-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H4c/uGZs3CjnfNe2iTV8dZSk3xqA7D8iEVJua2WN/vMR5m8TdhACmb4GHg6wBGKm lPuSVGRtvHaDGCmZ04l2Ww== /in/edgar/work/0000950144-00-013958/0000950144-00-013958.txt : 20001116 0000950144-00-013958.hdr.sgml : 20001116 ACCESSION NUMBER: 0000950144-00-013958 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD ACCESS INC /NEW/ CENTRAL INDEX KEY: 0001071645 STANDARD INDUSTRIAL CLASSIFICATION: [3669 ] IRS NUMBER: 582398004 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-44864 FILM NUMBER: 768552 BUSINESS ADDRESS: STREET 1: 945 EAST PACES FERRY ROAD STREET 2: SUITE 2200 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4042312025 MAIL ADDRESS: STREET 1: 945 EAST PACES FERRY ROAD STREET 2: SUITE 2200 CITY: ATLANTA STATE: GA ZIP: 30326 FORMER COMPANY: FORMER CONFORMED NAME: WAXS INC DATE OF NAME CHANGE: 19981006 S-4/A 1 g63772a1s-4a.txt WORLD ACCESS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 14, 2000 REGISTRATION NO. 333-44864 ----------------------------------------------------------------------------- ----------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ WORLD ACCESS, INC. (Exact name of Registrant as specified in its charter) ------------------------ DELAWARE 4813 58-2398004 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
945 E. PACES FERRY ROAD SUITE 2200 ATLANTA, GEORGIA 30326 (404) 231-2025 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) --------------------- BRYAN D. YOKLEY EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WORLD ACCESS, INC. 945 E. PACES FERRY ROAD SUITE 2200 ATLANTA, GEORGIA 30326 (404) 231-2025 (Name, address, including zip code, and telephone number, including area code, of agent for service) COPIES OF COMMUNICATIONS TO: LEONARD A. SILVERSTEIN, ESQ. LONG ALDRIDGE & NORMAN LLP 5300 ONE PEACHTREE CENTER 303 PEACHTREE STREET ATLANTA, GEORGIA 30308-3201 (404) 527-4000 --------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: Upon consummation of the tender offer by World Access for all of the issued and outstanding shares of stock of TelDaFax Aktiengesellschaft described herein. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. [ ] --------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 SPECIAL MEETING OF STOCKHOLDERS BUSINESS COMBINATION PROPOSED -- YOUR VOTE IS VERY IMPORTANT The board of directors of World Access, Inc. and the supervisory board of TelDaFax Aktiengesellschaft have agreed to combine the businesses of World Access and TelDaFax. Under the TelDaFax purchase agreement, World Access agreed to acquire shares of TelDaFax in five transactions, which are discussed in detail in the accompanying proxy statement/prospectus. World Access has completed one of the five transactions and currently owns approximately 33% of TelDaFax. Assuming World Access acquires all of the outstanding TelDaFax shares at an exchange ratio of 1.025 shares of World Access common stock for each share of TelDaFax stock, it will issue a total of approximately 34.7 million shares of its common stock in the TelDaFax transactions. Your approval of the TelDaFax transactions constitutes your approval of World Access' issuance of the shares in the TelDaFax transactions. The World Access common stock is traded on the Nasdaq National Market under the symbol "WAXS." The closing price for the World Access common stock on November 10, 2000 was $4.0625 per share. FOR A DISCUSSION OF RISK FACTORS YOU SHOULD CONSIDER IN EVALUATING THE TELDAFAX TRANSACTIONS, SEE "RISK FACTORS" BEGINNING ON PAGE 15. World Access cannot complete the TelDaFax transactions without the approval of the World Access stockholders. World Access has scheduled a special meeting for its stockholders to vote on the TelDaFax transactions that have not been completed. A proxy statement/prospectus accompanies this letter and provides detailed information about the special meeting and the TelDaFax transactions. In addition, you may obtain information about World Access from documents it has filed with the Securities and Exchange Commission. We urge you to read the proxy statement/prospectus carefully. The date, time and place of the special meeting is as follows: December 14, 2000 1:00 p.m., local time 945 E. Paces Ferry Road Atlanta, Georgia 30326 The World Access board of directors recommends that you vote to approve the TelDaFax transactions. Whether or not you plan to attend the special meeting in person, please complete, sign and date the accompanying proxy card and return it in the enclosed prepaid envelope. Your prompt cooperation will be greatly appreciated. /s/ John D. Phillips John D. Phillips Chairman and Chief Executive Officer World Access, Inc. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The proxy statement/prospectus is dated November 14, 2000 and was first mailed to stockholders on or about November 14, 2000. 3 WHERE YOU CAN FIND MORE INFORMATION ABOUT WORLD ACCESS Federal securities laws require World Access to file information with the Securities and Exchange Commission concerning its business and operations. Accordingly, World Access files annual, quarterly and special reports, proxy statements and other information with the SEC. You can read and copy this information at the following locations: Public Reference Room New York Regional Office Chicago Regional Office Judiciary Plaza, Seven World Trade Center Northwest Atrium Center 450 Fifth Street, N.W. Suite 1300 500 West Madison Street Room 1024 New York, New York 10048 Suite 1400 Washington, D.C. 20549 Chicago, Illinois 60661
You can get additional information about the operation of the SEC's public reference facilities by calling the SEC at 1-800-SEC-0330. The SEC also maintains a web site (http://www.sec.gov) that contains World Access' filings and the reports, proxy and information statements and other information regarding other companies. You can also inspect information about World Access at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. This prospectus is a part of a registration statement that World Access filed with the SEC and omits certain information contained in the registration statement as permitted by the SEC. Additional information about World Access and its common stock is contained in the registration statement on Form S-4 of which this proxy statement/prospectus forms a part, including certain exhibits and schedules. You can obtain a copy of the registration statement from the SEC at the address or Internet site listed above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The SEC allows World Access and STAR Telecommunications, Inc. to "incorporate by reference" the information each company files with it, which means that World Access and STAR can disclose information to you by referring to those documents. The information incorporated by reference is considered part of this proxy statement/prospectus, and later information that World Access and STAR file with the SEC from the date of this proxy statement/prospectus will automatically update and supersede this information until the date of: - the World Access special meeting, with respect to the World Access stockholders, and - the completion of the TelDaFax tender offer with respect to the TelDaFax shareholders who receive shares of World Access common stock in the TelDaFax tender offer. World Access and STAR incorporate by reference the documents listed below and any future filings made with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of the completion of the TelDaFax tender offer: World Access SEC Filings (Commission File No. 0-29782): - Current Report on Form 8-K filed on June 26, 2000 (event date: June 7, 2000); - Current Report on Form 8-K filed on June 26, 2000 (event date: June 14, 2000); - Current Report on Form 8-K filed on April 18, 2000 (event date: April 10, 2000); - Current Report on Form 8-K filed on March 1, 2000 (event date: February 11, 2000); - Current Report on Form 8-K filed on March 1, 2000 (event date: February 11, 2000); - Current Report on Form 8-K filed on February 28, 2000 (event date: February 11, 2000), as amended by Forms 8-K/A filed on April 26, 2000 and August 4, 2000; - Current Report on Form 8-K filed on December 22, 1999 (event date: December 7, 1999), as amended by Forms 8-K/A filed on February 22, 2000, August 4, 2000 and September 11, 2000; 4 - Current Report on Form 8-K filed on February 9, 2000 (event date: February 2, 2000); - Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, as amended by Form 10-Q/A filed on September 11, 2000 and October 6, 2000; - Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as amended by Form 10-Q/A filed on August 4, 2000, September 11, 2000 and October 6, 2000; and - Annual Report on Form 10-K for the fiscal year ended December 31, 1999; as amended by Form 10-K/A filed on August 4, 2000, September 11, 2000, October 6, 2000 and November 13, 2000. STAR SEC filings (Commission File No. 000-22581): - Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, as amended by Form 10-Q/A filed on October 10, 2000; - Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, as amended by Form 10-Q/A filed on October 10, 2000; and - Annual Report on Form 10-K for fiscal year ended December 31, 1999, as amended by Form 10-K/A filed on September 11, 2000. Additional copies of documents incorporated by reference and listed above may be obtained without charge by writing to the appropriate company. To obtain copies from World Access, write to: Investor Relations, World Access, Inc., 945 E. Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, or by telephone request to (404) 231-2025. To obtain copies from STAR, write to: Investor Relations, STAR Telecommunications, Inc., 223 East De La Guerra Street, Santa Barbara, California 93101, or by telephone request to (805) 899-1962. IN ORDER TO OBTAIN THE DOCUMENTS IN TIME FOR THE WORLD ACCESS SPECIAL MEETING, YOU MUST REQUEST THE DOCUMENTS BY DECEMBER 7, 2000, WHICH IS FIVE BUSINESS DAYS PRIOR TO THE DATE OF THE WORLD ACCESS SPECIAL MEETING. 5 WORLD ACCESS, INC. 945 E. PACES FERRY ROAD, SUITE 2200 ATLANTA, GEORGIA 30326 --------------------- NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 14, 2000 --------------------- To the Stockholders of World Access, Inc.: We have agreed to a business combination with TelDaFax and have scheduled a special meeting of our stockholders at our principal executive offices located at 945 E. Paces Ferry Road, Atlanta, Georgia 30326 on December 14, 2000 at 1:00 p.m., local time, for the purposes described below: 1. Proposal 1. To consider and vote upon a proposal to approve the adoption of a Purchase and Transfer Agreement, dated as of June 14, 2000, by and among World Access, TelDaFax Aktiengesellschaft, Dr. Henning F. Klose, Apax Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account, AP Vermogensverwaltung Gesellschaft burgerlichen Rechts and A+M GmbH & Co Vermogensverwaltung KG, and the transactions contemplated by this agreement that have not been completed. Under the TelDaFax purchase agreement, we agreed to acquire shares of TelDaFax in five transactions: - Funds Share Purchase. Apax Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account and AP Vermogensverwaltung Gesellschaft burgerlichen Rechts, collectively referred to as the Apax funds, agreed to sell all of the TelDaFax shares held by them to us. On September 21, 2000, we purchased all of the TelDaFax shares owned by the Apax funds, which represents approximately 33% of the outstanding shares of TelDaFax. In this transaction, we purchased 11,178,176 shares of TelDaFax in exchange for 11,457,631 shares of World Access common stock; - Contribution. Under a Contribution/Exchange Agreement, dated August 11, 2000, by and among TelDaFax and NETnet Telekommunikations GmbH and NewTel Communications GmbH, two of our subsidiaries, after the satisfaction of the conditions in the contribution agreement, we will contribute the German operations of NETnet and NewTel to TelDaFax in exchange for 2,456,239 newly issued shares of TelDaFax or such other amount of shares that is approved by the auditor or court and agreed by the parties; - Klose Share Purchase. From June 14, 2000 until December 31, 2001, Dr. Henning F. Klose has a right to sell to World Access at Dr. Klose's option, all shares of TelDaFax stock held by Dr. Klose in up to three installments. From July 1, 2002 until December 31, 2002, World Access has a right to purchase from Dr. Klose at its option, all shares of Dr. Klose's TelDaFax stock. In the Klose share purchase, each share of TelDaFax stock will be exchanged for a number of shares of our common stock determined using the same exchange ratio as that used in the TelDaFax tender offer described below; - A+M Share Purchase. From January 1, 2001 until April 30, 2001, A+M GmbH & Co Vermogensverwaltung KG has a right to sell to us, at A+M's option, all shares of TelDaFax stock held by A+M. From July 1, 2001 until December 31, 2001, we have a right to purchase from A+M at our option, all shares of A+M's TelDaFax stock. In the A+M share purchase, each share of TelDaFax stock will be exchanged for a number of shares of our common stock determined using the same exchange ratio as that used in the TelDaFax tender offer described below; and - Tender Offer. We will conduct a tender offer for all of the issued and outstanding shares of TelDaFax. In the tender offer, we will offer as consideration 1.025 shares of our common stock for each share of TelDaFax stock. We may adjust the number of shares of our common stock we will offer as 6 consideration in the TelDaFax tender offer upward or downward as determined in good faith by our board of directors in order to complete the tender offer. 2. To transact such other business as may properly come before the special meeting or any adjournments or postponements thereof. Copies of the TelDaFax purchase agreement and the opinion of Donaldson, Lufkin & Jenrette Securities Corporation, our financial advisor, are attached as Annex A and Annex B, respectively, to the accompanying proxy statement/prospectus. Only holders of record of our common stock and convertible preferred stock on November 1, 2000 are entitled to notice of and to vote at the special meeting and any adjournments or postponements thereof. TelDaFax is not asking its stockholders for a proxy, and the TelDaFax stockholders are requested not to send us a proxy. All stockholders are cordially invited to attend the special meeting. However, to ensure your representation at the special meeting, you are urged to complete, sign and date the accompanying proxy card and return it in the enclosed prepaid envelope. You may revoke your proxy at any time before the vote. If you attend the special meeting in person, you may vote your shares personally on all matters even if you have previously returned a proxy card. If your shares are held in "street name" by your broker or other nominee, only your broker or nominee can vote your shares. You should follow the directions provided by your broker or nominee regarding how to instruct them to vote your shares. BY ORDER OF THE BOARD OF DIRECTORS /s/ W. TOD CHMAR W. Tod Chmar Executive Vice President and Secretary November 14, 2000 Atlanta, Georgia 7 TABLE OF CONTENTS
PAGE ---- Currency Presentation and Exchange Rates.................... 1 Questions and Answers About the TelDaFax Transactions....... 2 Summary of the Proxy Statement/Prospectus................... 3 Selected Historical and Pro Forma Financial Information..... 8 Comparative Per Share Data.................................. 13 Risk Factors................................................ 15 Risk factors related to the proposed transactions......... 15 Risk factors concerning the combined company's business operations............................................. 17 Risk factors concerning the companies' financial condition.............................................. 18 Risk factors concerning the companies' industry........... 20 Risk factors concerning the combined company's common stock.................................................. 23 Forward-Looking Statements.................................. 24 The World Access Special Meeting............................ 25 Proposal 1 -- The TelDaFax Transactions..................... 27 Background of the TelDaFax transactions................... 27 World Access' reasons for the TelDaFax transactions....... 27 The World Access board of directors' recommendation that stockholders approve the TelDaFax transactions......... 28 TelDaFax's reasons for the TelDaFax transactions.......... 29 Opinion of World Access' financial advisor regarding the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer.................................. 30 Completion of the TelDaFax transactions................... 35 Material U.S. federal income tax consequences of the TelDaFax transactions.................................. 36 Exchange of TelDaFax stock certificates for World Access stock certificates..................................... 38 Restrictions on sales of shares by affiliates of World Access and TelDaFax.................................... 38 Accounting treatment of the TelDaFax transactions......... 39 Regulatory filings and approvals required to complete the TelDaFax transactions.................................. 39 Stockholders do not have dissenters' rights............... 39 Interests of directors, officers and stockholders in the TelDaFax transactions.................................. 39 Description of the TelDaFax Purchase Agreement.............. 39 Purchase of the TelDaFax shares that the Apax funds own... 40 Put/call option for shares of Dr. Klose and A+M........... 40 The consideration for the purchase of TelDaFax shares of the Apax funds and Dr. Klose........................... 40 Tender offer.............................................. 40 Combination of German businesses of World Access and business of TelDaFax................................... 40 Resignation of members of the TelDaFax supervisory board.................................................. 41 Representations and warranties contained in the TelDaFax purchase agreement..................................... 41 Remedies for incorrect representations or warranties...... 42 Withdrawal from the TelDaFax purchase agreement........... 43 Restrictions on the transfer of TelDaFax shares owned by the Apax funds and Dr. Klose........................... 44 Conduct of business until transfer of TelDaFax shares owned by the Apax funds................................ 44 Service agreement with Dr. Klose and Dr. Klose's agreement not to compete......................................... 45 Related Transaction Agreements.............................. 45 Contribution agreement.................................... 45 Apax share purchase agreement and registration rights..... 46 Interests of directors and officers in the TelDaFax transactions.............................................. 46 Principal Stockholders of TelDaFax.......................... 46 TelDaFax Market Information................................. 46 Comparative Per Share and Other Market Price Data........... 47
i 8
PAGE ---- Unaudited Pro Forma Condensed Combined Financial Statements................................................ 49 Comparison of Rights of Holders of World Access Common Stock and TelDaFax Stock........................................ 92 Comparison of authorized and outstanding capital stock.... 92 Comparison of classes of common stock..................... 92 Comparison of requirements for special meeting of stockholders........................................... 92 Comparison of requirements for action by written consent in lieu of a stockholders' meeting..................... 93 Comparison of requirements for voting by written ballot... 93 Comparison of record date for determining stockholders.... 93 Comparison of procedures for nomination of directors...... 93 Comparison of number of directors......................... 94 Comparison of classified board of directors............... 94 Comparison of procedures for the removal of directors..... 94 Comparison of board of directors vacancies................ 95 Comparison of notice requirements of special meeting of the board of directors................................. 95 Comparison of procedures for amendments to the certificate of incorporation and bylaws............................ 95 Description of World Access' Capital Stock.................. 96 World Access common stock................................. 96 World Access preferred stock.............................. 96 Information Regarding TelDaFax.............................. 100 Regulatory environment.................................... 101 Services provided......................................... 101 Customers................................................. 102 Sales and marketing....................................... 103 TelDaFax Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 104 Overview.................................................. 104 Results of operations..................................... 107 Liquidity and capital resources........................... 109 Foreign currency exposure................................. 109 TelDaFax Selected Consolidated Financial Data............... 110 Description of World Access' Business and Strategy.......... 111 World Access' proposed mergers with STAR and WorldxChange........................................... 113 World Access financial projections........................ 113 World Access' third quarter special charges............... 114 Management of World Access After Completion of the TelDaFax Transactions.............................................. 115 Executive officers........................................ 115 Board of directors........................................ 115 Principal Stockholders of World Access...................... 116 Section 16(a) Beneficial Ownership Reporting Compliance..... 119 Accountants................................................. 119 Experts..................................................... 120 World Access Stockholder Proposals.......................... 121 Other Matters That May Come Before the World Access Special Meeting................................................... 121 Legal Matters............................................... 121 Index to Consolidated Financial Statements.................. F-1 ANNEX A TELDAFAX PURCHASE AGREEMENT ANNEX B OPINION OF WORLD ACCESS FINANCIAL ADVISOR
ii 9 CURRENCY PRESENTATION AND EXCHANGE RATES GENERAL On January 1, 1999, eleven member states of the European Union -- Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, The Netherlands, Portugal and Spain -- introduced the euro ("Eur" or "E") as a common legal currency among those states for "paperless" transactions, pending the substitution of euro bank notes and coins for the national currencies of the participating member states. Accordingly, as of January 1, 1999, fixed exchange rates were introduced, according to which funds denominated in the currency of one participating member state were converted into the currency of another participating member state and national currencies were converted into the euro. These fixed exchange rates do not fluctuate as a result of market conditions. As a result, the Federal Reserve Bank of New York no longer provides daily "buying rates" for the national currencies of these eleven member states. Instead, it provides daily buying rates for the euro, which can then be used to calculate the value of the eleven national currencies against the U.S. dollar by using the rate fixed on January 1, 1999. It is anticipated that on July 1, 2002, the euro will be the official legal tender for the participating member states and that euro bank notes and coins will be substituted for the national currencies of those member states which will be withdrawn from circulation. In this proxy statement/prospectus, currency amounts are expressed in German marks, euros, or dollars. TelDaFax prepares its financial statements in German marks. As of January 1, 1999, the official fixed conversion rate for converting German marks into euro amounts is DM 1.95583 per one euro. For the convenience of the reader, this proxy statement/prospectus may present translations into U.S. dollars of German marks and euro amounts. World Access does not represent that the German marks or euro amounts actually represent dollar amounts or that it is possible to convert them into dollars at the rates indicated or at any other rate. HISTORICAL EXCHANGE RATES The following table sets forth for the years 1995-1998 the high and low noon buying rates for one German mark expressed in U.S. dollars, and for the year ended and period ended December 31, 1999 and November 12, 2000, respectively, the high and low noon buying rates for one euro expressed in U.S. dollars, as well as the respective average noon buying rates during such periods, and the respective noon buying rates at the end of such periods, based upon information provided by The Federal Reserve Bank of New York:
JANUARY 1 TO YEAR ENDED DECEMBER 31, NOVEMBER 12, ------------------------------------------ ------------ 1995 1996 1997 1998 1999 2000 ------ ------ ------ ------ ------ ------------ (DM) (EURO) (EURO) High....................................... 1.5612 1.5655 1.8810 1.8542 1.1812 1.0349 Low........................................ 1.3565 1.4354 1.5413 1.6060 1.0016 0.8286 Average.................................... 1.4261 1.5070 1.7394 1.7588 1.0588 0.9270 Period End................................. 1.4345 1.5387 1.7991 1.6670 1.0070 0.8625
As of November 12, 2000, the latest practicable date for which exchange rate information was available prior to the printing of this document, the noon buying rate for one euro expressed in U.S. dollars was $0.8625. 1 10 QUESTIONS AND ANSWERS ABOUT THE TELDAFAX TRANSACTIONS Q: WHAT ARE THE TELDAFAX TRANSACTIONS? A: The board of directors of World Access and the supervisory board of TelDaFax have voted to combine the businesses of World Access and TelDaFax. To combine the companies, World Access and TelDaFax have entered into the TelDaFax purchase agreement under which World Access agreed to acquire all of the outstanding shares of TelDaFax through several transactions. Q: WHAT ARE THE STAR MERGER AND THE WORLDXCHANGE MERGER? A: World Access has entered into a merger agreement with each of STAR Telecommunications, Inc. and Communication TeleSystems International, which does business as WorldxChange Communications, under which the businesses of each of these companies will be combined with the business of World Access. In both of these mergers, which we expect to complete prior to the TelDaFax transactions, World Access will be the surviving corporation. The STAR merger and the WorldxChange merger are subject to, among other things, the approval of the stockholders of World Access. Stockholders holding a majority of the outstanding shares of voting stock of both World Access and WorldxChange have entered into agreements under which they have agreed to vote in favor of the WorldxChange merger. Therefore, it is highly likely that the WorldxChange merger will be completed. World Access has mailed a separate joint proxy statement/prospectus for these mergers to its stockholders and a special meeting has been scheduled on Thursday, December 14, 2000. Q: WHAT WILL TELDAFAX STOCKHOLDERS RECEIVE IN THE TELDAFAX TRANSACTIONS? A: In the TelDaFax tender offer, each TelDaFax stockholder on the TelDaFax record date will be entitled to exchange each TelDaFax share he or she holds for 1.025 shares of World Access common stock, as may be adjusted upward or downward in good faith by the World Access board of directors in order to complete the tender offer. Dr. Klose and A+M will receive 1.025 shares of World Access common stock in exchange for each share of TelDaFax stock they hold. However, if World Access offers more than 1.025 shares of World Access common stock for each TelDaFax share in the TelDaFax tender offer, the exchange ratio for the purchase of the TelDaFax shares from Dr. Klose and A+M will be increased to such higher ratio, and retroactively, the shares issued to the Apax funds when World Access purchased the TelDaFax shares owned by them on September 21, 2000. Assuming a value of $5.00 per share of World Access common stock and that World Access acquires 100% of the outstanding TelDaFax stock in the TelDaFax transactions, World Access will issue a total dollar value of approximately $173.4 million to the TelDaFax stockholders in consideration in the TelDaFax transactions. World Access will not issue fractional shares. Instead, TelDaFax stockholders who tender their shares will receive cash in lieu of fractional shares based on the market price of World Access common stock. The total value of the consideration World Access will pay in exchange for the TelDaFax shares will depend on the value of World Access common stock at the time the TelDaFax tender offer is completed and is illustrated in the following table:
SHARES OF VALUE OF VALUE ASSUMED VALUE OF WORLD ACCESS SHARES OF WORLD ACCESS WORLD ACCESS CASH TOTAL PER COMMON STOCK TELDAFAX OWNED RECEIVED STOCK RECEIVED VALUE TELDAFAX SHARE - ----------------------------- -------------- ------------ ------------ -------- ------- -------------- $3.00 100 102 $306.00 $1.50 $307.50 $ 3.08 4.00 100 102 408.00 2.00 410.00 4.10 5.00 100 102 510.00 2.50 512.50 5.12 6.00 100 102 612.00 3.00 615.00 6.15 7.00 100 102 714.00 3.50 717.50 7.17
Q: WHAT SHOULD I DO NOW? A: Mail your signed proxy card in the enclosed return envelope as soon as possible so your shares may be represented at the World Access special meeting. If you do not include instructions on how to vote your 2 11 properly signed proxy, your proxies will vote your shares for approval of the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement. Q: WHAT IF I WANT TO CHANGE MY VOTE? A: If you want to change your vote, send the Secretary of World Access a later-dated, signed proxy card before the World Access special meeting or attend the meeting in person. You may also revoke your proxy by sending written notice to the secretary of World Access before the meeting. SUMMARY OF THE PROXY STATEMENT/PROSPECTUS This summary highlights selected information from this document. To understand the proposed transactions fully and for a more complete description of the terms of the transactions, you should read carefully this entire document and the other documents to which we have referred you. THE COMPANIES World Access, Inc. 945 E. Paces Ferry Road Suite 2200 Atlanta, Georgia 30326 (404) 231-2025 World Access transports international long distance voice, data and Internet traffic primarily for long distance carriers and local phone companies operating in the United States and Europe. These services are provided through a combination of its own network facilities and agreements with other carriers to terminate traffic in regions of the world where World Access does not have its own network. Through the acquisition of FaciliCom International in December 1999 and NETnet International in February 2000, World Access has expanded its service offerings to include the sale of bundled voice, data and Internet services directly to small and medium sized businesses located throughout Western Europe. TelDaFax Aktiengesellschaft Rudolph-Breitscheid- Str. 1-5 35037 Marburg Tel: 49-6421-181-2002 Fax: 49-6421-181-1210 TelDaFax is a provider of bundled fixed line, wireless, Internet and e-Commerce services to business and residential customers in Germany. TelDaFax currently services more than 80,000 small and medium enterprise customers with a broad range of services, including pre-subscribed wireline, mobile, Internet access and web hosting, unified messaging, virtual private networks and e-Commerce applications. TelDaFax expects to introduce broadband direct access via SDSL and a variety of e-Business and application service provider services during 2000. WORLDXCHANGE MANAGEMENT SERVICES AGREEMENT On August 1, 2000, World Access entered into an Executive Management Services Agreement with WorldxChange under which World Access manages the operations and business affairs of WorldxChange as if the WorldxChange merger had occurred on that date. Under this agreement, World Access has assumed all financial responsibility related to the operations of WorldxChange subsequent to August 1, 2000. For the third quarter of 2000, World Access expects to record a pre-tax loss of approximately $24.0 million as a result of this agreement. WORLD ACCESS FINANCIAL PROJECTIONS On September 19, 2000, World Access announced certain financial projections for the second half of 2000, 2001, 2002 and 2004 based on a recently developed business model. World Access based its projections for 2000 on the assumption that the financial results of WorldxChange's operations would be consolidated into World Access as of August 1, 2000. World Access later determined not to consolidate WorldxChange's financial results until the WorldxChange merger is completed. Consequently, the financial projections World 3 12 Access previously announced for the third and fourth quarter of 2000 are no longer accurate. World Access' financial projections are more fully described on page 113 of this joint proxy statement/prospectus. World Access originally projected that its third quarter 2000 revenue, net loss from continuing operations and net loss from continuing operations per diluted share would be approximately $320.0 million, $44.2 million and $0.29, respectively, including the special charges discussed below. As a result of the decision to not consolidate WorldxChange as of August 1, 2000, World Access now expects its third quarter 2000 revenue to be approximately $265.0 million. Although World Access cannot currently project its third quarter 2000 net loss and net loss per diluted share from continuing operations, World Access expects these amounts to be slightly more favorable than the original projections. WORLD ACCESS THIRD QUARTER SPECIAL CHARGES On September 19, 2000, World Access also announced that its third quarter financial results would include a $30.0 to $50.0 million restructuring charge and an approximately $35.0 million special charge to selling, general and administrative expenses. World Access subsequently determined that the restructuring charge and special charge would be $38.3 million and $34.6 million, respectively. Pursuant to the Executive Management Services Agreement entered into on August 1, 2000, World Access and WorldxChange have significantly integrated their respective operations. To date, the companies have consolidated their sales forces, billing systems and network operations centers, as well as decommissioned certain switches as traffic has migrated from one network to the other. The third quarter restructuring charge includes the write-down of World Access' switching and transmission equipment expected to be taken out of service due to the integration of network and customer care operations, the write-off of certain World Access leasehold improvements due to facilities consolidation, provisions for lease commitments remaining on certain World Access facilities, employee termination benefits and related World Access integration costs. World Access took a majority of the assets included in this restructuring plan out of service in September and October 2000, and expects to take the remaining assets out of service shortly. World Access expects to complete its restructuring plan by early 2001. The special charge relates to a significant increase in reserves for doubtful accounts, due to World Access' decision to discontinue or significantly curtail services provided to certain carrier customers for credit reasons, and costs associated with integration of World Access and WorldxChange billing systems and the re-branding of European retail activities. These charges are more fully described on page 108 of this joint proxy statement/ prospectus. SUMMARY OF THE TELDAFAX TRANSACTIONS THE TELDAFAX TRANSACTIONS Under the TelDaFax purchase agreement, World Access agreed to acquire shares of TelDaFax in the five transactions described in this proxy statement/prospectus. On September 21, 2000, World Access purchased all of the TelDaFax shares owned by the Apax funds, which represents approximately 33% of the outstanding shares of TelDaFax. In this transaction, World Access purchased 11,178,176 shares of TelDaFax in exchange for 11,457,631 shares of World Access common stock. CONDITIONS TO THE COMPLETION OF THE TELDAFAX TENDER OFFER World Access cannot complete the TelDaFax tender offer until the World Access stockholders approve the issuance of the shares of World Access common stock in the TelDaFax tender offer. World Access intends to launch the TelDaFax tender offer before the World Access special meeting and to complete it no later than 20 business days after the launch. Currently, World Access does not have a sufficient number of shares of common stock authorized for issuance under its amended certificate of incorporation to complete both the STAR and WorldxChange 4 13 mergers and the TelDaFax transactions. The World Access stockholders will vote on a proposal to increase the number of shares of World Access common stock authorized, which will provide enough authorized shares of common stock to approve the STAR and WorldxChange mergers and the TelDaFax transactions at a separate special meeting scheduled for December 14, 2000. However, if the World Access stockholders do not approve an increase in the authorized shares, World Access' management will determine with which transaction(s) World Access will proceed or if an alternative structure for one of the transactions is feasible. If World Access waives any condition, World Access will consider the facts and circumstances at that time and determine whether a resolicitation of proxies from its stockholders is appropriate. The World Access board of directors will resolicit stockholder approval of the TelDaFax transactions if either company waives a material closing condition that it believes a reasonable investor would consider important when deciding to approve the TelDaFax transactions. FRANKFURT STOCK EXCHANGE LISTING OF WORLD ACCESS World Access will apply to list the World Access common stock on the Frankfurt Stock Exchange prior to the World Access special meeting. VOTE REQUIRED FOR APPROVAL The holders of a majority of the outstanding shares of World Access common stock, Series A preferred stock, Series C preferred stock, Series D preferred stock and Series E preferred stock, voting together as a single class, must approve and adopt the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement. The shares of World Access preferred stock are counted on an as-converted to common stock basis. In this proxy statement/prospectus, we refer to the World Access common stock, the Series A preferred stock, the Series C preferred stock, the Series D preferred stock and the Series E preferred stock as the World Access voting stock. World Access stockholders are entitled to cast one vote per share of World Access common stock owned or to be received upon the conversion of shares of preferred stock owned as of the close of business on November 1, 2000, the World Access record date. Directors and executive officers of World Access collectively beneficially owned approximately 12.7% of the voting power of World Access as of the World Access record date. WITHDRAWAL FROM THE TELDAFAX PURCHASE AGREEMENT The parties have the right to withdraw from the TelDaFax purchase agreement and not to complete the remaining transactions prior to the completion of the TelDaFax tender offer and the contribution of the German operations of NETnet and Newtel if: - the conditions to completing the transactions under the TelDaFax purchase agreement have not been satisfied by September 30, 2000; however, if all conditions to completion have been satisfied except the completion of the TelDaFax tender offer and the approval of the capital increase required to exchange World Access' contribution of the German activities of NETnet and NewTel, and the TelDaFax tender offer has been launched, no party may withdraw before October 31, 2000; - the supervisory board of TelDaFax does not approve the capital increase required to exchange the contribution by World Access of the German activities of NETnet and NewTel; - the supervisory board of TelDaFax changes its recommendation to outside stockholders to accept the TelDaFax tender offer; or - World Access is unable to acquire more than 50% of the shares of TelDaFax in the TelDaFax tender offer, including the TelDaFax shares World Access will own upon completion of the purchase of the TelDaFax shares from the Apax funds and under the TelDaFax contribution agreement, because of the acquisition by a third party of TelDaFax shares. World Access may also withdraw from the TelDaFax purchase agreement and not complete the remaining transactions prior to the completion of the TelDaFax tender offer and the contribution of the 5 14 German operations of NETnet and Newtel if the supervisory board of TelDaFax fails to take any action required to implement the contribution by World Access of the German activities of NETnet and NewTel or takes any action which makes such implementation impossible. SERVICE AGREEMENT WITH DR. KLOSE AND DR. KLOSE'S AGREEMENT NOT TO COMPETE Dr. Klose has agreed to continue to work for TelDaFax under a two-year fixed-term contract on terms to be agreed upon between World Access and Dr. Klose. For one year after the termination of the respective term of any employment or service agreement with TelDaFax or any affiliate, Dr. Klose and companies affiliated with him agree not to engage in any activity, enterprise or company having activities similar to the telecommunication activities of TelDaFax and its subsidiaries in the current geographical area of such activities. OPINION OF WORLD ACCESS' FINANCIAL ADVISOR In deciding to approve the TelDaFax transactions, World Access' board of directors considered an opinion from its financial advisor, Donaldson, Lufkin & Jenrette Securities Corporation, regarding the fairness to World Access, from a financial point of view, of the consideration to be paid by World Access under the TelDaFax purchase agreement. Donaldson, Lufkin & Jenrette delivered its fairness opinion to the World Access board on June 13, 2000, and the opinion relates to the fairness of the TelDaFax transactions as of that date. Some of the assumptions relied upon by Donaldson, Lufkin & Jenrette in preparing its analyses and in rendering its opinion have changed since it was asked to deliver its opinion. The following is a summary of these changes: - Assumptions used by Donaldson, Lufkin & Jenrette underlying the projections for World Access have been revised to reflect lower carrier revenues due to a reduction in the number of carrier customers resulting from a strengthened credit policy implemented by World Access. - The market price of shares of World Access common stock has decreased significantly since Donaldson, Lufkin & Jenrette rendered its opinion. World Access has not asked, and does not intend to ask, Donaldson, Lufkin & Jenrette for a new or updated fairness opinion. Donaldson, Lufkin & Jenrette has not been asked to update its analyses, and it is not opining as to the fairness of the TelDaFax transactions as of any date subsequent to the date of its opinion. Management of World Access has discussed with the World Access board the status of the TelDaFax transactions and the reasons for approving the TelDaFax transactions. Despite the changes described above, on October 26, 2000, the board unanimously determined that the TelDaFax transactions remained fair to, advisable and in the best interests of World Access and its stockholders and reaffirmed its recommendation of the TelDaFax transactions, independent of its consideration of Donaldson, Lufkin & Jenrette's fairness opinion. ANTITRUST AND DOMESTIC AND FOREIGN REGULATORY APPROVAL REQUIRED TO COMPLETE THE TELDAFAX TRANSACTIONS The TelDaFax transactions are subject to antitrust laws. On September 1, 2000, the German Cartel Office approved the TelDaFax transactions. MATERIAL U.S. FEDERAL TAX CONSEQUENCES OF THE TELDAFAX TRANSACTIONS If you are a U.S. holder of TelDaFax shares, your receipt of shares of World Access common stock in the TelDaFax tender offer in exchange for your TelDaFax shares is a taxable exchange for U.S. federal income tax purposes upon which you will recognize gain or loss. The amount of gain or loss, generally capital gain or loss, that you will recognize will be equal to the difference between the aggregate fair market value of World Access common stock received, including any fractional share interest in World Access common stock for which cash is received, and your aggregate tax basis in the TelDaFax shares surrendered in the exchange. 6 15 U.S. holders of TelDaFax shares who do not participate in the TelDaFax tender offer and World Access stockholders will not recognize gain or loss for U.S. federal income tax purposes as a result of the TelDaFax transactions. APPRAISAL OR DISSENTERS' RIGHTS Neither the World Access stockholders nor the TelDaFax stockholders are entitled to appraisal or dissenters' rights under the applicable laws. COMPARATIVE MARKET PRICE INFORMATION Shares of World Access common stock are listed on the Nasdaq National Market. On June 14, 2000, the last full trading day prior to the public announcement of the proposed TelDaFax transactions, the World Access common stock closed at $11.3125 per share. We urge you to obtain current market quotations. 7 16 SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) WORLD ACCESS SELECTED HISTORICAL FINANCIAL INFORMATION The selected financial information for each of the five years in the period ended December 31, 1999 set forth below has been derived from and should be read in conjunction with the audited consolidated financial statements of World Access. The financial information for the six month periods ended June 30, 1999 and 2000 have been derived from unaudited consolidated financial statements of World Access, which, in the opinion of World Access' management, include all the significant normal and recurring adjustments necessary for fair presentation of the financial position and results of operations for such unaudited periods.
AS OF AND FOR THE AS OF AND FOR THE SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------------------------------- --------------------- 1995 1996 1997 1998 1999 1999 2000 ------- ------- -------- -------- ---------- -------- ---------- (UNAUDITED) STATEMENT OF CONTINUING OPERATIONS DATA(1): Revenue........................... $ -- $ -- $ -- $ 10,787 $ 501,081 $198,014 $ 561,600 Cost of services (exclusive of depreciation and amortization)................... -- -- -- 10,137 448,305 182,804 490,330 Depreciation and amortization..... 30 71 115 416 13,541 4,597 36,512 Restructuring charge (credit)..... -- -- -- -- 37,800 -- (3,995) Operating income (loss)........... (880) (1,011) (1,550) (4,383) (26,998) 1,939 (12,585) Loss from continuing operations... (1,292) (588) (460) (5,437) (27,098) (1,728) (29,577) Loss from continuing operations per share....................... $ (0.14) $ (0.05) $ (0.03) $ (0.25) $ (0.78) $ (0.06) $ (0.53) Weighted average shares outstanding..................... 9,083 13,044 17,242 22,073 37,423 36,232 57,658 BALANCE SHEET DATA: Cash and equivalents.............. $ 1,887 $22,480 $118,065 $ 55,176 $ 147,432 $ 98,996 $ 329,279 Short-term investments............ -- -- -- -- -- -- 160,211 Working capital................... 17,884 52,149 206,769 350,816 289,844 180,061 410,422 Total assets...................... 23,604 52,512 207,294 544,649 1,629,804 693,146 2,176,810 Long-term debt.................... 3,750 -- 115,264 137,523 408,338 140,728 417,946 Total liabilities................. 9,270 138 115,539 184,066 732,505 267,354 883,079 Stockholders' equity.............. 14,334 52,374 91,755 360,583 897,299 425,792 1,293,731 OTHER FINANCIAL DATA: EBITDA from continuing operations before restructuring(2)......... $ (850) $ (940) $ (1,435) $ (3,967) $ 24,343 $ 6,536 $ 19,932 Capital expenditures.............. 280 1,176 3,591 12,216 7,198 4,163 12,951 Cash flows from (used by) operating activities............ (6,445) 1,995 (1,602) (13,038) 18,515 4,288 (83,053) Cash flows (used by) investing activities...................... (2,432) (1,793) (18,240) (66,527) (32,186) (4,102) 176,567 Cash flows from financing activities...................... 10,010 20,391 115,427 16,676 105,927 43,634 88,333
- --------------- (1) Includes the results of operations for the following businesses from their respective dates of acquisition: Cherry U.S. and Cherry U.K. -- December 1998; Comm/Net -- May 1999; FaciliCom -- December 1999; and NETnet -- February 2000. (2) EBITDA from continuing operations as used in this proxy statement/prospectus is earnings (loss) before net interest expense (income), income taxes, foreign exchange gains or losses, depreciation and amortization and is presented because World Access believes that such information is commonly used in the telecommunications industry as one measure of a company's operating performance and historical ability to service debt. EBITDA from continuing operations is not determined in accordance with 8 17 generally accepted accounting principles, is not indicative of cash provided by operating activities, should not be used as a measure of operating income and cash flows from operations as determined under generally accepted accounting principles and should not be considered in isolation, or as an alternative to, or to be more meaningful than, measures of performance determined in accordance with generally accepted accounting principles. EBITDA, as calculated by World Access, may not be comparable to similarly titled measures reported by other companies and could be misleading unless all companies and analysts calculated EBITDA in the same manner. The following table reconciles our loss from continuing operations to EBITDA from continuing operations and EBITDA from continuing operations before restructuring charges and credits:
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------------------------- ------------------ 1995 1996 1997 1998 1999 1999 2000 ------- ----- ------- ------- -------- ------- -------- (UNAUDITED) Loss from continuing operations... $(1,292) $(588) $ (460) $(5,437) $(27,098) $(1,728) $(29,577) Net interest expense (income)..... 412 (85) (838) 4,355 9,606 3,443 19,318 Income taxes benefit.............. -- (338) (252) (3,301) (10,126) 224 (2,115) Foreign exchange (gain) loss...... -- -- -- -- 620 -- 211 Depreciation and amortization..... 30 71 115 416 13,541 4,597 36,512 ------- ----- ------- ------- -------- ------- -------- EBITDA from continuing operations...................... (850) (940) (1,435) (3,967) (13,457) 6,536 15,937 Restructuring charge (credit)..... -- -- -- -- 37,800 -- (3,995) ------- ----- ------- ------- -------- ------- -------- EBITDA from continuing operations before restructuring............ $ (850) $(940) $(1,435) $(3,967) $ 24,343 $ 6,536 $ 19,932 ======= ===== ======= ======= ======== ======= ========
TELDAFAX SELECTED HISTORICAL FINANCIAL INFORMATION The selected financial information for each of the three years ended December 31, 1999 set forth below has been derived from and should be read in conjunction with the audited financial statements of TelDaFax. The financial information for the six month periods ended June 30, 1999 and 2000 have been derived from unaudited consolidated financial statements of TelDaFax, which, in the opinion of TelDaFax's management, include all the significant normal and recurring adjustments necessary for fair presentation of the financial position and results of operations for such unaudited periods (in DM thousands, except share amounts):
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE PERIOD FROM INCEPTION YEAR ENDED SIX MONTHS ENDED JULY 1, 1997 DECEMBER 31, JUNE 30, TO ----------------- ----------------- DECEMBER 31, 1997(2) 1998 1999 1999 2000 --------------------- ------- ------- ------- ------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue................................. 32,271 263,050 611,018 305,896 307,704 Cost of services........................ 31,085 202,359 548,110 248,879 279,607 Sales expenses.......................... 3,434 31,417 50,716 26,257 41,783 Operating income (loss)................. (6,417) 18,062 (14,365) 23,474 (33,482) Net income (loss)....................... (5,854) 8,774 (5,256) 13,056 (17,848) Income (loss) per common share.......... (5.16) 0.45 (0.16) 0.39 (0.53) Weighted average number of common shares outstanding........................... 1,134 19,297 33,829 33,829 33,829 BALANCE SHEET DATA: Cash and cash equivalents............... 7,029 159,011 178,287 45,170 53,882 Working capital......................... (8,086) 123,164 69,390 24,632 18,131 Total assets............................ 61,885 312,569 455,171 353,459 394,978 Total liabilities....................... 41,553 121,234 269,252 49,749 224,936 Shareholders' equity.................... 20,332 191,335 186,079 204,390 168,231
9 18
AS OF AND FOR THE AS OF AND FOR THE AS OF AND FOR THE PERIOD FROM INCEPTION YEAR ENDED SIX MONTHS ENDED JULY 1, 1997 DECEMBER 31, JUNE 30, TO ----------------- ----------------- DECEMBER 31, 1997(2) 1998 1999 1999 2000 --------------------- ------- ------- ------- ------- (UNAUDITED) OTHER FINANCIAL DATA: EBITDA(1)............................... (1,377) 36,148 19,265 36,764 (8,353) Net cash provided from (used by) operating activities.................. 3,409 54,588 89,630 10,731 (80,200) Capital expenditures.................... 30,718 65,796 110,397 29,029 10,450 REVENUE DATA: Fixed network........................... 32,271 263,050 587,299 305,065 255,275 Mobile.................................. -- -- 19,595 -- 48,619 Internet................................ -- -- 4,124 831 3,810
- --------------- (1) EBITDA from continuing operations as used in this proxy statement/prospectus is earnings (loss) before net interest expense (income), minority interests, income taxes, depreciation and amortization and is presented because TelDaFax believes that such information is commonly used in the telecommunications industry as one measure of a company's operating performance and historical ability to service debt. EBITDA is not determined in accordance with generally accepted accounting principles, is not indicative of cash provided by operating activities, should not be used as a measure of operating income and cash flows from operations as determined under generally accepted accounting principles and should not be considered in isolation, or as an alternative to, or to be more meaningful than, measures of performance determined in accordance with generally accepted accounting principles. EBITDA, as calculated by TelDaFax, may not be comparable to similarly titled measures reported by other companies and could be misleading unless all companies and analysts calculated EBITDA in the same manner. The following table reconciles our net income (loss) to EBITDA:
PERIOD FROM INCEPTION YEAR ENDED SIX MONTHS ENDED JULY 1, 1997 DECEMBER 31, JUNE 30, TO --------------- ---------------- DECEMBER 31, 1997(2) 1998 1999 1999 2000 -------------------- ------ ------ ------ ------- (UNAUDITED) Net income (loss).......... (5,854) 8,774 (5,256) 13,056 (17,848) Net interest expense....... 1,104 (425) (764) (1,494) (197) Minority interests......... -- -- (1,336) (140) (1,746) Depreciation and amortization............. 5,040 18,086 33,630 13,290 25,129 Income taxes (benefit)..... (1,667) 9,713 (7,009) 12,052 (13,691) ------ ------ ------ ------ ------- EBITDA..................... (1,377) 36,148 19,265 36,764 (8,353) ====== ====== ====== ====== =======
(2)On July 1, 1997, TelDaFax Telefon-, Daten und Fax Transfer GmbH & Co. KG transferred all of its business assets to TelDaFax GmbH, creating a new operating company. TelDaFax AG was then established through a change in the legal form of TelDaFax GmbH. Therefore, no financial information pertaining to TelDaFax AG exists for 1995 and 1996. 10 19 UNAUDITED SELECTED PRO FORMA FINANCIAL INFORMATION The unaudited selected pro forma balance sheet of World Access as of June 30, 2000 set forth below gives effect to the STAR merger, the WorldxChange merger, and the TelDaFax transactions. The unaudited selected pro forma statement of operations data of World Access for the six months ended June 30, 2000 set forth below gives effect to the mergers reflected above and certain transactions that World Access has completed in 1999, as if consummated at the beginning of 1999. The selected pro forma information set forth below is qualified in its entirety by, and should be read in conjunction with, the Unaudited Pro Forma Condensed Combined Financial Statements included herein and the historical financial information of World Access, FaciliCom, Comm/Net, LDI, STAR, WorldxChange and TelDaFax, which, in the case of WorldxChange and TelDaFax, are included in this document and, in the case of World Access, FaciliCom, Comm/Net, LDI and STAR, are incorporated herein by reference. The selected pro forma financial information is presented for informational purposes only and is not necessarily indicative of the financial position or operating results that would have occurred if the transactions given retroactive effect therein had been consummated as of the dates indicated, nor is it necessarily indicative of future financial conditions or operating results. See "Unaudited Pro Forma Condensed Combined Financial Statements."
YEAR ENDED SIX MONTHS ENDED DECEMBER 31, 1999 JUNE 30, 2000 ----------------- ------------------ UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS DATA: Service revenue............................................. $2,554,632 $1,189,884 Operating expenses: Cost of services(1)......................................... 2,170,883 1,013,297 Selling, general and administrative......................... 496,305 207,313 Depreciation and amortization............................... 195,519 106,902 Merger expense.............................................. 1,867 -- Restructuring and other special charges (credit)............ 44,187 (3,995) ---------- ---------- Total operating expenses.......................... 2,908,761 1,323,517 ---------- ---------- Operating loss.................................... (354,129) (133,633) Interest and other income................................... 19,992 21,568 Interest and other expense.................................. (93,148) (52,703) Foreign exchange gain (loss)................................ (5,840) 117 ---------- ---------- Loss from continuing operations before income taxes and minority interests.................... (433,125) (164,651) Provision (benefit) for income taxes........................ (18,250) (12,277) ---------- ---------- Loss from continuing operations before minority interest.......................................... (414,875) (152,374) Minority interest........................................... 2,388 851 ---------- ---------- Loss from continuing operations................... (412,487) (151,523) Preferred stock dividends................................... (3,245) (2,763) ---------- ---------- Loss from continuing operations available to common stockholders............................... $ (415,732) $ (154,286) ========== ========== Loss per share from continuing operations(2)................ $ (2.81) $ (1.00) ========== ========== Weighted average shares outstanding(2)...................... 147,824 154,848 ========== ==========
- --------------- (1) Cost of services is exclusive of depreciation and amortization related to the services network which is shown separately below. (2) Loss per share and weighted average shares outstanding are presented on a diluted basis. 11 20
AT JUNE 30, 2000 --------------- UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET DATA: Cash and equivalents........................................ $ 315,184 Short-term investments...................................... 161,967 Restricted cash............................................. 31,095 Accounts and notes receivable............................... 530,386 Prepaid expenses and other current assets................... 123,705 Net assets held for sale.................................... 41,465 ---------- Total Current Assets.............................. 1,203,802 ---------- Property and equipment...................................... 497,264 Goodwill and other intangibles.............................. 2,027,926 Other assets................................................ 65,359 ---------- Total Assets...................................... $3,794,351 ========== Short-term debt............................................. $ 255,974 Accounts payable............................................ 425,732 Other accrued liabilities................................... 502,898 ---------- Total Current Liabilities......................... 1,184,604 Long-term debt.............................................. 391,897 Other long-term liabilities................................. 48,974 ---------- Total Liabilities................................. 1,625,475 ---------- Minority interests.......................................... 888 Stockholders' Equity Preferred stock............................................. 6 Common stock................................................ 1,571 Additional paid in capital.................................. 2,341,229 Accumulated other comprehensive loss........................ (12,239) Accumulated deficit......................................... (162,579) ---------- Total Stockholders' Equity........................ 2,167,988 ---------- Total Liabilities and Stockholders' Equity........ $3,794,351 ==========
12 21 COMPARATIVE PER SHARE DATA (UNAUDITED) Set forth below are historical loss per share from continuing operations and book value per common share data of World Access and TelDaFax and the loss per share from continuing operations and book value per common share data of World Access on a pro forma basis to give effect to the acquisitions of Comm/Net in May 1999, FaciliCom in December 1999, LDI in February 2000 and the pending acquisitions of STAR, WorldxChange and TelDaFax. No common stock dividends were paid by World Access during the periods presented below.
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 1999 JUNE 30, 2000 ----------------- -------------- World Access -- Historical: Loss per share from continuing operations: Basic.................................................. $(0.78) $(0.53) Diluted................................................ (0.78) (0.53) Book value per common share(1)............................ 17.41 21.20 World Access -- Pro Forma(5): Loss per share from continuing operations(2): Basic.................................................. $(2.81) $(1.00) Diluted................................................ (2.81) (1.00) Book value per common share(3)............................ 14.00 World Access -- Pro Forma(6): Net loss per share Basic.................................................. $(3.12) $(1.10) Diluted................................................ (3.12) (1.10) Book value per common share............................... 14.90 TelDaFax -- Historical(4): Net loss per share(2): Basic.................................................. $(0.08) $(0.26) Diluted................................................ (0.08) (0.26) Book value per common share(1)............................ 2.82 2.44 TelDaFax -- Equivalent Pro Forma(7): Net loss per share: Basic.................................................. $(2.88) $(1.03) Diluted................................................ (2.88) (1.03) Book value per common share............................... 14.35 TelDaFax -- Equivalent Pro Forma(8): Net loss per share Basic.................................................. $(3.20) $(1.13) Diluted................................................ (3.20) (1.13) Book value per common share............................... 15.27
- --------------- (1) Calculated by dividing historical stockholders' equity by the number of outstanding common shares. The outstanding common shares do not include shares issuable upon exercise of stock options, stock warrants, conversion of outstanding convertible securities, or outstanding shares which have been placed in escrow in connection with previous acquisitions. (2) Pro forma loss per share from continuing operations is presented on a basic and diluted basis computed as pro forma loss from continuing operations divided by the weighted average number of shares outstanding, assuming shares issued in each of the transactions were outstanding since the beginning of each period presented. The outstanding common shares do not include shares issuable upon exercise of stock options, stock warrants, or conversion of outstanding convertible securities. 13 22 (3) Calculated by dividing pro forma stockholders' equity by the number of outstanding shares of World Access common stock expected to be outstanding as of the consummation of the STAR and WorldxChange mergers and the TelDaFax transactions, and does not include shares issuable upon the exercise of stock options, stock warrants, the conversion of outstanding convertible securities, or outstanding shares which have been placed in escrow in connection with previous acquisitions. (4) The following table represents the conversion of TelDaFax's net loss per share, basic and diluted, and book value per common share for the year ended and six months ended December 31, 1999 and June 30, 2000, respectively, from local currency (DM) into U.S. dollars. The U.S. dollar equivalent was computed by multiplying the deutsche mark amount by 0.5125 and 0.4901, the exchange rates as of December 31, 1999 and June 30, 2000, respectively.
