $ (4.26)
====== ======= ======== ======== ========
Weighted average common shares ........................... 60 2,358 13,245 17,158 16,841 22,237
====== ======= ======== ======== ======== ========
Book value per share ..................................... $ 0.96 $ (1.87)
======== ========
Pro forma book value per share (3) ....................... $ 15.37 $ 7.81
======== ========
Cash dividends declared per share (3) .................... -- --
======== ========
Pro forma cash dividends declared per share .............. -- --
======== ========
Loss per share ........................................... $ (4.47) $ (4.26)
======== ========
Pro forma loss per share (4) ............................. $ (1.39) $ (1.23)
======== ========
OTHER OPERATING DATA:
EBITDA(5) ........................................... $ (43) $ (270) $ (2,552) $(32,405) $(16,919) (38,183)
Capital expenditures ................................ -- -- 771 8,822 (7,614) (16,228)
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, SEPTEMBER 30,
------------------------------------------ -------------
1995 1996 1997 1998 1999
---- ------ -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit) ........ $15 $2,787 $ (4,143) $(103,845) $(150,708)
Property and equipment, net ...... -- -- 5,032 91,226 901
Total assets ..................... 15 2,889 13,197 220,455 110,774
Long-term obligations ............ -- 420 4,197 29,567 5,089
Stockholders' equity (deficit) ... 15 2,367 4,155 17,522 (50,694)
</TABLE>
- ---------------
(1) Includes the financial results of Telenational Communications, Inc. and
Wallace Wade, Inc. from June 20, 1997 and July 3, 1997, the respective
dates of their acquisition.
(2) Includes the financial results of EnerTel and IIC from June 23, 1998
and August 1, 1998, the respective dates of their acquisition.
(3) Represents historical stockholders equity (deficit) divided by common
shares outstanding (18,229 and 27,127 as of December 31, 1998 and
September 30, 1999, respectively). Pro forma amount is adjusted to
reflect net gain anticipated to be recorded of $262.6 million.
(4) Adjusted to reflect the disposition of WCEH, WCL, IIC, and TNC,
and the repayment of the Interim Loan as if they had occurred on
January 1, 1998.
31
<PAGE> 35
(5) EBITDA represents net loss adjusted for interest, income taxes,
depreciation and amortization. EBITDA is provided because it is a
measure commonly used in the industry. EBITDA is not a measurement of
financial performance under GAAP and should not be considered an
alternative to net income as a measure of performance or to cash flow
as a measure of liquidity.
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma balance sheet reflects the disposition of WCEH
and WCL (collectively, "WorldPort Europe") described in this Information
Statement and also assumes the anticipated sale of International Interconnect,
Inc. ("IIC") and Telenational Communications, Inc. ("TNC") as if they had
occurred on September 30, 1999. The following pro forma statement of operations
for the year ended December 31, 1998 and the nine months ended September 30,
1999 reflects the disposition of WorldPort Europe, IIC, and TNC and as if they
had occurred on January 1, 1998. No agreement has been executed relating to the
sale of either IIC or TNC, however, WorldPort is actively negotiating with
potential buyers and anticipates selling these subsidiaries in the near future.
The pro forma financial information does not purport to represent what
WorldPort's consolidated results of operations would have been if the
dispositions had in fact occurred on this date, nor does it purport to indicate
the future consolidated financial position or future consolidated results of
operations of WorldPort. The pro forma adjustments are based on currently
available information and certain assumptions that management believes are
reasonable.
32
<PAGE> 36
Pro Forma Consolidated Balance Sheet Information as of September 30, 1999
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
WORLDPORT AS
WORLDPORT EUROPE IIC TNC SUBTOTAL ADJUSTMENTS ADJUSTED
--------- --------- ------ --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents ...................... $ 1,068 -- -- -- 1,068 $ 222,989(1) $ 224,057
Accounts receivable ............................ 1,683 -- -- -- 1,683 -- $ 1,683
Prepaid expenses and other
current assets ............................. 163 -- -- -- 163 -- $ 163
--------- --------- ------ --------- --------- --------- ---------
Total current assets .................... 2,915 -- -- -- -- 2,915 225,904
--------- --------- ------ --------- --------- --------- ---------
Property and equipment, net .................... 901 -- -- -- 901 -- $ 901
Assets held for sale ........................... 103,760 99,830 330 600 3,000 -- $ 3,000
Other assets ................................... 198 -- -- -- 198 -- $ 198
========= ========= ====== ========= ========= ========= =========
Total assets .............................. $ 107,774 $ 99,830 $ 330 $ 600 $ 7,014 222,989 230,003
========= ========= ====== ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY:
Accounts payable and accrued
expenses ................................... $ 16,821 -- -- -- $ 16,821 $ (5,418) $ 11,403
Current portion of capital lease
obligations ................................ 1,430 -- -- -- 1,674 -- $ 1,430
Interim loan ................................... 134,934 -- -- -- 134,934 (134,934)(1) $ --
Other current liabilities ...................... 194 -- -- -- 194 -- $ 194
--------- --------- ------ --------- --------- --------- ---------
Total current liabilities ................. 153,379 -- -- -- 153,379 (140,352) 13,027
--------- --------- ------ --------- --------- --------- ---------
Long-term obligations under
capital leases ............................. 5,070 -- -- -- 5,070 -- $ 5,070
Due to parent .................................. -- 99,830 330 600 (100,760) 100,760(2) $ --
Other long-term liabilities .................... 19 -- -- -- 19 -- $ 19
--------- --------- ------ --------- --------- --------- ---------
Total long-term liabilities ............... 5,089 99,830 330 600 (95,671) 100,760 5,089
--------- --------- ------ --------- --------- --------- ---------
Common stock ................................... 3 -- -- -- 3 -- $ 3
Additional paid-in capital ..................... 100,757 -- -- -- 100,757 -- $ 100,757
Warrants ....................................... 29,054 -- -- -- 29,054 -- $ 29,054
Unamortized compensation
expense ..................................... (365) -- -- -- (365) -- $ (365)
Cumulative translation
adjustment .................................. (4,827) (4,827) -- -- -- -- $ --
Accumulated deficit ............................ (175,316) 4,827 -- -- (180,143) 262,581(2) $ 82,438
--------- --------- ------ --------- --------- --------- ---------
Total stockholders' (deficit)
equity
(50,694) -- -- -- (50,694) 262,581 211,887
--------- --------- ------ --------- --------- --------- ---------
--------- --------- ------ --------- --------- --------- ---------
Total liabilities and
stockholders' (deficit) .................. $ 110,249 $ 99,830 $ 330 $ 600 $ 7,014 $ 222,989 $ 230,003
========= ========= ====== ========= ========= ========= =========
</TABLE>
(1) Represents net cash proceeds as follows less repayment of Interim Loan
($140.4 million), estimated income taxes payable ($86.7 million), and
various other offering related costs including investment advisor fees
($14.1 million):
<TABLE>
<S> <C>
WorldPort Europe $430,200
TNC 600
IIC 330
========
Gross Cash Proceeds $464,130
========
</TABLE>
(2) Represents excess of net cash proceeds net of related costs ($14.1
million) over net carrying value of the related assets, net of
estimated income tax effect ($86.7 million)
33
<PAGE> 37
Pro Forma Consolidated Statement of Income for the year ended December 31, 1998
<TABLE>
<CAPTION>
WORLDPORT PRO FORMA PRO
WORLDPORT EUROPE IIC TNC SUBTOTAL ADJUSTMENTS FORMA
--------- --------- ------- ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ............................ $ 28,591 $ 17,359 $ 3,250 $ 7,982 $ -- -- $ --
Cost of services .................... 21,849 12,476 2,272 6,422 679 -- 679
-------- -------- ------- ------- -------- ------- --------
Gross margin ........................ 6,742 4,883 978 1,560 (679) -- (679)
Operating expenses:
Selling, operations, and
administration ............. 39,147 19,038 1,154 3,286 15,669 -- 15,669
Depreciation and amortization . 11,069 6,331 665 6,258 (2,185) -- (2,185)
Asset impairment .............. 4,842 -- -- -- 4,842 -- 4,842
-------- -------- ------- ------- -------- ------- --------
Total operating expenses ...... 55,058 25,369 1,819 9,544 18,326 -- 18,326
-------- -------- ------- ------- -------- ------- --------
Operating income (loss) ............. (48,316) (20,486) (841) (7,984) (19,005) 11 (19,005)
Other income (expense):
Interest income (expense), net (24,570) (3,787) 11 (690) (20,104) 20,067(1) (37)
Other ......................... (4,789) -- -- 101 (4,890) -- (4,890)
-------- -------- ------- ------- -------- ------- --------
Total other income (expense) .. (29,359) (3,787) 11 (589) (24,994) 20,067 (4,927)
-------- -------- ------- ------- -------- ------- --------
Loss before minority interest and
income tax provision ............ (77,675) (24,273) (830) (8,573) (43,999) 20,067 (23,932)
Minority interest ................... (903) (903) -- -- -- -- --
-------- -------- ------- ------- -------- ------- --------
Loss before income tax provision .... (76,772) (23,370) (830) (8,573) (43,999) 20,067 (23,932)
Provision for income taxes .......... -- -- -- -- -- -- --
-------- -------- ------- ------- -------- ------- --------
Net loss ............................ $(76,772) $(23,370) $ (830) $(8,573) $(43,999) $20,067 $(23,932)
======== ======== ======= ======= ======== ======= ========
Basic and diluted net loss .......... $ (4.47) $ (1.39)
======== ========
Weighted average shares
outstanding for the year ............ 17,158 17,158
======== ========
</TABLE>
(1) Represents reversal of interest on Interim Loan which is assumed to be
repaid with proceeds from the sale of WorldPort Europe.
34
<PAGE> 38
Pro Forma Consolidated Statement of Income
for the period ended September 30, 1999
<TABLE>
<CAPTION>
PRO FORMA
WORLDPORT WORLDPORT IIC TNC SUBTOTAL ADJUSTMENT PRO FORMA
EUROPE
-------- --------- -------- ------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ..................... $ 65,263 $ 48,464 $ 5,251 $ 4,780 $ 6,768 -- $ 6,768
Cost of services ............. 44,860 28,577 2,990 2,802 10,491 -- 10,491
-------- -------- -------- ------- -------- ------- --------
Gross margin ................. 20,403 19,887 2,261 1,978 (3,723) -- (3,723)
Operating expenses:
Selling, operations, and
administration ...... 41,459 20,042 3,637 1,673 16,107 -- 16,107
Depreciation and
amortization ....... 17,127 12,389 108 1,004 3,626 -- 3,626
Asset impairment ....... 12,842 -- 6,476 5,366 1,000 -- 1,000
-------- -------- -------- ------- -------- ------- --------
Total operating expenses 71,428 32,431 10,221 8,043 20,733 -- 20,733
-------- -------- -------- ------- -------- ------- --------
Operating income (loss) ...... (51,025) (12,544) (7,960) (6,065) (24,456) -- (24,456)
Other income (expense):
Interest income
(expense), net ..... (44,190) (12,003) 11 (604) (31,594)(1) 30,276 (1,318)
Other .................. (1,286) -- 77 269 (1,632) -- (1,632)
-------- -------- ------- -------- ------- --------
Total other income
(expense) ........... (45,476) (12,003) 88 (335) (33,226) 30,276 (2,950)
-------- -------- -------- ------- -------- ------- --------
Loss before minority interest
and income tax provision . (96,501) (24,547) (7,872) (6,400) (57,682) 30,276 (27,406)
Minority interest ............ (1,845) (1,845) -- -- -- -- --
-------- -------- -------- ------- -------- ------- --------
Loss before income tax
provision ................. (94,656) (22,702) (7,872) (6,400) (57,682) 30,276 (27,406)
Provision for income taxes ... -- -- -- -- -- -- --
-------- -------- -------- ------- -------- ------- --------
Net loss ..................... $(94,656) $(22,702) $ (7,872) $(6,400) $(57,682) $30,276 $(27,406)
======== ======== ======== ======= ======== ======= ========
Basic and diluted net loss...... $ (4.26) $ (1.23)
======== ========
Weighted average shares
outstanding for the year... 22,237 22,237
======== ========
</TABLE>
(1) Represents reversal of interest on Interim Loan which is assumed to be
repaid with proceeds from the sale of WorldPort Europe.
35
<PAGE> 39
COST OF INFORMATION STATEMENT
This Information Statement has been prepared by WorldPort and the Board
of Directors, and WorldPort will bear the costs of distributing this Information
Statement to its stockholders, including the expense of preparing, assembling,
printing and mailing the Information Statement and attached materials. Although
there is no formal agreement to do so, WorldPort may reimburse banks, brokerage
houses, and other custodians, nominees and fiduciaries for their reasonable
expenses in forwarding this Information Statement and related materials to
stockholders.
DESCRIPTION OF WORLDPORT'S BUSINESS
Introduction
WorldPort currently conducts telecommunications network operations
through EnerTel, a national telecommunications services provider in the
Netherlands which also utilizes WorldPort's interests in certain switches
located New York and London. WorldPort also owns other assets located in Omaha,
Nebraska and Rockledge and Miami, Florida. On November 11, 1999, WorldPort
entered into a series of definitive agreements for the purchase by Energis of
100% of WCEH and WCL and certain other assets for an estimated aggregate value
of $570 million. WorldPort owns 85% of the outstanding capital stock of WCEH
which is the parent of EnerTel. As part of the transaction, WorldPort is selling
to Energis certain additional assets, including the switch operations in London
and New York (collectively, the "Sale"). It is expected that this Sale will be
consummated by the end of the first quarter of the year 2000. Following the
repayment of WorldPort's indebtedness (including the Interim Loan) and accounts
payable, the assumption by Energis of certain contractual transaction costs,
WorldPort expects to receive between $200 and $215 million of net cash proceeds
from this Sale. WorldPort is currently actively marketing its assets in Omaha,
Rockledge and Miami and anticipates selling these assets in the near future.
Following the Sale and any sale of its other assets, WorldPort will
have exited its current operations. It is expected that WorldPort will consider
a new strategic focus following this Sale utilizing the remaining net proceeds.
The discussion below describes WorldPort's operations prior to the Sale and any
subsequent asset sales.
WorldPort Communications, Inc. (together with its subsidiaries, "we,"
the "Company," and "WorldPort") is a 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 core of our operations and the source for a
significant portion of our revenues is our EnerTel subsidiary, the leading
second network operator in the Netherlands. EnerTel's switch-based fiber
backbone network consists of three fiber optic rings extending over 1,200
kilometers linking most of the largest cities in the Netherlands, and together
with EnerTel's interconnection agreements, passing approximately 70% of the 5.5
million domestic households and substantially all the domestic and multinational
business community in the Netherlands.
EnerTel was founded by nine regional electric utilities and N.V.
Casema, the Netherlands' largest cable television company, who collectively
were granted a national infrastructure license to build, own and operate a
nationwide telecommunications network. EnerTel's network is connected directly
to KPN Telecom (Netherlands), Deutsche Telekom (Germany), Belgacom (Belgium),
Cable & Wireless (UK) and Telecom Italia (Italy). In addition, EnerTel's
network has access to undersea cables connecting the Netherlands to North
America. EnerTel's network utilizes synchronous digital hierarchy ("SDH")
technology and currently includes two Siemens switching facilities, located in
Amsterdam and Rotterdam, as well as an IRU for capacity on UK-NETH 14, an
undersea fiber optic cable connecting the United Kingdom and the Netherlands.
EnerTel commenced operations in 1997 and currently serves 120 medium and large
sized corporate customers, 55 of the Netherlands' ISPs and 20 carriers,
distributors and resellers.
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<PAGE> 40
The telecommunications services market in the Netherlands is
experiencing significant growth, with a market size of $8.4 billion in 1997
expected to grow to $9.1 billion by 2000 according to Espicom Business
Intelligence. This growth is being driven by (i) the rapid growth in demand for
broadband and data services, including the Internet and corporate intranets and
(ii) the emergence of the Netherlands as a major European telecommunications
hub. At the end of 1998 there were approximately 1.4 million Internet users in
the Netherlands. According to Datamonitor, an industry research group, the
number of Internet users in the Netherlands is expected to grow to 3.6 million
by 2003. We believe that EnerTel is positioned to capture a significant share of
the Netherlands' wholesale telecommunications market due to our scaleable
state-of-the-art fiber optic network, broad range of products and services,
competitive pricing, established customer relationships and experience in
serving the needs of data intensive customers.
EnerTel has developed direct connections and bilateral interconnection
agreements that provide On-Net termination services in Germany, Belgium, France,
Italy and the United Kingdom. We believe this expansion will position EnerTel to
further penetrate the European international long distance market, which is the
largest in the world, accounting for approximately 35 billion minutes or
approximately 43% of all worldwide minutes originated in 1997.
To provide our European customers with access to North America, we
have acquired IRUs for STM-1s of capacity, and committed to purchase IRUs for
additional STM-1s of capacity, on undersea fiber-optic cables which connect
EnerTel's network with North America and have installed international gateway
switches in London, New York and Miami. Through this network, we can provide our
customers with connections between Europe and North America.
In addition to our EnerTel operations, through our operations in
Rockledge, Florida and Omaha, Nebraska, we also provide, through our
non-European subsidiaries, international pre-paid calling cards, and
international credit card billed calling cards, and international call
back/direct access to carriers, business customers and resellers and
distributors in the United States, Europe, Latin America and Asia-Pacific. For
the three months ended September 30, 1999, our revenues from these operations
totaled $2.9 million.
Milestones
Since acquiring EnerTel in June 1998, we have achieved the following:
NETWORK DEVELOPMENTS
- Upgraded port capacity of our Amsterdam and Rotterdam
Siemens switches
- Expanded our Netherlands fiber optic network from
1,100 kilometers to over 1,200 kilometers and
upgraded capacity on approximately 58% of the network
with DWDM technology
- Sold the Bel 1600 division of EnerTel (which had
provided indirect access services to small and medium
size business and residential subscribers) as part of
our strategic repositioning of EnerTel
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<PAGE> 41
to serve carriers, ISPs and other high volume
customers; we retain on a wholesale basis the traffic
minutes generated by the residential subscribers
DEVELOPMENT OF EUROPEAN HUB
- Obtained the right to purchase IRUs which can connect
EnerTel's network with 18 cities, throughout five
countries in Western Europe, including Brussels,
Frankfurt, London, Paris and Madrid
- Installed international gateway switches in London,
New York and Miami
- Extended our EnerTel network to Beverwijk, the
Netherlands where we are connecting to AC-1 through
leased line capacity
- Developed a direct connection and bilateral
interconnect agreement that provides On-Net
termination services in Italy (Telecom Italia)
Network
On-Net Mechanics. A long distance telephone call generally consists of
three segments: origination, transport and termination.
We use the term "On-Net" to refer to the portion of a call that travels
over our network infrastructure and originates or terminates through either
local interconnects or bilateral agreements. Our gross margins increase to the
extent that we put a greater portion of the call minutes On-Net. In the
Netherlands, we are able to originate calls On-Net via either our own leased
lines or our local interconnect agreements, bypassing KPN, the incumbent
provider. We then terminate the call internationally from our Netherlands
switches either (i) via our own network to another country where we terminate
through a local interconnect agreement , (ii) through a bilateral carrier
agreement, or (iii) through a third party carrier. Generally, we are able to
obtain a higher margin when we terminate through a local interconnect agreement
rather than through a third-party carrier.
Origination. A typical international long distance call originates on a
local exchange network or private line and is carried to the international
gateway switch of a telecommunications provider. The call is then transported
along a fiber optic cable or a satellite connection to an international gateway
switch in the terminating country and finally to another local exchange network
or private line where the call is terminated. A domestic long distance call is
similar to an international long distance call, but typically involves only one
telecommunications provider, which transports the call on fiber, microwave radio
or via a satellite connection within the country of origination and termination.
Generally, only a small number of carriers are licensed to provide
telecommunications services in a foreign country and, in many countries, only
the PTT is licensed to provide certain services. Any carrier that desires to
transport switched calls to or from a particular country must, in addition to
obtaining a license or other permission (if required), enter into bilateral
agreements or other arrangements with the PTT or another international carrier
in that country or lease capacity from a carrier that already has such
arrangements.
Transport. The transport of telephone calls is accomplished via
land-based cables or undersea cables, which are usually fiber optic, or by
microwave radios or satellites. A carrier can obtain access on cable systems
through IRUs or leases. Any carrier may generally lease circuits on a cable from
another carrier. Satellite circuits are
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<PAGE> 42
also obtained on a leased basis.
Traditionally, international telecommunications traffic is exchanged
under interconnection agreements between international carriers
("correspondents") which own IRUs or lease satellite or fiber capacity between
two countries. Interconnection agreements provide for the termination of traffic
in, and, if such agreements are bilateral agreements, return of traffic to, the
carriers' respective countries at negotiated accounting rates. Bilateral
agreements typically provide that carriers will return to their correspondents a
percentage of the minutes received from such correspondents ("return traffic").
In addition, interconnection agreements provide for network coordination and
accounting and settlement procedures between the carriers.
A carrier which does not have an interconnection agreement with a
carrier in a particular country is able to provide international service to that
country by reselling minutes from a carrier which does. Until recently, in many
foreign countries there was only one interconnection agreement in place between
that country's PTT and a foreign based international carrier as a result of
monopolies held by such PTTs. Interconnection agreements are expected to become
increasingly available as international markets deregulate and new carriers that
are seeking business partners emerge in countries previously subject to a PTT
monopoly or other limited competition market.
For a telecommunications provider without interconnection agreements or
its own international network, the profitability of originating international
traffic is a function of, among other things, the difference between its billing
rates and the rates it must pay another carrier to transport and terminate such
traffic.
For a company with bilateral agreements (which provide for return
traffic), the profitability of originating international traffic will be a
function of, among other things, the volume of its originating traffic and its
billing rates, as well as the relative volume of its originating and return
traffic minutes. Under the settlement process, a carrier which originates more
traffic than it receives, will, on a net basis, make payments to the
corresponding carrier, while a carrier which receives more traffic than it
originates will receive payments from the corresponding carrier. If the incoming
and outgoing flows of traffic are equal in the number of minutes transmitted,
there is no net settlement payment to either carrier. Therefore, in addition to
all of the other factors that can influence the profitability of a
telecommunications carrier, profitability can also be somewhat dependent on the
carrier's relative flows of incoming and outgoing traffic.
Return traffic can be more profitable than outgoing traffic when there
is a significant disparity in the cost of terminating traffic between the two
countries that are party to a bilateral agreement. The receipt of more
profitable return traffic reduces the aggregate cost to a carrier to transport
traffic pursuant to a bilateral agreement, and carriers with significant levels
of return traffic can price their international transport and termination
services at a discount to the settlement cost and recover the discount on the
return traffic.
Termination. The termination of an international call occurs after the
call has been transported to an international carrier in the destination
country. The international carrier then transports the call to a local exchange
network where it is then terminated by the PTT or an alternative to the PTT,
such as EnerTel, which then bypasses the PTT.
Network Assets
The EnerTel backbone network in the Netherlands consists of three fiber
optic rings, complemented by interconnection agreements with the local access
networks of regional utility companies throughout the Netherlands, including
EnerTel's former shareholders. The network backbone links most of the
Netherlands' largest cities and, together with these regional utility company
interconnection agreements, passes approximately 70% of the 5.5 million Dutch
households and substantially all the Dutch and multinational business community.
EnerTel holds a 20-year lease expiring in 2016 for the backbone network with
each of its former shareholders. In February 1994 those shareholders, comprised
of nine Dutch regional utility companies and Casema N.V., the largest cable
television operator in the Netherlands, constructed the three fiber optic ring
network. Each route in this network consists of between 12 and 24 fibers.
Pursuant to the nine lease agreements between EnerTel and each of the former
shareholders, EnerTel has leased use of the fibers contained in those rings. In
addition, pursuant to the backbone lease agreements, EnerTel can add additional
fibers to the network when necessary. Each lease covers that portion of the
network owned by such former shareholder and provides that each of the former
shareholders is responsible for the maintenance and repair of the portion of the
network leased by them to EnerTel. EnerTel pays for such repair and maintenance
based on the cost thereof to the applicable owner.
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<PAGE> 43
The EnerTel network utilizes SDH technology and, in addition to the
three fiber optic rings extending over 1,200 kilometers, includes two Siemens
switching facilities, located in Amsterdam and Rotterdam with over 1,400 port
facilities, as well as an IRU for 21 E-1s of capacity on UK-NETH 14, an undersea
fiber optic cable connecting the United Kingdom and the Netherlands. We have
recently completed the installation of DWDM technology on approximately 58% of
the EnerTel network in order to provide additional capacity for
intra-Netherlands and cross-border connectivity to Atlantic undersea cable
systems.
In 1996, EnerTel was granted one of two licenses to install and
operate, as an alternative to the Netherlands' PTT, a public nation-wide fixed
telecommunications network. Under a new telecommunications law recently enacted
in the Netherlands, all telecommunications licenses, including EnerTel's public
nation-wide infrastructure license, were automatically converted into a
registration. At the time it received its nation-wide license, EnerTel was
subject to four statutory licensing conditions. The current network meets the
requirements of the first two of these conditions. The third license condition
required the EnerTel network, by November 20, 2000, to (i) cover all
municipalities of over 80,000 inhabitants, (ii) have at least one point of
presence in municipalities of over 25,000 inhabitants and (iii) have at least
one point of presence on industry premises of over 30 hectares. The fourth
license condition required EnerTel to have full infrastructure coverage in the
Netherlands for the purpose of providing leased lines to anyone in the
Netherlands by November 20, 2001. EnerTel believes that, as a result of the new
telecommunications law in the Netherlands, it is no longer subject to these
statutory licensing conditions or, alternatively, that such conditions are no
longer enforceable. While EnerTel believes that its conclusions in this regard
are well founded, there can be no assurance that the Netherlands' government may
not attempt to enforce the conditions in the future.
Bilateral and Interconnection Agreements
In order to complement our On-Net assets and broaden our reach in and
to markets, we have entered into or are negotiating interconnection agreements,
certain of which are bilateral agreements. The following table sets forth the
parties, countries of origination and termination, and brief descriptions of our
significant existing bilateral and interconnection relationships:
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<PAGE> 44
Bilateral and Interconnection Relationships
<TABLE>
<CAPTION>
PARTY COUNTRIES SERVED NATURE OF AGREEMENT
- ----- ---------------- -------------------
<S> <C> <C>
KPN Telecom The Netherlands Interconnection between the EnerTel
network and KPNTelecom providing
origination and termination throughout the
Netherlands.
Regional utility The Netherlands Interconnection between the EnerTel
network and the companies networks of the
regional utility companies providing
origination and termination.
Deutsche Telekom Germany/The Netherlands Interconnection between the EnerTel
network and Deutsche Telekom for switched
services.
Belgacom Belgium/The Netherlands Bilateral agreement; interconnection
between the EnerTel network and Belgacom
covering switched services (switch
termination, 800/900 and private lines).
Cable & Wireless United Kingdom/The Bilateral agreement; interconnection
Netherlands between the EnerTel network and Cable &
Wireless covering switched services (switch
termination, 800/900 and private lines).
Telecom Italia Italy and Mediterranean Bilateral agreement; interconnection
between the EnerTel Basin network and
Telecom Italia covering switched services
(switch termination, 800/900 and private
lines).
</TABLE>
Network Operations and Information Systems
We currently maintain a network operations center in Zwolle,
Netherlands (the "NOC") to oversee the EnerTel Network, the switches in London,
Miami and New York. The NOC provides network element management, monitoring and
maintenance, network registration and trouble management, customer service
(multilingual) and customer technical support (multilingual).
In addition, Nortel provides first level project management and
maintenance support for our international gateway switches in London, New York
and Miami, pursuant to a turn-key installation and maintenance agreement. We
directly monitor and maintain all other components of our network.
We also utilize proprietary information systems to monitor and manage
our international distributors. These information systems provide us with call
records, network utilization and performance data, billing and invoicing
information, and customer provisioning and support functions. In some cases,
our international distributors also have access to a portion of these databases
in order to perform customer support at a local level for our worldwide
customers. We have also developed a web-based corporate intranet which we use
for secure internal communications and for coordinating all of our
administrative, financial, and operational management on a global basis.
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<PAGE> 45
Billing Systems
Like all telecommunications carriers, we are dependent on effective
billing and management information systems to monitor and control cash flows
and network costs. EnerTel's switch mediation systems and provisioning systems
are provided by Comptel, and its inter-operator billing systems are provided by
Prospero. EnerTel utilizes a billing system supplied by Saville Systems. The
Saville system is a browser-based billing system that provides call rating,
invoicing, fraud detection and security. We plan to expand the licenses for the
billing system to include our operations beyond the Netherlands.
Outside of the Netherlands, we use our proprietary information system
for general billing and invoicing, as well as for call rating and recording and
billing and invoicing information associated with our carrier expansion outside
the Netherlands. Billing for switched services is provided through a
combination of internal systems and outsourced services and billing for
international private lines, dedicated circuits and global enhanced services is
performed internally.
Our dedicated circuit customers typically pay a flat monthly fee based
on the amount of bandwidth purchased, the distance of the transport required
and other factors. Our calling card and other long distance services are either
(i) prepaid in advance, (ii) invoiced for payment or (iii) paid for by regular
debits that we make from the customer's credit card or bank draft accounts. In
some cases, we require customers to post deposits, letters of credit or other
financial instruments in order to reduce our exposure to bad debts and
non-payment.
Sales And Marketing
We have developed a global sales, marketing and service organization to
market our portfolio of telecommunications products to carriers and corporate
customers worldwide. In particular, in Europe we have recruited proven sales
professionals with well-developed business relationships in the
telecommunications industry. Our EnerTel sales force consists of 24 direct sales
and support people as well as 30 resellers and 15 distributors. We use indirect
sales through various sales channels, including private branch exchange ("PBX")
manufacturers and resellers. For the medium sized corporate market, we primarily
rely on indirect sales through PBX and other resellers.
Our Florida and Nebraska operations utilize our independent sales
agents and distributors to achieve early market entry in international markets.
We believe that the use of these qualified local, third-party sales agents and
distributors is a cost effective means to establish or expand sales operations
in new markets. To enhance our sales and marketing efforts, we also are a
member of various telecommunications industry associations, including the
European Competitive Telecommunications Association (ECTA), the
Telecommunications Reseller Association (TRA) and CompTel. In addition, we are
a corporate sponsor of Internet2, a project of the University Corporation for
Advanced Internet Development.
Products
We offer a broad range of voice, data, video and Internet products and
services to customers both within the Netherlands and throughout Europe. Such
services include our switched services, dedicated services, switch
partitioning, virtual points of presence, telehousing and colocation
opportunities, and switchless resale services that we offer carriers, ISPs and
business customers. We believe that this broad product portfolio differentiates
us from most competitors who offer some, but not all, of such products and
services. In addition we offer these customers additional services such as
international calling cards and international operator services.
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<PAGE> 46
The following is a summary of the products we currently offer in
Europe:
<TABLE>
<CAPTION>
- --------------------------------------------------------- --------------------------------------------------
Target Market
- --------------------------------------------------------- -------------- --------------- -------------------
Carrier ISP Business
- --------------------------------------------------------- -------------- --------------- -------------------
<S> <C> <C> <C>
Dedicated Services - Leased Lines X X X
- --------------------------------------------------------- -------------- --------------- -------------------
Dedicated Services - IRU Sales X X X
- --------------------------------------------------------- -------------- --------------- -------------------
Dedicated Services - Direct Access X
- --------------------------------------------------------- -------------- --------------- -------------------
Colocation/Virtual Switching X X
- --------------------------------------------------------- -------------- --------------- -------------------
Switched Voice Products X
- --------------------------------------------------------- -------------- --------------- -------------------
Switched Voice - 800/900 X X X
- --------------------------------------------------------- -------------- --------------- -------------------
VPOP X X X
- --------------------------------------------------------- -------------- --------------- -------------------
Switchless Resales/Carrier Select Hosting X X
- --------------------------------------------------------- -------------- --------------- -------------------
International Calling Cards X X
- --------------------------------------------------------- -------------- --------------- -------------------
Callback Services X
- --------------------------------------------------------- -------------- --------------- -------------------
</TABLE>
Dedicated Services
Our network agreements enable us to offer leased or sold (IRU)
bandwidth in most cities in Europe. In addition, leased line services will
include our planned offering of tail-circuit services to trans-Atlantic undersea
cable customers which will provide connections between the landing point and the
carrier's leased lines or switches within the Netherlands. We primarily provide
dedicated international bandwidth in increments such as DS-3 and E-1 between our
major points of presence in Europe. In addition, EnerTel provides digital leased
lines within the Netherlands for carriers and corporations in increments of E-1
(2 Mbs), E-3 (34 Mbs) and STM-1 (55 Mbs). Each STM-1 of capacity on our network
is the equivalent of three DS-3s or 63 E-1s.
EnerTel provides 30-channel digital trunk lines for large businesses,
which are based on Euro-ISDN specifications. ISDN-30 services enable customers
to access the EnerTel network directly from PBXs and other customer premises
equipment, thereby enabling EnerTel to compete with KPN Telecom for direct
access switched services. Through the PBX connection, EnerTel believes it can
capture a large portion of its business customers'
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<PAGE> 47
national and international long distance traffic. EnerTel utilizes its own
network facilities, interconnection agreements and international operating
agreements to provide domestic and international termination of customer calls
on a least cost routing basis.
Colocation/Virtual Switching. Our colocation, switch room leasing and
management, and switch partitioning products enable us to provide carrier
customers with a turn-key network service package at the same time that we
generate additional transmission traffic for our switched voice, dedicated and
data services. We provide these products and services at our international
switching locations in Amsterdam and London.
Switched Voice Products. We offer carriers, resellers and corporate
customers switched termination services for voice and fax telecommunications
traffic traveling to points worldwide. Our network design enables us to offer
international transmission services on a switched basis worldwide. Through
undersea cable ownership, interconnection agreements, and network development
in certain European markets, we have developed a number of international routes
where our market pricing for switched termination services is expected to be
highly competitive.
Switched Voice - 800/900 Services. EnerTel offers toll-free and
premium services for both third party information service providers as well as
for corporate, carrier and ISP customers.
Virtual Point of Presence (VPOP). EnerTel utilizes its nationwide
network to offer virtual Internet dial-in service for ISPs, large corporate
customers and resellers. Customers utilizing this service can access the
Internet through an ISP via the EnerTel network through a single access number
that can be dialed from nearly every local calling area in the Netherlands. VPOP
services have grown substantially for EnerTel over the past year as a result of
the rapid growth in utilization of the Internet.
Switchless Resales/Carrier Select Hosting. EnerTel provides wholesale
network transmission services for resellers in the Netherlands who provide
residential and small and medium sized business customers with calling services
via proprietary access codes. EnerTel initiated this business to continue to
provide the transmission services for the residential distribution business
which it sold in 1998. EnerTel plans to expand this product line by offering it
to additional carriers and resellers in the Netherlands.
International Calling Cards. Our international calling card products
are marketed to carriers and to business customers in Europe, the United
States, Latin America and Asia, primarily through international distributors
and sales agents. We offer international pre-paid calling cards, international
credit card billed calling cards, and international call back/direct access.
Our calling card customers access our network for domestic or
international long distance services by dialing a local access number or a
domestic or international toll-free number which connects the customer to our
network. The customer then dials an access code or personal identification
number (PIN) and, upon account verification, is able to dial a domestic or
international long distance call. In some cases customers utilize dialing
devices which automatically dial the accessed identification numbers.
Callback Services. Callback access enables a long distance customer to
access a network from locations where there are no in-country facilities or
resale agreements. The customer accesses the network from the customer's home or
office by dialing a long distance telephone number. The customer will receive a
"call back" from such number and can then use the network to connect to a
desired location.
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<PAGE> 48
Customers
We currently serve 55 of the Netherlands' ISPs, 133 medium and large
sized corporate customers and 20 carriers, distributors and resellers. We have
also entered into contracts with an additional 15 carriers, distributors and
resellers.
We are subject to significant concentrations of credit risk, which
consist primarily of trade accounts receivable. We sell a significant portion
of our services to other carriers and resellers and, consequently, maintain
significant receivable balances with certain customers. If the financial
condition and operations of these customers deteriorate below critical levels,
our operating results could be adversely affected. For the year ended December
31, 1998, one customer, United TeleKabel Holding, N.V., accounted for
approximately 15% of our total revenues.
Carriers. We categorize our carrier customers as follows: (i) Tier I
and Tier II carriers, (ii) PTTs, and (iii) emerging alternative carriers, such
as competitive local exchange carriers and PTOs. We expect the number of
potential carrier customers to increase significantly as deregulation permits
the start-up of alternative carriers and encourages traditional operators to
expand their services beyond their national borders. The carrier customers we
target typically operate their own networks in domestic markets, and operate
some infrastructure on international routes. We expect that carriers will use
our global network on international routes where they do not have their own
network infrastructure, where they require additional "overflow" network
capacity and where we are able to offer pricing or service advantages.
Internet Service Providers. We currently serve 55 ISPs in the
Netherlands that provide us with national Internet traffic volumes exceeding 115
million minutes per month. ISPs generally require high capacity bandwidth
transport from their markets back to the major Internet backbones in the United
States. We currently provide our Netherlands ISP customers with such transport
to the Internet exchange in Amsterdam.
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<PAGE> 49
In addition, in January 1999, EnerTel entered into an agreement to
participate as one of a select number of carriers in the GTE Internetworking,
Inc. ("GTEI") Alliance Program for international distribution of Internet
access products. Under this agreement, we may, at our option, provide Internet
backbone and virtual point-of-presence services over the global GTEI network.
This alliance program extends the global reach of our VPOP and Internet access
products for ISPs and corporate customers.
Corporations, Other Businesses and Institutional Customers. Corporate
and other business customers' demand for high bandwidth international
telecommunications services is growing rapidly as a result of economic
globalization and the increasing utilization of bandwidth intensive
communications applications such as the Internet, intranets, videoconferencing,
and other multimedia services. We believe that our services will appeal to
large corporations because of our responsiveness, competitive pricing, scalable
bandwidth products, quality of service and global network capability.
Institutional customers are expected to utilize us for direct network services,
as well as domestic and international long distance telecommunications
services.
International Distributors and Resellers of Telecommunications
Services. International distributors and resellers of telecommunications
services are just beginning to develop their operations in Europe in a process
similar to that which occurred in the United States in the years following the
break-up of AT&T in 1984. We believe our products will be attractive to
distributors and resellers who do not have their own international networks, or
who only operate switches in certain markets. We believe such distributors and
resellers will provide us with access to the large traffic volumes generated by
retail customer bases including small and medium businesses and residential
customers.
