<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:
[ ] Preliminary Information Statement
[ ] Confidential, for Use of the SEC Only (as permitted by Rule 14c-5(d)(2))
[X] 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
[ ] 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
[X] 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: __________________________________________________
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WORLDPORT COMMUNICATIONS, INC.
1825 BARRETT LAKES BOULEVARD, SUITE 100
KENNESAW, GEORGIA 30144
(770) 792-8735
December 7, 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 8, 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") and the parent company of EnerTel, N.V.
("EnerTel"), representing 100% of the securities of WCEH held by the
Vendor, to Energis, pursuant to a Sale and Purchase Agreement, dated
November 11, 1999
- 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, dated November 11, 1999
- 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, each dated
November 11, 1999
As a result of the Sale, WorldPort will receive approximately $463.2
million in cash from Energis which includes 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 certain usage
agreements (the "Global Crossing Contracts"), including three indefeasible
rights to use certain cross-atlantic, high-capacity, under-sea, fiber optic
circuits ("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
to that shareholder a loan and accrued interest thereon 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.
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 J. Grivner)
Carl J. Grivner
Chief Executive Officer
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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.................................................. 15
Description of Interests of Heico in the Sale............... 15
No Appraisal Rights......................................... 16
Accounting Treatment........................................ 16
Federal Income Tax Consequences............................. 16
Regulatory Approvals........................................ 16
Description of Sale Agreements.............................. 17
Description of Financing of Sale............................ 22
Stockholder Approval Previously Obtained.................... 22
Approval by the Board of Directors.......................... 23
Voting Securities and Principal Holders..................... 23
Market for WorldPort's Common Stock......................... 29
Selected Consolidated Financial Information................. 30
Unaudited Pro Forma Financial Data.......................... 31
Cost of Information Statement............................... 35
Description of WorldPort's Business......................... 35
Description of WorldPort's Property......................... 50
Legal Proceedings........................................... 50
Changes in and Disagreements with Accountants............... 50
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 51
Quantitative and Qualitative Disclosures about Market
Risk...................................................... 58
Index to Financial Statements............................... 60
Annex A Sale and Purchase Agreement
Annex B Share Agreement
Annex C Switch Agreements
Annex D Opinion of Financial Advisor
</TABLE>
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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 Barrett Lakes
Boulevard, Suite 100, Kennesaw, Georgia 30144, Attention: Don Hilbert.
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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 to be paid by Energis is more than
five times the purchase price that WorldPort paid for EnerTel in 1998, the
balance of the Interim Loan and its maturity date of November 18, 1999, 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 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 an oral opinion, and subsequently Salomon Smith Barney delivered its
written opinion, dated November 11, 1999, 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, as stated in the opinion, the
consideration to be received in the Sale by WorldPort or one of its wholly-owned
subsidiaries was fair to WorldPort from a financial point of view. The written
opinion dated November 11, 1999 is attached to this Information Statement 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, such as
the Sale, 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, the Heico Companies LLC ("Heico"), and certain
WorldPort stockholders over whose shares Heico has voting power in connection
with certain transactions, including the Sale, under certain circumstances,
owned securities representing in the aggregate approximately 93.8 million votes
or 72.0% of the outstanding voting power of WorldPort entitled to vote on the
matters described herein. Heico has irrevocably consented in writing, on behalf
of itself and the stockholders mentioned above, to the Sale pursuant to 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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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 AGREEMENTS WILL TAKE PLACE AS SOON
AS THE 21ST DAY FOLLOWING THE MAILING OF THIS INFORMATION STATEMENT TO YOU, THE
WORLDPORT STOCKHOLDERS.
WorldPort's Board of Directors (the "Board") and a stockholder 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") and the parent company of EnerTel N.V. ("EnerTel"), representing
100% of the securities of WCEH held by the Vendor, to Energis, pursuant
to a Sale and Purchase Agreement, dated November 11, 1999 (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, dated November 11, 1999 (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 (the
"Switches") to subsidiaries of Energis, pursuant to Switch Agreements,
each dated November 11, 1999 (the "Switch Agreements")
No other approvals or votes are required or necessary. See the captions
"Stockholder Approval Previously Obtained," "Approval by the Board of Directors"
and "Voting Securities and Principal Holders."
