<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- -------------------------------------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-56989
-----------------------
LONG DISTANCE INTERNATIONAL INC.
(Exact name of Registrant as specified in its charter)
-----------------------
FLORIDA 65-0423006
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
4150 SW 28TH WAY, FT. LAUDERDALE, FL 33312
(Address of principal executive office) (Zip Code)
-----------------------------
(954) 327-7500
(Registrant's telephone number, including area code)
-----------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Number of shares of common stock outstanding at November 10, 1999: 57,703,371
1
<PAGE> 2
LONG DISTANCE INTERNATIONAL INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C> <C> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 30, 1999 (unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations (unaudited)
For the three and nine months ended September 30, 1999
and September 30, 1998 4
Condensed Consolidated Statements of Cash Flows (unaudited)
For the nine months ended September 30, 1999 and
September 30, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------- -------------
(Unaudited)
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 52,064,072 $ 4,405,230
Certificates of deposit 2,907,895 --
Restricted cash and investments 30,410,363 54,032,614
Accounts receivable, net of allowance for doubtful accounts
of $4,210,000 at December 31, 1998 and $3,260,000 at
September 30, 1999 16,749,980 15,125,022
Other current assets 5,435,820 7,278,131
------------- -------------
Total current assets 107,568,130 80,840,997
Net assets of discontinued operations 27,625,441 4,793,837
Restricted cash and investments 36,600,856 --
Property and equipment, net 38,258,615 31,655,372
Goodwill, net of accumulated amortization of $3,223,000 at
December 31, 1998 and $9,409,000 at September 30, 1999 129,705,821 125,025,049
Other assets 2,855,565 3,150,270
------------- -------------
Total assets $ 342,614,428 $ 245,465,525
============= =============
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY):
Current liabilities:
Accounts payable $ 20,865,078 $ 27,073,758
Accrued telecommunication costs 18,243,307 10,134,563
Accrued restructuring costs 3,014,752 778,199
Other accrued liabilities 11,580,401 11,525,367
Accrued acquisition contingency 7,508,029 7,508,029
Senior Note interest payable 5,976,563 12,626,563
Notes payable 4,950,000 13,456,579
Current portion of capital lease obligations 10,760,795 11,664,531
Current portion of installment loans 2,840,776 5,278,389
------------- -------------
Total current liabilities 85,739,701 100,045,978
Installment loans 3,907,910 --
Capital lease obligations 12,337,528 5,204,000
Senior Notes payable 205,863,147 207,002,521
Commitments and Contingencies
Redeemable convertible, preferred stock, Series A, cumulative
$.001 par value - 2,600,000 shares authorized and
2,456,556 shares issued and outstanding - liquidation value
of $1,228,278 at December 31, 1998 and September 30, 1999 1,199,278 1,254,550
Redeemable preferred stock, Series B, cumulative $.001 par value -
5,000,000 shares authorized and 2,500,000 shares issued
and outstanding - liquidation value of $25,000,000 14,275,864 15,717,386
Redeemable warrants, 3,394,665 authorized, issued and
outstanding at December 31, 1998 and September 30, 1999 11,566,939 11,580,372
Redeemable warrants, 12,543,714 authorized, issued
and outstanding at September 30, 1999 -- 783,092
Common shareholders' equity (capital deficiency):
Common stock, $.001 par value - 250,000,000 shares
authorized, 57,703,371 shares issued and outstanding at
December 31, 1998 and September 30, 1999 57,703 57,703
Additional paid-in capital 110,540,448 109,003,040
Accumulated other comprehensive loss (815,465) (280,586)
Accumulated deficit (102,058,625) (204,902,531)
------------- -------------
Total common shareholders' equity (capital deficiency) 7,724,061 (96,122,374)
------------- -------------
Total liabilities and common shareholders' equity
(capital deficiency) $ 342,614,428 $ 245,465,525
============= =============
</TABLE>
See accompanying notes.
3
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LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
-------------------------------- ---------------------------------
1998 1999 1998 1999
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Revenues:
Retail, net $ 7,692,742 $ 12,734,732 $ 14,878,798 $ 52,900,732
Wholesale, net -- 18,131,000 -- 42,790,000
------------ ------------ ------------ -------------
Total revenues 7,692,742 30,865,732 14,878,798 95,690,732
Costs of telecommunications services 6,577,352 25,080,558 13,020,946 80,799,568
------------ ------------ ------------ -------------
Gross margin 1,115,390 5,785,174 1,857,852 14,891,164
Selling, general and administrative expenses 6,503,326 13,193,263 15,253,564 41,923,770
Depreciation and amortization 1,247,858 5,276,684 2,248,294 15,607,241
------------ ------------ ------------ -------------
Operating loss (6,635,794) (12,684,773) (15,644,006) (42,639,847)
Other expense (income):
Interest expense 7,738,513 8,373,456 14,540,357 24,643,442
Interest income (3,537,577) (258,002) (5,271,995) (2,139,183)
------------ ------------ ------------ -------------
4,200,936 8,115,454 9,268,362 22,504,259
Loss from continuing operations (10,836,730) (20,800,227) (24,912,368) (65,144,106)
Discontinued operations:
Loss from discontinued operations (7,905,112) (1,986,741) (17,246,196) (20,286,324)
Loss on disposal of discontinued operations -- (3,111,715) -- (17,413,476)
------------ ------------ ------------ -------------
Net loss (18,741,842) (25,898,683) (42,158,564) (102,843,906)
Preferred stock dividends and preferred stock
and warrant redemption accretion (508,010) (511,810) (5,112,217) (1,537,362)
------------ ------------ ------------ -------------
Net loss applicable to common shareholders $(19,249,852) $(26,410,493) $(47,270,781) $(104,381,268)
============ ============ ============ =============
EARNINGS PER SHARE APPLICABLE TO COMMON
SHAREHOLDERS - BASIC AND DILUTIVE:
Loss from continuing operations: $ (0.43) $ (0.37) $ (1.17) $ (1.16)
Loss from discontinued operations (0.30) (0.09) (0.67) (0.65)
------------ ------------ ------------ -------------
Net loss per share $ (0.73) $ (0.46) $ (1.84) $ (1.81)
============ ============ ============ =============
Weighted average shares outstanding 26,393,749 57,703,371 25,721,077 57,703,371
============ ============ ============ =============
</TABLE>
See accompanying notes.
4
<PAGE> 5
LONG DISTANCE INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------
1998 1999
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (42,158,564) $(102,843,906)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 2,248,294 15,607,241
Provision for bad debts 351,851 456,000
Amortization of discount on Senior Notes and Notes payable 557,459 901,281
Amortization of bond offering costs -- 872,671
Loss on phase-out of discontinued operations -- 2,149,896
Provision for writedown of assets -- 16,955,493
Changes in operating assets and liabilities:
Accounts receivable (2,003,808) 1,168,958
Other current assets (1,219,301) (1,842,310)
Other assets (2,977,893) (294,705)
Accounts payable 2,501,003 6,208,680
Accrued telecommunication costs (732,548) (8,108,744)
Accrued restructuring costs -- (2,236,555)
Senior Note interest payable 12,785,938 6,650,000
Other accrued liabilities (1,406,446) (309,032)
Discontinued operations - changes in assets and
liabilites (8,575,852) 3,726,215
------------- -------------
Net cash used in operating activities (40,629,867) (60,938,817)
INVESTING ACTIVITIES:
(Increase) decrease in restricted cash and investments (82,114,456) 12,978,605
Redemption of certificates of deposit -- 2,907,895
Purchases of property and equipment (3,159,574) (434,336)
Disposal of property and equipment -- 57,000
Purchase of minority interest in subsidiaries (387,714) --
Acquisition costs associated with purchase of Newgate (1,397,684) --
Acquisition costs associated with purchase of NETnet -- (1,407,352)
------------- -------------
Net cash (used in) provided by investing activities (87,059,428) 14,101,812
FINANCING ACTIVITIES:
Proceeds from issuance of Senior Notes and redeemable warrants,
net of offering costs 216,508,954 --
Proceeds from issuance of common stock and exercise of warrants,
net of offering costs 1,683,510 --
Proceeds from issuance of Notes payable and warrants -- 10,000,000
Payments on Notes payable -- (864,000)
Bond offering costs -- (508,042)
Principal payments on capital lease obligations (1,276,779) (8,762,377)
Principal payments on installment loans (1,956,621) (1,222,297)
------------- -------------
Net cash provided by (used in) financing activities 214,959,064 (1,356,716)
Effect of exchange rate changes 122,086 534,879
------------- -------------
Increase (decrease) in cash and cash equivalents 87,391,855 (47,658,842)
Cash and cash equivalents at beginning of period 12,172,779 52,064,072
------------- -------------
Cash and cash equivalents at end of period $ 99,564,634 $ 4,405,230
============= =============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Property and equipment acquired under capital leases $ 3,143,383 $ 2,532,539
============= =============
Property and equipment purchased under installment loans $ 8,000,000 $ --
============= =============
Accrued dividends on Series A preferred stock $ 55,273 $ 55,273
============= =============
Accretion on Series B preferred stock and redeemable warrants $ 1,471,086 $ 1,482,089
============= =============
</TABLE>
See accompanying notes.
5
<PAGE> 6
LONG DISTANCE INTERNATIONAL INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the
interim periods are unaudited and do not include all the information and
footnotes necessary for the presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles.
In the opinion of the management of Long Distance International Inc. (the
"Company"), all adjustments necessary for a fair presentation of the
results of the interim periods have been included. All adjustments were of
a normal and recurring nature. The December 31, 1998 balance sheet was
derived from the audited financial statements, but does not include all
the disclosures required by generally accepted accounting principles. The
results of operations for the three and nine month periods ended September
30, 1999 are not necessarily indicative of the results to be expected for
the full year ending December 31, 1999.
The accompanying financial statements have been prepared on a going concern
basis, which contemplated the realization of assets and satisfaction of
liabilities in the normal course of business. As shown in the financial
statements, the Company has incurred losses of $102,843,906 and $42,158,564
for the nine months ended September 30, 1999 and 1998 respectively, and has
a working capital deficit of $19,204,981 at September 30, 1999. These
factors, among others, raise substantial doubt the Company's ability to
continue as a going concern for a reasonable period of time. (See Note 8 -
Liquidity)
The financial statements do not include any adjustments relating to the
recoverability and classification of assets and liabilities that might be
necessary should the Company be unable to continue as a going concern other
than those discussed in Note 7 - Discontinued Operations.
The Company is in default on many of its capital and operating leases in
the United States. The Company has not made a principal payment on a note
payable when due (See Note 8 - Liquidity). In addition, many of the
Company's other liabilities in the United States have not been paid within
their stated terms. Subsequent to September 30, 1999, LDI Acquisition Sub
Inc., a consolidated subsidiary of the Company ("LDI Acquisition")
obtained a $2 million loan from a third party under the Loan Agreement
(See Note 9 - Loan Agreement). On October 15, 1999, the Company made the
scheduled semi-annual interest payment on the 12 1/4% Senior Notes due
2008 (the "Notes"). In addition, on October 15, 1999, the holders of the
Notes (the "Senior Noteholders") directed the Indenture Trustee to hold
the interest payment and to not deliver it to the Noteholders. On November
5, 1999, the Senior Noteholders directed the Indenture Trustee to advance
up to $8 million of the interest payment to LDI Acquisition on the terms
and conditions of the Loan Agreement. The Company understands that the
Indenture Trustee continues to hold the remainder of the interest payment.
The Company's continuation as a going concern is dependent upon obtaining
additional funding through debt or equity financing or through the sale of
the Company.
The information included in these unaudited condensed consolidated
financial statements should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and accompanying notes included
in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998.
6
<PAGE> 7
2. LOSS PER SHARE
The Company computes loss per share pursuant to Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share. Weighted average
shares outstanding does not include any contingently issuable shares. The
dilutive effect of options, warrants and Series A convertible preferred
stock have not been considered as their effect would be antidilutive for
all periods presented.
3. COMPREHENSIVE INCOME
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is
defined as the change in equity arising from non-owner sources. It
includes net loss as well as foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities. Other than net loss, the only
such item applicable to the Company is foreign currency translations
adjustment which did not have a material effect on the Company's
consolidated financial statements. Comprehensive loss for the three months
ended September 30, 1999 was $25,635,390 as compared to $18,654,832 in the
same period in the prior year. Comprehensive loss for the nine months
ended September 30, 1999 was $102,309,027 as compared to $42,036,478 in
the same period in the prior year.
4. SEGMENT ANALYSIS
The Company operates in one industry segment, the telecommunications
services industry, which includes international and domestic telephony as
well as fixed-line to mobile services. The Company has reportable
operating segments based on the geographical areas in which the Company
provides services as well as the type of customer it sells to. Operating
loss represents net revenues less operating costs and expenses, and does
not include interest expense/income and other expense/income. All
inter-company transactions have been eliminated. Other, as shown below,
includes the Company's operations in Spain, Italy, France and the U.S.
headquarters. The Company also supports headquarters operations in Sweden
and the United Kingdom. The costs associated with those headquarters are
included in the amounts below related to those respective countries.
7
<PAGE> 8
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
--------------------------- ----------------------------
1998 1999 1998 1999
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue:
United Kingdom $ 4,147,265 $ 7,707,000 $ 9,910,840 $ 20,038,000
Germany -- 4,688,000 -- 14,457,000
Sweden -- 2,763,000 -- 8,857,000
Norway -- 1,111,000 -- 3,275,000
Switzerland -- 1,598,000 -- 4,943,000
Austria -- 2,089,000 -- 5,858,000
Other 1,030,760 2,978,732 2,453,241 5,674,732
European - Wholesale 2,514,717 7,931,000 2,514,717 32,588,000
----------- ------------ ------------ ------------
Consolidated revenue: $ 7,692,742 $ 30,865,732 $ 14,878,798 $ 95,690,732
=========== ============ ============ ============
Operating income (loss):
United Kingdom $(2,725,956) $ (1,722,000) $ (6,815,174) $ (6,506,000)
Germany -- (20,000) -- (238,000)
Sweden -- (4,136,000) -- (13,252,000)
Norway -- (487,000) -- (1,516,000)
Switzerland -- (423,000) -- (1,252,000)
Austria -- (82,000) -- (689,000)
Other (3,909,838) (5,707,773) (8,828,832) (18,705,847)
European - Wholesale -- (107,000) -- (481,000)
----------- ------------ ------------ ------------
Total operating loss: $(6,635,794) $(12,684,773) $(15,644,006) $(42,639,847)
=========== ============ ============ ============
</TABLE>
5. ASSET IMPAIRMENT AND RESTRUCTURING COSTS
In December 1998, the Company implemented a worldwide plan to reduce selling,
general and administrative costs and increase efficiencies. In connection with
this program, the Company recorded charges of approximately $4.0 million in the
fourth quarter of 1998. The cash outlay related to these charges in the first
nine months of 1999 was approximately $1.9 million. Details of the change in
the restructuring accrual between December 31, 1998 and September 30, 1999 are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 PAYMENTS REDUCTION SEPTEMBER 30, 1999
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Involuntary employee terminations $ 2,411,170 $ (1,411,134) $ (355,005) $ 645,031
Closure of facilities and related costs 239,582 (206,417) -- 33,165
Other costs 364,000 (263,997) -- 100,003
----------- ------------ ---------- ---------
$ 3,014,752 $ (1,881,548) $ (355,005) $ 778,199
=========== ============= =========== =========
</TABLE>
Pursuant to the restructuring, the Company recorded $1.1 million in employment
contract obligations to executives. The Company has settled certain of these
obligations for lesser amounts and has recorded a reduction of $355,005 in the
reserve related to these settlements in the second quarter of 1999. The
remaining employment contract obligations are expected to be paid over the next
nine months.
