<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 000-25015
WORLDPORT COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-1127336
(State or other jurisdiction of incorporation (IRS Employer ID Number)
or organization)
30144
1825 BARRETT LAKES BLVD., (Zip Code)
SUITE 100, KENNESAW, GEORGIA
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code (770) 792-8735
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
As of August 6, 1999, the Registrant had 27,147,152 shares of Common Stock
par value $0.0001 outstanding.
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WORLDPORT COMMUNICATIONS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998......................
Condensed Consolidated Statements of Operations For the
Three and Six Months Ended June 30, 1999 and 1998
(unaudited)............................................
Condensed Consolidated Statements of Comprehensive Income
for the Three and Six Months Ended June 30, 1999 and
1998 (unaudited).......................................
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 and 1998 (unaudited)....
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................
Item 3. Quantitative and Qualitative Disclosures About
Market Risk...............................................
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings..................................
Item 2. Changes in Securities and Use of Proceeds..........
Item 6. Exhibits and Reports on Form 8-K...................
SIGNATURE...................................................
</TABLE>
i
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 4,916 $ 9,015
Accounts receivable, net of allowance for doubtful accounts
of $763 and $1,054, respectively.......................... 12,174 11,765
Receivable from related party............................... -- 32,500
Prepaid expenses and other current assets................... 4,939 3,021
--------- --------
Total current assets............................... 22,029 56,301
Property and equipment, net................................. 115,731 91,226
OTHER ASSETS:
Capacity held for resale.................................... 14,600 --
Goodwill, net............................................... 41,331 43,190
Other intangibles, net...................................... 20,427 21,851
Other assets, net........................................... 2,804 7,887
--------- --------
Total assets....................................... $ 216,922 $220,455
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 22,237 $ 25,335
Accrued expenses............................................ 14,980 19,302
Current portion of obligations under capital leases......... 8,734 2,631
Current portion of notes payable............................ 4,833 --
Other current liabilities................................... 2,404 1,952
Interim loan facility....................................... 134,935 110,926
--------- --------
Total current liabilities.......................... 188,123 160,146
Long-term obligations under capital leases, net of current
portion................................................... 29,136 17,539
Note payable, net of current portion........................ 20,313 12,028
Other long-term liabilities................................. 11,504 11,375
--------- --------
Total liabilities.................................. 249,076 201,088
--------- --------
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, 81,944 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, 1,535,648 and 2,931,613
shares issued and outstanding in 1999 and 1998,
respectively.............................................. -- --
Series C convertible preferred stock, $0.0001 par value,
1,450,000 shares authorized, 1,132,824 shares issued and
outstanding in 1999 and 1998, respectively................ -- --
Common stock, $0.0001 par value, 65,000,000 shares
authorized, 25,427,140 and 18,228,916 shares issued and
outstanding in 1999 and 1998, respectively................ 3 2
Warrants.................................................... 26,136 28,263
Additional paid-in capital.................................. 84,691 77,414
Unearned compensation expense............................... (573) (750)
Cumulative translation adjustment........................... (3,395) (6,747)
Accumulated deficit......................................... (139,016) (80,660)
--------- --------
Total stockholders' (deficit) equity............... (32,154) 17,522
--------- --------
Total liabilities and stockholders' (deficit)
equity........................................... $ 216,922 $220,455
========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues......................................... $ 24,521 $ 1,716 $ 42,796 $ 2,664
Cost of services................................. 18,668 1,617 30,736 2,507
-------- ------- -------- -------
Gross margin........................... 5,853 99 12,060 156
OPERATING EXPENSES:
Selling, general and administrative expenses..... 12,974 3,997 25,623 6,252
Depreciation and amortization.................... 5,759 866 11,031 1,497
-------- ------- -------- -------
Operating loss................................... (12,880) (4,764) (24,594) (7,593)
OTHER EXPENSE:
Interest expense, net............................ (18,914) (665) (34,524) (841)
Other expense, net............................... (176) -- (1,056) --
-------- ------- -------- -------
Loss before minority interest and income taxes... (31,970) (5,429) (60,174) (8,434)
Minority interest................................ 647 -- 1,850 --
-------- ------- -------- -------
Loss before income taxes......................... (31,323) (5,429) (58,324) (8,434)
Income tax provision............................. -- -- -- --
-------- ------- -------- -------
Net loss............................... $(31,323) $(5,429) $(58,324) $(8,434)
======== ======= ======== =======
Net loss per share, basic and diluted............ $ (1.32) $ (0.32) $ (2.73) $ (0.51)
======== ======= ======== =======
Shares used in net loss per share calculation,
basic and diluted.............................. 23,739 16,829 21,336 16,402
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 5
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net loss......................................... $(31,323) $(5,429) $(58,324) $(8,434)
Other comprehensive income, net of tax:
Foreign currency translation adjustments....... 1,777 -- 3,352 --
-------- ------- -------- -------
Comprehensive loss..................... $(29,546) $(5,429) $(54,972) $(8,434)
======== ======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 6
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
1999 1998
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(58,324) $ (8,434)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization............................. 11,031 1,497
Non-cash interest expense................................. 30,795 263
Non-cash compensation expense............................. 528 587
Minority interest......................................... (1,845) --
Change in accounts receivable............................. (409) (392)
Change in prepaid expenses and other assets............... (1,918) (477)
Change in accounts payable, accrued expenses and other
liabilities............................................ 1,924 666
-------- ---------
Net cash used in operating activities............. (18,218) (6,290)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid in connection with acquisitions, net of cash
acquired.................................................. -- (113,950)
Deposits paid in conjunction with new business alliances.... -- (1,237)
Capital expenditures........................................ (16,228) (126)
-------- ---------
Net cash used in investing activities............. (16,228) (115,313)
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....................... (202) --
Principal payments on obligations under capital leases...... (3,333) (498)
Proceeds from exercise of stock options..................... 1,798 --
Proceeds from issuance of common stock, net of offering
expenses.................................................. -- 900
Proceeds from issuance of preferred stock, net of offering
expenses.................................................. 32,500 12,509
-------- ---------
Net cash provided by financing activities......... 30,613 132,546
Effect of exchange rate changes on cash and cash
equivalents............................................... (266) --
-------- ---------
Net decrease in cash and cash equivalents......... (4,099) 10,943
Cash and cash equivalents, beginning of the period.......... 9,015 179
-------- ---------
Cash and cash equivalents, end of the period................ $ 4,916 $ 11,122
======== =========
Cash paid during the period for interest.................... $ 1,509 $ 379
======== =========
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.......................................... $ -- $ 1,018
======== =========
Acquisition of assets under capital lease and other
financing facilities...................................... $ 31,473 $ 1,986
======== =========
Issuance of warrants in connection with Interim Loan........ $ 3,656 $ --
======== =========
Stock issued in ICX acquisition............................. $ -- $ 536
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 7
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
WorldPort Communications, Inc. (together with its subsidiaries, the
"Company"), previously known as Sage Resources, Inc., was organized as a
Colorado corporation on January 6, 1989, to evaluate, structure and complete
mergers with, or acquisitions of other entities. In October 1996, the Company
changed its domicile to Delaware and changed to its current name. The Company is
a rapidly growing facilities-based global telecommunications carrier offering
voice, data and other telecommunications services to carriers, internet service
providers ("ISPs"), medium and large corporations and distributors and
resellers.
