<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): February 27, 1998
-------------------------------
WORLD ACCESS, INC.
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-19998 65-0044209
- --------------------------------------------------------------------------------
(STATE OR OTHER (COMMISSION FILE NUMBER) (IRS EMPLOYER
JURISDICTION OF IDENTIFICATION
INCORPORATION) NUMBER)
945 E. PACES FERRY ROAD, SUITE 2240, ATLANTA, GEORGIA 30326
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 231-2025
-----------------------------
<PAGE> 2
ITEM 2. Acquisition or Disposition of Assets
On December 31, 1997, GST Telecommunications, Inc., a federally
chartered Canadian corporation ("GST"), GST USA, Inc., a Delaware corporation
("GST USA"), and World Access, Inc. ("World Access") entered into a Stock
Purchase Agreement (the "Purchase Agreement"), pursuant to which World Access
has agreed to purchase from GST USA (hereinafter referred to as the
"Acquisition") 5,113,712 shares of the common stock of NACT Telecommunications,
Inc. ("NACT") held by GST USA (hereinafter referred to as the "Shares"),
representing approximately 63% of the outstanding shares of NACT common stock,
$.01 par value per share (the "NACT Common Stock").
On February 27, 1998, the Acquisition was consummated and World Access
paid to GST USA cash in the amount of $59,662,956 and delivered to GST USA
1,429,907 shares of World Access common stock (the "World Access Common Stock").
The foregoing summary of the Acquisition is qualified in its entirety by
reference to the terms of the Purchase Agreement and the exhibits thereto, which
are included as Exhibit 2.1 hereto.
1
<PAGE> 3
In connection with the consummation of the Acquisition, W. Gordon
Blankstein, Stephen Irwin, Robert Olson and Clifford V. Sander, each designees
of GST USA, resigned from NACT's Board of Directors and Steven A. Odom, Hensley
E. West, Mark A. Gergel and Scott N. Madigan, each executive officers of World
Access, were appointed to fill the vacancies thus created.
The consideration paid pursuant to the Purchase Agreement was
determined as a result of negotiations between World Access and GST and the
Acquisition was approved by the boards of directors of World Access, GST and
NACT. Prior to the Acquisition, neither World Access nor any of its affiliates,
directors or officers, nor any associate of any such director or officer, had
any relationship with GST, GST USA or NACT.
Between November 12, 1997 and December 9, 1997, World Access purchased
an aggregate of 355,000 shares of NACT Common Stock in open market purchase
transactions (the "Open Market Purchase"). Accordingly, after the completion of
the Acquisition World Access now owns approximately 68% of the outstanding NACT
Common Stock.
On February 24, 1998 World Access entered into a merger agreement with
NACT pursuant to which World Access agreed to acquire all of the shares of NACT
Common Stock not already then owned by World Access or GST USA. Pursuant to the
terms of the merger agreement, each share of NACT Common Stock will be converted
into shares of World Access Common Stock having a value of $17.50 per share
based on the average of the daily closing price of the World Access 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
World Access Common stock, and if the Closing Price is less than $20.88, then
World Access can terminate the agreement. The merger agreement was negotiated on
behalf of NACT by a Special Committee of the NACT Board and has been approved by
the Boards of Directors of NACT and World Access. In addition, NACT has
received a fairness opinion with respect to the merger from NationsBanc
Montgomery Securities LLC. The merger is subject to, among other things, the
approval of the NACT stockholders and the satisfaction of certain other
customary conditions.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired. Included in this Report
are the audited consolidated financial statements of NACT for the years ended
September 30, 1997, 1996 and 1995, which have been audited by the independent
accounting firm of KPMG Peat Marwick, LLP, whose opinion thereon is also
included herein, and the unaudited consolidated financial statements of NACT for
the three months ended December 31, 1997.
2
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
----
NACT TELECOMMUNICATIONS, INC.: PAGE
----
<S> <C> <C>
Independent Auditors' Report F-2
Balance Sheets - September 30, 1997 and 1996 F-3
Statements of Income Years Ended - September 30, 1997, 1996 and 1995 F-4
Statements of Stockholders' Equity Years Ended - September 30, 1997, F-5
1996 and 1995
Statements of Cash Flows Years Ended - September 30, 1997, 1996 and F-6
1995
Notes to Financial Statements Years Ended - September 30, 1997, 1996, F-8
and 1995
NACT TELECOMMUNICATIONS, INC.:
Balance Sheets - December 31, 1997 (Unaudited) and September 30, 1997 F-23
(audited)
Statements of Income Three Months Ended - December 31, 1997 and 1996 F-24
(Unaudited)
Statements of Cash Flows Three Months Ended - December 31, 1997 and F-25
1996 (Unaudited)
Notes to Financial Statements Three Months Ended - September 30, 1997 F-27
and 1996 (Unaudited)
</TABLE>
F-1
<PAGE> 5
Independent Auditors' Report
The Board of Directors and Stockholders
NACT Telecommunications, Inc.:
We have audited the accompanying financial statements of NACT
Telecommunications, Inc. as listed in the accompanying index. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NACT Telecommunications, Inc.
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for each of the years in the three-year period ended September 30,
1997, in conformity with generally accepted accounting principles.
/S/ KPMG Peat Marwick LLP
-------------------------
KPMG Peat Marwick LLP
Salt Lake City, Utah
December 4, 1997
F-2
<PAGE> 6
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Balance Sheets
September 30, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents (notes 11 and 12) $ 9,946,621 694,359
Marketable investment securities (note 3) 3,247,296 250,000
Trade accounts receivable, less allowance for doubtful accounts of
$380,819 in 1997 and $100,000 in 1996 6,840,958 3,171,180
Notes receivable, less allowance for doubtful notes of $250,000
in 1997 and $310,000 in 1996 (note 4) 3,252,170 561,396
Inventories (note 2) 2,780,467 2,406,399
Prepaid expenses and other 197,659 16,338
Deferred tax assets (note 8) 587,199 418,449
----------- -----------
Total current assets 26,852,370 7,518,121
----------- -----------
Property and equipment, net (note 5) 5,783,157 717,804
Notes receivable, less current installments (note 4) 966,868 1,179,750
Inventories-long term (note 2) 225,000 --
Intangibles, net (notes 4 and 6) 5,775,673 5,075,366
Other assets 152,043 193,709
----------- -----------
$39,755,111 14,684,750
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,432,922 2,251,800
Accrued expenses 963,034 266,451
Income taxes payable (note 8) 1,353,371 199,557
Deferred revenue 466,859 350,439
Current installments of obligation under capital lease -- 21,848
Payable to GST USA 1,446,891 183,176
----------- -----------
Total current liabilities 5,663,077 3,273,271
Obligation under capital lease, less current installments -- 58,221
Deferred compensation (note 13) 157,819 157,819
Deferred tax liabilities (note 8) 929,984 985,508
----------- -----------
Total long-term liabilities 1,087,803 1,201,548
----------- -----------
Commitments and contingencies (notes 9, 12 and 13)
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 10,000,000 shares; none
issued and outstanding in 1997 and 1996 -- --
Common stock, $.01 par value in 1997 and no par value in 1996
Authorized 25,000,000 and 10,000,000 shares in 1997 and 1996,
respectively; issued and outstanding 8,113,712 shares in 1997 and
6,113,712 shares 1996
81,137 9,244,847
Additional paid-in-capital 28,130,161 --
Retained earnings 4,780,760 965,255
Net unrealized gain (loss) on marketable investment
securities (note 3) 12,173 (171)
----------- -----------
Total stockholders' equity 33,004,231 10,209,931
----------- -----------
$39,755,111 14,684,750
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 7
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Statements of Income
Years ended September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product sales $ 21,981,854 9,929,702 7,604,071
Network carrier sales 5,716,406 3,783,445 2,781,761
Wins (note 1(b)) -- 2,571,731 1,097,950
------------ ------------ ------------
Total revenues 27,698,260 16,284,878 11,483,782
------------ ------------ ------------
Cost of goods sold (note 6):
Products 7,140,914 3,941,529 2,645,646
Network carrier usage (note 13) 5,485,671 3,381,716 2,731,295
Wins (note 1(b)) -- 2,571,731 786,699
Amortization of acquired intangibles 362,424 362,428 442,734
------------ ------------ ------------
Total cost of goods sold 12,989,009 10,257,404 6,606,374
------------ ------------ ------------
Gross profit 14,709,251 6,027,474 4,877,408
Operating expenses (note 6):
Research and development 2,385,243 1,352,138 1,183,422
Selling and marketing 2,504,420 953,486 924,542
General and administrative 3,472,069 3,024,361 2,152,898
Amortization of acquired intangibles 573,060 573,058 519,780
------------ ------------ ------------
Total operating expenses 8,934,792 5,903,043 4,780,642
------------ ------------ ------------
Income from operations 5,774,459 124,431 96,766
------------ ------------ ------------
Other income (expense):
Interest income 543,410 127,043 155,949
Interest expense (30,456) (14,202) (1,514)
Miscellaneous income 4,439 34,670 34,635
------------ ------------ ------------
Total other income 517,393 147,511 189,070
------------ ------------ ------------
Income before income taxes 6,291,852 271,942 285,836
Income taxes (note 8) 2,476,347 78,184 205,517
------------ ------------ ------------
Net income $ 3,815,505 193,758 80,319
============ ============ ============
Earnings per common and common equivalent share:
Primary $ 0.52 $ 0.03 $ 0.01
Fully diluted $ 0.50 $ 0.03 $ 0.01
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 8
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Statements of Stockholders' Equity
Years ended September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Net
unrealized
gain (loss) on
Common stock Additional marketable
-------------------------- paid-in Retained investment
Shares Amount capital earnings securities Total
----------- ----------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1994 6,113,712 $ 6,277,572 -- 691,178 -- 6,968,750
Capital contribution by parent company
(note 1(l))
-- 414,981 -- -- -- 414,981
Addition to capital arising from
push down accounting -- 2,162,384 -- -- -- 2,162,384
Net unrealized gain on marketable
investment securities -- -- -- -- 3,605 3,605
Net income -- -- -- 80,319 -- 80,319
----------- ----------- ----------- ----------- ----------- -----------
Balances at September 30, 1995 6,113,712 8,854,937 -- 771,497 3,605 9,630,039
Capital contribution by parent company
(note 1(l))
-- 389,910 -- -- -- 389,910
Net unrealized loss on marketable
investment securities -- -- -- -- (3,776) (3,776)
Net income -- -- -- 193,758 -- 193,758
----------- ----------- ----------- ----------- ----------- -----------
Balances at September 30, 1996 6,113,712 9,244,847 -- 965,255 (171) 10,209,931
Capital contribution by parent company
(note 1(l))
-- -- 899,799 -- -- 899,799
Issuance of common stock for cash, net of
expenses of $1,933,348 2,000,000 20,000 18,046,652 -- -- 18,066,652
Net unrealized gain on marketable
investment securities -- -- -- -- 12,344 12,344
Reclass of common stock to additional paid-
in capital resulting from establishing a
par value on common stock -- (9,183,710) 9,183,710 -- -- --
Net income -- -- -- 3,815,505 -- 3,815,505
=========== =========== =========== =========== =========== ===========
Balances at September 30, 1997 8,113,712 $ 81,137 28,130,161 4,780,760 12,173 33,004,231
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 9
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Statements of Cash Flows
Years ended September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,815,505 193,758 80,319
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,431,226 1,165,885 1,212,039
Provision for loss on accounts, notes receivable, and recourse obligation 1,385,734 942,785 229,342
Loss (gain) on sale of marketable investment securities and equipment 45,699 (4,399) (34,635)
Capital contribution by parent company 899,799 389,910 414,981
Provision for loss on inventories 111,000 -- --
Deferred taxes (224,274) (374,127) (271,762)
Decrease (increase) in operating assets:
Trade accounts and notes receivable (8,374,533) (1,980,342) (2,266,741)
Inventories (920,068) (2,019,310) 19,873
Prepaid expenses (181,321) 89,441 (94,484)
Other assets 41,666 58,360 (227,882)
Increase (decrease) in operating liabilities:
Accounts payable (818,878) 888,670 1,210,516
Accrued expenses 496,583 45,287 148,411
Income taxes payable 1,153,814 60,578 (208,468)
Deferred revenue and deferred compensation 116,420 193,475 180,844
Payable to GST USA 1,263,715 243,176 --
------------ ---------- ----------
Net cash provided by (used in)
operating activities 242,087 (106,853) 392,353
------------ ---------- ----------
Cash flows from investing activities:
Purchase of land, plant, and equipment (5,169,888) (304,614) (326,796)
Proceeds from sale of equipment -- -- 34,635
Proceeds from sale of available-for-sale securities 250,000 596,836 --
Purchase of available-for-sale securities (3,234,952) -- --
Capitalization of software development costs (821,568) (419,154) (162,025)
Cash included in transfer of Wins to parent (note 1) -- (173,718) --
------------ ---------- ----------
Net cash used in investing activities (8,976,408) (300,650) (454,186)
------------ ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock 18,066,652 -- --
Principal payments on capital lease obligations (80,069) (19,868) (2,271)
------------ ---------- ----------
Net cash provided by (used in)
financing activities 17,986,583 (19,868) (2,271)
------------ ---------- ----------
Net increase (decrease) in cash and cash equivalents 9,252,262 (427,371) (64,104)
Cash and cash equivalents at beginning of year 694,359 1,121,730 1,185,834
------------ ---------- ----------
Cash and cash equivalents at end of year $ 9,946,621 694,359 1,121,730
============ ========== ==========
</TABLE>
F-6
<PAGE> 10
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Statements of Cash Flows (continued)
Years ended September 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- -------- ---------
<S> <C> <C> <C>
Supplemental Schedule of Noncash Investing and Financing Activities
Reclass of common stock to additional paid-in capital resulting from
establishing a par value on common stock $ 9,183,170 -- --
Disposition of fully depreciated asset -- 132,270 --
Repossession of equipment in settlement of accounts and notes
receivable
76,922 45,000 128,936
Property purchased under capitalized leases -- -- 102,208
Transfer of inventory to property, plant, and equipment 210,000 -- --
Intangibles capitalized as a result of push down -- -- 2,162,384
Disposition of equipment -- 47,366 --
Sale of equipment to Wins on note receivable -- 60,000 --
Transfer of notes receivable to other assets (note 4) 964,207 -- --
Change in net unrealized gain (loss) on marketable
investment securities
12,344 (171) --
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest $ 30,457 17,707 1,145
Cash paid during the year for income taxes 638,287 -- 263,735
Supplemental Disclosure of the Assets and Liabilities
Transferred to GST (note 1(b))
Cash $ -- (173,718) --
Trade accounts receivable -- (68,705) --
Prepaid expenses -- (751) --
Property and equipment, net -- (46,020) --
Other assets -- (14,036) --
Accounts payable -- 150,898 --
Accrued expenses -- 152,332 --
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE> 11
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
September 30, 1997, 1996, and 1995
(1) Summary of Significant Accounting Policies
(a) Organization and Description of Business
NACT Telecommunications, Inc. (the "Company") designs,
develops and manufactures advanced telecommunications
switching platforms with integrated applications software and
network telemanagement capabilities. The Company's customers
include long distance carriers, prepaid debit (calling) card
and prepaid cellular network operators, international call
back/reorigination providers and other specialty
telecommunications service providers.
From September 1993 through September 30, 1995, GST USA, Inc.
("GST USA") acquired all of the issued and outstanding common
stock of the Company. This acquisition was accomplished
through a series of purchases of newly issued shares and the
shares of principal stockholders of the Company. As a result
of these transactions, the Company became a wholly owned
subsidiary of GST USA. GST USA accounted for the acquisition
using the purchase method of accounting. The excess of the
purchase price over the fair value of the assets acquired
totaled $6,912,322 and was assigned by GST USA as product
support contracts, software development costs, and goodwill.
These amounts are included in the accompanying balance sheet
as intangible assets.
In February 1997, the Company closed an initial public
offering (IPO) of 3,000,000 shares of common stock with
2,000,000 sold by the Company and 1,000,000 sold by GST USA.
Upon completion of the offering, GST USA ownership was reduced
to approximately 63 percent of the outstanding common stock of
the Company and, as such, GST USA continues to control the
Company. In connection with the IPO, the Company established a
par value of $.01 for common stock, increased the number of
common shares authorized to 25,000,000, and authorized
10,000,000, $.01 par value preferred shares.
On September 30, 1997, GST USA announced that it had retained
Hambrecht and Quist LLC to explore alternatives for monetizing
its 63 percent interest in the Company, including a potential
sale of some or all of the Company's capital stock to one or
more strategic investors.
(b) Wasatch International Network Services
The 1995 financial statements include the accounts of the
Company and its wholly-owned subsidiary Wasatch International
Network Services, Inc. ("Wins"), which commenced operations in
fiscal 1995 and had total assets, revenues, and net loss of
$316,455, $1,097,950 and $2,361, respectively, as of and for
the year ended September 30, 1995. All significant
intercompany transactions and balances were eliminated in
consolidation. On October 1, 1995, the Company transferred
ownership and operations of Wins to GST USA in the form of a
dividend at historical cost. From October 1, 1995 through
September 30, 1996, the Company provided carrier services to
GST USA for the Wins operation for which it received
$2,571,731. GST USA began providing its own carrier services
for Wins on October 1, 1996.
F-8
<PAGE> 12
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(c) Cash and Cash Equivalents
The Company considers all highly liquid financial instruments
purchased with an original maturity to the Company of three
months or less to be cash equivalents. Cash equivalents
consist of money market accounts of $8,472,637 at September
30, 1997 and $125,785 at September 30, 1996.
(d) Inventories
Raw materials are valued at the lower of cost (first-in,
first-out) or market. Work-in-process and finished goods are
stated on the basis of accumulated manufacturing costs, but
not in excess of market (net realizable value). Refurbished
inventory is stated at the estimated selling price less
refurbishing costs, selling costs and a normal profit margin.
Management periodically reviews the selling price of the
refurbished inventory and records adjustments to the carrying
value, if any, in the period in which they occur.
Long-term inventory consists of component parts held in order
to provide support on existing customer equipment beyond one
year.