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6. CONTINGENCIES
Viatel, Inc. ("Viatel"), a Trans-Atlantic cable provider, has claimed that the
Company is obligated to pay $14,875,000 under certain letter agreements which
Viatel claims obligated the Company to purchase certain cable capacity as part
of an IRU agreement that was never consummated. The Company believes that it
has no obligation to pay Viatel under those purported agreements and that its
liability, in any event, would be limited to the $1,625,000 which the Company
placed in escrow during 1998. This amount is included in other assets in the
Company's Balance Sheet as of September 30, 1999. The Company intends to
vigorously defend against Viatel's claim but is unable to predict the ultimate
outcome of this matter and the amount of loss, if any.
In connection with the October 1998 acquisition of NETnet International A. B.
("NETnet"), 2,519,473 shares of the purchase price are contingently returnable
to the Company in connection with the accuracy of the seller's representations
and have been classified as an accrued liability of $7,508,029 at December 31,
1998 and September 30, 1999. These shares have not been included in the number
of shares used in the loss-per-share calculation for the nine months ended
September 30, 1999.
From time to time, the Company is a party to litigation arising in the normal
course of business. The Company is not currently engaged in any legal
proceedings that are expected to have a material adverse effect on the Company.
7. DISCONTINUED OPERATIONS
Following continued weakness in the United States operations, on May 18, 1999
the Company's Board of Directors agreed to a plan to discontinue the Company's
U.S. retail operations. Accordingly, the operating results of the discontinued
retail operations, including provisions for estimated losses during the
phase-out period, have been segregated from continuing operations and reported
as a separate line item on the statement of operations. Due to the subjective
nature of estimating future operating losses and incremental costs of disposal,
it is reasonably possible that these estimates may change in the future. Future
changes in estimates will be included in the statement of operations in the
period determined. The Company recorded an expense in the second quarter of
1999 in the amount of approximately $14.3 million to provide for the estimated
loss on disposition of the related assets and liabilities of the U.S. retail
operations and other expenses related to the closing of these operations and
approximately $3.1 million in the third quarter to provide for the estimated
loss in disposition of additional assets. Amounts recorded include
approximately $4.3 million for estimated operating losses during the phase-out
period subsequent to September 30, 1999 and approximately $450,000 for rent
under operating leases until the Company estimates it can sublease certain of
its facilities. In the third quarter, the Company recorded an additional $1.9
million for estimated operating losses during the phase-out period. Included in
the net assets of the discontinued operations at September 30, 1999 is $6.9
million for property and equipment relating to the Company's U.S. network which
is net of a write-down of $17.0 million to reserve for the expected loss on the
sale of the property and equipment. The Company is liable for capital lease
obligations and installment loans on this equipment. Accordingly, the lease
obligations of $9.6 million and installment loans of $5.2 million have not been
included in the net assets of the discontinued operation. As the Company is not
current on the payment of these leases, they are classified as current
obligations at September 30, 1999. (See Note 8 - Liquidity).
The consolidated financial statements and related footnotes of the Company have
been restated to report separately the net assets and operating results of the
U.S. retail operations as discontinued operations for all periods presented.
Net assets of the U.S. discontinued operations, which are presented as net
amounts in the Company's consolidated balance sheets at September 30, 1999 and
December 31, 1998, are as follows:
9
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<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ ------------
<S> <C> <C>
Accopunts receivable $ 8,170,303 $ 955,570
Property and equipment 20,560,597 6,922,314
Other assets 361,651 16,466
------------ ------------
Total assets 29,092,551 7,894,350
Reserve for loss on disposition -- (2,149,896)
Other liabilities (1,467,110) (950,617)
------------ ------------
Total liabilities (1,467,110) (3,100,513)
Net assets of discontinued operations $ 27,625,441 $ 4,793,837
============ ============
</TABLE>
The results of discontinued operations for the nine months ended
September 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
September 30, September 30,
1998 1999
------------ ------------
<S> <C> <C>
Net revenues $ 33,305,541 $ 11,537,468
Cost of telecommunications services 22,419,596 15,620,524
------------ ------------
Gross profit (loss) 10,885,945 (4,083,056)
Selling, general and administrative expenses (28,132,141) (14,339,294)
Estimated operating losses during the
phase-out period of discontinued operations -- (1,863,974)
------------ ------------
Loss from discontinued operations $(17,246,196) $(20,286,324)
============ ============
Loss on disposal of discontinued operations $ -- $(17,413,476)
============ ============
</TABLE>
8. LIQUIDITY
In January 1999, the Board of Directors authorized the Company to pursue
additional financing of approximately $40 million and subsequently retained
Morgan Stanley & Co. Incorporated ("Morgan Stanley") as its financial advisor.
Without prior notice at the end of June 1999, Morgan Stanley advised the
Company that it was abandoning its efforts to raise capital on behalf of the
Company and unilaterally terminating its engagement as financial advisor to the
Company. In connection with Morgan Stanley's termination of its engagement,
Morgan Stanley has advised the Company it is a holder of a significant portion
of the Notes. The Company has expressly reserved all rights, remedies, claims
and causes of action that it has or may have against Morgan Stanley in
connection with Morgan Stanley's engagement as financial advisor to the Company
and the terms and conditions of the termination of such engagement.
The Company's cash and cash equivalents at September 30, 1999, are not
sufficient to fund the operations of the Company through the end of 1999.
Through September 30, 1999, the Company was successful in raising an additional
$10 million of financing (see Note 9) of an original $40 million of financing
which was sought. During the second quarter of 1999, when it became apparent
that the Company would not be successful in obtaining all of the debt or equity
financing it was seeking, the Company began to consider all alternatives
available to it to raise additional liquidity and/or realize value on its
assets and operations. These options include the potential sale of the company
or a substantial amount of its assets or debt or equity financing.
As of September 30, 1999, the Company had not made certain payments to lessors,
lenders and vendors. The Company leases certain computer and telecommunications
10
<PAGE> 11
equipment under non-cancelable capital leases with maturities of three to five
years. The Company has not made payments under these leases in the United
States for several months. These leases generally contain acceleration
provisions which allow the lease to become due in full as a result of
non-payment. Several of these lessors have notified the Company of defaults and
acceleration of the leases. Accordingly, the Company has reclassified all of
these U.S. leases as current in its Balance Sheet at September 30, 1999. The
Company did not make a scheduled principal payment of approximately $4 million
on a note payable to one of its European carriers which came due on September
30, 1999. The Company is negotiating with the carrier to restructure this debt.
(See "Liquidity and Capital Resources")
If the Company is unable to obtain additional debt or equity financing, to
successfully implement a strategic alliance or arrange a sale of the Company,
or substantially all of the Company's assets in the near future, together with
the financing necessary to consummate such a sale, it will have to file a
petition under the Federal Bankruptcy Code.
The consolidated Financial Statements do not include any adjustments to reflect
the possible future effects of the aforementioned on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from this uncertainty (See Note 1 - Basis of Presentation).
9. LOAN AGREEMENT
On July 20, 1999, LDI Acquisition borrowed $10,000,000 (the "Loan"), from
Frederick A. DeLuca ("DeLuca"), an existing stockholder of the Company,
pursuant to a term loan agreement (the "Loan Agreement"), among the Company,
LDI Acquisition, DeLuca, the lenders from time to time signatory thereto (the
"Other Lenders") and DeLuca, as collateral agent (in such capacity, the
"Collateral Agent"). The Loan has a one year term, expiring on July 20, 2000
(the "Initial Term"), and is extendable for up to an additional four months at
the option of the Company (the "Extended Term"). The principal amount of the
loan is payable at maturity. Interest is payable monthly and the loan bears
interest of 12-1/4% per annum during the Initial Term and 24-1/2% per annum
during the Extended Term. The loan is subject to a prepayment penalty if
prepaid prior to January 2000 and to substantial late charges if monthly
interest payments are not paid on a timely basis. The Loan Agreement has been
structured to allow for additional term loans (up to an aggregate principal
amount (together with the Loan) of $40,000,000) from the Other Lenders in
minimum term loan advances of $100,000. Any such future loans shall be made
subject to the terms of the Loan Agreement. The Company and LDI Acquisition
have agreed that the proceeds of any term loan advances which, together with
the Loan, exceed $32,500,000 would be used to repay the indebtedness of its
consolidated subsidiary NETnet to certain Scandinavian banks who currently have
a lien on the stock of NETnet.
The loan is secured by all the common stock of LDI Acquisition, pursuant to a
pledge agreement by the Company in favor of the Collateral Agent for the
ratable benefit of himself and the Other Lenders, and by all the capital stock
of the subsidiaries of LDI Acquisition to the extent possible, pursuant to a
pledge agreement by LDI Acquisition in favor of the Collateral Agent, for the
ratable benefit of himself and the Other Lenders. The subsidiaries of LDI
Acquisition represent all the non-U.S. based operations of the Company.
As additional consideration for, and as an inducement to DeLuca and the Other
Lenders to make loans under the agreement, the Company has agreed to issue to
the lenders a (i) Class A Common Stock Warrants (the "A Warrants") to purchase
up to 30% of the Company's common stock on a fully diluted basis as of the date
immediately preceding the closing of the Loan (the "Fully Diluted Shares") and
(ii) Class B Warrants (the "B Warrants"; together with the A Warrants, the
"Warrants") to purchase up to 20% of the Fully Diluted Shares (in each case,
assuming a full funding under the Loan Agreement of $40,000,000). The B
Warrants will become void in the event the term loan to which such Warrant
relates is paid on or prior to four months after such loan is made. To date,
Warrants have only been issued to DeLuca to purchase up to an aggregate of
12.5% of the Fully Diluted Shares (or 7.5% of the Fully Diluted Shares if the B
Warrants become void). Each Warrant is exercisable for a term of five years
from its exercise date (as hereinafter defined) and the exercise price for each
share of the Company's Common Stock exercisable under a Warrant is $.001 per
share. No Warrant is exercisable (assuming the B Warrant has not been voided)
until the earliest of:
(a) the sixteenth month anniversary date of the issuance of a
Warrant;
(b) the date the Company consummates an initial public offering
of shares of Common Stock pursuant to an effective
registration statement under the Securities Act of 1933;
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(c) the date the Company consummates a sale of all or a
substantial portion of the business of the Company and its
consolidated subsidiaries taken as a whole, whether by way of
merger, acquisition, sale of assets or sale of capital stock;
(d) the date a bankruptcy petition is filed by or against the
Company, LDI Acquisition or a material operating subsidiary
of LDI Acquisition;
(e) the effective date of a waiver under the Indenture, dated as
of April 13, 1998 (the "Indenture"), pursuant to which the
Company's 12 1/4% Senior Notes due 2008 (the "Notes") were
issued, the effect of which waiver would be to waive the
requirement that the Company repurchase the Notes pursuant to
Section 4.12 of the Indenture because of a Change of Control
(as defined in the Indenture);
(f) the date on which the exercise of all A Warrants and all B
Warrants would not result in a Change of Control; and
(g) the date on which a Change of Control under the Indenture
occurs for a reason other than an exercise of any of the A
Warrants or B Warrants and a waiver with respect thereto
described in clause (e) above is not obtained; and
(h) the date on which Cliff Friedland and David Glassman cease to
be directors of the Company (other than by reason of their
death or disability) or beneficially own in the aggregate
less than 5,000,000 shares of Common Stock of the Company.
Additionally, as further consideration for the Loan, DeLuca (or his designee)
was given the right to a seat on the Company's Board of Directors. The Company
failed to make the scheduled monthly interest payments under the Loan Agreement
in September and October. However, the Company has received a forbearance from
the lenders under the Loan Agreement with respect to such missed interest
payments until the earlier to occur of November 30, 1999, or the filing of a
petition or complaint against the Company pursuant to Chapter 11 of Title 11 of
the United States Code (the "Bankruptcy Code") or any similar law.
As determined by the Company's Board of Directors, the value of the Warrants
was determined to be approximately $783,000, which resulted in a discount and
effective interest rate of 21% on the Loan. The discount is being amortized
over the initial term of the Loan.
10. EQUITY
On July 13, 1999, the Board of Directors of the Company approved Articles of
Amendment to the Second Restated Articles of Incorporation whereby the number
of common shares authorized was increased to 250,000,000, and the number of
shares of both classes of Preferred, which may be issued in either Series, was
increased by an additional 20,000,000 shares as designated by the Board of
Directors.
11. SUBSEQUENT EVENTS
On October 19, 1999, LDI Acquisition obtained a $2 million loan from a third
party, World Access, Inc. ("World Access"), an international long distance
provider and proprietary network equipment supplier. The loan was made under
the Loan Agreement (See Note 9 - Loan Agreement). In connection with the loan,
World Access entered into discussions with the Company regarding a potential
business transaction.
On October 15, 1999, the Company made the scheduled semi-annual interest
payment on the Notes in the amount of $13.8 million. In addition, on October
15, 1999, the Senior Noteholders directed the Indenture Trustee to hold the
interest payment and not to deliver it to the Senior Noteholders.
In the months of September and October, LDI Acquisition did not make scheduled
interest payments under the Loan Agreement. LDI Acquisition has received a
forbearance from the lenders under the Loan Agreement with respect to such
missed interest payments until the earlier to occur of November 30, 1999, or a
filing by or against the Company pursuant to Chapter 11 of the Bankruptcy Code
or a similar law.
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On November 5, 1999, the Senior Noteholders directed the Indenture Trustee to
advance to LDI Acquisition up to $8 million of the interest payment pursuant to
the terms and conditions of the Loan Agreement. The Company understands that
the Indenture Trustee continues to hold the remainder of the interest payment.
The $8 million in advances is subject to certain budget compliance and advance
request notification. Approximately $6.3 million was drawn on November 5, 1999.
Advances are being made under the Loan Agreement (See Note 9 - Loan Agreement).