The accompanying condensed consolidated financial statements have been
prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted in
this Form 10-Q pursuant to such rules and regulations; however, management
believes that the disclosures herein are adequate to make the information
presented not misleading. The financial statements and notes thereto included in
this Form 10-Q should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
In the opinion of the Company's management, the accompanying condensed
consolidated financial statements contain all adjustments necessary to present
fairly the Company's financial position as of June 30, 1999, and the results of
operations for the three and six months ended June 30, 1999 and 1998 and cash
flows for the six months ended June 30, 1999 and 1998. The results of operations
for the three and six months ended June 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 August 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 $139.0 million as of June 30, 1999
as well as a working capital deficit of approximately $166.1 million. Funding of
the Company's working capital deficit, current and future operating losses and
expansion of the Company's global network will require substantial continuing
capital investment. The Company's strategy is to fund these cash requirements
through debt facilities and additional equity financing.
The Company's Interim Loan facility, which originally matured on June 23,
1999 and has been extended until August 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. The
Company is currently pursuing several alternatives for repaying the Interim
Loan, but to date it does not have such an arrangement in place, nor any
definitive arrangement to further extend the due date thereof. 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
5
<PAGE> 8
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
In addition, an element of the Company's business strategy includes the
identification and pursuit of strategic acquisitions. The recent decline in the
market price of the Company's common stock may have an adverse effect on the
Company's ability to engage in any such strategic acquisition, thereby adversely
affecting the implementation of the Company's business strategy. The Company
currently does not have any agreements, understandings or arrangements with
respect to any such strategic acquisitions.
Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Loss per Share
For all periods presented, basic and diluted earnings per share are the
same as any dilutive securities had an antidilutive effect on earnings per
share.
(2) SEGMENT DISCLOSURES
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. The Company adopted SFAS No. 131 during the year ended December 31,
1998.
The Company views itself as participating in one business
segment -- facilities-based global telecommunications. Its operations can be
viewed as European and North American. Intersegment revenues are not material.
Financial data by geographic area for 1999 are as follows (in thousands):
Three months ended June 30, 1999:
<TABLE>
<CAPTION>
EUROPEAN NORTH AMERICAN(1) TOTAL
-------- ----------------- --------
<S> <C> <C> <C>
Revenues................................................. $ 18,247 $ 6,274 $ 24,521
Depreciation and amortization............................ 4,174 1,585 5,759
Operating loss........................................... (4,422) (8,458) (12,880)
Interest expense, net.................................... (17,859) (1,055) (18,914)
-------- ------- --------
Net loss....................................... $(21,634) $(9,689) $(31,323)
======== ======= ========
</TABLE>
6
<PAGE> 9
WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Six months ended June 30, 1999:
<TABLE>
<CAPTION>
EUROPEAN NORTH AMERICAN(1) TOTAL
-------- ----------------- --------
<S> <C> <C> <C>
Revenues................................................. $ 32,681 $ 10,115 $ 42,796
Depreciation and amortization............................ 8,300 2,731 11,031
Operating loss........................................... (8,959) (15,635) (24,594)
Interest expense, net.................................... (33,436) (1,088) (34,524)
-------- -------- --------
Net loss....................................... $(40,546) $(17,778) $(58,324)
======== ======== ========
Total assets............................................. $158,363 $ 58,559 $216,922
Capital expenditures..................................... 11,415 4,813 16,228
Intangible assets, net................................... 47,723 14,035 61,758
</TABLE>
- ---------------
(1) Includes all corporate overhead costs.
For the three and six months ended June 30, 1998, all operations were North
American based.
(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 August 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. The
Interim Loan bears interest at LIBOR (as defined in the credit agreement related
to the Interim Loan) plus 6% per annum (13.0% at June 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 June 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 June 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 June 30, 1999, the warrants were valued at an aggregate of
$26.1 million.
Capacity Commitments
The Company has entered into agreements with a vendor for the purchase of
STM-1's of capacity on the AC-1 cable system or STM-1 level capacity on
additional undersea cable systems under development by this vendor. In 1998, the
Company made a deposit of $2 million with this vendor which will be applied
against the Company's aggregate $66 million commitment over the next 3 years
under this agreement. In March 1999, the Company purchased undersea cable
capacity from the vendor by converting its deposit and paying an additional $4.6
million as down-payment, and obtaining vendor financing for the remaining $14.5
million purchase price. This vendor financing bears interest at a rate of 11.5%
and requires quarterly principal payments of $1.2 million commencing in June
1999 and ending in March 2002. The Company intends to sell a portion of this
capacity to one or more customers by the end of the third quarter of 1999.
Accordingly, the purchase cost of this capacity is classified as "Capacity held
for resale" on the accompanying balance sheet.
In February 1999, the Company entered into an agreement with a
telecommunication carrier to sell to such carrier transmission capacity
throughout various points of presence in Europe for approximately $8 million,
payable upon acceptance of the circuits by the carrier. The contract provides
the purchaser with an indefeasible right of use of this capacity for a period of
20 years. The Company has entered into a separate
7
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WORLDPORT COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement with a European telecommunications company which gives the Company the
right to purchase capacity through these points of presence. This contract
provides for indefeasible right of use for a period of 10 years. The Company is
pursuing means to satisfy the capacity commitment to the Company's customer for
the remaining 10 years of that contract.
During the second quarter, the Company recorded revenue under the contract
of $2.1 million and costs, including an estimate of future costs for years 11-20
based on an independent third party's estimate, of $2.5 million. This represents
management's best estimate of the present value of such future costs to provide
these services. Management will monitor this estimate and adjust as necessary
when, and if, additional information is available. The initial transaction under
the contract was negotiated in anticipation of future profitable revenues from
the customer.
Legal
The Company's common stock is now quoted and traded on the OTC Bulletin
Board under the symbol "WRDP" after having been delisted from the Nasdaq
SmallCap Market as of the close of business on August 4, 1999.
Several shareholder class action lawsuits have been filed against the
Company and certain of its former officers and directors in connection with its
Nasdaq delisting. The Company has not yet been served with any notice, process
or pleading with respect to any such proceeding. The Company intends to
vigorously defend these lawsuits.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
NOTE ON "FORWARD-LOOKING" STATEMENTS
The information set forth in Management's Discussion and Analysis of
Financial Condition and Results of Operations ("MD&A") contains certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995, including,
among others (i) expected changes in the Company's revenues and profitability,
(ii) prospective business opportunities and (iii) the Company's strategy for
expanding and financing its business. Forward-looking statements are statements
other than historical information or statements of current condition. Some
forward-looking statements may be identified by use of terms such as "believes",
"anticipates", "intends" or "expects". These forward-looking statements relate
to the plans, objectives and expectations of the Company for future operations.
Although the Company believes that its expectations with respect to the
forward-looking statements are based upon reasonable assumptions within the
bounds of its knowledge of its business and operations, in light of the risks
and uncertainties inherent in all future projections, the inclusion of
forward-looking statements in this report should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.