(e) Notes Receivable
Notes receivable are recorded at the principal amount
outstanding, net of an allowance for doubtful notes. The
allowance is an amount that management believes will be
adequate to absorb possible losses based on evaluations of
collectibility and prior loss experience. The evaluation takes
into consideration such factors specific problem loans, past
payment history, and current and anticipated economic
conditions that may affect the customers' ability to pay.
While management uses available information to recognize
losses on notes, changing economic conditions and the economic
prospects of the borrowers might necessitate future additions
to the allowance.
(f) Impaired Notes
Management, considers a note to be impaired when it is
probable that the Company will be unable to collect all
amounts due according to the contractual terms of the note
agreement. When a note is considered to be impaired, the
amount of the impairment is measured based on the present
value of expected future cash flows discounted at the note's
effective interest rate. Impairment losses are included in the
allowance for doubtful accounts through a charge to bad debt
expense. Cash receipts on impaired notes receivable are
applied to reduce the principal amount of such notes until the
principal has been recovered and are recognized as interest
income thereafter.
F-9
<PAGE> 13
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(g) Property and Equipment
Property and equipment are stated at cost. Depreciation is
computed using the straight-line method for financial
reporting purposes. Depreciation is based upon the estimated
useful lives of individual classes of assets. The estimated
useful lives of the individual classes of assets are as
follows:
Building 35 years
Furniture and equipment 7-10 years
Computer equipment 3-7 years
Switch and testing equipment 3-7 years
(h) Intangibles
Intangibles include goodwill, software development costs,
customer lists, and product support contracts and are being
amortized on a straight-line basis over the estimated useful
lives of the respective assets.
(i) Software Development Costs
Software development costs are capitalized upon the
establishment of technological feasibility of the product.
Capitalization is discontinued when the product is available
for general release to customers. The Company capitalized
software development costs of $821,568, $419,154, and $162,025
in 1997, 1996, and 1995, respectively.
(j) Stock-Based Compensation
Effective October 1, 1996, the Company adopted the footnote
disclosure provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation
(SFAS 123). SFAS 123 encourages entities to adopt the fair
value based method of accounting for stock options or similar
equity instruments. However, it also allows an entity to
continue measuring compensation cost for stock-based
compensation using the intrinsic-value method of accounting
prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25). The Company
has elected to continue to apply the provisions of APB 25 and
provide pro forma footnote disclosures required by SFAS 123.
(k) Revenue Recognition and Deferred Revenue
Revenue from product sales is recognized when the product is
shipped and the Company has no significant performance
obligations. Revenue from network carrier sales is recognized
as the related service is provided. Deferred revenue consists
of warranty payments billed or received in advance and
deposits related to future product sales. Warranty payments
are amortized over the period of the warranty agreement which
is typically one year.
F-10
<PAGE> 14
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(l) Income Taxes
Through February 26, 1997, the Company was a member of a
controlled group which elected for federal income tax purposes
to file a consolidated tax return with GST USA. In accordance
with the tax sharing arrangement with GST USA, the Company
recorded the estimated income tax expense as if the Company
filed a tax return on a separate company basis using the asset
and liability method. GST USA agreed to make a capital
contribution to the Company in an amount that approximates the
Company's current federal income tax expense through February
26, 1997 in lieu of an intercompany payment for such taxes.
Pursuant to the tax sharing arrangement between the Company
and GST USA, the adjustment recorded to reconcile the
intercompany and equity accounts with regard to differences
between the estimated tax determined at year-end and the final
tax amount are recognized in income tax expense in the period
determined.
The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method,
deferred tax assets and deferred liabilities are recognized
for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax
assets and deferred liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered
or settled.
After the IPO on February 26, 1997, GST USA's ownership was
reduced to 63 percent. As a result, the entities no longer
meet the affiliated group test defined in Internal Revenue
Code Section 1504(a) and the Company will file stand-alone
returns for periods subsequent to February 26, 1997.
(m) Marketable Investment Securities
The Company classifies all of its marketable investment
securities as available-for-sale which are recorded at fair
market value. Unrealized holding gains and losses are excluded
from earnings and are reported, net of tax, as a separate
component of stockholders' equity until realized. A decline in
the market value of any available-for-sale security below cost
that is deemed other than temporary is charged to earnings
resulting in the establishment of a new cost basis for the
security. Dividend income is recognized when earned. Realized
gains and losses are included in earnings and are derived
using the specific-identification method for securities sold.
F-11
<PAGE> 15
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(n) Earnings Per Common and Common Equivalent Share
Earnings per common and common equivalent share are computed
based on the weighted-average number of common shares and as
appropriate, dilutive common stock equivalents outstanding
during the period. Stock options are considered to be common
stock equivalents. The number of shares used to compute
primary earnings per common and common equivalent share were
7,350,623, 6,113,712, and 6,113,712, shares in 1997, 1996, and
1995, respectively. The number of shares used to compute
fully-diluted earnings per share reflect additional dilution
related to stock options and warrants using the market price
at the end of the period when higher than the average price
for the period. The number of shares used to compute
fully-diluted earnings per share were 7,602,156, 6,113,712,
and 6,113,712, shares in 1997, 1996, and 1995, respectively.
(o) Fair Value Disclosure
At September 30, 1997 and 1996, the book value of the
Company's financial instruments approximates fair value.
(p) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
(2) Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $1,065,113 377,734
Work-in-process 498,525 346,273
Finished goods 302,829 317,392
Refurbished inventory held for sale 914,000 1,365,000
---------- ----------
$2,780,467 2,406,399
========== ==========
Inventory - long-term $ 225,000 --
========== ==========
</TABLE>
F-12
<PAGE> 16
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(3) Marketable Investment Securities
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value for available-for-sale securities by
major security type and class of security at September 30, 1997 and
1996, are as follows:
<TABLE>
<CAPTION>
Gross Gross
unrealized unrealized
Amortized cost holding holding Fair
cost gains losses value
-------------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
At September 30, 1997:
U.S. government securities -
Maturing in one year or less $2,237,009 10,287 -- 2,247,296
Certificate of deposit -
Maturing in one year or less 998,114 1,886 -- 1,000,000
---------- ---------- ---------- ----------
$3,235,123 12,173 -- 3,247,296
========== ========== ========== ==========
At September 30, 1996:
U.S. government securities -
Maturing in one year or less $ 250,171 -- 171 250,000
---------- ---------- ---------- ----------
$ 250,171 -- 171 250,000
========== ========== ========== ==========
</TABLE>
(4) Notes Receivable
Notes receivable at September 30, 1997 and 1996 include amounts due
from product sales of approximately $4,065,638 and $1,047,500,
respectively. Interest rates on the notes range from 9 percent to 14
percent with lives ranging from six months to five years.
The Company's recorded investment in notes receivable for which an
impairment has been recognized was $137,032 and $928,210, and the
related allowance for doubtful accounts was $137,032 and $310,000 at
September 30, 1997 and 1996, respectively. The average recorded
investment in impaired notes receivable during 1997 and 1996, was
$532,261 and $548,331, respectively. There was no interest income
recognized on impaired notes receivable during 1997 and 1996.
F-13
<PAGE> 17
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(4) Notes Receivable (continued)
The Company has sold carrier services to Overseas Telecom (iOverseasi)
since 1994. Overseas is located in Brazil and provides international
call back/reorigination services to companies and individuals primarily
in Brazil and Eastern Europe. During the year ended September 30, 1996,
Overseas became delinquent on certain of its payments. In fiscal 1997,
the Company entered into a note receivable agreement with Overseas
which provided for the repayment of the noncurrent outstanding amount
(approximately $0.93 million) bearing interest at 12 percent. The note
was secured primarily by Overseasi customer lists. In the fourth
quarter of fiscal 1997, the Company exercised its call privileges under
the note and took possession of the underlying collateral - the
customer lists. There were two separate and distinct customer lists,
one from Brazil and one from Eastern Europe. The customer list related
to the Brazilian operations was sold to Intertoll Communications
Network Corp. (iICN"), an existing customer of the Company with
operations in Argentina and Brazil for $1,000,000 payable in 100
monthly payments of $10,000. The related payments have been discounted
at 20 percent with the unpaid amount of approximately $485,000
classified as notes receivable in the accompanying balance sheet as of
September 30, 1997.
The customer list related to the Eastern European operations was
recorded on the Companyis books at the lower of fair value or cost.
Fair value was estimated by an independent third party appraiser using
generally accepted valuation standards. Accordingly, a customer list of
approximately $964,000 has been recorded as an intangible asset and
will be amortized over a three-year period.
(5) Property and Equipment
Property and equipment are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land $ 563,309 --
Building 3,626,891 --
Furniture and equipment 279,908 212,525
Computer equipment 784,521 440,827
Switch and testing equipment 1,082,217 492,052
---------- ----------
6,336,846 1,145,404
Less accumulated depreciation and amortization 553,689 427,600
========== ==========
$5,783,157 717,804
========== ==========
</TABLE>
F-14
<PAGE> 18
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(6) Intangibles
Intangible assets are summarized as follows:
<TABLE>
<CAPTION>
Amortization
1997 1996 period
---------- ---------- ------------
<S> <C> <C> <C>
Goodwill $2,863,766 2,863,766 20 years
Software development costs 3,305,127 2,483,559 3-5 years
Product support contracts 2,146,176 2,146,176 5 years
Customer list 964,207 -- 3 years
---------- ----------
9,279,276 7,493,501
Less amortization 3,503,603 2,418,135
========== ==========
$5,775,673 5,075,366
========== ==========
</TABLE>
On an ongoing basis, management reviews the valuation and amortization
of intangible assets to determine possible impairment by comparing the
carrying value of the asset to its undiscounted estimated future cash
flows.
Amortization expense relating to these assets was $1,085,468, $978,813,
and $962,514 for 1997, 1996, and 1995, respectively. Of these amounts,
$512,409, $405,755, and $442,734, for 1997, 1996, and 1995,
respectively, was recorded as a component of cost of goods sold.
(7) Stock Options
In November 1996, the Company adopted the 1996 Stock Option Plan ("1996
Plan") which was approved by the board of directors and GST USA. The
Company has reserved 1,250,000 shares for issuance under the 1996 Plan,
of which options to purchase 935,250 shares of common stock at an
exercise price of $9.35 per share were granted. All options granted
during the year expire on November 25, 2001. The Company may grant
incentive stock options and nonqualified stock options to employees,
officers, directors, independent contractors, and consultants. The
exercise price of options must be greater than or equal to the
estimated fair market value of the stock at the date of grant. The
board of directors or the compensation committee thereof determines
which eligible individuals are granted options, terms of the options,
exercise price, number of shares subject to the option, vesting and
exercisability. The 1996 Plan expires on November 25, 2006.
F-15
<PAGE> 19
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(7) Stock Options (continued)
A summary of activity follows:
<TABLE>
<CAPTION>
Year ended
September 30, 1997
---------------------------------------
Weighted-average
exercise
Number of shares price
---------------- ----------------
<S> <C> <C>
Options outstanding at beginning of year --
Plus options granted 935,250 $9.35
Less options exercised --
================
Options outstanding at end of year 935,250 $9.35
================
Options exercisable at end of year 289,688 $9.35
Weighted-average fair value of options granted
during the year $3.03
</TABLE>
The following table summarizes information about fixed stock options
outstanding at September 30, 1997:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
---------------------------------------------------------- ---------------------------------
Number Weighted-average Number
Range of exercise outstanding at remaining Weighted-average exercisable at Weighted-average
prices September 30, contractual exercise September 30, exercise
1997 life price 1997 price
- ----------------- -------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$9.35 935,250 4.15 9.35 289,688 9.35
</TABLE>
The Company accounts for these plans under APB 25, under which no
compensation cost has been recognized. Had compensation cost for these
plans been determined consistent with SFAS 123, the Company's net
earnings and earnings per share would have been changed to the
following pro forma amount:
<TABLE>
<CAPTION>
1997
----------
<S> <C> <C>
Net income As reported $3,815,505
Pro Forma 2,784,147
Primary earnings per share: As reported $ 0.52
Pro Forma 0.38
Fully-diluted earnings per share As reported $ 0.50
Pro Forma 0.37
</TABLE>
Pro forma net earnings reflects only options granted in fiscal 1997.
Therefore, the effect that calculating compensation cost for
stock-based compensation under SFAS 123 has on the pro forma net
earnings as shown above may not be representative of the effects on
reported net earnings for future years.
F-16
<PAGE> 20
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(7) Stock Options (continued)
The fair value of each option grant is estimated on the date of the
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in fiscal 1997: risk-free
interest rate of 6.0 percent; expected dividend yield of 0 percent;
expected life of 3.4 years; and expected volatility of 82 percent.
(8) Income Taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
Current Deferred Total
----------- ------------ -----------
<S> <C> <C> <C>
Year ended September 30, 1997:
U.S. federal $ 2,336,145 (194,210) 2,141,935
State 364,476 (30,064) 334,412
=========== =========== ===========
$ 2,700,621 (224,274) 2,476,347
=========== =========== ===========
Year ended September 30, 1996:
U.S. federal $ 389,910 (322,207) 67,703
State 60,358 (49,877) 10,481
----------- ----------- -----------
$ 450,268 (372,084) 78,184
=========== =========== ===========
Year ended September 30, 1995:
U.S. federal $ 414,981 (237,014) 177,967
State 64,239 (36,689) 27,550
----------- ----------- -----------
$ 479,220 (273,703) 205,517
=========== =========== ===========
</TABLE>
Income tax expense differs from the amounts computed by applying the
U.S. federal income tax rate of 34 percent to pretax income from
continuing operations as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Computed "expected" tax expense $2,139,230 92,460 97,184
Increase (reduction) in income taxes resulting from:
Amortization of goodwill 48,899 48,899 48,899
State and local income taxes, net of federal
income tax benefit 222,862 2,297 18,183
Meals and entertainment 5,796 3,631 4,060
Adjustment of tax provision to actual (1) -- (70,040) 36,214
Other, net 59,560 937 977
---------- ---------- ----------
$2,476,347 78,184 205,517
========== ========== ==========
</TABLE>
(1) Represents management's adjustment to the Company's income tax
liability based on a current assessment of its related obligations.
F-17
<PAGE> 21
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(8) Income Taxes (continued)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1997 and 1996, are presented below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Net current deferred tax assets:
Accounts and notes receivable principally due to allowance for doubtful
accounts $ 309,895 152,930
Unearned product warranty 125,422 47,074
Accrued vacation payable 55,386 37,327
Unearned sales deposits -- 83,640
Inventory principally due to uniform capitalization and reserves
96,496 97,478
--------- ---------
Total gross deferred tax assets 587,199 418,449
--------- ---------
Net long-term deferred tax liabilities:
Deferred compensation 58,866 58,866
Plant and equipment, principally due to differences in depreciation and
capitalized interest
(77,155) (87,588)
Capitalized software (450,716) (200,619)
Push down intangibles (460,979) (756,269)
Unrealized (gain) loss on investments -- 102
--------- ---------
Total gross deferred tax liabilities (929,984) (985,508)
--------- ---------
Net deferred tax liability $(342,785) (567,059)
========= =========
</TABLE>
Management believes that existing taxable temporary differences will
more likely than not reverse within the applicable carryforward periods
to allow future realization of existing deferred tax assets.
(9) Leases
The Company has operating leases for office furnishings, various office
equipment and two sales offices. Future minimum lease payments as of
September 30, 1997 are as follows:
<TABLE>
<S> <C>
Year ending September 30:
1998 $194,378
1999 180,240
2000 180,240
2001 180,240
2002 160,454
========
Total minimum lease payments $895,552
========
</TABLE>
F-18
<PAGE> 22
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(9) Leases (continued)
These leases generally require the Company to pay all executory costs
such as maintenance and insurance. Rental expenses for all operating
leases for 1997, 1996, and 1995, were $123,462, $100,299, and $116,944,
respectively.
(10) Profit Sharing Plans
The Company sponsors a defined contribution 401(k) plan (the "Plan")
for employees who have completed one year of service and attained the
age of 21. Participants may defer up to 15 percent of eligible
compensation. The Company, at its discretion, may match 50 percent of
participant contributions up to 7.5 percent of participant
compensation. Employer contributions made to the Plan were $88,361,
$59,881, and $51,863, for the years ended September 30, 1997, 1996, and
1995, respectively.
Through September 30, 1996, the Company established a discretionary
profit sharing program for full time employees who had completed one
full year of employment. Under the plan, 10 percent of the increase in
profits based on the Company's previous highest retained earnings
balance were allocated among employees determined on length of
employment and salary level at the discretion of the board of
directors. Contributions to the program were $132,450 and $171,483 for
the years ended September 30, 1996 and 1995, respectively. The program
was terminated on September 30, 1996.
(11) Major Customers, Concentration of Credit Risk and Network Carrier Sales
Sales to individual customers exceeding 10 percent of total revenues or
total trade accounts and notes receivable as of and for the years ended
September 30, 1997, 1996, and 1995, were as follows:
<TABLE>
<CAPTION>
Percentage of total revenues
-------------------------------------------------
Customer 1997 1996 1995
--------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
J.D. Services, Inc. 8% -- --
Caribbean Telephone and Telegraph, Inc. -- -- 16%
Intertoll Communications Network Corp. 9 12% 8
Overseas Telecom 5 13 7
</TABLE>
<TABLE>
<CAPTION>
Percentage of total notes and accounts receivable
-------------------------------------------------
Customer 1997 1996 1995
--------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
J.D. Services, Inc. 15% -- --
Caribbean Telephone and Telegraph, Inc. -- -- 7%
Intertoll Communications Network Corp. 4 6% 7
Overseas Telecom 3 22 7
</TABLE>
F-19
<PAGE> 23
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(11) Major Customers, Concentration of Credit Risk and Network Carrier Sales
(continued)
The Company's customers consist of business entities geographically
dispersed primarily throughout the United States. However, the Company
also sells products and/or services to customers in the United Kingdom,
Bosnia, Serbia, Bulgaria, Saudi Arabia, and Brazil. The Company
maintains a security interest in the telecommunications systems it
sells until the related account balances are paid in full.
