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Filed Pursuant to Rule 424(b)(3)
PROSPECTUS Registration No. 333-43497
[WORLD ACCESS, INC., LOGO]
$115,000,000
4.5% CONVERTIBLE SUBORDINATED NOTES DUE 2002
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
AND
2,545,642 SHARES OF COMMON STOCK
---------------------
This Prospectus relates to the resale from time to time by the holders (the
"Selling Securityholders") of (i) up to $115,000,000 aggregate principal amount
of 4.5% Convertible Subordinated Notes Due 2002 (the "Notes") of World Access,
Inc., a Delaware corporation (the "Company"), and of shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company issuable upon the
conversion thereof (the "Conversion Shares"); (ii) an aggregate of 1,816,302
shares of outstanding Common Stock (the "Restricted Shares"); and (iii) an
aggregate of 729,340 shares of Common Stock issuable upon exercise of certain
warrants and options (the "Warrants") held by directors of the Company (the
"Warrant Shares," and, together with the Restricted Shares, the "Shares").
The Notes are convertible at the option of the holder into shares of Common
Stock of the Company, at any time prior to maturity, unless previously redeemed
or repurchased, at a conversion price of $37.03125 per share (equivalent to a
conversion rate of 27.0 shares per $1,000 principal amount of Notes), subject to
adjustment in certain events. Interest on the Notes is payable semi-annually on
April 1 and October 1 of each year, commencing on April 1, 1998.
The Notes are not redeemable by the Company until October 1, 2000.
Thereafter, the Notes will be redeemable, at any time, on at least 15 days'
notice at the option of the Company, in whole or in part, at the redemption
prices set forth herein, plus accrued interest. Upon a Change of Control (as
defined), each holder of the Notes may require the Company to repurchase all or
a portion of such holder's Notes at 100% of the principal amount thereof,
together with accrued interest to the repurchase date. The Notes are unsecured
and subordinated in right of payment in full to all existing and future Senior
Indebtedness (as defined) of the Company. See "Description of the Notes."
The Notes were originally issued by the Company in private placements
effected on October 1, 1997 and October 28, 1997 to the Initial Purchasers (as
defined) and were simultaneously sold by the Initial Purchasers in transactions
exempt from registration under the Securities Act of 1933, as amended (the
"Securities Act"), in the United States to persons reasonably believed to be
"qualified institutional buyers" as defined in Rule 144A under the Securities
Act and outside of the United States in accordance with Regulation S under the
Securities Act.
The Selling Securityholders may offer Notes or Conversion Shares from time
to time to purchasers directly or through underwriters, dealers or agents. Such
Notes or Conversion Shares may be sold at market prices prevailing at the time
of sale or at negotiated prices. Each Selling Securityholder will be responsible
for payment of any and all commissions to brokers, which will be negotiated on
an individual basis.
The Notes have been designated for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") Market. The Common Stock is
listed on the National Association of Securities Dealers Automated Quotations
National Market ("Nasdaq") under the trading symbol "WAXS." On February 24,
1998, the last reported sale price of the Common Stock as reported on Nasdaq was
$23 7/8 per share. The Conversion Shares have been approved for quotation on
Nasdaq. For a description of certain federal income tax consequences to the
holders of the Notes, see "Certain Federal Income Tax Consequences."
The Restricted Shares were originally issued by the Company in private
placements in March 1997 and August 1997 in transactions exempt from the
registration requirements of the Securities Act. The Warrants were originally
issued by the Company in December 1994 and March 1997 pursuant to the Company's
Outside Directors' Warrant Plan and Directors Warrant Plan and are currently
exercisable. Holders of the Warrants will exercise such Warrants prior to the
sale of the underlying shares registered hereby.
The Company will not receive any of the proceeds from the sale of any Notes,
Conversion Shares or the Shares by the Selling Securityholders. Expenses of
preparing and filing the registration statement to which this Prospectus relates
and all post-effective amendments will be borne by the Company. See "Plan of
Distribution" for a description of the indemnification arrangements between the
Company and the Selling Securityholders.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES AND THE COMMON
STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY 25, 1998
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and is required to file
periodic reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661 and at Seven World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can also be
obtained from the Commission at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
Electronic filings made by the Company through the Commission's Electronic Data
Gathering, Analysis and Retrieval System are publicly available through the
Commission's web site (http://www.sec.gov). Copies of other materials concerning
the Company can be inspected at the offices of The Nasdaq Stock Market, 1735 K
Street, N.W., Washington, D.C. 20006.
This Prospectus is part of a Registration Statement on Form S-3 (together
with all amendments and exhibits thereto, the "Registration Statement") filed by
the Company with the Commission under the Securities Act with respect to the
securities offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus omits certain information contained in the
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such document
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission. Each such statement shall be deemed qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act and are hereby incorporated by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (File Number 0-19998);
2. Quarterly Report on Forms 10-Q for the quarterly periods ended
March 31, 1997, June 30, 1997 and September 30, 1997 (File Number 0-19998);
3. The Company's Current Report on Form 8-K filed April 10, 1997, as
amended by Amendment Number 1 on Form 8-K/A filed on June 9, 1997 (relating
to the acquisition of Cellular Infrastructure Supply, Inc.);
4. The Company's Current Report on Form 8-K filed on September 19,
1997 (relating to the proposed offering of the Notes);
5. The Company's Current Report on Form 8-K filed on October 8, 1997
(relating to the consummation of the offering of the Notes);
6. The Company's Current Report on Form 8-K filed on February 13, 1998
(relating to the acquisition of Advanced TechCom, Inc.);
7. The Company's Current Report on Form 8-K filed on February 20,
1998, as amended by Amendment No. 1 thereto on Form 8-K/A filed on February
25, 1998 (relating to the pending acquisition of majority stake in NACT
Telecommunications, Inc.);
8. The Company's Current Report on Form 8-K filed on February 20, 1998
(relating to the execution of a letter of intent with Cherry Communications
Incorporated); and
9. The description of the Common Stock in the Company's Registration
Statement on Form 8-A dated July 19, 1991.
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All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus
and prior to the termination of the offering of the Notes and Common Stock
offered hereby shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date any such document is filed.
Any statements contained in a document incorporated by reference in this
Prospectus shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained in this Prospectus (or in
any other subsequently filed document which also is incorporated by reference in
this Prospectus) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part of this
Prospectus except as so modified or superseded.
No person has been authorized in connection with the offering made hereby
to give any information or make any representation not contained in this
Prospectus and, if given or made, such information or representation must not be
relied upon as having been authorized by the Company or any other person. This
Prospectus does not constitute an offer to sell or solicitation of any offer to
buy any of the securities offered hereby in any jurisdiction in which it is
unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any date
subsequent to the date hereof.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated herein by reference (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference in such documents). Requests for such copies should be directed to
Mark A. Gergel, Chief Financial Officer, World Access, Inc., 945 E. Paces Ferry
Road, Suite 2240, Atlanta, Georgia 30326. Telephone inquiries may be directed to
Mr. Gergel at (404) 231-2025.
The Company claims trademark protection in the marks Compact Digital
Exchange(TM), Wireless Local Loop-2000(TM), WLL-2000(TM), Ultra-45(TM)and World
Access(TM). Other trademarks appearing herein are the property of their
respective owners.
FORWARD-LOOKING STATEMENTS
THE COMPANY MAY FROM TIME TO TIME MAKE WRITTEN OR ORAL FORWARD-LOOKING
STATEMENTS, INCLUDING STATEMENTS CONTAINED IN ITS FILINGS WITH THE COMMISSION
AND ITS REPORTS TO STOCKHOLDERS. THIS PROSPECTUS CONTAINS AND INCORPORATES BY
REFERENCE CERTAIN STATEMENTS, OTHER THAN THOSE CONCERNING HISTORICAL
INFORMATION, THAT SHOULD BE CONSIDERED FORWARD-LOOKING AND SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS ARE MADE BASED ON
MANAGEMENT'S BELIEF AS WELL AS ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY
AVAILABLE TO, MANAGEMENT PURSUANT TO "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE COMPANY'S ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THE RESULTS ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS DUE TO, AMONG OTHER THINGS, FACTORS SET FORTH IN THIS PROSPECTUS
UNDER THE HEADING "RISK FACTORS." THE COMPANY CAUTIONS THAT SUCH FACTORS ARE NOT
EXCLUSIVE. THE COMPANY DOES NOT UNDERTAKE TO UPDATE ANY FORWARD-LOOKING
STATEMENT THAT MAY BE MADE FROM TIME TO TIME BY, OR ON BEHALF OF, THE COMPANY.
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PROSPECTUS SUMMARY
The following information is qualified in its entirety by the more detailed
information in this Prospectus and in the documents incorporated by reference
herein. Except as otherwise indicated, references made to the "Company" shall
mean World Access, Inc. and its consolidated subsidiaries.
THE COMPANY
The Company develops, manufactures and markets wireline and wireless
switching, transport and access products primarily for the United States,
Caribbean Basin and Latin American telecommunications markets. The Company's
products allow telecommunications service providers to build and upgrade their
central office and outside plant networks in order to provide a wide array of
voice, data and video services to their business and residential customers. The
Company offers digital switches, cellular base stations, fixed wireless local
loop systems, intelligent multiplexers, digital loop carriers, microwave and
millimeterwave radio equipment and other telecommunications network products.
The products offered by the Company include those manufactured by the Company,
as well as those manufactured by other telecommunications equipment companies.
To support and complement its product sales, the Company also provides its
customers with a broad range of design, engineering, manufacturing, testing,
installation, repair and other value-added services.
The global telecommunications industry has undergone significant
transformation and growth in recent years due to domestic deregulation,
technological innovation and growth in international markets. In addition,
business and residential demand for voice, data and video telecommunications
services has increased the need for additional systems capacity and network
bandwidth to accommodate the provision of such services by telecommunications
providers. The Company believes that these market forces will intensify in the
foreseeable future and that an increased number of telecommunications service
providers, the availability of new services and strong international demand for
the deployment of basic telephone service will provide the Company with
extensive opportunities to sell its wireline and wireless switching, transport
and access products in the United States and in international markets.
The Company markets and sells its products and services to over 200
telecommunications service providers. Its customers include all of the Regional
Bell Operating Companies ("RBOCs"), including BellSouth, SBC Communications,
Bell Atlantic and NYNEX; other local exchange carriers such as Century
Telephone, Alltel and Puerto Rico Telephone; inter-exchange carriers such as
Sprint and Cable & Wireless; wireless service providers such as Cellular One,
Comcast Cellular and Price Cellular; and other service providers entering the
telecommunications industry such as competitive access providers, cable
television companies and private network operators.
From May 1995 to August 1997, the Company acquired five telecommunications
products businesses: AIT, Inc. ("AIT"), a full-service provider of Northern
Telecom switching systems, frames and related circuit boards; Westec
Communications, Inc. ("Westec"), a provider of microwave and millimeterwave
systems and services for voice, data and video applications; Sunrise Sierra,
Inc. ("Sunrise"), a developer and manufacturer of intelligent transport and
access products; Cellular Infrastructure Supply, Inc. ("CIS"), a provider of
equipment and related design, installation and technical support services to the
cellular and PCS markets; and Galaxy Personal Communications Services, Inc.
("Galaxy"), a provider of system design, implementation, optimization and other
value-added radio engineering and consulting services to PCS, cellular and other
wireless telecommunications service companies. These five acquisitions (the
"Acquisitions") broadened the Company's line of products, enhanced its product
development capabilities and strengthened its ability to provide complete
telecommunications network solutions to its customers.
The Company has realized significant improvements in its sales and
operating results since 1994 as a result of the Acquisitions and internal growth
initiatives. The Company's total sales increased by 97.2% in 1995 and 69.2% in
1996. Total sales for the first nine months of 1997 increased by 97.2% over the
first nine months of 1996. As the Company increased its product sales from 18.2%
of total sales in 1994 to 78.2% of total sales in the first nine months of 1997,
its gross profit margin increased from 12.9% in 1994 to 21.1% in 1995, 29.4% in
1996 and 35.0% in the first nine months of 1997. As a percentage of total sales,
the Company's
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operating income (loss) increased from (8.5%) in 1994 to 5.0% in 1995, 14.4% in
1996 and 21.8% in the first nine months of 1997.
In the second quarter of 1997, the Company began marketing two of its new
products for the international markets, the Compact Digital Exchange switch
("CDX") and the Wireless Local Loop-2000 system ("WLL-2000"). The CDX uses
proprietary technology to provide complete local, tandem and toll telephony
services, including custom calling features. The WLL-2000 is a low cost, fixed
wireless point-to-multipoint system that allows two way voice and data
transmission utilizing remote radio base stations and integrated antenna and
electronics units located at end-users' premises. Both of these new products
have been specifically designed to be compatible with international standards
and meet unique customer requirements such as flexible programming, modular
design, small physical size and tolerance of a wide range of environmental
conditions. The CDX and WLL-2000 for the first time provide the Company with an
integrated family of proprietary switching and wireless access products for the
international markets.
The Company's initial targeted market for these products is Latin America
and the Caribbean Basin, where the Company believes there is significant pent-up
demand for low cost, modular, next-generation technology products such as
compact modular digital central office switches and fixed wireless local loop
systems.
The Company's objective is to continue to broaden its offering of wireline
and wireless switching, transport and access products and expand its geographic
market coverage to become a preferred provider of telecommunications products
and related services. In order to achieve this objective, the Company plans to
continue its strategy of (i) acquiring switching, transport and access products
companies; (ii) developing proprietary products; (iii) pursuing opportunities to
license and manufacture telecommunications products; (iv) leveraging its
existing customer relationships and distribution base; (v) focusing on emerging
international markets; and (vi) leveraging the Company's manufacturing, test and
service capabilities.
The Company's principal executive offices are located at 945 East Paces
Ferry Road, Suite 2240, Atlanta, Georgia 30326. Its telephone number is (404)
231-2025.
RECENT DEVELOPMENTS
On December 31, 1997, the Company entered into a Stock Purchase Agreement
(the "Purchase Agreement") with GST Telecommunications, Inc., a federally
chartered Canadian corporation ("GST"), and GST USA, Inc., a Delaware
corporation ("GST USA"), pursuant to which the Company has agreed to purchase
(the "NACT Stock Purchase") from GST USA 5,113,712 shares of the common stock of
NACT Telecommunications, Inc. ("NACT") held by GST USA, representing
approximately 63% of the outstanding shares of NACT common stock, $.01 par value
per share (the "NACT Common Stock"). NACT is a Provo, Utah based provider of
advanced telecommunications switching platforms with integrated applications
software and network telemanagement capabilities. NACT's customers include
national and international long distance carriers, prepaid debit and prepaid
cellular network operators, international callback/reorigination providers and
other specialty telecommunications service providers. Pursuant to the Purchase
Agreement, the Company will (i) pay to GST USA cash in the amount of
$59,662,956, and (ii) deliver to GST USA 1,429,907 shares of Common Stock.
On February 24, 1998, the Company entered into a merger agreement with NACT
pursuant to which the Company agreed to acquire all of the shares of NACT Common
Stock not already owned by the Company or GST USA. Pursuant to the terms of the
merger agreement, each share of NACT Common Stock will be converted into shares
of Common Stock having a value of $17.50 per share based on the average of the
daily closing price of the Common Stock on The Nasdaq National Market on each of
the twenty consecutive trading days ending with the third day immediately
preceding the effective time of the merger (the "Closing Price"), provided that
if the Closing Price is more than $25.52, then each share of NACT Common Stock
will be converted into 0.6857 shares of Common Stock, and if the Closing Price
is less than $20.88, then the Company can terminate the agreement. The merger is
subject to, among other things, the consummation of
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the NACT Stock Purchase, the approval of the NACT stockholders and the
satisfaction of certain other customary conditions.
On January 29, 1998, the Company completed its previously announced
acquisition of Advanced TechCom, Inc. ("ATI"), a Wilmington, Massachusetts based
designer and manufacturer of digital microwave and millimeterwave radio systems
for short and long haul voice, data and video applications. In connection with
the acquisition of ATI, the former ATI stockholders received shares of Common
Stock valued at approximately $10 million and have the right to receive up to an
additional $5 million in shares of Common Stock upon the achievement of certain
pre-tax profitability levels.
On February 12, 1998, the Company signed a letter of intent to acquire
Cherry Communications Incorporated (d/b/a Resurgens Communications Group)
("Resurgens") in a merger transaction upon terms to be negotiated. Resurgens,
currently operating under the protection of Chapter 11 of the United States
Bankruptcy Code, is a facilities-based provider of international network access,
commonly referred to in the industry as a carriers' carrier. Resurgens had
revenues of approximately $180 million in 1997. The transaction with Resurgens
is subject to, among other things, the satisfactory completion by the Company of
its due diligence investigation of Resurgens, the preparation and execution of a
definitive merger agreement, the receipt of the requisite corporate and
regulatory approvals and the confirmation of Resurgens' Plan of Reorganization.