The Company's revenues and results of operations could differ materially
from those projected in the forward-looking statements as a result of numerous
factors, including, but not limited to, the following: (i) an inability to repay
the Interim Loan Facility due August 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. In light of these risks and
uncertainties, there can be no assurance that actual results, performance or
achievements of the Company will not differ materially from any future results,
performance or achievements expressed or implied by such forward-looking
statements. The foregoing review of important factors should not be construed as
exhaustive. The Company undertakes no obligation to release publicly the results
of any future revisions it may make to forward-looking statements to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto included under Item 1 of
this Form 10-Q. In addition, reference should be made to the Financial
Statements and Notes thereto and related Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
OVERVIEW
The Company is a rapidly growing facilities-based global telecommunications
carrier offering voice, data and other telecommunications services to carriers,
ISPs, medium and large corporations and distributors and resellers.
The Company's growth to date has occurred principally through acquisitions,
most notably its acquisition of EnerTel, a national provider of
telecommunications services in the Netherlands. The Company acquired EnerTel in
June 1998, for consideration consisting of approximately $92 million and the
payment of certain EnerTel indebtedness of approximately $17 million. In
November 1998 the Company sold a 15% interest in the direct parent of EnerTel to
former shareholders of EnerTel for approximately $14.8 million, of which
approximately $2.8 million was an equity investment in the subsidiary and
approximately $12 million was in the form of a shareholder note. The principal
on this shareholder note is payable ten years after the Company's repayment of
the Interim Loan, which financed the Company's acquisition of EnerTel.
9
<PAGE> 12
In addition to the Company's EnerTel operations, during 1998 the Company
acquired International InterConnect, Inc. ("IIC") and Intercontinental Exchange,
Inc. ("ICX") which serve distributors and resellers focused on international
calling card and private line services. The Company believes that these
operations help it to expand its name recognition and traffic volumes in
emerging markets. Formerly based in the San Francisco Bay area, ICX provides
telecommunication services principally through a network of agents and
distributors in Japan and other Asian countries. During the first quarter of
1999, ICX's operations were integrated with the Company's Omaha, Nebraska based
calling card operation and its traffic was migrated to the Company's Omaha
switch. The Company acquired the assets and operations of ICX in April 1998, in
exchange for 400,000 shares of Common Stock.
In August 1998, the Company acquired the assets and operations of IIC. The
purchase consideration was 879,442 shares of Common Stock and $750,000 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, the Company commenced operations in the Netherlands
through the acquisition of MathComp B.V., whose name was changed to WorldPort
Communications Europe, B.V. ("WorldPort Europe"). In connection with this
acquisition, the Company issued 150,000 shares of Common Stock and paid $250,000
in cash. The former shareholder of WorldPort Europe is eligible to earn an
additional 2,350,000 shares of Common Stock contingent upon the attainment of
certain revenue and gross margin requirements during the first and second
quarters of 1999. Following the acquisition of EnerTel, the Company recorded
charges of approximately $5.2 million in the fourth quarter of 1998 for the wind
down of the WorldPort Europe operations in 1999. See "Legal Proceedings."
As of August 6, 1999, the Company had 27,147,152 shares of Common Stock
outstanding, or 59,087,637 shares on a fully diluted basis. The number of shares
outstanding on a fully-diluted basis takes into account (i) all outstanding
shares of Common Stock, (ii) all outstanding shares of the Company's convertible
preferred stock, together with all options to acquire such stock, (iii) all
outstanding warrants to acquire the Company's Common Stock, together with such
number of additional warrants which the Company would have been required to
issue to the Interim Loan holders had the Interim Loan been repaid on August 6,
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
August 6, 1999 and which had an exercise price at or below the market price on
such date.
Capacity Commitments
The Company has entered into agreements with a vendor for the purchase of
STM-1's of capacity on the AC-1 cable system or STM-1 level capacity on
additional undersea cable systems under development by this vendor. In 1998, the
Company made a deposit of $2 million with this vendor which will be applied
against the Company's aggregate $66 million commitment over the next 3 years
under this agreement. In March 1999, the Company purchased undersea cable
capacity from the vendor by converting its deposit and paying an additional $4.6
million as down-payment, and obtaining vendor financing for the remaining $14.5
million purchase price. This vendor financing bears interest at a rate of 11.5%
and requires quarterly principal payments of $1.2 million commencing in June
1999 and ending in March 2002. The Company intends to sell a portion of this
capacity to one or more customers by the end of the third quarter of 1999.
Accordingly, the purchase cost of this capacity is classified as "Capacity held
for resale" on the accompanying balance sheet.
In February 1999, the Company entered into an agreement with a
telecommunication carrier to sell to such carrier transmission capacity
throughout various points of presence in Europe for approximately $8 million,
payable upon acceptance of the circuits by the carrier. The contract provides
the purchaser with an indefeasible right of use of this capacity for a period of
20 years. The Company has entered into a separate agreement with a European
telecommunications company which gives the Company the right to purchase
capacity through these points of presence. This contract provides for
indefeasible right of use for a period of 10 years. The Company is pursuing
means to satisfy the capacity commitment to the Company's customer for the
remaining 10 years of that contract.
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<PAGE> 13
During the second quarter, the Company recorded revenue under the contract
of $2.1 million and costs, including an estimate of future costs for years 11-20
based on an independent third party's estimate, of $2.5 million. This represents
management's best estimate of the present value of such future costs to provide
these services. Management will monitor this estimate and adjust as necessary
when, and if, additional information is available. The initial transaction under
the contract was negotiated in anticipation of future profitable revenues from
the customer.
RESULTS OF OPERATIONS
During the three months and six months ended June 30, 1999, the Company
incurred losses of $31.3 million and $58.3 million, respectively, compared to
losses of $5.4 million and $8.4 million during the same periods in 1998.
Included in the losses incurred during the three and six months ended June 30,
1999 are the operating results of EnerTel, IIC and ICX, including amortization
of the purchased intangibles and recording of financing costs related to the
Company's acquisition of EnerTel, as well as general expenses related to the
Company's worldwide business development and financing activities. The operating
results for ICX and IIC did not have a material impact on the losses incurred by
the Company in 1999. To address and remedy historical operating losses and to
increase its competitiveness, revenues and gross margins, the Company has taken
various steps to improve each subsidiary's operating efficiency, network
capability and carrier cost structure. The Company believes these cost-reduction
and revenue-enhancing initiatives will have a positive impact on the Company's
future operating results. However, as its business remains in the early growth
stage, the Company anticipates that it will continue to incur operating losses
and cash flow deficiencies for the near future.
Revenues
Revenues for the three and six months ended June 30, 1999 were $24.5
million and $42.8 million, respectively, compared to $1.7 million and $2.7
million for the three and six months ended June 30, 1998. The increase in
revenues is primarily attributed to the inclusion of the results of operations
of EnerTel, acquired in June 1998. EnerTel's revenues were $15.9 million and
$30.3 million, respectively, during the three and six months ended June 30,
1999. Also contributing to the increase over the prior year is the inclusion of
IIC acquired in July 1998. This entity contributed approximately $1.8 million
and $3.7 million in total revenues during the three and six months ended June
30, 1999. Results for the three and six months ended June 30, 1999 also include
revenue of $2.1 million from the sale of transmission capacity under an
agreement between the Company 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 six months of 1999 included growth
in all EnerTel product lines including virtual point of presence (VPOP) internet
access; direct access local, national and international switched services; and
800/900 products as well as the wholesale portion of the Bel 1600 business, a
residential services business which the Company sold in 1998.