As a result of the Sale, WorldPort will receive approximately $463.2
million in cash from Energis, which includes 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 certain usage
agreements (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.
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.
Pursuant to the Minority Sale Agreement, the minority shareholder of WCEH will
sell its 15% interest in WCEH to Energis for $64.6 million in cash and Energis
will repay to that shareholder a loan and accrued interest thereon in the
aggregate amount of $12.2 million as of September 30, 1999.
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.
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 (the "Interim Loan"), including a $600,000 amendment fee due on
the maturity date; the Interim Loan, which was incurred by
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<PAGE> 7
WorldPort in June 1998 to finance the acquisition of EnerTel, matured on
November 18, 1999 but remains outstanding. WorldPort is currently negotiating
with the lenders to extend further the maturity date of the Interim Loan.
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, including the Interim Loan, accounts
payable, taxes and transaction costs.
Salomon Smith Barney, financial advisor to WorldPort, has delivered to the
Board its written opinion to the effect that, as of November 11, 1999 and based
upon and subject to the assumptions made, matters considered and limitations on
the review undertaken, as stated in the opinion, the WorldPort Sale
Consideration (as defined below) 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 limitations on the review
by Salomon Smith Barney in rendering 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 8, 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
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RECENT EVENTS
INVESTMENT BY HEICO
On January 25, 1999, 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 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 (the "Series C 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 in order for
such to be properly approved by the Board. As of November 10, 1999, as a result
of three previous resignations, the Board consisted of five directors, three of
whom were 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
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 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
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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.
As a result of these equity investments, as of November 11, 1999, Heico
owned directly securities representing 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, Heico held irrevocable proxies, 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, over additional shares of capital stock of
WorldPort which represented approximately 27% of WorldPort's outstanding votes
as of November 11, 1999.
Heico and WorldPort are currently negotiating a financing facility to be
provided by Heico to WorldPort in the form of a convertible note in the
aggregate principal amount of $6 million. The convertible note is expected to
accrue interest at a rate of approximately 14% per annum and to mature on the
earlier of December 31, 2000 or the consummation of the Sale. It is expected
that, following the repayment of the Interim Loan, the convertible note will be
convertible into a newly-created series of convertible preferred stock of
WorldPort. The preferred stock will be convertible into Common Stock at a
conversion price of $2.00 per share, as adjusted from time to time, and have
voting rights on an as converted basis. The proceeds of this loan will primarily
be used by WorldPort as working capital and for general corporate purposes.
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 Heico's investment without disclosing the risk
that non-compliance with certain rules of The Nasdaq Stock Market ("Nasdaq") in
connection with the investment 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 the 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.
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<PAGE> 10
On June 23, 1998, the Vendor and WorldPort, as guarantor, 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 otherwise obtain funds to repay the Interim
Loan repeatedly since incurring it in June 1998. The Interim Loan originally
provided for a maturity date of June 23, 1999, which 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 further 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 million equity investment in
WorldPort. On July 15, 1999, Heico completed an additional $15 million equity
investment in WorldPort.
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 examination of strategic alternatives
including its divestiture of EnerTel as a repayment alternative for the Interim
Loan. Later that week, Salomon Smith Barney sent WorldPort a draft engagement
letter relating to 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 1999, 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 and advisors.
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 proposed transactions with Energis and alternatives to such
transactions. At that meeting, Salomon Smith Barney submitted its oral 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. Salomon Smith Barney subsequently delivered its written
opinion, dated November 11, 1999.
On November 11, 1999, WorldPort entered into the definitive Sale Agreements
with Energis.
Heico has irrevocably consented in writing to the Sale pursuant to the Sale
Agreements as to all shares it directly owned or over which it had voting power
(representing approximately 72% of WorldPort's outstanding votes).
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<PAGE> 11
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:
- the purchase price offered by Energis was more than five times the
purchase price that WorldPort paid for EnerTel less than two years ago
- the 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
- 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 oral and
written opinions as to the fairness of the WorldPort Sale Consideration
to WorldPort from a financial point of view (a copy of the written
opinion, dated November 11, 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 on behalf of
itself 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 the transactions contemplated by
the Sale Agreements and the novation of the Global Crossing Contracts. On
November 10, 1999, at a meeting of the WorldPort Board of Directors held to
consider the Sale, Salomon
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<PAGE> 12
Smith Barney delivered to the WorldPort Board an oral opinion and subsequently,
Salomon Smith Barney delivered its written opinion, dated November 11, 1999, 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 WCEH, WCL, the
Switches and the Global Crossing Contracts (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.