Competition
The international and national telecommunications markets in which we
operate are highly competitive. Until recently, telecommunications markets in
the Netherlands and throughout Europe have been dominated by the national PTTs.
Since the implementation of a series of European Community and World Trade
Organization directives beginning in 1990, the Netherlands and other western
European countries have started to liberalize their respective
telecommunications markets, thus permitting alternative telecommunications
providers to enter the market. Liberalization has coincided with technological
innovation to create an increasingly competitive market, characterized by
still-dominant PTTs as well as an increasing number of new market entrants. In
the Netherlands, we compete primarily with KPN Telecom. As the former
monopolist PTT provider of telecommunications services, KPN Telecom has an
established market presence, a fully-built network and financial and other
resources that are substantially greater than ours. In addition, various new
providers of telecommunications services have entered the market, targeting
various segments. Companies such as Telfort B.V. (a company which was formed by
British Telecom and Nederlandse Spoorwegen N.V., the Netherlands railroad
company, and which received the other nationwide telecommunications license
which was issued in the Netherlands) as well as Global One Communications, MCI
WorldCom, Esprit Telecom plc., COLT Telecom and VersaTel, compete with KPN
Telecom and EnerTel in the Netherlands for contracts with large multinational
companies. Competition in the Netherlands, as well as the European long
distance telecommunications industry in general, is driven by numerous factors,
including price, customer service, type and quality of services and customer
relationships.
In other foreign markets, we compete with dominant national telephone
companies, and other major incumbent carriers. In addition, we compete with
other emerging U.S. and international carriers attempting to enter these markets
and with local resellers and marketers of long distance services.
In the markets where we operate, we face competition from companies
with resources greater than ours and with longer operating histories in the
local market. To compete effectively, we must do so on the basis of factors
such as: (i) network design and costs, (ii) effective utilization of emerging
technologies such as IP, (iii) competitive pricing and rates, (iv) quality of
service, (v) ease and convenience of access, (vi) customer service and support,
(vii) quality of local distributors and sales agents, (viii) understanding of
the marketplace, (ix) ability to attract and retain qualified employees and (x)
customer acquisition and retention.
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Company Background
WorldPort was originally organized as a Colorado corporation under the
name Sage Resources, Inc. in January 1989 to evaluate, structure and complete
mergers with, or acquisitions of, other companies. We remained inactive until
1996 when our domicile was changed to Delaware and our name was changed to
WorldPort Communications, Inc.
We primarily operate through a number of acquired subsidiaries that
operate in Europe, the United States, Latin America and Asia. In addition to
our acquisition of EnerTel, the significant acquisitions we have completed
since our formation are described below:
In June 1997, our wholly-owned subsidiary, Telenational
Communications, Inc. ("TNC") acquired substantially all of the
telecommunications assets and operations of Telenational Communications Limited
Partnership, a Nebraska limited partnership. The purchased assets included
telecommunications switches and other network equipment, customer and vendor
contracts, an FCC section 214 common carrier license and an operator services
center. The FCC section 214 common carrier license gives us the authority to
resell both international switched and private line services of authorized
carriers.
In April 1998, our wholly-owned subsidiary, WorldPort/ICX, Inc.
("ICX") acquired the telecommunications assets and operations of
Intercontinental Exchange, a licensed provider of international
telecommunications services headquartered in the San Francisco Bay area.
In August 1998, we acquired the operations of International
InterConnect, Inc. ("IIC"), a Florida-based corporation specializing in
international long distance services which are marketed through international
distributors primarily in Latin America to multinational corporations, foreign
embassies, businesses and other high volume customers. The telecommunications
assets of IIC which we acquired include network switching equipment,
international private lines and other leased circuits between the United States
and countries in Latin America, and other telecommunications equipment.
Through our non-European subsidiaries, we provide international
pre-paid and credit card billed calling card products and international call
back/direct access to carriers and business customers in the United States,
Europe, Latin America and Asia-Pacific. In particular, IIC specializes in
providing international long distance services, which are marketed through
international distributors primarily in Latin America. IIC's end-user customer
base consists primarily of multinational corporations, foreign embassies,
businesses, and other high volume customers. TNC has a customer base of
international distributors serving customers in Japan (including a U.S. military
base), Singapore, Thailand, New Zealand and Indonesia, as well as international
distributors in Latin America, India, Africa and Europe. The operations of ICX
have been merged into TNC.
Employees
We currently have approximately 214 employees.
We have never experienced a work stoppage, and none of our employees
are represented by a labor union
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or covered by a collective bargaining agreement.
Government Regulation
Our networks and telecommunications services are subject to
significant United States and foreign laws, regulations, treaties, agency
actions and court decisions. National and local laws and regulations governing
the provision of telecommunications services differ significantly among the
countries in which we currently operate and intend to operate. The
interpretation and enforcement of these laws and regulations can be
unpredictable, is often subject to informal views of government officials and
ministries that regulate telecommunications in each country and could limit our
ability to provide certain telecommunications services in certain markets.
Future regulatory, judicial and legislative changes could have a material
adverse effect on our operations. In addition, domestic or international
regulators or third parties could raise material issues with regard to our
compliance or noncompliance with applicable laws and regulations, possibly
having a material adverse effect on our business, financial condition and
results of operation.
International Regulation
General. In some countries where we operate or plan to operate, local
laws or regulations limit the ability of telecommunications companies to
provide basic international telecommunications services in competition with
state-owned or state-sanctioned monopoly carriers. Future regulatory, judicial,
legislative or political changes may not permit us to offer to residents of
such countries all or any of our services. Further, regulators or third parties
could raise material issues regarding our compliance with applicable laws or
regulations, possibly having a material adverse effect on our business,
financial condition and results of operations. If we are unable to provide the
services that we presently provide or intend to provide or to use our existing
or contemplated transmission methods due to our inability to obtain or retain
the requisite governmental approvals for such services or transmission methods,
or for any other reason related to regulatory compliance or lack thereof, such
developments could have a material adverse effect on our business, financial
condition and results of operations.
A summary discussion of the regulatory frameworks in certain countries
in which we operate or have targeted for penetration is set forth below. This
discussion is intended to provide a general outline of the more relevant
regulations and current regulatory postures of the various jurisdictions and is
not intended as a comprehensive discussion of such regulations or regulatory
postures. Local laws and regulations differ significantly among the
jurisdictions in which we operate, and, within such jurisdictions, the
interpretation and enforcement of such laws and regulations can be
unpredictable.
The Netherlands. Originally, under the former Netherlands
telecommunications legislation, KPN Telecom held an exclusive concession to
install and operate a nation-wide fixed telecommunications infrastructure. On
November 20, 1996 two other companies, EnerTel and Telfort (a joint venture of
British Telecom and Netherlands' Railways) pursuant to the Cable Based
Infrastructure Licensing Act, were each granted a license to install and
operate, as an alternative to KPN Telecom's infrastructure, a public
nation-wide fixed telecommunications network.
As public nation-wide infrastructure license holders, KPN Telecom,
EnerTel and Telfort were subject to four statutory licensing conditions.
EnerTel's current network meets the requirements of the first two of these
conditions. The third license condition required the EnerTel network, by
November 20, 2000, to (i) cover all municipalities of over 80,000 inhabitants,
(ii) have at least one point of presence in municipalities of over 25,000
inhabitants and (iii) have at least one point of presence on industry premises
of over 30 hectares. The fourth license condition required EnerTel to have full
infrastructure coverage in the Netherlands for the purpose of providing leased
lines to anyone in the Netherlands by November 20, 2001. EnerTel believes that,
as a result of the new telecommunications law in the Netherlands (described
below) it is no longer subject to these statutory licensing conditions or,
alternatively, that such conditions are no longer enforceable.
While EnerTel believes that its conclusions in this regard are well
founded, there can be no assurance that the Netherlands' government may not
attempt to enforce the conditions in the future. The European Union's ("EU's")
policy of full liberalization of its telecommunications markets (including the
Netherlands) became effective on January 1, 1998. In order to fully comply with
these EU obligations a new Telecommunications Act entered into force in the
Netherlands on December 15, 1998. Under this new Telecommunications Act, with
the exception of the use of network frequencies, all licensing requirements
were abolished (including those pursuant to which EnerTel obtained its license)
and replaced by a registration requirement. Registration requirements apply to
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the provision of public telecommunications services, the installation or
operation of leased lines, the installation or operation of broadcasting
networks, and the provision of conditional access to these networks. Under the
new law, EnerTel's public nation-wide infrastructure license was automatically
converted into a registration.
The new law provides statutory rights of way and retention of cable
ownership for all operators of public telecommunications networks. Also, this
law provides for interconnection obligations for all public telecommunications
network operators, Netherlands and foreign-based, that control access to
end-users. Operators having significant market power (i.e., over 25% market
share) are required to provide interconnection on a non-discriminatory basis
and at transparent, itemized, and cost-based prices. Similar obligations exist
for special access and leased lines.
The new Telecommunications Act further provides for the determination
of number plans by the Minister and number allocation to registered parties,
ONP-provisions, various forms of number portability, designation of a universal
service obligation, and specific financing requirements.
Since August 1997, most of the supervisory, enforcement, licensing,
registration, and interconnection dispute settlement powers are with
Onafhankelijke Post en Telecommunicatie Autoriteit (OPTA), an independent
supervisory and regulatory body.
European Union. The EU consists of the following member states:
Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom. EU
member states are required to implement directives issued by the European
Commission ("EC") and the European Council by passing national legislation. If
an EU member state fails to effect such directives with national or, as the
case may be, regional or local, legislation and/or fails to render the
provisions of such directives effective within its territory, the EC may take
action against the EU member state, including in proceedings before the
European Court of Justice, to enforce the directives. Private parties may also,
in certain cases, bring actions against EU member states for failure to
implement such legislation.
The EC and European Council have issued a number of key directives
establishing basic principles for the liberalization of the EU
telecommunications market. The general framework for this liberalized
environment has been set out in the EC's Services Directive (the "Services
Directive") and its subsequent amendments, including, in particular, the Full
Competition Directive, which was adopted in March 1996 (the "Full Competition
Directive"). This basic framework has been advanced by a series of
harmonization directives, which include the so-called Open Network Provision
directives, as well as two additional directives adopted in 1997, the Licensing
Directive of April 1997 and the Interconnection Directive of June 1997, which
address the achievement of universal service.
The Services Directive directed EU member nations to permit the
competitive provision of all telecommunications services with the exception of
the direct transport and switching of speech in real-time between switched
network termination points ("Voice Telephony") (and not including value-added
services and voice services within closed user groups) and certain other
services that have been gradually liberalized through subsequent amendments to
the Services Directive. Historically, European countries have prohibited Voice
Telephony by foreign carriers. The EC has taken a narrow view of the services
classified as Voice Telephony, declaring that member states may not maintain
monopolies or special operating rights on voice services that (i) confer new
value-added benefits on users (e.g., alternative billing methods); (ii) are
provided through dedicated customer access (e.g., leased lines); or (iii) are
limited to a group having legal, economic or professional ties.
The Full Competition Directive amended the Services Directive to set
January 1, 1998 as the date by which all EU member countries required to remove
all remaining restrictions on the provision of telecommunications services and
telecommunications infrastructure, including Voice Telephony. Certain limited
derogations from compliance with this timetable have been granted.
The Licensing Directive sets forth rules for the procedures associated
with the granting of national authorizations for the provision of
telecommunications services and for the establishment and operation of any
infrastructure for the provision of telecommunications services. It
distinguishes between "general authorizations," which should typically be
easier to obtain because they do not require an explicit decision by the
national regulatory authority, and "individual licenses." Individual licenses
may only be imposed where the licensee is to acquire access to scarce resources
(for example, radio spectrum) or is to be subject to particular obligations or
benefits from particular rights. Accordingly, EU member countries may impose
individual license requirements for the
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establishment of facilities-based networks and for the provision of Voice
Telephony, among other things. Consequently, our development of a European
network may require that we be subject to an individual licensing system rather
than to a general authorization in the majority of EU member countries. The
Interconnection Directive sets forth the regulatory framework for securing in
the EU the interconnection of telecommunications networks. The Interconnection
Directive requires EU member countries to remove restrictions preventing
negotiation of interconnection agreements, ensure that interconnection
requirements are non-discriminatory and transparent and ensure adequate and
efficient interconnection for public telecommunications networks and publicly
available telecommunications services. Numerous EU member countries have chosen
to apply the provisions of the interconnection Directive within their
jurisdictions in such a way as to give more favorable treatment to
facilities-based providers and network operators than to switch-based carriers
and resellers.
The Interconnection Directive is due to be amended in the near future
to require EU member countries, except those for whom derogations exist, to
offer carrier pre-selection to their customers by January 1, 2000, and to
introduce number portability for subscribers on the public switched telephone
network by January 1, 2000. Carrier pre-selection is required to be made
available only by operators that enjoy significant market power within the
market for interconnection over the fixed network.
Each EU member country in which we currently conduct our business may
apply these Directives in a different fashion and has a different regulatory
regime, and such differences are expected to endure. The requirements for us to
obtain necessary approvals for operation vary considerably from country to
country.
United Kingdom. The Telecommunications Act of 1984 (the "UK Act")
provides a licensing and regulatory framework for telecommunications activities
in the United Kingdom. The Secretary of State of Trade and Industry at the
Department of Trade and Industry (the "Secretary of Trade") is responsible for
granting licenses under the UK Act and for overseeing telecommunications
policy. At the same time, the Director General of Telecommunications (the
"Director General") is responsible for, among other things, enforcing the terms
of such licenses. The Director General will recommend the grant of a license to
operate a telecommunications network to any applicant that the Director General
believes has a reasonable business plan, the necessary financial resources and
where there are no overriding considerations against the grant of license.
Since 1992, the United Kingdom has permitted competition in the
provision of international services over leased lines where all calls originate
over the public switched telephone network ("PSTN") on certain specified
routes. The government revoked all ISR Licenses in December 1997, and all
holders were required to re-apply to the Secretary of Trade to be registered
under the new International Simple Voice Resale License ("ISVR"), which
authorizes the provision of international simple voice resale. International
voice calls that pass over the PSTN at one end only can be provided under a
Telecommunications Class License. In addition, in December 1996, the United
Kingdom introduced the International Facilities License ("IFL"), which
authorizes holders to provider international telecommunications services over
their own international infrastructure.
United States Regulation
Overview. Our provision of international service to, from and through
the United States generally is subject to the provisions of the Communications
Act of 1934, as amended (the "Communications Act"), and the 1996
Telecommunications Act (the "1996 Act") and to regulation by the FCC. Section
214 of the Communications Act requires a company to make application to and
receive authorization from the FCC prior to leasing international capacity,
acquiring international facilities, purchasing switched minutes or providing
international service to the public. In this regard, we offer
telecommunications service pursuant to a FCC authorization under Section 214
("Section 214 Authorization"). In addition, the FCC rules require prior FCC
approval before transferring control of or assigning FCC licenses and impose
various reporting and filing requirements upon companies providing
international services under an FCC authorization. We must file reports and
contracts with the FCC and must pay regulatory fees that are continually
subject to change. We are also subject to the specific FCC policies and rules
discussed below. In addition, by its own actions or in response to a third
party's filing, the FCC could determine that our services, termination
agreements, agreements with foreign carriers or reports do not or did not
comply with the FCC rules. If this were to occur, the FCC could order us to
terminate non-compliant arrangements, fine us or revoke our FCC authorizations.
Any of these actions could have a material adverse effect upon our business,
operating results and financial condition.
International Traffic. Under the World Trade Organization Basic
Telecom Agreement (the "WTO
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Agreement"), concluded on February 15, 1997, sixty-nine nations comprising 95%
of the global market for basic telecommunications services agreed to permit
competition from foreign carriers. In addition, fifty-nine of these countries
have subscribed to specific procompetitive regulatory principles. The WTO
Agreement became effective on February 5, 1998 and is expected to be
implemented by the signatory countries by 2002. We believe that the WTO
Agreement will increase opportunities for us and our competitors. However, the
precise scope and timing of the implementation of the WTO Agreement remain
uncertain and there can be no assurance that the WTO Agreement will result in
beneficial regulatory liberalization.
The FCC's Policies On Call-Back Service. We offer service by means of
call-reorigination or call-back pursuant to our FCC authorization under Section
214 and certain relevant FCC decisions. A small and diminishing percentage of
our revenues are generated in this way. Call-back service allows a customer in
a foreign country to use foreign facilities to dial a telephone number in the
United States and receive dial tone at a switch at the reseller's United States
location, which the customer can then use to place a call via an outbound
switched service of a United States carrier. The through calls are then billed
at the United States-tariffed rates. The FCC has determined that international
call-reorigination or call-back service using uncompleted call signaling does
not violate United States or international law. The FCC held, however, that
United States call-back providers are not authorized to provide service to
customers in countries that expressly have declared it to be illegal. Further,
United States companies providing such services must comply with the laws of
the countries in which they operate as a condition of their Section 214
authorizations. The FCC reserves the right to condition, modify or revoke any
Section 214 authorization and impose fines for violations of the Communications
Act or FCC regulations, rules or policies promulgated thereunder or for
violations of the clear and explicit telecommunications laws of other countries
that are unable to enforce their laws against United States carriers. FCC
policy provides that foreign governments that satisfy certain conditions may
request FCC assistance in enforcing their laws. Thus, the FCC has stated that
it would be prepared to receive documentation from any government that seeks to
put United States carriers on notice that call-back using uncompleted call
signaling has been declared expressly illegal in its territory and that it
would consider enforcement action against companies based in the United States
that provide international call-back service using uncompleted call signaling.
There can be no assurance that the FCC will not take action to limit the
provision of call-back services. Enforcement action could include an order to
cease providing call-back services in certain countries, the imposition of one
or more restrictions upon us, monetary fines, or, ultimately, the revocation of
our Section 214 authorization and could have a material adverse effect upon our
business, financial condition and results of operation.
The FCC's Private Line Resale Policy. The FCC's international private
line resale policy has traditionally limited the conditions under which a
carrier may connect international private lines ("IPL") to the PSTN at one or
both ends to provide switched services, commonly known as International Simple
Resale ("ISR"). The FCC historically has required that, when a carrier seeks to
reroute switched telephone traffic over IPLs interconnected to the PSTN at
either end, the carrier must obtain separate Section 214 authorization by
demonstrating that the destination country affords resale opportunities
"equivalent" to those available under United States law. In November 1997, the
FCC adopted a new order (the "Foreign Participation Order"), which became
effective in February 1998, eliminating the equivalency test with respect to
applications to provide switched resale services over private lines between the
United States and WTO member countries. Thus, pursuant to their Section 214
authorization, carriers are authorized to provide switched services to member
WTO countries over international private lines. A carrier's provision of
switched services over either facilities-based or resold IPLs, however, remains
subject to the conditions set forth in the FCC's International Settlements
Policy described below. Petitions for reconsideration of the Foreign
Participation Order are pending at the FCC.
The FCC's International Settlements Policy. We also are required to
conduct our international facilities-based and resale businesses in compliance
with the FCC's international settlements policy (the "ISP"). The ISP governs
the international settlement rates that United States carriers pay foreign
carriers to terminate international telecommunications traffic originating in
the United States. The FCC adopted new rules regarding ISP rates that became
effective on January 1, 1998 (the "International Settlement Rates Order"). The
international accounting rate system allows a United States facilities-based
carrier to negotiate an "accounting rate" with a foreign carrier for handling
each minute of international telephone service. Each carrier's portion of the
accounting rate (usually one half) is referred to as the settlement rate. The
new International Settlement Rates Order generally requires United States
facilities-based carriers to negotiate settlement rates with their foreign
correspondent at no greater than FCC established "benchmark" prices.
Historically, international settlement rates have vastly exceeded the costs of
carrying telecommunications traffic. In addition, the International Settlement
Rates Order imposes new conditions upon certain carriers. First, the FCC
conditioned facilities-based authorizations for service on a route on which a
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carrier has a foreign affiliate upon the foreign affiliate offering all other
United States carriers a settlement at or below the relevant benchmark rate.
Second, the FCC conditioned any authorization to provide switched services over
either facilities-based or resold international private lines upon the
condition that at least fifty percent of the facilities-based international
telephone service traffic on the subject route is settled at or below the
relevant benchmark rate. This condition applies whether or not the licensee has
a foreign affiliate on the route in question. Under the Foreign Participation
Order described above, however, if the subject route does not comply with the
benchmark requirement, a carrier can receive authorization by demonstrating
that the foreign country provides "equivalent" resale opportunities.
Accordingly, we are permitted to resell private lines for the provision of
switched services to any country that either has been found by the FCC to
comply with the benchmarks or has been determined to be equivalent. The United
States Court of Appeal for the District of Columbia Circuit recently affirmed
the International Settlement Rates Order in all respects. The Order, however,
could be appealed further, and we cannot predict the outcome of an additional
appeal or its possible impact on our operations.
The FCC's Policies on Transit and Refile. The FCC in 1995 was asked to
limit or prohibit the practice whereby a carrier routes, through its facilities
in a third country, traffic originating in one country and destined for another
country. The FCC has permitted third country calling where all countries
involved consent to the routing arrangements (referred to as "transiting").
Under certain arrangements referred to as "refiling," the carrier in the
destination country does not consent to receiving traffic from the originating
country and does not realize the traffic it receives from the third country is
actually originating from a different country. The 1995 petition to prohibit
refiling was withdrawn, and, accordingly, the FCC has never issued a ruling as
to whether refiling arrangements are inconsistent with federal law. It is
possible that the FCC could determine that refiling violates United States
and/or international law, which could have a material adverse effect on our
business, financial condition and results of operations.
The FCC's Tariff Requirements For International Long Distance
Services. We are required to file with the FCC a tariff containing the rates,
terms and conditions applicable to its international telecommunications
services. We also are required to file with the FCC any agreements with
customers containing rates, terms and conditions for international
telecommunications services if those rates, terms and conditions are different
than those contained in our filed tariff. If we charge rates other than those
set forth in or otherwise violate our filed tariff or a filed customer
agreement or fail to file with the FCC carrier-to-carrier agreements, the FCC
or a third party could bring an action against us, which could result in a
fine, a judgment or other penalties, which could have a material adverse effect
on our business, financial condition and results of operations.
Recent and Potential FCC Actions. Regulatory action that may be taken
in the future by the FCC may intensify competition, impose additional operating
costs, disrupt transmission arrangements or otherwise require us to modify our
operations. The FCC recently adopted certain changes in its rules designed to
permit alternative arrangements outside of its ISP as a means of encouraging
competition and achieving lower, cost-based accounting and collection rates as
more facilities-based competition is permitted in foreign markets.
Specifically, the FCC has decided to allow United States carriers, subject to
certain competitive safeguards, to propose methods to pay for international
call termination that deviate from traditional bilateral accounting rates and
the ISP. In addition, the International Settlement Rates Order established
lower benchmarks that United States carriers will pay foreign carriers for the
termination of international services. Although these rule changes may provide
us with more flexibility to respond more rapidly to changes in the global
telecommunications market, they also will provide the same flexibility to our
competitors.
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DESCRIPTION OF WORLDPORT'S PROPERTY
Our principal offices are located in the Atlanta, Georgia area and are
leased pursuant to an agreement which expires in June 2003. We also lease
approximately 11,000 square feet of office and operating space in Omaha,
Nebraska for our U.S. operating center pursuant to an agreement which expires
in June 2001 and approximately 69,000 square feet of office and operating space
in Rockledge, Florida pursuant to an agreement which expires in August 2008.
EnerTel leases office and operational space in Rotterdam and other cities in
the Netherlands, pursuant to leases expiring at various dates from 1999 to
2006.
We own telecommunications switching and peripheral equipment located
in various sites in Europe and the United States. Certain of our property and
equipment is subject to liens securing payment of portions of our indebtedness.
You should see Note 6 to the Consolidated Financial Statements included
elsewhere herein for information with respect to lease obligations on these
properties.
We believe that our property and equipment are well maintained and
adequate to support our current needs, although substantial investments are
expected to be made in additional property and equipment for expansion and in
connection with corporate development activities.
LEGAL PROCEEDINGS
See "Recent Events" above for a description additional legal
proceedings.
On April 17, 1998, WorldPort was served with a summons and complaint
from MC Liquidating Corporation f/k/a MIDCOM Communications, Inc. ("MIDCOM").
Both WorldPort 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
WorldPort'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 WorldPort, together with other damages, attorney fees and costs. The
parties are currently engaging in discovery. WorldPort believes the claims are
without merit and intends to vigorously defend against them.
WorldPort and WCEH are defendants in litigation filed in the District
courts of The Hague in the Netherlands. The cases, filed in January 1999, by Mr.
Bahman Zolfagharpour, allege that WorldPort breached agreements with Mr.
Zolfagharpour in connection with its purchase of MathComp B.V. (now WCEH) from
Mr. Zolfagharpour and its subsequent purchase of EnerTel. The litigation seeks
damages in an amount exceeding $20 million and the award of 2,350,000 shares of
WorldPort's common stock to Mr. Zolfagharpour. WorldPort 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 WCEH have been resolved.
From time to time, WorldPort 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 WorldPort's financial condition or results of operations.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Upon recommendation of the Audit Committee of its Board of Directors
and upon approval of such recommendation by its Board of Directors, WorldPort
replaced Schumacher & Associates, Inc. ("Schumacher") as its independent public
accounting firm on June 30, 1997. Effective July 1, 1997, WorldPort engaged
Arthur Andersen LLP as its independent public accountants. The prior
accountant's report of Schumacher on WorldPort's financial statements for the
years ended December 31, 1996 and 1995, respectively, and for the period from
January 6, 1989 (date of inception) to December 31, 1996 was not qualified or
modified in any manner and contained no disclaimer of opinion or adverse
opinion. No disagreements exist between WorldPort and Schumacher on any matter
of accounting principle or practice, financial statement disclosure or auditing
scope or procedure related to its financial statements for the years ended
December 31, 1996 and 1995, respectively, and for the period from January 6,
1989 (date of inception) to December 31, 1996 or for the interim period
beginning January 1, 1997 through June 30, 1997, the date of replacement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis in conjunction
with "Selected Financial Data," the Consolidated Financial Statements and Notes
thereto, and the other financial data appearing elsewhere in this Information
Statement.
Overview
WorldPort is a 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. In order to meet its obligations under the Interim
Loan Facility due November 18, 1999, WorldPort is currently exploring the sale
of some or all of its assets. On November 11, 1999, WorldPort entered into a
series of definitive agreements for the purchase by Energis of 100% of WCEH for
an estimated aggregate value of $570 million. WorldPort owns 85% of the
outstanding capital stock of WCEH which is the parent of EnerTel. As part of
the transaction, WorldPort is selling to Energis certain additional assets,
including the switch operations in London and New York. It is expected that
this sale will be consummated by the end of the first quarter of the year 2000.
Following the repayment of WorldPort's indebtedness (including the Interim
Loan) and accounts payable, the assumption by Energis of certain contractual
transaction costs, WorldPort expects to receive between $200 and $215 million
of net cash proceeds from this sale. It is expected that WorldPort will
consider a new strategic focus following this sale utilizing the remaining net
proceeds.
WorldPort's growth to date has occurred principally through
acquisitions, most notably its acquisition of EnerTel, a national provider of
telecommunications services in the Netherlands. WorldPort 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 WorldPort 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. The principal
on this shareholder note is payable ten years after WorldPort's repayment of
the Interim Loan, which financed WorldPort's acquisition of EnerTel.
In addition to WorldPort's EnerTel operations, during 1998 WorldPort
acquired Intercontinental Exchange, Inc. ("ICX") and International
InterConnect, Inc. ("IIC") which serve distributors and resellers focused on
international calling card and private line services. 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 WorldPort's
Omaha, Nebraska based calling card operation and its traffic was migrated to
WorldPort's Omaha switch. WorldPort acquired the assets and operations of ICX
in April 1998, in exchange for 400,000 shares of Common Stock.
In August 1998, WorldPort acquired the assets and operations of IIC.
The purchase consideration was 879,442 shares of Common Stock and $750,000 in
cash. 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, WorldPort commenced operations in the Netherlands
through the acquisition of MathComp B.V., whose name was changed to WorldPort
Communications Europe, B.V. ("WCEH"). In connection with this acquisition,
WorldPort issued 150,000 shares of Common Stock and paid $250,000 in cash. The
former shareholder of WCEH is eligible to earn an additional 2,350,000 shares of
Common Stock contingent upon the attainment of certain revenue and gross margin
requirements during the first and second quarters of 1999. Following the
acquisition of EnerTel, WorldPort recorded charges of approximately $5.2 million
in the fourth quarter of 1998 for the wind down of the WCEH operations in 1999.
As of November 11, 1999, WorldPort had 27,547,092 shares of Common
Stock outstanding (59,907,092 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 WorldPort's convertible
preferred stock, together with all options to acquire such stock, (iii) all
outstanding warrants to acquire WorldPort's Common Stock, together with such
number of additional warrants which WorldPort would have been required to issue
to the Interim Loan holders had the Interim Loan been repaid on November 11,
1999 so that such holders would hold warrants exercisable into 11% of the
fully-diluted outstanding
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<PAGE> 58
Common Stock on such date (as contemplated by the Interim Loan facility), and
(iv) all outstanding options which had vested as of November 8, 1999 and which
had an exercise price at or below the market price on such date.
Capacity Commitments
WorldPort 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 or terrestrial cable systems under development by this
vendor. In 1998, WorldPort made a deposit of $2 million with this vendor which
will be applied against WorldPort's aggregate $66 million commitment over the
next 3 years under this agreement. In March 1999, WorldPort purchased undersea
cable capacity from this vendor by converting its deposit and paying an
additional $5.1 million as down-payment, and obtaining vendor financing for the
remaining $15.8 million purchase price. This vendor financing bears interest at
a rate of 11.5% and requires quarterly principal payments beginning on the
earlier of WorldPort having received aggregate proceeds from debt or equity
issuances (other than vendor financing) of at least $150 million, or March
1, 2000 and ending in March 2002. WorldPort has not yet made any principal
payments on this vendor financing. WorldPort intends to sell all or a portion of
this capacity in conjunction with other asset sale activities now under
consideration.
In February 1999, WorldPort 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. WorldPort has entered into a separate agreement with a European
telecommunications company which gives WorldPort the right to purchase capacity
through these points of presence. This contract provides for indefeasible right
of use for a period of 10 years. WorldPort is pursuing means to satisfy the
capacity commitment to WorldPort's customer for the remaining 10 years of that
contract. During the second quarter of 1999, WorldPort recorded revenue under
the contract of $2.1 million and costs, including an estimate of future costs
for years 11-20 based on an independent third party's estimate, of $2.5
million. This represents management's best estimate of the present value of
such future costs to provide these services. Management will monitor this
estimate and adjust as necessary when, and if, additional information is
available. The initial transaction under the contract was negotiated in
anticipation of future profitable revenues from the customer.
Results of Operations
Three Months and Nine Months Ended September 30, 1999 Compared to Three Months
and Nine Months Ended September 30, 1998
During the three months and nine months ended September 30, 1999,
WorldPort incurred losses of $36.3 million and $94.7 million, respectively,
compared to losses of $24.5 million and $32.9 million during the same periods
in 1998. Included in the losses incurred during the three and nine months ended
September 30, 1999 are the operating results of EnerTel, IIC and ICX, including
amortization of the purchased intangibles and recording of financing costs
related to WorldPort's acquisition of EnerTel, as well as general expenses
related to WorldPort'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 WorldPort in 1999. To address and remedy historical
operating losses and to increase its competitiveness, revenues and gross
margins, WorldPort has taken various steps to improve each subsidiary's
operating efficiency, network capability and carrier cost structure. In August
1999, WorldPort took steps to terminate its U.S. wholesale carrier operations
and significantly reduce its U.S. staffing related to those wholesale
operations. It also announced plans to explore strategic alternatives,
including the sale of assets. On November 11, 1999, WorldPort entered into a
series of definitive agreements for the purchase by Energis of 100% of WCEH for
an estimated aggregate value of $570 million. WorldPort owns 85% of the
outstanding capital stock of WCEH which is the parent of EnerTel. As part of
the transaction, WorldPort is selling to Energis certain additional assets,
including the switch operations in London and New York. It is expected that
this sale will be consummated by the end of the first quarter of the year 2000.
Following the repayment of WorldPort's indebtedness (including the Interim
Loan) and accounts payable, the assumption by Energis of certain contractual
transaction costs, WorldPort expects to receive between $200 and $215 million
of net cash proceeds from this sale. It is expected that WorldPort will
consider a new strategic focus following this sale utilizing the remaining net
proceeds. Failure to complete the sale of EnerTel or failure to obtain
sufficient capital will materially affect WorldPort's operations. As a result
of the aforementioned factors and related uncertainties, there is substantial
doubt about WorldPort's ability to continue as a going concern.
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Revenues
Revenues for the three and nine months ended September 30, 1999 were
$22.5 million and $65.3 million, respectively, compared to $11.7 million and
$14.4 million for the three and nine months ended September 30, 1998. The
increase in revenues is primarily attributed to the inclusion of the results of
operations of EnerTel, acquired in June 1998 and the commencement of
WorldPort's U.S. wholesale carrier operations during 1999. EnerTel's revenues
were $15.5 million and $45.8 million, respectively, during the three and nine
months ended September 30, 1999. The U.S. wholesale carrier operations, which
WorldPort terminated in the third quarter of 1999, contributed revenues of $3.5
million and $6.8 million during the three and nine months ended September 30,
1999, respectively. Also contributing to the increase over the prior year is
the inclusion of IIC acquired in July 1998. This entity contributed
approximately $1.6 million and $5.3 million in total revenues during the three
and nine months ended September 30, 1999. Results for the nine months ended
September 30, 1999 also include revenue of $2.1 million from the sale of
transmission capacity under an agreement between WorldPort and a
telecommunication carrier.
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 nine months of 1999
included growth in all EnerTel product lines including virtual point of
presence (VPOP) internet access; the Kennisnet national data network for the
Dutch school system, 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 WorldPort sold in 1998.
Gross Margin
Gross margin for the three and nine months ended September 30, 1999
was $8.3 million and $20.4 million, respectively, compared to $3.3 million and
$3.4 million for the three and nine months ended September 30, 1998. The
increase in gross margin was primarily due to the inclusion of the results of
operations of EnerTel. WorldPort's primary costs of sales are its cost of
terminating switched minutes through third parties, as well as its cost of
access circuits used to connect its customers in the Netherlands.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $15.8
million from $14.1 million and to $41.5 million from $20.3 million for the
three and nine months ended September 30, 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, the U.S.
wholesale carrier operations and IIC, (ii) increased business development and
expansion activity, and (iii) costs incurred in connection with the termination
of WorldPort's U.S. wholesale carrier operations and the reduction in the U.S.
corporate headquarters staff.
Depreciation and Amortization
Depreciation and amortization expense for the three and nine months
ended September 30, 1999 was $6.1 million and $17.1 million, respectively,
compared to $4.3 million and $5.8 million for the three and nine months ended
September 30, 1998. The increase was due to (i) depreciation on the assets
acquired in connection with the EnerTel and IIC acquisitions, (ii) amortization
of goodwill and other intangible assets associated with the EnerTel and IIC
acquisitions, and (iii) depreciation on additional switching and network
equipment acquired during 1998 and 1999.
Asset Impairment
In the quarter ended September 30, 1999, WorldPort recorded
nonrecurring charges totaling approximately $12.8 million in connection with
its decision to close and/or sell certain U.S. operations. Included in these
nonrecurring charges are charges totaling approximately $11.8 million to
write-down WorldPort's investment in TNC and IIC to their estimated net
realizable value and an asset impairment charge of $1 million to reduce certain
U.S. based telecommunications equipment to their estimated resale values.
Other Income (Expense)
Interest expense, net was $9.7 million compared to $9.4 million for
the three months ended September 30,
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<PAGE> 60
1999 and 1998, respectively. For the nine months ended September 30, 1999
interest expense, net was $44.2 million compared to $10.2 million during the
same period in 1998. The increase in interest expense is due primarily to the
Interim Loan issued on June 23, 1998. Interest expense also included interest
for the debt WorldPort assumed in connection with the EnerTel and IIC
acquisitions, and the acquisition of switching equipment subject to capital
lease. Other expense, net for the three and nine months ended September 30,
1999 was $0.2 million and $1.3 million. This amount mainly consists of costs
incurred to exit certain commitments.
Year Ended December 31, 1998 Compared To Year Ended December 31, 1997
Revenues
Revenues increased to $28.6 million from $2.8 million for the years
ended December 31, 1998 and 1997, respectively. The increase in revenues was
primarily due to the inclusion of the results of operations of newly acquired
entities. Of our 1998 revenues, EnerTel contributed $18.3 million, ICX $3.4
million, and IIC $3.2 million.
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 in 1998 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 former Bel 1600 business. In 1998, the
VPOP business represented 36% of EnerTel revenues. In addition, our calling
card and private line operations represented approximately $10.3 million in
1998 revenues, generated through the sale of switched minutes.
Gross Margin
Gross margin increased to $7.4 million from $0.2 million for the years
ended December 31, 1998 and 1997, respectively. The increase in gross margin
was primarily due to the inclusion of the results of operations of ICX,
EnerTel, and IIC subsequent to the closing of those acquisitions in April, June
and August 1998, respectively. Our primary costs of sales in 1998 were our cost
of terminating switched minutes through third parties, as well as our cost of
access circuits used to connect our customers in the Netherlands. Our cost of
services and resulting gross margin reflects our variable costs only, and do
not reflect the depreciation of network assets.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $39.1
million from $2.7 million for the years ended December 31, 1998 and 1997,
respectively. The increase was primarily due to (i) the inclusion of the
selling, general and administrative expenses associated with the operation of
EnerTel and IIC subsequent to the closing of those acquisitions in June and
August 1998, respectively (approximately $17.1 million), (ii) increased
business development and expansion activity (i.e. professional fees, travel and
other costs of approximately $6.7 million), and (iii) growth in our U.S.
operations, marketing and corporate staff (approximately $5.7 million). Since
our acquisition of EnerTel, we have substantially reorganized its staffing,
resulting in certain severance payments and hiring expenses.
Selling, general and administrative expenses in 1998 also include
approximately $4.3 million in one time reserves taken in relation to the
discontinuance of operations of WCEH and our refocusing of the operations of
EnerTel.