No advances may be made after the earlier to occur of a termination by the
Senior Noteholders or November 30, 1999.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
As a consequence of the weakness in the U.S. operations, on May 18, 1999, the
Company's Board of Directors agreed to a plan to discontinue the Company's U.S.
retail operations. The results of operations and an estimate of the loss on
disposal are included in the consolidated financial statements as discontinued
operations. All periods presented have been restated to present the U.S. retail
operations as discontinued operations.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues, net. Revenues increased to $30.9 million for the three months ended
September 30, 1999, as compared with $7.7 million for the three months ended
September 30, 1998. Billable minutes increased from 15.6 million for the three
months ended September 30, 1998 to 142.0 million for the three months ended
September 30, 1999. The increase was due primarily to the inclusion of the
results of NETnet International AB ("NETnet") and increased activity of the
Company's European wholesale division. NETnet was acquired in October 1998. Due
to the acquisition of NETnet, for the three months ended September 30, 1999,
the Company had revenues of $4.7 million in Germany, $2.8 million in Sweden,
$1.1 million in Norway, $2.1 million in Austria and $1.6 million in
Switzerland, while for the three months ended September 30, 1998, the Company
had no revenues in those countries. The Company's revenues in the U.K.
increased from $4.1 million for the three months ended September 30, 1998 to
$7.7 million in 1999. The Company's European wholesale division, which
commenced operations in the third quarter of 1998, contributed revenues of $7.9
million for the three months ended September 30, 1999 as compared to $2.5
million in the three months ended September 30, 1998. Average revenue per
minute decreased to $0.22 in the three months ended September 30, 1999 from
$0.49 in the three months ended September 30, 1998 primarily due to competition
and a change in the traffic mix due to increased volume of the wholesale
division.
Cost of Telecommunications Services. Cost of telecommunications services
increased by 280.3% to $25.1 million for the three months ended September 30,
1999, as compared with $6.6 million for the three months ended September 30,
1998. This increase is due to the increase in billable minutes partially offset
by the decline in cost per minute. Average cost per minute was $0.18 for the
three months ended September 30, 1999 as compared to $0.42 for the three months
ended September 30, 1998. This decrease primarily reflects cost reductions
available to the Company due to the increased volume in the three months ended
September 30, 1999 as compared to the three months ended September 30, 1998.
The Company's gross margin was 18.7% for the three months ended September 30,
1999 as compared to 14.5% for the three months ended September 30, 1998. The
improvement in the gross margin percentage is primarily due to operational
improvements and lower costs from suppliers, offset slightly by pricing
pressure from customers. The Company's wholesale division generally has a
substantially lower gross margin than the Company's retail division due to
competitive pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 103.1% to $13.2 million for the
three months ended September 30, 1999, as compared to $6.5 million for the
three months ended September 30, 1998. The increase resulted primarily from
additional expenses in Europe as a result of the acquisitions of NETnet in
1998. Due to the acquisition, the Company is now supporting offices in 9
countries in Europe and has increased its employee base in Europe from 123
employees at September 30, 1998 to 354 employees at September 30, 1999. SG&A
decreased as a percent of revenue to 42.7% for the three months ended September
30, 1999 from 84.5% for the same period in the prior year. The change is
primarily due to the significant growth of the Company's European revenue along
with a concerted effort to minimize expenses in Europe subsequent to the
acquisition of NETnet.
Depreciation and Amortization. Depreciation and amortization increased to $5.3
million for the three months ended September 30, 1999, from $1.2 million for
the three months ended September 30, 1998. The increase was due to
significantly more fixed assets, primarily office equipment and network
equipment acquired by the Company to complete the build-out of its European
network, and the increase in fixed assets in Europe due to the acquisition of
NETnet. In addition, goodwill amortization increased significantly due to the
acquisition.
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Loss from Continuing Operations. Loss from continuing operations increased to
$20.8 million for the three months ended September 30, 1999, from $10.8 million
for the three months ended September 30, 1998. The aforementioned factors
caused this increase.
Discontinued Operations. As a consequence of the continued weakness in the U.S.
operations, on May 18, 1999 the Board of Directors of the Company agreed to a
plan to discontinue the U.S. retail operations. Accordingly, the Company's
consolidated financial statements for September 30, 1999 and 1998 have been
restated to include the U.S. retail operations as discontinued operations. In
the three months ended September 30, 1999, the Company recorded an addition of
$2.7 million to its previous estimate of $19.3 million loss and anticipated
disposition of the related assets and liabilities. The Company had previously
recorded $4.3 million for the estimated operating losses during the phase-out
period and in the third quarter increased this estimate by $2.0 million. This
includes sale of the Company's U.S. network, U.S. customer base and cessation
of all marketing to U.S. retail customers. The Company also laid off three
fourths of its U.S. based employees in accordance with the Workers Adjustment
and Retraining Notification Act.
Net Loss. Net loss increased to $25.9 million for the three months ended
September 30, 1999 from $18.7 million for the three months ended September 30,
1998. This increase was due to increased losses from operations together with
increased interest expense resulting from the issuance of the 12 1/4% Senior
Notes Due 2008 and related Warrants completed in April 1998 and from additional
interest on financing of equipment.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
Revenues, net. Revenues increased to $95.7 million for the nine months ended
September 30, 1999, as compared with $14.9 million for the nine months ended
September 30, 1998. Billable minutes were 372.1 million for the nine months
ended September 30, 1999 as compared to 36.5 million for the nine months ended
September 30, 1998. The increase was due primarily to the inclusion of the
results of Newgate Communications Ltd. ("Newgate") acquired in April 1998, and
NETnet and increased activity of the Company's European wholesale division. Due
to the acquisition of NETnet, the Company had revenues of $8.9 million in
Sweden, $14.5 million in Germany, $4.9 million in Switzerland, $5.9 million in
Austria and $3.3 million in Norway, while during the nine months ended
September 30, 1998 there were no revenues in these countries. The increase in
U.K. revenues from $9.9 million for the nine months ended September 30, 1998 to
$20.0 million for the nine months ended September 30, 1999 was primarily due to
the acquisition of Newgate in April 1998. The Company's European wholesale
division, which commenced operations in the third quarter of 1998, contributed
revenues of $32.6 million during the nine months ended September 30, 1999 as
compared to $2.5 million during the nine months ended September 30, 1998.
Average revenue per minute decreased from $0.41 for the nine months ended
September 30, 1998, to $0.26 for the nine months ended September 30, 1999,
primarily due to competition.
Cost of Telecommunications Services. Cost of telecommunications services
increased by 522% to $80.8 million for the nine months ended September 30,
1999, as compared with $13.0 million for the nine months ended September 30,
1998. The increase in cost of telecommunications services is due to the
increase in billable minutes in the nine months ended September 30, 1999 as
compared to the same period in 1998. Average costs per minute decreased to
$0.22 for the nine months ended September 30, 1999 from $0.36 for the nine
months ended September 30, 1998. This decrease reflects operational
improvements and lower costs from suppliers. The Company's gross margin was
15.6% for the nine months ended September 30, 1999 as compared to 12.5% for the
nine months ended September 30, 1998. The increase in the gross margin
percentage is primarily due to operational improvements and lower costs from
suppliers offset slightly by customer pricing pressure. The Company's wholesale
division generally has a substantially lower gross margin than the Company's
retail division due to competitive pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 174% to $41.9 million for the
nine months ended September 30, 1999, as compared with $15.3 million for the
nine months ended September 30, 1998. The increases resulted primarily from
additional expenses in Europe as a result of the acquisitions of NETnet and
Newgate in 1998. As a result of these acquisitions, the Company is now
supporting offices in 9 countries in Europe and increased its European employee
base from 123 employees at September 30, 1998, to 354 at September 30, 1999.
SG&A as a percent of revenue decreased to 43.8% for the nine months ended
September 30, 1999 from 102.5% for the same period in the prior year. The
decrease is primarily due to the significant growth of our European revenue
along with a concerted effort to minimize expenses in Europe subsequent to the
acquisitions of NETnet and Newgate.
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Depreciation and Amortization. Depreciation and amortization increased to $15.6
million for the nine months ended September 30, 1999, from $2.2 million for the
nine months ended September 30, 1998. Goodwill amortization increased to $6.1
million due to the acquisitions of Newgate and NETnet. Depreciation increased
to $9.5 million due to significantly more fixed assets, primarily office
equipment and network equipment as the Company completed the build-out of its
network, and the increase in fixed assets in Europe in connection with the
acquisitions of Newgate and NETnet.
Loss from Continuing Operations. Loss from continuing operations increased to
$65.1 million for the nine months ended September 30, 1999, from $24.9 million
for the nine months ended September 30, 1998. The aforementioned factors caused
this increase.
Discontinued Operations. As a consequence of the continued weakness of the U.S.
operations, on May 18, 1999 the Board of Directors of the Company agreed to a
plan to discontinue the U.S. retail operations and the Company's consolidated
financial statements for September 30, 1999 and 1998 have been presented to
include the U.S. retail operations as discontinued operations. During the first
nine months of 1999, the Company recorded an estimated loss on the operations
and disposition of the related assets and liabilities of $37.7 million. This
amount included $6.2 million for the estimated operating losses during the
phase-out period. This includes sale of the Company's U.S. network, U.S.
customer base and cessation of all marketing to U.S. retail customers. The
Company also laid off three fourths of its U.S. based employees in accordance
with the Workers Adjustment and Retraining Notification Act.
Net Loss. Net loss increased to $102.8 million for the nine months ended
September 30, 1999 as compared to $42.2 million for the nine months ended
September 30, 1998. This increase was due to increased losses from operations
together with increased interest expense resulting from the issuance of the
12 1/4% Senior Notes and Warrants Due 2008 completed in April 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash and cash equivalents of $4.4
million as compared with cash and cash equivalents of $52.1 million on December
31, 1998. In addition, the Company had $54.0 million of restricted cash subject
to a Pledge Agreement securing such cash for the benefit of the Senior
Noteholders, as compared with $67.0 million of restricted cash on December 31,
1998. LDI's cash and cash equivalents at September 30, 1999, together with the
$10 million proceeds of the secured debt raised during July 1999, are not
sufficient to fund the operations of the Company through the end of 1999.
The Company estimates that it would require an additional $30 million to fund
operations through December 31, 1999, including the payment of certain
obligations which are past due. Actual cash requirements may vary significantly
from the Company's estimates depending upon numerous factors including sales
levels, competitive pressures and regulatory actions. The Company has taken
steps to reduce its operating losses and reduce the scope of its operations by
closing its retail business in the United States.
As a result of limited liquidity, the Company has not made certain payments to
U.S. lessors, lenders and vendors. The Company leases certain computer and
telecommunications equipment under non-cancelable capital leases with
maturities of three to five years. The Company has not made payments under
these leases for several months. These leases generally contain acceleration
provisions which allow the lease to become due in full as a result of
non-payment. Several of these lessors have notified the Company of defaults and
acceleration of the leases. Accordingly, the Company has reclassified all of
these leases as current in its Balance Sheet at September 30, 1999. The Company
did not make a scheduled principal payment of approximately $4 million on a
note payable to one of its European carriers which came due on September 30,
1999. The Company is negotiating with the carrier to restructure this debt.
Also, in September and October, LDI Acquisition did not pay interest due under
the Loan Agreement. LDI Acquisition has received a letter whereby the lender(s)
have agreed to forebear from exercising their remedies with respect to such
missed interest payments, through the earlier of to occur of November 30, 1999,
and the filing of any petition by or against the Company pursuant to Chapter 11
of the United States Bankruptcy Code or any similar law.
On October 15, 1999, the Company made the scheduled semi-annual interest
payment on the Notes in the amount of $13.8 million. In addition, on October
15, 1999, the Senior Noteholders directed the Indenture Trustee to hold the
interest payment and not to deliver it to the Senior Noteholders.
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On October 19, 1999, LDI Acquisition obtained a $2.0 million loan from World
Access, Inc., an international long distance and proprietary network equipment
provider. The loan was made under the Loan Agreement. The Company is in
discussions with World Access regarding a potential business transaction.
Furthermore, on November 5, 1999, the Senior Noteholders directed the Indenture
Trustee to advance to LDI Acquisition up to $8 million of the interest payment
pursuant to the terms and conditions of the Loan Agreement. The Company
understands that the Indenture Trustee continues to hold the remainder of the
interest payment. The $8 million in advances is subject to certain budget
compliance and advance request notification. On November 5, 1999, approximately
$6.3 million was advanced. The advances are being made under the Loan
Agreement. No advances may be made after the earlier to occur of a termination
by the Senior Noteholders or November 30, 1999.
If the Company is unable to obtain additional debt or equity financing, to
successfully implement a strategic alliance or arrange a sale of the Company or
substantially all of the Company's assets in the near future, together with the
financing necessary to consummate such a sale, it will have to file a petition
under the Bankruptcy Code.
There can be no assurance that the Company will be successful in its sale
efforts or in obtaining the financing necessary to consummate such a sale. In
addition, there can be no assurances as to the amount of proceeds that will be
received from any sale of the Company. There can also be no assurance that the
Company will be successful in implementing any other alternative.
The Company expects to continue to incur significant operating and net losses
and to make substantial capital expenditures for the foreseeable future. The
operating and net losses are due to the start-up and development of the
Company's operations including the operations of NETnet. The Company has
incurred significant capital expenditures in connection with the development of
its telecommunications network. To date, the Company has utilized cash provided
from financing activities to fund losses and capital expenditures. The sources
of this cash include the Company's 12 1/4% Senior Notes Due 2008 issued in
1998, and to a lesser extent, vendor financing of equipment and IRU's.
Net cash used in operating activities was $60.9 million for the nine months
ended September 30, 1999 as compared to $40.6 million for the nine months ended
September 30, 1998. The Company's net cash used in operating activities in the
nine months ended September 30, 1999 was primarily composed of a net loss of
$102.8 million offset by $36.9 million of non-cash charges and $5.0 million of
changes in working capital. Included in these non-cash charges are $15.6
million for depreciation and amortization, $17.0 million to write down assets
to fair value and $2.1 million for future operating losses of the Company's
discontinued operations. Net cash used in operating activities in the nine
months ended September 30, 1998 consisted of a net loss of $42.2 million offset
by $3.2 million of non-cash charges and $1.6 million changes in working
capital.
Net cash provided by investing activities was $14.1 million for the nine months
ended September 30, 1999 as compared with net cash used in investing activities
of $87.1 million for the nine months ended September 30, 1998. Cash provided by
investing activities in the nine months ended September 30, 1999 was comprised
primarily of approximately $434,000 for capital expenditures and a $15.9
million decrease in restricted cash, investments and certificates of deposits
and $1.4 million for acquisition costs. Cash used in investing activities in
the nine months ended September 30, 1998 consisted primarily of a $82.1 million
increase in restricted cash and investments, $3.2 million for capital
expenditures and $1.8 million for acquisition costs relating to Newgate and
NETnet.
Net cash used in financing activities was $1.4 million for the nine months ended
September 30, 1999 as compared to net cash provided by financing activities of
$215.0 million for the nine months ended September 30, 1998. Cash used in
financing activities in the nine months ended September 30, 1999 consisted
primarily of payments on capital lease obligations, installment loans and notes
payable of approximately $10.9 million offset by $10 million of proceeds from
Notes Payable. Cash provided by financing activities in the nine months ended
September 30, 1998 was comprised primarily of proceeds from the issuance of the
Senior Notes and Redeemable Warrants and common stock and warrants. This was
partially offset by $3.2 million in payments on capital lease obligations and
installment loans.