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 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 11,
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
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<PAGE> 13
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 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
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<PAGE> 14
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 historical stock trading analysis,
discounted cash flow analyses, a public market valuation analysis and a private
market valuation analysis.
HISTORICAL STOCK TRADING ANALYSIS
Salomon Smith Barney reviewed WorldPort's firm value implied by the
historical trading prices for WorldPort common stock on a fully diluted basis
and WorldPort's quarterly net debt position. Firm value is defined for the
purposes of this analysis as equity plus debt minus cash. The table below
summarizes the results of Salomon Smith Barney's analysis:
<TABLE>
<CAPTION>
IMPLIED FIRM
VALUE RANGE (A)
----------------
TIME PERIOD LOW HIGH
----------- ------ ------
(IN MILLIONS)
<S> <C> <C>
From move to OTC Bulletin Board to date (August to October
1999)....................................................... $225 $251
From maturity of Interim Loan, to move to OTC Bulletin Board
(June to August 1999)..................................... 225 423
From November 11, 1998 to maturity of Interim Loan (November
1998
to June 1999)............................................. 423 670
</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 historical 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 (comprised of (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, a 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.
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<PAGE> 15
The following table sets forth the firm value range of the Business as of
September 30, 1999, based on the Business Plan.
<TABLE>
<CAPTION>
FIRM
VALUATION
RANGE
-------------
LOW HIGH METHODOLOGY
----- ----- -----------
(IN MILLIONS)
<S> <C> <C> <C>
Discounted Cash Flow (giving effect to
the Business Plan)........................ $571 $690 14.5% to 15.5% Weighted Average Cost
of Capital, 5.5x to 6.5x Terminal
EBITDA Multiple (through 2008)
</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>
Discounted Cash Flow (giving effect to the
Business Plan Sensitivity)................ $160 $199 14.5% to 15.5% Weighted Average Cost
of Capital, 5.5x to 6.5x Terminal
EBITDA Multiple (through 2008)
</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
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<PAGE> 16
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.
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 / NET PROPERTY
FIRM VALUE / REVENUES 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 / NET PROPERTY
FIRM VALUE / REVENUES PLANT & EQUIPMENT
------------------------- -------------------------
1999 2000 1999 2000
(ESTIMATED) (ESTIMATED) (ESTIMATED) (ESTIMATED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Multiples Implied by $628.4 Million Firm Value for
the Business...................................... 10.2x 5.4x 6.3x 3.8x
</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.
<TABLE>
<CAPTION>
FIRM VALUE / NET PROPERTY
FIRM VALUE / REVENUES 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 / NET PROPERTY
FIRM VALUE / REVENUES PLANT & EQUIPMENT
--------------------- -------------------------
<S> <C> <C>
Multiples Implied by $628.4 Million Firm Value for
the Business......................................... 9.4x 6.3x
</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
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<PAGE> 17
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.
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 the Vendor and guaranteed by WorldPort in June
1998 to finance the acquisition of EnerTel, including a $600,000 amendment fee
due on the maturity date, November 18, 1999. WorldPort is currently negotiating
with the lenders to extend further 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' agreement
to repay to Heico a loan and accrued interest thereon 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 payable by EnerTel.
INTERIM LOAN
Heico is one of the lenders participating in the Interim Loan. Heico will
receive approximately $18.6 million in principal 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 expiring in June 2008.
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
whom were designated by Heico. All five directors of WorldPort have approved the
Sale pursuant to the Sale Agreements.
15
<PAGE> 18
PROPOSED ADDITIONAL HEICO FINANCING TO WORLDPORT
Heico and WorldPort are currently negotiating a financing facility to be
provided by Heico to WorldPort in the form of a convertible note in the
aggregate principal amount of $6 million. The convertible note is expected to
accrue interest at a rate of approximately 14% per annum and to mature on the
earlier of December 31, 2000 or the consummation of the Sale. It is expected
that, following the repayment of the Interim Loan, the convertible note will be
convertible into a newly-created series of convertible preferred stock of
WorldPort. The preferred stock will be convertible into Common Stock at a
conversion price of $2.00 per share, as adjusted from time to time and have
voting rights on an as converted basis. The proceeds of this loan will primarily
be used by WorldPort as working capital and for general corporate purposes.