Depreciation and Amortization
Depreciation and amortization expense increased to $15.9 million from
$0.8 million for the years ended December 31, 1998 and 1997, respectively. The
increase was due to (i) depreciation on the assets acquired in connection with
the EnerTel and IIC acquisitions (approximately $3.7 million), (ii)
amortization of goodwill and other intangible assets associated with the
EnerTel and IIC acquisitions (approximately $2.5 million) and (iii)
depreciation on additional switching and peripheral equipment acquired during
1998 (approximately $2.7 million). In 1998, we also wrote off $4.8 million
related to certain assets that were deemed to be impaired under SFAS 121 as a
result of our shift in business focus during 1998. This write-off principally
related to the write-down of certain switching and network equipment that we
operated prior to the EnerTel acquisition and the write down of certain assets
related to WWC, acquired in 1997, which is no longer part of our strategic
plan.
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Other Income (Expense)
Interest expense, net increased to $24.6 million from $0.1 million for
the years ended December 31, 1998 and 1997, respectively. The increase in
interest expense is due primarily to the Interim Loan, which accounted for
$22.1 million of interest expense in 1998. Interest expense also included
interest for (i) the debt we assumed in connection with the EnerTel and IIC
acquisitions, (ii) the acquisition of switching equipment subject to capital
lease and (iii) borrowings pursuant to certain short-term promissory notes for
working capital purposes.
Other expense, net increased to $5.5 million from $6,000 for the years
ended December 31, 1998 and 1997, respectively, primarily as a result of costs
incurred with our unsuccessful financing activities during 1998 as well as
certain proposed investments that did not materialize.
Year Ended December 31, 1997 Compared To Year Ended December 31, 1996
Revenues
Revenues increased to $2,776 from $0 for the years ended December 31,
1997 and 1996, respectively. The increase in revenues was due solely to the
inclusion of the results of operations of the TNC assets subsequent to the
closing of the TNC Acquisition on June 20, 1997.
Gross Margin
Gross margin increased to $171 from $0 for the years ended December
31, 1997 and 1996, respectively. The increase in gross margin was due solely to
the inclusion of the results of operations of the TNC assets subsequent to the
closing of the TNC Acquisition on June 20, 1997.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $2,723 from
$270 for the years ended December 31, 1997 and 1996, respectively. The increase
was primarily due to (i) increased business development and acquisition
activity, (ii) the establishment and staffing of our corporate offices and
(iii) the inclusion of the selling, general and administrative expenses
associated with the operation of the TNC assets subsequent to the closing of
the TNC Acquisition on June 20, 1997.
Depreciation and Amortization
Depreciation and amortization expense increased to $818 from $0 for
the years ended December 31, 1997 and 1996, respectively. The increase was due
to (i) depreciation on the assets acquired in connection with the TNC
Acquisition, (ii) amortization of goodwill and other intangible assets
associated with the TNC Acquisition and the WWC Acquisition and (iii)
depreciation on additional switching and peripheral equipment acquired during
1997.
Other Income (Expense)
Interest expense, net increased to $128 from $10 for the years ended
December 31, 1997 and 1996, respectively. The increase in interest expense is
due to (i) the debt we assumed in connection with the TNC Acquisition, (ii) the
acquisition of switching equipment subject to capital lease and (iii)
borrowings pursuant to certain short-term promissory notes for working capital
purposes.
Liquidity and Capital Resources
WorldPort is an international telecommunications service provider
executing a business plan that requires substantial capital. WorldPort
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 WorldPort's global network, and repayment of the Interim
Loan facility will require substantial continuing capital investment.
As of September 30, 1999 and December 31, 1998 WorldPort had a working
capital deficit of $150.7 million and $103.8 million, respectively. The working
capital deficit at September 30, 1999 is due to (i) the Interim
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<PAGE> 62
Loan, (ii) 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 (iii) the operating losses of
WorldPort.
Operations used $34.9 million during the nine months ended September
30, 1999 due primarily to the (i) operating losses, and (ii) increased business
development activity.
Investing activities used $16.2 million during the nine months ended
September 30, 1999. Investing activities during the nine-month period consisted
entirely of capital spending.
Financing activities provided $43.3 million during the nine months
ended September 30, 1999. Financing activities during the nine months ended
September 30, 1999 consisted primarily of proceeds from the issuance of 920,419
shares of the Series C in January 1999, the exercise of an option to purchase
283,206 shares of the Series C in July 1999, the issuance of 141,603 shares of
the Series E in July 1999, and the exercise of employee stock options, reduced
by principal payments on capital leases and notes payable.
To finance the EnerTel acquisition, WorldPort entered into a 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
originally matured on June 23, 1999 and has been extended until November 18,
1999, includes certain negative and affirmative covenants and is secured by a
lien on substantially all of the assets of WorldPort and certain of its
subsidiaries and a pledge of the capital stock of certain of WorldPort's
subsidiaries. In order to secure the extension until November 18, 1999,
WorldPort has agreed to pay the Lenders an amendment fee of $600,000 at the
maturity date. The amendment fee has been recorded as interest expense in the
accompanying financial statements. The Interim Loan bears interest at LIBOR (as
defined in the credit agreement related to the Interim Loan) plus 6% per annum
(13.5% at September 30, 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 September 30, 1999, the 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 September 30, 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
WorldPort's fully-diluted outstanding Common Stock on the date of such
repayment. As of September 30, 1999, the warrants were valued at an aggregate
of approximately $29.1 million. WorldPort intends to apply a portion of the net
proceeds to be realized from this sale to repay all existing debt, including
the Interim Loan, trade credit and other liabilities. It is expected that
WorldPort will consider a new strategic focus following this sale utilizing the
remaining net proceeds.
Funding of WorldPort's working capital deficit, current and future
operating losses and any investment in additional telecommunication assets will
require substantial continuing capital investment. WorldPort's strategy has
been to fund these cash requirements through debt facilities and additional
equity financing. WorldPort is also seeking to finance its cash requirements
through the sale of some or all of its present operating assets. On November
11, 1999, WorldPort entered into a series of definitive agreements for the
purchase by Energis of 100% of WCEH for an estimated aggregate value of $570
million. WorldPort owns 85% of the outstanding capital stock of WCEH which is
the parent of EnerTel. As part of the transaction, WorldPort is selling to
Energis certain additional assets, including the switch operations in London
and New York. It is expected that this sale will be consummated by the end of
the first quarter of the year 2000. Following the repayment of WorldPort's
indebtedness (including the Interim Loan) and accounts payable, the assumption
by Energis of certain contractual transaction costs, WorldPort expects to
receive between $200 and $215 million of net cash proceeds from this sale. It
is expected that WorldPort will consider a new strategic focus following this
sale utilizing the remaining net proceeds.
WorldPort's Interim Loan facility, which matures on November 18, 1999,
is secured by a lien on substantially all of WorldPort's assets and certain of
its subsidiaries and a pledge of the capital stock of certain of WorldPort's
subsidiaries. In the event that the Interim Loan is not repaid by its current
maturity date (or any further extended maturity date, as the case may be), the
Interim Loan holders have an agreement with WorldPort and certain of
WorldPort's stockholders pursuant to which WorldPort 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
WorldPort or any subsidiary or any of their assets which is proposed by the
Interim Loan holders.
Although WorldPort 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
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on terms acceptable to WorldPort. Failure to complete the sale of EnerTel or
failure to obtain sufficient capital will materially affect WorldPort's
operations. As a result of the aforementioned factors and related
uncertainties, there is substantial doubt about WorldPort's ability to continue
as a going concern.
Year 2000 Issue
The efficient operation of WorldPort'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, WorldPort 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
WorldPort's upgrades made for additional functionality also remedy any Year
2000 deficiencies in the related software.
WorldPort 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. WorldPort's new systems implementation is expected to
be completed by December 15, 1999. Management believes that WorldPort's
remaining information technology ("IT") systems and other non IT systems are
currently Year 2000 compliant or will be compliant by December 15, 1999 after
applying vendor supplied upgrades to these systems. The cost of the upgrades
are not considered to be material.
WorldPort has obtained 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 WorldPort. While few significant
concerns were identified, each has been addressed with a program of
remediation. All programs are targeted for completion by December 15, 1999.
However, Year 2000-related operating problems or expenses may arise in
connection with WorldPort's computer systems and software or in connection with
WorldPort'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, WorldPort has developed contingency
plans to address Year 2000 failures of the entities with which it interfaces.
WorldPort 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.
WorldPort's worst case scenario does not contemplate a major business
disruption from internal systems. WorldPort believes that it has exercised
reasonable diligence to assess whether external systems and interfaces are
adequately prepared.
Introduction of The Euro
On January 1, 1999, eleven of the fifteen member countries of the
European Union established a fixed conversion rate between their existing
currencies("legal currencies") and one common currency--the Euro. The Euro
began trading on world currency exchanges and may be used in business
transactions. On January 1, 2002, new Euro-denominated bills and coins will be
issued, and legal currencies will be completely withdrawn from circulation by
June 30 of that year. Our management has been actively assessing its computer
systems and overall fiscal and operational activities to ensure Euro readiness.
We have started adapting its computers, financial and operating systems and
equipment to accommodate Euro-denominated transactions. Our management is also
reviewing marketing and operational policies and procedures to ensure its
ability to continue to successfully conduct all aspects of our business in this
new, price transparent market. Additionally, the Euro will have an impact on
currency exchange rates and hence our currency exchange risk which we cannot
accurately predict. Our management, however, believes that the Euro conversion
will not have a material adverse impact on its financial condition or results
of operations.
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Recent 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.
In June 1999, the FASB issued Statement No. 137, Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
Statement No. 133, which amends Statement 133 to be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000 (that is, January 1,
2001 for companies with calendar-year fiscal years). SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and transactions
involving hedge accounting. WorldPort has not yet determined the impact this
statement will have on its consolidated financial statements.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued a new Statement of Position, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This statement
requires capitalization of certain costs of internal-use software. We adopted
this statement in January 1999, and have not yet determined its impact on our
financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe that our exposure to market rate fluctuations on our
investments is nominal due to the short-term nature of those investments. To
the extent the Interim Loan is outstanding, we have market risk relating to
such amounts because the interest rates under the Interim Loan are variable. We
do not believe our exposure represents a material risk to the financial
statements.
Our operations in Europe, principally in the Netherlands, expose us to
currency exchange rates risks. To manage the volatility attributable to these
exposures, we net the exposures to take advantage of natural offsets.
Currently, we do not enter into any hedging arrangements to reduce this
exposure. We are not aware of any facts or circumstances that would
significantly impact such exposures in the near-term. If, however, there was a
10% sustained decline of the Dutch Guilder versus the U.S. dollar, then the
consolidated financial statements could be materially effected as WorldPort's
Dutch operations represented approximately (i) 92% of WorldPort's total assets
as of September 30, 1999, (ii) 74% and 76%, respectively, of WorldPort's total
revenues for the three and nine months ended September 30, 1999, and (iii) 34%
and 56%, respectively, of WorldPort's net loss for the three and nine months
ended September 30, 1999.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets--September 30, 1999 (unaudited) and December 31, 1998......................... F-1
Condensed Consolidated Statements of Operations For the Three and Nine Months
Ended September 30, 1999 and 1998 (unaudited) ................................................... F-3
Condensed Consolidated Statements of Comprehensive Loss For the Three and
Nine Months Ended September 30, 1999 and 1998 (unaudited)........................................ F-4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 (unaudited).................................................... F-5
Notes to Condensed Consolidated Financial Statements (unaudited) ......................................... F-6
Report of Independent Public Accountants.................................................................. F-11
Consolidated Balance Sheets--December 31, 1998 and 1997................................................... F-12
Consolidated Statements of Operations for the years ended December 31, 1998, 1997, and 1996............... F-13
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1998, 1997, and 1996..... F-14
Consolidated Statements of Comprehensive Loss for the years ended December 31, 1998, 1997, and 1996....... F-15
Consolidated Statements of Cash Flows for the years ended December 31, 1998, 1997, and 1996............... F-16
Notes to Consolidated Financial Statements ............................................................... F-17
</TABLE>
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 1,068 $ 9,015
Accounts receivable, net of allowance for doubtful accounts
of $280 and $1,054, respectively ...................................... 1,683 11,765
Receivable from related party ............................................ -- 32,500
Prepaid expenses and other current assets ................................ 163 3,021
--------- ---------
Total current assets ............................................. 2,914 56,301
PROPERTY AND EQUIPMENT, net .............................................. 901 91,226
OTHER ASSETS:
Goodwill, net ...................................................... -- 43,190
Other intangibles, net ............................................. -- 21,851
Net assets held for sale ........................................... 104,985 --
Other assets, net .................................................. 198 7,887
--------- ---------
TOTAL ASSETS ........................................... $ 108,998 $ 220,455
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 8,755 $ 25,335
Accrued expenses ........................................................ 8,066 19,302
Current portion of obligations under capital leases ..................... 1,674 2,631
Other current liabilities ............................................... 193 1,952
Interim loan facility ................................................... 134,934 110,926
--------- ---------
Total current liabilities ........................................ 153,622 160,146
Long-term obligations under capital leases, net of current portion ........... 6,051 17,539
Note payable, net of current portion ......................................... -- 12,028
Other long-term liabilities .................................................. 19 11,375
--------- ---------
TOTAL LIABILITIES ...................................... 159,692 201,088
--------- ---------
MINORITY INTEREST ............................................................ -- 1,845
--------- ---------
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, 0 and 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, 1,112,852 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, 1,416,030 and 1,132,824 shares issued and outstanding in
1999 and 1998, respectively .......................................... -- --
Series D convertible preferred stock, $0.0001 par value, 650,000 shares
authorized, 316,921 and 0 shares issued and outstanding in
1999 and 1998, respectively ........................................... -- --
Series E convertible preferred stock, $0.0001 par value, 145,000 shares
authorized, 141,603 and 0 shares issued and outstanding in
1999 and 1998, respectively ........................................... -- --
Common stock, $0.0001 par value, 65,000,000 shares authorized,
27,127,391 and 18,228,916 shares issued and outstanding in
1999 and 1998, respectively .......................................... 3 2
Warrants ................................................................ 29,054 28,263
Additional paid-in capital .............................................. 100,757 77,414
Unearned compensation expense ........................................... (365) (750)
Cumulative translation adjustment ....................................... (4,827) (6,747)
Accumulated deficit ..................................................... (175,316) (80,660)
--------- ---------
Total stockholders' (deficit) equity ..................... (50,694) 17,522
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY ..... $ 108,998 $ 220,455
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-1
<PAGE> 67
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES ........................................ $ 22,467 $ 11,746 $ 65,263 $ 14,410
COST OF SERVICES ................................ 14,124 8,473 44,860 10,980
-------- -------- -------- --------
Gross margin ............................... 8,343 3,273 20,403 3,430
OPERATING EXPENSES:
Selling, general and administrative expenses 15,836 14,097 41,459 20,349
Depreciation and amortization .............. 6,096 4,281 17,127 5,778
Asset impairment ........................... 12,842 -- 12,842 --
-------- -------- -------- --------
Operating loss ............................. (26,431) (15,105) (51,025) (22,697)
OTHER EXPENSE:
Interest expense, net ...................... (9,666) (9,360) (44,190) (10,202)
Other expense, net ......................... (230) -- (1,286) --
-------- -------- -------- --------
LOSS BEFORE MINORITY INTEREST AND INCOME
TAXES ......................................... (36,327) (24,465) (96,501) (32,899)
MINORITY INTEREST ............................... -- -- 1,845 --
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES ........................ (36,327) (24,465) (94,656) (32,899)
INCOME TAX PROVISION ............................ -- -- -- --
-------- -------- -------- --------
NET LOSS ........................................ $(36,327) $(24,465) $(94,656) $(32,899)
======== ======== ======== ========
NET LOSS PER SHARE, BASIC AND DILUTED ........... $ (1.51) $ (1.38) $ (4.26) $ (1.95)
======== ======== ======== ========
SHARES USED IN NET LOSS PER SHARE
CALCULATION, BASIC AND DILUTED............... 24,039 17,702 22,237 16,841
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE> 68
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
----------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss .................................... $ (36,327) $(24,465) $(94,656) $(32,899)
Other comprehensive income, net of tax:
Foreign currency translation adjustments (1,432) -- 1,920 --
---------- -------- -------- --------
Comprehensive loss .......................... $ (37,759) $(24,465) $(92,735) $(32,899)
========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 69
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(94,656) $ (32,899)
Adjustments to reconcile net loss to net cash
used in operating activities -
Depreciation and amortization 17,127 5,778
Asset impairment 12,842 --
Non-cash interest expense 39,025 3,882
Non-cash compensation expense 385 1,419
Minority interest (1,845) --
Change in accounts receivable (6,385) (2,194)
Other 1,927 --
Change in prepaid expenses and other assets (3,394) (1,485)
Change in accounts payable, accrued expenses and other liabilities 95 12,985
-------- ---------
Net cash used in operating activities (34,879) (12,514)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in connection with acquisitions, net of cash acquired -- (113,891)
Deposits paid in conjunction with new business alliances -- (1,238)
Capital expenditures (16,228) (7,614)
-------- ---------
Net cash used in investing activities (16,228) (122,743)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from interim financing -- 120,000
Principal payments on note payable - related party (150) (365)
Principal payments on short-term debt (192) --
Principal payments on obligations under capital leases (5,696) (722)
Proceeds from exercise of stock options 1,798 --
Proceeds from issuance of common stock, net of offering expenses 6 900
Proceeds from issuance of preferred stock, net of offering expenses 47,500 12,777
-------- ---------
Net cash provided by financing activities 43,266 132,590
Effect of exchange rate changes on cash and cash equivalents 165 4,904
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,676) 2,237
CASH AND CASH EQUIVALENTS, beginning of the period 9,015 179
-------- ---------
CASH AND CASH EQUIVALENTS, end of the period $ 1,339 $ 2,416
======== =========
CASH PAID DURING THE PERIOD FOR INTEREST $ 2,236 $ 491
======== =========
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 $ -- $ 1,236
======== =========
230,627 shares of Series B preferred stock
Issuance of 250,000 shares of Series B preferred stock for notes receivable $ -- $ 1,017
======== =========
Acquisition of assets under capital lease and other financing facilities $ 38,241 $ 4,320
======== =========
Issuance of warrants in connection with Interim Loan $ 4,797 $ --
======== =========
Conversion of obligation for 316,921 shares of Series D preferred stock $ 1,030
========
Stock issued in ICX and IIC acquisition $ -- $ 8,326
======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 70
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 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 September 30,
1999, and the results of operations for the three and nine months ended
September 30, 1999 and 1998 and cash flows for the nine months ended
September 30, 1999 and 1998. The results of operations for the three
and nine months ended September 30, 1999 and 1998 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 November 18, 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 $175.3 million as of
September 30, 1999 as well as a working capital deficit of
approximately $150.1 million. Funding of the Company's working capital
deficit, current and future operating losses and investment in
additional telecommunications assets will require substantial
continuing capital investment. The Company's strategy has been to fund
these cash requirements through debt facilities and additional equity
financing. The Company is also seeking to finance its cash requirements
through the sale of some or all of its present operating assets. On
November 11, 1999, the Company entered into a series of agreements for
the purchase by Energis plc ("Energis") of 100% of WorldPort
Communications Europe Holdings, B.V. ("WorldPort Communications
Europe") for an estimated aggregate value of $570 million. The Company
owns 85% of the outstanding capital stock of WorldPort Communications
Europe which is the parent of EnerTel. As part of the transaction, the
Company is selling to Energis certain additional assets, including its
switch operations in London and New York. It is expected that
F-5
<PAGE> 71
this sale will be consummated by the end of the first quarter of the
year 2000. Following the repayment of applicable taxes and transaction
costs, the Company expects to receive between $200 and $250 million of
net cash proceeds from this sale. It is expected that the Company will
consider a new strategic focus following this sale utilizing the
remaining net proceeds.
The Company's Interim Loan facility, which originally matured on June
23, 1999 and has been extended until November 18, 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. It is contemplated that the proceeds from the
sale of EnerTel will be used to repay the Interim Loan. In the event
that the Interim Loan is not repaid by its current maturity date (or
any further 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 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
complete the sale of EnerTel or failure to obtain sufficient capital
will materially affect the Company's operations. 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.
In August 1999, the Company announced that it was closing its U.S.
carrier operations and initiated the process of disposing of certain
assets and subsidiaries, including Telenational Communications, Inc.
("TNC") and International InterConnect, Inc. ("IIC"). The Company is
currently negotiating the sale of these operations, but to date does
not have any definitive sale arrangements. The Company has taken an
asset impairment charge of approximately $5.4 million, $6.5 million and
$1 million in connection with the pending sale of TNC, IIC and other
U.S. based assets, respectively, to write the net investments down to
their anticipated net realizable value. Additionally, the balance sheet
accounts of EnerTel, TNC and IIC have been collapsed in the
accompanying financial statements, and are reflected as net assets held
for sale in "Other Assets". The following table summarizes the net
assets prior to collapsing the balance sheet accounts and the net
realizable asset write-down (in thousands):
<TABLE>
<CAPTION>
TNC IIC Other EnerTel Total
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Working capital $ 791 $ 504 $ -- $ (15,501) $ (14,206)
Property, plant & equipment 939 487 3,954 110,860 116,240
Other assets -- 144 -- 14,842 14,986
Non current liabilities (64) (2,853) -- (56,120) (59,037)
Intangible assets 5,050 8,524 -- 46,270 59,844
Impairment loss (5,366) (6,476) (1,000) -- (12,842)
------- ------- ------- --------- ---------
Net assets held for sale $ 1,350 $ 330 $ 2,954 $ 100,351 $ 104,985
</TABLE>
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.
F-6
<PAGE> 72
(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 the three months ended
September 30, 1999 and 1998, and the nine months ended September 30,
1999 are as follows (in thousands):
Three months ended September 30, 1999:
<TABLE>
<CAPTION>
European North American (1) Total
-------- ------------------ --------
<S> <C> <C> <C>
Revenues $ 16,639 $ 5,828 $ 22,467
Depreciation and amortization 4,089 2,007 6,096
Operating loss (3,585) (22,846) (26,431)
Interest expense, net (8,843) (823) (9,666)
-------- -------- --------
Net loss (12,427) (23,900) (36,327)
======== ======== ========
</TABLE>
Three months ended September 30, 1998:
<TABLE>
<CAPTION>
European North American (1) Total
-------- ------------------ --------
<S> <C> <C> <C>
Revenues $ 8,003 $ 3,743 $ 11,746
Depreciation and amortization 3,371 910 4,281
Operating loss (8,608) (6,497) (15,105)
Interest expense, net (9,435) 75 (9,360)
-------- -------- --------
Net loss (18,044) (6,421) (24,465)
======== ======== ========
</TABLE>
Nine months ended September 30, 1999:
<TABLE>
<CAPTION>
European North American (1) Total
-------- ------------------ --------
<S> <C> <C> <C>
Revenues $ 49,320 $ 15,943 $ 65,263
Depreciation and amortization 12,389 4,738 17,127
Operating loss (12,544) (38,481) (51,025)
Interest expense, net (42,279) (1,911) (44,190)
-------- -------- --------
Net loss (52,974) (41,682) (94,656)
======== ======== ========
</TABLE>
(1) Includes all corporate overhead costs.
The Company acquired its European operations in June 1998. Prior to
that, all of its operations were North American based.
The Company is in the process of selling certain assets and
subsidiaries. Accordingly, at September 30, 1999 the balance sheet
accounts of these assets and subsidiaries have been collapsed into net
assets held for sale (see footnote 1 for additional information).
F-7
<PAGE> 73
(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 originally matured on June 23, 1999
and has been extended until November 18, 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. In order to secure the extension until November
18, 1999, the Company has agreed to pay the Lenders an amendment fee of
$600,000 at the maturity date. The amendment fee has been recorded as
interest expense in the accompanying financial statements. The Interim
Loan bears interest at LIBOR (as defined in the credit agreement
related to the Interim Loan) plus 6% per annum (13.5% at September 30,
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 September 30, 1999, the 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 September 30, 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 September 30, 1999, the
warrants issued and to be issued in connection with the Interim Loan
were valued at an aggregate of approximately $29.1 million. It is
contemplated that the proceeds from the sale of EnerTel will be used to
repay the Interim Loan.
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 and terrestrial 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 purchase commitment over the next 3 years under this agreement.
In 1999, the Company purchased undersea cable capacity from the vendor
by converting its deposit and paying an additional $5.1 million as
down-payment, and obtaining vendor financing for the remaining $15.8
million purchase price. This vendor financing bears interest at a rate
of 11.5% and requires quarterly principal payments of $1.2 million
beginning on the earlier of the Company having received aggregate
proceeds from debt or equity issuances (other than vendor financing) of
at least $150 million, or March 1, 2000 and ending March 2002. The
Company has not yet made any principal payments on this vendor
financing. The Company intends to sell all or a portion of this
capacity in conjunction with other asset sale activities now under
consideration.
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 rights 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. During the second quarter of 1999, the Company
recorded revenue under the contract of $2.1 million and costs,
including an estimate of future costs for years 11-20 based on an
independent third party's estimate, of $2.5 million. This represents
management's best estimate of the present value of such future costs to
provide these services. Management will monitor this estimate and
adjust as necessary when, and if, additional information is available.
The initial transaction under the contract was negotiated in
anticipation of future profitable revenues from the customer.
Legal
The Company's common stock is now quoted and traded on the OTC Bulletin
Board under the symbol "WRDP.OB" after having been delisted from the
Nasdaq SmallCap Market as of the close of business on August 4, 1999.
Since July 14, 1999, the Company and certain of its former officers
have been named as defendants in multiple shareholder class action
lawsuits filed in the United States District Court for the Northern
District of Georgia. The plaintiffs in these lawsuits seek to represent
a class of individuals who purchased or otherwise acquired the
Company's common stock from as early as December 31, 1998 through June
25, 1999. Among other things, the plaintiffs allege the defendants
spoke positively about financing the Company obtained from The Heico
Companies, LLC without disclosing the risk that the financing might
cause the Company to be delisted from Nasdaq. The plaintiffs further
allege the truth was purportedly revealed on June 28, 1999 when the
Company announced that it was under review by Nasdaq and the disclosure
that the Company might be delisted from Nasdaq adversely affected the
value of the Company's common stock. The plaintiffs allege violations
of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The
Company intends to defend these lawsuits vigorously, but due to
inherent uncertainties of the litigation process and the judicial
system, the Company is unable to predict the outcome of this
litigation. If the outcome of this litigation is adverse to the
Company, it would have a material adverse effect on the Company's
business, financial condition and results of operations.
F-8
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To WorldPort Communications, Inc.:
We have audited the accompanying consolidated balance sheets of WorldPort
Communications, Inc. (a Delaware corporation) and subsidiaries, as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity, comprehensive loss, and cash flows for each of the three
years ended December 31, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WorldPort
Communications, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years
ended December 31, 1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The consolidated financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts, including goodwill, or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
February 22, 1999
F-9
<PAGE> 75
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash ..................................................................... $ 9,015 $ 179
Accounts receivable, net of allowance for doubtful accounts
of $1,054 and $15, respectively ...................................... 11,765 369
Subscription receivable .................................................. 32,500 --
Prepaid expenses and other current assets ................................ 3,021 67
--------- ---------
Total current assets ............................................. 56,301 615
========= =========
PROPERTY AND EQUIPMENT, net .............................................. 91,226 5,032
--------- ---------
OTHER ASSETS:
Goodwill, net ...................................................... 43,190 5,094
Other intangibles, net ............................................. 21,851 1,198
Other assets, net .................................................. 7,887 1,258
--------- ---------
TOTAL ASSETS .......................................... 220,455 13,197
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 25,335 $ 1,391
Accrued expenses ........................................................ 19,302 1,292
Current portion of notes payable - related parties ...................... -- 540
Current portion of obligations under capital leases ..................... 2,631 937
Other current liabilities ............................................... 1,952 598
Interim loan facility ................................................... 110,926 --
--------- ---------
Total current liabilities ................................ 160,146 4,758
========= =========
Notes payable - related parties, net of current portion ...................... -- 1,191
Long-term obligations under capital leases, net of current portion ........... 17,539 3,006
Note payable ................................................................. 12,028 0
Other long-term liabilities .................................................. 11,375 87
--------- ---------
Total Liabilities ................................... 201,088 9,042
--------- ---------
MINORITY INTEREST ............................................................ 1,845 --
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 5):
STOCKHOLDERS' 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
1998 and 1997, respectively .......................................... -- --
Series B convertible preferred stock, $0.0001 par value, 3,000,000 shares
authorized, 2,931,613 and no shares issued and outstanding in
1998 and 1997, respectively .......................................... -- --
Series C convertible preferred stock, $0.0001 par value, 1,450,000 shares
authorized, 1,132,824 and no shares issued and outstanding in
1998 and 1997, respectively .......................................... -- --
Common stock, $0.0001 par value, 65,000,000 shares authorized,
18,228,916 and 16,033,333 shares issued and outstanding in
1998 and 1997, respectively .......................................... 2 2
Warrants ................................................................ 28,263
Additional paid-in capital .............................................. 77,414 7,953
Unearned compensation expense ........................................... (750) --
Cumulative translation adjustment ....................................... (6,747) --
Accumulated deficit ..................................................... (80,660) (3,800)
--------- ---------
Total stockholders' equity ............................... 17,522 4,155
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............... $ 220,455 $ 13,197
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
<PAGE> 76
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended
---------------------------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
REVENUES .............................................. $ 28,591 $ 2,776 $ --
COST OF SERVICES ...................................... 21,187 2,605
-------- -------- -------
Gross margin ..................................... 7,404 171 --
-------- -------- -------
OPERATING EXPENSES:
Selling, general and administrative expenses ..... 39,147 2,723 270
Depreciation and amortization .................... 11,069 818 --
Asset impairment ................................. 4,842 -- --
-------- -------- -------
Operating loss ................................... (47,654) (3,370) (270)
-------- -------- -------
OTHER (EXPENSE) INCOME:
Interest (expense) income, net ................... (24,570) (128) 10
Other (expense) income ........................... (5,451) 6 --
-------- -------- -------
(30,021) (122) 10
-------- -------- -------
LOSS BEFORE MINORITY INTEREST AND INCOME
TAXES ............................................... (77,675) (3,492) (260)
MINORITY INTEREST ..................................... 903 -- --
-------- -------- -------
LOSS BEFORE INCOME TAXES .............................. (76,772) (3,492) (260)
INCOME TAX PROVISION .................................. -- -- --
-------- -------- -------
NET LOSS .............................................. $(76,772) $ (3,492) $ (260)
-------- -------- -------
NET LOSS PER SHARE,
BASIC AND DILUTED .................................. $ (4.47) $ (0.26) $ (0.11)
======== ======== =======
SHARES USED IN NET LOSS PER SHARE
CALCULATION, BASIC AND DILUTED .................... 17,158 13,245 2,358
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
<PAGE> 77
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Cumulative Unearned
Preferred Common Paid-in- Accumulated Translation Compensation
Stock Stock Capital Deficit Warrants Adjustment Expense Total
--------- ------ ---------- ----------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 ....... $ -- $ -- $ 50 $ (37) -- -- -- $ 13
Issuance of common stock ......... -- 1 109 -- 110
Issuance of common stock
in connection with exercise
of stock options ............ -- -- 4 -- -- -- -- 4
Issuance of common stock
for services ................ -- -- 32 -- -- -- -- 32
Issuance of common stock in
connection with conversion of
promissory note payable ..... -- -- 80 -- -- -- -- 80
Issuance of common stock ......... -- -- -- 2,388 -- 2,388
Net loss ......................... -- -- -- (260) -- -- -- (260)
------- ---- ------- -------- -------- -------- ------ --------
Balance, December 31, 1996 ....... -- 1 2,663 (297) 2,367
Issuance of common stock,
net of offering costs ....... -- -- 10 -- -- -- -- 10
Issuance of common stock in
connection with
conversion of
promissory note payable ..... -- -- 420 -- -- -- -- 420
Issuance of common stock in
connection with acquisitions. -- 1 3,862 -- -- -- -- 3,863
Issuance of Series A preferred
stock, net of offering costs. -- -- 998 -- -- -- -- 998
Dividends on Series A
preferred stock ............. -- -- -- (11) -- -- -- (11)
Net loss ......................... -- -- -- (3,492) -- -- -- (3,492)
------- ---- ------- -------- -------- -------- ------ --------
Balance, December 31, 1997 ....... -- 2 7,953 (3,800) -- -- -- 4,155
======= ==== ======= ======== ======== ======== ====== ========
Issuance of Series B preferred
stock ...................... -- -- 14,702 -- -- -- -- 14,702
Issuance of common stock in
connection with acquisitions -- -- 8,162 -- -- -- -- 8,162
Sale of common stock ............. -- -- 900 -- -- -- -- 900
Exercise of stock options ........ -- -- 188 -- -- -- -- 188
Issuance of Series C preferred
stock ...................... -- -- 40,000 -- -- -- -- 40,000
Conversion of payables to
equity ..................... -- -- 2,652 -- -- -- -- 2,652
Issuance of warrants ............. -- -- -- -- 28,263 -- -- 28,263
Cumulative translation
adjustment .................. -- -- -- -- -- (6,747) -- (6,747)
Issuance of stock and stock
options under compensation
agreements .................. -- -- 2,857 -- -- -- (750) 2,107
Dividend on Series A preferred
stock ....................... -- -- -- (88) -- -- -- (88)
Net loss ......................... -- -- -- (76,772) -- -- -- (76,772)
------- ---- ------- -------- -------- -------- ------ --------
Balance, December 31, 1998 ....... $ -- $ 2 $77,414 $(80,660) $ 28,263 $ (6,747) $ (750) $ 17,522
======= ==== ======= ======== ======== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
<PAGE> 78
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
STATEMENTS OF COMPREHENSIVE LOSS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net loss .............................................. $(76,772) $ (3,492) $ (260)
Other comprehensive income, net of tax:
Foreign currency translation adjustments ......... (6,747) 0 0
-------- -------- --------
Comprehensive loss .................................... $(83,519) $ (3,492) $ (260)
======== ======== ========
</TABLE>
F-13
<PAGE> 79
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................. $ (76,772) $(3,492) $ (260)
Adjustments to reconcile net loss to net cash
Used by operating activities, net of the effects of acquisitions
Depreciation and amortization ................................................... 11,069 818 --
Asset impairment ................................................................ 4,842 -- --
Non cash interest expense ....................................................... 23,052 -- --
Non cash compensation expense ................................................... 2,107 -- --
Minority interest ............................................................... (903)
Change in accounts receivable ................................................... (6,148) 185 --
Change in prepaid expenses and other assets ..................................... 5,177 (624) (34)
Change in accounts payable and accrued expenses and other liabilities ........... 18,831 209 96
Other ........................................................................... (586) -- --
--------- ------- -------
Net cash used in operating activities ................................ (19,331) (2,904) (198)
--------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in connection with acquisitions, net of cash acquired ................. (107,832) (1,230) --
Deposits paid in conjunction with new business alliances ........................ (2,854) -- --
Change in notes receivable ...................................................... -- 1,300 (1,300)
Capital expenditures ............................................................ (8,822) (771) --
--------- ------- -------
Net cash used in investing activities ................................ (119,508) (701) (1,300)
--------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Interim Loan ...................................................... 114,700 -- --
Sale of minority interest ....................................................... 2,748 -- --
Proceeds from shareholder loan .................................................. 12,028 -- --
Proceeds from short-term borrowings ............................................. 4,528 -- --
Principal payments on short-term debt ........................................... (4,528) (262) --
Principal payments on obligations under capital leases .......................... (3,849) (70) --
Principal payments on notes payable - related parties ........................... (540) -- --
Proceeds from issuance of notes payable - related parties ....................... -- 1,556 500
Exercise of stock options ....................................................... 188 -- --
Proceeds from issuance of preferred stock, net of offering expenses ............. 20,966 997 --
Proceeds from issuance of common stock, net of offering expenses ................ 900 10 2,535
--------- ------- -------
Net cash provided by financing activities ............................ 147,141 2,231 3,035
--------- ------- -------
Effect of exchange rate on cash and cash equivalents ..................................... 534 -- --
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ..................................... 8,836 (1,374) 1,537
CASH AND CASH EQUIVALENTS, beginning of period ........................................... 179 1,553 16
--------- ------- -------
CASH AND CASH EQUIVALENTS, end of period ................................................. $ 9,015 $ 179 $ 1,553
========= ======= =======
CASH PAID DURING THE PERIOD FOR INTEREST ................................................. $ 808 $ 73 $ --
========= ======= =======
CASH PAID DURING THE PERIOD FOR TAXES .................................................... $ -- $ -- $ --
========= ======= =======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of note payable--related party and accrued interest for 230,627 shares
of Series B Preferred Stock ..................................................... $ 1,236 $ -- $ --
--------- ======= =======
Stock issued for acquisitions ................................................... $ 8,162 $ -- $ --
--------- ======= =======
Conversion of note payable for 1,680,000 shares of common stock ................. $ -- $ 420 $ --
========= ======= =======
Acquisition of property and equipment under capital lease ....................... $ 8,403 $ 3,559 $ --
========= ======= =======
Stock issued under subscription receivable ...................................... $ 32,500 $ -- $ --
========= ======= =======
Non-cash settlement of MBCP fee with the Company ................................ $ 2,652 $ -- $ --
========= ======= =======
Issuance of warrants in connection with Interim Loan ............................ $ 28,263 $ -- $ --
========= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-14
<PAGE> 80
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
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 Company has grown principally through acquisitions as described in
Note 2.
FINANCIAL CONDITION
The Company is subject to various risks in connection with the
operation of its business including, among other things, (i) changes in
external competitive market factors, (ii) termination of certain
operating agreements or inability to enter into additional operating
agreements, (iii) inability to satisfy anticipated working capital or
other cash requirements, (iv) changes in or developments under domestic
or foreign laws, regulations, licensing requirements or
telecommunications standards, (v) changes in the availability of
transmission facilities, (vi) changes in the Company's business
strategy or an inability to execute its strategy due to unanticipated
changes in the market, (vii) various competitive factors that may
prevent the Company from competing successfully in the marketplace, and
(viii) the Company's lack of liquidity and its ability to raise
additional capital. The Company has an accumulated deficit of
approximately $80,660 as of December 31, 1998 as well as a working
capital deficit of approximately $103,845 and expects to continue to
incur operating losses in the near future. Funding of the Company's
working capital deficit, current and future operating losses and
expansion of the Company will require substantial continuing capital
investment.