Gross Margin
Gross margin for the three and six months ended June 30, 1999 was $5.9
million and $12.1 million, respectively, compared to $99,000 and $156,000 for
the three and six months ended June 30, 1998. The increase in gross margin was
primarily due to the inclusion of the results of operations of EnerTel and IIC.
The Company'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. In addition, $2.5 million of costs
were recorded during the second quarter associated with the sale of transmission
capacity under an agreement between the Company and a telecommunication carrier.
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<PAGE> 14
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $13.0 million
from $4.0 million and to $25.6 million from $6.3 million for the three and six
months ended June 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, and IIC, (ii) increased business
development and expansion activity, and (iii) growth in the Company's U.S.
operations, marketing and corporate staff.
Depreciation and Amortization
Depreciation and amortization expense for the three and six months ended
June 30, 1999 was $5.8 million and $11.0 million, respectively, compared to $0.9
million and $1.5 million for the three and six months ended June 30, 1998. The
increase was due to (i) depreciation on the assets acquired in connection with
the EnerTel and IIC acquisitions, (ii) amortization of goodwill and other
intangible assets associated with the EnerTel and IIC acquisitions, and (iii)
depreciation on additional switching and network equipment acquired during 1998
and 1999.
Other Income (Expense)
Interest expense, net increased to $18.9 million from $665,000 and to $34.5
million from $841,000 for the three and six months ended June 30, 1999 and 1998,
respectively. The increase in interest expense is due primarily to the Interim
Loan, which accounted for $16.9 million and $31.9 million of interest expense
during the three and six months ended June 30, 1999, respectively. Interest
expense also included interest for (i) the debt the Company assumed in
connection with the EnerTel and IIC acquisitions, and (ii) the acquisition of
switching equipment subject to capital lease.
Other expense, net for the three and six months ended June 30, 1999 was
$176,000 and $1.1 million, respectively, compared to $0 for the three and six
months ended June 30, 1998. This amount represents the costs incurred to exit
certain commitments and relationships which are no longer considered in line
with the Company's core strategy.
LIQUIDITY AND CAPITAL RESOURCES
The Company is an emerging international telecommunications service
provider executing a global business plan that requires substantial capital. The
Company currently has a working capital deficit and has operated at a loss since
its inception. Funding of the working capital deficit, current and future
operating losses, expansion of the Company's global network, and repayment of
the Interim Loan facility will require substantial continuing capital
investment.
As of June 30, 1999 and December 31, 1998 the Company had a working capital
deficit of $166.1 million and $103.8 million, respectively. The working capital
deficit at June 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 the Company.
Operations used $18.2 million during the six months ended June 30, 1999 due
primarily to the (i) operating losses, and (ii) increased business development
and expansion activity.
Investing activities used $16.2 million during the six months ended June
30, 1999. Investing activities during the six-month period consisted entirely of
capital spending.
Financing activities provided $30.6 million during the six months ended
June 30, 1999. Financing activities during the six months ended June 30, 1999
consisted primarily of proceeds from the issuance of 920,419 shares of the
Series C convertible preferred stock in January 1999 and the exercise of
employee stock options, reduced by principal payments on capital leases and
notes payable.
To finance the EnerTel acquisition, the Company entered into a $120 million
Interim Loan facility with a consortium of lenders effective June 23, 1998, the
terms of which also included the issuance of warrants. The
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<PAGE> 15
Interim Loan, which originally matured on June 23, 1999 and has been extended
until August 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. The Interim Loan bears interest at LIBOR (as defined in
the credit agreement related to the Interim Loan) plus 6% per annum (13.0% at
June 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
June 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
June 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 June 30, 1999, the warrants were valued at an
aggregate of $26.1 million.
Funding of the Company's working capital deficit, current and future
operating losses and execution of its global growth plans will require
substantial continuing capital investment. The Company's strategy is to fund
these cash requirements through debt facilities and additional equity financing.
In addition, the Company currently has approximately $52 million in equipment
lease facilities.
The Company's Interim Loan facility, which matures on August 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. The Company is currently pursuing several alternatives for
repaying the Interim Loan, but to date it does not have such an arrangement in
place, nor any definitive arrangement to further extend the due date thereof. 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 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.
In addition, an element of the Company's business strategy includes the
identification and pursuit of strategic acquisitions. The recent decline in the
market price of the Company's common stock may have an adverse effect on the
Company's ability to engage in any such strategic acquisition, thereby adversely
affecting the implementation of the Company's business strategy. The Company
currently does not have any agreements, understandings or arrangements with
respect to any such strategic acquisitions.
YEAR 2000 ISSUE
The efficient operation of the Company's business is dependent in part on
computer software programs and operating systems. These programs and systems are
used in network trafficking, call origination and termination, pricing, sales,
billing and financial reporting, as well as various administrative functions.
Recognizing the importance and need for an integrated information systems
solution, the Company has developed an implementation plan for upgrading its
systems architecture. This plan also addresses the functionality of its systems
beyond December 31, 1999 ("Year 2000 compliance"). Typically the Company's
upgrades made for additional functionality also remedy any Year 2000
deficiencies in the related software. However, the Company does not consider the
cost of such upgrades to be year 2000 related, as it has not accelerated any
upgrades to remedy a Year 2000 deficiency.
The Company does not anticipate additional material expenditures for Year
2000 compliance issues. As WorldPort is a relatively new company, commencing
operations in late 1997, Year 2000 compliance has been
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<PAGE> 16
a requirement in all system related procurement. In circumstances where acquired
subsidiaries' systems are not compliant, remediation via upgrades or system
change-out is on-going. The Company's new systems implementation is expected to
be completed by September 30, 1999. Management believes that the Company's
remaining information technology ("IT") systems and other non IT systems are
either Year 2000 compliant or will be compliant by September 30, 1999 after
applying vendor supplied upgrades to these systems. The cost of the upgrades are
not considered to be material.
The Company is in the process of obtaining documentation from its
suppliers, customers, financial institutions and others as to the status of
their Year 2000 compliance programs and the possibility of any interface
difficulties relating to Year 2000 compliance that may affect the Company. While
few significant concerns were identified, each has been addressed with a program
of remediation. All programs are targeted for completion by September 1, 1999.
However, Year 2000-related operating problems or expenses may arise in
connection with the Company's computer systems and software or in connection
with the Company's interface with the computer systems and software of its
suppliers, customers, financial institutions and others. Because such
third-party systems or software may not be Year 2000 compliant, the Company is
in the process of developing contingency plans to address Year 2000 failures of
the entities with which it interfaces. The Company could be required to incur
unanticipated expenses to remedy any problems, which could have a material
adverse effect on its business, results of operation and financial conditions.
The Company's worst case scenario does not contemplate a major business
disruption from internal systems. The Company believes that it has exercised
reasonable diligence to assess whether external systems and interfaces are
adequately prepared.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, which is
effective for fiscal years beginning after June 15, 1999. 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. The Company has not yet determined the impact this statement will
have on its consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its exposure to market rate fluctuations on its
investments is nominal due to the short-term nature of those investments. To the
extent the Interim Loan is outstanding, the Company has market risk relating to
such amounts because the interest rates under the Interim Loan are variable. The
Company does not believe its exposure represents a material risk to the
financial statements.