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DESCRIPTION OF NOTES
Securities Offered.............. $115,000,000 aggregate principal amount of
4.5% Convertible Subordinated Notes due 2002.
Interest Payment Dates.......... April 1 and October 1, commencing April 1,
1998.
Maturity Date................... October 1, 2002.
Conversion...................... The Notes are convertible into shares of
Common Stock at any time prior to maturity,
unless previously redeemed or repurchased, at
a conversion price of $37.03125 per share,
subject to certain adjustments. See
"Description of Notes -- Conversion of
Notes."
Redemption at the Option of the
Company....................... The Notes are not redeemable by the Company
until October 1, 2000. Thereafter, the Notes
will be redeemable, at any time, on at least
15 days' notice at the option of the Company,
in whole or in part, at the redemption prices
set forth herein, plus accrued interest. See
"Description of Notes -- Optional Redemption
by the Company." The Notes are not entitled
to any sinking fund.
Repurchase at the Option of
Holders upon Change in
Control....................... In the event a Change in Control (as defined)
occurs, each holder of Notes may require the
Company to repurchase all or a portion of
such holder's Notes at 100% of their
principal amount thereof, together with
accrued interest to the repurchase date. If a
Change in Control were to occur, there can be
no assurance that the Company would have
sufficient funds to pay the repurchase price
for all Notes tendered by the holders thereof
or that the Company would be permitted to
repurchase the Notes under its then-existing
credit arrangements. See "Description of
Notes -- Repurchase at Option of Holders upon
Change in Control" and "Risk
Factors -- Limitation on Repurchase of Notes
upon Change in Control."
Subordination................... The Notes are unsecured and subordinated in
right of payment in full to all existing and
future Senior Indebtedness. See "Description
of Notes -- Subordination of Notes." As
defined, Senior Indebtedness includes the
Company's long-term debt, capital lease
obligations and any outstanding balance on
its $10 million line of credit. As of
September 30, 1997, the Company had
approximately $367,000 of indebtedness
outstanding that would have constituted
Senior Indebtedness and had available its
entire line of credit.
Use of Proceeds................. The Company will not receive any proceeds
from the sale of the Notes or the Conversion
Shares. See "Use of Proceeds."
Book Entry, Delivery and Form... Notes sold to qualified institutional buyers
("QIBs") in reliance on Rule 144A under the
Securities Act are represented by a single,
permanent global Note (the "144A Global
Note") in fully registered form deposited
with the Trustee as custodian for, and
registered in the name of a nominee of, The
Depository Trust Company ("DTC"). Notes sold
to Foreign Persons (as defined) in reliance
on Regulation S under the Securities Act
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are represented by a single, permanent global
Note (the "Regulation S Global Note") in
fully registered form deposited with the
Trustee as custodian for, and registered in
the name of a nominee of, DTC for the
accounts of the Euroclear System
("Euroclear") and Cedel, S.A. ("Cedel"). The
144A Global Note and the Regulation S Global
Note are hereinafter collectively referred to
as the Global Note. See "Description of
Notes -- Book Entry, Delivery and Form."
Notes sold to institutional investors that
are neither QIBs nor Foreign Persons were
issued in definitive registered form and are
not represented by the Global Note.
Registration Rights............. The Company has agreed to use all reasonable
efforts to keep effective for two years the
Registration Statement of which this
Prospectus is a part. The Company may suspend
the use of this Prospectus during certain
periods and under certain circumstances. See
"Description of Notes--Registration Rights."
Trading......................... The Notes are eligible for trading in the
PORTAL Market. The Common Stock is traded on
the Nasdaq National Market under the symbol
"WAXS."
DESCRIPTION OF COMMON STOCK
The Common Stock................ 3,105,485 shares of Common Stock are issuable
upon conversion of the Notes and 729,340
shares of Common Stock are issuable upon
exercise of the Warrants. The Notes are
convertible into Common Stock at a conversion
price of $37.03125 per share, subject to
adjustment under certain circumstances. See
"Description of Notes -- Conversion Rights."
The exercise price of the Warrants ranges
from $1.50 to $9.21 per share.
Shares Outstanding.............. On February 23, 1998, there were 19,754,046
shares of Common Stock outstanding. As of the
date of this Prospectus, none of the Notes
has been converted into shares of Common
Stock.
Shares Outstanding if all Notes
are Converted and all Warrants
are Exercised................. 22,859,531 shares of Common Stock would be
outstanding if all of the Notes were
converted into shares of Common Stock, and
729,340 additional shares of Common Stock
would be outstanding if all of the Warrants
were exercised.
Use of Proceeds................. The Company will not receive any proceeds
from the sale of the Notes, the Conversion
Shares or the Shares. See "Use of Proceeds."
Dividend Policy................. The Company has never declared or paid a cash
dividend to stockholders. The Company's Board
of Directors presently intends to retain all
earnings to finance the expansion of the
Company's operations and does not expect to
authorize cash dividends in the foreseeable
future. Any payment of cash dividends in the
future will depend upon the Company's
earnings, capital requirements and other
factors considered relevant by the Company's
Board of Directors. Certain of the Company's
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debt agreements restrict the amount of
dividends which may be paid.
Trading......................... The Common Stock is traded on the Nasdaq
National Market under the symbol "WAXS".
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges(1).................... -- -- -- 2.5x 10.2x 8.1x 33.0x
</TABLE>
- ---------------
(1) Computed by dividing earnings by total fixed charges. Earnings consist of
earnings from continuing operations excluding unusual charges or
extraordinary items, plus fixed charges. Fixed charges consist of interest
on debt, including amortization of debt issuance costs, and a portion of
rent expense estimated by management to be the interest component of such
rentals. Earnings were not sufficient to cover fixed charges for the years
ended December 31, 1992, 1993 and 1994 in the amount of $3,300,000,
$2,060,000, and $1,883,000, respectively.
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RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in evaluating
an investment in the securities offered hereby. This Prospectus contains certain
forward-looking statements with respect to the Company's operations, industry,
financial condition and liquidity. These statements reflect the Company's
assessment of a number of risks and uncertainties. The Company's actual results
could differ materially from the results anticipated in these forward- looking
statements as a result of certain factors set forth below and elsewhere in this
Prospectus.
RISK FACTORS RELATED TO THE COMPANY
Acquisition Risks. A key element of the Company's growth to date and its
strategy for the future is expansion through the acquisition of companies that
complement or expand its existing business. As a result, the Company continually
evaluates potential acquisition opportunities, some of which may be material in
size or scope. Acquisitions involve a number of special risks, including the
time associated with identifying and evaluating future acquisitions, the
diversion of management's attention to the integration of the operations and
personnel of the acquired companies, the incorporation of acquired products and
services into the Company's offerings, possible adverse short-term effects on
the Company's operating results, the realization of acquired intangible assets
and the loss of key employees of the acquired companies. The Company may issue
equity securities and other forms of consideration in connection with future
acquisitions, which could cause dilution to the Company's then-existing
stockholders.
The Company is currently considering and evaluating a number of acquisition
opportunities; however, the Company does not currently have any commitments or
agreements with respect to any acquisitions other than with respect to NACT and
Resurgens. There can be no assurance that suitable acquisition candidates will
be found at prices acceptable to the Company, that the Company will have
adequate resources to consummate any acquisition, that acquisitions can be
consummated successfully, or that acquired businesses can be operated profitably
or integrated successfully into the Company's operations.
Increased Leverage. In connection with the sale of the Notes, the Company
incurred approximately $115.0 million in additional indebtedness, which
increased the ratio of its long-term debt to its total capitalization from 0.3%
at September 30, 1997 to 57.3% on a pro forma basis. As a result of this
increased leverage, the Company's principal and interest obligations increased
substantially. The degree to which the Company is leveraged could adversely
affect the Company's ability to obtain additional financing for working capital,
acquisitions or other purposes and could make it more vulnerable to economic
downturns and competitive pressures. The Company's increased leverage could also
adversely affect its liquidity, as a substantial portion of available cash from
operations may have to be applied to meet debt service requirements and, in the
event of a cash shortfall, the Company could be forced to reduce other
expenditures and forego potential acquisitions to be able to meet such
requirements. See "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
and "Selected Consolidated Financial Information."
Management of Growth. The Company is currently experiencing a period of
rapid growth resulting from recent acquisitions and the expansion of its
operations, both of which have placed significant demands on the Company's
resources. The Company's success in managing its growth will require it to
continue to improve its operational, financial and management information
systems, and to motivate and effectively manage its employees. If the Company's
management is unable to manage such growth effectively, the quality of the
Company's products and services, its ability to retain key personnel and its
business, financial condition and results of operations could be materially
adversely affected.
Competition. The segments of the telecommunications industry in which the
Company operates are intensely competitive. The Company's ability to compete is
dependent upon several factors, including price, quality, product features and
timeliness of delivery. Many of the Company's competitors have significantly
more extensive engineering, manufacturing, marketing, financial and technical
resources than the Company. In addition, the Company currently competes with
several of its major suppliers, including Northern Telecom,
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with respect to the sale of certain of its products, which may adversely affect
its ability to continue to obtain such products from these suppliers in the
future.
The Company may face additional competition from the RBOCs, which have
historically been prohibited from manufacturing telecommunications equipment by
the terms of the Modification of Final Judgment entered into in connection with
the divestiture of the RBOCs by AT&T in 1984. The Telecommunications Act of 1996
contains provisions that permit the RBOCs, subject to satisfying certain
conditions designed to facilitate local exchange competition, to manufacture
telecommunications equipment. In light of these provisions, it is possible that
one or more of the RBOCs, some of which are major customers of the Company, may
decide to manufacture telecommunications equipment or to form alliances with
other manufacturers. Any of these developments could result in increased
competition for the Company, which may have a material adverse effect on the
Company's business, financial condition and results of operations.
Potential Fluctuations in Quarterly Operating Results. The Company's
quarterly operating results have varied significantly in the past and are
expected to do so in the future. As the Company increases its number of
telecommunications product offerings, its future quarterly operating results may
vary significantly depending on factors such as the timing and shipment of
significant orders, new product introductions by the Company and its
competitors, market acceptance of new and enhanced versions of the Company's
products, changes in pricing policies by the Company and its competitors, the
availability of new technologies, the mix of distribution channels through which
the Company's products are sold, the inability to obtain sufficient supplies of
sole or limited source components for the Company's products, gains or losses of
significant customers, the timing of customers' upgrade and expansion programs,
changes in the level of operating expenses, the timing of acquisitions,
seasonality and general economic conditions. In response to competitive
pressures or new product introductions, the Company may take certain pricing or
marketing actions that could materially and adversely affect the Company's
quarterly operating results. The Company's expense levels are based, in part, on
the Company's expectations as to future sales. If future sales levels are below
expectations, then the Company may be unable to adjust spending sufficiently in
a timely manner to compensate for the unexpected sales shortfall. Accordingly,
the Company believes that period-to-period comparisons of its operating results
should not be relied upon as an indication of future performance. In addition,
the operating results of any quarterly period are not indicative of results to
be expected for a full fiscal year. In future quarters, the Company's operating
results may be below the expectations of public market analysts and investors.
In such event, the price of the Common Stock and the Notes would likely be
materially adversely affected.
Compliance with Government Regulations and Evolving Industry
Standards. The Company's products must meet a significant number of voice and
data communications regulations and standards, some of which are evolving as new
technologies are deployed. In the United States, the Company's products must
comply with various regulations promulgated by the Federal Communications
Commission, as well as with standards established by Bell Communications
Research ("BellCore"). Internationally, the Company's products must comply with
standards established by telecommunications authorities in various countries, as
well as with recommendations of the International Telecommunications Union. In
addition, telecommunications service providers require that equipment connected
to their networks comply with their own standards, which may vary from industry
standards.
The failure of the Company's products to comply, or delays or costs in
achieving compliance, with the various existing and evolving regulations and
industry standards could have a material adverse effect on the Company's
business, financial condition and results of operations.
The Company expects that government regulatory policies are likely to
continue to have a major impact on the pricing of both existing and new public
network services and, therefore, are expected to affect demand for such services
and the telecommunications products that support such services. Tariff rates,
whether determined autonomously by telecommunications service providers or in
response to regulatory directives, may affect the cost effectiveness of
deploying public network services. Tariff policies are under continuous review
and are subject to change. User uncertainty regarding future policies may also
affect demand for telecommunications products, including the Company's products.
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Rapid Technological Development; New Products; Product Errors. The market
for the Company's products is generally characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions
that can render existing products obsolete or unmarketable. The Company's
success will depend to a substantial degree upon its ability to develop and
introduce in a timely fashion, enhancements to its existing products and new
products that meet changing customer requirements and emerging industry
standards. The failure of the Company to introduce new products and respond to
industry changes on a timely and cost effective basis could have a material
adverse affect on the Company's business, financial condition and results of
operations.
The development of new, technologically advanced products is a complex and
uncertain process requiring high levels of innovation and capital, as well as
the accurate anticipation of technological and market trends. Furthermore, the
introduction and marketing of new or enhanced products require the Company to
manage the transition from existing products in order to minimize disruption in
customer purchasing patterns. There can be no assurance that the Company will be
successful in developing and marketing, on a timely and cost-effective basis,
new products or product enhancements, that its new products will adequately
address the changing needs of the marketplace, or that it will successfully
manage the transition to new or enhanced products. There also can be no
assurance that the Company will be able to identify, develop, manufacture or
support new products successfully, that such new products will gain market
acceptance or that the Company will be able to respond effectively to
technological changes, emerging industry standards or product announcements by
competitors. In addition, the Company has on occasion experienced delays in the
introduction of product enhancements and new products. There can be no assurance
that in the future the Company will be able to introduce product enhancements or
new products on a timely and cost effective basis. The rapid development of new
technologies also increases the risk that current or new competitors could
develop products that would reduce the competitiveness of the Company's
products. There can be no assurance that products or technologies developed by
others will not render the Company's products or technologies noncompetitive or
obsolete.
Products as complex as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released, and
such errors have occurred in the Company's products in the past. There can be no
assurance that, despite testing by the Company and by current and potential
customers, errors will not be found in new products after commencement of
commercial shipments. The occurrence of such errors could result in the loss or
delay in market acceptance of the Company's products, diversion of development
resources, damage to the Company's reputation or increased service or warranty
costs, any of which could have a material adverse effect upon the Company's
business, financial condition and results of operations. See
"Business--Manufacturing, Assembly and Test."
Furthermore, from time to time, the Company may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycle of the Company's existing product offerings. There can be no
assurance that announcements of product enhancements or new product offerings
will not cause customers to defer purchasing existing Company products or cause
resellers to return products to the Company. Failure to introduce new products
or product enhancements effectively and on a timely basis, customer delays in
purchasing products in anticipation of new product introductions and any
inability of the Company to respond effectively to technological changes,
emerging industry standards or product announcements by competitors, could have
a material adverse effect on the Company's business, operating results and
financial condition.
Dependence on Suppliers. The Company purchases substantially all of its
components and other parts from suppliers on a purchase order basis and does not
maintain long-term supply arrangements. Most of the components used in the
Company's products and related services are currently obtained from multiple
sources. However, several components, primarily custom hybrid integrated
circuits, are available from a single source. In addition, AIT's operations
depend on a consistent supply of new or used switching products, add-on frames
and related circuit boards. Accordingly, there can be no assurance that the
Company will be able to continue to obtain sufficient quantities of products or
key components as required or that such products or key components, if obtained,
will be available to the Company on commercially favorable terms. Failure to
obtain
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products and key components on a timely and cost effective basis could have a
material adverse effect on the Company's business, financial condition and
results of operations.
Customer Concentration. A small number of customers historically has
accounted for a significant percentage of the Company's total sales. For the
nine months ended September 30, 1997, one customer accounted for 10.0% of the
Company's total sales and the Company's top 10 customers accounted for 44.5% of
total sales. For the year ended December 31, 1996, one customer accounted for
10.9% of the Company's total sales and the Company's top 10 customers accounted
for 54.2% of total sales. The Company's customers typically are not obligated
contractually to purchase any quantity of products or services in any particular
period. The loss of, or a material reduction in orders by, one or more key
customers could have a material adverse effect on the Company's business,
financial condition and results of operations.
New Management Team and Dependence on Key Personnel. The Company's
management team consists of five executive officers, three of whom have been
employed by the Company for less than two years. Although these individuals have
significant experience in the telecommunications industry, there can be no
assurance that they will function successfully as a management team to implement
the Company's strategy. Moreover, the Company is highly dependent on the
services of several key executive officers and technical employees, the loss of
any of whom could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the Company will
need to hire additional skilled personnel to support the continued growth of its
business. The market for skilled personnel, especially those with the technical
abilities required by the Company, is currently very competitive, and the
Company must compete with much larger companies with significantly greater
resources to attract and retain such personnel. There can be no assurance that
the Company will be able to retain its existing personnel or attract other
qualified employees.