The Company had deposits with financial institutions in excess of the
federally insured amount of $100,000 in the amount of $9,691,380 and
$467,737 for the years ended September 30, 1997 and 1996, respectively.
Network carrier sales originating from countries outside the United
States aggregated approximately $3,180,000 and $2,105,000 for the years
ended September 30, 1997 and 1996, respectively. These sales are
payable in U.S. dollars.
(12) Commitments and Contingencies
The Company acted as a guarantor for financing transactions executed
under repurchase agreements with a financial institution for $3,482,182
and $1,035,032 at September 30, 1997 and 1996, respectively. This
results from the financial institution providing lease financing to the
Company's customers to enable them to purchase product from the
Company. At September 30, 1997, the Company had established a reserve
of $200,000 for its estimated obligation under the recourse provisions
and maintains a security interest in the equipment financed under the
repurchase agreement. No such reserve was recorded as of September 30,
1996. In addition to other covenants, the repurchase agreement requires
the Company to maintain an unrestricted cash account of $6,000,000. The
Company has also established a $750,000 revolving line of credit with
this same financial institution. No balances were outstanding under
this line of credit at September 30, 1997.
On October 1, 1996, the Company entered into employment agreements with
various employees which specify the individual's salary, benefits, and
restrictions. All agreements expire on September 30, 2001.
F-20
<PAGE> 24
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(12) Commitments and Contingencies (continued)
On August 24, 1995, Aerotel, Ltd. and Aerotel U.S.A., Inc.,
(collectively, "Aerotel") filed a patent infringement suit against the
Company alleging that telephone systems manufactured and sold by the
Company incorporating prepaid calling features infringe upon a patent
which was issued to Aerotel in November 1987. The complaint further
alleges defamation and unfair competition by the Company and seeks
various damages. Aerotel seeks injunctive relief, damages of $18.7
million for willful infringement of its patent and an order requiring
the Company to publish a written apology to Aerotel. The Company has
filed an Answer and Counterclaim denying patent infringement,
defamation or unfair competition and seeking judgment that the Aerotel
patent is invalid and that Aerotel has misused its patent in violation
of antitrust laws. Based on information currently available, an
estimate of potential loss cannot be made. However, management is of
the opinion that there will be no material impact of the Company's
financial position, results of operations or liquidity as a result of
this suit. Accordingly, no provision for loss has been provided in the
accompanying financial statements. An unfavorable decision could have a
material adverse effect on the business, financial condition, and
results of operations of the Company.
In addition to the above, the Company has various legal claims and
other contingent matters, incurred in the normal course of business.
Although the final outcome of such matters cannot be predicted, the
Company believes the ultimate disposition of these matters will not
have a material adverse effect on the Company's financial condition,
liquidity, or results of operations.
As of September 30, 1997, the Company had capital expenditure purchase
commitments outstanding of approximately $900,000.
(13) Related Party Transactions
In June 1997, and under contract with the Company, GST Realco, Inc.
("GST Realco"), a subsidiary of GST USA, completed construction of a
40,000 square foot office building in Provo, Utah. The Company
purchased the land and a portion of the building construction from GST
Realco for $563,309 and $1,293,072, respectively, and currently
occupies the property as its corporate and manufacturing facility.
During the year ended September 30, 1996, GST USA borrowed $250,000
from the Company on short-term notes bearing interest at 11 percent.
The note was repaid by September 30, 1996. The Company recorded
interest income of $2,602 relating to this note during the year ended
September 30, 1996. There were no borrowings during fiscal 1997.
Also, during the years ended September 30, 1997 and 1996, respectively,
the Company sold $32,788 and $356,000 of application platform switching
products and $ -0- and $2,571,731 of wholesale carrier usage to GST USA
or subsidiaries and purchased $4,466,907 and $361,000 of wholesale
carrier usage from GST USA.
From April 1996 through May 1997 a member of the Company's board was
compensated by GST USA for services rendered to GST USA and its
subsidiaries.
F-21
<PAGE> 25
NACT TELECOMMUNICATIONS, INC.
(A Majority Owned Subsidiary of GST USA)
Notes to Financial Statements
(13) Related Party Transactions (continued)
The Company has entered into a Deferred Compensation Trust Agreement
(the Trust) with the chairman of the Company whereby the Company funded
the trust in the amount of $144,000. The principal and related interest
thereon are payable to the chairman based on a defined payment
schedule. The Company, at its sole discretion, may at any time make
additional contributions to the Trust. The Trust is subject to claims
of the Company's creditors in the event of the Company's insolvency.
(14) Accounting Standards Issued Not Yet Adopted
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share
(SFAS 128). SFAS 128 establishes a different method of computing
earnings per share than is currently required under the provisions of
Accounting Principles Board Opinion No. 15. Under SFAS 128, the Company
will be required to present both basic earnings per share and diluted
earnings per share. Basic and diluted earnings per share are expected
to be comparable to the currently presented earnings per share. SFAS
128 is effective for the consolidated financial statements for interim
and annual periods ending after December 15, 1997. Accordingly, the
Company plans to adopt SFAS 128 in the first quarter of its 1998 fiscal
year and at that time all historical earnings per share data presented
will be restated to conform with the provisions of SFAS 128.
In 1997, the FASB also issued Statement No. 130, Reporting
Comprehensive Income, and Statement No. 131, Disclosures About Segments
of an Enterprise and Related Information. These statements which are
effective for periods beginning after December 15, 1997, expand or
modify disclosures and accordingly, will have no impact on the
Company's reported financial position, results of operations or cash
flows.
F-22
<PAGE> 26
NACT TELECOMMUNICATIONS, INC.
Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Dec. 31, 1997
(Unaudited) Sept. 30, 1997
--------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 5,252 $ 9,947
Marketable securities 7,246 3,247
Accounts receivable, less allowance for doubtful
accounts of $631 in Dec. and $381 in Sept. 9,496 6,841
Notes receivable, less allowance for doubtful
accounts of $295 in Dec. and $250 in Sept. 4,055 3,252
Inventories 2,814 2,780
Prepaid expenses and other assets 216 198
Deferred tax asset - current 817 587
------- -------
Total current assets $29,896 $26,852
Fixed Assets:
Property, plant, and equipment $ 6,577 $ 6,337
Less: Accumulated depreciation (698) (554)
------- -------
Net fixed assets $ 5,879 $ 5,783
Notes receivable-long term $ 785 $ 967
Inventory-long term $ 225 $ 225
Intangibles $ 5,598 $ 5,776
Other Assets $ 164 $ 152
------- -------
Total Assets $42,547 $39,755
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 1,889 $ 1,433
Accrued expenses 1,206 963
Current corporate tax liability 1,073 1,353
Deferred Revenue 790 467
Inter company payable 1,743 1,447
------- -------
Total current liabilities $ 6,701 $ 5,663
Long Term Liabilities:
Deferred compensation liability $ 158 $ 158
Deferred tax liability 1,252 930
------- -------
Total long-term liabilities $ 1,410 $ 1,088
Stockholders' Equity:
Common stock, $.01 par value $ 81 $81
Additional paid-in-capital 28,271 28,130
Retained earnings 6,055 4,781
Unrealized appreciation on marketable securities 29 12
------- -------
Total stockholders' equity $34,436 $33,004
------- -------
Total liabilities and stockholders' equity $42,547 $39,755
======= =======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 27
NACT TELECOMMUNICATIONS, INC.
Statements of Income
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
(Unaudited)
--------------------------------
Dec 31, 1997 Dec 31, 1996
--------------------------------
<S> <C> <C>
Revenues:
Product sales $7,300 $4,780
Network carrier sales 1,387 1,610
------ ------
Total revenues $8,687 $6,390
Cost of goods sold:
Products $2,158 $1,730
Network carrier usage 1,387 1,558
Amortization of acquired intangibles 170 91
------ ------
Total cost of goods sold $3,715 $3,379
------ ------
Gross profit $4,972 $3,011
Operating expenses:
Research and development $ 799 $ 423
Sales and marketing 767 357
General and administrative 1,362 836
Amortization of acquired intangibles 143 143
------ ------
Total operating expenses $3,071 $1,759
------ ------
Income from operations $1,901 $1,252
Other Income, net $ 223 $ 25
------ ------
Income before income taxes $2,124 $1,277
Income taxes $ 850 $ 569
------ ------
Net income after taxes $1,274 $ 708
====== ======
Weighted average common and common
equivalent shares outstanding:
Basic 8,122 6,114
Diluted 8,443 6,114
Earnings per share:
Basic $ 0.16 $ 0.12
Diluted $ 0.15 $ 0.12
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE> 28
NACT TELECOMMUNICATIONS, INC.
Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
(Unaudited) (Unaudited)
-----------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,274 $ 708
Adjustments to reconcile net income to net cash
Provided by (used in)
operating activities:
Depreciation and amortization 498 322
Provision for loss on accounts and notes receivable 382 218
Provision for loss on inventory 228
Capital contribution by parent company 497
Deferred taxes 91 (10)
Decrease (increase) in operating assets:
Trade accounts and notes receivable (3,658) (2,717)
Inventories (262) (205)
Prepaid expenses and other assets (19) (167)
Increase (decrease) in operating liabilities:
Accounts payable 456 (1,088)
Accrued expenses 243 54
Income taxes payable (280) 71
Payable to GST USA 296 2,110
Deferred revenue and deferred compensation 324 4
------- -------
Net cash provided by (used in)
operating activities (427) (203)
Cash flows from investing activities:
Purchase of land, property, plant and equipment (240) (63)
Proceeds from sale of marketable securities 1,121 250
Purchase of marketable securities (5,103)
Capitalization of software development costs (187) (125)
------- -------
Net cash provided by (used in)
investing activities (4,409) (142)
Cash flows from financing activities:
Proceeds from issuance of common stock 141
Principle payments of capital lease obligations (1)
------- -------
Net cash provided by (used in)
Financing activities 141 (1)
Net (decrease) increase in cash (4,695) (142)
Cash at beginning of period 9,947 694
------- -------
Cash at end of period $ 5,252 $ 552
======= =======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE> 29
NACT TELECOMMUNICATIONS, INC.
Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
December 31,
1997 1996
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ -0- $ 2
Income taxes $1,038 $ -0-
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE> 30
NACT TELECOMMUNICATIONS, INC.
Notes to financial statements
1. Basis of Presentation
The interim financial statements included herein have been prepared by NACT
Telecommunications, Inc. without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"). Certain information and
footnote disclosures, normally included in financial statements prepared in
accordance with generally accepted accounting principles, have been condensed or
omitted pursuant to such SEC rules and regulations. These condensed financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's September 30, 1997 audited financial
statements filed on form 10K with the SEC in December 1997. In the opinion of
management, the condensed financial statements included herein reflect all
adjustments necessary to present fairly the financial position of the Company as
of December 31, 1997 and September 30, 1997, and the results of its operations
and cash flows for the three month periods ended December 31, 1997 and 1996. The
results of operations for the interim periods are not necessarily indicative of
the results of operations for the full year.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128). SFAS 128
established a different method of computing earnings per share than these same
computations under the provisions of Accounting Principles Board Opinion No. 15.
Under SFAS 128, the Company is required to present both basic earnings per share
and diluted earnings per share. SFAS 128 is effective for both interim and
annual periods ending after December 15, 1997. Accordingly, the Company has
adopted SFAS 128 in the first quarter of fiscal 1998.
Basic earnings per share is computed based on the weighted average number of
common shares outstanding during the three month periods ended December 31, 1997
and 1996. Diluted earnings per share for the three month periods ended December
31, 1997 and 1996 is computed considering the dilutive effect of stock options,
and is not materially different from the basic earnings per share calculations.
3. Stock Plan
The Company's 1996 Stock Option Plan (the "Stock Option Plan") was approved by
the Board of Directors and sole stockholder of the Company on November 26, 1996.
The purpose of the Stock Option Plan is to create additional incentives for the
Company's employees, directors and others who perform substantial services to
the Company by providing an opportunity to purchase shares of the Common Stock
pursuant to the exercise of options granted under the Stock Option Plan. The
Company may grant options that qualify as incentive stock options under Section
422 of the Internal Revenue Code, and non-qualified stock options. Incentive
stock options may be granted to employees (including officers and directors who
are employees). Non-qualified stock options may be granted to employees,
officers, directors, independent contractors and consultants of the Company. As
of December 31, 1997, 1,250,000 shares were reserved for issuance under the
Stock Option Plan and options to purchase 1,039,065 shares of Common Stock were
outstanding.
Options become exercisable at such times and in such installments as the Board
of Directors or Compensation Committee provides. The Stock Option Plan will
terminate on November 25, 2006, unless earlier terminated by the Board of
Directors.
F-27
<PAGE> 31
4. Inventories
Inventories are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997
----------------- ------------------
<S> <C> <C>
Raw materials $1,577 $1,065
Work-in-process 587 498
Finished goods 189 303
Refurbished inventory held for sale 461 914
------ ------
$2,814 $2,780
====== ======
Inventory-long term $ 225 $ 225
====== ======
</TABLE>
5. Property and Equipment
Property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1997
----------------- ------------------
<S> <C> <C>
Furniture and equipment $ 311 $ 280
Computer equipment 900 785
Switch and testing equipment 1,165 1,082
Land 563 563
Building 3,638 3,627
------ ------
6,577 6,337
Less accumulated depreciation and amortization 698 554
------ ------
$5,879 $5,783
====== ======
</TABLE>
F-28
<PAGE> 32
(b) Pro Forma Financial Information. The Acquisition and Open Market
Purchase has been accounted for using the purchase method of accounting. In
connection with the Acquisition, World Access expects to record a charge of
approximately $43.5 million, representing the portion of the purchase price
allocated to in-process research and development. The following unaudited pro
forma consolidated balance sheet as of September 30, 1997 reflects the
Acquisition (together with the Open Market Purchase) as if it had been completed
on September 30, 1997. The following unaudited pro forma consolidated statement
of operations for the year ended December 31, 1996 and the nine months ended
September 30, 1997 reflect the Acquisition (together with the Open Market
Purchase) as if it had been completed as of January 1, 1996.
The pro forma data does not purport to be indicative of the results
which would actually have been reported if the Acquisition (together with the
Open Market Purchase) had occurred on such dates or which may be reported in the
future. The pro forma data should be read in conjunction with the historical
consolidated financial statements of World Access, the historical consolidated
financial statements of NACT, and the related notes thereto.
<PAGE> 33
WORLD ACCESS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
(A) (B)
PRO FORMA PRO FORMA PRO FORMA
WORLD ACCESS NACT ADJUSTMENTS COMBINED
------------ -------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and equivalents $127,357 $ 9,947 (64,665)(C) $ 72,639
Marketable investment securities 3,247 -- 3,247
Accounts receivable 22,446 6,841 29,287
Inventories 18,899 2,780 (1,300)(C) 20,379
Other current assets 7,050 4,037 (300)(C) 10,787
-------- -------- -------- --------
Total Current Assets 175,752 26,852 (66,265) 136,339
Property and equipment 4,287 5,783 -- 10,070
Intangible assets 29,370 5,776 (3,676)(C) 66,929
35,459 (C)
Technology licenses 904 -- -- 904
Debt issuance costs 4,091 -- -- 4,091
Other assets 2,035 1,344 -- 3,379
-------- -------- -------- --------
Total Assets $216,439 $ 39,755 $(34,482) $221,712
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 66 $ -- $ -- $ 66
Accounts payable 6,902 1,433 -- 8,335
Accrued payroll and benefits 3,073 -- -- 3,073
CIS purchase price payable 3,500 -- -- 3,500
Other accrued liabilities 1,550 4,231 300 (C) 6,481
400 (C)
-------- -------- -------- --------
Total Current Liabilities 15,091 5,664 700 21,455
Long-term debt 115,301 -- -- 115,301
Other long-term liabilities -- 1,087 -- 1,087
-------- -------- -------- --------
Total Liabilities 130,392 6,751 700 137,843
-------- -------- -------- --------
Minority interest in subsidiary 10,560 (C) 10,560
Stockholders' Equity
Common and preferred stock 192 81 (81)(D) 206
14 (C)
Capital in excess of par value 81,178 28,130 (28,130)(D) 111,914
30,736 (C)
Retained earnings (deficit) 4,677 4,781 (4,781)(D) (38,823)
(43,500)(E)
Net unrealized gain on marketable investment securities 12 12
-------- -------- -------- --------
Total Stockholders' Equity 86,047 33,004 (45,742) 73,309
-------- -------- -------- --------
Total Liabilities and Stockholders' Equity $216,439 $ 39,755 $(34,482) $221,712
======== ======== ======== ========
</TABLE>
3
<PAGE> 34
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents the pro forma balance sheet for World Access, Inc. as presented
in the Report on Form 10Q for the Three Months Ended September 30, 1997. The
pro forma balance sheet presented above includes the effects of the sale of
$115 million 4.5% convertible subordinated notes which was completed in
October 1997.
(B) Represents the historical balance sheet of NACT Telecommunications, Inc. as
of September 30, 1997.
(C) The Acquisition will be accounted for under the purchase method of
accounting. In addition, in accordance with generally accepted accounting
principles, the portion of the purchase price allocable to in-process
research and development projects of NACT will be expensed at the
consumation of the Acquisition. The amount of the one-time non-recurring
charge is expected to be approximately $43.5 million. Since this charge is
directly related to the Acquisition and will not recurr, the pro forma
statements of operations have been prepared excluding this charge. The
Company has not yet determined the final allocation of the purchase price,
and accordingly, the amount shown below may differ from the amounts
ultimately determined.
The unallocated excess of purchase price over net assets acquired is
determined as follows (in thousands):
<TABLE>
<S> <C> <C>
Purchase price of 68% interest in NACT:
Cash purchase of GST shares 59,663
Open market purchase of NACT shares 5,002
------
Total cash 64,665
Restricted stock issued in exchange for GST's shares 20,900
"In the money" value of WAXS options issued in exchange
for NACT options 9,850
------
Total stock 30,750
Fees and expenses related to the Merger 300
-------
Total purchase price 95,715
-------
Allocation:
Historical stockholders' equity (32,992)
Minority interest in subsidiary 10,560
Adjust assets and liabilities:
Inventories 1,300
Intangibles 3,676
In process R&D costs (43,500)
Notes receivable 300
Reserve for recourse leases 400
-------
(60,256)
-------
Unallocated excess of purchase price over net assets acquired 35,459
=======
</TABLE>
(D) Eliminate existing stockholders' equity.