WorldPort's operations in Europe, principally in the Netherlands, expose
the Company to currency exchange rates risks. To manage the volatility
attributable to these exposures, the Company nets the exposures to take
advantage of natural offsets. Currently, the Company does not enter into any
hedging arrangements to reduce this exposure. The Company is not aware of any
facts or circumstances that would significantly impact such exposures in the
near-term. If, however, there was a 10% sustained decline of the Dutch Gilder
versus the U.S. dollar, then the consolidated financial statements could be
materially effected as the Company's Dutch operations represented approximately
(i) 71% of the Company's total assets as of June 30, 1999, (ii) 65% and 71%,
respectively, of the Company's total revenues for the three and six months ended
June 30, 1999, and (iii) 65% and 67%, respectively, of the Company's net loss
for the three and six months ended June 30, 1999.
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<PAGE> 17
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 17, 1998, the Company was served with a summons and complaint from
MC Liquidating Corporation f/k/a MIDCOM Communications, Inc. ("MIDCOM"). Both
the Company and TNC, its wholly-owned subsidiary are named as defendants, as are
Telenational Communications, Limited Partnership, the former owner of the TNC
assets ("TCLP"), and Edmund Blankenau, a principal of TCLP and one of the
Company's former directors. In its complaint, filed on April 8, 1998 in the U.S.
Bankruptcy Court for the Eastern District of Michigan, Southern Division, MIDCOM
seeks payment of over $600,000 for services allegedly provided to TCLP and the
Company, together with other damages, attorney fees and costs. The parties are
currently engaging in discovery. The Company believes the claims are without
merit and intends to vigorously defend against them.
The Company and WorldPort Communications Europe, B.V., one of the Company's
European subsidiaries ("WorldPort Europe"), are defendants in litigation filed
in the Sub-District and District courts of The Hague, located in Rotterdam,
Netherlands. The cases, filed in January, 1999, by Mr. Bahman Zolfagharpour,
allege that the Company breached agreements with Mr. Zolfagharpour in connection
with its purchase of MathComp B.V. (now WorldPort Europe) from Mr. Zolfagharpour
and its subsequent purchase of EnerTel. The litigation seeks damages in an
amount exceeding $20 million and the award of 2,500,000 shares of the Company's
common stock to Mr. Zolfagharpour. The Company believes that the litigation is
wholly without merit and intends to defend the case vigorously. Earlier claims
filed by Mr. Zolfagharpour with respect to his employment agreement with
WorldPort Europe have been resolved.
From time to time, the Company is involved in various other lawsuits or
claims arising from the normal course of business. In the opinion of management,
none of these lawsuits or claims will have a material adverse effect on the
Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES
During the second quarter of 1999, the Company made the following issuances
of securities without registration under the Securities Exchange Act of 1933, as
amended ("Securities Act"). All such issuances were made to "accredited
investors" as defined in the Securities Act and its regulations and were exempt
from registration under Section 4(2) of the Securities Act:
In December 1998, the Company entered into a Series C Preferred Stock
Purchase Agreement (the "Series C Purchase Agreement") with The Heico
Companies, LLC ("Heico"), pursuant to which Heico acquired 1,132,824 shares
of Series C convertible preferred stock for an aggregate purchase price of
$40.0 million ($32.5 million was received for 920,419 shares in January
1999). Pursuant to the Series C Purchase Agreement, Heico also received an
option to purchase up to 283,206 additional shares of Series C convertible
preferred stock (the "Series C Option") for an aggregate purchase price of
$10 million.
On July 15, 1999, Heico completed an additional $15.0 million equity
investment in the Company through (i) the exercise the Series C Option and
(ii) the purchase of 141,603 shares of Series E convertible preferred stock
for an aggregate purchase price of $5.0 million. In connection with this
investment, the Company granted Heico a three-year option to purchase
424,809 shares of Series F convertible preferred stock for an aggregate
purchase price of $15.0 million.
At Heico's option, it may convert these shares of preferred stock into
Common Stock at a conversion price of, in the case of the Series C
convertible preferred stock and the Series E convertible preferred stock,
$3.25 per share of Common Stock and, in the case of the Series F
convertible preferred stock, $4.00 per share of Common Stock.
On December 31, 1998, the Company terminated its advisory agreement
with Maroon Bells Capital Partners, Inc. ("MBCP"). In connection with this
termination, among other things, the Company agreed
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<PAGE> 18
to issue to MBCP shares of convertible preferred stock having an aggregate
liquidation preference of $1,029,994 and convertible into Common Stock at
$3.25 per share. In July 1999, 316,921 shares of Series D convertible
preferred stock were issued to MBCP in satisfaction of this agreement.
During the quarter, various holders of Series A and Series B Preferred
Stock converted their shares into 0.4 million and 2.6 million shares,
respectively, of Common Stock in accordance with the terms of the related
certificate of designations, preferences and rights.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C> <C>
10.1 -- Employment Agreement between Carl Grivner and the Company
dated June 25, 1999*
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
* Such exhibit is a management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Quarterly Report on Form 10-Q.
REPORTS ON FORM 8-K
No Current Reports on Form 8-K were filed during the period covered by this
Report.
16
<PAGE> 19
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDPORT COMMUNICATIONS, INC.
By: /s/ JOHN HANSON
------------------------------------
John Hanson
Chief Financial Officer
Date: August 16, 1999
17
<PAGE> 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 25th day of June 1999, by and
between WorldPort Communications, Inc., a Delaware corporation (the "Company")
and Carl Grivner (the "Executive").
WHEREAS, the Executive desires to be an employee of the Company, and
the Company desires to secure the services of the Executive for the period and
upon the terms and conditions hereinafter set forth, and the Executive is
willing to accept his employment with the Company upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and promises
contained herein, the parties agree as follows:
1. EMPLOYMENT AND DUTIES. The Company hereby agrees to employ
the Executive and the Executive hereby accepts such employment, on the terms
and conditions hereinafter set forth, effective as of the Starting Date (as
defined below). The Executive shall serve as Chief Executive Officer of the
Company, and in such additional capacities as may reasonably be assigned from
time to time by the Board of Directors of the Company, and shall perform all
duties incident to such position and such additional capacities as may be given
to him from time to time by the Board of Directors of the Company. In his
capacity as Chief Executive Officer, the Executive shall have the duties
assigned to the President pursuant to the Company's Bylaws and shall report
directly to the Board of Directors of the Company. The Executive shall devote
substantially all of his working time, efforts and skill to the fulfillment of
his employment duties hereunder. In connection with the Executive's employment
by the Company, the Executive shall be based in the Chicago, Illinois area
except for required travel on Company business and except as otherwise agreed
between the Executive and the Company.
2. TERM. Subject to the provisions for termination as
hereinafter set forth, this Agreement shall be in effect for a period of three
(3) years (the "Term") from a starting date which is mutually acceptable to the
Company and the Executive but which in no case is later than June 21, 1999 (the
"Starting Date"); provided, however, that the Term shall automatically be
extended on a day by day basis effective on and after the second anniversary of
the Starting Date (so that it shall always then have a one year term) until
such date as either the Company or the Executive shall have terminated such
automatic extension provisions by giving written notice to the other.