International Sales; Regulatory Standards; Currency Exchange.
International sales represented approximately 13.7%, 1.7% and 5.0% of the
Company's total sales in the nine months ended September 30, 1997 and the years
ended December 31, 1996 and 1995, respectively. The Company intends to increase
its international sales efforts, primarily in Latin America and the Caribbean
Basin, which may require significant management attention and financial
resources. There can be no assurance that the Company can increase its
international sales. International sales are subject to inherent risks,
including unexpected changes in regulatory requirements, tariffs or other
barriers, difficulties in staffing and managing foreign operations, longer
payment cycles, unstable political environments, greater difficulty in accounts
receivable collection and potentially adverse tax consequences. Moreover, gains
and losses on the conversion to U.S. dollars of receivables and payables arising
from international operations may contribute to fluctuations in the Company's
results of operations, and fluctuations in exchange rates could affect demand
for the Company's products and services.
Limited Protection of Proprietary Rights. The Company relies on
contractual rights, trade secrets, trademarks and copyrights to establish and
protect its proprietary rights in its products. Although the Company does not
expect that its proprietary rights in its products will prevent competitors from
developing products functionally similar to the Company's, the Company believes
many aspects of its internally developed products are proprietary and intends to
monitor closely the products introduced by competitors for any infringement of
the Company's proprietary rights. Intellectual property disputes may be
initiated by competitors against the Company for tactical purposes to gain
competitive advantage or overcome competitive disadvantage, even if the merits
of a specific dispute are doubtful. In the future, the Company may be required
to bring or defend against litigation to enforce any patents issued or assigned
to the Company, to protect trademarks, trade secrets and other intellectual
property rights owned by the Company, to defend the Company against claimed
infringement of the rights of others and to determine the scope and validity of
the proprietary rights of others. Regardless of the ultimate outcome, any
litigation could be costly and could divert management's attention, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Adverse determinations in litigation could result in
the loss of the Company's proprietary rights, subject the Company to significant
liabilities, require the Company to seek licenses from third parties or prevent
the Company from manufacturing or selling its products, any of which could have
a material adverse effect on the Company's business, financial condition and
results of operations.
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As the Company seeks to expand internationally, it will need to take steps
to protect its proprietary rights under foreign laws. Many of these laws are not
as well developed or do not afford the same degree of protection as United
States laws, and no assurance can be given that the Company will not encounter
difficulties in protecting its proprietary rights outside the United States or
will not infringe the rights of others outside the United States.
Possible Volatility of Notes and Common Stock Price. The Company believes
factors such as announcements of new products or technological innovations by
the Company or third parties, as well as variations in the Company's results of
operations, the gain or loss of significant customers, the timing of
acquisitions of businesses or technology licenses, legislative or regulatory
changes, general trends in the industry, market conditions, analysts' estimates
and other events or factors may cause the market price of the Notes and Common
Stock to fluctuate significantly. In addition, the stock market has experienced
extreme price and volume fluctuations that have particularly affected the market
price for many technology companies and that have often been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of the Notes and the Common Stock.
Anti-Takeover Provisions. Certain provisions of the Company's restated
Certificate of Incorporation (the "Certificate of Incorporation"), the Company's
restated Bylaws and the Delaware General Corporation Laws ("DGCL") could,
together or separately, discourage potential acquisition proposals or delay or
prevent a change in control of the Company. Those provisions include a
classified Board of Directors, a prohibition on written consents in lieu of
meetings of the stockholders and the authorization to issue up to 10,000,000
shares of preferred stock and up to 40,000,000 shares of Common Stock. The
Company's Board of Directors has the power to issue any or all of these
additional shares without stockholder approval, and the preferred shares can be
issued with such rights, preferences and limitations as may be determined by the
Board. The rights of the holders of Common Stock will be subject to, and may be
adversely affected by, the commitments or contracts to issue any additional
shares of Common Stock (other than pursuant to outstanding stock options) or any
shares of preferred stock. Authorized and unissued preferred stock and Common
Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could delay, discourage, hinder or
preclude an unsolicited acquisition of the Company, could make it less likely
that the stockholders receive a premium for their shares as a result of any such
attempt and could adversely affect the market price of, and the voting and other
rights of, the holders of outstanding shares of Common Stock. As a Delaware
corporation, the Company is subject to Section 203 of the DGCL which, in
general, prevents an "interested stockholder" (defined generally as a person
owning 15% or more of the corporation's outstanding voting stock) from engaging
in a "business combination" (as defined in Section 203) for three years
following the date such person became an interested stockholder unless certain
conditions are satisfied. See "Description of Capital Stock."
RISK FACTORS RELATED TO THE NOTES
Subordination. The Notes are unsecured and subordinated in right of
payment in full to all existing and future Senior Indebtedness. Under the
Indenture, the Notes are subordinated to the Company's long-term debt and
capital leases and any amounts outstanding under its $10 million line of credit.
As a result of such subordination, in the event of any insolvency, liquidation
or reorganization of the Company or upon acceleration of the Notes due to an
Event of Default (as defined in the Indenture), the assets of the Company will
be available to pay obligations on the Notes and any other subordinated
indebtedness of the Company only after all Senior Indebtedness has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes and any other subordinated indebtedness of the Company then
outstanding. The Indenture does not prohibit or limit the incurrence of Senior
Indebtedness or the incurrence of other indebtedness and other liabilities by
the Company. The incurrence of such indebtedness could adversely affect the
Company's ability to pay its obligations under the Notes. As of September 30,
1997, the Company had approximately $367,000 of indebtedness outstanding that
would have constituted Senior Indebtedness and had available its entire line of
credit.
Absence of Public Market for the Notes; Restrictions on
Transferability. The Initial Purchasers have informed the Company that they are
making and currently intend to make a market in the Notes. They are not
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obligated to do so, and any such market making may be discontinued at any time
without notice. Accordingly, there can be no assurance as to the development or
liquidity of any market for the Notes. The Notes are eligible for trading by
qualified buyers in the PORTAL Market. The Company does not intend to apply for
listing of the Notes on any securities exchange or for quotation through the
Nasdaq National Market.
The liquidity of, and trading market for, the Notes may be adversely
affected by general declines in the market for similar securities. Such a
decline may adversely affect such liquidity and trading markets independent of
the financial performance of, and prospects for, the Company. See "Plan of
Distribution."
Limitation on Repurchase of Notes upon Change in Control. Upon the
occurrence of a Change in Control (as defined), each holder of Notes may require
the Company to repurchase all or a portion of such holder's Notes. If a Change
in Control were to occur, there could be no assurance that the Company would
have sufficient financial resources or would be able to arrange financing to pay
the repurchase price for all Notes tendered by holders thereof. The Company's
ability to repurchase the Notes in such event may be limited by law, the
Indenture and the terms of other agreements relating to borrowings that
constitute Senior Indebtedness, as such indebtedness or agreements may be
entered into, replaced, supplemented or amended from time to time. The Company
may be required to refinance Senior Indebtedness in order to make any such
payment. If the Company is prohibited from repurchasing the Notes, such failure
would constitute an Event of Default under the Indenture which may, in turn,
constitute a further default under certain of the Company's existing agreements
relating to borrowings and the terms of other indebtedness that the Company may
enter into from time to time. In such circumstances, the subordination
provisions in the Indenture would prohibit payments to the holders of the Notes.
Furthermore, the Company may not have the financial ability to repurchase the
Notes in the event that maturity of Senior Indebtedness is accelerated as a
result of a default under the applicable loan or similar agreement. See
"Description of Notes--Repurchase at Option of Holders upon Change in Control."
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Notes, the
Conversion Shares or the Shares, provided that, upon exercise of the Warrants
prior to any sale of the Warrant Shares, the Company will receive the exercise
price for such Warrants and any such amounts received by the Company will be
used for working capital purposes.
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BUSINESS
OVERVIEW
The Company develops, manufactures and markets wireline and wireless
switching, transport and access products primarily for the United States,
Caribbean Basin and Latin American telecommunications markets. The Company's
products allow telecommunications service providers to build and upgrade their
central office and outside plant networks in order to provide a wide array of
voice, data and video services to their business and residential customers. The
Company offers digital switches, cellular base stations, fixed wireless local
loop systems, intelligent multiplexers, digital loop carriers, microwave and
millimeterwave radio equipment and other telecommunications network products.
The products offered by the Company include those manufactured by the Company as
well as those manufactured by other telecommunications equipment companies. To
support and complement its product sales, the Company also provides its
customers with a broad range of design, engineering, manufacturing, testing,
installation, repair and other value-added services.
INDUSTRY BACKGROUND
The global telecommunications industry has undergone significant
transformation and growth in recent years due to continued domestic
deregulation, technological innovation and growth in international markets. In
addition, business and residential demand for voice, data and video services has
increased the need for additional systems capacity and network bandwidth to
accommodate the provision of such services by telecommunications providers. The
Company believes that these market forces will intensify in the foreseeable
future and that an increased number of telecommunications service providers, the
availability of new services and strong international demand for the deployment
of basic telephone service will provide the Company with extensive opportunities
to sell its wireline and wireless switching, transport and access products in
the United States and in international markets.
Domestic Deregulation. The number of telecommunications service providers
continues to increase as a result of the federal and state deregulation of the
United States telecommunications industry. Changes in federal and state
regulations have created the opportunity for a number of new network operators
to enter the market and have fostered competition between both new and
established network operators. The recently-enacted Telecommunications Act of
1996 permits local and long distance telecommunications companies, cable
television companies and electric utility companies, subject to certain
conditions designed to facilitate local exchange competition, to compete with
each other to provide local and long distance telephony, data and video
services.
To accommodate the demand for enhanced wireless services, the Federal
Communications Commission (the "FCC") has auctioned additional spectrum licenses
for wireless communications in recent years, potentially increasing the number
of operators competing in each metropolitan statistical area from two to eight.
In addition, the FCC has announced plans to auction additional spectrum in the
future. Changes in FCC and certain state public utility commission regulations
governing interconnections have created opportunities for the RBOCs and other
local exchange carriers to provide services in markets and geographic regions in
which they traditionally have been prohibited. In addition, such changes have
allowed local exchange carriers, inter-exchange carriers, competitive access
providers, cable television companies and other telecommunications service
providers to enter these same markets and regions. The Company believes that the
Telecommunications Act of 1996, together with FCC and other government
initiatives, will increase the demand for telecommunications systems and
services as network operators respond to the changing competitive environment by
constructing new or enhancing existing networks and increasing the available
bandwidth to meet customer demand for voice, data and video services.
Technological Innovation. In recent years, there have been a number of
significant developments relating to telecommunications technology, including
the continuing miniaturization of large scale integrated circuits, the
development of lower cost, higher capacity memory devices and microprocessors
and new network protocols such as spread spectrum CDMA, which are now available
to offer improved performance and increased security. These developments have
lowered the cost of delivering multifunctional services combining
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voice, data and video. In addition, new low cost, modular, software-driven
products (so-called "intelligent" products) can be readily upgraded to provide
additional revenue generating features such as call waiting, call forwarding and
caller-ID without having to undertake costly hardware replacement. Moreover, the
increasing use of wireless systems and technology permits the more rapid
deployment of telecommunications systems at lower costs than traditional
wireline networks.
These technological advances make it possible for products to facilitate
the delivery of telecommunications services and create new network configuration
options. For example, Integrated Services Digital Network ("ISDN") service
allows for the dynamic allocation of bandwidth between, and simultaneous
transmission of, any combination of voice, data and video, and individual call
set-up permits users to easily designate and change the service configuration.
Other new advanced technologies include Asymmetrical Digital Subscriber Line
("ADSL"), a communications technology which permits the transmission of
information at rates up to 50 megabits per second over existing copper wires,
and High-Speed Digital Subscriber Line ("HDSL"), a communications technology
which permits the digital transmission of information over longer distances
without adding signal regenerator equipment. These new technologies create
additional demands for switching systems, intelligent multiplexers and digital
loop carriers. In addition, cable television companies are beginning to expand
beyond one-way broadcast to provide interactive services using high-speed cable
modems and have announced plans to provide telephony and high speed data
services.
Growth in International Markets. The Company believes that international
markets represent significant opportunities for growth, particularly in Latin
America, the Caribbean Basin and other developing areas. According to industry
sources, a small percentage of businesses and residences throughout Latin
America have basic telephone service. For example, of the estimated 11 million
people in Ecuador, approximately 300,000 have such service. In addition,
advances in radio and antenna technology make it feasible to provide basic
communications access with wireline quality without the construction cost and
obstacles associated with establishing a wireline grid, thereby further
encouraging the deployment of telecommunications networks in developing
countries. The governments of a number of developed and developing countries
have privatized their state-owned telecommunications service providers and have
granted licenses to new network operators to compete with them. In most
instances, as part of the privatization, these governments have imposed service
requirements on all network operators, resulting in an acceleration of capital
expenditures on new or expanded network systems.
STRATEGY
The Company's objective is to continue to broaden its offering of wireline
and wireless switching, transport and access products and expand its geographic
market coverage to become a preferred provider of telecommunications products
and related services to RBOCs, other local exchange carriers, inter-exchange
carriers, wireless service providers, competitive access providers, cable
television companies and other service providers entering the telecommunications
industry. In order to achieve this objective, the Company plans to implement the
following elements of its strategy.
Acquire Switching, Transport and Access Products Companies. The Company
intends to selectively acquire companies that manufacture, market or hold
proprietary interests in wireline and wireless switching, transport and access
products in order to rapidly increase the number and range of products it
offers. The Company intends to focus its acquisition efforts on businesses that
have designed innovative, leading edge products for high growth
telecommunications applications. The Company believes that there are numerous
private companies offering advanced products and services that can benefit from
the Company's broad range of complementary support services, existing customer
base and ability to provide working capital. Consistent with this strategy, the
Company believes that the Acquisitions have provided the Company with a core
group of telecommunications products and new product development capabilities
that will permit the Company to launch new products and enhance existing
products. The Company expects that its proposed acquisition of ATI will further
enhance its offering of transport products.
Develop Proprietary Products. The Company intends to broaden its
telecommunications product line through internal product development. Consistent
with this strategy, the Company is investing in its internal
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product development capabilities. The Company has increased its product
development personnel from seven at September 30, 1996 to its current level of
14. Products currently under development include an enhanced version of the
WLL-2000, a 38 GHz radio and a commercial version of its DS-3 multiplexer.
Pursue Opportunities to License and Manufacture Telecommunications
Products. The Company also intends to increase the number of telecommunications
products it offers by pursuing opportunities to license the right to
manufacture, market and sell products incorporating advanced telecommunications
technologies. The Company believes that license agreements can provide
significant benefits, including accelerated entry into new markets and cost
savings, over acquiring or developing in-house certain technologies and
products. Consistent with this strategy, the Company licensed the right to
manufacture, market and sell the CDX, as well as patented CDMA technology.
Leverage Existing Customer Relationships and Distribution Base. For over
10 years, the Company has provided a wide range of repair services for wireline
and wireless switching, transport and access products to over 200
telecommunications service providers, such as local exchange carriers (including
all the RBOCs), inter-exchange carriers, competitive access providers, cable
television companies and other telecommunications service providers. As the
number of switching, transport and access products offered by the Company
increases as a result of acquisitions, technology licensing agreements, new
product development and other strategic initiatives, the Company intends to
market these products to its existing customers and distribute these products
through its existing distribution channels. For example, AIT, which has realized
significant increases in sales of its switching products since its acquisition
by the Company, has successfully marketed its products to many of the Company's
traditional service customers.
Focus on Emerging International Markets. Although only 13.7% of the
Company's total sales in the first nine months of 1997 were attributable to
international sales, a key element of the Company's long-term strategy is to
focus on international markets in developing countries, principally in Latin
America and the Caribbean Basin, which are privatizing state-owned
telecommunications service providers and granting licenses to new network
operators. The Company believes that its products, particularly the CDX and the
WLL-2000, are well suited for developing countries that are rapidly deploying
and expanding their telecommunications networks in order to increase the quality
and the service levels of their existing telecommunications infrastructure to
more of their population. To this end, the Company has formed a dedicated
international sales group headed by an experienced officer of the Company to
pursue the sale of the Company's products in international markets. To support
the efforts of this sales group, the Company has established a network of
in-country agents and representatives to market the Company's products
throughout Latin America and the Caribbean Basin.
Leverage Manufacturing, Test and Service Capabilities. Since 1992, the
Company has provided its customers with a full range of contract manufacturing
services, including production engineering, electronic component selection,
sourcing and procurement, manufacturing, assembly and in-circuit/functional
testing. Over the past four years, the Company has significantly expanded its
manufacturing capacity and technical capabilities and improved the quality of
these services through the hiring of manufacturing, engineering and materials
professionals and investments in facilities and automatic insertion, wave solder
and state-of-the-art surface mount and automated testing equipment. The
Company's manufacturing facility is currently operating at less than 50% of its
capacity. The Company intends to significantly increase the utilization rate of
its manufacturing, test and service capabilities over the next few years as part
of its strategy to acquire businesses and products that can be manufactured
internally and sold in its core telecommunications markets.