Viatel, Inc. ("Viatel"), a Trans-Atlantic cable provider, has claimed that the
Company is obligated to pay $14,875,000 under certain letter agreements which
Viatel claims obligated the Company to purchase certain cable capacity as part
of an IRU agreement that was never consummated. The Company believes that it
has no obligation to pay Viatel under those purported agreements and that its
liability, in any event would be limited to the $1,625,000 which the Company
placed in escrow during 1998. The Company intends to vigorously defend against
Viatel's claim but is unable to predict the ultimate outcome of this matter and
the amount of loss, if any.
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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
FOREIGN CURRENCY EXPOSURE AND EUROPEAN MONETARY UNION
The Company is exposed to fluctuations in foreign currencies relative to the
United States dollar because the Company generally bills in local currency,
while transmission and other costs are paid in a mix of United States Dollars
and local currency. Interest expense on the 12 1/4% Senior Notes Due 2008 will
be paid in United States dollars. For the nine months ended September 30, 1999
and September 30, 1998, approximately 99% and 83%, respectively, of the
Company's revenues from continuing operations were billed in currencies other
than the United States dollar. The Company periodically evaluates the use of
foreign exchange contracts to hedge foreign currency exposure and to control
risks relating to foreign currency fluctuations. The Company does not use
derivative financial instruments for speculative purposes. As of September 30,
1999, the Company had no open foreign currency positions.
On January 1, 1999 eleven of the existing members of the European Union ("EU")
joined the European Monetary Union. This will lead, among many other things, to
fundamental changes in the way participating EU states implement their monetary
policies and manage local currency exchange rates. Ultimately, there will be a
single currency within certain countries of the EU, known as the Euro and one
organization, the European Central Bank, responsible for setting European
monetary policy. While some believe that the change will bring a higher level
of competition within Europe and a greater sense of economic stability within
the region, there is no certainty that the Company's activity in this region
will necessarily realize any benefits as a result of such changes. The Company
has reviewed the impact the Euro will have on its business and whether this
will give rise to a need for significant changes in its commercial operations
or treasury management functions. While it is uncertain whether or not there
will be any immediate direct benefits from the planned conversion, the Company
believes it is properly prepared to accommodate any changes deemed necessary to
implement use of the Euro without any significant changes to its current
commercial operations, treasury management and management information systems.
IMPACT OF YEAR 2000
"Year 2000 Readiness" which affects many corporations, concerns the inability
of information systems, primarily computer software programs, to properly
recognize and process date sensitive information relating to the Year 2000 and
beyond. The Company has initiated a company-wide program to identify and
address issues associated with the ability of its date sensitive information,
telephony and business systems, as well as certain other pertinent equipment,
to properly recognize Year 2000 Readiness issues in order to avoid interruption
of the operation of these systems or equipment as a result of the century
change on January 1, 2000 (the "Readiness Initiative Project"). The Readiness
Initiative Project is also designed to assess the impact on the Company of the
readiness of third party business entities with which the Company is engaged in
business or for which the Company provides services.
Inability to reach substantial Year 2000 Readiness in the Company's systems and
integral third party systems could result in interruption or failure of the
Company's ability to provide telecommunications services, interruption or
failure of the Company's customer billing processes, operating and other
information technology systems and/or failure of certain date sensitive
equipment. Such interruptions or failures could result in claims by customers
and/or loss of revenue due to service interruption and/or delays in the
Company's ability to bill its customers in an accurate and timely manner.
Additionally, increased expenses associated with litigation and/or
stabilization of operations following such interruptions or failures or
execution of Year 2000 contingency plans could, and most probably would result
in significant revenue and cost issues.
The Readiness Initiative Project is being conducted by a management team that
is coordinating all efforts. The management team is utilizing resources
consisting of internal staff, external resources, third party network
providers, and external business vendors. The Company intends to identify and
make any necessary changes. Ongoing systems and applications upgrades are being
tested and made Year 2000 ready as they are implemented. As part of the
Readiness Initiative Project, the Company has been communicating directly with,
or reviewing disclosures made by, incumbent LECs, carriers, switch providers,
information systems vendors and other third parties that may impact the
Company's readiness for the Year 2000. Such persons have represented, in these
communications or disclosures, that the information systems of such persons, to
the extent they would have an impact on the Company, are or by January 1, 2000,
will be Year 2000 ready. The Company's software providers have certified to the
Company that such software is Year 2000 ready.
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The Company has completed all Year 2000 Readiness conversion and testing issues
for its most critical business systems used in domestic operations. Year 2000
conversion, testing, and deployment for international systems is expected to be
completed by late 1999.
The Company has developed several contingency plans for conducting its business
operations in the event of crisis, including system outages or natural
disasters. As a part of the Readiness Initiative Project, the Company is
reviewing its other business contingency plans to ensure they adequately
address Year 2000 Readiness issues that may also arise. The Company's
operational systems, such as billing and accounting, are also being addressed
in this endeavor.
The Company's Year 2000 contingency efforts cover all aspects of the Company's
business objectives. The two most important criteria are the Company's ability
to carry telecommunications traffic and to bill for such traffic.
The Company's telecommunications switches are configured to operate in
stand-alone mode, parallel mode, and/or re-route mode. In the instance of
outages, the Company's network traffic is re-routed using switch software. The
Company's network switches employ self-healing architecture capable of
automatic re-routing should the need arise. In the case of natural disasters,
the Company's switches operate in a fully redundant, full parallel mode. This
mode allows the Company's traffic to be either re-routed or run in a parallel
state. The Company believes the necessary geographic disparity between switches
also provides another level of contingent security.
The Company's information technology, though different in objective, employs
similar architectural standards. The Company's data network is also a
self-healing, fully redundant network capable of re-routing data information to
and from various Company locations. The existence of parallel servers in
disparate locations enables The Company to maintain full operational status of
its information technology infrastructure.
Some of the costs associated with the Company's Readiness Initiative Project
were incurred in the nine months ended September 30, 1999 and the remainder
will be incurred during 1999. The Company estimates the costs will be
approximately $2.0 million over the life of, and adherence to, the project. The
Company intends to continually reassess the estimated costs and status of its
Year 2000 remediation efforts.
The Company currently anticipates the mission critical systems it controls in
its domestic and international operations to be fully Year 2000 ready by
January 1, 2000. However, no assurance can be given that unforeseen
circumstances will not arise during the performance of the testing and
deployment phases of the Company's Readiness Initiative Project that would
adversely affect the Year 2000 Readiness of the Company. Furthermore, the Year
2000 Readiness of the Company's integral third party networks is not yet fully
known. As a result, the Company is unable to determine the impact that any
third party systems interruptions or failures would have on the Company's
business, results of operations or financial condition.
INFLATION
The Company does not expect inflation to have any significant impact on its
business, financial condition or results of operations.
SEASONALITY
The Company believes its business is not subject to significant seasonality
based on historical trends.
19
<PAGE> 20
FORWARD LOOKING STATEMENTS
Certain statements contained in this Form 10-Q constitute "forward looking
statements" made in reliance on the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. As such, they involve risks and
uncertainties that could cause actual results to differ materially from those
set forth in such forward looking statements. The Company's forward looking
statements are based on assumptions about, or include statements concerning,
many important factors, including without limitation changes in customer usage
and customer preferences, the Company's ability to effectively implement its
strategies, including its expansion, network development and advanced
information system strategies; competitive trends and consolidation within the
telecommunications industry; the effect of economic changes in other countries
in which the Company does business; and other factors described herein. While
the Company believes that its assumptions are reasonable, it cautions that it
is impossible to predict the impact of certain factors which could cause actual
results to differ materially from expected results.
20
<PAGE> 21
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.3 Articles of Amendment to Second Restated Articles of
Incorporation
10.25 Amendment to Pledge Agreements
10.26 Amendment No. 1 to Term Loan Agreement
10.27 Promissory Note in the principal amount of $2,000,000
10.28 Class A Bridge Loan Warrant to Purchase Common Stock
10.29 Class B Bridge Loan Warrant to Purchase Common Stock
27 Finanical Data Schedule(For SEC use only)
(b) Reports on Form 8-K:
None
21
<PAGE> 22
LONG DISTANCE INTERNATIONAL INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on behalf of the
undersigned, thereunto duly authorized.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ Elizabeth A. Tuttle
----------------------------------------
Elizabeth A. Tuttle
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: November 15, 1999
22
<PAGE> 1
EXHIBIT 3.3
ARTICLES OF AMENDMENT TO
SECOND RESTATED ARTICLES OF INCORPORATION
OF
LONG DISTANCE INTERNATIONAL INC.
To the Department of State
State of Florida
Long Distance International Inc., a Florida corporation (the
"Corporation"), pursuant to Section 607.1006 of the Florida Business
Corporation Act,
Does Hereby Certify:
FIRST: At a meeting of the Board of Directors of the Corporation on
July 13, 1999, the Board of Directors of the Corporation duly adopted
resolutions setting forth a proposed amendment to the Second Restated Articles
of Incorporation of Long Distance International Inc., as amended, and declaring
said amendment to be advisable and directing that the amendment be submitted to
the vote of the shareholders of the Corporation.
SECOND: That all of the holders of record of the Corporation's Common
Stock, Series A and Series B Preferred Stock voting as separate classes were
authorized to vote on the amendment and a majority of the outstanding shares of
Common Stock and a majority of the outstanding shares of Series A Preferred
Stock and a majority of the outstanding shares of Series B Preferred Stock by
written consent in lieu of a meeting voted in favor of the amendment with such
votes being sufficient to approve the amendment.
THIRD: That Article III of the Second Restated Articles of
Incorporation is hereby amended by deleting the first three sentences of
Article III and replacing it with the following:
ARTICLE III
The total number of shares which the Corporation shall have
authority to issue is 277,600,000, consisting of 250,000,000 shares of
common stock (the "Common Stock"), $0.001 par value per share, and
27,600,000 shares of preferred stock (the "Preferred Stock"), $0.001
par value per share. The Preferred Stock shall be comprised of: (i)
Series A Preferred Stock ("Series A Preferred Stock"), consisting of
2,600,000 shares, (ii) Series B Preferred Stock ("Series B Preferred
Stock"), consisting of 5,000,000 shares, and (iii) an additional
20,000,000 shares (the "Preferred Stock") which may be issued from time
to time in one or more series as may be established from time to time
by resolution of the Board of Directors of the Corporation (the "Board
of Directors"), each of which series of Preference Stock shall consist
of such number of shares and have such designation or title as shall be
fixed by resolution of the Board of Directors prior to the issuance of
any shares of such series. Each such class or series of Preference
Stock shall have such
<PAGE> 2
voting powers, full or limited, or no voting powers, and such
preferences and relative participating, optional or other special
rights and such qualifications, limitations or restrictions thereof, as
shall be stated in such resolution of the Board of Directors providing
for the issuance of such Preference Stock. The Board of Directors is
further authorized to increase or decrease (but not below the number of
shares of such class or series then outstanding) the number of shares
of any series subsequent to the issuance of shares of that series.
FOURTH: That Article III, Section 1, be amended by deleting the
definition of "Preferred Stock" and replacing it with the following:
"Preferred Stock", as used in Sections 1-13 of Article III, shall mean
the Series A Preferred Stock and the Series B Preferred Stock, either
individually or collectively as the context requires; when used in the
introductory paragraph of this Article III, Preferred Stock shall mean the
Series A Preferred Stock, the Series B Preferred Stock and the Preference
Stock."
IN WITNESS WHEREOF, this instrument is subscribed by the undersigned.
Dated: July 13, 1999
/s/ Elizabeth A. Tuttle
-----------------------------------
Elizabeth A. Tuttle
Chief Financial Officer
2
<PAGE> 1
EXHIBIT 10.25
Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
LDI Acquisition Sub Inc.
c/o Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
October 18, 1999
To: Frederick A. DeLuca
512 NE 23rd Avenue
Ft. Lauderdale, Florida 33301
Re: Amendment to Pledge Agreements (this "Amendment")
Gentlemen:
Reference is made to a certain (i) Parent Stock Pledge Agreement dated July 20,
1999 (herein called "Parent Pledge Agreement"), among Long Distance
International Inc., a Florida corporation (herein called "the Company"), and
Frederick DeLuca, as collateral agent for the ratable benefit of himself and
the Lenders to the Term Loan Agreement ("DeLuca"); and (ii) Stock Pledge
Agreement dated July 20, 1999 (herein called "Sub Pledge Agreement") among LDI
Acquisition Sub Inc. and DeLuca. Capitalized terms used herein and defined in
the Parent Pledge Agreement shall have the same meanings as set forth therein
unless otherwise specifically defined herein.
The seventh paragraph of each of the Sub Pledge Agreement and Parent Pledge
Agreement is hereby amended by deleting the words "and on ten (10) days prior
notice to the Pledgor, without the curing by the Pledgor or the waiving by the
Collateral Agent of such Event of Default within such time," in the third,
fourth and fifth lines of such seventh paragraph.
Except as otherwise specifically amended herein, each of the Sub Pledge
Agreement and the Parent Pledge Agreement shall remain in full force and
effect.
This Amendment may be executed in one or more counterparts, each of which shall
be deemed to be an original as against the party executing the same and all of
which together shall be deemed to constitute one and the same agreement.
<PAGE> 2
This Amendment is to be governed by the laws of the State of New York.
Very truly yours,
LDI ACQUISITION SUB INC.
By: /s/ David R. Hess
------------------------------
David R. Hess
Chief Executive Officer
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
------------------------------
David R. Hess
Chief Executive Officer
AGREED:
/s/ Frederick A. DeLuca
- ----------------------------------------
Frederick A. DeLuca, as Collateral Agent
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
---------------------------------
Name:
Title:
THE BANK OF NEW YORK, not in its individual capacity,
but solely as Trustee
By: /s/ Annette L. Kos
---------------------------------
Name:
Title:
2
<PAGE> 1
EXHIBIT 10.26
AMENDMENT NO. 1 TO TERM LOAN AGREEMENT
AMENDMENT NO. 1 TO TERM LOAN AGREEMENT dated as of October
18, 1999 (this "Amendment"), among the Lenders (the "Lenders") listed on the
Initial and Supplemental Signature Pages of the Term Loan Agreement (as
hereinafter defined), LDI Acquisition Sub Inc., a Delaware corporation (the
"Company"), Long Distance International Inc., a Florida corporation (the
"Parent"), Frederick A. DeLuca, as collateral agent for the Lenders ("DeLuca"
or the "Collateral Agent"), The Bank of New York, acting not in its individual
capacity, but solely as trustee on behalf of the Holders (as defined below)
(the "Trustee") and World Access, Inc. (the "New Lender").
W I T N E S S E T H:
WHEREAS, the parties hereto, other than the New Lender and
the Trustee, are parties to a Term Loan Agreement dated as of July 20, 1999
(the "Loan Agreement");
WHEREAS, the New Lender desires to make a Term Loan to the
Company in the principal amount of $2,000,000 and has requested that the
Lenders, DeLuca, the Company and the Parent amend the Loan Agreement, as
provided below:
NOW, THEREFORE, the parties hereto agree as follows:
Section 1. Certain Definitions.
(a) Capitalized terms used in this Agreement without
definition shall have the meanings set forth in the Loan Agreement.
Section 2. Amendment.
