UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington. D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from__________to__________
Commission File Number 0-19998
WORLD ACCESS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 65-0044209
(State of Incorporation) (I.R.S. Employer Identification No.)
945 East Paces Ferry Road
Suite 2240, Atlanta, GA 30326 30326
(Address of Principal Executive Offices) (Zip Code)
(404) 231-2025
(Registrant's Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $.01 Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 13, 1998 there were 21,500,280 shares of Common Stock
outstanding. The aggregate market value of the voting Common Stock held by
non-affiliates of the Registrant as of April 13, 1998, as based on the average
closing bid and ask prices, was approximately $605,240,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 1998 Annual Meeting of Stockholders
are incorporated into Part III.
<PAGE>
WORLD ACCESS, INC.
Form 10-K Annual Report
TABLE OF CONTENTS
Page
PART I Number
Item 1 Business............................................... 3
Item 2 Properties.............................................10
Item 3 Legal Proceedings......................................10
Item 4 Submission of Matters to a Vote of Security Holders....11
Item 4.5 Executive Officers of the Registrant...................11
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters....................................12
Item 6 Selected Financial Data................................13
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations....................14
Item 7A Quantitative and Qualitative Disclosures
About Market Risk......................................23
Item 8 Financial Statements...................................24
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................45
PART III
Item 10 Directors and Executive Officers of the
Registrant.............................................45
Item 11 Executive Compensation.................................45
Item 12 Security Ownership of Certain Beneficial Owners
and Management.........................................45
Item 13 Certain Relationships and Related Transactions.........45
PART IV
Item 14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K....................................46
<PAGE>
FORWARD LOOKING STATEMENTS
This Form 10-K contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1993, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this Form 10-K
will prove to be accurate. Factors that could cause actual results to differ
from the results discussed in the forward-looking statements include, but are
not limited to, the Company's dependence on recently introduced products and
products under development, successful integration of new acquisitions,
competition and the impact of technological change on the Company's products. In
light of the significant uncertainties inherent in the forward-looking
statements included herein, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
PART I
ITEM 1 - BUSINESS
Overview
The Company develops, manufactures and markets wireline and wireless
switching, transport and access products for the global telecommunications
markets. The Company's products allow telecommunications service providers to
build and upgrade their central office and outside plant networks in order to
provide a wide array of voice, data and video services to their business and
residential customers. The Company offers digital switches, billing and network
telemanagment systems, cellular base stations, fixed wireless local loop
systems, intelligent multiplexers, microwave and millimeterwave radio systems
and other telecommunications network products. The products offered by the
Company include those manufactured by the Company as well as those manufactured
by other telecommunications equipment companies. To support and complement its
product sales, the Company also provides its customers with a broad range of
design, engineering, manufacturing, testing, installation, repair and other
value-added services.
Industry Background
The global telecommunications industry has undergone significant
transformation and growth in recent years due to continued domestic
deregulation, technological innovation and growth in international markets. In
addition, business and residential demand for voice, data and video services has
increased the need for additional systems capacity and network bandwidth to
accommodate the provision of such services by telecommunications providers. The
Company believes that these market forces will intensify in the foreseeable
future and that an increased number of telecommunications service providers, the
availability of new services and strong international demand for the deployment
of basic telephone service will provide the Company with extensive opportunities
to sell its wireline and wireless switching, transport and access products in
the United States and in international markets.
Domestic Deregulation. The number of telecommunications service
providers continues to increase as a result of the federal and state
deregulation of the United States telecommunications industry. Changes in
federal and state regulations have created the opportunity for a number of new
network operators to enter the market and have fostered competition between both
new and established network operators. The Telecommunications Act of 1996
permits local and long distance telecommunications companies, cable television
companies and electric utility companies, subject to certain conditions designed
to facilitate local exchange competition, to compete with each other to provide
local and long distance telephony, data and video services. This Act has also
contributed to an increasing number of mergers and acquisitions among large
telecommunications service providers. As a result, certain providers have
changed key network technology already in place to optimize efficiency and
network compatibility.
To accommodate the demand for enhanced wireless services, the Federal
Communications Commission (the "FCC") auctioned additional spectrum licenses for
wireless communications in recent years, potentially increasing the number of
operators competing in each metropolitan statistical area from two to eight. In
addition, the FCC has announced plans to auction additional spectrum in the
future. Changes in FCC and certain state public utility commission regulations
governing interconnections have created opportunities for the Regional Bell
Operating Companies ("RBOCS") and other local exchange carriers to provide
services in markets and geographic regions in which they traditionally have been
prohibited. In addition, such changes have allowed local exchange carriers,
inter-exchange carriers, competitive access providers, cable television
companies and other telecommunications service providers to enter these same
markets and regions. The Company believes that the Telecommunications Act of
1996, together with FCC and other government initiatives, will increase the
demand for telecommunications systems and services as network operators respond
to the changing competitive environment by constructing new or enhancing
existing networks and increasing the available bandwidth to meet customer demand
for voice, data and video services.
<PAGE>
Technological Innovation. In recent years, there have been a number of
significant developments relating to telecommunications technology, including
the continuing miniaturization of large scale integrated circuits, the
development of lower cost, higher capacity memory devices and microprocessors
and new network protocols such as spread spectrum Code Division Multiple Access
("CDMA"), which are now available to offer improved performance and increased
security. These developments have lowered the cost of delivering multifunctional
services combining voice, data and video. In addition, new low cost, modular,
software-driven products (so-called "intelligent" products) can be readily
upgraded to provide additional revenue generating features such as call waiting,
call forwarding and caller-ID without having to undertake costly hardware
replacement. Moreover, the increasing use of wireless systems and technology
permits the more rapid deployment of telecommunications systems at lower costs
than traditional wireline networks.
These technological advances make it possible for products to
facilitate the delivery of telecommunications services and create new network
configuration options. For example, Integrated Services Digital Network ("ISDN")
service allows for the dynamic allocation of bandwidth between, and simultaneous
transmission of, any combination of voice, data and video, and individual call
set-up permits users to easily designate and change the service configuration.
Other new advanced technologies include Asymmetrical Digital Subscriber Line
("ADSL"), a communications technology which permits the transmission of
information at rates up to 50 megabits per second over existing copper wires,
and High-Speed Digital Subscriber Line ("HDSL"), a communications technology
which permits the digital transmission of information over longer distances
without adding signal regenerator equipment. These new technologies create
additional demands for switching systems, intelligent multiplexers and digital
loop carriers. In addition, cable television companies are beginning to expand
beyond one-way broadcast to provide interactive services using high-speed cable
modems and have announced plans to provide telephony and high speed data
services.
Growth in International Markets. The Company believes that
international markets represent significant opportunities for growth,
particularly in Latin America, the Caribbean Basin and other developing areas.
According to industry sources, a small percentage of businesses and residences
throughout Latin America have basic telephone service. In addition, advances in
radio and antenna technology make it feasible to provide basic communications
access with wireline quality without the construction cost and obstacles
associated with establishing a wireline grid, thereby further encouraging the
deployment of telecommunications networks in developing countries. The
governments of a number of developed and developing countries have privatized
their state-owned telecommunications service providers and have granted licenses
to new network operators to compete with them. In most instances, as part of the
privatization, these governments have imposed service requirements on all
network operators, resulting in an acceleration of capital expenditures on new
or expanded network systems.
Products and Services
The Company offers wireline and wireless switching, transport and
access products for the global telecommunications marketplace. These products
allow telecommunications service providers to build and upgrade their networks
to provide a wide range of voice, data and video services to business and
residential customers. To date, a significant portion of the products sold by
the Company has been Northern Telecom switching products and reengineered
cellular base stations and related mobile network equipment. Through
acquisitions, technology license agreements and internal development, the
Company expects to manufacture an increasing proportion of its products in the
future.
Switching Products. The Company markets digital telephone switching
products that are used for local, tandem, toll and cellular applications. The
switches offered by the Company have line capacities ranging from 100 to 120,000
subscribers and 30 to 60,000 inter-exchange trunks. Switching products
historically offered by the Company have been primarily developed and
manufactured by other telecommunications equipment companies, including Northern
Telecom and Lucent Technologies. These products include complete switching
systems as well as add-on frames, line cards and modified circuit boards for
either newly constructed networks or upgrades to existing networks.
Pursuant to a long-term technology license agreement, the Company
manufactures and markets the Compact Digital Exchange Switch ("CDX"), a
microprocessor-based, modular, digital central office switch. The CDX utilizes
extensive large scale integrated circuit technology to provide advanced
telephony services such as call waiting, call forwarding and conference calling,
and requires reduced power and floorspace compared with alternative products.
The current switch serves applications up to 5,000 subscriber lines and is
designed to be expandable to over 60,000 lines through future software
enhancements. The CDX is targeted for use in the international marketplace due
to its compatibility with international standards, "plug and play" installation
features and tolerance of a wide range of environmental conditions.
<PAGE>
With the Company's acquisition of a majority stake in NACT
Telecommunications, Inc. ("NACT") in the first quarter of 1998 (see "Note N to
the Consolidated Financial Statements"), the Company has significantly expanded
its offering of proprietary, advanced technology switching products and software
applications.
NACT's STX Switching System ("STX") consists of an integrated
application switching platform and a suite of applications software. The Company
sells an optional companion Master Control Unit ("MCU") to integrate and service
multiple STXs and to add redundancy to the network. The Company believes that
the STX offers value added
features and capacity at price points typically below those offered by its
competitors. The STX hardware platform can operate on a standalone basis with a
port capacity of 1,344. An optional MCU can link up to three STXs, which can be
served by a common database for a total system capacity of 4,032 ports. The STX
is also designed to work seamlessly with NACT's NTS 1000 billing system.
NACT's suite of STX applications software consists of over one million
lines of code. This software supports major application features that are fully
integrated an interoperable. The major applications features include: equal
access calling (1+), automated operator (0+), live operator service provider
support (0-), real-time validation of credit card and billing numbers, prepaid
debit cards, prepaid cellular, international call back, phone centers, real-time
rating, fraud minimization, external computer application programming
interfaces, call reorigination, and integrated audio with twenty two languages.
Interoperability enables several applications packages to be used in conjunction
with each other. Almost all features are implemented in software, allowing
unlimited capability for enhancement and customization.
The NTS 1000 Billing System ("NTS 1000") is a call rating, accounting,
switch management, invoicing and traffic engineering system designed to process
the day-to-day operations of a small-to-medium sized long distance company. The
NTS 1000 can collect calls from most major switching platforms, including the
STX, and can rate all types of call traffic and, using a sophisticated rating
engine, provide the owner with a highly flexible and completely customized
rating capability. The accounting system handles all of the required information
for managing a long distance customer base including configuration of
authorization codes, accounts receivable, and management of delinquent accounts.
A major feature of the NTS 1000 is its switch management capability. When
coupled with the STX, information that has been entered into the NTS 1000 can be
electronically transferred into the STX, thereby minimizing data entry needs.
The NTS 1000 also has complete international call back/reorigination and prepaid
debit card management support, as well as a complete invoicing package that
supports multiple invoice styles and options for summary reports. It has a
sophisticated traffic engineering reporting package that provides the ability to
generate over 20 types of reports with a user specified beginning and ending
time range.
Current users of the Company's switching products are primarily local
exchange carriers, inter-exchange carriers, competitive access providers,
private network operators and other telecommunications service providers. The
Company intends to expand its United States customer base for switching products
and to actively market the CDX to public and private network providers in Latin
America and other international markets.
Transport Products. The Company develops, manufactures and markets a
variety of wireline and wireless transport products, which are used for
high-capacity connectivity between points within a communications network. These
products are primarily digital and provide for the movement of any combination
of voice, data and video traffic across wireline or wireless media. The
Company's transport products include intelligent multiplexers (devices which
combine or aggregate several channels or linkages carrying voice or data signals
into a higher speed link), protection switching equipment (which protect voice
and data links against failure by rerouting circuits to maintain continuity),
mini-repeater housings (enclosures used to protect electronic repeaters from the
elements), asynchronous and fractional data cards, microwave and millimeterwave
radio equipment and sophisticated high speed modems used to carry voice and data
in wireline or wireless networks.
The Company's T-1 multiplexers include features such as local and
remote loopbacks, built-in bit error rate detection, line code selection and
built-in performance monitoring. The Company has recently developed and is
currently testing an E-1 multiplexer designed for the international markets.
This new proprietary product can combine 60 channels of voice and data into a
single E-1 circuit.
With the Company's acquisition of Advanced TechCom, Inc.("ATI") in the
first quarter of 1998 (see "Note N to the Consolidated Financial Statements),
the Company has significantly expanded its offering of proprietary, advanced
technology wireless transport voice, data and/or video products.
ATI develops, manufacturers and markets a complete family of high
performance, technologically advanced digital radios for point-to-point
transmission of data and voice for short and long haul applications. The
majority of ATI's historical sales have been to customers operating outside the
United States. ATI's product lines are offered in a wide range of data rates and
frequency bands, including 1.5 GHz to 38 GHz and DS1/E1 to DS3/E3.
<PAGE>
Current users of the Company's transport products are primarily an RBOC
and private network users. The Company intends to expand its current customer
base for transport products by broadening the features of its current products,
increasing its marketing efforts in the United States and developing new
products for the emerging international markets.
Access Products. The Company offers access products for the local loop
(i.e., that portion of the public telecommunications network which extends from
the service provider's switch to the individual home or business end-user). With
the acquisition of Cellular Infrastructure Supply, Inc. ("CIS") in the first
quarter of 1997, the Company also offers its customers cellular base stations
and related mobile network equipment. Although substantially all of the
equipment sold by CIS is manufactured by other telecommunications equipment
companies, CIS provides a full range of highly technical, value-added services
such as deinstallation, system design, equipment tuning and installation.
In the first quarter of 1997, the Company released a new internally
developed access product, the WX-5501 Remote POTS/Remote Universal Voice Grade
("RPOT/RUVG") line card. The WX-5501 is compatible with the Lucent Technologies
SLC(R) Series 5 subscriber loop carrier system, which is widely deployed in
telephone networks across the United States.
In the second quarter of 1997, the Company introduced its Wireless
Local Loop 2000 ("WLL-2000"), a fixed wireless point-to-multipoint system
offering toll quality telephone service to subscribers in urban and suburban
areas and remote communities. To take advantage of existing market
opportunities, the Company reached an agreement in 1997 with another
telecommunications equipment company to private label its point-to-multipoint
radio system and exclusively market it within certain Latin American countries.
The current WLL-2000 integrates the Company's CDX and the private label radio.
The integrated switch provides customers with the ability to switch local calls
at the WLL-2000 base station, thus providing superior service and reducing
expensive back-haul costs to a central office. The CDX and WLL-2000 for the
first time provide the Company with an integrated family of proprietary
switching and wireless access products for the international market.
In 1997, the Company also executed a technology licensing agreement
that grants the Company the perpetual right to incorporate spread spectrum
CDMA-based wireless technology into the Company's products sold throughout the
world. Under the terms of the agreement, the Company also has the rights to use
the technology covered by seven patents, all of which address digital data
signals and wireless communication systems. The Company currently intends to use
this technology as the platform for several new products.
As a result of the acquisition of Comtech Sunrise, Inc. ("Sunrise") in
1996, the Company manufactures and markets a digital loop carrier (which permits
network operators to provide more reliable, basic and enhanced services at a
lower cost) and DS-3 telemetry equipment (used primarily by the military for
range communications applications to multiplex telemetry, digital video, T-1,
LAN, WAN and other signals into a DS-3 signal transmitting at 45 megabits per
second). The Company has recently developed and is currently testing a
commercial version of its DS-3 product, the Ultra-45. This advanced multiplexer
provides a solution for current and future telecommunications applications
requiring simultaneous delivery of high speed data, video, LAN, voice and
telemetry services.
Current users of the Company's access products are primarily local
exchange carriers, inter-exchange carriers, competitive access providers, cable
television companies and the United States military. The Company intends to
expand its current customer base for access products by broadening the features
of its current products, increasing its marketing efforts in the United States
and developing new products for emerging international markets.
Related Services. The Company offers a full range of complementary
design, manufacturing, installation, testing and repair services. The Company
also offers its customers ongoing systems maintenance and monitoring services,
including asset management services, which allow customers to reduce their
investment in spare and surplus plug-in circuit boards by relying on the
Company's inventories and management information systems. By providing these
services, the Company believes it is better able to offer its customers more
comprehensive telecommunications solutions.
The Company repairs a broad range of switching and transmission plug-in
circuit boards originally manufactured by other telecommunications equipment
companies. The Company's wireless equipment repair business consists principally
of the repair and upgrade of amplitude modulation equipment typically used by
cable television companies. The Company's engineers also provide customers with
a full range of support services for wireless transmission equipment, including
system design, site survey, path calculations, installation and maintenance.
In the third quarter of 1997, the Company completed its acquisition of
Galaxy Personal Communications Services, Inc. ("Galaxy"), a provider of system
design, implementation, optimization and other value-added radio engineering and
consulting services to PCS, cellular and other wireless telecommunications
service companies. The background and experience of Galaxy's management and
staff of RF engineers will be utilized to support the Company's customers as
they build new, or upgrade existing, telecommunications networks throughout the
world.
<PAGE>
Other Products and Services. The Company's other products and services
include the refurbishment and upgrade of AT&T pay telephones to like-new
condition and the sale of related pay telephone products, such as stainless
steel custom logo vault doors, handsets and dial assemblies. To date,
substantially all of these refurbishment services and product sales have been
provided to four RBOCs.
Sales and Marketing
As of April 13, 1998, the Company's domestic sales and marketing group
consisted of 51 sales professionals and assistants who are divided into
individual sales and marketing teams for each of the Company's product lines and
related services. Each team is responsible for obtaining a thorough technical
knowledge of its products or services, soliciting new customers and maintaining
relationships with existing customers. Each team is supervised at the corporate
level by the Company's Executive Vice President of Business Development, who
coordinates the sales and marketing of multi-product line sales and is
responsible for advertising, trade show appearances and other Company-wide
marketing efforts. In connection with the acquisitions completed during the last
few years, the Company has acquired product sales professionals who have brought
technical product knowledge and long-term customer relationships to the Company.
In 1996, the Company formed a dedicated international sales and
marketing group to pursue the sale of all of the Company's products and services
outside of the United States. With the acquisition of ATI, the Company's
international sales and marketing group has increased substantially. As of April
13, 1998, this group consisted of 11 sales professionals and assistants. The
Company has an established network of independent agents and representatives
covering the Caribbean Basin and Latin America. These agents and
representatives, whose compensation consists primarily of commissions based on
sales, actively promote and market the Company's products and services and
receive bid tenders issued within their territory.
During 1997, the Company's international sales increased to
approximately 11.3% of total Company sales as compared to 2.0% in 1996. The
Company intends to continue to focus significant sales and marketing efforts on
emerging international markets.
Customers
The Company sells its products and services to over 200
telecommunication service providers, including the RBOCs, other local exchange
carriers, inter-exchange carriers, wireless service providers, competitive
access providers, cable television companies and other telecommunications
service providers. The following table sets forth a representative list of the
Company's major customers and end-users.
Switching Products Transport Products Access Products Services
Ameritech ADC Telecom Ameritech Alltel
Cable & Wireless Lockheed-Martin Bell Atlantic Bell Atlantic
Frontier Communications Optel BellSouth BellSouth
NYNEX Pacific Bell Cellular One Century Telephone
Puerto Rico Telephone Comcast Cellular GTE
SBC Communications SNET Puerto Rico Telephone
Sprint Price Cellular SBC Communications
Teleglobe International US West
For the year ended December 31, 1997, no customer of the Company
individually accounted for 10.0% of the Company's total sales. The Company's top
10 customers accounted for 44.2% of total sales. For the year ended December 31,
1996, Cable & Wireless accounted for 10.9% of the Company's total sales, and the
Company's top 10 customers accounted for 54.2% of total sales. The Company's
customers typically are not obligated contractually to purchase any quantity of
products or services in any particular period.
<PAGE>
Manufacturing, Assembly and Test
The Company provides a broad range of electronic manufacturing,
assembly and test services to support its product sales. The majority of these
support services have been historically performed at the Company's Orlando,
Florida facility, where state-of-the-art manufacturing and test equipment is
maintained. Historically, this equipment has been used primarily to perform
contract manufacturing services for third parties, primarily to large technology
companies that require a high level of professional materials management,
quality "turn-key" manufacturing and complete electronic and functional product
testing. During 1997, the Company began utilizing the Company's manufacturing
capacity to build new Company products as well as servicing third party contract
manufacturing customers.
As a result of the recent growth in sales of the Company's internally
developed products, including additional products from the acquisitions of NACT
and ATI, the Company's is opening a new manufacturing facility in Alpharetta,
Georgia. The new Alpharetta manufacturing facility is expected to be fully
operational by the end of the second quarter of 1998. It is anticipated that the
existing Orlando facility will be closed during the second quarter as the
Company will no longer service third party contract manufacturing business.
The Company's new Alpharetta manufacturing operation will possess
state-of-the art surface mount manufacturing and automated testing equipment.
This equipment includes a surface mount assembly line, including advanced
"pick-and-place" equipment and a 3-D vision screen printer. This equipment is
currently operating at less than 50% of the line's capacity. The Company has
also recently acquired new board test systems that provide for high performance,
automated testing of analog, digital, mixed signal and memory devices resident
on printed circuit boards. When combined with the Company's existing testing
equipment, the new equipment gives the Company an extensive software library and
technical capacity to test integrated circuits, capacitors, resistors and
related electronic components, and ensures the quality of electronic products
manufactured.
In addition to the relocation of its manufacturing facility, the
Company is also taking additional actions during the first half of 1998 to
streamline operations, improve efficiency and better service its customers. In
the second quarter of 1998, four facilities in Lakeland, Florida and the
existing circuit board repair operations in Orlando, Florida will move to a new
facility in Orlando. The Company's AIT operations, which include the testing of
Northern Telecom switching equipment and verification of the configuration and
integration of add-on frames and custom systems, and the Company's circuit board
repair business will be conducted in the new Orlando facility under one
management team.
At ATI's facility in Wilmington, Massachusetts, the Company utilizes
sophisticated RF test and tuning equipment to manufacture and service it
microwave radio systems. In the second quarter of 1998, the Company will
relocate its Westec operations from Scottsdale, Arizona to Wilmington to improve
operating efficiencies and reduce administrative costs.
NACT currently conducts its manufacturing operations consisting
primarily of final assembly, test and quality control of subassemblies and
completed systems, in its new manufacturing facility in Provo, Utah.
The Company has an experienced Director of Quality who, along with a
staff of quality assurance professionals, oversees the quality of the Company's
products and services. The Company's Orlando and Wilmington operations are ISO
9002 and ISO 9001 certified, respectively. The Company expects its Alpharetta
and Provo operations to become ISO certified by the end of 1998. ISO 9000 is an
international quality certification process, developed in the European Common
Market and adopted in the United States as the method by which companies can
demonstrate the functionality of their quality control system.
In connection with its manufacturing and test services, the Company
generally provides warranties on its products and services ranging from three
months to five years. A one to two year warranty is typically provided on
switching, transport and access products.
The Company believes that it currently has the equipment, personnel and
experience necessary to efficiently manufacture high quality telecommunications
products in-house. This should assist the Company in controlling the costs,
quality and delivery of its products and allow the Company to bring new products
to market on a timely basis.
<PAGE>
Suppliers
Products manufactured by the Company typically require the procurement
of printed circuit boards, electronic components, cable assemblies, fabricated
metal, plastic parts and other materials, of which electronic components are the
most costly. The Company purchases electronic components from numerous sources,
including original manufacturers and parts distributors.
The Company purchases substantially all of its components and other
parts from suppliers on a purchase order basis and does not maintain long-term
supply arrangements. Most of the components used in the Company's products and
related services are available from multiple sources. However, several
components, primarily custom hybrid integrated circuits, are currently obtained
from a single source. To date, the Company has been able to obtain adequate
supplies of these components. The Company's inability in the future to obtain
sufficient quantities of limited-source components, or to develop alternative
sources therefor, could result in delays in product delivery and increased
component cost, either of which could have a material adverse effect on the
Company's business, financial condition and results of operations.
Although the Company manufactures its own switching products, a
significant portion of the switching products sold to date by the Company has
been new or used Northern Telecom switching systems, add-on frames and circuit
boards, and reengineered mobile network equipment. The major sources for such
products are deinstallations by primary users, asset recovery operations of
telephone companies, auctions by Northern Telecom and other original equipment
manufacturers, repossessions by leasing companies and formal distribution or
consignment agreements. The Company currently has formal consignment agreements
with Ameritech, SNET and Century Telephone, pursuant to which the Company
inventories Northern Telecom, Lucent Technologies and other circuit boards for
resale by the Company.
Engineering and Development
Historically, the Company's engineering, development and technical
support efforts have focused on the repair of switching, transport and access
products and on electronic manufacturing processes. The Company has significant
experience in developing automated test systems, diagnostic programs and repair
procedures for electronic circuitry typically found within telecommunications
switching equipment. The Company's engineers have also used their expertise and
experience to create new revenue sources for the Company by developing upgrades
and enhancements to existing products, including those developed and
manufactured by other telecommunications equipment companies.
During 1997, the Company's engineering efforts have become more focused
on developing new switching, transport and access products and enhancing the
features and capabilities of current products. The acquisitions of NACT and ATI
have enhanced the Company's engineering and development capabilities of
switching and transport products with the addition of approximately 46
development engineers. The Company's engineers have significant experience in
switching systems configurations, transmission and access applications and
wireless technology such as spread spectrum CDMA, radio path calculations, field
performance measurement and frequency licensing. The Company expects that, as it
continues to manufacture and sell more sophisticated telecommunications
equipment, it will continue to make further significant investments in research
and product development.
As of April 13, 1998, the Company's engineering and development group
consisted of 121 persons, including 42 RF engineers added through the Galaxy
acquisition, 60 in product development, and 19 in repair service development,
systems integration and manufacturing process and operations support. These
employees are organized into teams corresponding to the Company's product lines,
and each team is responsible for providing technical support to the Company's
customers and for developing and enhancing products. The Company's internal
engineering resources permit the Company to continually reduce the production
cost and improve the functionality of its products.
Competition
The segments of the telecommunications industry in which the Company
operates are intensely competitive. The Company's ability to compete is
dependent upon several factors, including price, quality, product features and
timeliness of delivery. Many of the Company's competitors have significantly
more extensive engineering, manufacturing, marketing, financial and technical
resources than the Company. In addition, the Company currently competes with
several of its major suppliers, including Northern Telecom, with respect to the
sale of certain of its products, which may adversely affect its ability to
continue to obtain such products from these suppliers in the future.
In the sale of switching, transport and access products, the Company
competes with companies such as Northern Telecom and Lucent Technologies. The
Company believes it competes favorably against these companies by providing high
quality products, comprehensive support services, competitive prices and
shortened product delivery times. As the Company increases its international
sales efforts, it also expects to compete with other established
telecommunications equipment companies such as Ericsson, Fujitsu, Siemens and
Alcatel Network Systems.
<PAGE>
Employees
As of April 13, 1998, the Company had 510 full-time employees,
including 121 in engineering and development, 24 in technical service and
support, 62 in sales and marketing, 139 in manufacturing, warehousing and
quality assurance, 92 in repair and refurbishment and 72 in general management,
finance, administration and other support services. From time to time, the
Company also uses part-time employees in its manufacturing operations to
accommodate changes in production levels. None of the Company's employees is
represented by any collective bargaining agreements, and the Company has never
experienced a work stoppage. The Company considers its employee relations to be
good.
ITEM 2 - PROPERTIES
The Company's executive offices are located in Atlanta, Georgia, where
it occupies approximately 2,000 square feet under a lease expiring in October
1998. The Company leases certain office, manufacturing and warehouse facilities
under operating leases which expire at various dates during the next three
years. The following provides a summary of the significant operating facilities
currently leased or owned by the Company.
Location Square Footage Lease Expires
Orlando, Florida 72,000 April 2002
Wilmington, Massachusetts 64,000 November 2000
Dallas, Texas 54,000 February 2003
Provo, Utah 40,000 Owned facility
Alpharetta, Georgia 39,000 December 2001
South Bend, Indiana 22,000 July 2002
Other warehouses and offices 30,000 Various
-------
Total 321,000
=======
The Company's existing facilities are adequate for its current
operations, and the Company believes that convenient, additional facilities are
readily available should the business need arise.
ITEM 3 - LEGAL PROCEEDINGS
From time to time, the Company is involved in various legal proceedings
relating to claims arising in the ordinary course of its business. Other than
the Aerotel litigation discussed below, neither the Company nor any of its
subsidiaries is party to any such legal proceeding, the outcome of which,
individually or in the aggregate, is expected to have a material adverse effect
on the Company's financial condition or results of operations.
On August 24, 1996, Aerotel, Ltd. and Aerotel U.S.A. Inc. (collectively,
"Aerotel") commenced an action against NACT and a customer of NACT in the United
States District Court, Southern District of New York, alleging that telephone
systems manufactured and sold by NACT incorporating prepaid debit card features
infringe upon Aerotel's patent which was issued in November 1987 (the "Aerotel
Patent"). The initial complaint further alleged defamation and unfair
competition as a result of a Special Report disseminated by NACT to its
customers and tortious interference with prospective business relations,
alleging that NACT induced third parties to abandon licensing negotiations with
Aerotel. Aerotel sought injunctive relief, damages in an unspecified amount,
damages of up to three times the damages found for willful infringement of the
Aerotel Patent and an order requiring NACT to publish a written apology to
Aerotel. NACT filed an answer and Counterclaim in which it denied infringement
of the Aerotel Patent and sought judgement that the Aerotel patent is invalid
and unenforceable and that Aerotel has misused its patent in violation of
antitrust laws. NACT has denied that it has committed defamation, unfair
competition and tortuous interference with prospective business relations. On
May 3, 1996, NACT served its motion for summary judgement. The court has
indicated it will deny such motion, although the actual ruling has not yet been
received. In August 1997, Aerotel amended its complaint to include as defendants
GST Telecommunications, Inc. ("GST"), GST USA, Inc. ("GST USA") and two former
executive officers of NACT. The amended pleadings seek in excess of $18.7
million in damages and allege that GST and GST USA have infringed the Aerotel
Patent, aided and abetted infringement by others, including NACT, and
participated in, and aided and abetted alleged tortious conduct by NACT. GST,
GST USA, and the two former officers have served answers denying all material
allegations and intend to defend themselves vigorously. Pretrial discovery has
commenced and is scheduled to be completed in 1998. The case is not expected to
be tried until late 1998 at the earliest.