DM USD YEAR ENDED EXCHANGE YEAR ENDED DECEMBER 31, 1999 RATE DECEMBER 31, 2000 ----------------- -------- ----------------- Historical: Net loss per share: Basic.............................................. (0.16) 0.5125 $(0.08) Diluted............................................ (0.16) 0.5125 (0.08) Book value per common share.......................... 5.50 0.5125 2.82
DM USD SIX MONTHS SIX MONTHS ENDED ENDED JUNE 30, 2000 JUNE 30, 2000 ----------------- ----------------- Net loss per share: Basic.............................................. (0.53) 0.4901 $(0.26) Diluted............................................ (0.53) 0.4901 (0.26) Book value per common share.......................... 4.97 0.4901 2.44
(5) Pro forma information assumes World Access acquires STAR, WorldxChange and TelDaFax. (6)Pro forma information assumes World Access acquires WorldxChange and TelDaFax. (7)Equivalent pro forma information assumes World Access acquires STAR, WorldxChange and TelDaFax. (8)Equivalent pro forma information assumes World Access acquires WorldxChange and TelDaFax. 14 23 RISK FACTORS In addition to the other information contained or incorporated by reference in this proxy statement/prospectus, you should carefully consider the following risk factors in deciding whether to approve the TelDaFax purchase agreement and the transactions contemplated in the TelDaFax purchase agreement. The following risk factors not only include risks associated with the TelDaFax transactions, but also include risks associated with the STAR and WorldxChange mergers. RISK FACTORS RELATING TO THE PROPOSED TRANSACTIONS INTEGRATING THE COMPANIES WILL BE A COMPLEX, TIME CONSUMING AND EXPENSIVE PROCESS THAT MAY DECREASE REVENUES, DAMAGE RELATIONSHIPS WITH KEY CUSTOMERS AND EMPLOYEES, AND CAUSE THE COMBINED COMPANY'S STOCK PRICE TO DROP. The combined company may encounter difficulties when it attempts to merge the operations of World Access, STAR, WorldxChange and TelDaFax. The integration of the STAR, WorldxChange and TelDaFax networks into the World Access network may disrupt the combined company's business, decrease revenues and damage relationships with key customers. The combined company may also incur significant merger-related expenses and suffer extended network downtime during this period. In addition, the integration of the World Access, STAR, WorldxChange and TelDaFax operations and accounting, personnel, administrative, legal and other functions involves the risk that key employees, who cannot easily be replaced, may leave even when offered continuing employment. To the extent that management's attention is diverted by these difficulties from the day-to-day operation of the combined company's business, the combined company's revenues may decrease and the combined company may lose key customers and employees. The occurrence of any of the events described above could cause the combined company's stock price to drop. THE COMBINED COMPANY MAY NOT REALIZE THE COST SAVINGS, OPERATING EFFICIENCIES AND SYNERGIES EXPECTED FROM THE PROPOSED TRANSACTIONS. World Access expects to realize cost savings, operating efficiencies and synergies in excess of $110.0 million as a result of the proposed transactions. However, the combined company may not achieve these cost savings, operating efficiencies and synergies as rapidly as expected or at all. For example, the combined company's ability to consolidate its purchasing and obtain more favorable prices from suppliers may be limited by changes in the purchasing power or practices of its competitors and other market dynamics. EACH COMPANY HAS SIGNIFICANT LOSSES AND MAY NEVER ACHIEVE PROFITABILITY AS A COMBINED COMPANY, WHICH MAY CAUSE THE COMBINED COMPANY'S STOCK PRICE TO DROP. After giving effect to the mergers and the TelDaFax transactions, the combined company would have had a net loss from continuing operations of approximately $154.3 million, or $1.00 per diluted share, for the six months ended June 30, 2000 as compared to a net loss of $29.6 million, or $0.53 per diluted share, for World Access during the same period on a stand alone basis. These losses could cause the combined company's stock price to drop and prohibit the combined company from achieving profitability. World Access does not anticipate that the combined company will generate profits in the near future. THE COMBINED COMPANY'S HIGH LEVEL OF DEBT MAY LIMIT ITS ABILITY TO OBTAIN ADDITIONAL FINANCING, REDUCE THE AMOUNT OF CASH FLOW AVAILABLE FOR OPERATIONS, AND MAKE IT MORE DIFFICULT TO MEET DEBT SERVICE REQUIREMENTS. Immediately after the completion of the STAR and WorldxChange mergers and the TelDaFax transactions, the combined company will have a higher degree of financial leverage than prior to the mergers. At June 30, 2000, World Access had a current assets to current liabilities ratio of 1.9-to-1 and total liabilities of approximately $883.1 million. The pro forma balance sheet of World Access at June 30, 2000, reflecting the combination of World Access, STAR, WorldxChange and TelDaFax, had a current assets to current liabilities ratio of 1.0-to-1 and total liabilities of approximately $1.6 billion. 15 24 The combined company's indebtedness could have serious negative consequences. For example, it could: - limit the combined company's ability to obtain additional financing for working capital, capital expenditures or other purposes or make it difficult to obtain such financing on favorable terms; - require the combined company to dedicate a substantial portion of its cash flow from operations to service payments on its debt, which will reduce the funds that would otherwise be available for operations and future business opportunities; and - make it difficult for the combined company to meet its debt service requirements or force the combined company to modify its operations if there is a substantial decrease in operating income and cash flows or an increase in expenses. World Access anticipates that the combined company's debt service payments will be approximately $203.0 million for the second half of 2000 and $155.0 million for 2001, exclusive of any obligation to redeem its outstanding debt securities. If the combined company is unable to extend the maturities of certain debt instruments and/or generate sufficient cash flow or otherwise obtain funds necessary to meet its obligations, or if the combined company does not comply with the various covenants under its indebtedness, the combined company will be in default under the terms of that debt. If the combined company defaults, the holders of indebtedness can accelerate the maturity of the indebtedness that is owed to them, which could cause defaults under the combined company's other indebtedness. DECREASED CASH FLOW MAY LIMIT THE COMBINED COMPANY'S ABILITY TO CONTINUE TO MAKE CAPITAL EXPENDITURES FOR THE ACQUISITION AND DEVELOPMENT OF ITS INTERNATIONAL TELECOMMUNICATIONS NETWORK, WHICH IS NECESSARY TO BE COMPETITIVE IN THIS INDUSTRY. The combined company will need to enhance and expand its network and build out its telecommunications network infrastructure in order to maintain a competitive position and to meet the increasing demands for service quality, capacity and competitive pricing. If the combined company's available cash flow substantially decreases as a result of lower telecommunications prices or for other reasons, the combined company may have limited ability to continue to make capital expenditures for the acquisition and development of its international telecommunications network. If cash flow from operations is not sufficient to satisfy the combined company's capital expenditure requirements, the combined company will need to raise additional capital from equity or debt sources. Additional debt or equity financing or other sources of capital may not be available to meet the combined company's requirements. IF THE PROPOSED TRANSACTIONS ARE APPROVED, CURRENT WORLD ACCESS STOCKHOLDERS WILL SUFFER SUBSTANTIAL DILUTION AND HAVE LESS VOTING POWER IN THE FUTURE DIRECTION OF THE COMBINED COMPANY DUE TO THE ISSUANCE OF WORLD ACCESS COMMON STOCK TO STAR, WORLDXCHANGE AND TELDAFAX STOCKHOLDERS. The completion of the STAR merger, the WorldxChange merger and the TelDaFax transactions will result in a substantial dilution of the voting and equity interests of current World Access stockholders. The current World Access stockholders will have less control over the future direction of the combined company due to the issuance of World Access common stock to STAR, WorldxChange and TelDaFax stockholders. IF THE WORLD ACCESS STOCKHOLDERS DO NOT APPROVE AN INCREASE IN WORLD ACCESS' AUTHORIZED SHARES OF COMMON STOCK, WORLD ACCESS CANNOT COMPLETE BOTH MERGERS AND THE TELDAFAX TRANSACTIONS. Currently, World Access does not have a sufficient number of shares of common stock authorized for issuance to complete the STAR merger, the WorldxChange merger and the TelDaFax transactions. If the World Access stockholders do not approve an increase in the authorized shares at the World Access special meeting, World Access' management will determine with which transaction World Access will proceed or if an alternative structure for one of the transactions is feasible. A lack of approval by the stockholders may result in a significant delay in completing one of the transactions and may deny the stockholders the benefits that may otherwise have been achieved from the failed transaction. 16 25 RISK FACTORS CONCERNING THE COMBINED COMPANY'S BUSINESS OPERATIONS THE COMBINED COMPANY MAY NOT BE ABLE TO OBTAIN TRANSMISSION CAPACITY AT HISTORICAL RATES, WHICH MAY DECREASE THE COMBINED COMPANY'S PROFITABILITY AND CAUSE A LOSS OF CUSTOMERS. The combined company's future profitability will be based in part upon its ability to transmit long distance telephone calls over transmission facilities, also referred to in the industry as network facilities, leased from others on a cost-effective basis. Also, a substantial portion of the combined company's transmission capacity will be obtained on a variable, per minute and short-term basis, subjecting the combined company to the possibility of unanticipated price increases and service cancellations. Since the combined company will not generally have long-term arrangements for the purchase or resale of international long distance services, and since rates fluctuate significantly over short periods of time, the combined company's gross margins are subject to significant fluctuations. Decreased gross margins and competitive pricing pressures for these facilities may decrease the combined company's profitability and cause a loss of customers. THE COMBINED COMPANY MAY INCUR SIGNIFICANT EXPENSES, LOSS OF CUSTOMERS, AND ULTIMATELY BE UNSUCCESSFUL IN EXPANDING ITS DATA TRANSMISSION BUSINESS, IN WHICH THE COMBINED COMPANY HAS LIMITED EXPERIENCE. The combined company's experience in providing data transmission services to date has been limited and, consequently, the combined company may not be successful in the data transmission business. The combined company's ability to successfully enter the data transmission business will depend upon, among other things, its ability to: - select new equipment and software and integrate these into its network; - hire and train qualified personnel; and - enhance its billing, back-office and information systems to accommodate data transmission services and customer acceptance of its service offerings. In providing data transmission services, the combined company will be dependent upon vendors for assistance in the planning and deployment of its data product offerings, as well as ongoing training and support. If the combined company is not successful at entering the data transmission business, it may suffer a loss of customers and incur significant expenses without any increase in income to offset such expenses. TECHNICAL DIFFICULTIES WITH OR FAILURES IN THE COMBINED COMPANY'S TELECOMMUNICATIONS NETWORK COULD RESULT IN DISSATISFIED CUSTOMERS AND LOST REVENUE. In Europe, there are a number of different protocols for data transmission. The combined company's network will need to be able to handle all of these protocols, which will pose technical difficulties. Technical difficulties with or failures in the combined company's telecommunications network could result in dissatisfied customers and lost revenue. For example, a failure in a portion of the combined company's network could prevent the combined company from delivering telephone calls initiated by its customers. Additionally, technical difficulties with the network could cause the loss of call detail record information, which is the basis for the combined company's ability to process and substantiate customer billings. Components of each companies' networks have failed in the past, which have resulted in lower billing collections. The combined company can provide no assurance that similar or other failures or technical difficulties will not occur in the future, which could result in the loss of customers and revenue. THE COMBINED COMPANY MAY SUFFER DECREASED REVENUES AND LOSS OF CUSTOMERS IF IT IS UNABLE TO INCREASE ITS NETWORK CAPACITY TO MEET CUSTOMER DEMANDS. World Access is currently in the process of expanding its network and will continue the expansion whether or not the STAR and WorldxChange mergers and the TelDaFax transactions are completed. As it expands its network and the volume of its network traffic, its cost of revenues will increasingly consist of fixed costs arising from the ownership and maintenance of switches and fiber optic cables. These costs may increase, and its operating margins may decrease. If its traffic volume were to decrease, or fail to increase to the extent 17 26 expected or necessary to make efficient use of its network, its costs as a percentage of revenues would increase significantly, which could significantly decrease the revenues of its business operations. In addition, the combined company's business will depend in part on its ability to obtain transmission facilities on a cost-effective basis. The combined company may not be able to obtain sufficient transmission facilities or access to undersea fiber optic cable on economically viable terms. The combined company's failure to obtain telecommunications facilities that are sufficient to support its network traffic in a manner that ensures the reliability and quality of its telecommunications services could increase the combined company's operational costs, as well as cause a loss of customers due to poor quality or unreliable service. ANY SYSTEM OR NETWORK FAILURE THAT INTERRUPTS THE COMBINED COMPANY'S OPERATIONS COULD CAUSE THE LOSS OF CUSTOMERS, A REDUCTION IN REVENUES OR A DECREASE IN THE COMBINED COMPANY'S STOCK PRICE. The combined company's operations are dependent on its ability to successfully expand its network and integrate new and emerging technologies and equipment into its network, which are likely to increase the risk of system failure and to cause strain upon the networks. The combined company's operations also depend on its ability to protect its hardware and other equipment from damage from natural disasters such as fires, floods, hurricanes and earthquakes, other catastrophic events such as civil unrest, terrorism and war and other sources of power loss and telecommunications failures. The combined company cannot be certain that its switches will not become disabled in the event of an earthquake, power outage or otherwise. A network failure or a significant decrease in telephone traffic as a result of a natural or man-made disaster could damage the combined company's relationships with its customers and decrease its revenues and operating results. THE COMBINED COMPANY MAY BE UNABLE TO MANAGE EFFECTIVELY WORLD ACCESS' RECENT RAPID GROWTH AND THE RAPID GROWTH PLANNED FOR THE COMBINED COMPANY, WHICH MAY REDUCE THE QUALITY OF THE COMBINED COMPANY'S PRODUCTS AND SERVICES AND ITS ABILITY TO RETAIN KEY PERSONNEL. World Access' rapid growth from recent acquisitions and the expansion of its operations has placed significant demands on its resources. In addition, World Access expects that its expansion into foreign countries will lead to increased financial and administrative demands, such as: - increased operational complexity associated with expanded network facilities; - administrative burdens associated with managing an increasing number of foreign subsidiaries and relationships with foreign partners; and - expanded treasury functions to manage foreign currency risks. If World Access, and the combined company after the STAR and WorldxChange mergers and the TelDaFax transactions, is unable to manage its growth effectively, the quality of its products and services and its ability to retain key personnel could be damaged. RISK FACTORS CONCERNING THE COMPANIES' FINANCIAL CONDITION IF WORLD ACCESS LOSES OR SETTLES A STOCKHOLDER LAWSUIT, WORLD ACCESS WILL OWE DAMAGES THAT MAY CAUSE A REDUCTION IN AVAILABLE CASH, A DECREASE IN EARNINGS, DROP IN STOCK PRICE AND NEGATIVE PUBLICITY. Following World Access' announcement in January 1999 regarding earnings expectations for the quarter and year ended December 31, 1998 and the subsequent decline in the price of World Access common stock, a number of stockholders filed class action complaints against World Access. The plaintiffs allege violations of the federal securities laws and have requested an unspecified amount of damages in their complaints and have not quantified their claim at the time this joint proxy statement/prospectus was printed. If World Access loses or settles these or any future stockholder lawsuits, World Access will owe damages that may cause a reduction in available cash, a decrease in earnings, drop in stock price and negative publicity. 18 27 TELDAFAX HAS BEEN OPERATING IN ITS CURRENT MARKET FOR A SHORT TIME AND HAS SUFFERED LOSSES. TelDaFax is a young company which began its essential business activity, which is public fixed-line voice telephony, only after the full liberalization of the telecommunications market on January 1, 1998. Therefore, there is very limited and relatively inconclusive historic financial information on TelDaFax and its valuation. Given that full business activity started only recently and in view of the intensive competition in TelDaFax's market environment, there can be no assurance that TelDaFax will be able to establish itself successfully and hold its market position. TelDaFax or its legal predecessor, TelDaFax Telefon, Daten und Fax-Transfer GmbH & Co. KG, as the case may be, has sustained losses each year except 1998. In 1998, TelDaFax had profits of DM 8.8 million and had a loss of DM 5.3 million in 1999 and DM 17.8 million for the six months ended June 30, 2000. Building TelDaFax's own distribution network and paying sales commissions for distribution will also burden TelDaFax's results in the future. TelDaFax is active in a market which is subject to significant competition, pressure on prices, changes in technology and amendments to the regulatory conditions or their interpretation. TelDaFax is, therefore, active in a business environment which involves both opportunities and risks. The ability of TelDaFax to achieve positive results will, in particular, depend upon TelDaFax winning and retaining new customers and expanding its reputation. TELDAFAX'S CUSTOMERS OPERATE UNDER SHORT-TERM CONTRACTS AND DO NOT PROVIDE FOR EXCLUSIVE CUSTOMER RELATIONSHIPS. As is customary in this market, TelDaFax operates with contracts which may be terminated by either party on short notice. Some customers are not contractually bound at all but decide for each call whether to use the services of TelDaFax. Customers can, therefore, move to other network operators on short notice. Furthermore, contracts with customers are not exclusive; as a result, customers may use the services of other companies even during the term of such contracts. Because the contracts do not provide for automatic renewal, TelDaFax is in constant price and service competition with its competitors. WORLD ACCESS RELIES ON WORLDCOM, INC. FOR A SUBSTANTIAL AMOUNT OF ITS GROSS PROFITS, AND THE TERMINATION OF WORLD ACCESS' CARRIER SERVICE AGREEMENT WITH WORLDCOM COULD SIGNIFICANTLY DECREASE ITS REVENUES AND GROSS PROFITS. Under a Carrier Service Agreement, WorldCom is obligated to purchase from World Access at least $25.0 million a month of carrier services, provided the services are of acceptable quality and the rates quoted are at least equal to the rates WorldCom is obtaining from other third party providers. The service agreement is for a one-year term but automatically renews each month, subject to a one year termination notice. World Access recorded approximately $116.0 million of revenue and related gross profit of $45.6 million during the first six months of 2000. This represented approximately 20.7% and 64.0% of World Access' total revenue and gross profit, respectively. Termination of the service agreement, or any reduction in the services provided, could significantly decrease World Access' revenues and profits, particularly in the carrier services business. AS THE COMBINED COMPANY EXPANDS ITS FOCUS ON RETAIL CUSTOMERS AND EMERGING CARRIERS, ITS LEVEL OF UNCOLLECTIBLE DEBT MAY INCREASE. In the companies' experience, a greater percentage of the revenues generated by retail customers and from emerging carriers has been uncollectible as compared to revenues generated by sales to established wholesale carriers and large international carriers. Therefore, since the percentage of World Access' revenues after the STAR and WorldxChange mergers and the TelDaFax transactions derived from retail operations and from sales to emerging carriers will increase as a result of the STAR and WorldxChange mergers and the TelDaFax transactions, its level of uncollectible debt may increase, which would result in lower revenues and profits. In addition, the combined company may expend considerable resources to collect receivables from customers who fail to make timely payments. 19 28 IF THE WORLDXCHANGE MERGER IS NOT COMPLETED, THE INTEGRATION OF WORLD ACCESS' AND WORLDXCHANGE'S OPERATIONS COMPLETED TO DATE WOULD BE DIFFICULT AND COSTLY TO REVERSE. Pursuant to the Executive Management Services Agreement entered into on August 1, 2000, there has been a significant level of integration of World Access' and WorldxChange's operations. To date, the companies have consolidated their sales forces, billing systems and network operations centers, as well as decommissioned certain switches as traffic has migrated from one network to the other. If the WorldxChange merger does not occur, World Access will be required to reverse the integration that has taken place and reestablish dedicated sales forces, billing systems and network operations to service its customers. In addition to the significant costs involved, these actions could result in the loss of customers, delays and potential errors in billing customers and the inability to terminate customer traffic in an efficient and cost effective manner. IF THE WORLDXCHANGE MERGER IS NOT COMPLETED, WORLDXCHANGE MAY NOT BE ABLE TO REPAY MONEY ADVANCED BY WORLD ACCESS TO WORLDXCHANGE. Since August 1, 2000, World Access has managed the operations and business affairs of WorldxChange as if the WorldxChange merger had occurred on that date. Pursuant to this arrangement and related agreements, World Access has loaned and advanced funds to WorldxChange and agreed to purchase an obligation of WorldxChange aggregating approximately $87.7 million. This amount consists of: - approximately $40.0 million advanced for working capital purposes; - $35.7 million advanced under the Foothill Capital Corporation participation agreement; and - $12.0 million that World Access has agreed to pay under an agreement to purchase WorldxChange's obligation to a third party on the earlier to occur of November 30, 2000 and the closing of the WorldxChange merger. The advances for working capital and as payment in the assumption of the obligation to the third party are not secured. If the WorldxChange merger is not completed, WorldxChange could become insolvent or be forced to file for bankruptcy. If this occurs, WorldxChange will not be able to fully repay the advances from World Access. THE COMBINED COMPANY COULD BE FORCED TO PAY THE SUSPENDED $17.6 MILLION PORTION OF A REGULATORY FINE IMPOSED AGAINST WORLDXCHANGE, WHICH COULD HARM THE COMBINED COMPANY'S FINANCIAL CONDITION AND CAUSE THE WORLD ACCESS STOCK PRICE TO DROP. In May 1997, the California Public Utilities Commission issued an order revoking WorldxChange's authority to provide intrastate calling service in California and imposing other fines and penalties on WorldxChange, including a $19.6 million fine, based on the California Public Utilities Commission's finding that WorldxChange violated laws requiring prior consumer authorization before switching consumers' long distance carriers. WorldxChange has paid $2.0 million of the $19.6 million, with the balance suspended so long as WorldxChange is not found to have committed any future violations of statutes or California Public Utilities Commission directives. The $17.6 million suspended fine would be binding on the combined company under the California Public Utilities Commission order. There can be no assurance that additional allegations of wrongdoing will not be made against the combined company after the merger. If the combined company were required to pay the suspended $17.6 million portion of the California Public Utilities Commission fine, the combined company's financial condition could be harmed and the World Access stock price could drop. RISK FACTORS CONCERNING THE COMPANIES' INDUSTRY THE COMPANIES' RELIANCE ON INTERNATIONAL SALES IS SIGNIFICANT AND COULD RESULT IN LOST REVENUE AND INCREASED COSTS BECAUSE OF INTERNATIONAL REGULATORY CHANGES, POLITICAL AND ECONOMIC INSTABILITY AND DIFFICULTY IN COLLECTION EFFORTS. In the year ended December 31, 1999, non-U.S. sales represented approximately 4.8% of World Access' total sales, approximately 100.0% of TelDaFax's total sales, approximately 11.7% of STAR's total sales and 20 29 approximately 25.5% of WorldxChange's total sales. After completion of the mergers and the TelDaFax transactions, the combined company intends to increase its international sales. The companies' international sales are subject to inherent risks, including: - changes in regulatory requirements, tariffs or other barriers; - difficulties in staffing and managing foreign operations; - long payment cycles; - unstable political and economic environments; - potentially adverse tax consequences of international tax laws; and - fluctuations in foreign currency values. THE COMBINED COMPANY'S PLANNED ENTRY INTO THE INTERNET AND DATA BUSINESS IN EUROPE MAY BE UNSUCCESSFUL DUE TO THE LEVEL OF COMPETITION AND THE COMBINED COMPANY'S LACK OF EXPERIENCE IN THIS NEW MARKET. The market for Internet connectivity and related services is extremely competitive. The combined company's primary competitors will include other Internet service providers that have a significant national or international presence, but soon may also include competition from traditional telecommunications carriers that expand into the market for Internet services. Many of these carriers have substantially greater resources, capital and operational experience than the combined company will have. The combined company will require substantial additional capital to make investments in its Internet operations, and may not be able to obtain that capital on favorable terms or at all. Even if the combined company is able to establish and expand its Internet business, it will face numerous risks, including: - competition in the market for Internet services; - its ability to adapt and react to rapid changes in technology related to the Internet; - vulnerability to unauthorized access, computer viruses and other disruptive problems; - adverse regulatory developments; and - difficulties managing the growth of its Internet business, including the need to enter into agreements with other providers of infrastructure capacity and equipment and to acquire other Internet service providers and Internet-related businesses on acceptable terms. DELAYS AND INCONSISTENCIES IN IMPLEMENTATION OF THE WORLD TRADE ORGANIZATION AGREEMENT AND OTHER COMPETITIVE DIRECTIVES MAY SLOW DOWN THE RATE OF THE COMBINED COMPANY'S EXPANSION IN SOME FOREIGN COUNTRIES. Under the World Trade Organization Agreement, the U.S. and 68 other countries agreed to open their telecommunications markets to competition and foreign ownership effective February 5, 1998. These World Trade Organization member countries, which have increased to 72, represent approximately 90% of worldwide telecommunications traffic. Although the World Trade Organization Agreement has been implemented, to some degree, by most of the 72 signatory countries, some signatory countries have not yet fully implemented their World Trade Organization commitments. The combined company's ability to expand its operations internationally will be limited if any signatory country to the World Trade Organization Agreement fails to implement its obligations on a timely basis. The national governments of the European Union member states were required to pass legislation to liberalize the telecommunications markets within their countries to implement European Commission directives. Implementation has also been slow in certain member states as a result of their failure to dedicate the resources necessary to have a functioning regulatory body in place. The legislation and/or its implementa- 21 30 tion have, in certain circumstances, imposed significant obstacles on the ability of carriers to proceed with the licensing process. These barriers include requirements that carriers: - post significant bonds or make significant capital commitments to build infrastructure; - complete extensive application documentation; and - pay substantial license fees. These factors and slow implementation of legislation in connection with deregulation of telecommunications services could slow down the combined company's rate of expansion and increase the cost of such expansion. GOVERNMENT REGULATORY POLICIES AND INDUSTRY CONSOLIDATION IN EUROPE MAY DECREASE PROFIT MARGINS AND INCREASE PRICING PRESSURES IN THE COMBINED COMPANY'S INDUSTRY AND DECREASE DEMAND FOR SERVICES AND PRODUCTS. The companies expect that government regulatory policies, including the Telecommunications Act of 1996, are likely to continue to have a major impact on the pricing of both existing and new public network services and possibly accelerate the entrance of new competitors and consolidation of the industry. In addition, industry consolidation, especially in Europe, may decrease profit margins. These trends may decrease demand for the combined company's services and products that support these services. Lower prices may affect the cost effectiveness of the combined company's deployment of public network services. User uncertainty regarding future policies may also decrease demand for the combined company's telecommunications products and services. FOREIGN GOVERNMENTS MAY ATTEMPT TO PREVENT THE COMBINED COMPANY FROM CONDUCTING ITS BUSINESS AND FROM EXPANDING INTO THEIR RESPECTIVE COUNTRIES. Governments of many countries exercise substantial influence over various aspects of the telecommunications market. In some cases, the government owns or controls companies that are or may become the combined company's competitors or on which the combined company may depend for required interconnections to local telephone networks and other services. Accordingly, government actions in the future could block or impede the combined company's operation of its business. World Access desires to expand the combined company's foreign operations as these markets increasingly permit competition. The nature, extent and timing of the combined company's foreign operations, however, will be determined, in part, by the actions taken by foreign governments to permit competition and the response of incumbent carriers to these efforts. The regulatory authorities in these countries may not provide the combined company with practical opportunities to compete in the near future, or at all, and the combined company may not be able to take advantage of any such liberalization in a timely manner. RECENT FEDERAL COMMUNICATIONS COMMISSION ACTIONS MAY DAMAGE THE COMBINED COMPANY'S OPERATIONS AND DECREASE REVENUES BY INCREASING COMPETITION, WHICH MAY INCREASE PRICING PRESSURES AND DECREASE DEMAND FOR THE COMBINED COMPANY'S SERVICES. Recent Federal Communications Commission rulemaking orders and other actions have lowered the entry barriers for new carriers and resale international carriers by streamlining the processing of new applications and by eliminating the international settlements policy for arrangements with foreign carriers that lack market power and on other selected routes. In addition, the Federal Communications Commission's rules implementing the World Trade Organization Basic Telecommunications Agreement presume that competition will be advanced by the U.S. entry of carriers and resale carriers from World Trade Organization member countries, thus further increasing the number of potential competitors in the U.S. market and the number of carriers which may also offer end-to-end services. Increased competition may increase pricing pressures, reduce the combined company's margins and decrease demand for the combined company's services. 22 31 FEDERAL COMMUNICATIONS COMMISSION INTERVENTION REGARDING THE SETTLEMENT RATES CHARGED BY FOREIGN CARRIERS MAY DISRUPT THE COMBINED COMPANY'S TRANSMISSION ARRANGEMENTS TO CERTAIN COUNTRIES AND DECREASE THE COMBINED COMPANY'S REVENUES. The Federal Communications Commission recently has sought to reduce the foreign routing costs of U.S. international carriers by prescribing maximum or benchmark settlement rates which foreign carriers may charge U.S. carriers for routing telecommunications traffic. The Federal Communications Commission's benchmarks order was recently upheld by the U.S. Court of Appeals for the District of Columbia circuit. The Federal Communications Commission's action may reduce the combined company's settlement costs, although the costs of other U.S. international carriers also may be reduced in a similar fashion. The Federal Communications Commission has not stated how it will enforce the new settlement benchmarks if U.S. carriers are unsuccessful in negotiating settlement rates at or below the prescribed benchmarks. Any future Federal Communications Commission intervention could disrupt the combined company's transmission arrangements to certain countries or require the combined company to modify its existing arrangements, which could decrease the combined company's revenues. A RECENT FEDERAL COMMUNICATIONS COMMISSION ORDER DIRECTING ALL DOMESTIC INTERSTATE CARRIERS TO DE-TARIFF THEIR SERVICES MAY DECREASE THE COMBINED COMPANY'S ABILITY TO COMPETITIVELY PRICE ITS SERVICE OFFERINGS. The Telecommunications Act of 1996 permits the Federal Communications Commission to forbear enforcement of tariff provisions, which apply to all interstate and international carriers, and the U.S. Court of Appeals for the District of Columbia Circuit recently upheld the Federal Communications Commission's order directing all domestic interstate carriers to de-tariff their offerings. The Federal Communications Commission's order only applies to domestic services. However, the Federal Communications Commission may forbear its current tariff rules for U.S. international carriers such as the combined company, or order these carriers to de-tariff their services. Any such Federal Communications Commission action would likely afford non-dominant international carriers greater flexibility in pricing service offerings, which would increase the combined company's competition. The Federal Communications Commission routinely reviews the contribution rate for various levels of regulatory fees, including the rate for fees levied to support universal service, which fees may be increased in the future for various reasons, including the need to support the universal service programs mandated by the Telecommunications Act of 1996, the total costs for which are still under review by the Federal Communications Commission. DELAYS AND COSTS INCURRED IN ACHIEVING COMPLIANCE WITH GOVERNMENT REGULATIONS AND EVOLVING INDUSTRY STANDARDS FOR THE COMBINED COMPANY'S PRODUCTS COULD DECREASE REVENUES. If the combined company's products fail to comply with the various existing and evolving regulations and industry standards or if the combined company experiences delays and incurs costs in achieving compliance with these regulations and standards, revenues could materially decrease as a result of the increased costs. The combined company's products must meet a significant number of voice and data communications regulations and standards, some of which are evolving as new technologies are deployed. In the United States, these products and services must comply with various regulations promulgated by the Federal Communications Commission, as well as with standards established by Bell Communications Research. Internationally, the combined company's products and services must comply with standards established by telecommunications authorities in various countries, as well as with recommendations of the International Telecommunications Union. Any failure to comply with these standards could result in a material reduction of revenue and a loss of customers for the combined company. RISK FACTORS CONCERNING THE COMBINED COMPANY'S COMMON STOCK SIGNIFICANT VARIANCE IN THE COMBINED COMPANY'S QUARTERLY OPERATING RESULTS COULD CAUSE THE PRICE OF THE COMBINED COMPANY'S COMMON STOCK TO DROP. In future quarters, the combined company's results of operations may fail to meet the expectations of market analysts and investors, which may cause the price of its common stock to drop. World Access' quarterly operating results have varied significantly in the past, and the combined company's quarterly 23 32 operating results are expected to do so in the future. The combined company's revenues in any given period can vary due to factors such as: - call volume fluctuations, particularly in regions with relatively high per-minute rates; - the addition or loss of major customers, whether through competition or merger; and - technical difficulties with or failures of portions of its network that impact its ability to provide service to or bill customers. The combined company's cost of services and operating expenses in any given period can vary due to factors such as: - fluctuations in rates charged by carriers to terminate traffic; - the timing of capital expenditures, and other costs associated with acquiring or obtaining other rights to switching and other transmission facilities; and - costs associated with changes in staffing levels of sales, marketing, technical support and administrative personnel. In addition, the combined company's operating results can vary due to factors such as: - changes in routing due to variations in the quality of vendor transmission capability; - the amount of, and the accounting policy for, return traffic under operating agreements; and - the level, timing and pace of the combined company's expansion in international and retail markets. In response to competitive pressures or new product and service introductions, the combined company may take certain pricing or marketing actions that could damage its quarterly operating results. World Access currently bases its expense levels, in part, on its expectations of future sales. If future sales levels are below expectations, then the combined company may be unable to adjust spending sufficiently in a timely manner to compensate for the unexpected sales shortfall. Historically, World Access has generated a disproportionate amount of its operating revenues toward the end of each quarter, making precise prediction of revenues and earnings particularly difficult and resulting in risk of variance of actual results from those forecast at any time. FORWARD-LOOKING STATEMENTS This proxy statement/prospectus and the documents incorporated by reference in this proxy statement/prospectus contain certain information regarding our financial projections, plans and strategies that are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. When used in this proxy statement/prospectus or in the documents incorporated by reference, the words "may," "could," "should," "would," "believe," "anticipate," "estimate," "expect," "intend," "plan" and similar terms and/or expressions are intended to identify forward-looking statements. These statements reflect the companies' assessment of a number of risk and uncertainties, and their actual results could differ materially from the results anticipated in these forward-looking statements. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation, actual future financial results differing materially from financial projections, potential inability to identify, complete and integrate acquisitions, difficulties in expanding into new business activities, delays in new service offerings, the potential termination of certain service agreements or the inability to enter into additional service agreements and the other issues discussed above in the Risk Factors section. The companies caution you not to place undue reliance on these forward-looking statements, which speak only as of the date they were made. 24 33 THE WORLD ACCESS SPECIAL MEETING Date, Time and Place of the World Access Special Meeting. December 14, 2000 1:00 pm., local time 945 E. Paces Ferry Road, Suite 2200 Atlanta, Georgia 30326. World Access board of directors' recommendations. The board of directors of World Access unanimously approved the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement and unanimously recommends that the stockholders of World Access vote for the approval and adoption of the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement. World Access record date; stockholders entitled to vote. As of the close of business on November 1, 2000, the World Access record date, 73,391,958 shares of World Access common stock were outstanding, held by approximately 730 holders of record. World Access stockholders are entitled to cast one vote per share of World Access common stock owned or to be received upon the conversion of shares of preferred stock owned as of the World Access record date. World Access also has shares of preferred stock issued and outstanding. Each share of World Access preferred stock is convertible at the option of the holder into World Access common stock in accordance with a conversion formula contained in the World Access amended certificate of incorporation. The World Access preferred stock is entitled to vote on the approval and adoption of the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement on an as converted basis with the World Access common stock voting together as a single class. The following table sets forth information regarding the World Access preferred stock:
COMMON STOCK SERIES SHARES OUTSTANDING HELD UPON CONVERSION - ------ ------------------ -------------------- Series A.......................................... 70,000 6,086,956 Series C.......................................... 350,260 17,186,451 Series D.......................................... 182,057 10,114,277 Series E.......................................... 9,000 413,793
Only holders of record of World Access voting stock as of the close of business on the World Access record date are entitled to notice of and to vote at the World Access special meeting and any adjournments or postponements of the special meeting. Quorum; vote required. A majority of the shares of World Access common stock entitled to vote at the World Access special meeting will constitute a quorum for the transaction of business at the World Access special meeting. The vote required for approval of the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement is a majority in voting power of the shares of World Access voting stock entitled to vote and voting as a single class. The total outstanding shares of World Access common stock for purposes of calculating the number of shares constituting a quorum and needed for approval includes the number of shares of World Access common stock issuable upon conversion of the Series A preferred stock, the Series C preferred stock, the Series D preferred stock and the Series E preferred stock. Shares of World Access voting stock that are voted "for," "against" or "withheld" at the World Access special meeting will be treated as being present at such meeting for purposes of establishing a quorum and will also be treated as votes eligible to be cast by the World Access voting stock present in person or represented by proxy at the World Access special meeting and entitled to vote on the subject matter. Abstentions will be counted for purposes of determining both the presence or absence of a quorum for the transaction of business and the total number of votes cast with respect to a particular matter. Broker non-votes will be counted for 25 34 purposes of determining the presence or absence of a quorum for the transaction of business but will not be counted for purposes of determining the number of votes cast with respect to the particular proposal on which the broker has expressly not voted. Because approval of the TelDaFax purchase agreement and the transactions contemplated by the TelDaFax purchase agreement requires the affirmative vote of a majority in voting power of outstanding shares of World Access voting stock, abstentions and broker non-votes will have the same effect as negative votes with respect to these proposals. Security ownership by certain beneficial owners and management. As of the close of business on the World Access record date, directors and executive officers of World Access and their respective affiliates may be deemed to be the beneficial owners of shares of World Access common stock representing approximately 12.7% of the outstanding voting power of World Access. Solicitation and revocability of proxies. This proxy statement/prospectus is being furnished to holders of World Access voting stock in connection with the solicitation of proxies by and on behalf of the board of directors of World Access for use at the World Access special meeting. All shares of World Access voting stock that are entitled to vote and are represented at the World Access special meeting, by properly executed proxies received prior to or at such meeting and not duly and timely revoked, will be voted at such meeting in accordance with the instructions indicated on such proxies. If no instructions are indicated, such proxies will be voted for the approval and adoption of the proposals described herein. If any other matters are properly presented for consideration at the World Access special meeting or any adjournments or postponements thereof, including, among other things, consideration of a motion to adjourn or postpone the meeting to another time and/or place, including, without limitation, for the purpose of soliciting additional proxies, the persons named in the enclosed form of proxy and voting thereunder will have discretion to vote on such matters in accordance with their best judgment. Proxies voting against the proposals presented in this proxy statement/prospectus may not be voted for an adjournment or postponement of the World Access special meeting. Any proxy given pursuant to this solicitation may be revoked by the person giving it any time before it is voted. Proxies may be revoked by: - filing with the Secretary of World Access at or before the taking of the vote at the World Access special meeting a written notice of revocation bearing a later date than the proxy; - duly executing a later-dated proxy relating to the same shares and delivering it to the Secretary of World Access before the taking of the vote at the World Access special meeting; or - attending the World Access special meeting and voting in person. Attendance at the World Access special meeting will not in and of itself constitute a revocation of a proxy. Any written notice of revocation or subsequent proxy should be sent so as to be delivered to World Access, Inc., at 945 E. Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, Attention: Secretary, or hand delivered to the Secretary of World Access at or before the taking of the vote at the World Access special meeting. All expenses of this solicitation, including the cost of preparing and mailing this proxy statement/ prospectus to stockholders of World Access, will be borne by World Access. In addition to solicitation by use of the mails, proxies may be solicited by directors, officers and employees of World Access in person or by telephone, telegram or other means of communication. Such directors, officers and employees will not be additionally compensated, but may be reimbursed for reasonable out-of-pocket expenses in connection with such solicitation. Arrangements will also be made with custodians, nominees and fiduciaries for forwarding of proxy solicitation materials to beneficial owners of shares held of record by such custodians, nominees and fiduciaries, and World Access will reimburse such custodians, nominees and fiduciaries for reasonable expenses incurred by them. 26 35 PROPOSAL 1 THE TELDAFAX TRANSACTIONS This section of the proxy statement/prospectus is a summary of the proposed transactions between World Access and TelDaFax. BACKGROUND OF THE TELDAFAX TRANSACTIONS In March 2000, World Access learned that management of TelDaFax had been considering alternative strategic partnership opportunities and arranged for a meeting between World Access and TelDaFax. On March 16, 2000, Clifford S. Rees, Executive Vice President of International Business Development for World Access, and Rainer Zettl, German Managing Director for World Access, met with Dr. Henning Klose, Chief Executive Officer and Chief Financial Officer of TelDaFax, and Stefan Legner, Chief Technical Officer of TelDaFax, at the TelDaFax headquarters in Marburg, Germany. The parties discussed the business and strategies of each of World Access and TelDaFax and the possible synergies that might be achieved through a strategic transaction. On April 19, 2000, Dr. Klose and Dr. Martin Halusa, a representative of Apax, met with John D. Phillips, Chairman and Chief Executive Officer of World Access, W. Tod Chmar, Executive Vice President of World Access, and Mr. Rees at the World Access headquarters in Atlanta, Georgia. The parties discussed general parameters for the terms of a potential strategic transaction. The parties agreed to pursue the combination of their respective businesses in Germany to realize synergies to the largest extent practically and legally possible and started to discuss a transaction between World Access and TelDaFax. From April 25, 2000 until May 19, 2000, legal and financial advisors for World Access conducted due diligence investigations of TelDaFax at the TelDaFax offices in Frankfurt, Germany and Marburg, Germany. From May 22, 2000 until May 25, 2000, Mr. Chmar and the World Access financial and legal advisors negotiated with representatives of TelDaFax regarding the terms of a transaction between World Access and TelDaFax. These negotiations continued from June 12, 2000 until June 14, 2000. On June 14, 2000, the parties entered into the TelDaFax purchase agreement. As a result of delays experienced by World Access in holding a special meeting of stockholders, it became increasingly unlikely that the parties would complete the TelDaFax transactions on the schedule set forth in the TelDaFax purchase agreement. In early September 2000, Mr. Chmar and Mr. Halusa discussed the possibility of World Access purchasing the TelDaFax shares owned by the Apax funds prior to completion of the TelDaFax tender offer and contribution of the German operations of NETnet and Newtel. On September 21, 2000, World Access completed the purchase of the shares of TelDaFax stock owned by the Apax funds. WORLD ACCESS' REASONS FOR THE TELDAFAX TRANSACTIONS In deciding to approve the TelDaFax purchase agreement and the TelDaFax transactions and to recommend approval and adoption of the TelDaFax purchase agreement by the World Access stockholders, the World Access board of directors considered the material factors listed below. In view of the number and wide variety of factors considered in connection with its evaluation of the TelDaFax purchase agreement, the board of directors did not consider it practicable to, nor did it attempt to, quantify or otherwise assign relative weights to the specific factors considered in reaching its determination. The World Access board of directors viewed its position and recommendation as being based on the totality of the information and factors presented to and considered by it. In addition, individual directors may have given different weight to different information and factors. On October 26, 2000, the World Access board reconsidered its reasons for, and the risks associated with, the TelDaFax transactions and unanimously determined that the TelDaFax transactions remained fair to, advisable and in the best interests of World Access and its stockholders and reaffirmed its recommendation of the TelDaFax transactions, independent of its consideration of Donaldson, Lufkin & Jenrette's fairness opinion. 27 36 - The Financial Terms of the TelDaFax Purchase Agreement. The World Access board of directors considered information concerning the business, earnings, operations, financial condition and prospects of World Access and TelDaFax, individually, on a combined basis, and in conjunction with the STAR and WorldxChange mergers. The board determined to approve the TelDaFax purchase agreement and the TelDaFax transactions based on its consideration of these factors, without taking into account the STAR and WorldxChange mergers. The board of directors also considered the opinion of Donaldson, Lufkin & Jenrette Securities Corporation as to the fairness to World Access, from a financial point of view, of the consideration to be paid by World Access under the TelDaFax purchase agreement. The directors also considered their own knowledge of World Access and TelDaFax and their respective businesses. - German Retail International Long Distance Services. The World Access board of directors considered TelDaFax's strong retail international long-distance services. TelDaFax currently sells approximately 13 million call minutes a day, making it the second largest non-incumbent telephone carrier by volume in Germany. - TelDaFax's Extensive German Fixed-line Network and Fiber Optic Network. The World Access board of directors considered the advantages of combining TelDaFax's current fixed-line network, which includes nine switches and 170 interconnection points. TelDaFax has invested approximately $35.0 million in its fixed-line network. Additionally, TelDaFax has an attractive German fiber optic network. TelDaFax intends to have a 1,700 mile fiber optic network operative in the third quarter of fiscal year 2000 and has invested approximately $10.0 million in the fiber optic network. - Industry Trend Toward Consolidation. The World Access board of directors considered the status of the international telecommunications services industry and the likely trend toward consolidation of service providers. It also considered the importance of market position in the global telecommunications services industry. The World Access board of directors considered the potential significant cost savings to be achieved as a result of the TelDaFax purchase agreement and the TelDaFax transactions in providing global telecommunications services. - TelDaFax's Strong Growth Among Business Customers. The World Access board of directors considered the compatibility of TelDaFax's established customer base with World Access' existing customer base. Of particular importance was the fact that TelDaFax has more than 80,000 business customers, which has grown from fewer than 25,000 in the beginning of 1999. - Ability to Accelerate Plans to Become a Leading Provider of Bundled Voice, Data and Internet Services to Key International Markets. The World Access board of directors considered the additional services offered by TelDaFax, which would be made available to current and future customers of World Access. Specifically, the board of directors considered the significant expansion of telecommunications services available throughout Germany and the potential positioning of World Access as one of the top telecommunications companies in Germany. THE WORLD ACCESS BOARD OF DIRECTORS' RECOMMENDATION THAT STOCKHOLDERS APPROVE THE TELDAFAX TRANSACTIONS The World Access board of directors has carefully considered the advisability of the TelDaFax purchase agreement and the TelDaFax transactions and believes that the terms of the TelDaFax purchase agreement and these transactions are fair to and in the best interests of the stockholders of World Access. The board of directors of World Access has unanimously approved the TelDaFax purchase agreement and these transactions and unanimously recommends that the stockholders of World Access vote for the approval and adoption of the TelDaFax purchase agreement and these transactions. 28 37 TELDAFAX'S REASONS FOR THE TELDAFAX TRANSACTIONS The TelDaFax management board believes that the TelDaFax transactions are fair to and in the best interests of TelDaFax's stockholders for the following reasons: - Consideration to be Paid by World Access. The TelDaFax transactions provide the TelDaFax stockholders with an amount of World Access shares which based on the World Access share price at the time the TelDaFax purchase agreement was signed, represented a premium over the most recent price at which TelDaFax sold shares of its capital stock; and - Potential Growth of World Access. TelDaFax stockholders will be able to participate in the potential growth of World Access' business after the TelDaFax transactions and to benefit from the potential appreciation in the value of World Access common stock. In preparing its decision to approve the TelDaFax purchase agreement and the proposed TelDaFax transactions, the TelDaFax board consulted with TelDaFax management and its advisors and considered a number of factors, including: - historical information concerning World Access' and TelDaFax's respective business, financial performance and condition, operations, management and competitive position; - TelDaFax management's assessment of the business and financial prospects of World Access following the TelDaFax transactions. In this regard, the TelDaFax board considered financial market and industry conditions and the potential synergies and opportunities for growth inherent in a combined company. In light of these factors, the TelDaFax board concluded that the long-term business and financial prospects of a combined company were superior to those of TelDaFax as an independent company; - the terms and conditions of the TelDaFax purchase agreement, which the TelDaFax board believes to be fair, and in the best interests of, the TelDaFax stockholders; - TelDaFax's prior experience with other potential acquirors or strategic partners; - the ability of TelDaFax, as an independent company, to meet its near- and longer-term operating cash needs and fund capital expenditures necessary to achieve future growth; - the current and historical market prices and trading information with respect to World Access' common stock; and - the impact of the TelDaFax transactions on TelDaFax's customers and employees. The TelDaFax board also considered certain potentially negative factors in assessing the proposed TelDaFax transactions. These factors include: - the risk that the value of World Access' common stock to be received in the TelDaFax transactions would be less than the value of the World Access common stock reflected by the exchange ratio in the TelDaFax purchase agreement due to potential declines in the trading price of World Access' shares; - the risk that the TelDaFax transactions will not be completed in a timely manner or at all and the effect of the public announcement on TelDaFax's ability to attract and retain key employees; and - the risk that a strategic alternative more favorable to the TelDaFax transactions will be presented or become available to TelDaFax prior to the completion of the TelDaFax transactions, which alternative TelDaFax would be prohibited from pursuing under the terms of the TelDaFax purchase agreement. These factors are not intended to present an exhaustive list of all of the factors considered by the TelDaFax board. However, they are believed to include all of the material factors considered. In light of the variety of factors considered, the TelDaFax board did not find it practicable to, and did not, quantify or otherwise assign relative weight to any one or more of the factors it considered in reaching its determination. In addition, individual TelDaFax directors may have given different weights to different factors. Based on all of the above factors and considerations, the TelDaFax board concluded that the TelDaFax transactions were 29 38 advisable, fair to, and in the best interests of TelDaFax and its stockholders and that TelDaFax should proceed with the TelDaFax transactions. OPINION OF WORLD ACCESS' FINANCIAL ADVISOR REGARDING THE PURCHASE OF TELDAFAX SHARES FROM THE APAX FUNDS AND THE TELDAFAX TENDER OFFER World Access asked Donaldson, Lufkin & Jenrette, in its role as financial advisor to World Access, to render an opinion to the World Access board as to the fairness, from a financial point of view, to World Access of the consideration to be paid by World Access in the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer. On June 13, 2000, Donaldson, Lufkin & Jenrette delivered to the World Access board its opinion, subsequently confirmed in writing on June 14, 2000, to the effect that, as of the date of its opinion, based on and subject to the assumptions, limitations and qualifications set forth in its written opinion, the consideration to be paid by World Access in the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer was fair to World Access and its stockholders from a financial point of view. The full text of Donaldson, Lufkin & Jenrette's opinion is attached as Appendix B to this proxy statement/prospectus. DONALDSON, LUFKIN & JENRETTE'S FAIRNESS OPINION WAS DELIVERED TO THE WORLD ACCESS BOARD ON JUNE 13, 2000 AND RELATES TO THE FAIRNESS OF THE TELDAFAX TRANSACTIONS AS OF THAT DATE. SOME OF THE ASSUMPTIONS RELIED UPON BY DONALDSON, LUFKIN & JENRETTE IN PREPARING THE ANALYSES DESCRIBED BELOW AND IN RENDERING ITS OPINION HAVE CHANGED SINCE IT WAS ASKED TO DELIVER ITS OPINION. THE FOLLOWING IS A SUMMARY OF THESE CHANGES: - CERTAIN ASSUMPTIONS UNDERLYING THE PROJECTIONS FOR WORLD ACCESS HAVE BEEN REVISED TO REFLECT LOWER CARRIER REVENUES FOR WORLD ACCESS DUE TO A REDUCTION IN THE NUMBER OF CARRIER CUSTOMERS RESULTING FROM A STRENGTHENED CREDIT POLICY IMPLEMENTED BY WORLD ACCESS. - THE MARKET PRICE OF SHARES OF WORLD ACCESS COMMON STOCK HAS DECREASED SIGNIFICANTLY SINCE DONALDSON, LUFKIN & JENRETTE RENDERED ITS OPINION. THE CLOSING PRICE PER SHARE OF THE WORLD ACCESS COMMON STOCK ON JUNE 13, 2000, THE PRICE DONALDSON, LUFKIN & JENRETTE USED IN ITS ANALYSES, AND THE CLOSING PRICE ON NOVEMBER 10, 2000 WERE $22.88 AND $4.0625, RESPECTIVELY. WORLD ACCESS HAS NOT ASKED, AND DOES NOT INTEND TO ASK, DONALDSON, LUFKIN & JENRETTE FOR A NEW OR UPDATED FAIRNESS OPINION, AND DONALDSON, LUFKIN & JENRETTE HAS NOT BEEN ASKED TO UPDATE THE ANALYSES DESCRIBED ABOVE AND IS NOT OPINING AS TO THE FAIRNESS OF THE TELDAFAX TRANSACTIONS AS OF ANY DATE SUBSEQUENT TO THE DATE OF ITS OPINION. Donaldson, Lufkin & Jenrette expressed no opinion as to the prices at which World Access common stock would actually trade at any time. Donaldson, Lufkin & Jenrette's opinion did not address the relative merits of the purchase of TelDaFax shares from the Apax funds, the TelDaFax tender offer and the other transactions contemplated by the TelDaFax purchase agreement and the other business strategies considered by the World Access board nor did it address the World Access board's decision to proceed with the purchase of TelDaFax shares from the Apax funds, the TelDaFax tender offer and the other transactions contemplated by the TelDaFax purchase agreement. Donaldson, Lufkin & Jenrette's opinion also does not address the consideration to be paid by World Access upon exercise of the put/call option to purchase the TelDaFax shares owned by Dr. Klose and A+M or the terms of the contribution by World Access for the NETnet and NewTel businesses in exchange for newly issued TelDaFax shares. Donaldson, Lufkin & Jenrette's opinion did not constitute a recommendation to any stockholder as to how such stockholder should vote on the proposed transactions or whether any stockholder should tender shares in the TelDaFax tender offer. World Access and TelDaFax determined the consideration to be paid by World Access in the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer in arm's length negotiations, in which Donaldson, Lufkin & Jenrette advised World Access. World Access selected Donaldson, Lufkin & Jenrette as its financial advisor because Donaldson, Lufkin & Jenrette is an internationally recognized investment banking firm that has substantial experience providing strategic advisory services. Donaldson, Lufkin & Jenrette was not retained as an advisor or agent to the stockholders of World Access or any other person. As part of its investment banking business, Donaldson, 30 39 Lufkin & Jenrette is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. World Access did not impose any restrictions or limitations upon Donaldson, Lufkin & Jenrette with respect to the investigations made or the procedures followed by Donaldson, Lufkin & Jenrette in rendering its opinion. In arriving at its opinion, Donaldson, Lufkin & Jenrette: - reviewed the TelDaFax purchase agreement; - reviewed financial and other information that was publicly available or furnished to it by World Access and TelDaFax, including information provided during discussions with their respective managements. Included in the information provided during discussions with the respective managements were certain financial projections of TelDaFax for the period beginning April 1, 2000, and ending December 31, 2001 prepared by the management of TelDaFax and for the period beginning January 1, 2002 and ending December 31, 2004 prepared by the management of World Access, as well as certain financial projections of World Access for the period beginning April 1, 2000 and ending December 31, 2004 prepared by the management of World Access; - compared certain financial and securities data of TelDaFax and World Access with various other companies whose securities are traded in public markets; - reviewed the historical stock prices and trading volumes of the common stock of TelDaFax and World Access; - reviewed prices and premiums paid in certain other business combinations; and - conducted other financial studies, analyses and investigations as Donaldson, Lufkin & Jenrette deemed appropriate for purposes of rendering its opinion. In rendering its opinion, Donaldson, Lufkin & Jenrette relied upon and assumed the accuracy and completeness of all of the financial and other information that was available to it from public sources, that was provided to it by World Access and TelDaFax or their respective representatives, or that Donaldson, Lufkin & Jenrette otherwise reviewed. With respect to the financial projections supplied to Donaldson, Lufkin & Jenrette, Donaldson, Lufkin & Jenrette relied on representations that the projections were reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of World Access and TelDaFax as to the future operating and financial performance of World Access and TelDaFax. In addition, Donaldson, Lufkin & Jenrette assumed that: - the TelDaFax common stock is tendered in the TelDaFax tender offer for consideration equal to 1.025 shares of World Access common stock for each share of TelDaFax common stock; - the pending mergers of World Access with STAR and with WorldxChange are completed; - upon such completion, the German businesses of STAR and WorldxChange are integrated through consolidation or by contract with TelDaFax; and - the contribution under the TelDaFax contribution agreement is completed and the German assets of World Access that are contributed include at least the German businesses of NETnet and NewTel. Donaldson, Lufkin & Jenrette has also relied upon the estimates of the management of World Access of the operating synergies achievable as a result of the completion of the contribution and the combination of TelDaFax with the German businesses of STAR and WorldxChange and upon its discussions of such synergies with management of TelDaFax. Donaldson, Lufkin & Jenrette expressed no opinion with respect to these projections and estimates or the assumptions upon which they were based. Donaldson, Lufkin & Jenrette did not assume responsibility for making any independent evaluation of the assets or liabilities, or for making any independent verification of the information it reviewed. Donaldson, Lufkin & Jenrette necessarily based its opinion on economic, market, financial and other conditions as they existed on, and on the information made available to Donaldson, Lufkin & Jenrette as of, the date of its opinion. Donaldson, Lufkin & Jenrette states in its opinion that, although subsequent 31 40 developments may affect the conclusions reached in its opinion, Donaldson, Lufkin & Jenrette does not have any obligation to update, revise or reaffirm its opinion. Summary of Financial Analyses Performed by Donaldson, Lufkin & Jenrette The following is a summary of the financial analyses Donaldson, Lufkin & Jenrette presented to the World Access board of directors on June 13, 2000 in connection with the preparation of its opinion. No company or transaction Donaldson, Lufkin & Jenrette used in the analyses described below is directly comparable to TelDaFax, World Access, the purchase of TelDaFax shares from the Apax funds or the TelDaFax tender offer. In addition, mathematical analysis such as determining the mean or median is not in itself a meaningful method of using selected company or transaction data. The analyses Donaldson, Lufkin & Jenrette performed are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. The information summarized in the tables which follow should be read in conjunction with the accompanying text. In reviewing the consideration to be paid by World Access in the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer, Donaldson, Lufkin & Jenrette used an exchange ratio of 1.025 and the World Access common stock closing stock price on June 13, 2000 of $11.44 per share. Common Stock Trading History. Donaldson, Lufkin & Jenrette examined the historical closing prices of TelDaFax common stock from June 11, 1999 to June 13, 2000. During this time period, TelDaFax common stock reached a high of $42.10 per share and a low of $9.60 per share. Historical Exchange Ratio Analysis. Donaldson, Lufkin & Jenrette reviewed the historical exchange ratios implied by the daily closing prices per share of World Access common stock to those of TelDaFax common stock for the period beginning on June 9, 1999 and ending on June 13, 2000. This analysis showed that the average historical exchange ratios during the period ending on June 13, 2000 were as follows:
HISTORICAL PERIOD ENDED JUNE 13, 2000 EXCHANGE RATIO - -------------------------- -------------- 9 months.................................................... 0.900 6 months.................................................... 0.784 3 months.................................................... 0.901 June 13, 2000............................................... 0.973 Proposed Exchange Ratio..................................... 1.025
Comparable Publicly Traded Company Analysis. Donaldson, Lufkin & Jenrette analyzed the market values and trading multiples of selected publicly traded emerging telecommunications service providers that Donaldson, Lufkin & Jenrette believed were reasonably comparable to TelDaFax. These comparable companies consisted of: - debitel AG - Drillisch AG - MobilCom AG - RSL Communications Ltd. - Societe Europeenne de Communication SA In examining these comparable companies, Donaldson, Lufkin & Jenrette calculated the enterprise value of each company as a multiple of its respective: (i) last quarter annualized revenue, (ii) last twelve-months revenue and (iii) projected 2000 revenue. The enterprise value of a company is equal to the value of its fully-diluted common equity plus debt and the liquidation value of outstanding preferred stock, if any, minus cash and the value of certain other assets, including minority interests in other entities. Last quarter annualized revenue means the last quarter annualized for which financial data for the company at issue has been reported. Last twelve-months revenue means the last twelve-month period for which financial data for the company at issue has been reported. Donaldson, Lufkin & Jenrette also compared the implied enterprise value of 32 41 TelDaFax to the implied enterprise values obtained by the above mentioned ratios of the comparable companies and TelDaFax's last quarter annualized revenue, last twelve-months revenue and projected 2000 revenue as provided by TelDaFax. All historical data was derived from publicly available sources and all projected data of comparable companies was obtained from published research reports. For purposes of this analysis, Donaldson, Lufkin & Jenrette determined a selected valuation range for the comparable companies. The selected valuation range represents a tighter range of the ratios as deemed reasonable by Donaldson, Lufkin & Jenrette for comparative purposes. The selected valuation range includes the above mentioned ratios and implied enterprise values obtained by the trading statistics for Drillisch and debitel, which were deemed most comparable to TelDaFax by Donaldson, Lufkin & Jenrette for comparative purposes. Donaldson, Lufkin & Jenrette's analysis yielded the following multiple ranges:
SELECTED VALUATION RANGE ------------------------ TELDAFAX DRILLISCH DEBITEL -------- --------- ------- (LOW) (HIGH) ($ IN MILLIONS) IMPLIED PURCHASE MULTIPLES: Enterprise Value/ LQA Revenue.............................................. 1.3x 1.2x NA LTM Revenue.............................................. 1.2x 1.3x 1.7x 2000 Revenue............................................. 1.3x 1.0x 1.3x IMPLIED ENTERPRISE VALUE: LQA Revenue.............................................. $346.6 $338.2 NA LTM Revenue.............................................. $346.6 374.2 $474.5 2000 Revenue............................................. $346.6 268.1 351.6
Precedent Merger and Acquisition Transaction Analysis. Donaldson, Lufkin & Jenrette reviewed selected acquisitions involving companies in the emerging telecommunications service providers industry that it believed are reasonably comparable to the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer. These transactions consisted of: - France Telecom's pending acquisition of a stake in MobilCom AG; - Primus Telecommunications Group Inc.'s pending acquisition of LCR Telecom Group, Plc; - Viatel Inc.'s acquisition of AT&T Communications (UK) Ltd.; - Viatel Inc.'s acquisition of Destia Communications, Inc.; - Swisscom Inc.'s acquisition of a stake in debitel AG; - Global TeleSystems Group, Inc.'s acquisition of a stake in Omnicom; - Mannesman AG's acquisition of the fixed line business of Otelo and germany.net; - Global TeleSystems Group, Inc.'s acquisition of Esprit Telecom Group, plc; and - Esprit Telecom Group, plc's acquisition of Plusnet Gesellschaft fur Netzwerk Services mbH. Donaldson, Lufkin & Jenrette also selected key mergers and acquisitions transactions that it deemed most relevant. The selected key mergers and acquisitions transactions consisted of the following: - Primus Telecommunications Group Inc.'s pending acquisition of LCR Telecom Group, Plc; - Viatel Inc.'s acquisition of AT&T Communications (UK) Ltd.; and - Swisscom Inc.'s acquisition of a stake in debitel AG. In examining these acquisitions, Donaldson, Lufkin & Jenrette calculated the enterprise value of the acquired company implied by each of the above transactions as a multiple of last quarter annualized revenue and last twelve-months revenue and compared TelDaFax implied transaction value as a multiple of last quarter annualized, or LQA, revenue and last twelve-months, or LTM, revenue. Donaldson, Lufkin & 33 42 Jenrette's analysis of all comparable mergers and acquisitions transactions and the selected key mergers and acquisitions transactions yielded the following multiple ranges:
ENTERPRISE VALUE ------------------------- LQA REVENUE LTM REVENUE ----------- ----------- ($ IN MILLIONS) ALL COMPARABLE TRANSACTIONS: Low....................................................... 1.2x 1.3x High...................................................... 4.0x 11.3x SELECTED KEY COMPARABLE TRANSACTIONS: Low....................................................... 1.2x 1.3x High...................................................... 1.9x -- TelDaFax Implied Purchase Multiples......................... 1.3x 1.2x IMPLIED ENTERPRISE VALUE BASED ON ALL COMPARABLE TRANSACTIONS: Low.................................................... $ 333.0 $ 369.9 High................................................... 1,099.6 3,139.8 BASED ON SELECTED KEY COMPARABLE TRANSACTIONS: Low.................................................... $ 337.8 $ 369.9 High................................................... 528.9 -- TelDaFax Implied Enterprise Value........................... $ 346.6 $ 346.6
Discounted Cash Flow Analysis. Donaldson, Lufkin & Jenrette performed a discounted cash flow analysis of the projected cash flows of TelDaFax for the fiscal years ending December 31, 2000 through December 31, 2004, using projections and assumptions provided by the management of TelDaFax and the management of World Access. The discounted cash flows for TelDaFax were estimated using discount rates ranging from 17% to 19%, based on estimates related to the weighted average costs of capital of TelDaFax, and terminal multiples of estimated EBITDA for TelDaFax's fiscal year ending December 31, 2004 ranging from 8.3x to 10.0x. EBITDA means earnings before interest expense, taxes, depreciation and amortization. Based on this analysis, Donaldson, Lufkin & Jenrette estimated: (i) enterprise values of TelDaFax ranging from $201.9 million to $348.6 million compared to the implied enterprise value of $346.6 million; (ii) present values of equity from $251.9 million to $398.6 million compared to the implied equity value of $396.6 million; and (iii) present values of equity per share ranging from $7.45 to $11.78, compared to the proposed price of $11.72, based on an exchange ratio of 1.025 and the June 13, 2000 closing stock price of World Access common stock of $11.44, per share of TelDaFax common stock to be paid in the purchase of TelDaFax shares from the Apax funds and the TelDaFax tender offer. The summary set forth above does not purport to be a complete description of the analyses performed by Donaldson, Lufkin & Jenrette but describes the material elements of the presentation that it made to the World Access board on June 13, 2000 in connection with the preparation of its fairness opinion. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to summary description. Donaldson, Lufkin & Jenrette conducted each of the analyses in order to provide a different perspective on the transaction and to add to the total mix of information available. Donaldson, Lufkin & Jenrette did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, in reaching its conclusion, Donaldson, Lufkin & Jenrette considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. Donaldson, Lufkin & Jenrette did not place any particular reliance or weight on any individual analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized above, Donaldson, Lufkin & Jenrette has indicated to World Access that it believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying its opinion. The analyses Donaldson, Lufkin & 34 43 Jenrette performed are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by these analyses. Engagement Letter Under the terms of an engagement agreement dated June 9, 2000, World Access has agreed to pay a fee that is customary in transactions of this nature, a substantial portion of which is contingent upon the completion of the TelDaFax transactions. In addition, World Access agreed to reimburse Donaldson, Lufkin & Jenrette, upon Donaldson, Lufkin & Jenrette's request from time to time, for all out-of-pocket expenses, including the reasonable fees and expenses of counsel, Donaldson, Lufkin & Jenrette incurred in connection with its engagement thereunder and to indemnify Donaldson, Lufkin & Jenrette and certain related persons against certain liabilities in connection with its engagement, including liabilities under U.S. federal securities laws. Donaldson, Lufkin & Jenrette and World Access negotiated the terms of the fee arrangement. Other Relationships Donaldson, Lufkin & Jenrette has performed investment banking and other services for World Access in the past and has been compensated for such services, including: - acting as financial advisor to World Access in connection with its acquisition of FaciliCom in 1999 and acting as financial advisor in connection with the exchange offer for FaciliCom's outstanding senior notes; - acting as financial advisor to World Access in connection with its pending acquisitions of both STAR and WorldxChange in 2000; and - acting as financial advisor in connection with the sale of World Access' Telco Systems Inc. subsidiary and World Access' Wireless Local Loop Division in 2000. COMPLETION OF THE TELDAFAX TRANSACTIONS World Access cannot complete the TelDaFax tender offer until: - the World Access stockholders approve the issuance of the World Access common stock in the TelDaFax tender offer; - World Access registers the shares of World Access common stock to be issued in the TelDaFax tender offer under the Securities Act of 1933; and - World Access receives all necessary regulatory approvals. World Access intends to launch the TelDaFax tender offer before the World Access special meeting and to complete it no later than 20 business days after the launch. World Access cannot complete the contribution of the German operations of NETnet and Newtel until: - the conditions to completing the transactions under the TelDaFax purchase agreement have been met; and - the auditor has confirmed the value of NETnet and Newtel equals the minimum subscription amount of the TelDaFax shares to be issued to World Access under the TelDaFax contribution agreement. 35 44 MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE TELDAFAX TRANSACTIONS The following discussion summarizes the material U.S. federal income tax consequences of the TelDaFax transactions to U.S. holders of TelDaFax shares. For purposes of this discussion, a "U.S. holder" is a beneficial owner of TelDaFax shares that is: - an individual citizen or resident of the United States for U.S. federal income tax purposes; - a domestic corporation; or - a partnership, trust or estate treated, for U.S. federal income tax purposes, as a domestic partnership, trust or estate. This discussion does not address any U.S. or foreign tax considerations with respect to holders of TelDaFax shares who are not U.S. holders. The following discussion is not a complete analysis of all aspects of U.S. federal income taxation that may be relevant to you as a U.S. holder in light of your particular circumstances. In particular, this discussion deals only with U.S. holders who hold TelDaFax shares as "capital assets." Generally, capital assets include property held for investment for U.S. federal income tax purposes. This discussion does not address the tax treatment of U.S. holders that may be subject to special treatment under the Internal Revenue Code, as amended, which we refer to as the Internal Revenue Code, such as: - insurance companies, banks, financial institutions, tax exempt organizations or employee benefit plans; - dealers in stocks or securities; - U.S. holders that hold their TelDaFax shares as part of a straddle, synthetic security, conversion transaction or other integrated investment composed of TelDaFax shares and one or more other investments; - U.S. holders that have a "functional currency" other than the U.S. dollar; - traders in securities that elect market-to-market accounting treatment; - U.S. holders liable for alternative minimum tax; or - U.S. holders who acquired TelDaFax shares through the exercise of options or otherwise as compensation. In addition, this discussion does not consider the effect of any foreign, state, local, or other tax laws, or any tax consequences, such as estate or gift tax, other than the U.S. federal income tax consequences of the TelDaFax transactions that may be applicable to U.S. holders. Further, this discussion assumes that TelDaFax is not and has not been a "controlled foreign corporation" for U.S. federal income tax purposes at any time during the five-year period ending on the date on which the TelDaFax tender offer and purchase of TelDaFax shares from the Apax funds are both completed. If 10% U.S. holders own in the aggregate, more than 50% of the stock of TelDaFax, directly, indirectly, or by attribution, TelDaFax would be a controlled foreign corporation. For purposes of this discussion, the term "10% U.S. holder," means a U.S. holder who individually owns, or is deemed for U.S. federal income tax purposes to own under complex attribution rules, 10% or more of the stock of TelDaFax. This discussion is based on the Internal Revenue Code and final, temporary and proposed treasury regulations promulgated thereunder, administrative pronouncements and rulings, and judicial decisions as of the date of this proxy statement/prospectus, all of which are subject to change or differing interpretations at any time with possible retroactive effect and any such change could affect the continuing validity of this discussion. World Access has not requested a ruling from the Internal Revenue Service regarding the U.S. federal income tax consequences of the TelDaFax transactions. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC U.S. FEDERAL INCOME TAX, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF THE TELDAFAX TRANSACTIONS TO YOU AS A U.S. HOLDER. 36 45 World Access stockholders will not recognize gain or loss for U.S. federal income tax purposes as a result of the TelDaFax transactions. Tax Considerations for U.S. holders who participate in the TelDaFax tender offer The exchange of your TelDaFax shares for World Access common stock in the TelDaFax tender offer will constitute a taxable exchange for U.S. federal income tax purposes upon which you will recognize capital gain or loss. The amount of capital gain or loss recognized will be equal to the difference between the aggregate fair market value of World Access common stock received, including any fractional share interest in World Access common stock for which cash is received, and your aggregate tax basis in the TelDaFax shares surrendered in the tender offer. Such capital gain will be long-term capital gain if the holding period for your TelDaFax shares was greater than one year as of the date on which you receive the World Access common stock. The tax basis of the World Access common stock received in the exchange, including any fractional share interest in World Access common stock for which cash is received, will be equal to the aggregate fair market value of your TelDaFax shares surrendered in the tender offer. The holding period for the World Access common stock received will begin the day after the date on which you receive the shares. Tax considerations for U.S. holders who do not participate in the TelDaFax tender offer If you do not exchange your TelDaFax shares for shares of World Access common stock in the TelDaFax tender offer, you will not recognize gain or loss for U.S. federal income tax purposes as a result of the TelDaFax transactions. Information reporting and backup withholding Proceeds from the sale or other disposition of TelDaFax shares that are paid to a U.S. holder, other than certain exempt recipients such as corporations, within the U.S., or in certain cases outside the U.S., generally are subject to information reporting to the Internal Revenue Service. "Backup" withholding at a rate of 31% may apply to such amounts if the U.S. holder fails to provide the payor with its U.S. taxpayer identification number and other required information required to be shown on its U.S. federal income tax return. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against the U.S. holder's U.S. federal income tax liability. Tax considerations for the World Access and TelDaFax parties World Access. No gain or loss will be recognized by World Access for U.S. federal income tax purposes as a result of its issuance of World Access common stock to acquire TelDaFax shares pursuant to the TelDaFax transactions. After completion of the TelDaFax transactions, TelDaFax will constitute a controlled foreign corporation for U.S. federal income tax purposes, and World Access will be a 10% U.S. holder. Under Subpart F of the Internal Revenue Code, World Access will be subject to special tax rules which generally operate on an annual basis to accelerate the U.S. federal income taxation of certain income earned by TelDaFax to its 10% U.S. holders prior to actual distribution of such earnings to such 10% U.S. holders. Internal Revenue Code provisions providing ordinary dividend income treatment of gain recognized on subsequent taxable dispositions of TelDaFax shares by 10% U.S. holders will also apply to World Access. Limitation on World Access tax attributes. Under the Internal Revenue Code, special limitations on the use of net operating losses and certain other tax attributes apply following an "ownership change." After an ownership change, the amount of the World Access consolidated group's taxable income for a post-ownership change year that may be offset by its net operating losses arising before the ownership change is subject to an annual loss limitation. The World Access consolidated group may have already incurred a prior ownership change, and therefore, may already be subject to this annual loss limitation. Completion of the STAR merger, the WorldxChange merger and the TelDaFax transactions individually, or in some combination thereof, will likely cause the World Access consolidated group to undergo an ownership change which may constitute a 37 46 successive ownership change under these rules. Any such successive ownership change may result in a lesser, but never greater, annual loss limitation. NewTel Communications GmbH. By virtue of a previous tax election, NewTel Telecommunications GmbH is not treated as a "corporation" and instead is "disregarded" as an entity separate from its shareholders for U.S. federal income tax purposes. Therefore, World Access is deemed to own NewTel's assets directly for U.S. federal income tax purposes through another such "disregarded" World Access entity. Based on the trading values of TelDaFax shares as of the date of this proxy statement/prospectus, World Access expects that the transfer by NewTel of its assets and liabilities to TelDaFax in exchange for TelDaFax shares will result in a taxable loss reportable by the World Access consolidated group for U.S. federal income tax purposes. NETnet Telekommunikations GmbH. The transfer by NETnet of its assets and liabilities to TelDaFax in exchange for TelDaFax shares will not result in a taxable transaction to the World Access consolidated group for U.S. federal income tax purposes. TelDaFax. TelDaFax will recognize no gain or loss for U.S. federal income tax purposes solely as a result of the TelDaFax transactions. If World Access acquires at least 80% of the outstanding TelDaFax shares in taxable purchases from TelDaFax stockholders within a 12-month period, whether through the TelDaFax tender offer, by direct purchase or open market purchases, World Access would become eligible to make a tax election under which, for U.S. federal income tax purposes, the adjusted tax basis of TelDaFax's assets would be increased to an amount generally equal to World Access's aggregate tax basis in the TelDaFax shares comprising the 80% or greater interest it purchased from TelDaFax stockholders during such 12-month period. If made, this election would not result in gain recognition by TelDaFax for U.S. federal income tax purposes, provided that it is not engaged in a trade or business within the United States for U.S. federal income tax purposes. Treatment of NETnet and NewTel under German tax law Under Section 20 of the German Reorganization Tax Code (Umwandlungssteuergesetz) neither NETnet nor NewTel will recognize gain or loss for German income tax purposes upon the transfers to TelDaFax of their entire businesses (Geschaftsbetriebe im Ganzen) in exchange for newly issued TelDaFax shares. EXCHANGE OF TELDAFAX STOCK CERTIFICATES FOR WORLD ACCESS STOCK CERTIFICATES World Access intends to conduct the TelDaFax tender offer in compliance with the German Takeover Code. The offer for TelDaFax shares in the TelDaFax tender offer, any acceptance of or withdrawal from such offer, and any contract made or action taken in relation to any of the foregoing are to be governed by and construed under German law. In accordance with German law, World Access will publish its offer for the TelDaFax shares, the terms of the offer and the instructions for tendering TelDaFax shares. World Access also intends to publish the offer in the United States in a manner reasonably calculated to inform U.S. holders of TelDaFax shares of the offer. In the TelDaFax tender offer, each tendering TelDaFax stockholder will provide either World Access' exchange agent for the TelDaFax tender offer, Hypovereinsbank AG, or the TelDaFax stockholder's financial intermediary or U.S. custodian with instructions for tendering its TelDaFax shares in accordance with the terms that World Access publishes. World Access expects that the shares of World Access common stock to be issued in the TelDaFax tender offer will be represented by global certificates which will be held in global custody by Clearstream AG. TelDaFax shares not tendered in the TelDaFax tender offer will continue to be listed on the Neuer Market segment of the Frankfurt Stock Exchange and the EASDAQ. However, the TelDaFax tender offer will reduce the number of TelDaFax shares held by the public, which may reduce the trading liquidity of any shares not tendered. RESTRICTIONS ON SALES OF SHARES BY AFFILIATES OF WORLD ACCESS AND TELDAFAX The shares of World Access common stock that will be issued in the TelDaFax tender offer will be registered under the Securities Act. These shares will be freely transferable under the Securities Act, except 38 47 for shares of World Access common stock issued to any person who is an affiliate of either World Access or TelDaFax. Affiliates include individuals or entities that control, are controlled by, or are under common control of, either World Access or TelDaFax and may include some of their respective officers, directors and principal stockholders. Affiliates may not sell the shares of World Access common stock they acquire in the TelDaFax transactions except pursuant to: - an effective registration statement under the Securities Act of 1933 covering the resale of those shares; - Rule 145 under the Securities Act of 1933, whereby an affiliate of either party to the TelDaFax transactions may resell his or her shares without having to register the shares so long as the affiliate complies with specific sale restrictions; or - any other applicable exemption under the Securities Act. ACCOUNTING TREATMENT OF THE TELDAFAX TRANSACTIONS World Access intends to account for the TelDaFax transactions as a purchase for financial accounting purposes in accordance with United States generally accepted accounting principles. REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE TELDAFAX TRANSACTIONS Under the German Competition Act, TelDaFax was required to notify the German Cartel Office of the TelDaFax transactions, and the TelDaFax transactions cannot be completed until approved by the German Cartel Office or a one month waiting period has expired. The German Cartel Office approved the TelDaFax transactions on September 1, 2000. The TelDaFax transactions also require notification in certain European countries. Following the completion of the TelDaFax transactions, an information filing must be made in Denmark with the national competition authority. Other than approvals by federal authorities having jurisdiction over telecommunications activities conducted by World Access or TelDaFax, we are not aware of any other material governmental or regulatory approval required for completion of the TelDaFax tender offer, other than the effectiveness of the registration statement of which this proxy statement/prospectus is a part, and compliance with applicable corporate laws. STOCKHOLDERS DO NOT HAVE DISSENTERS' RIGHTS Neither World Access nor TelDaFax stockholders are entitled to dissenters' rights. INTERESTS OF DIRECTORS, OFFICERS AND STOCKHOLDERS IN THE TELDAFAX TRANSACTIONS From June 14, 2000 until December 31, 2001, Dr. Klose has the right to sell to World Access all of Dr. Klose's outstanding shares of TelDaFax in up to three installments. From July 1, 2002 until December 31, 2002, World Access has the right to buy from Dr. Klose all of Dr. Klose's outstanding shares of TelDaFax at the time World Access exercises its right to purchase. As of November 1, 2000, Dr. Klose owned 2,756,200 shares of TelDaFax stock, equal to 8.15% of the outstanding capital stock of TelDaFax. DESCRIPTION OF THE TELDAFAX PURCHASE AGREEMENT This section of the proxy statement/prospectus is a summary of the TelDaFax purchase agreement. The TelDaFax purchase agreement is attached to this proxy statement/prospectus as Annex A, and we urge you to read it carefully. A+M is a fund advised by Apax; however, because World Access will purchase the TelDaFax shares of A+M separately pursuant to a put/call arrangement, all references to "Apax funds" in this summary exclude A+M unless otherwise noted. 39 48 PURCHASE OF THE TELDAFAX SHARES THAT THE APAX FUNDS OWN In the TelDaFax purchase agreement, World Access agreed to purchase all of the outstanding shares of TelDaFax held by the Apax funds. World Access agreed to issue 1.025 shares of World Access common stock for each share of TelDaFax stock purchased. On September 21, 2000, World Access purchased the 11,178,176 shares of TelDaFax stock owned by the Apax funds in exchange for 11,457,631 shares of World Access common stock. PUT/CALL OPTION FOR SHARES OF DR. KLOSE AND A+M From June 14, 2000 until December 31, 2001, Dr. Klose has the right to sell to World Access, and World Access is obligated to buy from Dr. Klose, all of Dr. Klose's outstanding shares of TelDaFax in up to three installments. From July 1, 2002 until December 31, 2002, World Access has the right to buy from Dr. Klose, and Dr. Klose is obligated to sell to World Access, all of Dr. Klose's outstanding shares of TelDaFax at the time World Access exercises its right to purchase. From January 1, 2001 until April 30, 2001, A+M has the right to sell to World Access, and World Access is obligated to buy from A+M, all of A+M's outstanding shares of TelDaFax in one installment. From July 1, 2001 until December 31, 2001, World Access has the right to buy from A+M, and A+M is obligated to sell to World Access, all of A+M's outstanding shares of TelDaFax. THE CONSIDERATION FOR THE PURCHASE OF TELDAFAX SHARES OF THE APAX FUNDS AND DR. KLOSE In exchange for each share of TelDaFax common stock purchased by World Access from the Apax funds, including A+M, and Dr. Klose, World Access agreed to issue 1.025 shares of World Access common stock. World Access agrees to use its reasonable best efforts to register such shares of World Access common stock. World Access will also use reasonable efforts to assist Dr. Klose with finding buyers for the shares of World Access common stock owned by him following the exercise of the put and/or call options. World Access, Dr. Klose and A+M have entered into a registration rights agreement under which World Access will, to the extent legally practicable, register the shares of World Access common stock issued to Dr. Klose and A+M for resale. If World Access offers more than 1.025 shares of World Access common stock for each TelDaFax common share in the tender offer, then World Access will similarly increase the number of shares of World Access common stock it will issue in exchange for the TelDaFax shares it purchases from the Apax funds, including A+M, and Dr. Klose. TENDER OFFER As soon as reasonably practicable, World Access will launch a tender offer for all of the shares of TelDaFax. In the TelDaFax tender offer, World Access intends to offer 1.025 shares of World Access common stock for each outstanding share of TelDaFax stock, as may be adjusted upward or downward in good faith by the World Access board of directors in order to complete the tender offer. The TelDaFax tender offer is conditioned upon receiving all necessary approvals, including the approval of the World Access stockholders, and the registration of the shares of the World Access common stock to be issued in the tender offer. In the TelDaFax purchase agreement, World Access expressed its intention to comply with the Take-Over Code of the Exchange Expert Commission, as amended. COMBINATION OF GERMAN BUSINESSES OF WORLD ACCESS AND BUSINESS OF TELDAFAX World Access and TelDaFax agree to pursue the combination of their respective businesses in Germany in order to realize synergies to the largest extent practically and legally possible. Under a contribution agreement, World Access will contribute the German activities of NETnet and NewTel to TelDaFax by way of a capital increase against contribution in kind out of authorized capital. In addition, as soon as possible and to the extent consistent with the best interests of the stockholders of World Access and TelDaFax, TelDaFax and the other German businesses of World Access will enter into such agreements of combination or 40 49 cooperation to achieve synergies in the most efficient and beneficial way for all parties and the stockholders of World Access and TelDaFax. RESIGNATION OF MEMBERS OF THE TELDAFAX SUPERVISORY BOARD In connection with World Access' purchase of the TelDaFax shares owned by the Apax funds, the two members of the TelDaFax supervisory board representing the Apax funds, Messrs. Halusa and McMonigall, agreed to resign. Messr. Halusa agreed to resign at World Access' request and Messr. McMonigall resigned immediately. Prior to the completion of the TelDaFax transactions, the Apax funds and Dr. Klose must deliver resignation letters of the remaining members of the supervisory board of TelDaFax except for one representative for the outside stockholders, which World Access will designate. REPRESENTATIONS AND WARRANTIES CONTAINED IN THE TELDAFAX PURCHASE AGREEMENT The Apax funds made representations and warranties in the TelDaFax purchase agreement regarding aspects of their legal status and the U.S. securities laws, including: - due authorization of the Apax funds to enter into the TelDaFax purchase agreement and the TelDaFax transactions; and - the unrestricted right to sell, vote and transfer their shares in TelDaFax. The Apax funds, including A+M, also made representations and warranties in the TelDaFax purchase agreement regarding the business, financial condition, structure and other pertinent facts relating to TelDaFax, including its: - legal situation; - financial situation; - title to and condition of the assets; - undisclosed liabilities; - conduct of business, governmental approvals, licenses and permits; - pending and threatened litigation; - employee matters; - tax matters; - insurance policies; - changes in the business or occurrence of certain events since January 1, 2000; - relations between TelDaFax and the Apax funds; and - material agreements. Dr. Klose made representations and warranties in the TelDaFax purchase agreement regarding the number of shares he owns in TelDaFax and his ability to enter into the TelDaFax purchase agreement. World Access made representations and warranties in the TelDaFax purchase agreement regarding aspects of its legal status and the World Access stock to be issued in exchange for the shares owned by TelDaFax, including: - due authorization of World Access to enter into the TelDaFax purchase agreement and all transactions contemplated thereby and to issue and sell the World Access stock to be issued in exchange for the shares owned by TelDaFax; - capitalization; and - validity of World Access stock to be issued in exchange for the shares owned by TelDaFax. 41 50 REMEDIES FOR INCORRECT REPRESENTATIONS OR WARRANTIES If a representation or warranty given by the Apax funds was incorrect as of either June 14, 2000, the date the parties entered into the TelDaFax purchase agreement, or September 21, 2000, the date of the completion of the purchase of the TelDaFax shares owned by the Apax funds by World Access, the Apax funds will indemnify World Access for any loss: - if attributable to a diminution of the value of TelDaFax and its subsidiaries, in an amount equal to 33.05% of the aggregate diminution in the value of TelDaFax and its subsidiaries; or - if attributable to other than diminution in the value of TelDaFax and its subsidiaries, in an amount equal to 100% of such loss. The Apax funds will satisfy their indemnification obligations by first transferring back to World Access any World Access stock then held by the Apax funds having a value equal to the loss, and, to the extent there is any shortfall, by paying in cash. World Access may assert claims for indemnification for breaches of representations and warranties only if such claims exceed Eur 1,750,000 in the aggregate. World Access may not assert claims for indemnification in excess of an aggregate amount equal to 33% of the World Access shares issued in exchange for the TelDaFax shares purchased from the Apax funds, including A+M, and Dr. Klose or, in the case of indemnification by way of payment of cash, its value as of June 14, 2000, with exceptions for certain representations and warranties. These limitations do not apply to breaches of certain representations, including the legal status of the Apax funds and TelDaFax, U.S. securities laws, capitalization of TelDaFax and Dr. Klose's representations, or in cases where World Access is able to show that a breach was known to the Apax funds on June 14, 2000 but was not disclosed. In no event will the liability of the Apax funds exceed the value of the shares of World Access common stock exchanged for the purchase of its TelDaFax shares as of June 14, 2000. Each of the various funds Apax advises is severally liable on a pro rata basis according to its relevant percentage of World Access stock received in exchange for the purchase of its TelDaFax shares. World Access can exclude a claim for indemnification for a breach of a representation or warranty in certain circumstances, including: - if insurance or a third party covers the loss; - if the breach is disclosed to World Access prior to June 14, 2000; - if the breach is due to a change after September 21, 2000 of the corporate or tax structure or the accounting policies of TelDaFax and its subsidiaries; - if an action or omission outside the ordinary course of business attributable to World Access after September 21, 2000 causes the breach; - if the breach has the effect of decreasing the tax burden of World Access or TelDaFax or its subsidiaries; and - to the extent reserves contained in the financial statements of TelDaFax were specifically established for purposes of such loss and can be used pursuant to U.S. generally accepted accounting principals to offset such loss. Claims for legal defects as defined by German law must be brought in accordance with the applicable provisions of German law. All other claims except tax claims must be brought within 18 months from September 21, 2000. Tax claims must be brought within six months after the right of the competent authority to assess the relevant tax assessment for the period up to December 31, 1999 ended, with certain limited exceptions. If the statute of limitations is interrupted under German law, the time in which World Access may bring a claim in all cases is extended to six months after the interruption; however, the period prior and after the interruption in the aggregate may not be less than 18 months. Dr. Klose agrees to indemnify World Access in the same manner described above if he offers to sell, and World Access agrees to buy, the TelDaFax shares owned by him prior to December 31, 2001; however, the 42 51 33.05% threshold will be equal to the percentage of the share capital sold by Dr. Klose and the statute of limitations for each claim will run from the completion of the purchase by World Access of the TelDaFax shares owned by Dr. Klose. WITHDRAWAL FROM THE TELDAFAX PURCHASE AGREEMENT The parties have the right to withdraw from the TelDaFax purchase agreement and not to complete the remaining transactions prior to the completion of the TelDaFax tender offer and the contribution of the German operations of NETnet and Newtel if: - the conditions to completion of the transactions under the TelDaFax purchase agreement have not been satisfied by September 30, 2000; however, if all conditions to completion have been satisfied except the completion of the TelDaFax tender offer and the approval of the capital increase required to exchange World Access' contribution of the German activities of NETnet and NewTel, and the TelDaFax tender offer has been launched, no party may withdraw before October 31, 2000; - the supervisory board of TelDaFax does not approve the capital increase required to exchange the contribution by World Access of the German activities of NETnet and NewTel; - the supervisory board of TelDaFax changes its recommendation to outside stockholders to accept the TelDaFax tender offer; or - World Access is unable to acquire more than 50% of the shares of TelDaFax in the TelDaFax tender offer because of a third party's acquisition of TelDaFax shares. World Access may also withdraw from the TelDaFax purchase agreement and not complete the remaining transactions prior to the completion of the TelDaFax tender offer and the contribution of the German operations of NETnet and Newtel if: - the supervisory board of TelDaFax fails to take any action required to implement the contribution by World Access of the German activities of NETnet and NewTel or takes any action which makes such implementation impossible; or - upon the occurrence of a material adverse event under the TelDaFax purchase agreement. Under the TelDaFax purchase agreement, a material adverse event will be deemed to have occurred with respect to TelDaFax if: - certain representations and warranties, including those relating to the legal status of the Apax funds and TelDaFax, U.S. securities laws, financial statements and material agreements, are or become incorrect; - any approvals, licenses or permits necessary for TelDaFax to continue its business activities are revoked; - TelDaFax enters into a material agreement outside the ordinary course of business or to acquire an interest in an entity other than one of its subsidiaries without World Access' consent; - any event occurs that would make or be likely to make a reasonable purchaser willing to purchase the TelDaFax shares owned by the Apax funds seek a reduction in value of the consideration to be paid for such shares in the TelDaFax purchase agreement in an amount equal to or exceeding 33% of the value of the shares of World Access common stock to be issued in exchange, except to the extent that such event is attributable to a fall in the listed stock price of TelDaFax on the Neuer Market of the Frankfurt Stock Exchange and/or EASDAQ, a change in the economic situation in Germany or the condition of the financial markets in general, a change in the services and pricing of competitors of TelDaFax or changes in applicable laws; or - TelDaFax, the Apax funds, including A+M, or Dr. Klose fails to perform or comply with any of the covenants or agreements contained in the TelDaFax purchase agreement which would make or be likely to make a reasonable purchaser willing to purchase the TelDaFax shares owned by the Apax 43 52 funds seek a reduction in value of the consideration to be paid for such shares in the TelDaFax purchase agreement in an amount equal to or exceeding 33% of the value of the shares of World Access common stock to be issued in exchange. In the event that a failure of TelDaFax, the Apax funds, including A+M, or Dr. Klose to perform or comply with any of the covenants or agreements contained in the TelDaFax purchase agreement results in a loss to World Access but does not reach the 33% qualification for withdrawal, TelDaFax, the Apax funds, including A+M, and/or Dr. Klose will indemnify World Access against such loss. The following events also constitute a material adverse event with respect to World Access. In the event any of the following occur, the Apax funds, including A+M, and Dr. Klose may jointly withdraw from the TelDaFax purchase agreement prior to the completion of the TelDaFax tender offer and the contribution of the German operations of NETnet and Newtel: - any of the representations or warranties given by World Access are or become incorrect in any material respects; - any of the material approvals, licenses or permits necessary and relevant for World Access and its affiliates to continue their business activities are revoked; and - any event occurs that would make or be likely to make a reasonable purchaser willing to purchase the shares of World Access common stock to be issued in exchange for the TelDaFax shares of the Apax funds seek a reduction in value of such shares of World Access common stock, except to the extent that such event is attributable to a fall in the listed stock price of World Access on the Nasdaq National Market, a change in the economic situation in the United States or the condition of the financial markets in general, or changes in applicable laws. RESTRICTIONS ON THE TRANSFER OF TELDAFAX SHARES OWNED BY THE APAX FUNDS AND DR. KLOSE If any of the Apax funds decides to sell any World Access common stock it acquires under the TelDaFax purchase agreement, World Access and the Apax funds agree to cooperate in an effort to have such shares sold privately to institutional or financial purchasers rather than on the open market. Dr. Klose may not sell or otherwise transfer any of his shares in TelDaFax unless, in the event Dr. Klose receives an offer to buy such shares from an unrelated third party, he first offers World Access the right to buy the shares on the same terms offered by the third party, or, in the event Dr. Klose desires to sell any of his TelDaFax shares on the Frankfurt Stock Exchange, he first offers World Access the right to buy such shares at a price equal to the average price quoted on the Frankfurt Stock Exchange on the five trading days before the date of notice to World Access of Dr. Klose's intent to sell. CONDUCT OF BUSINESS UNTIL TRANSFER OF TELDAFAX SHARES OWNED BY THE APAX FUNDS The Apax funds and Dr. Klose agree to use their best efforts to ensure that: - the business of TelDaFax and its subsidiaries is continued in the ordinary course of business and that World Access has appropriate access to the management of TelDaFax until the completion of the purchase of the TelDaFax shares owned by the Apax funds; - no steps are taken by TelDaFax which could be detrimental to the transactions contemplated by the TelDaFax purchase agreement; and - no action is taken by TelDaFax which would require approval of its stockholders or supervisory board. TelDaFax agrees not to acquire any interest in any entity other than its subsidiaries or to terminate or materially amend any material agreement without World Access' consent, which may not be unreasonably withheld. The Apax funds, including A+M, and Dr. Klose agree that, until completion of the purchase of the shares owned by the Apax funds, no profits of the subsidiaries of TelDaFax will be distributed. 44 53 SERVICE AGREEMENT WITH DR. KLOSE AND DR. KLOSE'S AGREEMENT NOT TO COMPETE Dr. Klose agrees to continue to work for TelDaFax under a two-year fixed-term contract on terms to be agreed upon between World Access and Dr. Klose. For one year after the termination of the respective term of any employment or service agreement with TelDaFax or any affiliate, Dr. Klose and companies affiliated with him agree not to engage in any activity, enterprise or company having activities similar to the telecommunication activities of TelDaFax and its subsidiaries in the current geographical area of such activities. In the event of a violation of his non-competition obligation, Dr. Klose agrees to pay to World Access Eur 250,000 and, if the violation continues, a further penalty of Eur 100,000. World Access retains all other claims for damages and injunctive relief. RELATED TRANSACTION AGREEMENTS This section of the proxy statement/prospectus describes agreements related to the TelDaFax purchase agreement, including the TelDaFax contribution agreement. CONTRIBUTION AGREEMENT On August 11, 2000, TelDaFax, NETnet and NewTel entered into a contribution agreement under which NETnet and NewTel will transfer to TelDaFax the businesses operated by NETnet and NewTel in Germany as a contribution in kind against the issuance of 1,620,334 and 925,905 new shares of TelDaFax to NETnet and NewTel, respectively. If these valuation numbers are not confirmed by either the auditor or the German court to cover the total contribution amount agreed to by the parties and the contribution contemplated by the TelDaFax contribution agreement therefore cannot be completed, the parties agreed to negotiate in good faith to enter into a new contribution agreement. Any new agreement must be substantially in the form of the TelDaFax contribution agreement, taking into account the opinion of the auditor or the court on the value of the assets to be contributed or any other circumstance which may have caused the alteration of the assessment regarding the valuation. The transfer of the businesses of NETnet and NewTel will include all assets, liabilities and contracts, such as but not limited to accounts receivable, equipment, intellectual property, employment contracts and good will. The transfer of the businesses of NETnet and NewTel will not include liabilities owed to World Access or any of its subsidiaries. NETnet, NewTel and World Access did not give any representations and warranties with respect to their businesses. NETnet and NewTel agreed to take every action necessary to obtain the consent of third parties to the transfer of receivables, contracts, legal positions and liabilities. TelDaFax agreed to arrange for the filing of the application for the registration of the capital increase on or immediately after the period for the acceptance of the tender offer has expired, unless, following the tender offer, World Access will not own 50% of the outstanding shares, including those TelDaFax shares that World Access will own upon completion of the purchase of the TelDaFax shares owned by the Apax funds and the shares received in exchange for World Access' contribution of the German activities of NETnet and NewTel. TelDaFax also agreed to consult with the competent commercial register to ensure registration of the capital increase as soon as possible after filing. All parties have the right to withdraw from the TelDaFax contribution agreement if: - the conditions to completing the transactions under the TelDaFax purchase agreement have not been completed by October 31, 2000; - one of the parties to the TelDaFax purchase agreement has withdrawn from that agreement; or - the auditor does not confirm the value of NETnet and NewTel to cover the total contribution amount. TelDaFax has agreed to indemnify NETnet and NewTel against all losses incurred in connection with any contract, legal position and liability assigned to TelDaFax and any liability relating to NETnet or NewTel employees transferred to TelDaFax. 45 54 Each of NETnet, NewTel and TelDaFax has agreed to ensure that: - their respective businesses are conducted in the ordinary course of business, unless otherwise approved by the other parties, until the registration with the commercial register of the TelDaFax shares issued in exchange for the contribution of the NETnet and NewTel businesses; - no steps are taken which are or could be, using sound commercial judgment, detrimental to the transactions contemplated by the TelDaFax contribution agreement; and - no action is taken which would require the approval of the stockholders or supervisory boards of NETnet, NewTel or TelDaFax. APAX SHARE PURCHASE AGREEMENT AND REGISTRATION RIGHTS On September 21, 2000, World Access and the Apax funds, including A+M, entered into an agreement under which World Access purchased the 11,178,176 shares of TelDaFax common stock owned by the Apax funds (equaling approximately 33% of the outstanding stock of TelDaFax). In this transaction, World Access exchanged 1.025 shares of World Access common stock for each share of TelDaFax common stock, or an aggregate of 11,457,631 shares of World Access common stock. Also in that agreement, the two members of the supervisory board of TelDaFax representing the Apax funds, Messrs. Halusa and McMonigall, agreed to resign from the supervisory board. Messr. Halusa agreed to resign at World Access' request and Messr. McMonigall resigned immediately. On that same date, World Access and the Apax funds entered into a registration rights agreement in which World Access agreed to register the shares of World Access common stock issued to the Apax funds. INTERESTS OF DIRECTORS AND OFFICERS IN THE TELDAFAX TRANSACTIONS On November 6, 2000, John D. Phillips, World Access' Chairman and Chief Executive Officer, was elected to the supervisory board of TelDaFax. On the same date, Michael F. Mies, Senior Vice President and Treasurer of World Access, was appointed as Chief Financial Officer of TelDaFax. PRINCIPAL STOCKHOLDERS OF TELDAFAX The following table sets forth certain information regarding beneficial ownership of TelDaFax's common stock as of November 1, 2000 by the following: - each person who is known by TelDaFax to own beneficially 5% or more of the outstanding shares of TelDaFax's common stock; - each of TelDaFax's directors; - each of TelDaFax's Chief Executive Officer and its next four most highly compensated executive officers whose total compensation for fiscal 1999 was at least $100,000; and - all of TelDaFax's directors and executive officers as a group. The persons named in the following table have sole voting and investment power with respect to all shares of TelDaFax's common stock shown as beneficially owned by them. Dr. Klose is located at Rudolph-Breitscheid -- Str. 1-5 35037 Marburg.
NUMBER OF STOCKHOLDER'S NAME SHARES PERCENTAGE ------------------ ---------- ---------- World Access, Inc........................................... 11,178,176 33.03% Dr. Henning F. Klose........................................ 2,756,200 8.15 Directors and Executive Officers as a group................. 2,756,200 8.15
TELDAFAX MARKET INFORMATION TelDaFax is traded on the Neuer Markt and the EASDAQ. The Neuer Markt segment of the Frankfurt Stock Exchange is designed for innovative, small- to mid-size companies in high growth industries or in traditional industries that have an international orientation and that are willing to provide active investor 46 55 relations. Issuers are requested to provide investors on an ongoing basis with information such as annual and quarterly reports, including cash flow statements, and a corporation action timetable. Trading of shares listed on the Neuer Markt takes place on the floor of the stock exchange, but is computer-aided. Shares listed on the Neuer Markt can also be traded on a computer-aided system called Xetra. Trading occurs on every business day between 9:00 a.m. and 8:00 p.m., Frankfurt time. Trading within the Xetra system is executed by banks and securities dealers who have been admitted to trading on at least one of Germany's stock exchanges. Xetra is integrated into the Frankfurt Stock Exchange and is subject to its rules and regulations. Markets in listed securities are generally of the auction type, but listed securities also change hands in inter-bank dealer markets off the Frankfurt Stock Exchange. Price formation is determined by open bid by specialists who are themselves exchange members, but who do not, as a rule, deal with the public. Prices of shares traded on the Neuer Markt are displayed continuously during trading hours. At the half-way point of each trading day, a single standard quotation is determined for all shares. The Frankfurt Stock Exchange publishes an official daily list of quotations containing the established prices on the Internet at http://www.exchange.da. Transactions on the Frankfurt Stock Exchange, including transactions within the Xetra system, are settled on the second business day following trading. Transactions off the Frankfurt Stock Exchange for large volumes or if one of the parties is foreign are generally also settled on the second business day following trading, unless the parties have agreed upon a different date. Following a recent amendment to the conditions of German banks for securities trading, customers' orders to buy or sell listed securities must be executed on a stock exchange, unless the customer instructs otherwise. Trading can be suspended by the Frankfurt Stock Exchange if orderly stock exchange trading is temporarily endangered or if a suspension is in the public interest. A specific feature of the Neuer Markt is the introduction of the obligatory designated sponsor, an entity admitted for trading at the Frankfurt Stock Exchange which provides additional liquidity by quoting prices for the buying and selling of shares on request. Each issuer on the Neuer Markt is required to nominate at least two designated sponsors which will not only ensure that there is sufficient liquidity for its shares, but also serve as consultants on all stock market related matters for the issuer. Trading on German stock exchanges is regulated by, among others, the Federal Supervisory Office for Securities Trading. EASDAQ is a screen-based regulated market under Belgian law with its seat in Brussels. Admission to trading on EASDAQ is subject to certain admission criteria which are set by the EASDAQ Market Authority. EASDAQ operates throughout Europe as a price driven market with a single and integrated trading and settlement platform. On-screen quotations are reported and transactions matched and confirmed using TRAX, the trade-reporting system of the International Securities Market Association, which is directly linked to INTERSETTLE, EASDAQ's clearing and settlement agency. Financial instruments admitted to trading on EASDAQ have at least two registered market makers. Such market makers are willing to purchase and sell securities for which they are registered on their own account during normal business hours and must therefore enter and maintain two sided quotations during those hours. Quotations must: - be at least a minimum quotation size, as specified by EASDAQ; - be reasonably related to prevailing market prices; and - not exceed the maximum allowable spread, as defined by EASDAQ. COMPARATIVE PER SHARE AND OTHER MARKET PRICE DATA The World Access common stock is traded on the Nasdaq National Market under the symbol "WAXS," and the TelDaFax shares are traded on the regular market of the Frankfurt Stock Exchange, Segment Neuer Markt, and on the EASDAQ under the symbol "TFX." All TelDaFax shares have been issued in bearer form. As of November 1, 2000, TelDaFax had approximately 60,000 stockholders. Less than 10% of TelDaFax's capital stock is held in the United States and TelDaFax shares are not traded in the United States. 47 56 The following table sets forth, for the calendar quarters indicated, the high and low sale prices per share of World Access common stock as reported on the Nasdaq National Market and TelDaFax stock as reported on the Neuer Markt.