PRODUCTS AND SERVICES
The Company offers wireline and wireless switching, transport and access
products for the worldwide telecommunications marketplace. These products allow
telecommunications service providers to build and upgrade their networks to
provide a wide range of voice, data and video services to business and
residential customers. Through acquisitions, technology license agreements and
internal development, the Company expects to manufacture an increasing
proportion of its products in the future.
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Switching Products. The Company markets digital telephone switching
products that are used for local, tandem, toll and cellular applications. The
switches offered by the Company have line capacities ranging from 100 to 120,000
subscribers and 30 to 60,000 inter-exchange trunks. Switching products
historically offered by the Company have been primarily developed and
manufactured by other telecommunications equipment companies, including Northern
Telecom and Lucent Technologies. These products include complete switching
systems as well as add-on frames, line cards and modified circuit boards for
either newly constructed networks or upgrades to existing networks.
Pursuant to a long-term technology license agreement, the Company
manufactures and markets the CDX, a microprocessor-based, modular, digital
central office switch. The CDX utilizes extensive large scale integrated circuit
technology to provide advanced telephony services such as call waiting, call
forwarding and conference calling, and requires reduced power and floorspace
compared with alternative products. The current switch serves applications up to
5,000 subscriber lines and is designed to be expandable to over 60,000 lines
through future software enhancements. The CDX is targeted for use in the
international marketplace due to its compatibility with international standards,
"plug and play" installation features and tolerance of a wide range of
environmental conditions.
Current users of the Company's switching products are primarily local
exchange carriers, inter-exchange carriers, competitive access providers and
other telecommunications service providers. The Company intends to expand its
United States customer base for switching products and to actively market the
CDX to public and private network providers in Latin America and the Caribbean
Basin.
Transport Products. The Company develops, manufactures and markets a
variety of wireline and wireless transport products, which are used for
high-capacity connectivity between points within a communications network. These
products are primarily digital and provide for the movement of any combination
of voice, data and video traffic across wireline or wireless media. The
Company's transport products include intelligent multiplexers (devices which
combine or aggregate several channels or linkages carrying voice or data signals
into a higher speed link), protection switching equipment (which protect voice
and data links against failure by rerouting circuits to maintain continuity),
mini-repeater housings (enclosures used to protect electronic repeaters from the
elements), asynchronous and fractional data cards, microwave and millimeterwave
radio equipment and sophisticated high speed modems used to carry voice and data
in wireline or wireless networks.
The Company's T-1 multiplexers include features such as local and remote
loopbacks, built-in bit error rate detection, line code selection and built-in
performance monitoring. The Company has recently developed and is currently
testing an E-1 multiplexer designed for the international markets. This new
proprietary product can combine 60 channels of voice and data into a single E-1
circuit.
The Company's wireless transport voice, data or video products include
radios using amplitude or frequency modulation and spread spectrum technologies
that provide transmission over frequencies ranging from 900 MHz to 31 GHz. The
Company also has recently developed and is currently testing a 38 GHz radio for
the United States market.
Current users of the Company's transport products are primarily an RBOC and
private network users, including mining and exploration companies and colleges
and universities. The Company intends to expand its current customer base for
transport products by broadening the features of its current products,
increasing its marketing efforts in the United States and developing new
products for the emerging international markets.
Access Products. The Company offers access products for the local loop
(i.e., that portion of the public telecommunications network which extends from
the service provider's switch to the individual home or business end-user). As a
result of the CIS acquisition, the Company also offers its customers cellular
base stations and related mobile network equipment. Although substantially all
of the equipment sold by CIS is manufactured by other telecommunications
equipment companies, CIS provides a full range of highly technical, value-added
services such as deinstallation, system design, equipment tuning and
installation.
In the first quarter of 1997, the Company released a new internally
developed access product, the WX-5501 Remote POTS/Remote Universal Voice Grade
("RPOT/RUVG") line card. The WX-5501 is
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<PAGE> 20
compatible with the Lucent Technologies SLC(R) Series 5 subscriber loop carrier
system, which is widely deployed in telephone networks across the United States.
The WX-5501, which has been performance tested by BellCore, replaces the
Company's remanufactured OHT-51 line card, approximately 100,000 of which were
sold during 1992-1996.
In the second quarter of 1997, the Company introduced its WLL-2000, a fixed
wireless point-to-multipoint system offering toll quality telephone service to
subscribers in urban and suburban areas and remote communities. To take
advantage of existing market opportunities, the Company reached an agreement in
1997 with another telecommunications equipment company to private label its
point-to-multipoint radio system and exclusively market it within certain Latin
American countries. The current WLL-2000 integrates the Company's CDX and the
private label radio. The integrated switch provides customers with the ability
to switch local calls at the WLL-2000 base station, thus providing superior
service and reducing expensive back-haul costs to a central office. The CDX and
WLL-2000 for the first time provide the Company with an integrated family of
proprietary switching and wireless access products for the international market.
In 1997, the Company also executed a technology licensing agreement with
TCSI that grants the Company the perpetual rights to incorporate TCSI's spread
spectrum CDMA-based wireless technology into the Company's products sold
throughout the world. Under the terms of the agreement, the Company also has the
rights to use the technology covered by seven TCSI patents, all of which address
digital data signals and wireless communication systems. The Company currently
intends to use this technology as the platform for several new products.
As a result of the Sunrise acquisition, the Company manufactures and
markets a digital loop carrier (which permits network operators to provide more
reliable, basic and enhanced services at a lower cost) and DS-3 telemetry
equipment (used primarily by the military for range communications applications
to multiplex telemetry, digital video, T-1, LAN, WAN and other signals into a
DS-3 signal transmitting at 45 megabits per second). The Company has recently
developed and is currently testing a commercial version of its DS-3 product, the
Ultra-45. This advanced multiplexer provides a solution for current and future
telecommunications applications requiring simultaneous delivery of high speed
data, video, LAN, voice and telemetry services.
Current users of the Company's access products are primarily local exchange
carriers, inter-exchange carriers, competitive access providers, cable
television companies and the United States military. The Company intends to
expand its current customer base for access products by broadening the features
of its current products, increasing its marketing efforts in the United States
and developing new products for emerging international markets.
Related Services. The Company offers a full range of complementary design,
manufacturing, installation, testing and repair services. The Company also
offers its customers ongoing systems maintenance and monitoring services,
including asset management services, which allow customers to reduce their
investment in spare and surplus plug-in circuit boards by relying on the
Company's inventories and management information systems. By providing these
services, the Company believes it is better able to offer its customers more
comprehensive telecommunications solutions.
The Company repairs a broad range of switching and transmission plug-in
circuit boards originally manufactured by other telecommunications equipment
companies. The Company's electronic manufacturing services consist of the
design, engineering, manufacturing and testing of circuit boards,
electromechanical assemblies, subsystems and complete systems. The Company's
wireless equipment repair business, which was acquired by the Company as part of
its Westec acquisition, consists principally of the repair and upgrade of
amplitude modulation equipment typically used by cable television companies. The
Company's engineers also provide customers with a full range of support services
for wireless transmission equipment, including system design, site survey, path
calculations, installation and maintenance.
In August 1997, the Company completed its acquisition of Galaxy, a provider
of system design, implementation, optimization and other value-added radio
engineering and consulting services to PCS, cellular and other wireless
telecommunications service companies. The background and experience of
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<PAGE> 21
Galaxy's management and staff of 31 RF engineers will be utilized to support the
Company's customers as they build new, or upgrade existing, telecommunications
networks throughout the world.
Other Products and Services. The Company's other products and services
include the refurbishment and upgrade of AT&T pay telephones to like-new
condition and the sale of related pay telephone products, such as stainless
steel custom logo vault doors, handsets and dial assemblies. To date,
substantially all of these refurbishment services and product sales have been
provided or made to certain RBOCs, primarily Bell Atlantic, BellSouth and SBC
Communications.
SALES AND MARKETING
As of December 22, 1997, the Company's domestic sales and marketing group
consisted of 26 professionals who are divided into individual sales and
marketing teams for each of the Company's product lines and related services.
Each team is responsible for obtaining a thorough technical knowledge of its
products or services, soliciting new customers and maintaining relationships
with existing customers. Each team is supervised at the corporate level by the
Company's Executive Vice President of Business Development, who coordinates the
sales and marketing of multi-product line sales and is responsible for
advertising, trade show appearances and other Company-wide marketing efforts. As
a result of the Acquisitions, the Company has added new product sales
professionals who have brought technical product knowledge and long-term
customer relationships to the Company.
Although only approximately 13.7% of the Company's total sales for the nine
months ended September 30, 1997 was derived from international sales, the
Company intends to focus an increased amount of its sales and marketing efforts
on emerging international markets, especially in Latin America and the Caribbean
Basin. In 1996, the Company formed a dedicated international sales and marketing
group to pursue the sale of all of the Company's products and services outside
of the United States. As of December 22, 1997, this group consisted of three
sales professionals and one marketing assistant. Based primarily on previous
service sales to the international markets, the Company has established a
network of independent agents and representatives covering 14 countries in the
Caribbean Basin and Latin America. These agents and representatives, whose
compensation consists primarily of commissions based on sales, actively promote
and market the Company's products and services and receive bid tenders issued
within their territory.
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<PAGE> 22
CUSTOMERS
The Company sells its products and services to over 200 telecommunication
service providers, including the RBOCs, other local exchange carriers,
inter-exchange carriers, wireless service providers, competitive access
providers, cable television companies and other telecommunications service
providers operating in the United States, the Caribbean Basin and Latin America.
The following table sets forth a representative list of the Company's major
customers and end-users.
<TABLE>
<CAPTION>
SWITCHING PRODUCTS TRANSPORT PRODUCTS ACCESS PRODUCTS SERVICES
- ----------------------- ------------------ ---------------- ---------------------
<S> <C> <C> <C>
Ameritech ADC Telecom Ameritech Alltel
Cable & Wireless Lockheed-Martin Bell Atlantic Bell Atlantic
Frontier Communications Optel BellSouth BellSouth
GTE Pacific Bell Cellular One Century Telephone
NYNEX Comcast Cellular GTE
Puerto Rico Telephone SNET Puerto Rico Telephone
SBC Communications Price Cellular SBC Communications
Sprint US West
Vartec Telecom
</TABLE>
A small number of customers have accounted historically for a significant
percentage of the Company's total sales. For the nine months ended September 30,
1997, Second Source Cellular, a United States-based equipment reseller to
international markets, accounted for 10.0% of the Company's total sales, and the
Company's top 10 customers accounted for 44.5% of total sales. For the year
ended December 31, 1996, Cable & Wireless accounted for 10.9% of the Company's
total sales, and the Company's top 10 customers accounted for 54.2% of total
sales. The Company's customers typically are not obligated contractually to
purchase any quantity of products or services in any particular period.
MANUFACTURING, ASSEMBLY AND TEST
The Company provides a broad range of electronic manufacturing, assembly
and test services to support its product sales and its contract customers. The
majority of these support services is performed at the Company's Orlando,
Florida facility, where state-of-the-art manufacturing and test equipment is
maintained. Historically, this equipment has been used primarily to perform
contract manufacturing services for third parties, primarily to large technology
companies that require a high level of professional materials management,
quality "turn-key" manufacturing and complete electronic and functional product
testing.
The Company has significantly enhanced its assembly and test capabilities
through the acquisition of new surface mount manufacturing and automated testing
equipment. This equipment includes a surface mount assembly line, including
advanced "pick-and-place" equipment and a 3-D vision screen printer. The
equipment allows for the placement of fine pitch electronic components at a rate
of up to 14,400 placements per hour. This equipment is currently operating at
less than 50% of the line's capacity. The Company has also recently acquired new
board test systems that provide for high performance, automated testing of
analog, digital, mixed signal and memory devices resident on printed circuit
boards. When combined with the Company's existing testing equipment, the new
equipment gives the Company an extensive software library and technical capacity
to test integrated circuits, capacitors, resistors and related electronic
components, and ensures the quality of electronic products manufactured.
As a result of the Acquisitions, the Company has increased its
manufacturing, assembly and test capacity and experience. At its Lakeland,
Florida operations, the Company tests Northern Telecom switching products and
develops and verifies the configuration and integration of custom systems. In
addition, cable manufacturing equipment and expertise is utilized to manufacture
copper and fiber cables to specific customer installation requirements.
At its Scottsdale, Arizona facility, the Company utilizes sophisticated RF
test and tuning equipment to manufacture and service wireless products.
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<PAGE> 23
The Company has an experienced Vice President of Quality who, along with a
staff of quality assurance professionals, oversees the quality of the Company's
products and services. The Company's Orlando manufacturing and repair operations
are ISO 9002 certified.
In connection with its manufacturing and test services, the Company
generally provides warranties on its products and services ranging from three
months to five years. A one to two year warranty is typically provided on
switching, transport and access products.
The Company believes that it currently has the equipment, personnel and
experience necessary to efficiently manufacture high quality telecommunications
products in-house. This should assist the Company in controlling the costs,
quality and delivery of its products and allow the Company to bring new products
to market on a timely basis.
FACILITIES
The Company's executive offices are located in Atlanta, Georgia, where it
occupies approximately 2,000 square feet under a lease expiring in October 1998.
The Company leases certain office, manufacturing and warehouse facilities under
operating leases which expire at various dates during the next three years. The
Company's existing facilities are adequate for its current operations, and the
Company believes that convenient, additional facilities are readily available
should the business need arise. The following provides a summary of the
significant operating facilities currently leased by the Company.
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE LEASE EXPIRES
-------- -------------- ---------------
<S> <C> <C>
Orlando, Florida.................................... 54,000 November 1998
Alpharetta, Georgia................................. 40,000 March 2002
Lakeland, Florida................................... 32,000 June 1998
Dallas, Texas....................................... 27,000 July 1999
South Bend, Indiana................................. 22,000 July 2002
Pleasanton, California.............................. 7,000 March 1999
Scottsdale, Arizona................................. 11,000 October 1999
Yuma, Arizona....................................... 10,000 October 1998
-------
Total..................................... 203,000
=======
</TABLE>
SUPPLIERS
Products manufactured by the Company typically require the procurement of
printed circuit boards, electronic components, cable assemblies, fabricated
metal, plastic parts and other materials, of which electronic components are the
most costly. The Company purchases electronic components from numerous sources,
including original manufacturers and parts distributors.
The Company purchases substantially all of its components and other parts
from suppliers on a purchase order basis and does not maintain long-term supply
arrangements. Most of the components used in the Company's products and related
services are available from multiple sources. However, several components,
primarily custom hybrid integrated circuits, are currently obtained from a
single source. To date, the Company has been able to obtain adequate supplies of
these components. The Company's inability in the future to obtain sufficient
quantities of limited-source components, or to develop alternative sources
therefor, could result in delays in product delivery and increased component
cost, either of which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Although the Company manufactures its own switching products, a significant
portion of the switching products sold to date by the Company has been
manufactured or developed by Northern Telecom, including new or used switching
systems, add-on frames and circuit boards. The major sources for such products
are deinstallations by primary users, asset recovery operations of telephone
companies, auctions by Northern Telecom, repossessions by leasing companies and
formal distribution or consignment agreements. The Company currently has formal
consignment agreements with Ameritech, SNET and Century Telephone,
20
<PAGE> 24
pursuant to which the Company inventories Northern Telecom, Lucent Technologies
and other circuit boards for resale by the Company.
ENGINEERING AND DEVELOPMENT
Historically, the Company's engineering, development and technical support
efforts have focused on the repair of switching, transport and access products
and on electronic manufacturing processes. The Company has significant
experience in developing automated test systems, diagnostic programs and repair
procedures for electronic circuitry typically found within telecommunications
switching equipment. The Company's engineers have also used their expertise and
experience to create new revenue sources for the Company by developing upgrades
and enhancements to existing products, including those developed and
manufactured by other telecommunications equipment companies.
Following the Acquisitions, the Company's engineering efforts have become
more focused on developing new switching, transport and access products and
enhancing the features and capabilities of current products. The Company's
engineers have significant experience in switching systems configurations,
transmission and access applications and wireless technology such as spread
spectrum CDMA, radio path calculations, field performance measurement and
frequency licensing. The Company expects that, as it begins to manufacture and
sell more sophisticated telecommunications equipment, it will make further
significant investments in research and product development.
As of December 1, 1997, the Company's engineering and development group
consisted of 60 persons, including 31 RF engineers added through the Galaxy
acquisition, 14 in product development, and 15 persons in repair service
development, systems integration and manufacturing process and operations
support. These employees are organized into teams corresponding to the Company's
product lines, and each team is responsible for providing technical support to
the Company's customers and for developing and enhancing products. The Company's
internal engineering resources permit the Company to continually reduce the
production cost and improve the functionality of its products.