3. COMPENSATION. In full consideration for the services rendered
by the Executive hereunder, the Company shall provide to the Executive:
(a) An annual base salary equal to five hundred
thousand dollars ($500,000), payable in accordance with the
Company's customary payroll practices. The base salary shall
be reviewed annually as of the end of each calendar year
during the Term by the Compensation Committee of the
Company's Board of Directors (the "Committee"). Each annual
review shall be completed within 60 days after the last day
of the year. Based upon such reviews, the Committee may
<PAGE> 2
increase, but shall not decrease, the base salary.
(b) An annual cash bonus, the amount of which
shall be determined and paid at the discretion of the Board
of Directors of the Company in light of the Company meeting
business plan targets established by the Board of Directors;
provided, however, that in no event shall such annual cash
bonus be less than three hundred fifty thousand dollars
($350,000) per year; $100,000 of which during the first year
shall be payable within 30 days after Executive's permanent
residence relocation to the Chicago, Illinois area.
4. STOCK OPTIONS. On or promptly following the Starting Date, the
Company shall issue to the Executive options to acquire an aggregate of 825,000
shares of the Company's common stock, par value $.0001 per share. The options
shall be subject to the provisions set forth on Exhibit A attached hereto.
5. ADDITIONAL BENEFITS. The Executive shall be entitled to
participate in all benefit programs as are from time to time established and
maintained for the benefit of the Company's employees generally, subject to the
provisions of such plans and programs. Notwithstanding anything in the
foregoing sentence to the contrary, the Executive shall be entitled to at least
four (4) weeks of vacation each year during the Term. In addition, the
Executive shall be entitled to such perquisites of employment as are generally
provided to senior executives of the Company, subject to the discretion of the
Board of Directors of the Company. The Company shall reimburse the Executive
for reasonable business expenses incurred by the Executive in the performance
of his duties under this Agreement, including expenses for entertainment,
travel and similar items, upon presentation by the Executive from time to time
of an itemized account of such expenditures and compliance by the Executive
with any Company policies regarding such expenses.
6. NON-DISCLOSURE. Except as may be required by law, the
Executive will not at any time after the date of this Agreement, divulge,
furnish or make accessible, or otherwise transfer to anyone (other than in the
regular course of business of the Company) who is not an employee of the
Company, without the consent of the Board of Directors of the Company, any
knowledge or information which has not been publicly disclosed by the Company
or otherwise is not generally known to other persons engaged in businesses
similar to that conducted by the Company ("Confidential Information"), with
respect to any (i) confidential or secret processes, improvements, plans,
material, devices or ideas or other know-how, whether patentable or not, (ii)
confidential or secret engineering, development or research work, (iii)
financial, economic and pricing information, or (iv) other confidential or
secret aspects of the Company's business (including, without limitation,
information relating to operating methods or processes, marketing or business
plans, sales techniques, service records, customer lists, supplier lists and
pricing arrangements with customers or suppliers). The provisions of this
Section 6 shall survive the termination of this Agreement.
7. REMEDIES. The Executive acknowledges that irreparable damage
would result to the Company if the provisions of Section 6 were breached by the
Executive, and the Company would not have an adequate remedy at law for such a
breach or threatened breach. In the event of such a breach or threatened
breach, the Executive agrees that the Company, may, notwithstanding anything to
the contrary herein contained, and in addition to the other remedies which may
be available to it, enjoin the Executive, together with all those persons
associated with him, from the
2
<PAGE> 3
breach or threatened breach of such covenants.
8. TERMINATION OF AGREEMENT. The Company and the Executive
hereby agree that:
(a) The Company may at any time terminate this
Agreement for Cause. For purposes hereof, Cause shall mean
(i) aiding or abetting a competitor; (ii) that the Executive
has been convicted of a felony involving theft or moral
turpitude, or (iii) that the Executive has engaged in conduct
that constitutes willful gross neglect or willful gross
misconduct with respect to employment duties, resulting in
the case of (ii) or (iii) in material economic harm to the
Company. Notwithstanding the foregoing, the Company may not
terminate the Executive's employment for Cause unless (i) a
determination that Cause exists is made and approved by a
majority of the Company's Board of Directors, (ii) the
Executive is given at least ten (10) days' written notice of
the Board meeting called to make such determination, and
(iii) the Executive and his legal counsel are given the
opportunity to address such meeting. Upon termination of this
Agreement pursuant to this Section 8(a), all unvested stock
options received by the Executive (whether pursuant to this
Agreement or otherwise) shall automatically terminate and be
cancelled and the Company shall have no further obligations
to the Executive under this Agreement.
(b) This Agreement shall automatically terminate
upon the Executive's death. If the Company determines in good
faith that the Disability of the Executive has occurred
(pursuant to the definition of "Disability" set forth below),
it may give to the Executive written notice of its intention
to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate
effective upon receipt by the Executive of such notice given
at any time after a period of one hundred twenty (120)
consecutive days of Disability ("Disability Effective Date").
For purposes of this Agreement, "Disability" means the
Executive's inability to substantially perform his duties
hereunder, with reasonable accommodation, as evidenced by a
certificate signed either by a physician mutually acceptable
to the Company and the Executive or if the Company and the
Executive cannot agree upon a physician, by a physician
selected by the Company. Until the Disability Effective Date,
the Executive shall be entitled to all compensation and
benefits provided for under Sections 3 through 5 hereof. In
addition, the Executive or his estate (as applicable) shall
be entitled to the disability benefits or death benefits
available to other senior executives of the Company. Upon the
termination of this Agreement pursuant to this Section 8(b),
the stock options granted to the Executive pursuant to
Section 4 above shall, to the extent the closing price for
the Common Stock has achieved the levels required by Exhibit
A, but notwithstanding the anniversary-based vesting
provisions set forth in Exhibit A, automatically vest on a
pro rata basis as if all such options were to have vested
equally over the Term on a monthly basis at the end of each
full month of the Executive's employment hereunder. No
options shall vest until the closing price for the Common
Stock has achieved the levels required by Exhibit A, if any.
(c) (i) During the Term, the Executive's employment
hereunder may be terminated by the Company without Cause or
by the Executive for Good Reason.
3
<PAGE> 4
For purposes of this Agreement, "Good Reason" shall mean (1)
the assignment to the Executive of any duties inconsistent in
any material respect with the Executive's position (including
status, offices, titles and reporting relationships),
authority, duties or responsibilities as contemplated by
Section 1 of this Agreement, or any other action by the
Company which results in a significant diminution in such
position, authority, duties or responsibilities, excluding
any isolated and inadvertent action not taken in bad faith
and which is remedied by the company within ten (10) days
after receipt of a notice thereof given by the Executive; (2)
any failure by the Company to comply with any of the
provisions of Sections 3 through 5 of this Agreement other
than an isolated and inadvertent failure not taken in bad
faith and which is remedied by the Company within ten (10)
days after receipt of notice thereof given by the Executive;
(3) the Executive being required to relocate to a principal
place of employment more than seventy-five (75) miles from
Chicago, Illinois; (4) failure by the company to obtain the
assumption in writing of its obligations under this Agreement
by any successor to all or substantially all of the assets of
the Company within 15 calendar days after the closing of such
transaction; or (5) any purported termination by the Company
of the Executive's employment otherwise than as expressly
permitted by this Agreement.