Under the terms of the Company's stock purchase agreement with GST, the
Company and GST have agreed to share evenly the costs of any judgement against
NACT as a result of the Aerotel litigation, including NACT's legal fees. The
Company, believes that NACT has valid defenses to the Aerotel claims. An
unfavorable decision in this action, however, could have a material adverse
effect on the Company's financial position.
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1997 to a vote of
security holders through the solicitation of proxies or otherwise.
ITEM 4.5 - EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information, as of April 13, 1998, concerning
the Company's executive officers.
Name Age Position
Steven A. Odom.........44 Chairman and Chief Executive Officer
Hensley E. West........53 President, Chief Operating Officer and Director
Mark A. Gergel.........40 Executive Vice President and Chief Financial Officer
Scott N. Madigan.......40 Executive Vice President of Business Development
Hatch Graham...........37 President, Transport and Access Systems Group
Steven A. Odom. Mr. Odom joined the Company's Board in October 1994. In
November 1994, he was appointed to the newly created position of Chairman of the
Board. In August 1995, he became Chairman and Chief Executive Officer of the
Company. From 1983 to 1987, he founded and served as Chairman and Chief
Executive Officer of Data Contract Company, Inc. ("DCC"), a designer and
manufacturer of intelligent data PBX systems, pay telephones and diagnostic
equipment. From 1987 to 1990, he was Vice President for the Public
Communications Division of Executone Information Systems, Inc., a public company
that acquired DCC in 1987. Mr. Odom formerly served as a director for Telematic
Products, Inc., a manufacturer of telephone central office equipment and
Resurgens Communications Group, Inc. ("Resurgens"), a provider of long distance
operator services that later merged with LDDS Communications, Inc., now known as
WorldCom, Inc. ("WorldCom").
Hensley E. West. Mr. West joined the Company in January 1996 as President
and Chief Operating Officer and was also elected a director in January 1996.
From January 1994 to December 1995, he was Group Vice President for the Access
Systems Group of DSC Communications Corporation ("DSC"), a manufacturer of
digital switching, transmission and access telecommunications equipment. During
his nine year tenure with DSC, he held six sales and general management
positions, including Senior Vice President of North American Sales from July
1993 to December 1993, Vice President of Access Products Division from March
1992 to July 1993, Vice President of RBOC Sales from October 1991 to March 1992
and Vice President of Business Development from March 1990 to October 1991.
Prior to joining DSC, Mr. West held general, engineering and sales management
positions with California Microwave, Inc., ITT Telecommunications, Inc. and
Western Electric Co.
Mark A. Gergel. Mr. Gergel joined the Company in April 1992 as Vice
President and Chief Financial Officer. In December 1996, he was named an
Executive Vice President of the Company. From 1983 to March 1992, Mr. Gergel
held five positions of increasing responsibility with Federal-Mogul Corporation,
a publicly-held manufacturer and distributor of vehicle parts, including
International Accounting Manager, Assistant Corporate Controller, Manager of
Corporate Development and Director of Internal Audit. Prior to joining
Federal-Mogul, Mr. Gergel spent four years with the international accounting
firm of Ernst & Young. Mr. Gergel is a Certified Public Accountant.
Scott N. Madigan. Mr. Madigan joined the Company in March 1996 as Vice
President of Business Development. In June 1997, he was named an Executive Vice
President of the Company. Mr. Madigan spent the prior four years with DSC as
Vice President of Marketing for the Access System Group and Vice President of
Litespan International Operations and Wireless Access Marketing. From 1987 to
1992, he held product and account management positions with Northern Telecom,
where he was responsible for identification, assessment and development of new
business opportunities for Northern Telecom's switching, transport and access
products. Prior to 1987, Mr. Madigan held engineering and operations management
positions with California Microwave, Inc. and ITT Telecommunications, Inc.
Hatch Graham. Mr. Graham joined the Company in April, 1997 as President of
the Transport and Access Systems Group. From 1995 to 1997, Mr. Graham held
executive management positions with TCSI Corporation, a leading provider of
digital Code Division Multiple Access and Time Division Multiple Access cellular
and PCS products. From 1987 to 1995, Mr. Graham held various product development
and executive management positions with Stanford Telecom Corporation, including
Vice President of the ASIC and Custom Products Division and Corporate Vice
President and General Manager of the Telecom Products Group. Prior to 1987, Mr.
Graham held engineering management positions with American Microsystems, Inc.
and Zoran Corporation.
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Price Range of Common Stock
The Company's common stock has traded on the Nasdaq National Market under
the symbol "WAXS" since June 25, 1996. From March 2, 1995 through June 24, 1996,
the Company's common stock was quoted on the Nasdaq SmallCap Market. The
quarterly price ranges for the Company's common stock as reported by Nasdaq are
as follows:
High Low Close
Year Ended December 31, 1997
First Quarter $ 9 1/4 $ 7 1/2 $ 8
Second Quarter 23 7 5/8 20 1/2
Third Quarter 34 1/8 20 32 1/2
Fourth Quarter 33 3/4 17 23 7/8
Year Ended December 31, 1996
First Quarter $ 10 $ 7 1/2 $ 8
Second Quarter 11 1/2 8 9 1/2
Third Quarter 10 1/8 7 1/2 8 1/2
Fourth Quarter 9 1/4 6 7/8 8
As of April 13, 1998, there were 306 holders of record of the Company's
common stock. This number does not include beneficial owners of the Company's
common stock whose shares are held in the names of various dealers, clearing
agencies, banks, brokers and other fiduciaries.
Dividend Policy
The Company has not paid or declared any cash dividends on its common stock
and currently intends to retain all future earnings to fund operations and the
continued development of its business. In addition, the Company's credit
facility contains restrictions limiting the ability of the Company to pay cash
dividends. Any future determination to declare and pay cash dividends will be at
the discretion of the Board of Directors and will be dependent on the Company's
financial condition, results of operations, contractual restrictions, capital
requirements, business prospects and such other factors as the Board of
Directors deems relevant.
<TABLE>
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- --------- --------- ---------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data (1):
Sales of products $ 71,392 $ 34,411 $ 17,384 $ 2,776 $ 3,320
Service revenues 21,593 16,589 12,754 12,507 12,441
--------- -------- --------- ------- --------
Total sales 92,985 51,000 30,138 15,283 15,761
Gross profit 32,140 14,995 6,363 1,976 2,605
Operating income (loss) from continuing operations 19,522 7,358 1,524 (1,293) (1,668)
Income (loss) from continuing operations
before income taxes 20,670 7,524 1,172 (1,883) (2,120)
Net income (loss) (2) 13,134 6,779 1,172 (1,883) (2,120)
Net income (loss) from continuing
operations per share(3) $ .70 $ .46 $ .12 $ (.41) $ (.54)
Weighted average shares outstanding(3) 18,708 14,424 9,083 4,631 3,765
Balance Sheet Data (4):
Cash and equivalents $118,065 $ 22,480 $ 1,887 $ 753 $ 625
Working capital 153,750 37,961 10,222 2,267 1,783
Total assets 225,283 60,736 28,515 8,943 8,752
Long-term debt 115,264 --- 3,750 4,328 5,388
Total liabilities 133,528 8,362 14,181 7,783 8,410
Stockholders' equity 91,755 52,374 14,334 1,160 342
<FN>
(1) Includes the results of operations for the following businesses from
their respective dates of acquisition: Galaxy - July 1, 1997; CIS -
January 1, 1997; Sunrise - January 1, 1996; Westec - October 2, 1995;
and AIT - May 17, 1995. On a pro forma unaudited basis, as if the
acquisition of CIS had occurred as of January 1, 1996, total sales, net
income and net income per diluted share for the year ended December
31, 1996 would have been approximately $63,810,000, $8,520,000 and
$0.57, respectively. The results of operations for Galaxy during
1996 and the first six months of 1997 were not material and therefore
are not included in the pro forma disclosure.
(2) The Company recorded no income tax expense during 1993 to 1995 due to
net losses realized and the availability of federal income tax net
operating loss carryforwards. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Note K to the
Consolidated Financial Statements.
(3) Net income (loss) per share and weighted average shares outstanding are
presented on a diluted basis. The calculations exclude 995,000, 401,000
and 896,000 shares of common stock for the years ended December 31,
1997, 1996 and 1995, respectively, that are held in escrow accounts.
See Notes A, B, and E to the Consolidated Financial Statements.
(4) In October 1997, the Company sold $115.0 million of convertible
subordinated notes.See Note G to the Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
The Company develops, manufactures and markets wireline and wireless
switching, transport and access products for the global telecommunications
markets. The products offered by the Company include those manufactured by the
Company as well as those manufactured by other telecommunications equipment
manufacturers. 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.
During 1995 and 1996, the Company completed strategic and financial
restructuring programs to strengthen its management team, reposition the Company
as a provider of telecommunications products, improve its financial condition,
reduce its operating costs and position the Company for future growth. These
programs were undertaken following the significant losses incurred by the
Company in the early 1990s, primarily due to a discontinued smart pay telephone
business, and to take advantage of the significant growth opportunities within
the Company's existing customer base and related markets. In November 1994, the
Company began to rebuild its management team and change its strategic focus. The
Company strengthened its management team by appointing a new Chief Executive
Officer and by recruiting and hiring a new President and Chief Operating
Officer, Executive Vice President of Business Development and experienced
product development and manufacturing professionals. These individuals, together
with other key managers recruited into the Company, have brought significant
experience in manufacturing and marketing telecommunications equipment to the
Company.
The Company acquired three businesses in 1995 and 1996 in an effort to
broaden its line of switching, transport and access products, enhance its
product development capabilities and strengthen its technical base. Effective
May 1995, the Company acquired AIT, Inc. ("AIT"), a full service provider of
Northern Telecom switching systems, add-on frames and related circuit boards;
effective October 1995, the Company acquired Westec Communications, Inc.
("Westec"), a provider of wireless products and services primarily to the cable
television industry; and effective January 1996, the Company acquired Sunrise, a
developer and manufacturer of intelligent transport and access products.
In January 1997, the Company acquired CIS, a provider of mobile network
equipment and related design, installation and technical support services to
cellular, PCS and other wireless service providers. In August 1997, the Company
acquired Galaxy, an RF engineering firm that provide system design,
implementation, optimization and other value-added radio engineering and
consulting services to the same wireless service markets. The markets served by
CIS and Galaxy complement the Company's traditional telephone service provider
and private network operator markets.
In the first quarter of 1998, the Company acquired ATI, a manufacturer
of digital point-to-point microwave radio systems for short and long haul
applications and a majority stake in NACT, a provider of advanced
telecommunications switching platforms with integrated applications software.
These acquisitions were in line with the Company's strategy to broaden its
offering of proprietary telecommunications equipment and services and position
the Company to engineer, install and support "turnkey" telecommunications
network solutions.
In March 1998, the Company entered into an agreement with a private
network operator based in El Salvador to supply, install and interconnect the
telecommunications equipment necessary to establish and support up to 60,000 new
lines of residential telephone service over the next two years. This agreement
has a potential value to the Company in excess of $20 million. To meet the
Customer's primary network requirements, the Company will utilize the CDX
switch, NTS billing system (NACT), point-to-point microwave radios (ATI) and RF
engineering services (Galaxy).
The Company realized significant improvements in its sales and
operating results since 1994 as a result of the acquisitions and internal growth
initiatives. The Company's total sales increased by 82.3% in 1997, 69.2% in 1996
and 97.2% in 1995. As the Company increased its product sales from 18.2% of
total sales in 1994 to 76.8% of total sales in 1997, its gross profit margin
increased from 12.9% in 1994 to 21.1% in 1995, 29.4% in 1996 and 34.6% in 1997.
As a percentage of total sales, the Company's operating income (loss) increased
from (8.5%) in 1994 to 5.0% in 1995, 14.4% in 1996 and 21.0% in 1997. The
Company will continue to seek further improvements in gross profit margin over
time as product offerings include more internally developed, acquired and
licensed products containing proprietary technology.
<PAGE>
Although the Company has aggressively pursued acquisitions in recent
years, over 60 percent of the Company's sales growth during 1995 to 1997 has
come from internal growth initiatives. The Company has had considerable success
in growing business post acquisition, most notably AIT and CIS, as a result of
its ability to provide working capital, an extensive base of telecommunications
customers and a broad range of support services.
Since January 1, 1995, the Company has significantly strengthened its
balance sheet through improved operating results, a $115.0 million sale of
convertible subordinated notes, a $26.2 million secondary public equity
offering, stock warrant and option exercises, and a five-year $10.0 million
credit facility. The Company has used this capital for acquisitions and to
support the working capital requirements associated with the Company's growth.
The Company's working capital and stockholders' equity have increased from $2.3
million and $1.2 million, respectively, at December 31, 1994 to $153.8 million
and $91.8 million, respectively, at December 31, 1997.
Results of Operations
The following table sets forth certain financial data expressed as a
percentage of total sales represented by each line item in the Company's
consolidated statements of operations, except other data, which is expressed as
a percentage of the applicable revenue type:
Year Ended December 31,
1997 1996 1995
----- ----- -----
Statement of Operations Data:
Sales of products 76.8% 67.5% 57.7%
Service revenues 23.2 32.5 42.3
----- ----- -----
Total sales 100.0 100.0 100.0
Cost of products sold 47.1 42.1 42.0
Cost of services 18.3 28.5 36.9
----- ----- -----
Total cost of sales 65.4 70.6 78.9
----- ----- -----
Gross profit 34.6 29.4 21.1
Engineering and development 2.0 1.7 1.9
Selling, general and administrative 9.7 12.2 10.4
Amortization of goodwill 1.9 1.1 0.5
Special charges -- -- 3.3
----- ----- -----
Operating income 21.0 14.4 5.0
Interest and other income 2.7 1.0 0.5
Interest expense (1.5) (0.6) (1.6)
----- ----- -----
Income before income taxes 22.2 14.8 3.9
Income taxes 8.1 1.5 --
----- ----- -----
Net income 14.1% 13.3% 3.9%
===== ===== =====
Other Data:
Gross Margin:
Products 38.6% 37.6% 27.2%
Services 21.2 12.5 12.8
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Sales. Total sales increased $42.0 million, or 82.3%, to $93.0
million in 1997 from $51.0 million in 1996. Product sales increased to 76.8% of
total sales in 1997 from 67.5% in 1996.
Product sales increased $37.0 million, or 107.5%, to $71.4 million in
1997 from $34.4 million in 1996. The increase related to $26.2 million of mobile
network equipment sold by CIS, which was acquired effective January 1, 1997, an
additional $6.4 million of switching products sold by AIT and approximately $6.9
million in sales of the Company's new international products, the CDX and
WLL-2000. Product sales for 1996 included approximately $4.8 million in one-time
sales of a distributed product.
<PAGE>
Service revenues increased $5.0 million, or 30.2%, to $21.6 million in
1997 from $16.6 million in 1996. The increase related to $2.0 million of
engineering services performed by Galaxy, which was acquired effective July 1,
1997, and an additional $5.2 million in pay telephone refurbishment revenues.
This increase was partially offset by a decline in electronic manufacturing
revenues resulting from a strategic decision to begin utilizing the Company's
manufacturing capacity for new Company products rather than servicing external
contract manufacturing customers.
Gross Profit. Gross profit increased $17.1 million, or 114.3%, to $32.1
million in 1997 from $15.0 million in 1996. Gross profit margin increased to
34.6% in 1997 from 29.4% in 1996. The improved performance resulted from
economies of scale associated with the 82.3% increase in total sales and the
change in sales mix to products, which generally carry a higher gross profit
margin than service revenues.
Gross profit margin on products sold increased to 38.6% in 1997 from
37.6% in 1996. The improved margins related to the $26.2 million of CIS sales
and sales of the CDX, all of which generally carry margins in excess of 40.0%.
The Company's switching products experienced declines in gross margin during
1997 primarily related to margin pressure on sales of Northern Telecom add-on
frames and related circuit boards.
Gross profit margin on service revenues increased to 21.2% in 1997 from
12.5% in 1996. The improvement was due to the addition of Galaxy consulting
revenues and improved margins on pay telephone refurbishment revenues.
Engineering and Development. Engineering and development expenses
increased $970,000, or 108.7%, to $1.9 million in 1997 from $892,000 in 1996.
The increase in expenses was attributable to the formation of a corporate
product development group during the third quarter of 1996 and the continued
expansion of the development group during 1997. Engineering and development
expenses increased to 2.0% of total sales in 1997 from 1.7% of total sales in
1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2.8 million, or 44.9%, to $9.0 million in
1997 from $6.2 million in 1996. The increase related primarily to expenses
associated with the operations of CIS and Galaxy, which were acquired effective
January 1, 1997 and July 1, 1997, respectively, and the Company's establishment
of a dedicated international sales and marketing group and corporate business
development function in March 1996. In addition, the Company recorded
approximately $960,000 of incentive compensation expense in 1997 as compared to
a provision of approximately $300,000 in 1996. As a percentage of total sales,
selling, general and administrative expenses decreased to 9.7% in 1997 from
12.2% in 1996.
Amortization of Goodwill. Amortization of goodwill increased $1.2
million to $1.8 million in 1997 from $534,000 in 1996, primarily as a result of
goodwill recorded in connection with the AIT, CIS and Galaxy acquisitions.
Operating Income. Operating income increased $12.2 million, or 165.3%,
to $19.5 million in 1997 from $7.4 million in 1996. Operating income margin
increased to 21.0% in 1997 from 14.4% in 1996.
Interest and Other Income. Interest and other income increased $2.0
million to $2.5 million in 1997 from $484,000 in 1996 due to a significant
increase in cash balances of the Company, resulting primarily from the sale of
$115.0 million convertible subordinated notes in October 1997 and proceeds
received from a $26.2 million secondary public equity offering completed in
October 1996.
Interest and Other Expense. Interest expense increased $1.0 million to
$1.4 million in 1997 from $320,000 in 1996. The increase is primarily due to the
sale of $115.0 million convertible subordinated notes in October 1997 which bear
interest at 4.5%.
Income Taxes. The Company's effective income tax rate increased to
36.5% in 1997 from 9.9% in 1996. The Company's 1996 effective rate was favorably
impacted by the recognition of a $4.1 million deferred tax asset during the year
to reflect the benefits of the Company's remaining net operating loss
carryforward.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Sales. Total sales increased $20.9 million, or 69.2%, to $51.0
million in 1996 from $30.1 million in 1995. Product sales increased to 67.5% of
total sales in 1996 from 57.7% in 1995.
Product sales increased $17.0 million, or 97.9%, to $34.4 million in
1996 from $17.4 million in 1995. The increase related primarily to an additional
$16.1 million of switching products sold by AIT, which was acquired as of May
1995, and $3.6 million of transport and access products sold by Westec and
Sunrise, which were acquired as of October 1995 and January 1996, respectively.
The increases noted above were partially offset by a decrease in the sales of
pay telephone parts in 1996 due to a large one-time order received in 1995.
<PAGE>
Service revenues increased $3.8 million, or 30.0%, to $16.6 million in
1996 from $12.8 million in 1995. The increase related to $1.2 million of Westec
repair revenues following its acquisition, $1.7 million of increased circuit
board repair revenues generated by the introduction of new repair services and a
new repair agent contract executed with Century Telephone in July 1995, and
increased contract manufacturing revenues of approximately $1.4 million.
Gross Profit. Gross profit increased $8.6 million, or 135.7%, to $15.0
million in 1996 from $6.4 million in 1995. Gross profit margin increased to
29.4% in 1996 from 21.1% in 1995. The improved performance resulted from
economies of scale associated with the 69.2% increase in total sales and the
change in sales mix to products, which generally carry a higher gross profit
margin than service revenues.
Gross profit margin on products sold increased to 37.6% in 1996 from
27.2% in 1995. Excluding the sale of distributed products, gross profit margin
for products sold in 1996 and 1995 was 41.9% and 33.4%, respectively. The
improved margin performance for non-distributed products related primarily to
the $16.1 million, or 207.2%, increase in switching products sold by AIT and
$2.8 million of transport and access products sold by Sunrise.
Gross profit margin on service revenues decreased to 12.5% in 1996 from
12.8% in 1995. The Company's gross profit margin for service revenues is subject
to wide fluctuations depending on the sales mix (i.e., circuit board repair and
pay telephone refurbishment have targeted gross profit margins significantly
higher than those of electronic manufacturing services). In addition, circuit
board repair margins declined during 1995 due to increased out-sourced repair
revenues associated with new "one-stop" repair agent programs.
Engineering and Development. Engineering and development expenses
increased $315,000, or 54.6%, to $892,000 in 1996 from $577,000 in 1995. The
increase in expenses was attributable to the research and product development
activities acquired in connection with the Sunrise acquisition and the formation
of a product development group during the third quarter of 1996. As a result of
the 69.2% increase in total sales, engineering and development expenses
decreased to 1.7% of total sales in 1996 from 1.9% of total sales in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $3.1 million, or 98.7%, to $6.2 million in
1996 from $3.1 million in 1995. The increase related primarily to operating
expenses associated with the Acquisitions, additional salary and related costs
for the Company's Chairman (who received no salary during 1995) and its new
President, and the Company's establishment of a dedicated international sales
and marketing group and corporate business development function in the first
quarter of 1996. As a percentage of total sales, selling, general and
administrative expenses increased to 12.2% in 1996 from 10.4% in 1995.
Amortization of Goodwill. Amortization of goodwill increased $377,000
to $534,000 in 1996 from $157,000 in 1995 as a result of the goodwill acquired
in connection with the Acquisitions.
Operating Income. Operating income increased $5.8 million to $7.4
million in 1996 from $1.5 million in 1995. As a percentage of total sales,
operating income increased to 14.4% in 1996 from 5.0% in 1995.
Interest and Other Income. Interest and other income increased $341,000
to $484,000 in 1996 from $143,000 in 1995 due to an increase in invested cash
balances during 1996, resulting primarily from proceeds received from the $26.2
million secondary public equity offering completed in October.
Interest Expense. Interest expense decreased $175,000 to $319,000 in
1996 from $494,000 in 1995. The decrease resulted primarily from a decrease in
average debt outstanding in 1996. In October 1996, the Company paid off a $3.9
million term loan with its bank using proceeds received from the secondary
public offering. A reduction in the interest rate on the Company's bank debt due
to the lender's reinstatement of a LIBOR-based interest rate option in July 1995
and an additional one percentage point reduction obtained with the Company's new
bank agreement in March 1996 also contributed to the decrease in interest
expense.
Income Taxes. The Company's effective income tax rate was 9.9% in 1996.
The Company's 1996 effective rate was significantly impacted by the recognition
of a $4.1 million deferred tax asset during the year to reflect the benefits of
the Company's remaining net operating loss carryforward. No income tax expense
was recorded in 1995 due to the partial recognition of benefits associated with
the Company's net operating loss carryforward.
<PAGE>
Liquidity and Capital Resources
Overview. Cash management is a key element of the Company's operating
philosophy and strategic plans. Acquisitions to date have been structured to
minimize the cash element of the purchase price and ensure that appropriate
levels of cash are available to support the increased product development,
marketing programs and working capital normally associated with the growth
initiatives of acquired businesses. As of December 31, 1997, the Company had
$118.1 million of cash and equivalents and $10.0 million in borrowings available
under its credit line to support its current working capital requirements and
strategic growth initiatives.
Operating Activities. Cash used by operating activities was $2.0
million in 1997 as compared to cash provided by operations of $2.0 million in
1996. The increased use of cash in 1997 resulted from the Company's need to
finance increased accounts receivable and inventories to support its growth.
Accounts receivable increased $10.6 million, or 109.9%, to $20.3
million at December 31, 1997 from $9.7 million at December 31, 1996. This was
due to the acquisitions of CIS and Galaxy and increased sales activity at the
Company (fourth quarter 1997 sales were $21.3 million as compared to fourth
quarter 1996 sales of $14.6 million). Average days sales outstanding at December
31, 1997 were approximately 81 days as compared to 50 days at December 31, 1996.
Inventories increased $11.8 million, or 110.4%, to $22.4 million at
December 31, 1997 from $10.7 million at December 31, 1996. This increase was due
to the acquisition of CIS, a planned build-up of AIT inventories to support the
increased demand for its switching products and inventories required to support
the roll out of the Company's new products, including the CDX switch, the
WLL-2000 system and the WX-5501 line card.
In addition, the Company shipped approximately $3.8 million of
equipment to Resurgens Communications Group ("Resurgens") in December 1997. On
February 12, 1998 the Company executed a letter of intent to acquire Resurgens
and therefore did not record the shipment as a sale. Upon completion of the
acquisition of Resurgens, the equipment will be treated as an investment in
Resurgens at the Company's cost value.
Investing Activities. Cash used by investing activities, primarily for
the acquisitions of businesses, manufacturing and test equipment and computer
networking equipment was $17.9 million and $1.8 million for 1997 and 1996,
respectively.
Between May 1995 and July 1997, the Company completed the acquisitions
of AIT, Westec, Sunrise, CIS and Galaxy (the "Acquisitions"), which were
designed to bring new wireline and wireless switching, transport and access
products and technology into the Company. All of the Acquisitions were
relatively similar in structure in that the former owners received initial
consideration consisting of a combination of common stock and cash, as well as
contingent consideration tied to the future profitability of the ongoing
business. The majority of the contingent consideration may be paid, at the
option of the Company, in the form of Company common stock valued at its
then-current market price. At the time it becomes highly probable that
contingent consideration will be earned, the fair market value is measured and
recorded on the Company's balance sheet as additional goodwill and stockholders'
equity. See Note B to the Consolidated Financial Statements.
Through December 31, 1997, the Company has paid approximately $8.5
million in cash consideration in connection with the Acquisitions, including
$3.5 million for the CIS acquisition in early 1997, $1.2 million for the Galaxy
acquisition in July 1997 and $3.8 million for the AIT acquisition. The impact of
these payments on the Company's cash position has been partially offset by the
addition of $1.5 million in cash held by Sunrise and Galaxy on the effective
dates of acquisition.
In addition to the $3.5 million in cash paid and 440,874 shares of
common stock issued up front to the CIS stockholders, the stockholders of CIS
were issued 845,010 restricted shares of common stock. These shares were
immediately placed into escrow and, together with $6.5 million in additional
purchase price, will be released and paid to the stockholders of CIS contingent
upon the realization of certain predefined levels of pre-tax income from CIS's
operations during three one-year periods beginning January 1, 1997.
The first measurement period for purposes of releasing escrowed shares
and paying contingent cash consideration was January 1, 1997 to December 31,
1997. In reviewing CIS's pre-tax income performance as of April 30, 1997, the
Company determined that it was highly probable that the conditions for release
and payment for this first period would be met. Accordingly, 317,427 escrowed
shares were accounted for as if released and $3.5 million in contingent cash
payments were accounted for as if paid as of April 30, 1997. The net effect of
this accounting was to increase goodwill and stockholders' equity by
approximately $6.5 million at April 30, 1997. These shares were released and
payment was made to the former stockholders of CIS on February 15, 1998.
<PAGE>
In addition to the $1.2 million in cash and 262,203 shares of common
stock issued up front, the former Galaxy stockholders were issued 131,101
restricted shares of the Company's common stock. These shares were immediately
placed into escrow, and along with $3.5 million in additional consideration (the
"Galaxy Additional Consideration"), will be released and paid to the former
stockholders of Galaxy contingent upon the realization of redefined levels of
pre-tax income from Galaxy's operations during four measurement periods between
July 1, 1997 and December 31, 2000.
The first measurement period for purposes of releasing escrowed shares
and paying Galaxy Additional Consideration was July 1, 1997 to December 31,
1997. In reviewing Galaxy's pre-tax income performance as of December 31, 1997,
the Company determined that conditions for release and payment for this first
period were met. Accordingly, 15,215 escrowed shares were accounted for as if
released and $400,000 in additional consideration (in the form of 14,901 shares
of Company common stock) were accounted for as if paid as of December 31, 1997.
The net effect of this accounting was to increase goodwill and stockholders'
equity by approximately $535,000 at December 31, 1997. These shares were
released and payment was made to the former stockholders of Galaxy on February
15, 1998.
In the fourth quarter of 1997, the Company began its three phase
acquisition of NACT. During November and December 1997, the Company purchased
355,000 shares of NACT common stock in the open market for approximately $5.0
million. See Note A to the Consolidated Financial Statements.
On December 31, 1997, the Company entered into a stock purchase
agreement with GST Telecommunications, Inc. ("GST") and GST, USA, Inc. ("GST
USA") to acquire 5,113,712 shares of NACT common stock owned by GST USA,
representing approximately 63% of the outstanding shares of NACT common stock
(the "NACT Stock Acquisition"). On February 27, 1998 the NACT Stock Acquisition
was completed with GST USA receiving $59.7 million in cash and 1,429,907
restricted shares of the Company's common stock. These shares had an initial
fair value of approximately $23.0 million.
On February 24, 1998 the Company entered into a merger agreement with
NACT pursuant to which the Company agreed to acquire all of the shares of NACT
common stock not already then owned by the Company or GST USA. Pursuant to the
terms of the merger agreement, each share of NACT common stock will be converted
into shares of Company common stock having a value of $17.50 per share based on
the average of the daily closing price of Company common stock on the NASDAQ
National Market for a pre-defined period prior to the closing (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 Company common
stock. If the Closing Price is less than $20.88, then the Company may elect to
terminate the agreement. See Note N to the Consolidated Financial Statements.
On December 24, 1997, the Company entered into an agreement to acquire
ATI. On January 29, 1998, the transaction was completed in its final form
whereby ATI was merged with and into CIS (the "ATI Merger"). In connection with
the ATI Merger, the stockholders of ATI received approximately $300,000 and
418,054 restricted shares of the Company's common stock. These shares had an
initial fair value of approximately $8.0 million.
In addition to the 418,054 shares noted above, the stockholders of ATI
were issued 209,050 restricted shares of the Company's common stock. These
shares were immediately placed into escrow and will be released to the
stockholders of ATI contingent upon the realization of predefined levels of
pre-tax net income from ATI's operations during calendar years 1998 and 1999.
See Note N to the Consolidated Financial Statements.
In December 1997, the Company loaned ATI approximately $4.5 million.