(a) Section 2 of the Loan Agreement is hereby amended by
adding the following to the end thereof:
", subject to the terms of the letter
agreement between DeLuca, the New Lender, the Parent and the
Company. Pursuant to Section 5 of that certain letter
agreement dated as of November ___, 1999 among DeLuca, the
Parent, the Company, the New Lender and the beneficial owners
(the "Holders") of the Notes (as defined in that certain
indenture dated as of April 13, 1998 (the "Indenture")
between the Parent and the Trustee), the Trustee shall act on
behalf of the Holders who shall be entitled to all of the
rights and privileges of a Lender hereunder (including,
without limitation, the Holders' entitlement to a pro rata
share of the Pledged Collateral on a basis pari passu with
all other Lenders hereunder), but in no event shall the
Trustee be deemed to have assumed the Holders' duties and
obligations hereunder (including, without limitation, the
Lenders' duties to indemnify the Collateral Agent under
Section 12(e) of this Agreement)."
<PAGE> 2
(b) Section 5(a) of the Loan Agreement is hereby amended by
adding the words "Subject to the terms of the letter agreement dated October
19, 1999 between DeLuca and the New Lender, a copy of which is attached as
Exhibit A to this Amendment (the "New Lender Agreement") and Section 5(f) of
this Agreement" following the heading of Section 5(a).
(c) Section 5(b) of the Loan Agreement is hereby amended by
adding the words ", Section 5(f) and the New Lender Agreement," following the
words "Subject to Section 5(c)" in the first line of such Section. Subsection
5(b) is further amended by adding the following words after the last sentence
thereof: "Notwithstanding anything herein to the contrary, following any
written notice by the Company or any other election by the Company to prepay
any Term Loan or portion thereof, DeLuca or the New Lender may elect, by
written notice to the Company, not to have his or its Term Loan prepaid, in
which event the Company shall have no right to prepay and DeLuca or the New
Lender shall have no obligation to accept prepayment of his or its Term Loan or
any portion thereof pursuant to this Section. Any prepayment by the Company of
the Term Loan held by DeLuca which is made pursuant to the New Lender Agreement
at DeLuca's election shall be exempt from any prepayment premium. Such
exemption shall not apply if the Company elects to prepay the Term Loan held by
DeLuca pursuant to the Term Loan Agreement and DeLuca has not previously
elected to have his Term Loan prepaid. Any prepayment by the Company of a Term
Loan held by a Lender other than DeLuca which is made in connection with a
Transaction (as defined in the New Lender Agreement) or additional financing
provided by World Access (as defined in the New Lender Agreement) shall be
exempt from any prepayment premium.
(d) Section 5(c) of the Loan Agreement is hereby amended by
adding the words "Subject to the provisions hereof and the New Lender
Agreement" after the heading of Section 5(c).
(e) Section 5(e) of the Loan Agreement is hereby amended by
adding the words "Subject to the New Lender Agreement and Section 5(f) of this
Agreement," following the heading of Section 5(e). Section 5(e) is further
amended by adding the following words after the last sentence thereof:
"Notwithstanding anything herein to the contrary, DeLuca shall have no
obligation to share with any of the other Lenders, and may retain for himself,
any payment received by him or to which he may become entitled pursuant to the
New Lender Agreement, including any payment from the New Lender or the Company,
and shall have no obligation to share and shall be entitled to retain for
himself any and all shares of the equity securities of the New Lender (or its
affiliates) which he shall receive or to which he shall become entitled
following exercise of the election described in Paragraph 2 of the New Lender
Agreement."
(f) Section 5 of the Loan Agreement is hereby amended by
adding the following section after Section 5(e) thereof:
"(f) Notwithstanding anything herein to the
contrary, nothing in this Agreement shall supercede or impair
the rights of DeLuca, pursuant to the New Lender Agreement,
(i) to elect not to have his Term Loan repaid prior to the
initial maturity date thereof, (ii) to elect at any time
after the signing of an Agreement relating to a Transaction
as described in paragraph 1 of the New Lender Agreement that
2
<PAGE> 3
the New Lender (or its affiliates) shall either cause the
Company to pay, or shall pay directly, all outstanding
indebtedness on DeLuca's Term Loan (including accrued
interest) in accordance with Paragraph 1 of the New Lender
Agreement, (iii) to convert his Term Loan into stock of the
New Lender or its affiliates in accordance with Paragraphs
2-3 of the New Lender Agreement; and (iv) to make the
elections, enforce the rights, and retain for himself the
payments and stock of the New Lender (or its affiliates)
pursuant to Paragraphs 2-3 of the New Lender Agreement."
(g) Section 9(b) of the Loan Agreement is hereby amended by
inserting at the beginning of clause (ii), the words "subject to the provisions
of Section 12(i),". Section 9(b) of the Loan Agreement is further amended by
adding the following at the end thereof:
"Notwithstanding the foregoing, from and after the
earlier of November 30, 1999 or the filing of any petition
under the Bankruptcy Code by or against Borrower, any Lender
may individually take the actions set forth in clauses (i)
and (ii) above, subject to Section 12(i)."
(h) Section 10 is hereby amended adding, following subsection
(vi) thereof, the following words:
"(vii) in any way affect or impair the rights of
DeLuca pursuant to the New Lender Agreement."
(i) Section 12 of the Loan Agreement is hereby amended by
adding, following subsection (i) hereof, the following words:
"(j) Notwithstanding anything herein to the
contrary, DeLuca shall have no liability or obligation,
fiduciary, contractual or otherwise, to any of the other
Lenders or New Lender, by reason of any action or omission
relating to the perfection or failure to perfect security
interests or otherwise relating to his duties as Collateral
Agent prior to the effective date of Amendment No. 1 to this
Agreement, dated as of October 18, 1999 among the Lenders,
the Company, the Parent, DeLuca, the New Lender and the
Trustee."
(j) Section 13 of the Loan Agreement is hereby amended by
adding the following section after Section 13(g) thereof:
"(h) Limitation of Liability. It is expressly
understood and agreed by the parties hereto that (i) this
Agreement and any amendments hereto are executed and
delivered by The Bank of New York, not individually or
personally but solely as Trustee under the Indenture, in the
exercise of the powers and authority conferred and vested in
it, (ii) nothing herein contained shall be construed as
creating any liability on The Bank of New York, individually
or personally, to perform any covenant either expressed or
implied contained herein, all such liability, if any, being
expressly waived by the parties who are signatories to this
Agreement and any amendments hereto and by any Person
3
<PAGE> 4
claiming by, through or under such parties, and (iii) under
no circumstances shall The Bank of New York be personally
liable for the payment of any expenses or advance, risk or
expend its own funds or otherwise incur any financial
liability or be liable for the breach or failure of any
obligation, representation, warranty or covenant made or
undertaken by the parties to this Agreement and any
supplement, modification or amendment hereto."
Section 3. Use of Proceeds.
(a) The Company agrees that the proceeds of loans
made hereunder shall be used solely in accordance with a budget to be prepared
by the Company in connection with additional loans to be made under the Term
Loan Agreement by certain holders of the Parent's 12.25% Senior Notes due 2008,
which budget shall be acceptable to such holders and the New Lender.
Section 4. Miscellaneous.
(a) Ratification. Except as expressly amended hereby,
all of the terms, provisions and conditions of the Loan Agreement are hereby
ratified and confirmed in all respects by each party hereto and, except as
expressly amended hereby, are, and hereafter shall continue, in full force and
effect.
(b) Successors and Assigns. This Amendment shall be
binding upon each party hereto and shall inure to the benefit of the Lender and
all future holders of any Note and their respective successors and assigns.
(c) Governing Law. This Amendment and the rights and
obligations of the parties hereunder shall be construed in accordance with and
be governed by the law (without giving effect to the conflict of law principles
thereof) of the State of New York.
(d) Jury Trial Waiver. THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT
TO THIS AMENDMENT OR ANY DOCUMENT RELATED HERETO.
(e) Counterparts. This Amendment may be executed in
two or more counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered, all as of the date first above
written.
LDI ACQUISITION SUB INC.
By: /s/ David R. Hess
---------------------------------------
Name: David R. Hess
Title: CEO
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
---------------------------------------
Name: David R. Hess
Title: CEO
WORLD ACCESS, INC.
By:/s/ W. Tod Chmar
---------------------------------------
Name: W. Tod Chmar
Title: E.V.P.
/s/ Frederick A. DeLuca
-----------------------------------
Frederick A. DeLuca, as
Lender and Collateral Agent
THE BANK OF NEW YORK, not in its
individual capacity, but solely as Trustee
By: /s/ Annette L. Kos
---------------------------------------
Name: Annette L. Kos
Title: Assistant Vice President
5
<PAGE> 1
EXHIBIT 10.27
PROMISSORY NOTE
(Term Note)
October 19, 1999
$2,000,000
FOR VALUE RECEIVED, LDI Acquisition Sub Inc., a Delaware corporation (the
"Company"), promises to pay to the order of World Access, a Delaware corporation
(herein the "Lender"), at Resurgens Plaza - Suite 2210, 945 East Paces Ferry
Road, Atlanta, Georgia 30326, in lawful money of the United States of America
and in immediately available funds, the principal amount of Two Million and
00/100 Dollars ($2,000,000), on October 19, 2000 (the "Maturity Date").
The Company further agrees to pay interest at said office, in like money, on the
unpaid principal amount owing hereunder on the Maturity Date at a rate of twelve
and one-quarter percent (12 1/4%) per annum. Such interest shall be payable
monthly in accordance with Section 4(b) of the Loan Agreement (as hereinafter
defined). Default Interest at the annual rate of 24 1/2% shall be payable on any
overdue payments of principal and/or interest in accordance with Section 4(c) of
the Loan Agreement. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed thereto in the Term Loan Agreement dated
as of the date hereof (the "Loan Agreement"), among the Company, the Lender,
Long Distance International Inc., the other lenders party thereto (the
"Lenders") and Frederick A. DeLuca, as Collateral Agent for the Lenders.
If any payment on this Note becomes due and payable on a day other than a
Business Day, maturity thereof shall be extended to the next succeeding Business
Day, and with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension.
This Note is the Term Note referred to in the Loan Agreement, evidences the Term
Loan thereunder, and is subject to, and entitled to, all the provisions and
benefits thereof (including, without limitation, the security of the Pledged
Collateral) and is subject to the prepayment provisions provided therein.
Upon the occurrence of any one or more of the Events of Default specified in the
Loan Agreement or upon termination of the Loan Agreement, all amounts then
remaining unpaid on this Note may become, or be declared to be, immediately due
and payable as provided in the Loan Agreement. The Company shall be responsible
for all costs of enforcement of this Note in accordance with Section 13(e) of
the Loan Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has caused this Note to be
executed and delivered by its proper and duly authorized officer on the date set
forth above.
LDI ACQUISITION SUB INC.
By: /s/ David R. Hess
-------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO PROMISSORY NOTE
<PAGE> 1
EXHIBIT 10.28
THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL OR COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
LONG DISTANCE INTERNATIONAL INC.,
A FLORIDA CORPORATION
WARRANT CERTIFICATE
Class A Bridge Loan Warrant to Purchase Common Stock
----------------------------------------------------
Long Distance International Inc., a Florida Corporation (the
"Company"), hereby certifies that, for value received, World Access, Inc., a
Delaware corporation, with offices at Resurgens Plaza - Suite 2210, 945 East
Paces Ferry Road, Atlanta, Georgia 30326 (the "Holder"), is entitled to purchase
from the Company [number]1 of fully paid, validly issued and non-assessable
shares of common stock, par value $0.001 per share, of the Company ("Common
Stock") at an exercise price of $0.001 per share (the "Exercise Price") at any
time or from time to time from and after the Initial Exercise Date up to and
including October 19, 2004. This Warrant is one of a series of warrants
designated the Class A Bridge Loan Warrants to Purchase Common Stock ("Class A
Warrants") and has been issued with a companion warrant in a series designated
the Class B Bridge Loan Warrants to Purchase Common Stock ("Class B Warrants").
The Class A Warrants and the Class B Warrants are being issued to the initial
holders thereof pursuant to that certain Term Loan Agreement, dated as of July
20, 1999 ("Term Loan Agreement"), as additional consideration for, and as an
inducement to make, the Term Loans (as defined therein). Pursuant to the terms
of the Class B Warrants, the Class B Warrants shall become void and of no
further force and effect in the event that the loans outstanding under the Term
Loan Agreement are repaid on or prior to February 19, 2000. The number of shares
of Common Stock to be received upon the exercise of this Warrant may be adjusted
from time to time as provided herein.
Section 1. EXERCISE OF WARRANT. This Warrant may be exercised
in whole or in part at any time or from time to time on or after the Initial
Exercise Date of this Warrant;
- ----------------------
(1) This number ("ws") will be determined in accordance with the
following formula:
P
WS = (-----)(OS)
1 - P
p = the product of (a) 0.30, multiplied by (b) the quotient of
the amount of the Term Loan made by the Holder divided by $40 million,
os = 87,805,899, the number of outstanding shares of the
Company on a fully diluted basis immediately prior to the initial
closing under the Term Loan Agreement.
<PAGE> 2
provided, however, that if the day of exercise is a day on which banking
institutions in the State of Florida are authorized by law to close, then the
exercise by the Holder shall be deemed to take place on the next succeeding day
that is not such a bank closing day. The Initial Exercise Date shall mean the
date on which the first to occur of the following events has occurred: (a) the
sixteenth month anniversary date of the issuance of this Warrant; (b) the date
the Company consummates an initial public offering of shares of Common Stock
pursuant to an effective registration statement under the Securities Act of
1933; (c) the date the Company consummates a sale of all or a substantial
portion of the business of the Company and its consolidated subsidiaries taken
as a whole, whether by way of merger, consolidation, sale of assets or sale of
capital stock; (d) the date a bankruptcy petition is filed by or against the
Company, LDI Acquisition Sub Inc. or a material operating subsidiary of LDI
Acquisition Sub Inc.; (e) the effective date of a waiver under the Indenture,
dated as of April 13, 1998 (the "Indenture"), pursuant to which the Company's 12
1/4% Senior Notes Due 2008 were issued, the effect of which waiver would be to
waive the requirement that the Company repurchase the Notes pursuant to Section
4.12 of the Indenture because of a Change of Control (as defined in the
Indenture); and (f) the date on which the exercise of all Class A Warrants and
all Class B Warrants would not result in a Change of Control; (g) the date on
which a Change of Control under the Indenture occurs for a reason other than an
exercise of any of the Class A Warrants or Class B Warrants issued under the
Term Loan Agreement and a waiver with respect thereto described in clause (e)
above is not obtained; and (h) the date on which Clifford Friedland and David
Glassman cease to be directors of the Company (other than by reason of their
death or disability) or beneficially own in the aggregate less than 5,000,000
shares of Common Stock. This Warrant shall be exercised by presentation and
surrender of this Warrant to the Company at its principal office, with the
Exercise Form annexed hereto as EXHIBIT A duly executed by the Holder,
accompanied by payment in full of an amount equal to the product of the number
of shares of Common Stock being purchased by the Holder hereunder and one-tenth
of one cent ($0.001). Payment for such shares shall be made to the Company in
U.S. dollars in cash, by wire transfer or by certified or official bank check
payable to the order of the Company. Promptly after each such exercise of this
Warrant, the Company shall issue and deliver to the Holder a certificate or
certificates for the Common Stock issuable upon such exercise, registered in the
name of the Holder. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, promptly execute
and deliver a new Warrant, in substantially the form of this Warrant, evidencing
the rights of the Holder thereof to purchase the balance of the Common Stock
purchasable hereunder. Upon the last to occur of receipt by the Company of this
Warrant at its office in proper form for exercise, together with a duly executed
Exercise Form, and receipt by the Company of full payment of the exercise price
for the shares of Common Stock then being purchased hereunder, in accordance
with the terms hereof, (i) the Holder shall be deemed to be the holder of record
of the shares of Common Stock issuable upon such exercise, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such shares of Common Stock shall not then be
physically delivered to the Holder, and (ii) such shares of Common Stock shall
be fully paid and non-assessable and free from all preemptive rights of any
shareholder and all taxes, liens and charges, with respect to the issue thereof.