(ii) during the Term, the Executive's employment
may be terminated by the Executive within ninety (90) days
immediately following a Change in Control if the Executive
determines in his sole discretion that he can no longer
effectively perform the duties of his position. For purposes
of the foregoing sentence, a "Change in Control" will be
deemed to have occurred: (a) when any person (as that term is
used in Section 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended, but excluding any employee benefit
plan of the Company, or any person organized, appointed or
established by the Company for or pursuant to the terms of
any such plan), other than The Heico Companies LLC or any
strategic investor with whom the Company has had or is
currently having discussions regarding an investment in or
purchase of or merger with the Company, or any affiliate
thereof, has acquired, (including any increase in percentage
ownership due to conversions of outstanding stock) either
directly or indirectly, beneficial ownership of securities
representing thirty-five percent (35%) or more of the total
votes that could be cast by the holders of all of the
Company's outstanding securities entitled to vote in
elections of members of the Company's Board (the "Voting
Stock"); (b) if, during any period of two consecutive years
(not including any period prior to the Starting Date),
individuals who at the beginning of such period constitute
the Board (and any new Board member, whose election by the
Board or nomination for election by the Company's
stockholders was approved by a vote of a majority of the
Board members then still in office who either were Board
members at the beginning of the period of whose election or
nomination for election was so approved), cease for any
reason to constitute a majority of the Board members then
constituting the Board; (c) when a reorganization, merger or
consolidation of the Company is consummated, in each case,
unless, immediately following such reorganization, merger or
consolidation, (A) more than 60% of, respectively, the then
outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation
and the combined voting power of the then outstanding
4
<PAGE> 5
voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of
the individuals and entities who were the beneficial owners
of the Voting Stock outstanding immediately prior to such
reorganization, merger or consolidation, and (B) at least
one-half of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Board at the time of the
execution of the initial agreement providing for such
reorganization, merger or consolidation; (d) when the
shareholders of the Company approve (or if shareholder
approval is not necessary, upon the consummation of) (A) a
complete liquidation or dissolution of the Company, or (B)
the sale or other disposition of all or substantially all of
the assets of the Company, other than to any corporation with
respect to which, immediately following such sale or other
disposition, (1) a majority of, the then outstanding shares
of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly,
by all or substantially all of the individuals and entities
who were the beneficial owners of the Voting Stock
outstanding immediately prior to such sale or other
disposition of assets, and (2) at least one-half of the
members of the board of directors of such corporation were
members of the Board at the time of the execution of the
initial agreement or action of the Board providing for such
sale or other disposition of assets of the Company.
(iii) If the Executive's employment is terminated
pursuant to clause (i) of this Section 8(c), the Company
shall pay the Executive a lump sum in cash within thirty (30)
days after the date of termination, equal to the aggregate of
the following amounts: (1) the Executive's base salary, as of
the date of termination, through the end of the Term
(determined without regard to the termination thereof
pursuant to Section 8), (2) the guaranteed bonus for the year
in which the date of termination occurs, or, if greater, the
Executive's most recent annual bonus, multiplied by the
number of years (including daily proration for any partial
year) between the January 1 of the year in which the
termination occurs and the end of the Term (determined
without regard to the termination thereof pursuant to Section
8); and (3) those other obligations and benefits accrued or
earned (including any earned but unpaid bonuses) by the
Executive as of the date of termination. In addition, all
stock options granted to the Executive pursuant to Section 4
above shall, to the extent the closing price for the Common
Stock has achieved the levels required by Exhibit A, but
notwithstanding the anniversary-based vesting provisions set
forth in Exhibit A, vest in full. No options shall vest until
the closing price for the Common Stock has achieved the
levels required by Exhibit A, if any.
(iv) If the Executive's employment is terminated
pursuant to clause (ii) of this Section 8(c), the Company
shall pay the Executive a lump sum in cash within thirty (30)
days after the date of termination, equal to the aggregate of
the following amounts: (1) the Executive's base salary, as of
the date of termination, for the lesser of (x) one-year
period and (y) the balance of the Term (determined without
regard to the termination thereof pursuant to Section 8), (2)
the guaranteed bonus for the year in which the date of
termination occurs, and (3) those other obligations and
benefits
5
<PAGE> 6
accrued or earned (including any earned but unpaid bonuses)
by the Executive as of the date of termination. In addition,
all stock options granted to the Executive pursuant to
Section 4 above shall, to the extent the closing price for
the Common Stock has achieved the levels required by Exhibit
A, but notwithstanding the anniversary-based vesting
provisions set forth in Exhibit A, vest in full. No options
shall vest until the closing price for the Common Stock has
achieved the levels required by Exhibit A, if any.
(d) In the event of the termination by the
Executive of this Agreement for any reason (except as
otherwise provided in Section 8(c) above) all unvested stock
options received by the Executive (whether pursuant to this
Agreement or otherwise) shall automatically terminate and be
cancelled and the Company shall have no further obligations
to the Executive under this Agreement.
(e) Upon termination of this Agreement, or
earlier if requested by Company, the Executive or his
personal representative shall promptly deliver to the
Company, without retaining any copies, all books, memoranda,
plans, records and written data of every kind pertaining to
confidential information of the Company which are then in his
possession. Executive shall also promptly deliver to the
Company all of the Company's equipment or supplies which are
in his possession.
9. GOLDEN PARACHUTE EXCISE TAX.
(a) In the event that the Executive becomes
entitled to any payments or benefits (whether pursuant to the
terms of this Agreement or any other plan, program,
arrangement or agreement with the Company) (collectively, the
"Payments") that will be subject to the tax (the "Excise
Tax") imposed on "excess parachute payments" by Section 4999
of the Code, the Company shall pay the Executive, at least 30
days prior to the time payment of any such Excise Tax is due,
an additional amount (the "Gross-Up Payment") such that the
net amount retained by the Executive, after deduction of any
Excise Tax and any federal and state and local income tax
imposed on the Gross-Up Payment, shall be equal to the Excise
Tax imposed on the Payments. For purposes of determining
whether any of the Payments will be subject to the Excise Tax
and the amount of such Excise Tax, (A) the Payments shall be
treated as "parachute payments" within the meaning of Section
280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of Section 280G(b)(1) of the Code shall be
treated as subject to the Excise Tax to the extent
recommended by tax counsel selected by the Company's
independent auditors, (B) the amount of the Payments which
shall be treated as subject to the Excise Tax shall be equal
to the lesser of (i) the total amount of the Payments or (ii)
the amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (A) above), and (C)
the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent
auditors in accordance with the principles of Section
280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be
deemed to pay federal income taxes at the highest marginal
rate of federal income taxation applicable to the Executive's
6
<PAGE> 7
taxable income in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the
highest marginal rate of taxation applicable to the
Executive's taxable income in the state and locality of the
Executive's residence on the date of termination, net of the
maximum reduction in federal income taxes which could be
obtained from deduction of such sate and local taxes. The
Executive shall notify the Company of any audit or review by
the Internal Revenue Service of the Executive's federal
income tax return for the year in which payment under this
Agreement is made within ten (10) days of the Executive's
receipt of notification of such audit or review. In addition,
the Executive shall also notify the Company of the final
resolution of such audit or review within ten (10) days of
such resolution.