ATI used $2.4 million of the proceeds to pay off its line of credit with a bank
and the remainder for working capital purposes. The note receivable from ATI is
included in Other assets on the Company's December 31, 1997 balance sheet.
During 1997 and 1996, the Company invested $3.6 million and $1.2
million, respectively, in capital expenditures. These expenditures were
primarily for new manufacturing and test equipment, computer network and related
communications equipment designed to upgrade the Company's management
information systems and facilitate the integration of the Acquisitions, and
facility improvements required in connection with the Company's growth.
In July 1996, the Company entered into a long-term technology license
agreement with International Communications Technologies, Inc. ("ICT") and Eagle
Telephonics, Inc. ("Eagle") to manufacture, market and sell the CDX, a new
modular, digital central office switch originally developed by Eagle. As
consideration for this license, the Company paid Eagle $250,000 in cash and
provided it with $450,000 of manufacturing services. In addition, the Company
agreed to pay ICT certain royalties based on future sales of the switch by the
Company.
<PAGE>
In December 1996, the Company executed a technology licensing agreement
with TCSI Corporation ("TCSI") that grants the Company the perpetual rights to
incorporate TCSI's spread spectrum CDMA wireless technology into the Company's
products sold throughout the world. Under the terms of the agreement, the
Company also has the rights to use the technology covered by seven TCSI patents,
all of which address digital data signals and wireless communication systems. As
total consideration for this license, TCSI was paid $50,000 in cash and issued
25,000 shares of restricted common stock. These shares had an initial fair value
of approximately $150,000. In addition to the 25,000 shares noted above, the
Company issued 25,000 shares of restricted common stock to TCSI. These shares
were immediately placed in escrow and will be released to TCSI upon the earlier
of the first commercial use of the technology by the Company or the expiration
of the two year period from the date the license was executed.
Financing Activities. Cash provided from financing activities was
$115.4 million and $20.4 million for 1997 and 1996, respectively.
On October 1, 1997, the Company sold $100.0 million in aggregate
principal amount of convertible subordinated notes (the "Notes") under Rule 144A
of the Securities Act of 1933. The Notes bear interest at the rate of 4.5% per
annum, are convertible into Company common stock at an initial price of $37.03
per share and mature on October 1, 2002. Interest on the Notes is payable on
April 1 and October 1 of each year, commencing in April 1, 1998. The Notes are
general unsecured obligations of the Company and are subordinate in right of
payment to all existing and senior indebtedness. The Company received $97.0
million from the sale of the Notes, after the initial purchasers' discount fees
of $3.0 million.
In addition to the Notes sold on October 1, 1997, the Company granted
the initial purchasers an option to purchase up to an additional $15.0 million
in Notes to cover over-allotments. On October 28, 1997, the initial purchasers
exercised the over-allotment option in full and the Company received an
additional $14.6 million, after the application of the initial purchasers'
discount fees of $450,000.
The total discount fees of $3,450,000, along with approximately
$550,000 of legal, accounting, printing and other expenses (the "Debt issuance
costs") are being amortized to expense over the five year term of the Notes.
Debt issuance costs of approximately $3.8 million, net of amortization, are
included in Other assets on the Company's December 31, 1997 balance sheet.
In October 1996, the Company received net cash proceeds of
approximately $25.3 million from the sale of 3,487,500 shares of common stock in
a public offering at a price of $8.00 per share. In October 1996, the Company
used approximately $3.9 million of the net proceeds to repay all amounts
borrowed under its bank term loan. In connection with the repayment of the
amounts borrowed under the term loan, the Company's primary lender increased the
amount available to the Company under its revolving line of credit from $6.0
million to $10.0 million.
Borrowings under the Company's $10.0 million line of credit are secured
by a first lien on substantially all the assets of the Company. The bank
agreement, which expires in March 2001, contains standard lending covenants,
including financial ratios, restrictions on dividends and limitations on
additional debt and the disposition of Company assets. Interest is paid at the
rate of prime plus 1 1/4% or LIBOR plus 2 1/2%, at the option of the Company. As
of December 31, 1997, there were no amounts outstanding under the Company's line
of credit.
In October 1995, the Company raised approximately $6.5 million through
the exercise of previously-issued warrants and non-qualified options to purchase
shares of common stock. The vast majority of these securities related to
warrants issued in connection with private equity offerings and bank financing
agreements. In exercising their warrants or options, investors had the option of
paying cash or executing an 8% interest-bearing note made payable to the
Company. Approximately $2.4 million of the total proceeds was paid in cash and
$4.1 million through notes, which were paid in full in the first quarter of
1996. There are currently no significant warrants or options outstanding to
purchase common stock except those issued to the Company's directors and
employees. See Note I to Consolidated Financial Statements.
During 1997, the Company received approximately $11.3 million in cash,
including related federal income tax benefits of approximately $6.7 million,
from the exercises of incentive and non-qualified stock options and warrants by
the Company's directors and employees.
<PAGE>
Income Taxes. As a result of the exercises of non-qualified stock
options and warrants by the Company's directors and employees, the Company has
realized a federal income tax benefit of approximately $6.7 million for 1997.
Although this tax benefit does not have any effect on the Company's provision
for income tax expense for 1997, it represents a significant cash benefit to the
Company. This tax benefit is accounted for as a decrease in current income taxes
payable and an increase in capital in excess of par value.
As of December 31, 1997, the Company has capital loss carryforwards of
approximately $1.2 million expiring in 1998.
Salary Incentive Program. In December 1996, the Company implemented a
voluntary salary reduction program designed to improve the Company's cash flow
during 1997, further align the objectives of the Company's management and
salaried employees with those of the Company's stockholders and potentially
provide the Company with significant future tax deductions. Under the program,
72 exempt salaried employees agreed to forego approximately $826,000 of their
1997 compensation in exchange for 413,019 non-qualified options to purchase
shares of Company common stock at $8.00 per share, its then-current market value
(i.e., one stock option for every $2.00 of compensation). The vesting was tied
to the Company meeting specific operational objectives in 1997, including
pre-defined levels of internal sales growth, ISO 9002 certification and specific
cash management objectives, as well as the installation of certain upgraded
information systems. As of December 31, 1997, these options had become fully
vested.
Under the 1997 program, employees could participate to a maximum level
of 50% of their 1997 salaries. The Company's Chairman, President and Chief
Financial Officer each elected to forego 50% of their salary under this program.
This program also provided that if certain levels of pre-tax income were
achieved for 1997, a partial or full repayment of salaries would be made.
Compensation expense related to this program of approximately $250,000, or 30%
of the salaries deferred, was recorded in 1997.
Summary. The Company's improved operating performance and completion of
the sale of $115.0 million of Notes has significantly enhanced its financial
strength and improved its liquidity. As of the date of this Report, the Company
has approximately $60.0 million of cash, no bank debt and a $10.0 million
revolving line of credit available. The Company believes that existing cash
balances, available borrowings under the Company's line of credit and cash
projected to be generated from operations will provide the Company with
sufficient capital resources to support its current working capital requirements
and business plans for at least the next 12 months.
Quarterly Operating Results
The following table presents unaudited quarterly operating results for
each of the Company's last eight quarters. This information has been prepared by
the Company on a basis consistent with the Company's audited consolidated
financial statements and includes all adjustments, consisting only of normal
recurring accruals, that the Company considers necessary for a fair presentation
in accordance with GAAP. Such quarterly results are not necessarily indicative
of future operating results. This information should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Report.
The following includes the results of operations for businesses
acquired from their respective dates of acquisition as follows: CIS as of
January 1, 1997 and Galaxy as of July 1, 1997. Net income per share is presented
on a diluted basis.
Sales of switching, transport and access products are subject to the
timing of customer upgrade and new installation programs and, as a result, may
contribute to significant fluctuations in the Company's future quarterly sales.
The Company's operating income performance is also subject to significant
quarterly fluctuations based on the mix of product sales and service revenues.
<PAGE>
<TABLE>
Quarter Ended
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996 1997 1997 1997 1997
------- ------- ------- ------- ------- ------- ------- -------
(in thousands, except per share) data)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of products $ 8,354 $ 7,682 $ 8,125 $10,250 $15,470 $19,444 $21,185 $15,293
Service revenues 4,039 3,881 4,294 4,375 4,781 4,572 6,268 5,971
------- ------- ------- ------- ------- ------- ------- -------
Total sales 12,393 11,563 12,419 14,625 20,251 24,016 27,453 21,264
Cost of products sold 6,215 4,597 4,810 5,863 9,970 11,525 12,316 10,016
Cost of services 3,403 3,541 3,591 3,985 4,083 4,006 4,742 4,186
------- ------- ------- ------- ------- ------- ------- -------
Total cost of sales 9,618 8,138 8,401 9,848 14,053 15,531 17,058 14,202
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 2,775 3,425 4,018 4,777 6,198 8,485 10,395 7,062
Engineering and development 177 193 243 280 316 429 605 512
Selling, general and administrative 1,277 1,430 1,679 1,824 1,918 2,435 2,508 2,139
Amortization of goodwill 111 111 142 170 284 380 546 546
------- ------- ------- ------- ------- ------- ------- -------
Operating income 1,210 1,691 1,954 2,503 3,680 5,241 6,736 3,865
Interest and other income 103 55 24 303 367 225 227 1,688
Interest expense (103) (104) (101) (11) (29) (24) (26) (1,280)
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 1,210 1,642 1,877 2,795 4,018 5,442 6,937 4,273
Income taxes -- 224 234 287 1,406 2,014 2,566 1,550
------- ------- ------- ------- ------- -------- ------- -------
Net income $ 1,210 $ 1,418 $ 1,643 $ 2,508 $ 2,612 $ 3,428 $ 4,371 $ 2,723
======= ======= ======= ======= ======= ======= ======= =======
Net income per common share $ 0.09 $ 0.10 $ 0.12 $ 0.15 $ 0.15 $ 0.18 $ 0.22 $ 0.14
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
The following table sets forth the above unaudited quarterly financial
information as a percentage of total sales:
<CAPTION>
Quarter Ended
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1996 1996 1996 1996 1997 1997 1997 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of products 67.4% 66.4% 65.4% 70.1% 76.4% 81.0% 77.2% 71.9%
Service revenues 32.6 33.6 34.6 29.9 23.6 19.0 22.8 28.1
----- ----- ----- ----- ----- ----- ----- -----
Total sales 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of products sold 50.1 39.8 38.7 40.1 49.2 48.0 44.8 47.1
Cost of services 27.5 30.6 29.0 27.2 20.2 16.7 17.3 19.7
----- ----- ----- ----- ----- ----- ----- -----
Total cost of sales 77.6 70.4 67.7 67.3 69.4 64.7 62.1 66.8
----- ----- ----- ----- ----- ----- ----- -----
Gross profit 22.4 29.6 32.3 32.7 30.6 35.3 37.9 33.2
Engineering and development 1.4 1.7 2.0 1.9 1.6 1.8 2.2 2.4
Selling, general and administrative 10.3 12.3 13.5 12.5 9.4 10.1 9.2 10.0
Amortization of goodwill 0.9 1.0 1.1 1.2 1.4 1.6 2.0 2.6
----- ----- ----- ----- ----- ----- ----- -----
Operating income 9.8 14.6 15.7 17.1 18.2 21.8 24.5 18.2
Interest and other income 0.8 0.5 0.2 2.1 1.6 0.9 0.8 7.9
Interest expense (0.8) (0.9) (0.8) (0.1) -- -- (0.1) (6.0)
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 9.8 14.2 15.1 19.1 19.8 22.7 25.2 20.1
Income taxes -- 1.9 1.9 2.0 6.9 8.4 9.3 7.3
----- ----- ----- ----- ----- ----- ----- -----
Net income 9.8% 12.3% 13.2% 17.1% 12.9% 14.3% 15.9% 12.8%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 establishes standards for reporting and disclosure of
comprehensive income and its components. This statement will be effective for
the year ended December 31, 1998. Management believes this statement will not
have a material impact on the Company's financial statements.
Year 2000 Issue
As a result of certain computer programs being written using two digits
rather than four to define the applicable year, any of the Company's computer
systems that have date sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000 (the so-called "Year 2000 Issue"). This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in normal business activities.
The Company is in the process of evaluating its computer systems to
determine what modifications (if any) are necessary to make such systems
compatible with the year 2000 requirements. However, because many of the
Company's computer systems have been put into service within the last several
years, the Company does not expect any such modifications to have a material
adverse effect on the Company's consolidated financial position or results of
operations. There can be no assurance, however, that the computer systems of
other companies on which the Company's systems rely will be timely modified, or
that a failure to modify such systems by another company, or modifications that
are incompatible with the Company's systems, would not have a material adverse
effect on the Company.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
Not Applicable
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
Number
Report of Independent Certified Public Accountants............................25
Consolidated Balance Sheets as of December 31, 1997 and 1996..................26
Consolidated Statements of Operations for the years
ended December 31, 1997, 1996 and 1995......................................27
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995........................28
Consolidated Statements of Cash Flows for the years
ended December 31, 1997, 1996 and 1995......................................29
Notes to Consolidated Financial Statements....................................30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of World Access, Inc.,
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 46 present fairly, in all
material respects, the financial position of World Access, Inc. and its
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Atlanta, Georgia
March 5, 1998
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
December 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 118,065,045 $ 22,480,082
Accounts receivable 20,263,971 9,651,884
Inventories 22,426,918 10,657,412
Other current assets 10,923,723 3,533,615
------------- -------------
Total Current Assets 171,679,657 46,322,993
Property and equipment 5,704,585 2,657,661
Investment in affiliate 5,002,000 ---
Goodwill 31,660,201 9,526,140
Other assets 11,236,298 2,229,172
------------- -------------
Total Assets $ 225,282,741 $ 60,735,966
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term debt $ 81,739 $ ---
Accounts payable 9,339,588 3,756,722
Accrued payroll and benefits 2,589,461 1,605,840
Purchase price payable 3,700,000 ---
Other accrued liabilities 2,219,237 2,999,187
------------- -------------
Total Current Liabilities 17,930,025 8,361,749
Other liabilities 333,802 ---
Long-term debt 115,263,984 ---
------------- -------------
Total Liabilities 133,527,811 8,361,749
------------- -------------
Stockholders' Equity
Common stock, $.01 par value,
40,000,000 shares authorized,
19,306,235 and 16,328,513 issued and
outstanding at December 31, 1997
and 1996, respectively 193,062 163,285
Capital in excess of par value 84,162,478 58,517,279
Note receivable from affiliate --- (571,634)
Retained earnings (deficit) 7,399,390 (5,734,713)
------------- -------------
Total Stockholders' Equity 91,754,930 52,374,217
------------- -------------
Total Liabilities and
Stockholders' Equity $ 225,282,741 $ 60,735,966
============= =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Sales of products $ 71,391,688 $ 34,411,079 $ 17,383,904
Service revenues 21,592,794 16,589,123 12,754,585
------------ ------------ ------------
Total Sales 92,984,482 51,000,202 30,138,489
Cost of products sold 43,827,123 21,485,696 12,657,218
Cost of services 17,017,674 14,519,917 11,118,411
------------ ------------ ------------
Total Cost of Sales 60,844,797 36,005,613 23,775,629
------------ ------------ ------------
Gross Profit 32,139,685 14,994,589 6,362,860
Engineering and development 1,861,734 891,959 577,299
Selling, general
and administrative 8,999,931 6,210,324 3,124,559
Amortization of goodwill 1,755,798 533,919 157,394
Special charges --- --- 980,000
------------ ------------ ------------
Operating Income 19,522,222 7,358,387 1,523,608
Interest and other income 2,503,318 484,211 142,632
Interest expense (1,355,437) (318,987) (493,797)
------------ ------------ ------------
Income Before Income Taxes 20,670,103 7,523,611 1,172,443
Income taxes 7,536,000 745,069 ---
------------ ------------ ------------
Net Income $ 13,134,103 $ 6,778,542 $ 1,172,443
============ ============ ============
Net Income Per Common Share:
Basic $ .76 $ .52 $ .15
============ ============ ============
Diluted $ .70 $ .46 $ .12
============ ============ ============
Weighted Average Shares Outstanding:
Basic 17,242,405 13,044,432 7,858,954
============ ============ ============
Diluted 18,707,781 14,529,994 9,083,260
============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<CAPTION>
Capital In Note Retained
Common Excess of Receivable Earnings
Stock Par Value from Affiliate (Deficit) Total
--------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 $ 69,182 $ 14,776,433 $ --- $(13,685,698) $ 1,159,917
Net income 1,172,443 1,172,443
Issuance of 2,583,988 shares for
stock warrants and options 25,840 6,703,561 6,729,401
Issuance of 1,181,770 shares in
private placement, net of expenses 11,818 2,857,607 2,869,425
Issuance of 1,351,603 shares for
AIT acquisition 13,516 2,259,902 2,273,418
Issuance of 517,050 shares for
Westec acquisition 5,171 1,023,279 1,028,450
Note receivable from affiliate, net (919,836) (919,836)
Issuance of 5,596 shares for
matching contribution to 401K plan 56 20,761 20,817
--------- ------------ -------------- ------------ ------------
Balance at December 31, 1995 125,583 27,641,543 (919,836) (12,513,255) 14,334,035
Net income 6,778,542 6,778,542
Issuance of 3,487,500 shares in secondary
public offering, net of expenses 34,875 25,296,375 25,331,250
Issuance of 655,364 shares for
Sunrise acquisition 6,553 2,990,383 2,996,936
Release of 318,654 shares from
escrow for AIT acquisition 2,042,373 2,042,373
Repayment of loan by affiliate, net 348,202 348,202
Issuance of 50,000 shares for
technology license 500 137,020 137,520
Issuance of 246,906 shares for
stock options and warrants 2,469 377,629 380,098
Retirement of 672,419 escrowed shares
from 1991 initial public offering (6,724) 6,724 ---
Issuance of 2,883 shares for matching
contribution to 401K plan 29 25,232 25,261
--------- ------------ -------------- ------------ ------------
Balance at December 31, 1996 163,285 58,517,279 (571,634) (5,734,713) 52,374,217
Net income 13,134,103 13,134,103
Issuance of 1,285,884 shares for
CIS acquisition 12,859 5,601,560 5,614,419
Issuance of 408,205 shares for
Galaxy acquisition 4,082 4,768,893 4,772,975
Release of 159,327 shares from
escrow for AIT acquisition 892,231 892,231
Issuance of 121,182 shares for
AIT acquisition 1,212 2,168,788 2,170,000
Release of 50,000 shares from
escrow for Westec acquisition 835,625 835,625
Repayment of loan by affiliate 571,634 571,634
Issuance of 1,155,360 shares for
stock options and warrants 11,553 4,594,299 4,605,852
Tax benefit from exercises of stock
options and warrants 6,675,000 6,675,000
Issuance of 7,091 shares for matching
contribution to 401K plan 71 108,803 108,874
--------- ------------ -------------- ------------ ------------
Balance at December 31, 1997 $ 193,062 $ 84,162,478 $ --- $ 7,399,390 $ 91,754,930
========= ============ ============== ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
World Access, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995
------------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 13,134,103 $ 6,778,542 $ 1,172,443
Adjustments to reconcile net income
to net cash from (used by)
operating activities:
Depreciation and amortization 3,096,356 1,420,052 894,484
Income tax benefit from stock
warrants and options 6,675,000 --- ---
Provision for inventory reserves 772,867 197,409 162,345
Provision for bad debts 171,574 167,612 7,568
Stock contributed to 401K plan 108,874 34,861 19,317
Special charges --- --- 823,714
Changes in operating assets and
liabilities, net of effects
from businesses acquired:
Accounts receivable (8,796,812) (258,167) (6,809,851)
Inventories (12,147,373) (5,988,385) (1,627,479)
Accounts payable 4,313,371 (46,669) 177,090
Other assets and liabilities (9,290,063) (310,306) (1,264,163)
------------- ------------ ------------
Net Cash From (Used By)
Operating Activities (1,962,103) 1,994,949 (6,444,532)
------------- ------------ ------------
Cash Flows From Investing Activities:
Acquisitions of businesses (5,945,724) (436,791) (649,769)
Investment in affiliate (5,002,000) --- ---
Repayments by (loans to) affiliates (3,319,534) 348,202 (1,502,336)
Expenditures for property and equipment (3,590,978) (1,176,018) (279,571)
Technology licenses (21,298) (528,050) ---
------------- ------------ ------------
Net Cash Used By Investing Activities (17,879,534) (1,792,657) (2,431,676)
------------- ------------ ------------
Cash Flows From Financing Activities:
Issuance of long-term debt 111,909,015 --- ---
Net proceeds from secondary
public offering --- 25,331,250 ---
Net proceeds from private
equity offerings --- --- 2,835,000
Proceeds from exercise of stock
warrants and options 4,605,852 4,251,487 2,961,207
Short-term debt borrowings (repayments) (588,715) (5,510,220) 4,338,556
Long-term debt repayments --- (3,625,000) (125,000)
Debt issuance costs (499,552) (56,546) ---
------------- ------------ ------------
Net Cash From Financing Activities 115,426,600 20,390,971 10,009,763
------------- ------------ ------------
Increase in Cash and Equivalents 95,584,963 20,593,263 1,133,555
Cash and Equivalents at
Beginning of Period 22,480,082 1,886,819 753,264
------------- ------------ ------------
Cash and Equivalents at
End of Period $ 118,065,045 $ 22,480,082 $ 1,886,819
============= ============ ============
Supplemental Schedule of Noncash
Financing and Investing Activities:
Issuance of common stock for
businesses acquired $ 14,285,250 $ 5,039,309 $ 3,301,868
Issuance of common stock for
stockholder notes 3,828,194
Reduction in note receivable
from affiliate to recognize
contingent purchase price earned 582,500 582,500
Conversion of accounts receivable
to investment in technology
license 241,919
Issuance of common stock for
technology license 137,520
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
WORLD ACCESS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A: GENERAL
Nature of Business
World Access, Inc. and its wholly-owned subsidiaries (the "Company")
operate in one business segment as a provider of systems, products and services
to the global telecommunications marketplace. The Company develops, manufactures
and markets wireline and wireless switching, transport and access products
primarily for the United States, Caribbean Basin and Latin American
telecommunications markets. The Company's products allow telecommunications
service providers to build and upgrade their central office and outside plant
networks in order to provide a wide array of voice, data and video services to
their business and residential customers. The Company offers digital switches,
cellular base stations, fixed wireless local loop systems, intelligent
multiplexers, microwave and millimeterwave radio systems and other
telecommunications network equipment. The products offered by the Company
include those manufactured by the Company as well as those manufactured by other
telecommunications equipment companies. To support and complement its product
sales, the Company also provides its customers with a broad range of design,
engineering, manufacturing, testing, installation, repair and other value-added
services.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries from their effective dates of
acquisition (see "Note B"). All material intercompany accounts and transactions
are eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The estimated fair value of financial instruments has been determined
by the Company using available market information and appropriate valuation
methodologies. However, considerable judgment is required in interpreting data
to develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The fair value estimates presented herein
are based on pertinent information available to management as of the respective
balance sheet dates. Although management is not aware of any factors that would
significantly affect the estimated fair value amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date and current estimates of fair value may differ significantly from the
amounts presented herein.
The fair values of cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate the carrying values due to their
short-term nature. The fair values of long-term debt are estimated based on
current market rates and instruments with the same risk and maturities and
approximate the carrying value.
Revenue Recognition
In general, revenues are recognized when the Company's products are
shipped or services are rendered. Occasionally, the Company will enter into
long-term contracts which require percentage of completion accounting treatment.
During 1997, the Company recognized approximately $5.3 million of
revenues under the percentage of completion method. Of this amount,
approximately $2.5 million represents costs and estimated earnings in excess of
billings and is included in Other current assets on the Company's December 31,
1997 balance sheet.
Significant Customers
A portion of the Company's total sales have been derived from
significant customers. During 1997, no customer individually accounted for 10.0%
of the Company's total sales. During 1996, one customer accounted for 10.9% of
total sales. During 1995, two customers individually accounted for 22.7% and
15.1% of total sales.
Cash and Equivalents
Cash equivalents include demand deposits with banks and all highly
liquid investments with original maturities of three months or less.
<PAGE>
Accounts Receivable
Accounts receivable are presented net of an allowance for doubtful
accounts of $237,000, $265,000, and $208,000 at December 31, 1997, 1996, and
1995, respectively.
Investment in Affiliate
During November and December 1997, the Company purchased 355,000 shares
of NACT Telecommunications, Inc. ("NACT") common stock in the open market for
approximately $5.0 million.
On December 31, 1997, the Company entered into a stock purchase
agreement with GST Telecommunications, Inc. ("GST") and GST USA, Inc. ("GST
USA"), a wholly owned subsidiary of GST, to acquire 5,113,712 shares of NACT
common stock owned by GST USA. On February 27, 1998, the Company completed this
purchase increasing its ownership of NACT to approximately 67.3%. On February
24, 1998, the Company executed a definitive merger agreement with NACT to
acquire the remaining 32.7% of NACT common shares (see "Note N").
Earnings Per Share
Effective in 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share". The computation of basic
earnings per share is based on the weighted average number of common shares
outstanding during the period. The computation of diluted earnings per share is
based on the weighted average number of common shares outstanding plus, when
their effect is dilutive, potential common stock consisting of shares subject to
stock options, stock warrants and convertible notes. Potential common stock
shares of 1,465,376, 1,485,562 and 1,224,306 as of December 31, 1997, 1996 and
1995, respectively, have been included in computing diluted earnings per share.
A total of 994,736, 401,267 and 895,744 shares of common stock for the years
ended December 31, 1997, 1996 and 1995, respectively, held in escrow from
certain acquisitions (see "Note B"), the Company's initial public offering (see
"Note H") and the TCSI license agreement (see "Note E"), were excluded from the
earnings per share calculations because the conditions for release of shares
from escrow had not been satisfied.
Reclassifications
Certain items in the prior year consolidated financial statements have
been reclassified to conform to the current presentation.
NOTE B: ACQUISITIONS
AIT Acquisition
On May 17, 1995, the Company entered into an agreement to acquire AIT,
Inc. ("AIT"), a Lakeland, Florida based provider of new and used Northern
Telecom switching systems and related circuit boards to the telecommunications
industry. On July 11, 1995, the transaction was completed in its final form
whereby AIT was merged with and into Restor-AIT, Inc., a wholly-owned subsidiary
of the Company (the "AIT Merger"). In connection with the AIT Merger, the sole
stockholder of AIT received 685,970 restricted shares of the Company's common
stock. These shares had an initial fair value of approximately $1.7 million.
In July 1995, the Company loaned the sole stockholder of AIT $1.3
million in cash in connection with a $2,330,000 interest bearing promissory note
executed as an integral part of the merger agreement between the two companies.
An additional $1,030,000 was to be loaned to the stockholder as specific
accounts receivable, notes receivable and inventories on AIT's May 17, 1995
balance sheet were collected and/or realized by the Company. As of December 31,
1996, the Company had loaned an aggregate of $2,319,134 to the stockholder. The
principal balance of the note as of December 31, 1996 was $571,634, which was
fully collateralized by shares of the Company's common stock pledged by the sole
stockholder. As a result of this pledge agreement, the note receivable from the
stockholder was accounted for as a reduction of stockholders' equity. As of
December 31, 1997, the amounts due from the stockholder were paid in full.
In addition to the 685,970 shares noted above, the sole stockholder of
AIT was issued 637,308 restricted shares of the Company's common stock. These
shares were immediately placed into escrow, and along with $2,330,000 in
potential cash payments, were to be released to the sole stockholder over a two
year period ending August 15, 1997 contingent upon the realization of predefined
levels of gross profit from AIT's operations during this same period. To the
extent cash consideration was paid, the sole stockholder was immediately
required to repay the equivalent amount of borrowings outstanding under the
promissory note described above.
Upon issuance, the 637,308 escrowed shares were valued by the Company
at par value only, or $6,373. As it became probable that the conditions for
release from escrow would be met, the fair market value of the shares as
measured at that time, along with any contingent cash payment earned, were
recorded as additional goodwill and stockholders' equity, respectively.
<PAGE>
As of December 31, 1997, the Company had released all 637,308 shares
from escrow and paid additional cash consideration of $2,330,000 based on AIT's
gross profit performance. Based on AIT's pre-tax income performance, an
additional $3.1 million in purchase price was paid to the sole stockholder in
August 1997 in the form of 121,182 restricted shares of the Company's common
stock. The net effect of the above has been to increase goodwill and
stockholder's equity by approximately $8.0 million as of December 31,1997.
As part of a final purchase price settlement agreement entered into in
August 1997, the sole stockholder of AIT pledged 280,509 shares of the Company's
common stock to the Company to effectively guarantee the collectiblity of
certain AIT accounts receivable. During the fourth quarter of 1997 and the first
quarter of 1998, these accounts receivable were paid in full through cash
proceeds from the sale of these pledged shares.
The acquisition of AIT has been accounted for using the purchase method
of accounting. Accordingly, the results of AIT's operations have been included
in the accompanying consolidated financial statements from May 17, 1995, the
effective date of acquisition. The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair values as of the
date of acquisition. The excess of purchase price over the fair value of net
assets acquired, approximately $11.6 million, has been recorded as goodwill and
is being amortized over a 15 year period.
Westec Acquisition
On October 2, 1995, the Company entered into an agreement to acquire
Westec Communications, Inc. ("Westec"), a Scottsdale, Arizona based provider of
wireless systems and repair services to the cable television and
telecommunications industries. On October 31, 1995, the transaction was
completed in its final form whereby Westec was merged with and into
Restor-Westec, Inc., a wholly-owned subsidiary of the Company (the "Westec
Merger"). Restor-Westec, Inc. subsequently changed its name to Westec
Communications, Inc. In connection with the Westec Merger, the sole stockholder
of Westec received $550,000 and 272,050 restricted shares of the Company's
common stock. These shares had an initial fair value of approximately $900,000.
As part of the Westec Merger agreement, the sole stockholder of Westec
may also receive $1.0 million in additional purchase price (the "Westec
Additional Consideration") contingent upon the realization of predefined levels
of pre-tax income from Westec's operations during five calendar years beginning
in 1996. This additional consideration may be paid, at the option of the
Company, in the form of cash or restricted shares of the Company's common stock
valued at the then current market prices. If earned, the Westec Additional
Consideration will be capitalized as additional goodwill and stockholders'
equity, respectively.