The Company's strategy is to fund these cash requirements through debt
facilities and additional equity financing. During 1998 the Company
obtained the following financing:
- $120.0 million in interim financing (the "Interim Loan")
- $13.5 million in connection with the sale of its Series B
Convertible Preferred Stock
- $40.0 million in connection with the sale of its Series C
Convertible Preferred Stock (of which $32.5 million was
received subsequent to year end)
- $14.8 million from the sale of a 15% interest in its
subsidiary EnerTel
- $1 million in connection with the sale of its common stock
Additionally, the Company was able to convert approximately $1.2
million in notes payable to related parties into its Series B
Convertible Preferred Stock. The Company also increased its lease
financing facilities to provide up to $67 million in infrastructure
financing, subject to certain terms and conditions.
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
F-15
<PAGE> 81
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
subsidiaries. All significant intercompany accounts and transactions
have been eliminated.
Use of Estimates
The Company's financial statements are prepared in accordance with
generally accepted accounting principles ("GAAP"). Financial statements
prepared in accordance with GAAP require the use of management
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements. Additionally, management
estimates affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and all liquid investments with an original maturity of
three months or less when purchased.
Intangible Assets
Goodwill represents the excess of the cost of the acquired businesses
over the fair market value of their identifiable net assets. Other
intangible assets primarily represent licenses, customer bases, and
customer contracts. Amortization is provided using the straight-line
method over the expected lives of the assets as follows:
<TABLE>
<S> <C>
Customer base 3-5 years
Customer contracts 3-5 years
Goodwill 10-20 years
Licenses 10 years
</TABLE>
Amortization expense for the years ended December 31, 1998, 1997, and
1996 was $3,989, $397, and $0, respectively. See Note 2 for further
discussion.
The Company periodically reviews its long-lived assets to determine if
they have been other than temporarily impaired. See Note 3 for
discussion of writedown of certain long-term assets. Following this
writedown, management believes its long-lived assets are appropriately
valued in the accompanying financial statements.
Revenue Recognition
The Company recognizes revenues as services are provided. Payments
received in advance are recorded as deferred revenues until such
related services are provided.
Concentration of Credit Risk
The Company is subject to significant concentrations of credit risk,
which consist primarily of trade accounts receivable. The Company sells
a significant portion of its services to other carriers and resellers
and, consequently, maintains significant receivable balances with
certain customers. If the financial condition and operations of these
customers deteriorate below critical levels, the Company's operating
results could be adversely affected. For the year ended December 31,
1998, one customer accounted for 15% of total company revenues. For the
year ended December 31, 1997, three customers accounted for
approximately 91% of total Company revenues.
F-16
<PAGE> 82
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Net Loss Per Share
The Company adopted Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings per Share" in 1997. 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.
Accounting for Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation", allows the
Company to adopt either of two methods for accounting for stock
options. The Company has elected to account for its stock-based
compensation plans under Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB No. 25"). In
accordance with SFAS No. 123, certain pro forma disclosures are
provided in Note 8.
Foreign Currency
The assets and liabilities of foreign subsidiaries are translated at
year-end rates of exchange, and income statement items are translated
at the average rates prevailing during the year. The resulting
translation adjustment is recorded as a component of stockholders'
equity. Exchange gains and losses on intercompany balances of a
long-term investment nature are also recorded as a component of
stockholders' equity. All other exchange gains and losses are recorded
in income on a current basis.
The Company does not currently use any derivative instruments to hedge
its foreign currency exposure. Accordingly, the Company is not subject
to any additional foreign currency market risk other than normal
fluctuations in exchange rates.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income". SFAS No. 130 requires the
presentation of comprehensive income in an entity's financial
statements. Comprehensive income represents all changes in equity of an
entity during the reporting period, including net income and charges
directly to equity which are excluded from net income (such as
additional minimum pension liability changes, currency translation
adjustments, unrealized gains and losses on available for sale
securities, etc.). The Company adopted SFAS No. 130 during the year
ended December 31, 1998.
CERTAIN RECLASSIFICATIONS
Certain reclassifications have been made to amounts previously reported
to conform to current period presentation.
(2) ACQUISITIONS
1998 ACQUISITIONS
In April 1998, the Company acquired the telecommunications assets and
operations of Intercontinental Exchange, Inc. ("ICX"), a licensed
provider of international telecommunications services headquartered in
the San Francisco Bay area, in exchange for 400,000 shares of the
Company's common stock. In June 1998, the Company acquired EnerTel,
which holds a national infrastructure license and operates a
telecommunications network in The Netherlands for consideration of 186
million Dutch guilders (approximately $92 million) and the repayment of
certain EnerTel indebtedness of approximately $17 million. Beginning in
1996, EnerTel deployed a nationwide backbone fiber optic network
utilizing capacity
F-17
<PAGE> 83
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
leased from its consortium members in order to provide domestic and
international long distance services to business and residential
customers in The Netherlands. EnerTel operates a network backbone of
approximately 19,000 fiber kilometers. Additionally, EnerTel has
interconnection and service agreements or arrangements with KPN
Telecom, Deutsche Telecom, Belgacom S.A., and Cable & Wireless, plc,
that provide EnerTel with direct termination services in The
Netherlands, Germany, Belgium, and the United Kingdom, respectively. On
September 11, 1998, the Company sold a portion of the Bel 1600 division
of EnerTel, which provided indirect access services to residential
subscribers, for approximately $2.8 million (the net carrying value of
the assets) as part of a strategic repositioning of EnerTel to serve
carriers, ISPs and other high volume customers. On October 21, 1998,
the Company entered into an agreement to sell a 15% interest in
WorldPort Europe, the parent of EnerTel. The transaction closed on
November 20, 1998 for consideration of a cash infusion comprising $2.8
million in equity and a $12.0 million shareholder loan. See Note 5 for
further discussion on debt and capital lease obligations. The new
minority shareholders in WorldPort Europe are three major regional
Dutch utility and telecommunications services companies who were former
shareholders of EnerTel.
In August 1998, the Company acquired the assets and operations of
International InterConnect, Inc. ("IIC"), a provider of international
long distance and private line services primarily to Latin America. The
purchase consideration was 916,520 shares of the Company's common stock
(of which 38,500 are held in escrow) and $750.
Each acquisition was accounted for under the purchase method of
accounting. The purchase price was allocated to the underlying assets
purchased and liabilities assumed based on their estimated fair market
values at acquisition date. In the fourth quarter of 1998, a
comprehensive independent appraisal of the assets acquired from EnerTel
was completed. Certain adjustments were made to the initial purchase
price allocation to reflect the results of this appraisal.
The following table summarizes the net assets purchased in connection
with the acquisitions and the amount attributable to goodwill (in
thousands):
<TABLE>
<CAPTION>
IIC EnerTel ICX
------- -------- -----
<S> <C> <C> <C>
Working capital $ 629 $ (541) $(221)
Property, plant, and equipment 243 78,975 169
Other assets 209 930 28
Non-current liabilities (2,785) (19,221) (39)
Customer base 7,442 2,500 635
License -- 19,000 --
Goodwill 2,785 35,142 --
</TABLE>
The preliminary estimate of net assets acquired represents management's
best estimate based on currently available information; however, such
estimate may be revised up to one year from the acquisition date.
1997 ACQUISITIONS
On June 20, 1997, the Company completed the acquisition of
substantially all of the telecommunications assets and operations of
Telenational Communications Limited Partnership ("TNC") , a reseller of
international switched and private line services in exchange for (i)
3,750,000 shares of the Company's common stock and (ii) the assumption
by the Company of certain working capital obligations and indebtedness
of TNC up to a maximum of $4.6 million.
On July 3, 1997, the Company acquired Wallace Wade Corporation ("WWC"),
a telecommunications marketing consulting firm in exchange for: (i)
1,200,000 shares of the Company's common stock, (ii) $75 cash and (iii)
a promissory note in the amount of $175. See Note 6 for further
discussion.
Both acquisitions were accounted for using the purchase method of
accounting and are subject to certain purchase price adjustments as
discussed above. The allocation of purchase price to the assets
acquired and liabilities assumed in the transaction were assigned and
recorded based on their fair values.
F-18
<PAGE> 84
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The fair value of assets acquired and liabilities assumed in connection
with the 1997 Acquisitions is summarized as follows:
<TABLE>
<CAPTION>
TNC WWC
------- -------
<S> <C> <C>
Working capital $(3,169) $ (15)
Property and equipment 1,121 3
Other long-term assets 189 --
Contracts -- 1,313
Goodwill 5,850 --
</TABLE>
Pro Forma
The unaudited pro forma consolidated results of operations of the
Company, as though the 1998 and 1997 Acquisitions took place on January
1, 1997, are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues $ 40,561 $ 14,752
========= =========
Net loss $ (89,495) $ (65,099)
========= =========
Net loss per share, basic and diluted $ (4.96) $ (3.90)
========= =========
</TABLE>
The pro forma financial information does not purport to represent what
the consolidated results of operations would have been if the
acquisitions had in fact occurred on these dates, nor does it purport
to indicate the Company's future consolidated financial position or
future consolidated results of operations. The pro forma adjustments
are based on currently available information and certain assumptions
that the Company's management believes to be reasonable.
(3) ASSET IMPAIRMENT
Following its acquisition of EnerTel, the Company shifted its focus to
becoming a facilities-based global telecommunications carrier with an
emphasis on European operations. In connection with this shift in
strategy and the resulting changes in asset deployment, management
conducted a comprehensive evaluation of its existing assets to
determine whether they were impaired under the provisions of SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." ("SFAS No. 121"). As a result of
this evaluation, management determined that assets acquired in 1997
from WWC were impaired as defined by SFAS No. 121. A charge of
approximately $898 was recorded to reduce these assets (principally
goodwill) to their net realizable value. In addition, the Company
determined that certain switching and other network equipment it
previously operated would no longer be utilized following the EnerTel
acquisition. A charge of approximately $3,944 was recorded to write
this equipment down to its net realizable value.
(4) PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Expenditures for additions,
improvements and renewals, which add significant value to the asset or
extend the life of the asset, are capitalized. Expenditures for
maintenance and repairs are charged to expense as incurred. The Company
provides for depreciation of property and equipment using the
straight-line method based on the estimated useful lives of the assets
ranging from three to twenty years.
F-19
<PAGE> 85
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Following is a summary of property and equipment at December 31, 1998
and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
Switching and network equipment $ 87,792 $ 1,280
Work-in progress 9,643 3,561
Leasehold improvements 453 318
Office and computer equipment 737 159
Furniture, fixtures and other 321 135
-------- -------
Total property and equipment 98,946 5,453
Less: accumulated depreciation and amortization (7,720) (421)
-------- -------
Property and equipment, net $ 91,226 $ 5,032
======== =======
</TABLE>
Depreciation expense charged to operations was $7,080, $421 and $0 for
the years ended December 31, 1998, 1997, and 1996, respectively.
(5) DEBT AND CAPITAL LEASE OBLIGATIONS
The Company's current and long-term debt as of December 31, 1998 and
1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Interim Loan, due June 23, 1999, secured, variable interest rate, net of
unamortized discounts of $17,075 $ 110,926 $ --
Note payable affiliate, due December 31, 1997, secured, 10% interest rate -- 1,731
EnerTel Minority Shareholder loan, due ten years after the repayment of the
Interim Loan, variable interest rate 12,028 --
--------- ---------
Total 122,954 1,731
Less current portion (110,926) (540)
--------- ---------
Long-term, net of current portion $ 12,028 $ 1,191
--------- ---------
</TABLE>
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. As of December 31, 1998 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 December 31, 1998, 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 December 31, 1998, the warrants
were valued at an aggregate of $28,263 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). 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.
In September 1997, the Company entered into an arrangement with MBCP
(see Note 8) whereby MBCP would arrange for the Company to borrow from
MBCP and certain of its affiliated entities under certain
F-20
<PAGE> 86
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
promissory notes (the "Bridge Notes"). The Bridge Notes bore interest
at 10% per annum. During 1998, $1,191 of the Bridge Notes and accrued
interest were converted into 230,627 shares of the Company's Series B
Convertible Preferred Stock. The remaining Bridge Notes were repaid in
cash.
On October 20, 1998, the Company entered into a loan agreement with the
purchasers of a minority interest in EnerTel in the principal amount of
approximately $12,028 (the "Minority Shareholder Loan"). The Minority
Shareholder Loan bears interest at the LIBOR rate plus 6.5% per annum,
increasing by 0.5% per annum every three months until the Interim Loan
is repaid (as of December 31, 1998, the Minority Shareholder Loan bore
interest at 12.7% per annum). After the repayment of the Interim Loan,
the Minority Shareholder Loan shall bear interest equal to the LIBOR
rate plus 0.5% per annum. The interest payable during the first five
years after the repayment of the Interim Loan shall accrue and be
payable at maturity. The interest payable during the second five years
after repayment of the Interim Loan shall be payable semi-annually in
arrears. The Minority Shareholder Loan is secured by a pledge of 15% of
the shares of EnerTel N.V., which pledge shall be released upon the
repayment of the Interim Loan. The Minority Shareholder Loan matures 10
years after the repayment of the Interim Loan. The carrying value of
the aforementioned debt (before unamortized discount) approximates
market value.
Vendor Financing
As of December 31, 1998, the Company had four credit facilities with
vendors under which it could borrow up to $67 million bearing interest
at rates between 7.5% and 13%, subject to meeting certain financial
criteria. These facilities have 3-10 year terms and in some cases offer
purchase provisions at the end of the term ranging from one dollar to
fair market value. The Company has approximately $19,060 outstanding
under these facilities at December 31, 1998 which are recorded as
capital leases (Note 6). These facilities are secured by the equipment
and contain certain restrictive covenants.
Additional Financing
In conjunction with unsuccessful financing activities and acquisitions,
the Company incurred $4,373 in costs which have been recorded as a
charge against income in Other Expenses in the accompanying statement
of operations.
(6) COMMITMENTS AND CONTINGENCIES
Service Commitments
The Company has entered into various agreements to purchase services
from various telecommunications carriers. The following table
summarizes the Company's minimum commitments under these agreements (in
thousands):
<TABLE>
<CAPTION>
Year Ending
December 31
-----------
<S> <C>
1999 $ 8,650
2000 10,952
2001 6,000
2002 6,000
2003 8,000
-------
Total $39,602
=======
</TABLE>
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
F-21
<PAGE> 87
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
against the Company's aggregate $66 million commitment over the next 3
years under this agreement.
The Company has entered into agreements with a vendor for the
construction, turn-key installation, in-country technical support and
maintenance of DMS-GSP switches to be installed worldwide. The Company
has an aggregate $20 million commitment over the next three years (of
which approximately $10.2 million has been spent to date).
Leases
The Company and its subsidiaries lease office and network facilities
under various noncancelable operating and capital lease agreements.
Future minimum commitments under the leases as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
Year Ending December 31 Operating Capital
--------- ---------
<S> <C> <C>
1999 $ 7,196 $ 4,188
2000 7,498 4,188
2001 4,391 2,918
2002 3,653 2,043
2003 and thereafter 4,197 12,868
-------- ---------
Minimum future lease payments $ 26,935 26,205
========
Less portion related to interest (6,035)
---------
Present value of future minimum lease obligations 20,170
Less current portion (2,631)
---------
Non-current portion $ 17,539
=========
</TABLE>
Total rental expense for operating leases for the years ended December
31, 1998, 1997, and 1996 was $1,272, $90 and $0, respectively.
Legal
The Company and WorldPort Communications Europe, B.V., one of its
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 and
February, 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, its subsequent purchase of EnerTel, and Mr.
Zolfagharpour's employment agreement with the WorldPort Europe. The
litigation seeks dissolution of the employment agreement and the
non-competition clause of the agreement, 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.
On June 2, 1998 the Company initiated an arbitration proceeding against
John W. Dalton ("Dalton"), a former director, and its former President
and Chief Executive Officer. In that proceeding, the Company is seeking
the rescission and cancellation of 1.2 million shares of Common Stock
that were issued to Dalton in connection with the acquisition of a
company formerly owned by Dalton. In the same proceeding, Dalton is
asserting claims against the Company, Maroon Bells Capital Partners,
Inc. ("MBCP"), Paul A. Moore (the Company's current Chairman and Chief
Executive Officer), Phillip S. Magiera (a director and the Company's
Chief Financial Officer and Secretary), Dan Wickersham (the Company's
former President and Chief Operating Officer) and Theodore H. Swindells
(a principal of MBCP). Dalton's employment was terminated by notice
dated April 6, 1998. Dalton alleges, 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. Dalton had previously asserted these claims in a
lawsuit filed in Texas state court. However, based on a motion the
Company filed, that proceeding was dismissed by the Texas court in
favor of arbitration. The
F-22
<PAGE> 88
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
Company plans to prosecute its claims against Dalton vigorously and to
vigorously defend against the claims asserted by Dalton.
In addition to the aforementioned claims, the Company is involved in
various other lawsuits or claims arising in the normal course of
business. In the opinion of management, none of these lawsuits or
claims will have a material adverse effect on the consolidated
financial position or results of operations of the Company.
(7) STOCKHOLDERS' EQUITY
The Company is authorized to issue 65,000,000 shares of Common Stock,
$.0001 par value per share and 10,000,000 shares of Preferred Stock,
$.0001 par value per share.
Common Stock
In March 1997, the Company completed a private placement offering of
3,333,333 shares of common stock for net proceeds of $2,388. In April
1998, the Company sold 180,000 shares for net proceeds of $900.
Series A Preferred Stock
The Company has designated 750,000 shares of its preferred stock to be
Series A Preferred Stock ("Series A") with a par value of $0.0001 and a
stated value of $2.25. The Series A is cumulative and bears dividends
at the rate of 8% per annum, payable in cash or shares of the Company's
common stock at the option of the Company. The Series A is convertible
at any time, at the option of the holder, and will be mandatorily
converted upon the occurrence of certain events, into an equal number
of shares of the Company's common stock and such holders have the same
voting rights as those of the common stock. In 1997, the Company issued
493,889 shares of Series A Preferred Stock for total net proceeds of
$997.
Series B Preferred Stock Offering
The Company has designated 3,000,000 shares of its preferred stock to
be Series B Preferred Stock ("Series B") with a par value of $0.0001
and a stated value of $5.36. The Series B is non-cumulative and bears
dividends at the rate of 7% per annum, payable in cash or shares of the
Company's common stock at the option of the Company. The Series B is
convertible at any time, at the option of the holder, and will be
mandatorily converted upon the occurrence of certain events, at a rate
of 4 shares of common stock for each share of preferred stock. Holders
of Series B have voting rights equal to 40 votes per share on all
matters submitted to a vote of the stockholders of the Company.
During the first half of 1998, the Company received approximately $12.4
million in cash proceeds from the sale of the Series B Convertible
Preferred Stock and converted approximately $1.2 million of Bridge
Notes and accrued interest into the Series B Convertible Preferred
Stock in exchange for 2,539,345 shares of the Company's Series B
Convertible Preferred Stock.
Series C Preferred Stock
The Company has designated 1,450,000 shares of its preferred stock to
be Series C Preferred Stock ("Series C") with a par value of $0.0001
per share and a stated value of $35.31 per share. The Series C is
non-cumulative and bears dividends at the rate of 7% per annum, payable
in cash or shares of the Company's common stock at the option of the
Company. The Series C is convertible at any time, at the option of the
holder, and will be mandatorily converted upon the occurrence of
certain events, into 10.865 shares of the Company's common stock for
each share of Series C stock. Holders of Series C have voting rights
equal to 40 votes per share on all matters submitted to a vote of the
stockholders of the Company.
In December 1998, the Company entered into a Series C Preferred Stock
Purchase Agreement (the
F-23
<PAGE> 89
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
"Purchase Agreement") with an investor, pursuant to which the investor
acquired 212,405 shares of Series C for an aggregate purchase price of
$7,500. Pursuant to the Purchase Agreement, the investor also (i)
committed to acquire an additional 920,419 shares of Series C for an
aggregate purchase price of $32,500 and (ii) received an option to
acquire up to 283,206 shares of Series C for an aggregate purchase
price of $10,000. This option expires upon the repayment or refinancing
of the Interim Loan. The investor's commitment to acquire the
additional 920,419 shares was subject to customary conditions,
including regulatory approvals, which were obtained in January 1999.
The investor acquired such shares in January 1999.
As a holder of the Series C Stock, the investor is entitled to vote on
all matters submitted to a vote of the stockholders of the Company,
voting together with the holders of Common Stock as a single class. In
addition to the votes that the investor obtained through its stock
purchase, the investor has also obtained certain additional rights.
Those rights include, with respect to the Common Stock issued upon
conversion or exercise of the Series C Stock, certain demand and
piggyback registration rights.
Pursuant to the Purchase Agreement, on December 31, 1998, the Company
increased the size of its Board of Directors to eight members and
appointed four individuals designated by the investor to serve as
directors. WorldPort has also agreed to cause the investor's designees
to comprise at least one-half of the boards of directors of each of its
subsidiaries. In addition, WorldPort amended its Bylaws to provide that
at least one of the investor's designees and, except in certain limited
situations, one of the directors who was not designated by the investor
must approve any action put before the Board of Directors in order for
such to be properly approved by the Board of Directors.
Additionally, in connection with the investor's purchase of Series C
Stock, on December 31, 1998, the investor, the Company, and its
Chairman and Chief Executive Officer, its Chief Financial Officer, the
remaining MBCP stockholder, and MBCP (collectively, the "Stockholders")
also entered into a Shareholder Agreement. Pursuant to the Shareholder
Agreement, the Stockholders (i) agreed not to vote certain of their
shares of capital stock of the Company in favor of certain financing
proposals or other items without the investor's consent and (ii)
granted to the investor a proxy with respect to such capital stock for
the investor's use in limited matters. Pursuant to the Shareholder
Agreement, the investor and the Stockholders have also agreed to
certain restrictions on the transfer of certain of their shares of the
Company's capital stock.
Long-term Incentive Plan
The Company adopted an incentive stock option plan for employees and
consultants in September 1996. The Company has reserved 7,500,000
shares of common stock for issuance pursuant to the plan. As of
December 31, 1998, there were 5,751,000 outstanding options under the
plan at exercise prices ranging from $0.08 to $14.19 per share which
vest over a period ranging from one to three years. Options granted to
consultants are valued using the Black-Scholes models and recorded as
compensation expense over the period of service to which they related.
Such amounts were not material for any of the periods presented.
Stock Options
A summary of the status of the Company's stock option plan at December
31, 1998 is as follows (in thousands):
F-24
<PAGE> 90
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Shares Weighted Average Price
-------- ----------------------
<S> <C> <C>
Outstanding at December 31, 1996 75 $ 0.08
Granted 1,100 1.74
Forfeited (250) 1.25
--------
Outstanding at December 31, 1997 925 1.27
Granted 5,216 7.53
Exercised (92) 2.06
Forfeited (298) 1.81
--------
Outstanding at December 31, 1998 5,751 6.91
--------
</TABLE>
The remaining weighted average contractual life of the options
outstanding at December 31, 1998 is 9.4 years and the weighted average
price of the 3,151,667 exercisable options at December 31, 1998 is
$6.62.
The following table sets forth the exercise price range, number of
shares, weighted average exercise price, and remaining contractual
lives of options issued by year:
<TABLE>
<CAPTION>
Weighted
Average
Remaining Weighted
Contractual Weighted Exercisable Average
Year Range of Outstanding as Life Exercise As of Exercise
Granted Exercise prices of 12/31 (in years) Price 12/31 Price
------- --------------- -------------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
1996 $0.08 75,000 7.78 $0.08 75,000 $0.08
1997 $0.75 - $2.25 850,000 8.50 $1.22 511,667 $1.17
1998 $1.00 - $14.19 4,826,000 9.44 $7.53 2,565,000 $7.77
</TABLE>
Had compensation cost for stock options been determined under SFAS No.
123, the Company's net loss and net loss per share would have been the
following pro forma amounts:
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------------
1998 1997 1996
-------- ------- -----
<S> <C> <C> <C>
Net loss
As reported $(76,772) $(3,492) $(260)
Pro forma (90,072) (3,731) (314)
Net loss per share
As reported (4.47) (0.26) (0.11)
Pro forma (5.25) (0.28) (0.13)
</TABLE>
Under SFAS No. 123, the fair value of each option grant was estimated
on the date of grant using the Black-Scholes option pricing model. The
following weighted average assumptions were used for grants in 1998,
1997 and 1996, respectively: risk-free interest rates of 5.3%, 6.8%,
and 6.7%; dividend rates of $0; expected lives of 10 years; expected
volatility of 77.4% for 1998 and 58.1% respectively, for 1997, and
1996.
The Black-Scholes option pricing model and other existing models were
developed for use in estimating the fair value of traded options that
have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of and are highly sensitive
to subjective assumptions including the expected stock price
volatility. The Company's employee stock options have characteristics
significantly different from those of traded options, and changes in
the subjective input assumptions can
F-25
<PAGE> 91
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
materially affect the fair value estimate.
Employee Benefit Plan
The Company's subsidiary, EnerTel, is required by Dutch law to
contribute a certain percentage of its employees' salary, based on the
employees' ages, to a fund managed by a third-party for retirement
purposes. The Company has no obligation other than to make the
contributions as defined by the law. The Company recorded compensation
expense of approximately $500 related to contributions made from
acquisition through December 31, 1998.
(8) RELATED PARTY TRANSACTIONS
Advisory Agreements
On March 7, 1997, the Company and Maroon Bells Capital Partners
("MBCP") entered into a twelve month advisory agreement for services to
be rendered in conjunction with potential acquisitions and financings.
On February 4, 1998, the Company amended the Advisory Agreement with
MBCP to ensure the continuity of services during its expansion phase by
renewing the Advisory Agreement for an additional twenty-four months
with an expiration of March 7, 2000. Under terms of the amendment, the
Company agreed to grant MBCP five-year options to purchase 250,000
shares of the Company's common stock at an exercise price of $2.00 per
share. At the time of grant, the options were valued in accordance with
SFAS No. 123 and the related amount, $1,045, is recorded as a component
of selling, general and administrative expense in the accompanying
statement of operations. All other transactions with MBCP were not
material.
The Advisory Agreement was terminated on December 31, 1998 pursuant to
a termination agreement between the Company and MBCP. Under the
termination agreement, the Company paid to MBCP $200, agreed to issue
to MBCP shares of a new series of its preferred Stock with an aggregate
liquidation value of $1.0 million, and assigned to MBCP promissory
notes receivable from Messrs. Moore, Magiera and Swindells, which notes
had an aggregate amount outstanding of $1.6 million (including accrued
interest). Such payments reflected payment in full for all services
rendered, expenses incurred and retainer payments owing to MBCP in
1998. The accompanying balance sheet reflects the impact of this
settlement.
Series B Convertible Preferred Stock Purchase
In March 1998, Anderlit, Ltd., a privately-owned investment fund
("Anderlit"), purchased 746,269 shares of the Company's Series B
Convertible Preferred Stock for an aggregate purchase price of $4,000.
Anderlit is an investment fund investing in a portfolio of emerging
telecommunications companies. The Company's Chief Executive Officer and
Chief Financial Officer are investors in Anderlit and the Company's
Chief Executive Officer has received from Anderlit an irrevocable proxy
to vote all of the Company's Series B Preferred Stock owned by
Anderlit.
Affiliated Sales
As discussed in Note 2, the Company divested itself of its Bel 1600
unit. The Company holds a minority interest (20%) in the company to
which these assets were transferred. During 1998, the Company had sales
of approximately $4.3 million to this new entity. In management's
opinion, these sales are at market rates.
Other Related Party Transactions
A director of the Company, is a partner at a law firm which provides
the principal on-going legal services to the Company.
F-26
<PAGE> 92
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(9) TAXES
Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes. The significant components of the Company's deferred tax
assets and liabilities as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
--------- --------
<S> <C> <C>
Deferred tax assets and (liabilities) -
Net operating loss carryforwards 41,529 $ 1,293
Interim Loan Warrants (20,175) --
Intangible assets (1,903) (51)
Other 1,736 49
--------- --------
Total deferred tax assets 21,187 1,291
Less: Valuation allowance (31,497) (1,291)
--------- --------
Net deferred tax liability $ (10,310) $ --
========= ========
</TABLE>
The Company has incurred losses since inception. As the Company is
unable to conclude that it is more likely than not that it will be able
to realize the benefit of its deferred tax assets, it has provided a
full valuation allowance against the net amount of such assets. The
deferred tax liability at December 31, 1998 represents net deferred tax
liabilities in those jurisdictions in which net operating loss
carryforwards and other deferred tax assets are insufficient to fully
offset deferred tax liabilities.
At December 31, 1998, the Company had net operating loss carryforwards
of approximately $50 million for U.S. income tax purposes and
approximately $78 million for foreign tax purposes. The U.S.
carryforwards primarily expire in 2018. The foreign carryforwards do
not expire.
Section 382 of the Internal Revenue Code limits the utilization of net
operating loss carryforwards when there are changes in ownership
greater than 50%, as defined. The Company has not yet made a
determination of whether a change in control under Section 382 has
occurred. If such a change has occurred, the timing of the Company's
utilization of its U.S. NOL carryforwards could be impacted.
A reconciliation from the federal statutory rate to the Company's
effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate (34)% (34)% (34)%
Amortization of goodwill 5 0 0
State taxes (4) (4) (4)
Other (2) 0 0
Valuation Allowance 35 38 38
--- --- ---
Total 0% 0% 0%
=== === ===
</TABLE>
(10) SEGMENT REPORTING
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
F-27
<PAGE> 93
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
ended December 31, 1998.
The Company views itself as participating in one business segment--
facilities-based global telecommunications carrier. Its operations can
be viewed as European and North American. Intersegment revenues are not
material. Financial data by geographic area for 1998 are as follows:
<TABLE>
<CAPTION>
European North American Total
--------- -------------- ---------
<S> <C> <C> <C>
Revenues $ 18,307 $ 10,284 $ 28,591
Depreciation and amortization 8,311 7,599 15,911
Operating loss (20,675) (26,979) (47,654)
Interest expense, net (23,928) (642) (24,570)
--------- -------- ---------
Net loss (43,699) (33,073) (76,772)
========= ======== =========
Total assets 158,088 62,367 220,455
Capital expenditures 5,339 3,483 8,822
--------- -------- ---------
Intangible assets 49,896 15,145 65,041
========= ======== =========
</TABLE>
Prior to 1998, all operations were North American based.
F-28
<PAGE> 94
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Upon recommendation of the Audit Committee of our Board of Directors and
upon approval of such recommendation by our Board of Directors, we replaced
Schumacher & Associates, Inc. ("Schumacher") as our independent public
accounting firm on June 30, 1997. Effective July 1, 1997, we engaged Arthur
Andersen LLP as our independent public accountants. The prior accountant's
report of Schumacher on our financial statements for the years ended December
31, 1996 and 1995, respectively, and for the period from January 6, 1989 (date
of inception) to December 31, 1996 was not qualified or modified in any manner
and contained no disclaimer of opinion or adverse opinion. No disagreements
exist between us and Schumacher on any matter of accounting principle or
practice, financial statement disclosure or auditing scope or procedure related
to our financial statements for the years ended December 31, 1996 and 1995,
respectively, and for the period from January 6, 1989 (date of inception) to
December 31, 1996 or for the interim period beginning January 1, 1997 through
June 30, 1997, the date of the replacement.
F-29
<PAGE> 95
ANNEX A
STRICTLY PRIVATE & CONFIDENTIAL
DATED 11 NOVEMBER 1999
WORLDPORT COMMUNICATIONS INC (1)
WORLDPORT INTERNATIONAL INC (2)
ENERGIS PLC (3)
--------------------------------------------
AGREEMENT
for the sale and purchase of the issued
share capital of
WorldPort Communications Europe Holding B.V.
and
WorldPort Communications Limited
and
for the sale and purchase of
DMS GSP International Gateway Switches
-------------------------------------------
RAKISONS
SOLICITORS
Clements House
14/18 Gresham Street
London EC2V 7JE
Tel: +44 (0)171 367 8000
Fax: +44 (0)171 367 8001
e-mail: [email protected]
Ref: MCT/RCH/ML/W0789002034
<PAGE> 96
TABLE OF CONTENTS
<TABLE>
<S> <C>
INTRODUCTION.............................................................................................. A-3
OPERATIVE PROVISIONS...................................................................................... A-3
1 DEFINITIONS.......................................................................................... A-3
2 delivery at signing.................................................................................. A-10
3 CONDITIONS PRECEDENT................................................................................. A-11
4 AGREEMENT FOR SALE................................................................................... A-14
5 PURCHASE CONSIDERATION............................................................................... A-14
6 COMPLETION........................................................................................... A-15
7 ADJUSTMENTS TO PURCHASE CONSIDERATION................................................................ A-17
8 COVENANTS OF WCEH AND WORLDPORT...................................................................... A-19
9 WARRANTIES BY THE VENDOR............................................................................. A-20
10 Y2K.................................................................................................. A-25
11 ASSIGNMENT AND SUCCESSIONS........................................................................... A-26
12 TERMINATION.......................................................................................... A-26
13 ANNOUNCEMENTS........................................................................................ A-27
14 INFORMATION.......................................................................................... A-27
15 COSTS................................................................................................ A-27
16 TIME OF ESSENCE...................................................................................... A-28
17 COMMUNICATIONS....................................................................................... A-28
18 CONFIDENTIALITY...................................................................................... A-29
19 INVALIDITY........................................................................................... A-29
20 COUNTERPARTS......................................................................................... A-29
21 PROPER LAW........................................................................................... A-29
</TABLE>
A-2
<PAGE> 97
DATED: 11 NOVEMBER 1999
PARTIES:
(1) WORLDPORT COMMUNICATIONS INC incorporated in the State of Delaware
whose principal executive offices are at 1825 Barrett Lakes Boulevarde,
Suite 1000 Kennesaw, Georgia 30144, United States of America
("WORLDPORT");
(2) WORLDPORT INTERNATIONAL INC incorporated in the State of Delaware whose
principal executive offices are at 1825 Barrett Lakes Boulevarde, Suite
1000 Kennesaw, Georgia 30144, United States of America ("VENDOR"); and
(3) ENERGIS PLC with Company number 3438871 whose registered office is at
Carmelite, 50 Victoria Embankment, London EC4Y 0DE ("PURCHASER")
INTRODUCTION
(A) WorldPort International Inc. is wholly owned by WorldPort
Communications Inc.
(B) WorldPort International Inc has agreed to dispose of its holding of
shares in WorldPort Communications Europe Holding BV to the Purchaser
on the terms of this agreement.
(C) Simultaneously with the disposal of the shares in WorldPort
Communications Europe Holding BV, WorldPort has agreed to dispose to
the Purchaser its holding of shares in WorldPort Communications Limited
and to dispose of its interest in DMS GSP international gateway
switches to UCS the U.S. subsidiary of the Purchaser.
OPERATIVE PROVISIONS
1 DEFINITIONS
1.1 In this agreement, including the Schedules, the following words and
expressions have the meanings stated, unless they are inconsistent with
the context:
"ADDITIONAL INDEBTEDNESS" the aggregate of the amounts
incurred in accordance with clause
3.5(d) (including accrued interest)
between the date of signing of this
agreement and Completion
"ASSOCIATE" any subsidiary or holding company of
WCEH, and any other subsidiary of
any holding company of WCEH,
"holding company" having the same
meaning as in CA s736 and
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for this purpose a company is
controlled by one or more
persons if he or they can
exercise more than fifty per
cent of the voting rights in it
"ASSUMED DEBT" the sum of interest bearing
liabilities including financial
leases excluding the
Indebtedness and less cash and
cash equivalent as at the
Management Accounts Date, being
as set out in Schedule 9
"ASSUMED DEBT SCHEDULE" Schedule 9 of this Agreement
providing details of the Assumed
Debt
"BANKERS TRUST PLEDGES" the pledges granted by WCEH in
favour of Bankers Trust as set
out in Schedule 8, together with
any other Encumbrances affecting
the Shares or the assets of
WCEH, the shares or assets of
the Subsidiary or WCL or the
Switch (as defined in the Switch
Agreement)
"CA" Companies Act 1985
"CERTIFICATES" the certificates in the agreed
form to be delivered by
WorldPort and the Vendor as at
the date of this Agreement and
at Completion to the Purchaser
"COMPANIES ACTS" CA, the former Companies Acts
(within the meaning of CA
s735(1)) and the Companies Act
1989
"THE COMPANY" WCEH
"COMPLETION" completion of the purchase of
the Shares in accordance with
clause 6
"COMPLETION ACCOUNTS" the audited combined balance
sheet of WCEH and the Subsidiary
as at the Completion Date and
the audited combined profit and
loss account of WCEH and the
Subsidiary for the period from
the Last Accounts Date to
Completion prepared on the basis
described in clause 7
"COMPLETION BALANCE SHEET" the combined balance sheet of
WCEH and the Subsidiary prepared
from the
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Completion Accounts in
accordance with clause 7 and
adjusted in accordance with
clause 7
"COMPLETION DATE" subject to clause 10.2, the date
five business days after the
satisfaction of the conditions
set out in clause 3 (or if such
date falls between 31 December
1999 and 14 January 2000, 15
January 2000) or such other date
as may be agreed between the
parties
"CONSIDERATION" the consideration specified in
clause 5 as adjusted in
accordance with clause 5.4 and
clause 7
"DATA ROOM" the room located at the premises
of WCEH at K.P. van der
Mandelelaan 130, 3062 MB
Rotterdam, The Netherlands in
which documentation in relation
to WCEH and the Subsidiary has
been made available to the
Purchaser for the purpose of its
due diligence activities
"DATA ROOM DISCLOSURE LIST" the list of documents reviewed
by the Purchaser in relation to
the Data Room in the agreed form
as attached to the Disclosure
Letter
"DUTCH GAAP" Dutch Generally Accepted
Accounting Principles
"ENCUMBRANCE" includes any mortgage, charge,
pledge hypothecation, lien,
assignment by way of security,
title retention, option, right
to acquire, right of
pre-emption, right of set off,
counterclaim, trust arrangement
or other security, preferential
right or agreement to confer
security, or restriction
"GLOBAL CROSSING NOVATION the agreement in the agreed form
AGREEMENT" to be entered into on or prior
to Completion as set out in
Annex IV
"INDEBTEDNESS" the inter-company debts owed by
WCEH and the Subsidiary as at 30
September 1999 being as set out
in Schedule 4
"INTELLECTUAL PROPERTY RIGHTS" means patents, trade marks,
service marks, trade names,
domain names, registered
designs, designs, semiconductor
topography rights, database
rights, copyrights and other
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forms of intellectual or
industrial property (in each
case in any part of the world,
whether or not registered or
registrable), know-how,
inventions, formulae,
confidential or secret processes
and information, rights in
computer software, and any other
protected rights and assets, and
any licenses and permissions in
connection with the foregoing
"LAST ACCOUNTS" the balance sheet, as at the
Last Accounts Date, and profit
and loss account for the year
ended on the Last Accounts Date
of each of WCEH and the
Subsidiary in the agreed form as
set out in Schedule 11
"LAST ACCOUNTS DATE" 31 December 1998 (being the date
to which the Last Accounts were
prepared)
"LONGSTOP DATE" subject to clause 3.7, 31
January 2000 (or such other date
as may be agreed in writing by
the Vendor and the Purchaser)
"MANAGEMENT ACCOUNTS" the unaudited balance sheet and
profit and loss accounts for the
nine month period ended on and
as at the Management Accounts
Date for WCEH and the Subsidiary
in the agreed form as set out in
Schedule 13
"MANAGEMENT ACCOUNTS DATE" 30 September 1999
"MINORITY SHAREHOLDER" the shareholder who holds 60
shares of NLG 100 each, being
15% of the issued share capital
of WCEH, whose name is set out
in part A of Schedule 4
"NET ASSETS" the aggregate of the share
capital plus reserves for WCEH
and the Subsidiary
"THE NET ASSETS SCHEDULE" Schedule 10 of this Agreement
providing details of the Net
Assets as at the Management
Accounts Date
"NET ASSETS STATEMENT" the statement referred to in
clause 7
"PURCHASER'S AUDITORS" PriceWaterhouseCoopers of 1
Embankment Place, London WC2N
6NN
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"PROPERTIES" the properties in the name of
WCEH, set out in Schedule 3
"SEC" the US Securities and Exchange
Commission
"SHAREHOLDER LOAN" the loan to be repaid to the
Minority Shareholder at
Completion, the amount owing as
at the Management Accounts Date,
being as set out in part A of
Schedule 4
"SHAREHOLDER PROXIES" the proxies referred to in
clause 2.1(a)
"SHARES" 340 shares of NLG 100 each,
being 85% of the issued share
capital of WCEH
"SUBSIDIARY" EnerTel N.V.