WORLD ACCESS TELDAFAX COMMON STOCK COMMON STOCK ---------------- --------------- HIGH LOW HIGH LOW ------- ------ ------ ------ (EURO) (EURO) Year Ended December 31, 1998: First Quarter............................................. $ 33.50 $21.63 30.01 28.53 Second Quarter............................................ 40.00 25.38 43.20 30.16 Third Quarter............................................. 30.94 18.75 36.20 27.66 Fourth Quarter............................................ 24.75 12.00 11.65 11.61 Year Ended December 31, 1999: First Quarter............................................. $ 22.75 $ 6.38 64.00 29.00 Second Quarter............................................ 14.38 7.50 44.70 33.17 Third Quarter............................................. 16.19 10.83 42.60 15.16 Fourth Quarter............................................ 22.25 10.31 19.60 9.55 Year Ended December 31, 2000: First Quarter............................................. 26.88 17.25 23.40 10.60 Second Quarter............................................ 20.00 9.25 18.94 9.31 Third Quarter............................................. 11.375 5.344 9.80 6.00 Fourth Quarter (through November 10, 2000)................ 5.688 3.500 6.65 4.30
The following table sets forth the closing prices per share of World Access common stock as reported on the Nasdaq National Market and TelDaFax stock as reported on the Neuer Markt (converted into dollars). On June 13, 2000, the business day preceding public announcement that World Access and TelDaFax had signed the TelDaFax purchase agreement, the closing prices per share of World Access and TelDaFax were 11.44 and 11.60, respectively, and on November 10, 2000, the last full trading day for which closing prices were available at the time of the printing of this proxy statement/prospectus, the closing prices per share of World Access and TelDaFax were 4.0625 and 4.1889, respectively. This table also sets forth the equivalent price per share of TelDaFax common stock on those dates. The equivalent price per share is equal to the closing price of a share of World Access common stock on that date multiplied by 1.025, the number of shares of World Access common stock to be issued in exchange for each share of TelDaFax common stock.
TELDAFAX WORLD ACCESS EQUIVALENT PER COMMON STOCK COMMON STOCK SHARE PRICE ------------ ------------ -------------- June 13, 2000......................................... $ 11.60 $ 11.44 $ 11.73 November 10, 2000..................................... 4.188 4.062 4.164
TelDaFax and World Access believe that the TelDaFax common stock presently trades on the basis of the value of the World Access common stock expected to be issued in exchange for the TelDaFax common stock in the TelDaFax tender offer, discounted primarily for the uncertainties associated with the TelDaFax tender offer. Apart from the publicly disclosed information concerning World Access which is included in, or incorporated by reference to, this proxy statement/prospectus, World Access cannot state with certainty what factors account for changes in the market price of the World Access common stock. TelDaFax stockholders are advised to obtain current market quotations for World Access common stock and TelDaFax common stock. No assurance can be given as to the market prices of World Access common stock or TelDaFax common stock at any time before the completion of the TelDaFax tender offer or as to the market price of World Access common stock at any time after the completion of the TelDaFax tender offer. World Access has never paid cash dividends on its shares of capital stock, and TelDaFax had no distributable profits for the fiscal year 1999. Pursuant to the TelDaFax purchase agreement, TelDaFax has agreed not to pay dividends prior to the closing of the TelDaFax purchase agreement. 48 57 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The Unaudited Pro Forma Condensed Combined Financial Statements of World Access give effect to the following different scenarios that World Access currently contemplates in connection with the STAR and WorldxChange mergers and the TelDaFax transactions. Because World Access and WorldxChange each has received irrevocable proxies to vote in favor of the WorldxChange merger from the holders of at least a majority of voting stock and, to the extent permitted by law, World Access has assumed management of the business and affairs of WorldxChange effective August 1, 2000 pursuant to a management services agreement, it is highly likely that the stockholders of World Access and WorldxChange will approve the WorldxChange merger. In addition, although World Access solely controls whether to terminate the merger agreement or to take some action giving WorldxChange the right to terminate the merger agreement, it is unlikely that World Access will take any of these actions because of the significant integration of World Access' and WorldxChange's operations that has occurred since August 1, 2000 and the significant financial obligations World Access has assumed under the management services agreement. Accordingly, the scenarios described below each contemplate that World Access has acquired WorldxChange. Scenario 1: World Access acquires STAR, WorldxChange and TelDaFax. Scenario 2: World Access acquires STAR and WorldxChange. Scenario 3: World Access acquires WorldxChange and TelDaFax. Scenario 4: World Access acquires WorldxChange.
The Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1999 also give effect to: - the FaciliCom acquisition; - the Comm/Net acquisition; - the LDI acquisition; and - the acquisition of 33.03% of TelDaFax as if each of the acquisitions had occurred on January 1, 1999. The Unaudited Pro Forma Condensed Combined Balance Sheets as of June 30, 2000 under all seven scenarios gives effect to the STAR, WorldxChange and TelDaFax acquisitions as if each acquisition had occurred on June 30, 2000. The Unaudited Pro Forma Condensed Combined Statements of Operations for the six months ended June 30, 2000 under all seven scenarios also give effect to the LDI acquisition and the acquisition of 33.03% of TelDaFax as if the acquisitions had occurred on January 1, 1999. On June 14, 2000, World Access entered into a definitive agreement pursuant to which it agreed to acquire all of or a majority share in TelDaFax in a series of transactions. TelDaFax is a facilities-based provider of bundled fixed line, wireless, Internet and e-Commerce services to business and residential customers in Germany. On September 21, 2000, World Access acquired a 33.03% interest in TelDaFax held by the Apax funds by issuing World Access common stock at an exchange ratio of 1.025 shares of World Access for each share of TelDaFax. World Access intends to make a tender offer for all of the remaining shares of TelDaFax at the same exchange ratio. World Access also expects to contribute certain of its German businesses to TelDaFax in exchange for newly issued TelDaFax shares. The completion of the tender offer and the contribution of the German businesses is subject to acquisitions by World Access in the transactions of no less than 50.1% of the fully diluted shares outstanding of TelDaFax on a pro forma basis, regulatory approvals, including antitrust approval in Germany, and the approval of the stockholders of World Access. The closing of the tender offer and the contribution will occur simultaneously. The transactions are anticipated to close in December 2000 or January 2001. Concurrent with the transactions, World Access intends to apply for listing on one or more European stock exchanges, including the Neuer Markt in Germany. The pro forma adjustments are based upon currently available information and upon assumptions that the management of World Access believes are reasonable. Each of the acquisition transactions above has been accounted for using the purchase method of accounting. The adjustments recorded in the Unaudited Pro Forma Condensed Combined Financial Statements represent the preliminary determination of these adjustments based upon available information. The total estimated purchase price of each transaction has been 49 58 allocated on a preliminary basis to assets and liabilities based on management's estimate of their fair values. There can be no assurance that the actual adjustments will not differ significantly from the pro forma adjustments reflected in the Unaudited Pro Forma Condensed Combined Financial Statements. On a combined basis, the networks and operations of all three companies contain redundant switching equipment, facilities and personnel. World Access plans to eliminate these redundant assets and significantly reduce the headcount of the combined company in an effort to realize cost synergies. Implementing this process includes the write-down of switching and transmission equipment taken out of service, the write-off of certain leasehold improvements, establishing provisions for lease commitments remaining on certain facilities with no future use, employee termination benefits and other related costs. To the extent that these items relate to World Access facilities and personnel, World Access will record a restructuring charge in accordance with EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) and FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. All other costs relate to facilities and personnel of the acquired enterprises, and, accordingly, will be treated as purchase price in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. Management expects to implement the process prior to or shortly after consummation of each transaction and anticipates completion within six months after implementation. In connection with the Executive Services Management Contract entered into by World Access and WorldxChange on August 1, 2000, World Access management committed to such a consolidation plan. Pursuant to this agreement, World Access began managing the operations and business affairs of WorldxChange as if the WorldxChange merger had occurred as of August 1, 2000. The costs of this restructuring plan will be $38.3 million and will be recorded as a restructuring charge by World Access in the third quarter of 2000. Consolidation plans remain under development for the STAR and TelDaFax integrations. Such plans indicate that consolidation activities associated with the STAR transactions will not materially involve World Access facilities or personnel; however, consolidation plans related to TelDaFax transaction are too preliminary to estimate an impact. During the third quarter of 2000, World Access has incurred approximately $35.0 million in additional selling, general and administrative expenses. The major categories of such costs include costs associated with billing system migration issues, re-branding efforts and increases in reserves for doubtful accounts. The first two items relate to the WorldxChange integration. The third item is unrelated to any purchase transactions, but rather results from significant shifts in credit policies applied to existing customers. Management implemented substantially tighter credit policies as a result of market conditions in the telecom industry, particularly the inability of customers to obtain sources of working capital required to remain solvent. None of these charges are reflected in the pro forma financial statements. The Unaudited Pro Forma Condensed Combined Financial Statements are not necessarily indicative of the financial position or the future results of operations or results that might have been achieved if the foregoing acquisition transactions had been consummated as of the indicated dates. The Unaudited Pro Forma Condensed Combined Financial Statements should be read in conjunction with the historical consolidated financial statements of World Access, LDI, STAR, WorldxChange and TelDaFax and the related notes thereto. See "Incorporation of Documents by Reference" and "Available Information." As noted above, on August 1, 2000, World Access and WorldxChange entered into a management agreement. Generally, the agreement cannot be terminated by WorldxChange, but may be terminated by World Access. Additionally, the merger between WorldxChange and World Access will also cause the management agreement to terminate. See "Executive management services agreement with WorldxChange" for further discussion regarding the agreement. The agreement will be accounted for as a management services agreement. The following pro-formas have not been adjusted to reflect the management services agreement since (i) the merger between WorldxChange and World Access will cause the management agreement to terminate, (ii) the statements of operations already reflect the gross costs to be incurred by each entity, and (iii) the management agreement may be terminated by World Access. 50 59 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
PRO FORMA PRO FORMA WORLD ACCESS WORLD STAR AND STAR WORLDXCHANGE ACCESS(28) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS ---------- --------- ----------- ------------ ---------------- ------------ ASSETS Cash and equivalents(2(i)).... $ 172,479 $109,384 $ -- $ 281,863 $ 6,913 $ -- Short-term investments........ 160,211 1,756 -- 161,967 -- -- Restricted cash............... 31,095 -- -- 31,095 -- -- Accounts and notes receivable................... 264,678 122,310 -- 386,988 103,172 (2,201)(17) Prepaid expenses and other current assets............... 38,491 22,023 -- 60,514 32,566 -- Net assets held for sale...... 41,465 -- -- 41,465 -- -- ---------- --------- --------- ---------- --------- --------- Total Current Assets..... 708,419 255,473 -- 963,892 142,651 (2,201) ---------- --------- --------- ---------- --------- --------- Property and equipment........ 151,609 264,380 (94,000)(2) 321,989 193,494 (6,500)(11) (68,000)(11) 15,000(11) Investment in TelDaFax........ 64,508 -- -- 64,508 -- -- Goodwill and other intangibles.................. 1,080,797 3,968 (1,764)(4) 1,277,131 90,162 (76,327)(13) 233,144(2) 548,172(11) 11,900(2) 41,300(11) (50,914)(6) (10,093)(15) Other assets.................. 79,185 4,767 -- 83,952 4,105 (35,725)(11) ---------- --------- --------- ---------- --------- --------- Total Assets............. $2,084,518 $528,588 $ 98,366 $2,711,472 $ 430,412 $ 405,626 ========== ========= ========= ========== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt............... $ 57,033 $ 86,680 $ (55,685)(6) $ 88,028 $ 201,825 $ (2,201)(17) (35,725)(11) (3,213)(15) Accounts payable.............. 246,436 104,507 (21,789)(6) 329,154 23,682 (792)(15) Other accrued liabilities..... 151,328 107,689 3,000(2) 260,794 224,478 3,000(11) (1,223)(6) ---------- --------- --------- ---------- --------- --------- Total Current Liabilities............. 454,797 298,876 (75,697) 677,976 449,985 (38,931) Long-term debt................ 257,946 55,398 -- 313,344 70,829 (11,596)(15) Other long-term liabilities... 10,336 32,744 -- 43,080 5,547 -- ---------- --------- --------- ---------- --------- --------- Total Liabilities........ 723,079 387,018 (75,697) 1,034,400 526,361 (50,527) ---------- --------- --------- ---------- --------- --------- Minority interests............ -- -- -- -- -- -- Stockholders' Equity (Deficit): Preferred stock............... 6 -- -- 6 30,000 (30,000)(14) Common stock.................. 732 58 (58)(5) 1,027 148,056 (148,056)(14) 227(2) 298(11) 68(6) 14(15) Additional paid in capital.... 1,535,519 366,304 (366,304)(5) 1,850,857 -- 336,686(11) 279,484(2) 17,712(11) 8,139(2) 5,494(15) 27,715(6) Deferred compensation......... -- (1,399) 1,399(5) -- -- -- Notes receivable from shareholders................. -- (3,856) 3,856(5) -- (1,937) 1,937(14) Accumulated other comprehensive loss........... (12,239) (8,017) 8,017(5) (12,239) (12,900) 12,900(14) Accumulated deficit........... (162,579) (211,520) 211,520(5) (162,579) (259,168) 259,168(14) ---------- --------- --------- ---------- --------- --------- Total Stockholders' Equity (Deficit)........ 1,361,439 141,570 174,063 1,677,072 (95,949) 456,153 ---------- --------- --------- ---------- --------- --------- Total Liabilities and Stockholders' Equity.... $2,084,518 $528,588 $ 98,366 $2,711,472 $ 430,412 $ 405,626 ========== ========= ========= ========== ========= ========= PRO FORMA PRO FORMA WORLD ACCESS, WORLD ACCESS, STAR AND STAR, WORLDXCHANGE WORLDXCHANGE TELDAFAX TELDAFAX AND TELDAFAX COMBINED (20) ADJUSTMENTS COMBINED ------------- -------- ----------- ------------------ ASSETS Cash and equivalents(2(i)).... $ 288,776 $26,408 $ -- $ 315,184 Short-term investments........ 161,967 -- -- 161,967 Restricted cash............... 31,095 -- -- 31,095 Accounts and notes receivable................... 487,959 42,427 -- 530,386 Prepaid expenses and other current assets............... 93,080 30,625 -- 123,705 Net assets held for sale...... 41,465 -- -- 41,465 ---------- -------- -------- ---------- Total Current Assets..... 1,104,342 99,460 -- 1,203,802 ---------- -------- -------- ---------- Property and equipment........ 455,983 65,281 (24,000)(21) 497,264 Investment in TelDaFax........ 64,508 -- (64,508)(21) -- Goodwill and other intangibles.................. 1,870,345 15,811 (12,430)(23) 2,027,926 121,200(21) 33,000(21) Other assets.................. 52,332 13,027 -- 65,359 ---------- -------- -------- ---------- Total Assets............. $3,547,510 $193,579 $ 53,262 $3,794,351 ========== ======== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt............... $ 248,714 $ 7,260 $ -- $ 255,974 Accounts payable.............. 352,044 73,688 -- 425,732 Other accrued liabilities..... 488,272 9,626 5,000(21) 502,898 ---------- -------- -------- ---------- Total Current Liabilities............. 1,089,030 90,574 5,000 1,184,604 Long-term debt................ 372,577 19,320 -- 391,897 Other long-term liabilities... 48,627 347 -- 48,974 ---------- -------- -------- ---------- Total Liabilities........ 1,510,234 110,241 5,000 1,625,475 ---------- -------- -------- ---------- Minority interests............ -- 888 -- 888 Stockholders' Equity (Deficit): Preferred stock............... 6 -- -- 6 Common stock.................. 1,339 84,309 (84,309)(24) 1,571 232(21) Additional paid in capital.... 2,210,749 7,737 (7,737)(24) 2,341,229 130,480(21) Deferred compensation......... -- -- -- -- Notes receivable from shareholders................. -- -- -- -- Accumulated other comprehensive loss........... (12,239) 47 (47)(24) (12,239) Accumulated deficit........... (162,579) (9,643) 9,643(24) (162,579) ---------- -------- -------- ---------- Total Stockholders' Equity (Deficit)........ 2,037,276 82,450 48,262 2,167,988 ---------- -------- -------- ---------- Total Liabilities and Stockholders' Equity.... $3,547,510 $193,579 $ 53,262 $3,794,351 ========== ======== ======== ==========
51 60 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS PRO FORMA STAR AND STAR WORLD ACCESS(28) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ---------------- -------- ----------- ------------ ---------------- Service revenues.............. $570,279 $236,915 $(25,683)(7) $781,511 $280,586 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below)...... 500,355 209,303 (25,683)(7) 683,975 225,269 Selling, general and administrative............... 59,430 39,492 -- 98,922 80,584 Depreciation and amortization................. 41,618 18,480 735(3) 54,035 25,756 (6,715)(3) 1,190(3) (1,273)(6) Restructuring and other special charges.............. (3,995) -- -- (3,995) -- -------- -------- -------- -------- -------- Total operating expenses............... 597,408 267,275 (31,746) 832,937 331,609 -------- -------- -------- -------- -------- Operating loss.......... (27,129) (30,360) 6,063 (51,426) (51,023) Interest and other income..... 12,996 7,687 -- 20,683 -- Interest and other expense.... (29,789) (7,154) 1,223(6) (35,720) (17,096) Loss on investment in TelDaFax..................... (2,874) -- -- (2,874) -- Foreign exchange gain......... 117 -- -- 117 -- -------- -------- -------- -------- -------- Loss from continuing operations before income taxes and minority interests..... (46,679) (29,827) 7,286 (69,220) (68,119) Provision (benefit) for income taxes........................ (754) (7,277) 2,767(8) (5,264) -- -------- -------- -------- -------- -------- Loss from continuing operations before minority interest...... (45,925) (22,550) 4,519 (63,956) (68,119) Minority interest............. -- -- -- -- -- -------- -------- -------- -------- -------- Loss from continuing operations............. (45,925) (22,550) 4,519 (63,956) (68,119) Preferred stock dividends..... (1,163) -- -- (1,163) (1,600) -------- -------- -------- -------- -------- Loss from continuing operations available to common stockholders.... $(47,088) $(22,550) $ 4,519 $(65,119) $(69,719) ======== ======== ======== ======== ======== Loss per common share from continuing operations: Basic........................ $ (0.82) ======== Diluted...................... $ (0.82) ======== Weighted average shares outstanding: Basic........................ 57,658 ======== Diluted...................... 57,658 ======== PRO FORMA WORLD ACCESS, PRO FORMA STAR AND WORLD ACCESS, STAR, WORLDXCHANGE WORLDXCHANGE TELDAFAX WORLDXCHANGE AND ADJUSTMENTS COMBINED TELDAFAX(20) ADJUSTMENTS TELDAFAX COMBINED ------------ ------------- ------------ ----------- ------------------- Service revenues.............. $(19,477)(16) $1,042,620 $150,036 $(2,772)(25) $1,189,884 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below)...... (19,477)(16) 889,767 126,302 (2,772)(25) 1,013,297 Selling, general and administrative............... -- 179,506 27,807 -- 207,313 Depreciation and amortization................. 11,046(12) 91,409 12,253 2,340(22) 106,902 (3,306)(12) (2,400)(22) 4,130(12) 3,300(22) (252)(15) Restructuring and other special charges.............. -- (3,995) -- -- (3,995) -------- ---------- -------- ------- ---------- Total operating expenses............... (7,859) 1,156,687 166,362 468 1,323,517 -------- ---------- -------- ------- ---------- Operating loss.......... (11,618) (114,067) (16,326) (3,240) (133,633) Interest and other income..... -- 20,683 885 -- 21,568 Interest and other expense.... 901(15) (51,915) (788) -- (52,703) Loss on investment in TelDaFax..................... -- (2,874) -- 2,874(28) -- Foreign exchange gain......... -- 117 -- -- 117 -------- ---------- -------- ------- ---------- Loss from continuing operations before income taxes and minority interests..... (10,717) (148,056) (16,229) (366) (164,651) Provision (benefit) for income taxes........................ 32(18) (5,232) (6,676) (369)(26) (12,277) -------- ---------- -------- ------- ---------- Loss from continuing operations before minority interest...... (10,749) (142,824) (9,553) 3 (152,374) Minority interest............. -- -- 851 -- 851 -------- ---------- -------- ------- ---------- Loss from continuing operations............. (10,749) (142,824) (8,702) 3 (151,523) Preferred stock dividends..... (2,763) -- -- (2,763) -------- ---------- -------- ------- ---------- Loss from continuing operations available to common stockholders.... $(10,749) $ (145,587) $ (8,702) $ 3 $ (154,286) ======== ========== ======== ======= ========== Loss per common share from continuing operations: Basic........................ $ (1.00)(9)(19)(27) ========== Diluted...................... $ (1.00)(9)(19)(27) ========== Weighted average shares outstanding: Basic........................ 154,848(9)(19)(27) ========== Diluted...................... 154,848(9)(19)(27) ==========
52 61 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA PRO FORMA WORLD ACCESS WORLD ACCESS STAR STAR AND STAR WORLDXCHANGE (28) (1) ADJUSTMENTS COMBINED (10) ---------------- -------- ----------- ------------ ---------------- Service revenues.............. $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below).......... 903,325 537,895 (17,949)(7) 1,423,271 477,317 Selling, general and administrative............. 146,231 108,246 -- 254,477 193,070 Depreciation and amortization............... 97,517 29,635 3,122(3) 116,679 43,304 (13,429)(3) 2,380(3) (2,546)(6) Merger expense............... -- 1,867 -- 1,867 -- Restructuring and other special charges............ 44,187 -- -- 44,187 -- ---------- -------- -------- ---------- --------- Total operating expenses............... 1,191,260 677,643 (28,422) 1,840,481 713,691 ---------- -------- -------- ---------- --------- Operating loss.......... (171,707) (61,174) 10,473 (222,408) (106,656) Interest and other income..... 10,822 6,701 -- 17,523 -- Interest and other expense.... (58,208) (8,614) -- (66,822) (25,385) Loss on investment in TelDaFax..................... (990) -- -- (990) -- Foreign exchange loss......... (2,369) (3,471) -- (5,840) -- ---------- -------- -------- ---------- --------- Loss from continuing operations before income taxes and minority interests..... (222,452) (66,558) 10,473 (278,537) (132,041) Provision (benefit) for income taxes........................ (6,999) (11,041) 4,530(8) (13,510) -- ---------- -------- -------- ---------- --------- Loss from continuing operations before minority interest...... (215,453) (55,517) 5,943 (265,027) (132,041) Minority interest............. -- -- -- -- 1,614 ---------- -------- -------- ---------- --------- Loss from continuing operations............. (215,453) (55,517) 5,943 (265,027) (130,427) Preferred stock dividends..... (2,461) -- -- (2,461) (784) ---------- -------- -------- ---------- --------- Loss from continuing operations available to common stockholders.... $ (217,914) $(55,517) $ 5,943 $ (267,488) $(131,211) ========== ======== ======== ========== ========= Loss per common share from continuing operations: Basic........................ $ (4.30) ========== Diluted...................... $ (4.30) ========== Weighted average shares outstanding: Basic........................ 50,634 ========== Diluted...................... 50,634 ========== PRO FORMA WORLD ACCESS, PRO FORMA STAR AND WORLD ACCESS, STAR, WORLDXCHANGE WORLDXCHANGE TELDAFAX TELDAFAX WORLDXCHANGE AND ADJUSTMENTS COMBINED (20) ADJUSTMENTS TELDAFAX COMBINED ------------ ------------- ------------ ----------- ------------------- Service revenues.............. $(25,601)(16) $2,199,507 $364,039 $ (8,914)(25) $2,554,632 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below).......... (25,601)(16) 1,874,987 304,810 (8,914)(25) 2,170,883 Selling, general and administrative............. -- 447,547 48,758 -- 496,305 Depreciation and amortization............... 8,768(12) 169,895 18,369 5,455(22) 195,519 (6,611)(12) (4,800)(22) 8,260(12) 6,600(22) (505)(15) Merger expense............... -- 1,867 -- -- 1,867 Restructuring and other special charges............ -- 44,187 -- -- 44,187 -------- ---------- -------- -------- ---------- Total operating expenses............... (15,689) 2,538,483 371,937 (1,659) 2,908,761 -------- ---------- -------- -------- ---------- Operating loss.......... (9,912) (338,976) (7,898) (7,255) (354,129) Interest and other income..... -- 17,523 2,469 -- 19,992 Interest and other expense.... 1,230(15) (90,977) (2,171) -- (93,148) Loss on investment in TelDaFax..................... -- (990) -- 990(28) -- Foreign exchange loss......... -- (5,840) -- -- (5,840) -------- ---------- -------- -------- ---------- Loss from continuing operations before income taxes and minority interests..... (8,682) (419,260) (7,600) (6,265) (433,125) Provision (benefit) for income taxes........................ (172)(18) (13,682) (3,830) (738)(26) (18,250) -------- ---------- -------- -------- ---------- Loss from continuing operations before minority interest...... (8,510) (405,578) (3,770) (5,527) (414,875) Minority interest............. -- 1,614 774 -- 2,388 -------- ---------- -------- -------- ---------- Loss from continuing operations............. (8,510) (403,964) (2,996) (5,527) (412,487) Preferred stock dividends..... -- (3,245) -- -- (3,245) -------- ---------- -------- -------- ---------- Loss from continuing operations available to common stockholders.... $ (8,510) $ (407,209) $ (2,996) $ (5,527) $ (415,732) ======== ========== ======== ======== ========== Loss per common share from continuing operations: Basic........................ $ (2.81)(9)(19)(27) ========== Diluted...................... $ (2.81)(9)(19)(27) ========== Weighted average shares outstanding: Basic........................ 147,824(9)(19)(27) ========== Diluted...................... 147,824(9)(19)(27) ==========
53 62 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
PRO FORMA PRO FORMA WORLD ACCESS WORLD STAR AND STAR WORLDXCHANGE ACCESS(28) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS ------------- --------- ----------- ------------ ---------------- ------------ ASSETS Cash and equivalents(2(i)).......... $ 172,479 $ 109,384 $ -- $ 281,863 $ 6,913 $ -- Short-term investments...... 160,211 1,756 -- 161,967 -- -- Restricted cash............. 31,095 -- -- 31,095 -- -- Accounts and notes receivable................. 264,678 122,310 -- 386,988 103,172 (2,201)(17) Prepaid expenses and other current assets............. 38,491 22,023 -- 60,514 32,566 -- Net assets held for sale.... 41,465 -- -- 41,465 -- -- ---------- --------- --------- ---------- --------- --------- Total Current Assets.............. 708,419 255,473 -- 963,892 142,651 (2,201) ---------- --------- --------- ---------- --------- --------- Property and equipment...... 151,609 264,380 (94,000)(2) 321,989 193,494 (6,500)(11) (68,000)(11) 15,000(11) Investment in TelDaFax...... 64,508 -- -- 64,508 -- -- Goodwill and other intangibles................ 1,080,797 3,968 (1,764)(4) 1,277,131 90,162 (76,327)(13) 233,144(2) 548,172(11) 11,900(2) 41,300(11) (50,914)(6) (10,093)(15) Other assets................ 79,185 4,767 -- 83,952 4,105 (35,725)(11) ---------- --------- --------- ---------- --------- --------- Total Assets......... $2,084,518 $ 528,588 $ 98,366 $2,711,472 $ 430,412 $ 405,626 ========== ========= ========= ========== ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt............. $ 57,033 $ 86,680 $ (55,685)(6) $ 88,028 $ 201,825 $ (2,201)(17) (35,725)(11) (3,213)(15) Accounts payable............ 246,436 104,507 (21,789)(6) 329,154 23,682 (792)(15) Other accrued liabilities... 151,328 107,689 3,000(2) 260,794 224,478 3,000(11) (1,223)(6) -- ---------- --------- --------- ---------- --------- --------- Total Current Liabilities......... 454,797 298,876 (75,697) 677,976 449,985 (38,931) Long-term debt.............. 257,946 55,398 -- 313,344 70,829 (11,596)(15) Other long-term liabilities................ 10,336 32,744 -- 43,080 5,547 -- ---------- --------- --------- ---------- --------- --------- Total Liabilities.... 723,079 387,018 (75,697) 1,034,400 526,361 (50,527) ---------- --------- --------- ---------- --------- --------- Stockholders' Equity (Deficit): Preferred Stock............. 6 -- -- 6 30,000 (30,000)(14) Common stock................ 732 58 (58)(5) 1,027 148,056 (148,056)(14) 227(2) 298(11) 68(6) 14(15) Additional paid in capital.................... 1,535,519 366,304 (366,304)(5) 1,850,857 -- 336,686(11) 279,484(2) 17,712(11) 8,139(2) 5,494(15) 27,715(6) -- Deferred compensation....... -- (1,399) 1,399(5) -- -- -- Notes receivable from shareholders............... -- (3,856) 3,856(5) -- (1,937) 1,937(14) Accumulated other comprehensive loss......... (12,239) (8,017) 8,017(5) (12,239) (12,900) 12,900(14) Accumulated deficit......... (162,579) (211,520) 211,520(5) (162,579) (259,168) 259,168(14) ---------- --------- --------- ---------- --------- --------- Total Stockholders' Equity (Deficit).... 1,361,439 141,570 174,063 1,677,072 (95,949) 456,153 ---------- --------- --------- ---------- --------- --------- Total Liabilities and Stockholders' Equity.............. $2,084,518 $ 528,588 $ 98,366 $2,711,472 $ 430,412 $ 405,626 ========== ========= ========= ========== ========= ========= PRO FORMA WORLD ACCESS, STAR AND WORLDXCHANGE COMBINED ------------- ASSETS Cash and equivalents(2(i)).......... $ 288,776 Short-term investments...... 161,967 Restricted cash............. 31,095 Accounts and notes receivable................. 487,959 Prepaid expenses and other current assets............. 93,080 Net assets held for sale.... 41,465 ---------- Total Current Assets.............. 1,104,342 ---------- Property and equipment...... 455,983 Investment in TelDaFax...... 64,508 Goodwill and other intangibles................ 1,870,345 Other assets................ 52,332 ---------- Total Assets......... $3,547,510 ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt............. $ 248,714 Accounts payable............ 352,044 Other accrued liabilities... 488,272 ---------- Total Current Liabilities......... 1,089,030 Long-term debt.............. 372,577 Other long-term liabilities................ 48,627 ---------- Total Liabilities.... 1,510,234 ---------- Stockholders' Equity (Defici Preferred Stock............. 6 Common stock................ 1,339 Additional paid in capital.................... 2,210,749 Deferred compensation....... -- Notes receivable from shareholders............... -- Accumulated other comprehensive loss......... (12,239) Accumulated deficit......... (162,579) ---------- Total Stockholders' Equity (Deficit).... 2,037,276 ---------- Total Liabilities and Stockholders' Equity.............. $3,547,510 ==========
54 63 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS PRO FORMA STAR AND STAR WORLD ACCESS(28) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ---------------- -------- ----------- ------------ ---------------- Service revenues................... $570,279 $236,915 $ (25,683)(7) $781,511 $280,586 Operating expenses:................ Cost of services (exclusive of depreciation and amortization shown separately below).......... 500,355 209,303 (25,683)(7) 683,975 225,269 Selling, general and administrative................... 59,430 39,492 -- 98,922 80,584 Depreciation and amortization...... 41,618 18,480 735(3) 54,035 25,756 (6,715)(3) 1,190(3) (1,273)(6) Restructuring and other special charges.......................... (3,995) -- -- (3,995) -- -------- -------- ----------- -------- -------- Total operating expenses... 597,408 267,275 (31,746) 832,937 331,609 -------- -------- ----------- -------- -------- Operating loss............. (27,129) (30,360) 6,063 (51,426) (51,023) Interest and other income.......... 12,996 7,687 -- 20,683 -- Interest and other expense......... (29,789) (7,154) 1,223(6) (35,720) (17,096) Loss on investment in TelDaFax..... (2,874) -- -- (2,874) -- Foreign exchange gain.............. 117 -- -- 117 -- -------- -------- ----------- -------- -------- Loss from continuing operations before income taxes and minority interests................ (46,679) (29,827) 7,286 (69,220) (68,119) Provision (benefit) for income taxes............................ (754) (7,277) 2,767(8) (5,264) -- -------- -------- ----------- -------- -------- Loss from continuing operations............... (45,925) (22,550) 4,519 (63,956) (68,119) Preferred stock dividends.......... (1,163) -- -- (1,163) (1,600) -------- -------- ----------- -------- -------- Loss from continuing operations available to common stockholders...... $(47,088) $(22,550) $ 4,519 $(65,119) $(69,719) ======== ======== =========== ======== ======== Loss per common share from continuing operations: Basic............................ $ (0.82) ======== Diluted.......................... $ (0.82) ======== Weighted average shares outstanding: Basic............................ 57,658 ======== Diluted.......................... 57,658 ======== PRO FORMA WORLD ACCESS, STAR AND WORLDXCHANGE WORLDXCHANGE ADJUSTMENTS COMBINED ------------ ------------- Service revenues................... $ (19,477)(16) $ 1,042,620 Operating expenses:................ Cost of services (exclusive of depreciation and amortization shown separately below).......... (19,477)(16) 889,767 Selling, general and administrative................... -- 179,506 Depreciation and amortization...... 11,046(12) 91,409 (3,306)(12) 4,130(12) (252)(15) Restructuring and other special charges.......................... -- (3,995) ------------ ------------- Total operating expenses... (7,859) 1,156,687 ------------ ------------- Operating loss............. (11,618) (114,067) Interest and other income.......... -- 20,683 Interest and other expense......... 901(15) (51,915) Loss on investment in TelDaFax..... -- (2,874) Foreign exchange gain.............. -- 117 ------------ ------------- Loss from continuing operations before income taxes and minority interests................ (10,717) (148,056) Provision (benefit) for income taxes............................ 32(18) (5,232) ------------ ------------- Loss from continuing operations............... (10,749) (142,824) Preferred stock dividends.......... -- (2,763) ------------ ------------- Loss from continuing operations available to common stockholders...... $ (10,749) $ (145,587) ============ ============= Loss per common share from continuing operations: Basic............................ $ (1.21)(9)(19) ============= Diluted.......................... $ (1.21)(9)(19) ============= Weighted average shares outstanding: Basic............................ 120,173(9)(19) ============= Diluted.......................... 120,173(9)(19) =============
55 64 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS PRO FORMA STAR AND STAR WORLDXCHANGE WORLD ACCESS(28) STAR(1) ADJUSTMENTS COMBINED WORLDXCHANGE(10) ADJUSTMENTS ---------------- -------- ----------- ------------ ---------------- ------------ Service revenues................. $1,019,553 $616,469 $(17,949)(7) $1,618,073 $ 607,035 $(25,601)(16) Operating expenses:.............. Cost of services (exclusive of depreciation and amortization shown separately below)...... 903,325 537,895 (17,949)(7) 1,423,271 477,317 (25,601)(16) Selling, general and administrative............... 146,231 108,246 -- 254,477 193,070 -- Depreciation and amortization................. 97,517 29,635 3,122(3) 116,679 43,304 8,768(12) (13,429)(3) (6,611)(12) 2,380(3) 8,260(12) (2,546)(6) (505)(15) Merger expense................. -- 1,867 -- 1,867 -- -- Restructuring and other special charges...................... 44,187 -- -- 44,187 -- -- ---------- -------- -------- ---------- --------- -------- Total operating expenses............... 1,191,260 677,643 (28,422) 1,840,481 713,691 (15,689) ---------- -------- -------- ---------- --------- -------- Operating loss........... (171,707) (61,174) 10,473 (222,408) (106,656) (9,912) Interest and other income........ 10,822 6,701 -- 17,523 -- -- Interest and other expense....... (58,208) (8,614) -- (66,822) (25,385) 1,230(15) Loss on investment in TelDaFax... (990) -- -- (990) -- -- Foreign exchange loss............ (2,369) (3,471) -- (5,840) -- -- ---------- -------- -------- ---------- --------- -------- Loss from continuing operations before income taxes and minority interests..... (222,452) (66,558) 10,473 (278,537) (132,041) (8,682) Provision (benefit) for income taxes.......................... (6,999) (11,041) 4,530(8) (13,510) -- (172)(18) ---------- -------- -------- ---------- --------- -------- Loss from continuing operations before minority interest...... (215,453) (55,517) 5,943 (265,027) (132,041) (8,510) Minority interest................ -- -- -- -- 1,614 -- ---------- -------- -------- ---------- --------- -------- Loss from continuing operations............. (215,453) (55,517) 5,943 (265,027) (130,427) (8,510) Preferred stock dividends........ (2,461) -- -- (2,461) (784) -- ---------- -------- -------- ---------- --------- -------- Loss from continuing operations available to common stockholders.... $ (217,914) $(55,517) $ 5,943 $ (267,488) $(131,211) $ (8,510) ========== ======== ======== ========== ========= ======== Loss per common share from continuing operations: Basic.......................... $ (4.30) ========== Diluted........................ $ (4.30) ========== Weighted average shares outstanding: Basic.......................... 50,634 ========== Diluted........................ 50,634 ========== PRO FORMA WORLD ACCESS, STAR AND WORLDXCHANGE COMBINED ------------- Service revenues................. $2,199,507 Operating expenses:.............. Cost of services (exclusive of depreciation and amortization shown separately below)...... 1,874,987 Selling, general and administrative............... 447,547 Depreciation and amortization................. 169,895 Merger expense................. 1,867 Restructuring and other special charges...................... 44,187 ---------- Total operating expenses............... 2,538,483 ---------- Operating loss........... (338,976) Interest and other income........ 17,523 Interest and other expense....... (90,977) Loss on investment in TelDaFax... (990) Foreign exchange loss............ (5,840) ---------- Loss from continuing operations before income taxes and minority interests..... (419,260) Provision (benefit) for income taxes.......................... (13,682) ---------- Loss from continuing operations before minority interest...... (405,578) Minority interest................ 1,614 ---------- Loss from continuing operations............. (403,964) Preferred stock dividends........ (3,245) ---------- Loss from continuing operations available to common stockholders.... $ (407,209) ========== Loss per common share from continuing operations: Basic.......................... $ (3.60)(9)(19) ========== Diluted........................ $ (3.60)(9)(19) ========== Weighted average shares outstanding: Basic.......................... 113,149(9)(19) ========== Diluted........................ 113,149(9)(19) ==========
56 65 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
PRO FORMA WORLD ACCESS PRO FORMA AND WORLD WORLDXCHANGE WORLDXCHANGE ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED TELDAFAX(20) ---------------- ---------------- ------------ ------------ ------------ ASSETS Cash and equivalents(2(i))......... $ 172,479 $ 6,913 $ -- $ 179,392 $ 26,408 Short-term investments............. 160,211 -- -- 160,211 -- Restricted cash.................... 31,095 -- -- 31,095 -- Accounts and notes receivable...... 264,678 103,172 -- 367,850 42,427 Prepaid expenses and other current assets............................ 38,491 32,566 -- 71,057 30,625 Net assets held for sale........... 41,465 -- -- 41,465 -- ---------- --------- -------- ---------- -------- Total Current Assets........ 708,419 142,651 -- 851,070 99,460 ---------- --------- -------- ---------- -------- Property and equipment............. 151,609 193,494 (6,500)(11) 285,603 65,281 (68,000)(11) 15,000(11) Investment in TelDaFax............. 64,508 -- -- 64,508 -- Goodwill and other intangibles..... 1,080,797 90,162 (76,327)(13) 1,674,011 15,811 548,172(11) 41,300(11) (10,093)(15) Other assets....................... 79,185 4,105 (35,725)(11) 47,565 13,027 ---------- --------- -------- ---------- -------- Total Assets................ $2,084,518 $ 430,412 $407,827 $2,922,757 $193,579 ========== ========= ======== ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt.................... $ 57,033 $ 201,825 $(35,725)(11) $ 219,920 $ 7,260 (3,213)(15) Accounts payable................... 246,436 23,682 (792)(15) 269,326 73,688 Other accrued liabilities.......... 151,328 224,478 3,000(11) 378,806 9,626 ---------- --------- -------- ---------- -------- Total Current Liabilities... 454,797 449,985 (36,730) 868,052 90,574 Long-term debt..................... 257,946 70,829 (11,596)(15) 317,179 19,320 Other long-term liabilities........ 10,336 5,547 -- 15,883 347 ---------- --------- -------- ---------- -------- Total Liabilities........... 723,079 526,361 (48,326) 1,201,114 110,241 ---------- --------- -------- ---------- -------- Minority interests................. -- -- -- -- 888 Stockholders' Equity (Deficit): Preferred Stock.................... 6 30,000 (30,000)(14) 6 -- Common stock....................... 732 148,056 (148,056)(14) 1,044 84,309 298(11) 14(15) Additional paid in capital......... 1,535,519 -- 336,686(11) 1,895,411 7,737 17,712(11) 5,494(15) Notes receivable from shareholders...................... -- (1,937) 1,937(14) -- -- Accumulated other comprehensive loss.............................. (12,239) (12,900) 12,900(14) (12,239) 47 Accumulated deficit................ (162,579) (259,168) 259,168(14) (162,579) (9,643) ---------- --------- -------- ---------- -------- Total Stockholders' Equity (Deficit).................. 1,361,439 (95,949) 456,153 1,721,643 82,450 ---------- --------- -------- ---------- -------- Total Liabilities and Stockholders' Equity....... $2,084,518 $ 430,412 $407,827 $2,922,757 $193,579 ========== ========= ======== ========== ======== PRO FORMA WORLD ACCESS, WORLDXCHANGE AND TELDAFAX TELDAFAX ADJUSTMENTS COMBINED ----------- ---------------- ASSETS Cash and equivalents(2(i))......... $ -- $ 205,800 Short-term investments............. -- 160,211 Restricted cash.................... -- 31,095 Accounts and notes receivable...... -- 410,277 Prepaid expenses and other current assets............................ -- 101,682 Net assets held for sale........... -- 41,465 -------- ---------- Total Current Assets........ -- 950,530 -------- ---------- Property and equipment............. (24,000)(21) 326,884 Investment in TelDaFax............. (64,508)(21) -- Goodwill and other intangibles..... (12,430)(23) 1,831,592 121,200(21) 33,000(21) Other assets....................... -- 60,592 -------- ---------- Total Assets................ $ 53,262 $3,169,598 ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt.................... $ -- $ 227,180 Accounts payable................... -- 343,014 Other accrued liabilities.......... 5,000(21) 393,432 -------- ---------- Total Current Liabilities... 5,000 963,626 Long-term debt..................... -- 336,499 Other long-term liabilities........ -- 16,230 -------- ---------- Total Liabilities........... 5,000 1,316,355 -------- ---------- Minority interests................. -- 888 Stockholders' Equity (Deficit): Preferred Stock.................... -- 6 Common stock....................... (84,309)(24) 1,276 232(21) Additional paid in capital......... (7,737)(24) 2,025,891 130,480(21) Notes receivable from shareholders...................... -- -- Accumulated other comprehensive loss.............................. (47)(24) (12,239) Accumulated deficit................ 9,643(24) (162,579) -------- ---------- Total Stockholders' Equity (Deficit).................. 48,262 1,852,355 -------- ---------- Total Liabilities and Stockholders' Equity....... $ 53,262 $3,169,598 ======== ==========
57 66 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS AND PRO FORMA WORLDXCHANGE WORLDXCHANGE WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED ---------------- ---------------- ------------ ---------------- Service revenues................................ $570,279 $280,586 $ (14,257)(16) $ 836,608 Operating expenses:............................. Cost of services (exclusive of depreciation and amortization shown separately below).... 500,355 225,269 (14,257)(16) 711,367 Selling, general and administrative........... 59,430 80,584 -- 140,014 Depreciation and amortization................. 41,618 25,756 11,046(12) 78,992 (3,306)(12) 4,130(12) (252)(15) Restructuring and other special charges....... (3,995) -- -- (3,995) -------- -------- ------------ --------- Total operating expenses................ 597,408 331,609 (2,639) 926,378 -------- -------- ------------ --------- Operating loss.......................... (27,129) (51,023) (11,618) (89,770) Interest and other income..................... 12,996 -- -- 12,996 Interest and other expense.................... (29,789) (17,096) 901(15) (45,984) Loss on investment in TelDaFax................ (2,874) -- -- (2,874) Foreign exchange gain......................... 117 -- -- 117 -------- -------- ------------ --------- Loss from continuing operations before income taxes and minority interests... (46,679) (68,119) (10,717) (125,515) Provision (benefit) for income taxes.......... (754) -- 32(18) (722) -------- -------- ------------ --------- Loss from continuing operations before minority interest..................... (45,925) (68,119) (10,749) (124,793) Minority interest............................. -- -- -- -- -------- -------- ------------ --------- Loss from continuing operations......... (45,925) (68,119) (10,749) (124,793) Preferred stock dividends..................... (1,163) (1,600) -- (2,763) -------- -------- ------------ --------- Loss from continuing operations available to common stockholders...... $(47,088) $(69,719) $ (10,749) $(127,556) ======== ======== ============ ========= Loss per common share from continuing operations: Basic......................................... $ (0.82) ======== Diluted....................................... $ (0.82) ======== Weighted average shares outstanding: Basic......................................... 57,658 ======== Diluted....................................... 57,658 ======== PRO FORMA WORLD ACCESS, WORLDXCHANGE TELDAFAX AND TELDAFAX TELDAFAX(20) ADJUSTMENTS COMBINED ------------ ----------- ---------------- Service revenues................................ $150,036 $ (2,772)(25) $ 983,872 Operating expenses:............................. Cost of services (exclusive of depreciation and amortization shown separately below).... 126,302 (2,772)(25) 834,897 Selling, general and administrative........... 27,807 -- 167,821 Depreciation and amortization................. 12,253 2,340(22) 94,485 (2,400)(22) 3,300(22) Restructuring and other special charges....... -- -- (3,995) -------- ----------- ------------- Total operating expenses................ 166,362 468 1,093,208 -------- ----------- ------------- Operating loss.......................... (16,326) (3,240) (109,336) Interest and other income..................... 885 -- 13,881 Interest and other expense.................... (788) -- (46,772) Loss on investment in TelDaFax................ -- 2,874(28) -- Foreign exchange gain......................... -- -- 117 -------- ----------- ------------- Loss from continuing operations before income taxes and minority interests... (16,229) (366) (142,110) Provision (benefit) for income taxes.......... (6,676) (369)(26) (7,767) -------- ----------- ------------- Loss from continuing operations before minority interest..................... (9,553) 3 (134,343) Minority interest............................. 851 -- 851 -------- ----------- ------------- Loss from continuing operations......... (8,702) 3 (133,492) Preferred stock dividends..................... -- -- (2,763) -------- ----------- ------------- Loss from continuing operations available to common stockholders...... $ (8,702) $ 3 $ (136,255) ======== =========== ============= Loss per common share from continuing operations: Basic......................................... $ (1.10)(19)(27) ============= Diluted....................................... $ (1.10)(19)(27) ============= Weighted average shares outstanding: Basic......................................... 124,355(19)(27) ============= Diluted....................................... 124,355(19)(27) =============
58 67 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS AND PRO FORMA WORLDXCHANGE WORLDXCHANGE WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED TELDAFAX(20) ---------------- ---------------- ------------ ----------------- ------------ Service revenues....................... $1,019,553 $ 607,035 $(25,601)(16) $1,600,987 $364,039 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below).................. 903,325 477,317 (25,601)(16) 1,355,041 304,810 Selling, general and administrative..................... 146,231 193,070 -- 339,301 48,758 Depreciation and amortization........ 97,517 43,304 8,768(12) 150,733 18,369 (6,611)(12) 8,260(12) (505)(15) Restructuring and other special charges............................ 44,187 -- -- 44,187 -- ---------- --------- -------- ---------- -------- Total operating expenses....... 1,191,260 713,691 (15,689) 1,889,262 371,937 ---------- --------- -------- ---------- -------- Operating loss................. (171,707) (106,656) (9,912) (288,275) (7,898) Interest and other income.............. 10,822 -- -- 10,822 2,469 Interest and other expense............. (58,208) (25,385) 1,230(15) (82,363) (2,171) Loss on investment in TelDaFax......... (990) -- -- (990) -- Foreign exchange loss.................. (2,369) -- -- (2,369) -- ---------- --------- -------- ---------- -------- Loss from continuing operations before income taxes and minority interests........... (222,452) (132,041) (8,682) (363,175) (7,600) Provision (benefit) for income taxes... (6,999) -- (172)(18) (7,171) (3,830) ---------- --------- -------- ---------- -------- Loss from continuing operations before minority interest..... (215,453) (132,041) (8,510) (356,004) (3,770) Minority interest...................... -- 1,614 -- 1,614 774 ---------- --------- -------- ---------- -------- Loss from continuing operations................... (215,453) (130,427) (8,510) (354,390) (2,996) Preferred stock dividends.............. (2,461) (784) -- (3,245) -- ---------- --------- -------- ---------- -------- Loss from continuing operations available to common stockholders................. $ (217,914) $(131,211) $ (8,510) $ (357,635) $ (2,996) ========== ========= ======== ========== ======== Loss per common share from continuing operations: Basic................................ $ (4.30) ========== Diluted.............................. $ (4.30) ========== Weighted average shares outstanding: Basic................................ 50,634 ========== Diluted.............................. 50,634 ========== PRO FORMA WORLD ACCESS, TELDAFAX WORLDXCHANGE AND ADJUSTMENTS TELDAFAX COMBINED ----------- -------------------- Service revenues....................... $ (8,914)(25) $1,956,112 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below).................. (8,914)(25) 1,650,937 Selling, general and administrative..................... -- 388,059 Depreciation and amortization........ 5,455(22) 176,357 (4,800)(22) 6,600(22) Restructuring and other special charges............................ -- 44,187 -------- ---------- Total operating expenses....... (1,659) 2,259,540 -------- ---------- Operating loss................. (7,255) (303,428) Interest and other income.............. -- 13,291 Interest and other expense............. -- (84,534) Loss on investment in TelDaFax......... 990(28) -- Foreign exchange loss.................. -- (2,369) -------- ---------- Loss from continuing operations before income taxes and minority interests........... (6,265) (377,040) Provision (benefit) for income taxes... (738)(26) (11,739) -------- ---------- Loss from continuing operations before minority interest..... (5,527) (365,301) Minority interest...................... -- 2,388 -------- ---------- Loss from continuing operations................... (5,527) (362,913) Preferred stock dividends.............. -- (3,245) -------- ---------- Loss from continuing operations available to common stockholders................. $ (5,527) $ (366,158) ======== ========== Loss per common share from continuing operations: Basic................................ $ (3.12)(19)(27) ========== Diluted.............................. $ (3.12)(19)(27) ========== Weighted average shares outstanding: Basic................................ 117,331(19)(27) ========== Diluted.............................. 117,331(19)(27) ==========
59 68 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 2000 (IN THOUSANDS)
PRO FORMA PRO FORMA WORLD ACCESS AND WORLD WORLDXCHANGE WORLDXCHANGE ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED ---------- ---------------- ------------ ---------------- ASSETS Cash and equivalents(2(i))................. $ 172,479 $ 6,913 $ -- $ 179,392 Short-term investments..................... 160,211 -- -- 160,211 Restricted cash............................ 31,095 -- -- 31,095 Accounts and notes receivable.............. 264,678 103,172 -- 367,850 Prepaid expenses and other current assets................................... 38,491 32,566 -- 71,057 Net assets held for sale................... 41,465 -- -- 41,465 ---------- --------- --------- ---------- Total Current Assets.............. 708,419 142,651 -- 851,070 ---------- --------- --------- ---------- Property and equipment..................... 151,609 193,494 (6,500)(11) 285,603 (68,000)(11) 15,000(11) Investment in TelDaFax..................... 64,508 -- -- 64,508 Goodwill and other intangibles............. 1,080,797 90,162 (76,327)(13) 1,674,011 548,172(11) 41,300(11) (10,093)(15) Other assets............................... 79,185 4,105 (35,725)(11) 47,565 ---------- --------- --------- ---------- Total Assets...................... $2,084,518 $ 430,412 $ 407,827 $2,922,757 ========== ========= ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt............................ $ 57,033 $ 201,825 $ (35,725)(11) $ 219,920 (3,213)(15) Accounts payable........................... 246,436 23,682 (792)(15) 269,326 Other accrued liabilities.................. 151,328 224,478 3,000(11) 378,806 ---------- --------- --------- ---------- Total Current Liabilities......... 454,797 449,985 (36,730) 868,052 Long-term debt............................. 257,946 70,829 (11,596)(15) 317,179 Other long-term liabilities................ 10,336 5,547 -- 15,883 ---------- --------- --------- ---------- Total Liabilities................. 723,079 526,361 (48,326) 1,201,114 ---------- --------- --------- ---------- Stockholders' Equity (Deficit): Preferred Stock............................ 6 30,000 (30,000)(14) 6 Common stock............................... 732 148,056 (148,056)(14) 1,044 298(11) 14(15) Additional paid in capital................. 1,535,519 -- 336,686(11) 1,895,411 17,712(11) 5,494(15) Notes receivable from shareholders......... -- (1,937) 1,937(14) -- Accumulated other comprehensive loss....... (12,239) (12,900) 12,900(14) (12,239) Accumulated deficit........................ (162,579) (259,168) 259,168(14) (162,579) ---------- --------- --------- ---------- Total Stockholders' Equity (Deficit)....................... 1,361,439 (95,949) 456,153 1,721,643 ---------- --------- --------- ---------- Total Liabilities and Stockholders' Equity............ $2,084,518 $ 430,412 $ 407,827 $2,922,757 ========== ========= ========= ==========
60 69 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS AND PRO FORMA WORLDXCHANGE WORLDXCHANGE WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED ---------------- ---------------- ------------ ---------------- Service revenues................ $570,279 $280,586 $(14,257)(16) $ 836,608 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below)....... 500,355 225,269 (14,257)(16) 711,367 Selling, general and administrative................ 59,430 80,584 -- 140,014 Depreciation and amortization... 41,618 25,756 11,046(12) 78,992 (3,306)(12) 4,130(12) (252)(15) Restructuring and other special charges....................... (3,995) -- -- (3,995) -------- -------- -------- --------- Total operating expenses............. 597,408 331,609 (2,239) 926,378 -------- -------- -------- --------- Operating loss......... (27,129) (51,023) (11,618) (89,770) Interest and other income....... 12,996 -- -- 12,996 Interest and other expense...... (29,789) (17,096) 901(15) (45,984) Loss on investment in TelDaFax...................... (2,874) -- -- (2,874) Foreign exchange gain........... 117 -- -- 117 -------- -------- -------- --------- Loss from continuing operations before income taxes and minority interests... (46,679) (68,119) (10,717) (125,515) Provision (benefit) for income taxes......................... (754) -- 32(18) (722) -------- -------- -------- --------- Loss from continuing operations........... (45,925) (68,119) (10,749) (124,793) Preferred stock dividends....... (1,163) (1,600) -- (2,763) -------- -------- -------- --------- Loss from continuing operations available to common stockholders......... $(47,088) $(69,719) $(10,749) $(127,556) ======== ======== ======== ========= Loss per common share from continuing operations: Basic......................... $ (0.82) $ (1.42)(19) ======== ========= Diluted....................... $ (0.82) $ (1.42)(19) ======== ========= Weighted average shares outstanding: Basic......................... 57,658 89,680(19) ======== ========= Diluted....................... 57,658 89,680(19) ======== =========
61 70 WORLD ACCESS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD ACCESS AND PRO FORMA WORLDXCHANGE WORLDXCHANGE WORLD ACCESS(28) WORLDXCHANGE(10) ADJUSTMENTS COMBINED ---------------- ---------------- ------------ ---------------- Service revenues............. $1,019,553 $ 607,035 $ (25,601)(16) $1,600,987 Operating expenses:.......... Cost of services (exclusive of depreciation and amortization shown separately below)........ 903,325 477,317 (25,601)(16) 1,355,041 Selling, general and administrative........... 146,231 193,070 -- 339,301 Depreciation and amortization............. 97,517 43,304 8,768(12) 150,733 (6,611)(12) 8,260(12) (505)(15) Restructuring and other special charges.......... 44,187 -- -- 44,187 ---------- --------- ------------ ---------- Total operating expenses.......... 1,191,260 713,691 (15,689) 1,889,262 ---------- --------- ------------ ---------- Operating loss...... (171,707) (106,656) (9,912) (288,275) Interest and other income.... 10,822 -- -- 10,822 Interest and other expense... (58,208) (25,385) 1,230(15) (82,363) Loss on investment in TelDaFax................... (990) -- -- (990) Foreign exchange loss........ (2,369) -- -- (2,369) ---------- --------- ------------ ---------- Loss from continuing operations before income taxes and minority interests......... (222,452) (132,041) (8,682) (363,175) Provision (benefit) for income taxes............... (6,999) -- (172)(18) (7,171) ---------- --------- ------------ ---------- Loss from continuing operations before minority interest.......... (215,453) (132,041) (8,510) (356,004) Minority interest............ -- 1,614 -- 1,614 ---------- --------- ------------ ---------- Loss from continuing operations........ (215,453) (130,427) (8,510) (354,390) Preferred stock dividends.... (2,461) (784) -- (3,245) ---------- --------- ------------ ---------- Loss from continuing operations available to common stockholders...... $ (217,914) $(131,211) $ (8,510) $ (357,635) ========== ========= ============ ========== Loss per common share from continuing operations: Basic...................... $ (4.30) $ (4.33)(19) ========== ========== Diluted.................... $ (4.30) $ (4.33)(19) ========== ========== Weighted average shares outstanding: Basic...................... 50,634 82,656(19) ========== ========== Diluted.................... 50,634 82,656(19) ========== ==========
62 71 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS STAR ADJUSTMENTS (1) These columns represent the historical financial position and results of operations of STAR as of and for the six months ended June 30, 2000 and for the year ended December 31, 1999 and have been adjusted to reflect the sale of PT-1, a required condition of the STAR merger. For pro forma purposes, we have assumed that PT-1 will be sold to Counsel and the net cash proceeds received from the sale will be approximately $120.0 million, including $22.5 million placed into escrow.