In connection with the Westec Merger, the Company entered into a
Compensation Agreement with Sherman Capital Group L.L.C. ("Sherman"), a merchant
banking firm that had a pre-existing letter of intent to acquire Westec.
Pursuant to the Compensation Agreement, Sherman received $100,000 and 45,000
restricted shares of the Company's common stock. These shares had an initial
fair value of approximately $150,000. The compensation paid to Sherman has been
accounted for as part of the purchase price of Westec. In addition, 200,000
restricted shares of the Company's common stock were placed in escrow and may be
released to Sherman in installments over a four year period on February 15 of
each year beginning on February 15, 1997, contingent upon the realization of
predefined levels of pre-tax income from Westec's operations. Upon issuance, the
200,000 escrowed shares were valued by the Company at par value only, or $2,000.
As it becomes probable that the conditions for release from escrow will be met,
the fair market value of the shares as measured at that time will be recorded as
additional goodwill and stockholders' equity.
The first measurement period for purposes of releasing escrowed shares
and paying Westec Additional Consideration was January 1, 1996 to December 31,
1996. Westec's pre-tax income for the first measurement period failed to meet
the performance criteria required to earn any additional consideration. In
reviewing Westec's pre-tax performance for the second performance period,
January 1, 1997 to December 31, 1997, the Company determined that the earn-out
performance criteria was met. Accordingly, 50,000 escrowed shares were accounted
for as if released to Sherman and $200,000 of Westec Additional Consideration
was accounted for as if paid to the sole stockholder of Westec as of December
31, 1997. The net effect of this accounting was to increase goodwill and
stockholders equity by approximately $1.0 million and $800,000, respectively.
The escrowed shares were released and Westec Additional Consideration was paid
on February 15, 1998.
The acquisition of Westec has been accounted for using the purchase
method of accounting. Accordingly, the results of Westec's operations have been
included in the accompanying consolidated financial statements from October 2,
1995, the effective date of acquisition. The purchase price was allocated to the
assets acquired and liabilities assumed based on their estimated fair values as
of the date of acquisition. The excess of purchase price over the fair value of
net assets acquired, currently estimated at approximately $2.4 million, has been
recorded as goodwill and is being amortized over a 15 year period.
<PAGE>
Sunrise Acquisition
In February 1996, the Company entered into an agreement to acquire
Comtech Sunrise, Inc. ("Sunrise"), a Livermore, California based manufacturer of
multiplexers, digital loop carriers and other intelligent transport and access
products. On June 18, 1996, after a mandatory registration process was completed
in the State of California, the transaction was completed in its final form
whereby Sunrise was merged with and into Restor-Comtech, Inc., a wholly-owned
subsidiary of the Company (the "Sunrise Merger"). Restor-Comtech, Inc.
subsequently changed its name to Sunrise Sierra, Inc. In connection with the
Sunrise Merger, the stockholders of Sunrise received approximately $100,000 in
cash and 385,481 shares of the Company's common stock. These shares had an
initial fair value of approximately $2.3 million.
In addition to the 385,481 shares noted above, the stockholders of
Sunrise were issued 211,765 restricted shares of the Company's common stock.
These shares were immediately placed into escrow, and along with $1.8 million in
additional purchase price (the "Sunrise Additional Consideration"), will be
released to the stockholders of Sunrise contingent upon the realization of
predefined levels of pre-tax income from Sunrise's operations during three
one-year periods beginning January 1, 1996. The Sunrise Additional Consideration
may be paid, at the option of the Company, in the form of cash or restricted
shares of the Company's common stock valued at the then current market prices.
Upon issuance, the 211,765 escrowed shares were valued by the Company
at par value only, or $2,118. As it becomes probable that the conditions for
release from escrow will be met, the fair market value of the shares as measured
at that time, along with any Sunrise Additional Consideration earned, will be
recorded as additional goodwill and stockholders' equity, respectively.
The first measurement period for purposes of releasing escrowed shares
and paying Sunrise Additional Consideration was January 1, 1996 to December 31,
1996. In reviewing Sunrise's pre-tax income performance, the Company determined
that the earn-out performance criteria was met. Accordingly, 58,823 escrowed
shares were accounted for as if released and $500,000 of Sunrise Additional
Consideration was accounted for as if paid (in the form of 58,118 restricted
shares of Company common stock) as of December 31, 1996. The net effect of this
accounting was to increase goodwill and stockholders' equity by approximately
$700,000. The escrowed shares were released and additional shares were issued on
February 15, 1997. The second measurement period was January 1, 1997 to December
31, 1997. Sunrise's pre-tax income failed to meet the performance criteria
required to earn any additional consideration for that period.
The acquisition of Sunrise has been accounted for using the purchase
method of accounting. Accordingly, the results of Sunrise's operations have been
included in the accompanying consolidated financial statements from January 1,
1996, the effective date of acquisition as defined in the definitive agreement
and plan of merger. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as of the date of
acquisition. The excess of purchase price over the fair value of net assets
acquired, currently estimated at approximately $2.3 million, has been recorded
as goodwill and is being amortized over a 15 year period.
CIS Acquisition
On March 11, 1997, the Company entered into an agreement to acquire
Cellular Infrastructure Supply, Inc. ("CIS"), a Burr Ridge, Illinois based
provider of new and/or upgraded equipment and related design, installation and
technical support services to cellular, PCS and other wireless service
providers. On March 27, 1997, the transaction was completed in its final form
whereby CIS was merged with and into CIS Acquisition Corp., a wholly-owned
subsidiary of the Company (the "CIS Merger"). CIS Acquisition Corp. subsequently
changed its name to Cellular Infrastructure Supply, Inc. In connection with the
CIS Merger, the three stockholders of CIS received $3.5 million in cash and
440,874 restricted shares of the Company's common stock. These shares had an
initial fair value of approximately $2.6 million.
In addition to the 440,874 shares noted above, the stockholders of CIS
were issued 845,010 restricted shares of the Company's common stock. These
shares were immediately placed into escrow, and along with $6.5 million in
additional purchase price (the "CIS Additional Consideration"), will be released
and paid to the stockholders of CIS contingent upon the realization of
predefined levels of pre-tax income from CIS's operations during three one-year
periods beginning January 1, 1997.
Upon issuance, the 845,010 escrowed shares were valued by the Company
at par value only, or $8,450. Once conditions for release from escrow have been
met, the fair market value of the shares as measured at that time, along with
any CIS Additional Consideration earned, will be recorded as additional goodwill
and stockholders' equity, respectively.
<PAGE>
The first measurement period for purposes of releasing escrowed shares
and paying CIS Additional Consideration was January 1, 1997 to December 31,
1997. In reviewing CIS's pre-tax income performance as of April 30, 1997, the
Company determined that it was highly probable that the conditions for release
and payment for the first period would be met. Accordingly, 317,427 escrowed
shares were accounted for as if released and $3.5 million of CIS Additional
Consideration was accounted for as if paid as of April 30, 1997. The net effect
of this accounting was to increase goodwill and stockholders' equity by
approximately $6.5 million and $3.0 million, respectively, as of April 30, 1997.
These escrowed shares were released and CIS Additional Consideration was paid to
the former stockholders of CIS on February 15, 1998. The $3.5 million of CIS
Additional Consideration earned is included in Purchase price payable on the
Company's December 31, 1997 balance sheet.
The acquisition of CIS has been accounted for using the purchase method
of accounting. Accordingly, the results of CIS's operations have been included
in the accompanying consolidated financial statements from January 1, 1997, the
effective date of acquisition as defined in the definitive agreement and plan of
merger. The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as of the date of acquisition. The
excess of purchase price over the fair value of net assets acquired, currently
estimated at approximately $12.5 million, has been recorded as goodwill and is
being amortized over a 15 year period.
Galaxy Acquisition
On July 29, 1997, the Company entered into a letter of intent to
acquire Galaxy Personal Communications Services, Inc. ("Galaxy"), a Norcross,
Georgia based provider of system design, implementation, optimization and other
value-added radio engineering and consulting services to PCS, cellular and other
wireless telecommunications service providers. On August 26,1997, the
transaction was completed in its final form whereby Galaxy was merged with and
into Galaxy Acquisition Corp., a wholly-owned subsidiary of the Company (the
"Galaxy Merger"). Galaxy Acquisition Corp. subsequently changed its name to
Galaxy Personal Communications Services, Inc. In connection with the Galaxy
Merger, the former stockholders of Galaxy received approximately $1.2 million in
cash and 262,203 restricted shares of the Company's common stock. These shares
had an initial fair value of approximately $4.2 million.
In addition to the 262,203 shares noted above, the former Galaxy
stockholders were issued 131,101 restricted shares of the Company's common
stock. These shares were immediately placed into escrow, and along with $3.5
million in additional consideration (the "Galaxy Additional Consideration"),
will be released and paid to the former stockholders of Galaxy contingent upon
the realization of predefined levels of pre-tax income from Galaxy's operations
during four measurement periods between July 1, 1997 and December 31, 2000. The
Galaxy Additional Consideration may be paid, at the option of the Company, in
the form of cash or restricted shares of the Company's common stock valued at
the then current market prices.
Upon issuance, the 131,101 escrowed shares were valued by the Company
at par value only, or $1,311. Once conditions for release from escrow have been
met, the fair market value of the shares as measured at that time, along with
any Galaxy Additional Consideration earned, will be recorded as additional
goodwill and stockholders' equity, respectively.
The first measurement period for purposes of releasing escrowed shares
and paying Galaxy Additional Consideration was July 1, 1997 to December 31,
1997. In reviewing Galaxy's pre-tax income performance, the Company determined
that earn-out performance criteria was met. Accordingly, 15,215 escrowed shares
were accounted for as if released and $400,000 of Galaxy Additional
Consideration (in the form of 14,901 restricted shares of Company common stock)
were accounted for as if paid as of December 31, 1997. The net effect of this
accounting was to increase goodwill and stockholders' equity by approximately
$500,000 as of December 31, 1997. These escrowed shares were released and
additional shares were issued to the former stockholders of Galaxy on February
15, 1998.
The acquisition of Galaxy has been accounted for using the purchase
method of accounting. Accordingly, the results of Galaxy's operations have been
included in the accompanying consolidated financial statements from July 1,
1997, the effective date of acquisition as defined in the definitive agreement
and plan of merger. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as of the date of
acquisition. The excess of purchase price over the fair value of net assets
acquired, currently estimated at approximately $5.1 million, has been recorded
as goodwill and is being amortized over a 15 year period.
<PAGE>
Pro Forma Results of Operations
On a pro forma, unaudited basis, as if the acquisitions of AIT, Westec
and Sunrise had occurred as of January 1, 1995, total sales, operating income,
net income and diluted net income per common share for the year ended December
31, 1995 would have been approximately $38,100,000, $2,200,000, $1,800,000 and
$0.17, respectively.
On a pro forma, unaudited basis, as if the acquisition of CIS had
occurred as of January 1, 1996, total sales, operating income, net income and
net income per diluted common share for the year ended December 31, 1996 would
have been approximately $63,810,000, $10,680,000, $8,520,000, and $0.57,
respectively. The results of operations for Galaxy during 1996 and the first six
months of 1997 were not material and therefore are not included in the pro forma
disclosure.
These unaudited pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the results of operations
which would actually have occurred had the acquisitions been in effect on the
dates indicated.
NOTE C: INVENTORIES
Inventories are stated at the lower of cost or market as determined
primarily on a first-in, first-out basis. To address potentially obsolete and
slow moving inventories and related market valuation adjustments, the Company
charged to operations for the years ended December 31, 1997, 1996 and 1995
approximately $773,000, $197,000 and $162,000, respectively.
Inventories consist of the following:
Dec. 31, Dec. 31,
1997 1996
----------- -----------
Switching systems, frames and related
circuit boards $13,445,770 $ 6,902,886
Electronic components 4,879,213 2,539,497
Pay telephone parts 1,332,835 494,315
Work in progress 1,744,368 437,926
Other finished goods 1,024,732 282,788
----------- -----------
$22,426,918 $10,657,412
=========== ===========
The switching systems, frames and related circuit board inventory at
December 31, 1997 includes approximately $3.8 million of consigned inventory
held at Resurgens Communications Group (see "Note M").
NOTE D: PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation
as computed using the straight-line method. Leasehold improvements are
depreciated over their remaining estimated lease term. Estimated lives for other
depreciable assets range from three to eight years. Depreciation expense for the
years ended December 31, 1997, 1996 and 1995 was $1,040,000, $829,000 and
$690,000, respectively.
Property and equipment consist of the following:
Dec. 31, Dec. 31,
1997 1996
----------- -----------
Leasehold improvements $ 915,258 $ 686,683
Manufacturing assembly and test equipment 9,865,060 6,463,996
Office furniture and equipment 1,739,870 1,328,730
Vehicles 129,498 84,975
----------- -----------
12,649,686 8,564,384
Accumulated depreciation (6,945,101) (5,906,723)
----------- -----------
$ 5,704,585 $ 2,657,661
=========== ===========
The Company leases various facilities and equipment under operating
leases. As of December 31, 1997, future minimum payments under noncancelable
operating leases with initial or remaining terms of more than one year are
approximately: 1998--$750,000, 1999--$545,000, 2000--$322,000; 2001--$300,000;
and 2002--$58,000.
Total rental expense under operating leases for the years ended
December 31, 1997, 1996 and 1995 was approximately $1,732,000, $1,327,000 and
$670,000, respectively, exclusive of property taxes, insurance and other
occupancy costs generally payable by the Company.
<PAGE>
NOTE E: TECHNOLOGY LICENSES
In March 1996, the Company entered into a memorandum of understanding
with International Communication Technologies, Inc. ("ICT") and Eagle
Telephonics, Inc. ("Eagle") to manufacture, market and sell a new modular,
digital central office switch developed by Eagle. In July 1996, a long-term
technology licensing agreement was executed by all three parties. As
consideration for this license, the Company paid Eagle $250,000 in cash and
provided it $450,000 of manufacturing services. The license fees paid Eagle will
be amortized to expense in connection with the first 300,000 lines of phone
service provided for within the switches sold by the Company, i.e. approximately
$2.50 per line. In addition to the up-front consideration, the Company agreed to
pay ICT certain royalties based on future sales of the switch by the Company.
During 1997, the Company expensed license
fees and royalties of approximately $200,000 in connection with lines sold
during the year. In connection with this license and the up-front consideration
paid, the Company received 1.2 million restricted shares of Eagle common stock.
The fair value of these shares was not material as of December 31, 1997.
In December 1996, the Company executed a technology licensing agreement
with TCSI Corporation ("TCSI") that grants the Company the perpetual rights to
incorporate TCSI's spread spectrum Code Division Multiple Access ("CDMA") based
wireless technology into the Company's products sold throughout the world. Under
the terms of the agreement, the Company also has the rights to use the
technology covered by seven TCSI patents, all of which address digital data
signals and wireless communication systems. As total consideration for this
license, TCSI was paid $50,000 in cash and 25,000 shares of restricted Company
common stock. These shares had an initial fair value of approximately $150,000.
In addition to the 25,000 shares noted above, TCSI was issued 25,000 shares of
restricted common stock. These shares were immediately placed into escrow and
will be released to TCSI upon the earlier of the first commercial use of the
technology by the Company or the expiration of the two year period from the date
the license was executed. As of December 31, 1997, no escrowed shares had been
released to TCSI.
NOTE F: GOODWILL
Goodwill from acquisitions, representing the excess of purchase price
paid over the value of net assets acquired, is as follows:
Dec. 31, Dec. 31,
1997 1996
----------- -----------
CIS $12,485,239 $ ---
AIT 11,557,917 6,403,187
Galaxy 5,089,265 ---
Westec 2,364,660 1,329,035
Sunrise 2,284,500 2,159,500
Other 384,902 384,902
----------- -----------
34,166,483 10,276,624
Accumulated amortization (2,506,282) (750,484)
----------- -----------
$31,660,201 $ 9,526,140
=========== ===========
Goodwill is being amortized on a straight-line basis over a 15 year
period. The Company reviews the net carrying value of goodwill on a regular
basis, and if deemed necessary, charges are recorded against current operations
for any impairment in the value of these assets. No significant impairment
charges have been recorded to date. Goodwill is removed from the books when
fully amortized.
NOTE G: DEBT
Summary
The Company had no debt outstanding as of December 31, 1996. Debt as of
December 31, 1997 consists of the following:
Dec. 31,
1997
Convertible subordinated notes $115,000,000
Capital lease obligations and other debt 345,723
------------
Total debt 115,345,723
Amount due within one year (81,739)
------------
Long-term debt $115,263,984
============
Interest paid for the years ended December 31, 1997, 1996 and 1995 was
$57,000, $352,000 and $507,000, respectively.
<PAGE>
Convertible Subordinated Notes
On October 1, 1997, the Company sold $100.0 million in aggregate
principal amount of convertible subordinated notes (the "Notes") under Rule 144A
of the Securities Act of 1933. The Notes bear interest at the rate of 4.5% per
annum, are convertible into Company common stock at an initial price of $37.03
per share and mature on October 1, 2002. Interest on the Notes is payable on
April 1 and October 1 of each year, commencing on April 1, 1998. The Notes are
general unsecured obligations of the Company and are subordinate in right of
payment to all existing and senior indebtedness. The Company received $97.0
million from the sale of the Notes, after the application of the initial
purchasers' discount fees of $3.0 million.
In addition to the Notes sold on October 1, 1997, the Company granted
the initial purchasers an option to purchase up to an additional $15.0 million
in Notes to cover over-allotments. On October 28, 1997, the initial purchasers
exercised the over-allotment option in full and the Company received an
additional $14,550,000, after the application of the initial purchasers'
discount fees of $450,000.
The discount fees and legal, accounting, printing and other expenses
(the "Debt issuance costs") related to the Notes offering amounted to
approximately $4.0 million, and are being amortized to expense over the five
year term of the Notes. During 1997, the Company recognized approximately
$200,000 of debt issuance cost amortization related to the Notes. Debt issuance
costs of approximately $3.8 million are included in Other assets on the
Company's December 31, 1997 balance sheet.
Bank Debt
In December 1996, the Company's agreement with a large European bank
was amended to increase its revolving line of credit to $10 million. Borrowings
under the line are secured by a first lien on substantially all the assets of
the Company. The bank agreement, which expires in March 2001, contains standard
lending covenants including financial ratios, restrictions on dividends and
limitations on additional debt and the disposition of Company assets. Interest
is paid at the rate of prime plus 1 1/4% or LIBOR plus 2 1/2%, at the option of
the Company.
Prior to 1996, the Company's principal source of debt financing since
May 1992 has been with this European bank. In connection with operating losses
experienced by the Company, restructuring programs implemented by the Company
and violations of financial covenants established by the bank, the bank
agreement was amended several times during 1992 through 1994 to defer principal
payments and restructure financial covenants. In consideration for the original
credit facility and the significant concessions provided during this period, the
bank received warrants to purchase 360,000 shares of the Company's common stock
at its then current market price of $1.25 per share.
In July 1995, the Company received a new $2 million revolving line of
credit from the bank. In consideration for the line of credit and a reduced
interest rate, the Company paid the bank a $30,000 origination fee and issued
the bank warrants to purchase 100,000 shares of the Company's common stock at
its then current market price of $3.82 per share on or prior to October 31,
1999. In October 1995, the bank paid the Company $832,000 to exercise all
460,000 warrants (see "Note I").
In October 1996, in connection with a secondary public equity offering
completed by the Company, the Company paid the bank $3.9 million to pay off the
outstanding principal balance on its term loan.
NOTE H: STOCKHOLDERS' EQUITY
During September and October 1996, 3,487,500 shares of Company common
stock were sold in a secondary public offering at a price of $8.00 per share.
The Company received $26,156,250 from this offering, net of underwriting
discounts. The Company incurred additional expenses of approximately $825,000 in
connection with this offering.
During June and July 1995, 1,168,000 restricted shares of the Company's
common stock were sold in a private placement for a gross consideration of
$2,920,000, or its then current market price of $2.50 per share. Participants in
the offering also received warrants to purchase a total of 1,168,000 of
additional shares of restricted common stock at $3.50 per share on or prior to
June 30, 2000. Approximately $275,000 of the offering was purchased by the
directors and management of the Company. In October 1995, stockholders paid the
Company approximately $4.1 million to exercise all warrants issued as a result
of the private offering (see "Note I").
In connection with the Company's initial public offering in August
1991, all of the existing holders of the Company's common stock placed in escrow
an aggregate of 672,419 shares of the Company's common stock. As of August 12,
1996, the termination date of the escrow agreement, the conditions for release
of the shares had not been met. Accordingly, the 672,419 escrowed shares of
Company common stock were returned to the Company and became authorized but
unissued shares.
<PAGE>
NOTE I: STOCK WARRANTS AND OPTIONS
Stock Warrants
In connection with various financial transactions completed by the
Company during 1992 to 1995, equity investors (see "Note H"), debtors (see "Note
G") and certain consultants were issued warrants to purchase shares of the
Company's common stock in the future. All of these warrants had exercise prices
that were set at or above the then current market price of the Company's common
stock at the respective dates of grant.
In October 1995, the Company raised approximately $6.5 million of new
capital through the exercise of previously issued warrants and non-qualified
options to purchase 2,433,853 shares of the Company's common stock. Of the $6.5
million raised, approximately $1.6 million was invested by the directors,
management and the principal lender of the Company. In exercising their warrants
or options, investors had the option of paying cash or executing an 8% interest
bearing note payable to the Company. Approximately $2.4 million of the total
proceeds was paid in cash and $4.1 million through notes. The notes were paid in
full by March 29, 1996.
As of December 31, 1997, there were no warrants outstanding to purchase Company
common stock except for the Director
warrant plans discussed below.
Director Warrant Plans
In December 1994, in an effort to attract and retain experienced
executives to serve as outside directors for the Company, the Company's Board of
Directors adopted an Outside Directors' Warrant Plan (the "Plan").
In December 1994, three new outside directors of the Company were
awarded a total of 450,000 warrants. Each director received 150,000 warrants and
each warrant entitles the director to purchase one share of the Company's common
stock on or prior to December 15, 1999 per the following terms:
Exercise
Warrants Price Vesting
50,000 $1.50 December 15, 1995
50,000 2.25 December 15, 1995
50,000 4.00 December 15, 1996
Concurrent with the above initial grant, a fourth outside director of
the Company was awarded 126,000 warrants. The terms of this grant were exactly
as those described above except the number of warrants at the $1.50 exercise
price was set at 26,000 instead of 50,000.
During 1997, outside directors paid the Company approximately $900,000
to exercise 358,660 warrants. As of December 31, 1997, 217,340 warrants are
exercisable by the Company's outside directors under the Plan.
In December 1994, the Company's Board of Directors awarded Steven A.
Odom, who joined the Board in October 1994 and became Chairman in November 1994,
an initial grant of 450,000 warrants under the Plan. Each warrant entitles Mr.
Odom to purchase one share of the Company's common stock on or prior to December
15, 1999 per the following terms:
Exercise
Warrants Price Vesting
150,000 $1.50 December 15, 1995
150,000 2.25 December 15, 1995
150,000 4.00 December 15, 1996
In August 1997, Mr. Odom paid the Company $225,000 to exercise 150,000
warrants at $1.50. As of December 31, 1997, 300,000 warrants are exercisable by
Mr. Odom under the Plan.
In December 1994, the Board also adopted the Directors Warrant
Incentive Plan, pursuant to which the Board, beginning in 1997, may grant to
each director on an annual basis warrants to purchase up to 50,000 shares of
Company common stock at an exercise price per share equal to no less than 110%
of the fair market value of the common stock at the date of grant. Warrants may
only be issued under this plan if the Company's common stock has appreciated by
a compounded annual average rate of in excess of 35% for the four years
preceding the year of grant. In March 1997, the four outside directors of the
Company were each granted warrants to purchase 50,000 shares of Company common
stock at $9.21 per share. These warrants became fully vested on December 31,
1997.
<PAGE>
The vesting of all warrants awarded pursuant to the plans above will be
subject to the director to whom such warrants have been granted attending at
least 75% of the meetings of the Board of Directors for the year in which such
warrants are scheduled to vest. Notwithstanding this limitation, the warrants to
be awarded pursuant to the plans will become immediately exercisable (i) if the
Company is to be consolidated with or acquired by another entity in a merger,
(ii) upon the sale of substantially all of the Company's assets or the sale of
at least 90% of the outstanding common stock of the Company to a third party,
(iii) upon the merger or consolidation of the Company with or into any other
corporation or the merger or consolidation of any corporation with or into the
Company (in which consolidation or merger the shareholders of the Company
receive distributions of cash or securities as a result thereof), or (iv) upon
the liquidation or dissolution of the Company.
Stock Option Plans
In 1991, the Company's stockholders adopted the 1991 Stock Option Plan
(the "1991 Plan"). The 1991 Plan, as amended, provided for the granting of up to
3,500,000 options. As of December 31, 1997, no options were available for future
grant under the 1991 plan.
In December 1997, the Company's Board of Directors authorized the
adoption of the 1998 Incentive Compensation Plan (the "1998 Plan"). The 1998
Plan, which is subject to shareholder approval, provides for the granting of up
to 5,000,000 options. As of December 31, 1997, there were 4,025,000 options
available for future grant under the 1998 Plan.
These plans allow the Board of Directors to grant incentive stock
options to purchase the Company's common stock at an exercise price not less
than fair market value as of the grant date. Options issued under
these plans typically vest over a four year period. Options awarded under the
1991 Plan and the 1998 Plan are subject to the same vesting acceleration
provisions described above under the Director warrant plans.
The following table summarizes the activity relating to both plans:
Number Average
of Options Price
Balance at January 1, 1995 765,857 $ 1.70
Options granted 1,246,327 5.62
Options exercised (167,400) 1.86
Options lapsed or canceled (162,955) 1.93
---------
Balance at December 31, 1995 1,681,829 4.57
Options granted 883,269 8.03
Options exercised (170,030) 1.47
Options lapsed or canceled (67,940) 5.38
---------
Balance at December 31, 1996 2,327,128 6.08
Options granted 1,955,500 16.95
Options exercised (647,700) 5.77
Options lapsed or canceled (80,440) 7.23
---------
Balance at December 31, 1997 3,554,488 12.14
=========
Exercisable at December 31, 1997 1,101,800 7.64
=========
The options outstanding at December 31, 1997 have been segregated into
four price ranges for additional disclosure as follows:
Weighted-
Options Weighted-Average Average
Range of Outstanding Remaining Exercise
Exercise Prices at 12/31/97 Contractual Life Prices
$ 2.25 78,863 1.9 $ 1.88
3.78-3.97 414,500 2.7 3.79
7.00-9.75 1,624,125 3.7 8.01
19.00-25.25 1,437,000 5.0 19.78
<PAGE>
In December 1995, the Company offered a voluntary salary reduction
program for 1996 that resulted in the grant of 424,627 non-qualified stock
options at the then current market price of $7.00 per share. Salaried employees
voluntarily agreed to reduce their salaries by $849,254, i.e. $2 in exchange for
each stock option granted. The options vested based upon the attainment of
specific financial and operational objectives during the year. As of December
31, 1996, these options had become fully vested.
In December 1996, the Company offered a similar voluntary salary
reduction program for 1997 that resulted in the grant of 413,019 non-qualified
options at the then current market price of $8.00 per share. Salaried employees
voluntarily agreed to reduce their salaries by $826,038, i.e. $2 in exchange of
each stock option granted. The options vested based upon the Company achieving
key operational objectives during the year including 25% internal sales growth,
improved inventory turnover and specific enhancements to the Company's quality
and information systems designed to facilitate growth. As of December 31, 1997,
these options had become fully vested.
An additional element of the 1996 and 1997 voluntary salary reduction
programs provided for the potential repayment of salaries if certain pre-tax
income amounts are realized by the Company. Full repayment was earned and
recorded to expense in 1996 and a 30% partial repayment was earned and recorded
to expense in 1997.
In August 1995, the Company granted its new President and Chief
Operating Officer 400,000 options at $3.78 per share, the market price of the
Company's common stock on the date his offer of employment was accepted. These
options vest 25% on each of the first four anniversaries from the initial date
of employment.
In December 1995, the Company granted its Chairman and Chief Executive
Officer and its Vice President and Chief Financial Officer 200,000 and 50,000
options, respectively, at the then market price of $7.00 per share. The 200,000
options vested 50% on the first two anniversaries from the date of grant. The
50,000 options vested 25% immediately and the remaining 25% on each of the next
three anniversaries from the date of grant.
In December 1997, the Company made an initial grant of 975,000 options
under the 1998 Plan to its Chairman and Chief Executive Officer (400,000
options), President and Chief Operating Officer (300,000 options), Executive
Vice President and Chief Financial Officer (250,000 options) and Executive Vice
President of Business Development (25,000 options). These options vest 25% on
each of the first four anniversaries from the date of grant and are exercisable
at $19.00 per share, the market price at the date of grant, and are subject to
stockholder approval. Upon approval by the shareholders, the date of approval
will become the measurement date for purposes of computing compensation expense,
if any. If the stock price as of the measurement date exceeds $19.00, then the
total compensation impact will be the difference between stock price at the
measurement date and $19.00. The Company will record that expense ratably over a
period of four years.
Pro Forma Results of Operations
The Company has elected to follow APB Opinion No. 25, "Accounting for
Stock Issued to Employees," and related Interpretations in accounting for its
employee stock options. Therefore, no compensation cost has been recognized
related to stock options. If the company had elected to account for its stock
options under the fair value method of SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company's net income and net income per common share would
have been reduced to the pro forma amounts indicated below:
1997 1996 1995
------------ ----------- -----------
Net Income
As reported $ 13,134,103 $ 6,778,542 $ 1,172,443
Pro forma 11,380,000 6,100,000 980,000
Basic EPS
As reported 0.76 0.52 0.15
Pro forma 0.66 0.47 0.12
Diluted EPS
As reported 0.70 0.46 0.12
Pro forma 0.61 0.42 0.11
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Since the Company's employee stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of the Company's employee stock options.