"TAXATION" all forms of taxation, duties
and levies whatsoever and
whenever imposed, whether by
governmental or other authority
and whether of the USA, the
Netherlands, the United Kingdom
or elsewhere, and (without
limitation) includes:
(a) income tax, corporation tax,
capital gains tax,
inheritance tax, stamp duty,
capital duty, value added
tax, transfer tax, sales
tax, customs and other
import duties and national
insurance contributions and
any payment whatsoever which
WCEH or the Subsidiary may
be or become bound to make
to any person as a result of
any enactment relating to
taxation and any other
taxes, duties or levies
supplementing or replacing
any of the above;
(b) all interest, fines and
penalties incidental, or
relating, to any such
taxation, duties or levies,
whatsoever
"UK SWITCH AGREEMENT" the agreement in the agreed
form of even date made between
WorldPort and WCL for the sale
and purchase of the Nortel 250
Switch as set out in Annex III
"UCS" Unisource Carrier Services
USA. Inc.
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"US SWITCH AGREEMENT" the agreement in the agreed
form of even date made between
WorldPort and UCS whereby
WorldPort agrees to sell its
interest in the US Switches and
the Contracts (each as defined
in the US Switch Agreement) as
set out in Annex II
"VENDOR'S AUDITORS" Arthur Andersen of Prof. W.H.
Keesomlaan 8, 1183 DJ
Amstelveen, Postbus 75381, 1070
Amsterdam
"VENDOR'S SOLICITORS" Rakisons, Clements House, 14/18
Gresham Street, London EC2V 7JE
"WARRANTY CLAIM" a claim made by the Purchaser
for breach of any of the WCEH
Warranties
"WCEH" WorldPort Communications Europe
Holding B.V. having its
statutory seat in Rotterdam, The
Netherlands
"WCEH AUDITORS" Arthur Andersen of Prof. W.H.
Keesomlaan 8, 1183 DJ
Amstelveen, Postbus 75381, 1070
Amsterdam
"WCEH CONTRACTS" the contracts set out in
Schedule 5 to be assigned or
novated by WorldPort to WCEH
prior to Completion
"WCEH DISCLOSURE LETTER" the disclosure letter, of
today's date, from the Vendor
and WorldPort to the Purchaser
"WCEH WARRANTIES" the warranties of the Vendor and
WorldPort in respect of the sale
of the Shares set out in
Schedule 2
"WCL" WorldPort Communications Limited
"WCL SHARE AGREEMENT" the agreement of even date made
between WorldPort and the
Purchaser whereby WorldPort
agrees to sell the entire issued
share capital of WCL as set out
in Annex I
"YEAR 2000 COMPLIANT" neither the performance nor the
functionality of the assets when
in normal use will be materially
impaired by the advent of the
Year 2000 and in particular:
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(a) Year 2000 Compliant
shall mean that no value for
current date will cause any
interruption or error in the
operation of the assets;
(b) all manipulations of
time-related data by the
assets will produce the
desired results for all
valid date values prior to,
through and beyond the Year
2000;
(c) date elements in these
products (including
interfaces and data storage)
will permit specifying the
century to eliminate date
ambiguity without human
intervention including leap
year calculations; and
(d) where any data element is
represented without a
century, the correct century
shall be unambiguous for all
manipulations involving that
element
1.2 Unless it is inconsistent with the context a reference to a statutory
provision includes a reference to:
(a) any statutory amendment, modification, consolidation or
re-enactment (whether before or after the date of this
agreement);
(b) any statutory instruments or subordinate legislation or orders
made pursuant to the statutory provision;
(c) statutory provisions of which the statutory provision is an
amendment, modification, consolidation or re-enactment;
but does not include a substituted provision.
1.3 References to WCEH shall be deemed to extend both to WCEH and the
Subsidiary to the effect that each of the WCEH Warranties shall be
deemed to be repeated (save where the context otherwise requires) in
respect of the Subsidiary as if the expression "WCEH" has been replaced
by the name of the Subsidiary throughout.
1.4 Words denoting the singular include the plural and vice versa; words
denoting one gender include all genders; words denoting persons include
corporations and vice versa.
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1.5 Unless otherwise stated, a reference to a clause, sub-clause or
Schedule is a reference to a clause or sub-clause of, or Schedule to,
this agreement.
1.6 Clause headings in this agreement and in the Schedules are for ease of
reference only and do not affect the construction of any provision.
1.7 Each reference to a statutory provision or to UK accounting principles
or standards shall be construed as the equivalent statutory provision
or accounting principles or standards under the laws of the Netherlands
where the context requires.
1.8 References to Dollars ($) herein shall mean U.S. Dollars.
1.9 References to documents "in the agreed form" are to documents in terms
agreed between the parties and signed (for the purposes of
identification only) by the parties or the Vendor's Solicitors and the
Purchaser's Solicitors.
2 DELIVERY AT SIGNING
2.1 Immediately upon signing this Agreement, WorldPort and the Vendor will
deliver to the Purchaser the following:
(a) the Shareholder Proxies in the agreed form;
(b) a duly executed copy of the US Switch Agreement and the WCL
Share Agreement;
(c) legal opinion, in the agreed terms from D'Ancona and Pflaum
LLC in respect of this Agreement;
(d) the Certificates as set out in Schedule 12 part A; and
(e) a certified extract of the share register of WorldPort
indicating the share ownership of each shareholder of
WorldPort that has executed a Shareholder Proxy
and the Purchaser will enter into, with the Minority Shareholder, the
agreement referred to in clause 3.1(e).
2.2 WorldPort and the Vendor confirm to the Purchaser receipt by them of an
opinion in the agreed form from Salomon Smith Barney confirming the
fairness of the Consideration referred to in this Agreement.
2.3 WorldPort undertakes to the Purchaser to include in the information
statement (referred to in clause 3.1(d)) a statement regarding
confirmation of the fairness, from a financial point of view, of the
Consideration referred to in this Agreement.
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3 CONDITIONS PRECEDENT
3.1 This agreement shall be subject to the fulfilment at or prior to the
Completion Date of each of the following conditions:
(a) the transactions contemplated by this Agreement having been
approved and adopted by the requisite action of the
shareholders of WorldPort in accordance with the certificate
of incorporation and by-laws of WorldPort and applicable
Delaware law;
(b) the Vendor having entered into the US Switch Agreement with
UCS;
(c) WorldPort having entered into the WCL Share Agreement with the
Purchaser;
(d) the preparation and due distribution by WorldPort to its
shareholders of an information statement in accordance with
the rules and regulations of the SEC and the expiration of the
waiting period required by applicable SEC rule; and
(e) the Minority Shareholder having entered into an agreement with
the Purchaser agreeing to sell to the Purchaser the 15% of the
issued share capital of WCEH held by it;
and none of the agreements referred to in (b) or (c) or (e) having been
terminated.
The Vendor shall notify the Purchaser immediately on becoming aware of
anything which will or may prevent any of the conditions in this clause
3.1 from being satisfied by the Longstop Date.
The Purchaser may, at its discretion, waive any of the above conditions
other than in paragraph (a) and (d) above.
3.2 The obligations of the Vendor to complete the transactions contemplated
is subject to the fulfilment of all of the following conditions on or
prior to the Completion Date:
(a) all obligations of the Purchaser to be performed under this
agreement through, and including on, the Completion Date shall
have been performed in all material respects;
(b) the Purchaser shall have made the deliveries contemplated in
clause 6.5 hereof;
(c) no litigation proceedings having been commenced which is
reasonably likely to have a material adverse effect on the
Vendor's or WorldPort's anticipated benefits under this
Agreement.
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3.3 The obligations of the Purchaser to complete the transactions
contemplated is subject to the fulfilment of all of the following
conditions on or prior to the Completion Date:
(a) each and every warranty made by the Vendor and WorldPort shall
have been true and correct in all material respects when made
and shall be true and correct in all material respects as if
originally made on and as at the Completion Date except to the
extent that such warranties are not true and correct in all
material respects as a result of:
(i) except for paragraph 7.3 of Schedule 2, an event or
occurrence outside the control of the Vendor or
WorldPort occurring during the period from the
execution of this Agreement until the Completion
Date;
(ii) any act or omission of the Purchaser during the
period from the execution of this Agreement until the
Completion Date;
(iii) any action taken by WCEH or the Subsidiary in the
ordinary course of business during the period from
the execution of this Agreement until the Completion
Date;
(b) all obligations of the Vendor to be performed under this
agreement through, and including on, the Completion Date shall
have been performed in all material respects;
(c) the Vendor and WorldPort shall have made the deliveries
contemplated in clause 6.2 hereof;
(d) the relevant notification having been filed in respect of this
agreement and the expiration of the waiting period required by
applicable SEC rule; and
(e) no litigation proceedings having been commenced which is
reasonably likely to have a material adverse effect on the
Purchaser's anticipated benefits under this Agreement.
3.4 The parties shall use reasonable efforts to satisfy or procure the
satisfaction of the conditions set out in this clause 3 as soon as
possible and in any event by the Longstop Date and the Vendor and
WorldPort shall use reasonable endeavours to:
(a) make the filing with the SEC referred to in clause 3.1(d)
within 7 business days of the date of execution of this
agreement; and
(b) despatch an information statement to shareholders in respect
of the SEC filing within 65 days of the date of execution of
this agreement.
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3.5 The Vendor shall ensure that between the date of this agreement and the
Completion Date (both dates inclusive):
(a) WCEH and the Subsidiary shall each carry on the business of
WCEH and the Subsidiary, respectively, in the ordinary course;
(b) neither WCEH nor the Subsidiary shall declare or pay any
dividend;
(c) WCEH and the Subsidiary shall not enter into any contract or
commitment of an unusual nature or which is not in the
ordinary course of trading or which provides for total annual
expenditure in excess of $250,000;
(d) WCEH and the Subsidiary shall not assume or incur or agree to
assume or incur any capital commitment or any debt, obligation
or liability:
(i) outside the ordinary course of trading; or
(ii) within the ordinary course of trading in excess of $6
million in aggregate;
(e) the Purchaser will be entitled to convene meetings jointly
with WCEH and/or the Subsidiary with customers relating to
marketing and communications regarding WCEH and the
Subsidiary;
(f) the Purchaser will be entitled to convene a meeting of
employees of WCEH and the Subsidiary or their representatives
to explain the transactions and any proposed plan of the
Purchaser insofar as it relates to those employees; and
(g) the Purchaser shall be entitled to nominate such person from
time to time who shall be entitled to attend as an observer at
all board meetings of WCEH and the Subsidiary and to receive
the same information as is provided to directors of WCEH and
the Subsidiary.
For the purposes of this clause 3.5 the Purchaser acknowledges that
neither the Vendor nor WorldPort shall be under any obligation
whatsoever to provide further financing to WCEH or the Subsidiary from
the date of this agreement to the Completion Date and the expression
"ordinary course of trading" shall be construed accordingly.
3.6 The Purchaser shall have the right, subject to the consent of the
Vendor including as to the terms (such consent not to be unreasonably
withheld) during the period from the date of this agreement until the
Completion Date to require WCEH and/or the Subsidiary to lease or
borrow assets from it (or any Associate of the Purchaser) on arm's
length terms.
3.7 The Longstop Date may be extended in the following circumstances:
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(a) to a date no later than 28 February 2000, by either the Vendor
or the Purchaser giving written notice to the other on or as
before 31 January 2000 and, in such case, WorldPort shall be
obliged to extend the period of certain mutually agreed
insurance arrangements to at least 28 February 2000;
(b) if extended pursuant to (a) above, to a date of no later than
31 March 2000 by the Vendor giving notice to the Purchaser on
or before 28 February 2000 provided that the only reason for
Completion not having occurred by 28 February 2000 is that the
SEC shall, despite WorldPort and the Vendor having used all
reasonable efforts to despatch the information statement (as
referred to in Clause 3.4 (b)), not have permitted such
information statement to be despatched in sufficient time and,
in such case, WorldPort shall be obliged to extend the period
of the insurance arrangements referred to in (a) above to at
least 30 March 2000.
4 AGREEMENT FOR SALE
4.1 Subject to the terms and conditions of this agreement, the Vendor shall
sell and transfer with full title guarantee and the Purchaser shall
purchase the Shares with all rights attaching to them, with effect from
the Completion Date.
4.2 The Vendor waives any pre-emption rights it may have in relation to any
of the Shares, whether under the articles of association of WCEH or
otherwise.
5 PURCHASE CONSIDERATION
5.1 The Consideration for the Shares shall (subject to adjustment as
provided in clauses 5.4 and 7) be the sum of $366,019,100 which shall
be paid in cash at Completion in accordance with the provisions of
clause 6.5.
5.2 On Completion the Purchaser shall procure the repayment of the
Indebtedness.
5.3 In acquiring the Shares for the consideration specified in clause 5.1
and the shares held by the Minority Shareholder, the Purchaser
acknowledges that WCEH remains liable for the Assumed Debt.
5.4 To the extent that any Additional Indebtedness has been incurred and
remains outstanding as at the Completion Date then in such
circumstances the sum to be paid for the Shares in clause 5.1 shall be
reduced by that amount on a $ for $ basis and the relevant amount shall
be repaid at Completion.
5.5 Schedule 15 sets out the calculation of the various payments to be made
pursuant to this Agreement.
5.6 Schedule 16 sets out the calculation of the Consideration to the Vendor
pursuant to this Agreement.
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6 COMPLETION
6.1 Completion shall take place at the offices of the Vendor's Solicitors
on or before the Longstop Date, when the following provisions of this
clause shall apply.
6.2 The Vendor or WorldPort (as the case may be) shall:
(a) effect the transfer of the Shares by passing a deed of
transfer (in the form attached as Schedule 6) to be executed
before one of the civil law notaries of De Brauw Blackstone
Westbroek NV such transfer to be acknowledged by WCEH;
(b) following the transfer of the Shares deliver to the Purchaser
the shareholder's register of WCEH in which the transfer of
the Shares is validly registered;
(c) complete the WCL Share Agreement;
(d) complete the US Switch Agreement;
(e) complete the UK Switch Agreement;
(f) deliver to the Purchaser the duly executed Global Crossing
Novation Agreement and to the Subsidiary duly executed
novation agreements in similar form relating to contracts with
Star Telecommunications, Inc. and Viatel, Inc.;
(g) deliver to the Purchaser releases, in the agreed form, in
respect of the Bankers Trust Pledges and any other pledges in
respect of the Indebtedness executed as necessary before one
of the civil law notaries of De Brauw Blackstone Westbroek NV;
(h) deliver to the Purchaser resignations, in the agreed form, of
the outgoing directors, secretary and auditors as required by
the Purchaser;
(i) deliver to the Purchaser the discharge of the Indebtedness in
the agreed form;
(j) deliver the Certificates in the form set out in Schedule 12
part B; and
(k) deliver to the Purchaser legal opinions in the agreed form
from D'Ancona & Pflaum LLC and De Brauw Blackstone Westbroek
NV in respect of the Completion of this Agreement.
6.3 There shall be delivered or made available to the Purchaser:
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(a) the statutory books, books of account and documents of record
of WCEH and the Subsidiary, and their respective certificates
of incorporation and common seals; and
(b) all the current cheque books of WCEH and the Subsidiary,
together with current statements of all its bank accounts with
a reconciliation to Completion.
6.4 Shareholder resolutions of WCEH and the Subsidiary shall be passed at
which:
(a) such persons as the Purchaser nominates are appointed
additional directors; and
(b) the transfers of the Shares referred to in clause 6.2(a) and
of the shares to be transferred pursuant to the agreement
referred to in clause 3.1 (e) are approved.
6.5 At Completion the Purchaser shall:
(a) transfer by telegraphic transfer the following amounts:
(i) $140,352,000 plus accrued interest through to the
Completion Date to the account of Bankers Trust,
being the amount required to discharge the Bankers
Trust Pledges;
(ii) $117,759,300 and NLG 4,878,934, plus accrued interest
through to the Completion Date to the account of
WorldPort, being the amounts required to discharge
the Indebtedness owed by each of WCEH and the
Subsidiary;
(iii) $415,365 plus accrued interest through to the
Completion Date to the account of Global Crossing,
being the amount due and payable under the Global
Crossing contract;
(iv) $6,290,000 to the account of Salomon Smith Barney
Inc;
(v) $7,000,000 to the account of American International
Companies; and
(vi) $181,961,835 (less any accrued interest paid under
clauses (i), (ii) and (iii) above and less any amount
caused by the reduction pursuant to clause 5.4 as
mentioned below being the remaining Consideration for
the Shares;
and the amount of the Additional Indebtedness
referred to in clause 5.4 shall be repaid.
For the purposes of any payments made under this clause all
amounts will be denominated in the currency in which they are
due and, for the avoidance
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of doubt, the Consideration will be calculated on the basis of
the closing exchange rates on 10 November 1999;
(b) complete the WCL Share Agreement; and
(c) complete the US Switch Agreement.
6.6 The Purchaser shall not be required to complete this Agreement unless
at the same time the Minority Shareholder completes the agreement
referred to in clause 3.1(e) and the WCL Share Agreement is completed.
7 ADJUSTMENTS TO PURCHASE CONSIDERATION
7.1 The parties shall procure, as soon as practicable and in any event
within 60 days after Completion, the preparation of the Completion
Accounts, which shall be prepared by WCEH, subject to this clause 7, on
the basis of accounting standards generally accepted in the Netherlands
and audited by WCEH's Auditors to a standard to be agreed between
WCEH's Auditors and the Purchaser's Auditors. The cost of the audit
shall be paid as to one half by the Vendor and as to the other half by
the Purchaser.
7.2 The parties shall disclose to WCEH's Auditors and the Purchaser's
Auditors all information relevant for the purposes of preparing the
Completion Accounts.
7.3 The parties shall instruct WCEH, the WCEH Auditors and the Purchaser's
Auditors to prepare the Net Assets Statement from the Completion
Accounts and to deliver to the Vendor and the Purchaser copies of the
Completion Accounts and Completion Balance Sheet and of their
calculation of any adjustments required by this clause within 14 days
of the preparation of the Completion Accounts.
7.4 The basis of preparing the Completion Balance Sheet is as set out
below:
(a) except as stated in (c) below in accordance with Dutch GAAP;
(b) they are to comprise individual balance sheets for WCEH and
the Subsidiary in a similar format to the Management Accounts
in Schedule 13, together with statements of assets and
liabilities for the US Switch (as defined in the US Switch
Agreement) and the UK Switch (as defined in the UK Switch
Agreement). A statement of Net Assets will be aggregated in a
similar form to Schedule 10;
(c) the Completion Accounts shall:
(i) not treat as an asset any prepayments which will not
give rise to a benefit to the business of either WCEH
or the Subsidiary;
(ii) exclude any deferred tax assets of WCEH and the
Subsidiary;
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(iii) exclude depreciation and amortisation charged to the
profit and loss account from the Management Accounts
Date to the date of Completion;
(iv) be prepared to present the individual balance sheets
and statements of assets and liabilities on the basis
immediately before the following specified events
which are expected to occur before or at Completion:
(a) the transfer of the UK Switch pursuant to
the UK Switch Agreement;
(b) the repayment of the Indebtedness.
7.5 It is anticipated that the value of the Net Assets as at Completion
will be a negative figure. To the extent that the value of such Net
Assets is:
(a) a negative figure which is greater than NLG47,748,000, the
Vendor will repay to the Purchaser the amount by which this
negative figure is greater than NLG47,748,000 and the
Consideration shall be reduced by the amount of that repayment
provided that the amount of the repayment shall not exceed
$20,000,000; and
(b) a negative figure which is less than NLG47,748,000, the
Purchaser will pay to the Vendor the amount by which this
negative figure is less than NLG47,748,000 and the
Consideration shall be increased by the amount of that
payment, provided that the amount of that payment shall not
exceed $20,000,000.
7.6 Each of the parties undertakes to the other to pay the amount of any
reduction or increase (as the case may be) to the other in cash within
28 days after delivery to the Vendor and the Purchaser of a copy of the
calculation referred to in clause 7.3.
Any amount due under clause 7.6 of the WCL Share Agreement may be
off-set against any amount due under this clause.
7.7 Disputes with respect to the Completion Accounts or the Completion
Balance Sheet or the calculation of the Net Assets Statement or any
other matter referred to in this clause 7 shall be referred for final
settlement to a firm of chartered accountants, nominated jointly by the
Vendor and the Purchaser, or, failing nomination within 14 days after
request by either the Vendor or the Purchaser, nominated at the request
of either party by the President for the time being of the Institute of
Dutch Chartered Accountants. The firm shall act as experts and not as
arbitrators and their decision (in the absence of manifest error) shall
be final and binding on the parties. Their fees shall be payable by the
Vendor and the Purchaser in such proportions as the firm determines.
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7.8 For the purposes of the Purchaser's review under this clause 7, the
Purchaser's Auditors and the Vendor's Auditors attempts to resolve any
dispute under this clause 7 and the settlement of any dispute by the
independent accountants, the Vendor and the Purchaser shall ensure that
the Vendor's Auditors and the Purchaser's Auditors and (if applicable)
the independent accountants are promptly given all information,
assistance and access to all books of accounts, documents, files and
papers which they may reasonably require.
7.9 Unless otherwise indicated under this agreement, the translations of
local currency amounts into US Dollars will be made on the basis of the
closing exchange rates on 10 November 1999.
8 COVENANTS OF WCEH AND WORLDPORT
8.1 WCEH and WorldPort hereby covenant that during the period between the
date of this Agreement and Completion WCEH and the Subsidiary shall use
reasonable endeavours to:
(a) continue negotiations in respect of the seven outstanding
local loop lease agreements with the relevant Dutch Regional
Electricity companies, being Telecai Utrecht, Palet Kabelcom,
ENECO, Casema, Castel, UPC and Cecatel; and
(b) negotiate the renewal of the interconnection agreement between
the Subsidiary and KPN Telecom dated 19 June 1997, which has a
term of three years starting 1 July 1997, ending 1 July 2000.
8.2 Notwithstanding the WCEH Warranties and the disclosures made in the
WCEH Disclosure Letter, the Vendor and WorldPort hereby agree to
indemnify the Purchaser in respect of any liability (including any
costs incurred) in relation to or arising out of any of the following
matters:
(a) the current review by the Dutch Treasury of the pension scheme
of the Subsidiary;
(b) any claim by Mr Zolfagharpour;
(c) any Dutch capital duty payable by either WCEH or the
Subsidiary in respect of events or transactions occurring on
or before Completion;
(d) any liability of WCEH or the Subsidiary to pay any amount in
respect of tax or Social Security Contributions (and any
associated interest or penalties) or to pay an amount to an
employee, director, ex-employee or ex-director by way of
additional salary or otherwise arising out of the expense
allowance matter disclosed in the WCEH Disclosure Letter
against paragraph 3.1 of Schedule 2.
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PROVIDED ALWAYS that the limitations contained in clauses 9.3, 9.5,
9.7, 9.8 and 9.9 shall apply to the above.
8.3 On Completion, the employment contract of Mr Steve Courter shall be
transferred by WorldPort to the Subsidiary.
8.4 WorldPort hereby covenants with the Purchaser that the information
statement referred to in Clause 3.4 (b) that shall be distributed to
WorldPort shareholders shall comply with all applicable provisions of
the US Securities Exchange Act and the related rules and regulations
thereunder.
9 WARRANTIES BY THE VENDOR
9.1 The Vendor and WorldPort warrant to the Purchaser that, save as set out
in the WCEH Disclosure Letter, the WCEH Warranties are accurate in all
material respects and as at Completion will be accurate in all material
respects except to the extent that such warranties are not accurate in
all material respects as at the Completion Date as a result of:
(a) except for paragraph 7.3 of Schedule 2 an event or occurrence
outside the control of the Vendor and/or WorldPort (as the
case may be) occurring during the period from the date of this
agreement until the Completion Date;
(b) any act or omission of the Purchaser during the period from
the date of this agreement until the Completion Date; and
(c) any action taken by WCEH or the Subsidiary in the ordinary
course of business during the period from the date of this
Agreement until the Completion Date.
9.2 The Vendor and WorldPort warrant to the Purchaser that:
(a) the execution, delivery and performance of this agreement and
all documents executed or to be executed in connection
therewith have been duly authorised by all necessary corporate
action on behalf of the Vendor and WorldPort. This agreement
constitutes, and, as of the Completion Date, all documents
executed or to be executed in connection therewith shall
constitute, the legal, valid and binding obligation of the
Vendor and WorldPort enforceable against them in accordance
with its terms;
(b) other than as stated in this agreement, or in the WCEH
Disclosure Letter there is no pledge, lien or other
encumbrance on, over or affecting the Shares, the shares of
the Subsidiary or the assets of WCEH or the Subsidiary and
there is no agreement or arrangement to give or create any
such encumbrance and no claim has been made by any person to
be entitled to any of the foregoing;
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(c) no consent, approval or other action by any shareholder of
WorldPort is required for the consummation of any of the
transactions contemplated by this Agreement other than the
approval referred to in clause 3.1(a).
9.3 The Vendor and WorldPort shall not be liable in respect of any claim
under the WCEH Warranties unless the Purchaser serves written notice of
such claim setting out the nature of the claim and so far as is
practicable its estimate of the amount claimed upon the Vendor and/or
WorldPort by, in respect of claims in relation to Taxation, not later
than the date following the expiry of five full accounting periods
following Completion and, in respect of all other claims, by not later
than 30 September 2001 PROVIDED THAT the amount payable in respect of
the relevant claim is agreed by the Vendor and/or WorldPort within 12
months of the date of such written notice or legal proceedings are
instituted in respect of such claim by the due service of process on
the Vendor and/or WorldPort by the date falling 12 months after the
date of such written notice, unless extended by agreement between the
parties.
9.4 The Vendor and WorldPort shall not be liable in respect of any claim
under the WCEH Warranties (except for paragraph 7.3 of Schedule 2)
unless the aggregate liability in respect of that claim (which shall
include any claims arising out of the same causes or event) and all
other claims exceeds $10,000,000 in which case only the excess shall be
recoverable.
9.5 Subject to clause 10.2 the aggregate liability of the Vendor and
WorldPort under the WCEH Warranties and the WCL Warranties (as defined
in the WCL Share Agreement) shall not (in respect of claims made in the
period to 30 September 2000) exceed $150,000,000 and (in respect of
claims made thereafter) exceed $100,000,000 (including claims made in
the period to 30 September 2000).
9.6 The Purchaser shall in relation to any loss or liability which may give
rise to a claim under this Agreement against the Vendor and WorldPort,
discharge its common law duty to use reasonable endeavours to mitigate
the loss suffered by it.
9.7 The Vendor and WorldPort shall not be liable in respect of any claim
under the WCEH Warranties in respect of any breach or claim:
(a) to the extent that such breach or claim would not have arisen
but for some voluntary act, omission, transaction or
arrangement, which could reasonably have been avoided and
which is not required by law, carried out after Completion by
or on behalf of all or any of the Purchaser or WCEH and its
respective successors in title;
(b) to the extent that such breach or claim would not have arisen
or occurred but for the coming into force of any legislation
not in force at Completion but having retrospective effect or
by reason of the withdrawal of any extra statutory concession
applying at Completion or a change in the application of
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any extra statutory concession applying at Completion, in each
case having retrospective effect;
(c) to the extent that WCEH recovers against any loss or damage
suffered arising out of such breach or claim under the terms
of any insurance policy for the time being in force;
(d) to the extent that such breach or claim arises as a result of
any change in the accounting bases or policies in accordance
with which WCEH values its assets or calculates its
liabilities or any other change in accounting practice on or
after Completion.
9.8 If the Vendor or WorldPort pays or is due to pay to the Purchaser an
amount in respect of any claim under the WCEH Warranties and the
Purchaser recovers from a third party any amount in respect of the
matter giving rise to that claim, the Purchaser shall (or shall procure
that WCEH shall) forthwith repay to or reduce the amount due from the
Vendor or WorldPort the sum which represents or would represent a
double recovery under such claim less all costs, charges and expenses
including Taxation reasonably incurred by the Purchaser in recovering
that sum from the third party and any applicable taxation suffered by
the Purchaser in respect of that recovery.
9.9 If any claim is received by the Purchaser or WCEH from a third party in
respect of which the Vendor or WorldPort may be or become liable under
the WCEH Warranties, the Purchaser shall procure that WCEH shall:
(a) as soon as reasonably practicable give written notice thereof
to the Vendor or (with a copy to the Vendor's Solicitors)
specifying the nature of the claim in reasonable detail;
(b) not make any admission of liability, agreement or compromise
to or with any person in relation thereto without the prior
written consent of the Vendor or (such consent not to be
unreasonably withheld or delayed), provided always that no
such prior consent in writing shall be required in
circumstances where, in the reasonable opinion of the
Purchaser, failure to admit liability or to compromise or
settle such claim shall be materially prejudicial to the
goodwill or reputation of WCEH or the Purchaser;
(c) give the Vendor or WorldPort and its professional advisers
reasonable access on reasonable notice to the premises and
personnel of WCEH and to any relevant documents and records
within the possession or control of the Purchaser or WCEH for
the purpose of enabling the Vendor or WorldPort to consider
the merits of such claim and to take copies thereof (at the
expense of the Vendor or WorldPort); and
(d) take such action as the Vendor or WorldPort may reasonably
request to avoid, dispute, resist, appeal or compromise such
claim, subject to the Purchaser and WCEH being indemnified to
their reasonable satisfaction
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against all losses, liabilities, costs and expenses which they
may suffer or incur by reason of such action including, for
the avoidance of doubt, the amount of any third party claim.
9.10 Where under the provisions of the Taxation statutes or otherwise the
Purchaser and/or WCEH is entitled (whether by right of indemnity,
reimbursement or any other means) to recover from some other person
(not being the Purchaser or WCEH but including, without limitation any
Taxation authority) any sum or benefit in respect of any matter giving
rise or which may give rise to a claim against the Vendor or WorldPort
under the WCEH Warranties, the Purchaser shall (and shall procure that
WCEH shall) as soon as reasonably practicable notify the Vendor in
writing of such entitlement and at the request of the Vendor or
WorldPort and subject to being indemnified and secured to their
reasonable satisfaction against all losses, liabilities, costs and
expenses which they may suffer or incur thereby take all appropriate
and reasonable steps to enforce recovery at the sole cost of the Vendor
or WorldPort including without limitation the issuance of proceedings
in the name of WCEH.
9.11 Any payment by the Vendor or WorldPort pursuant to the WCEH Warranties
shall be treated for all purposes by the parties as a reduction in the
Consideration.
9.12 The Purchaser shall only be entitled to recover once for the same loss
in respect of two or more breaches of the WCEH Warranties for claims
relating to the same subject matter.
9.13 Where qualified by the knowledge, information, belief or awareness of
the Vendor or WorldPort, each Warranty is deemed to include such
knowledge, information, belief or awareness held, in respect of the
relevant subject matter of such Warranty, by the following senior
management individuals:
Carl Grivner (Chief Executive Officer: WorldPort), John Hanson (Chief
Financial Officer: WorldPort), Stephen Courter (Managing Director: the
Subsidiary), David Hickey (Managing Director: corporate development:
the Subsidiary), Peter Veenman (Vice President Director: the
Subsidiary), Malcolm Arnold (Vice President Officer: the Subsidiary)
and Jeroen Bulk (Chief Financial Officer: the Subsidiary).
9.14 The Purchaser acknowledges that, in connection with the WCEH
Warranties, it has had the opportunity to review all of the
documentation as set out in the Data Room Disclosure List and that the
documents referred to in the Data Room Disclosure List shall be treated
as having been fully disclosed to it for the purposes of disclosure
against the WCEH Warranties.
9.15 The Purchaser confirms, and agrees that as at the date hereof neither
the Purchaser nor any director of the Purchaser is aware of any fact,
matter or circumstance which constitutes or is reasonably likely to
constitute a breach of the WCEH Warranties and to the extent that the
Purchaser or any such director is so
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aware, no claim may be made under the WCEH Warranties in respect of
such facts, matter or circumstance.
9.16 Each of the parties acknowledges that in agreeing to enter into this
agreement it has not relied on any representation, warranty,
undertaking or other assurance except those set out or referred to in
this agreement. Without prejudice to the foregoing, the Purchaser
acknowledges that it has not relied on any representations or
warranties or other information contained in the information on the
Vendor and the Company prepared by Salomon Smith Barney or in any other
written or oral information supplied by or on behalf of the Vendor or
WorldPort or its advisers or made or supplied in connection with the
negotiations of the sale and purchase under this agreement except those
set out or referred to in this Agreement.
9.17 Each of WorldPort and the Vendor represent that:
(a) in connection with the transactions contemplated by this
Agreement, WorldPort retained Salomon Smith Barney as adviser;
prior to the negotiation, execution and delivery of this
Agreement, Salomon Smith Barney solicited expressions of
interest from potential purchasers of the assets, each of whom
Salomon Smith Barney reasonably believed would consider the
possibility of making an offer to acquire such assets and had
the financial capability to fund such acquisitions, and each
of whom was given the opportunity to submit to WorldPort and
the Vendor an offer to consummate the transactions
contemplated by this Agreement; WorldPort provided such
potential purchasers with detailed information with respect to
such assets and permitted all such potential purchasers to
have reasonable access to the Data Room in order for them to
assess their willingness to submit specific proposals for the
acquisition of such assets;
(b) assuming Completion were to occur on the date of this
Agreement, following consummation of the transactions
contemplated by this Agreement:
(i) it and its subsidiaries would be able to pay its
debts as they come due;
(ii) it and its subsidiaries would have adequate capital
to conduct its remaining business; and
(iii) the fair value of its assets would be greater than
the total amount of its liabilities (including
contingent and unliquidated liabilities);
(c) the transactions contemplated by this agreement are not being
made with the intent to hinder, delay or defraud any creditors
of WorldPort, the Vendor or any of their respective
subsidiaries;
(d) the consummation of the transactions contemplated by this
Agreement will not cause WorldPort or their respective
subsidiaries to become insolvent or
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stop payment of its debts, or be subject to an involuntary bankruptcy,
insolvency, reorganisation or similar proceeding;
(e) neither it nor its directors or shareholders, nor any of its
respective subsidiaries, or any of their boards of directors
or shareholders has commenced a voluntary case or proceeding
under any applicable bankruptcy, insolvency, reorganisation or
other similar law, nor, to the best of its knowledge, on the
assumption that the transaction is completed, is any such case
or proceeding contemplated; and
(f) WorldPort has obtained excess liability insurance coverage in
the amount of $90 million relating to certain class action
litigation in which WorldPort is a defendant pursuant to a
binder agreement dated November 8, 1999 between WorldPort and
American International Companies and such insurance is in full
force and effect and WorldPort has received no notice that the
insurer will seek to deny coverage with respect thereto.
9.18 The limitations on liability contained in clauses 9.4 and 9.5 shall not
apply to any claim made for breach of any WCEH Warranty relating to
Taxation and the limitations on liability contained in clause 9.4 shall
not apply to any claim under clause 8.2. This Clause 9 shall be subject
to clause 10.2.
9.19 The Parties may also agree to other warranties which shall have effect
as if set out in this Agreement.
10 Y2K
10.1 The parties agree that following the date of this Agreement, one of the
Purchaser's employees, agents or consultants shall work with the Vendor
and WorldPort to assess the work carried out to date and the work to be
carried out to make WCEH and the Subsidiary and WCL Year 2000
Compliant.
10.2 Notwithstanding any other provision of this agreement:
(a) if, prior to Completion, there shall occur a material
disruption to the business of WCEH and/or the Subsidiary
and/or WCL caused by a failure of the assets of any such
business to be Year 2000 Compliant, resulting in a breach of
paragraph 7.3 of Schedule 2, or paragraph 7.3 of Schedule 2 to
the WCL Share Agreement, the Purchaser shall notify the Vendor
of such occurrence as soon as is reasonably practicable and
shall indicate to the Vendor whether it considers the
aggregate amount of any claims it shall have pursuant to those
paragraphs is over $100,000,000 (on the assumption that the
limitations in clause 9.4 and clause 9.4 of the WCL Share
Agreement do not apply in those circumstances);
(b) if such a notice is delivered, Completion shall not take place
until the expiry of at least 7 days, during which time the
Vendor shall, if the Purchaser has indicated that it considers
the amount of any such claim to
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exceed $100,000,000, have the right to terminate this
Agreement by notice in writing to the Purchaser;
(c) if the Purchaser has indicated that it does not consider the
aggregate amount of any such claims to exceed $100,000,000
following Completion the Purchaser may not claim for any
breach of paragraph 7.3 of Schedule 2 or of paragraph 7.3 of
Schedule 2 to the WCL Share Agreement in respect of an
aggregate amount exceeding $100,000,000 (on the assumption
that the limitations in such Clauses 9.4 do not apply in these
circumstances);
(d) in respect of any claim for breach of paragraph 7.3 of
Schedule 2 and of paragraph 7.3 of Schedule 2 to the WCL Share
Agreement made prior to 31 March 2000, the maximum aggregate
liability of the Vendor and WorldPort referred to in clause
9.5 shall be increased by an additional $50 million.