COMPETITION
The segments of the telecommunications industry in which the Company
operates are intensely competitive. The Company's ability to compete is
dependent upon several factors, including price, quality, product features and
timeliness of delivery. Many of the Company's competitors have significantly
more extensive engineering, manufacturing, marketing, financial and technical
resources than the Company. In addition, the Company currently competes with
several of its major suppliers, including Northern Telecom, with respect to the
sale of certain of its products, which may adversely affect its ability to
continue to obtain such products from these suppliers in the future.
In the sale of switching, transport and access products, the Company
competes with companies such as Northern Telecom and Lucent Technologies. The
Company believes it competes favorably against these companies by providing high
quality products, comprehensive support services, competitive prices and
shortened product delivery times. As the Company increases its international
sales efforts, it also expects to compete with other established
telecommunications equipment companies such as Ericsson, Fujitsu, Siemens and
Alcatel Network Systems.
EMPLOYEES
As of December 22, 1997, the Company had 327 full-time employees, including
60 in engineering and development, 30 in sales and marketing, 95 in
manufacturing, warehousing and quality assurance, 99 in repair and refurbishment
and 43 in general management, finance, administration and other support
services. From time to time, the Company also uses part-time employees in its
manufacturing operations to accommodate changes in production levels. None of
the Company's employees is represented by any collective bargaining agreements,
and the Company has never experienced a work stoppage. The Company considers its
employee relations to be good.
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<PAGE> 25
LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. The Company
is not a party to any such legal proceeding, the adverse outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on the Company's business, financial condition or results of operations.
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<PAGE> 26
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of October 1, 1997 (The
"Indenture"), between the Company and First Union National Bank, as Trustee (the
"Trustee"). A copy of the form of Indenture and the related registration rights
agreement between the Company and the Initial Purchasers (the "Registration
Rights Agreement") are available from the Trustee upon request by a registered
holder of Notes. The following summaries of certain provisions of the Notes, the
Indenture and the Registration Rights Agreement do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Notes, the Indenture and the Registration Rights Agreement,
including the definitions therein of certain terms which are not otherwise
defined in this Prospectus. Wherever particular provisions or defined terms of
the Indenture (or of the form of Note which is a part thereof) or the
Registration Rights Agreement are referred to, such provisions or defined terms
are incorporated herein by reference.
GENERAL
The Notes are unsecured general obligations of the Company subordinate in
right of payment to certain other obligations of the Company as described under
"--Subordination of Notes," and convertible into Common Stock as described under
"--Conversion of Notes." The Notes are limited to $115,000,000 in aggregate
principal amount and were issued only in denominations of $1,000 or any multiple
thereof and mature on October 1, 2002, unless earlier redeemed at the option of
the Company or repurchased by the Company at the option of the holder upon a
Change in Control.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the incurrence of Senior Indebtedness or the
issuance or repurchase of securities of the Company. The Indenture contains no
covenants or other provisions to afford protection to holders of Notes in the
event of a highly leveraged transaction or a change in control of the Company
except to the extent described under "--Repurchase at Option of Holders upon
Change in Control."
The Notes bear interest at the annual rate of 4.5% on the original date of
issuance, payable on April 1 and October 1, commencing on April 1, 1998, to
holders of record at the close of business on March 15 and September 15,
respectively (other than with respect to a Note or portion thereof called for
redemption on a redemption date, or repurchased in connection with a Change in
Control on a Repurchase Date (as defined below) during the period from the
Record Date to (but excluding) the next succeeding Interest Payment Date (in
which case accrued interest shall be payable to the extent required to the
holder of the Note or portion thereof redeemed or repurchased) or converted
after the Record Date and before the next succeeding Interest Payment Date
except to the extent that, at the time such Note or portion thereof is submitted
for conversion, such Note or portion thereof was required to be accompanied by
funds equal to the amount of interest payable on such succeeding Interest
Payment Date on the principal amount so converted (see "--Conversion of Notes"
below)). Interest may, at the Company's option, be paid by check mailed to such
holders, provided that a holder of Notes with an aggregate principal amount in
excess of $5,000,000 will be paid by wire transfer in immediately available
funds at the election of such holder. Interest will be computed on the basis of
a 360-day year comprised of twelve 30-day months.
Principal and premium, if any, will be payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without service
charge, at the office of the Company maintained for such purpose in Atlanta,
Georgia, which shall initially be the office or agency of the Trustee.
The Indenture and the Registration Rights Agreement are governed by and
construed under the laws of the State of Georgia.
BOOK ENTRY, DELIVERY AND FORM
The Notes were issued in fully registered form, without coupons, in
denominations of $1,000 principal amount and multiples thereof.
Global Note, Book-Entry Form. Notes held by qualified institutional
buyers, as defined in Rule 144A under the Securities Act ("QIBs"), are evidenced
by a global Note (the "144A Global Note") which has
23
<PAGE> 27
been deposited with, or on behalf of, DTC and registered in the name of Cede &
Co. ("Cede") as DTC's nominee. Notes held by persons who acquired such Notes in
compliance with Regulation S under the Securities Act ("Foreign Persons") are
evidenced by a global Note (the "Regulation S Global Note"), which has been
deposited with, or on behalf of, DTC and registered in the name of Cede as DTC's
nominee, for the accounts of the Euroclear System ("Euroclear") or Cedel Bank,
societe anonyme ("Cedel"). Beneficial interests in the Regulation S Global Note
may only be held through Euroclear or Cedel, and any resale or transfer of such
interests to U.S. persons shall only be permitted as described under "Transfer
Restrictions" below. The 144A Global Note and the Regulation S Global Note are
hereinafter collectively referred to as the Global Note. Except as set forth
below, record ownership of the Global Note may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
A QIB may hold its interests in the Global Note directly through DTC, if
such QIB is a participant in DTC, or indirectly through organizations which are
participants in DTC (the "Participants"). Transfers between Participants will be
effected in the ordinary way in accordance with DTC rules and will be settled in
same-day funds. The laws of some states require that certain persons take
physical delivery of securities in definitive form. Consequently, the ability to
transfer beneficial interest in the Global Note to such persons may be limited.
Foreign Persons may hold their interest in the Regulation S Global Note
directly through Cedel or Euroclear or indirectly through organizations that are
participants in such systems. Cedel and Euroclear hold interests in the
Regulation S Global Note on behalf of their participants through DTC. Transfers
between participants in Euroclear and Cedel will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
QIBs and Foreign Persons who are not Participants may beneficially own
interests in the Global Note held by DTC only through Participants, including
Euroclear and Cedel, or certain banks, brokers, dealers, trust companies and
other parties that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("Indirect Participants"). So long as
Cede, as the nominee of DTC, is the registered owner of the Global Note, Cede
for all purposes will be considered the sole holder of the Global Note. Except
as provided below, owners of beneficial interests in the Global Note will not be
entitled to have certificates registered in their names, will not receive or be
entitled to receive physical delivery of certificates in definitive form and
will not be considered holders thereof.
Payment of interest on and the redemption price of the Global Note will be
made to Cede, the nominee of DTC, as the registered owner of the Global Note, by
wire transfer of immediately available funds on the applicable payment date
therefor. Neither the Company, the Trustee nor any paying agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company has been informed by DTC that, with respect to any payment of
interest on, or the redemption price of, the Global Note, DTC's practice is to
credit Participants' accounts on the applicable payment date therefor with
payments in amounts proportionate to their respective beneficial interests in
the Notes represented by the Global Note, as shown on the records of DTC
(adjusted as necessary so that such payments are made with respect to whole
Notes only), unless DTC has reason to believe that it will not receive payment
on such payment date. Payments by Participants to owners of beneficial interests
in Notes represented by the Global Note held through such Participants will be
the responsibility of such Participants, as is now the case with securities held
for the accounts of customers registered in "street name."
Holders who desire to convert their Notes into Common Stock pursuant to the
terms of the Notes should contact their brokers or other Participants or
Indirect Participants to obtain information on procedures, including proper
forms and cut-off times, for submitting such requests.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Notes represented by the Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take
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<PAGE> 28
actions in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Notes (including, without limitation, the
presentation of Notes for exchange as described below), only at the direction of
one or more Participants to whose account DTC interests in the Global Note are
credited and only in respect of the principal amount of the Notes represented by
the Global Note as to which such participant or participants has or have given
such direction.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC holds securities for its
participants. DTC also facilitates the clearance and settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic book-entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations
such as the Initial Purchasers. Certain of such Participants (or their
representatives), together with other entities, own DTC. Indirect access to the
DTC system is available to others such as banks, brokers, dealers and trust
companies that clear through, or maintain a custodial relationship with, a
Participant, either directly or indirectly. The rules applicable to DTC and its
participants are on file with the Commission.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
in order to facilitate transfers of interests in the Global Note among
Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform or continue to perform such procedures, and such procedures may be
discontinued at any time. If DTC is at any time unwilling or unable to continue
as depository and a successor depository is not appointed by the Company within
90 days, the Company will cause Notes to be issued in definitive form in
exchange for the Global Note. None of the Company, the Trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear and Cedel, their participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Notes.
Certificated Notes. Notes sold to investors that are neither QIBs nor
Foreign Persons were issued in definitive registered form in denominations of
$100,000 and integral multiples of $1,000 in excess thereof, and are not
represented by the Global Note. QIBs and Foreign Persons may request that their
Notes be issued in certificated form and may request at any time that their
interest in a Global Note be exchanged for a Note in certificated form.
Certificated Notes may be issued in exchange for Notes represented by the Global
Note if no successor depository is appointed by the Company as set forth above
under "--Global Note, Book Entry Form."
CONVERSION OF NOTES
The holders of Notes are entitled at any time prior to the close of
business on the final maturity date of the Notes, subject to prior redemption or
repurchase, to convert any Notes or portions thereof (in denominations of $1,000
or multiples thereof) into Common Stock, at the conversion price set forth on
the cover page of this Prospectus, subject to adjustment as described below.
Except as described below, no adjustment will be made on conversion of any Notes
for interest accrued thereon or for dividends on any Common Stock issued upon
conversion of the Notes.
In the event a Note is called for redemption on or after October 1, 2000
and before April 1, 2001 and the holder elects to convert such Note after it has
been called for redemption, the holder will be entitled to receive
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<PAGE> 29
interest on such Note for the period from April 1, 2000 through October 1, 2000
in addition to any rights such holder may have upon conversion of the Notes. If
any Notes not called for redemption are converted after a Record Date for the
payment of interest and prior to the next succeeding Interest Payment Date, such
Notes must be accompanied by funds equal to the interest payable on such
succeeding Interest Payment Date on the principal amount so converted. No such
payment will be required if the Company exercises its right to redeem such Notes
on a redemption date that is an Interest Payment Date. The Company is not
required to issue fractional shares of Common Stock upon conversion of Notes
and, in lieu thereof, will pay a cash adjustment based upon the market price of
the Common Stock on the last Trading Day (as defined) prior to the date of
conversion. In the case of Notes called for redemption, conversion rights will
expire at the close of business on the fifth business day preceding the date
fixed for redemption, unless the Company defaults in payment of the redemption
price. A Note in respect of which a holder is exercising its option to require
repurchase upon a Change in Control may be converted only if such holder
withdraws its election to exercise its option in accordance with the terms of
the Indenture.
The initial conversion price of $37.03125 per share of Common Stock is
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock of the Company; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights or warrants to purchase Common Stock; (iv) the
distribution to all holders of Common Stock of shares of capital stock of the
Company (other than Common Stock) or evidences of indebtedness of the Company or
assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to above and dividends and distributions in
connection with the liquidation, dissolution or winding up of the Company or
paid in cash); (v) dividends or other distributions consisting exclusively of
cash (excluding any cash portion of distributions referred to in clause (iv)) to
all holders of Common Stock to the extent that such distributions, combined
together with (A) all other such all-cash distributions made within the
preceding 12 months in respect of which no adjustment has been made plus (B) any
cash and the fair market value of other consideration payable in respect of any
tender offers by the Company for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds 10% of the
Company's market capitalization (being the product of the then-current market
price of the Common Stock multiplied by the number of shares of Common Stock
then outstanding on the Record Date for such distribution); (vi) the purchase of
Common Stock pursuant to a tender offer made by the Company or any of its
subsidiaries to the extent that the same involves an aggregate consideration
that, together with (x) any cash and the fair market value of any other
consideration payable in any other tender offer by the Company or any of its
subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus (y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer; and (vii) payment in respect of a tender offer or exchange
offer by a person other than the Company or any subsidiary of the Company in
which, as of the closing date of the offer, the Board of Directors is not
recommending rejection of the offer. If an adjustment is required to be made as
set forth in clause (v) above as a result of a distribution that is not a
quarterly dividend, such adjustment would be based upon the full amount of the
distribution. The adjustment referred to in clause (vii) above will only be made
if the tender offer or exchange offer is for an amount which increases that
person's ownership of Common Stock to more than 25% of the total shares of
Common Stock outstanding and if the cash and value of any other consideration
included in such payment per share of Common Stock exceeds the Current Market
Price per share of Common Stock on the business day next succeeding the last
date on which tenders or exchanges may be made pursuant to such tender or
exchange offer. The adjustment referred to in clause (vii) above will not be
made, however, if, as of the closing of the offer, the offering documents with
respect to such offer disclose a plan or an intention to cause the Company to
engage in a consolidation or merger of the Company or a sale of the Company's
assets, as an entirety or substantially as an entirety.
In addition, the Indenture provides that if the Company implements a
stockholders' rights plan, such rights plan must provide that, upon conversion
of the Notes, the holders will receive, in addition to the
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<PAGE> 30
Common Stock issuable upon such conversion, such rights whether or not such
rights have separated from the Common Stock at the time of such conversion.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect, provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
Except as stated above, the conversion price will not be adjusted for the
issuance of Common Stock or any securities convertible into or exchangeable for
Common Stock or carrying the right to purchase any of the foregoing.
In the case of (i) any reclassification or change of the Common Stock or
(ii) a consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance assuming that a holder of Notes would not have
exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith.
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may, to the extent permitted by law, reduce
the conversion price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive. See "Certain Federal Income Tax Considerations." The Company may, at
its option, make such reductions in the conversion price, in addition to those
set forth above, as the Board of Directors deems advisable to avoid or diminish
any income tax to holders of Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "Certain Federal Income Tax Considerations."
OPTIONAL REDEMPTION BY THE COMPANY
The Notes are not entitled to any sinking fund. At any time on or after
October 1, 2000, all or any part of the Notes will be redeemable at the
Company's option on at least 15 but not more than 60 days' notice, as a whole
or, from time to time in part, at the following prices (expressed in percentages
of the principal amount), together with accrued interest to, but excluding, the
date fixed for redemption.
If redeemed during the 12-month period beginning October 1:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2000........................................................ 101.8%
2001........................................................ 100.9
</TABLE>
and 100% at October 1, 2002, provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable in respect of the
Notes being redeemed to the holders of record of such Notes on the immediately
preceding Record Date.
If fewer than all the Notes are to be redeemed, the Trustee will select the
Notes to be redeemed in principal amounts of $1,000 or multiples thereof by lot
or, in its discretion, on a pro rata basis. If any Note is to be redeemed in
part only, a new Note or Notes in principal amount equal to the unredeemed
principal portion
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<PAGE> 31
thereof will be issued. If a portion of a holder's Notes is selected for partial
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be taken from the portion selected for redemption.
REPURCHASE AT OPTION OF HOLDERS UPON CHANGE IN CONTROL
The Indenture provides that if a Change in Control occurs, each holder of
Notes shall have the right to require the Company to repurchase all of such
holder's Notes, or any portion of the principal amount thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date") that is 30 days
after the date of the Company Notice (as defined below), for cash at a price
equal to 100% of the principal amount thereof (the "Repurchase Price"), together
with accrued and unpaid interest to, but excluding, the Repurchase Date,
provided that any semi-annual payment of interest becoming due on the Repurchase
Date shall be payable to the holders of record on the relevant Record Date of
the Notes being repurchased.
Within 15 days after the occurrence of a Change in Control, the Company or,
at the Company's request, the Trustee is obligated to mail to all holders of
record of Notes a notice (the "Company Notice") of the occurrence of such Change
in Control and of the repurchase right arising as a result thereof. The Company
must also deliver a copy of the Company Notice to the Trustee. To exercise the
repurchase right, a holder of such Notes must deliver to the Trustee on or
before the Repurchase Date written notice of the holder's exercise of such
right, together with the Notes with respect to which the right is being
exercised, duly endorsed for transfer to the Company.