STAR STAR EXCLUSION OF EXCLUDING PT-1 JUNE 30, 2000 PT-1 JUNE 30, 2000 -------------- ------------ -------------- Cash and equivalents....................... $ 16,844 $ (4,960)(i) $109,384 97,500(ii) Short-term investments..................... 1,756 --(i) 1,756 Accounts and notes receivable.............. 161,169 (61,359)(i) 122,310 22,500(ii) Prepaid expenses and other current assets................................... 46,552 (24,529)(i) 22,023 -------- --------- -------- Total Current Assets............. 226,321 29,152 255,473 -------- --------- -------- Property and equipment, net................ 304,314 (39,934)(i) 264,380 Goodwill and other intangibles............. 193,316 (189,348)(i) 3,968 Other assets............................... 5,838 (1,071)(i) 4,767 -------- --------- -------- Total Assets..................... $729,789 $(201,201) $528,588 ======== ========= ======== Short-term debt............................ $ 88,709 $ (2,029)(i) $ 86,680 Accounts payable........................... 126,292 (21,785)(i) 104,507 Other accrued liabilities.................. 163,182 (55,493)(i) 107,689 -------- --------- -------- Total Current Liabilities........ 378,183 (79,307) 298,876 -------- --------- -------- Long-term debt............................. 59,403 (4,005)(i) 55,398 Other long-term liabilities................ 33,634 (890)(i) 32,744 -------- --------- -------- Total Liabilities................ 471,220 (84,202) 387,018 -------- --------- -------- Total Stockholders' Equity....... 258,569 (116,999)(iii) 141,570 -------- --------- -------- Total Liabilities and Stockholders' Equity........... $729,789 $(201,201) $528,588 ======== ========= ========
(i) Represents the historical asset and liability amounts for PT-1, including PT-1 goodwill recorded by STAR. It does not include certain liabilities that Counsel will not assume in connection with the PT-1 asset sale. These liabilities consist primarily of income taxes, certain network operating costs and litigation matters that have been managed on a consolidated basis and historically accounted for on STAR's balance sheet. There are no significant liabilities on PT-1's balance sheet that are not being assumed by Counsel. 63 72 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (ii) Represents the net cash proceeds expected to be received from the PT-1 asset sale, estimated as follows: Gross purchase price........................ $150,000 Net assets adjustment....................... (8,000) Fees and expenses........................... (2,100) STAR income taxes........................... (19,000) Other costs................................. (900) -------- Net cash proceeds...................... 120,000 Escrowed cash............................... (22,500) -------- Unrestricted cash...................... $ 97,500 ========
The gross purchase price will be adjusted upward or downward if (a) the aging of PT-1's accounts receivable and accounts payable at the closing date differs materially from the related aging as of December 31, 1999, and (b) the net assets of PT-1 as of the closing date differ from $37.2 million, the net assets of PT-1 as of December 31, 1999. Net assets, as defined in the PT-1 asset purchase agreement, excludes goodwill, deferred income taxes, inter-company balances and other liabilities not included on PT-1's December 31, 1999 balance sheet and therefore not assumed by Counsel. Based on an analysis prepared by STAR in September 2000, there has been no material change in the aging of PT-1's accounts receivable and accounts payable during 2000, and accordingly no adjustment in purchase price is expected for this provision. Based on the net assets of PT-1 as of June 30, 2000, we expect the purchase price to be reduced by approximately $8.0 million. The $19.0 million of income taxes represents the net cash liability we expect STAR to incur as a result of the gain it will realize on the PT-1 asset sale for federal and state income tax purposes. This liability, which was calculated net of PT-1 operating loss carryforwards available to offset the tax gain, will be assumed by World Access in connection with the STAR merger. The PT-1 asset purchase agreement requires 15% of the gross purchase price, or $22.5 million, to be placed into escrow on the closing date. This escrowed purchase price will be immediately released to World Access upon (i) the completion of the STAR merger and (ii) World Access' agreement to assume STAR and PT-1's representations, warranties and other obligations under the PT-1 asset purchase agreement. World Access plans to assume these obligations and accordingly expects to receive the $22.5 million of cash shortly after completion of the STAR merger. (iii) Represents the assumed loss on the sale of PT-1. As the sale of PT-1 by STAR is a required condition to the merger and which must be completed before the merger is consummated, the assumed loss on the sale of PT-1 of $116,999 is not reflected in the World Access unaudited pro forma combined financial statements.
STAR STAR EXCLUDING PT-1 SIX MONTHS SIX MONTHS ENDED EXCLUSION OF ENDED JUNE 30, 2000 PT-1 JUNE 30, 2000 -------------- ------------ -------------- Carrier service revenue....................... $ 497,400 $(260,485) $ 236,915 Cost of carrier services...................... (433,657) 224,354 (209,303) Selling, general and administrative........... (61,555) 22,063 (39,492)
64 73 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
STAR STAR EXCLUDING PT-1 SIX MONTHS SIX MONTHS ENDED EXCLUSION OF ENDED JUNE 30, 2000 PT-1 JUNE 30, 2000 -------------- ------------ -------------- Depreciation and amortization................. (26,539) 8,059 (18,480) Interest and other income..................... 7,819 (132) 7,687 Interest expense.............................. (7,742) 588 (7,154) Benefit for income taxes...................... 5,706 1,571 7,277 --------- --------- --------- Net loss............................ $ (18,568) $ (3,982) $ (22,550) ========= ========= =========
STAR STAR EXCLUDING PT-1 YEAR ENDED EXCLUSION OF YEAR ENDED DECEMBER 31, 1999 PT-1 DECEMBER 31, 1999 ----------------- ------------ ----------------- Carrier service revenues.................. $1,061,774 $(445,305) $ 616,469 Cost of carrier services.................. (925,206) 387,311 (537,895) Selling, general and administrative....... (160,067) 51,821 (108,246) Depreciation and amortization............. (44,236) 14,601 (29,635) Merger expense............................ (1,878) 11 (1,867) Interest and other income................. 7,036 (335) 6,701 Interest expense.......................... (9,895) 1,281 (8,614) Foreign exchange loss..................... (3,471) -- (3,471) Benefit for income taxes.................. 12,096 (1,055) 11,041 ---------- --------- --------- Net loss........................ $ (63,847) $ 8,330 $ (55,517) ========== ========= =========
(2) The STAR merger will be accounted for under the purchase method of accounting. The total cost to acquire STAR is subject to change, to the extent that the number of shares of STAR common stock to be acquired will not be fixed until the effective date of the merger. A change in total cost will result in a corresponding change in goodwill and related amortization expense. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill and other intangible assets. These allocations are subject to change pending the completion of the final analysis of the total purchase price and fair values of the assets acquired and the liabilities assumed. The impact of these changes could be material. Purchase price: Issuance of World Access common stock(i).................. $ 279,711 Fair value of World Access options issued in exchange for STAR options(ii)....................................... 8,139 Estimated fees and expenses............................... 3,000 --------- Total estimated purchase price.................... $ 290,850 Allocation to fair values: Pro forma stockholders' equity as of June 30, 2000(iii)... $(141,570) Intangible assets(v)...................................... (11,900) Adjust assets and liabilities: Eliminate historical goodwill as of June 30, 2000...... 1,764 Write-down of fixed assets to fair value............... 94,000 --------- Preliminary goodwill(iv).......................... $ 233,144 =========
65 74 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) ----------------------- (i) In accordance with the STAR merger agreement, each share of STAR common stock issued and outstanding shall be converted into the right to receive 0.3866 shares of World Access common stock. At June 30, 2000, approximately 22,667,000 shares of World Access common stock are assumed to have been issued in connection with the STAR merger as follows (in thousands, except per share amounts): STAR common shares outstanding at June 30, 2000............. 58,632 Multiplied by: Exchange ratio............................... 0.3866 -------- Shares of World Access Common Stock assumed to be exchanged................................................. 22,667 Multiplied by: Average market price(a)...................... $ 12.34 -------- Value of World Access Common Stock exchanged................ $279,711 ========
In accordance with the STAR merger agreement, World Access, at its option, may pay up to 40% of the purchase price in the form of cash. Currently, World Access has no intention of paying any portion of the STAR purchase price with cash other than an immaterial amount to be paid for fractional shares and any cash to be paid for Dissenters' Shares. However, should World Access decide to pay a portion of the STAR purchase price in cash, assuming the maximum of 40% and based upon the average closing price of World Access Common Stock on the Nasdaq National Market for the 10 trading day period ended July 17, 2000 of $10.83, World Access would be required to pay STAR shareholders approximately $98.2 million in cash and issue approximately 13.6 million shares of World Access Common Stock having an approximate value of $171.5 million in connection with the merger. Since the option to pay a portion of the STAR purchase price in cash is solely at the option of the World Access and World Access has no intention of paying any portion of the STAR purchase price with the cash option, the pro forma balance sheets have been prepared excluding the cash option. --------------------------- (a) The average market price represents the average market price of World Access Common Stock for the three trading days prior to and after June 7, 2000, the date economic terms of the merger were amended. (ii) As the consummation of the merger is expected to occur after July 1, 2000, we have valued the World Access options using the guidance in FIN 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25. Under FIN 44, the fair value of vested options issued will be included as part of the purchase price. The fair value of unvested options issued will also be included as part of the purchase price; however, a portion of the intrinsic value (if any) of the unvested options will be allocated to unearned compensation and recognized as compensation cost over the remaining future vesting period. The intrinsic value to be allocated to unearned compensation is not significant and has not been reflected in these pro forma financial statements. In accordance with the merger agreement, each STAR option is to be converted into an option to purchase 0.3866 shares of World Access Common Stock. At June 30, 2000, STAR had approximately 3.7 million options outstanding; 1.8 million of which were vested and 1.9 million were unvested. The vested and unvested options are convertible to approximately 686,000 and 751,000 World Access options, respectively, totaling 1.4 million. The fair value of the 686,000 vested options is $4.4 million computed using the Black-Scholes Option Pricing Model and is included in the purchase price. The fair value of the 751,000 unvested options is $3.7 million computed using the Black-Scholes Option Pricing Model. The 66 75 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) assumptions used in the Black-Scholes model are: dividend yield 0%, volatility 70%, risk free interest rate of 6.43%, and an expected life of 3 years. (iii) STAR pro forma stockholders' equity as of June 30, 2000 assumes the sale of PT-1 for net cash proceeds of $120.0 million. (iv)The pro forma goodwill is preliminary and subject to change based on a final review of the fair values of STAR's net assets as of the actual merger date. Upon a final review of the fair value of STAR's assets and liabilities, it is likely that certain tangible and intangible assets such as international licenses, foreign carrier operating agreements and property and equipment may be recognized at amounts which differ from the amounts estimated in these unaudited pro forma financial statements. Although we do not expect these final adjustments to be significant, they could increase or decrease the depreciation and amortization expense reflected in the unaudited pro forma financial statements. In addition, certain liabilities related to exiting STAR activities or terminating STAR employees may be recorded as part of the purchase price allocation in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. This would increase goodwill and related amortization expense. World Access has not finalized a plan to exit any activities of STAR or terminate any STAR employees, and will not have a final plan until a detailed analysis of the combined operations is performed shortly after the STAR merger is consummated. (v) Intangible assets consist of wholesale and retail customer base, licenses and interconnection, management and workforce expertise. Amortization is provided using the straight-line method over a 5-year period. (3) Amortization of additional goodwill over an estimated life of 20 years. The pro forma adjustment to goodwill was computed as follows (in thousands):
HISTORICAL PRO FORMA GOODWILL PRO FORMA GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT -------- ------------ ------------ ---------- STAR -- for the six months ended June 30, 2000................................... $233,144 $ 5,829 $(5,094) $ 735 STAR -- for the year ended December 31, 1999................................... $233,144 $11,657 $(8,535) $3,122
Depreciation benefit as a result of write-down of fixed assets to fair value is arrived at using an estimated life of 7 years. The pro forma adjustment to property and equipment was computed as follows (in thousands):
PRO FORMA PROPERTY AND DEPRECIATION EQUIPMENT ADJUSTMENT ------------ ------------ STAR -- for the six months ended June 30, 2000.............. $94,000 $ (6,715) STAR -- for the year ended December 31, 1999................ $94,000 $(13,429)
Amortization of additional intangible assets over an estimated life of 5 years. The pro forma adjustment to intangible assets was computed as follows (in thousands):
PRO FORMA INTANGIBLE AMORTIZATION ASSETS ADJUSTMENT ------------ ------------ STAR -- for the six months ended June 30, 2000.............. $11,900 $ 1,190 STAR -- for the year ended December 31, 1999................ $11,900 $ 2,380
67 76 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (4) Elimination of STAR's historical goodwill. (5) Elimination of STAR's historical stockholders' equity accounts. (6) In connection with the consummation of the STAR merger, a vendor of STAR has agreed to convert up to approximately $90.0 million of STAR indebtedness into approximately 7,826,000 shares of World Access common stock based upon a conversion rate of $11.50 per share. As of November 10, 2000, the closing price per share of World Access common stock was $4.06. Since the fair value of the World Access common stock is less than $11.50 per share, World Access is paying consideration less than the carrying amount of the accounts payable and debt. This difference is recorded as a decrease to goodwill of approximately $50.9 million. These shares are assumed to be issued for purposes of the calculation of basic and diluted earnings per share in the pro forma condensed combined statement of operations. The balance sheet adjustment reflects the conversion of approximately $78.7 million from accounts payable and debt to common stock, paid-in capital and goodwill for the amount of indebtedness outstanding as of June 30, 2000. The adjustments to the pro forma statement of operations are to eliminate the interest expense recorded on the debt included in the historical results and to record a reduction in goodwill amortization. (7) Elimination of intercompany revenues and related costs. (8) Adjustment for the additional tax benefit derived from pro forma adjustments. World Access has not recorded any tax benefit on a pro forma basis that may be derived from STAR's net operating losses. (9) Represents pro forma weighted average shares for basic and diluted earnings from continuing operations per share. The weighted average shares are computed assuming the issuance of approximately 22,667,000 shares of common stock to complete the STAR merger and 7,826,000 shares upon the conversion of STAR indebtedness into World Access common stock, see Note 6. Due to the pro forma loss from continuing operations, potential common stock shares related to stock options, stock warrants, convertible notes and convertible preferred stock have been excluded from the diluted loss per share as the inclusion of these potential common stock shares would be anti-dilutive. 68 77 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) WORLDXCHANGE ADJUSTMENTS (10) These columns represent the historical financial position and results of operations of WorldxChange as of and for the six months ended June 30, 2000 and for the year ended December 31, 1999. As WorldxChange's fiscal year end is September 30 the following table represents a reconciliation of WorldxChange's results of operations for its fiscal year ended on September 30, 1999 to the year ended December 31, 1999:
HISTORICAL RESULTS FOR FISCAL YEAR EXCLUSION OF INCLUSION OF ENDED OPERATIONS OPERATIONS YEAR ENDED SEPTEMBER 30, FROM 10/1/98- FROM 10/1/99- DECEMBER 31, 1999 12/31/98 12/31/99 1999 -------------- ------------- ------------- ------------ Revenues............................ $ 421,580 $(89,927) $ 143,327 $ 474,980 Cost of services.................... (328,334) 70,922 (112,545) (369,957) Selling, general and administrative.................... (124,112) 27,952 (43,430) (139,590) Depreciation and amortization....... (17,705) 3,564 (9,375) (23,516) Interest and other expense.......... (17,531) 4,234 (6,420) (19,717) Minority interest................... 2,251 (637) -- 1,614 Preferred stock dividends........... (2) 2 (784) (784) --------- -------- --------- --------- Net loss.................. $ (63,853) $ 16,110 $ (29,227) $ (76,970) ========= ======== ========= =========
On November 4, 1999, WorldxChange acquired the outstanding shares of certain European subsidiaries of ACC Corp. ("ACC"), a subsidiary of AT&T. The historical results of operations of WorldxChange includes ACC's results for the two months ended December 31, 1999. The results of ACC for the period from January 1, 1999 to October 31, 1999 have been added to the WorldxChange historical results of operations as follows:
WXC WXC YEAR ENDED ACC FOR YEAR ENDED DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999 INCLUDING 1/1/99 TO INCLUDING 2 MONTHS OF ACC 10/31/99 12 MONTHS OF ACC ----------------- ---------- ----------------- Revenues................................ $ 474,980 $ 132,055 $ 607,035 Cost of services........................ (369,957) (107,360) (477,317) Selling, general and administrative..... (139,590) (53,480) (193,070) Depreciation and amortization........... (23,516) (19,788) (43,304) Interest and other expense.............. (19,717) (5,668) (25,385) Minority interest....................... 1,614 -- 1,614 Preferred stock dividends............... (784) -- (784) --------- --------- --------- Net loss...................... $ (76,970) $ (54,241) $(131,211) ========= ========= =========
69 78 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The following table represents a reconciliation of WorldxChange's results of operations for the nine months ended June 30, 2000 (as shown in the WorldxChange financial statements included in this registration statement) to the results of operations for the six months ended June 30, 2000:
EXCLUSION OF RESULTS FOR THE RESULTS FOR THE RESULTS FOR THE NINE MONTHS THREE MONTHS ENDED SIX MONTHS ENDED ENDED JUNE 30, 2000 DECEMBER 31, 1999 JUNE 30, 2000 ------------------- ------------------ ---------------- Revenues................... $ 423,913 $(143,327) $ 280,586 Cost of services........... (337,814) 112,545 (225,269) Selling, general and administrative........... (124,014) 43,430 (80,584) Depreciation and amortization............. (35,131) 9,375 (25,756) Interest and other expense.................. (23,516) 6,420 (17,096) Preferred stock dividends................ (2,384) 784 (1,600) --------- --------- --------- Net loss applicable to common stockholders...... $ (98,946) $ 29,227 $ (69,719) ========= ========= =========
(11) The WorldxChange merger will be accounted for under the purchase method of accounting. The total cost to acquire WorldxChange is subject to change, to the extent that the number of shares of WorldxChange capital stock to be acquired will not be fixed until the effective date of the merger. A change in total cost will result in a corresponding change in goodwill and related amortization expense. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill and other intangible assets. These allocations are subject to change pending the completion of the final analysis of the total purchase price and fair values of the assets acquired and the liabilities assumed. The impact of these changes could be material. The preliminary purchase price and goodwill is currently estimated as follows (in thousands): Purchase price: Issuance of World Access common stock(i).................. $336,984 Fair value of World Access options issued in exchange for WorldxChange options(ii)............................... 17,712 Bridge financing(iii)..................................... 35,725 Estimated fees and expenses............................... 3,000 -------- Total estimated purchase price.................... 393,421 Allocation to fair values: Historical shareholders' deficit as of June 30, 2000...... 95,949 Intangible assets (vi).................................... (41,300) Eliminate payable to World Access......................... (35,725) Adjust assets and liabilities: Eliminate historical goodwill as of June 30, 2000...... 76,327 Write-off of impaired assets(iv)....................... 6,500 Write-down of fixed assets to fair value............... 68,000 Write-up of management information systems to fair value................................................. (15,000) -------- Preliminary goodwill(v)................................... $548,172 ========
----------------------- (i) In accordance with the merger agreement, each share of WorldxChange common stock issued and outstanding shall be converted into the right to receive 0.6583 shares of World Access common stock. At June 30, 2000, a total of 29,848,000 shares of World Access common stock 70 79 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) are assumed to have been issued in connection with the WorldxChange merger as follows (in thousands, except per share amounts): WorldxChange common shares outstanding upon the conversion of preferred shares outstanding at June 30, 2000.......... 2,727 WorldxChange common shares outstanding at June 30, 2000..... 42,614 -------- Total WorldxChange common shares outstanding...... 45,341 Multiplied by: Exchange ratio............................... 0.6583 -------- Shares of World Access Common Stock assumed to be exchanged................................................. 29,848 Multiplied by: Average market price (a)..................... $ 11.29 -------- Value of World Access Common Stock exchanged................ $336,984 ========
- --------------- (a) The average price represents the average market price of World Access common stock for the three trading days prior to and after May 23, 2000, the date economic terms of the merger were amended. (ii) As the consummation of the merger is expected to occur after July 1, 2000, we have valued the World Access options using the guidance in FIN 44, Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB opinion No. 25. Under FIN 44, the fair value of vested options issued will be included as part of the purchase price. The fair value of unvested options issued will also be included as part of the purchase price; however, a portion of the intrinsic value (if any) of the unvested options will be allocated to unearned compensation and recognized as compensation cost over the remaining future vesting period. The intrinsic value to be allocated to unearned compensation is not significant and has not been reflected in these pro forma financial statements. In accordance with the merger agreement, each WorldxChange option is to be converted into an option to purchase 0.6583 shares of World Access common stock. At June 30, 2000, WorldxChange had approximately 4.0 million options outstanding; 2.5 million of which were vested and 1.5 million were unvested. The vested and unvested options are convertible to approximately 1.6 million and 1.0 million World Access options respectively, totaling 2.6 million. The fair value of the 1.6 million vested options is $12.7 million computed using the Black-Scholes Option Pricing Model and is included in the purchase price. The fair value of the 1.0 million unvested options is $5.0 million computed using the Black-Scholes Option Pricing Model. The assumptions used in the Black-Scholes model are: dividend yield 0%, volatility 70%, risk free interest rate of 6.43%, and an expected life of three years. (iii) As an integral component of the merger agreement, World Access agreed to provide WorldxChange up to $45.0 million in bridge funds, $35.7 million of which had been advanced as of June 30, 2000. These funds are being used to finance operating losses expected to be incurred by WorldxChange prior to the merger date and to make permanent investments in working capital that are required to support WorldxChange growth. World Access expects the remaining balance of $9.3 million to be advanced prior to the merger date and intends to fully forgive this loan in connection with the consummation of the merger. As a result, the bridge financing already funded is being accounted for as additional purchase price. (iv) At June 30, 2000, WorldxChange has PC based switches with net book value of approximately $6.5 million. The merger with World Access would result in an impairment of these assets, hence, the adjustment to write-off impaired assets from the acquisition. Consequently, depreciation expense is decreased by $722,000 and $361,000 for the year ended Decem- 71 80 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) ber 31, 1999 and the six months ended June 30, 2000, respectively. See note 12 for adjustment to depreciation expense. (v) The pro forma goodwill is preliminary and subject to change based on a final review of the fair values of WorldxChange's net assets as of the actual merger date. Upon a final review of the fair value of WorldxChange's assets and liabilities, it is likely that certain tangible and intangible assets such as international licenses, foreign carrier operating agreements and property and equipment may be recognized at amounts which differ from the amounts estimated in these unaudited pro forma financial statements. Although we do not expect these final adjustments to be significant, they could increase or decrease the depreciation and amortization expense reflected in the unaudited pro forma financial statements. (vi)Intangible assets consist of wholesale and retail customer base, management information systems, licenses and interconnection, management and workforce expertise. Amortization is provided using the straight-line method over a 5-year period. (12) Amortization of goodwill over an estimated life of 20 years. The pro forma adjustment to goodwill was computed as follows (in thousands):
HISTORICAL PRO FORMA GOODWILL PRO FORMA GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT -------- ------------ ------------ ---------- WorldxChange -- For the six months ended June 30, 2000.......................... $548,172 $13,704 $ (2,658) $11,046 WorldxChange -- For the year ended December 31, 1999...................... $548,172 $27,409 $(18,641) $ 8,768
Depreciation benefit as a result of write-off of impaired assets, write-down of fixed assets to fair value and write-up of management information systems to fair value is arrived at using an estimated life of nine years. The pro forma adjustment to property and equipment was computed as follows (in thousands):
PRO FORMA PROPERTY AND DEPRECIATION EQUIPMENT ADJUSTMENT ------------ ------------ WorldxChange -- for the six months ended June 30, 2000...... $ 59,500 $(3,306) WorldxChange -- for the year ended December 31, 1999........ $ 59,500 $(6,611)
Amortization of additional intangible assets over an estimated life of 5 years. The pro forma adjustment to intangible assets was computed as follows (in thousands):
PRO FORMA INTANGIBLE AMORTIZATION ASSETS ADJUSTMENT ----------- ------------- WorldxChange -- for the six months ended June 30, 2000...... $41,300 $4,130 WorldxChange -- for the year ended December 31, 1999........ $41,300 $8,260
(13) Elimination of WorldxChange's historical goodwill. (14) Elimination of WorldxChange's historical shareholders' deficit accounts. (15)In connection with the consummation of the WorldxChange merger, a vendor of WorldxChange has agreed to convert up to approximately $25.0 million of WorldxChange indebtedness into approximately 2,174,000 shares of World Access common stock based upon a conversion rate of $11.50 per share. As of November 10, 2000, the closing price per share of World Access Common Stock was $4.06. Since the fair value of the World Access common stock is less than $11.50 per 72 81 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) share, World Access is paying consideration less than the carrying amount of the accounts payable and debt. This difference is recorded as a decrease to goodwill of approximately $10.1 million. These shares are assumed to be issued for purposes of the calculation of basic and diluted earnings per share in the pro forma condensed combined statement of operations. The balance sheet adjustment reflects the conversion of approximately $15.6 million accounts payable and debt to common stock, paid-in-capital and goodwill for the amount of indebtedness outstanding as of June 30, 2000. The adjustments to the pro forma statement of operations are to eliminate the interest expense recorded on the debt included in the historical results and to record a reduction in goodwill amortization. (16) Elimination of intercompany carrier service revenues and related costs. (17) At June 30, 2000, WorldxChange had a $2.2 million note payable to STAR. Assuming the mergers of WorldxChange and STAR with World Access are consummated, this adjustment is necessary to eliminate the intercompany debt. (18) Adjustment for the additional income tax provision derived from pro forma adjustments. World Access has not recorded any tax benefit on a pro forma basis that may be derived from WorldxChange's net operating losses. (19) Represents pro forma weighted average shares for basic and diluted earnings from continuing operations per share. The weighted average shares are computed assuming the issuance of an aggregate of 29,848,000 shares issued to complete the WorldxChange merger and 2,174,000 shares upon the conversion of WorldxChange indebtedness into World Access Common Stock, see Note 15. Due to the pro forma loss from continuing operations potential common stock shares related to stock options, stock warrants, convertible notes and convertible preferred stock have been excluded from the diluted loss per share as the inclusion of these potential common stock shares would be anti-dilutive. 73 82 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) TELDAFAX ADJUSTMENTS (20)These columns represent the historical financial position and results of operations of TelDaFax as of and for the six months ended June 30, 2000 and for the year ended December 31, 1999. The following tables represent the conversion of TelDaFax's balance sheet as of June 30, 2000 and statements of operations for the three months and year ended June 30, 2000 and December 31, 1999, respectively, from local currency (DM) into U.S. dollars. The U.S. dollar equivalent was computed by multiplying the deutsche mark balance by 0.4901, the exchange rate as of June 30, 2000 for the balance sheet and by 0.4876 and 0.5435 which represent the average exchange rates for the six month period and year ended June 30, 2000 and December 31, 1999, respectively.
TELDAFAX TELDAFAX JUNE 30, EXCHANGE JUNE 30, 2000 RATE 2000 ------------------- -------- -------------------- (IN THOUSANDS - DM) (IN THOUSANDS - USD) Cash and equivalents...................... 53,882 0.4901 $ 26,408 Accounts receivable....................... 86,569 0.4901 42,427 Prepaid expenses and other current assets.................................. 62,487 0.4901 30,625 ------- -------- Total current assets.................. 202,938 99,460 ------- -------- Property and equipment, net............... 133,199 0.4901 65,281 Goodwill.................................. 32,261 0.4901 15,811 Other assets.............................. 26,580 0.4901 13,027 ------- -------- Total assets.......................... 394,978 $193,579 ======= ======== Short-term debt........................... 14,814 0.4901 $ 7,260 Accounts payable.......................... 150,353 0.4901 73,688 Other accrued liabilities................. 19,640 0.4901 9,626 ------- -------- Total current liabilities............. 184,807 90,574 ------- -------- Long-term debt............................ 39,422 0.4901 19,320 Other long-term liabilities............... 707 0.4901 347 ------- -------- Total liabilities..................... 224,936 110,241 ------- -------- Minority interests........................ 1,811 0.4901 888 Stockholders' Equity (Deficit): Common stock.............................. 172,024 0.4901 84,309 Additional paid in capital................ 15,787 0.4901 7,737 Accumulated other comprehensive loss...... -- 47 Accumulated deficit....................... (19,580) 0.4925 (9,643) ------- -------- Total stockholders' equity............ 168,231 82,450 ------- -------- Total liabilities and stockholders' equity.............................. 394,978 $193,579 ======= ========
74 83 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
TELDAFAX TELDAFAX SIX MONTHS ENDED EXCHANGE SIX MONTHS ENDED JUNE 30, 2000 RATE JUNE 30, 2000 ------------------- -------- -------------------- (IN THOUSANDS - DM) (IN THOUSANDS - USD) Service revenues......................... 307,704 0.4876 $150,036 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below)................... 259,028 0.4876 126,302 Selling, general and administrative... 57,029 0.4876 27,807 Depreciation and amortization......... 25,129 0.4876 12,253 ------- -------- Total operating expenses.............. 341,186 166,362 ------- -------- Operating loss................... (33,482) (16,326) Interest and other income............. 1,814 0.4876 885 Interest expense...................... (1,617) 0.4876 (788) ------- -------- Loss from continuing operations before income taxes and minority interests............. (33,285) (16,229) Provision (benefit) for income taxes............................... (13,691) 0.4876 (6,676) ------- -------- Loss from continuing operations before minority interests...... (19,594) (9,553) Minority interests.................... 1,746 0.4876 851 ------- -------- Loss from continuing operations..................... (17,848) $ (8,702) ======= ========
Effective October 1, 1999, TelDaFax acquired a majority interest in the telecommunications equipment distributor Demuth & Dietl Co. Kommunikationselektronik GmbH (D & D). The historical results of operations of TelDaFax for the year ended December 31, 1999 includes D & D results for the three months ended December 31, 1999. The results of D & D for the period from January 1, 1999 to September 30, 1999 have been added to the TelDaFax historical results of operations as follows:
TELDAFAX TELDAFAX TELDAFAX YEAR ENDED D&D FOR YEAR ENDED YEAR ENDED DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999 DECEMBER 31, 1999 INCLUDING 3 MONTHS JANUARY 1, 1999 TO INCLUDING 12 MONTHS EXCHANGE INCLUDING 12 MONTHS OF D&D SEPTEMBER 30, 1999 OF D&D RATE OF D&D ------------------ ------------------- ------------------- -------- -------------------- (IN THOUSANDS - DM) (IN THOUSANDS - USD) Service revenues...... 611,018 58,787 669,805 0.5435 $364,039 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below)............. 507,745 53,083 560,828 0.5435 304,810 Selling, general and administrative..... 84,008 5,703 89,711 0.5435 48,758
75 84 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
TELDAFAX TELDAFAX TELDAFAX YEAR ENDED D&D FOR YEAR ENDED YEAR ENDED DECEMBER 31, 1999 THE PERIOD DECEMBER 31, 1999 DECEMBER 31, 1999 INCLUDING 3 MONTHS JANUARY 1, 1999 TO INCLUDING 12 MONTHS EXCHANGE INCLUDING 12 MONTHS OF D&D SEPTEMBER 30, 1999 OF D&D RATE OF D&D ------------------ ------------------- ------------------- -------- -------------------- (IN THOUSANDS - DM) (IN THOUSANDS - USD) Depreciation and amortization....... 33,630 168 33,798 0.5435 18,369 -------- ------- -------- -------- Total operating expenses........... 625,383 58,954 684,337 371,937 -------- ------- -------- -------- Operating loss.... (14,365) (167) (14,532) (7,898) Interest and other income............. 4,456 86 4,542 0.5435 2,469 Interest expense..... (3,692) (302) (3,994) 0.5435 (2,171) -------- ------- -------- -------- Loss from continuing operations before income taxes and minority interests....... (13,601) (383) (13,984) (7,600) Provision (benefit) for income taxes... (7,009) (37) (7,046) 0.5435 (3,830) -------- ------- -------- -------- Loss from continuing operations before minority interest........ (6,592) (346) (6,938) (3,770) Minority interest.... 1,336 89 1,425 0.5435 774 -------- ------- -------- -------- Loss from continuing operations...... (5,256) (257) (5,513) $ (2,996) ======== ======= ======== ========
(21)The board of directors of World Access has approved a Purchase and Transfer Agreement, dated as of June 14, 2000, under which World Access will acquire shares of TelDaFax stock. Pursuant to the TelDaFax Purchase Agreement, World Access will attempt to acquire 100% of the outstanding shares of TelDaFax in five transactions (collectively referred to as the TelDaFax Purchase): Purchase of the TelDaFax Shares Owned by the Apax Funds. On September 21, 2000 World Access acquired 11,178,176 shares of TelDaFax held by the funds advised by Apax, except the A+M fund, in exchange for 11,457,631 shares of World Access common stock. The shares held by the Apax funds, excluding the A+M fund represented 33.03% of the outstanding capital stock of TelDaFax. As of October 1, 2000, there were 33,828,600 shares of TelDaFax stock outstanding. A+M is a fund advised by Apax; however, because World Access intends to purchase the TelDaFax shares of A+M separately pursuant to a put/call arrangement, all references to "Apax funds" exclude A+M unless otherwise noted. Put/Call Option for Shares of Dr. Klose and A+M. From June 14, 2000 until December 31, 2001, Dr. Klose has the right to sell to World Access all of the outstanding shares of TelDaFax he owns in up to three installments. From July 1, 2002 until December 31, 2002, World Access has the right to buy from Dr. Klose all of the outstanding shares of TelDaFax owned by Dr. Klose at the time World Access exercises its right to purchase. As of October 1, 2000, Dr. Klose owned 2,756,200 shares of TelDaFax stock, equal to 8.15% of the outstanding capital stock of TelDaFax. From January 1, 2001 until April 30, 2001, A+M has the right to sell to World Access all of the outstanding shares of TelDaFax owned by A+M in one installment. From July 1, 2001 until December 31, 2001, World Access has the right to buy from A+M all of the outstanding shares owned by A+M. As of October 1, 2000, A+M owned 143,492 shares of TelDaFax stock, equal to 0.42% of the outstanding capital stock of TelDaFax. 76 85 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The Consideration for the Purchase of TelDaFax Shares of the Apax Funds and Dr. Klose. In exchange for each share of TelDaFax common stock purchased by World Access from A+M and Dr. Klose, World Access will issue a number of shares of World Access common stock determined using the same exchange ratio as that used in the TelDaFax tender offer. Tender Offer. World Access will launch a tender offer for all of the shares of TelDaFax pursuant to which each share of TelDaFax would receive 1.025 shares of World Access common stock. Combination of German Businesses of World Access and Business of TelDaFax. Under the TelDaFax contribution agreement, World Access agreed to contribute the German operations of two of its subsidiaries, NETnet Telekommunications, or NETnet Germany and NewTel Communications, to TelDaFax. In exchange, TelDaFax agreed to issue 1,620,334 of its shares to NETnet Germany and 925,905 shares to Newtel. The total TelDaFax shares received for these World Access subsidiaries would represent 7.0% of the outstanding capital stock of TelDaFax. The TelDaFax Purchase will be accounted for under the purchase method of accounting. The contribution of NETnet Germany and NewTel and the tender offer are all contractually required to close on the same day and the consummation of these transactions is conditioned on World Access obtaining at least 50.1% ownership of the outstanding capital stock of TelDaFax. Although the shares to be acquired from Dr. Klose and A+M may not happen on the same date as the contribution of NETnet Germany and NewTel and the tender offer, it is World Access' intent to acquire 100% of the outstanding stock of TelDaFax and as such, for purposes of the pro forma financial information, we have assumed World Access acquired 100% of the TelDaFax outstanding stock. In accordance with EITF 90-13, Accounting for Simultaneous Common Control Mergers, the transfer of NETnet Germany and NewTel to TelDaFax should be accounted for by World Access as a purchase of TelDaFax under APB Opinion 16, Business Combinations. World Access will fair value TelDaFax assets and liabilities to the extent acquired by World Access. World Access will fair value NETnet Germany and NewTel assets and liabilities to the extent NETnet Germany and NewTel are sold to minority shareholders. As the pro forma financial information assumes World Access will acquire 100% of the outstanding capital stock of TelDaFax, all of TelDaFax assets and liabilities will be recorded at fair value and the NETnet Germany and NewTel assets and liabilities will remain at historical cost. Consequently, under this scenario, World Assess would not recognize any gain or loss on the contribution of NETnet Germany and NewTel to TelDaFax. The total cost to acquire TelDaFax is subject to change, to the extent that the number of shares of TelDaFax capital stock to be acquired will not be fixed until the effective date of the merger. A change in total cost will result in a corresponding change in goodwill and related amortization expense. The excess of the purchase price over the fair value of the net assets acquired has been allocated to goodwill and other intangible assets. These allocations are subject to change pending the completion of the final analysis of the total purchase price and fair values of the assets acquired and the liabilities assumed. The 77 86 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) impact of these changes could be material. The preliminary purchase price and goodwill is currently estimated as follows (in thousands): Purchase price: Acquisition of 33.03% of TelDaFax common stock(i)......... $ 64,508 Issuance of World Access Common Stock (ii)................ 130,712 Estimated fees and expenses............................... 5,000 -------- Total estimated purchase price.................... 200,220 Allocation to fair values: Historical shareholders' equity as of June 30, 2000....... (82,450) Intangible assets (iv).................................... (33,000) Adjust assets and liabilities: Eliminate historical goodwill.......................... 12,430 Write down of fixed assets to fair value............... 24,000 -------- Preliminary goodwill (iii).................................. $121,200 ========
- --------------- (i)On September 21, 2000, World Access purchased all of the outstanding shares of TelDaFax held by the Apax funds, except the A+M fund, in exchange for shares of World Access common stock. The Apax funds, excluding the A+M fund, owned 11,178,176 shares of TelDaFax stock, equal to 33.03% of the outstanding capital stock of TelDaFax. In accordance with the purchase agreement, each share of TelDaFax common stock shall be converted into the right to receive 1.025 shares of World Access Common Stock. The fair value of the World Access common stock is determined as follows (in thousands, except per share amounts): TelDaFax common shares acquired by World Access............. 11,178 Multiplied by: Exchange ratio............................... 1.025 -------- Shares of World Access common stock exchanged............... 11,458 Multiplied by: Average market price(a)...................... $ 5.63 -------- Value of World Access common stock exchanged................ $ 64,508 ========
(a)The average price represents the market price of World Access common stock on September 21, 2000, the date that World Access acquired 33.03% of the outstanding capital stock of TelDaFax. (ii)In accordance with the purchase agreement, each share of TelDaFax common stock held by Dr. Klose and A+M and all TelDaFax common stock subject to the tender offer shall be converted into the right to receive 1.025 shares of World Access common stock and this World Access common stock is assumed to have been issued in connection with the TelDaFax purchase as follows (in thousands, except per share amounts): TelDaFax common shares held by: Dr. Klose and A+M........................................... 2,900 Remaining shares subject to the tender offer................ 19,751 -------- Total TelDaFax shares purchased................... 22,651 Multiplied by: Exchange ratio............................... 1.025 -------- Shares of World Access common stock to be exchanged 23,217 Multiplied by: Average market price (a)..................... $ 5.63 -------- Value of World Access common stock exchanged................ $130,712 ========
78 87 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) - --------------- (a)The average price represents the market price of World Access common stock on September 21, 2000, the date that World Access acquired 33.03% of the outstanding capital stock of TelDafax. (iii)The pro forma goodwill is preliminary and subject to change based on a final review of the fair values of TelDaFax's net assets as of the actual purchase date. Upon a final review of the fair value of TelDaFax's assets and liabilities, it is likely that certain tangible and intangible assets such as customer lists, trademarks and property and equipment may be recognized at amounts which differ from the amounts estimated in these unaudited pro forma financial statements. Although we do not expect these final adjustments to be significant, they could increase or decrease the amortization and depreciation expense reflected in the unaudited pro forma financial statements. (iv)Intangible assets consist of wholesale and retail customer base, licenses and interconnection, management and workforce expertise. Amortization is provided using the straight-line method over a 5-year period. (22)Amortization of goodwill over an estimated life of 20 years. The pro forma adjustment to goodwill was computed as follows (in thousands):
HISTORICAL PRO FORMA GOODWILL PRO FORMA GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT -------- ------------ ------------ ---------- TelDaFax -- For the six months ended June 30, 2000........................ $121,200 $ 3,030 $ (690) $ 2,340 TelDaFax -- For the year ended December 31, 1999............................. $121,200 $ 6,060 $ (605) $ 5,455
Depreciation benefit as a result of write-down of fixed assets to fair value is arrived at using an estimated life of 5 years. The pro forma adjustment to property and equipment was computed as follows (in thousands):
PRO FORMA PROPERTY AND DEPRECIATION EQUIPMENT ADJUSTMENT ------------ ------------ TelDaFax -- For the six months ended June 30, 2000.... $24,000 $(2,400) TelDaFax -- For the year ended December 31, 1999...... $24,000 $(4,800)
Amortization of additional intangible assets over an estimated life of 5 years. The pro forma adjustment to intangible assets was computed as follows (in thousands):
PRO FORMA INTANGIBLE AMORTIZATION ASSETS ADJUSTMENT ------------ ------------ TelDaFax -- For the six months ended June 30, 2000.... $33,000 $ 3,300 TelDaFax -- For the year ended December 31, 1999...... $33,000 $ 6,600
(23)Elimination of historical goodwill. (24)Elimination of historical shareholders' equity accounts. (25)Elimination of intercompany service revenues and related costs. (26)Adjustment to record additional tax provision (benefit) derived from certain pro forma adjustments. World Access has not recorded any tax benefit on a pro forma basis that may be derived from TelDaFax's net operating losses. 79 88 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) (27)Represents pro forma weighted average shares for basic and diluted earnings from continuing operations per share. The weighted average shares are computed assuming the issuance of an aggregate of 34,675,000 shares issued to complete the TelDaFax purchase. Due to the pro forma loss from continuing operations potential common stock shares related to stock options, stock warrants, convertible notes and convertible preferred stock have been excluded from the diluted loss per share as the inclusion of these potential common stock shares would be anti-dilutive. The following represents the pro forma net loss and net loss per share assuming World Access acquires a 50.1% majority interest in TelDaFax for the various scenarios listed below:
OPERATING NET LOSS SCENARIO LOSS NET LOSS PER SHARE - -------- --------- --------- --------- World Access acquires STAR, WorldxChange and TelDaFax: Year ended December 31, 1999.............................. $(350,502) $(410,976) $(3.18) Six months ended June 30, 2000............................ $(132,013) $(148,499) $(1.09) World Access acquires WorldxChange and TelDaFax: Year ended December 31, 1999.............................. $(299,801) $(361,402) $(3.66) Six months ended June 30, 2000............................ $(107,716) $(130,468) $(1.23)
The following represents the pro forma summarized balance sheets as at June 30, 2000 assuming World Access acquires a 50.1% majority interest in TelDaFax for the various scenarios listed below:
WORLD ACCESS ACQUIRES: --------------------------- STAR, WORLDXCHANGE WORLDXCHANGE & TELDAFAX & TELDAFAX ------------ ------------ Current assets.............................................. $1,203,802 $ 950,530 Noncurrent assets........................................... 2,535,785 2,164,304 ---------- ---------- Total assets................................................ $3,739,587 $3,114,834 ========== ========== Current liabilities......................................... $1,184,604 $ 963,626 Noncurrent liabilities...................................... 440,871 352,729 Minority interests.......................................... 50,870 50,870 Stockholders' equity........................................ 2,063,242 1,747,609 ---------- ---------- Total liabilities and stockholders' equity.................. $3,739,587 $3,114,834 ========== ==========
PRO FORMA WORLD ACCESS (28) On December 17, 1999, World Access entered into an Asset Purchase Agreement with Long Distance International, Inc. ("LDI") whereby it agreed to purchase substantially all of its assets in exchange for World Access Convertible Preferred Stock, Series D, with an Aggregate Liquidation Preference of $185,000,000 ("World Access Preferred") and the assumption of certain of LDI's liabilities. At the closing of the transaction, 81% of the World Access Preferred was issued to holders of LDI's 12 1/4% Senior Notes due 2008 ("Note Holders"), in satisfaction of LDI's obligations thereunder; 6% of World Access Preferred was issued to NETnet International S.A. ("S.A.") in satisfaction of LDI's obligation under an Acquisition Agreement dated October 9, 1998; 3% of the World Access Preferred was issued to LDI to satisfy any remaining obligations; and 10% of the World Access Preferred was deposited into escrow to secure LDI's indemnification obligations under the Asset Purchase Agreement. Any escrow proceeds not so applied will be allocated 70% to the Note Holders; 20% to S.A. and 10% to LDI. The Unaudited Pro Forma World Access Condensed Combined Statement of Operations for the year ended December 31, 1999 give effect to our February 2000 acquisition of LDI, our December 1999 80 89 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) merger with FaciliCom and related transactions, and our May 1999 acquisition of Comm/Net as if the acquisitions had been completed on January 1, 1999. The Unaudited Pro Forma World Access Condensed Combined Statement of Operations for the six months ended June 30, 2000 gives effect to our February 2000 acquisition of LDI as if the acquisition had been completed on January 1, 1999. The unaudited pro forma condensed combined statements of operations, while helpful in illustrating characteristics of the combined company under one set of assumptions, does not attempt to predict or suggest future results. As a result of the FaciliCom merger and the restructuring program initiated by World Access in the fourth quarter of 1999, World Access expects to realize significant operational and financial synergies. These synergies are expected to include cost reductions resulting from traffic routing changes made to take advantage of each company's least cost routes, elimination of redundant leased line costs, elimination of redundant switching centers and consolidation of administrative functions. World Access currently estimates that these annualized cost savings, which have been excluded from the unaudited pro forma condensed combined statement of operations, will range from $20.0 million to $35.0 million. The unaudited pro forma condensed combined statements of operations are presented for comparative purposes only and are not intended to be indicative of the actual results had these transactions occurred as of the beginning of the period nor does it purport to indicate results which may be attained in the future. 81 90 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) PRO FORMA WORLD ACCESS UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET JUNE 30, 2000
WORLD PRO FORMA PRO FORMA ACCESS(A) ADJUSTMENTS WORLD ACCESS ---------- ----------- ------------ ASSETS Cash and equivalents(2(i))............................. $ 329,279 $(156,800)(B) $ 172,479 Short-term investments................................. 160,211 -- 160,211 Restricted cash........................................ 31,095 -- 31,095 Accounts and notes receivable.......................... 264,678 -- 264,678 Prepaid expenses and other current assets.............. 38,491 -- 38,491 Net assets held for sale............................... 41,465 -- 41,465 ---------- --------- ----------- Total Current Assets......................... 865,219 (156,800) 708,419 ---------- --------- ----------- Property and equipment................................. 151,609 -- 151,609 Investment in TelDaFax................................. -- 64,508(C) 64,508 Goodwill and other intangibles......................... 1,080,797 -- 1,080,797 Other assets........................................... 79,185 -- 79,185 ---------- --------- ----------- Total Assets................................. $2,176,810 $ (92,292) $ 2,084,518 ========== ========= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Short-term debt........................................ $ 57,033 $ -- $ 57,033 Accounts payable....................................... 246,436 -- 246,436 Other accrued liabilities.............................. 151,328 -- 151,328 ---------- --------- ----------- Total Current Liabilities.................... 454,797 -- 454,797 Long-term debt......................................... 417,946 (160,000)(B) 257,946 Other long-term liabilities............................ 10,336 -- 10,336 ---------- --------- ----------- Total Liabilities............................ 883,079 (160,000) 723,079 ---------- --------- ----------- Stockholders' Equity (Deficit): Preferred Stock........................................ 6 -- 6 Common stock........................................... 617 115(C) 732 Additional paid in capital............................. 1,471,126 64,393(C) 1,535,519 Accumulated other comprehensive loss................... (12,239) -- (12,239) Accumulated deficit.................................... (165,779) 3,200(B) (162,579) ---------- --------- ----------- Total Stockholders' Equity (Deficit)......... 1,293,731 67,708 1,361,439 ---------- --------- ----------- Total Liabilities and Stockholders' Equity... $2,176,810 $ (92,292) $ 2,084,518 ========== ========= ===========
82 91 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) PRO FORMA WORLD ACCESS UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2000
WORLD PRO FORMA PRO FORMA ACCESS(A) LDI(F) ADJUSTMENTS WORLD ACCESS --------- -------- ----------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Service revenues................................ $561,600 $ 8,679 $ -- $570,279 Operating expenses: Cost of carrier services (exclusive of depreciation and amortization shown separately below)........................................ 490,330 10,025 -- 500,355 Selling, general and administrative............. 51,338 8,092 -- 59,430 Depreciation and amortization................... 36,512 2,595 812(I) 41,618 1,699(I) Restructuring credit............................ (3,995) -- -- (3,995) -------- -------- ------- -------- Total operating expenses.............. 574,185 20,712 2,511 597,408 -------- -------- ------- -------- Operating income (loss)............... (12,585) (12,033) (2,511) (27,129) Interest and other income....................... 9,254 3,742 -- 12,996 Interest expense................................ (28,572) (6,235) 5,018(L) (29,789) Loss on investment in TelDaFax.................. -- -- (2,874)(Q) (2,874) Foreign exchange gain (loss).................... 211 (94) -- 117 -------- -------- ------- -------- Income (loss) from continuing operations before income taxes...... (31,692) (14,620) (367) (46,679) Provision (benefit) for income taxes............ (2,115) -- 1,361(M) (754) -------- -------- ------- -------- Income (loss) from continuing operations.......................... (29,577) (14,620) (1,728) (45,925) Preferred stock dividends....................... (1,163) -- -- (1,163) -------- -------- ------- -------- Income (loss) from continuing operations available to common stockholders........................ $(30,740) $(14,620) $(1,728) $(47,088) ======== ======== ======= ======== Loss per common share from continuing operations: Basic......................................... $ (0.53) $ (0.82)(P) ======== ======== Diluted....................................... $ (0.53) $ (0.82)(P) ======== ======== Weighted average shares outstanding: Basic......................................... 57,658 57,658(P) ======== ======== Diluted....................................... 57,658 57,658(P) ======== ========
83 92 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) PRO FORMA WORLD ACCESS UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