11 ASSIGNMENT AND SUCCESSIONS
Except as expressly provided above, none of the rights of the parties
under this agreement or the WCEH Warranties may be assigned or
transferred except that the Purchaser may assign, transfer or novate
its rights to any Associate, provided that the Purchaser will guarantee
the obligations of that Associate transferred to it under this
Agreement. If that Associate shall subsequently cease to be an
Associate of the Purchaser, the Purchaser will immediately procure the
re-assignment of such rights back to the Purchaser.
12 TERMINATION
This agreement and the transactions contemplated hereby may be
terminated at any time prior to the Completion Date by prompt notice
given in accordance with clause 17:
(a) by the mutual written consent of the Purchaser and the Vendor;
or
(b) by the Vendor if:
(i) there has been a material breach by the Purchaser of
any representation or warranty contained in this
agreement; or
(ii) there has been a material breach of any of the
covenants or agreements set forth in this agreement
on the part of the Purchaser, and which breach is not
cured within 30 days after written notice of such
breach is given by the Vendor to the Purchaser;
(c) by the Purchaser if:
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(i) there has been a material breach by the Vendor or
WorldPort of any representation or warranty contained
in this agreement; or
(ii) there has been a material breach of any of the
covenants or agreements set forth in this agreement
on the part of the Vendor or WorldPort, which breach
is not cured within 30 days after written notice of
such breach is given by the Purchaser to the Vendor;
(d) by either the Purchaser or the Vendor if the Completion shall
not have occurred at or before 11:59pm on the Longstop Date;
provided, however, that the right to terminate this agreement
under this clause 12(d) shall not be available to any party
whose breach of a warranty or failure to fulfil any material
obligation under this agreement has been the cause of or
resulted in the failure of the Completion to occur on or prior
to the aforesaid date.
13 ANNOUNCEMENTS
13.1 No announcement shall be made in respect of the subject matter of this
agreement, except as specifically agreed between the parties, unless an
announcement is required by any applicable law or is required to be
made to the Stock Exchange, NASDAQ Stock Market or the Securities
Exchange Commission and the party making such an announcement shall,
where possible, discuss the content of the announcement with the other
side.
13.2 If this agreement ceases to have effect, the Purchaser will release and
return to WCEH all documents concerning it provided to the Purchaser or
its advisers in connection with this agreement and will not use or make
available to another person information which it or its advisers have
been given in respect of WCEH and which is not in the public domain.
14 INFORMATION
The Vendor shall procure that, prior to Completion, the Purchaser, its
agents, representatives, auditors and solicitors are given promptly on
request all such facilities and information regarding the business,
assets, liabilities, contracts and affairs of WCEH, and of the
documents of title and other evidence of ownership of its assets, as
the Purchaser reasonably requires.
15 COSTS
All expenses incurred by or on behalf of the parties, including all
fees of agents, representatives, solicitors, auditors and actuaries
employed by any of them in connection with the negotiation, preparation
or execution of this agreement, shall be borne solely by the party who
incurred the liability, and WCEH shall not have any liability in
respect of them.
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16 TIME OF ESSENCE
Time shall be of the essence of this agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which, by agreement in writing between or on behalf of the
Vendor and the Purchaser, are substituted for them.
17 COMMUNICATIONS
17.1 All communications between the parties with respect to this agreement
shall:
(a) be delivered by hand, or sent by post to the above address (in
the case of a notice to the Vendor, marked for the attention
of John Hanson) or
(b) be sent by facsimile transmission to the facsimile
transmission numbers stated below or as notified for the
purpose of this clause.
17.2 Communications shall be deemed to have been received as follows:
(a) if sent by post - 3 business days after posting;
(b) if delivered by hand - on the day of delivery, if delivered at
least 2 hours before the close of business hours on a business
day, and otherwise on the next business day;
(c) if sent by facsimile transmission - at the time of
transmission, if received at least 2 hours before the close of
business hours on a business day, and otherwise on the next
business day.
17.3 For this purpose, a "business day" means a day on which the clearing
banks in the City of London are open for business and "business hours"
mean between the hours of 09.00 and 18.00 inclusively local time.
17.4 The facsimile transmission numbers referred to in clause 17.1 are:
(a) for the Vendor - 001-847-913-0037 (attention John Hanson)
(b) for WorldPort - 001-847-913-0037 (attention John Hanson)
(c) for the Purchaser - 020-7206-5454 (attention Chris Hibbert)
17.5 The Vendor and WorldPort hereby appoint Rakisons of 14/18 Gresham
Street, London EC2V 7JE England, marked for the personal attention of
Michael Thompson as their authorised agent for the purpose of accepting
service of process for all purposes in connection with this Agreement.
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18 CONFIDENTIALITY
None of the parties shall issue any press release or publish any
circular to shareholders or any other public document or make any
public statement or otherwise disclose to any person who is not a party
(including (without limitation) any document or statement published,
issued or made by the Vendor and/or the Purchaser to any supplier to or
customer of WCEH or of the Subsidiary), in each case relating to or
connected with or arising out of this agreement or the matters
contained in it, without obtaining the previous approval of the other
party to its contents and the manner of its presentation and
publication or disclosure (such approval not to be unreasonably
withheld), unless required by any applicable law.
19 INVALIDITY
If a term in or provision of this agreement is held to be illegal or
unenforceable, in whole or in part, under an enactment or rule of law,
it shall to that extent be deemed not to form part of this agreement
and the enforceability of the remainder of this agreement shall not be
affected.
20 COUNTERPARTS
This agreement may be executed in any number of separate counterparts,
each of which when executed and delivered shall be an original, but all
the counterparts shall together constitute one and the same instrument.
21 PROPER LAW
The construction, validity and performance of this agreement shall be
governed by the laws of England and the parties submit to the
non-exclusive jurisdiction of the English Courts.
Executed by the parties.
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SCHEDULE 2
WARRANTIES
1 LAST ACCOUNTS
1.1.1 The Last Accounts were prepared in accordance with the historical cost
convention; and the bases and policies of accounting, adopted for the
purpose of preparing them, are the same as those adopted in preparing
the audited accounts of WCEH, and the Subsidiary in respect of
accounting periods since incorporation.
1.1.2 The Last Accounts:
(a) give a true and fair view of the assets and liabilities of
WCEH and the Subsidiary at the Last Accounts Date and its
profits for the financial period ended on that date;
(b) comply with the requirements of the laws of the Netherlands;
(c) are not affected by extraordinary, exceptional or
non-recurring items, or changes in accounting policies or
bases;
(d) fully provide or reserve for or disclose all material
liabilities and capital commitments of WCEH and the Subsidiary
outstanding at the Last Accounts Date, including contingent,
unquantified or disputed liabilities.
1.2 VALUATION OF STOCK-IN-TRADE AND WORK IN PROGRESS
In the Last Accounts and in the accounts of WCEH for the three
preceding financial years stock in trade and work in progress have been
treated in accordance with Dutch GAAP.
1.3 DEPRECIATION OF FIXED ASSETS
In the Last Accounts and in the accounts of WCEH for the three
preceding financial years, fixed assets have been depreciated in
accordance with Dutch GAAP.
1.4 DEFERRED TAXATION
Where provision for deferred taxation is not made in the Last Accounts,
details of the amounts of deferred taxation are disclosed in the WCEH
Disclosure Letter.
1.5 ACCOUNTING REFERENCE DATE
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The accounting reference date of WCEH is 31 December.
1.6 BOOKS AND RECORDS
All the accounts, books, ledgers, financial and other records, of WCEH
and the Subsidiary:
(a) are in its possession; and
(b) do not contain material inaccuracies.
(c) have been maintained in accordance with all applicable laws
and are in the possession or control of the Vendor.
1.7 MANAGEMENT ACCOUNTS
In relation to the Management Accounts:
(a) the assets and liabilities of WCEH and the Subsidiary at the
Management Accounts Date and their results for the nine month
period ended on that date have not been materially mis-stated
and the Vendor does not consider such accounts to be
misleading;
(b) the Management Accounts were prepared on a consistent basis to
the bases and policies of accounting adopted in preparing the
Last Accounts.
(c) such accounts contains details of:
(i) profits, losses and liabilities;
(ii) provisions; and
(iii) share capital and reserves,
of WCEH and the Subsidiary.
1.8 ASSUMED DEBT
The Assumed Debt amounts referred to in Schedule 9 are correct as the
Management Accounts Date.
1.9 Since the Last Accounts Date there has been no material adverse change
in the financial or trading position of WCEH.
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2 CORPORATE MATTERS
2.1 DIRECTORS AND SHADOW DIRECTORS
2.1.1 The only directors of WCEH are the persons whose names are listed in
relation to WCEH in Schedule 1.
2.1.2 No person is a shadow director of WCEH.
2.2 SUBSIDIARY, ASSOCIATIONS AND BRANCHES
2.2.1 WCEH is not the holder or owner nor has it any interest or agreed to
acquire share or loan capital of a company (whether incorporated in the
Netherlands or elsewhere) which is not the Subsidiary listed in
Schedule 1.
2.2.2 WCEH has no branch, agency or place of business, or a permanent
establishment outside the Netherlands.
2.3 OPTIONS OVER WCEH'S CAPITAL
Except as required by this agreement, there are no agreements or
arrangements in force which provide for the issue, allotment or
transfer of, or grant to any person the right to call for the issue,
allotment or transfer of, share or loan capital of WCEH held by the
Vendor.
2.4 THE SHARES
2.4.1 None of the Shares was issued at a discount.
2.4.2 No share or loan capital has been issued or allotted, or agreed to be
issued or allotted, by WCEH since the Last Accounts Date.
2.4.3 The Shares constitute 85% of the issued and allotted share capital of
WCEH and the Subsidiary is a 100% subsidiary of WCEH.
2.4.4 The Vendor will be entitled to transfer the full legal and beneficial
ownership of the Shares to the Purchaser on the terms of this agreement
without the consent of a third party.
2.4.5 Save as set out in the WCEH Disclosure Letter, there is no pledge, lien
or other encumbrance on, over or affecting the Shares and there is no
agreement or arrangement to give or create any such encumbrance.
2.4.6 WCEH was properly incorporated under the laws of the jurisdiction under
which it was incorporated and is organised in accordance with its
constitutional documents.
3 TAXATION
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3.1 WCEH has duly made all relevant returns and given or delivered all
notices, accounts and information which ought to have been made to and
is not involved in any dispute with any taxation authority in The
Netherlands concerning any matter likely to affect in any way the
liability (whether accrued, contingent or future) of it to Taxation of
any nature whatsoever or other sums imposed, charged, assessed, levied
or payable under the provisions of the Taxation statutes.
3.2 WCEH has duly paid or fully provided for all Taxation for which it is
liable and so far as the Vendor is aware there are no circumstances in
which interest or penalties in respect of Taxation not duly paid could
be charged against it in respect of any period prior to Completion.
3.3 No liability of WCEH to Taxation has arisen or so far as the Vendor is
aware will arise up to Completion save for corporation tax payable in
respect of normal trading profits earned by it or other tax and
insurance contributions for which it is accountable to any taxation
authority in The Netherlands or other relevant authority and which has
where appropriate been deducted or charged and where due paid to the
Inland Revenue or such other relevant authority.
3.4 WCEH has not entered into or been a party to any schemes or
arrangements designed partly or wholly for the purposes of WCEH or (so
far as the Directors are aware) any other person avoiding Taxation.
3.5 All payroll Taxation deduction systems have been properly operated and
the required records have been kept by WCEH.
3.6 WCEH has duly accounted for value added tax, and properly maintained
all relevant records in relation to value added tax.
3.7 So far as the Vendor is aware WCEH is not liable to be assessed or to
have any Taxation collected from it nor is it accountable for any
Taxation in respect of any transactions, events, profits, income of
gains or deemed profits, income or gains of any third party.
3.8 So far as the Vendor is aware WCEH has not carried out or been engaged
in any transaction or arrangement such that there may be substituted
for the actual consideration given or received by WCEH any different
consideration for any Taxation purpose.
3.9 No Taxation arose in respect of the grant or waiver of the subordinated
loan by WCEH to the Subsidiary.
3.10 So far as the Vendor is aware all capital duty arising in respect of
share capital and share premium contributions and any informal equity
contributions have been paid in full and on a timely basis.
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3.11 The Dutch tax authorities have issued nil tax assessments for the
Subsidiary in respect of the years ended 31 December 1996 and 31
December 1997 which contain confirmation that tax losses arose in those
years of NLG 39,007,519 and NLG 57,840,500, respectively and have not
subsequently indicated to the Subsidiary in writing that such
confirmations no longer represent the view of the tax authorities at
the date of this Agreement.
4 FINANCE
4.1 CAPITAL COMMITMENTS
There were no commitments on capital account outstanding at the Last
Accounts Date and, since the Last Accounts Date, WCEH has not made or
agreed to make any capital expenditure, or incurred or agreed to incur
capital commitments or disposed of or realised capital assets or an
interest in capital assets.
4.2 DIVIDENDS AND DISTRIBUTIONS
Since the Last Accounts Date no dividend or other distribution has
been, or is treated as having been, declared, made or paid by WCEH.
4.3 BANK AND OTHER BORROWINGS
Details of all limits on WCEH's bank overdraft facilities are set out
in the WCEH Disclosure Letter.
4.4 BANK ACCOUNTS
4.4.1 Statements of the bank accounts of WCEH, and of the credit or debit
balances as at a date not more than seven days before the date of this
agreement, have been supplied to the Purchaser.
4.4.2 Since the date of each statement, there have been no payments out of
the account to which the statement relates, except for payments in the
ordinary course of business; and the balances on current accounts are
not substantially different from the balances shown in the statements.
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4.5 CREDITORS
There is no amount owing by WCEH to a creditor other than in the
ordinary course of business which has been due for more than 3 months.
5 TRADING
5.1 CHANGES SINCE LAST ACCOUNTS DATE
Since the Last Accounts Date:
(a) the business of WCEH has been continued in the normal course;
(b) WCEH has paid its creditors in accordance with their
respective credit terms.
5.2 VENDOR'S OTHER INTERESTS AND LIABILITIES TO WCEH
There is no outstanding indebtedness of the Vendor to WCEH.
5.3 EFFECT OF SALE OF SHARES
5.3.1 The Vendor has no knowledge, information or belief that after
Completion (whether by reason of an existing agreement or arrangement
or otherwise):
(a) a major supplier of WCEH will cease supplying it; or
(b) a major customer of WCEH will cease to deal with it.
5.3.2 So far as the Vendor is aware compliance with the terms of this
agreement does not:
(a) conflict with, or result in the breach of, or constitute a
default under an agreement or arrangement to which WCEH is a
party where such agreement or arrangement has an annual value
to WCEH of $250,000 or more;
(b) result in the creation, imposition, crystallisation or
enforcement of an encumbrance on assets of WCEH;
(c) result in present or future indebtedness of WCEH becoming due
and payable, or capable of being declared due and payable,
prior to its stated maturity.
5.4 JOINT VENTURES AND PARTNERSHIP
5.4.1 WCEH is not and has not agreed to become, a participant in or member of
a joint venture, consortium, partnership or other unincorporated
association.
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5.4.2 WCEH is not and has not agreed to become, a party to an agreement or
arrangement for sharing commissions.
5.5 LITIGATION, DISPUTES AND WINDING UP
5.5.1 WCEH and the Subsidiary are not engaged in litigation or arbitration
proceedings, as claimant or defendant and there are no proceedings
pending or threatened, either by or against WCEH.
5.5.2 So far as the Vendor is aware there is no dispute with a revenue or
other official department in the Netherlands in relation to the affairs
of WCEH.
5.5.3 So far as the Vendor is aware there are no claims pending or threatened
against WCEH, by an employee or third party in respect of an accident
or injury, which are not covered by insurance.
5.5.4 So far as the Vendor is aware no order has been made, or petition
presented, or resolution passed for the winding up of WCEH; no
distress, execution or other process has been levied in respect of WCEH
which remains undischarged; and so far as the Vendor is aware there is
no unfulfilled or unsatisfied judgment or court order outstanding
against WCEH.
5.6 BUSINESS NAMES
WCEH does not use a name for any purpose other than its full corporate
name.
5.7 POWER OF ATTORNEY AND AUTHORITY
5.7.1 No power of attorney given by WCEH is in force.
5.7.2 No express authorities by which another person may enter into a
contract or commitment to do anything on behalf of WCEH are
outstanding.
5.8 LICENCES AND CONSENTS
WCEH has obtained all necessary licences and consents for the proper
carrying on of its business and all material licences and consents are
valid and subsisting and so far as the Vendor is aware WCEH is not in
breach of any of such licences or consents.
5.9 SUBSISTING CONTRACTS
5.9.1 The WCEH Disclosure Letter contains particulars of all existing
material contracts (being those contracts having a value to WCEH of
more than $250,000 annually), to which WCEH is a party.
5.9.2 WCEH is not a party to a contract, transaction or arrangement (where
such an arrangement has a value to WCEH of more than $250,000 annually)
which:
(a) of an unusual or abnormal nature, or is outside the ordinary
and proper course of business;
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(b) is for a fixed term of more than twelve months;
(c) cannot be terminated by it, in accordance with its terms, on
three months' notice or less;
(d) involves, or is likely to involve, the supply of goods the
aggregate sales value of which will represent in excess of 10
per cent of its turnover for the preceding financial year.
5.10 DEFAULT UNDER AGREEMENTS
WCEH is not:
(a) in default under a material agreement or arrangement to which
it is a party, or in respect of another material obligation or
restriction by which it is bound;
(b) liable in respect of an express warranty.
5.11 PURCHASES AND SALES FROM OR TO ONE PARTY
Except as set forth in the Disclosure Letter not more than 10 per cent
of the aggregate amount of all the purchases, and not more than 10 per
cent of the aggregate amount of all the sales, of WCEH is obtained, or
made, from or to the same supplier or customer, (including a person
connected with the supplier or customer).
6 EMPLOYMENT
6.1 EMPLOYEES AND TERMS OF EMPLOYMENT
6.1.1 Particulars of the identities, dates of commencement of employment and
terms of employment of all the employees and officers of WCEH,
including profit sharing, commission or discretionary bonus
arrangements, are contained in the WCEH Disclosure Letter.
6.1.2 There are no agreements or arrangements between WCEH and a trade union
or other body representing employees.
6.2 BONUS SCHEMES
There are no schemes in operation entitling an employee of WCEH to a
commission or remuneration calculated by reference to the whole or part
of the turnover, profits or sales of WCEH.
6.3 CHANGES IN REMUNERATION
During the period to which the Last Accounts relate and since the Last
Accounts Date or (where employment or holding of office commenced after
the
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beginning of the period) since the commencing date of the employment or
holding of office:
6.3.1.1 no change has been made in the rate of remuneration, emoluments or
pension benefits, of an officer, ex-officer or senior executive of WCEH
(a senior executive being a person in receipt of remuneration in excess
of $125,000 per annum); and
6.3.1.2 no material change has been made in any other terms of employment of an
officer or senior executive.
6.4 TERMINATION OF CONTRACTS OF EMPLOYMENT
6.4.1 All contracts of employment to which WCEH is a party are terminable at
any time on three months' notice or less without additional
compensation (other than compensation in accordance with the Dutch
civil code).
6.4.2 No executive of WCEH, who is in receipt of remuneration in excess of
$125,000 per annum, and no officer of WCEH has given or received notice
terminating his employment, except as expressly contemplated in this
agreement, or will be entitled to give notice as a result of this
agreement.
7 ASSETS
7.1 OWNERSHIP OF ASSETS
Except for assets subject to hire purchase or lease arrangements, all
assets were owned by WCEH at the Last Accounts Date, and WCEH had good
title to all the assets included in the Last Accounts and (except for
current assets subsequently sold or realised in the ordinary course of
business) still owns and has good title to them and to all assets
acquired since the Last Accounts Date and so far as the Vendor is aware
none of the assets are subject to or affected by any option, right to
acquire, mortgage, charge, pledge, lien or agreement for payment on
deferred terms, judgment or other security on Encumbrance whatsoever.
7.2 INSURANCE/Y2K
7.2.1 All the material assets and undertakings of WCEH of an insurable nature
are insured in amounts representing their full replacement or
reinstatement value against fire and other risks normally insured
against by persons carrying on the same business as that carried on by
it.
7.2.2 So far as the Vendor is aware WCEH is, and has for the last three years
been, adequately covered against accident, damage, injury, third party
loss (including product liability), loss of profits and other risks
normally insured against by persons carrying on the same kind of
business.
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7.2.3 So far as the Vendor is aware all insurance is in full force, and
nothing has been done or omitted to be done which could make any policy
of insurance void or voidable.
7.3 All major critical equipment of or used by, and all services provided
by, WCEH are Year 2000 Compliant.
7.4 So far as the Vendor is aware all material assets of WCEH will be
operating functionally immediately before Completion.
8 PROPERTY
8.1 LEASEHOLD PROPERTIES
8.1.1 WCEH has paid the rent and observed and performed the covenants on the
part of the tenant and the conditions contained in any material leases
(which expressions in this clause 8 includes underleases) under which
the Properties are held, and the last demand for rent (or receipt, if
issued) was unqualified, and all such leases are valid and in full
force.
8.1.2 The licences, consents and approvals required from the landlords and
any superior landlords under the leases of the Properties have been
obtained, and the covenants on the part of the tenant contained in the
licences, consents and approvals have been duly performed.
8.1.3 There are no rent reviews in progress under the leases of the
Properties held by WCEH, except for the annual rent increase, pursuant
to indexations, as inserted in the respective lease agreement and/or
the general conditions applicable thereto.
8.1.4 No obligation necessary to comply with a notice given by or other
requirement of the landlord under a lease of any of the Properties is
outstanding or unperformed.
8.1.5 There is no obligation to reinstate any of the Properties by removing
or dismantling an alteration made to it by WCEH or a predecessor in
title.
8.1.6 WCEH does not have any interest in real estate save as stated in
Schedule 3.
8.1.7 So far as the Vendor is aware the present use of the Properties does
not conflict with any material contractual obligations and so far as
the Vendor is aware no material building or alteration work has been
carried out without the required licences.
8.1.8 So far as the Vendor is aware no municipal, provincial or governmental
or other authority has given any written instruction to WCEH in
connection with
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pollution of soil (including sub-soil and water therein) which is
currently owned or used by WCEH.
8.1.9 So far as the Vendor is aware WCEH currently holds, and is
substantially in compliance with all conditions of all, permits
necessary to operate its business.
9 PENSIONS
9.1 Schedule 7 contains a true and complete overview of:
9.1.1 all pension and early retirement scheme undertakings of WCEH; and
9.1.2 the obligations of WCEH to pay premiums with respect to pensions and
early retirement schemes for employees and former employees of WCEH.
9.2 All premiums that have become payable in connection with the
obligations referred to in sub-clause 9.1.2 have been fully paid at
Completion.
9.3 No obligations exist, including past service commitments in excess of
amounts anticipated in the Last Accounts.
9.4 All pension commitments made by WCEH are in accordance with the Pension
and Savings Act, and WCEH is not deemed to have made any such
commitments which are not in accordance with such provisions. All
pension commitments made by WCEH, including back service obligations,
have been fully funded.
10 INTELLECTUAL PROPERTY RIGHTS
10.1 So far as the Vendor is aware all the material Intellectual Property
Rights used or required by WCEH for its business and the running of
their networks are valid, enforceable, in full force and effect,
registered (so far as is capable of registration) in the sole name of
WCEH, not subject to renewal or re-registration within two years of the
date hereof, are each in the sole and exclusive legal and beneficial
ownership of WCEH without the requirement for any licence, consent or
permission from or payment to any person, are each individually
transferable by WCEH free from any Encumbrance of any kind and there
are no defects in WCEH's title to any of them.
10.2 So far as the Vendor is aware WCEH has not granted any licences or
assignments under or in respect of any Intellectual Property Rights or
disclosed or provided to any person (other than employee under
enforceable obligations of confidence) any confidential or secret
material in which any Intellectual Property Right exists, including
without limitation, know-how, trade secrets, technical assistance,
confidential information or lists of customers or suppliers and is not
obliged so to grant or disclose any of the same.
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10.3 So far as the Vendor is aware WCEH is entitled to carry on its business
in the ordinary and usual course as at present carried on and does not
thereby infringe any Intellectual Property Rights of any third party
nor is it liable to pay any commission, royalty or like fee or obtain
any consent or licence.
10.4 So far as the Vendor is aware all fees for the grant or renewal of the
Intellectual Property Rights owned or used by WCEH have been paid
promptly and no circumstances exist which might lead to the
cancellation, forfeiture or modification of any Intellectual Property
Rights owned or used by WCEH or to the termination of or any claim for
damages under any licence of Intellectual Property Rights to WCEH.
11 SPECIFIC INFORMATION
To the best of the knowledge of the Vendor and WorldPort none of the
information in the documents listed in the Data Room Documents List and
in the Schedule of Disclosed Documents (as defined in the WCEH
Disclosure Letter) is inaccurate or misleading in any material respect.
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WORLDPORT COMMUNICATIONS INC )
acting by: )
/s/ Carl Grivner
WORLDPORT INTERNATIONAL INC )
acting by: )
/s/ Carl Grivner
ENERGIS PLC )
acting by: )
/s/ Francis Michael Wilkinson
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ANNEX B
DATED NOVEMBER 11, 1999
WORLDPORT COMMUNICATIONS INC (1)
ENERGIS PLC (2)
-------------------------------------------
AGREEMENT
for the sale and purchase of the issued
share capital of
WorldPort Communications Limited
-------------------------------------------
<PAGE> 138
DATED:
PARTIES:
(1) WORLDPORT COMMUNICATIONS INC incorporated in the State of Delaware
whose principal executive offices are at 1825 Barrett Lakes
Boulevarde, Suite 1000 Kennesaw, Georgia 30144, United States of
America ("Vendor"); and
(2) ENERGIS PLC with Company number 3438871 whose registered office is at
Carmelite, 50 Victoria Embankment, London EC4Y 0DE ("PURCHASER")
INTRODUCTION
(A) The Vendor has agreed to dispose of its holding of shares in WorldPort
Communications Limited to the Purchaser on the terms of this
agreement.
(B) Simultaneously with the disposal of the shares in WorldPort
Communications Limited, the Vendor has agreed to dispose to the
Purchaser its 85% holding of shares in WorldPort Communications Europe
Holding BV and to dispose of its interest in DMS GSP international
gateway switches to UCS, the U.S. subsidiary of the Purchaser.
OPERATIVE PROVISIONS
1 DEFINITIONS
1.1 In this agreement, including the Schedules, the following words and
expressions have the meanings stated, unless they are inconsistent
with the context:
"ADDITIONAL INDEBTEDNESS" the aggregate of the amounts
incurred in accordance with clause
3.5(d) (including accrued interest)
between the date of signing of this
agreement and Completion
"ASSOCIATE" any subsidiary or holding company
of WCL, and any other subsidiary of
any holding company of WCL,
"holding company" having the same
meaning as in CA s736 and for this
purpose a company is controlled by
one or more persons if he or they
can exercise more than fifty per
cent of the voting rights in it
"ASSUMED DEBT" the sum of interest bearing
liabilities including financial
leases excluding the Indebtedness
and less cash and cash equivalents
as at the Management Accounts Date,
being as set out in Schedule 6
"ASSUMED DEBT SCHEDULE" Schedule 9 of this Agreement
providing details of the Assumed
Debt
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"CA" Companies Act 1985
"COMPANIES ACTS" CA, the former Companies Acts
(within the meaning of CA s735(1))
and the Companies Act 1989
"THE COMPANY" WCL
"COMPLETION" completion of the purchase of the
Shares in accordance with clause 6
"COMPLETION ACCOUNTS" the audited balance sheet of WCL as
at the Completion Date and the
audited profit and loss account of
WCL for the period from the Last
Accounts Date to Completion
prepared on the basis described in
clause 7
"COMPLETION BALANCE SHEET" the balance sheet of WCL prepared
from the Completion Accounts in
accordance with clause 7 and
adjusted in accordance with clause
7
"COMPLETION DATE" subject to clause 10.2 of the WCEH
Share Agreement, the date five
business days after the
satisfaction of the conditions set
out in clause 3 or if such date
falls between 31 December 1999 and
14 January 2000, 15 January 2000 or
such other date as may be agreed
between the parties
"CONSIDERATION" the Consideration specified in
clause 5 as adjusted in accordance
with clause 5.4 and clause 7
"DATA ROOM" the room located at the premises of
WCEH at K.P. van der Mandelelaan
130, 3062 MB Rotterdam, The
Netherlands in which documentation
in relation to WCL has been made
available to the Purchaser for the
purpose of its due diligence
activities
"DATA ROOM DISCLOSURE LIST" the list of documents reviewed by
the Purchaser in relation to the
Data Room in the agreed form as
attached to the Disclosure Letter
"ENCUMBRANCE" includes any mortgage, charge,
pledges hypothecation, lien,
assignment by way of security,
title retention, option, right to
acquire, right of pre-emption,
right of set off, counterclaim,
trust arrangement or other
security, preferential right or
agreement to confer security, or
restriction
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"FRS" a financial reporting standard
issued or adopted by The Accounting
Standards Board Limited
"ICTA" Income and Corporation Taxes Act
1988
"INTELLECTUAL PROPERTY RIGHTS" means patents, trade marks, service
marks, trade names, domain names,
registered designs, designs,
semiconductor topography rights,
database rights, copyrights and
other forms of intellectual or
industrial property (in each case
in any part of the world, whether
or not registered or registrable),
know-how, inventions, formulae,
confidential or secret processes
and information, rights in computer
software, and any other protected
rights and assets, and any licenses
and permissions in connection with
the foregoing
"INDEBTEDNESS" the inter-company debts owed by WCL
as at 30 September 1999 being as
set out in Schedule 4
"LAST ACCOUNTS" the balance sheet, as at the Last
Accounts Date, and profit and loss
account for the year ended on the
Last Accounts Date of WCL in the
agreed form as set out in Schedule 8
"LAST ACCOUNTS DATE" 31 December 1998 (being the date to
which the Last Accounts were
prepared)
"LONGSTOP DATE" subject to clause 3.7 of the WCEH
Share Agreement, 31 January 2000 or
such other date as may be agreed in
writing between the Vendor and the
Purchaser
"MANAGEMENT ACCOUNTS" the unaudited balance sheet and
profit and loss accounts for the
nine month period ended on and as at
the Management Accounts Date for WCL
in the agreed form as set out in
Schedule 9
"MANAGEMENT ACCOUNTS DATE" 30 September 1999
"MINORITY SHAREHOLDER" the Shareholder who holds 60 shares
of NLG100 each, being 15% of the
voting issued share capital of WCEH
"NET ASSETS" the aggregate of the share capital
plus reserves (including assigned
leases) for WCL
"THE NET ASSETS SCHEDULE" Schedule 7 of this Agreement
providing details of the Net Assets
as at the Management Accounts Date
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"NET ASSETS STATEMENT" the statement referred to in clause
7
"PROPERTIES" the leasehold properties in the
name of WCL, set out in Schedule 3
"PURCHASER'S AUDITORS" PriceWaterhouseCoopers of 1
Embankment Place, London WC2N 6NN
"SHARES" the entire issued share capital of
WCL
"TAXATION" all forms of taxation, duties and
levies whatsoever and whenever
imposed, whether by governmental or
other authority of the United
Kingdom and (without limitation)
includes:
(a) income tax, corporation
tax, capital gains tax,
inheritance tax, stamp
duty, value added tax,
customs and other import
duties and national
insurance contributions and
any payment whatsoever
which WCL may be or become
bound to make to any person
as a result of any
enactment relating to
taxation and any other
taxes, duties or levies
supplementing or replacing
any of the above;
(b) all interest, fines and
penalties incidental, or
relating, to any such
taxation, duties or levies,
whatsoever
"TAX DEED" the deed relating to Taxation to be
entered into at Completion between
(1) the Vendor and (2) the
Purchaser in the agreed form
"UK SWITCH AGREEMENT" the agreement in the agreed form of
even date made between the Vendor
and WCL for the sale and purchase
of a Nortel 250 Switch
"US SWITCH AGREEMENT" the agreement of even date made
between the Vendor and UCS whereby
the Vendor agrees to sell its
interest in the Switches and the
Contracts (each as defined in the
US Switch Agreement)
"UCS" Unisource Carrier Services USA, Inc.
"VENDOR'S AUDITORS" Arthur Andersen of Prof. W.H.
Keesomlaan 8, 1183 DJ Amstelveen,
Postbus 75381, 1070 Amsterdam
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"VENDOR'S SOLICITORS" Rakisons, Clements House, 14/18
Gresham Street, London EC2V 7JE
"WARRANTY CLAIM" a claim made by the Purchaser for
breach of any of the WCL Warranties
"WCEH" WorldPort Communications Europe
Holding B.V.
"WCEH SHARE AGREEMENT" the agreement of even date made
between the Vendor, WorldPort and
the Purchaser whereby the Vendor
agrees to sell 85% of the issued
share capital of WCEH
"WCL" WorldPort Communications Limited
"WCL DISCLOSURE LETTER" the disclosure letter, of today's
date, from the Vendor to the
Purchaser
"WCL WARRANTIES" the warranties of the Vendor in
respect of the sale of the Shares
set out in Schedule 2 of this
agreement
"WORLDPORT" WorldPort International Inc,
incorporated in the State of
Delaware whose principal executive
offices are 1825 Barrett Lakes
Boulevard, Suite 100 Kennesaw,
Georgia 30144, United States of
America
"YEAR 2000 COMPLIANT" neither the performance nor the
functionality of the assets when in
normal use will be materially
impaired by the advent of the Year
2000 and in particular:
(a) Year 2000 Compliant
shall mean that no value
for current date will
cause any interruption
or error in the
operation of the assets;
(b) all manipulations of
time-related data by the
assets will produce the
desired results for all
valid date values prior
to, through and beyond
the Year 2000;
(c) date elements in these
products (including
interfaces and data
storage) will permit
specifying the century
to eliminate date
ambiguity without human
intervention including
leap year calculations;
and
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(d) where any data element
is represented without a
century, the correct
century shall be
unambiguous for all
manipulations involving
that element
1.2 Unless it is inconsistent with the context a reference to a statutory
provision includes a reference to:
(a) any statutory amendment, modification, consolidation or
re-enactment (whether before or after the date of this
agreement);
(b) any statutory instruments or subordinate legislation or
orders made pursuant to the statutory provision;
(c) statutory provisions of which the statutory provision is an
amendment, modification, consolidation or re-enactment;
but does not include a substituted provision.
1.3 A reference to an SSAP is a reference to a statement of standard
accounting practice adopted by The Accounting Standards Board Limited.
1.4 Words denoting the singular include the plural and vice versa; words
denoting one gender include all genders; words denoting persons
include corporations and vice versa.
1.5 Unless otherwise stated, a reference to a clause, sub-clause or
Schedule is a reference to a clause or sub-clause of, or Schedule to,
this agreement.
1.6 Clause headings in this agreement and in the Schedules are for ease of
reference only and do not affect the construction of any provision.
1.7 References to documents "in the agreed form" are to documents in terms
agreed between the parties and signed (for the purposes of
identification only) by the parties or the Vendor's Solicitors and the
Purchaser's Solicitors.
1.8 References to Dollars ($) in this agreement shall mean U.S. Dollars.
2 DELIVERY AT SIGNING
2.1 Immediately upon signing this Agreement, the Vendor will deliver to
the Purchaser the following:
(a) a duly executed copy of the US Switch Agreement and the WCEH Share
Agreement; and
(b) a legal opinion, in the agreed terms from the Vendor's Solicitors in
respect of this Agreement;
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and the Purchaser will enter into, with the Minority Shareholder, the
agreement referred to in clause 3.1(d).
2.2 The Vendor confirms to the Purchaser receipt by it of an opinion in
the agreed form from Salomon Smith Barney confirming the fairness of
the Consideration referred to in this Agreement.
3 CONDITIONS PRECEDENT
3.1 This agreement shall be subject to the fulfilment at or prior to the
Completion Date of each of the following conditions:
(a) the transactions contemplated by this Agreement having been
approved and adopted by the requisite action of the
shareholders of WorldPort in accordance with the certificate
of incorporation and by-laws of WorldPort and applicable
Delaware law;
(b) the Vendor having entered into the US Switch Agreement with
UCS;
(c) the Vendor and WorldPort having entered into the WCEH Share
Agreement with the Purchaser; and
(d) the Minority Shareholder having, entered into an agreement
with the Purchaser agreeing to sell to the Purchaser the 15%
of the issued share capital of WCEH held by it
and none of the agreements referred to in (b) or (c) or (d) having
been terminated.
The Purchaser may, at its discretion, waive any of the above
conditions other than in paragraph (a) above.
The Vendor shall notify the Purchaser immediately on becoming aware of
anything which will or may prevent any of the conditions in this
clause 3.1 from being satisfied by the Longstop Date.
3.2 The obligations of the Vendor to complete the transactions
contemplated is subject to the fulfilment of all of the following
conditions on or prior to the Completion Date:
(a) all obligations of the Purchaser to be performed under this
agreement through, and including on, the Completion Date
shall have been performed in all material respects;
(b) the Purchaser shall have made the deliveries contemplated in
clause 6.5 hereof; and
(c) no litigation proceedings having been commenced which is
reasonably likely to have a material adverse effect on the
Vendor's anticipated benefits under this Agreement.