A "Change in Control" will be deemed to have occurred at such time after
the original issuance of the Notes as:
(i) any Person (as defined) (including any syndicate or group deemed
to be a "person" under Section 13(d)(3) of the Exchange Act), other than
the Company, any subsidiary of the Company, or any employee benefit plan of
the Company or any such subsidiary, is or becomes the beneficial owner,
directly or indirectly, through a purchase or other acquisition transaction
or series of transactions (other than a merger or consolidation involving
the Company), of shares of capital stock of the Company entitling such
Person to exercise in excess of 50% of the total voting power of all shares
of capital stock of the Company entitled to vote generally in the election
of directors;
(ii) there occurs any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of the assets of the Company, as an
entirety or substantially as an entirety, to another Person (other than (a)
any such transaction pursuant to which the holders of the Common Stock
immediately prior to such transaction have, directly or indirectly, shares
of capital stock of the continuing or surviving corporation immediately
after such transaction which entitle such holders to exercise in excess of
50% of the total voting power of all shares of capital stock of the
continuing or surviving corporation entitled to vote generally in the
election of directors and (b) any merger (1) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding
shares of Common Stock or (2) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding shares of Common
Stock solely into shares of common stock and separate series of common
stock carrying substantially the same relative rights as the Common Stock);
or
(iii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the one-year period immediately preceding such change
(together with any other director whose election by the Board of Directors
of the Company or whose nomination for election by the stockholders of the
Company was approved by a vote of at least a majority of the directors then
in office either who were directors at the beginning of such period or
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office;
provided, however, that a Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any ten
Trading Days within the period of 20 consecutive Trading
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<PAGE> 32
Days ending immediately before the Change in Control shall equal or exceed 105%
of the conversion price in effect on each such Trading Day, or (b)(i) at least
90% of the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change in Control consists of
shares of common stock with full voting rights traded on a national securities
exchange or quoted on the Nasdaq National Market (or which will be so traded or
quoted when issued or exchanged in connection with such Change in Control) (such
securities being referred to as "Publicly Traded Securities") and as a result of
such transaction or transactions such Notes become convertible solely into such
Publicly Traded Securities and (ii) the consideration in the transaction or
transactions constituting the Change in Control consists of cash, Publicly
Traded Securities or a combination of cash and Publicly Traded Securities with
an aggregate fair market value (which, in the case of Publicly Traded
Securities, shall be equal to the average closing price of such Publicly Traded
Securities during the ten consecutive Trading Days commencing with the sixth
Trading Day following consummation of the transaction or transactions
constituting the Change in Control) is at least 105% of the Conversion Price in
effect on the date immediately preceding the date of consummation of such Change
in Control. The term "beneficial owner" shall be determined in accordance with
Rule 13d-3 promulgated by the Commission under the Exchange Act.
To the extent applicable, the Company will comply with the provisions of
Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any offer by
the Company to repurchase Notes upon a Change in Control.
The Change in Control feature of the Notes may in certain circumstances
make more difficult or discourage a takeover of the Company and, thus, the
removal of incumbent management. The repurchase right is not the result of
management's knowledge of any effort to accumulate any Common Stock or to obtain
control of the Company by means of a merger, tender offer, solicitation or
otherwise, or part of a plan by management to adopt a series of anti-takeover
provisions. Instead, this right is the result of negotiations between the
Company and the Initial Purchasers.
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, certain changes in
control of the Company or other transactions involving the Company that may
adversely affect holders.
The Company's ability to repurchase Notes upon the occurrence of a Change
in Control is subject to limitations. If a Change in Control were to occur,
there could be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the terms of certain of
the Company's then-existing debt agreements may prohibit the Company from
purchasing any Notes and also identify certain events that would constitute a
change in control, as well as certain other events with respect to the Company
or certain of its subsidiaries, which would constitute an event of default under
such debt agreements. Any future credit agreements or other agreements related
to other Indebtedness (including other Senior Indebtedness) to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change in Control occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to
repurchase the Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from repurchasing Notes. Any
failure by the Company to repurchase the Notes when required following a Change
in Control would result in an Event of Default under the Indenture whether or
not such repurchase is permitted by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Change in Control may
cause an event of default under Senior Indebtedness of the Company. As a result,
in each such case, any repurchase of the Notes would, absent a waiver, be
prohibited under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. See "--Subordination of Notes," "Risk
Factors--Subordination" and "Risk Factors--Limitation on Repurchase of Notes
upon Change in Control."
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<PAGE> 33
SUBORDINATION OF NOTES
The Indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest on the Notes is to be
subordinated to the extent provided in the Indenture in right of payment to the
prior payment in cash of all Senior Indebtedness. In the event of any
acceleration of the Notes because of an Event of Default (as defined in the
Indenture), the holders of any Senior Indebtedness then outstanding would be
entitled to payment in full in cash of all obligations in respect of such Senior
Indebtedness before the holders of the Notes are entitled to receive any payment
or distribution in respect thereof. The Indenture will require that the Company
promptly notify holders of Senior Indebtedness if payment of the Notes is
accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the Notes
if (i) a default in the payment of the principal of, premium, if any, interest,
lease payment or other obligations in respect of Senior Indebtedness occurs and
is continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness (as
defined) that permits holders of the Designated Senior Indebtedness as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or other
person permitted to give such notice under the Indenture. Payments on the Notes
may and shall be resumed (a) in case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received if the maturity of such Designated Senior Indebtedness has not been
accelerated. No new period of payment blockage may be commenced pursuant to a
Payment Blockage Notice unless and until (i) 365 days have elapsed since the
initial effectiveness of the immediately prior Payment Blockage Notice and (ii)
all scheduled payments of principal, premium, if any, and interest on the Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
By reason of the subordination provisions described above, in the event of
the Company's bankruptcy, dissolution or reorganization, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company. Such subordination will
not prevent the occurrence of any Event of Default under the Indenture.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest (including all interest accruing subsequent to the commencement of any
bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness (as defined) of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refinancings of, or amendments, modifications
or supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes or expressly provides that such Indebtedness is
"pari passu" or "junior" to the Notes. Notwithstanding the foregoing, the term
Senior Indebtedness shall not include any Indebtedness of the Company to any
Subsidiary (as defined in the Indenture) of the Company.
The term "Indebtedness" means, with respect to any Person (as defined in
the Indenture), and without duplication, (a) the principal of and premium, if
any, and interest on, and fees, costs, enforcement expenses, collateral
protection expenses and other reimbursement or indemnity obligations in respect
to all indebtedness or obligations of the Company to any Person, including but
not limited to banks and other lending institutions, for money borrowed that is
evidenced by a note, bond, debenture, loan agreement, or similar instrument or
agreement (including purchase money obligations with original maturities in
excess of one year and noncontingent reimbursement obligations in respect of
amounts paid under letters of credit); (b) all
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<PAGE> 34
reimbursement obligations and other liabilities (contingent or otherwise) of
such Person with respect to letters of credit, bank guarantees or bankers'
acceptances, (c) all obligations and liabilities (contingent or otherwise) in
respect of leases of such Person required, in conformity with generally accepted
accounting principles, to be accounted for as capital lease obligations on the
balance sheet of such Person, (d) all obligations of such Person (contingent or
otherwise) with respect to an interest rate or other swap, cap or collar
agreement or other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement, (e) all direct or
indirect guaranties or similar agreements by such Person in respect of, and
obligations or liabilities (contingent or otherwise) of such Person to purchase
or otherwise acquire, or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (d), (f) any indebtedness or other obligations, excluding
any operating leases the Company is currently (or may become) a party to,
described in clauses (a) through (d) secured by any mortgage, pledge, lien or
other encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person and (g) any and all deferrals, renewals,
extensions and refinancings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (a)
through (f).
The term "Designated Senior Indebtedness" means the Company's indebtedness
outstanding from time to time under its revolving credit facility and any
particular Senior Indebtedness in which the instrument creating or evidencing
the same or the assumption or guarantee thereof (or related agreements or
documents to which the Company is a party) expressly provides that such Senior
Indebtedness shall be "Designated Senior Indebtedness" for purposes of the
Indenture (provided that such instrument, agreement or other document may place
limitations and conditions on the right of such Senior Indebtedness to exercise
the rights of Designated Senior Indebtedness).
Any right of the Company to receive any assets of any of its subsidiaries
upon their liquidation or reorganization (and the consequent right of the
holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
As of September 30, 1997, the Company had approximately $367,000 of
indebtedness outstanding that would have constituted Senior Indebtedness and had
the entire $10 million available under its $10.0 million line of credit. The
Indenture will not limit the amount of additional Indebtedness, including Senior
Indebtedness, which the Company can create, incur, assume or guarantee, nor will
the Indenture limit the amount of Indebtedness which any Subsidiary can create,
incur, assume or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the subordination provisions of the Indenture,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness
is paid in full, then such payment or distribution will be held by the recipient
in trust for the benefit of holders of Senior Indebtedness or their
representative or representatives to the extent necessary to make payment in
full of all Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution, or provision therefor, to or for the holders
of Senior Indebtedness.
The Company is obligated to pay reasonable compensation to the Trustee and
to indemnify the Trustee against any losses, liabilities or expenses incurred by
it in connection with its duties relating to the Notes. The Trustee's claims for
such payments will be senior to those of holders of the Notes in respect of all
funds collected or held by the Trustee.
EVENTS OF DEFAULT AND REMEDIES
The following are Events of Default under the Indenture: (i) default in the
payment of any interest upon the Notes, continued for 30 days; (ii) default in
the payment of principal or premium, if any, upon the Notes
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<PAGE> 35
when due or in the payment of any redemption obligation; (iii) default by the
Company or any subsidiary with respect to its obligation to pay principal of or
interest on indebtedness for borrowed money, which default shall have resulted
in indebtedness aggregating more than $5 million; (iv) default by the Company
with respect to indebtedness for borrowed money, which default results in the
acceleration of such indebtedness in an amount exceeding $5 million, which
indebtedness has not been discharged or such acceleration has not been rescinded
or annulled for a period of 10 days; (v) failure to perform any other covenant
or warranty of the Company, continued for 60 days after written notice as
provided in the Indenture; (vi) final judgments or orders are rendered against
the Company or any of its subsidiaries which require the payment by the Company
or any of its subsidiaries of an amount (to the extent not covered by insurance)
in excess of $5 million and such judgments or orders remain unstayed or
unsatisfied for more than 60 days and are not being contested in good faith by
appropriate proceedings; and (vii) certain events of bankruptcy, insolvency or
reorganization with respect to the Company.
The Indenture provides that if an Event of Default shall have occurred and
be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of principal of, premium, if any,
and interest on any of the Notes which shall have become due by acceleration)
and certain other conditions are met, with certain exceptions, such declaration
may be annulled and past defaults may be waived by the holders of a majority of
the principal amount of the Notes then outstanding. In the case of certain
events of bankruptcy or insolvency, the principal of and accrued interest on the
Notes shall automatically become and be immediately due and payable.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to direct the time, method and place of conducting any
proceedings for any remedy available to the Trustee, subject to certain
limitations specified in the Indenture.
MODIFICATIONS OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Notes, except that no
such modification shall (i) extend the fixed maturity of any Note, reduce the
rate or extend the time of payment of interest thereon, reduce the principal
amount thereof or premium, if any, thereon, reduce any amount payable upon
redemption thereof, change the obligation of the Company to repurchase any Note
upon the occurrence of any Change in Control in a manner adverse to holders of
Notes, impair the right of a holder to institute suit for the payment thereof,
change the currency in which the Notes are payable, or impair the right to
convert the Notes into Common Stock in any material respect, or modify the
provisions of the Indenture with respect to the subordination of the Notes in a
manner adverse to the holders of the Notes in any material respect, without the
consent of the holder of each Note so affected, or (ii) reduce the aforesaid
percentage of Notes the holders of which are required to consent to any such
supplemental indenture, without the consent of the holders of all of the Notes
then outstanding.
REGISTRATION RIGHTS
The Company has agreed to file with the Commission the shelf registration
statement of which this Prospectus is a part covering resales by holders of
Notes and Common Stock issuable upon conversion of the Notes. The Company will
use all reasonable efforts to keep the registration statement effective for two
years from the latest date of original issuance of Notes. The Company is
permitted to suspend the use of this Prospectus during certain periods of time
and under certain circumstances relating to pending corporate developments,
public filings with the Commission and similar events. The Company has agreed to
pay liquidated damages to all holders of Notes and all holders of Common Stock
issued upon conversion of the Notes if the Prospectus is unavailable for periods
in excess of those permitted under the Registration Rights Agreement. The
Company will pay all expenses of the shelf registration statement, provide to
each registered holder requesting to sell Notes or shares of Common Stock copies
of such Prospectus, and take certain other actions as are required to permit,
subject to the foregoing, unrestricted resales of the Securities. A holder who
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<PAGE> 36
sells the Notes pursuant to this Prospectus will be bound by the provisions of
the Registration Rights Agreement which are applicable to such holder (including
certain indemnification provisions).
CONCERNING THE TRUSTEE
First Union National Bank, the Trustee under the Indenture, has been
appointed by the Company as the initial paying agent, conversion agent,
registrar and custodian with regard to the Notes. The Company may maintain
deposit accounts and conduct other banking transactions with the Trustee or its
affiliates in the ordinary course of business, and the Trustee and its
affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of their business.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax consequences relating to the Notes as of the date hereof. This discussion is
based on existing provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury regulations promulgated thereunder, judicial decisions
and administrative rulings, all of which are subject to change or alternative
construction with possible retroactive effect. This summary does not discuss
other federal taxes (such as federal estate and gift taxes) or any state, local
or foreign tax considerations, nor does it purport to address all federal income
tax consequences applicable to all categories of investors, some of whom may be
subject to special rules, such as Non-U.S. Holders (as defined below), life
insurance companies, tax-exempt organizations, dealers in securities or
currency, banks or other financial institutions, investors whose functional
currency is not the U.S. dollar, or investors that hold the Notes as part of a
hedge, straddle or conversion transaction. In addition, this summary is
generally limited to the Notes and the Common Stock into which the Notes are
convertible which are held as "capital assets" within the meaning of Section
1221 of the Code. The Company will not seek a ruling from the Internal Revenue
Service (the "IRS") with regard to the United States federal income tax
treatment relating to an investment in the Notes (or the Common Stock into which
the Notes are convertible) and, therefore, there can be no assurance that the
IRS will agree with the conclusions set forth below.
For purposes of this summary, the term "U.S. Holder" means a beneficial
owner of a Note or Common Stock that is (i) a citizen or resident of the United
States, (ii) a corporation, partnership or other entity created or organized in
or under the laws of the United States or any political subdivision thereof,
(iii) an estate the income of which is subject to United States federal income
taxation regardless of its source, and (iv) a trust if (a) a U.S. court is able
to exercise primary supervision over the trust's administration and (b) one or
more U.S. fiduciaries have the authority to control all of the trust's
substantial decisions. The term "Non-U.S. Holder" shall mean the beneficial
owner of a Note or Common Stock other than a U.S. Holder.
PERSONS CONSIDERING ACQUIRING ANY OF THE NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL TAX LAWS, AS WELL
AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS. THIS SUMMARY DOES NOT PURPORT TO ADDRESS ALL ASPECTS OF
FEDERAL, STATE, LOCAL OR FOREIGN TAXATION THAT MAY BE RELEVANT THERETO.
TAXATION OF U.S. HOLDERS
Adjustment to Conversion Price. Section 305 of the Code treats as a
taxable distribution certain actual or constructive distributions of stock with
respect to stock and convertible securities. Applicable Treasury regulations
treat holders of convertible debentures as having received such a constructive
distribution where the conversion price is adjusted to reflect certain
distributions with respect to the stock into which such debentures are
convertible. Thus, under certain circumstances, an adjustment in the conversion
price of the Common Stock may be taxable to the U.S. Holders as a taxable
dividend distribution. Adjustments to the conversion price, however, made
pursuant to a bona fide, reasonable adjustment formula which has the effect of
preventing the dilution of the interest of the U.S. Holders of such securities,
generally will not be considered to result in a constructive distribution of
stock. The Indenture provides that the conversion price will be
33
<PAGE> 37
adjusted upon the occurrence of certain circumstances. There can be no assurance
that some of the adjustments, more fully described in the Indenture, would not
result in a taxable constructive distribution to the U.S. Holders under Section
301 and 305 of the Code. In such a case, U.S. Holders may recognize income as a
result of an event pursuant to which they receive no cash or property that could
be used to pay the related income tax. Holders of the Notes are advised to
consult their tax advisors with respect to the potential of taxable constructive
dividend distributions upon such conversion price modifications.
Payments of Interest. The payment of stated interest on the Notes will be
taxable to a U.S. Holder as ordinary interest income at the time it accrues or
is received in accordance with the holder's usual method of accounting for
federal income tax purposes.
Conversion of a Note into Common Stock. In general, a U.S. Holder will not
recognize gain or loss on conversion of a Note solely into Common Stock pursuant
to the terms of the conversion right of the Notes, except with respect to cash
received in lieu of a fractional share. The holding period of the Common Stock
received by the U.S. Holder upon conversion of a Note will include the period
during which the Note was held prior to the conversion. The U.S. Holder's
aggregate tax basis in the Common Stock received upon conversion of a Note will
equal the U.S. Holder's aggregate tax basis in the Note exchanged (reduced by
the portion allocable to cash received in lieu of a fractional share). A U.S.