10. ASSIGNMENT. This Agreement is personal in nature and may not
be assigned by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's heirs and legal representatives. This Agreement shall be
binding upon and inure to the benefit of the Company and its successors and
assigns. The Company shall require any successor (whether direct or indirect,
by purchase, merger, reorganization, consolidation, acquisition or property or
stock, liquidation, or otherwise) to all or substantially all of its assets, by
agreement in form and substance reasonably satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform this Agreement
if no such succession had taken place. As used in this Agreement, the term
"Company" shall include any successor to the Company's business and/or assets
as aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. NOTICE. All notices, requests, demands and other
communications given by any party hereto shall be in writing and shall be
deemed to be duly given if (i) personally delivered, (ii) mailed first class,
return receipt requested, (iii) sent via reputable overnight courier, or (iv)
transmitted via facsimile with confirmation of receipt, all addressed as
follows:
To the Company:
WorldPort Communications, Inc.
1825 Barrett Lakes Blvd.
Kennesaw, Georgia 30144
Facsimile: 770-792-0676
Attention: Chairman of the Board
To the Executive:
Mr. Carl Grivner
WorldPort Communications, Inc.
1825 Barrett Lakes Blvd.
Kennesaw, Georgia 30144
Facsimile: 770-792-0676
12. ENTIRE AGREEMENT. This instrument supersedes all prior
understandings and
7
<PAGE> 8
agreements of the parties hereto and contains the entire agreement of the
parties and may not be amended or changed, except by an agreement in writing
entered into by all parties hereto.
13. ARBITRATION. Any dispute or controversy between the Company
and the Executive, whether arising out of or relating to this Agreement, the
breach of this Agreement, or otherwise, shall be settled by arbitration
administered by the American Arbitration Association ("AAA") in accordance with
its Commercial Arbitration Rules then in effect and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Any arbitration shall be held before a single arbitrator who shall be
selected by the mutual agreement of the Company and the Executive, unless the
parties are unable to agree to an arbitrator, in which case, the arbitrator
will be selected under the procedures of the AAA. The arbitrator shall have the
authority to award any remedy or relief that a court of competent jurisdiction
could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this
arbitration provision, apply to any court having jurisdiction over such dispute
or controversy and seek interim provisional, injunctive or other equitable
relief until the arbitration award is rendered or the controversy is otherwise
resolved. Except as necessary in court proceedings to enforce this arbitration
provision or an award rendered hereunder, or to obtain interim relief, neither
a party nor an arbitrator may disclose the existence, content or results of any
arbitration hereunder without the prior written consent of the Company and the
Executive. The Company and the Executive acknowledge that this Agreement
evidences a transaction involving interstate commerce. Notwithstanding any
choice of law provision included in this Agreement, the United States Federal
Arbitration Act shall govern the interpretation and enforcement of this
arbitration provision. The arbitration proceeding shall be conducted in
Chicago, Illinois or such other location to which the parties may agree.
14. INDEMNIFICATION. The Company shall use its best efforts to
maintain, for the benefit of the Executive, director and officer liability
insurance in form at least as comprehensive as, and in an amount that is at
least equal to, that maintained by the Company on the Starting Date. In
addition, the Executive shall be indemnified by the Company against liability
as an officer and director of the Company and any subsidiary or affiliate of
the Company to the maximum extent permitted by applicable law. The Executive's
rights under this Section 14 shall continue so long as he may be subject to
such liability, whether or not this Agreement may have terminated prior
thereto.
15. SEVERABILITY. Each provision of this Agreement is intended to
be severable. In the event that any one or more of the provisions contained in
this Agreement shall for any reason be adjudicated to be invalid or
unenforceable in any competent jurisdiction, the same shall not affect the
validity and enforceability of any other provisions of this Agreement, but this
Agreement shall be construed in such jurisdiction as if such invalid or
unenforceable provision had never been contained therein.
16. APPLICABLE LAW. The Agreement shall be governed by, and
construed in accordance with, the law of the State of Illinois.
17. NON-WAIVER. Any party's failure to insist upon strict
compliance with any provision hereof shall not be deemed to be a waiver of such
provision or any other provision hereof.
8
<PAGE> 9
18. COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
* * *
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have duly executed, or caused
this Agreement to be duly executed, as of the date first above written.
WORLDPORT COMMUNICATIONS, INC.
/s/ Carl Grivner By:
- ----------------------------- ----------------------------------
Carl Grivner Name:
----------------------------------
Title:
----------------------------------
10
<PAGE> 11
EXHIBIT A
TERMS OF STOCK OPTIONS
Options to acquire an aggregate of 825,000 shares of WorldPort Communications,
Inc. common stock (the "Common Stock") shall be issued to the Executive
pursuant to Section 4 hereof. All options shall be non-qualified options and
shall be issued at 85% of the closing price for the Company's Common Stock on
May 28, 1999 as reported on the Nasdaq SmallCap. Market System.
The options will be granted in four separate tranches as follows:
(1) 300,000 shares. Vest as follows: (i) 17,187 on the first day of each month
beginning on July 1, 1999 for six months, (ii) 103,128 on the first anniversary
of grant date and (iii) 93,750 on second anniversary of grant date, provided
that the Executive is employed by the Company on such dates.
(2) 180,000 shares. Vest as follows (i) 112,500 on second anniversary of grant
date and (ii) 67,500 on third anniversary of grant date, provided that the
Executive is employed by the Company on such dates, and provided, however, that
no options shall vest unless and until the closing price for the Common Stock
as reported on the Nasdaq SmallCap Market System has been equal to at least
$15.00 for a period of at least 30 consecutive trading days.
(3) 180,000 shares. Vest as follows (i) 138,750 on third anniversary of grant
date and (ii) 41,250 on fourth anniversary of grant date, provided that the
Executive is employed by the Company on such dates, and provided, however, that
no options shall vest unless and until the closing price for the Common Stock
as reported on the Nasdaq SmallCap Market System has been equal to at least
$20.00 for a period of at least 30 consecutive trading days.
(4) 165,000 shares. Vest on fourth anniversary of grant date, provided that the
Executive is employed by the Company on such date, provided, however, that no
options shall vest unless and until the closing price for the Common Stock as
reported on the Nasdaq SmallCap Market System has been equal to at least $25.00
for a period of at least 30 consecutive trading days.
The stock options to be issued hereunder shall be issued pursuant to the
WorldPort Communications, Inc. Amended and Restated Long-Term Incentive Plan
and will be subject to the terms thereof.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF WORLDPORT COMMUNICATIONS, INC. FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 4,916
<SECURITIES> 0
<RECEIVABLES> 12,937
<ALLOWANCES> 763
<INVENTORY> 0
<CURRENT-ASSETS> 22,029
<PP&E> 129,574
<DEPRECIATION> 13,843
<TOTAL-ASSETS> 216,922
<CURRENT-LIABILITIES> 188,123
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (32,157)
<TOTAL-LIABILITY-AND-EQUITY> 216,922
<SALES> 0
<TOTAL-REVENUES> 42,796
<CGS> 0
<TOTAL-COSTS> 30,736
<OTHER-EXPENSES> 25,623
<LOSS-PROVISION> 87
<INTEREST-EXPENSE> 34,524
<INCOME-PRETAX> (60,174)
<INCOME-TAX> 0
<INCOME-CONTINUING> (58,324)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,324)
<EPS-BASIC> (2.73)
<EPS-DILUTED> (2.73)
</TABLE>