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3.3 The obligations of the Purchaser to complete the transactions
contemplated is subject to the fulfilment of all of the following
conditions on or prior to the Completion Date:
(a) each and every warranty made by the Vendor shall have been
true and correct in all material respects when made and shall
be true and correct in all material respects as if originally
made on and as of the Completion Date except to the extent
that such warranties are not true and correct in all material
respects as a result of:
(i) except for paragraph 7.3 of Schedule 2, an event or
occurrence outside the control of the Vendor
occurring during the period from the execution of
this Agreement to the Completion Date;
(ii) any act or omission of the Purchaser during the
period from the execution of this Agreement until
the Completion Date;
(iii) any action taken by WCL in the ordinary course of
business during the period from the execution of
this Agreement until the Completion Date;
(b) all obligations of the Vendor to be performed under this
agreement through, and including on, the Completion Date
shall have been performed in all material respects;
(c) the Vendor and WCL shall have made the deliveries
contemplated in clause 6.2 hereof; and
(d) no litigation proceedings having been commenced which is
reasonably likely to have a material adverse effect on the
Purchaser's anticipated benefits under this Agreement.
3.4 The Vendor and the Purchaser shall use reasonable efforts to satisfy
or procure the satisfaction of the conditions set out in this clause 3
as soon as possible and in any event by the Longstop Date.
3.5 The Vendor shall ensure that between the date of this agreement and
the Completion Date (both dates inclusive):
(a) WCL shall carry on its business in the ordinary course;
(b) WCL shall not declare or pay any dividend;
(c) WCL shall not enter into any contract or commitment of an
unusual nature or which is not in the ordinary course of
trading or which provides for total annual expenditure in
excess of $250,000;
(d) WCL shall not assume or incur or agree to assume or incur any
capital commitment or any debt, obligation or liability:
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(i) outside the ordinary course of trading; or
(ii) within the ordinary course of trading in excess of
$6 million;
(e) the Purchaser will be entitled to convene a meeting of
employees of WCL or their representatives to explain the
transactions and any proposed plan of the Purchaser insofar
as it relates to those employees; and
(f) the Purchaser shall be entitled to nominate such person from
time to time who shall be entitled to attend as an observer
at all board meetings of WCL and to receive the same
information as is provided to directors of WCL.
For the purposes of this clause 3.5 the Purchaser acknowledges that
the Vendor shall not be under any obligation whatsoever to provide
further financing to WCL from the date of this agreement to the
Completion Date and the expression "ordinary course of trading" shall
be construed accordingly.
3.6 The Purchaser shall have the right, subject to the consent of the
Vendor including as to the terms (such consent not to be unreasonably
withheld) during the period from the date of this agreement until the
Completion Date to require WCL to lease or borrow assets from it (or
any Associate of the Purchaser) on arm's length terms.
4 AGREEMENT FOR SALE
4.1 Subject to the terms and conditions of this agreement, the Vendor
shall sell and transfer with full title guarantee and the Purchaser
shall purchase the Shares with all rights attaching to them, with
effect from the Completion Date.
4.2 The Vendor waives any pre-emption rights it may have in relation to
any of the Shares, whether under the articles of association of WCL or
otherwise.
5 PURCHASE CONSIDERATION
5.1 The consideration for the shares shall (subject to adjustment as
provided in clauses 5.4 and 7) be the sum of $433,700 which shall be
paid in cash at Completion in accordance with the provisions of clause
6.5.
5.2 On Completion the Purchaser shall procure the repayment of the
Indebtedness.
5.3 In acquiring the Shares for the consideration specified in clause 5.1
the Purchaser acknowledges that WCL remains liable for the Assumed
Debt.
5.4 To the extent that any Additional Indebtedness has been incurred and
remains outstanding as at the Completion Date then in such
circumstances the sum to be paid for the Shares in clause 5.1 shall be
reduced by that amount on a $ for $ basis and the relevant amount
shall be repaid at Completion.
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5.5 Schedule 10 sets out the calculation of the various payments to be
made pursuant to this Agreement.
5.6 Schedule 11 sets out the calculation of the Consideration payable to
the Vendor pursuant to this Agreement.
6 COMPLETION
6.1 Completion shall take place at the offices of the Vendor's Solicitors
on or before the Longstop Date, when the following provisions of this
clause shall apply.
6.2 The Vendor shall:
(a) deliver to the Purchaser duly completed and signed transfers
in favour of the Purchaser of the Shares, together with the
relative share certificates;
(b) deliver to the Purchaser the resignation of the auditors of
WCL confirming that they have no outstanding claims and
containing a statement under CA s394 (1) that there are no
such circumstances as are mentioned in that section;
(c) complete the US Switch Agreement;
(d) deliver to the Purchaser the duly executed assignments or
novations of the WCL Contracts in the agreed form and a duly
executed novation of the US leases to WCL in the agreed form;
(e) deliver to the Purchaser resignations, in the agreed form, of
the outgoing directors and secretary as required by the
Purchaser;
(f) deliver to the Purchaser the discharge of the Indebtedness in
the agreed form; and
(g) deliver to the Purchaser the duly executed Tax Deed.
6.3 There shall be delivered or made available to the Purchaser:
(a) the statutory books, books of account and documents of record
of WCL and their certificates of incorporation and common
seals; and
(b) all the current cheque books of WCL, together with current
statements of all its bank accounts with a reconciliation to
Completion.
6.4 A board meeting of WCL shall be held at which:
(a) such persons as the Purchaser nominates are appointed
additional directors; and
(b) the transfer of the Shares referred to in clause 6.2(a) are
approved (subject to stamping).
6.5 At Completion the Purchaser shall:
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(a) transfer the following amounts by telegraphic transfer:
(i) $4,705,600 plus accrued interest through to the
Completion Date, to the account of WorldPort, being
the amounts required to discharge the Indebtedness
owed by WCL;
(ii) $433,700 less any accrued interest paid under clause
(i), and less any amount caused by the reduction
pursuant to clause 5.4 being the remaining
Consideration for the Shares;
and the amount of the Additional Indebtedness shall be repaid
(b) complete the WCEH Share Agreement;
(c) complete the UK Switch Agreement; and
(d) deliver to the Vendor the Tax Deed.
6.6 The Purchaser shall not be obliged to complete this Agreement unless
at the same time the WCEH Share Agreement and the agreement referred
to in clause 3.1(d) are completed.
7 ADJUSTMENTS TO PURCHASE CONSIDERATION
7.1 The parties shall procure, as soon as practicable and in any event
within 60 days after Completion, the preparation of the Completion
Accounts, which shall be prepared by WCL, subject to this clause 7, on
the basis of accounting standards generally accepted in the UK and
audited by WCL's Auditors to a standard to be agreed between WCL's
Auditors and the Purchaser's Auditors. The cost of the audit shall be
paid as to one half by the Vendor and as to the other half by the
Purchaser.
7.2 The parties shall disclose to WCL's Auditors and the Purchaser's
Auditors all information relevant for the purposes of preparing the
Completion Accounts.
7.3 The parties shall instruct WCL, the WCL Auditors and the Purchaser's
Auditors to prepare the Net Assets Statement from the Completion
Accounts and to deliver to the Vendor and the Purchaser copies of the
Completion Accounts and Completion Balance Sheet and of their
calculation of any adjustments required by this clause within 14 days
of the preparation of the Completion Accounts.
7.4 The basis of preparing the Completion Balance Sheet is as set out
below:
(a) except as stated in (c) below in accordance with UK GAAP;
(b) they are to comprise a balance sheet for WCL in a similar
format to the Management Accounts in Schedule 9. A statement
of Net Assets will be aggregated in a similar form to
Schedule 7;
(c) the Completion Accounts shall:
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(i) not treat as an asset any prepayments which will not
give rise to a benefit to the business of WCL;
(ii) exclude any deferred tax assets of WCL;
(iii) exclude depreciation and amortisation charged to the
profit and loss account from the Management Accounts
Date to the date of Completion;
(iv) be prepared to present the balance sheet and
statement of assets and liabilities on the basis
immediately before the following specified events
which are expected to occur before or at Completion:
(a) the transfer of the UK Switch pursuant to
the UK Switch Agreement;
(b) the repayment of the Indebtedness.
7.5 It is anticipated that the value of the Net Assets as at Completion
will be a negative figure. To the extent that the value of such Net
Assets is:
(a) a negative figure which is greater than (pound)1,443,000, the
Vendor will repay to the Purchaser the amount by which this
negative figure is greater than (pound)1,443,000, and the
Consideration shall be reduced by the amount of that
repayment, provided that the amount of the repayment shall
not exceed $20,000,000; and
(b) a negative figure which is less than (pound)1,443,000, the
Purchaser will pay to the Vendor the amount by which this
negative figure is less than (pound)1,443,000, and the
Consideration shall be increased by the amount of that
payment, provided that the amount of that payment shall not
exceed $20,000,000.
7.6 Each of the parties undertakes to the other to pay the amount of any
reduction or increase (as the case may be) to the other in cash within
28 days after delivery to the Vendor and the Purchaser of a copy of
the calculation referred to in clause 7.3.
Any amount due under clause 7.6 of the WCEH Share Agreement may be
off-set against any amount due under this clause.
7.7 Disputes with respect to the Completion Accounts or the Completion
Balance Sheet or the calculation of the Net Assets Statement or any
other matter referred to in this clause 7 shall be referred for final
settlement to a firm of chartered accountants, nominated jointly by
the Vendor and the Purchaser, or, failing nomination within 14 days
after request by either the Vendor or the Purchaser, nominated at the
request of either party by the President for the time being of the
Institute of Chartered Accountants of England and Wales. The firm
shall act as experts and not as arbitrators and their decision (in the
absence of manifest error) shall be final and binding on the parties.
Their fees shall be payable by the Vendor and the Purchaser in such
proportions as the firm determines.
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7.8 For the purposes of the Purchaser's review under this clause 7, the
Purchaser's Auditors and the Vendor's Auditors attempts to resolve any
dispute under this clause 7 and the settlement of any dispute by the
independent accountants, the Vendor and the Purchaser shall ensure
that the Vendor's Auditors and the Purchaser's Auditors and (if
applicable) the independent accountants are promptly given all
information, assistance and access to all books of accounts,
documents, files and papers which they may reasonably require.
7.9 Unless otherwise indicated under this agreement, the translations of
local currency amounts into US Dollars will be made on the basis of
the closing exchange rates on 10 November 1999.
8 VENDOR COVENANTS
The Vendor hereby covenants that during the period between the date of
this Agreement and Completion:
(a) WCL shall comply with the obligations contained in the
following agreements and shall not do, cause anything to be
done, omit or cause anything to be omitted which would enable
the counterparty to terminate such agreements:
(i) interlease agreements entered into by WCL and
certain carriers, including Interroute, World
Access, Primetec and Global One;
(ii) co-location agreements entered into by WCL and
Telelink and Star Europe Ltd;
(b) WCL shall not assign or agree to assign any trademarks.
9 WARRANTIES BY THE VENDOR
9.1 The Vendor warrants to the Purchaser that, save as set out in the WCL
Disclosure Letter, the WCL Warranties are accurate in all material
respects and as at the Completion Date will be accurate in all
material respects except to the extent that such warranties are not
accurate in all material respects as at the Completion Date as a
result of:
(a) except for paragraph 7.3 of Schedule 2, an event or
occurrence outside the control of the Vendor occurring during
the period from the date of this Agreement to the Completion
Date;
(b) any act or omission of the Purchaser during the period from
the date of this Agreement until the Completion Date; and
(c) any action taken by WCL in the ordinary course of business
during the period from the date of this Agreement until the
Completion Date.
9.2 The Vendor warrants to the Purchaser that:
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(a) the execution, delivery and performance of this agreement and
all documents executed or to be executed in connection
therewith have been duly authorised by all necessary
corporate action on behalf of the Vendor. This agreement
constitutes, and, as of the Completion Date, all documents
executed or to be executed in connection therewith shall
constitute, the legal, valid and binding obligation of the
Vendor enforceable against it in accordance with its terms;
(b) other than as stated in this agreement, or in the WCL
Disclosure Letter there is no pledge, lien or other
encumbrance on, over or affecting the Shares or the assets of
WCL and there is no agreement or arrangement to give or
create any such encumbrance and no claim has been made by any
person to be entitled to any of the foregoing; and
(c) no consent, approval or other actions by any Shareholder of
WorldPort is required for the consummation of any of the
transactions contemplated by this Agreement other than the
approval required by clause 3.1(a) of the WCEH Share
Agreement.
9.3 The Vendor shall not be liable in respect of any claim under the WCL
Warranties unless the Purchaser serves written notice of such claim
setting out the nature of the claims and so far as is practicable its
estimate of the amount claimed upon the Vendor by, in respect of claim
in relation to Taxation, not later than the seventh anniversary of
Completion and, in respect of all other claims, by not later than 30
September 2001 PROVIDED THAT the amount payable in respect of the
relevant claim is agreed by the Vendor within 12 months of the date of
such written notice or legal proceedings are instituted in respect of
such claim by the due service of process on the Vendor by the date
falling 12 months after the date of such written notice, unless
extended by agreement between the parties.
9.4 The Vendor shall not be liable in respect of any claim under the WCL
Warranties (except for paragraph 7.3 of Schedule 2) unless the
aggregate liability in respect of that claim (which shall include any
claims arising out of the same cause or event) and all other claims,
including claims under the WCEH Warranties (as defined in the WCEH
Share Agreement) (but not including claims under paragraph 7.3 of
Schedule 2 to the WCEH Share Agreement) exceeds $10,000,000 in which
case only the excess shall be recoverable.
9.5 Clause 9.5 of the WCEH Share Agreement shall apply to this Agreement.
9.6 The Purchaser shall, in relation to any loss or liability which may
give rise to a claim under this Agreement against the Vendor,
discharge its common law duty to use reasonable endeavours to mitigate
the loss suffered by it.
9.7 The Vendor shall not be liable in respect of any claim under the WCL
Warranties in respect of any breach or claim:
(a) to the extent that such breach or claim would not have arisen
but for some voluntary act, omission, transaction or
arrangement, which could reasonably have been avoided and
which is not required by law, carried out after Completion by
or on behalf of all or any of the Purchaser or WCL and its
respective successors in title;
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(b) to the extent that such breach or claim would not have arisen
or occurred but for the coming into force of any legislation
not in force at Completion but having retrospective effect or
by reason of the withdrawal of any extra statutory concession
applying at Completion or a change in the application of any
extra statutory concession applying at Completion, in each
case having retrospective effect;
(c) to the extent that WCL recovers against any loss or damage
suffered arising out of such breach or claim under the terms
of any insurance policy for the time being in force;
(d) to the extent that such breach or claim arises as a result of
any change in the accounting bases or policies in accordance
with which WCL values its assets or calculates its
liabilities or any other change in accounting practice on or
after Completion.
9.8 If the Vendor pays or is due to pay to the Purchaser an amount in
respect of any claim under the WCL Warranties and the Purchaser
recovers from a third party any amount in respect of the matter giving
rise to that claim, the Purchaser shall (or shall procure that WCL
shall) forthwith repay to or reduce the amount due from the Vendor the
sum which represents or would represent a double recovery under such
claim less all costs, charges and expenses including Taxation
reasonably incurred by the Purchaser in recovering that sum from the
third party and any applicable taxation suffered by the Purchaser in
respect of that recovery.
9.9 If any claim is received by the Purchaser or WCL from a third party in
respect of which the Vendor may be or become liable under the WCL
Warranties, the Purchaser shall procure that WCL shall:
(a) as soon as reasonably practicable give written notice thereof
to the Vendor or (with a copy to the Vendor's Solicitors)
specifying the nature of the claim in reasonable detail;
(b) not make any admission of liability, agreement or compromise
to or with any person in relation thereto without the prior
written consent of the Vendor or (such consent not to be
unreasonably withheld or delayed), provided always that no
such prior consent in writing shall be required in
circumstances where, in the reasonable opinion of the
Purchaser, failure to admit liability or to compromise or
settle such claim shall be materially prejudicial to the
goodwill or reputation of WCL or the Purchaser;
(c) give the Vendor and its professional advisers reasonable
access on reasonable notice to the premises and personnel of
WCL and to any relevant documents and records within the
possession or control of the Purchaser or WCL for the purpose
of enabling the Vendor to consider the merits of such claim
and to take copies thereof (at the expense of the Vendor);
and
(d) take such action as the Vendor may reasonably request to
avoid, dispute, resist, appeal or compromise such claim,
subject to the Purchaser and WCL being indemnified to their
reasonable satisfaction against all losses, liabilities,
costs and
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expenses which they may suffer or incur by reason of such
action including, for the avoidance of doubt, the amount of
any third party claim.
9.10 Where under the provisions of the Taxation statutes or otherwise the
Purchaser and/or WCL is entitled (whether by right of indemnity,
reimbursement or any other means) to recover from some other person
(not being the Purchaser or WCL but including, without limitation any
Taxation authority) any sum or benefit in respect of any matter giving
rise or which may give rise to a claim against the Vendor under the
WCL Warranties, the Purchaser shall (and shall procure that WCL shall)
as soon as reasonably practicable notify the Vendor in writing of such
entitlement and at the request of the Vendor and subject to being
indemnified and secured to their reasonable satisfaction against all
losses, liabilities, costs and expenses which they may suffer or incur
thereby take all appropriate and reasonable steps to enforce recovery
at the sole cost of the Vendor including without limitation the
issuance of proceedings in the name of WCL.
9.11 Any payment by the Vendor pursuant to the WCL Warranties shall be
treated for all purposes by the parties as a reduction in the
Consideration.
9.12 The Purchaser shall only be entitled to recover once for the same loss
in respect of two or more breaches of the WCL Warranties for claims
relating to the same subject matter.
9.13 Where qualified by the knowledge, information, belief or awareness of
the Vendor, each Warranty is deemed to include such knowledge,
information, belief or awareness held, without enquiry in respect of
the relevant subject matter of such Warranty, by the following senior
management individuals:
Carl Grivner (Chief Executive Officer WorldPort), John Hanson (Chief
Financial Officer WorldPort), Stephen Courter (managing director,
Europe), David Hickey (managing director, corporate development :
EnerTel NV), Peter Veenman (vice-president director: EnerTel NV),
Malcolm Arnold (vice-president operations, Europe), Jeroen Bulk (chief
financial officer : EnerTel NV) and David Whitefoot (employed by WCL)
9.14 The Purchaser acknowledges that, in connection with the WCL
Warranties, it has had the opportunity to review all of the
documentation as set out in the Data Room Disclosure List and that the
documentation referred to in the Data Room Disclosure List shall be
treated as having been fully disclosed to it for the purposes of
disclosure against the WCL Warranties.
9.15 The Purchaser confirms and agrees that as at the date hereof neither
the Purchaser nor any director or officer of the Purchaser is aware of
any fact, matter or circumstance which constitutes or is reasonably
likely to constitute a breach of the WCL Warranties and to the extent
that the Purchaser or any such director or officer is so aware no
claim may be made under the WCL Warranties in respect of such facts,
matter or circumstance.
9.16 Each of the parties acknowledges that in agreeing to enter into this
agreement it has not relied on any representation, warranty,
undertaking or other assurance except those set out or referred to in
this agreement. Without prejudice to the foregoing, the Purchaser
acknowledges that it has not relied on any representations or
warranties or other information contained in the information on the
Vendor and the Company prepared by Salomon Smith
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Barney or in any other written or oral information supplied by or on
behalf of the Vendor or its advisers or made or supplied in connection
with the negotiations of the sale and purchase under this agreement
except those set out or referred to in this Agreement.
9.17 The limitations on liability contained in clause 9.4 and referred to
in clause 9.5 shall not apply to any claims made for breach of any WCL
Warranty relating to Taxation or the Tax Deed. This clause 9 shall be
subject to clause 10.2 of the WCEH Share Agreement.
10 ASSIGNMENT AND SUCCESSIONS
Except as expressly provided above, none of the rights of the parties
under this agreement or the WCL Warranties may be assigned or
transferred except as referred to in clause 11 of the WCEH Share
Agreement.
11 TERMINATION
This agreement and the transactions contemplated hereby may be
terminated at any time prior to the Completion Date by prompt notice
given in accordance with clause 16:
(a) by the mutual written consent of the Purchaser and the
Vendor; or
(b) by the Vendor if:
(i) there has been a material breach by the Purchaser of
any representation or warranty contained in this
agreement; or
(ii) there has been a material breach of any of the
covenants or agreements set forth in this agreement
on the part of the Purchaser, and which breach is
not cured within 30 days after written notice of
such breach is given by the Vendor to the Purchaser.
(c) by the Purchaser if:
(i) there has been a material breach by the Vendor of
any representation or warranty contained in this
agreement; or
(ii) there has been a material breach of any of the
covenants or agreements set forth in this agreement
on the part of the Vendor, which breach is not cured
within 30 days after written notice of such breach
is given by the Purchaser to the Vendor;
(d) by either the Purchaser or the Vendor if the Completion shall
not have occurred at or before 11:59pm on the Longstop Date;
provided, however, that the right to terminate this agreement
under this clause 11(d) shall not be available to any party
whose breach of a representation or warranty or failure to
fulfil any material obligation under this agreement has been
the cause of or resulted in the failure of the Completion to
occur on or prior to the aforesaid date.
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12 ANNOUNCEMENTS
12.1 No announcement shall be made in respect of the subject matter of this
agreement, except as specifically agreed between the parties, unless
an announcement is required by law or is requested to be made to the
Stock Exchange, Nasdaq National Market or the Securities Exchange
Commission and the party making such an announcement shall, where
possible, discuss the content of the announcement with the other side.
12.2 If this agreement ceases to have effect, the Purchaser will release
and return to WCL all documents concerning it provided to the
Purchaser or its advisers in connection with this agreement and will
not use or make available to another person information which it or
its advisers have been given in respect of WCL and which is not in the
public domain.
13 INFORMATION
The Vendor shall procure that, prior to Completion, the Purchaser, its
agents, representatives, Auditors and solicitors are given promptly on
request all such facilities and information regarding the business,
assets, liabilities, contracts and affairs of WCL, and of the
documents of title and other evidence of ownership of its assets, as
the Purchaser reasonably requires.
14 COSTS
All expenses incurred by or on behalf of the parties, including all
fees of agents, representatives, solicitors, auditors and actuaries
employed by any of them in connection with the negotiation,
preparation or execution of this agreement, shall be borne solely by
the party who incurred the liability, and WCL shall not have any
liability in respect of them.
15 TIME OF ESSENCE
Time shall be of the essence of this agreement, both as regards the
dates and periods specifically mentioned and as to any dates and
periods which, by agreement in writing between or on behalf of the
Vendor and the Purchaser, are substituted for them.
16 COMMUNICATIONS
16.1 All communications between the parties with respect to this agreement
shall:
(a) be delivered by hand, or sent by post to the above address
(in the case of a notice to the Vendor, marked for the
attention of John Hanson); or
(b) be sent by facsimile transmission to the facsimile
transmission numbers stated below or as notified for the
purpose of this clause.
16.2 Communications shall be deemed to have been received as follows:
(a) if sent by post - 3 business days after posting;
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(b) if delivered by hand - on the day of delivery, if delivered
at least 2 hours before the close of business hours on a
business day, and otherwise on the next business day;
(c) if sent by facsimile transmission - at the time of
transmission, if received at least 2 hours before the close
of business hours on a business day, and otherwise on the
next business day.
16.3 For this purpose, a "business day" means a day on which the clearing
banks in the City of London are open for business and "business hours"
mean between the hours of 09.00 and 18.00 inclusively local time.
16.4 The facsimile transmission numbers referred to in clause 16.1 are:
(a) for the Vendor - 001 847 913 0037 (attention John Hanson);
(b) for the Purchaser - 020 7206 5454 (attention Chris Hibbert).
The Vendor hereby appoints Rakisons of 14/18 Gresham Street,
London EC2V 7JE, England, marked for the personal attention
of Michael Thompson as its authorised agent for the purpose
of accepting service of process for all purposes in
connection with this Agreement.
17 CONFIDENTIALITY
None of the parties shall issue any press release or publish any
circular to shareholders or any other public document or make any
public statement or otherwise disclose to any person who is not a
party (including (without limitation) any document or statement
published, issued or made by the Vendor and/or the Purchaser to any
supplier to or customer of WCL), in each case relating to or connected
with or arising out of this agreement or the matters contained in it,
without obtaining the previous approval of the other party to its
contents and the manner of its presentation and publication or
disclosure (such approval not to be unreasonably withheld), unless
required by any applicable law.
18 INVALIDITY
If a term in or provision of this agreement is held to be illegal or
unenforceable, in whole or in part, under an enactment or rule of law,
it shall to that extent be deemed not to form part of this agreement
and the enforceability of the remainder of this agreement shall not be
affected.
19 COUNTERPARTS
This agreement may be executed in any number of separate counterparts,
each of which when executed and delivered shall be an original, but
all the counterparts shall together constitute one and the same
instrument.
20 PROPER LAW
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The construction, validity and performance of this agreement shall be
governed by the laws of England and the parties submit to the
non-exclusive jurisdiction of the English Courts.
Executed by the parties.
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ANNEX I - SCHEDULE 2
WARRANTIES
1 LAST ACCOUNTS
1.1.1 The Last Accounts were prepared in accordance with the historical cost
convention; and the bases and policies of accounting, adopted for the
purpose of preparing them, are the same as those adopted in preparing
the audited accounts of WCL in respect of accounting periods since
incorporation.
1.1.2 The Last Accounts:
(a) give a true and fair view of the assets and liabilities of WCL
at the Last Accounts Date and its profits for the financial
period ended on that date;
(b) comply with the requirements of the Companies Acts;
(c) comply with the current FRSs applicable to United Kingdom
companies;
(d) are not affected by extraordinary, exceptional or non-recurring
items, or changes in accounting policies or bases;
(e) fully provide or reserve for or disclose all material
liabilities and capital commitments of WCL outstanding at the
Last Accounts Date, including contingent, unquantified or
disputed liabilities.
1.2 VALUATION OF STOCK-IN-TRADE AND WORK IN PROGRESS
In the Last Accounts and in the accounts of WCL for the three preceding
financial years stock in trade and work in progress have been treated
in accordance with SSAP 9.
1.3 DEPRECIATION OF FIXED ASSETS
In the Last Accounts and in the accounts of WCL for the three preceding
financial years, fixed assets have been depreciated in accordance with
SSAP 12.
1.4 DEFERRED TAXATION
Where provision for deferred taxation is not made in the Last Accounts,
details of the amounts of deferred taxation are disclosed in the WCL
Disclosure Letter.
1.5 ACCOUNTING REFERENCE DATE
The accounting reference date of WCL for the purposes of CA s224 is 31
December.
1.6 BOOKS AND RECORDS
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All the accounts, books, ledgers, financial and other records, of WCL:
(a) are in its possession; and
(b) do not contain material inaccuracies; and
(c) have been maintained in accordance with all applicable laws and
are in the possession or control of the Vendor.
1.7 MANAGEMENT ACCOUNTS
In relation to the Management Accounts:
(a) the assets and liabilities of WCL and the Management Accounts
Date and their results for the nine month period ended on that
date have not been materially mis-stated and the Vendor does
not consider such accounts to be misleading;
(b) the Management Accounts were prepared on a consistent basis to
the bases and policies of accounting adopted in preparing the
Last Accounts; and such accounts contains details of; and
(c) such accounts contains details of:
(i) profits, losses and liabilities;
(ii) provisions; and
(iii) share capital and reserves, of WCL.
1.8 ASSUMED DEBT
The Assumed Debt amounts referred to in Schedule 9 are correct as the
Management Accounts Date.
1.9 Since the Last Accounts Date there has been no material adverse change
in the financial or trading position of WCL.
2 CORPORATE MATTERS
2.1 DIRECTORS AND SHADOW DIRECTORS
2.1.1 The only directors of WCL are the persons whose names are listed in
relation to WCL in Schedule 1.
2.1.2 No person is a shadow director (within the meaning of CA s741) of WCL.
2.2 SUBSIDIARY, ASSOCIATIONS AND BRANCHES
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2.2.1 WCL is not the holder or owner nor has it any interest or agreed to
acquire share or loan capital of a company (whether incorporated in the
United Kingdom or elsewhere).
2.2.2 WCL has no branch, agency or place of business, or a permanent
establishment outside the United Kingdom.
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2.3 OPTIONS OVER WCL'S CAPITAL
Except as required by this agreement, there are no agreements or
arrangements in force which provide for the issue, allotment or
transfer of, or grant to any person the right to call for the issue,
allotment or transfer of, share or loan capital of WCL held by the
Vendor.
2.4 THE SHARES
2.4.1 None of the Shares was issued at a discount.
2.4.2 No share or loan capital has been issued or allotted, or agreed to be
issued or allotted, by WCL since the Last Accounts Date.
2.4.3 The Shares constitute the whole of the issued and allotted share
capital of WCL.
2.4.4 The Vendor will be entitled to transfer the full legal and beneficial
ownership of the Shares to the Purchaser on the terms of this agreement
without the consent of a third party.
2.4.5 Save as set out in the WCL Disclosure Letter, there is no pledge, lien
or other encumbrance on, over or affecting the Shares and there is no
agreement or arrangement to give or create any such encumbrance.
2.4.6 WCL was properly incorporated under the laws of the jurisdiction under
which it was incorporated.
3 TAXATION
3.1 WCL has duly made all returns and given or delivered all notices,
accounts and information which ought to have been made to and is not
involved in any dispute with the Inland Revenue or other authority
concerning any matter likely to affect in any way the liability
(whether accrued, contingent or future) of it to Taxation of any nature
whatsoever or other sums imposed, charged, assessed, levied or payable
under the provisions of the Taxation statutes.
3.2 WCL has duly paid or fully provided for all Taxation for which it is
liable and so far as the Vendor is aware there are no circumstances in
which interest or penalties in respect of Taxation not duly paid could
be charged against it in respect of any period prior to Completion.
3.3 No liability of WCL to Taxation has arisen or so far as the Vendor is
aware will arise up to Completion save for corporation tax payable in
respect of normal trading profits earned by it or other tax and
insurance contributions for which it is accountable to the Inland
Revenue, Customs and Excise or other relevant authority and which has
where appropriate been deducted or charged and where due paid to the
Inland Revenue or such other relevant authority.
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3.4 WCL has not entered into or been a party to any schemes or arrangements
designed partly or wholly for the purposes of WCL or (so far as the
Directors are aware) any other person avoiding Taxation.
3.5 All documents in the possession of WCL and which attract stamp or
transfer duty in the United Kingdom or elsewhere have been properly
stamped.
3.6 All payroll Taxation deduction systems have been properly operated and
the required records have been kept by WCL.
3.7 WCL has duly accounted for value added tax, and properly maintained all
records in relation to value added tax.
3.8 So far as the Vendor is aware WCL is not liable to be assessed or to
have any Taxation collected from it nor is it accountable for any
Taxation in respect of any transactions, events, profits, income of
gains or deemed profits, income or gains of any third party.
3.9 So far as the Vendor is aware WCL has not carried out or been engaged
in any transaction or arrangement such that there may be substituted
for the actual consideration given or received by WCL any different
consideration for any Taxation purpose.
4 FINANCE
4.1 CAPITAL COMMITMENTS
There were no commitments on capital account outstanding at the Last
Accounts Date and, since the Last Accounts Date, WCL has not made or
agreed to make any capital expenditure, or incurred or agreed to incur
capital commitments or disposed of or realised capital assets or an
interest in capital assets.
4.2 DIVIDENDS AND DISTRIBUTIONS
Since the Last Accounts Date no dividend or other distribution (as
defined in ICTA Part VI Chapter II as extended by ICTA s418) has been,
or is treated as having been, declared, made or paid by WCL.
4.3 BANK AND OTHER BORROWINGS
Details of all limits on WCL's bank overdraft facilities are set out in
the WCL Disclosure Letter.
4.4 BANK ACCOUNTS
4.4.1 Statements of the bank accounts of WCL, and of the credit or debit
balances as at a date not more than seven days before the date of this
agreement, have been supplied to the Purchaser.
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4.4.2 Since the date of each statement, there have been no payments out of
the account to which the statement relates, except for payments in the
ordinary course of business; and the balances on current accounts are
not substantially different from the balances shown in the statements.
4.5 CREDITORS
There is no amount owing by WCL to a creditor which has been due for
more than 3 months.
5 TRADING
5.1 CHANGES SINCE LAST ACCOUNTS DATE
Since the Last Accounts Date:
(a) the business of WCL has been continued in the normal course;
(b) WCL has paid its creditors in accordance with their respective
credit terms.
5.2 VENDOR'S OTHER INTERESTS AND LIABILITIES TO WCL
There is no outstanding indebtedness of the Vendor to WCL.
5.3 EFFECT OF SALE OF SHARES
5.3.1 The Vendor has no knowledge, information or belief that after
Completion:
(a) a major supplier of WCL will cease supplying it; or
(b) a major customer of WCL will cease to deal with it.
5.3.2 So far as the Vendor is aware compliance with the terms of this
agreement does not:
(a) conflict with, or result in the breach of, or constitute a
default under an agreement or arrangement to which WCL is a
party where such agreement or arrangement has an annual value
of WCL of $250,000 or more;
(b) result in the creation, imposition, crystallisation or
enforcement of an encumbrance on assets of WCL;
(c) result in present or future indebtedness of WCL becoming due
and payable, or capable of being declared due and payable,
prior to its stated maturity.
5.4 JOINT VENTURES AND PARTNERSHIP
5.4.1 WCL is and has not agreed to become, a participant in or member of a
joint venture, consortium, partnership or other unincorporated
association.
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5.4.2 WCL is not and has not agreed to become, a party to an agreement or
arrangement for sharing commissions.
5.5 LITIGATION, DISPUTES AND WINDING UP
5.5.1 WCL is not engaged in litigation or arbitration proceedings, as
claimant or defendant and there are no proceedings pending or
threatened, either by or against WCL.
5.5.2 So far as the Vendor is aware there is no dispute with a revenue or
other official department in the United Kingdom or elsewhere in
relation to the affairs of WCL, and so far as the Vendor is aware there
is nothing which may give rise to a dispute.
5.5.3 So far as the Vendor is aware there are no claims pending or threatened
against WCL, by an employee or third party in respect of an accident or
injury, which are not covered by insurance.
5.5.4 So far as the Vendor is aware no order has been made, or petition
presented, or resolution passed for the winding up of WCL; no distress,
execution or other process has been levied in respect of WCL which
remains undischarged; and so far as the Vendor is aware there is no
unfulfilled or unsatisfied judgment or court order outstanding against
WCL.
5.5.5 WCL has not stopped payment nor is it insolvent or unable to pay its
debts within the meaning of Insolvency Act 1986 s123 (but omitting any
requirement to prove anything to the satisfaction of the court).
5.6 BUSINESS NAMES
WCL does not use a name for any purpose other than its full corporate
name.
5.7 POWERS OF ATTORNEY AND AUTHORITY
5.7.1 No power of attorney given by WCL is in force.
5.7.2 No express authorities by which another person may enter into a
contract or commitment to do anything on behalf of WCL are outstanding.
5.8 LICENCES AND CONSENTS
WCL has obtained all necessary licences and consents for the proper
carrying on of its business and all the licences and consents are valid
and subsisting and so far as the Vendor is aware WCL is not in breach
of any of the licences or consents; and there is nothing that might
prejudice their continuation or renewal.
5.9 SUBSISTING CONTRACTS
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5.9.1 The WCL Disclosure Letter contains particulars of all existing material
contracts (being those contracts having a value to WCL of more than
$250,000 annually), to which WCL is a party.
5.9.2 WCL is not a party to a contract, transaction, arrangement (where such
an arrangement has a value to WCL of more than $250,000 annually)
which:
(a) is of an unusual or abnormal nature, or outside the ordinary
and proper course of business;
(b) is for a fixed term of more than twelve months;
(c) cannot be terminated by it, in accordance with its terms, on
three months' notice or less;
(d) involves, or is likely to involve, the supply of goods the
aggregate sales value of which will represent in excess of 10
per cent of its turnover for the preceding financial year.
5.10 DEFAULTS UNDER AGREEMENTS WCL
WCL is not:
(a) in default under an agreement or arrangement to which it is a
party, or in respect of another obligation or restriction by
which it is bound;
(b) liable in respect of an express warranty on its part.
5.11 PURCHASES AND SALES FROM OR TO ONE PARTY
Not more than 10 per cent of the aggregate amount of all the purchases,
and not more than 10 per cent of the aggregate amount of all the sales,
of WCL is obtained, or made, from or to the same supplier or customer,
(including a person connected with the supplier or customer).
6 EMPLOYMENT
6.1 EMPLOYEES AND TERMS OF EMPLOYMENT
(a) Particulars of the identities, dates of commencement of
employment and terms of employment of all the employees and
officers of WCL, including profit sharing, commission or
discretionary bonus arrangements, are contained in the WCL
Disclosure Letter.
(b) There are no agreements or arrangements between WCL and a trade
union or other body representing employees.
6.2 BONUS SCHEMES
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There are no schemes in operation entitling an employee of WCL to a
commission or remuneration calculated by reference to the whole or part
of the turnover, profits or sales of WCL.
6.3 CHANGES IN REMUNERATION
During the period to which the Last Accounts relate and since the Last
Accounts Date or (where employment or holding of office commenced after
the beginning of the period) since the commencing date of the
employment or holding of office:
(a) no change has been made in the rate of remuneration, emoluments
or pension benefits, of an officer, ex-officer or senior
executive of WCL (a senior executive being a person in receipt
of remuneration in excess of $125,000 per annum);
(b) no material change has been made in any other terms of
employment of an officer or senior executive.
6.4 TERMINATION OF CONTRACTS OF EMPLOYMENT
6.4.1 All contracts of employment to which WCL is a party are terminable at
any time on three months' notice or less without compensation (other
than compensation in accordance with the Employment Rights Act 1996).
6.4.2 No executive of WCL, who is in receipt of remuneration in excess of
$125,000 per annum, and no officer of WCL has given or received notice
terminating his employment, except as expressly contemplated in this
agreement, or will be entitled to give notice as a result of this
agreement.
7 ASSETS
7.1 OWNERSHIP OF ASSETS
Except for assets subject to hire purchase or lease arrangements, all
assets were owned by WCL at the Last Accounts Date, and WCL had good
title to all the assets included in the Last Accounts and (except for
current assets subsequently sold or realised in the ordinary course of
business) still owns and has good title to them and to all assets
acquired since the Last Accounts Date and so far as the Vendor is aware
none of the assets are subject to or affected by any option, right to
acquire, mortgage, charged, pledge, lien or agreement for payment on
the deferred terms, judgment or other security or Encumbrance
whatsoever.
7.2 INSURANCE/Y2K
7.2.1 All the material assets and undertakings of WCL of an insurable nature
are insured in amounts representing their full replacement or
reinstatement value against fire and other risks normally insured
against by persons carrying on the same business as that carried on by
it.
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7.2.2 So far as the Vendor is aware WCL is, and has for the last three years
been, adequately covered against accident, damage, injury, third party
loss (including product liability), loss of profits and other risks
normally insured against by persons carrying on the same kind of
business.