Holder generally will recognize capital gain or loss in connection with any cash
received in lieu of a fractional share in an amount equal to the difference
between the amount of cash received and the U.S. Holder's tax basis in the
fractional share. Special federal income tax rules for the treatment of the
conversion of a Note into Common Stock may apply if a U.S. Holder converts after
a record date for the payment of interest but prior to the next succeeding
interest payment date (for instance, the fair market value of Common Stock
received which is attributable to accrued interest will be taxable as ordinary
interest income in certain circumstances). U.S. Holders should consult their own
tax advisors regarding the tax consequences of converting the Notes into Common
Stock.
Disposition of Notes or Common Stock. A U.S. Holder of a Note (or the
Common Stock into which it was converted) generally will recognize capital gain
or loss upon the sale, exchange, retirement or other disposition of the Note (or
the Common Stock) measured by the difference between (i) the amount realized
(except to the extent the amount is attributable to accrued interest income,
which will generally be taxable as ordinary income) and (ii) the U.S. Holder's
tax basis in the Note (or the Common Stock). The gain or loss on such
disposition will be long-term capital gain or loss if the Note (or the Common
Stock) has been held for more than one year at the time of such disposition.
Under recently-enacted legislation, long-term capital gain of an individual
taxpayer currently is subject to a maximum income tax rate of either (i) 20% if
the individual held the asset for more than 18 months or (ii) 28% if the
individual held the asset for more than one year but not more than 18 months.
Distributions with Respect to Common Stock. In general, distributions made
by the Company with respect to Common Stock will constitute dividends for
federal income tax purposes and will be taxable to a holder as ordinary income
to the extent of the Company's undistributed current or accumulated earnings and
profits (as determined for federal income tax purposes). Distributions in excess
of the Company's current or accumulated earnings and profits will be treated
first as a nontaxable return of capital reducing the U.S. Holder's tax basis in
the Common Stock, thus increasing the amount of any gain (or reducing the amount
of any loss) which might be realized by such holder upon the sale, exchange or
redemption of such Common Stock. Any such distributions in excess of the U.S.
Holder's tax basis in the Common Stock will be treated as capital gain to the
U.S. Holder (provided the Common Stock is held as a capital asset) and will be
either long-term or short-term capital gain depending upon the holder's federal
income tax holding period for the Common Stock.
To the extent that distributions made by the Company are treated as
dividends, a U.S. Holder of Common Stock that is taxed as a domestic corporation
and that meets the applicable holding period and taxable income requirements of
the Code may be entitled to a deduction under Section 243 of the Code equal in
amount to 70% of the dividends paid out of such earnings and profits (the
"Dividends Received Deduction"). With respect to Common Stock considered to be
"portfolio stock", as defined in Section 246A of the Code, the Dividends
Received Deduction will be reduced to the extent that the Common Stock
34
<PAGE> 38
constitutes "debt financed portfolio stock. " The receipt of a dividend on the
Common Stock determined to be an "extraordinary dividend" may cause the holder's
tax basis in the Common Stock to be reduced by the untaxed portion of the
dividend pursuant to Section 1059 of the Code, with any excess of such untaxed
portion of the dividend over such tax basis then treated, pursuant to recently
enacted legislation, as gained from the sale or exchange of such Common Stock
for the taxable year in which the extraordinary dividend is received.
Individuals, partnerships and other entities not taxable as domestic
corporations, and certain corporations having a special tax status (such as, for
example, status as an S corporation) are not eligible for the Dividends Received
Deduction.
The Clinton Administration had recently suggested legislation that would
reduce the Dividends Received Deduction to 50%, but no such provision was ever
enacted into law. It is impossible to predict whether, or in what form, any
legislation affecting the Dividends Received Deduction might be enacted into law
in the future. U.S. Holders should consult their own tax advisors regarding the
availability of the Dividends Received Deduction.
TAXATION OF NON-U.S. HOLDERS
Payments of Interest. The payment of stated interest on a Note by the
Company or any paying agent to a Non-U.S. Holder will qualify for the "portfolio
interest exemption" and, therefore, will not be subject to United States federal
income tax or withholding tax, provided that such interest income is not taxable
as effectively connected with a United States trade or business of the Non-U.S.
Holder and provided that the Non-U.S. Holder (i) does not actually or
constructively own 10% or more of the combined voting power of all classes of
stock of the Company entitled to vote, (ii) is not a controlled foreign
corporation related to the Company actually or constructively through stock
ownership, (iii) is not a bank receiving interest on a loan entered into in the
ordinary course of business, and (iv) either (a) provides an IRS Form W-8 (or
suitable substitute form) signed under penalties of perjury that includes its
name and address and certifies as to its non-United States status in compliance
with applicable law and regulations, or (b) deposits the Note with a securities
clearing organization, bank or financial institution that holds customers'
securities in the ordinary course of its trade or business and which holds the
Note and provides a statement to the Company or its agent under penalties of
perjury in which it certifies that such a Form W-8 (or a suitable substitute)
has been received by it from the Non-U.S. Holder or qualified intermediary and
furnishes the Company or its agent with a copy thereof.
Recently-proposed Treasury regulations (the "Proposed Regulations") would
provide alternative methods for satisfying the certification requirement
described in clause (iv) above. The Proposed Regulations also would generally
require, in the case of Notes held by a foreign partnership, that (a) the
certification described in clause (iv) above be provided by the partners rather
than by the foreign partnership, and (b) the partnership provide certain
information, including a United States taxpayer identification number. A look-
through rule would apply in the case of tiered partnerships. The Proposed
Regulations would generally be effective for payments made after December 31,
1997. There can be no assurance that the Proposed Regulations will be adopted or
as to the provisions that they will include if and when adopted in temporary or
final form. Non-U.S. Holders of the Notes are advised to consult their tax
advisors with respect to their qualification for the portfolio interest
exemption and the steps necessary to comply with such exemption.
Except to the extent otherwise provided under an applicable tax treaty, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest on a Note if such interest income is effectively connected
with a United States trade or business of the Non-U.S. Holder. Effectively
connected interest received by a corporate Non-U.S. Holder may also, under
certain circumstances, be subject to an additional "branch profits tax" at a 30%
rate (or, if applicable, a lower treaty rate). Such effectively connected
interest will generally not be subject to withholding tax if the Holder delivers
an IRS Form 4224 to the payor.
Interest income of a Non-U.S. Holder that is not effectively connected with
a United States trade or business and that does not qualify for the portfolio
interest exemption described above will generally be subject to a withholding
tax at a 30% rate (or, if applicable, a lower treaty rate).
35
<PAGE> 39
Conversion of a Note into Common Stock. In general, no United States
federal income tax or withholding tax will be imposed upon the conversion of a
Note into Common Stock by a Non-U.S. Holder except, with respect to the receipt
of cash in lieu of fractional shares by Non-U.S. Holders upon conversion of a
Note, where any one of the four exceptions described below under "--Disposition
of Notes or Common Stock" is applicable. In addition, under certain
circumstances, the extent to which the fair market value of the Common Stock
received upon conversion is attributable to accrued interest will be treated as
ordinary interest income taxable as described above under "--Payments of
Interest."
Disposition of Notes or Common Stock. A Non-U.S. Holder of the Note (or
the Common Stock into which it was converted) will generally not be subject to
United States federal income tax or withholding tax on any gain realized on the
sale, exchange, retirement or other disposition of the Note (including the
receipt of cash in lieu of fractional shares upon conversion of the Note to
Common Stock), unless (i) the gain is effectively connected with a United States
trade or business of the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder
who is an individual, such holder is present in the United States for a period
or periods aggregating 183 days or more during the taxable year of the
disposition, and either such holder has a "tax home" in the United States or the
disposition is attributable to an office or other fixed place of business
maintained by such holder in the United States, (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates, or (iv) the Company is a "United States real property
holding corporation." The Company does not believe that it is, or is likely to
become, a United States real property holding corporation.
Distributions with Respect to Common Stock. To the extent distributions
made by the Company are treated as dividends (as described above under "U.S.
Holders--Distributions with Respect to Common Stock"), a Non-U.S. Holder will be
subject to United States federal withholding tax at a 30% rate (or lower rate
provided under an applicable income tax treaty) on dividends paid (or deemed
paid, as described above under "U.S. Holders--Adjustment to Conversion Price")
on Common Stock, unless the dividends are taxable as effectively connected with
the conduct of a trade or business in the United States and the Non-U.S. Holder
delivers IRS Form 4224 to the payor. Except to the extent otherwise provided
under an applicable tax treaty, a Non-U.S. Holder generally will be taxed in the
same manner as a U.S. Holder on dividends paid (or deemed paid) that are
effectively connected with the conduct of a trade or business in the United
States by the Non-U.S. Holder. If such Non-U.S. Holder is a foreign corporation,
it may also be subject to a United States branch profits tax on such effectively
connected income at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under current Treasury regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the withholding rules
discussed below and, under the current interpretation of Treasury regulations,
for purposes of determining the applicability of a tax treaty rate. Under the
Proposed Regulations, however, a Non-U.S. Holder of Common Stock who wishes to
claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification requirements. In addition, under the Proposed
Regulations, in the case of Common Stock held by a foreign partnership, the
certification requirement would generally be applied to the partners of the
partnership and the partnership would be required to provide certain
information, including a United States taxpayer identification number. The
Proposed Regulations also provide look-through rules for tiered partnerships. It
is not certain whether, or in what form, the Proposed Regulations will be
adopted or the provisions they will include if and when adopted in temporary or
final form.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Under current United States federal income tax law, U.S. Holders of Notes
or Common Stock will be subject to information reporting and, under certain
circumstances, may be subject to "backup withholding" at the rate of 31% in
respect to payments of principal, interest and dividends made to, and the
proceeds of disposition of Notes or Common Stock by, certain non-corporate U.S.
Holders. Generally, the backup withholding rules will apply only if the U.S.
Holder (i) fails to furnish its taxpayer identification number ("TIN") to the
payor, (ii) furnishes such payor with an incorrect TIN, (iii) is notified by the
IRS that it has failed to report properly interest, dividends or other
"reportable payments", as defined by the Code, or
36
<PAGE> 40
(iv) under certain circumstances, fails to provide such payor or the U.S.
Holder's securities broker with a certified statement, signed under penalty of
perjury, that the TIN provided is its correct number and that the U.S. Holder is
not subject to backup withholding. Backup withholding will not apply with
respect to payments made to certain U.S. Holders of the Notes, including
corporations and tax-exempt organizations.
Payments or distributions to a Non-U.S. Holder with respect to a Note or
Common Stock, and the proceeds from a disposition of a Note or Common Stock by a
Non-U.S. Holder, will generally not be subject to backup withholding or to
information reporting requirements unless the Non-U.S. Holder fails to comply
with certain reporting procedures, the payment is received through a United
States office of a broker, or the Non-U.S. Holder fails to establish an
exemption from such tax or information reporting requirements under applicable
provisions of the Code.
Holders of Notes should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption. The amount of any backup withholding from a payment
to a holder should be allowed as a credit against such person's United States
federal income tax liability and may entitle such person to a refund, provided
that the required information is furnished to the IRS.
SELLING SECURITYHOLDERS
NOTES AND CONVERSION SHARES
The Notes were originally issued by the Company in private placements
effected on October 1, 1997 and October 28, 1997 to BT Alex. Brown Incorporated
and Prudential Securities Incorporated (the "Initial Purchasers") and were
simultaneously sold by the Initial Purchasers, in transactions exempt from the
registration requirements of the Securities Act, to persons reasonably believed
by such Initial Purchasers to be "qualified institutional buyers" (as defined in
Rule 144A under the Securities Act). The Selling Securityholders may from time
to time offer and sell pursuant to this Prospectus any or all of the Notes and
Conversion Shares. The term "Selling Securityholder" includes the holders listed
below and the beneficial owners of the Notes and their transferees, pledgees,
donees or other successors.
The following table sets forth information with respect to the Selling
Securityholders and the respective principal amount of Notes beneficially owned
by each Selling Securityholder that may be offered pursuant to this Prospectus.
Such information has been obtained from the Selling Securityholders and the
Trustee.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PERCENT OF TOTAL
SELLING SECURITYHOLDERS OF NOTES OWNED OUTSTANDING NOTES
- ------------------------------------------------------------ ---------------- -----------------
<S> <C> <C>
AAM/Zazane Institutional Income Fund........................ $ 1,500,000 1.30%
Alexandra Global Investment Fund I, LTD..................... 2,600,000 2.26
Allstate Insurance Company.................................. 2,000,000 1.74
Argent Classic Convertible Arbitrage Fund (Bermuda) LP...... 3,000,000 2.61
Brown & Williamson Tobacco Corp Master Retirement Trust..... 150,000 0.13
BT Alex Brown............................................... 13,970,000 12.15
CALAMOS Convertible Bond.................................... 800,000 0.70
CALAMOS Global Growth & Income Fund......................... 150,000 0.13
CALAMOS Growth & Income Fund................................ 250,000 0.22
Champion Int. Corp. Master Retir. Trust..................... 900,000 0.78
Christian Science Trustees for Gifts and Endowments......... 115,000 0.10
Colonial Penn Life Insurance Co............................. 500,000 0.43
Corbel Investments, Inc..................................... 130,000 0.11
</TABLE>
37
<PAGE> 41
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PERCENT OF TOTAL
SELLING SECURITYHOLDERS OF NOTES OWNED OUTSTANDING NOTES
- ------------------------------------------------------------ ---------------- -----------------
<S> <C> <C>
Credit Suisse First Boston Corp............................. $ 2,550,000 2.22%
Damask Capital Limited...................................... 120,000 0.10
Decl. of Trust - Defined Benefit Plans - ICI................ 475,000 0.41
Decl. of Trust - Defined Benefit Plans -ZENECA.............. 330,000 0.29
Delaware PERS............................................... 1,200,000 1.04
Delaware State Employees Ret. Fund.......................... 1,575,000 1.37
Delta Airlines Master Trust................................. 2,000,000 1.74
Dow Chemical Company Employees Retirement Plan.............. 1,500,000 1.30
Estate of Carol G. Simon.................................... 300,000 0.26
Fidelity Financial Trust - Conv. Sect. Fund................. 12,000,000 10.43
First Church of Christ Scientist - Endowment................ 120,000 0.10
Frederic C. Hamilton........................................ 500,000 0.43
General Motors Employees Domestic Group Trust............... 5,500,000 4.78
GEM Convertible Securities Partners, L.P.................... 980,000 0.85
Hamilton Partners Limited................................... 2,500,000 2.17
Hillside Capital Incorporated Corporate Account............. 140,000 0.12
Husic Capital Management for Ameritech Pension Plan......... 1,200,000 1.04
ICI American Holding Trust.................................. 475,000 0.41
J. W McConnell Family Foundation............................ 290,000 0.25
Kettering Medical Center Funded Depreciation Account........ 135,000 0.12
Koch Industries, Inc........................................ 500,000 0.43
Lincoln National Conv. Securities Fund...................... 925,000 0.80
Mainstay Convertible Fund................................... 2,850,000 2.48
Mainstay VP Convertible Portfolio........................... 500,000 0.43
Mark IV Industries, Inc. & Sub. Master Trust................ 760,000 0.66
McMahan Securities Company, L.P............................. 750,000 0.65
McMahan Securities Company, L.P............................. 250,000 0.22
Merrill Lynch Pierce Fenner & Smith Inc..................... 12,275,000 10.67
MFS Series Trust I - MFS Convertible Securities Fund........ 8,000 0.01
MFS Series Trust V - MFS Total Return Fund.................. 1,990,000 1.73
Miles, Sears & Eanni Profit Sharing Plan.................... 200,000 0.17
NALCO Chemical Retirement Trust............................. 220,000 0.19
Orrington International Fund LTD............................ 185,000 0.16
Orrington Invest. Limited Partnership....................... 815,000 0.71
Pacific Life Insurance Company.............................. 750,000 0.65
Palladin Partners I, LP..................................... 500,000 0.43
Port Authority of Allegheny County Retirement Plan and
Allowance Plan for the Employees Represented by Local 85
of the Amalgamated Transit Union.......................... 1,000,000 0.87
Rjr Nabisco, Inc. Defined Benefit Master Trust.............. 800,000 0.70
Societe Generale Securities Corp............................ 5,675,000 4.93
</TABLE>
38
<PAGE> 42
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PERCENT OF TOTAL
SELLING SECURITYHOLDERS OF NOTES OWNED OUTSTANDING NOTES
- ------------------------------------------------------------ ---------------- -----------------
<S> <C> <C>
Southern Farm Bureau Life Insurance Company................. $ 425,000 0.37%
State of Oregon Equity...................................... 3,450,000 3.00
Summer Hill Global Partners L.P............................. 30,000 0.03
Swiss Bank Corporation -- London Branch..................... 1,000,000 0.87
The Fondren Foundation...................................... 90,000 0.08
Thermo Electron Balanced Investment Fund.................... 425,000 0.37
The Fondren Foundation...................................... 90,000 0.08
Unlfi, Inc. Profit Sharing Plan and Trust................... 275,000 0.24
United Food & Conn. Workers Local 1262 and Employers Pension
Fund...................................................... 550,000 0.48
United National Insurance................................... 40,000 0.03
Walker Art Center........................................... 95,000 0.08
Weirton Trust............................................... 250,000 0.22
William E. Simon............................................ 300,000 0.26
William Simon Foundation.................................... 160,000 0.14
Zeneca Holdings Trust....................................... 475,000 0.41
</TABLE>
None of the Selling Securityholders has, or within the past three years has
had, any position, office or other material relationship with the Company or any
of its predecessors or affiliates. Because the Selling Securityholders may,
pursuant to this Prospectus, offer all or some portion of the Notes or the
Conversion Shares, no estimate can be given as to the amount of the Notes or the
Conversion Shares that will be held by the Selling Securityholders upon
termination of any such sales. In addition, the Selling Securityholders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their Notes, in transactions exempt from the registration
requirements of the Securities Act, since the date on which they provided the
information regarding their Notes. See "Plan of Distribution." If required,
additional Selling Securityholders may be identified and information with
respect to these Selling Securityholders may be provided in a Prospectus
Supplement.