(E) Represents retained earnings adjustment for nonrecurring charge related to
write-off of in-process R&D expenses acquired.
4
<PAGE> 35
WORLD ACCESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
WORLD ACCESS NACT ADJUSTMENTS COMBINED
------------ ------- ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales of products $56,099 $17,202 $ -- $73,301
Service revenues 15,622 4,106 -- 19,728
------- ------- ------- -------
Total Sales 71,721 21,308 0 93,029
Cost of products sold 33,811 5,411 -- 39,222
Cost of services 12,832 4,199 (175)(A) 16,856
------- ------- ------- -------
Total Cost of Sales 46,643 9,610 (175) 56,078
------- ------- ------- -------
Gross Profit 25,078 11,698 175 36,951
Engineering and development 1,350 1,962 -- 3,312
Selling, general and administrative 6,860 4,784 -- 11,644
Amortization of goodwill 1,210 430 (275)(A) 3,165
1,800 (B)
------- ------- ------- -------
Operating Income 15,658 4,522 (1,350) 18,830
Interest and other income 835 523 -- 1,358
Interest and other expense (95) (30) (125)
Minority interest in net income of subsidiary (1,085)(C) (1,085)
------- ------- ------- -------
Income Before Income Taxes 16,398 5,015 (2,435) 18,978
Income taxes 5,986 1,907 170 (D) 8,063
------- ------- ------- -------
Net Income $10,412 $ 3,108 $(2,605) $10,915
======= ======= ======= =======
Net Income Per Common Share: $ .55 $ .52 (E)
======= =======
Weighted Average Shares Outstanding: 19,076 21,063 (E)
======= =======
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1997
(A) Eliminate amortization of certain previously acquired intangibiles of NACT.
(B) Amortization of unallocated excess purchase price over net assets acquired
over 15 years.
(C) Record the 32% minority interest in net income of NACT including applicable
pro forma adjustments.
(D) Adjust tax provision for the pro forma adjustments.
(E) Represents fully diluted earnings per share, including shares of Company
common stock issued to GST and common stock equivalents related to stock
options issued in exchange for NACT options.
5
<PAGE> 36
WORLD ACCESS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED 1996
DECEMBER 31, 1996 SEPTEMBER 30, 1996 PRO FORMA PRO FORMA
WORLD ACCESS NACT ADJUSTMENTS COMBINED
----------------- ------------------ ----------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales of products $ 34,411 $ 9,930 $ -- $ 44,341
Service revenues 16,589 6,355 (2,572)(A) 20,372
-------- -------- -------- --------
Total Sales 51,000 16,285 (2,572) 64,713
Cost of products sold 21,485 3,942 -- 25,427
Cost of services 14,520 6,316 (230)(B) 18,034
(2,572)(A)
-------- -------- -------- --------
Total Cost of Sales 36,005 10,258 (2,802) 43,461
-------- -------- -------- --------
Gross Profit 14,995 6,027 230 21,252
Engineering and development 892 1,352 -- 2,244
Selling, general and administrative 6,211 3,978 -- 10,189
Amortization of goodwill 534 573 (365)(B) 3,142
2,400 (C)
-------- -------- -------- --------
Operating Income 7,358 124 (1,805) 5,677
Interest and other income 485 162 -- 647
Interest and other expense (319) (14) (333)
Minority interest in net income of subsidiary (252)(D) (252)
-------- -------- -------- --------
Income Before Income Taxes 7,524 272 (2,057) 5,739
Income taxes 745 78 175 (E) 998
-------- -------- -------- --------
Net Income $ 6,779 $ 194 $ (2,232) $ 4,741
======== ======== ======== ========
Net Income Per Common Share: $ .46 $ .30 (F)
======== ========
Weighted Average Shares Outstanding: 14,424 15,854 (F)
======== ========
</TABLE>
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS FOR 1996
(A) Eliminate nonrecurring NACT Wins revenue and associated cost of sales. See
note 1(b) to the audited financial statements.
(B) Eliminate amortization of certain acquired intangibles.
(C) Amortization of unallocated excess purchase price over net assets acquired
over 15 years.
(D) Record the 32% minority interest in net income of NACT including applicable
pro forma adjustments.
(E) Adjust tax provision for the pro forma adjustments.
(F) Represents fully diluted earnings per share, including shares of Company
common stock issued to GST.
6
<PAGE> 37
(c) Exhibits. The following exhibits are filed herewith by direct
transmission via "edgar."
2.1 Stock Purchase Agreement among World Access, Inc. GST USA,
Inc. and GST Telecommunications, Inc. dated December 31, 1997,
with exhibits thereto.*
2.2 Agreement and Plan of Merger and Reorganization by and among
WAXS, Inc., World Access, Inc., WAXS Acquisition Corp., NACT
Telecommunications, Inc. and NACT Acquisition Corp. dated
February 24, 1998.
23.1 Consent of KPMG Peat Marwick LLP.
99.1 Press Release issued on January 2, 1998.*
99.2 Press Release issued on February 25, 1998.
99.3 Press Release issued on February 27, 1998.
- ----------
* Incorporated by reference to the Current Report on Form 8-K filed by World
Access, Inc. on February 20, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLD ACCESS, INC.
By: /s/ Martin D. Kidder
--------------------------------------------------
Martin D. Kidder
Its Vice President and Controller
Dated as of March 13, 1998
7
<PAGE> 1
Exhibit 2.2
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
WAXS INC.,
WORLD ACCESS, INC.,
WAXS ACQUISITION CORP.,
NACT TELECOMMUNICATIONS, INC.
AND
NACT ACQUISITION CORP.
DATED: FEBRUARY 24, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE 1. THE MERGERS ............................................................................... 2
SECTION 1.1. The Mergers ...................................................................... 2
SECTION 1.2. The Effective Time and the Closing Date .......................................... 2
SECTION 1.3. Effect of the Mergers ............................................................ 3
SECTION 1.4. Charter and Bylaws ............................................................... 3
SECTION 1.5. Directors and Officers ........................................................... 3
ARTICLE 2. CONVERSION OF STOCK ....................................................................... 3
SECTION 2.1. Conversion of Sub-1 Stock and World Access Stock ................................. 3
SECTION 2.2. Conversion of Sub-2 Stock and NACT Stock ......................................... 4
SECTION 2.3. Fractional Shares ................................................................ 4
SECTION 2.4. Exchange Ratio for World Access Options and World Access Warrants ................ 4
SECTION 2.5. Exchange Ratio for NACT Options .................................................. 5
ARTICLE 3. PAYMENT OF THE MERGER CONSIDERATION ...................................................... 6
SECTION 3.1. Payment of the World Access Consideration and the NACT Consideration.............. 6
SECTION 3.2. Lost Certificates ................................................................ 7
SECTION 3.3. Payment to Another Person ........................................................ 7
SECTION 3.4. Right to Receive the Merger Consideration Only ................................... 7
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF NACT .................................................. 8
SECTION 4.1. Corporate Organization .......................................................... 8
SECTION 4.2. Capitalization .................................................................. 8
SECTION 4.3. Authority Relative to this Agreement ............................................ 8
SECTION 4.4. No Violation .................................................................... 9
SECTION 4.5. Compliance with Laws ............................................................ 9
SECTION 4.6. Litigation ...................................................................... 10
SECTION 4.7. Financial Statements and Reports ................................................ 10
SECTION 4.8. Absence of Certain Changes or Events ............................................ 11
SECTION 4.9. No Undisclosed Material Liabilities ............................................. 11
SECTION 4.10. No Default ...................................................................... 11
SECTION 4.11. Finders' and Bankers' Fees ...................................................... 11
SECTION 4.12. Fairness Opinion ................................................................ 12
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF WORLD ACCESS .......................................... 12
SECTION 5.1. Corporate Organization .......................................................... 12
SECTION 5.2. Capitalization .................................................................. 12
SECTION 5.3. Authority Relative to this Agreement ............................................ 13
SECTION 5.4. No Violation .................................................................... 13
SECTION 5.5. Compliance with Laws ............................................................ 14
SECTION 5.6. Litigation ...................................................................... 14
SECTION 5.7. Financial Statements and Reports ................................................ 15
SECTION 5.8. Absence of Certain Changes or Events ............................................ 15
SECTION 5.9. No Undisclosed Material Liabilities ............................................. 16
SECTION 5.10. No Default ..................................................................... 16
SECTION 5.11. Finders' and Bankers' Fees ..................................................... 16
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF HOLDCO, SUB-1 AND SUB-2 ............................... 17
SECTION 6.1. Organization, Qualification, and Corporate Power ................................ 17
SECTION 6.2. Capitalization .................................................................. 17
SECTION 6.3. Authority Relative to this Agreement ............................................ 17
ARTICLE 7. CERTAIN COVENANTS AND AGREEMENTS ........................................................ 18
SECTION 7.1. Conduct of Business by NACT ..................................................... 18
SECTION 7.2. Regulatory Matters .............................................................. 18
SECTION 7.3. Stockholder Matters ............................................................. 19
SECTION 7.4. Access to Information ........................................................... 19
SECTION 7.5. Notices of Certain Events ....................................................... 19
SECTION 7.6. Indemnification ................................................................. 20
SECTION 7.7. Best Efforts .................................................................... 20
SECTION 7.8. Public Announcements ............................................................ 20
SECTION 7.9. Further Assurances .............................................................. 20
SECTION 7.10. Listing of Holdco Stock ......................................................... 21
SECTION 7.11. Affiliates ...................................................................... 21
SECTION 7.12. Tax Treatment ................................................................... 21
ARTICLE 8. CONDITIONS TO THE MERGERS ............................................................... 21
SECTION 8.1. Conditions to the Obligations of Each Party ..................................... 21
SECTION 8.2. Additional Conditions to the Obligations of Holdco, World Access, Sub-1 and Sub-2 22
SECTION 8.3. Additional Conditions to the Obligations of NACT ................................ 22
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE 9. TERMINATION ............................................................................. 23
SECTION 9.1. Termination ..................................................................... 23
SECTION 9.2. Effect of Termination ........................................................... 24
ARTICLE 10. MISCELLANEOUS .......................................................................... 24
SECTION 10.1. Definitions .................................................................... 24
SECTION 10.2. Notices ........................................................................ 25
SECTION 10.3. No Survival of Representations and Warranties .................................. 26
SECTION 10.4. Amendments; No Waivers ......................................................... 26
SECTION 10.5. Fees and Expenses .............................................................. 26
SECTION 10.6. Successors and Assigns ......................................................... 27
SECTION 10.7. Governing Law .................................................................. 27
SECTION 10.8. Severability ................................................................... 27
SECTION 10.9. Interpretations ................................................................ 27
SECTION 10.10. Counterparts; Effectiveness .................................................... 27
SECTION 10.11. Construction ................................................................... 27
EXHIBIT A Affiliate Agreement
</TABLE>
<PAGE> 5
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (as amended,
supplemented or otherwise modified from time to time, the "Agreement"), dated as
of the 24th day of February, 1998, is entered into by and among WAXS INC., a
Delaware corporation and a direct wholly-owned subsidiary of World Access, Inc.
("Holdco"), WORLD ACCESS, INC., a Delaware corporation ("World Access"), WAXS
ACQUISITION CORP., a Delaware corporation and a direct wholly-owned subsidiary
of Holdco ("Sub-1"), NACT TELECOMMUNICATIONS, INC., a Delaware corporation
("NACT"), and NACT ACQUISITION CORP., a Delaware corporation and a direct
wholly-owned subsidiary of Holdco ("Sub-2").
WHEREAS, World Access currently owns 355,000 shares of common stock,
$.01 par value per share, of NACT (the "NACT Stock") and has agreed to purchase
an additional 5,113,712 shares of NACT Stock from GST USA, Inc. (the "GST Stock
Purchase"), which shares together represent approximately 67.3% of the total
NACT Stock currently issued and outstanding;
WHEREAS, Sub-1, upon the terms and subject to the conditions of this
Agreement, will be merged with and into World Access (the "World Access
Merger");
WHEREAS, Sub-2, upon the terms and subject to the conditions of this
Agreement, will be merged with and into NACT (the "NACT Merger" and, together
with the World Access Merger, the "Mergers);
WHEREAS, the respective boards of directors of World Access and Sub-1
deem it in the best interests of World Access and Sub-1, respectively, and of
their respective stockholders that the World Access Merger be consummated;
WHEREAS, a special committee of the Board of Directors of NACT (the
"NACT Board") appointed on January 12, 1998 and comprised entirely of directors
who are neither members of management of NACT nor affiliated with World Access
or any Affiliate of World Access (other than NACT) (the "Special Committee") has
unanimously determined that the NACT Merger is fair to and in the best interests
of the stockholders of NACT other than World Access (the "Public Stockholders")
and has unanimously approved this Agreement and unanimously recommends its
approval and adoption by the NACT Board and by the stockholders of NACT;
WHEREAS, the NACT Board, based in part on the recommendation of the
Special Committee, has determined that the NACT Merger is fair to and in the
best interests of the Public Stockholders and has resolved to approve and adopt
this Agreement and the transactions contemplated hereby and, subject to the
following terms and conditions, to recommend the approval and adoption of this
Agreement and the NACT Merger by the stockholders of NACT;
<PAGE> 6
WHEREAS, the respective boards of directors of all of the Parties have
unanimously approved this Agreement, and the board of directors of NACT has
directed that this Agreement be submitted to its stockholders for approval and
adoption;
WHEREAS, Holdco, as the sole stockholder of Sub-1, Sub-2, has
unanimously approved this Agreement prior to its execution;
WHEREAS, Holdco, as the sole stockholder of Sub-1 and Sub-2, will
deliver, or cause to be delivered, to the stockholders of World Access and NACT
the consideration to be paid pursuant to the World Access Merger and the NACT
Merger, respectively, in accordance with the terms of this Agreement;
WHEREAS, World Access and NACT desire to make certain representations,
warranties, covenants and agreements in connection with the Mergers;
WHEREAS, for Federal income tax purposes it is intended that the
Mergers qualify as exchanges under Section 351 of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, certain capitalized terms used herein shall have the meaning
set forth in Section 10.1 hereof.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the warranties and covenants
herein contained, the Parties agree as follows:
ARTICLE 1.
THE MERGERS
SECTION 1.1. THE MERGERS. On the terms and subject to the conditions
contained in this Agreement, the Mergers will be consummated. World Access shall
be the corporation surviving the World Access Merger (the "World Access
Surviving Corporation"). NACT shall be the corporation surviving the NACT Merger
(the "NACT Surviving Corporation").
SECTION 1.2. THE EFFECTIVE TIME AND THE CLOSING DATE. As soon as
practicable following the satisfaction or waiver of the conditions set forth in
Article 8 hereof, the Parties shall file certificates of merger (the
"Certificates of Merger") executed in accordance with the relevant provisions of
the Delaware General Corporation Law (the "DGCL") and shall make all other
filings, recordings or publications required by the DGCL in connection with the
Mergers. Each Merger shall become effective at the time specified in its related
Certificate of Merger, which specified time shall be the same in each
Certificate of Merger (the "Effective Time"). Upon the terms and subject to the
conditions hereof, unless otherwise agreed upon by the Parties, the closing of
the transactions contemplated by this Agreement (the "Closing") shall take place
at the offices of Van Cott, Bagley, Cornwall & McCarthy, Salt Lake City, Utah,
commencing at
2
<PAGE> 7
10:00 a.m. local time, as soon as practicable following the satisfaction or
waiver of the conditions set forth in Article 8 hereof, but in no event later
than two business days thereafter (the date of such being referred to herein as
the "Closing Date"), unless otherwise agreed to by the Parties.
SECTION 1.3. EFFECT OF THE MERGERS. At the Effective Time, the World
Access Merger and the NACT Merger shall have the effects set forth in the DGCL.
SECTION 1.4. CHARTER AND BYLAWS. At the Effective Time: (i) with
respect to the World Access Merger, the certificate of incorporation and bylaws
of Sub-1, as in effect on the date hereof and otherwise amended prior to the
Effective Time, shall be the certificate of incorporation and bylaws of the
World Access Surviving Corporation until further amended as provided therein and
in accordance with applicable Law; (ii) with respect to the NACT Merger, the
certificate of incorporation and bylaws of Sub-2, as in effect on the date
hereof and otherwise amended prior to the Effective Time, shall be the
certificate of incorporation and bylaws of the NACT Surviving Corporation until
further amended as provided therein and in accordance with applicable Law; and
(iii) the certificate of incorporation of Holdco as in effect immediately prior
to the Effective Time shall be amended at the Effective Time so that Article I
thereof reads in its entirety as follows: "The name of the Corporation is "World
Access, Inc." and, as so amended, such certificate of incorporation shall be the
certificate of incorporation of Holdco until further amended as provided therein
and in accordance with applicable Law.
SECTION 1.5. DIRECTORS AND OFFICERS. From and after the Effective Time,
the directors and officers of each of World Access and NACT shall be the
directors and officers of each of World Access Surviving Corporation and NACT
Surviving Corporation, respectively.
ARTICLE 2.
CONVERSION OF STOCK
SECTION 2.1. CONVERSION OF SUB-1 STOCK AND WORLD ACCESS STOCK. Subject
to the terms and conditions of this Agreement, as of the Effective Time and by
virtue of the World Access Merger and without any further action on the part of
the holder of any Sub-1 Stock or World Access Stock:
(a) all shares of World Access Stock which are held by World
Access as treasury stock shall be canceled and retired, and no consideration
shall be paid or delivered in exchange therefor;
(b) each share of World Access Stock outstanding immediately
prior to the Effective Time shall be canceled and converted solely into the
right to receive and be exchangeable for one share of common stock, $.01 par
value per share (the "Holdco Stock"), of Holdco (the "World Access
Consideration"); and
3
<PAGE> 8
(c) each share of Sub-1 Stock issued and outstanding
immediately prior to the Effective Time shall be converted solely into one fully
paid and nonassessable share of common stock, par value $.01 per share, of the
World Access Surviving Corporation.