NO APPRAISAL RIGHTS
Under the Delaware General Corporation Law, holders of WorldPort capital
stock are not entitled to appraisal rights in connection with the Sale.
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 (including liabilities assumed by Energis 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.
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.
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<PAGE> 19
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.
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 by WCEH's auditors to a
standard to be agreed between 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 a negative figure
which 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
17
<PAGE> 20
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 respects 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 be made
liable in respect of 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.
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
18
<PAGE> 21
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 of
Energis and/or WCEH and/or EnerTel (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 Energis 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.
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
19
<PAGE> 22
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 the
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:
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.
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<PAGE> 23
Purchase Price Adjustment. If the value of Net Assets is a negative
figure which is greater than (L1,443,000), 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 (L1,443,000), 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.
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/or the UK Switch, as the case may be,
and the novation of certain Contracts.
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<PAGE> 24
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 L21.25 per
share for an aggregate consideration (net of commissions and expenses) to
Energis of L303,000,000.
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 L400,000,000. 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
L30,000,000 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.
STOCKHOLDER APPROVAL PREVIOUSLY OBTAINED
As of November 11, 1999, there were 27,547,092 shares of Common Stock, no
shares of WorldPort Series A Convertible Preferred Stock, 1,104,896 shares of
Series B, 1,416,030 shares of Series C, 316,921 shares of Series D, 141,603
shares of Series E, and no shares of Series F, in the aggregate representing
130,239,570 votes entitled to be cast on such date.
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<PAGE> 25
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, and certain WorldPort stockholders over
whose shares Heico has voting power in connection with certain transactions,
including the Sale, under certain circumstances, owned 300,000 shares (1.1%) of
the outstanding Common Stock, 882,827 shares (79.9%) of WorldPort's outstanding
Series B, 1,416,030 shares (100%) of the outstanding Series C, and 141,603
shares (100%) of the outstanding Series E, representing in the aggregate
approximately 93.8 million votes or 72.0% of the outstanding voting power of
WorldPort entitled to vote on the matters described herein as a class. Heico has
irrevocably consented in writing, on behalf of itself and the other stockholders
mentioned above, to the Sale pursuant to 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.
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<PAGE> 26
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.
<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 Series C, (ii) 1,538,517 shares issuable upon conversion of 141,603
shares of Series E, (iii) 3,750,001 shares issuable upon conversion of
424,809 shares of Series F 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 Heico, an entity which Mr.
Heisley controls.
(5) Includes (i) 1,000,000 shares of Common Stock and 1,985,076 shares issuable
upon conversion of 496,269 shares of Series B held by owned by Anderlit,
Ltd. ("Anderlit"), (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 Series B and 316,921 shares issuable upon
conversion of 316,921 shares of Series D), (iii) 19,072 shares issuable
upon conversion of 4,768 shares of Series B which are owned by Moore
Investments, (iv) 500,000 shares issuable upon conversion of 125,000 shares
of Series B 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 Series B.
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
Series B, (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.
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<PAGE> 27
(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 Series B.
(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 Series B) and (iv) 1,630,000 additional
shares which may be acquired pursuant to options which are exercisable
within 60 days.
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 by (i) all individuals known to
beneficially own 5% or more of the outstanding shares of Series B, 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 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 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.
25
<PAGE> 28
(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.
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 by (i) all individuals known to
beneficially own 5% or more of the outstanding shares of Series C, (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 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 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.
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.
26
<PAGE> 29
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 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 Series D outstanding as of November 11, 1999.
(3) The address of this stockholder is 100 California Street, Suite 1160, San
Francisco, California 94111.
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 by (i) all individuals known to
beneficially own 5% or more of the outstanding shares of Series E, (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 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 Series E 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.
27
<PAGE> 30
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 is 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 by (i) all individuals known to
beneficially own 5% or more of the outstanding shares of Series F, (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 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 Series F 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.
28
<PAGE> 31
MARKET FOR WORLDPORT'S COMMON STOCK
On November 10, 1999, the date preceding the public announcement of the
Sale, the high sale price of the Common Stock 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 3, 1999)................... 3.4375 0.5469
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.