WORLD PRO FORMA PRO FORMA ACCESS(A) FACILICOM(D) COMM/NET(E) LDI(F) ADJUSTMENTS WORLD ACCESS --------- ------------ ----------- -------- ----------- ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Carrier service revenues...... $501,081 $404,485 $13,868 $117,662 $(17,543)(H) $1,019,553 Operating expenses: Cost of carrier services (exclusive of depreciation and amortization shown separately below)........... 448,305 364,773 9,923 97,867 (17,543)(H) 903,325 Selling, general and administrative.............. 28,433 56,652 2,324 58,822 -- 146,231 Depreciation and amortization................ 13,541 27,823 390 20,716 36,229(I) 97,517 5,786(I) (6,968)(J) Restructuring and other special charges............. 37,800 -- -- 6,387 -- 44,187 -------- -------- ------- -------- -------- ---------- Total operating expenses........... 528,079 449,248 12,637 183,792 17,504 1,191,260 -------- -------- ------- -------- -------- ---------- Operating income (loss)............. (26,998) (44,763) 1,231 (66,130) (35,047) (171,707) Interest and other income..... 3,308 3,026 -- 4,488 -- 10,822 Interest expense.............. (12,914) (33,413) (65) (33,607) (8,325)(K) (58,208) 30,116(L) Loss on investment in TelDaFax.................... -- -- -- -- (990)(Q) (990) Foreign exchange loss......... (620) (1,749) -- -- -- (2,369) -------- -------- ------- -------- -------- ---------- Income (loss) from continuing operations before income taxes....... (37,224) (76,899) 1,166 (95,249) (14,246) (222,452) Provision (benefit) for income taxes....................... (10,126) (7,335) 264 -- 10,198(M) (6,999) -------- -------- ------- -------- -------- ---------- Income (loss) from continuing operations......... (27,098) (69,564) 902 (95,249) (24,444) (215,453) Preferred stock dividends..... (1,968) -- -- (2,049) (493)(N) (2,461) 2,049(O) -------- -------- ------- -------- -------- ---------- Income (loss) from continuing operations available to common stockholders....... $(29,066) $(69,564) $ 902 $(97,298) $(22,888) $ (217,914) ======== ======== ======= ======== ======== ========== Loss per common share from continuing operations: Basic....................... $ (0.78) $ (4.30)(P) ======== ========== Diluted..................... $ (0.78) $ (4.30)(P) ======== ========== Weighted average shares outstanding: Basic....................... 37,423 50,634(P) ======== ========== Diluted..................... 37,423 50,634(P) ======== ==========
84 93 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) A. This column represents the historical financial position and results of operations of World Access. The World Access results of operations for the year ended December 31, 1999 includes the results of Comm/Net from May 1, 1999 and the results of FaciliCom from December 7, 1999. The World Access results of operations for the six months ended June 30, 2000 include the results of operations of LDI from February 11, 2000. B. Under the terms of the Indenture governing World Access' $300.0 million of 13.25% Senior Notes due 2008, World Access has an obligation to utilize the net cash proceeds from the sale of certain of its equipment businesses to make a one-time tender offer for all or a portion of the 13.25% Senior Notes outstanding. Based on the net cash received to date from the sale of Telco Systems in April 2000, World Access is currently obligated to tender for up to approximately $160.0 million of its 13.25% Senior Notes by January 2, 2001 or to the extent permitted by the Indenture, retire other qualified indebtedness. The net cash relates to the $268.6 million cash element of the Telco Systems sales price, less approximately $11.0 million in transaction expenses and $97.0 million of income taxes. The income taxes represents the net cash liability World Access is expected to incur as a result of the gain it will realize on the sale of Telco Systems for federal and state income tax purposes. Income taxes assume a tax basis for Telco Systems of approximately $92.0 million and a combined federal and state tax rate of 40%. The actual tender price is defined in the Indenture as face value less the current value of five points, or $15.0 million, of World Access common stock paid to the note holders in December 1999 in connection with the exchange of FaciliCom notes. Assuming $5.00 per share as the value of World Access common stock, the current tender price would be approximately 98% of face value. Since the tender price will be below face value and the notes carry what World Access believes to be an attractive interest rate, we are not able to forecast how much, if any, of the 13.25% Senior Notes will actually be tendered. However, to be conservative, we have included a pro forma adjustment to reflect the potential $156.8 million reduction in cash and $160.0 million reduction in long-term debt that will occur if 100% of the tender offer is accepted. Under the Indenture, World Access will also be required to tender for a portion of the 13.25% Senior Notes outstanding, or to the extent permitted by the Indenture retire other qualified indebtedness, when it receives additional net cash proceeds from the sale of 9.6 million shares of BATM Advanced Communications stock or from the sale of its NACT business. The BATM shares, which had a value of approximately $75.4 million at June 30, 2000, were received by World Access in connection with the sale of Telco Systems. World Access is contractually restricted from selling or otherwise monetizing these shares until April 5, 2001 without the consent of BATM. Any tender offer related to these two events must be commenced within nine months from the date World Access receives the related cash proceeds. Since the amount and timing of this future tender offer or retirement of indebtedness is contingent upon future events, we have not included a pro forma adjustment to reflect this potential reduction in cash and long-term debt. 85 94 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) C. On September 21, 2000, World Access purchased all of the outstanding shares of TelDaFax held by the Apax funds, except the A+M fund, in exchange for shares of World Access common stock. The Apax funds, excluding the A+M fund, owned 11,178,176 shares of TelDaFax stock, equal to 33.03% of the outstanding capital stock of TelDaFax. In accordance with the TelDaFax purchase agreement, each share of TelDaFax common stock shall be converted into the right to receive 1.025 shares of World Access common stock. The fair value of the World Access common stock is determined as follows (in thousands, except per share amounts): TelDaFax common shares acquired by World Access............. 11,178 Multiplied by: Exchange ratio............................... 1.025 -------- Shares of World Access common stock exchanged............... 11,458 Multiplied by: Average market price(a)...................... $ 5.63 -------- Value of World Access common stock exchanged................ $ 64,508 ========
(a)The average price represents the market price of World Access common stock on September 21, 2000, the date that World Access acquired 33.03% of the outstanding capital stock of TelDaFax. D. This column represents the historical results of operations of FaciliCom for the period January 1, 1999 to December 6, 1999. On August 17, 1999 the Company entered into a definitive merger agreement with FaciliCom International, Inc. ("FaciliCom"), a privately owned company that is a facilities-based provider of European and U.S. originated international long-distance voice, data and Internet services. On December 7, 1999, the transaction was completed in its final form whereby FaciliCom merged into the Company (the "FaciliCom Merger"). In connection with the FaciliCom Merger, the stockholders of FaciliCom received approximately $56.0 million in cash, 369,901 shares of Convertible Preferred Stock, Series C (the "Series C Preferred Stock"), and 495,557 vested options that each may be exercised to acquire one share of the Company's common stock at an average exercise price of $2.63 per share. In addition, the Company issued 1,912,500 non-qualified options to purchase Company common stock at an exercise price of $15.00 per share in exchange for substantially all the options held by FaciliCom's employees. The Series C Preferred Stock, which has a $369.9 million liquidation preference, was valued at $265.5 million based on its estimated market value during the period including the three trading days prior and the three trading days subsequent to August 17, 1999, the date economic terms of the FaciliCom Merger was announced. The stock options were valued at $24.8 million based on the Black-Scholes option valuation model. Included in other liabilities in the table below, is $300.0 million 10 1/2% FaciliCom Series B Senior Notes due 2008 which were exchanged for the Company's 13.25% Senior Notes due 2008 having an aggregate principal amount of $300.0 million. As consideration for this exchange the Company issued 942,627 shares of its common stock valued at $15.0 million to FaciliCom noteholders. The Series C Preferred Stock bears no dividend and is convertible into shares of the Company's common stock at a conversion rate of $20.38 per common share, subject to adjustment in the event of below market issuances of common stock, stock dividends, subdivisions, combinations, reclassifications and other distributions with respect to common stock. If the closing trading price of the Company's common stock exceeds $20.38 per share for 60 consecutive trading days, the Series C Preferred Stock will automatically convert into common stock. Initially, the holders of the Series C Preferred Stock were entitled to elect four new directors to the Company's board of directors. Except 86 95 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) for the election of directors, the holders of the Series C Preferred Stock vote on an as-converted basis with the holders of the Company's common stock. The acquisition of FaciliCom has been accounted for using the purchase method of accounting. Accordingly, the results of FaciliCom's operations have been included in the accompanying consolidated financial statements from December 7, 1999. The excess of purchase price over the fair value of net assets acquired has been recorded as goodwill and is being amortized over a 20 year period. The following summarizes the allocation of the purchase price (in thousands): Purchase price: Cash...................................................... $ 56,000 Preferred stock issued.................................... 265,515 Common stock issued....................................... 15,000 Stock options issued...................................... 24,785 Fees and expenses......................................... 15,650 --------- Total purchase price.............................. 376,950 Allocation to fair value of net assets: Current assets............................................ (183,934) Property and equipment.................................... (116,479) Intangible assets......................................... (9,206) Other assets.............................................. (1,362) Current liabilities....................................... 207,362 Other liabilities......................................... 313,148 --------- Goodwill.......................................... $ 586,479 =========
E. This column represents the historical results of operations of Comm/Net for the period January 1, 1999 to April 30, 1999. In May 1999, the Company acquired substantially all the assets and assumed certain liabilities of Comm/Net Holding Corporation and its wholly owned subsidiaries, Enhanced Communications Corporation, Comm/Net Services Corporation and Long Distance Exchange Corporation (Comm/Net Holdings and its wholly owned subsidiaries are collectively referred to herein as "Comm/Net"). Comm/Net, headquartered in Plano, Texas, is a facilities-based provider of wholesale international long distance and wholesale prepaid calling card services, primarily to the Mexican telecommunications markets. In connection with the acquisition, the Company issued 23,174 shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Series B Preferred Stock"), valued at approximately $18.5 million with a $23.2 million liquidation preference, and paid approximately $3.5 million to retire certain Comm/Net notes payable outstanding at the time of acquisition. The Series B Preferred Stock is convertible into shares of the Company's common stock at a conversion rate of $16.00 per common share, subject to standard anti-dilution adjustments. If the closing trading price of the Company's common stock exceeds $16.00 per share for 45 consecutive trading days, the Series B Preferred Stock will automatically convert into common stock. Preferred dividends began accruing July 1, 1999 and are payable quarterly. In March 2000, the Series B Preferred Stock was converted into 1,448,373 shares of the Company's common stock. The acquisition of Comm/Net has been accounted for under the purchase method of accounting. Accordingly, the results of Comm/Net's operations have been included in the accompanying consolidated financial statements from May 1, 1999. The excess of purchase price over the fair value 87 96 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) of net assets acquired has been recorded as goodwill and is being amortized over a 20 year period. the following summarizes the allocation of the purchase price (in thousands): Purchase price: Preferred stock issued.................................... $18,539 Debt paid................................................. 3,502 Fees and expenses......................................... 800 ------- Total purchase price.............................. 22,841 Allocation to fair values of net assets: Current assets............................................ (7,754) Property and equipment.................................... (3,351) Current liabilities....................................... 9,609 Other assets and liabilities, net......................... 1,368 ------- Goodwill.......................................... $22,713 =======
F. These columns represents the historical results of operations of LDI. For the Unaudited Pro Forma Condensed Combined Statement of Operations for the three months ended March 31, 2000, the historical results of operations of LDI are for the period January 1, 2000 to February 10, 2000. For the Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1999, the historical results of operations of LDI are for the period January 1, 1999 to December 31, 1999. G. The LDI merger has been accounted for under the purchase method of accounting. Under the terms of the Agreement and Plan of Merger dated as of December 17, 1999, the purchase price was determined as follows (in thousands): Purchase price: Issuance of preferred stock (i)........................... $217,560 Debt forgiven............................................. 4,674 Fair value of World Access options issued in exchange for LDI options (ii)....................................... 21,731 Fees and expenses......................................... 2,000 -------- 245,965 Allocation to fair value of net assets: Cash...................................................... (42,476) Other current assets...................................... (15,447) Intangible assets......................................... (27,614) Property and equipment.................................... (17,113) Other assets.............................................. (871) Current liabilities....................................... 80,433 Other liabilities......................................... 723 -------- Goodwill.................................................... $223,600 ========
(i) World Access management has determined the fair value of the 185,000 shares of Series D Preferred Stock issued as part of the LDI merger consideration to be $217,560 based on its estimated market value during the period including the three trading days prior and the three trading days subsequent to December 17, 1999, the date economic terms of the LDI merger was announced. The Series D Preferred Stock bears no dividend and is convertible into shares of World Access Common Stock at a conversion rate of $18 per common share of World Access Common Stock, 88 97 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) subject to adjustment in the event of below market issuances of World Access Common Stock, stock dividends, subdivisions, combinations, reclassifications and other distributions with respect to World Access common stock. If the closing trading price of World Access Common Stock exceeds $18 per share for 60 consecutive trading days, the Series D Preferred Stock will automatically convert into World Access Common Stock. (ii) Represents the fair value of approximately 1,500,000 options to acquire World Access Common Stock issued in exchange for options outstanding to acquire shares of LDI stock. The fair value has been determined using the Black-Scholes Option Pricing Model with the following assumptions: dividend yield 0%, volatility 70%, risk free interest rate of 6.3% and an expected life of 4 years. The World Access options have an exercise price of $18.50 per share. The holders of the LDI redeemable warrants have agreed to terminate their warrants as part of the closing of the acquisition by World Access. H. Elimination of inter-company revenues and related costs. I. Amortization of additional goodwill as a result of the FaciliCom, Comm/Net and LDI Acquisitions over an estimated life of 20 years. The additional Resurgens goodwill of $127.4 million is a result of the 7,500,000 shares released from escrow related to the acceleration of the Resurgens earn-out in connection with the FaciliCom Merger. The pro forma adjustment to goodwill was computed as follows (in thousands):
HISTORICAL PRO FORMA GOODWILL PRO FORMA GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENTS -------- ------------ ------------ ----------- For the six months ended June 30, 2000: LDI....................................... $223,600 $ 5,590 $ (4,778) $ 812 ======= ======== ======= For the year ended December 31, 1999: FaciliCom................................. 586,479 29,324 (2,475) 26,849 Resurgens................................. 127,425 6,371 (409) 5,962 LDI....................................... 223,600 11,180 (8,210) 2,970 Comm/Net.................................. 22,713 1,136 (688) 448 ------- -------- ------- $48,011 $(11,782) $36,229 ======= ======== =======
Amortization of additional intangible assets over their estimated useful lives. The pro forma adjustment for intangible asset amortization was computed as follows (in thousands):
INTANGIBLE PRO FORMA HISTORICAL PRO FORMA ASSETS AMORTIZATION AMORTIZATION ADJUSTMENT ---------- ------------ ------------ ---------- For the six months ended June 30, 2000: LDI........................................ $27,614 $1,972 $ (925) $1,047 FaciliCom.................................. 9,206 921 (269) 652 ------- ------ ------- ------ $36,820 $2,893 $(1,194) $1,699 ======= ====== ======= ====== For the year ended December 31, 1999: LDI........................................ $27,614 $3,944 $ -- $3,944 FaciliCom.................................. 9,206 1,842 -- 1,842 ------- ------ ------- ------ $36,820 $5,786 $ -- $5,786 ======= ====== ======= ======
J. Adjustment to depreciation expense for the adjustment to fair values of switching equipment and IRUs at FaciliCom. 89 98 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) K. Represents the adjustment to interest expense related to the exchange of $300.0 million of FaciliCom notes with a 10.5% coupon for World Access notes with a 13.25% coupon and the amortization of the $15.0 million debt discount related to World Access notes over a period of eight years. The pro forma adjustment to interest expense was computed as follows (in thousands): Interest expense on World Access notes for eleven months.... $(36,438) Debt issue cost amortization on World Access notes for eleven months............................................. (1,719) Historical FaciliCom note interest expense.................. 28,875 Historical FaciliCom debt issue cost amortization........... 957 -------- Net increase in interest expense.................. $ (8,325) ========
L. Adjustment to reduce interest expense related to the elimination of LDI indebtedness resulting from the acquisition as follows:
FOR THE 42 DAY FOR THE YEAR PERIOD ENDED ENDED FEBRUARY 11, DECEMBER 31, 2000 1999 ------------ ----------------- Interest expense on LDI's 12 1/4% Senior Notes..... $4,609 $27,656 Amortization of original issue discount on LDI's 12 1/4% Senior Notes............................. 200 1,202 Amortization of LDI's 12 1/4% Senior Notes offering costs............................................ 157 944 Interest expense on notes payable to the holders of LDI's 12 1/4% Senior Notes....................... 52 314 ------ ------- Net decrease in interest expense......... $5,018 $30,116 ====== =======
M. Adjustment for the additional tax benefit derived from pro forma adjustments. World Access has not recorded any tax benefit on a pro forma basis that may be derived from LDI's and FaciliCom's net operating losses. N. To increase preferred stock dividends to reflect the Series B preferred stock issued in connection with the Comm/Net acquisition as outstanding for the full period. O. To eliminate historical LDI preferred stock dividends and preferred stock and warrant redemption accretion. P. Represents pro forma weighted average shares and basic diluted earnings from continuing operations per share for the year ended December 31, 1999. The weighted average shares are computed assuming the issuance of (1) an aggregate of 4,713,128 shares issued for $75.0 million in connection with the private placement of World Access common stock in conjunction with the FaciliCom merger; (2) an aggregate of 942,627 shares issued to the holders of the FaciliCom notes; (3) an aggregate 963,722 shares issued to certain FaciliCom shareholders; and (4) 7,500,000 shares released from escrow related to the acceleration of the Resurgens earn-out in connection with the FaciliCom merger as of January 1, 1999. Due to the pro forma loss from continuing operations potential common stock shares related to stock options, stock warrants, convertible notes and convertible preferred stock have been excluded from the diluted loss per share as the inclusion of these potential common stock shares would be anti-dilutive. For the six months ended June 30, 2000, no additional shares of common stock are deemed to be outstanding. Due to the pro forma loss from continuing operations potential common stock shares related to stock options, stock warrants, convertible notes and convertible preferred stock have been 90 99 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED) excluded from the diluted loss per share as the inclusion of these potential common shares would be anti-dilutive. Q. On September 21, 2000, World Access acquired 33.03% of the outstanding shares of TelDaFax. The Unaudited Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1999 and the six months ended June 30, 2000, give effect to this acquisition as if it had occurred on January 1, 1999. As a result, the following loss from investments have been recognized:
33.03% TELDAFAX ACQUISITION BY NET LOSS WORLD ACCESS -------- -------------- Six months ended June 30, 2000.............................. $(8,702) $(2,874) Year ended December 31, 1999................................ (2,996) (990)
91 100 COMPARISON OF RIGHTS OF HOLDERS OF WORLD ACCESS COMMON STOCK AND TELDAFAX STOCK This section of the proxy statement/prospectus is a summary of the differences between TelDaFax stock and World Access common stock. TelDaFax stockholders should read this entire document and the other documents referred to carefully for a more complete understanding of the differences between TelDaFax stock and World Access common stock. The rights of stockholders of World Access are governed by World Access' certificate of incorporation, as amended, and World Access' bylaws. Because World Access is a Delaware corporation, after the TelDaFax transactions are completed, the rights of TelDaFax's stockholders will be governed by the General Corporation Law of the State of Delaware. COMPARISON OF AUTHORIZED AND OUTSTANDING CAPITAL STOCK The authorized capital stock of World Access currently consists of 160,000,000 shares, of which 150,000,000 shares shall be common stock of $.01 par value per share, and 10,000,000 shares of which shall be preferred stock of $.01 par value per share. Note, however, that at the 2000 World Access special meeting in lieu of annual meeting scheduled for December 14, 2000, the World Access stockholders are being asked to approve an amendment to the World Access certificate of incorporation that would increase the number of shares of common stock World Access is authorized to issue to 290,000,000. As of November 1, 2000, 73,391,958 shares of World Access common stock were outstanding and 611,317 shares of World Access preferred stock were outstanding, which are convertible into 33,801,477 shares of World Access common stock. The issued share capital of TelDaFax currently amounts to Euro 87,954,360, consisting of 33,828,600 bearer shares of common stock with no par value. The bylaws of TelDaFax provide for increases in share capital and in the number of shares issued as follows: The management board of TelDaFax is authorized to increase the issued share capital by up to Euro 42,900,000 until June 9, 2004. The general stockholders' meeting has approved a conditional increase in the issued share capital by Euro 42,900,000 which may become unconditional, resulting in the issue of up to 16,500,000 bearer shares of common stock, depending on the exercise of conversion or option rights or the fulfillment of conversion obligations by the holders of convertible bonds or option bonds issued by TelDaFax or its wholly owned direct or indirect subsidiaries until June 9, 2004. TelDaFax has not issued any preferred stock. COMPARISON OF CLASSES OF COMMON STOCK World Access and TelDaFax each have one class of common stock issued and outstanding. Holders of World Access common stock and holders of TelDaFax common stock are each entitled to one vote for each share held. COMPARISON OF REQUIREMENTS FOR SPECIAL MEETING OF STOCKHOLDERS Special meetings of World Access may be called by a majority of World Access' board of directors or an officer instructed by the board of directors to call a meeting. General stockholders' meetings of TelDaFax may be convened by the management board, supervisory board or stockholders whose interests, in the aggregate, amount to not less than 5% of the share capital of TelDaFax. 92 101 COMPARISON OF REQUIREMENTS FOR ACTION BY WRITTEN CONSENT IN LIEU OF A STOCKHOLDERS' MEETING World Access stockholders may not take action without a meeting by written consent except for preferred stockholders pursuant to the World Access certificate of incorporation. TelDaFax stockholders may not take action without a meeting by written consent. COMPARISON OF REQUIREMENTS FOR VOTING BY WRITTEN BALLOT World Access' bylaws provide that the election of directors need not be by written ballot. The bylaws of TelDaFax provide that the manner in which votes are cast at the general stockholders' meeting, including votes to elect the members of the supervisory board, is to be determined by the chairperson of the meeting. COMPARISON OF RECORD DATE FOR DETERMINING STOCKHOLDERS The World Access bylaws provide that its board of directors may fix a record date that: - in the case of determination of the stockholders entitled to vote at any meeting of stockholders or adjournment of any meeting, shall not be more than 60 days nor less than ten days before the date of the meeting; and - in the case of any other action, shall not be more than 60 days prior to such action. Furthermore, the World Access bylaws provide that if the World Access board of directors does not fix a record date in the manner described above, then: - the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; and - the record date for determining stockholders for any other purpose shall be at the close of business on the same day on which the World Access board of directors adopts the related resolution. The bylaws of TelDaFax provide that the right to participate in and vote at general stockholders' meetings is only accorded to those stockholders who deposit their shares, for the duration of the meeting, with TelDaFax, a German notary public, a securities depository bank or any other place of deposit specified in the notice of the general shareholders' meeting. Shares are also deemed to have been deposited if, with the consent of an approved depository, these are deposited with a bank in a blocked security deposit until the end of the general stockholders' meeting. The deposit must be made at least five days before the meeting. If the last day of the deposit limit falls on a Sunday, Saturday or other official holiday in a state of the Federal Republic of Germany, then deposits must take place on or before the immediately preceding business day. If the shares are deposited with a German notary public or with a securities depository bank, a certificate to this effect must be submitted to TelDaFax on the first business day, excluding Saturdays, following the expiration of the time limit for deposits. COMPARISON OF PROCEDURES FOR NOMINATION OF DIRECTORS The World Access bylaws require that the board of directors or a stockholder who gives timely notice to the secretary of the company make board nominations. To be timely, World Access must receive a stockholder's nomination notice at least 120 days prior to the one-year anniversary of the date of the proxy statement in connection with the previous year's annual meeting of stockholders. If (i) no annual meeting was held in the previous year, (ii) the date of the upcoming annual meeting has changed by more than 30 days from the date contemplated in the previous year's proxy statement or (iii) the upcoming meeting is not an 93 102 annual meeting, a nominating stockholder's notice must be received by World Access no later than the close of business on the tenth day following the earlier of: - the day on which notice of the upcoming meeting was mailed or given to the World Access stockholders; or - the day on which public disclosure of the date of the upcoming meeting was made by World Access. Under German corporate law, the supervisory board appoints the members of the management board. The supervisory board, which is elected by the stockholders at the general stockholders' meeting in TelDaFax's case, is required to make nominations for the election of supervisory board members as part of the invitation to the general stockholders' meeting. Stockholders may make nominations at any time until the election, in which case the chairperson of the general stockholders' meeting decides on the sequence in which nominations are put to the vote. However, if a nomination was made by a stockholder within one week after publication of the invitation to the general stockholders' meeting, stockholders representing not less than 10% of the votes cast may require that such nomination is put to the vote first, before any nominations made by the supervisory board. COMPARISON OF NUMBER OF DIRECTORS The World Access amended certificate of incorporation and bylaws provide that the World Access board of directors must consist of not fewer than three and not more than 12 directors, with the exact number to be fixed from time to time by the World Access board of directors. Note, however, that at the 2000 World Access special meeting in lieu of annual meeting scheduled for December 14, 2000, World Access is seeking approval by its stockholders of an amendment to the certificate of incorporation which would increase the maximum number of directors to 15. The bylaws of TelDaFax provide that the management board must consist of at least two members. The supervisory board is authorised to increase that number; there is no maximum limit. COMPARISON OF CLASSIFIED BOARD OF DIRECTORS Delaware law provides that a corporation's board of directors may be divided into various classes with staggered terms of office. World Access' board of directors is divided into three classes, as nearly equal in size as possible, with one class being elected annually. You should note, however, that at the 2000 World Access special meeting in lieu of annual meeting scheduled for December 14, 2000, World Access is seeking the approval of its stockholders to an amendment to the certificate of incorporation of World Access which would eliminate World Access' classified board of directors. If this amendment is approved by the requisite vote of the World Access stockholders, all World Access directors would be elected annually to a term of one year and until the next annual meeting of stockholders at which their successors are elected and qualified . At an annual meeting in which a quorum is present, the persons receiving a plurality of the votes cast by World Access stockholders would be elected as the directors. The bylaws of TelDaFax do not provide for a classified board. The supervisory board appoints the members of the management board individually, for terms of up to five years, and may be re-appointed, again for up to five years, upon the expiration of such term. The stockholders' elect members of the supervisory board, all at the same time, for a term expiring at the end of the general stockholders' meeting resolving on the statutory discharge for the fourth financial year after the commencement of their term, excluding the financial year during which their term commenced. COMPARISON OF PROCEDURES FOR THE REMOVAL OF DIRECTORS The World Access bylaws provide that any director or the entire board of directors may be removed at any time, with cause, by the holders of a majority of the voting power of the shares entitled to vote at an election of directors, voting together as a single class. 94 103 Members of the management board may be removed, with cause, by resolution of the supervisory board. Members of the supervisory board may be removed by resolution of the general stockholders' meeting, with or without cause. COMPARISON OF BOARD OF DIRECTORS VACANCIES The bylaws of World Access provide that vacancies on the board of directors may be filled by the vote of the majority of directors remaining in office. Vacancies on the management board of TelDaFax may be filled by resolution of the supervisory board at any time. Vacancies on the supervisory board, resulting in the supervisory board no longer being able to achieve a quorum, may be filled by court order, at the request of the management board, any supervisory board member or any stockholder. COMPARISON OF NOTICE REQUIREMENTS OF SPECIAL MEETING OF THE BOARD OF DIRECTORS The World Access bylaws provide that the chairman of the board, the vice-chairman of the board, the president or a majority of directors then in office may call special meetings of the board of directors. The bylaws do not require a specific notice period, but only require that the notice provide sufficient time for the convenient assembly of the directors. The bylaws of TelDaFax do not provide for a specific notice period for meetings of the management board. Meetings of the supervisory board must be called at 14 days' notice. The supervisory board may also pass resolutions by written vote or vote cast over the telephone, without a physical meeting, if no member objects. COMPARISON OF PROCEDURES FOR AMENDMENTS TO THE CERTIFICATE OF INCORPORATION AND BYLAWS The World Access amended certificate of incorporation imposes a super-majority voting requirement with respect to certain amendments. Any amendment to the classified board provisions of the certificate of incorporation, or any proposed change to the certificate or bylaws which is inconsistent with such provision, requires the vote of holders of at least 75% of the voting power of all shares entitled to vote in the election of directors, voting as a single class. The World Access bylaws may be amended by the board of directors or stockholders of World Access. The bylaws of TelDaFax may be amended by a simple majority of the votes cast at a general stockholders' meeting except for certain matters requiring a majority of three quarters of the votes cast, for example, an increase in share capital excluding the subscription rights of existing stockholders, or unanimity, for example, an amendment imposing additional payment obligations on stockholders or restricting the transferability of shares. The supervisory board may amend the bylaws in respect of pure drafting matters and to take account of the issue of additional shares out of the company's authorized or conditional share capital. 95 104 DESCRIPTION OF WORLD ACCESS' CAPITAL STOCK WORLD ACCESS COMMON STOCK The holders of World Access common stock are entitled to one vote for each share held of record on all matters to be voted on by the stockholders. There is no cumulative voting with respect to the election of directors. Accordingly, holders of a majority of the outstanding shares of World Access common stock and the holders of the World Access Series A preferred stock, Series D preferred stock and Series E preferred stock, voting on an as converted to common stock basis, can elect all members of World Access' board of directors, and holders of the remaining shares of World Access common stock by themselves cannot elect any member of the board of directors. The holders of World Access common stock are entitled to receive dividends when, as and if declared by the board of directors out of funds legally available therefor. In the event of the liquidation, dissolution or winding up of World Access, the holders of World Access common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision has been made for each class of stock, if any, having preference over the World Access common stock. Holders of shares of World Access common stock, as such, have no conversion, preemptive or other subscription rights. There are no redemption provisions applicable to the World Access common stock. WORLD ACCESS PREFERRED STOCK The World Access certificate of incorporation authorizes the World Access board of directors to issue shares of preferred stock in one or more series and to fix the designations, preferences, powers and rights of the shares. The World Access certificate of incorporation authorizes the issuance of 10,000,000 shares of preferred stock, of which 70,000 shares designated as Series A preferred stock, 350,260 shares designated as Series C preferred stock, 182,057 shares designated as Series D preferred stock, and 9,000 shares designated as Series E are issued and outstanding. The material terms of the Series A preferred stock, the Series C preferred stock, the Series D preferred stock and the Series E preferred stock are summarized below. World Access Series A Preferred Stock Dividends. The holders of the Series A preferred stock are entitled to receive, when, as and if declared by the World Access board of directors, quarterly cash dividends at an annual rate on the liquidation preference of the Series A preferred stock (i.e., $1,000) equal to 4.25%. Dividends payable on the Series A preferred stock are cumulative and accrue, whether or not declared, on a daily basis from April 19, 1999. Ranking. The Series A preferred stock ranks, as to dividend and liquidation rights, senior to World Access common stock, the Series C preferred stock, the Series D preferred stock and the Series E preferred stock. Voting Rights. In addition to any voting rights provided by law, the holders of the Series A preferred stock are entitled to vote on all matters voted on by holders of World Access common stock voting together as a single class with the holders of World Access common stock, Series C preferred stock, Series D preferred stock, Series E preferred stock and other shares entitled to vote thereon. Each holder of the Series A preferred stock is entitled to cast the number of votes per share as is equal to the number of votes that such holder would be entitled to cast had such holder converted its shares into World Access common stock on the record date for determining the stockholders entitled to vote on any such matters. In addition, unless the consent or approval of a greater number of shares is then required by law, the vote of the holders of at least 66 2/3% of the outstanding shares of Series A preferred stock, voting separately as a single series, is required to: - authorize, increase the authorized number of shares of or issue any shares of any class of stock ranking senior to, or on par with, the Series A preferred stock; 96 105 - authorize, adopt or approve an amendment to the certificate of incorporation of World Access that would increase or decrease the par value of the Series A preferred stock, or alter or change the powers, preferences or special rights of the Series A preferred stock, or would alter or change the powers, preferences or special rights of stock ranking senior to, or on par with, the Series A preferred stock; - amend or alter the certificate of incorporation so as to affect the Series A preferred stock adversely and materially; - authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock ranking senior to, or on par with, the Series A preferred stock; - subject to certain limited exceptions described in the World Access certificate of incorporation, effect the voluntary liquidation, dissolution, winding up, recapitalization or reorganization of World Access, or the consolidation or merger of World Access with or into another entity, or the sale or other distribution to another entity of all or substantially all of the assets of World Access; or - authorize, increase the authorized number of shares of, or issue any shares of capital stock having an optional or mandatory redemption date earlier than April 21, 2004 or amend the terms of any capital stock to provide that such capital stock has an optional or mandatory redemption date earlier than April 21, 2004. Board of Directors Representation. If World Access - fails to declare or pay the full amount of dividends payable on the Series A preferred stock for two quarterly dividend periods (whether consecutive or not); or - fails to comply with specific affirmative and negative covenants of World Access set forth in the Stock Purchase Agreement, dated April 19, 1999, between World Access and The 1818 Fund III, L.P., then the number of directors on the World Access board of directors must be increased by one, and the holders of the Series A preferred stock will have the exclusive right to fill such directorship. The person designated as a director by the holders of the Series A preferred stock will continue in such position until such breach is cured. Redemption. On or after April 21, 2003, World Access has the right to redeem the Series A preferred stock for a price per share equal to $1,000 plus an amount per share equal to all accrued and unpaid dividends through the redemption date. If a change of control of World Access occurs on or before April 21, 2001, World Access has the right to redeem the Series A preferred stock for a price per share equal to $1,250 plus an amount per share equal to all accrued and unpaid dividends through the redemption date. Conversion Price. The Series A preferred stock is convertible, at any time by the holder thereof, into shares of World Access common stock for a conversion price equal to $11.50 per share. The conversion price is subject to adjustment in the event of below market issuances of World Access common stock, stock dividends, subdivisions, combinations, reclassifications and other distributions with respect to World Access common stock and certain other instances described in the World Access certificate of incorporation. Mandatory Exchange. If at any time on or after April 19, 2004 until April 19, 2009, the holders of at least 50% of the Series A preferred stock demand that World Access exchange the Series A preferred stock, then World Access must exchange all such shares for shares of World Access common stock or subordinated nonconvertible notes of World Access. The exchange must occur at a per share price equal to $1,000 per share plus an amount per share equal to all accrued and unpaid dividends to the exchange date. The exchange date must occur at any time, or from time to time, during the period from the 40th day following the date a stockholder demands the exchange to the third anniversary of such date. Any shares of common stock issued in the exchange will be valued at 95% of the average market price of World Access common stock for the ten trading days preceding the applicable exchange date, but in no event greater than the conversion price then in effect. 97 106 Mandatory Conversion. If for 45 consecutive trading days the market price of World Access common stock exceeds 261% of the conversion price in effect on each such trading day, all shares of Series A preferred stock will be automatically converted into such number of shares of World Access common stock as equals the number of shares subject to conversion multiplied by the quotient of $1,000 divided by the conversion price in effect on the last trading day of such 45-day period. World Access Series C Preferred Stock Ranking. The Series C preferred stock ranks, as to dividends, on par with the World Access common stock, the Series D preferred stock and the Series E preferred stock and junior to the Series A preferred stock. With respect to liquidation preference, the Series C preferred stock ranks senior to the World Access common stock, junior to the Series A preferred stock, and on par with the Series D preferred stock and the Series E preferred stock. Voting Rights. In addition to any voting rights provided by law, except with respect to the election of directors, the holders of the Series C preferred stock are entitled to vote on all matters voted on by holders of World Access common stock voting together as a single class with the holders of World Access common stock, Series A preferred stock, Series D preferred stock, Series E preferred stock and other shares entitled to vote thereon. Each holder of the Series C preferred stock is entitled to cast the number of votes per share as is equal to the number of votes that such holder would be entitled to cast had such holder converted its shares into World Access common stock on the record date for determining the stockholders entitled to vote on any such matters. In addition, unless the consent or approval of a greater number of shares is then required by law, the vote of the holders of at least 66 2/3% of the outstanding shares of Series C preferred stock, voting separately as a single series, is required to: - authorize, increase the authorized number of shares of or issue any shares of any class of stock ranking senior to the Series C preferred stock; - authorize, adopt or approve an amendment to the certificate of incorporation of World Access that would increase or decrease the par value of the Series C preferred stock, or alter or change the powers, preferences or special rights of the Series C preferred stock, or would alter or change the powers, preferences or special rights of stock ranking senior to the Series C preferred stock; - amend or alter the certificate of incorporation so as to affect the Series C preferred stock adversely and materially; - authorize or issue any security convertible into, exchangeable for or evidencing the right to purchase or otherwise receive any shares of any class or classes of stock ranking senior to the Series C preferred stock; and - subject to certain limited exceptions described in the World Access certificate of incorporation, effect the voluntary liquidation, dissolution, winding up, recapitalization or reorganization of World Access, or the consolidation or merger of World Access with or into another entity, or the sale or other distribution to another entity of all or substantially all of the assets of World Access. Board of Directors Representation. The holders of the Series C preferred stock have the right, voting as a separate series, to nominate and elect four directors to the World Access board of directors (and are not entitled to vote with respect to the election of any other directors), provided that on the record date for determining the stockholders eligible to vote for directors, at least 15% of the originally issued Series C preferred stock is outstanding. However, if the World Access common stock issuable upon conversion of the Series C preferred stock equals less than 20% of the outstanding shares of capital stock of World Access entitled to vote for the election of directors, then, so long as the outstanding shares of Series C preferred stock equal at least 15% of the originally issued Series C preferred stock, the holders of the Series C preferred stock have the right to elect (voting as a separate series), the number of directors which, as a percentage of the total number of World Access directors, is at least equal to the percentage of all outstanding shares of capital stock 98 107 entitled to vote for the election of directors held by such holders of Series C preferred stock, on an as converted basis. Conversion Price. The Series C preferred stock is convertible, at any time by the holder thereof, into shares of World Access common stock for a conversion price equal to $20.38 per share. The conversion price is subject to adjustment in the event of below market issuances of World Access common stock, stock dividends, subdivisions, combinations, reclassifications and other distributions with respect to World Access common stock and other instances described in the World Access certificate of incorporation. Mandatory Conversion. If for 60 consecutive trading days the market price of World Access common stock exceeds the conversion price in effect on each such trading day, all shares of Series C preferred stock will be automatically converted into such number of shares of World Access common stock as equals the number of shares subject to conversion multiplied by the quotient of $1,000 divided by the conversion price in effect on the last trading day of such 60-day period. In addition, any outstanding shares of Series C preferred stock that have not been converted into World Access common stock by December 7, 2002 will be automatically converted into such number of shares of World Access common stock as is equal to the number of shares of Series C preferred stock subject to conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average market price for the 20 consecutive days ending on December 7, 2002. Notwithstanding the foregoing, the average market price for the 20 consecutive days ending on December 7, 2002 may not be less than $11.50 or greater than the conversion price, and is subject to increase based on a specific decline in the Nasdaq Composite Index between December 7, 1999 and December 7, 2002. World Access Series D Preferred Stock Ranking. The Series D preferred stock ranks, as to dividends, on par with the World Access common stock, the Series C preferred stock and the Series E preferred stock and junior to the Series A preferred stock. With respect to liquidation preference, the Series D preferred stock ranks senior to the World Access common stock, junior to the Series A preferred stock, and on par with the Series C preferred stock and the Series E preferred stock. Voting Rights. In addition to any voting rights provided by law, the holders of the Series D preferred stock are entitled to vote on all matters voted on by holders of World Access common stock voting together as a single class with the holders of World Access common stock, Series A preferred stock, Series C preferred stock, Series E preferred stock and other shares entitled to vote thereon. Each holder of the Series D preferred stock is entitled to cast the number of votes per share as is equal to the number of votes that such holder would be entitled to cast had such holder converted its shares into World Access common stock on the record date for determining the stockholders entitled to vote on any such matters. Conversion Price. The Series D preferred stock is convertible, at any time by the holder thereof, into shares of World Access common stock for a conversion price equal to $18.00 per share. The conversion price is subject to adjustment in the event of below market issuances of World Access common stock, stock dividends, subdivisions, combinations, reclassifications and other distributions with respect to World Access common stock and other instances described in the World Access certificate of incorporation. Mandatory Conversion. If for 60 consecutive trading days the market price of World Access common stock exceeds the conversion price in effect on each such trading day, all shares of Series D preferred stock will be automatically converted into such number of shares of World Access common stock as equals the number of shares subject to conversion multiplied by the quotient of $1,000 divided by the conversion price in effect on the last trading day of such 60-day period. In addition, any outstanding shares of Series D preferred stock that have not been converted into World Access common stock by February 14, 2003 will be automatically converted into such number of shares of World Access common stock as is equal to the number of shares of Series D preferred stock subject to conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average market price for the 20 consecutive days ending on February 14, 2003. Notwithstanding the foregoing, the average market price for 99 108 the 20 consecutive days ending on February 14, 2003 may not be less than $11.50 or greater than the conversion price, and subject to increase based on a specific decline in the Nasdaq Composite Index between February 14, 2000 and February 14, 2003. World Access Series E Preferred Stock Ranking. The Series E preferred stock ranks, as to dividends, on par with the World Access common stock, the Series C preferred stock, and Series D preferred stock and junior to the Series A preferred stock. With respect to liquidation preference, the Series E preferred stock ranks senior to the World Access common stock, junior to the Series A preferred stock, and on par with the Series C preferred stock and Series D preferred stock. Voting Rights. In addition to any voting rights provided by law, the holders of the Series E preferred stock are entitled to vote on all matters voted on by holders of World Access common stock voting together as a single class with the holders of World Access common stock, Series A preferred stock, Series C preferred stock, Series D preferred stock and other shares entitled to vote thereon. Each holder of the Series E preferred stock is entitled to cast the number of votes per share as is equal to the number of votes that such holder would be entitled to cast had such holder converted its shares into World Access common stock on the record date for determining the stockholders entitled to vote on any such matters. Conversion Price. The Series E preferred stock is convertible, at any time by the holder thereof, into shares of World Access common stock for a conversion price equal to $21.75 per share. The conversion price is subject to adjustment in the event of below market issuances of World Access common stock, stock dividends, subdivisions, combinations, reclassifications and other distributions with respect to World Access common stock and other instances described in the World Access certificate of incorporation. Mandatory Conversion. If for ten consecutive trading days the market price of World Access common stock exceeds the conversion price in effect on each such trading day, all shares of Series E preferred stock will be automatically converted into such number of shares of World Access common stock as equals the number of shares subject to conversion multiplied by the quotient of $1,000 divided by the conversion price in effect on the last trading day of such ten-day period. In addition, any outstanding shares of Series E preferred stock that have not been converted into World Access common stock by July 13, 2003 will be automatically converted into such number of shares of World Access common stock as is equal to the number of shares of Series E preferred stock subject to conversion, multiplied by the quotient of (i) $1,000 divided by (ii) the average market price for the ten consecutive days ending on July 13, 2003. Notwithstanding the foregoing, the average market price for the ten consecutive days ending on July 13, 2003 may not be less than $11.50 or greater than the conversion price, and subject to increase based on a specific decline in the Nasdaq Composite Index between July 13, 2000 and July 13, 2003. INFORMATION REGARDING TELDAFAX TelDaFax is a facilities-based national telecommunications company. TelDaFax provides bundled fixed line, wireless, Internet and e-Commerce services to business and residential customers in Germany. The TelDaFax strategy focuses on the convergence of wireline telephone services, Internet and mobile telephony. Since January 1, 1998, TelDaFax has maintained a communications network of dedicated lines which it leased from Deutsche Telekom AG, to provide voice telephony, fax and data transmission services throughout Germany. TelDaFax's predecessor was established in March 1995 and was registered by the Federal Ministry for Post and Telecommunications as a telecommunications service provider in July 1995. Subsequently, TelDaFax built a network of switching nodes throughout Germany and connected these by way of dedicated leased lines. From 1996, this network was used to create data, fax and corporate network connections throughout most of Germany. On September 30, 1997, TelDaFax received a Category 4 License from the Federal Ministry for Post and Telecommunications for provision of fixed-line telecommunication services throughout Germany. 100 109 REGULATORY ENVIRONMENT The German telecommunications market was fully liberalized on January 1, 1998. Deutsche Telekom, which was partially privatized in November 1996, now has numerous competitors. The individual market segments were opened up to competition gradually. Deutsche Telekom's monopoly of corporate networks was dismantled in 1993, and several competitors have entered this market. The Telecommunications Act implements the telecommunications policy adopted by the EU in national law. The Telecommunications Act allows infrastructure to be installed and operated and public switched voice telephony services to be provided on the basis of self-operated networks. It stipulates that a license is required to operate transmission lines for public use and to provide voice telephony services for the general public. Four license categories are provided for as follows: - the operation of public transmission lines for mobile telephony services, a Category 1 License, satellite communications services, a Category 2 License, and other telecommunications services, Category 3 License; and - the provision of public voice telephone services on the basis of self-operated telecommunications networks, a Category 4 License. As a general rule there is no limit to the number of licenses that can be issued except in the case of scarce resources. Some of the licenses cover Germany nationwide, while others are regional. The license territory is defined by the applicant. TelDaFax holds a nationwide Category 4 License. The Telecommunications Act established the Regulatory Authority for Telecommunications and Post, which monitors competition in the telecommunications market and grants telecommunications licenses. As of January 1, 1998 the Regulatory Authority succeeded the Federal Ministry for Post and Telecommunications, the former regulatory authority responsible for discharging the duties assigned by The Telecommunications Act. In the context of the asymmetric regulation of the market, price regulation, both for the end customers and the competing providers which pay fixed rates for network access and interconnection with a market-dominating company, is of special significance. Under The Telecommunications Act and an ordinance adopted on the basis of the Act, the Network Access Ordinance, any operator of a public telecommunications network is obliged to offer interconnection at the request of other operators of such networks. Furthermore, special obligations and conditions regarding interconnection are imposed on market-dominating companies. Market-dominating providers must allow other users access to their telecommunications networks. This access can be provided by way of facilities available to all users and by way of special facilities. The special facilities access includes the interconnection of networks. In case the parties fail to agree on the interconnection, the Telecommunications Act and the Network Access Ordinance provide for an escalation procedure; one party can declare that the negotiations have failed, for example, and request a decision from the regulatory authority, which must render such decision within no more than ten weeks. SERVICES PROVIDED TelDaFax currently serves more than 80,000 small and medium enterprise customers with a broad range of services, including pre-subscribed wireline, mobile, Internet access and web hosting, unified messaging, virtual private networks and e-Commerce applications. TelDaFax expects to introduce broadband direct access via symmetrical digital subscriber line and a variety of e-business and application service provider services during 2000. The TelDaFax network is now linked with other operators' networks at over 170 interconnection points. TelDaFax began to prepare for its own glass fiber cable networks in the autumn of 1999. TelDaFax intends to bring this network on line in the third quarter of 2000. Alcatel is managing the project to equip the dark fiber network with the latest synchron digital hierarchy/dens wave division multiplex technology. After completion, network operating costs will run at about one-fifth of current costs. The network will then be able to carry both voice and data traffic. The transmission capacity will also increase several times over the current volume, and at significantly lower costs. 