<PAGE>
The fair value of each option has been estimated on the date of grant
using a Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1997, 1996 and 1995, respectively:
1997 1996 1995
---- ---- ----
Dividend Yield n/a n/a n/a
Expected volatility 44 50 50
Risk-free interest rate 5.5 5.1 6.0
Expected life of stock
options (in years) 4.5 3.0 4.0
NOTE J: RETIREMENT SAVINGS PLAN
The Company has a retirement savings 401(k) plan that covers
substantially all employees. The plan provides for the employees to voluntarily
contribute a portion of their compensation on a tax deferred basis and allows
for the Company to make discretionary matching contributions as determined by
the Board of Directors. For the years ended December 31, 1997, 1996 and 1995,
the Company contributed approximately $109,000, $42,000 and $19,000,
respectively, in the form of Company common stock to the Plan. In 1997, Company
contributions were based on a 50% match to employee contributions, up to the
first six percent contributed.
NOTE K: INCOME TAXES
The Company uses the asset and liability approach for financial
accounting and reporting for income taxes. Certain expenses are reported for
financial accounting purposes in different periods than for income tax purposes.
These temporary differences arise primarily from depreciation, bad debt
reserves, inventory valuation and various reserves.
The provision for income taxes for the years ended December 31, 1997
and 1996 was computed in accordance with SFAS No. 109, "Accounting for Income
Taxes" and consists of the following:
Year Ended Year Ended
Dec. 31, Dec. 31
1997 1996
----------- -----------
Current income taxes
Federal $ 5,362,500 $ 1,009,003
State 613,000 189,188
----------- -----------
5,975,500 1,198,191
----------- -----------
Deferred income taxes
Federal 1,400,500 (405,425)
State 160,000 (47,697)
----------- -----------
1,560,500 (453,122)
----------- -----------
Total income taxes $ 7,536,000 $ 745,069
=========== ===========
As of December 31, 1997, the Company has capital loss carryforwards of
approximately $1.2 million expiring in 1998.
As a result of the exercises of non-qualified stock options and
warrants by the Company's directors and employees during 1997, the Company has
realized a federal income tax benefit of approximately $6.7 million. This tax
benefit has been accounted for as a decrease in current income taxes payable and
an increase in capital in excess of par value.
The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to income before income taxes.
The sources and tax effects of the differences are as follows:
Year Ended Year Ended
Dec. 31, 1997 Dec. 31, 1996
----------------- -----------------
Federal tax at statutory rate $7,210,000 35.0% $2,558,028 34.0%
Effect of:
State tax, net of federal benefit 825,000 4.0 373,041 5.0
Nondeductible purchase
adjustments 575,000 2.8 190,000 2.5
Reduction in valuation allowance,
utilization of net operating loss
carryforwards and reduction of reserves (1,074,000) (5.3) (2,376,000)(31.6)
------------ ----- ----------- -----
Income tax expense $ 7,536,000 36.5% $ 745,069 9.9%
============ ===== =========== =====
<PAGE>
Significant components of the Company's deferred income tax assets and
liabilities are as follows:
Dec. 31, Dec. 31,
1997 1996
----------- -----------
Deferred tax assets
Accrued liabilities $ 978,594 $ 793,809
Net operating loss carryforwards --- 1,519,658
Capital loss carryforwards 493,071 480,428
Other 455,001 314,646
----------- -----------
1,926,666 3,108,541
Deferred tax liabilities
Depreciation/amortization (496,147) (406,481)
Other (182,367) ---
Valuation allowance (493,071) (480,428)
----------- -----------
Net deferred tax assets $ 755,081 $ 2,221,632
=========== ===========
The valuation allowance relates to capital losses whose use is limited
to capital gains the Company would record. These losses will expire during 1998,
and currently there are no foreseeable events which would allow for the
utilization of the losses.
NOTE L: SPECIAL CHARGES
In the second quarter of 1995, the Company recorded a one-time special
charge of $980,000 for the following items:
Write-down of test equipment and related tooling $675,000
Consolidation of repair operations 95,000
Retirement benefits and relocation costs 150,000
Other 60,000
--------
$980,000
========
As a result of the significant decline in analog circuit board repair
revenues experienced by the Company in recent years, the shift in strategic
focus to new digital repair services and programs offered by the Company in
1995, the acquisition of AIT and other market considerations, the Company
elected to consolidate certain operations and significantly write-down the net
book value of certain assets related to repair operations. These assets
primarily represent test equipment, tooling, dies and diagnostic programs for
the repair of analog telecommunications equipment. All of these assets were
capitalized in 1988 to 1990 in connection with acquisitions made by the Company.
NOTE M: RELATED PARTY TRANSACTIONS
In October 1997, John D. Phillips, a director of the Company, entered
into a series of agreements whereby, among other things, he became the new
Chairman and Chief Executive Officer of Cherry Communications Incorporated
(d/b/a Resurgens Communications Group) ("Resurgens"), a facilities-based
provider of international network access commonly referred to as a carriers'
carrier. Resurgens was shortly thereafter placed into bankruptcy under Chapter
11 of the United States Bankruptcy Code. WorldCom, Inc. ("WorldCom"), a major
customer and vendor of Resurgens, has subsequently agreed to provide Resurgens
up to $28 million in financing in the form of a debtor in possession facility
and other credits.
During the fourth quarter of 1997, the Company shipped switching
equipment to Resurgens. The cost of this equipment was approximately $3.8
million. On February 12, 1998, the Company executed a letter of intent to
acquire Resurgens. The equipment shipped to Resurgens is included in the
Company's inventory at December 31, 1997 (see "Note C").
The Resurgens acquisition is subject to, among other things, the
satisfactory completion by the Company of its due diligence investigation of
Resurgens, the preparation and execution of a definitive merger agreement, the
receipt of the requisite corporate and regulatory approvals and the confirmation
of Resurgens' Plan of Reorganization.
<PAGE>
NOTE N: SUBSEQUENT EVENTS
ATI Acquisition
On December 24, 1997, the Company entered into an agreement to acquire
Advanced TechCom, Inc. ("ATI"), a Wilmington, Massachusetts based designer and
manufacturer of digital microwave and millimeterwave radio systems for short and
long haul voice, data and/or video applications. On January 29, 1998, the
transaction was completed in its final form whereby ATI was merged with and into
CIS, a wholly-owned subsidiary of the Company (the "ATI Merger"). In connection
with the ATI Merger, the stockholders of ATI received approximately $300,000 in
cash and 418,054 restricted shares of the Company's common stock. These shares
had an initial fair value of approximately $8.0 million.
In addition to the 418,054 shares noted above, the stockholders of ATI
were issued 209,050 restricted shares of the Company's common stock. These
shares were immediately placed into escrow and will be released to the
stockholders of ATI contingent upon the realization of predefined levels of
pre-tax net income from ATI's operations during calendar years 1998 and 1999.
In December 1997, the Company loaned ATI approximately $4.5 million.
The note receivable from ATI is included in Other assets on the Company's
balance sheet at December 31, 1997.
NACT Acquisition
In the fourth quarter of 1997, the Company began a three phase
acquisition of NACT. NACT, based in Provo Utah, is a leading single-source
provider of advanced telecommunications switching platforms with integrated
telephony software applications and network telemanagement capabilities.
During November and December 1997, the Company purchased 355,000 shares
of NACT common stock in the open market for approximately $5.0 million (see
"Note A").
On December 31, 1997, the Company entered into a stock purchase
agreement with GST and GST USA to acquire 5,113,712 shares of NACT common stock
owned by GST USA, representing approximately 63% of the outstanding shares of
NACT (the "Acquisition"). On February 27, 1998, the Acquisition was completed
with GST USA receiving $59.7 million in cash and 1,429,907 restricted shares of
the Company's common stock. These shares had an initial fair value of
approximately $23.0 million.
On February 24, 1998 the Company entered into a merger agreement with
NACT pursuant to which the Company agreed to acquire all of the shares of NACT
common stock not already owned by the Company or GST USA. Pursuant to the terms
of the merger agreement, each share of NACT common stock will be converted into
shares of Company common stock having a value of $17.50 per share based on the
average of the daily closing price of Company common stock on the Nasdaq
National Market for a pre-defined period prior to the closing (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 Company common
stock. If the Closing Price is less than $20.88, then the Company may elect to
terminate the agreement. The merger is subject to, among other things, the
approval of the NACT stockholders and the satisfaction of certain other
customary conditions.
On August 24, 1996, Aerotel, Ltd. and Aerotel U.S.A. Inc.
(collectively, "Aerotel") commenced an action against NACT and a customer of
NACT in the United States District Court, Southern District of New York,
alleging that telephone systems manufactured and sold by NACT incorporating
prepaid debit card features infringe upon Aerotel's patent which was issued in
November 1987 (the "Aerotel Patent"). Aerotel sought injunctive relief, damages
in an unspecified amount, damages of up to three times damages found for willful
infringement of the Aerotel Patent and an order requiring NACT to publish a
written apology to Aerotel. NACT filed an answer and Counterclaim in which it
denied infringement of the Aerotel Patent and sought judgement that the Aerotel
patent is invalid and unenforceable and that Aerotel has misused its patent in
violation of antitrust laws. NACT has denied that it has committed defamation,
unfair competition and tortuous interference with prospective business
relations. In August 1997, Aerotel amended its complaint to include as
defendants GST, GST USA, and two former executive officers of NACT. The amended
pleadings seek in excess of $18.7 million in damages and allege that GST and GST
USA have infringed the Aerotel patent, aided and abetted infringement by others,
including NACT, and participated in, and aided and abetted alleged tortious
conduct by NACT. GST, GST USA, the two former executive officers of NACT have
served answers denying all material allegations and intend to defend vigorously.
<PAGE>
Under the terms of the Company's stock purchase agreement with GST, the
Company and GST have agreed to share evenly the costs of any judgement against
NACT, GST and GST USA as a result of the Aerotel litigation, including NACT's
legal fees. The Company believes that NACT has valid defenses to the Aerotel
claims. An unfavorable decision in this action could have a material adverse
effect on the Company's financial position.
Resurgens Pending Acquisition
On February 12, 1998, the Company executed a letter of intent to
acquire Resurgens (see "Note M").
Pro Forma Results of Operations
On a pro forma, unaudited basis, as if the acquisitions of ATI and NACT
had occurred as of January 1, 1996, total sales, operating income, net income
(loss) and diluted net income (loss) per common share for the years ended
December 31, 1997 and 1996 would have been approximately $136,520,000 and
$80,360,000; $13,608,000 and $13,000; $6,919,000 and $(629,000); and $0.37 and
$(0.04), respectively.
These unaudited pro forma results have been prepared for comparative
purposes only and are not necessarily indicative of the results of operations
which would actually have occurred had the acquisitions been in effect on the
date indicated.
<PAGE>
ITEM 9-CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
The Company had no such changes and disagreements with its accountants
during the period covered by this Report.
PART III
ITEM 10 -DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The information required by this Item with respect to the Company's
directors as set forth in the Company's Proxy Statement for the 1998 Annual
Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference. The information with respect to Item 405 of Registration S-K as set
forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance
" in the Proxy Statement is incorporated herein by reference.
Executive Officers
The information with respect to the Company's executive officers is set forth in
Item 4.5 of Part I of this Report.
ITEM 11 -EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of Directors and
Executive Officers" in the Proxy Statement is incorporated herein by reference.
ITEM 12 -SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Security Ownership of Certain
Beneficial Owners" in the Proxy Statement is incorporated herein by reference.
ITEM 13 -CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the captions "Certain Relationships and Related
Transactions" in the Proxy Statement is incorporated herein by reference.
<PAGE>
PART IV
ITEM 14 -EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of Documents filed as part of this Report
(1) Financial Statements
The index to the financial statements included in this Report
within Item 8 (page 24) is incorporated herein by reference.
(2) Financial Statement Schedules
Schedule Page
Number Number
-------- ------
VIII Valuation and Qualifying Accounts 47
(3) Exhibits - See Item 14 (c) below
(b) Reports on Form 8-K
On October 8, 1997, the Company filed a Report on Form 8-K,
announcing that on October 1, 1997 the sale of $100.0 million aggregate
principal amount of convertible subordinated notes was completed.
(c) The exhibits filed herewith and incorporated by reference herein are
set forth on the Exhibit Index on page 49 hereof. Included in those
exhibits are the following Executive Compensation Plans and
Arrangements:
Exhibit
Number Description
10.1 1991 Stock Option Plan
10.2 Amendment to 1991 Stock Option Plan
10.4 Second Amendment to 1991 Stock Option Plan
10.6 Third Amendment to 1991 Stock Option Plan
10.11 Outside Directors' Warrant Plan
10.12 Directors' Warrant Incentive Plan
10.17 Fourth Amendment to 1991 Stock Option Plan
10.18 Fifth Amendment to 1991 Stock Option Plan
10.19 Amendment One to Outside Directors' Warrant Plan
10.20 Amendment One to Directors' Warrant Incentive Plan
10.21 Amendment Two to Outside Directors' Warrant Plan
10.22 Amendment Two to Directors' Warrant Incentive Plan
10.23 Sixth Amendment to 1991 Stock Option Plan
10.24 Severance Protection Agreement - Steven A. Odom
10.25 Severance Protection Agreement - Hensley E. West
10.26 Severance Protection Agreement - Mark A. Gergel
<PAGE>
<TABLE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
BALANCE AT CHARGED TO COSTS CHARGED BALANCE
BEGINNING OF AND EXPENSES TO OTHER END OF
DESCRIPTION PERIOD ACCOUNTS DEDUCTIONS PERIOD
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Deducted from asset account
Allowance for doubtful $ 265,000 $ 171,574 $ 35,000 (B) $ (234,574) (A) $ 237,000
accounts
Year Ended December 31, 1996:
Deducted from asset account
Allowance for doubtful $ 207,960 $ 167,612 $ 30,000 (B) $ (140,572) (A) $ 265,000
accounts
Year Ended December 31, 1995:
Deducted from asset account
Allowance for doubtful $ 230,911 $ 7,568 $ 25,000 (B) $ (55,519) (A) $ 207,960
accounts
<FN>
(A) Write-off of uncollectible amounts.
(B) Reserves established from businesses acquired.
</FN>
</TABLE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this Report to be signed, on
its behalf by the undersigned, thereunto duly authorized.
WORLD ACCESS, INC
By: /s/ Steven A. Odom
------------------------------------
Steven A. Odom
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated as of April 14, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
Signature Title Date
- ---------------------------------- ----------------------------- --------------
/s/ Steven A. Odom Chairman and Chief April 14, 1998
- ----------------------------------
Steven A. Odom Executive Officer
(Principal Executive
Officer)
/s/ Hensley E. West Director, President and April 14, 1998
- ----------------------------------
Hensley E. West Chief Operating Officer
/s/Mark A. Gergel Executive Vice President April 14, 1998
- ----------------------------------
Mark A. Gergel and Chief Financial Officer
(Principal Financial Officer)
/s/Martin D. Kidder Vice President, Controller April 14, 1998
- ---------------------------------- and
Martin D. Kidder Secretary (Principal
Accounting Officer)
/s/ Stephen J. Clearman Director April 14, 1998
- ----------------------------------
Stephen J. Clearman
/s/ William P. O'Reilly Director April 14, 1998
- ----------------------------------
William P. O'Reilly
/s/ John D. Phillips Director April 14, 1998
- ----------------------------------
John D. Phillips
/s/ Stephen E. Raville Director April 14, 1998
- ----------------------------------
Stephen E. Raville
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
3.1 Restated Certificate of Incorporation of the Registrant and Amendment
to Restated Certificate of Incorporation incorporated herein by
reference to the Registrant's Registration Statement on Form S-18,
Registration No. 33-41255-1, Exhibits 2 and 2.1, respectively, and
Second Amendment to Restated Certificate of Incorporation
incorporated herein by reference to Form 10-K for the fiscal year
ended December 31, 1992 Exhibit 3.2, and Third Amendment to Restated
Certificate of Incorporation incorporated herein by reference to the
Registrant's registration statement on Form S-2, Amendment No. 2,
filed on February 14, 1995, No. 33-87026, Exhibit 4.1-1 and
Amendments to Restated Certificate of Incorporation, filed herewith.
3.2 Amended and Restated Bylaws of the Registrant.
4.1 Indenture dated as of October 1, 1997 by and between World Access,
Inc. and First Union Bank, as trustee (incorporated by reference to
exhibit 4.1 to the Registrant's Form 8-K, filed October 8, 1997).
10.1 World Access, Inc. 1991 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-18, filed on July 25, 1991, No. 33-41255-A).
10.2 Amendment to World Access, Inc. 1991 Stock Option Plan (incorporated
by reference to Exhibit 10.2 to the Registrant's Form 10-K
for the year ended December 31, 1993, filed March 31, 1994).
10.3 Lease Agreement dated August 27, 1992, by and between Batac
Corporation and World Access, Inc. (incorporated by reference to
Exhibit 10.9 to the Registrant's Form 10-K for the year ended
December 31, 1993, filed March 31, 1994).
10.4 Second Amendment to 1991 Stock Option Plan (incorporated by reference
to Exhibit 10.3 to the Registrants' Form 10-K for the year ended
December 31, 1993, filed March 31, 1994).
10.5 Registration Rights Agreement dated December 28, 1994, by and between
Creditanstalt-Bankverein and World Access, Inc. (incorporated by
reference to Exhibit 10.24 to the Registrants Form S-2, Amendment
No. 2, filed on February 14, 1995, No 33-87026).
10.6 Third Amendment to 1991 Stock Option Plan (incorporated by reference
to Exhibit 10.26 to the Registrant's Form S-2, Amendment No. 2,
filed on February 14, 1995, No. 33-87026.
10.7 Master Lease Agreement dated March 2, 1995, by and between Copelco
Capital, Inc. and World Access, Inc. (Incorporated by reference to
Exhibit 10.27 to the Registrant's Form 10-K for the year ended
December 31, 1994, filed on March 30, 1995).
10.8 Second Amended and Restated Loan and Security Agreement dated
July 18, 1995, by and between Creditanstalt-Bankverein and World
Access, Inc. (incorporated by reference to Exhibit 10.35 to the
Registrant's Form 10-K for the year ended December 31, 1995, filed
April 10, 1996).
10.9 First Amendment to Second Amended and Restated Loan and Security
Agreement dated December 28, 1995, by and between Creditanstalt-
Bankverein and World Access, Inc. (incorporated by reference to
Exhibit 10.37 to the Registrant's Form 10-K for the year ended
December 31, 1995, filed April 10, 1996).
10.10 Second Amendment to Second Amended and Restated Loan and Security
Agreement dated March 29, 1996, by and between Creditanstalt-
Bankverein and World Access, Inc. (incorporated by reference to
Exhibit 10.38 to the Registrant's Form 10-K for the year ended
December 31, 1995, filed April 10, 1996).
<PAGE>
10.11 World Access, Inc. Outside Directors' Warrant Plan (incorporated
by reference to Exhibit 10.40 to the Registrant's Form 10-K
for the year ended December 31, 1995, filed April 10, 1996).
10.12 World Access, Inc. Directors' Warrant Incentive Plan (incorporated by
reference to Exhibit 10.41 to the Registrant's Form 10-K for the year
ended December 31, 1995, filed April 10, 1996).
10.13 Merger Agreement dated April 22, 1996, by and between World Access,
Inc., Restor-Comtech, Inc., Michael Joe, Michael Ramlogan, Dan
Lubarsky and Comtech Sunrise, Inc. (incorporated by reference to
Exhibit 2 to the Registrant's Form 8-K, filed June 19, 1996).
10.14 Employment Agreement dated June 18, 1996, by and between Michael R.
Joe and Restor-Comtech, Inc. (incorporated by reference to Exhibit
6.2h to the Registrant's Form 8-K, filed June 18, 1996).
10.15 Escrow Agreement dated June 18, 1996, by and between World Access,
Inc., Restor-Comtech, Inc., Cauthen and Feldman, P.A and the former
shareholders of Comtech-Sunrise, Inc. (incorporated by reference to
Exhibit 2.1b to the Registrant's Form 8-K, filed June 19, 1996).
10.16 Third Amendment to Second Amended and Restated Loan and Security
Agreement dated December 19, 1996, by and between World Access, Inc.
and Creditanstalt-Bankverien.
10.17 Fourth Amendment to 1991 Stock Option Plan (incorporated by reference
to exhibit 10.32 to the Registrant's Form 10-K for the year ended
December 31, 1996, filed April 11, 1997).
10.18 Fifth Amendment to 1991 Stock Option Plan (incorporated by reference
to exhibit 10.33 to the Registrant's Form 10-K for the year ended
December 31, 1996, filed April 11, 1997).
10.19 Amendment One to Outside Directors' Warrant Plan (incorporated
by reference to exhibit 10.34 to the Registrant's Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.20 Amendment One to Directors' Warrant Incentive Plan (incorporated
by reference to exhibit 10.35 to the Registrant's Form 10-K
for the year ended December 31, 1996, filed April 11, 1997).
10.21 Amendment Two to Outside Directors' Warrant Plan.
10.22 Amendment Two to Directors' Warrant Incentive Plan.
10.23 Sixth Amendment to 1991 Stock Option Plan.
10.24 Severance Protection Agreement dated November 1, 1997 by and between
World Access, Inc. and Steven A. Odom.
10.25 Severance Protection Agreement dated November 1, 1997 by and between
World Access, Inc. and Hensley E. West.
10.26 Severance Protection Agreement dated November 1, 1997 by and between
World Access, Inc. and Mark A. Gergel.
10.27 License Agreement dated July 1, 1996, by and between International
Communication Technologies, Inc., World Access, Inc. and Eagle
Telephonics, Inc (incorporated by reference to exhibit 10.36 to the
Registrant's Form 10-K for the year ended December 31, 1996, filed
April 11, 1997).
<PAGE>
10.28 Agreement and Plan of Merger between and among World Access, Inc. and
CIS Acquisition Corp. and Thomas R. Canham; Brian A. Schuchman; and
John T. Simon and Cellular Infrastructure Supply, Inc. (with exhibits
thereto) (incorporated by reference to Exhibit Z to the Registrant's
Form 8-K, filed April 10, 1997).
10.29 Purchase Agreement dated as of September 26, 1997 by and between
World Access, Inc., BT Alex Brown Incorporated and Prudential
Securities Incorporated (incorporated by reference to exhibit 10.1 to
the Registrant's Form 8-K, filed October 8, 1997).
10.30 Registration Rights Agreement dated October 1, 1997 by and between
World Access, Inc., BT Alex Brown Incorporated and Prudential
Securities Incorporated (incorporated by reference to exhibit 10.2 to
the Registrant's Form 8-K, filed October 8, 1997).
10.31 Agreement and Plan of Merger by and among World Access, Inc.,Cellular
Infrastructure Supply, Inc., Advanced Techcom Inc. and Ernest H. Lin
dated as of December 24, 1997 (incorporated by reference to exhibit
2.1 to the Registrant's From 8-K, filed February 13, 1998).
10.32 Stock Purchase Agreement among World Access, Inc., GST USA, Inc., and
GST Telecommunications, Inc. dated December 31, 1997, with exhibits
thereto (incorporated by reference to exhibit 2.1 to the Registrant's
Form 8-K, filed February 24, 1998).
10.33 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 (incorporated by reference to exhibit 2.2 to the Registrant's
Form 8-K, filed March 13, 1998).
10.34 Letter of Intent between World Access, Inc. and Cherry Communications
Incorporated (d/b/a Resurgens Communications Group) dated February
12, 1998 (incorporated by reference to exhibit 99.1 to the
Registrant's Form 8-K, filed February 20, 1998).
22.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse L.L.P.
27.1 Financial Data Schedule
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
RESTOR INDUSTRIES, INC.
RESTOR INDUSTRIES, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
FIRST: That, the Board of Directors of the Corporation
unanimously adopted resolutions setting forth a proposed amendment to the
Restated Certificate of Incorporation, as amended, of the Corporation, declaring
said amendment to be advisable, and directing that said amendment be presented
to the stockholders of the Corporation for consideration at the annual meeting
of the stockholders. The resolution setting forth the proposed amendment is as
follows:
"RESOLVED, that the Corporation's Restated Certificate of
Incorporation, as amended, be amended by deleting Article I of the
Restated Certificate of Incorporation, as amended, in its entirety and
substituting the following in lieu thereof:
`The name of the Corporation is WORLD ACCESS, INC.'"
SECOND: That the foregoing amendment was adopted by the
stockholders of the Corporation entitled to vote thereon at the Corporation's
annual meeting of the stockholders held on May 23, 1996.
THIRD: That the foregoing amendment was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, RESTOR INDUSTRIES, INC. has caused this
Certificate of Amendment to be signed as of this 19th day of June, 1996.
RESTOR INDUSTRIES, INC.
By: /s/ Steven A. Odom
_______________________________
Steven A. Odom, Chairman of
the Board and Chief Executive
Officer
Attested by:
/s/ Mark A. Gergel
____________________________
Mark A. Gergel,
Assistant Secretary
<PAGE>
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO
RESTATED CERTIFICATE OF INCORPORATION
OF
WORLD ACCESS, INC.
World Access, Inc., a corporation duly authorized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
1. The name of the corporation is World Access, Inc.
2. The Restated Certificate of Incorporation, as amended, of the
Corporation is hereby amended by deleting the text of Article IV in its entirety
and substituting and replacing in lieu thereof the following:
Capital Stock
The total number of shares of stock that the Corporation shall
have authority to issue is fifty million (50,000,000), consisting of
forty million (40,000,000) shares of common stock, $.01 par value per
share ("Common Stock"), and ten million (10,000,000) shares of
preferred stock, $.01 par value per share ("Preferred Stock").
The designation, relative rights, preferences and limitations
of the shares of each class are as follows:
The shares of Common Stock may be issued from time to
time in one or more series of any number of shares, provided
that the aggregate number of shares issued and not canceled of
any and all such series shall not exceed the total number of
shares of Common Stock hereinabove authorized, and with
distinctive serial designations, all as shall hereafter be
stated and expressed in the resolution or resolutions
providing for the issue of such shares of Common Stock from
time to time adopted by the Board of Directors pursuant to
authority so to do which is hereby vested in the Board of
Directors, and each series of shares of Common Stock may have
such voting powers, full or limited, or may be without voting
powers as shall be stated in said resolution or resolutions
providing for the issue of such shares of Common Stock.
The shares of Preferred Stock may be issued from time
to time in one or more series of any number of shares,
provided that the aggregate number of shares issued and not
canceled of any and all such series shall not exceed the total
number of shares of Preferred Stock hereinabove authorized,
and with distinctive serial designations, all as shall
hereafter be stated and expressed in the resolution or
resolutions providing for the issue of such shares of
<PAGE>
Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do which is hereby
vested in the Board of Directors. Each series of shares of
Preferred Stock (a) may have such voting powers, full or
limited, or may be without voting powers; (b) may be subject
to redemption at such time or times and at such prices; (c)
may be entitled to receive dividends (which may be cumulative
or non-cumulative) at such rate or rates, on such conditions
and at such times, and payable in preference to, or in such
relation to, the dividends payable on any other class or
classes or series of stock; (d) may have such rights upon the
dissolution of, or upon any distribution of the assets of, the
Corporation; (e) may be made convertible into, or exchangeable
for, shares of any other class or classes or of any other
series of the same or any other class or classes of shares of
the Corporation at such price prices or at such rates of
exchange and with such adjustments; (f) may be entitled to the
benefit of a sinking fund to be applied to the purchase or
redemption of shares of such series in such amount or amounts;
(g) may be entitled to the benefit of conditions and
restrictions upon the creation of indebtedness of the
Corporation or any subsidiary, upon the issue of any
additional shares (including additional shares of such series
or of any other series) and upon the payment of dividends or
the making of other distributions on, and the purchase,
redemption or other acquisition by the Corporation or any
subsidiary of, any outstanding shares of the Corporation; and
(h) may have such other relative, participating, optional or
other special rights, qualifications, limitations or
restrictions thereof; all as shall be stated in said
resolution or resolutions providing for the issue of such
shares of Preferred Stock. Shares of Preferred Stock of any
series that have been redeemed (whether through the operation
of a sinking fund or otherwise) or that, if convertible or
exchangeable, have been converted into or exchanged for shares
of any other class or classes shall have the status of
authorized and unissued shares of Preferred Stock of the same
series and may be reissued as a part of the series of which
they were originally a part or may be reclassified and
reissued as part of a new series of shares of Preferred Stock
to be created by resolution or resolutions of the Board of
Directors or as part of any other series of shares of
Preferred Stock, all subject to the conditions or restrictions
on issuance set forth in the resolution or resolutions adopted
by the Board of Directors providing for the issue of any
series of shares of Preferred Stock.
Subject to the provisions of any applicable law or of
the Bylaws of the Corporation, as from time to time amended,
with respect to the closing of the transfer books or the
fixing of a record date for the determination of stockholders
entitled to vote and except as otherwise provided by law or by
the resolution or resolutions providing for the issue of any
series of shares of Preferred Stock or any shares of a series
<PAGE>
of Common Stock as to which the voting powers have been
expressly limited by the resolution or resolutions providing
for the issuance of such series of Common Stock, the holders
of the outstanding shares of Common Stock shall exclusively
posses voting power for the election of directors and for all
other purposes, each holder of record shares of Common Stock
being entitled to one vote for each share of Common Stock
standing in his or her name on the books of the Corporation.
Except as otherwise provided by the resolution or resolutions
providing for the issue of any series of shares of Preferred
Stock, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of
Preferred Stock of any and all series, to receive such
dividends as from time to time may be declared by the Board of
Directors. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or
involuntary, after payment shall have been made to the holders
of shares of Preferred Stock of the full amount to which they
shall be entitled pursuant to the resolution or resolutions
providing for the issue of any series of shares of Preferred
Stock, the holders of shares of Common Stock shall be
entitled, to the exclusion of the holders of shares of
Preferred Stock of any and all series, to share, ratably
according to the number of shares of Common Stock held by
them, in all remaining assets of the Corporation available for
distribution to its stockholders.
Subject to the provisions of this Restated
Certificate of Incorporation and except as otherwise provided
by law, the stock of the Corporation, regardless of class, may
be issued for such consideration for such corporate purposes
as the Board of Directors may from time to time determine.
3. The Restated Certificate of Incorporation, as amended, of the
Corporation is hereby amended by adding Article VI thereto which shall read in
its entirety as follows:
ARTICLE VI
No Written Consents in Lieu of Meeting of Stockholders
No action required or permitted to be taken by the
stockholders of the Corporation at any annual or special meeting of the
stockholders of the Corporation may be taken without a meeting, and the
power to consent in writing, without a meeting, to the taking of any
action is specifically denied.
4. The Restated Certificate of Incorporation, as amended, of the
Corporation is hereby amended by deleting the text of Article VII in its
entirety and by substituting and replacing in lieu thereof the following:
<PAGE>
Management
1. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors.