29
<PAGE> 32
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 NINE MONTHS ENDED
(JANUARY 6, 1989) YEARS ENDED DECEMBER 31, SEPTEMBER 30,
TO DECEMBER 31, --------------------------- -------------------
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>
30
<PAGE> 33
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
----------------------------------- 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 International Interconnect,
Inc. 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, International
Interconnect, Inc., and Telenational Communications, Inc., and the repayment
of the Interim Loan as if they had occurred on January 1, 1998.
(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
generally accepted accounting principles 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.
31
<PAGE> 34
PRO FORMA CONSOLIDATED BALANCE SHEET INFORMATION AS OF SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
PRO
PRO FORMA
WORLDPORT FORMA 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).
32
<PAGE> 35
PRO FORMA CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
WORLDPORT PRO FORMA
WORLDPORT EUROPE IIC TNC SUBTOTAL ADJUSTMENTS PRO 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.
33
<PAGE> 36
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
WORLDPORT PRO FORMA
WORLDPORT EUROPE IIC TNC SUBTOTAL ADJUSTMENT PRO FORMA
--------- --------- ------- ------- -------- ---------- ---------
<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.
34
<PAGE> 37
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.
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
35
<PAGE> 38
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 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)
36
<PAGE> 39
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 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
37
<PAGE> 40
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.
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 telecommunications law enacted in the
Netherlands in 1998, 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 1998
telecommunications law in the Netherlands, it is no longer subject to these
statutory licensing conditions or, alternatively, that such conditions are no
38
<PAGE> 41
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:
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 Netherlands Bilateral agreement;
interconnection 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).
39
<PAGE> 42
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.
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.
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
40
<PAGE> 43
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.
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' 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.
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<PAGE> 44
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.
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.
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
42
<PAGE> 45
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.
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
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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 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.
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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 Telecommunications Act entered into force in the
Netherlands on December 15, 1998. Under this 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 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 1998 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.
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The 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 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 interconnec-
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tion 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 Agreement"), concluded on February 15, 1997, sixty-nine
nations comprising 95% of the global market for
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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
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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 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" on page 6 for a description of 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,
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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 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
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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, if the Sale is not consummated, there is
substantial doubt about WorldPort's ability to continue as a going concern.
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
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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, 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
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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.
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.
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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 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
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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 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
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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.
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
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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>
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----
<S> <C>
Condensed Consolidated Balance Sheets -- September 30, 1999
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-2
Condensed Consolidated Statements of Comprehensive Loss for
the Three and Nine Months Ended September 30, 1999 and
1998 (unaudited).......................................... F-3
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 1999 and 1998 (unaudited)...... F-4
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-5
Report of Independent Public Accountants.................... F-10
Consolidated Balance Sheets -- December 31, 1998 and 1997... F-11
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997, and 1996......................... F-12
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1998, 1997, and 1996............. F-13
Statements of Comprehensive Loss for the Years Ended
December 31, 1998, 1997, and 1996......................... F-14
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997, and 1996......................... F-15
Notes to Financial Statements............................... F-16
</TABLE>
60
<PAGE> 63
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
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> 64
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> 65
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> 66
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 230,627 shares of Series B preferred
stock.................................................. $ -- $ 1,236
======== ========
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> 67
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 this
sale will be consummated by
F-5
<PAGE> 68
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 69
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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> 70
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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
F-8
<PAGE> 71
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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-9
<PAGE> 72
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-10
<PAGE> 73
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-11
<PAGE> 74
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-12
<PAGE> 75
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-13
<PAGE> 76
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-14
<PAGE> 77
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-15
<PAGE> 78
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 subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
F-16
<PAGE> 79
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-17
<PAGE> 80
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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,
F-18
<PAGE> 81
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-19
<PAGE> 82
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-20
<PAGE> 83
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 promissory notes (the "Bridge
Notes"). The Bridge Notes bore interest at 10% per annum. During
F-21
<PAGE> 84
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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
F-22
<PAGE> 85
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
vendor. In 1998, the Company made a deposit of $2 million with this vendor which
will be applied against the Company's aggregate $66 million commitment over the
next 3 years under this agreement.
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
F-23
<PAGE> 86
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-24
<PAGE> 87
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 "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.