7.2.3 So far as the Vendor is aware all insurance is in full force, and
nothing has been done or omitted to be done which could make any policy
of insurance void or voidable.
7.3 All major critical equipment of or used by, and all services provided
by, WCL are Year 2000 Compliant.
7.4 So far as the Vendor is aware all material assets of WCL will be
operating functionally immediately before Completion.
8 PROPERTY
8.1 LEASEHOLD PROPERTIES
8.1.1 WCL has paid the rent and observed and performed the covenants on the
part of the tenant and the conditions contained in any leases (which
expressions in this clause 8 includes underleases) under which the
Properties are held, and the last demand for rent (or receipt, if
issued) was unqualified, and all the leases are valid and in full
force.
8.1.2 The licences, consents and approvals required from the landlords and
any superior landlords under the leases of the Properties have been
obtained, and the covenants on the part of the tenant contained in the
licences, consents and approvals have been duly performed.
8.1.3 There are no rent reviews in progress under the leases of the
Properties held by WCL.
8.1.4 No obligation necessary to comply with a notice given by or other
requirement of the landlord under a lease of any of the Properties is
outstanding or unperformed.
8.1.5 There is no obligation to reinstate any of the Properties by removing
or dismantling an alteration made to it by WCL or a predecessor in
title.
8.1.6 WCL does not have any interest in real estate save as stated in
Schedule 3.
8.1.7 So far as the Vendor is aware the present use of the Properties does
not conflict with any material contractual obligations and so far as
the Vendor is aware no material building or alteration work has been
carried out without the required licences.
8.1.8 So far as the Vendor is aware no municipal, provincial or governmental
or other authority has given any written instruction to WCL in
connection with pollution of soil (including sub-soil and water
therein) which is currently owned or used by WCL.
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8.1.9 So far as the Vendor is aware WCL currently holds, and is substantially
in compliance with all conditions of all, permits necessary to operate
its business.
9 PENSIONS
WCL has and has had no obligation to provide and has not provided any
life assurance, retirement, pension, death, health or disability
benefit to any present or former director or employee of WCL or any
spouse or dependent of any such person.
10 INTELLECTUAL PROPERTY RIGHTS
10.1 So far as the Vendor is aware all the material Intellectual Property
Rights used or required by WCL for its business and the running of
their networks are valid, enforceable, in full force and effect,
registered (so far as is capable of registration) in the sole name of
WCL, not subject to renewal or re-registration within two years of the
date hereof, are each in the sole and exclusive legal and beneficial
ownership of WCL without the requirement for any licence, consent or
permission from or payment to any person, are each individually
transferable by WCL free from any Encumbrance of any kind and there are
no defects in WCL's title to any of them.
10.2 So far as the Vendor is aware WCL has not granted any licences or
assignments under or in respect of any Intellectual Property Rights or
disclosed or provided to any person (other than employee under
enforceable obligations of confidence) any confidential or secret
material in which any Intellectual Property Right exists, including
without limitation, know-how, trade secrets, technical assistance,
confidential information or lists of customers or suppliers and is not
obliged so to grant or disclose any of the same.
10.3 So far as the Vendor is aware WCL is entitled to carry on its business
in the ordinary and usual course as at present carried on and does not
thereby infringe any Intellectual Property Rights of any third party
nor is it liable to pay any commission, royalty or like fee or obtain
any consent or licence.
10.4 So far as the Vendor is aware all fees for the grant or renewal of the
Intellectual Property Rights owned or used by WCL have been paid
promptly and no circumstances exist which might lead to the
cancellation, forfeiture or modification of any Intellectual Property
Rights owned or used by WCL or to the termination of or any claim for
damages under any licence of Intellectual Property Rights to WCL.
11 SPECIFIC INFORMATION REQUESTS
To the best of the knowledge of the Vendor none of the information in
the documents listed in the Data Room Documents List and in the
Schedule of Disclosed Documents (as defined in the WCL Disclosure
Letter) is inaccurate or misleading in any material respect.
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ATTESTATIONS
SIGNED for and on behalf of )
WORLDPORT COMMUNICATIONS INC )
/s/ Carl Grivner
SIGNED for and on behalf of )
ENERGIS PLC )
/s/ Francis Michael Wilkinson
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ANNEX C
NEW YORK SWITCH
DATED NOVEMBER 11, 1999
WORLDPORT COMMUNICATIONS INC (1)
UNISOURCE CARRIER SERVICE USA, INC.
-------------------------------------------
AGREEMENT
for the sale and purchase of the
DMS GSP US International Gateway Switches
-------------------------------------------
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DATE November 11, 1999
PARTIES
(1) WORLDPORT COMMUNICATIONS INC incorporated in the State of Delaware
whose principal executive offices are at 1825 Barrett Lakes
Boulevarde, Suite 1000 Kennesaw, Georgia 30144, United States of
America ("VENDOR"); and
(2) UNISOURCE CARRIER SERVICE USA, INC. a corporation incorporated in
Delaware ("PURCHASER")
INTRODUCTION
(A) The Vendor has agreed to dispose of its interest in the DMS GSP US
international gateway switch together with the benefit of certain
contracts to the Purchaser on the terms of this agreement.
(B) Simultaneously with the disposal of the DMS GSP US international
gateway switch, together with the benefit of certain contracts, the
Vendor has agreed to sell to the Purchaser's ultimate holding company,
Energis plc, the Vendor's holding of shares in WorldPort
Communications Europe Holding BV.
OPERATIVE PROVISIONS
1 INTERPRETATION
1.1 In this Agreement (including the Introduction and the Schedules),
except where a different interpretation is necessary in the context,
the following words and expressions shall have the following meanings:
"ASSETS" the Contracts and the US Switch;
"COMPLETION" completion of this Agreement
pursuant to the terms of clause 4;
"COMPLETION DATE" the date five business days
after the satisfaction of the
conditions set out in clause 2 or
such other date as may be agreed
between the parties;
"COMPLETION NET ASSETS the statements showing the Net Assets
STATEMENT" as at Completion as prepared and
adjusted in accordance with clause
10 of this Agreement
"CONSIDERATION" the consideration payable in
accordance with clause 4 as adjusted
in accordance with clause 10;
"CONTRACTS" the agreements referred to in the
Schedule 1 to this Agreement;
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"ENCUMBRANCES" any option, right to acquire,
mortgage, charge, pledge, liens or
agreement for payment on deferred
terms, retention of title, judgment
or other security, encumbrance or
equity whatsoever
"ENERGIS PLC" Energis plc whose registered office
is at Carmelite, 50 Victoria
Embankment, London, EC4Y OPE;
"GLOBAL CROSSING the Global Crossing Agreement in the
AGREEMENT" agreed form;
"INTELLECTUAL PROPERTY patents, trade marks, service
RIGHTS" marks, trade names, domain names,
registered designs, designs,
semiconductor topography rights,
database rights, copyrights and
other forms of intellectual or
industrial property (in each case
in any part of the world, whether
or not registered or registrable),
know-how, inventions, formulae,
confidential or secret processes
and information, rights in computer
software, and any other protected
rights and assets, and any licenses
and permissions in connection with
the foregoing
"NET ASSETS" the net book value of the Assets less
the net present value of lease
obligations relating to the Assets
"NET ASSETS SCHEDULE" Schedule 5 setting out the Net Assets
relating to the US Switch
"PURCHASER'S AUDITORS" PriceWaterhouseCoopers of 1
Embankment Place, London WC2N 6NN
"US GAAP" United States Generally Accepted
Accounting Principles
"UK SWITCH the agreement in the agreed form of
AGREEMENT" even date made between the Vendor and
WCL for the sale and purchase of a
Nortel 250 Switch
"US SWITCH" the DMS GSP US international gateway
switch leased by the Vendor located
at 111 8th Street, New York City, New
York, USA with 728 ports and an
approximate capacity of 164 million
minutes per month, further details of
which are set out in Schedule 2 to
this Agreement
"VENDOR'S AUDITORS" the auditors of the Vendor from time
to time
"VENDOR'S SOLICITORS" Rakisons, Clements House, 14/18
Gresham Street, London EC2V 7JE
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"WCEH" WorldPort Communications Europe
Holding B.V. having its statutory
seat in Rotterdam The Hague
"WCEH SHARE the agreement in the agreed form of
AGREEMENT" even date made between WorldPort, the
Vendor and Energis plc whereby
WorldPort agrees to sell 85% of the
issued share capital of WCEH
"WCL" WorldPort Communications Limited
"WCL SHARE the agreement in the agreed form of
AGREEMENT" even date made between the Vendor and
Energis plc whereby the Vendor agrees
to sell the entire issued share
capital of WCL
"WORLDPORT" WorldPort International Inc,
incorporated in the State of
Delaware whose principal executive
offices are 1825 Barrett Lakes
Boulevard, Suite 1000 Kennesaw,
Georgia 30144, United States of
America
"YEAR 2000 COMPLIANT" neither the performance nor the
functionality of assets when in
normal use will be materially
impaired by the advent of the Year
2000 and in particular:
(a) Year 2000 Compliant shall
mean that no value for
current date will cause
any interruption or error
in the option of the
assets;
(b) all manipulations of
time-related data by the
assets will produce the
desired results for all
valid date values prior
to, through and beyond the
Year 2000;
(c) date elements in these
products (including
interfaces and data
storage) will permit
specifying the century to
eliminate date ambiguity
without human intervention
including leap year
calculations; and
(d) where any data element is
represented without a
century, the correct
century shall be
unambiguous for all
manipulations involving
that element
1.2 References to the parties or clauses or Schedules are references to
the parties and clauses of or Schedules to this Agreement.
1.3 Headings to clauses are for information only and shall not form part
of the operative provisions of this Agreement.
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2 CONDITIONS PRECEDENT
2.1 This agreement shall be subject to the fulfilment at or prior to the
Completion Date of each of the following conditions (unless waived by
each of the parties):
(a) this agreement and the other transactions contemplated shall
have been approved and adopted by the requisite vote of the
shareholders of the Vendor; and
(b) the completion of the WCEH Share Agreement with the Purchaser.
2.2 The obligations of the Purchaser to complete the transactions
contemplated is subject to the fulfilment of all of the following
conditions on or prior to the Completion Date:
(a) each and every warranty made by the Vendor shall have been true
and correct in all material respects when made and shall be
true and correct in all material respects as if originally made
on and as at the Completion Date except to the extent that such
warranties are not true and correct in all material respects as
a result of:
(i) an event or occurrence outside the control of the
Vendor occurring during the period from the execution
of this Agreement until the Completion Date;
(ii) any act or omission of the Purchaser during the period
from the execution of this Agreement until the
Completion Date; and
(iii) any action taken by the Vendor in the ordinary cause of
duress during the period from the execution of this
Agreement until the Completion Date; and
(b) the Vendor shall have executed or procured on terms reasonably
satisfactory to the Purchaser an agreement in writing granting
to the Purchaser access to the US Switch.
3 SALE AND PURCHASE OF THE ASSETS
3.1 The Vendor shall sell with full title guarantee and the Purchaser
shall purchase all rights, title and interest of the Vendor in and to
the Assets subject only to the terms of and the obligations under the
Contracts and otherwise free and clear of Encumbrances.
3.2 Risk in the US Switch shall pass to the Purchaser with effect from the
close of business on the Completion Date.
4 CONSIDERATION PAYABLE BY THE PURCHASER
4.1 The total purchase consideration payable by the Purchaser to acquire
the Assets shall be US$1,990,000 (subject to adjustment as provided in
clause 10).
4.2 All sums payable by the Purchaser in respect of the Consideration
shall be paid in cash at Completion.
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4.3 Schedule 3 sets out the calculation of the various payments to be made
pursuant to this Agreement.
4.4 Schedule 4 sets out the calculation of the Consideration to the Vendor
pursuant to this Agreement.
4.5 Schedule 5 sets out a statement of net assets in relation to this
Agreement.
5 COMPLETION
5.1 Completion of the sale and purchase of the Assets shall take place on
the Completion Date at the offices of the Vendor's Solicitors or at
such other place as may be mutually agreed.
5.2 Upon and after Completion the Vendor shall (subject to the terms of
this Agreement) do and execute all other necessary acts, deeds,
documents and things within its power effectively to vest the Assets
in the Purchaser and, pending the doing and executing of such acts,
deeds, documents and things the Vendor shall hold the legal estate in
such Assets in trust for the Purchaser.
6 THE CONTRACTS
6.1 With effect from the Completion Date the Purchaser shall be entitled
to all the benefits of the Vendor under, and will perform all the
obligations and liabilities arising under the Contracts.
6.2 The Vendor and the Purchaser shall prior to Completion each negotiate
in good faith with the counterparty to each of the Contracts for the
novation of each of the Contracts for nil consideration and on terms
whereby the Purchaser undertakes to perform each Contract and to be
bound by all the terms thereof as if the Purchaser was as from the
Completion Date party thereto in lieu of the Vendor and whereby each
Contractor releases and discharges the Vendor from all claims and
demands whatsoever in respect thereof arising after the Completion
Date and whereby the Contractors accept the liability of the Purchaser
in lieu of the liability of the Vendor in every way as if the
Purchaser was named therein as party thereto in place of the Vendor as
from the Completion Date.
6.3 If a counterparty does not agree to enter into a novation agreement in
respect of a Contract, the Vendor and the Purchaser shall, prior to
Completion, each enter into such documentation as shall be required to
assign the benefit (subject to the burden) of those of the Contracts
for which a deed of novation is not entered into, by virtue of which
the Purchaser undertakes to perform such Contracts and to be bound by
all the terms thereof with effect from the Completion Date.
6.4 In any case where the consent of a counterparty is required to the
assignment from the Vendor to the Purchaser of any Contract, and such
consent has not been duly obtained, the assignment of that Contract
shall be conditional upon such consent and, pending the grant of such
consent, the Vendor shall hold its rights under the relevant Contract
on trust for the Purchaser.
6.5 Whether or not any novation agreement is entered into, the Vendor
shall indemnify the Purchaser on a full indemnity basis from and
against all costs, claims, proceedings and
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demands (whether in contract or in tort or otherwise) arising in
respect of any period before the Completion Date in connection with
the Assets.
6.6 Subject to clause 6.4, whether or not any novation agreement is
entered into, the Purchaser shall indemnify the Vendor on a full
indemnity basis from and against all costs, claims, proceedings and
demands (whether in contract or in tort or otherwise) arising in
respect of any period after the Completion Date in connection with the
Assets.
7 WARRANTIES
7.1 The Vendor warrants to the Purchaser as follows:
(a) (i) that the Purchaser shall acquire the Assets free
from all Encumbrances, subject only to the Contracts;
(ii) that the US Switch as of the Completion Date
complies with all material statutory requirements
and regulations relating to its operation;
(iii) so far as the Vendor is aware use of the US Switch
by or on behalf of the Purchaser will not infringe
the Intellectual Property Rights of any third party;
(iv) the US Switch is Year 2000 Compliant; and
(v) the Contracts are true, complete and accurate in all
material respects and are in full force and effect
and that no written notice of termination or
alleging breach has been received by the Vendor;
(b) that discussions have taken place with Forsythe McArthur
Associates, Inc ("FMA") and Comdisco, pursuant to which FMA
and Comdisco have indicated to the Vendor that they will
consider the sale and/or lease of the US Switch to interested
parties and the novation of relevant Contracts under mutually
agreeable terms and conditions.
8 ANNOUNCEMENTS
8.1 No announcement of any kind shall be made in respect of the subject
matter of this Agreement except as specifically agreed between the
Vendor and the Purchaser or as required by law.
8.2 Notwithstanding clause 8.1, the Vendor and the Purchaser shall procure
as soon as practicable after Completion that appropriate notices are
given to each Contractor of the assignment or proposed novation of
each relevant Contract by the Vendor to the Purchaser.
9 GENERAL PROVISIONS
9.1 Either party may at its absolute discretion in whole or in part
release, compound or compromise, or grant time or indulgence to the
other party for any liability under this
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Agreement without affecting its rights against the other party under
the same or any other liability.
9.2 No party shall, prior to Completion, divulge to any third party (other
than their respective professional advisers) the fact that this
Agreement has been entered into or any information regarding its terms
or any matters contemplated by this transaction or make any
announcement relating to it without the prior written consent of the
other party.
9.3 The express or implied waiver by any party of any of its rights under
this Agreement shall constitute neither a continuing waiver of the
right waived nor a waiver of any other right under this Agreement.
9.4 Nothing in this Agreement shall constitute or be deemed to constitute
a partnership between the parties.
9.5 This Agreement is personal to the parties and shall not be capable of
assignment without the prior written consent of the other party (such
consent not to be unreasonably withheld).
9.6 If any provision of this Agreement is held to be invalid or
unenforceable, then such provision shall (so far as it is invalid or
unenforceable) be given no effect and shall be deemed not to be
included in this Agreement but without invalidating any of the
remaining provisions of this Agreement.
9.7 Any notices must be in writing and may be given to either party at its
registered office or to such other address as may have been notified
to the other parties and will be effectively served:
(a) on the day of receipt where any hand-delivered letter, telex
or telefax message is received on a business day before or
during normal working hours;
(b) on the following business day, where any hand-delivered
letter, telex or telefax message is received either on a
business day after normal working hours or on any other day;
or
(c) on the second business day following the day of posting from
within the United Kingdom of any letter sent by post office
inland first class mail postage prepaid.
9.8 This Agreement is governed by and is to be construed in accordance
with English law.
9 ADJUSTMENTS TO PURCHASE CONSIDERATION
9.1 The parties shall procure, as soon as practicable and in any event
within 60 days after Completion, the preparation of the Completion Net
Assets Statement, which shall be prepared by the Vendor's Auditors,
subject to this clause 10, on the basis of accounting standards
generally accepted in the United States and audited by the Vendor's
Auditors to a standard to be agreed between the Vendor's Auditors and
the Purchaser's Auditors. The
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cost of the audit shall be paid as to one half by the Vendor and as to
the other half by the Purchaser.
9.2 The parties shall disclose to Vendor's Auditors and the Purchaser's
Auditors all information relevant for the purposes of preparing the
Completion Net Assets Statement.
9.3 The parties shall instruct the Vendor's Auditors and the Purchaser's
Auditors to prepare the Completion Net Assets Statement and to deliver
to the Vendor and the Purchaser copies of the Completion Net Assets
Statement and of their calculation of any adjustments required by this
clause within 14 days of the preparation of the Completion Net Assets
Statement.
9.4 If:
(a) the value of Net Assets is less than $130,000, the
Consideration shall be reduced by the amount of the shortfall
provided that the amount of the repayment shall not exceed
$20,000,000; and
(b) the value of the Net Assets is more than $130,000 the
Purchaser shall pay to the Vendor in cash a sum equal to the
amount of that excess provided that the amount of this
payment shall not exceed $20,000,000.
9.5 Each of the parties undertakes to the other to pay the amount of any
reduction or increase (as the case may be) to the other in cash within
28 days after delivery to the Vendor and the Purchaser of a copy of
the calculation referred to in clause 10.3.
9.6 Any amount due under the WCL Share Agreement, the WCEH Share Agreement
and the Global Crossing Agreement may be off-set against any amount
due under this clause.
9.7 Disputes with respect to the calculation of the Completion Net Assets
Statement or any other matter referred to in this clause 10 shall be
referred for final settlement to a firm of chartered accountants,
nominated jointly by the Vendor and the Purchaser, or, failing
nomination within 14 days after request by either the Vendor or the
Purchaser, nominated at the request of either party by the President
for the time being of the US Accountants Institute. The firm shall act
as experts and not as arbitrators and their decision (in the absence
of manifest error) shall be final and binding on the parties. Their
fees shall be payable by the Vendor and the Purchaser in such
proportions as the firm determines.
9.8 For the purposes of the Purchaser's review under this clause 10, the
Purchaser's Auditors and the Vendor's Auditors attempts to resolve any
dispute under this clause 10 and the settlement of any dispute by the
independent accountants, the Vendor and the Purchaser shall ensure
that the Vendor's Auditors and the Purchaser's Auditors and (if
applicable) the independent accountants are promptly given all
information, assistance and access to all books of accounts,
documents, files and papers which they may reasonably require.
9.9 Unless otherwise indicated under this agreement, the translations of
local currency amounts into US Dollars will be made on the basis of
the closing exchange rates on 10 November 1999.
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10 APPORTIONMENT OF BUSINESS RESPONSIBILITY
10.1 All costs and other outgoings in connection with the Assets and any
revenue from or in respect of the Assets shall be apportioned on a
time basis so that the relevant costs, outgoings and revenue
attributable to the period ended on the Completion Date shall be borne
by the Vendor and the relevant charge, income or payment attributable
to the period commencing on the day following the Completion Date
shall be received by the Purchaser.
10.2 Prepayments and payments in advance (if any) made to the Vendor on or
before the Completion Date in respect of goods and/or services to be
supplied under the Contracts after the Completion Date shall be
payable by the Vendor to the Purchaser (and until payment shall be
held on trust for the Purchaser). Prepayments and payments in advance
made by the Vendor in respect of goods ordered but not delivered and
for services contracted for but not rendered, under the Contracts
prior to the Completion Date shall be reimbursed by the Purchaser.
10.3 Payments (if any) made to the Vendor after the Completion Date in
respect of services supplied under the Contracts on or before the
Completion Date shall be retained by the Vendor, and if any such sum
is received by the Purchaser, the Purchaser shall pay that sum to the
Vendor (and until payment shall hold the sum in question on trust for
the Vendor). Payments (if any) made to the Vendor in respect of
services supplied after the Completion Date shall be paid by the
Vendor to the Purchaser (and until payment the Vendor shall hold the
sum on trust for the Purchaser).
IN WITNESS WHEREOF this Agreement has been executed as a Deed the day and year
first above written
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ATTESTATIONS
SIGNED for and on behalf )
of WORLDPORT COMMUNICATIONS INC: )
/s/ Carl Grivner
- -----------------------------------
SIGNED by for and on behalf of )
UNISOURCE CARRIER SERVICE USA, INC. )
)
/s/ Francis Michael Wilkinson
- -----------------------------------
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LONDON SWITCH
DATED NOVEMBER 11, 1999
WORLDPORT COMMUNICATIONS INC(1)
WORLDPORT COMMUNICATIONS LIMITED(2)
-------------------------------------
AGREEMENT
for the sale and purchase of
Nortel 250 DMS GSP Switch
-------------------------------------
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DATE NOVEMBER 11, 1999
PARTIES
(1) WORLDPORT COMMUNICATIONS INC incorporated in the State of Delaware
whose principal executive offices are at 1825 Barrett Lakes
Boulevarde, Suite 1000 Kennesaw, Georgia 30144, United States of
America ("VENDOR"); and
(2) WORLDPORT COMMUNICATIONS LIMITED with company number 03200002 whose
registered office is at 1st Floor, Bouverie House, 154 Fleet Street,
London EC4A 2DQ ("PURCHASER")
INTRODUCTION
(A) The Vendor has agreed to dispose of its interest in the Nortel 250 DMS
GSP switch together with the benefit of certain contracts to the
Purchaser on the terms of this agreement.
(B) Simultaneously with the disposal of the Nortel 250 DMS GSP switch
together with the benefit of certain contracts, the Vendor has agreed
to sell to Energis plc, which will following the Completion Date, will
be the Purchaser's ultimate holding company, the Vendor's holding of
shares in the Purchaser and the Vendor's holding of shares in
WorldPort Communications Europe Holding BV.
OPERATIVE PROVISIONS
1 INTERPRETATION
1.1 In this Agreement (including the Introduction and the Schedules),
except where a different interpretation is necessary in the context,
the following words and expressions shall have the following meanings:
"ASSETS" the Contracts and the Switches;
"COMPLETION" completion of this Agreement
pursuant to the terms of clause 4;
"COMPLETION DATE" the date five business days
after the satisfaction of the
conditions set out in clause 2 or
such other date as may be agreed
between the parties;
"CONSIDERATION" the consideration payable in
accordance with clause 4;
"CONTRACTS" the agreements referred to in
Schedule 1 to this Agreement;
"ENCUMBRANCES" any option, right to acquire,
mortgage, charge, pledge, liens or
agreement for payment on deferred
terms, retention of title, judgment
or other security, encumbrance or
equity
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whatsoever
"ENERGIS PLC" Energis plc whose registered office
is at Carmelite, 50 Victoria
Embankment, London, EC4Y OPE:
"INTELLECTUAL PROPERTY patents, trade marks, service
RIGHTS" marks, trade names, domain names,
registered designs, designs,
semiconductor topography rights,
database rights, copyrights and
other forms of intellectual or
industrial property (in each case
in any part of the world, whether
or not registered or registrable),
know-how, inventions, formulae,
confidential or secret processes
and information, rights in computer
software, and any other protected
rights and assets, and any licenses
and permissions in connection with
the foregoing
"UK SWITCH" the Nortel 250 DMS GSP Switch with
448 ports and approximate capacity
of 100 million minutes per month
located at London, Telehouse,
further details of which are set
out in Schedule 2 to this Agreement
"VENDOR'S SOLICITORS" Rakisons, Clements House, 14/18
Gresham Street, London EC2V 7JE
"WCEH" WorldPort Communications Europe
Holding B.V. having its statutory
seat in Rotterdam The Hague
"WCL" WorldPort Communications Limited
"WCEH SHARE the agreement in the agreed form of
AGREEMENT" even date made between WorldPort,
the Vendor and Energis plc whereby
WorldPort agrees to sell 85% of the
issued share capital of WCEH
"WCL SHARE the agreement in the agreed form of
AGREEMENT" even date made between the Vendor
and Energis plc hereby the Vendor
agrees to sell the entire issued
share capital of WCL
"WORLDPORT" WorldPort International Inc,
incorporated in the State of
Delaware whose principal executive
offices are 1825 Barrett Lakes
Boulevard, Suite 1000 Kennesaw,
Georgia 30144, United State of
America
"YEAR 2000 COMPLIANT" neither the performance nor the
functionality of assets when in
normal use will be materially
impaired by the advent of the Year
2000 and in particular:
(a) Year 2000 Compliant shall
mean that no value for
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current date will cause
any interruption or error
in the option of the
assets;
(b) all manipulations of
time-related data by the
assets will produce the
desired results for all
valid date values prior
to, through and beyond the
Year 2000;
(c) date elements in these
products (including
interfaces and data
storage) will permit
specifying the century to
eliminate date ambiguity
without human intervention
including leap year
calculations; and
(d) where any data element is
represented without a
century, the correct
century shall be
unambiguous for all
manipulations involving
that element
1.2 References to the parties or clauses or Schedules are references to
the parties and clauses of or Schedules to this Agreement.
1.3 Headings to clauses are for information only and shall not form part
of the operative provisions of this Agreement.
2 CONDITIONS PRECEDENT
2.1 This agreement shall be subject to the fulfilment at or prior to the
Completion Date of each of the following conditions (unless waived by
each of the parties):
(a) this agreement and the other transactions contemplated shall
have been approved and adopted by the requisite vote of the
shareholders of the Vendor; and
(b) the completion of the WCEH Share Agreement with the
Purchaser.
2.2 The obligations of the Purchaser to complete the transactions
contemplated is subject to the fulfilment of all of the following
conditions on or prior to the Completion Date:
(a) each and every warranty made by the Vendor shall have been
true and correct in all material respects when made and shall
be true and correct in all material respects as if originally
made on and as at the Completion Date except to the extent
that such warranties are not true and correct in all material
respects as a result of;
(i) an event or occurrence outside the control of the
Vendor occurring during the period from the
execution of this Agreement until the Completion
Date;
(ii) any act or omission of the Purchaser during the
period from the execution of this Agreement until
the Completion Date;
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(iii) any action taken by the Vendor in the ordinary cause
of business during the period from the execution of
this Agreement until the Completion Date.
(b) the Vendor shall have executed or procured on terms
reasonably satisfactory to the Purchaser an agreement in
writing granting to the Purchaser access to the UK Switch.
3 SALE AND PURCHASE OF THE ASSETS
3.1 The Vendor shall sell with full title guarantee and the Purchaser
shall purchase all rights, title and interest of the Vendor in and to
the Assets subject only to the terms and the obligations under the
Contracts and otherwise free and clear of Encumbrances.
3.2 Risk in UK Switch shall pass to the Purchaser with effect from the
close of business on the Completion Date.
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4 CONSIDERATION PAYABLE BY THE PURCHASER
4.1 The total purchase consideration payable by the Purchaser to acquire
the Assets shall be the amount provided for in the WCL Share
Agreement.
4.2 All sums payable by the Purchaser in respect of the Consideration
shall be paid in cash at Completion.
5 COMPLETION
5.1 Completion of the sale and purchase of the Assets shall take place on
the Completion Date at the offices of the Vendor's Solicitors or at
such other place as may be mutually agreed.
5.2 Upon and after Completion the Vendor shall (subject to the terms of
this Agreement) do and execute all other necessary acts, deeds,
documents and things within its power effectively to vest the Assets
in the Purchaser and, pending the doing and executing of such acts,
deeds, documents and things the Vendor shall hold the legal estate in
such Assets in trust for the Purchaser.
6 THE CONTRACTS
6.1 With effect from the Completion Date the Purchaser shall be entitled
to all the benefits of the Vendor under, and will perform all the
obligations and liabilities arising under the Contracts.
6.2 The Vendor and the Purchaser shall prior to Completion each negotiate
in good faith with the counterparty to each of the Contracts for the
novation of the Contracts for nil consideration and on terms whereby
the Purchaser undertakes to perform each Contract and to be bound by
all the terms thereof as if the Purchaser was as from the Completion
Date party thereto in lieu of the Vendor and whereby each Contractor
releases and discharges the Vendor from all claims and demands
whatsoever in respect thereof arising after the Completion Date and
whereby the Contractors accept the liability of the Purchaser in lieu
of the liability of the Vendor in every way as if the Purchaser was
named therein as party thereto in place of the Vendor as from the
Completion Date.
6.3 If a counterparty does not agree to enter into a novation agreement in
respect of a Contract, the Vendor and the Purchaser shall, prior to
Completion, each enter into such documentation as shall be required to
assign the benefit (subject to the burden) of those of the Contracts
for which a deed of novation is not entered into, by virtue of which
the Purchaser undertakes to perform such Contracts and to be bound by
all the terms thereof with effect from the Completion Date.
6.4 In any case where the consent of a counterparty is required to the
assignment from the Vendor to the Purchaser of any Contract, and such
consent has not been duly obtained, the assignment of that Contract
shall be conditional upon such consent and pending the grant of such
consent, the Vendor shall hold its rights under the relevant Contract
on trust for the Purchaser.
6.5 Whether or not any novation agreement is entered into, the Vendor
shall indemnify the Purchaser on a full indemnity basis from and
against all costs, claims, proceedings and
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demands (whether in contract or in tort or otherwise arising in
respect of any period before the Completion Date in connection with
the Assets.
6.6 Subject to clause 6.4, whether or not any novation agreement is
entered into, the Purchaser shall indemnify the Vendor on a full
indemnify basis from and against all costs, claims, proceedings and
demands (whether in contract or in tort or otherwise) arising in
respect of any period after the Completion Date in connection with the
Assets.
7 WARRANTIES
7.1 The Vendor warrants to the Purchaser as follows:
(a) (i) that the Purchaser shall acquire the Assets free from
all Encumbrances, subject only to the Contracts;
(ii) that the UK Switch as of the Completion Date
complies with all material statutory requirements
and regulations relating to its operation;
(iii) so far as the Vendor is aware use of the UK Switch
by or on behalf of the Purchaser will not infringe
the Intellectual Property Rights of any third party;
(iv) so far as the Vendor is aware the UK Switch is Year
2000 Compliant; and
(v) the Contracts are true, complete and accurate in all
material respects and are in full force and effect
and that no written notice of termination for breach
has been received by the Vendor;
(b) that discussions have taken place with Forsythe McArthur
Associates, Inc ("FMA") and Comdisco, pursuant to which FMA
and Comdisco have indicated to the Vendor that they will
consider the sale and/or lease of the UK Switch to interested
parties and the novation of the relevant Contracts under
mutually agreeable terms and conditions.
8 ANNOUNCEMENTS
8.1 No announcement of any kind shall be made in respect of the subject
matter of this Agreement except as specifically agreed between the
Vendor and the Purchaser or as required by law.
8.2 Notwithstanding clause 8.1, the Vendor and the Purchaser shall procure
as soon as practicable after Completion that appropriate notices are
given to each Contractor of the assignment or proposed novation of
each relevant Contract by the Vendor to the Purchaser.
9 GENERAL PROVISIONS
9.1 Either party may at its absolute discretion in whole or in part
release, compound or compromise, or grant time or indulgence to the
other party for any liability under this Agreement without affecting
its rights against the other party under the same or any other
liability.
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9.2 No party shall, prior to Completion, divulge to any third party (other
than their respective professional advisers) the fact that this
Agreement has been entered into or any information regarding its terms
or any matters contemplated by this transaction or make any
announcement relating to it without the prior written consent of the
other party.
9.3 The express or implied waiver by any party of any of its rights under
this Agreement shall constitute neither a continuing waiver of the
right waived nor a waiver of any other right under this Agreement.
9.4 Nothing in this Agreement shall constitute or be deemed to constitute
a partnership between the parties.
9.5 This Agreement is personal to the parties and shall not be capable of
assignment without the prior written consent of the other party (such
consent not to be unreasonably withheld).
9.6 If any provision of this Agreement is held to be invalid or
unenforceable, then such provision shall (so far as it is invalid or
unenforceable) be given no effect and shall be deemed not to be
included in this Agreement but without invalidating any of the
remaining provisions of this Agreement.
9.7 Any notices must be in writing and may be given to either party at its
registered office or to such other address as may have been notified
to the other parties and will be effectively served:
(a) on the day of receipt where any hand-delivered letter, telex
or telefax message is received on a business day before or
during normal working hours;
(b) on the following business day, where any hand-delivered
letter, telex or telefax message is received either on a
business day after normal working hours or on any other day;
or
(c) on the second business day following the day of posting from
within the United Kingdom of any letter sent by post office
inland first class mail postage prepaid.
9.8 This Agreement is governed by and is to be construed in accordance
with English law.
IN WITNESS WHEREOF this Agreement has been executed as a Deed the day and year
first above written
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ATTESTATIONS
SIGNED for and on behalf of )
WORLDPORT COMMUNICATIONS INC )
/s/ Carl Grivner
SIGNED for and on behalf of )
WORLDPORT COMMUNICATIONS LIMITED )
/s/ Carl Grivner
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ANNEX D
SALOMON BROTHERS
INTERNATIONAL LIMITED
Victoria Plaza
111 Buckingham Palace Road
London SW1W 0SB England
[SALOMON SMITH BARNEY LOGO]
Telephone: 0171-721 2000
Facsimile: 0171-222 7062
Registered Office
Registered in England
Registered Number: 1763297
Regulated by SFA
November 10, 1999
Board of Directors
WorldPort Communications, Inc.
1825 Barrett Lake Boulevard
Suite 100
Kennesaw, Georgia 30144
United States
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to WorldPort Communications, Inc. (the "Company"), of the consideration
(the "Sale Consideration") to be received by the Company or one of its
wholly-owned subsidiaries, in connection with (i) the sale of stock (the "WPE
Holding Sale") of WorldPort Communications Europe Holding B.V. ("WPE Holding")
on the terms set forth in Draft "5" of the Agreement dated November 9, 1999 (the
"WPE Holding Agreement"), by and among the Company, WorldPort International Inc.
and Energis plc (the "Buyer"), (ii) the sale of stock (the "WCL Sale") of
WorldPort Communications Limited ("WCL") on the terms set forth in Draft "5" of
the Agreement dated as of November 9, 1999 (the "WCL Agreement"), by and among
the Company and the Buyer, and (iii) the sale (together with the WPE Holding
Sale and the WCL Sale, the "Sale") of DMS GSP International gateway switches
(together with WPE Holding and WCL, the "Business"), on the terms set forth in
Draft "5" if the Agreement dated November 9, 1999 (together with the WPE Holding
Agreement and the WCL Agreement, the "Agreements") by and between the Company
and UCS Inc., a subsidiary of the Buyer.
In connection with rendering our opinion, we have reviewed certain publicly
available information concerning the Business and the Company and certain other
financial information concerning the Business, including financial forecasts,
that were provided to us by the Company. We have discussed the past and current
business operations, financial condition and prospects of the Business with
certain officers and employees of the Company. We have also considered such
other information, financial studies, analyses, investigations and financial,
economic and market criteria that we deemed relevant.
In our review and analysis and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of the information reviewed by us for
the purpose of this opinion and we have not assumed any responsibility for
independent verification of such information. With respect to the financial
forecasts of the Business, we have
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SALOMON BROTHERS
INTERNATIONAL LIMITED
[SALOMON SMITH BARNEY LOGO]
Board of Directors
WorldPort Communications, Inc.
November 10, 1999
Page 2
been advised by the management of the Company that such forecasts have been
reasonably prepared on bases reflecting their best currently available
estimates and judgments, and we express no opinion with respect to such
forecasts or the assumptions on which they are based. We have also assumed that
the Sale will be consummated in accordance with the terms of Draft "5" of the
Agreements reviewed by us and that there will not be any post closing
adjustment to the Sale Consideration. We have not assumed any responsibility
for any independent evaluation or appraisal of any of the assets (including
properties and facilities) or liabilities of the Business.
Our opinion is necessarily based upon conditions as they exist and can be
evaluated on the date hereof and we have no obligation to update our opinion to
take into account any subsequent changes or events. Our opinion does not address
the Company's underlying business decision to effect the Sale, and we express no
view on the effect on the Company of the Sale and related transactions. Our
opinion is directed only to the fairness, from a financial point of view, of the
Sale Consideration to the Company.
We have acted as financial advisor to the Company in connection with the Sale
and will receive a fee for our services which is contingent upon consummation of
the Sale. In the ordinary course of business, we and our affiliates may hold or
actively trade the securities of the Company and the Buyer for our own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities. In addition, we and our affiliates have
previously rendered certain investment banking and financial advisory services
to the Company and its affiliates, and the Buyer for which we have received
customary compensation. We and our affiliates (including Citigroup Inc.) may
have other business relationships with the Company, or the Buyer or their
respective affiliates in the ordinary course of their businesses.
Based upon and subject to the foregoing, it is our opinion that, as of the date
hereof, the Sale Consideration is fair to the Company from a financial point of
view.
Very truly yours,
SALOMON BROTHERS INTERNATIONAL LIMITED
D-2