(a) The Board of Directors shall consist of not fewer
than three (3) members and not more than twelve (12) members,
the exact number of authorized directors within such range to
be fixed from time to time by a resolution of the Board of
Directors adopted by the affirmative vote of at least a
majority of the total number of authorized directors most
recently fixed by the Board of Directors.
(b) The directors of the Corporation shall be divided
into three classes for the purpose of determining their terms
of office. Each such class shall consist, as nearly as
possible, of one-third of the total number of directors fixed
by the Board of Directors. At the annual meeting of
stockholders of the Corporation held in 1997, one class of
directors (designated as Class I) shall be elected for a term
expiring at the annual meeting of stockholders of the
Corporation held in 1998, one class of directors (designated
as Class II) shall be elected for a term expiring at the
annual meeting of stockholders of the Corporation held in
1999, and one class of directors (designated as Class III)
shall be elected for a term expiring at the annual meeting of
stockholders of the Corporation held in 2000. At each
succeeding annual meeting of stockholders of the Corporation,
beginning in 1998, successors to the class of directors whose
term expires at that annual meeting shall be elected for a
term expiring at the annual meeting of stockholders of the
Corporation held in the third year following the year of their
election.
(c) If the number of directors is changed, then any
increase or decrease in such number shall be apportioned by
the Board of Directors among the classes of directors so as to
maintain as nearly as possible an equal number of directors in
each class. No reduction in the authorized number of members
of the Board of directors shall have the effect of removing
any director from office before that director's term of office
expires.
(d) Vacancies on the Board of Directors and newly
created directorships resulting from an increase in the
authorized number of members of the Board of Directors may be
filled only by a majority of the directors, then in office,
although less than a quorum, or by a sole remaining director.
<PAGE>
(e) Each director, including a director elected to
fill a vacancy or a newly created directorship, shall hold
office until the next election of the class of directors to
which such director belongs and until his or her successor is
elected and qualified or until his or her earlier death,
resignation, or removal from office for cause.
(f) Any director or the entire Board of Directors may
be removed from any office at any time but only for cause and
only by the affirmative vote of the holders of at least a
majority of the voting power of all outstanding shares of
capital stock of the Corporation then entitled to vote in an
election of directors of the Corporation, voting as a single
class.
(g) A majority of total directors shall constitute a
quorum for the transaction of business.
(h) Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of stock issued
by the Corporation shall have the right, voting separately by
class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filing
of vacancies and other features of such directorships shall be
governed by the terms of this Restated Certificate of
Incorporation applicable thereto, such directors so elected
shall not be divided into classes pursuant to this Article
VII, and the number of such directors shall not be counted in
determining the maximum number of directors permitted under
the foregoing provision of this Article VII, in each case
unless expressly provided by such terms.
2. Nominations of persons for election to the Board of
Directors may be made at a meeting of stockholders of the Corporation
either by or at the direction of the Board of Directors or by any
stockholder or record entitled to vote in the election of directors at
such meeting who has complied with the notice procedures set forth in
this Paragraph 2. A stockholder who desires to nominate a person for
election to the Board of Directors at a meeting of stockholders of the
Corporation and who is eligible to make such nomination must give
timely written notice of the proposed nomination to the secretary of
the Corporation. To be timely, a stockholder's notice given pursuant to
this Paragraph 2 must be received at the principal executive office of
the Corporation not less than one hundred twenty (120) calendar days in
advance of the date which is one year later than the date of the proxy
statement of the Corporation released to stockholders in connection
<PAGE>
with the previous year's annual meeting of stockholders of the
Corporation; provided, however, that if no annual meeting of
stockholders of the Corporation was held in the previous year or if the
date of the forthcoming annual meeting of stockholders has been changed
by more than thirty (30) calendar days from the date contemplated at
the time of the previous year's proxy statement or if the forthcoming
meeting is not an annual meeting of stockholders of the Corporation,
then to be timely such stockholder's notice must be so received not
later than the close of business on the tenth day following the earlier
of (a) the day on which notice of the date of the forthcoming meeting
was mailed or given to stockholders by or on behalf of the Corporation
or (b) the day on which public disclosure of the date of the
forthcoming meeting was made by or on behalf of the Corporation. Such
stockholder's notice to the secretary of the Corporation shall set
forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a director (i) the name, age, business
address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of
shares of capital stock of the Corporation which then are beneficially
owned by such person, (iv) any other information relating to such
person that is required by law or regulation to be disclosed in
solicitations of proxies for the election of directors of the
Corporation, and (v) such person's written consent to being named as a
nominee for election as a director and to serve as a director if
elected and (b) as to the stockholder giving notice (i) the name and
address, as they appear in the stock records of the Corporation, of
such stockholder, (ii) the class and number of shares of capital stock
of the Corporation which then are beneficially owned by such
stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each nominee for election as director and
any other person or persons (naming such person or persons) relating to
the nomination proposed to be made by such stockholder, and (iv) any
other information required by law or regulation to be provided by a
stockholder intending to nominate a person for election as a director
of the Corporation. At the request of the Board of Directors, any
person nominated by or at the direction of the Board of Directors for
election as director of the Corporation shall furnish to the secretary
of the Corporation the information concerning such nominee which is
required to be set forth in a stockholder's notice of a proposed
nomination. No person shall be eligible for election as a director of
the Corporation unless nominated in compliance with the procedures set
forth in this Paragraph 2. The chairman of a meeting of stockholders of
the Corporation shall refuse to accept the nomination of any person not
made in compliance with the procedures set forth in this Paragraph 2,
and such defective nomination shall be disregarded.
3. The power to adopt, amend or repeal the Bylaws of the
Corporation may be exercised by the Board of Directors of the
Corporation.
<PAGE>
4. Notwithstanding any provisions of this Restated Certificate
of Incorporation or the Bylaws of the Corporation to the contrary, the
affirmative vote of the holders of at least seventy-five percent (75%)
of the voting power of all outstanding shares of capital stock of the
Corporation then entitled to vote in an election of directors of the
Corporation, voting as a single class, shall be required to alter,
amend or repeal this Article VII or to adopt any provision of this
Restated Certificate of Incorporation or the Bylaws of the Corporation
which is inconsistent with this Article VII.
5. The foregoing amendments (Items 2, 3 and 4) were adopted by the
stockholders of the Corporation at their annual meeting on June 10, 1997 by
stockholders holding an aggregate of 55% (9,696,036 shares), 54% (9,613,088
shares) and 55% (9,714,481 shares) of the Corporation's outstanding Common
Stock, respectively.
6. The foregoing amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, WORLD ACCESS, INC. has caused this Certificate of
Amendment to be signed as of this 20th of August, 1997.
WORLD ACCESS, INC.
By: /s/ Hensley E. West
_______________________________
Hensley E. West, President
Attested by:
/s/ Mark A. Gergel
______________________________
Mark A. Gergel
Assistant Secretary
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BYLAWS
OF
WORLD ACCESS, INC..
(a Delaware corporation)
Adopted as of August 20, 1997
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing
stock in the Corporation shall be signed by, or in the name of, the Corporation
by the Chairman or Vice-Chairman of the Board of Directors, if any, or by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation. Any or all the
signatures on any such certificate may be a facsimile. in case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the Corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the Corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or of
any such partly paid stock shall set forth thereon the statements prescribed by
the General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The Corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors may
require the owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by
the General Corporation Law, the Board of Directors of the Corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the Corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
Corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
<PAGE>
3. FRACTIONAL SHARE INTERESTS. The Corporation may, but shall
not be required to, issue fractions of a share. If the Corporation does not
issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall,
but scrip or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the Corporation in the event of liquidation.
The Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing the full shares or uncertificated full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable way be sold by the Corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions
restricting the transfer or registration of transfer of shares of stock, if any,
transfers or registration of transfers of shares of stock of the Corporation
shall be made only on the stock ledger of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the secretary of the Corporation or with a transfer
agent or a registrar, if any, and, in the case of shares represented by
certificates, on surrender of the certificate or certificates for such shares of
stock properly endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the Corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty nor less than ten days before the
date of such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting. In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion, or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
<PAGE>
6. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of a
meeting, as the case may be, the term "share" or "shares" or "shares of stock"
or "shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the Corporation is authorized to issue only one class of
shares of stock, and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom a General corporation Law confers
such rights notwithstanding that the certificate of incorporation may provide
for more than one class or series of shares of stock, one or more of which are
limited or denied such rights thereunder; provided, however, that no such right
shall vest in the event of an increase or a decrease in the authorized number of
shares of stock of any class or series which is otherwise denied voting rights
under the provisions of the certificate of incorporation, except as any
provision of law may otherwise require.
7. STOCKHOLDER MEETINGS.
--TIME. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the directors, provided, that the first
annual meeting shall be held on a date within thirteen months after the
organization of the Corporation, and each successive annual meeting shall be
held an a date within thirteen months after the date of the preceding annual
meeting. A special meeting shall be hold on the date and at the time fixed by
the directors.
--PLACE. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the directors may, from
time to time, fix. Whenever the directors shall fail to fix such place, the
meeting shall be held at the registered office of the Corporation in the State
of Delaware.
--CALL. Annual meetings and special meetings may be called
by the directors or by any officer instructed by the directors to call the
meeting.
<PAGE>
--NOTICE OR WAIVER OF NOTICE. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting and stating the
place within the city or other municipality or community at which the list of
stockholders of the Corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which Could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the Corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or to another place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice need not be given to any stockholder who submits a written waiver of
notice signed by him before or after the time stated therein. Attendance of a
stockholder at a meeting of stockholders shall constitute a waiver of notice of
such meeting, except when the stockholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice.
--STOCKHOLDER LIST. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the Corporation, or to vote at any meeting of
stockholders.
--CONDUCT OF MEETING. Meetings of the Stockholders shall be
presided over by one of the following officers in the order of seniority and if
present and acting - the Chairman of the Board, if any, the Vice-Chairman of the
Board, if any, the President, a Vice-President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the Corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
<PAGE>
--PROXY REPRESENTATION. Every stockholder way authorize
another person or persons to act for him by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall be voted or acted upon after three years from
its date unless such proxy provides for a longer period. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and, if, and only as
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A proxy may be made irrevocable regardless of whether the
interest with which it is coupled is an interest in the stock itself or an
interest in the Corporation generally.
--INSPECTORS. The directors, in advance of any meeting, may,
but need not, appoint one or more inspectors of election to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. in case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result and do such acts as are proper to
conduct the election or vote with fairness to all Stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by him
or them and execute a certificate of any fact found by him or then.
-- QUORUM. The holders of a majority of the outstanding shares
of stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum.
-- VOTING. Except where otherwise provided by the Certificate
of Incorporation as amended, each share of stock shall entitle the holders
thereof to one vote. Directors shall be elected by a plurality of the votes of
the shares present in person or represented by proxy at the meeting and entitled
to vote on the election of directors. Any other action shall be authorized by a
majority of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provision of the Certificate of
Incorporation and the Bylaws, as amended. In the election of directors, and for
any other action, voting need not be by ballot.
<PAGE>
8. STOCKHOLDER ACTION WITHOUT MEETINGS. No action required or
permitted to be taken by the stockholders of the Corporation at any annual or
special meeting of the stockholders of the Corporation may be taken without a
meeting, and the power to consent in writing, without a meeting, to the taking
of any action is specifically denied.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
of the Corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the Corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of the State of
Delaware. The Board of Directors shall consist of not fewer than three (3)
members and not more than twelve (12) members, the exact number of authorized
directors within such range to be fixed from time to time by a resolution of the
Board of Directors adopted by the affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the Board of
Directors.
3. ELECTION AND TERM.
(a) The directors of the Corporation shall be divided into
three classes for the purpose of determining their terms of office.
Each such class shall consist, as nearly as possible, of one-third of
the total number of directors fixed by the Board of Directors. At the
annual meeting of stockholders of the Corporation held in 1997, one
class of directors (designated as Class I) shall be elected for a term
expiring at the annual meeting of stockholders of the Corporation held
in 1998, one class of directors (designated as Class II) shall be
elected for a term expiring at the annual meeting of stockholders of
the Corporation held in 1999, and one class of directors (designated as
Class III) shall be elected for a term expiring at the annual meeting
of stockholders of the Corporation held in 2000. At each succeeding
annual meeting of stockholders of the Corporation, beginning in 1998,
successors to the class of directors whose term expires at that annual
meeting shall be elected for a term expiring at the annual meeting of
stockholders of the Corporation held in the third year following the
year of their election.
(b) If the number of directors is changed, then any increase
or decrease in such number shall be apportioned by the Board of
Directors among the classes of directors so as to maintain as nearly as
possible an equal number of directors in each class. No reduction in
the authorized number of members of the Board of directors shall have
the effect of removing any director from office before that director's
term of office expires.
<PAGE>
(c) Vacancies on the Board of Directors and newly created
directorships resulting from an increase in the authorized number of
members of the Board of Directors may be filled only by a majority of
the directors, then in office, although less than a quorum, or by a
sole remaining director.
(d) Each director, including a director elected to fill a
vacancy or a newly created directorship, shall hold office until the
next election of the class of directors to which such director belongs
and until his or her successor is elected and qualified or until his or
her earlier death, resignation, or removal from office for cause.
(e) Any director may resign at any time upon written notice to
the Corporation
(f) Any director or the entire Board of Directors may be
removed from any office at any time but only for cause and only by the
affirmative vote of the holders of at least a majority of the voting
power of all outstanding shares of capital stock of the Corporation
then entitled to vote in an election of directors of the Corporation,
voting as a single class.
(g) A majority of total directors shall constitute a quorum
for the transaction of business.
(h) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of stock issued by the Corporation shall
have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the
election, term of office, filing of vacancies and other features of
such directorships shall be governed by the terms of the Restated
Certificate of Incorporation of the Corporation applicable thereto,
such directors so elected shall not be divided into classes pursuant to
Article VII of the Restated Certificate of Incorporation, and the
number of such directors shall not be counted in determining the
maximum number of directors permitted under the foregoing provision of
Article VII of the Restated Certificate of Incorporation, in each case
unless expressly provided by such terms.
(i) Nominations of persons for election to the Board of
Directors may be made at a meeting of stockholders of the Corporation
either by or at the direction of the Board of Directors or by any
stockholder or record entitled to vote in the election of directors at
such meeting who has complied with the notice procedures set forth in
this paragraph. A stockholder who desires to nominate a person for
election to the Board of Directors at a meeting of stockholders of the
Corporation and who is eligible to make such nomination must give
timely written notice of the proposed nomination to the secretary of
the Corporation. To be timely, a stockholder's notice given pursuant to
this paragraph must be received at the principal executive office of
the Corporation not less than one hundred twenty (120) calendar days in
advance of the date which is one year later than the date of the proxy
statement of the Corporation released to stockholders in connection
with the previous year's annual meeting of stockholders of the
<PAGE>
Corporation; provided, however, that if no annual meeting of
stockholders of the Corporation was held in the previous year or if the
date of the forthcoming annual meeting of stockholders has been changed
by more than thirty (30) calendar days from the date contemplated at
the time of the previous year's proxy statement or if the forthcoming
meeting is not an annual meeting of stockholders of the Corporation,
then to be timely such stockholder's notice must be so received not
later than the close of business on the tenth day following the earlier
of (a) the day on which notice of the date of the forthcoming meeting
was mailed or given to stockholders by or on behalf of the Corporation
or (b) the day on which public disclosure of the date of the
forthcoming meeting was made by or on behalf of the Corporation. Such
stockholder's notice to the secretary of the Corporation shall set
forth (a) as to each person whom the stockholder proposes to nominate
for election or re-election as a director (i) the name, age, business
address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of
shares of capital stock of the Corporation which then are beneficially
owned by such person, (iv) any other information relating to such
person that is required by law or regulation to be disclosed in
solicitations of proxies for the election of directors of the
Corporation, and (v) such person's written consent to being named as a
nominee for election as a director and to serve as a director if
elected and (b) as to the stockholder giving notice (i) the name and
address, as they appear in the stock records of the Corporation, of
such stockholder, (ii) the class and number of shares of capital stock
of the Corporation which then are beneficially owned by such
stockholder, (iii) a description of all arrangements or understandings
between such stockholder and each nominee for election as director and
any other person or persons (naming such person or persons) relating to
the nomination proposed to be made by such stockholder, and (iv) any
other information required by law or regulation to be provided by a
stockholder intending to nominate a person for election as a director
of the Corporation. At the request of the Board of Directors, any
person nominated by or at the direction of the Board of Directors for
election as director of the Corporation shall furnish to the secretary
of the Corporation the information concerning such nominee which is
required to be set forth in a stockholder's notice of a proposed
nomination. No person shall be eligible for election as a director of
the Corporation unless nominated in compliance with the procedures set
forth in this paragraph. The chairman of a meeting of stockholders of
the Corporation shall refuse to accept the nomination of any person not
made in compliance with the procedures set forth in this paragraph, and
such defective nomination shall be disregarded.
4. MEETINGS.
--TIME. Meetings shall be held at such time as the Board shall
fix, except that the first meeting of a newly elected board shall be held as
soon after its election as the directors may conveniently assemble.
--PLACE.Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
<PAGE>
--CALL. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by
or at the direction of the Chairman of the Board, if any, the Vice-Chairman
of the Board, if any, the President,or of a majority of the directors in office.
--NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
notice or written waiver of notice.
--QUORUM AND ACTION. A majority of the whole Board shall
constitute a quorum except when a vacancy or vacancies prevents such majority,
whereupon a majority of the directors in office shall constitute a quorum,
provided, that such majority shall constitute at least one-third of the whole
Board. A majority of the directors present, whether or not a quorum is present,
may adjourn a meeting to another time and place. Except as herein otherwise
provided, and except as otherwise provided by the General Corporation Law, the
vote of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board. The quorum and voting provisions herein
stated shall not be construed as conflicting with any provisions of the General
corporation Law and these Bylaws which govern a meeting of directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any
committee designated by the Board, may participate in a meeting of the Board, or
any such committee, as the case may be, by means of conference telephone or
similar communications equipment by means or which all persons participating in
the meeting can hear each other.
--CHAIRMAN OF THE MEETING. The Chairman of the Board, if any
and if present and acting, shall preside at all meetings. Otherwise, the Vice-
Chairman of the Board, if any and if present and acting, or the President, if
present and acting, or any other director chosen by the Board, shall preside.
5. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution or the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the Corporation to be
affixed to all papers which may require it.
<PAGE>
6. WRITTEN ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee thereof may be
taken without a Meeting if all members of the Board or committee, as the case
may be, consent thereto in writing, and the writing or writings are filed with
the minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the Corporation shall consist of a President,
a Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by
the Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board,
an Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each
officer shall be chosen for a term which shall continue until the meeting of the
Board of Directors following the next annual meeting of stockholders and until
his successor shall have been chosen and qualified.
All officers of the Corporation shall have such authority and
perform such duties in the management and operation of the Corporation as shall
be prescribed In the resolutions of the Board of Directors designating and
choosing such officers and prescribing their authority and duties, and shall
have such additional authority and duties as are incident to their office except
to the extent that such resolutions may be inconsistent therewith. The Secretary
or an Assistant Secretary of the Corporation shall record all of the proceedings
of all meetings and actions in writing of stockholders, directors, and
committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer may
be removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
<PAGE>
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of
Directors shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
ARTICLE VI
CONTROL OVER BYLAWS
Subject to the provisions of the Certificate of Incorporation
and the provisions of the General Corporation Law, the power to amend, alter, or
repeal these Bylaws and to adopt new Bylaws may be exercised by the Board of
Directors or by the stockholders.
I HEREBY CERTIFY that the foregoing is a full, true, and
correct copy of the Bylaws of World Access, Inc., a Delaware corporation, as in
effect on the date hereof.
WITNESS my hand and the seal of the Corporation.
/s/ Mark A. Gergel
______________________________
Mark A. Gergel,
Executive Vice President of
World Access, Inc.
(SEAL)
<PAGE>
Exhibit 10.19
AMENDMENT NUMBER TWO TO THE
RESTOR INDUSTRIES, INC.
OUTSIDE DIRECTOR'S WARRANT PLAN
Pursuant to Section 13 of the Restor Industries, Inc. Outside Directors'
Warrant Plan (the "Plan"), World Access, Inc., formerly known as Restor
Industries, Inc. (the "Corporation"), does hereby amend the Plan as follows:
1. The name of the Plan shall be changed to "World Access, Inc. Outside
Directors' Warrant Plan."
2. Section 10 of the Plan is hereby amended by deleting Section 10 of the Plan
in its entirety and substituting the following in lieu thereof:
"10. Notwithstanding anything herein to the contrary, the Board may, in its
discretion, authorize all or a portion of the Warrants to be granted to a
Warrantholder or previously granted to a Warrantholder hereunder to be on terms
which permit transfer by such Warrantholder to (i) the spouse, children or
grandchildren of the Warrantholder ("Immediate Family Members"); (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members; (iii) a
partnership in which such Immediate Family Members (or trusts therefor) are the
only partners; or (iv) any person or entity pursuant to which the Warrantholder
would be entitled to claim a charitable deduction under Section 170 of the Code,
provided that in each case (x) there may be no consideration for any such
transfer, (y) the Warrant Agreement pursuant to which such Warrants are granted
must be approved by the Board and must expressly provide for transferability in
a manner consistent with this Section, and (z) subsequent transfers of
transferred Warrants shall be prohibited except by will or pursuant to the laws
of descent and distribution or, in the case of any transferee that is a trust,
in accordance with the terms of the governing trust agreement. Following
transfer, any such Warrants shall continue to be subject to the same terms and
conditions as were applicable immediately prior to such transfer, provided that
for purposes hereof the term "Warrantholder" shall be deemed to refer to the
transferee. The events of termination of the status as a Director of Section
9(d) hereof shall continue to be applied with respect to the original
Warrantholder, following which the Warrants shall be exercisable by the
transferee only to the extent and for the periods specified in Section 9 hereof.
Nothing herein shall be interpreted to require the Company to provide notice to
any transferee of any early termination of the Warrant granted hereunder due to
the provisions of Section 9(d) hereof or any other section hereof which may
provide for or permit the early termination of the Warrant."
Except as specifically amended hereby, all other terms and provisions of
the Plan shall remain in full force and effect. If not otherwise defined herein,
all capitalized terms contained in this Amendment shall have the meanings
ascribed to them in the Plan.
IN WITNESS WHEREOF, pursuant to the authority granted to the undersigned by
the Board of Directors of the Company, the Plan is hereby amended, effective as
of this ____ day of May, 1997.
WORLD ACCESS, INC.
(f/k/a Restor Industries, Inc.)
By:____________________________
Steven A. Odom
Its Chairman of the Board
and Chief Executive Officer
<PAGE>
Exhibit 10.20
AMENDMENT NUMBER TWO TO THE
RESTOR INDUSTRIES, INC.
DIRECTOR'S WARRANT INCENTIVE PLAN
Pursuant to Section 13 of the Restor Industries, Inc. Directors' Warrant
Incentive Plan (the "Plan"), World Access, Inc., formerly known as Restor
Industries, Inc. (the "Corporation"), does hereby amend the Plan as follows:
1. The name of the Plan shall be changed to "World Access, Inc. Directors'
Warrant Incentive Plan."
2. Section 10 of the Plan is hereby amended by deleting Section 10 of the Plan
in its entirety and substituting the following in lieu thereof:
"10. Notwithstanding anything herein to the contrary, the Board may, in its
discretion, authorize all or a portion of the Warrants to be granted to a
Warrantholder or previously granted to a Warrantholder hereunder to be on terms
which permit transfer by such Warrantholder to (i) the spouse, children or
grandchildren of the Warrantholder ("Immediate Family Members"); (ii) a trust or
trusts for the exclusive benefit of such Immediate Family Members; (iii) a
partnership in which such Immediate Family Members (or trusts therefor) are the
only partners; or (iv) any person or entity pursuant to which the Warrantholder
would be entitled to claim a charitable deduction under Section 170 of the Code,
provided that in each case (x) there may be no consideration for any such
transfer, (y) the Warrant Agreement pursuant to which such Warrants are granted
must be approved by the Board and must expressly provide for transferability in
a manner consistent with this Section, and (z) subsequent transfers of
transferred Warrants shall be prohibited except by will or pursuant to the laws
of descent and distribution or, in the case of any transferee that is a trust,
in accordance with the terms of the governing trust agreement. Following
transfer, any such Warrants shall continue to be subject to the same terms and
conditions as were applicable immediately prior to such transfer, provided that
for purposes hereof the term "Warrantholder" shall be deemed to refer to the
transferee. The events of termination of the status as a Director of Section
9(d) hereof shall continue to be applied with respect to the original
Warrantholder, following which the Warrants shall be exercisable by the
transferee only to the extent and for the periods specified in Section 9 hereof.
Notwithstanding anything to the contrary, the original Warrantholder shall
remain responsible for satisfying all withholding taxes due upon exercise of the
Warrant granted hereunder. Nothing herein shall be interpreted to require the
Company to provide notice to any transferee of any early termination of the
Warrant granted hereunder due to the provisions of Section 9(d) hereof or any
other section hereof which may provide for or permit the early termination of
the Warrant."
Except as specifically amended hereby, all other terms and provisions of
the Plan shall remain in full force and effect. If not otherwise defined herein,
all capitalized terms contained in this Amendment shall have the meanings
ascribed to them in the Plan.
IN WITNESS WHEREOF, pursuant to the authority granted to the undersigned by
the Board of Directors of the Company, the Plan is hereby amended, effective as
of this ____ day of May, 1997.
WORLD ACCESS, INC.
(f/k/a Restor Industries, Inc.)
By: ___________________________
Steven A. Odom
Its Chairman of the Board
and Chief Executive Officer
<PAGE>
Exhibit 10.23
AMENDMENT SIX TO THE
WORLD ACCESS, INC.
1991 STOCK OPTION PLAN
Pursuant to Paragraph 15 of the World Access, Inc. 1991 Stock Option Plan,
as amended (as so amended, the "Plan"), World Access, Inc., formerly known as
Restor Industries, Inc. (the "Corporation"), does hereby amend the Plan as
follows:
1. Paragraph 4 of the Plan is hereby amended by deleting paragraph 4 of the Plan
in its entirety and substituting the following in lieu thereof:
"4. Stock. The stock subject to Options shall be authorized but unissued
shares of common stock, par value $.01 per share (the "Common Stock"), or shares
of the Common Stock reacquired by the Company in any manner. The aggregate
number of shares of Common Stock which may be issued pursuant to the Plan is
3,500,000 subject to adjustment as provided in Paragraph 13. Any such shares of
Common Stock may be issued as ISOs or Non-Qualified Options so long as the
number of shares so issued does not exceed such number, as adjusted.
Notwithstanding the foregoing, the Company shall not be required to reserve for
issuance hereunder any shares of Common Stock unless such shares are subject to
currently issued and outstanding Options. If any option granted under the Plan
shall expire or terminate for any reason without having been exercised in full
or shall cease for any reason to be exercisable in whole or in part the
unpurchased shares subject to such Options shall again be available for grants
of Options under the Plan."
Except as specifically amended hereby, all other terms and provisions of
the Plan shall remain in full force and effect. If not otherwise defined herein,
all capitalized terms contained in this Amendment shall have the meanings
ascribed to them in the Plan.
IN WITNESS WHEREOF, pursuant to the authority granted to the undersigned by
the Board of Directors of the Company, the Plan is hereby amended, effective as
of this 30th day of December, 1996.
WORLD ACCESS, INC.
_________________________________________
Mark A. Gergel
Executive V.P. & Chief Financial Officer
<PAGE>
EXHIBIT 10.24
SEVERANCE PROTECTION AGREEMENT
THIS SEVERANCE PROTECTION AGREEMENT (the "Agreement") made as of November
1, 1997, by and between WORLD ACCESS, INC., a Delaware corporation (the
"Company"), and STEVEN A. ODOM, an individual resident of the State of Georgia
(the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is essential and in the best interest of the Company and its
stockholders to retain the services of the Executive in the event of a threat or
occurrence of a Change in Control (as hereinafter defined) and to ensure his
continued dedication and efforts in such event without undue concern for his
personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company in the event of a threat or the occurrence of a Change in Control, the
Company desires to enter into this Agreement with the Executive to provide the
Executive with certain benefits in the event his employment is terminated as a
result of, or in connection with, a Change in Control and to provide the
Executive with certain other benefits whether or not the Executive's employment
is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of November 1, 1997
and shall continue in effect until October 31, 1999; provided, however, that
commencing on November 1, 1999, and on each November 1st thereafter, the term of
this Agreement shall automatically be extended for one (1) year unless either
the Company or the Executive shall have given written notice to the other at
least ninety (90) days prior thereto that the term of this Agreement shall not
be so extended; and provided further, however, that notwithstanding any such
notice by the Company not to extend, the term of this Agreement shall not expire
prior to the expiration of twenty-four (24) months after the occurrence of a
Change in Control.
2. Definitions.
2.1. Accrued Compensation. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date, including, without limitation, (a) base salary, (b)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (c)
vacation pay, and (d) bonuses and incentive compensation (other than the "Pro
Rata Bonus" (as hereinafter defined)).
<PAGE>
2.2. Base Amount. For purposes of this Agreement, "Base Amount" shall mean
the greater of the Executive's annual base salary (a) at the rate in effect on
the Termination Date or (b) at the highest rate in effect at any time during the
ninety (90) day period prior to a Change in Control, and shall include all
amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
2.3. Bonus Amount. For purposes of this Agreement, "Bonus Amount" shall
mean the average of the annual bonuses paid or payable to the Executive during
the three (3) full fiscal years ended prior to the Termination Date or, if
greater, the three full fiscal years ended prior to a Change in Control (or, in
each case, such lesser period for which annual bonuses were paid or payable to
the Executive).