The Company shall pay any stamp or issue taxes payable in connection with
issuance of Common Stock under this Warrant.
Section 2. FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction
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<PAGE> 3
of a share called for upon any exercise hereof, the Company shall pay to the
Holder an amount in cash (rounded to the nearest cent) equal to such fraction
multiplied by one-tenth of one cent ($0.001) provided such amount is no less
than one cent.
Section 3. LOSS OF WARRANT. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant (including any reasonable written certification that the Company
may require), and (in the case of loss, theft or destruction) of an agreement
indemnifying the Company in a form reasonably satisfactory to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the Company
shall execute and deliver to the Holder a new Warrant of like terms and date.
Section 4. RIGHTS OF THE HOLDER. This Warrant shall not
entitle the Holder hereof to any voting or other rights of a shareholder of the
Company, either at law or in equity, or to any notice of meetings of
shareholders or of any other proceedings of the Company, except as provided in
this Warrant, and except in connection with Common Stock that the Holder
purchases as provided herein. No provision of this Warrant, in the absence of
the purchase by the Holder of Common Stock hereunder, shall give rise to any
liability of such Holder for the exercise price or as a shareholder of the
Company, whether to the Company or creditors of the Company. The shares of
Common Stock issued upon exercise of this Warrant shall be subject to a stop
transfer order and the certificate or certificates evidencing such shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH SHARES MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
and shall bear all legends as required pursuant to the other agreements to which
such Holder and the Company are a party. Any holder of any such certificate or
instrument bearing the foregoing legend shall be entitled to promptly receive
from the Company, without expense, a new certificate or instrument of identical
tenor representing the same kind of securities and the same number or other
amount thereof not bearing such legend if such securities shall have been
effectively registered under the Act and are sold or otherwise disposed of in
accordance with the intended method of disposition by the seller thereof set
forth in the registration statement, or such securities may be freely
transferred by such holder by reason of an exemption from registration under the
Act, or such legend otherwise is not required in order to ensure compliance with
the Act. The opinion of Loeb & Loeb LLP or other legal counsel selected by such
holder and reasonably satisfactory to the Company with respect to any of the
foregoing or with respect to any question concerning whether any proposed
transfer of any shares of common stock would violate the Act, shall be
sufficient to determine the issue.
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<PAGE> 4
Section 5. ADJUSTMENTS.
(a) ADJUSTMENT OF PRICE AND NUMBER OF COMMON STOCK. The
initial Exercise Calculation Price per share shall be one-tenth of one cent
($0.001). The Exercise Calculation Price shall be subject to adjustment from
time to time as provided in Section 5(b), (c) and (h). Upon each adjustment, the
Holder shall thereafter be entitled to purchase, at one-tenth of one cent
($0.001), the number of shares of Common Stock obtained by multiplying the
Exercise Calculation Price in effect immediately prior to such adjustment by the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment, and dividing the product thereof by the
Exercise Calculation Price resulting from such adjustment.
(b) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company at any time or from time to time after the date of this Warrant (the
"Commitment Date") effects a subdivision of the outstanding Common Stock of the
Company, the Exercise Calculation Price then in effect immediately before that
subdivision shall be proportionately decreased; and conversely, if the Company
at any time or from time to time after the Commitment Date combines the
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Calculation Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection (b) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(c) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time after the Commitment Date makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in additional shares of Common Stock, then and in
each such event the Exercise Calculation Price then in effect shall be decreased
as of the time of such issuance or, in the event such record date is fixed, as
of the close of business on such record date, by multiplying the Exercise
Calculation Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
(d) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time after the Commitment Date makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in securities (including options or
warrants for Common Stock) of the Company other than shares of Common Stock,
then and in each such event provision shall be made by the Company so that the
Holder of this Warrant shall receive upon exercise thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Company which the Holder would have received had this Warrant been
exercised to purchase Common Stock immediately before the time of such issuance
or the close of business on such record date and had the Holder thereafter,
during the period from the date of such event to and including the exercise
date, retained such securities receivable by the Holder as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the Holder, and subject to further
adjustment as provided herein.
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<PAGE> 5
(e) ADJUSTMENTS FOR THE RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. In the event that at any time or from time to time after the
Commitment Date, the Common Stock issuable upon the exercise of this Warrant is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this Section
5), then and in any such event the Holder of this Warrant shall have the right
thereafter to exercise this Warrant and receive the kind and amount of stock and
other securities and property receivable, upon such recapitalization,
reclassification or other change, which the Holder would have received had this
Warrant been exercised to purchase Common Stock immediately before the time of
such recapitalization, reclassification or change, and had the Holder
thereafter, during the period from the date of such event to and including the
exercise date, retained such securities receivable by the Holder as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 5 with respect to the rights of the Holder, and
subject to further adjustment as provided herein. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the Holder hereof after the reorganization,
merger, consolidation or sale to the end that the provision of this Section 5
(including adjustment of the Exercise Calculation Price then in effect and the
number of shares purchasable upon exercise hereof) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(f) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Commitment Date there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 5) or a merger or consolidation of the Company with or
into another entity, or the sale of all or substantially all of the Company's
properties and assets to any other person or entity, then as part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder of this Warrant shall thereafter be entitled to receive upon exercise
of the Warrant the number of shares of stock or other securities or property
which the Holder would have received had this Warrant been exercised to purchase
Common Stock immediately before the time of such capital reorganization, merger,
consolidation or sale, and had the Holder thereafter, during the period from the
date of such event to and including the exercise date, retained such securities
receivable by the Holder as aforesaid during such period, subject to all other
adjustments called for during such period under this Section 5 with respect to
the rights of the Holder, and subject to further adjustment as provided herein.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the Holder hereof
after the reorganization, merger, consolidation or sale to the end that the
provision of this Section 5 (including adjustment of the Exercise Calculation
Price then in effect and the number of shares purchasable upon exercise hereof)
shall be applicable after that event and be as nearly equivalent as may be
practicable.
(g) OTHER ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES.
(i) In case the Company shall, at any time after the date
hereof and in connection with an equity investment in or a loan to the Company
and/or LDI Acquisition Sub Inc., (a "SUBSEQUENT FINANCING") issue or sell any
shares of Common Stock and/or any options,
5
<PAGE> 6
rights or warrants to subscribe for shares of Common Stock ("NEW SHARES"), then
the number of shares of Common Stock issuable upon exercise of this Warrant
shall be increased in accordance with, and subject to, the following provisions:
(A) The number of additional shares of Common Stock issuable
upon exercise of this Warrant shall be determined in accordance with the
following formula:
X= (WS)(NS)
--------
OS
X = The number of additional shares of Common Stock issuable upon
exercise of this Warrant
WS = The number of shares of Common Stock issuable upon exercise of
this Warrant immediately prior to the issuance or sale of New
Shares.
NS = The number of shares of Common Stock issued or sold giving
rise to the adjustment pursuant to this Section 5(g), and/or
the maximum number of shares of Common Stock issuable upon
exercise, conversion or exchange of the Rights issued or sold
giving rise to the adjustment pursuant to this Section 5(g)
OS 87,805,999
(B) Upon the expiration of any rights, options, warrants or
convertible or exchangeable securities for which an adjustment was made
hereunder, if any thereof shall not have been exercised, the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
it been originally adjusted (or had the original adjustment not been required,
as the case may be) as if (i) the only rights, options, warrants or convertible
or exchangeable securities so issued were the rights, options, warrants or
convertible or exchangeable securities, if any, actually exercised, converted or
exchanged and (ii) such rights, options, warrants or convertible or exchangeable
securities, if any, were exercised, converted or exchanged for the consideration
actually received by the Company upon such exercise, conversion or exchange plus
the aggregate consideration, if any, actually received by the Company for the
issuance, sale or grant of all such rights, options, warrants or convertible or
exchangeable securities whether or not exercised, converted or exchanged.
(C) Except as set forth below, "NEW SHARES" shall mean any
shares of Common Stock or Rights issued or sold or proposed to be issued or sold
by the Company on or after the initial issue date (the "Initial Issue Date") of
the initial Class A Warrants and Class B Warrants under the Term Loan Agreement.
"NEW SHARES" does not include (i) the Class A Warrants and the Class B Warrants
issued and sold by the Company or any shares of Common Stock issued upon
exercise of any thereof, (ii) shares of Common Stock or Rights issued in
consideration of the acquisition of all or any portion of a business as a going
concern, whether such acquisition shall be effected by a purchase of assets,
exchange of securities, merger, consolidation, reorganization or otherwise,
(iii) shares of Common Stock or
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<PAGE> 7
Rights offered or proposed to be offered to the public pursuant to a
registration statement filed under the Securities Act of 1933, as amended, or to
any underwriter of any such offering, (iv) shares of Common Stock or Rights
issued in connection with any stock split or stock dividend by the Company, (v)
shares of Common Stock or Rights which the Company and the holders of at least
50% of the issued and outstanding shares issuable upon exercise of the Class A
Warrants agree in writing at any time and from time to time should not be
subject to the provisions of this Section 5(g); (vi) stock options granted to
the Company's directors, officers, employees, consultants and independent
contractors pursuant to bona fide stock option or employee benefit plans of the
Company approved by a majority of either the Board of Directors of the Company
or committee of the Board of Directors of the Company delegated to perform such
function, or shares of Common Stock issued upon exercise thereof, (vii) shares
of Common Stock issued upon exercise of Rights outstanding on the Initial Issue
Date, or (viii) shares of Common Stock issued upon exercise, exchange or
conversion of any Rights referred to in any preceding clause of this sentence.
No adjustment in the number of shares of Common Stock issuable or issued upon
exercise, exchange or conversion of any of the Rights referred to in the
immediately preceding sentence by reason of original provisions thereof which
provide for an automatic adjustment upon the occurrence of specified events
shall be deemed to be an issuance or proposed issuance of New Shares. For the
purposes of the definition of "New Shares", the term "Rights" shall mean any
options, warrants, convertible or exchangeable securities or other rights,
however denominated, to subscribe for, purchase or otherwise acquire Common
Stock or other Rights to subscribe for purchase or otherwise acquire Common
Stock, with or without payment of additional consideration in cash or property,
either immediately or upon the occurrence of a specified date or a specified
event or the satisfaction or happening of any other condition or contingency.
(ii) The adjustments provided for in this Section 5(g)
shall be made for all Subsequent Financings to the extent the aggregate gross
proceeds thereof do not exceed the difference of $40,000,000 less the aggregate
amount of Term Loans made by the Holder on the date of original issuance and by
all other holders of Class A Warrants and Class B Warrants on or prior to such
date.
(h) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Exercise Calculation Price or the number of
shares of Common Stock or other securities issuable upon exercise of this
Warrant, the Company, at its expense, reasonably promptly after such adjustment
or readjustment, shall cause independent public accountants of recognized
standing selected by the Company (who may be the independent public accountants
then auditing the books of the Company) to compute such adjustment or
readjustment in accordance with the provisions hereof and to prepare a statement
showing such adjustment or readjustment, and shall mail such statement, by first
class mail, postage prepaid, to the Holder of this Warrant at the Holder's
address as shown in the Company's books and records. The statement shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based.
Section 6. RESERVATION AND ISSUANCE OF COMMON STOCK
The Company shall at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue fully
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<PAGE> 8
paid and non-assessable shares of Common Stock upon the exercise of this
Warrant, the number of shares of Common Stock deliverable upon exercise of this
Warrant, and the shares of Common Stock issued upon exercise of this Warrant and
full payment therefor in accordance with the provisions hereof shall be validly
issued, fully paid, non-assessable and free of preemptive rights.
Section 7. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within ten days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise under the
terms of this Warrant.
Section 8. NO IMPAIRMENT. The Company will not, by amendment
of its Certificate of Incorporation or through any reorganization, acquisition,
business combination, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant. Without limiting the
generality of the foregoing, the Company:
(a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise; and
(b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock on the exercise of this Warrant from
time to time outstanding.
Section 9. OTHER NOTICES. In case at any time:
(a) The Company shall declare any cash dividend on its Common
Stock;
(b) The Company shall pay any dividend payable in capital
stock upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(c) The Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of earnings or earned
surplus or dividends payable in Common Stock);
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another entity (other than a subsidiary of the Company in
which the Company is the surviving or continuing
8
<PAGE> 9
corporation and no change occurs in the Company's Common Stock), or sale of all
or substantially all of its assets to, another person or entity;
(e) There shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Company; or
(f) The Company proposes to take any other action or an event
occurs which would require an adjustment pursuant to Section 5;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the Holder at the address of such Holder as shown on the books of
the Company within three business days thereafter.
Section 10. GOVERNING LAW AND JURISDICTION. This Warrant shall
be governed by and interpreted under the law of the State of New York applicable
to contracts negotiated, entered into and to be performed solely in that State,
without regard to the choice or conflicts of law principles of such State.
Section 11. SEVERABILITY. If any part of this Warrant is held
to be unenforceable or invalid under, or in conflict with, the applicable law of
any jurisdiction, then the unenforceable, invalid or conflicting part shall be
narrowed or replaced, to the extent possible, with a construction in such
jurisdiction that effectuates the intent of the parties regarding this Warrant
and the unenforceable, invalid or conflicting part. Notwithstanding the
unenforceability, invalidity or conflict with applicable law of any part of this
Warrant, the remaining parts shall be valid, enforceable and binding on the
parties.
Section 12. BINDING EFFECT. This Warrant shall be binding
upon, enforceable by and shall inure to the benefit of the parties hereto and
their respective permitted successors or assignees. Any Holder and its permitted
successors and assignees shall be deemed to be a Holder as defined and provided
for in this Warrant.
Section 13. REGISTER; ASSIGNMENT. The Holder may assign or
transfer all or any portion of this Warrant in compliance with the terms hereof.
Any Warrants issued upon the transfer or exercise in part of this Warrant shall
be numbered and shall be registered in a Warrant Register as they are issued.