101 110 TelDaFax has at its disposal a leased integrated services digital network capable of carrying voice telephony services, fax and data traffic and video conferences. This network currently consists of nine main switches that are connected by way of leased lines. Subscribers are not directly connected to the TelDaFax network. For telecommunications services to be carried by the TelDaFax network, the call must be accepted from an outside network, carried in the TelDaFax network and completed at the destination, which again takes place in third-party networks, especially that of Deutsche Telekom. The TelDaFax network is linked to the Deutsche Telekom network on the basis of an interconnection agreement. Deutsche Telekom offers the customers of other network operators two fundamental dial-in options: permanent preselect priority or access to the network of a different network operator on a call-by-call basis. In line with these procedures, TelDaFax offers its customers the options described below: Mobile telecommunications. Mobile telecommunication services are an important addition to the services offered by TelDaFax. The acquisition of a majority of Netztel Plus AG in February 2000, a mobile telephone services supplier for the networks operators D1 and D2, enables TelDaFax to successfully enter the market for mobile telephone services. Combined with the TelDaFax majority interest in Demuth & Dietl GmbH, one of Germany's specialist distributors for telecommunications products with over 2,000 specialist retailers, allowed TelDaFax to open a second sales channel in specialist outlets in addition to direct sales. Internet. In April 2000 TelDaFax acquired a majority interest in Internet AG, based in Frankfurt. The combination of the TelDaFax subsidiary GeoNet which is focused on Internet access and unified messaging with Internet AG gives direct access to the market of electronic business-to-business and enables TelDaFax to offer online shops with integrated payment systems and electronic market places. Pre-selection. If subscribers wish to permanently pre-select their network operator, TelDaFax submits the relevant application to Deutsche Telekom on behalf of the customer. Deutsche Telekom programs the customer's telecommunications equipment with the TelDaFax network operator number, so that every call that is not to remain in the Deutsche Telekom network, which is a local call, is routed via the TelDaFax network. The TelDaFax contract customers accounted for 42% of TelDaFax sales revenues for the first six months ending June 30, 2000. Call-by-call. In the case of call-by-call, subscribers dial into the TelDafax network by a prefix number. Telephone calls can be made in the TelDaFax network 24 hours a day without advance booking. Call-by-call customers are generally billed for using the TelDafax network according to an agreement entered into with all private carriers. For technical purposes the accounts are settled via Deutsche Telekom. TelDaFax notifies Deutsche Telekom of its transmission data, and Deutsche Telekom issues invoices to the customers of TelDaFax and forwards the payments received to TelDaFax less a collection fee. TelDaFax thus receives payment after a delay of about three months. CUSTOMERS TelDaFax has aligned itself with the customer segment that consists of small- and medium-size corporates, professionals in small or home offices and private individuals with a high demand for telecommunication services. Small and medium-sized corporates with ten to 250 employees are found primarily in the manufacturing and construction industry and the hotel and service sectors. The professional small or home office segment consists mainly of self-employed professionals, such as doctors, tax consultants, auditors, attorneys, management consultants and engineering offices. Compared with private customers, this TelDaFax target group generates an above-average volume of long-distance and international calls. Another target group of TelDaFax consists of private customers with above-average telecommunications expenditures, who are provided with a router. Private customers that generate relatively small telecommunication volume are served by TelDaFax by way of the generally accessible call-by-call option where accounts are administered by Deutsche Telekom. 102 111 SALES AND MARKETING The marketing organization of TelDaFax uses direct and indirect sales channels and provides customer service by way of call centers operated by TelDaFax. Direct sales. The direct sales system of TelDaFax comprises several tiers and is the point of contact for the core target group. Six principal sales offices exist throughout Germany, each of which oversees up to three regional offices, depending on requirements. Each of the local sales offices, which report to the regional offices, is responsible for a certain sales territory with populations ranging from about 500,000 to one million. TelDaFax's two regional directorates are managed by two salaried employees of TelDaFax. They supervise key accounts and give support to the principal sales offices. Principal sales offices delineate the responsibilities of the subordinate sales levels, conduct training and exercise a controlling function. The regional sales offices assist the principal sales offices in the familiarization and training of the sales staff. The local sales offices analyze the telephoning behavior of the customers who are contacted by the sales agents and compile offers. All the sales partners at the principal, regional and local level, like the sales agents, are independent commercial agents of TelDaFax Vertriebs GmbH. Each of the commercial agents engaged at the lowest sales level must attend a four-day training course, paying part of the cost, and take part in regular workshops thereafter. TelDaFax pays the sales partners (sales agents and local sales managers) an acquisition commission which is repaid, on a pro rata basis, if the contract is canceled within 12 months and which is subject to a ceiling per customer. In addition, TelDaFax pays its commercial agents an account management commission on the entire monthly turnover generated by the customers acquired by them or resident in their territory. Indirect sales. Alongside direct sales, indirect marketing measures are implemented with partners in the information technology sector and specialist retail trade as a means of addressing larger companies and concluding framework agreements. Through the five distributors which hold the minority interest in Netztel Plus AG, TelDaFax obtained access to over 12,000 specialist retailers. Call centers. TelDaFax has set up call centers in Bonn and Marburg. In addition to processing customer orders, they support the marketing organization by arranging appointments, and also answer customers' inquiries. In addition, TelDaFax has concluded an agreement with an external call center in Berlin which can be contacted free of charge via a hotline by both existing and potential subscribers. 103 112 TELDAFAX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with TelDaFax's financial statements, the notes to these financial statements and the other financial data included in this proxy statement/prospectus. In addition to historical information, the following discussion and other parts of this proxy statement/prospectus contain forward-looking information that involves risks and uncertainties. TelDaFax actual results could differ materially from those anticipated by forward-looking information due to factors discussed under "Business" and elsewhere in this proxy statement/prospectus. OVERVIEW General TelDaFax is a national telecommunications company that specializes in providing domestic and international telecommunications services. TelDaFax's facilities include nine switches located in major metropolitan areas throughout Germany. TelDaFax's strategy focuses on the convergence of wireline telephone services, Internet and mobile telephones. Revenues TelDaFax obtains its revenues from providing international and domestic telecommunication services to retail and business customers. Revenues are derived mainly from the number of minutes, or fractions thereof, used by TelDaFax's customers and billed by TelDaFax and are recognized upon completion of the calls, as well as, to a lesser extent, from certain recurring and non-recurring fees that are recognized when services are provided. The market for wireline telephone services is characterized by aggressive competition with a dramatic drop in prices which has led to margins decreasing substantially. Whereas the providers were able to distinguish themselves during the first year of regulation with differing pricing models, prices have now converged since Deutsche Telekom adapted its pricing policy, and accordingly, the attractiveness of call-by-call services has declined appreciably. This caused business in this area to stagnate and even decline in the last quarters. As a consequence TelDaFax has experienced and expects to continue to experience declining revenues per minute in these markets. In contrast, the business of TelDaFax has preferred from the very outset with regular contractual customers showed positive development. TelDaFax's revenues have increased from DM 32.2 million in fiscal 1997 to DM 611 million in fiscal 1999. TelDaFax has achieved its retail growth primarily through competitive pricing in the call-by-call segment. Business customers were contacted through direct sales agents in Germany. Business customers accounted for a third of TelDaFax sales revenues by the end of 1999, and two thirds were attributable to the call-by-call business. In the first quarter of 2000 this ratio was about 50:50. The following table reflects the amounts of total revenue from TelDaFax operations by type of customers for fiscal 1997, 1998, and 1999 and the six months ended June 30, 1999 and 2000:
YEAR ENDED YEAR ENDED YEAR ENDED SIX MONTHS SIX MONTHS DECEMBER 31, DECEMBER 31, DECEMBER 31, ENDED ENDED 1997 1998 1999 JUNE 30, 1999 JUNE 30, 2000 ------------ ------------ ------------ ------------- ------------- (DM MILLIONS) Subscribers fixed net.............. 32.2 95.2 159.2 57.5 105.8 Residential (call-by-call)......... 0.0 167.8 451.8 248.4 149.5 Cellular........................... -- -- -- -- 48.6 Internet........................... -- -- -- -- 3.8 Total revenues........... 32.2 263.0 611.0 305.9 307.7
In October 1999 TelDaFax purchased 51% in the distributor Demuth, Dietl & Co. GmbH, which is referred to in this discussion as Demuth. The acquisition of Demuth has been accounted for using the purchase method of accounting. Accordingly, the results of Demuth's operations have been included from the 104 113 date of acquisition, October 4, 1999. Revenues totalling to DM19.6 million during the three months ended December 31, 1999 has been primarily attributable to this purchase. Cost of services Cost of services is TelDaFax's largest expense and consists of both variable and fixed costs. Variable costs include costs associated with the origination and termination of calls. Virtually all domestic calls TelDaFax carries must be originated and terminated over the last mile by Deutsche Telekom. Variable costs also include the cost of transmitting calls using the long distance facilities of foreign carriers regarding calls to abroad, which TelDaFax uses since it does not maintain an international network of its own. These national and foreign long distance carriers charge on a per minute basis. TelDaFax's fixed costs consist of leased point-to-point cable capacity, which typically requires fixed monthly payments regardless of usage. Because the cost of leased lines is fixed, transmitting a greater portion of TelDaFax's traffic over the leased lines reduces its incremental marginal transmission costs. Accordingly, once certain volume levels are reached, leased line capacity can be more cost-effective than capacity acquired from other long distance carriers. Capitalized costs associated with TelDaFax's ownership interests in cables and long-term rights of use in cables or other facilities, known as indefeasible rights of use, are expensed in depreciation and amortization and are therefore not accounted for as part of cost of services. To the extent TelDaFax's expanded use of its ownership interests in cables or indefeasible rights of use reduces its utilization of leased lines and the facilities of other long distance carriers, TelDaFax believes the increase in depreciation expense associated with its ownership interests in cables or indefeasible rights of use will be offset by a decrease in its variable and fixed cost of services. Selling, general and administrative expenses TelDaFax's selling, general and administrative expenses consist of commissions paid to its independent agents and direct sales force, advertising and promotional costs, direct mail expenses, employee compensation, occupancy, insurance, professional fees, bad debt expense, expenses relating to customer service operations and the costs related to maintaining and supporting its systems. As TelDaFax starts operations in new markets, it incurs significant start-up costs associated with establishing a supporting infrastructure, particularly for hiring and training of personnel, leasing office space and paying various fees in conjunction with its business. As TelDaFax increases its sales and marketing efforts and commences operations in the new mobile and internet markets, TelDaFax expects that its sales and marketing expenses will increase. Depreciation and amortization expenses Depreciation and amortization expenses consist of depreciation of all fixed assets and computer equipment, as well as amortization of the fixed costs associated with TelDaFax's: - owned and leased switching platforms, which have been capitalized and are being amortized over their estimated useful lives or the term of the lease, which is typically five to seven years; and - ownership interests in cables or indefeasible rights of use interests in on-land fiber-optic cable systems, which will be amortized over their estimated useful lives, typically 18 years. Interest expense Even though the interest expenses were payable on short term overdrafts and capital leases, TelDaFax could compensate the interest expense by interest income from deposits of the initial public offering proceeds because the initial public offering proceeds overcompensated the expense. As TelDaFax will need borrowings in the future to expand its operations, it expects interest expense to increase. Income taxes As of December 31, 1999, TelDaFax has net operating loss of approximately DM 5.6 million which had been carried back to 1998 and used up. 105 114 Quarterly results of operations The following table sets forth quarterly results of operations for each of the past eight quarters for the period ended June 30, 2000 that TelDaFax's management believes is important to provide an understanding of its results of operations. This information has been prepared substantially on the same basis as the audited financial statements appearing elsewhere, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the quarterly results of operations data (in DM thousands):
FOR THE QUARTER ENDED ----------------------------------------------------------------------------------- SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1998 1998 1999 1999 1999 1999 -------------- ------------ --------- -------- ------------- ------------ (UNAUDITED) Revenues........... 76,946 118,473 168,743 137,153 141,785 163,337 Cost of sales...... (52,331) (87,973) (128,918) (107,263) (120,948) (159,073) ------- ------- -------- -------- -------- -------- Gross profit....... 24,615 30,500 39,825 29,890 20,837 4,264 Selling, general and administrative... (14,537) (16,458) (14,497) (18,454) (10,412) (32,188) Depreciation and amortization..... (4,382) (6,739) (6,407) (6,883) (9,304) (11,036) ------- ------- -------- -------- -------- -------- Operating result... 5,676 7,303 18,921 4,553 1,121 (38,960) Financial result... 498 743 831 663 (228) (502) Other expense, net.............. (1,649) (6,305) (9,165) (2,887) (1,313) 20,374 Minority interests........ -- -- 10 130 67 1,129 ------- ------- -------- -------- -------- -------- Net result... 4,545 1,741 10,597 2,459 (353) (17,959) ======= ======= ======== ======== ======== ======== FOR THE QUARTER ENDED ----------------------------- MARCH 31, JUNE 30, 2000 2000 -------------- ------------ (UNAUDITED) Revenues........... 166,773 140,931 Cost of sales...... (138,718) (120,310) -------- -------- Gross profit....... 28,055 20,621 Selling, general and administrative... (23,492) (33,537) Depreciation and amortization..... (10,617) (14,512) -------- -------- Operating result... (6,054) (27,428) Financial result... 280 83) Other expense, net.............. 2,965 10,726 Minority interests........ 1,258 488 -------- -------- Net result... (1,551) (16,297) ======== ========
SIX MONTHS ENDED JUNE 30, -------------------- 1999 2000 -------- -------- (UNAUDITED) Revenues.................................................. 305,896 307,704 Cost of sales............................................. (236,181) (259,028) -------- -------- Gross profit.............................................. 69,715 48,676 Selling, general and administrative....................... (32,951) (57,029) Depreciation and amortization............................. (13,290) (25,129) -------- -------- Operating result.......................................... 23,474 (33,482) Financial result.......................................... 1,494 197 Other expense, net........................................ (12,052) 13,691 Minority interests........................................ 140 1,746 -------- -------- Net result......................................... 13,056 (17,848) ======== ========
Revenues TelDaFax's revenues increased in each of the first three quarters presented. The second quarter of 1999 has seen an intensification of competition in the fixed network telephony sector. The combination of a sharp reduction in prices at the beginning of the year and a further fall in tariffs in the second quarter resulted in a considerable pressure on profit margins. The fall in prices in the second quarter could not, in such a short period, be compensated by a corresponding volume growth. The volume growth seen in the first quarter of 1999 could not continue to the same extent in the second quarter of 1999, as competition leveled out prices. As a result of price leveling in the wireline business in the quarter ended June 30, 1999, there was a slight downturn in call-by-call business. TelDaFax was, however, able to more than compensate for this downturn with an increase in the number of business customers with a fixed contract and the new business segment mobile. Cost of services The gross margin percentages ranged from 25.74% to 14.6% over the most recent six quarters presented. The fluctuations between quarters were the result of changes in the mix of retail and business revenue and 106 115 declining carrier margins throughout the periods presented. The decline in gross margins in the quarter ended June 30, 2000 from the quarter ended June 30, 1999 was due to a decline in margins in Germany. The decline in margins was also due to expansion of TelDaFax's German leased network facilities. TelDaFax's leased network facilities were increased to have closer access to the customers in order to benefit from the lowest interconnection tariffs. The facilities were also expanded to provide TelDaFax with the capacity needed for its expected future growth in the Internet business. Selling, general and administrative expenses Selling, general and administrative spending levels fluctuated throughout most of the periods presented due to different marketing campaigns including television commercials. Depreciation and amortization expenses Depreciation and amortization increased during the quarters as TelDaFax made approximately DM 259.2 million in capitalized purchases during this period to expand the geographic scope and available capacity of its network. Interest expense Interest expense resulted from capital lease obligations. All other capital expenditures were funded out of equity. RESULTS OF OPERATIONS Six months ended June 30, 2000 compared to six months ended June 30, 1999 Revenues. Total revenues in the first six months of fiscal 2000 were nearly at the same level as in the first six months of fiscal 1999, at DM 307.7 million. The decline in the fixed network area, especially in the call-by-call field, down to DM 149.5 million was counterbalanced by the growth in sales in our subscribers amounting to DM 105.8 million and in our start up field of cellular telephony of DM 48.6 million including the attributable revenues from Demuth & Dietl plus the Internet revenues of DM 3.8 million. Cost of services. Cost of services increased by 9.6% to DM 259.0 million for the first six months of fiscal 2000 from DM 236.2 million for the same six months in fiscal 1999 and, as a percentage of revenue, increased to 84.2% from 77.2%, respectively. Cost of services as a percentage of revenue increased primarily as a result of consolidating the distributor Demuth & Dietl and the sharp fall in prices in the second quarter of 1999 resulting in considerable pressure on profit margins. Selling, general and administrative expenses. Selling, general and administrative expenses increased by 73.0% to DM 57.0 million for the first six months of fiscal 2000 from DM 32.9 million for the same period in fiscal 1999 and, as a percentage of revenues, increased to 18.5% from 9.1%. The increase in selling, general and administrative expenses was due to increased commissions to the sales force amounting to DM 24.3 million and other spending in direct costs associated with increases in revenues. This increase was due to increased sales, operations and back office infrastructure to support sales growth and the expansion into the cellular service. Depreciation and amortization expenses. Depreciation and amortization expenses increased to DM 25.1 million for the first six months of fiscal 2000 from DM 13.3 million in the first six months of fiscal 1999. The increase in depreciation and amortization was due to additions to fixed assets from DM 154.3 million to DM 121.4 million up to the first six months of fiscal 2000 associated with the build-out of network and supporting infrastructure. Interest expense. Interest expense increased by 128.6% to DM 1.6 million for the first six months of fiscal 2000 from DM 0.7 million in the first six months of fiscal 1999. The increase was primarily due to the increased lease obligations associated with the on-land fiber optic capacity. Per balance the interest expense was overcompensated by interest income amounting to DM 1.8 million. 107 116 Fiscal 1999 compared to fiscal 1998 Revenues. Total revenues for fiscal 1999 increased by 132.3% to DM 611.0 million from DM 263.0 million for fiscal 1998. The increase in revenue was primarily attributable to increased business and residential revenues. Business revenues increased 67.2% from DM 95.2 million in fiscal 1998 to DM 159.2 in fiscal 1999, and residential increased from DM 167.8 million in fiscal 1998 to DM 451.8 million in fiscal 1999. This increase was based on TelDaFax's lower prices relative to the prices of competitors in the German wireline business because TelDaFax reduced its prices during this period. The high demand for low rates and the fair second-by-second pricing led to increased call volume in the first quarter of fiscal 1999. Cost of services. Cost of services increased by 179.0% to DM 516.2 million in fiscal 1999 from DM 185.0 million for fiscal 1998 and, as a percentage of revenue, increased to 84.4% from 70.3%. Cost of services as a percentage of revenue increased primarily as a result of lower prices which resulted in decreased margins. The increase was also due to additional costs associated with the expansion of TelDaFax's network infrastructure. Selling, general and administrative expenses. Selling, general and administrative expenses increased by 80.4% to DM 75.6 million for 1999 from DM 41.9 million in fiscal 1998, however, as a percentage of revenues, decreased from 15.9% to 12.4% of fiscal 1999. The relative decrease was primarily due to above average revenues growth. Depreciation and amortization expenses. Depreciation and amortization expenses increased by 85.6% to DM 33.6 million for fiscal 1999 from DM 18.1 million of fiscal 1998. The increase in depreciation and amortization was due to the continued build-out of TelDaFax's network and supporting infrastructure. Interest expense. Interest expense decreased by 80.0% to DM 3.0 million for fiscal 1999 from DM 5.4 million in fiscal 1998. The reduction was due to the repayment of bank debts out of the initial public offering proceeds. Per balance TelDaFax reports a positive financial result of DM 0.5 million in 1999. Fiscal 1998 compared to fiscal 1997 Revenues. Total revenues for fiscal 1998 increased by 721.8% to DM 263.0 million from DM 32.2 million for fiscal 1997. Growth in revenues during 1998 was attributable primarily as a result of substantial increases in sales of retail and residential. Revenues from business customers increased by 195.6% to DM 95.2 million for fiscal 1998 from DM 32.2 million for fiscal 1997. The new market call-by-call for residentials contributed revenues of DM 167.8 in 1998. Cost of services. Cost of services increased by 606.0% to DM 185.0 million for fiscal 1998 from DM 26.2 million for fiscal 1997 and, as a percentage of revenues, decreased to 70.0% for fiscal 1998 from 81.3% for fiscal 1997. The decline was due to lower interconnect tariffs from Deutsch Telekom in the first year of liberalization. Selling, general and administrative expenses. In fiscal 1998, selling, general and administrative expenses increased by 466.2% to DM 41.9 million from DM 7.4 million for fiscal 1997 and, as a percentage of revenue, decreased to 15.9% for fiscal 1998 from 22.9% for fiscal 1997. A significant portion of the increase in the absolute figure was directly related to the increase in revenues, as marketing and sales expenses increased due to increases in commissions, marketing, and other related expenses. Selling, general and administrative expenses, as a percentage of revenue, declined due to efficiencies gained as TelDaFax's revenues increased. Depreciation and amortization expenses. Depreciation and amortization expenses increased by 260.0% to DM 18.0 million for fiscal 1998 from DM 5.0 million for fiscal 1997. This increase was due to the expansion of TelDaFax's network and capital deployed as it entered the liberalized new market. Interest expense. Interest expense increased by 671.4% to DM 5.4 million in fiscal 1998 from DM 0.7 million in fiscal 1997. The increase in interest was due to the increase in the level of debt and capital lease obligations TelDaFax incurred in order to fund its network expansion. However, per the balance of the initial public offering proceeds that were deposited in interest bearing accounts, the interest expense was overcompensated by interest income of DM 6.1 million. 108 117 LIQUIDITY AND CAPITAL RESOURCES As a consequence of the rapid expansion of TelDaFax's business and its historical capital constraints, TelDaFax raised funds through an initial public offering in July 1998. The proceeds from the initial public offering of DM 152 million were used as working capital to strengthen the financial statements ratios, to finance the growth and for other general business purposes. The incurred cumulative net losses from inception in 1995 through December 31, 1997 resulting primarily from start-up costs, marketing expenses and capital expenditures required to build and deploy its network could be compensated by positive cash flows in 1998. For the six month period ending June 30, 2000, TelDaFax's net cash used in operating activities was DM(80.2) million, primarily consisting of repayments of liabilities totaling DM 73.8 million. Cash used in investing activities totaled DM 37.8 million, which was primarily for the purchase of the mobile provider NetzTel Plus AG and switching technology. As of June 30, 2000 TelDaFax had approximately DM 53.9 million in cash. For fiscal 1999, cash flow from operating activities was DM 88.3 million, primarily composed of a net loss of DM (6.9) million, depreciation and amortization of DM 34.0 million, an increase in amounts payable trade amounting to DM 118.4 offset by an increase in accounts receivable trade of DM 30.9 million. Cash used in investing activities, primarily capital expenditures, totaled DM 115.2 million in fiscal 1999. As of September 30, 1999, TelDaFax had DM 129.4 million in cash. As of September 30, 1998, TelDaFax had approximately DM 169.1 million in cash. TelDaFax's cash flow from operating activities was DM 54.6 million in fiscal 1998, primarily caused by a net profit of DM 8.8 million, non-cash charges consisting of the provision for bad debts and depreciation and amortization of DM 55.3 million and offset by a decrease in operating working capital of DM 14.1 million. Cash used for investing activities totaled DM 66.1 million in fiscal 1998, which was for capital expenditures. The capital expenditures primarily consisted of purchases associated with the expansion of TelDaFax's network, computers, and general equipment. Net cash provided by financing activities totaled DM 157.2 million for fiscal 1998, which consisted in proceeds from the public offering. Cash flow from operating activities for fiscal 1997 was DM 9.6 million, and net cash used in investing activities, principally capital expenditures, was DM 31.1 million for fiscal 1997. TelDaFax financed these capital expenditures primarily with a capital increase and long-term debt. Net cash provided by financing activities for fiscal 1997 was DM 35.5 million. Capital expenditures, including assets acquired by incurring capital lease obligations, for fiscal 1997, 1998 and 1999 totaled DM 31.1 million, DM 66.1 million, and DM 115.2 million, respectively. Capital expenditures, including assets acquired by incurring capital lease obligations, for the six-month period ended June 30, 2000 totaled approximately DM 11.0 million. TelDaFax expects to incur an additional $7.0 million in capital expenditures prior to the completion of the TelDaFax cooperation. TelDaFax expects to fund these expenditures through vendor or capital lease financing. TelDaFax has utilized capital lease and vendor financing to assist in financing the building of its network, systems and infrastructure. As of June 30, 2000, the balance of capital lease financing obligations totaled DM 51.3 million, primarily relating to the lease of its switching platforms in Germany. As of June 30, 2000, TelDaFax had no borrowings outstanding. TelDaFax entered as of March 31,2000 into two agreements for the acquisition of capacity on land-based fiber optic cable systems for a total price of DM 12.0 million. The vendors have agreed to finance 90% of the commitment at 5.24% interest, with monthly principal and interest payments over a five year amortization period. FOREIGN CURRENCY EXPOSURE Immaterial amounts of TelDaFax's revenues will be denominated in non DM currencies, an insignificant portion of its expenditures, including interest will be denominated in U.S. dollars. Accordingly, TelDaFax may be subject to insignificant foreign currency exchange risks. TelDaFax currently does not hedge against foreign currency exchange risks, but may in the future. 109 118 TELDAFAX SELECTED CONSOLIDATED FINANCIAL DATA In the table below, TelDaFax provides you with selected consolidated financial data of TelDaFax. The selected consolidated financial data as of December 31, 1998 and 1999 and for each of the three years in the period ended December 31, 1999 are derived from TelDaFax's audited consolidated financial statements included elsewhere in this proxy statement/prospectus. The financial information for the six month periods ended June 30, 1999 and 2000 have been derived from unaudited consolidated financial statements of TelDaFax, which, in the opinion of TelDaFax's management, include all the significant normal and recurring adjustments necessary for fair presentation of the financial position and results of operations for such unaudited periods. When you read this selected consolidated financial data, it is important that you also read the section titled "TelDaFax Management's Discussion and Analysis of Financial Condition and Results of Operations" and TelDaFax's consolidated financial statements and the related notes to the financial statements included elsewhere in this proxy statement/prospectus (in DM thousands, except share amounts):
AS OF AND FOR THE PERIOD FROM AS OF AND FOR THE INCEPTION AS OF AND FOR THE SIX MONTHS ENDED JULY 1, 1997 YEAR ENDED DECEMBER 31, JUNE 30, TO ----------------------------- ----------------------------- DECEMBER 31, 1997(2) 1998 1999 1999 2000 -------------------- ------------- ------------- ------------- ------------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenue.............. 32,271 263,050 611,018 305,896 307,704 Cost of services..... 31,085 202,359 548,110 248,879 279,607 Sales expenses....... 3,434 31,417 50,716 26,257 41,783 Operating income (loss)............. (6,417) 18,062 (14,365) 23,474 (33,482) Net income (loss).... (5,854) 8,774 (5,256) 13,056 (17,848) Income (loss) per common share....... (5.16) 0.45 (0.16) 0.39 (0.53) Weighted average number of common shares outstanding........ 1,134 19,297 33,829 33,829 33,829 BALANCE SHEET DATA: Cash and cash equivalents........ 7,029 159,011 178,287 45,170 53,882 Working capital...... (8,086) 123,164 69,390 24,632 18,131 Total assets......... 61,885 312,569 455,171 353,459 394,978 Total liabilities.... 41,553 121,234 269,252 49,749 224,936 Shareholders' equity............. 20,332 191,335 186,079 204,390 168,231 OTHER FINANCIAL DATA: EBITDA(1)............ (1,377) 36,148 19,265 36,764 (8,353) Net cash provided from (used by) operating activities......... 3,409 54,588 89,630 10,731 (80,200) Capital expenditures....... 30,718 65,796 110,397 29,029 10,450 REVENUE DATA: Fixed network........ 32,271 263,050 587,299 305,065 255,275 Mobile............... -- -- 19,595 -- 48,619 Internet............. -- -- 4,124 831 3,810
- --------------- (1) EBITDA from continuing operations as used in this proxy statement/prospectus is earnings (loss) before net interest expense (income), minority interests, income taxes, depreciation and amortization and is presented because TelDaFax believes that such information is commonly used in the telecommunications 110 119 industry as one measure of a company's operating performance and historical ability to service debt. EBITDA is not determined in accordance with generally accepted accounting principles, is not indicative of cash provided by operating activities, should not be used as a measure of operating income and cash flows from operations as determined under generally accepted accounting principles and should not be considered in isolation, or as an alternative to, or to be more meaningful than, measures of performance determined in accordance with generally accepted accounting principles. EBITDA, as calculated by TelDaFax, may not be comparable to similarly titled measures reported by other companies and could be misleading unless all companies and analysts calculated EBITDA in the same manner. The following table reconciles our net income (loss) to EBITDA:
PERIOD FROM INCEPTION YEAR ENDED SIX MONTHS ENDED JULY 1, 1997 DECEMBER 31, JUNE 30, TO --------------- ---------------- DECEMBER 31, 1997(2) 1998 1999 1999 2000 -------------------- ------ ------ ------ ------- (UNAUDITED) Net income (loss).................. (5,854) 8,774 (5,256) 13,056 (17,848) Net interest expense............... 1,104 (425) (764) (1,494) (197) Minority interests................. -- -- (1,336) (140) (1,746) Depreciation and amortization...... 5,040 18,086 33,630 13,290 25,129 Income taxes (benefit)............. (1,667) 9,713 (7,009) 12,052 (13,691) ------ ------ ------ ------ ------- EBITDA............................. (1,377) 36,148 19,265 36,764 (8,353) ====== ====== ====== ====== =======
(2)On July 1, 1997, TelDaFax Telefon-, Daten und Fax Transfer GmbH & Co. KG transferred all of its business assets to TelDaFax GmbH, creating a new operating company. TelDaFax AG was then established through a change in the legal form of TelDaFax GmbH. Therefore, no financial information pertaining to TelDaFax AG exists for 1995 and 1996. DESCRIPTION OF WORLD ACCESS' BUSINESS AND STRATEGY In 1999, World Access adopted a strategy designed to build on its U.S.-based carrier service business and position itself to become a significant provider of bundled voice, data and Internet services to retail business customers located in selected European countries. World Access believes that the European telecommunications market has become extremely fragmented in recent years due primarily to deregulation and significant forecasted growth. As a result, World Access expects that a significant consolidation of carriers operating in Europe will occur in the next few years, not unlike that which occurred in the United States telecommunications market during the late 1980's and 1990's. The strategy of World Access is to establish a pan-European telecommunications network and gain significant market share during this period as a consolidator in this market. To execute its strategy, World Access intends to aggressively pursue the acquisition of businesses, with a particular emphasis on those that provide retail services to small and medium sized businesses operating in Europe. To support its retail services strategy, World Access acquired FaciliCom International in December 1999. FaciliCom had invested in excess of $200.0 million over the past few years to establish an inter-country network in the U.S. and 13 European countries. Although the vast majority of its revenues were derived from transporting traffic for other carriers, similar to World Access' base business, FaciliCom's network was also capable of supporting certain retail traffic and related services. This acquisition effectively doubled the size of World Access' carrier service revenue, provided a significant amount of European originated revenue and lowered the combined company's costs of terminating international traffic in Europe. World Access entered 2000 with an annual revenue base in excess of $1.0 billion, almost all of which relates to transporting traffic for other carriers. In February 2000, World Access acquired substantially all the assets of Long Distance International. The most significant and strategic asset acquired was NETnet International, a wholly-owned subsidiary. NETnet, which had revenue of approximately $83.0 million in 1999, provides an array of telecommunications services to small and medium sized business customers in Austria, France, Germany, Italy, Norway, Spain, Sweden, Switzerland and the United Kingdom. 111 120 The acquisition of NETnet gave World Access approximately 20,000 retail customers, an experienced retail sales force and a foundation for the offering of bundled voice, data and Internet services to its targeted market in Europe. It also provided World Access with a strong retail trade name, which World Access currently expects to use for all of its retail product offerings in Europe. World Access hopes to substantially improve the historical gross margins realized by NETnet by terminating selected NETnet traffic over the World Access network and eliminating the costs of redundant network facilities. With the addition of NETnet, World Access now generates approximately eight percent of its total revenue from retail services and the remainder from its base carrier business. Of the total revenue, approximately 60% results from traffic originated in the United States and 40% from traffic originated in Europe. In February 2000, World Access entered into agreements to merge with STAR and WorldxChange. After completing these mergers, World Access expects its revenue mix will be approximately 20% retail and 80% carrier. In addition to an improved retail/carrier revenue mix, the STAR and WorldxChange mergers are expected to provide World Access with substantial benefits in the areas of network coverage, network capacity and reduced operating costs. On a combined basis, the networks and operations of all three companies contain redundant switching equipment, facilities and personnel. World Access will eliminate these redundant assets and significantly reduce the headcount of the combined company in an effort to realize cost synergies. Implementing this process includes the write-down of switching and transmission equipment taken out of service, the write-off of certain leasehold improvements, establishing provisions for lease commitments remaining on certain facilities with no future use, employee termination benefits and other related costs. To the extent that these items relate to World Access facilities and personnel, World Access will record a restructuring charge in accordance with EITF 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring) and FAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of. All other costs relate to facilities and personnel of the acquired enterprises, and, accordingly, will be treated as purchase price in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination. In connection with the Executive Management Services Agreement entered into by World Access and WorldxChange on August 1, 2000, World Access management committed to such a consolidation plan. Pursuant to this agreement, World Access began managing the operations and business affairs of WorldxChange as if the WorldxChange merger had occurred as of August 1, 2000. The costs of this restructuring plan will be $38.3 million and will be recorded as a restructuring charge by World Access in the third quarter of 2000. Management has not finalized a consolidation plan for the World Access and STAR integration; however, management believes that further consolidation activities resulting from the STAR merger will not significantly involve World Access facilities or personnel, and thus, no material EITF 94-3 charge will be required. The STAR and WorldxChange mergers will give World Access substantial operations and network capacity in Germany and the United Kingdom, which represent the two largest segments of the European telecommunications market. World Access expects to leverage these operations to further grow its retail business in these two key countries. WorldxChange has also developed Internet-based information management systems that incorporate all key aspects of retail telecommunications services, including billing, fraud protection and customer care. These information systems are expected to serve as the platform for supporting all retail operations conducted by World Access in Europe. Although the STAR and WorldxChange mergers are expected to provide significant benefits to World Access, they also dramatically increase the business and financial risks World Access must overcome to execute its strategy. World Access, STAR and WorldxChange all have a history of significant net operating losses, and World Access is expected to assume approximately $300.0 million in debt upon the consummation 112 121 of the two mergers. You should carefully review the risk factors contained in this joint proxy statement/prospectus. Since June 1999, World Access has raised significant capital through the sale of $70.0 million of Series A Preferred Stock, the sale of $158.1 million of common stock in private placement transactions and the sale of certain equipment businesses for approximately $275.0 million of gross cash proceeds. These transactions have significantly enhanced the financial strength of World Access and improved its liquidity. World Access believes that existing cash and short-term investments, available borrowings and additional cash expected to be generated from the sale of remaining World Access equipment businesses and related assets will provide World Access with sufficient financial resources to support the cash requirements of World Access, STAR and WorldxChange for at least the next twelve months. WORLD ACCESS' PROPOSED MERGERS WITH STAR AND WORLDXCHANGE On February 11, 2000, World Access and STAR Telecommunications, Inc. entered into an Agreement and Plan of Merger. The parties amended the Agreement and Plan of Merger on June 7, 2000 and October 6, 2000. The STAR merger agreement provides for the merger of STAR with and into World Access under which each outstanding share of STAR common stock will be converted into the right to receive, at the election of World Access, (i) 0.386595 shares of World Access common stock or (ii) a combination of shares of World Access common stock and cash. The completion of the STAR merger is subject to the approval of the shareholders of World Access and STAR, and the divestiture by STAR of its subsidiary, PT-1 Communications, Inc., for minimum net cash proceeds of $150.0 million or, if sold to Counsel Communications LLC, net cash proceeds from the sale of at least $120.0 million. On February 11, 2000, World Access and Communication TeleSystems International, doing business as WorldxChange Communications, entered into an Agreement and Plan of Merger. The parties amended the Agreement and Plan of Merger on May 23, 2000 and October 23, 2000. The WorldxChange merger agreement provides for the merger of WorldxChange with and into World Access, under which each outstanding share of WorldxChange common stock, including shares of preferred stock deemed to be automatically converted into shares of common stock immediately prior to completion of the WorldxChange merger, will be converted into the right to receive 0.6583 shares of World Access common stock. The completion of the WorldxChange merger is subject to the approval of the shareholders of World Access and WorldxChange. On May 24, 2000, World Access filed a Form S-4 with the Securities and Exchange Commission, which, when declared effective, will register with the SEC the World Access shares to be issued in the STAR merger and the WorldxChange merger. Amendments to the May 24, 2000 Form S-4 were filed on August 7, 2000, September 12, 2000, October 10, 2000 and November 14, 2000. The Form S-4 was declared effective and a joint proxy statement/prospectus was mailed to each STAR, WorldxChange and World Access stockholder on November 14, 2000. A special meeting of the stockholders of World Access for the approval of the STAR and WorldxChange mergers has been scheduled for December 14, 2000. WORLD ACCESS FINANCIAL PROJECTIONS On September 19, 2000, World Access announced certain financial projections for the second half of 2000, 2001, 2002 and 2004 based on a recently developed business model. World Access based its projections for 2000 on the assumption that the financial results of WorldxChange's operations would be consolidated into World Access as of August 1, 2000. World Access later determined not to consolidate WorldxChange's financial results until the WorldxChange merger is completed. Consequently, the financial projections World Access previously announced for the third and fourth quarter of 2000 are no longer accurate. World Access originally projected that its third quarter 2000 revenue, net loss from continuing operations and net loss from continuing operations per diluted share would be approximately $320.0 million, $44.2 million and $0.29, respectively, including the special charges discussed below. As a result of the decision to not consolidate WorldxChange as of August 1, 2000, World Access now expects its third quarter 2000 revenue to be approximately $265.0 million. Although World Access cannot currently project its third quarter 2000 net 113 122 loss and net loss per diluted share from continuing operations, World Access expects these amounts to be slightly more favorable than the original projections. Assuming that the STAR merger, WorldxChange merger and TelDaFax transactions are completed as of January 1, 2001, World Access predicts that its revenue for 2001 will be approximately $2.6 billion. First quarter 2001 revenues are predicted to be approximately $480.0 million, pro forma for all outstanding acquisitions and assumed future acquisitions included in the business model. World Access expects retail revenues to account for approximately 48% of its 2001 revenues, with approximately 57% of fourth quarter 2001 revenues expected to come from retail customers. It expects a net loss from continuing operations and a net loss per share from continuing operations of approximately $240.0 million and $1.15, respectively, for 2001. In addition, World Access believes that its revenue for 2002 and 2004 will be approximately $4.5 billion and $6.5 billion, respectively. World Access is unable to provide a reasonable estimate of net revenue or loss and net revenue or loss per share for these years because the financial data needed to calculate these projections are highly speculative. World Access' actual results for the periods covered by the foregoing projections may differ materially from its estimates. World Access may not be able to achieve its revenue projections because of numerous factors, including: - its inability to realize its expectations under the new business model; - slower internal revenue growth than expected; and - less revenue from acquired companies than expected. Moreover, the projections assume future acquisitions. However, World Access is not currently a party to any agreements or understandings with respect to any material acquisitions other than STAR, WorldxChange and TelDaFax. World Access cannot assure you that any expected future acquisitions will be completed. WORLD ACCESS' THIRD QUARTER SPECIAL CHARGES On September 19, 2000, World Access announced that it had adopted a restructuring plan to integrate the operations of WorldxChange and as a result, a one-time restructuring charge of $30.0 to $50.0 million would be recorded by World Access in the third quarter of 2000. World Access subsequently determined that the actual charge would amount to $38.3 million. Pursuant to the Executive Management Service Agreement entered into on August 1, 2000, World Access and WorldxChange have significantly integrated their respective operations. To date, the companies have consolidated their sales forces, billing systems and network operations centers, as well as decommissioned certain switches as traffic has migrated from one network to the other. The third quarter restructuring charge includes the write-down of World Access' switching and transmission equipment expected to be taken out of service due to the integration of network and customer care operations, the write-off of certain World Access leasehold improvements due to facilities consolidation, provisions for lease commitments remaining on certain World Access facilities, employee termination benefits and related World Access integration costs. World Access took a majority of the assets included in this restructuring plan out of service in September and October 2000, and expects to take the remaining assets out of service shortly. World Access expects to complete the restructuring plan by early 2001. World Access also announced that selling, general and administrative expenses in the third quarter of 2000 would include a charge of $34.6 million in order to significantly increase reserves for doubtful accounts and accrue for costs associated with the integration of World Access and WorldxChange billing systems and the rebranding of all European retail activities using the NETnet brand. In August 2000, World Access began to see a larger number of its customers defer payments owed to it, particularly customers that were operating as competitive local exchange carriers or those operating in the prepaid calling card industry. These companies are typically referred to as Tier 3 carriers. In late August and early September, several of these carriers declared bankruptcy or announced their intent to reorganize. While 114 123 World Access evaluates the collectibility of its accounts receivable and establishes appropriate reserves on a regular basis, these deteriorating conditions required World Access to perform a more extensive review of the financial condition of its current customer base, in particular Tier 3 carriers and resellers of telecom services. As a result of this review, World Access came to the conclusion that many of these companies were undercapitalized and would need significant additional capital in the next three to 12 months to continue as going concerns. Based on the continuing weakness being experienced in the debt markets for telecom companies and the dramatic decrease in equity valuations for telecom companies in recent months, World Access also concluded that it would be difficult for many of these companies to raise the needed capital. The recent failures of several telecom businesses and the public announcements by others of their need to raise cash will only serve to further weaken the debt and equity markets historically relied upon by these carriers. In late August, in connection with the increasing number of late payments, World Access elected to tighten its credit policies and aggressively discontinue service when certain customers missed payment commitments. Based on the review referenced above and after careful consideration, World Access subsequently elected to discontinue services entirely to many Tier 3 customers and reseller customers and significantly restrict the volume of traffic carried for others. Although discontinuing or curtailing service to customers in and of itself does not alleviate the legal liability for customers to pay for services previously provided, and World Access certainly intends to pursue every available course of action to ensure accounts receivable are collected, there is now a much greater risk of loss for amounts owed by these customers. This risk is associated with the deteriorating financial condition of these carriers, weaknesses in the debt and equity markets for telecom companies and the fact these carriers will be inclined to allocate available cash to the carriers they are using to terminate their present and future traffic. In the future, these customers will also likely be required to pay for a higher percentage of their termination services on a prepaid basis, further reducing the amount of cash available to pay for previous services provided. To recognize the increased risk of loss related to the actions taken by World Access in late August and September, World Access felt it was necessary to record a significant increase in its reserve for doubtful accounts in the third quarter of 2000. MANAGEMENT OF WORLD ACCESS AFTER COMPLETION OF THE TELDAFAX TRANSACTIONS EXECUTIVE OFFICERS Following the consummation of the TelDaFax transactions, John D. Phillips will serve as Chairman of the Board and Chief Executive Officer of World Access, and Walter J. Burmeister will serve as the President of World Access. It is anticipated that the other current executive officers of World Access will continue as executive officers of World Access with the duties and responsibilities they currently have at World Access. At the time of mailing this proxy statement/prospectus, the companies have not yet determined which specific offices, if any, will be held by the current executive officers of TelDaFax. BOARD OF DIRECTORS The board of directors of World Access currently consists of 11 members, seven of which are elected by the World Access common stockholders and four of which are nominated and elected by the Series C preferred stockholders. Upon the completion of the STAR merger and/or the WorldxChange merger, pursuant to the terms of the World Access Certificate of Designation of the Series C preferred stock, due to the decreased percentage of the total outstanding World Access common stock represented by the number of shares of World Access common stock issuable upon conversion of the Series C preferred stock, the Series C preferred stockholders will be entitled to designate only two directors. The current directors of World Access elected by common stockholders are: Stephen J. Clearman, John P. Imlay, Jr., Massimo Prelz Oltramonti, John D. Phillips, John P. Rigas, Carl E. Sanders and Lawrence C. Tucker. The current directors of World Access designated by the Series C preferred stockholders are: Walter J. Burmeister, Kirby J. Campbell, Bryan Cipoletti and Dru A. Sedwick. In connection with the 115 124 completion of the STAR and/or WorldxChange mergers, two of the current directors of World Access designated by the Series C preferred stockholders will no longer serve on the World Access board. As of the date of this joint proxy statement/prospectus, the two directors whose terms will end upon completion of the STAR and/or WorldxChange mergers have not been determined. Under the terms of the STAR merger agreement, World Access agreed to elect Christopher Edgecomb, or such other person designated by STAR and agreed to by World Access, to the board of directors of World Access immediately following completion of the STAR merger. Under the terms of the WorldxChange merger agreement, World Access agreed to elect one designee of WorldxChange to the World Access board of directors immediately following completion of the WorldxChange merger. The WorldxChange merger agreement provides that this designee will be Walter Anderson, who is currently the Chairman of the Board of WorldxChange, or another person designated by Gold & Appel Transfer S.A. and reasonably acceptable to World Access. Mr. Anderson has the power to direct such designation by Gold & Appel Transfer S.A. As of the date of this proxy statement/prospectus, the director designees of STAR and WorldxChange have not been determined. PRINCIPAL STOCKHOLDERS OF WORLD ACCESS As of November 1, 2000, the issued and outstanding classes of World Access voting securities were as follows:
COMMON SHARES SHARES OUTSTANDING EQUIVALENT ----------- ----------- Common stock............................................... 73,391,958 73,391,958 Series A preferred stock................................... 70,000 6,086,956 Series C preferred stock................................... 350,260 17,186,451 Series D preferred stock................................... 182,057 10,114,277 Series E preferred stock................................... 9,000 413,793 ----------- Total voting securities.......................... 107,193,435 ===========
The following table sets forth information regarding the beneficial ownership of the World Access common stock and each individual class of World Access preferred stock as of November 1, 2000 for: - each person who beneficially owns more than 5% of the World Access common stock; - each current World Access director individually; - each current World Access executive officer who would be a named executive officer under Rule 402 of Regulation S-K; and - all current directors and executive officers of World Access as a group. 116 125 The following table also sets forth information assuming the completion of the TelDaFax transactions and both the STAR and WorldxChange mergers. For purposes of this table, we have assumed that World Access will pay 100% of the STAR merger consideration in World Access common stock.