2.4. Cause. For purposes of this Agreement, a termination of employment is
for "Cause" if the Executive has been convicted of a felony or a felony
prosecution has been brought against the Executive or if the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board that
the Executive (a) intentionally and continually failed substantially to perform
his reasonably assigned duties with the Company (other than a failure resulting
from the Executive's incapacity due to physical or mental illness or from the
Executive's assignment of duties that would constitute "Good Reason" as
hereinafter defined) which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or (b) intentionally engaged in conduct which
is demonstrably and materially injurious to the Company; provided, however, that
(i) where the Executive has been terminated for Cause because a felony
prosecution has been brought against him and no conviction or plea of guilty or
plea of nolo contendere or its equivalent results therefrom, then said
termination shall no longer be deemed to have been for Cause and the Executive
shall be entitled to all the benefits provided by Section 3.1.1 hereof from and
after the date on which the prosecution of the Executive has been dismissed or a
judgement of acquittal has been entered, whichever shall first occur; and (ii)
no termination of the Executive's employment shall be for Cause as set forth in
clause (b) above until (x) there shall have been delivered to the Executive a
copy of a written notice setting forth that the Executive was guilty of the
conduct set forth in clause (b) and specifying the particulars thereof in
detail, and (y) the Executive shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the Executive's counsel if
the Executive so desires). No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Company.
2.5. Change in Control. For purposes of this Agreement, a "Change in
Control" shall have occurred if:
2.5.1 a majority of the directors of the Company shall be persons other
than persons: (i) for whose election proxies shall have been solicited by the
Board, or (ii) who are then serving as directors appointed by the Board to fill
vacancies on the Board caused by death or resignation (but not by removal) or to
fill newly-created directorships;
<PAGE>
2.5.2 a majority of the outstanding voting power of the Company shall have
been acquired or beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, or any successor rule thereto) by
any person (other than the Company, a subsidiary of the Company or the
Executive) or Group (as defined below), which Group does not include the
Executive; or
2.5.3 there shall have occurred:
(i) a merger or consolidation of the Company with or into another
corporation (other than (A) a merger or consolidation with a subsidiary of the
Company or (B) a merger or consolidation in which (1) the holders of voting
stock of the Company immediately prior to the merger as a class continue to hold
immediately after the merger at least a majority of all outstanding voting power
of the surviving or resulting corporation or its parent and (2) all holders of
each outstanding class or series of voting stock of the Company immediately
prior to the merger or consolidation have the right to receive substantially the
same cash, securities or other property in exchange for their voting stock of
the Company as all other holders of such class or series);
(ii) a statutory exchange of shares of one or more classes or series of
outstanding voting stock of the Company for cash, securities or other property;
(iii) the sale or other disposition of all or substantially all of the
assets of the Company (in one transaction or a series of transactions); or
(iv) the liquidation or dissolution of the Company;
unless more than twenty-five percent (25%) of the voting stock (or the
voting equity interest) of the surviving corporation or the corporation or other
entity acquiring all or substantially all of the assets of the Company (in the
case of a merger, consolidation or disposition of assets) or of the Company or
its resulting parent corporation (in the case of a statutory share exchange) is
beneficially owned by the Executive or a Group that includes the Executive.
2.6. Group. For purposes of this Agreement, "Group" shall mean any two or
more persons acting as a partnership, limited partnership, syndicate, or other
group acting in concert for the purpose of acquiring, holding or disposing of
voting stock of the Company.
<PAGE>
2.7. Disability. For purposes of this Agreement, "Disability" shall mean a
physical or mental infirmity which impairs the Executive's ability to
substantially perform his duties with the Company for a period of one hundred
eighty (180) consecutive days and the Executive has not returned to his full
time employment prior to the Termination Date as stated in the "Notice of
Termination" (as hereinafter defined).
2.8. Good Reason.
2.8.1 For purposes of this Agreement, "Good Reason" shall mean a good faith
determination by the Executive, in the Executive's sole and absolute judgment,
that any one or more of the following events has occurred, without the
Executive's express written consent, after a Change in Control:
(i) the assignment to the Executive of any duties materially inconsistent
with the Executive's position (including status, titles and reporting
requirements), authority, duties or responsibilities as in effect immediately
prior to the Change in Control, or any other action by the Company that results
in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose isolated and inadvertent action not
taken in bad faith and remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) a reduction by the Company in the Executive's base salary as in effect
immediately prior to the Change of Control or as the same may be increased from
time to time or a change in the eligibility requirements or performance criteria
under any bonus, incentive or compensation plan, program or arrangement under
which the Executive is covered immediately prior to the Change of Control which
adversely affects the Executive;
(iii) the Company's requiring the Executive to be based anywhere other than
within fifty (50) miles of the Executive's job location at the time of the
Change of Control, provided that if the Executive's job location at such time is
not within fifty (50) miles of the Company's principal executive offices, then
the Company may thereafter require the Executive to be based within such fifty
(50) mile radius without such event constituting Good Reason hereunder;
<PAGE>
(iv) without replacement by a plan providing benefits to the Executive
substantially equivalent to or greater than those discontinued, the failure by
the Company to continue in effect, within its maximum stated term, any pension,
bonus, incentive, stock ownership, purchase, option, life insurance, health,
accident disability, or any other employee benefit plan, program or arrangement,
in which the Executive is participating at the time of the Change of Control, or
the taking of any action by the Company that would adversely affect the
Executive's participation or materially reduce the Executive's benefits under
any of such plans;
(v) the taking of any action by the Company that would materially adversely
affect the physical conditions existing at the time of the Change of Control in
or under which the Executive performs his employment duties, provided that the
Company may take action with respect to such conditions after a Change in
Control so long as such conditions are at least commensurate with the conditions
in or under which an officer of the Executive's status would customarily perform
his employment duties;
(vi) a material change in the fundamental business philosophy, direction
and precepts of the Company and its subsidiaries, considered as a whole, as the
same existed prior to the Change of Control; or
(vii) any failure by the Company to comply with and satisfy Section 7.1 of
this Agreement.
2.8.2 Any event described in subsection 2.8.1(i) through (vi) which occurs
prior to a Change in Control but which the Executive reasonably demonstrates (i)
was at the request of a third party who has indicated an intention, or taken
steps reasonably calculated, to effect a Change in Control or (ii) otherwise
arose in connection with, or in anticipation of, a Change in Control which
actually occurs, shall constitute Good Reason for purposes hereof,
notwithstanding that it occurred prior to a Change in Control.
2.8.3 The Executive's right to terminate his employment pursuant to this
Section 2.8 shall not be affected by his incapacity due to physical or mental
illness.
2.9. Notice of Termination. For purposes of this Agreement, "Notice of
Termination" shall mean a written notice of termination from the Company,
following a Change in Control, of the Executive's employment which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
2.10. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus"
shall mean an amount equal to the Bonus Amount multiplied by a fraction the
numerator of which is the number of days in the fiscal year through the
Termination Date and the denominator of which is 365.
<PAGE>
2.11. Successors and Assigns. For purposes of this Agreement, "Successors
and Assigns" shall mean a corporation or other entity acquiring all of
substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
2.12. Termination Date. For purposes of this Agreement, "Termination Date"
shall mean, in the case of the Executive's death, his date of death, in the case
of Good Reason, the last day of employment, and in all other cases, the date
specified in the Notice of Termination; provided, however, that if the
Executive's employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination shall be at least
thirty (30) days from the date the Notice of Termination is given to the
Executive, provided that in the case of Disability the Executive shall not have
returned to the full-time performance of his duties during such period of at
least thirty (30) days.
3. Termination of Employment.
3.1. If, during the term of this Agreement, the Executive's employment with
the Company shall be terminated within twelve (12) months following a Change in
Control, the Executive shall be entitled to the following compensation and
benefits.
3.1.1 If the Executive's employment with the Company shall be terminated
(i) by the Company for Cause or Disability, (ii) by reason of the Executive's
death, or (iii) by the Executive other than for Good Reason, the Company shall
pay to the Executive the Accrued Compensation and, if such termination is by the
Company other than for Cause, a Pro Rata Bonus.
3.1.2 If the Executive's employment with the Company shall be terminated
for any reason other than as specified in Section 3.1.1, the Executive shall be
entitled to the following:
(i) the Company shall pay the Executive all Accrued Compensation and a
Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and in lieu of
any further compensation for periods subsequent to the Termination Date an
amount in cash equal to two (2) times the sum of (A) the Base Amount and (B) the
Bonus Amount;
<PAGE>
(iii) for twenty-four (24) months or such longer period as may be provided
by the terms of the appropriate program, practice or policy (the "Continuation
Period"), the Company shall, at its expense, continue on behalf of the Executive
and his dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits generally made available to the Company's
non-executive salaried employees at any time during the 90-day period prior to
the Change in Control or at any time thereafter, provided that (A) the Company's
obligation hereunder with respect to the foregoing benefits shall be limited to
the extent that the Executive obtains any such benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce the coverage of
any benefits it is required to provide the Executive hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and benefits required to be
provided hereunder, and (B) this subsection (iii) shall not be interpreted so as
to limit any benefits to which the Executive or his dependents or beneficiaries
may be entitled under any of the Company's employee benefit plans, programs or
practices following the Executive's termination of employment, including,
without limitation, retiree medical and life insurance benefits;
(iv) the Company shall pay an amount in cash equal to the excess, if any,
of (A) the lump sum actuarial equivalent of the aggregate retirement benefit the
Executive would have been entitled to receive under the Company's supplemental
and other retirement plans, if any, had (w) the Executive remained employed by
the Company for an additional two (2) complete years of credited service, (x)
his annual compensation during such period been equal to his Base Salary and the
Bonus Amount, (y) the Company made employer contributions to each defined
contribution plan, if any, in which the Executive was a participant at the
Termination Date (in an amount equal to the amount of such contribution for the
plan year immediately preceding the Termination Date) and (z) he been fully
(100%) vested in his benefit under each retirement plan, if any, in which the
Executive was a participant, over (B) the lump sum actuarial equivalent of the
aggregate retirement benefit, if any, the Executive is actually entitled to
receive under such retirement plans;
(v) the restrictions on any outstanding incentive awards (including
restricted stock and granted performance shares or units) under any incentive
plan or arrangement shall lapse and such incentive award shall become 100%
vested, all stock options and stock appreciation rights granted to the Executive
shall become immediately exercisable and shall become 100% vested, and all
performance units granted to the Executive shall become 100% vested, provided
that to the extent that all or any part of any such incentive award or stock
option or stock appreciation right or performance unit is not exercisable or
does not vest within two (2) years from the Termination Date, then to that
extent (but only to that extent) there shall be no acceleration of vesting or
lapse of restrictions under this Section 3.1.2(v); and
<PAGE>
(vi) the Company shall, as its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion, and which shall include the
provision of reasonable office space and secretarial assistance, provided that
the Company's responsibility under this Section 3.1.2(vi) shall be limited to
$30,000.
3.1.3 The amounts provided for in Sections 3.1.1 and 3.1.2(i), (ii) and
(iv) shall be paid in a lump sum in cash within ten (10) days of the Executive's
Termination Date.
3.1.4 The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Section 3.1.2(iii).
3.2. The severance pay and benefits provided for in this Section 3 shall be
in lieu of any other severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan, program, practice or
arrangement.
3.3. The Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Company's employee benefit plans and
other applicable programs, policies and practices then in effect.
4. Notice of Termination. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
<PAGE>
5. Excess Parachute Payments.
5.1 Notwithstanding anything contained herein to the contrary, if any
portion of the payments and benefits provided hereunder and benefits provided
to, or for the benefit of, the Executive under any other plan or agreement of
the Company (such payments or benefits are collectively referred to as the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
would be nondeductible by the Company pursuant to Section 280G of the Code, the
Payments shall be reduced (but not below zero) if and to the extent necessary so
that no portion of any Payment to be made or benefit to be provided to the
Executive shall be subject to the Excise Tax or shall be nondeductible by the
Company pursuant to Section 280G of the Code (such reduced amount is hereinafter
referred to as the "Limited Payment Amount"). Unless the Executive shall have
given prior written notice specifying a different order to the Company to
effectuate the Limited Payment Amount, the Company shall reduce or eliminate the
Payments, by first reducing or eliminating those payments or benefits which are
not payable in cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are to be paid
the farthest in time from the Determination (as hereinafter defined). Any notice
given by the Executive pursuant to the immediately preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
5.2 An initial determination as to whether the Payments shall be reduced to
the Limited Payment Amount pursuant to the Plan and the amount of such Limited
Payment Amount shall be made by an accounting firm at the Company's expense
selected by the Company which is designated as one of the six largest accounting
firms in the United States (the "Accounting Firm"). The Accounting Firm shall
provide its determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the Executive
within thirty (30) days of the Termination Date, if applicable, and if the
Accounting Firm determines that no Excise Tax is payable by the Executive with
respect to a Payment or Payments, it shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Within ten (10) days of the delivery of
the Determination to the Executive, the Executive shall have the right to
dispute the Determination (the "Dispute"). If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Executive subject to the application of Section 5.3 below.
5.3 As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that the Payments to be made to, or provided
for the benefit of, the Executive either have been made or will not be made by
the Company which, in either case, will be inconsistent with the limitations
provided in Section 5.1 (hereinafter referred to as an "Excess Payment" or
"Underpayment", respectively). If it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved that an Excess Payment has been
made, such Excess Payment shall be deemed for all purposes to be a loan to the
Executive made on the date the Executive received the Excess Payment and the
Executive shall repay the Excess Payment to the Company on demand (but not less
than ten (10) days after written notice is received by the Executive), together
with interest on the Excess Payment at the "Applicable Federal Rate" (as defined
in Section 1274(d) of the Code) from the date of the Executive's receipt of such
Excess Payment until the date of such repayment. In the event that it is
determined by (i) the Accounting Firm, the Company (which shall include the
position taken by the Company on its federal income tax return) or the IRS, (ii)
pursuant to a determination by a court, or (iii) upon the resolution to the
Executive's satisfaction of the Dispute, that an Underpayment has occurred, the
Company shall pay an amount equal to the Underpayment to the Executive within
ten (10) days of such determination or resolution, together with interest on
such amount at the Applicable Federal Rate from the date such amount would have
been paid to the Executive until the date of payment.
<PAGE>
6. One Million Dollar Deduction Limit.
6.1 Notwithstanding anything contained herein to the contrary, if any
portion of the Payments would be nondeductible by the Company pursuant to
Section 162(m) of the Code, the Payments to be made to the Executive in any
taxable year of the Company shall be reduced (but not below zero) if and to the
extent necessary so that no portion of any Payment to be made or benefit to be
provided to the Executive in such taxable year of the Company shall be
nondeductible by the Company pursuant to Section 162(m) of the Code. The amount
by which any Payment is reduced pursuant to the immediately preceding sentence,
together with interest thereon at the Applicable Federal Rate, shall be paid by
the Company to the Executive on or before the fifth business day of the
immediately succeeding taxable year of the Company, subject to the application
of the limitations of the immediately preceding sentence and Section 5 hereof.
Unless the Executive shall have given prior written notice specifying a
different order to the Company to effectuate this Section 6, the Company shall
reduce or eliminate the Payments in any one taxable year of the Company by first
reducing or eliminating those payments or benefits which are not payable in cash
and then by reducing or eliminating cash payments, in each case in reverse order
beginning with payments or benefits which are to be paid the farthest in time
from the Section 162(m) Determination (as hereinafter defined). Any notice given
by the Executive pursuant to the immediately preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
6.2 The determination as to whether the Payments shall be reduced pursuant
to Section 6.1 hereof and the amount of the Payments to be made in each taxable
year after the application of Sections 6.1 hereof shall be made by the
Accounting Firm at the Company's expense. The Accounting Firm shall provide its
determination (the "Section 162(m) Determination"), together with detailed
supporting calculations and documentation, to the Company and the Executive
within thirty (30) days of the Termination Date. The Section 162(m)
Determination shall be binding, final and conclusive upon the Company and the
Executive.
<PAGE>
7. Successors; Binding Agreement.
7.1 The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination Date
hereunder. As used in the Agreement, Company shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
7.1 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
7.2 This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devise, legatee, or other designee or, if
there be no such designee, to the executive's estate.
8. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement (including,
without limitation, any such fees and expenses incurred in connection therewith)
or by any other plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits, and (c) the Executive's
hearing before the Board as contemplated in Section 2.4 of this Agreement,
provided that the circumstances set forth in clauses (a) and (b) of this Section
8 (other than as a result of the Executive's termination of employment under
circumstances described in Section 2.8.2) occurred on or after a Change in
Control.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
<PAGE>
10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices) and for which
the Executive may qualify, nor shall anything herein limit or reduce such rights
as the executive may have under any other agreements with the Company (except
for any severance or termination agreement). Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.
11. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and delivered by its duly authorized officers and has caused its proper
corporate seal to be affixed hereto, and the Executive has executed and
delivered this Agreement, all as of the day and year first above written.
WORLD ACCESS, INC.
[CORPORATE SEAL]
By:______________________________
ATTEST: Name:
Title:
_______________________
Secretary
______________________________
STEVEN A. ODOM
<PAGE>
EXHIBIT 10.25
SEVERANCE PROTECTION AGREEMENT
THIS SEVERANCE PROTECTION AGREEMENT (the "Agreement") made as of November
1, 1997, by and between WORLD ACCESS, INC., a Delaware corporation (the
"Company"), and HENSLEY E. WEST, a resident of the State of Georgia (the
"Executive").
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is essential and in the best interest of the Company and its
stockholders to retain the services of the Executive in the event of a threat or
occurrence of a Change in Control (as hereinafter defined) and to ensure his
continued dedication and efforts in such event without undue concern for his
personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company in the event of a threat or the occurrence of a Change in Control, the
Company desires to enter into this Agreement with the Executive to provide the
Executive with certain benefits in the event his employment is terminated as a
result of, or in connection with, a Change in Control and to provide the
Executive with certain other benefits whether or not the Executive's employment
is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of November 1, 1997
and shall continue in effect until October 31, 1999; provided, however, that
commencing on November 1, 1999, and on each November 1st thereafter, the term of
this Agreement shall automatically be extended for one (1) year unless either
the Company or the Executive shall have given written notice to the other at
least ninety (90) days prior thereto that the term of this Agreement shall not
be so extended; and provided further, however, that notwithstanding any such
notice by the Company not to extend, the term of this Agreement shall not expire
prior to the expiration of twenty-four (24) months after the occurrence of a
Change in Control.
2. Definitions.
2.1. Accrued Compensation. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date, including, without limitation, (a) base salary, (b)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (c)
vacation pay, and (d) bonuses and incentive compensation (other than the "Pro
Rata Bonus" (as hereinafter defined)).
<PAGE>
2.2. Base Amount. For purposes of this Agreement, "Base Amount" shall mean
the greater of the Executive's annual base salary (a) at the rate in effect on
the Termination Date or (b) at the highest rate in effect at any time during the
ninety (90) day period prior to a Change in Control, and shall include all
amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
2.3. Bonus Amount. For purposes of this Agreement, "Bonus Amount" shall
mean the average of the annual bonuses paid or payable to the Executive during
the three (3) full fiscal years ended prior to the Termination Date or, if
greater, the three full fiscal years ended prior to a Change in Control (or, in
each case, such lesser period for which annual bonuses were paid or payable to
the Executive).
2.4. Cause. For purposes of this Agreement, a termination of employment is
for "Cause" if the Executive has been convicted of a felony or a felony
prosecution has been brought against the Executive or if the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board that
the Executive (a) intentionally and continually failed substantially to perform
his reasonably assigned duties with the Company (other than a failure resulting
from the Executive's incapacity due to physical or mental illness or from the
Executive's assignment of duties that would constitute "Good Reason" as
hereinafter defined) which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or (b) intentionally engaged in conduct which
is demonstrably and materially injurious to the Company; provided, however, that
(i) where the Executive has been terminated for Cause because a felony
prosecution has been brought against him and no conviction or plea of guilty or
plea of nolo contendere or its equivalent results therefrom, then said
termination shall no longer be deemed to have been for Cause and the Executive
shall be entitled to all the benefits provided by Section 3.1.1 hereof from and
after the date on which the prosecution of the Executive has been dismissed or a
judgement of acquittal has been entered, whichever shall first occur; and (ii)
no termination of the Executive's employment shall be for Cause as set forth in
clause (b) above until (x) there shall have been delivered to the Executive a
copy of a written notice setting forth that the Executive was guilty of the
conduct set forth in clause (b) and specifying the particulars thereof in
detail, and (y) the Executive shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the Executive's counsel if
the Executive so desires). No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Company.
2.5. Change in Control. For purposes of this Agreement, a "Change in
Control" shall have occurred if:
2.5.1 a majority of the directors of the Company shall be persons other
than persons: (i) for whose election proxies shall have been solicited by the
Board, or (ii) who are then serving as directors appointed by the Board to fill
vacancies on the Board caused by death or resignation (but not by removal) or to
fill newly-created directorships;
<PAGE>
2.5.2 a majority of the outstanding voting power of the Company shall have
been acquired or beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, or any successor rule thereto) by
any person (other than the Company, a subsidiary of the Company or the
Executive) or Group (as defined below), which Group does not include the
Executive; or
2.5.3 there shall have occurred:
(i) a merger or consolidation of the Company with or into another
corporation (other than (A) a merger or consolidation with a subsidiary of the
Company or (B) a merger or consolidation in which (1) the holders of voting
stock of the Company immediately prior to the merger as a class continue to hold
immediately after the merger at least a majority of all outstanding voting power
of the surviving or resulting corporation or its parent and (2) all holders of
each outstanding class or series of voting stock of the Company immediately
prior to the merger or consolidation have the right to receive substantially the
same cash, securities or other property in exchange for their voting stock of
the Company as all other holders of such class or series);
(ii) a statutory exchange of shares of one or more classes or series of
outstanding voting stock of the Company for cash, securities or other property;
(iii) the sale or other disposition of all or substantially all of the
assets of the Company (in one transaction or a series of transactions); or
(iv) the liquidation or dissolution of the Company;
unless more than twenty-five percent (25%) of the voting stock (or the
voting equity interest) of the surviving corporation or the corporation or other
entity acquiring all or substantially all of the assets of the Company (in the
case of a merger, consolidation or disposition of assets) or of the Company or
its resulting parent corporation (in the case of a statutory share exchange) is
beneficially owned by the Executive or a Group that includes the Executive.
2.6. Group. For purposes of this Agreement, "Group" shall mean any two or
more persons acting as a partnership, limited partnership, syndicate, or other
group acting in concert for the purpose of acquiring, holding or disposing of
voting stock of the Company.
<PAGE>
2.7. Disability. For purposes of this Agreement, "Disability" shall mean a
physical or mental infirmity which impairs the Executive's ability to
substantially perform his duties with the Company for a period of one hundred
eighty (180) consecutive days and the Executive has not returned to his full
time employment prior to the Termination Date as stated in the "Notice of
Termination" (as hereinafter defined).
2.8. Good Reason.
2.8.1 For purposes of this Agreement, "Good Reason" shall mean a good faith
determination by the Executive, in the Executive's sole and absolute judgment,
that any one or more of the following events has occurred, without the
Executive's express written consent, after a Change in Control:
(i) the assignment to the Executive of any duties materially inconsistent
with the Executive's position (including status, titles and reporting
requirements), authority, duties or responsibilities as in effect immediately
prior to the Change in Control, or any other action by the Company that results
in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose isolated and inadvertent action not
taken in bad faith and remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) a reduction by the Company in the Executive's base salary as in effect
immediately prior to the Change of Control or as the same may be increased from
time to time or a change in the eligibility requirements or performance criteria
under any bonus, incentive or compensation plan, program or arrangement under
which the Executive is covered immediately prior to the Change of Control which
adversely affects the Executive;
(iii) the Company's requiring the Executive to be based anywhere other than
within fifty (50) miles of the Executive's job location at the time of the
Change of Control, provided that if the Executive's job location at such time is
not within fifty (50) miles of the Company's principal executive offices, then
the Company may thereafter require the Executive to be based within such fifty
(50) mile radius without such event constituting Good Reason hereunder;
<PAGE>
(iv) without replacement by a plan providing benefits to the Executive
substantially equivalent to or greater than those discontinued, the failure by
the Company to continue in effect, within its maximum stated term, any pension,
bonus, incentive, stock ownership, purchase, option, life insurance, health,
accident disability, or any other employee benefit plan, program or arrangement,
in which the Executive is participating at the time of the Change of Control, or
the taking of any action by the Company that would adversely affect the
Executive's participation or materially reduce the Executive's benefits under
any of such plans;
(v) the taking of any action by the Company that would materially adversely
affect the physical conditions existing at the time of the Change of Control in
or under which the Executive performs his employment duties, provided that the
Company may take action with respect to such conditions after a Change in
Control so long as such conditions are at least commensurate with the conditions
in or under which an officer of the Executive's status would customarily perform
his employment duties;
(vi) a material change in the fundamental business philosophy, direction
and precepts of the Company and its subsidiaries, considered as a whole, as the
same existed prior to the Change of Control; or
(vii) any failure by the Company to comply with and satisfy Section 7.1 of
this Agreement.
2.8.2 Any event described in subsection 2.8.1(i) through (vi) which occurs
prior to a Change in Control but which the Executive reasonably demonstrates (i)
was at the request of a third party who has indicated an intention, or taken
steps reasonably calculated, to effect a Change in Control or (ii) otherwise
arose in connection with, or in anticipation of, a Change in Control which
actually occurs, shall constitute Good Reason for purposes hereof,
notwithstanding that it occurred prior to a Change in Control.
2.8.3 The Executive's right to terminate his employment pursuant to this
Section 2.8 shall not be affected by his incapacity due to physical or mental
illness.
2.9. Notice of Termination. For purposes of this Agreement, "Notice of
Termination" shall mean a written notice of termination from the Company,
following a Change in Control, of the Executive's employment which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
2.10. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus"
shall mean an amount equal to the Bonus Amount multiplied by a fraction the
numerator of which is the number of days in the fiscal year through the
Termination Date and the denominator of which is 365.
<PAGE>
2.11. Successors and Assigns. For purposes of this Agreement, "Successors
and Assigns" shall mean a corporation or other entity acquiring all of
substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
2.12. Termination Date. For purposes of this Agreement, "Termination Date"
shall mean, in the case of the Executive's death, his date of death, in the case
of Good Reason, the last day of employment, and in all other cases, the date
specified in the Notice of Termination; provided, however, that if the
Executive's employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination shall be at least
thirty (30) days from the date the Notice of Termination is given to the
Executive, provided that in the case of Disability the Executive shall not have
returned to the full-time performance of his duties during such period of at
least thirty (30) days.
3. Termination of Employment.
3.1. If, during the term of this Agreement, the Executive's employment with
the Company shall be terminated within twelve (12) months following a Change in
Control, the Executive shall be entitled to the following compensation and
benefits.
3.1.1. If the Executive's employment with the Company shall be terminated
(i) by the Company for Cause or Disability, (ii) by reason of the Executive's
death, or (iii) by the Executive other than for Good Reason, the Company shall
pay to the Executive the Accrued Compensation and, if such termination is by the
Company other than for Cause, a Pro Rata Bonus.
3.1.2. If the Executive's employment with the Company shall be terminated
for any reason other than as specified in Section 3.1.1, the Executive shall be
entitled to the following:
(i) the Company shall pay the Executive all Accrued Compensation and a
Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and in lieu of
any further compensation for periods subsequent to the Termination Date an
amount in cash equal to two (2) times the sum of (A) the Base Amount and (B) the
Bonus Amount;
<PAGE>
(iii) for twenty-four (24) months or such longer period as may be provided
by the terms of the appropriate program, practice or policy (the "Continuation
Period"), the Company shall, at its expense, continue on behalf of the Executive
and his dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits generally made available to the Company's
non-executive salaried employees at any time during the 90-day period prior to
the Change in Control or at any time thereafter, provided that (A) the Company's
obligation hereunder with respect to the foregoing benefits shall be limited to
the extent that the Executive obtains any such benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce the coverage of
any benefits it is required to provide the Executive hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and benefits required to be
provided hereunder, and (B) this subsection (iii) shall not be interpreted so as
to limit any benefits to which the Executive or his dependents or beneficiaries
may be entitled under any of the Company's employee benefit plans, programs or
practices following the Executive's termination of employment, including,
without limitation, retiree medical and life insurance benefits;
(iv) the Company shall pay an amount in cash equal to the excess, if any,
of (A) the lump sum actuarial equivalent of the aggregate retirement benefit the
Executive would have been entitled to receive under the Company's supplemental
and other retirement plans, if any, had (w) the Executive remained employed by
the Company for an additional two (2) complete years of credited service, (x)
his annual compensation during such period been equal to his Base Salary and the
Bonus Amount, (y) the Company made employer contributions to each defined
contribution plan, if any, in which the Executive was a participant at the
Termination Date (in an amount equal to the amount of such contribution for the
plan year immediately preceding the Termination Date) and (z) he been fully
(100%) vested in his benefit under each retirement plan, if any, in which the
Executive was a participant, over (B) the lump sum actuarial equivalent of the
aggregate retirement benefit, if any, the Executive is actually entitled to
receive under such retirement plans;
(v) the restrictions on any outstanding incentive awards (including
restricted stock and granted performance shares or units) under any incentive
plan or arrangement shall lapse and such incentive award shall become 100%
vested, all stock options and stock appreciation rights granted to the Executive
shall become immediately exercisable and shall become 100% vested, and all
performance units granted to the Executive shall become 100% vested, provided
that to the extent that all or any part of any such incentive award or stock
option or stock appreciation right or performance unit is not exercisable or
does not vest within two (2) years from the Termination Date, then to that
extent (but only to that extent) there shall be no acceleration of vesting or
lapse of restrictions under this Section 3.1.2(v); and
<PAGE>
(vi) the Company shall, as its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion, and which shall include the
provision of reasonable office space and secretarial assistance, provided that
the Company's responsibility under this Section 3.1.2(vi) shall be limited to
$30,000.
3.1.3 The amounts provided for in Sections 3.1.1 and 3.1.2(i), (ii) and
(iv) shall be paid in a lump sum in cash within ten (10) days of the Executive's
Termination Date.
3.1.4 The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Section 3.1.2(iii).
3.2. The severance pay and benefits provided for in this Section 3 shall be
in lieu of any other severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan, program, practice or
arrangement.
3.3. The Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Company's employee benefit plans and
other applicable programs, policies and practices then in effect.