RESTRICTED SHARES
The Restricted Shares were originally issued by the Company in private
placements in March 1997 and August 1997 in transactions exempt from the
registration requirements of the Securities Act. The Selling Securityholders may
from time to time offer and sell pursuant to this Prospectus any or all of the
Restricted Shares. The term "Selling Securityholder" includes the holders listed
below and the beneficial owners of the Restricted Shares and their respective
transferees, pledgees, donees or other successors.
39
<PAGE> 43
The following table sets forth certain information with respect to the
Selling Securityholders as of February 23, 1998. Such information has been
obtained from the Selling Securityholders.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------------------
NUMBER OF NUMBER OF
SHARES NUMBER OF SHARES PERCENT OF
BENEFICIALLY SHARES REGISTERED BENEFICIALLY OUTSTANDING
SELLING SECURITYHOLDER OWNED(1) FOR SALE HEREBY OWNED SHARES
- ---------------------- --------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
James E. Bennett(2).......................... 157,419 157,419 -- *
Paul G. Blaser(3)............................ 18,005 18,005 -- *
Thomas R. Canham(4).......................... 428,628 428,628 -- *
Drew H. Davis(5)............................. 8,898 8,898 -- *
Largo Holdings Ltd.(6)....................... 157,418 157,418 -- *
Moore Family Holdings Ltd.(7)................ 33,629 33,629 -- *
Lewis L. Roberts, Jr.(8)..................... 9,037 9,037 -- *
Brian A. Schuchman(9)........................ 428,628 428,628 -- *
Robert E. Schwartz(10)....................... 8,898 8,898 -- *
James H. Shirkey(11)......................... 137,114 137,114 -- *
John T. Simon(12)............................ 428,628 428,628 -- *
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act. Unless otherwise noted, the Company believes that
all persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them. Includes
options or warrants to purchase Company Common Stock which are exercisable
within 60 days following December 30, 1997.
(2) Includes 54,494 shares which were escrowed in connection with the Company's
acquisition of Galaxy (the "Galaxy Escrowed Shares"). These shares will be
released to Mr. Bennett, a former principal of Galaxy, upon Galaxy's
realization of certain levels of profitability during the six months ending
December 31, 1997 and the three one-year periods ending December 31, 2000
(the "Galaxy Earn-Out Period").
(3) Includes (i) 5,666 Galaxy Escrowed Shares and (ii) 5,074 shares pledged to
the Company to secure a promissory note due March 31, 1999 (the "Galaxy
Pledged Shares"). Mr. Blaser is the Vice President of Engineering for
Galaxy.
(4) Includes 281,670 shares which were escrowed in connection with the
Company's acquisition of CIS (the "CIS Escrowed Shares"). These shares will
be released to Mr. Canham, the President of CIS, upon CIS' realization of
certain levels of profitability during the three one year periods ending
December 31, 1999 (the "CIS Earn-Out Period").
(5) Includes (i) 2,857 Galaxy Escrowed Shares and (ii) 2,508 Galaxy Pledged
Shares. Mr. Davis is Director of Engineering Services for Galaxy.
(6) Includes 54,493 Galaxy Escrowed Shares. These shares will be released to
Largo Holdings Ltd. upon Galaxy's realization of certain levels of
profitability during the Galaxy Earn-Out Period. Joseph W. Forbes, Jr.,
President of Galaxy, is the general partner of Largo Holdings, Ltd.
(7) Includes 9,477 Galaxy Escrowed Shares. Roy J. Moore, a former principal of
Galaxy, is the general partner of Moore Family Holdings Ltd.
(8) Includes (i) 2,928 Galaxy Escrowed Shares and (ii) 2,547 Galaxy Pledged
Shares. Mr. Roberts is Director of Advanced Technologies for Galaxy.
(9) Includes 281,670 CIS Escrowed Shares. These shares will be released to Mr.
Schuchman, Executive Vice President of CIS, upon CIS' realization of
certain levels of profitability during the CIS Earn-Out Period.
(10) Includes (i) 2,928 Galaxy Escrowed Shares and (ii) 2,508 Galaxy Pledged
Shares. Mr. Schwartz is the former Controller for Galaxy.
40
<PAGE> 44
(11) Under the terms and conditions of a Settlement Agreement between Mr.
Shirkey and the Company executed in August 1997 and amended in December
1997, Mr. Shirkey, the former sole stockholder and President of AIT, has
placed all 137,114 shares with an escrow agent to effectively guarantee
certain accounts receivable of AIT. The escrow agent has been instructed to
sell these shares in accordance with instructions from the Company and to
remit all sales proceeds to the Company.
(12) Includes 281,670 CIS Escrowed Shares. These shares will be released to Mr.
Simon, Executive Vice President of CIS, upon CIS' realization of certain
levels of profitability during the CIS Earn-Out Period.
WARRANT SHARES
The Warrants were originally issued by the Company to certain members of
its Board of Directors in December 1994 pursuant to the Company's Outside
Director Warrant Plan (the "Warrant Plan") and March 1997 pursuant to the
Company's Directors Warrant Incentive Plan (the "Incentive Plan") and are
currently exercisable. Holders of the Warrants will exercise such Warrants prior
to the sale of the underlying shares registered hereby. The Selling
Securityholders may from time to time offer and sell pursuant to this Prospectus
any or all of the Warrant Shares. The term "Selling Securityholder" includes the
holders listed below and the beneficial owners of the Restricted Shares and
their respective transferees, pledgees, donees or other successors.
The following table sets forth certain information with respect to the
Selling Securityholders as of December 1, 1997. Such information has been
obtained from the Selling Securityholders.
<TABLE>
<CAPTION>
BEFORE OFFERING AFTER OFFERING
--------------- --------------------------
NUMBER OF NUMBER OF
SHARES NUMBER OF SHARES PERCENT OF
BENEFICIALLY SHARES REGISTERED BENEFICIALLY OUTSTANDING
SELLING SECURITYHOLDER OWNED(1) FOR SALE HEREBY OWNED SHARES
- ---------------------- --------------- ----------------- ------------ -----------
<S> <C> <C> <C> <C>
Stephen J. Clearman(2)....................... 108,210 62,000 46,210 *
Steven A. Odom(3)............................ 920,311 300,000 620,311 3.1
William P. O'Reilly(4)....................... 307,000 50,000 257,000 1.3
John D. Phillips(5).......................... 117,340 117,340 -- *
Stephen E. Raville(6)........................ 318,000 200,000 118,000 *
</TABLE>
- ---------------
* Less than one percent
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act. Unless otherwise noted, the Company believes that all
persons named in the table have sole voting and investment power with
respect to all shares of Common Stock beneficially owned by them. Includes
options or warrants to purchase Company Common Stock which are exercisable
within 60 days following December 30, 1997.
(2) Includes (i) warrants to acquire 50,000 shares of Common Stock under the
Warrant Plan currently exercisable; and (ii) options to acquire 12,000
shares of Common Stock. Mr. Clearman has served as a director of the Company
since 1994.
(3) Includes (i) warrants to acquire 300,000 shares of Common Stock under the
Warrant Plan currently exercisable; (ii) options to acquire 345,650 shares
of Common Stock under the Company's 1991 Stock Option Plan; (iii) 381 shares
of Common Stock allocated to Mr. Odom's account in the Company's Retirement
Savings and Profit Sharing Plan; and (iv) an aggregate of 18,000 shares of
Common Stock held by Mr. Odom's minor children. Mr. Odom was elected a
director of the Company in October 1994 and has served as Chairman of the
Board since November 1994 and Chief Executive Officer since August 1995.
(4) Includes (i) 257,000 shares of Common Stock held by the William P. O'Reilly
Trust, of which Mr. O'Reilly is trustee; and (ii) warrants to acquire 50,000
shares of Common Stock under the Incentive Plan currently exercisable. Mr.
O'Reilly has served as a director of the Company since December 1994.
(5) Includes (i) warrants to acquire 67,340 shares of Common Stock under the
Warrant Plan currently exercisable; and (ii) warrants to acquire 50,000
shares of Common Stock under the Incentive Plan currently exercisable. Mr.
Phillips has served as a director of the Company since December 1994.
41
<PAGE> 45
(6) Includes (i) 118,000 shares of Common Stock held by the Raville 1994 Family
LP, Ltd., of which Mr. Raville is trustee; (ii) warrants to acquire 150,000
shares of Common Stock under the Warrant Plan currently exercisable; and
(iii) warrants to acquire 50,000 shares of Common Stock under the Incentive
Plan. Mr. Raville has served as a director of the Company since December
1994.
PLAN OF DISTRIBUTION
The Notes, the Conversion Shares and the Shares are being registered to
permit public secondary trading of such securities by the holders thereof from
time to time after the date of this Prospectus. The Company has agreed, among
other things, to bear all fees and expenses incident to its obligation to
register the Notes, the Conversion Shares and the Shares. The Company will not
receive any of the proceeds from the offering of the Notes and the Conversion
Shares by the Selling Securityholders.
The sale or distribution of the Notes, the Conversion Shares or the Shares
may be effected directly to purchasers by the Selling Securityholders as
principals or through one or more underwriters, brokers, dealers or agents from
time to time in one or more transactions (which may involve crosses or block
transactions) (i) or on any exchange or in the over-the-counter market, (ii) in
transactions otherwise than in the over-the-counter market or (iii) through the
writing of options (whether such options are listed on an options exchange or
otherwise) on, or settlement of short sale of the Notes, the Conversion Shares
or the Shares. Any of such transactions may be effected at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at varying prices determined at the time of sale or at negotiated or
fixed prices, in each case as determined by the Selling Securityholder or by
agreement between the Selling Securityholder and underwriters, brokers, dealers
or agents, or purchasers. If the Selling Securityholders effect such
transactions by selling Notes, the Conversion Shares or the Shares to or through
underwriters, brokers, dealers or agents, such underwriters, brokers, dealers or
agents may receive compensation in the form of discounts, concessions or
commissions from the Selling Securityholders or commissions from purchasers of
Notes, the Conversion Shares or the Shares for whom they may act as agent (which
discounts, concessions or commissions as to particular underwriters, brokers,
dealers or agents may be in excess of those customary in the types of
transactions involved). The Selling Securityholders and any brokers, dealers or
agents that participate in the distribution of Notes, the Conversion Shares or
the Shares may be deemed to be underwriters, and any profit on the sale of
Notes, the Conversion Shares or the Shares by them and any discounts,
concessions or commission received by any such underwriters, brokers, dealers or
agents may be deemed to be underwriting discounts and commissions under the
Securities Act.
The Notes, the Conversion Shares or the Shares may be sold from time to
time in one or more transactions at fixed offering prices, which may be changed,
or at varying prices determined at the time of sale or at negotiated prices.
Such prices will be determined by the holders of such securities or by agreement
between such holders and underwriters or dealers who may receive fees or
commissions in connection therewith.
The outstanding Common Stock is listed for trading on Nasdaq, and the
Conversion Shares have been approved for quotation on Nasdaq. The Initial
Purchasers have advised the Company that they are making and currently intend to
continue making a market in the Notes. They are not obligated to do so, however,
and any such market making may be discontinued at any time without notice, in
the sole discretion of the Initial Purchasers. The Company does not intend to
apply for listing of the Notes on any securities exchange or for quotation
through Nasdaq. Accordingly, no assurance can be given as to the development of
liquidity of any trading market that may develop for the Notes. See "Risk
Factors -- Absence of Public Market for Notes."
In order to comply with the securities laws of certain states, if
applicable, the Notes and Conversion Shares will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states the Notes and Conversion Shares may not be sold unless they have been
registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
The Selling Securityholders and any broker and any broker-dealers, agents
or underwriters that participate with the Selling Securityholders in the
distribution of the Notes, the Conversion Shares or the
42
<PAGE> 46
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, in which event any commissions received by such broker-dealers, agents or
underwriters and any profit on the resale of the Notes, the Conversion Shares or
the Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act.
In addition, any securities covered by this Prospectus that qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the Notes, the
Conversion Shares or the Shares described herein, and any Selling Securityholder
may transfer, devise or gift such securities by other means not described
herein.
The Notes were originally sold to BT Alex. Brown Incorporated and
Prudential Securities Incorporated in October 1997 in a private placement. The
Company agreed to indemnify and hold BT Alex. Brown Incorporated and Prudential
Securities Incorporated harmless against certain liabilities under the
Securities Act that could arise in connection with the initial sale of the
Notes. The Company and the Selling Securityholders are obligated to indemnify
each other against certain liabilities arising under the Securities Act.
The Company will use its best efforts to keep the registration statement to
which this Prospectus relates effective for a period of two years from the
effective date thereof. The Company is permitted to suspend the use of this
Prospectus in connection with the sales of Notes and Conversion Shares by
holders upon the happening of an event or if there exists any fact that makes
any statement of material fact made in this Prospectus untrue or that requires
the making of additions to or changes in this Prospectus in order to make the
statements herein not misleading, until such time as the Company advises the
Selling Securityholders that use of the Prospectus may be resumed, in which case
the period of time during which the Company is required to maintain the
effectiveness of the registration statement shall be extended. Expenses of
preparing and filing the registration statement and all post-effective
amendments will be borne by the Company.
LEGAL MATTERS
The validity of the Notes, the Conversion Shares and the Warrant Shares
will be passed upon for the Company by Rogers & Hardin LLP, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of World Access, Inc., formerly known
as Restor Industries, Inc., incorporated in this Prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 1996, have been so
incorporated in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of NACT Telecommunications, Inc. as of September
30, 1997 and 1996, and for each of the years in the three-year period ended
September 30, 1997, have been incorporated by reference herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Advanced TechCom, Inc. ("ATI") as
of December 31, 1996 and 1995 and for the years then ended, incorporated by
reference from World Access, Inc.'s Current Report on Form 8-K dated February
13, 1998, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report dated February 26, 1997 (October 15, 1997 as to Notes 2
and 13, and the last paragraph of Note 5) (which report expresses an unqualified
opinion and includes an explanatory paragraph referring to certain subsequent
events, including entering into an agreement to subcontract certain of ATI's
manufacturing, raising of additional equity and the receipt of a commitment for
additional financing) which is also incorporated herein by reference, and have
been so incorporated in reliance upon the report of Deloitte & Touche LLP given
upon their authority as experts in accounting and auditing.
43
<PAGE> 47
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
SECURITYHOLDER OR ANY OF THEIR RESPECTIVE AFFILIATES. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE
SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY JURISDICTION IN WHICH, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFERING OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY
DOCUMENT INCORPORATED BY REFERENCE HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT
TO THE DATE HEREOF OR THEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. ii
Incorporation of Certain Information
by Reference........................ ii
Forward-Looking Statements............ iii
Prospectus Summary.................... 1
Risk Factors.......................... 7
Use of Proceeds....................... 12
Business.............................. 13
Description of Notes.................. 23
Certain Federal Income Tax
Considerations...................... 33
Selling Securityholders............... 37
Plan of Distribution.................. 42
Legal Matters......................... 43
Experts............................... 43
</TABLE>
======================================================
======================================================
$115,000,000
[WORLD ACCESS, INC., LOGO]
4.5% CONVERTIBLE SUBORDINATED
NOTES DUE 2002
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
AND
2,545,642 SHARES OF COMMON STOCK
--------------------
PROSPECTUS
--------------------
FEBRUARY 25, 1998
======================================================