The Company shall be entitled to treat the registered holder of any Warrant on
the Warrant Register as the owner in fact thereof for all purposes and shall not
be bound to recognize any equitable or other claim to or interest in such
Warrant on the part of any other person, and shall not be liable by reason of
any registration or transfer of Warrants which are registered or to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person
9
<PAGE> 10
entitled thereto. This Warrant may be exchanged, at the option of the Holder
thereof, for another Warrant, or other Warrants of different denominations, of
like tenor and representing in the aggregate the right to purchase a like number
of Warrants (or portions thereof), upon surrender to the Company or its duly
authorized agent. Notwithstanding the foregoing, the Company shall have no
obligation to cause Warrants to be transferred on its books to any person unless
it receives an opinion from counsel reasonably satisfactory to it that such
transfer complies with the provisions of the Act, and the rules and regulations
thereunder.
Section 14. AMENDMENT; WAIVER. This Warrant may be amended
only by a writing signed by the parties hereto. Neither any failure nor any
delay on the part of any party to this Warrant in exercising any right, power or
privilege hereunder shall operate as a waiver of any rights of any such party,
unless such waiver is made by a writing executed by such party and delivered to
the other party, nor shall a single or partial exercise of any right preclude
any other or further exercise of any other right, power or privilege accorded to
any party to this Warrant.
Section 15. NOTICES.
(a) All notices permitted or required hereunder shall be in
writing and shall be delivered by hand, by leading nationwide overnight courier
or by deposit in the United States mail, postage prepaid, by registered or
certified mail, return receipt requested, addressed to the Company or the
Holder, as the case may be, at the addresses set forth below:
If to the Company:
Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
Facsimile: (954) 524-5110
Attention: Chief Financial Officer
with a copy to the General Counsel
with a copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Facsimile: (212) 407-4990
Attention: David S. Schaefer, Esq.
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<PAGE> 11
If to the Holder:
World Access, Inc.
Resurgens Plaza - Suite 2210
945 East Paces Ferry Road
Atlanta, Georgia 30326
Facsimile: 404-233-2280
Attention: W. Tod Chmar
with a copy to:
Long Aldridge & Norman
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Facsimile: 404-527-4198
Attn: Wayne N. Bradley, Esq.
(b) Notices given by mail shall be deemed effective on the
date shown on the proof of receipt of such mail. Other notices shall be deemed
given on the date of receipt. Any party hereto may change the address specified
above by written notice to the other parties hereto.
Section 16. [INTENTIONALLY OMITTED]
Section 17. ENTIRE AGREEMENT. This Warrant and the exhibit
attached hereto embody the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, oral or written, relative to said
subject matter, and each party acknowledges that there are no other
representations or warranties regarding the subjects addressed in this Warrant
or such related instruments given to the other party other than as expressly set
forth herein and therein.
Section 18. HEADINGS. The headings contained herein are for
reference purposes only and shall not affect the meaning or interpretation of
this Warrant.
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<PAGE> 12
IN WITNESS WHEREOF, the undersigned has executed this Warrant
as of October 19, 1999.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
--------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO CLASS A BRIDGE LOAN WARRANT
<PAGE> 13
EXHIBIT A
EXERCISE FORM
-------------
For Exercise of Class A Bridge Loan Warrant to Purchase
Common Stock of Long Distance International Inc.
The undersigned Warrant Holder (the "Holder") hereby elects to
exercise the right, represented by the Warrant Certificate dated __________ to
which this Exercise Form is annexed (the "Warrant"), to purchase ________ shares
of common stock of Long Distance International Inc. (the "Company"), par value
$0.001 per share ("Common Stock"), for a purchase price of $0.001 per share, and
tenders payment in full for such Common Stock with this form in the amount of
$_______ in accordance with the terms of the Warrant. The undersigned requests
that the Company issue and register a certificate representing such shares of
Common Stock in the name of the Holder and deliver such certificate to the
address set forth below.
If the portion of the Common Stock purchased on their exercise
of the Warrant is less than all of the Common Stock purchasable under the
Warrant, then the undersigned requests that a new Warrant certificate
representing the balance of the Common Stock as to which the Warrant is not
exercised be issued by the Company to the Holder and be delivered to the address
set forth below.
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Date: ----------------------------------------
WARRANT HOLDER
By:
-------------------------------
Name:
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<PAGE> 1
EXHIBIT 10.29
THE SECURITIES EVIDENCED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS THE
COMPANY HAS RECEIVED AN OPINION OF ITS COUNSEL OR COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
LONG DISTANCE INTERNATIONAL INC.,
A FLORIDA CORPORATION
WARRANT CERTIFICATE
Class B Bridge Loan Warrant to Purchase Common Stock
----------------------------------------------------
Long Distance International Inc., a Florida Corporation (the
"Company"), hereby certifies that, for value received, World Access, Inc., a
Delaware corporation, with offices at Resurgens Plaza - Suite 2210, 945 East
Paces Ferry Road, Atlanta, Georgia 30326 (the "Holder"), is entitled to purchase
from the Company [number]1 of fully paid, validly issued and non-assessable
shares of common stock, par value $0.001 per share, of the Company ("Common
Stock") at an exercise price of $0.001 per share (the "Exercise Price") at any
time or from time to time from and after the Initial Exercise Date up to and
including October 19, 2004. This Warrant shall automatically become null and
void and of no further force and effect in the event the loans outstanding under
the Term Loan Agreement dated as of the date hereof (the "Loan Agreement"),
among the Holder, LDI Acquisition Sub Inc., Long Distance International Inc.,
the lenders party thereto (the "Lenders"), and Frederick A. DeLuca, as
collateral agent for the Lenders, are repaid in full on or prior to February 19,
2000 (the "Early Payment Date"). In the event of such repayment, the Holder
shall deliver this Warrant Certificate to the Company marked "void".
This Warrant is one of a series of warrants designated the
Class B Bridge Loan Warrants to Purchase Common Stock ("Class B Warrants") and
has been issued with a companion warrant in a series designated the Class A
Bridge Loan Warrants to Purchase
- -------------------
(1) This number ("ws") will be determined in accordance with the
following formula:
P
WS = (-----)(OS) - A
1 - P
p = the product of (a) 0.50, multiplied by (b) the quotient of
the amount of the Term Loan made by the Holder divided by $40 million,
os = 87,805,999, the number of outstanding shares of the
Company on a fully diluted basis immediately prior to the initial
closing under the Term Loan Agreement.
A = The number of shares subject to the Class A Warrant issued
as a companion to this Class B Warrant.
<PAGE> 2
Common Stock ("Class A Warrants"). The Class B Warrants and the Class A Warrants
are being issued to the initial holders thereof pursuant to the Loan Agreement,
as additional consideration for, and as an inducement to make, the Term Loans
(as defined in the Loan Agreement). The number of shares of Common Stock to be
received upon the exercise of this Warrant may be adjusted from time to time as
provided herein.
Section 1. EXERCISE OF WARRANT. Subject to the second sentence
of the introductory paragraph of this Warrant, this Warrant may be exercised in
whole or in part at any time or from time to time on or after the Initial
Exercise Date of this Warrant; provided, however, that if the day of exercise is
a day on which banking institutions in the State of Florida are authorized by
law to close, then the exercise by the Holder shall be deemed to take place on
the next succeeding day that is not such a bank closing day. The Initial
Exercise Date shall, subject to the second sentence of the introductory
paragraph of this Warrant, mean the date on which the first to occur of the
following events has occurred: (a) the sixteenth month anniversary date of the
original issuance of this Warrant Certificate; (b) the date the Company
consummates an initial public offering of shares of Common Stock pursuant to an
effective registration statement under the Securities Act of 1933; (c) the date
the Company consummates a sale of all or a substantial portion of the business
of the Company and its consolidated subsidiaries taken as a whole, whether by
way of merger, consolidation, sale of assets or sale of capital stock; (d) the
date a bankruptcy petition is filed by or against the Company, LDI Acquisition
Sub Inc. or a material operating subsidiary of LDI Acquisition Sub Inc.; (e) the
effective date of a waiver under the Indenture, dated as of April 13, 1998 (the
"Indenture"), pursuant to which the Company's 12 1/4% Senior Notes Due 2008 were
issued, the effect of which waiver would be to waive the requirement that the
Company repurchase the Notes pursuant to Section 4.12 of the Indenture because
of a Change of Control (as defined in the Indenture); (f) the date on which the
exercise of all Class A Warrants and all Class B Warrants would not result in a
Change of Control; (g) the date on which a Change of Control under the Indenture
occurs for a reason other than an exercise of any of the Class A Warrants or
Class B Warrants issued under the Term Loan Agreement and a waiver with respect
thereto described in clause (e) above is not obtained; and (h) the date on which
Clifford Friedland and David Glassman cease to be directors of the Company
(other than by reason of their death or disability) or beneficially own in the
aggregate less than 5,000,000 shares of the Common Stock; PROVIDED, THAT,
notwithstanding the foregoing, in no event shall the Initial Exercise Date be
earlier than the Early Payment Date. This Warrant shall be exercised by
presentation and surrender of this Warrant to the Company at its principal
office, with the Exercise Form annexed hereto as EXHIBIT A duly executed by the
Holder, accompanied by payment in full of an amount equal to the product of the
number of shares of Common Stock being purchased by the Holder hereunder and
one-tenth of one cent ($0.001). Payment for such shares shall be made to the
Company in U.S. dollars in cash, by wire transfer or by certified or official
bank check payable to the order of the Company. Promptly after each such
exercise of this Warrant, the Company shall issue and deliver to the Holder a
certificate or certificates for the Common Stock issuable upon such exercise,
registered in the name of the Holder. If this Warrant should be exercised in
part only, the Company shall, upon surrender of this Warrant for cancellation,
promptly execute and deliver a new Warrant, in substantially the form of this
Warrant, evidencing the rights of the Holder thereof to purchase the balance of
the Common Stock purchasable hereunder. Upon the last to occur of receipt by the
Company of this Warrant at its office in proper form for exercise, together with
a duly executed Exercise Form, and receipt by the Company of full payment of the
exercise price for the shares
2
<PAGE> 3
of Common Stock then being purchased hereunder, in accordance with the terms
hereof, (i) the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder, and (ii) such shares of Common Stock shall be fully paid and
non-assessable and free from all preemptive rights of any shareholder and all
taxes, liens and charges, with respect to the issue thereof. The Company shall
pay any stamp or issue taxes payable in connection with issuance of Common Stock
under this Warrant.
Section 2. FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. With respect to any fraction of a share called for upon any exercise
hereof, the Company shall pay to the Holder an amount in cash (rounded to the
nearest cent) equal to such fraction multiplied by one-tenth of one cent
($0.001) provided such amount is no less than one cent.
Section 3. LOSS OF WARRANT. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant (including any reasonable written certification that the Company
may require), and (in the case of loss, theft or destruction) of an agreement
indemnifying the Company in a form reasonably satisfactory to it, and (in the
case of mutilation) upon surrender and cancellation of this Warrant, the Company
shall execute and deliver to the Holder a new Warrant of like terms and date.
Section 4. RIGHTS OF THE HOLDER. This Warrant shall not
entitle the Holder hereof to any voting or other rights of a shareholder of the
Company, either at law or in equity, or to any notice of meetings of
shareholders or of any other proceedings of the Company, except as provided in
this Warrant, and except in connection with Common Stock that the Holder
purchases as provided herein. No provision of this Warrant, in the absence of
the purchase by the Holder of Common Stock hereunder, shall give rise to any
liability of such Holder for the exercise price or as a shareholder of the
Company, whether to the Company or creditors of the Company. The shares of
Common Stock issued upon exercise of this Warrant shall be subject to a stop
transfer order and the certificate or certificates evidencing such shares shall
bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), PURSUANT TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. HOWEVER, SUCH SHARES MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii) A SEPARATE
REGISTRATION STATEMENT UNDER SUCH ACT, OR (iii) AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
and shall bear all legends as required pursuant to the other agreements to which
such Holder and the Company are a party. Any holder of any such certificate or
instrument bearing the foregoing
3
<PAGE> 4
legend shall be entitled to promptly receive from the Company, without expense,
a new certificate or instrument of identical tenor representing the same kind of
securities and the same number or other amount thereof not bearing such legend
if such securities shall have been effectively registered under the Act and are
sold or otherwise disposed of in accordance with the intended method of
disposition by the seller thereof set forth in the registration statement, or
such securities may be freely transferred by such holder by reason of an
exemption from registration under the Act, or such legend otherwise is not
required in order to ensure compliance with the Act. The opinion of Loeb & Loeb
LLP or other legal counsel selected by such holder and reasonably satisfactory
to the Company with respect to any of the foregoing or with respect to any
question concerning whether any proposed transfer of any shares of common stock
would violate the Act, shall be sufficient to determine the issue.
Section 5. ADJUSTMENTS.
(a) ADJUSTMENT OF PRICE AND NUMBER OF COMMON STOCK. The
initial Exercise Calculation Price per share shall be one-tenth of one cent
($0.001). The Exercise Calculation Price shall be subject to adjustment from
time to time as provided in Section 5(b), (c) and (h). Upon each adjustment, the
Holder shall thereafter be entitled to purchase, at one-tenth of one cent
($0.001), the number of shares of Common Stock obtained by multiplying the
Exercise Calculation Price in effect immediately prior to such adjustment by the
number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment, and dividing the product thereof by the
Exercise Calculation Price resulting from such adjustment.
(b) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company at any time or from time to time after the date of this Warrant (the
"Commitment Date") effects a subdivision of the outstanding Common Stock of the
Company, the Exercise Calculation Price then in effect immediately before that
subdivision shall be proportionately decreased; and conversely, if the Company
at any time or from time to time after the Commitment Date combines the
outstanding shares of Common Stock into a smaller number of shares, the Exercise
Calculation Price then in effect immediately before the combination shall be
proportionately increased. Any adjustment under this subsection (b) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
(c) ADJUSTMENTS FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS. If
the Company at any time after the Commitment Date makes, or fixes a record date
for the determination of holders of Common Stock entitled to receive, a dividend
or other distribution payable in additional shares of Common Stock, then and in
each such event the Exercise Calculation Price then in effect shall be decreased
as of the time of such issuance or, in the event such record date is fixed, as
of the close of business on such record date, by multiplying the Exercise
Calculation Price then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
4
<PAGE> 5
(d) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the
event the Company at any time after the Commitment Date makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in securities (including options or
warrants for Common Stock) of the Company other than shares of Common Stock,
then and in each such event provision shall be made by the Company so that the
Holder of this Warrant shall receive upon exercise thereof, in addition to the
number of shares of Common Stock receivable thereupon, the amount of securities
of the Company which the Holder would have received had this Warrant been
exercised to purchase Common Stock immediately before the time of such issuance
or the close of business on such record date and had the Holder thereafter,
during the period from the date of such event to and including the exercise
date, retained such securities receivable by the Holder as aforesaid during such
period, subject to all other adjustments called for during such period under
this Section 5 with respect to the rights of the Holder, and subject to further
adjustment as provided herein.