F-25
<PAGE> 88
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS
A summary of the status of the Company's stock option plan at December 31,
1998 is as follows (in thousands):
<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
RANGE OF OUTSTANDING AS LIFE EXERCISE AS OF EXERCISE
YEAR 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 materially affect
the fair value estimate.
F-26
<PAGE> 89
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-27
<PAGE> 90
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(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 ended December 31,
1998.
F-28
<PAGE> 91
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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-29
<PAGE> 92
ANNEX A
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> 93
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
Introduction..................................................... A-3
Operative Provisions............................................. A-3
1 Definitions................................................. A-3
2 Delivery at Signing......................................... A-7
3 Conditions Precedent........................................ A-8
4 Agreement for Sale.......................................... A-10
5 Purchase Consideration...................................... A-10
6 Completion.................................................. A-10
7 Adjustments to Purchase Consideration....................... A-11
8 Covenants of WCEH and WorldPort............................. A-13
9 Warranties by the Vendor.................................... A-14
10 Y2K......................................................... A-17
11 Assignment and Successions.................................. A-17
12 Termination................................................. A-18
13 Announcements............................................... A-18
14 Information................................................. A-18
15 Costs....................................................... A-19
16 Time of Essence............................................. A-19
17 Communications.............................................. A-19
18 Confidentiality............................................. A-19
19 Invalidity.................................................. A-19
20 Counterparts................................................ A-20
21 Proper Law.................................................. A-20
</TABLE>
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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
sec. 736 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 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
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"COMPANIES ACTS" CA, the former Companies Acts (within the meaning
of CA sec. 735(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 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
AGREEMENT" the agreement in the agreed form 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 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
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"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
"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
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"UCS" Unisource Carrier Services USA. Inc.
"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:
(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);
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(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.
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;
(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.
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;
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(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.
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:
(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;
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(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.
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;
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(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:
(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 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
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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;
(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,
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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.
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 of the Purchaser and/or WCEH and/or the
Subsidiary (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.
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.
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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;
(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.
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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 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
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
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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 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
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(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 stop payment of its debts, or be subject to an
involuntary bankruptcy, insolvency, reorganisation or similar proceeding;
and
(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.
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 and/or conditions 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 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
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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:
(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.
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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.
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.
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.
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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
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.
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(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.
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
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
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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.
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.
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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.
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.
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.
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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;
(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.
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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
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.
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.
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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 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
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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.
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.
WORLDPORT COMMUNICATIONS INC.
acting by:
/s/ CARL GRIVNER
--------------------------------------
Carl Grivner
WORLDPORT INTERNATIONAL INC.
acting by:
/s/ CARL GRIVNER
--------------------------------------
Carl Grivner
ENERGIS PLC
acting by:
/s/ FRANCIS MICHAEL WILKINSON
--------------------------------------
Francis Michael Wilkinson
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ANNEX B
DATED 11 NOVEMBER 1999
WORLDPORT COMMUNICATIONS INC(1)
ENERGIS PLC(2)
------------------------------------------------------
AGREEMENT
FOR THE SALE AND PURCHASE OF THE ISSUED
SHARE CAPITAL OF
WORLDPORT COMMUNICATIONS LIMITED
------------------------------------------------------
<PAGE> 121
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 ("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
sec. 736 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
"CA" Companies Act 1985
"COMPANIES ACTS" CA, the former Companies Acts (within the meaning
of CA sec. 735(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
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"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
"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
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"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
"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
"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
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"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
(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.
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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; 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.
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;
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(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:
(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.
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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.
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:
(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;
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(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:
(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 L1,443,000, the Vendor
will repay to the Purchaser the amount by which this negative figure is
greater than L1,443,000, 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 L1,443,000, the Purchaser
will pay to the Vendor the amount by which this negative figure is less
than L1,443,000, 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.
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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.
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:
(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;
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(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;
(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.
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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 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.
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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
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.
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.
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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;
(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.
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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
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 sec. 224 is 31
December.
1.6 BOOKS AND RECORDS
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;
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(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 sec. 741) of
WCL.
2.2 SUBSIDIARY, ASSOCIATIONS AND BRANCHES
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.
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.
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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.
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 sec. 418) 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.
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.
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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.
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 sec. 123 (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.
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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
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
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.
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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.
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.
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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.
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.
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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.