SECTION 2.2. CONVERSION OF SUB-2 STOCK AND NACT STOCK. Subject to the
terms and conditions of this Agreement, as of the Effective Time and by virtue
of the NACT Merger and without any further action on the part of the holder of
any Sub-2 Stock or NACT Stock:
(a) all shares of NACT Stock which are held by NACT as
treasury stock shall be canceled and retired, and no consideration shall be paid
or delivered in exchange therefor;
(b) subject to Section 2.3 hereof, each share of NACT Stock
outstanding immediately prior to the Effective Time shall be canceled and
converted solely into the right to receive and become exchangeable for that
number of shares of Holdco Stock equal to the quotient of (x) $17.50 divided by
(y) the Closing Date Market Price (the "Exchange Ratio"); provided, however,
that (i) if the Closing Date Market Price is less than $20.88, then World Access
may terminate this Agreement by delivering notice of termination to NACT in the
manner contemplated by Section 10.2 hereof, and (ii) if the Closing Date Market
Price is more than $25.52, then the Exchange Ratio shall be equal to 0.6857 (the
number of shares of Holdco Stock into which each share of NACT Stock shall be
convertible pursuant to this Section 2.2(b) is hereinafter referred to as the
"NACT Consideration"); and
(c) each share of Sub-2 Stock issued and outstanding
immediately prior to the Effective Time shall be converted solely into one fully
paid and nonassessable share of common stock, par value $.01 per share, of the
NACT Surviving Corporation.
SECTION 2.3. FRACTIONAL SHARES. No scrip or fractional shares of Holdco
Stock shall be issued pursuant to the NACT Merger, and such fractional share
interests shall not entitle the owner thereof to vote or to any other rights of
a stockholder of Holdco. In lieu thereof, if any holder of NACT Stock would have
otherwise been entitled to a fractional share of Holdco Stock hereunder, then
such holder shall be entitled, after the later of the Effective Time or the
surrender of such holder's stock certificates that represent such shares of NACT
Stock to receive from Holdco cash (without interest) in an amount equal to the
product of such fractional part of a share of Holdco Stock multiplied by the
Closing Date Market Price.
SECTION 2.4. EXCHANGE RATIO FOR WORLD ACCESS OPTIONS AND WORLD ACCESS
WARRANTS.
2.4.1. As of the Effective Time, each outstanding option
("World Access Option") and warrant ("World Access Warrant") to purchase World
Access Common Stock shall be assumed by Holdco and converted into an option or
warrant, as the case may be, to purchase shares of Holdco Common Stock, as
provided below. Following the Effective Time, each World Access Option shall
continue to have, and shall be subject to, the same terms and conditions set
4
<PAGE> 9
forth in the applicable option plan or warrant plan (the "World Access Plans")
pursuant to which such World Access Option or World Access Warrant was granted,
except that each such World Access Option or World Access Warrant shall be
exercisable for the same number of shares of Holdco Common Stock as the number
of shares of World Access Common Stock for which such World Access Option or
World Access Warrant was exercisable immediately prior to the Effective Time.
2.4.2. As of the Effective Time, Holdco shall enter into an
assumption agreement with respect to each World Access Option and each World
Access Warrant, which shall provide for Holdco's assumption of the obligations
of World Access under the applicable World Access Plan. Prior to the Effective
Time, World Access shall make such amendments, if any, to the World Access Plans
as shall be necessary to permit such assumption in accordance with this Section
2.4.2.
2.4.3. It is the intention of the Parties that, to the extent
that any World Access Option constitutes an "incentive stock option" (within the
meaning of Section 422 of the Code) immediately prior to the Effective Time,
such World Access Option shall continue to qualify as an incentive stock option
to the maximum extent permitted by Section 422 of the Code, and that the
assumption of the World Access Option provided by this Section 2.4 shall satisfy
the conditions of Section 424(a)of the Code.
SECTION 2.5. EXCHANGE RATIO FOR NACT OPTIONS.
2.5.1. As of the Effective Time, each option ("NACT Option")
to purchase NACT Common Stock then outstanding shall be assumed by Holdco and
converted into an option to purchase shares of Holdco Common Stock, as provided
below. Following the Effective Time, each NACT Option shall continue to have,
and shall be subject to, the same terms and conditions set forth in the
applicable option plan (the "NACT Plans") pursuant to which such NACT Option was
granted, except that (i) each such NACT Option shall be exercisable for that
number of shares of Holdco Stock equal to the product of (x) the number of
shares of NACT Stock for which such NACT Option was exercisable immediately
prior to the Effective Time and (y) the Exchange Ratio, rounded in the case of
any NACT Option other than any incentive stock option, up and, in the case of
any incentive stock option, down to the nearest whole share, if necessary, and
(ii) the exercise price per share of such NACT Option shall be equal to the
aggregate exercise price of such NACT Option immediately prior to the Effective
Time divided by the number of shares of Holdco Stock for which such NACT Option
shall be exercisable as determined in accordance with the preceding clause (i),
rounded up to the next highest cent, if necessary.
2.5.2. As of the Effective Time, Holdco shall enter into an
assumption agreement with respect to each NACT Option, which shall provide for
Holdco's assumption of the obligations of NACT under the applicable NACT Plan.
Prior to the Effective Time, NACT shall make such amendments, if any, to the
NACT Plans as shall be necessary to permit such assumption in accordance with
this Section 2.5.2.
5
<PAGE> 10
2.5.3. It is the intention of the Parties that, to the extent
that any NACT Option constitutes an "incentive stock option" (within the meaning
of Section 422 of the Code) immediately prior to the Effective Time, such NACT
Option shall continue to qualify as an incentive stock option to the maximum
extent permitted by Section 422 of the Code, and that the assumption of the NACT
Option provided by this Section 2.5 shall satisfy the conditions of Section
424(a) of the Code.
ARTICLE 3.
PAYMENT OF THE MERGER CONSIDERATION
SECTION 3.1. PAYMENT OF THE WORLD ACCESS CONSIDERATION AND THE
NACT CONSIDERATION.
3.1.1. At or prior to the Effective Time, Holdco shall appoint
an agent reasonably satisfactory to World Access and NACT (the "Exchange Agent")
for the purpose of exchanging certificates representing outstanding shares of
World Access Stock and NACT Stock as provided herein. As of the Effective Time,
Holdco will deposit with the Exchange Agent, in trust for the benefit of holders
of shares of World Access Stock and NACT Stock, certificates representing the
shares of Holdco Stock issuable pursuant to Section 2.1 hereof. Holdco agrees to
make available to the Exchange Agent, from time to time as needed, cash
sufficient to pay cash in lieu of fractional shares pursuant to Section 2.3
hereof.
3.1.2. As promptly as practicable after the Effective Time,
the Exchange Agent shall send or cause to be sent to each former holder of
record of shares of World Access Stock and NACT Stock transmittal materials (the
"Letter of Transmittal") for use in exchanging their certificates formerly
representing World Access Stock and NACT Stock for the Merger Consideration
provided for in this Agreement. The Letter of Transmittal will contain
instructions with respect to the surrender of certificates representing World
Access Stock and NACT Stock and the receipt of the Merger Consideration
contemplated by this Agreement and will require each holder of World Access
Stock and NACT Stock to transfer good and marketable title to such World Access
Stock and NACT Stock to Holdco, free and clear of all Liens. Upon receipt of
properly completed Letters of Transmittal, the Exchange Agent shall pay the
appropriate Merger Consideration to the stockholders of World Access and NACT,
as appropriate. The Exchange Agent shall, as promptly as practicable after the
Effective Time, send or cause to be sent to each former holder of record of
World Access Stock and NACT Stock a Letter of Transmittal and, upon the proper
execution and return of such Letter of Transmittal to the Exchange Agent, the
appropriate Merger Consideration shall be promptly paid.
3.1.3. At the Effective Time, the stock transfer books of
World Access and NACT shall be closed as to holders of World Access Stock and
NACT Stock immediately prior to the Effective Time, and no transfer of World
Access Stock and NACT Stock by any such holder shall thereafter be made or
recognized and each outstanding certificate formerly representing World Access
Stock and NACT Stock shall, without any action on the part of any holder
thereof, no longer represent World Access Stock and NACT Stock. If, after the
Effective Time,
6
<PAGE> 11
certificates are properly presented to the Exchange Agent, such certificates
shall be exchanged for the Merger Consideration contemplated by this Agreement
into which the World Access Stock and NACT Stock represented thereby were
converted in the Mergers.
SECTION 3.2. LOST CERTIFICATES. In the event that any holder of World
Access Stock and NACT Stock is unable to deliver the certificate which
represents such holder's World Access Stock or NACT Stock, Holdco, in the
absence of actual notice that any World Access Stock or NACT Stock theretofore
represented by any such certificate has been acquired by a bona fide purchaser,
may, in its sole discretion, deliver to such holder the Merger Consideration
contemplated by this Agreement to which such holder is entitled in accordance
with the provisions of this Agreement upon the presentation of all of the
following:
(a) an affidavit or other evidence to the reasonable
satisfaction of Holdco that any such certificate has been lost, wrongfully taken
or destroyed;
(b) such security or indemnity as may be reasonably requested
by Holdco to indemnify and hold Holdco harmless; and
(c) evidence to the satisfaction of Holdco that such holder
is the owner of World Access Stock or NACT Stock theretofore represented by each
certificate claimed by such holder to be lost, wrongfully taken or destroyed and
that such holder is the Person who would be entitled to present each such
certificate for exchange pursuant to this Agreement.
SECTION 3.3. PAYMENT TO ANOTHER PERSON. In the event that the delivery
of any Merger Consideration contemplated by this Agreement is to be made to a
Person other than the Person in whose name any certificate representing World
Access Stock or NACT Stock surrendered is registered, such certificate so
surrendered shall be properly endorsed (or accompanied by an appropriate
instrument of transfer), with the signature(s) appropriately guaranteed, and
otherwise in proper form for transfer, and the Person requesting such delivery
shall pay any transfer or other taxes required by reason of the delivery to a
Person other than the registered holder of such certificate surrendered or
establish to the satisfaction of Holdco that such tax has been paid or is not
applicable.
SECTION 3.4. RIGHT TO RECEIVE THE MERGER CONSIDERATION ONLY. Until
surrendered in accordance with the provisions of this Article 3, each
certificate representing World Access Stock and NACT Stock shall represent for
all purposes the right to receive the appropriate Merger Consideration
contemplated by this Agreement and shall not represent the right to receive any
other consideration.
7
<PAGE> 12
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF NACT
NACT represents and warrants to World Access that, except as set forth
in the Disclosure Schedule delivered by NACT to World Access prior hereto (the
"NACT Disclosure Schedule"), which shall identify exceptions by specific Section
references:
SECTION 4.1. CORPORATE ORGANIZATION. NACT has been duly organized and
is validly existing and in good standing under the Laws of the jurisdiction of
its organization, has all requisite power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted,
and is qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where failure to be so qualified or licensed, individually or in the
aggregate, would not have an NACT Material Adverse Effect. NACT is not in
violation of any provision of its certificate of incorporation or bylaws or
other organizational documents, as the case may be. NACT has no subsidiaries or
equity investments in any other Person.
SECTION 4.2. CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of NACT consists in its entirety of 25,000,000 shares
of NACT Stock and 10,000,000 shares of preferred stock, $.01 par value per share
("NACT Preferred Stock"). As of the date of this Agreement, (i) 8,129,096 shares
of NACT Stock are issued and outstanding, (ii) no shares of NACT Preferred Stock
are outstanding, and (iii) options to acquire 1,039,065 shares of NACT Stock are
outstanding under the NACT Plans. All of the outstanding shares of capital stock
of NACT have been duly authorized, validly issued and are fully paid and
nonassessable and are not subject to preemptive rights created by statute,
charter or bylaws or any agreement to which NACT is a Party or by which NACT is
bound. Except as set forth in this Section 4.2, there are no options, warrants
or other rights (including registration rights), agreements, arrangements or
commitments of any character to which NACT is a Party relating to the issued or
unissued capital stock of, or other interest in, NACT or obligating NACT to
grant, issue or sell any shares of capital stock of, or other interest in, NACT
by sale, lease, license or otherwise.
SECTION 4.3. AUTHORITY RELATIVE TO THIS AGREEMENT. NACT has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated on its part hereby to be consummated by NACT. The execution and
delivery of this Agreement by NACT and the consummation of the transactions
contemplated on its part hereby have been duly authorized by all necessary
corporate action, and, other than the approval of NACT's stockholders as
provided in Section 7.3 hereof, no other corporate proceedings on the part of
NACT are necessary to authorize the consummation of the transactions
contemplated on its part hereby. This Agreement has been duly executed and
delivered by NACT and, assuming the due authorization, execution and delivery
hereof by the other Parties, constitutes the legal, valid and binding obligation
of NACT, enforceable against NACT in accordance with its terms, except to the
extent that such
8
<PAGE> 13
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other Law affecting the enforcement of creditors' rights
generally or by general equity principles.
SECTION 4.4. NO VIOLATION. The execution and delivery of this
Agreement by NACT do not, the performance by NACT of its obligations hereunder
will not, and the consummation by NACT of the transactions contemplated to be
performed by it hereby will not, (i) violate or conflict with any provision of
any Law in effect on the date of this Agreement and applicable to NACT or by
which any of its properties or assets is bound or to which any of its properties
or assets is subject, (ii) require NACT to obtain any consent, waiver, approval,
license or authorization or permit of, or make any filing with, or notification
to, any Governmental Authority, based on any Law, rule, regulation or other
requirement of any Governmental Authority in effect and of the date of this
Agreement (other than (a) filings or authorizations required in connection or in
compliance with the provisions of the Securities Act of 1933, as amended (the
"Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the DGCL and (b) any other filings and approvals expressly
contemplated by this Agreement), (iii) require the consent, waiver, approval,
license or authorization of any Person (other than any Governmental Authority),
(iv) violate, conflict with or result in a breach of or the acceleration of any
obligation under, or constitute a default (or an event which with notice or the
lapse of time or both would become a default) under, or give to others any
rights of, or result in any, termination, amendment, acceleration or
cancellation of, or loss of any benefit or creation of a right of first refusal,
or require any payment under, or result in the creation of a lien or other
encumbrance on any of the properties or assets of NACT pursuant to or under any
provision of any indenture, mortgage, note, bond, lien, lease, license,
agreement, contract, order, judgment, ordinance, NACT Permit (as herein defined)
or other instrument or obligation to which NACT is a Party or by which NACT or
any of its properties is bound or to which any of its properties is subject, or
(v) conflict with or violate the certificate of incorporation or bylaws, in each
case as amended or restated, of NACT, except for any such conflicts or
violations described in clause (i) or breaches, defaults, events, rights of
termination, amendment, acceleration or cancellation, payment obligations or
liens or encumbrances described in clause (iv) that would not have an NACT
Material Adverse Effect and except where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
would not, either individually or in the aggregate, prevent NACT from performing
any of its obligations under this Agreement and would not have an NACT Material
Adverse Effect.
SECTION 4.5. COMPLIANCE WITH LAWS.
4.5.1. As of the date of this Agreement, NACT holds all
licenses, franchises, grants, permits, easements, variances, exemptions,
consents, certificates, identification numbers, approvals, orders, and other
authorizations (collectively, "NACT Permits") necessary to own, lease and
operate its properties and to carry on its business as it is now being conducted
and is in compliance with all NACT Permits and all Laws governing its business,
except where the failure to hold such NACT Permits or to so comply, individually
or in the aggregate, would not have an NACT Material Adverse Effect.
9
<PAGE> 14
4.5.2. No action or proceeding is pending or, to NACT's
knowledge, threatened that may result in the suspension, revocation or
termination of any NACT Permit, the issuance of any cease-and-desist order, or
the imposition of any administrative or judicial sanction, and NACT has not
received any notice from any Governmental Authority in respect of the
suspension, revocation or termination of any NACT Permit, or any notice of any
intention to conduct any investigation or institute any proceeding, in any such
case where such suspension, revocation, termination, order, sanction,
investigation or proceeding would result, individually or in the aggregate, in
an NACT Material Adverse Effect.
SECTION 4.6. LITIGATION. As of the date of this Agreement, except as
may be disclosed in the NACT 10-K (as herein defined) or in reports filed by
NACT on Forms 10-Q or 8-K for periods subsequent to the period covered by the
NACT 10-K, in each case filed prior to the date hereof (such reports and
filings, including the NACT 10-K, collectively, the "NACT Current Reports"),
there is no claim, litigation, suit, arbitration, mediation, action, proceeding,
unfair labor practice complaint or grievance pending or, to NACT's knowledge,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to NACT's knowledge, threatened in
writing against NACT or with respect to any property or asset of NACT, except
for claims, litigations, suits, arbitrations, mediations, actions, proceedings,
complaints, grievances or investigations which, individually or in the
aggregate, would not have an NACT Material Adverse Effect. Neither NACT nor any
property or asset of NACT is subject to any continuing order, judgment,
settlement agreement, injunction, consent decree or other similar written
agreement with or, to NACT's knowledge, continuing investigation by, any
Governmental Authority, or any judgment, order, writ, injunction, consent decree
or award of any Governmental Authority or arbitrator, including cease-and-desist
or other orders, except for such matters which would not have an NACT Material
Adverse Effect.