(e) ADJUSTMENTS FOR THE RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. In the event that at any time or from time to time after the
Commitment Date, the Common Stock issuable upon the exercise of this Warrant is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets, provided for elsewhere in this Section
5), then and in any such event the Holder of this Warrant shall have the right
thereafter to exercise this Warrant and receive the kind and amount of stock and
other securities and property receivable, upon such recapitalization,
reclassification or other change, which the Holder would have received had this
Warrant been exercised to purchase Common Stock immediately before the time of
such recapitalization, reclassification or change, and had the Holder
thereafter, during the period from the date of such event to and including the
exercise date, retained such securities receivable by the Holder as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 5 with respect to the rights of the Holder, and
subject to further adjustment as provided herein. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the Holder hereof after the reorganization,
merger, consolidation or sale to the end that the provision of this Section 5
(including adjustment of the Exercise Calculation Price then in effect and the
number of shares purchasable upon exercise hereof) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(f) REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Commitment Date there is a
capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 5) or a merger or consolidation of the Company with or
into another entity, or the sale of all or substantially all of the Company's
properties and assets to any other person or entity, then as part of such
reorganization, merger, consolidation or sale, provision shall be made so that
the Holder of this Warrant shall thereafter be entitled to receive upon exercise
of the Warrant the number of shares of stock or other securities or property
which the Holder would have received had this Warrant been exercised to purchase
Common Stock immediately before the time of such capital reorganization, merger,
consolidation or sale, and had the Holder thereafter, during the period from the
date of such event to and including the exercise date, retained such securities
receivable by the Holder as
5
<PAGE> 6
aforesaid during such period, subject to all other adjustments called for during
such period under this Section 5 with respect to the rights of the Holder, and
subject to further adjustment as provided herein. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the Holder hereof after the reorganization,
merger, consolidation or sale to the end that the provision of this Section 5
(including adjustment of the Exercise Calculation Price then in effect and the
number of shares purchasable upon exercise hereof) shall be applicable after
that event and be as nearly equivalent as may be practicable.
(g) OTHER ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT
SHARES.
(i) In case the Company shall, at any time after the date
hereof and in connection with an equity investment in or a loan to the Company
and/or LDI Acquisition Sub Inc., (a "SUBSEQUENT FINANCING") issue or sell any
shares of Common Stock and/or any options, rights or warrants to subscribe for
shares of Common Stock ("NEW SHARES"), then the number of shares of Common Stock
issuable upon exercise of this Warrant shall be increased in accordance with,
and subject to, the following provisions: (A) The number of additional shares of
Common Stock issuable upon exercise of this Warrant shall be determined in
accordance with the following formula:
X= (WS) (NS)
---------
OS
X = The number of additional shares of Common Stock issuable upon
exercise of this Warrant
WS = The number of shares of Common Stock issuable upon exercise of
this Warrant immediately prior to the issuance or sale of New
Shares.
NS = The number of shares of Common Stock issued or sold giving
rise to the adjustment pursuant to this Section 5(g) , and/or
the maximum number of Shares of Common Stock issuable upon
exercise, conversion or exchange of the Rights issued or sold
giving rise to the adjustment pursuant to this Section 5(g).
OS = 87,805,999
(B) Upon the expiration of any rights, options, warrants or
convertible or exchangeable securities for which an adjustment was made
hereunder, if any thereof shall not have been exercised, the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
it been originally adjusted (or had the original adjustment not been required,
as the case may be) as if (i) the only rights, options, warrants or convertible
or exchangeable securities so issued were the rights, options, warrants or
convertible or exchangeable securities, if any, actually exercised, converted or
exchanged and (ii) such rights, options, warrants or convertible or exchangeable
securities, if any, were exercised, converted or exchanged for the consideration
actually received by the Company upon such exercise,
6
<PAGE> 7
conversion or exchange plus the aggregate consideration, if any, actually
received by the Company for the issuance, sale or grant of all such rights,
options, warrants or convertible or exchangeable securities whether or not
exercised, converted or exchanged.
(C) Except as set forth below, "NEW SHARES" shall mean any
shares of Common Stock or Rights issued or sold or proposed to be issued or sold
by the Company on or after the initial issue date (the "Initial Issue Date") of
the initial Class A Warrants and Class B Warrants under the Term Loan Agreement.
"NEW SHARES" does not include (i) the Class A Warrants and the Class B Warrants
issued and sold by the Company or any shares of Common Stock issued upon
exercise of any thereof, (ii) shares of Common Stock or Rights issued in
consideration of the acquisition of all or any portion of a business as a going
concern, whether such acquisition shall be effected by a purchase of assets,
exchange of securities, merger, consolidation, reorganization or otherwise,
(iii) shares of Common Stock or Rights offered or proposed to be offered to the
public pursuant to a registration statement filed under the Securities Act of
1933, as amended, or to any underwriter of any such offering, (iv) shares of
Common Stock or Rights issued in connection with any stock split or stock
dividend by the Company, (v) shares of Common Stock or Rights which the Company
and the holders of at least 50% of the issued and outstanding shares issuable
upon exercise of the Class B Warrants agree in writing at any time and from time
to time should not be subject to the provisions of this Section 5(g); (vi) stock
options granted to the Company's directors, officers, employees, consultants and
independent contractors pursuant to bona fide stock option or employee benefit
plans of the Company approved by a majority of either the Board of Directors of
the Company or committee of the Board of Directors of the Company delegated to
perform such function, or shares of Common Stock issued upon exercise thereof,
(vii) shares of Common Stock issued upon exercise of Rights outstanding on the
Initial Issue Date, or (viii) shares of Common Stock issued upon exercise,
exchange or conversion of any Rights referred to in any preceding clause of this
sentence. No adjustment in the number of shares of Common Stock issuable or
issued upon exercise, exchange or conversion of any of the Rights referred to in
the immediately preceding sentence by reason of original provisions thereof
which provide for an automatic adjustment upon the occurrence of specified
events shall be deemed to be an issuance or proposed issuance of New Shares. For
the purposes of the definition of "New Shares", the term "Rights" shall mean any
options, warrants, convertible or exchangeable securities or other rights,
however denominated, to subscribe for, purchase or otherwise acquire Common
Stock or other Rights to subscribe for purchase or otherwise acquire Common
Stock, with or without payment of additional consideration in cash or property,
either immediately or upon the occurrence of a specified date or a specified
event or the satisfaction or happening of any other condition or contingency.
(ii) The adjustments provided for in this Section 5(g)
shall be made for all Subsequent Financings to the extent the aggregate gross
proceeds thereof do not exceed the difference of $40,000,000 less the aggregate
amount of Term Loans made by the Holder on the date of original issuance and by
all other holders of Class A Warrants and Class B Warrants on or prior to such
date.
(h) ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Exercise Calculation Price or the number of
shares of Common Stock or other securities issuable upon exercise of this
Warrant, the Company, at its expense, reasonably
7
<PAGE> 8
promptly after such adjustment or readjustment, shall cause independent public
accountants of recognized standing selected by the Company (who may be the
independent public accountants then auditing the books of the Company) to
compute such adjustment or readjustment in accordance with the provisions hereof
and to prepare a statement showing such adjustment or readjustment, and shall
mail such statement, by first class mail, postage prepaid, to the Holder of this
Warrant at the Holder's address as shown in the Company's books and records. The
statement shall set forth such adjustment or readjustment, showing in detail the
facts upon which such adjustment or readjustment is based.
Section 6. RESERVATION AND ISSUANCE OF COMMON STOCK
The Company shall at all times have authorized, and reserve
and keep available, free from preemptive rights, for the purpose of enabling it
to satisfy any obligation to issue fully paid and non-assessable shares of
Common Stock upon the exercise of this Warrant, the number of shares of Common
Stock deliverable upon exercise of this Warrant, and the shares of Common Stock
issued upon exercise of this Warrant and full payment therefor in accordance
with the provisions hereof shall be validly issued, fully paid, non-assessable
and free of preemptive rights.
Section 7. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon
as practicable after the exercise of this Warrant in full or in part, and in any
event within ten days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to Section 1 or otherwise under the
terms of this Warrant.
Section 8. NO IMPAIRMENT. The Company will not, by amendment
of its Certificate of Incorporation or through any reorganization, acquisition,
business combination, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of this Warrant. Without limiting the
generality of the foregoing, the Company:
(a) will not increase the par value of any shares of stock
receivable on the exercise of this Warrant above the amount payable therefor on
such exercise; and
(b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock on the exercise of this Warrant from
time to time outstanding.
Section 9. OTHER NOTICES. In case at any time:
8
<PAGE> 9
(a) The Company shall declare any cash dividend on its Common
Stock;
(b) The Company shall pay any dividend payable in capital
stock upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(c) The Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or assets (other
than cash dividends or cash distributions payable out of earnings or earned
surplus or dividends payable in Common Stock);
(d) There shall be any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation or merger
of the Company with another entity (other than a subsidiary of the Company in
which the Company is the surviving or continuing corporation and no change
occurs in the Company's Common Stock), or sale of all or substantially all of
its assets to, another person or entity;
(e) There shall be a voluntary or involuntary dissolution,
liquidation, bankruptcy, assignment for the benefit of creditors, or winding up
of the Company; or
(f) The Company proposes to take any other action or an event
occurs which would require an adjustment pursuant to Section 5;
then, in any one or more of said cases, the Company shall give written notice,
addressed to the Holder at the address of such Holder as shown on the books of
the Company within three business days thereafter.
Section 10. GOVERNING LAW AND JURISDICTION. This Warrant shall
be governed by and interpreted under the law of the State of New York applicable
to contracts negotiated, entered into and to be performed solely in that State,
without regard to the choice or conflicts of law principles of such State.
Section 11. SEVERABILITY. If any part of this Warrant is held
to be unenforceable or invalid under, or in conflict with, the applicable law of
any jurisdiction, then the unenforceable, invalid or conflicting part shall be
narrowed or replaced, to the extent possible, with a construction in such
jurisdiction that effectuates the intent of the parties regarding this Warrant
and the unenforceable, invalid or conflicting part. Notwithstanding the
unenforceability, invalidity or conflict with applicable law of any part of this
Warrant, the remaining parts shall be valid, enforceable and binding on the
parties.
Section 12. BINDING EFFECT. This Warrant shall be binding
upon, enforceable by and shall inure to the benefit of the parties hereto and
their respective permitted successors or assignees. Any Holder and its permitted
successors and assignees shall be deemed to be a Holder as defined and provided
for in this Warrant.
Section 13. REGISTER; ASSIGNMENT. The Holder may assign or
transfer all or any portion of this Warrant in compliance with the terms hereof.
Any Warrants issued upon the transfer or exercise in part of this Warrant shall
be numbered and shall be registered in a Warrant Register as they are issued.
The Company shall be entitled to treat the registered holder of any
9
<PAGE> 10
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable by
reason of any registration or transfer of Warrants which are registered or to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative, or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his or
its authority shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrants
(or portions thereof), upon surrender to the Company or its duly authorized
agent. Notwithstanding the foregoing, the Company shall have no obligation to
cause Warrants to be transferred on its books to any person unless it receives
an opinion from counsel reasonably satisfactory to it that such transfer
complies with the provisions of the Act, and the rules and regulations
thereunder.
Section 14. AMENDMENT; WAIVER. This Warrant may be amended
only by a writing signed by the parties hereto. Neither any failure nor any
delay on the part of any party to this Warrant in exercising any right, power or
privilege hereunder shall operate as a waiver of any rights of any such party,
unless such waiver is made by a writing executed by such party and delivered to
the other party, nor shall a single or partial exercise of any right preclude
any other or further exercise of any other right, power or privilege accorded to
any party to this Warrant.
Section 15. NOTICES.
(a) All notices permitted or required hereunder shall be in
writing and shall be delivered by hand, by leading nationwide overnight courier
or by deposit in the United States mail, postage prepaid, by registered or
certified mail, return receipt requested, addressed to the Company or the
Holder, as the case may be, at the addresses set forth below:
If to the Company:
Long Distance International Inc.
4150 SW 28th Way
Ft. Lauderdale, Florida 33312
Facsimile: (954) 524-5110
Attention: Chief Financial Officer
with a copy to:
Attention: General Counsel
10
<PAGE> 11
with a copy to:
Loeb & Loeb LLP
345 Park Avenue
New York, New York 10154
Facsimile: (212) 407-4990
Attention: David S. Schaefer, Esq.
If to the Holder:
World Access, Inc.
Resurgens Plaza - Suite 2210
945 East Paces Ferry Road
Atlanta, Georgia 30326
Facsimile: 404-233-2280
Attention: W. Tod Chmar
with a copy to:
Long Aldridge & Norman
303 Peachtree Street, Sutie 5300
Atlanta, Georgia 30308
Facsimile: 404-527-41989
Attention: Wayne N. Bradley, Esq.
(b) Notices given by mail shall be deemed effective on the
date shown on the proof of receipt of such mail. Other notices shall be deemed
given on the date of receipt. Any party hereto may change the address specified
above by written notice to the other parties hereto.
Section 16. [INTENTIONALLY OMITTED]
Section 17. ENTIRE AGREEMENT. This Warrant and the exhibit
attached hereto embody the entire agreement and understanding of the parties
hereto with respect to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings, oral or written, relative to said
subject matter, and each party acknowledges that there are no other
representations or warranties regarding the subjects addressed in this Warrant
or such related instruments given to the other party other than as expressly set
forth herein and therein.
Section 18. HEADINGS. The headings contained herein are for
reference purposes only and shall not affect the meaning or interpretation of
this Warrant.
11
<PAGE> 12
IN WITNESS WHEREOF, the undersigned has executed this Warrant
as of October 19, 1999.
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
------------------------------
David R. Hess
Chief Executive Officer
SIGNATURE PAGE TO CLASS B BRIDGE LOAN WARRANT
<PAGE> 13
EXHIBIT A
EXERCISE FORM
-------------
For Exercise of Class B Bridge Loan Warrant to Purchase
Common Stock of Long Distance International Inc.
The undersigned Warrant Holder (the "Holder") hereby elects to
exercise the right, represented by the Warrant Certificate dated __________ to
which this Exercise Form is annexed (the "Warrant"), to purchase ________ shares
of common stock of Long Distance International Inc. (the "Company"), par value
$0.001 per share ("Common Stock"), for a purchase price of $0.001 per share, and
tenders payment in full for such Common Stock with this form in the amount of
$_______ in accordance with the terms of the Warrant. The undersigned requests
that the Company issue and register a certificate representing such shares of
Common Stock in the name of the Holder and deliver such certificate to the
address set forth below.
If the portion of the Common Stock purchased on their exercise
of the Warrant is less than all of the Common Stock purchasable under the
Warrant, then the undersigned requests that a new Warrant certificate
representing the balance of the Common Stock as to which the Warrant is not
exercised be issued by the Company to the Holder and be delivered to the address
set forth below.
- ----------------------------------------------
- ----------------------------------------------
- ----------------------------------------------
Date: ----------------------------------------
WARRANT HOLDER
By:
--------------------------
Name:
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,405,230
<SECURITIES> 0
<RECEIVABLES> 18,385,022
<ALLOWANCES> (3,260,000)
<INVENTORY> 0
<CURRENT-ASSETS> 80,840,997
<PP&E> 50,388,476
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16,971,936
0
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<NET-INCOME> (102,843,906)
<EPS-BASIC> (1.81)
<EPS-DILUTED> (1.81)
</TABLE>