4. Notice of Termination. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
<PAGE>
5. Excess Parachute Payments.
5.1 Notwithstanding anything contained herein to the contrary, if any
portion of the payments and benefits provided hereunder and benefits provided
to, or for the benefit of, the Executive under any other plan or agreement of
the Company (such payments or benefits are collectively referred to as the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
would be nondeductible by the Company pursuant to Section 280G of the Code, the
Payments shall be reduced (but not below zero) if and to the extent necessary so
that no portion of any Payment to be made or benefit to be provided to the
Executive shall be subject to the Excise Tax or shall be nondeductible by the
Company pursuant to Section 280G of the Code (such reduced amount is hereinafter
referred to as the "Limited Payment Amount"). Unless the Executive shall have
given prior written notice specifying a different order to the Company to
effectuate the Limited Payment Amount, the Company shall reduce or eliminate the
Payments, by first reducing or eliminating those payments or benefits which are
not payable in cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are to be paid
the farthest in time from the Determination (as hereinafter defined). Any notice
given by the Executive pursuant to the immediately preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
5.2 An initial determination as to whether the Payments shall be reduced to
the Limited Payment Amount pursuant to the Plan and the amount of such Limited
Payment Amount shall be made by an accounting firm at the Company's expense
selected by the Company which is designated as one of the six largest accounting
firms in the United States (the "Accounting Firm"). The Accounting Firm shall
provide its determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the Executive
within thirty (30) days of the Termination Date, if applicable, and if the
Accounting Firm determines that no Excise Tax is payable by the Executive with
respect to a Payment or Payments, it shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Within ten (10) days of the delivery of
the Determination to the Executive, the Executive shall have the right to
dispute the Determination (the "Dispute"). If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Executive subject to the application of Section 5.3 below.
5.3 As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that the Payments to be made to, or provided
for the benefit of, the Executive either have been made or will not be made by
the Company which, in either case, will be inconsistent with the limitations
provided in Section 5.1 (hereinafter referred to as an "Excess Payment" or
"Underpayment", respectively). If it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved that an Excess Payment has been
made, such Excess Payment shall be deemed for all purposes to be a loan to the
Executive made on the date the Executive received the Excess Payment and the
Executive shall repay the Excess Payment to the Company on demand (but not less
than ten (10) days after written notice is received by the Executive), together
with interest on the Excess Payment at the "Applicable Federal Rate" (as defined
in Section 1274(d) of the Code) from the date of the Executive's receipt of such
Excess Payment until the date of such repayment. In the event that it is
determined by (i) the Accounting Firm, the Company (which shall include the
position taken by the Company on its federal income tax return) or the IRS, (ii)
pursuant to a determination by a court, or (iii) upon the resolution to the
Executive's satisfaction of the Dispute, that an Underpayment has occurred, the
Company shall pay an amount equal to the Underpayment to the Executive within
ten (10) days of such determination or resolution, together with interest on
such amount at the Applicable Federal Rate from the date such amount would have
been paid to the Executive until the date of payment.
<PAGE>
6. One Million Dollar Deduction Limit.
6.1 Notwithstanding anything contained herein to the contrary, if any
portion of the Payments would be nondeductible by the Company pursuant to
Section 162(m) of the Code, the Payments to be made to the Executive in any
taxable year of the Company shall be reduced (but not below zero) if and to the
extent necessary so that no portion of any Payment to be made or benefit to be
provided to the Executive in such taxable year of the Company shall be
nondeductible by the Company pursuant to Section 162(m) of the Code. The amount
by which any Payment is reduced pursuant to the immediately preceding sentence,
together with interest thereon at the Applicable Federal Rate, shall be paid by
the Company to the Executive on or before the fifth business day of the
immediately succeeding taxable year of the Company, subject to the application
of the limitations of the immediately preceding sentence and Section 5 hereof.
Unless the Executive shall have given prior written notice specifying a
different order to the Company to effectuate this Section 6, the Company shall
reduce or eliminate the Payments in any one taxable year of the Company by first
reducing or eliminating those payments or benefits which are not payable in cash
and then by reducing or eliminating cash payments, in each case in reverse order
beginning with payments or benefits which are to be paid the farthest in time
from the Section 162(m) Determination (as hereinafter defined). Any notice given
by the Executive pursuant to the immediately preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
6.2 The determination as to whether the Payments shall be reduced pursuant
to Section 6.1 hereof and the amount of the Payments to be made in each taxable
year after the application of Sections 6.1 hereof shall be made by the
Accounting Firm at the Company's expense. The Accounting Firm shall provide its
determination (the "Section 162(m) Determination"), together with detailed
supporting calculations and documentation, to the Company and the Executive
within thirty (30) days of the Termination Date. The Section 162(m)
Determination shall be binding, final and conclusive upon the Company and the
Executive.
<PAGE>
7. Successors; Binding Agreement.
7.1 The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination Date
hereunder. As used in the Agreement, Company shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
7.1 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
7.2 This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devise, legatee, or other designee or, if
there be no such designee, to the executive's estate.
8. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement (including,
without limitation, any such fees and expenses incurred in connection therewith)
or by any other plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits, and (c) the Executive's
hearing before the Board as contemplated in Section 2.4 of this Agreement,
provided that the circumstances set forth in clauses (a) and (b) of this Section
8 (other than as a result of the Executive's termination of employment under
circumstances described in Section 2.8.2) occurred on or after a Change in
Control.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
<PAGE>
10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
incentive or other plan or program provided by the Company (except for any
severance or termination policies, plans, programs or practices) and for which
the Executive may qualify, nor shall anything herein limit or reduce such rights
as the executive may have under any other agreements with the Company (except
for any severance or termination agreement). Amounts which are vested benefits
or which the Executive is otherwise entitled to receive under any plan or
program of the Company shall be payable in accordance with such plan or program,
except as explicitly modified by this Agreement.
11. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and delivered by its duly authorized officers and has caused its proper
corporate seal to be affixed hereto, and the Executive has executed and
delivered this Agreement, all as of the day and year first above written.
WORLD ACCESS, INC.
[CORPORATE SEAL]
By:______________________________
ATTEST: Name:
Title:
_______________________
Secretary
______________________________
HENSLEY E. WEST
<PAGE>
EXHIBIT 10.26
SEVERANCE PROTECTION AGREEMENT
THIS SEVERANCE PROTECTION AGREEMENT (the "Agreement") made as of November
1, 1997, by and between WORLD ACCESS, INC., a Delaware corporation (the
"Company"), and MARK A. GERGEL, an individual resident of the State of Georgia
(the "Executive").
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is essential and in the best interest of the Company and its
stockholders to retain the services of the Executive in the event of a threat or
occurrence of a Change in Control (as hereinafter defined) and to ensure his
continued dedication and efforts in such event without undue concern for his
personal financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Company in the event of a threat or the occurrence of a Change in Control, the
Company desires to enter into this Agreement with the Executive to provide the
Executive with certain benefits in the event his employment is terminated as a
result of, or in connection with, a Change in Control and to provide the
Executive with certain other benefits whether or not the Executive's employment
is terminated.
NOW, THEREFORE, in consideration of the respective agreements of the
parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of November 1, 1997
and shall continue in effect until October 31, 1999; provided, however, that
commencing on November 1, 1999, and on each November 1st thereafter, the term of
this Agreement shall automatically be extended for one (1) year unless either
the Company or the Executive shall have given written notice to the other at
least ninety (90) days prior thereto that the term of this Agreement shall not
be so extended; and provided further, however, that notwithstanding any such
notice by the Company not to extend, the term of this Agreement shall not expire
prior to the expiration of twenty-four (24) months after the occurrence of a
Change in Control.
2. Definitions.
2.1. Accrued Compensation. For purposes of this Agreement, "Accrued
Compensation" shall mean an amount which shall include all amounts earned or
accrued through the "Termination Date" (as hereinafter defined) but not paid as
of the Termination Date, including, without limitation, (a) base salary, (b)
reimbursement for reasonable and necessary expenses incurred by the Executive on
behalf of the Company during the period ending on the Termination Date, (c)
vacation pay, and (d) bonuses and incentive compensation (other than the "Pro
Rata Bonus" (as hereinafter defined)).
<PAGE>
2.2. Base Amount. For purposes of this Agreement, "Base Amount" shall mean
the greater of the Executive's annual base salary (a) at the rate in effect on
the Termination Date or (b) at the highest rate in effect at any time during the
ninety (90) day period prior to a Change in Control, and shall include all
amounts of his base salary that are deferred under the qualified and
non-qualified employee benefit plans of the Company or any other agreement or
arrangement.
2.3. Bonus Amount. For purposes of this Agreement, "Bonus Amount" shall
mean the average of the annual bonuses paid or payable to the Executive during
the three (3) full fiscal years ended prior to the Termination Date or, if
greater, the three full fiscal years ended prior to a Change in Control (or, in
each case, such lesser period for which annual bonuses were paid or payable to
the Executive).
2.4. Cause. For purposes of this Agreement, a termination of employment is
for "Cause" if the Executive has been convicted of a felony or a felony
prosecution has been brought against the Executive or if the termination is
evidenced by a resolution adopted in good faith by two-thirds of the Board that
the Executive (a) intentionally and continually failed substantially to perform
his reasonably assigned duties with the Company (other than a failure resulting
from the Executive's incapacity due to physical or mental illness or from the
Executive's assignment of duties that would constitute "Good Reason" as
hereinafter defined) which failure continued for a period of at least thirty
(30) days after a written notice of demand for substantial performance has been
delivered to the Executive specifying the manner in which the Executive has
failed substantially to perform, or (b) intentionally engaged in conduct which
is demonstrably and materially injurious to the Company; provided, however, that
(i) where the Executive has been terminated for Cause because a felony
prosecution has been brought against him and no conviction or plea of guilty or
plea of nolo contendere or its equivalent results therefrom, then said
termination shall no longer be deemed to have been for Cause and the Executive
shall be entitled to all the benefits provided by Section 3.1.1 hereof from and
after the date on which the prosecution of the Executive has been dismissed or a
judgement of acquittal has been entered, whichever shall first occur; and (ii)
no termination of the Executive's employment shall be for Cause as set forth in
clause (b) above until (x) there shall have been delivered to the Executive a
copy of a written notice setting forth that the Executive was guilty of the
conduct set forth in clause (b) and specifying the particulars thereof in
detail, and (y) the Executive shall have been provided an opportunity to be
heard in person by the Board (with the assistance of the Executive's counsel if
the Executive so desires). No act, nor failure to act, on the Executive's part,
shall be considered "intentional" unless the Executive has acted or failed to
act, with a lack of good faith and with a lack of reasonable belief that the
Executive's action or failure to act was in the best interest of the Company.
2.5. Change in Control. For purposes of this Agreement, a "Change in
Control" shall have occurred if:
2.5.1 a majority of the directors of the Company shall be persons other
than persons: (i) for whose election proxies shall have been solicited by the
Board, or (ii) who are then serving as directors appointed by the Board to fill
vacancies on the Board caused by death or resignation (but not by removal) or to
fill newly-created directorships;
<PAGE>
2.5.2 a majority of the outstanding voting power of the Company shall have
been acquired or beneficially owned (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, or any successor rule thereto) by
any person (other than the Company, a subsidiary of the Company or the
Executive) or Group (as defined below), which Group does not include the
Executive; or
2.5.3. there shall have occurred:
(i) a merger or consolidation of the Company with or into another
corporation (other than (A) a merger or consolidation with a subsidiary of the
Company or (B) a merger or consolidation in which (1) the holders of voting
stock of the Company immediately prior to the merger as a class continue to hold
immediately after the merger at least a majority of all outstanding voting power
of the surviving or resulting corporation or its parent and (2) all holders of
each outstanding class or series of voting stock of the Company immediately
prior to the merger or consolidation have the right to receive substantially the
same cash, securities or other property in exchange for their voting stock of
the Company as all other holders of such class or series);
(ii) a statutory exchange of shares of one or more classes or series of
outstanding voting stock of the Company for cash, securities or other property;
(iii) the sale or other disposition of all or substantially all of the
assets of the Company (in one transaction or a series of transactions); or
(iv) the liquidation or dissolution of the Company;
unless more than twenty-five percent (25%) of the voting stock (or the
voting equity interest) of the surviving corporation or the corporation or other
entity acquiring all or substantially all of the assets of the Company (in the
case of a merger, consolidation or disposition of assets) or of the Company or
its resulting parent corporation (in the case of a statutory share exchange) is
beneficially owned by the Executive or a Group that includes the Executive.
2.6. Group. For purposes of this Agreement, "Group" shall mean any two or
more persons acting as a partnership, limited partnership, syndicate, or other
group acting in concert for the purpose of acquiring, holding or disposing of
voting stock of the Company.
<PAGE>
2.7. Disability. For purposes of this Agreement, "Disability" shall mean a
physical or mental infirmity which impairs the Executive's ability to
substantially perform his duties with the Company for a period of one hundred
eighty (180) consecutive days and the Executive has not returned to his full
time employment prior to the Termination Date as stated in the "Notice of
Termination" (as hereinafter defined).
2.8. Good Reason.
2.8.1 For purposes of this Agreement, "Good Reason" shall mean a good faith
determination by the Executive, in the Executive's sole and absolute judgment,
that any one or more of the following events has occurred, without the
Executive's express written consent, after a Change in Control:
(i) the assignment to the Executive of any duties materially inconsistent
with the Executive's position (including status, titles and reporting
requirements), authority, duties or responsibilities as in effect immediately
prior to the Change in Control, or any other action by the Company that results
in a material diminution in such position, authority, duties or
responsibilities, excluding for this purpose isolated and inadvertent action not
taken in bad faith and remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) a reduction by the Company in the Executive's base salary as in effect
immediately prior to the Change of Control or as the same may be increased from
time to time or a change in the eligibility requirements or performance criteria
under any bonus, incentive or compensation plan, program or arrangement under
which the Executive is covered immediately prior to the Change of Control which
adversely affects the Executive;
(iii) the Company's requiring the Executive to be based anywhere other than
within fifty (50) miles of the Executive's job location at the time of the
Change of Control, provided that if the Executive's job location at such time is
not within fifty (50) miles of the Company's principal executive offices, then
the Company may thereafter require the Executive to be based within such fifty
(50) mile radius without such event constituting Good Reason hereunder;
<PAGE>
(iv) without replacement by a plan providing benefits to the Executive
substantially equivalent to or greater than those discontinued, the failure by
the Company to continue in effect, within its maximum stated term, any pension,
bonus, incentive, stock ownership, purchase, option, life insurance, health,
accident disability, or any other employee benefit plan, program or arrangement,
in which the Executive is participating at the time of the Change of Control, or
the taking of any action by the Company that would adversely affect the
Executive's participation or materially reduce the Executive's benefits under
any of such plans;
(v) the taking of any action by the Company that would materially adversely
affect the physical conditions existing at the time of the Change of Control in
or under which the Executive performs his employment duties, provided that the
Company may take action with respect to such conditions after a Change in
Control so long as such conditions are at least commensurate with the conditions
in or under which an officer of the Executive's status would customarily perform
his employment duties;
(vi) a material change in the fundamental business philosophy, direction
and precepts of the Company and its subsidiaries, considered as a whole, as the
same existed prior to the Change of Control; or
(vii) any failure by the Company to comply with and satisfy Section 7.1 of
this Agreement.
2.8.2 Any event described in subsection 2.8.1(i) through (vi) which occurs
prior to a Change in Control but which the Executive reasonably demonstrates (i)
was at the request of a third party who has indicated an intention, or taken
steps reasonably calculated, to effect a Change in Control or (ii) otherwise
arose in connection with, or in anticipation of, a Change in Control which
actually occurs, shall constitute Good Reason for purposes hereof,
notwithstanding that it occurred prior to a Change in Control.
2.8.3 The Executive's right to terminate his employment pursuant to this
Section 2.8 shall not be affected by his incapacity due to physical or mental
illness.
2.9. Notice of Termination. For purposes of this Agreement, "Notice of
Termination" shall mean a written notice of termination from the Company,
following a Change in Control, of the Executive's employment which indicates the
specific termination provision in this Agreement relied upon and which sets
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated.
2.10. Pro Rata Bonus. For purposes of this Agreement, "Pro Rata Bonus"
shall mean an amount equal to the Bonus Amount multiplied by a fraction the
numerator of which is the number of days in the fiscal year through the
Termination Date and the denominator of which is 365.
<PAGE>
2.11. Successors and Assigns. For purposes of this Agreement, "Successors
and Assigns" shall mean a corporation or other entity acquiring all of
substantially all the assets and business of the Company (including this
Agreement) whether by operation of law or otherwise.
2.12. Termination Date. For purposes of this Agreement, "Termination Date"
shall mean, in the case of the Executive's death, his date of death, in the case
of Good Reason, the last day of employment, and in all other cases, the date
specified in the Notice of Termination; provided, however, that if the
Executive's employment is terminated by the Company for Cause or due to
Disability, the date specified in the Notice of Termination shall be at least
thirty (30) days from the date the Notice of Termination is given to the
Executive, provided that in the case of Disability the Executive shall not have
returned to the full-time performance of his duties during such period of at
least thirty (30) days.
3. Termination of Employment.
3.1. If, during the term of this Agreement, the Executive's employment with
the Company shall be terminated within twelve (12) months following a Change in
Control, the Executive shall be entitled to the following compensation and
benefits.
3.1.1 If the Executive's employment with the Company shall be terminated
(i) by the Company for Cause or Disability, (ii) by reason of the Executive's
death, or (iii) by the Executive other than for Good Reason, the Company shall
pay to the Executive the Accrued Compensation and, if such termination is by the
Company other than for Cause, a Pro Rata Bonus.
3.1.2 If the Executive's employment with the Company shall be terminated
for any reason other than as specified in Section 3.1.1, the Executive shall be
entitled to the following:
(i) the Company shall pay the Executive all Accrued Compensation and a
Pro-Rata Bonus;
(ii) the Company shall pay the Executive as severance pay and in lieu of
any further compensation for periods subsequent to the Termination Date an
amount in cash equal to two (2) times the sum of (A) the Base Amount and (B) the
Bonus Amount;
<PAGE>
(iii) for twenty-four (24) months or such longer period as may be provided
by the terms of the appropriate program, practice or policy (the "Continuation
Period"), the Company shall, at its expense, continue on behalf of the Executive
and his dependents and beneficiaries the life insurance, disability, medical,
dental and hospitalization benefits generally made available to the Company's
non-executive salaried employees at any time during the 90-day period prior to
the Change in Control or at any time thereafter, provided that (A) the Company's
obligation hereunder with respect to the foregoing benefits shall be limited to
the extent that the Executive obtains any such benefits pursuant to a subsequent
employer's benefit plans, in which case the Company may reduce the coverage of
any benefits it is required to provide the Executive hereunder as long as the
aggregate coverages and benefits of the combined benefit plans is no less
favorable to the Executive than the coverages and benefits required to be
provided hereunder, and (B) this subsection (iii) shall not be interpreted so as
to limit any benefits to which the Executive or his dependents or beneficiaries
may be entitled under any of the Company's employee benefit plans, programs or
practices following the Executive's termination of employment, including,
without limitation, retiree medical and life insurance benefits;
(iv) the Company shall pay an amount in cash equal to the excess, if any,
of (A) the lump sum actuarial equivalent of the aggregate retirement benefit the
Executive would have been entitled to receive under the Company's supplemental
and other retirement plans, if any, had (w) the Executive remained employed by
the Company for an additional two (2) complete years of credited service, (x)
his annual compensation during such period been equal to his Base Salary and the
Bonus Amount, (y) the Company made employer contributions to each defined
contribution plan, if any, in which the Executive was a participant at the
Termination Date (in an amount equal to the amount of such contribution for the
plan year immediately preceding the Termination Date) and (z) he been fully
(100%) vested in his benefit under each retirement plan, if any, in which the
Executive was a participant, over (B) the lump sum actuarial equivalent of the
aggregate retirement benefit, if any, the Executive is actually entitled to
receive under such retirement plans;
(v) the restrictions on any outstanding incentive awards (including
restricted stock and granted performance shares or units) under any incentive
plan or arrangement shall lapse and such incentive award shall become 100%
vested, all stock options and stock appreciation rights granted to the Executive
shall become immediately exercisable and shall become 100% vested, and all
performance units granted to the Executive shall become 100% vested, provided
that to the extent that all or any part of any such incentive award or stock
option or stock appreciation right or performance unit is not exercisable or
does not vest within two (2) years from the Termination Date, then to that
extent (but only to that extent) there shall be no acceleration of vesting or
lapse of restrictions under this Section 3.1.2(v); and
<PAGE>
(vi) the Company shall, as its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion, and which shall include the
provision of reasonable office space and secretarial assistance, provided that
the Company's responsibility under this Section 3.1.2(vi) shall be limited to
$30,000.
3.1.3 The amounts provided for in Sections 3.1.1 and 3.1.2(i), (ii) and
(iv) shall be paid in a lump sum in cash within ten (10) days of the Executive's
Termination Date.
3.1.4 The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
and no such payment shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent employment except as
provided in Section 3.1.2(iii).
3.2. The severance pay and benefits provided for in this Section 3 shall be
in lieu of any other severance or termination pay to which the Executive may be
entitled under any Company severance or termination plan, program, practice or
arrangement.
3.3. The Executive's entitlement to any other compensation or benefits
shall be determined in accordance with the Company's employee benefit plans and
other applicable programs, policies and practices then in effect.
4. Notice of Termination. Following a Change in Control, any purported
termination of the Executive's employment by the Company shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, no
such purported termination shall be effective without such Notice of
Termination.
<PAGE>
5. Excess Parachute Payments.
5.1 Notwithstanding anything contained herein to the contrary, if any
portion of the payments and benefits provided hereunder and benefits provided
to, or for the benefit of, the Executive under any other plan or agreement of
the Company (such payments or benefits are collectively referred to as the
"Payments") would be subject to the excise tax (the "Excise Tax") imposed under
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or
would be nondeductible by the Company pursuant to Section 280G of the Code, the
Payments shall be reduced (but not below zero) if and to the extent necessary so
that no portion of any Payment to be made or benefit to be provided to the
Executive shall be subject to the Excise Tax or shall be nondeductible by the
Company pursuant to Section 280G of the Code (such reduced amount is hereinafter
referred to as the "Limited Payment Amount"). Unless the Executive shall have
given prior written notice specifying a different order to the Company to
effectuate the Limited Payment Amount, the Company shall reduce or eliminate the
Payments, by first reducing or eliminating those payments or benefits which are
not payable in cash and then by reducing or eliminating cash payments, in each
case in reverse order beginning with payments or benefits which are to be paid
the farthest in time from the Determination (as hereinafter defined). Any notice
given by the Executive pursuant to the immediately preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
5.2 An initial determination as to whether the Payments shall be reduced to
the Limited Payment Amount pursuant to the Plan and the amount of such Limited
Payment Amount shall be made by an accounting firm at the Company's expense
selected by the Company which is designated as one of the six largest accounting
firms in the United States (the "Accounting Firm"). The Accounting Firm shall
provide its determination (the "Determination"), together with detailed
supporting calculations and documentation to the Company and the Executive
within thirty (30) days of the Termination Date, if applicable, and if the
Accounting Firm determines that no Excise Tax is payable by the Executive with
respect to a Payment or Payments, it shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise Tax will be imposed with
respect to any such Payment or Payments. Within ten (10) days of the delivery of
the Determination to the Executive, the Executive shall have the right to
dispute the Determination (the "Dispute"). If there is no Dispute, the
Determination shall be binding, final and conclusive upon the Company and the
Executive subject to the application of Section 5.3 below.
5.3 As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that the Payments to be made to, or provided
for the benefit of, the Executive either have been made or will not be made by
the Company which, in either case, will be inconsistent with the limitations
provided in Section 5.1 (hereinafter referred to as an "Excess Payment" or
"Underpayment", respectively). If it is established pursuant to a final
determination of a court or an Internal Revenue Service (the "IRS") proceeding
which has been finally and conclusively resolved that an Excess Payment has been
made, such Excess Payment shall be deemed for all purposes to be a loan to the
Executive made on the date the Executive received the Excess Payment and the
Executive shall repay the Excess Payment to the Company on demand (but not less
than ten (10) days after written notice is received by the Executive), together
with interest on the Excess Payment at the "Applicable Federal Rate" (as defined
in Section 1274(d) of the Code) from the date of the Executive's receipt of such
Excess Payment until the date of such repayment. In the event that it is
determined by (i) the Accounting Firm, the Company (which shall include the
position taken by the Company on its federal income tax return) or the IRS, (ii)
pursuant to a determination by a court, or (iii) upon the resolution to the
Executive's satisfaction of the Dispute, that an Underpayment has occurred, the
Company shall pay an amount equal to the Underpayment to the Executive within
ten (10) days of such determination or resolution, together with interest on
such amount at the Applicable Federal Rate from the date such amount would have
been paid to the Executive until the date of payment.
<PAGE>
6. One Million Dollar Deduction Limit.
6.1. Notwithstanding anything contained herein to the contrary, if any
portion of the Payments would be nondeductible by the Company pursuant to
Section 162(m) of the Code, the Payments to be made to the Executive in any
taxable year of the Company shall be reduced (but not below zero) if and to the
extent necessary so that no portion of any Payment to be made or benefit to be
provided to the Executive in such taxable year of the Company shall be
nondeductible by the Company pursuant to Section 162(m) of the Code. The amount
by which any Payment is reduced pursuant to the immediately preceding sentence,
together with interest thereon at the Applicable Federal Rate, shall be paid by
the Company to the Executive on or before the fifth business day of the
immediately succeeding taxable year of the Company, subject to the application
of the limitations of the immediately preceding sentence and Section 5 hereof.
Unless the Executive shall have given prior written notice specifying a
different order to the Company to effectuate this Section 6, the Company shall
reduce or eliminate the Payments in any one taxable year of the Company by first
reducing or eliminating those payments or benefits which are not payable in cash
and then by reducing or eliminating cash payments, in each case in reverse order
beginning with payments or benefits which are to be paid the farthest in time
from the Section 162(m) Determination (as hereinafter defined). Any notice given
by the Executive pursuant to the immediately preceding sentence shall take
precedence over the provisions of any other plan, arrangement or agreement
governing the Executive's rights and entitlements to any benefits or
compensation.
6.2. The determination as to whether the Payments shall be reduced pursuant
to Section 6.1 hereof and the amount of the Payments to be made in each taxable
year after the application of Sections 6.1 hereof shall be made by the
Accounting Firm at the Company's expense. The Accounting Firm shall provide its
determination (the "Section 162(m) Determination"), together with detailed
supporting calculations and documentation, to the Company and the Executive
within thirty (30) days of the Termination Date. The Section 162(m)
Determination shall be binding, final and conclusive upon the Company and the
Executive.
<PAGE>
7. Successors; Binding Agreement.
7.1 The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by agreement in form and substance
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall entitle the
Executive to compensation from the Company in the same amount and on the same
terms as he would be entitled to hereunder if he terminated his employment for
Good Reason, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Termination Date
hereunder. As used in the Agreement, Company shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this Section
7.1 or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
7.2 This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive's devise, legatee, or other designee or, if
there be no such designee, to the executive's estate.
8. Fees and Expenses. The Company shall pay all legal fees and related
expenses (including the costs of experts, evidence and counsel) incurred by the
Executive as they become due as a result of (a) the Executive's termination of
employment (including all such fees and expenses, if any, incurred in contesting
or disputing any such termination of employment), (b) the Executive seeking to
obtain or enforce any right or benefit provided by this Agreement (including,
without limitation, any such fees and expenses incurred in connection therewith)
or by any other plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits, and (c) the Executive's
hearing before the Board as contemplated in Section 2.4 of this Agreement,
provided that the circumstances set forth in clauses (a) and (b) of this Section
8 (other than as a result of the Executive's termination of employment under
circumstances described in Section 2.8.2) occurred on or after a Change in
Control.
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed to the respective addresses last given by each party
to the other, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company. All notices
and communications shall be deemed to have been received on the date of delivery
thereof or on the third business day after the mailing thereof, except that
notice of change of address shall be effective only upon receipt.
<PAGE>
10. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided by the Company (except for
any severance or termination policies, plans, programs or practices) and for
which the Executive may qualify, nor shall anything herein limit or reduce such
rights as the executive may have under any other agreements with the Company
(except for any severance or termination agreement). Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan
or program of the Company shall be payable in accordance with such plan or
program, except as explicitly modified by this Agreement.
11. Settlement of Claims. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
12. Miscellaneous. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement.
13. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia without giving
effect to the conflict of laws principles thereof.
14. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the provisions hereof.
15. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior agreements, if any,
understandings and arrangements, oral or written, between the parties hereto
with respect to the subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and delivered by its duly authorized officers and has caused its proper
corporate seal to be affixed hereto, and the Executive has executed and
delivered this Agreement, all as of the day and year first above written.
WORLD ACCESS, INC.
[CORPORATE SEAL]
By:______________________________
ATTEST: Name:
Title:
_______________________
Secretary
______________________________
MARK A. GERGEL
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 22.1
SUBSIDIARIES OF THE REGISTRANT
<S> <C> <C>
Legal Name D.B.A Jurisdiction
- ------------------------------------- --------------------------------------- ---------------------------
Restor-AIT, Inc. AIT, American & International Telephone Delaware
Westec Communications, Inc. Delaware
Sunrise Sierra, Inc. Delaware
Cellular Infrastructure Supply, Inc. CIS Delaware
Galaxy Personal Communications
Services, Inc Galaxy PCS Delaware
World Access, Ltd. Barbados
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the 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. of our report dated March 5, 1998, appearing
on page 25 of this Form 10-K.
Price Waterhouse LLP
April 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the year ended December 31, 1997 and is qualified in its entirety by
reference to such Form 10-K.
</LEGEND>
<CIK> 0000876279
<NAME> World Access, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 118,065
<SECURITIES> 0
<RECEIVABLES> 20,501
<ALLOWANCES> 237
<INVENTORY> 22,426
<CURRENT-ASSETS> 172,400
<PP&E> 12,650
<DEPRECIATION> 6,945
<TOTAL-ASSETS> 226,003
<CURRENT-LIABILITIES> 18,650
<BONDS> 115,000
0
0
<COMMON> 193
<OTHER-SE> 91,562
<TOTAL-LIABILITY-AND-EQUITY> 226,003
<SALES> 71,392
<TOTAL-REVENUES> 92,984
<CGS> 43,827
<TOTAL-COSTS> 60,845
<OTHER-EXPENSES> 12,617
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,355
<INCOME-PRETAX> 20,670
<INCOME-TAX> 7,536
<INCOME-CONTINUING> 13,134
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,134
<EPS-PRIMARY> .76
<EPS-DILUTED> .70
</TABLE>