SECTION 4.7. FINANCIAL STATEMENTS AND REPORTS. NACT has made available
to World Access true and complete copies (in each case, as amended) of (i) its
Annual Report on Form 10-K for the year ended September 30, 1997 (the "NACT
10-K"), as filed with the Securities and Exchange Commission (the "Commission"),
and (ii) all other reports, statements and registration statements (including
Quarterly Reports on Form 10-Q and Current Reports on Form 8-K) filed by it with
the Commission. The reports, statements and registration statements referred to
in the immediately preceding sentence (including any financial statements or
schedules or other information included or incorporated by reference therein)
are referred to in this Agreement as the "NACT SEC Filings." As of the
respective times such documents were filed or, as applicable, were effective,
the NACT SEC Filings complied in all material respects with all applicable
requirements of the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, except for such noncompliance which,
individually or in the aggregate, would not have an NACT Material Adverse
Effect, and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of NACT included in the NACT SEC
Filings comply as to form in all material respect with applicable accounting
requirements and with the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with
10
<PAGE> 15
GAAP (as in effect from time to time) during the periods involved (except as may
be indicated therein or in the notes thereto or, in the case of the unaudited
interim financial statements, as permitted by Form 10-Q of the Commission) and
present fairly the financial position, results of operations and cash flows of
NACT as of the dates and for the periods indicated, except (i) in the case of
unaudited interim financial statements, to normal recurring year-end adjustments
and any other adjustments described therein and (ii) any pro forma financial
information contained therein is not necessarily indicative of the financial
position of NACT as of the respective dates thereof and the results of
operations and cash flows for the periods indicated.
SECTION 4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than as
disclosed in the NACT Current Reports, or otherwise disclosed in this Agreement,
since September 30, 1997 and through the date hereof, the business of NACT has
been conducted in the ordinary course, and there has not been (i) any NACT
Material Adverse Effect; (ii) any material indebtedness incurred by NACT for
money borrowed; (iii) any material transaction or commitment, except in the
ordinary course of business or as contemplated by this Agreement, entered into
by NACT; (iv) any damage, destruction or loss, whether covered by insurance or
not, which, individually or in the aggregate, would have an NACT Material
Adverse Effect; (v) any material change by NACT in accounting principles or
methods except insofar as may be required by a change in GAAP; (vi) any material
revaluation by NACT of any asset (including any writing down of the value of
inventory or writing off of notes or accounts receivable); (vii) any mortgage or
pledge of any of the assets or properties of NACT or the subjection of any of
the assets or properties of NACT to any material liens, charges, encumbrances,
imperfections of title, security interest, options or rights or claims of others
with respect thereto other than in the ordinary course consistent with past
practice; or (viii) any assumption or guarantee by NACT of the indebtedness of
any Person other than in the ordinary course consistent with past practice.
SECTION 4.9. NO UNDISCLOSED MATERIAL LIABILITIES. Except as disclosed
in the NACT Current Reports, NACT has not incurred any liabilities of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, that, individually or in the aggregate, would have a Material Adverse
Effect other than (i) liabilities incurred in the ordinary course consistent
with past practice since September 30, 1997, (ii) liabilities that have been
repaid, discharged or otherwise extinguished and (iii) liabilities under or
contemplated by this Agreement.
SECTION 4.10. NO DEFAULT. NACT is not in default or violation (and no
event has occurred which with notice or the lapse of time or both would
constitute a default or violation) of any term, condition or provision of (i)
its certificate of incorporation or bylaws, (ii) indenture, mortgage, note,
bond, lien, lease, license, agreement, contract, order, judgment, ordinance,
NACT Permit or other instrument or obligation to which NACT is a Party or by
which NACT or any of its assets or properties is bound or subject to, or (iii)
any order, writ, injunction, decree or Law applicable to NACT, except in the
case of clauses (ii) and (iii) above for defaults or violations that would not
have an NACT Material Adverse Effect.
SECTION 4.11. FINDERS' AND BANKERS' FEES. Except for NationsBanc
Montgomery Securities LLC ("Montgomery Securities"), a copy of whose engagement
agreement has been
11
<PAGE> 16
provided to World Access, there is no investment banker, broker, finder, or
other intermediary which has been retained by or is authorized to act on behalf
of NACT or the Special Committee who might be entitled to any fee or commission
from NACT or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement.
SECTION 4.12. FAIRNESS OPINION. NACT has received the opinion of
Montgomery Securities to the effect that, as of the date hereof, the
consideration to be received by NACT's stockholders in the NACT Merger is fair
to the Public Stockholders from a financial point of view.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF WORLD ACCESS
World Access represents and warrants to NACT that, except as set forth
in the Disclosure Schedule delivered by World Access to NACT prior hereto (the
"World Access Disclosure Schedule"), which shall identify exceptions by specific
Section references:
SECTION 5.1. CORPORATE ORGANIZATION. Each of World Access and its
Subsidiaries (the "World Access Subsidiaries") has been duly organized and is
validly existing and in good standing under the Laws of the jurisdiction of its
organization, has all requisite power and authority to own, operate and lease
its properties and to carry on its business as it is now being conducted, and is
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary, other
than where failure to be so qualified or licensed, individually or in the
aggregate, would not have a World Access Material Adverse Effect. Neither World
Access nor any World Access Subsidiary is in violation of any provision of its
charter or bylaws or other organizational documents, as the case may be.
SECTION 5.2. CAPITALIZATION. As of the date of this Agreement, the
authorized capital stock of World Access consists in its entirety of 40,000,000
shares of World Access Stock and 10,000,000 shares of preferred stock, $.01 par
value per share (the "World Access Preferred Stock"). As of the date of this
Agreement, (i) 19,754,046 shares of World Access Common Stock are issued and
outstanding, (ii) no shares of Preferred Stock are outstanding, and (iii)
options and warrants to acquire 4,218,401 shares of World Access Common Stock
are outstanding under the World Access Plans. All of the outstanding shares of
capital stock of each of the World Access Subsidiaries are owned beneficially
and of record by World Access or a World Access Subsidiary free and clear of all
liens, charges, encumbrances, options, rights of first refusal or limitations or
agreements regarding voting rights of any nature. All of the outstanding shares
of capital stock of World Access and each of the World Access Subsidiaries have
been duly authorized, validly issued and are fully paid and nonassessable and
are not subject to preemptive rights created by statute, their respective
charter or bylaws or any agreement to which any such entity is a Party or by
which any such entity is bound. Except as set forth in this Section 5.2, there
are no options, warrants or other rights (including registration rights),
agreements, arrangements or commitments of any character to which World Access
or any World
12
<PAGE> 17
Access Subsidiary is a Party relating to the issued or unissued capital stock,
or other interest in, of World Access or any World Access Subsidiary or
obligating World Access or any World Access Subsidiary to grant, issue or sell
any shares of capital stock of, or other equity interests in, World Access or
any World Access Subsidiary, by sale, lease, license or otherwise.
SECTION 5.3. AUTHORITY RELATIVE TO THIS AGREEMENT. World Access has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated on its part hereby to be consummated by World Access. The execution
and delivery of this Agreement by World Access and the consummation of the
transactions contemplated on its part hereby have been duly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
World Access are necessary to authorize the consummation of the transactions
contemplated on its part hereby. This Agreement has been duly executed and
delivered by World Access and, assuming the due authorization, execution and
delivery hereof by the other Parties, constitutes the legal, valid and binding
obligation of World Access, enforceable against World Access in accordance with
its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other Law affecting the
enforcement of creditors' rights generally or by general equity principles.
SECTION 5.4. NO VIOLATION. The execution and delivery of this Agreement
by World Access do not, the performance by World Access of its obligations
hereunder will not, and the consummation by World Access of the transactions
contemplated to be performed by it hereby will not, (i) violate or conflict with
any provision of any Law in effect on the date of this Agreement and applicable
to World Access or any World Access Subsidiary or by which any of their
respective properties or assets is bound or to which any of their respective
properties or assets is subject, (ii) require World Access or any World Access
Subsidiary to obtain any consent, waiver, approval, license or authorization or
permit of, or make any filing with, or notification to, any Governmental
Authority, based on any Law, rule, regulation or other requirement of any
Governmental Authority in effect and of the date of this Agreement (other than
(a) filings or authorizations required in connection or in compliance with the
provisions of the Securities Act, the Exchange Act and the DGCL and (b) any
other filings and approvals expressly contemplated by this Agreement), (iii)
require the consent, waiver, approval, license or authorization of any Person
(other than any Governmental Authority), (iv) violate, conflict with or result
in a breach of or the acceleration of any obligation under, or constitute a
default (or an event which with notice or the lapse of time or both would become
a default) under, or give to others any rights of, or result in any,
termination, amendment, acceleration or cancellation of, or loss of any benefit
or creation of a right of first refusal, or require any payment under, or result
in the creation of a lien or other encumbrance on any of the properties or
assets of World Access or any World Access Subsidiary pursuant to or under any
provision of any indenture, mortgage, note, bond, lien, lease, license,
agreement, contract, order, judgment, ordinance, World Access Permit (as herein
defined) or other instrument or obligation to which World Access or any World
Access Subsidiary is a Party or by which World Access or any World Access
Subsidiary or any of their respective properties is bound or to which any of
their respective properties is subject, or (v) conflict with or violate the
certificate of incorporation or bylaws, or the equivalent organizational
13
<PAGE> 18
documents, in each case as amended or restated, of World Access or any of World
Access Subsidiary, except for any such conflicts or violations described in
clause (i) or breaches, defaults, events, rights of termination, amendment,
acceleration or cancellation, payment obligations or liens or encumbrances
described in clause (iv) that would not have a World Access Material Adverse
Effect and except where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications would not,
either individually or in the aggregate, prevent World Access from performing
any of its obligations under this Agreement and would not have a World Access
Material Adverse Effect.
SECTION 5.5. COMPLIANCE WITH LAWS.
5.5.1. As of the date of this Agreement, each of World Access
and the World Access Subsidiaries holds all licenses, franchises, grants,
permits, easements, variances, exemptions, consents, certificates,
identification numbers, approvals, orders, and other authorizations
(collectively, "World Access Permits") necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted and is in
compliance with all World Access Permits and all Laws governing its business,
except where the failure to hold such World Access Permits or to so comply,
individually or in the aggregate, would not have a World Access Material Adverse
Effect.
5.5.2. No action or proceeding is pending or, to World
Access's knowledge, threatened that may result in the suspension, revocation or
termination of any World Access Permit, the issuance of any cease-and-desist
order, or the imposition of any administrative or judicial sanction, and neither
World Access nor any World Access Subsidiary has received any notice from any
Governmental Authority in respect of the suspension, revocation or termination
of any World Access Permit, or any notice of any intention to conduct any
investigation or institute any proceeding, in any such case where such
suspension, revocation, termination, order, sanction, investigation or
proceeding would result, individually or in the aggregate, in a World Access
Material Adverse Effect.
SECTION 5.6. LITIGATION. As of the date of this Agreement, except as
may be disclosed in the World Access 10-K (as herein defined) or in reports
filed by World Access on Forms 10-Q or 8-K for periods subsequent to the period
covered by the World Access 10-K, in each case filed prior to the date hereof
(such reports and filings, including the World Access 10-K, collectively, the
"World Access Current Reports"), there is no claim, litigation, suit,
arbitration, mediation, action, proceeding, unfair labor practice complaint or
grievance pending or, to World Access's knowledge, investigation of any kind, at
law or in equity (including actions or proceedings seeking injunctive relief),
pending or, to World Access's knowledge, threatened in writing against World
Access or any World Access Subsidiary or with respect to any property or asset
of any of them, except for claims, litigations, suits, arbitrations, mediations,
actions, proceedings, complaints, grievances or investigations which,
individually or in the aggregate, would not have a World Access Material Adverse
Effect. Neither World Access nor any World Access Subsidiary nor any property or
asset of any of them is subject to any continuing order, judgment, settlement
agreement, injunction, consent decree or other similar written agreement with
or, to
14
<PAGE> 19
World Access's knowledge, continuing investigation by, any Governmental
Authority, or any judgment, order, writ, injunction, consent decree or award of
any Governmental Authority or arbitrator, including cease-and-desist or other
orders, except for such matters which would not have a World Access Material
Adverse Effect.
SECTION 5.7. FINANCIAL STATEMENTS AND REPORTS. World Access has made
available to NACT true and complete copies (in each case, as amended) of (i) its
Annual Report on Form 10-K for the year ended December 31, 1996 (the "World
Access 10-K"), as filed with the Commission, and (ii) all other reports,
statements and registration statements (including Quarterly Reports on Form 10-Q
and Current Reports on Form 8-K) filed by it with the Commission subsequent to
December 31, 1996. The reports, statements and registration statements referred
to in the immediately preceding sentence (including any financial statements or
schedules or other information included or incorporated by reference therein)
are referred to in this Agreement as the "World Access SEC Filings." As of the
respective times such documents were filed or, as applicable, were effective,
the World Access SEC Filings complied in all material respects with all
applicable requirements of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder, except for such noncompliance which,
individually or in the aggregate, would not have a World Access Material Adverse
Effect, and did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of World Access included
in the World Access SEC Filings comply as to form in all material respect with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto, were prepared in accordance with GAAP
(as in effect from time to time) during the periods involved (except as may be
indicated therein or in the notes thereto or, in the case of the unaudited
interim financial statements, as permitted by Form 10-Q of the Commission) and
present fairly the consolidated financial position, consolidated results of
operations and consolidated cash flows of World Access and the World Access
Subsidiaries as of the dates and for the periods indicated, except (i) in the
case of unaudited interim consolidated financial statements, to normal recurring
year-end adjustments and any other adjustments described therein and (ii) any
pro forma financial information contained therein is not necessarily indicative
of the consolidated financial position of World Access and the World Access
Subsidiaries as of the respective dates thereof and the consolidated results of
operations and cash flows for the periods indicated. No World Access Subsidiary
is required to file any form, report or other document with the Commission.
SECTION 5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Other than as
disclosed in the World Access Current Reports, or otherwise disclosed in this
Agreement, since September 30, 1997 and through the date hereof, the business of
World Access and of each World Access Subsidiary has been conducted in the
ordinary course, and there has not been (i) any World Access Material Adverse
Effect; (ii) any material indebtedness incurred by World Access or any World
Access Subsidiary for money borrowed; (iii) any material transaction or
commitment, except in the ordinary course of business or as contemplated by this
Agreement, entered into by World Access or any World Access Subsidiary; (iv) any
damage, destruction or loss, whether
15
<PAGE> 20
covered by insurance or not, which, individually or in the aggregate, would have
a World Access Material Adverse Effect; (v) any material change by World Access
in accounting principles or methods except insofar as may be required by a
change in GAAP; (vi) any material revaluation by World Access or any World
Access Subsidiary of any asset (including any writing down of the value of
inventory or writing off of notes or accounts receivable); (vii) any mortgage or
pledge of any of the assets or properties of World Access or any World Access
Subsidiary or the subjection of any of the assets or properties of World Access
or any World Access Subsidiary to any material liens, charges, encumbrances,
imperfections of title, security interest, options or rights or claims of others
with respect thereto other than in the ordinary course consistent with past
practice; or (viii) any assumption or guarantee by World Access or a World
Access Subsidiary of the indebtedness of any Person other than in the ordinary
course consistent with past practice.
SECTION 5.9. NO UNDISCLOSED MATERIAL LIABILITIES. Except as disclosed
in the World Access Current Reports, neither World Access nor any World Access
Subsidiary has incurred any liabilities of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, that, individually
or in the aggregate, would have a World Access Material Adverse Effect other
than (i) liabilities incurred in the ordinary course consistent with past
practice since September 30, 1997, (ii) liabilities that have been repaid,
discharged or otherwise extinguished and (iii) liabilities under or contemplated
by this Agreement.
SECTION 5.10. NO DEFAULT. Neither World Access nor any World Access
Subsidiary is in default or violation (and no event has occurred which with
notice or the lapse of time or both would constitute a default or violation) of
any term, condition or provision of (i) its certificate of incorporation or
bylaws or other organizational document, (ii) indenture, mortgage, note, bond,
lien, lease, license, agreement, contract, order, judgment, ordinance, World
Access Permit or other instrument or obligation to which World Access or any
World Access Subsidiary is a Party or by which World Access or any World Access
Subsidiary or any of their respective properties or assets is bound or subject
to, or (iii) any order, writ, injunction, decree or Law applicable to World
Access or any World Access Subsidiary, except in the case of clauses (ii) and
(iii) above for defaults or violations that would not have a World Access
Material Adverse Effect.
SECTION 5.11. FINDERS' AND BANKERS' FEES. Except as set forth in
Section 4.11 hereof, there is no investment banker, broker, finder, or other
intermediary which has been retained by or is authorized to act on behalf of
World Access or any World Access Subsidiary who might be entitled to any fee or
commission from World Access or any of its Affiliates upon consummation of the
transactions contemplated by this Agreement.
16
<PAGE> 21
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF HOLDCO, SUB-1 AND SUB-2
In order to induce World Access and NACT to enter into this Agreement,
Holdco and its subsidiaries, Sub-1 and Sub-2 (collectively, the "Holdco Subs"),
jointly and severally, represent and warrant to World Access and NACT as
follows:
SECTION 6.1. ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of
Holdco and the Holdco Subs is a corporation duly organized, validly existing,
and in good standing under the Laws of the jurisdiction of its incorporation.
Each of Holdco and the Holdco Subs is duly authorized and qualified to conduct
business and is in good standing under the Laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would not
have a material adverse effect on the business, financial condition, operations,
results of operations, or future prospects of Holdco and the Holdco Subs. Each
of Holdco and the Holdco Subs has full corporate power and authority to carry on
the businesses in which it is engaged and to own, lease, use and operate the
properties owned, leased used and operated by it.
SECTION 6.2. CAPITALIZATION. The entire authorized capital stock of
Holdco consists in its entirety of 40,000,000 shares of Holdco Stock and
10,000,000 shares of preferred stock, $.01 par value per share (the "Holdco
Preferred Stock"). As of the date of this Agreement, (i) 1,000 shares of Holdco
Stock are issued and outstanding and (ii) no shares of Holdco Preferred Stock
are outstanding. No shares of Holdco Stock are held in treasury. All of the
issued and outstanding shares of Holdco Stock have been duly authorized and are
validly issued, fully paid, and nonassessable. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments (except for this
Agreement) that could require Holdco or any of the Holdco Subs to issue, sell,
or otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to Holdco and the Holdco Subs.
Holdco and the Holdco Subs have no outstanding bonds, debentures, notes or
similar obligations the holders of which have the right to vote generally with
holders of Holdco Stock.