ATTESTATIONS
SIGNED for and on behalf of
WORLDPORT COMMUNICATIONS INC
/s/ Carl Grivner
--------------------------------------
Carl Grivner
SIGNED for and on behalf of
ENERGIS PLC
/s/ Francis Michael Wilkinson
--------------------------------------
Francis Michael Wilkinson
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ANNEX C
NEW YORK SWITCH
DATED 11 NOVEMBER 1999
WORLDPORT COMMUNICATIONS INC.(1)
UNISOURCE CARRIER SERVICE USA, INC.
------------------------------------------------------
AGREEMENT
FOR THE SALE AND PURCHASE OF THE
DMS GSP US INTERNATIONAL GATEWAY SWITCHES
------------------------------------------------------
<PAGE> 144
DATE 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 ("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
STATEMENT" the statements showing the Net Assets 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;
"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 AGREEMENT" the Global Crossing Agreement in the agreed form;
"INTELLECTUAL PROPERTY
RIGHTS" 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
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"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 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" 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
"WCEH" WorldPort Communications Europe Holding B.V. having
its statutory seat in Rotterdam The Hague
"WCEH SHARE AGREEMENT" the agreement in the agreed form of 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 AGREEMENT" the agreement in the agreed form of 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.
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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; 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.
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
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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 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;
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(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 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 cost of the audit shall
be paid as to one half by the Vendor and as to the other half by the Purchaser.
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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.
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
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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
ATTESTATIONS
SIGNED for and on behalf of
WORLDPORT COMMUNICATIONS INC
/s/ Carl Grivner
--------------------------------------
Carl Grivner
SIGNED for and on behalf of
UNISOURCE CARRIER SERVICE USA, INC.
/s/ Francis Michael Wilkinson
--------------------------------------
Francis Michael Wilkinson
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LONDON SWITCH
DATED 11 NOVEMBER 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 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 ("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 whatsoever
"ENERGIS PLC" Energis plc whose registered office is at
Carmelite, 50 Victoria Embankment, London, EC4Y
OPE:
"INTELLECTUAL PROPERTY
RIGHTS" 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
"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
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"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 AGREEMENT" the agreement in the agreed form of 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 AGREEMENT" the agreement in the agreed form of 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 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.
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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;
(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.
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.
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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 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.
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
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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
ATTESTATIONS
SIGNED for and on behalf of
WORLDPORT COMMUNICATIONS INC
/s/ Carl Grivner
--------------------------------------
Carl Grivner
SIGNED for and on behalf of
WORLDPORT COMMUNICATIONS LIMITED
/s/ Carl Grivner
--------------------------------------
Carl Grivner
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ANNEX D
<TABLE>
<S> <C>
SALOMON BROTHERS
INTERNATIONAL LIMITED
Victoria Plaza
111 Buckingham Palace Road
London SW1W 0SB England
Telephone: 0171-721 2000 (Salomon Smith Barney Logo)
Facsimile: 0171-222 7062
Registered Office
Registered in England
Registered Number: 1763297
Regulated by SFA
</TABLE>
November 11, 1999
Board of Directors
WorldPort Communications, Inc.
1825 Barrett Lakes 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 the Agreement dated November 11, 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 the Agreement dated as
of November 11, 1999 (the "WCL Agreement"), by and among the Company and the
Buyer, and (iii) the sale (the "Switch Sale") of DMS GSP International gateway
switches ("Switches"), on the terms set forth in the Agreements dated November
11, 1999 (the "Switch Agreements") by and between the Company, UCS, Inc., a
subsidiary of the Buyer, and WCL, respectively, and (iv) the novation (together
with the WPE Holding Sale, the WCL Sale, and Switch Sale, the "Sale") of the
Global Crossing Agreements (together with WPE Holding, WCL, and Switches, the
"Business"), on the terms set forth in the Agreement dated November 11, 1999
(together with the WPE Holding Agreement, the WCL Agreement and the Switch
Agreements, the "Agreements") by and between the Company and 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.
D-1
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SALOMON BROTHERS
INTERNATIONAL LIMITED
(Salomon Smith Barney Logo)
Board of Directors
WorldPort Communications, Inc.
November 11, 1999
Page 2
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 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
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,
/s/ Salomon Brothers International Limited
SALOMON SMITH BARNEY
D-2