SECTION 6.3. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Holdco and
the Holdco Subs has all requisite corporate power and authority to execute and
deliver this Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated on its part hereby to be consummated by it. The
execution and delivery of this Agreement by each of Holdco and the Holdco Subs
and the consummation of the transactions contemplated on its part hereby have
been duly authorized by all necessary corporate action, and no other corporate
proceedings on the part of Holdco or either of the Holdco Subs are necessary to
authorize the consummation of the transactions contemplated on its part hereby.
This Agreement has been duly executed and delivered by Holdco and the Holdco
Subs and, assuming the due authorization, execution and delivery hereof by the
other Parties, constitutes the legal, valid and binding obligations of Holdco
and the Holdco Subs, enforceable against each of them in accordance with
17
<PAGE> 22
its terms, except to the extent that such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization or other Law affecting the
enforcement of creditors' rights generally or by general equity principles.
ARTICLE 7.
CERTAIN COVENANTS AND AGREEMENTS
SECTION 7.1. CONDUCT OF BUSINESS BY NACT. From the date of this
Agreement until the Effective Time, NACT shall conduct its business in the
ordinary course consistent with past practice and (except for acts in connection
with the NACT Merger) shall use its best efforts to preserve intact its business
relationships with third parties and to keep available the services of its
present officers and employees.
SECTION 7.2. REGULATORY MATTERS.
7.2.1. As promptly as practicable after the execution of this
Agreement, Holdco, NACT and World Access shall jointly prepare and file with the
Commission a Registration Statement on Form S-4 relating to the shares of Holdco
Stock to be issued in the Mergers (the "Registration Statement) in which a
definitive proxy statement/prospectus to be furnished to the stockholders of
NACT (the "Proxy Statement") will be included as a part. Each of Holdco, World
Access and NACT shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act as promptly as practicable
after such filing, and NACT shall thereafter mail or deliver the Proxy Statement
to its stockholders. Holdco shall also use all reasonable efforts to obtain all
necessary state securities Law or "blue sky" permits and approvals required to
carry out the transactions contemplated by this Agreement, and NACT shall
furnish all information concerning NACT and the holders of NACT Stock as may be
reasonably requested in connection with any such action. Holdco, World Access
and NACT agree to cooperate in making any preliminary filings of the Proxy
Statement with the Commission, as promptly as practicable, pursuant to Rule
14a-6 under the Exchange Act.
7.2.2. The Parties hereto shall cooperate with each other and
use their best efforts to promptly prepare and file all necessary documentation,
to effect all applications, notices, petitions and filings, to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Authorities which are necessary or advisable
to consummate the transactions contemplated by this Agreement (including the
Mergers) and to comply with the terms and conditions of all such permits,
consents, approvals and authorizations of all such Governmental Authorities.
World Access and NACT shall have the right to review in advance, and, to the
extent practicable, each will consult the other on, in each case subject to
applicable Laws relating to the exchange of information, all the information
relating to World Access or NACT, as the case may be, which appear in any filing
made with, or written materials submitted to, any third party or any
Governmental Authority in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the Parties hereto shall
act reasonably and as promptly as practicable. The Parties agree that they will
consult with
18
<PAGE> 23
each other with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities necessary or
advisable to consummate the transactions contemplated by this Agreement, and
each Party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
7.2.3. Holdco, World Access and NACT shall, upon request,
furnish each other with all information concerning themselves, their
subsidiaries, directors, officers and stockholders and such other matters as may
be reasonably necessary or advisable in connection with the Proxy Statement, the
Registration Statement or any other statement, filing, notice or application
made by or on behalf of Holdco, World Access, NACT or any of their respective
subsidiaries to any Governmental Authority in connection with the Mergers and
the other transactions contemplated by this Agreement.
SECTION 7.3. STOCKHOLDER MATTERS. NACT shall call and hold a meeting of
its stockholders as promptly as practicable after the date hereof for the
purpose of voting upon the approval of this Agreement and the NACT Merger and
upon such other matters as may be properly considered at such meeting. NACT
shall use all reasonable efforts to solicit from its stockholders proxies in
favor of the approval of this Agreement and the NACT Merger and shall take all
other action necessary or advisable to secure the vote or consent of its
stockholders required by the DGCL to obtain such approval. NACT shall take all
other action necessary or, in the opinion of the other Parties hereto, advisable
to promptly and expeditiously secure any vote or consent of its stockholders
required by applicable Law and its certificate of incorporation and bylaws to
effect the NACT Merger.
SECTION 7.4. ACCESS TO INFORMATION. From the date of this Agreement
until the Effective Time, NACT will give World Access, its counsel, financial
advisors, auditors, and other authorized representatives full access to the
offices, properties, books and records of NACT, will furnish to World Access,
its counsel, financial advisors, auditors, and other authorized representatives
such financial and operating data and other information as such Persons may
reasonably request and will instruct NACT's employees, counsel, financial
advisors, and auditors to cooperate with World Access in its investigation of
the business of NACT, provided that no investigation pursuant to this Section
shall affect any representation or warranty given by NACT to World Access
hereunder.
SECTION 7.5. NOTICES OF CERTAIN EVENTS.
7.5.1. NACT shall promptly notify World Access of:
(A) any notice or other communication received by NACT
from any Person alleging that the consent of such Person is or may be required
in connection with the transactions contemplated by this Agreement; and
(B) any notice or other communication received by
NACT from any Governmental Authority in connection with the transactions
contemplated by this Agreement.
19
<PAGE> 24
7.5.2. World Access shall promptly notify NACT of:
(A) any notice or other communication received by
World Access from any Person alleging that the consent of such Person is or may
be required in connection with the transactions contemplated by this Agreement;
and
(B) any notice or other communication received by
World Access from any Governmental Authority in connection with the
transactions contemplated by this Agreement.
SECTION 7.6. INDEMNIFICATION. Holdco and World Access agree that all
rights to indemnification for acts or omissions occurring prior to the Effective
Time existing as of the date of this Agreement, in favor of the current or
former directors or officers of NACT as provided in its Certificate of
Incorporation or Bylaws shall survive the NACT Merger and shall continue in full
force and effect in accordance with their terms from the Effective Time until
the expiration of the applicable statute of limitations with respect to any
claims against such current or former directors of officers of NACT arising out
of such acts or omissions. Holdco shall cause to be maintained for a period of
not less than six years from the Effective Time NACT's directors' and officers'
insurance and indemnification policy in effect as of the date of this Agreement
to the extent that it provides coverage for events occurring prior to the
Effective Time (the "D&O Insurance") for all persons who are directors and
officers of NACT who are covered persons under NACT's D&O insurance policies in
effect on the date of this Agreement, so long as the annual premium therefor
would not be in excess of 125% of the last annual premium paid prior to the date
of this Agreement (the "Maximum Premium"). If the existing D&O Insurance
expires, is terminated or is canceled during such six-year period, then Holdco
shall use all reasonable efforts to cause to be obtained as much D&O Insurance
as can be obtained for the remainder of such period for an annualized premium
not in excess of the Maximum Premium on terms and conditions no less
advantageous to the covered Persons than the existing D&O Insurance.
SECTION 7.7. BEST EFFORTS. Subject to the terms and conditions of this
Agreement, each Party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Law to consummate the transactions contemplated by
this Agreement.
SECTION 7.8. PUBLIC ANNOUNCEMENTS. World Access and NACT will consult
with each other before issuing any press release or making any public statement
with respect to this Agreement and the contemplated transactions and, except as
may be required by applicable Law or any agreement with NASDAQ, will not issue
any such press release or make any such public statement prior to such
consultation.
SECTION 7.9. FURTHER ASSURANCES. After the Effective Time, the officers
and directors of the NACT Surviving Corporation will be authorized to execute
and deliver in the name and on behalf of NACT and Sub-2 any deeds, bills of
sale, assignments, agreements, certificates, other documents, or assurances and
to take and do in the name and on behalf of NACT and Sub- 2 any other actions
and things they may deem desirable to vest, perfect, or confirm of record or
20
<PAGE> 25
otherwise in the NACT Surviving Corporation, any and all right, title, and
interest in, to, and under any of the rights, properties, or assets of NACT
acquired or to be acquired by the NACT Surviving Corporation as a result of, or
in connection with, the NACT Merger.
SECTION 7.10. LISTING OF HOLDCO STOCK. World Access shall use its best
efforts to cause the shares of Holdco Stock to be issued pursuant to this
Agreement to be listed on NASDAQ.
SECTION 7.11. AFFILIATES. Prior to the Closing Date, each of NACT and
World Access shall deliver to Holdco a letter identifying all Persons who are,
at the time this Agreement is submitted for approval to the NACT stockholders,
Affiliates of NACT or World Access, as the case may be, for purposes of Rule 145
under the Securities Act. Each of NACT and World Access shall use its best
efforts to cause each such Person to deliver to Holdco on or prior to the
Closing Date a written agreement substantially in the form of attached hereto as
Exhibit A.
SECTION 7.12. TAX TREATMENT. Each of Holdco, World Access and NACT
shall use its reasonable best efforts to cause the Mergers to qualify as
exchanges governed by Section 351 of the Code and to obtain the opinions of
counsel referred to in Sections 8.2(e) and 8.3(e) hereof.
ARTICLE 8.
CONDITIONS TO THE MERGERS
SECTION 8.1. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The
obligations of each Party to consummate the Mergers are subject to the
satisfaction at or before the Effective Time of the following conditions, any or
all of which may be waived, in whole or in part, by each of the Parties intended
to benefit therefrom, to the extent permitted by applicable Law:
(A) this Agreement and the transactions contemplated
hereby shall have been approved in the manner required by applicable Law by the
holders of the NACT Stock;
(B) the Registration Statement shall have become
effective under the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order, and Holdco shall have received all
state securities or "blue sky" authorizations necessary to issue the Holdco
Stock issuable pursuant and to this Agreement;
(C) no Governmental Authority shall have enacted,
issued, promulgated, enforced, or entered any Law or Order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Mergers illegal or otherwise prohibiting consummation of the Mergers;
(D) all actions by or in respect of or filings with any
Governmental Authority required to permit the consummation of the Mergers shall
have been obtained, other than the filing of the requisite Certificate of Merger
with the Secretary of State of the State of Delaware;
21
<PAGE> 26
(E) the shares of Holdco Stock issuable pursuant to this
Agreement shall have been approved for listing on NASDAQ; and
(F) the GST Stock Purchase shall have been consummated.
SECTION 8.2. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF HOLDCO, WORLD
ACCESS, SUB-1 AND SUB-2. The obligations of Holdco, World Access, Sub-1 and
Sub-2 to consummate the Mergers are also subject to the satisfaction at or prior
to the Effective Time of the following further conditions, any or all of which
may be waived, in whole or in part, by each of the Parties intended to benefit
therefrom, to the extent permitted by applicable Law:
(A) NACT shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior to
the Effective Time, the representations and warranties of NACT contained in this
Agreement and in any certificate delivered by NACT pursuant hereto shall be true
and correct in all material respects, at and as of the Effective Time as if made
at and as of such time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct as of
such date, and World Access shall have received a certificate signed by the
chief executive officer and the principal financial officer of NACT to the
foregoing effect;
(B) no NACT Material Adverse Effect shall have occurred;
(C) World Access shall have received or be satisfied
that it will receive all consents and approvals contemplated by Section 4.4 of
the NACT Disclosure Schedule and any other consents of third parties necessary
in connection with the consummation of the NACT Merger if the failure to obtain
any such consent or consents would have an NACT Material Adverse Effect;
(D) World Access shall have received all documents it
may reasonably request relating to the authority of NACT to enter into this
Agreement, all in form and substance reasonably satisfactory to World Access;
and
(E) World Access shall have received from its counsel,
Rogers & Hardin LLP, an opinion based upon reasonably requested representation
letters and dated as of the Effective Time, to the effect that the World Access
Merger will be treated as a transfer of property to Holdco by holders of World
Access Stock governed by Section 351 of the Code.
SECTION 8.3. ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF NACT. The
obligations of NACT to consummate the NACT Merger are also subject to the
satisfaction at or prior to the Effective Time of the following further
conditions, any or all of which may be waived, in whole or in part, by NACT to
the extent permitted by applicable Law:
(A) Holdco, World Access, Sub-1 and Sub-2 shall have
performed in all material respects all of their respective obligations required
to be performed by them at or prior
22
<PAGE> 27
to the Effective Time, the representations and warranties of Holdco, World
Access, Sub-1 and Sub-2 contained in this Agreement and in any certificate
delivered by them pursuant hereto shall be true and correct in all material
respects at and as of the Effective Time as if made at and as of such time,
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct as of such date, and NACT
shall have received a certificate signed by the chief executive officer and
chief financial officer of World Access to the foregoing effect;
(B) no World Access Material Adverse Effect should have
occurred;
(C) NACT shall have received or be satisfied that it will
receive all consents and approvals contemplated by Section 5.4 of the World
Access Disclosure Schedule and any other consents of third parties necessary in
connection with the consummation of the World Access Merger if the failure to
obtain any such consent or consents would have a World Access Material Adverse
Effect;
(D) NACT shall have received all documents it may
reasonably request relating to the authority of Holdco, World Access Sub-1 and
Sub-2 to enter into this Agreement, all in form and substance reasonably
satisfactory to NACT; and
(E) NACT shall have received from its counsel, Van Cott,
Bagley, Cornwall & McCarthy, an opinion based upon reasonably requested
representation letters and dated as of the Effective Time, to the effect that
the NACT Merger will be treated as a transfer of property to Holdco by holders
of NACT Stock governed by Section 351 of the Code.
ARTICLE 9.
TERMINATION
SECTION 9.1. TERMINATION. This Agreement may be terminated and the
Mergers may be abandoned at any time prior to the Effective Time
(notwithstanding any approval of this Agreement by the stockholders of NACT):
(A) by mutual written consent of NACT and World Access;
(B) by either NACT or World Access, if the Mergers have
not been consummated by August 1, 1998, unless the failure to consummate the
Mergers is the result of a willful and material breach of this Agreement by the
Party seeking to terminate this Agreement;
(C) by either NACT or World Access, if there shall be
any Law that makes consummation of the Mergers illegal or otherwise prohibited
or if any Order enjoining World Access or NACT from consummating the Mergers is
entered and such Order shall become final and nonappealable;
23
<PAGE> 28
(D) by either NACT or World Access, if this Agreement
and the NACT Merger shall fail to be approved and adopted by the stockholders
of NACT at a duly called meeting of its stockholders called for such purpose as
set forth in Section 7.3 hereof; or
(E) by World Access in accordance with Section 2.2(b)
hereof.
SECTION 9.2. EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 9.1 hereof, then this Agreement shall become void and of no
effect with no liability on the part of any Party, except that the agreements
contained in Section 10.5 shall survive the termination hereof; provided
however, that, except as otherwise specifically provided, nothing herein shall
relieve any Party of liability for any breach of this Agreement.
ARTICLE 10.
MISCELLANEOUS
SECTION 10.1. DEFINITIONS. As used in this Agreement, the following
terms have the following respective meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"AFFILIATE" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such given Person.
"CLOSING DATE MARKET PRICE" means the average of the daily closing
price of World Access Stock as reported on NASDAQ on each of the twenty
consecutive trading days ending with the third trading day immediately preceding
the Effective Time.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"GOVERNMENTAL AUTHORITY" means any federal, state, county, local,
foreign, or other governmental or public agency, instrumentality, commission,
authority, board, or body, and any court, arbitrator, mediator, or tribunal.
"LAW" means any code, law, ordinance, regulation, rule, or statute of
any Governmental Authority.
"LIEN" means any security interest, lien, mortgage, deed to secure
debt, deed of trust, pledge, charge, conditional sale, or other title retention
agreement, or other encumbrance of any kind.
"MERGER CONSIDERATION" means the World Access Consideration and the
NACT Consideration.
24
<PAGE> 29
"NACT MATERIAL ADVERSE EFFECT" means any matter that would reasonably
be expected to affect materially and adversely the business, condition
(financial or otherwise), or results of operations of NACT.
"NASDAQ" means The NASDAQ National Market.
"ORDER" means any administrative decision or award, decree, injunction,
judgment, order, quasi-judicial decision or award, ruling, or writ of any
federal, state, local or foreign or other court, arbitrator, mediator, tribunal,
administrative agency, or other Governmental Authority.
"PARTY" means any of Holdco, NACT, World Access, Sub-1 or Sub-2.
"PERSON" means an individual, a corporation, a partnership, an
association, a trust, a limited liability company or any other entity or
organization, including a government or political subdivision, or any agency or
instrumentality thereof.
"SUB-1 STOCK" means all of the authorized capital stock of Sub-1.
"SUB-2 STOCK" means all of the authorized capital stock of Sub-2.
"SUBSIDIARY" OR "SUBSIDIARIES" of any Person means any corporation,
partnership, joint venture or other legal entity of which such other Person
(either alone or through or together with any other subsidiary) owns, directly
or indirectly, 50% or more of the stock or other equity interests the holders of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
"WORLD ACCESS MATERIAL ADVERSE EFFECT" means any matter that would
reasonably be expected to affect materially and adversely the business,
condition (financial or otherwise), or results of operations of World Access and
its Subsidiaries taken as a whole.
"WORLD ACCESS STOCK" means all of the authorized common stock, $.01 par
value per share, of World Access.
SECTION 10.2. NOTICES. Unless otherwise specifically provided herein,
any notice, demand, request, or other communication herein requested or
permitted to be given shall be in writing and may be personally served, sent by
overnight courier service, or sent by facsimile with a confirming copy sent by
United States first-class mail, each with any postage or delivery charge
prepaid. For the purposes hereof, the addresses of the Parties (until notice of
a change is delivered as provided in this Section) shall be as follows:
25
<PAGE> 30
If to NACT:
NACT Telecommunications, Inc.
191 West 5200 North
Provo, Utah 84604
Attention: Chief Executive Officer
Facsimile: (801) 802-3010
If to World Access, Holdco, Sub-1 or Sub-2:
World Access, Inc.
945 E. Paces Ferry Road, Suite 2240
Atlanta, Georgia 30326
Attention: Chief Executive Officer
Facsimile: (404) 365-9847
Any notice provided hereunder shall be deemed to have been given on the
date delivered in person, or on the next business day after deposit with an
overnight courier service, or on the date received by facsimile transmission.
SECTION 10.3. NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained herein and in any certificate delivered
shall not survive the Effective Time or the termination of this Agreement.
SECTION 10.4. AMENDMENTS; NO WAIVERS.
10.4.1. Any provision of this Agreement may be amended or
waived prior to the Effective Time if, and only if, such amendment or waiver is
in writing and signed by all Parties hereto, or in the case of a waiver, by the
Party against whom the waiver is to be effective; and provided, further, that
after the adoption of this Agreement by the stockholders of NACT, no such
amendment or waiver shall, without the further approval of such stockholders,
alter or change (i) the Merger Consideration or (ii) any of the terms or
conditions of this Agreement if such alteration or change would adversely affect
the Public Stockholders.
10.4.2. No failure or delay by any Party in exercising any
right, power, or privilege hereunder shall operate as a waiver nor shall any
single or partial exercise preclude any other or further exercise or the
exercise of any other right, power or privilege. The rights and remedies of the
Parties shall be cumulative and not exclusive of any rights or remedies provided
by Law.
SECTION 10.5. FEES AND EXPENSES. All costs and expenses incurred in
connection with this Agreement shall be paid by the Party incurring such cost or
expense.
26
<PAGE> 31
SECTION 10.6. SUCCESSORS AND ASSIGNS. The provisions of this
Agreement shall be binding upon and inure to the benefit of the Parties and
their respective successors and assigns, provided that no Party may assign,
delegate, or otherwise transfer any of its rights or obligations under this
Agreement without the consent of the other Parties hereto except that Sub-1 or
Sub-2 may transfer or assign, in whole or from time to time in part, to one or
more of its Affiliates, its rights under this Agreement, but any such transfer
or assignment will not relieve Sub-1 or Sub-2, as the case may be, of any of its
obligations under this Agreement or prejudice the rights of any Person to
receive the appropriate Merger Consideration contemplated by this Agreement.
This Agreement shall not be construed so as to confer any right or benefit upon
any Person other than the Parties to this Agreement and their respective
successors and assigns.
SECTION 10.7. GOVERNING LAW. Regardless of the place or places where
this Agreement may be executed, delivered or consummated, this Agreement shall
be governed by and construed in accordance with the Laws of the State of
Delaware, without regard to any applicable conflicts of Laws.
SECTION 10.8. SEVERABILITY. Any term or provision of this Agreement
which is invalid or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement or affecting the validity or enforceability of
any of the terms or provisions of this Agreement in any other jurisdiction. If
any provision of this Agreement is so broad as to be unenforceable, then the
provision shall be interpreted to be only so broad as is enforceable.
SECTION 10.9. INTERPRETATIONS. Neither this Agreement nor any
uncertainty or ambiguity shall be construed or resolved against any Party,
whether under any rule of construction or otherwise. No Party to this Agreement
shall be considered the drafter. The Parties acknowledge and agree that this
Agreement has been reviewed, negotiated, and accepted by all Parties and their
attorneys and shall be construed and interpreted according to the ordinary
meaning of the words used so as fairly to accomplish the purposes and intentions
of all the Parties.
SECTION 10.10. COUNTERPARTS; EFFECTIVENESS. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures were upon the same instrument. This
Agreement shall become effective when each Party has received a counterpart
signed by all of the other Parties.
SECTION 10.11. CONSTRUCTION. When a reference is made in this Agreement
to a Section or Exhibit, such reference shall be to a Section of, or an Exhibit
to, this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. The words
"include," "includes" and "including", as used in this Agreement, shall be
deemed to be followed by the phrase "without limitation." Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "herein," "hereof" and "hereunder" and words of similar
import as used herein refer to this Agreement in its entirety and not to any
part hereof unless the context shall otherwise require.
27
<PAGE> 32
IN WITNESS WHEREOF, the Parties has caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized,
all as of the day and year first above written.
WAXS INC.
BY: /S/ MARK A. GERGEL
ITS:_______________________________
WORLD ACCESS, INC.
BY: /S/ MARK A. GERGEL
--------------------------------------
ITS:
----------------------------------
WAXS ACQUISITION CORP.
BY: /S/ MARK A. GERGEL
--------------------------------------
ITS:
----------------------------------
NACT TELECOMMUNICATIONS, INC.
BY: /S/ A. LINDSAY WALLACE
--------------------------------------
ITS:
----------------------------------
NACT ACQUISITION CORP.
BY: /S/ MARK A. GERGEL
--------------------------------------
ITS:
----------------------------------
28
<PAGE> 33
EXHIBIT A
AFFILIATE AGREEMENT
WAXS Inc.
945 E. Paces Ferry Road, Suite 2240
Atlanta, Georgia 30326
Attention: Chief Executive Officer
Gentlemen:
The undersigned is a stockholder of _________________________
("Target"), a corporation organized under the laws of the State of Delaware, and
will become a stockholder of WAXS Inc. ("Holdco") pursuant to the transactions
described in the Agreement and Plan of Merger and Reorganization, dated as of
February ____, 1988 (the "Agreement"), by and among Target, Holdco and certain
affiliated parties. Under the terms of the Agreement, a subsidiary of Holdco
will be merged with and into Target (the "Merger"), with Target becoming a
wholly-owned subsidiary of Holdco, and the shares of the $.01 par value common
stock of Target ("Target Common Stock") will be converted into and exchanged for
shares of the $.01 par value common stock of Holdco ("Holdco Common Stock").
This Affiliate Agreement represents an agreement between the undersigned and
Holdco regarding certain rights and obligations of the undersigned in connection
with the shares of Holdco Common Stock to be received by the undersigned as a
result of the Merger.
In consideration of the Merger and the mutual covenants contained
herein, the undersigned and Holdco hereby agree as follows:
1. AFFILIATE STATUS. The undersigned understands and agrees that as
to Target the undersigned is an "affiliate" under Rule 145(c) as defined in Rule
405 of the Rules and Regulations of the Securities and Exchange Commission
("SEC") promulgated under the Securities Act of 1933, as amended ("1933 Act"),
and the undersigned anticipates that the undersigned will be such an "affiliate"
at the time of the Merger.
2. COVENANTS AND WARRANTIES OF UNDERSIGNED. The undersigned
represents, warrants and agrees that:
(a) The Holdco Common Stock received by the undersigned as a
result of the Merger will be taken for the undersigned's own account and not for
others, directly or indirectly, in whole or in part.
(b) Holdco has informed the undersigned that any distribution
by the undersigned of Holdco Common Stock has not been registered under the 1933
Act and that shares
<PAGE> 34
of Holdco Common Stock received pursuant to the Merger can only be sold by the
undersigned (i) following registration under the 1933 Act, or (ii) in conformity
with the volume and other requirements of Rule 145(d) promulgated by the SEC as
the same now exist or may hereafter be amended, or (iii) to the extent some
other exemption from registration under the 1933 Act might be available. The
undersigned understands that Holdco is under no obligation to file a
registration statement with the SEC covering the disposition of the
undersigned's shares of Holdco Common Stock.
3. RESTRICTIONS ON TRANSFER.
(a) The undersigned understands and agrees that stop transfer
instructions with respect to the shares of Holdco Common Stock received by the
undersigned pursuant to the Merger will be given to Holdco's Transfer Agent and
that there will be placed on the certificates for such shares, or shares issued
in substitution thereof, a legend stating in substance:
"The shares represented by this certificate may not be sold,
transferred or otherwise disposed of except or unless (i)
covered by an effective registration statement under the
Securities Act of 1933, as amended, (ii) in accordance with
(x) Rule 145(d) (in the case of shares issued to an individual
who is not an affiliate of the issuer) or (y) Rule 144 (in the
case of shares issued to an individual who is an affiliate of
the issuer) of the Rules and Regulations of such Act, or (iii)
in accordance with a legal opinion satisfactory to counsel for
the issuer that such sale or transfer is otherwise exempt from
the registration requirements of such Act."
(b) Such legend will also be placed on any certificate
representing Holdco securities issued subsequent to the original issuance of the
Holdco Common Stock pursuant to the Merger as a result of any stock dividend,
stock split, or other recapitalization as long as the Holdco Common Stock issued
to the undersigned pursuant to the Merger has not been transferred in such
manner to justify the removal of the legend therefrom. If the provisions of
Rules 144 and 145 are amended to eliminate restrictions applicable to the Holdco
Common Stock received by the undersigned pursuant to the Merger, or at the
expiration of the restrictive period set forth in Rule 145(d), Holdco, upon the
request of the undersigned, will cause the certificates representing the shares
of Holdco Common Stock issued to the undersigned in connection with the Merger
to be reissued free of any legend relating to the restrictions set forth in
Rules 144 and 145(d) upon receipt by Holdco of an opinion of its counsel to the
effect that such legend may be removed.
4. UNDERSTANDING OF RESTRICTIONS ON DISPOSITIONS. The undersigned
has carefully read the Agreement and this Affiliate Agreement and discussed
their requirements and impact upon the undersigned's ability to sell, transfer,
or otherwise dispose of the shares of Holdco Common Stock received by the
undersigned in connection with the Merger, to the extent the undersigned
believes necessary, with counsel for the undersigned or for Target.
2
<PAGE> 35
5. FILING OF REPORTS BY HOLDCO. Holdco agrees, for a period of two
years after the effective date of the Merger, to file on a timely basis all
reports required to be filed by it pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), so that the public
information provisions of Rule 145(d) promulgated by the SEC, as the same are
presently in effect, will be available to the undersigned in the event the
undersigned desires to transfer any shares of Holdco Common Stock issued to the
undersigned pursuant to the Merger.
6. TRANSFER UNDER RULE 145(D). If the undersigned desires to sell
or otherwise transfer the shares of Holdco Common Stock received by the
undersigned in connection with the Merger at any time during the restrictive
period set forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the Transfer Agent for Holdco Common Stock, together
with such additional information as the Transfer Agent may reasonably request.
If Holdco's counsel concludes that such proposed sale or transfer complies with
the requirements of Rule 145(d), Holdco shall cause such counsel, at Holdco's
expense, to provide such opinions as may be necessary to Holdco's Transfer Agent
so that the undersigned may complete the proposed sale or transfer.
7. ACKNOWLEDGMENTS. The undersigned recognizes and agrees that the
foregoing provisions also apply with respect to Target Common Stock held by, and
Holdco Common Stock issued in connection with the Merger to, (a) the
undersigned's spouse, (b) any relative of the undersigned or of the
undersigned's spouse who has the same home as the undersigned, (c) any trust or
estate in which the undersigned, the undersigned's spouse, and any such relative
collectively own at least a 10% beneficial interest or of which any of the
foregoing serves as trustee, executor or in any similar capacity, and (d) any
corporation or other organization in which the undersigned, the undersigned's
spouse and any such relative collectively own at least 10% of any class of
equity securities or of the equity interest. The undersigned further recognizes
that, in the event that the undersigned is a director or executive officer of
Holdco or becomes a director or executive officer of Holdco upon consummation of
the Merger, then, among other things, any sale of Holdco Common Stock by the
undersigned within a period of less than six months following the effective time
of the Merger may subject the undersigned to liability pursuant to Section 16(b)
of the 1934 Act.
8. MISCELLANEOUS. This Affiliate Agreement is the complete
agreement between Holdco and the undersigned concerning the subject matter
hereof. Any notice required to be sent to any party hereunder shall be sent by
registered or certified mail, return receipt requested, using the addresses set
forth herein or such other address as shall be furnished in writing by the
parties. This Affiliate Agreement shall be governed by the laws of the State of
Delaware.
3
<PAGE> 36
This Affiliate Agreement is executed as of the _____ day of
_________________, 1998.
Very truly yours,
----------------------------
Signature
----------------------------
Print Name
----------------------------
----------------------------
----------------------------
----------------------------
Address
----------------------------
Telephone No.
AGREED TO AND ACCEPTED as of
____________________, 1998
WAXS INC.
By:
--------------------------
Its:
----------------------
4
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
NACT Telecommunications, Inc.:
We consent to the inclusion of our report dated December 4, 1997, with respect
to the balance sheets of NACT Telecommunications, Inc. as of September 30, 1997
and 1996, and the related statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended September 30, 1997,
which report appears in the Form 8-K of World Access, Inc. dated March 13, 1998.
We also consent to incorporation by reference in the registration statements on
Form S-8 (Nos. 33-77918, 33-47752 and 333-17741) and Form S-3 (No. 333-43497) of
World Access, Inc. to the above referenced report which appears in the
aforementioned Form 8-K.
/s/ KPMG Peat Marwick LLP
Salt Lake City, Utah
March 13, 1998
<PAGE> 1
[WORLD ACCESS, INC. LOGO]
News Release
SUMMARY: WORLD ACCESS, INC. AND NACT
TELECOMMUNICATIONS, INC. SIGN
DEFINITIVE MERGER AGREEMENT
CONTACT: Steven A. Odom Chairman & CEO
Hensley E. West President & COO
Mark A. Gergel Exec. VP & CFO
(404) 231-2025
FOR IMMEDIATE RELEASE
ATLANTA, GEORGIA - February 25, 1998 - WORLD ACCESS, INC. (NASDAQ: WAXS)
announced today that it has signed a definitive merger agreement with NACT
Telecommunications, Inc. (NASDAQ: NACT) to acquire approximately 2.7 million
shares of NACT common stock currently held by public stockholders. Pursuant to
the terms of the merger agreement, World Access will pay $17.50 per share of
NACT common stock, or approximately $46.6 million, through the issuance of new
shares of World Access common stock.
The merger agreement provides that each share of NACT common stock will be
converted into shares of World Access common stock having a value of $17.50 per
share based on the average of the daily closing price of World Access common
stock as reported on the Nasdaq National Market System on each of the 20
consecutive trading days ending with the 3rd day immediately preceding the
effective time of the merger (the "Closing Price"). If the Closing Price is more
than $25.52, then each share of NACT common stock will be converted into 0.6857
shares of World Access common stock. If the Closing Price is less than $20.88
per share, then World Access may terminate the merger agreement.
The merger agreement was negotiated on behalf of NACT by a Special Committee of
the NACT Board and has been approved by the Boards of Directors of NACT and
World Access. In addition, NACT has received a fairness opinion with respect to
the merger from NationsBanc Montgomery Securities LLC. The merger is subject to,
among other things, the consummation of the GST Stock Purchase, approval of the
NACT stockholders, and the satisfaction of other customary conditions.
World Access previously announced that it had entered into a definitive
agreement with GST Telecommunications, Inc. ("GST") and GST USA, Inc., a wholly
owned subsidiary of GST ("GST USA"), to acquire shares of NACT common stock held
by GST USA for $17.50 per share, or approximately $89.5 million (the "GST Stock
Purchase"). Upon completion of the GST Stock Purchase, which is currently
scheduled for early March, and the above merger transaction, World Access will
own 100% of NACT. The total consideration paid to acquire NACT will be
approximately $141 million.
Steven A. Odom, Chairman and Chief Executive Officer, said "The acquisition of
NACT, which is expected to be accretive to World Access' 1998 earnings, is in
line with the Company's strategy to broaden its offering of switching, transport
and access products and fully support its customers as they build new and/or
upgrade existing telecommunications networks. NACT has been providing its
customers comprehensive telecommunications network equipment and services since
1982. It has enjoyed considerable growth and success in recent years since the
introduction of its STX tandem switch in February 1996. The STX switch, when
combined with NACT's multi-tasking billing systems, provide a turnkey package
for the emerging interexchange carrier industry. We believe that the STX switch
represents today's benchmark for the fast growing, specialty application
switching systems industry."
"We are particularly pleased that Lindsay Wallace, President and Chief Executive
Officer of NACT, will continue to manage NACT as a majority owned subsidiary of
World Access. Under the leadership of Mr. Wallace, and his outstanding team of
engineering, sales and operations professionals, NACT reported record revenues
of $27.7 million and pre-tax income of $6.3 million in its most recently
completed fiscal year. We are optimistic that World Access' financial strength,
extensive customer base, engineering capabilities and broad range of
manufacturing and support services will further support NACT's existing business
and provide additional sales and profit growth opportunities for both
companies."
World Access, Inc. 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
offers digital switches, cellular base stations, fixed wireless local loop
systems, intelligent multiplexers, digital loop carriers, microwave and
millimeterwave radio equipment and other wireless communications products. 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.
###
<PAGE> 1
[WORLD ACCESS, INC. LOGO]
News Release
SUMMARY: WORLD ACCESS, INC. ACQUIRES
MAJORITY STAKE IN NACT
TELECOMMUNICATIONS, INC.
CONTACT: Steven A. Odom Chairman & CEO
Hensley E. West President & COO
Mark A. Gergel Exec. VP & CFO
(404) 231-2025
FOR IMMEDIATE RELEASE
ATLANTA, GEORGIA -February 27, 1998 - WORLD ACCESS, INC. (NASDAQ: WAXS),
announced today that it has acquired 5,113,712 shares of NACT
Telecommunications, Inc. (NASDAQ: NACT) common stock from GST USA, Inc., a
wholly owned subsidiary of GST Telecommunications, Inc. (AMEX: GST) for $17.50
per share, or approximately $89.5 million. The purchase price consisted of $59.6
million in cash and 1,429,907 shares of World Access common stock. World Access
now directly owns 67.3% of NACT.
Earlier this week, World Access announced that it had signed a definitive merger
agreement with NACT to acquire the remaining 32.7% of NACT common shares
currently held by public stockholders. Pursuant to the terms of the merger
agreement, World Access will pay $17.50 per share of NACT common stock, or
approximately $46.6 million, through the issuance of new shares of World Access
common stock. The merger is subject to, among other things, approval of the NACT
stockholders and the satisfaction of other customary conditions.
NACT Telecommunications, Inc., based in Provo Utah, is a leading single-source
provider of advanced telecommunications switching platforms with integrated
telephony software applications and network telemanagement capabilities. NACT's
products include the STX tandem switching system, the NTS billing system and
Facilities Management Services (FMS). 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.
World Access, Inc. develops, manufactures and markets wireline and wireless
OPswitching, transport and access products primarily for the United States,
Caribbean Basin and Latin American telecommunications markets. 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 wireless communications products. 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.
###