TOTAL TOTAL SHARES SHARES BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE OWNED(1) OWNED OWNED(1) OWNED SHARES BEFORE BEFORE AFTER AFTER UNDERLYING COMPLETION COMPLETION COMPLETION COMPLETION SHARES DERIVATIVE OF THE OF THE OF THE OF THE NAME OWNED(1) SECURITIES(2) TRANSACTIONS TRANSACTIONS(3) TRANSACTIONS TRANSACTIONS(3) ---- ---------- ------------- ------------ --------------- ------------ --------------- WORLD ACCESS COMMON STOCK Apax Partners Co.(4)............ 11,457,631 -- 11,457,631 15.6% 11,457,631 7.7% Possaqtstrabe 11 D-81679 Munchen Germany Armstrong International Telecommunications, Inc.(5)... -- 15,162,015 15,162,015 17.1 15,162,015 9.2 One Armstrong Place Butler, PA 16001 WorldCom Network Services, Inc.(6)....................... 7,081,444 -- 7,081,444 9.6 17,081,444 11.5 500 Clinton Center Drive Clinton, MS 39056 The 1818 Fund III, L.P.(7)...... -- 6,086,956 6,086,956 7.7 6,086,956 3.9 59 Wall Street New York, NY 10005 Morgan Stanley & Co. Incorporated(8)............... 200,000 5,685,111 5,885,111 7.4 5,885,111 3.8 1585 Broadway New York, NY 10005 Roger B. Abbott(9).............. -- -- -- * 9,939,982 6.7 9999 Willow Creek Road San Diego, CA 92131 Walter Anderson(10)............. -- -- -- * 7,691,817 5.2 Gold & Appel Transfer, S.A. Omar Hodge Building Wickhams City Tortola, British, V.I Walter J. Burmeister+++(11)..... -- 1,135,694 1,395,694 1.5 1,135,694 * Kirby J. Campbell+.............. -- -- -- * -- * Bryan Cipoletti+................ -- -- -- * -- * Stephen J. Clearman+(12)........ 1,309,044 167,000 1,476,044 2.0 1,476,044 1.0 John P. Imlay, Jr.+............. 59,900 179,000 238,900 * 238,900 * John D. Phillips+++(13)......... 1,295,000 1,175,333 2,470,333 3.3 2,470,333 1.6 Massimo Prelz Oltramonti+(14)... 1,885,251 100,000 1,985,251 2.7 1,985,251 1.3 John P. Rigas+(15).............. 1,561,958 100,000 1,661,958 2.3 1,661,958 1.1 Carl E. Sanders+(16)............ 62,000 179,000 241,000 * 241,000 * Dru A. Sedwick+................. -- -- -- * -- * Lawrence C. Tucker+(7).......... -- 6,186,956 6,186,956 7.8 6,186,956 4.0 W. Tod Chmar++.................. 312,500 50,000 362,500 * 362,500 * Mark A. Gergel ++(17)........... 27,249 263,499 290,748 * 290,748 * Michael F. Mies++(17)........... 2,480 36,250 38,730 * 38,730 * Bryan D. Yokley................. -- -- -- * -- *
117 126
TOTAL TOTAL SHARES SHARES BENEFICIALLY PERCENTAGE BENEFICIALLY PERCENTAGE OWNED(1) OWNED OWNED(1) OWNED SHARES BEFORE BEFORE AFTER AFTER UNDERLYING COMPLETION COMPLETION COMPLETION COMPLETION SHARES DERIVATIVE OF THE OF THE OF THE OF THE NAME OWNED(1) SECURITIES(2) TRANSACTIONS TRANSACTIONS(3) TRANSACTIONS TRANSACTIONS(3) ---- ---------- ------------- ------------ --------------- ------------ --------------- All directors and executive officers as a group (15 persons)...................... 6,515,382 9,572,732 16,088,114 19.4 16,088,114 10.1 SERIES A PREFERRED STOCK The 1818 Fund III, L.P.......... 70,000 -- 70,000 100.0 70,000 100.0 Lawrence C. Tucker(7)........... 70,000 -- 70,000 100.0 70,000 100.0 SERIES C PREFERRED STOCK Armstrong International Telecommunications, Inc....... 309,002 -- 309,002 88.2 309,002 88.2 Walter J. Burmeister............ 19,161 -- 19,161 5.5 19,161 5.5 Juan Carlos Valls 1530 Key Boulevard #306 Arlington, VA 22209........... 19,161 -- 19,161 5.5 19,161 5.5 SERIES D PREFERRED STOCK Morgan Stanley & Co. Incorporated.................. 102,332 -- 102,332 56.2 102,332 56.2 AIM High Yield Fund............. 16,851 -- 16,851 9.3 16,851 9.3 11 Greenway Plaza, #1919 Houston, TX 77046 NETnet International S.A........ 14,800 -- 14,800 8.1 14,800 8.1 Siege Social: L-1611 41 Avenue de la Gare R.C. Luxembourg, B49615 Kemper High Yield Series........ 11,794 -- 11,794 6.5 11,794 6.5 222 South Riverside Plaza Chicago, IL 60606 SERIES E PREFERRED STOCK 3i Group plc.................... 6,760 -- 6,760 75.1 6,760 75.1 91 Waterloo Road GB-SE 8XP London England David Marcus.................... 1,659 -- 1,659 18.4 1,659 18.4 4, Chemin de Normandie CH-1206 Geneva Switzerland
- --------------- * Less than one percent + Director ++ Named executive officer (1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Securities Exchange Act. Unless otherwise noted, we believe that all persons named in the table have sole voting and investment power with respect to all shares of World Access common stock beneficially owned by them. (2) Unless otherwise indicated, represents shares which may be acquired by the exercise of stock options and warrants on or before December 30, 2000. (3) Shares of common stock subject to options, warrants and convertible securities are deemed outstanding for the purpose of computing the percentage ownership of the person holding such derivative securities, but are not deemed outstanding for computing the percentage ownership of any other person. (4)Represents 3,676,995 shares of World Access common stock owned by Apax Germany II, L.P., 2,570,778 shares owned by Apax Funds Nominees Ltd. fur "B" Account, 3,849,888 shares owned by 118 127 Apax Funds Nominees Ltd. fur "D" Account and 1,359,970 shares owned by AP Vermogensverwaltung Gesellschaft burgerlichen Rechts. Apax Partners Co., advisor to these funds, is deemed to be the beneficial owner of these shares. (5) Represents 15,162,015 shares of World Access common stock issuable upon the conversion of 309,002 shares of Series C preferred stock. (6) Includes 1,746,500 shares of World Access common stock held in escrow pursuant to our acquisition of Cherry Communications Incorporated in December 1998. This amount currently represents our best estimate of the shares to ultimately be released to WorldCom Network Services, Inc., a wholly owned subsidiary of WorldCom, Inc., upon the final resolution of all creditor claims against Cherry Communications in U.S. Bankruptcy Court. WorldCom Network Services directs the voting of these shares while they are held in escrow. Also includes 10,000,000 shares to be issued to WorldCom in connection with the consummation of the STAR and WorldxChange mergers. WorldCom has agreed to approximately $115.0 million of trade debt currently due from STAR and WorldxChange for World Access common stock at an exchange ratio of $11.50 per share. (7) Includes 6,086,956 shares of World Access common stock issuable upon the conversion of 70,000 shares of Series A preferred stock owned of record by The 1818 Fund III, a private equity partnership. The general partner of the 1818 Fund III is Brown Brothers Harriman & Co. Mr. Tucker, a partner at Brown Brothers Harriman & Co., is deemed to be the beneficial owner of these shares due to his role as co-manager of The 1818 Fund III. (8) Includes 5,685,111 shares of World Access common stock issuable upon the conversion of 102,332 shares of Series D preferred stock. (9) Represents 15,099,472 shares of WorldxChange common stock converted into World Access common stock at .6583 per share. All WorldxChange shares, other than (i) 1,000,000 shares as to which Mr. Abbott has sole voting power pursuant to a voting trust agreement, (ii) 81,176 shares that are held directly by Mr. Abbott, and (iii) 81,176 shares that are held directly by Mr. Abbott's spouse, Rosalind Abbott, are jointly held by Mr. Abbott and his spouse as community property. (10) Represents 11,684,365 shares of WorldxChange common stock converted into World Access common stock at .6583 per share. Under a power of attorney from Gold & Appel Transfer, S.A., Walter Anderson has sole investment power over these shares and as a result may be deemed to be the beneficial owner of such shares. Mr. Anderson, however, disclaims beneficial ownership of these shares. (11) Includes 940,204 shares of World Access common stock issuable upon the conversion of 19,161 shares of Series C preferred stock. (12) Includes 1,211,982 shares of World Access common stock owned by Geocapital V, L.P., 36,900 shares owned by Geocapital Advisors, L.P., and 7,952 shares owned by Geocapital Investors V, L.P. Mr. Clearman, a general partner of these partnerships, is deemed to be the beneficial owner of these shares. (13) Includes 770,000 shares of World Access common stock owned of record by Resurgens Partners, LLC, of which Mr. Phillips has the sole voting and dispositive power. Also includes 100,000 shares held in the name of Mr. Phillips' wife as custodian for two of Mr. Phillips' minor children, with respect to which Mr. Phillips disclaims beneficial ownership. (14) Represents 1,443,887 shares of World Access common stock owned by Gilbert Global Equity Partners, L.P. and 441,364 shares owned by Gilbert Global Equity Partners (Bermuda), L.P. Mr. Prelz, a Managing Director of Gilbert Global Equity Partners, L.P., is deemed to be the beneficial owner of these shares. (15) Includes 1,552,958 shares of World Access common stock owned by Zilkha Capital Partners, L.P. Mr. Rigas, a Managing Partner of Zilkha Capital Partners, L.P., is deemed to be the beneficial owner of these shares. (16) Includes 2,000 shares of World Access common stock owned by Mr. Sanders' wife, with respect to which Mr. Sanders disclaims beneficial ownership. (17) Includes the following shares of World Access common stock acquired through voluntary employee contributions to World Access' 401(k) Plan and contributed to the 401(k) Plan under a matching contribution program offered to all 401(k) Plan participants: Mr. Gergel -- 4,499 shares and Mr. Mies -- 730 shares. 119 128 SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires World Access' directors and executive officers, and persons who own beneficially more than ten percent of a registered class of World Access' equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of World Access' securities. Directors, executive officers and greater than ten-percent stockholders are required by Commission regulations to furnish World Access with copies of all Section 16(a) reports they file. To the best of World Access' knowledge, based solely on review of the copies of such reports furnished to it and representations that no other reports were required, all Section 16(a) filing requirements applicable to World Access' directors, executive officers and greater than ten-percent beneficial owners were complied with during the 1999 fiscal year, except for Mr. Phillips, whose Annual Statement of Changes in Beneficial Ownership on Form 5 was not filed timely. Mr. Phillips was required to file a Form 5 to reflect shares of World Access common stock that he gifted to his children in December 1999. ACCOUNTANTS The World Access board has appointed Ernst & Young LLP, independent public accountants, as independent accountants for World Access for the fiscal year ending December 31, 2000. Representatives of Ernst & Young LLP are expected to be present at the World Access special meeting, will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions from stockholders. On December 22, 1998, World Access engaged Ernst & Young LLP as the certifying accountants and dismissed PricewaterhouseCoopers LLP. The World Access board approved this change in accountants. World Access had no disagreements with its former accountant on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which disagreement(s), if not resolved to the satisfaction of the former accountant, would have caused them to make reference to the subject matter of the disagreement(s) in connection with their reports during each of the two years in the period ended December 31, 1997 and from January 1, 1998 to December 22, 1998, and such accountants' report on the financial statements for each of the past two years did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedules included in our Annual Report on Form 10-K/A, Amendment No. 4, for the years ended December 31, 1999 and 1998, as set forth in their report, which is incorporated by reference in this joint proxy statement/prospectus and elsewhere in the registration statement. Our consolidated financial statements and schedules are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. The financial statements of World Access for the year ended December 31, 1997 incorporated in this joint proxy statement/prospectus by reference to the Annual Report on Form 10-K/A, Amendment No. 1, of World Access for the year ended December 31, 1999 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, dated March 5, 1998, except for the discontinued operations described in Note C, which are as of March 14, 2000, given on the authority of that firm as experts in auditing and accounting. The consolidated financial statements of FaciliCom International, Inc. and subsidiaries incorporated in this World Access joint proxy statement/prospectus by reference to the World Access Current Report on Form 8-K dated December 22, 1999, as amended, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is also incorporated herein by reference, and have been so incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 120 129 Ernst & Young LLP, independent certified public accountants, have audited the consolidated financial statements of Long Distance International, Inc. at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, as set forth in their report. The Long Distance International, Inc. financial statements are incorporated by reference in this joint proxy statement/prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. The consolidated financial statements of STAR incorporated in this joint proxy statement/prospectus by reference to STAR's Form 10-K for the year ended December 31, 1999, have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report dated April 14, 2000 with respect thereto, which is also incorporated by reference into this joint proxy statement/prospectus, and are so incorporated in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of WorldxChange at September 30, 1999 and 1998, and for each of the three years in the period ended September 30, 1999, as set forth in their report. The WorldxChange financial statements are included in the joint proxy statement/prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. BDO Deutsche Warentreuhand, independent auditors, have audited the consolidated financial statements of TelDaFax AG at December 31, 1999 and 1998, and for each of the three years in the period ended December 31, 1999, as set forth in their report. The TelDaFax financial statements are included in the joint proxy statement/prospectus and elsewhere in the registration statement in reliance on BDO Deutsche Warentreuhand's report, given on their authority as experts in accounting and auditing. WORLD ACCESS STOCKHOLDER PROPOSALS Proposals of World Access stockholders submitted pursuant to Rule 14a-8 of the Exchange Act for inclusion in the proxy statement for the 2001 annual meeting of stockholders of World Access must be received by World Access at its principal executive offices at 945 E. Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326 a reasonable time before World Access begins to print and mail the proxy materials for its 2001 annual meeting of stockholders. Under the World Access amended certificate of incorporation, stockholders desiring to nominate persons for election as directors at an annual meeting must notify the Secretary of World Access in writing not less than 120 calendar days in advance of the date which is one year later than the date of World Access proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that if no annual meeting of stockholders was held in the previous year or if the date of the forthcoming annual meeting of stockholders has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement or if the forthcoming meeting is not an annual meeting of stockholders, then to be timely such stockholders' notice must be so received not later than the close of business on the tenth day following the earlier of: - the day on which notice of the date of the forthcoming meeting was mailed or given to stockholders by or on behalf of World Access; or - the day on which public disclosure of the date of the forthcoming meeting was made by or on behalf of World Access. Any such stockholders' notices must contain the specific information set forth in the World Access amended certificate of incorporation. Stockholders will be furnished a copy of the World Access amended certificate of incorporation without charge upon written request to the Secretary of World Access. 121 130 OTHER MATTERS THAT MAY COME BEFORE THE WORLD ACCESS SPECIAL MEETING The World Access board does not know of any other matters which may come before the World Access special meeting. If any other matters are properly presented at the World Access special meeting, it is the intention of the persons named in the accompanying proxy to vote, or otherwise act, in accordance with their best judgement on such matters. LEGAL MATTERS The legality of the World Access common stock offered by this proxy statement/prospectus will be passed upon for World Access by Long Aldridge & Norman LLP, Atlanta, Georgia. LAN Equities Partnership, L.P., an affiliate of Long Aldridge & Norman LLP, is the owner of 106,953 shares of World Access common stock issued to Long Aldridge as payment for legal fees incurred from time to time. 122 131 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS Report of Ernst & Young LLP, Independent Auditors........... F-2 Consolidated Balance Sheets as of June 30, 2000 (Unaudited), September 30, 1999 and 1998............................... F-3 Consolidated Statements of Operations for the nine months ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and each of the three years in the period ended September 30, 1999...................................................... F-4 Consolidated Statements of Shareholders' Deficit and Comprehensive Income/Loss for the nine months ended June 30, 2000 (Unaudited) and each of the three years in the period ended September 30, 1999........................... F-5 Consolidated Statements of Cash Flows for the nine months ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and each of the three years in the period ended September 30, 1999...................................................... F-6 Notes to Consolidated Financial Statements.................. F-7 TELDAFAX AG Independent Auditors' Report................................ F-28 Consolidated Balance Sheets as of June 30, 2000 (Unaudited), December 31, 1999 and 1998................................ F-29 Consolidated Statements of Operations for the six months ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and each of the three years in the period ended December 31, 1999...................................................... F-30 Consolidated Statements of Shareholders' Deficit and Comprehensive of Changes in Combined Equity Shareholder's Funds for the six months ended June 30, 2000 (Unaudited) and each of the three years in the period ended December 31, 1999.................................................. F-31 Consolidated Statements of Cash Flows for the six months ended June 30, 2000 (Unaudited) and 1999 (Unaudited) and each of the three years in the period ended December 31, 1999...................................................... F-32 Notes to the Consolidated Financial Statements.............. F-33
F-1 132 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Shareholders Communications Telesystems International d.b.a. WorldxChange Communications We have audited the consolidated balance sheets of Communications Telesystems International d.b.a. WorldxChange Communications as of September 30, 1999 and 1998, and the related consolidated statements of operations, shareholders' deficit, and cash flows for each of the three years in the period ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Communications Telesystems International d.b.a. WorldxChange Communications at September 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1999, in conformity with accounting principles generally accepted in the United States. ERNST & YOUNG LLP San Diego, California December 10, 1999, except for the fourth paragraph of Note 5 and the sixth paragraph of Note 13 as to which the date is May 22, 2000 F-2 133 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS)
JUNE 30, SEPTEMBER 30, ----------- -------------------- 2000 1999 1998 ----------- --------- -------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 6,913 $ 38,030 $ 20,917 Accounts receivable, net of allowance of $14,173 at June 30, 2000 (unaudited) and $9,590 and $10,690 at September 30, 1999 and 1998, respectively......................... 103,172 54,991 38,966 Prepaid expenses and other current assets................. 32,566 8,224 3,825 --------- --------- -------- Total current assets............................... 142,651 101,245 63,708 Equipment and leasehold improvements, net................... 193,494 114,765 49,697 Intangible assets........................................... 90,162 12,194 -- Other assets................................................ 4,105 6,798 6,724 --------- --------- -------- Total assets....................................... $ 430,412 $ 235,002 $120,129 ========= ========= ======== LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Accrued network costs..................................... $ 174,830 $ 83,993 $ 49,796 Accounts payable.......................................... 23,682 13,770 14,144 Other accrued liabilities................................. 44,758 16,333 15,377 Payable to related parties................................ 2,396 -- 468 Deferred revenue.......................................... 2,493 3,941 686 Current portion of long-term debt and subordinated debentures.............................................. 187,020 9,799 13,421 Current portion of capital lease obligations.............. 14,805 10,582 6,851 --------- --------- -------- Total current liabilities.......................... 449,984 138,418 100,743 Long-term debt.............................................. 38,447 100,324 75,287 Subordinated debentures..................................... -- -- 1,182 Capital lease obligations................................... 32,382 29,395 22,844 Other long-term liabilities................................. 5,547 1,918 2,397 --------- --------- -------- Total liabilities.................................. 526,360 270,055 202,453 Minority interest........................................... -- -- 7,269 Shareholders' deficit: Preferred Stock, no par value; Authorized shares -- 10,000,000: Series A Cumulative Preferred Stock; Issued and outstanding 30,000 at June 30, 2000 (unaudited) and September 30, 1999, and 23 at September 30, 1998; liquidation preference of $1,000 per share............ 30,000 30,000 7 Series B Cumulative Preferred Stock; Issued and outstanding -- zero at June 30, 2000 (unaudited) and zero at September 30, 1999 and 1998; liquidation preference of $1,000 per share........................ -- -- -- Common Stock, no par value; Authorized shares -- 100,000,000, Issued and outstanding 42,613,954 at June 30, 2000 (unaudited), 36,965,911 at September 30, 1999 and 28,576,552 at September 30, 1998........... 148,056 99,047 10,297 Notes receivable from shareholders........................ (1,937) (1,474) -- Accumulated other comprehensive loss...................... (12,900) (2,405) (3,529) Accumulated deficit....................................... (259,167) (160,221) (96,368) --------- --------- -------- Total shareholders' deficit........................ (95,948) (35,053) (89,593) --------- --------- -------- Total liabilities and shareholders' deficit........ $ 430,412 $ 235,002 $120,129 ========= ========= ========
See accompanying notes. F-3 134 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30, ------------------- ------------------------------ 2000 1999 1999 1998 1997 -------- -------- -------- -------- -------- (UNAUDITED) Revenues.................................... $423,913 $304,324 $421,580 $398,867 $331,660 Operating expenses: Cost of services (exclusive of depreciation and amortization shown separately below)...................... 337,814 238,599 328,334 287,312 235,027 Selling, general and administrative....... 124,014 88,431 124,112 114,897 113,459 Depreciation and amortization............. 35,131 12,394 17,705 12,332 8,677 -------- -------- -------- -------- -------- Total operating expenses.......... 496,959 339,424 470,151 414,541 357,163 Operating loss.............................. (73,046) (35,100) (48,571) (15,674) (25,503) Interest expense............................ 22,694 12,448 16,883 11,947 8,682 Other expense, net.......................... 822 222 648 1,378 3,366 -------- -------- -------- -------- -------- Loss before minority interest............... (96,562) (47,770) (66,102) (28,999) (37,551) Minority interest........................... -- (1,782) 2,251 1,546 473 -------- -------- -------- -------- -------- Net loss.................................... $(96,562) $(45,988) $(63,851) $(27,453) $(37,078) Preferred stock dividends................... 2,384 -- 2 7 13 -------- -------- -------- -------- -------- Net loss applicable to common stockholders........................... $(98,946) $(45,988) $(63,853) $(27,460) $(37,091) ======== ======== ======== ======== ========
See accompanying notes. F-4 135 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND COMPREHENSIVE INCOME/LOSS (DOLLARS IN THOUSANDS)
SERIES A SERIES B CUMULATIVE CUMULATIVE PREFERRED STOCK PREFERRED STOCK COMMON STOCK NOTES RECEIVABLE ------------------ ------------------ --------------------- FROM SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDERS ------- -------- ------- -------- ---------- -------- ---------------- BALANCE AT SEPTEMBER 30, 1996...... 82 $ 36 -- -- 27,572,000 $ 196 $ -- Repurchase of Series A Cumulative Preferred Stock................... (59) (29) -- -- -- -- -- Dividends on Series A Cumulative Preferred Stock................... -- -- -- -- -- -- -- Exercise of options/warrants....... -- -- -- -- 162,000 62 -- Comprehensive loss: Net loss........................... -- -- -- -- -- -- -- Foreign currency translation adjustment........................ -- -- -- -- -- -- -- Total comprehensive loss..... ------ ------- ------- ------- ---------- -------- ------- BALANCE AT SEPTEMBER 30, 1997...... 23 7 27,734,000 258 -- Dividends on Series A Preferred Stock.................... -- -- -- -- -- -- -- Issuance of Common Stock........... -- -- -- -- 788,127 10,000 -- Exercise of options/warrants....... -- -- -- -- 54,425 39 -- Comprehensive loss: Net loss........................... -- -- -- -- -- -- -- Foreign currency translation adjustment........................ -- -- -- -- -- -- -- Total comprehensive loss..... ------ ------- ------- ------- ---------- -------- ------- BALANCE AT SEPTEMBER 30, 1998...... 23 7 -- -- 28,576,552 10,297 -- Repurchase of Series A Cumulative Preferred Stock......... (23) (7) -- -- -- -- -- Dividends on Series A Preferred Stock.................... -- -- -- -- -- -- -- Issuance of Series A Cumulative Preferred Stock......... 30,000 30,000 -- -- -- -- -- Issuance of Common Stock........... -- -- -- -- 8,153,120 87,102 -- Exercise of options/warrants....... -- -- -- -- 236,239 1,648 -- Notes receivable for sales of common stock...................... -- -- -- -- -- -- (1,474) Comprehensive loss: Net loss........................... -- -- -- -- -- -- -- Foreign currency translation adjustment........................ -- -- -- -- -- -- -- Total comprehensive loss..... ------ ------- ------- ------- ---------- -------- ------- BALANCE AT SEPTEMBER 30, 1999...... 30,000 $30,000 -- -- 36,965,911 $99,047 $(1,474) ------ ------- ------- ------- ---------- -------- ------- Dividends on Series A Cumulative Preferred Stock (unaudited)....... -- -- -- -- -- -- -- Issuance of Series B Cumulative Preferred Stock net of issuance cost of $1,342 (unaudited)..................... -- -- 50,000 48,658 -- -- -- Conversion of Series B Cumulative Preferred Stock into Common Stock (unaudited)....................... -- -- (50,000) (48,658) 5,555,550 48,658 -- Exercise of options/warrants (unaudited)....................... -- -- -- -- 92,493 351 -- Notes receivable for sales of common stock (unaudited).......... -- -- -- -- -- -- (463) Comprehensive loss: Net loss (unaudited)............... -- -- -- -- -- -- -- Foreign currency translation adjustment (unaudited)............ -- -- -- -- -- -- -- Total comprehensive loss (unaudited)................. ------ ------- ------- ------- ---------- -------- ------- BALANCE AT JUNE 30, 2000 (UNAUDITED)....................... 30,000 $30,000 -- $ -- 42,613,954 $148,056 $(1,937) ====== ======= ======= ======= ========== ======== ======= ACCUMULATED OTHER COMPREHENSIVE TOTAL ACCUMULATED INCOME SHAREHOLDERS' DEFICIT (LOSS) DEFICIT ----------- ------------- ------------- BALANCE AT SEPTEMBER 30, 1996...... $ (31,817) $ (434) $ (32,019) Repurchase of Series A Cumulative Preferred Stock................... -- -- (29) Dividends on Series A Cumulative Preferred Stock................... (13) -- (13) Exercise of options/warrants....... -- -- 62 Comprehensive loss: Net loss........................... (37,078) -- (37,078) Foreign currency translation adjustment........................ -- 197 197 --------- Total comprehensive loss..... (36,881) --------- -------- --------- BALANCE AT SEPTEMBER 30, 1997...... (68,908) (237) (68,880) Dividends on Series A Preferred Stock.................... (7) -- (7) Issuance of Common Stock........... -- -- 10,000 Exercise of options/warrants....... -- -- 39 Comprehensive loss: Net loss........................... (27,453) -- (27,453) Foreign currency translation adjustment........................ -- (3,292) (3,292) --------- Total comprehensive loss..... (30,745) --------- -------- --------- BALANCE AT SEPTEMBER 30, 1998...... (96,368) (3,529) (89,593) Repurchase of Series A Cumulative Preferred Stock......... -- -- (7) Dividends on Series A Preferred Stock.................... (2) -- (2) Issuance of Series A Cumulative Preferred Stock......... -- -- 30,000 Issuance of Common Stock........... -- -- 87,102 Exercise of options/warrants....... -- -- 1,648 Notes receivable for sales of common stock...................... -- -- (1,474) Comprehensive loss: Net loss........................... (63,851) -- (63,851) Foreign currency translation adjustment........................ -- 1,124 1,124 --------- Total comprehensive loss..... (62,727) --------- -------- --------- BALANCE AT SEPTEMBER 30, 1999...... $(160,221) $ (2,405) $ (35,053) --------- -------- --------- Dividends on Series A Cumulative Preferred Stock (unaudited)....... (2,384) -- (2,384) Issuance of Series B Cumulative Preferred Stock net of issuance cost of $1,342 (unaudited)..................... -- -- 48,658 Conversion of Series B Cumulative Preferred Stock into Common Stock (unaudited)....................... -- -- -- Exercise of options/warrants (unaudited)....................... -- -- 351 Notes receivable for sales of common stock (unaudited).......... -- -- (463) Comprehensive loss: Net loss (unaudited)............... (96,562) -- (96,562) Foreign currency translation adjustment (unaudited)............ -- (10,495) (10,495) --------- Total comprehensive loss (unaudited)................. (107,057) --------- -------- --------- BALANCE AT JUNE 30, 2000 (UNAUDITED)....................... $(259,167) $(12,900) $ (95,948) ========= ======== =========
See accompanying notes. F-5 136 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30, --------------------- ---------------------------------- 2000 1999 1999 1998 1997 --------- --------- ---------- --------- --------- (UNAUDITED) OPERATING ACTIVITIES Net loss........................................ $ (96,562) $ (45,988) $ (63,851) $ (27,453) $ (37,078) Adjustments to reconcile net loss to net cash used in operating activities: Provision for bad debt........................ 15,148 11,005 15,202 15,170 22,348 Depreciation and amortization................. 35,131 12,394 17,705 12,332 8,677 Deferred revenue.............................. (3,654) 1,825 3,255 (2,275) 2,714 Impairment of long-lived assets............... - - - - 659 Minority interest............................. - (1,782) (2,251) (1,546) (473) Changes in operating assets and liabilities: Accounts receivable......................... (25,455) (26,214) (31,227) (391) (48,411) Receivables from related parties............ - (1,037) (1,448) (1,864) 1,317 Prepaid expenses and other assets........... (6,707) (2,536) (4,740) (5,551) (3,478) Accrued network costs....................... 68,246 39,966 34,629 (12,255) 21,200 Accounts payable............................ 364 2,613 (1,031) (1,584) 12,136 Other accrued liabilities................... (24,387) 5,248 2,208 (6,318) 13,183 --------- --------- ---------- --------- --------- Net cash used in operating activities........................... (37,876) (4,506) (31,549) (31,735) (7,206) INVESTING ACTIVITIES Acquisition of equipment and leasehold improvements.................................. (5,163) (25,125) (27,633) (11,990) (10,871) Acquisition of ACC Europe, net of cash acquired...................................... (55,745) - - - - --------- --------- ---------- --------- --------- Net cash used in investing activities........................... (60,908) (25,125) (27,633) (11,990) (10,871) FINANCING ACTIVITIES Proceeds from revolving credit agreement........ 257,713 179,011 283,485 256,535 154,961 Repayments on revolving credit agreement........ (252,649) (178,820) (278,407) (255,885) (128,598) Proceeds from issuance of long-term debt........ 35,725 - - 55,152 - Repayment of long-term debt, subordinated debentures, loans payable and capital leases........................................ (21,800) (24,604) (30,433) (5,299) (16,602) Payment of dividends on Preferred Stock......... - (2) (2) (7) (11) Proceeds from the issuance of Preferred Stock... 48,658 - 30,000 - - Proceeds from issuance of Common Stock.......... 20 71,286 71,648 10,039 62 Repurchase of Preferred Stock................... - (7) (7) - (30) Proceeds from issuance of subsidiary common stock to minority holders..................... - - - - 9,001 --------- --------- ---------- --------- --------- Net cash provided by financing activities........................... 67,667 46,864 76,284 60,535 18,783 Effect of exchange rate changes on cash......... - 47 11 (219) 197 --------- --------- ---------- --------- --------- Net increase (decrease) in cash and cash equivalents..................... (31,117) 17,280 17,113 16,591 903 Cash and cash equivalents at beginning of period........................................ 38,030 20,917 20,917 4,326 3,423 --------- --------- ---------- --------- --------- Cash and cash equivalents at end of period...... $ 6,913 $ 38,197 $ 38,030 $ 20,917 $ 4,326 ========= ========= ========== ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest...................................... $ 14,665 $ 8,244 $ 9,248 $ 6,686 $ 7,176 Income taxes.................................. - 2 2 8 102 NON-CASH INVESTING AND FINANCING ACTIVITIES Assets acquired by incurring capital lease obligations or long-term debt................. 27,386 32,638 53,391 10,421 8,533 Common stock issued in exchange for the acquisition of certain minority interest...... - - 17,102 - - Debt issued in conjunction with acquisition of ACC........................................... 53,000 - - - -
See accompanying notes. F-6 137 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) 1. BUSINESS ACTIVITY Communications TeleSystems International d/b/a WorldxChange Communications ("WorldxChange"), a California corporation, is a facilities-based telecommunications carrier that provides international and domestic long-distance service to retail and carrier customers. Our retail base is comprised of residential and commercial customers. Our wholesale base is comprised of other U.S. and foreign telecommunications carriers and resellers. We have established retail and carrier operations in the United States, the Pacific Rim, Canada, Europe and Latin America. WorldxChange also provides operator, debit/calling card service, toll free, private line and other enhanced services. WorldxChange has established operations in the United Kingdom, France, Germany, Belgium, The Netherlands, Australia, New Zealand and Canada through wholly-owned subsidiaries. WorldxChange has additional subsidiaries domiciled in various other countries; however, the activity of these subsidiaries to date has not been significant. The revenue from WorldxChange's international operations continues to increase as a percentage of total revenue. For the years ended September 30, 1997, 1998 and 1999 international revenue, including Canada, represented approximately 13%, 20% and 22% of WorldxChange's total revenue, respectively. 2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared assuming that WorldxChange will continue as a going concern. WorldxChange has experienced recurring losses and has a deficiency in working capital and shareholders' equity. WorldxChange's rapid growth and investments for additional anticipated growth have required significant capital. Historically, WorldxChange's capital needs have been met primarily through a combination of a revolving credit facility, debt, lease financing, cash flows from operations and private placement equity offerings. During the year ended September 30, 1999, WorldxChange raised approximately $100 million in private placement offerings (Note 8). Management believes its available cash, $30 million of financing received from World Access (Note 13), $15 million of available credit facility from a shareholder (Note 13), vendor committed financing, along with the existing credit facility will be adequate to meet WorldxChange's domestic and international capital requirements through September 30, 2000. Management also believes that WorldxChange's ability to raise additional financing will enable the continuation of its global expansion. However, without additional financing, WorldxChange will be required to delay, reduce the scope of and/or eliminate certain of its future expansion plans, and/or reduce its planned expenditures on infrastructure and marketing activities. Interim Financial Information (Unaudited) The accompanying financial statements at June 30, 2000 and for the nine months ended June 30, 1999 and 2000 are unaudited but include all adjustments (consisting of normal recurring accruals), which, in the opinion of management, are necessary for a fair statement of the financial position and the operating results and cash flows for the interim date and periods presented. Results for the interim period ended June 30, 2000 are not necessarily indicative of results for the entire year or future periods. F-7 138 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) Consolidation The accompanying consolidated financial statements include the accounts of WorldxChange and its wholly and majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents Cash equivalents are highly liquid investments purchased with maturities of three months or less when purchased to be cash equivalents. Foreign Currency Assets and liabilities of operations outside the United States, for which the functional currency is not U.S. dollars, are translated into U.S. dollars using the exchange rate in effect at each period end. Revenues and expenses are translated at the average exchange rate prevailing during the period. Cumulative translation adjustments are included as a separate component of shareholders' deficit. Exchange gains and losses from foreign currency transactions are included in "Other (income) expense," in the accompanying Consolidated Statements of Operations. Concentration of Credit Risk WorldxChange's customer base is comprised of several hundred carrier customers and over 750,000 residential and commercial users of its direct dial long distance telephone services, as well as hotels and other users of its operator-assisted long distance telephone services. These customers are located principally throughout the United States (U.S.), and to a much lesser extent in the Pacific Rim, Europe, Latin America, and Canada. WorldxChange's U.S. revenues from residential and smaller commercial users are billed and collected by local exchange carriers (LECs). These LECs pass through to WorldxChange their collection experience with customers billed under these billing agreements. WorldxChange direct bills carrier and certain commercial customers in the U.S. and direct bills all customers in its international markets. WorldxChange performs credit evaluations of the financial condition of these direct bill customers, and may require a deposit in certain circumstances. Revenue is reported net of estimated customer credits which are provided for in the financial statements at the same time the corresponding revenue is recognized. The Company periodically estimates its reserve requirements for uncollectable accounts, and the bad debt expense is included in selling, general and administrative expense. No one customer accounted for more than 10% of revenues for any period during fiscal 1999, 1998 and 1997 and for the nine months ended June 30, 2000. Equipment and Leasehold Improvements Equipment and leasehold improvements are recorded at cost and are depreciated or amortized using the straight-line method over the estimated useful lives of the assets (generally two to seven years) Equipment under capital leases are recorded at the net present value of the minimum lease payments and are amortized over the shorter of the useful life of the asset or the lease term (ranging from three to seven years). Interests in international undersea and on-land fiber-optic cable systems are amortized over their estimated useful lives, typically 20 years. F-8 139 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) Installation Costs Installation costs consists of costs incurred by WorldxChange for the expansion of its switching capacity and related network. These costs also include dialer installation costs incurred upon establishing network services with certain operator services customers. These costs are amortized using the straight-line method over three years. Accrued Network Costs Accrued network costs represent an estimate for cost of network services received from third party telecommunications companies for which WorldxChange has not been invoiced. The estimates are based upon vendor contract rates and actual minutes utilized per WorldxChange's records. Minority Interest Certain of WorldxChange's subsidiaries have sold stock to outside investors. Income or losses from these operations are allocated to minority shareholders based on ownership percentages. Losses in excess of the amounts invested by the minority shareholders are absorbed by WorldxChange. In September 1999, WorldxChange issued 1,554,763 shares of its common stock in exchange for the shares held by certain minority shareholders of its Australian subsidiary and a related holding company (Note 8). At September 30, 1999 a 2.2% minority interest remains in a WorldxChange subsidiary. Stock-Based Compensation As permitted by SFAS No. 123, Accounting for Stock-Based Compensation, WorldxChange accounts for compensation expense under its stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Pro forma disclosure of net loss, as if the fair value-based method had been applied in measuring compensation expense, is presented in Note 8. Revenue Recognition Revenue is recognized as long distance telecommunications services are provided. Prepaid calling card revenue is reported net of selling discounts and recorded when minutes are used. Deferred revenue relates to amounts received from or billed to customers prior to WorldxChange providing telecommunications services. Cost of Services Cost of services is exclusive of depreciation and amortization related to the services network which is included in "Depreciation and amortization" presented separately on the consolidated statements of operations. Advertising WorldxChange charges advertising costs to expense as the costs are incurred. Total advertising expense was $15,836,000, and $13,898,000 for the nine months ended June 30, 2000 and 1999. Total advertising expense was $17,201,000, $14,117,000 and $19,118,000 for the years ended September 30, 1997, 1998, and 1999, respectively. F-9 140 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Comprehensive Income Effective April 1, 1998, WorldxChange adopted SFAS No. 130, Reporting Comprehensive Income. This statement requires that all components of comprehensive income be reported, net of any related tax effect, in the financial statements in the period in which they are recognized. The components of comprehensive income for WorldxChange include net loss and foreign currency translation adjustments. Segment Information Effective October 1, 1998, WorldxChange adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. This statement requires disclosures of certain information about WorldxChange's operating segments, products, geographic areas in which it operates and its major customers. This information is presented in Note 12. Fair Values of Financial Instruments WorldxChange believes that the carrying amounts of its cash, cash equivalents, accounts receivable, accounts payable, accrued liabilities, and notes payable approximate their fair market values due to their short-term nature or variable interest rates. New Accounting Standards In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. In May 1999, the FASB voted to delay the effective date of SFAS No. 133 by one year. The Company will be required to adopt FAS 133 for fiscal year 2001. This statement establishes a new model for accounting for derivatives and hedging activities. Under SFAS No. 133, all derivatives must be recognized as assets and liabilities and measured at fair value. WorldxChange does not expect the adoption of SFAS No. 133 to have a material impact on its consolidated financial position or results of operations. Reclassifications Certain prior period amounts have been reclassified to conform with the current period presentation. 3. ACQUISITIONS In December 1998, WorldxChange completed a business combination with CTS Telcom, Inc. and WorldxChange Limited, affiliates under common ownership and management control, both of which have been accounted for in a manner similar to a pooling-of-interests. WorldxChange issued 278,000 shares in connection with the acquisition of WorldxChange Limited, and no consideration was paid for the acquisition of CTS Telcom. The accompanying pooled consolidated financial statements are derived from the combined F-10 141 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) historical financial statements of CTS Telcom, WorldxChange Limited and WorldxChange. All significant intercompany accounts and transactions have been eliminated. Net revenues and net loss for fiscal 1997 and 1998 preceding the merger by entity are as follows (in thousands):
NET NET INCOME REVENUES (LOSS) -------- ---------- 1997: WxC....................................................... $328,517 $(35,349) CTS Telcom................................................ 17,884 (2,184) WxL New Zealand........................................... 18,342 455 Eliminations.............................................. (33,083) -- -------- -------- Combined.................................................. $331,660 $(37,078) ======== ======== 1998: WxC....................................................... $394,232 $(24,932) CTS Telcom................................................ 16,343 (2,099) WxL New Zealand........................................... 21,204 (422) Eliminations.............................................. (32,912) -- -------- -------- Combined.................................................. $398,867 $(27,453) ======== ========
4. BALANCE SHEET INFORMATION Sale of Accounts Receivable with Recourse WorldxChange sells certain receivables, subject to full recourse provisions, to Zero Plus Dialing Incorporated (ZPDI), one of WorldxChange's providers of billing and collection services. At June 30, 2000 the outstanding balance of such accounts for which WorldxChange is contingently liable was zero. At September 30, 1998 and 1999 the outstanding balance of such accounts for which WorldxChange is contingently liable was approximately $4,019,000 and $1,962,000, respectively. Equipment and Leasehold Improvements Equipment and leasehold improvements consist of the following (in thousands):
SEPTEMBER 30, JUNE 30, ------------------- 2000 1999 1998 ----------- -------- -------- (UNAUDITED) Telecommunications equipment and cables............... $216,065 $125,190 $ 56,091 Computer equipment and software....................... 32,955 15,365 9,985 Office furniture, equipment and vehicles.............. 12,955 9,745 9,335 Leasehold improvements................................ 7,194 3,147 1,614 Equipment in progress................................. -0- 10,266 4,932 -------- -------- -------- 269,169 163,713 81,957 Accumulated depreciation and amortization............. (75,675) (48,948) (32,260) -------- -------- -------- $193,494 $114,765 $ 49,697 ======== ======== ========
F-11 142 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) Telecommunications equipment and cables include eight indefeasible rights of use in cable systems amounting to $41,892,000 and $825,000 and eleven ownership interests in international cables amounting to $15,605,000 and $4,224,000 at September 30, 1999 and 1998, respectively. As of June 30, 2000, WorldxChange had indefeasible rights of use in cable systems amounting to $56,868,000 and ownership interests in international cables amounting to $16,728,000. These assets are amortized over the life of the agreements of 15 to 20 years. Other Assets Other assets consist of the following (in thousands):
SEPTEMBER 30, JUNE 30, --------------- 2000 1999 1998 ----------- ------ ------ (UNAUDITED) Deposits.................................................. $3,331 $4,240 $3,417 Debt issuance costs, net of accumulated amortization of $2,272, $1,686 and $97 at June 30, 2000, September 30, 1999 and 1998, respectively............................. 613 1,718 3,307 Offering Costs............................................ -- 652 -- Other..................................................... 161 188 -- ------ ------ ------ $4,105 $6,798 $6,724 ====== ====== ======
Accrued Liabilities Other accrued liabilities consist of the following (in thousands):
SEPTEMBER 30, JUNE 30, ----------------- 2000 1999 1998 ----------- ------- ------- (UNAUDITED) Accrued taxes.......................................... $19,437 $ 3,734 $ 1,766 Accrued commissions.................................... 1,039 1,575 2,311 Accrued compensation and benefits...................... 3,519 3,144 3,384 Accrued settlements (Note 11).......................... -- 1,211 2,059 Accrued interest....................................... 7,116 634 901 Other.................................................. 13,647 6,035 4,956 ------- ------- ------- $44,758 $16,333 $15,377 ======= ======= =======
5. LONG-TERM DEBT Long-term debt consists of the following (in thousands):
SEPTEMBER 30, JUNE 30, ------------------- 2000 1999 1998 ----------- -------- -------- (UNAUDITED) Unsecured subordinated note balance due December 2000 with interest payable at maturity of 12%............ $ 53,000 $ -- $ --
F-12 143 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
SEPTEMBER 30, JUNE 30, ------------------- 2000 1999 1998 ----------- -------- -------- (UNAUDITED) Secured subordinated note, balance due November 2000 with interest payable quarterly at 12.5%............ $ 45,200 $ 45,200 $ 55,000 Unsecured note due February 2002 with varying monthly principal payments from $300,000 to $1,250,000. The unpaid principal bears interest at 13.0%, which is payable at maturity................................. 18,316 -- -- Term loan due October 2000, with principal reductions of $300,000 due monthly and interest payable monthly at prime plus 5.00% (14.5% at June 30, 2000) and prime plus 6.75% (15.00% at September 30, 1999 and 1998, respectively)................................. 3,800 4,600 5,125 Loan and security agreement payable upon collections of accounts receivable with interest payable monthly at prime rate plus 1.75% (11.25% at June 30, 2000) and prime plus 2.75% (11.00% at September 30, 1999 and 1998 respectively).............................. 27,762 24,362 21,888 Term loan due February 2001 with interest payable at a per annum rate equal to 11.0%....................... 35,725 -- -- Secured subordinated note with interest payable quarterly at 10%.................................... -- -- 1,200 Note payable due March 2004, with principal and interest payments payable in monthly installments of $183,518 at 12.00%.................................. 6,507 7,521 -- Notes payable due June 2004 to March 2005, with aggregate monthly principal and interest payments at 12% due in monthly installments of $355,410 at June 30, 2000 and $197,222 at September 30, 1999......... 14,129 8,693 -- Note payable due May 2004, with principal and interest payments payable in monthly installments of $322,632 at 11.5%............................................ 11,956 13,742 -- Note payable due August 2004, with principal and interest payments payable in monthly installments of $73,235 at 11.5%.................................... 2,853 3,247 -- Note payable due June 2004, with principal and interest payments payable in monthly installments of $56,777 at 10%...................................... 2,201 2,568 -- Note Payable due June 2002 with quarterly payments of $67,000............................................. 536 -- --
F-13 144 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
SEPTEMBER 30, JUNE 30, ------------------- 2000 1999 1998 ----------- -------- -------- (UNAUDITED) Note payable due May 2004 with principal and interest payments made payable in monthly installments of $93,044 at 11%...................................... $ 3,294 $ -- $ -- Secured and unsecured notes, with principal and interest payments payable in quarterly installments, maturing at various dates through June 2000. Interest rates ranging from 10% to 14.25%........... 188 190 429 --------- -------- -------- 225,467 110,123 83,642 Less current portion.................................. (187,020) (9,799) (8,355) --------- -------- -------- $ 38,447 $100,324 $ 75,287 ========= ======== ========
In March 1997, WorldxChange entered into its credit facility, which consists of an accounts receivable-based revolving credit facility and a term loan. In February 2000, the credit facility was amended to increase the maximum borrowing capacity, add a bridge loan, extend the maturity date of the revolving credit agreement and term loan and reduce the interest rate charge. The credit facility allows WorldxChange to borrow up to a maximum of $65.0 million, subject to certain restrictions and borrowing base limitations. The maximum available borrowing base under the revolving credit agreement is $30.0 million and is determined as a specified percentage of eligible accounts receivable. The balance outstanding on the revolving credit agreement is reduced by the application of payments received on collections of accounts receivable. The accounts receivable revolving credit facility had an outstanding balance of approximately $27.8 million at June 30, 2000, and $2.2 million available for borrowing pursuant to the borrowing base limitations. This facility bears interest at the prime rate plus 1.75% and is repaid through collections of accounts receivable. The term loan was issued in the amount of $5.0 million, which at June 30, 2000 had an outstanding balance of approximately $3.8 million, bears interest at the prime rate plus 5.00% and requires monthly reductions of principal of $300,000 plus interest. The bridge loan has a maximum borrowing availability of $30.0 million, bears interest at 11% and matures on February 11, 2001. The maturity date may be extended until October 1, 2003 by the bridge loan participant. As part of the amended agreement and the WorldxChange merger agreement, World Access agreed to participate in the bridge loan and agreed to fund the $30.0 million under the agreement. As of June 30, 2000, the outstanding balance on the bridge loan was $35.7 million and $9.3 million was available for borrowing. In total, as of June 30, 2000, WorldxChange had $67.3 million borrowed under the credit facility and $11.5 million available for borrowing. The revolving credit agreement and the term loan with Foothill totaling $67 million on June 30, 2000 matures on October 1, 2000, unless both the $55 million of subordinated promissory notes due November 30, 2000 and the $53 million of ACC Europe acquisition notes due December 28, 2000 are retired prior to October 1, 2000, in which case the revolving credit agreement and the term loans with Foothill mature October 1, 2003. As of June 30, 2000, WorldxChange was in compliance with the restrictive covenants under the credit facility. WorldxChange's obligations under the credit facility are secured by a first position in substantially all of its assets. F-14 145 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) In May 2000, the credit facility was amended to increase the maximum borrowing capacity to $80.0 million. The $15.0 million increase in the borrowing capacity consists of an additional $15.0 million under the bridge loan, under the same terms and conditions. As of September 30, 1998 and 1999, and June 30, 2000, WorldxChange was in compliance with these covenants, as amended and restructured in order to reflect the debt and equity financings discussed below and in Note 8 and the acquisition of two affiliated companies during fiscal 1999 as discussed in Note 3. WorldxChange's obligations under this agreement are secured by a first position in substantially all of its assets, excluding equipment where encumbrances already exist. From May through August 1998, WorldxChange issued and sold subordinated promissory notes in the aggregate principal amounts of $55.0 million. These notes bear interest at 12.5% per annum, provide for quarterly payments of interest only and mature on November 30, 2000. These notes provide the lender the right to require WorldxChange to use a portion of the net proceeds from any private placement or public offering of WorldxChange's common stock to repay the notes. As such, the outstanding balance at September 30, 1999 has been reduced to $45,200,000. As of June 30, 2000 the outstanding balance was $45,200,000. In addition, WorldxChange also issued a promissory note in August 1998 in the amount of $1.2 million representing accrued interest on the subordinated promissory notes. This note bears interest at the rate of 10.0% per annum, provides for quarterly payments of interest only and matures on November 30, 2000. In accordance with the terms of the note, this balance was repaid out of the proceeds of the private placement equity offerings. In July 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a transatlantic telecommunications cable system for $4,000,000. At June 30, 2000 the outstanding balance related to this agreement was $3,294,000. In October 1998, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a transatlantic telecommunications cable system for $8,250,000. The purchase was vendor financed with a note that bears interest at 12.0% per annum and provides for monthly payments of principal and interest. WorldxChange's obligations under this agreement are secured by a first-priority security interest in the leased capacity. At June 30, 2000 and September 30, 1999, the outstanding balance related to this agreement was $6,507,000 and $7,521,000, respectively. In February 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a nationwide fiber optic communications system. The initial fee for each capacity segment is calculated based on mileage between cities, as defined per the agreement. This purchase was vendor financed with notes that bear interest at 12.0% per annum and provide for payments in equal monthly installments of principal and interest. At June 30, 2000 and September 30, 1999, the outstanding balances related to this agreement were $14,129,000 and $8,693,000 respectively. In March 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a nationwide telecommunications network. Pursuant to this agreement, WorldxChange signed notes payable to the vendor for the purchase price. These notes bear interest at 11.5% per annum and provide for monthly payments of principal and interest. WorldxChange's obligations under this agreement are secured by a security interest in the leased capacity. At June 30, 2000 and September 30, 1999, the aggregate outstanding balance were approximately $14,809,000 and $16,989,000, respectively, which was comprised of two separate notes with balances outstanding of $11,956,000 and $2,853,000 at June 30, 2000. F-15 146 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) In June 1999, WorldxChange entered into an indefeasible right of use agreement to lease capacity in a fiber optic communications system for $2,969,000. The purchase was vendor financed with a note that bears interest at 10.0% per annum and provides for payments in equal monthly installments of principal and interest, which are inclusive of all operation and maintenance fees. At June 30, 2000 and September 30, 1999, the outstanding balances related to this agreement were $2,201,000 and $2,568,000 respectively. Subordinated debentures consisted of the following as of September 30, 1998 (in thousands): 10% subordinated debentures maturing through December 31, 1999...................................................... $ 807 15% subordinated debentures maturing through December 31, 1999...................................................... 5,441 ------- 6,248 Less current portion........................................ (5,066) ------- $ 1,182 =======
As of September 30, 1999, WorldxChange has repaid all amounts outstanding relating to the 10% and 15% subordinated debentures. Maturities of long-term debt as of September 30, 1999 are as follows (in thousands):
YEAR ENDING SEPTEMBER 30, ------------------------- 2000........................................................ $ 9,799 2001........................................................ 77,741 2002........................................................ 7,717 2003........................................................ 8,653 2004........................................................ 6,213 -------- Total............................................. $110,123 ========
6. COMMITMENTS AND CONTINGENCIES Leases WorldxChange leases its primary operating facilities under noncancellable operating leases which expire at various dates through March 2015. Certain of these leases contain escalation clauses based on inflation or fixed amounts and the leases generally require WorldxChange to pay utilities, insurance, taxes and other operating expenses. Rental expense under such leases was $6,299,000, $3,426,000, $4,783,000, and $3,129,000, respectively, for the nine months ended June 30, 2000 and June 30, 1999 and the years ended September 30, 1999 and 1998. WorldxChange leases its switches and certain other telecommunication and computer equipment under capital leases, most of which contain bargain or fair market value purchase options. At June 30, 2000 and September 30, 1999 and 1998 assets acquired under these leases have an original cost of $51,985,000, $42,958,000 and $40,099,000, respectively, and accumulated amortization of $30,992,000, $24,375,000, and $18,515,000, respectively. The amortization of these assets is included with depreciation and amortization expense presented in the Consolidated Statements of Operations. F-16 147 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) Future minimum payments for capital leases and noncancellable operating leases with initial or remaining terms of one year or more as of September 30, 1999 are as follows (in thousands):
CAPITAL OPERATING YEAR ENDING SEPTEMBER 30, LEASES LEASES - ------------------------- -------- --------- 2000........................................................ $ 13,292 $3,198 2001........................................................ 11,475 2,317 2002........................................................ 11,535 1,264 2003........................................................ 7,206 247 2004........................................................ 3,530 138 Thereafter.................................................. 123 451 -------- ------ Total minimum lease payments................................ 47,161 $7,615 ====== Less amount representing interest........................... (7,184) -------- Present value of minimum lease payments..................... 39,977 Less current portion........................................ (10,582) -------- Amounts due after one year.................................. $ 29,395 ========
Commitments for Undersea Cable and Land-based Fiber Optic Cable Systems WorldxChange has entered into three agreements to increase its ownership of undersea cables. These commitments will continue WorldxChange's further expansion in international markets, and are expected to require incremental capital expenditures of approximately $18.0 million. Of this balance, $4.0 million will be vendor financed at 11% interest, with monthly principal and interest payments over a four year amortization period. The remaining $14.0 million will be paid in installments of $6.8 million upon service delivery date and payments of $3.0 million and $4.2 million on the 1st and 2nd anniversaries of the service delivery dates, respectively. As of September 30, 1999 and June 30, 2000 these obligations remain outstanding. WorldxChange entered into an agreement during the year ended September 30, 1999 to acquire $25.0 million of capacity in land-based fiber optic cable systems. The vendor has agreed to finance 90% of the commitment at 12% interest, with monthly principal and interest payments over a five year amortization period. At September 30, 1999, WorldxChange has purchased for cash of approximately $10.0 million, leaving $15.0 million to be ordered. As of June 30, 2000, $7.2 million remained to be ordered. 7. INCOME TAXES Income taxes are provided for in accordance with the provisions of FASB Statement No. 109, Accounting for Income Taxes. Under this method, WorldxChange recognizes deferred tax assets and liabilities for the expected future tax effects of temporary differences between the carrying amounts and the tax bases of assets and liabilities, as well as operating loss carryforwards. F-17 148 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) The significant components of WorldxChange's deferred tax assets and liabilities as of September 30, 1998 and 1999 are shown below (in thousands). At September 30, 1999, a valuation allowance of $51,113,000 has been recorded as realization of such net deferred assets is uncertain:
SEPTEMBER 30, ------------------- 1999 1998 -------- -------- Deferred tax assets: U.S. net operating loss carryforward...................... $ 28,541 $ 16,704 Foreign net operating loss carryforwards.................. 19,263 9,275 Accrued liabilities and reserves.......................... 4,263 3,720 Other..................................................... -- 336 -------- -------- 52,067 30,035 Deferred tax liabilities: Depreciation and amortization............................. (1,153) (2,145) Other..................................................... 199 (56) -------- -------- Net deferred tax assets..................................... 51,113 27,834 Deferred tax assets valuation allowance..................... (51,113) (27,834) -------- -------- $ -- $ -- ======== ========
At September 30, 1999, WorldxChange had net operating loss carryforwards available for federal, state and foreign tax purposes of approximately $74,200,000, $45,000,000 and $55,000,000 respectively. The federal tax loss carryforwards will begin expiring in 2007, unless previously utilized. The state tax loss carryforwards began expiring in 1999 and will continue to expire through 2003, unless previously utilized. The Canadian and Netherlands net operating loss carryforwards in the amounts of $6,200,000 and $5,500,000, respectively, will begin expiring in 2003. Other foreign loss carryforwards may be carried forward indefinitely. The realization of future domestic benefits from net operating loss carryforwards may be limited under Section 382 of the Internal Revenue Code if certain cumulative changes occur in WorldxChange's ownership. 8. SHAREHOLDERS' DEFICIT Common Stock In September 1998, WorldxChange completed a private placement for the issuance of 1,659,214 shares of common stock. WorldxChange issued 788,127 shares of common stock in September 1998 for $10,000,000. The remaining 871,087 shares of common stock were issued in December 1998 for another $10,000,000. During fiscal 1999, WorldxChange issued 5,727,000 shares of common stock for proceeds of $60,000,000. In September 1999, WorldxChange issued 1,554,763 shares of its common stock in exchange for minority interests held in certain of its subsidiaries. The acquisition was accounted for under the purchase method of accounting at a value of $17,102,000, or $11.00 per share. The excess value of the stock issued over the minority interest balance at September 30, 1999 was recorded as goodwill of $12,194,000. This intangible asset is being amortized on a straight-line basis over 20 years. F-18 149 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) Preferred Stock As of September 30, 1998, WorldxChange had 23 shares of Series A Cumulative Preferred Stock outstanding. The shares were non-voting and entitled the holders to certain annual cumulative dividends. During fiscal 1999, all 23 shares were repurchased by WorldxChange. In August 1999, WorldxChange issued 30,000 shares of Series A Convertible Preferred Stock for $30,000,000. The holders of the Series A Convertible Preferred Stock are entitled to receive an annual cash dividend of $40 per share (an aggregate of $100,000 at September 30, 1999). The holders of the Series A Convertible Preferred Stock are entitled to certain antidilution rights and have liquidation rights senior to those of common shareholders. Each share of Series A Convertible Preferred Stock is convertible into 90.9091 shares of common stock. The stock is convertible at the option of the holder six months after issuance provided WorldxChange has not completed a public offering and no such offering is pending. The stock is automatically convertible: (i) six months from a completed registered public offering, provided there has been no other registered public offering during the course of the six months and no registered public offering is pending, or (ii) in the event there is no registered public offering, two years from the date of issuance, provided there is no registered public offering pending. Stock Options WorldxChange's 1996 Stock Option Plan provides for the granting of stock options to purchase, and the issuance of, up to 3 million shares to employees, non-exempt directors and consultants. Generally, options are granted at prices at least equal to fair value of WorldxChange's common stock on the date of grant as determined by WorldxChange's Board of Directors. In addition, certain officers and directors have been granted stock options outside the Plan. Pro forma information regarding net loss is required by SFAS No. 123, and has been determined as if WorldxChange had accounted for its employee stock options under the fair value method of that statement. The fair value of these options was estimated at the date of grant using the minimum value method and the following weighted average assumptions for fiscal year 1997, 1998 and 1999, respectively: risk free interest rate of 6.20%, 5.25% and 5.75%; expected option life of seven years; and no annual dividends. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period of such options. The effects of applying SFAS 123 for pro forma disclosure purposes are not likely to be representative of the effects on pro forma net income or loss in future years because they do not take into consideration pro forma compensation expenses related to grants made prior to fiscal 1996. WorldxChange's pro forma information follows:
1999 1998 1997 -------- -------- -------- (IN THOUSANDS) Pro forma net loss..................................... $(65,016) $(28,176) $(37,432) ======== ======== ========
F-19 150 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) A summary of WorldxChange's stock option activity, including those issued outside of the plans and related information are as follows:
SHARES WEIGHTED- AVAILABLE NUMBER PRICE AVERAGE FOR GRANT OF SHARES PER SHARE EXERCISE PRICE ----------- ----------- ------------- -------------- Balance as of September 30, 1996............................ 1,377,600 1,622,400 $ 0.42-$5.00 $ 1.54 Grants.......................... (1,977,559) 1,977,559 4.33-7.00 4.94 Exercises....................... -- (90,000) 0.42 0.42 Cancellations................... 1,312,525 (1,312,525) 4.33-5.00 4.57 ----------- ----------- ------------- ------ Balance as of September 30, 1997............................ 712,566 2,197,434 0.42-7.00 2.84 Additional shares reserved...... 1,008,166 -- -- -- Grants.......................... (1,377,453) 1,377,453 7.00-10.00 9.67 Exercises....................... -- (54,425) 0.67-7.00 0.72 Cancellations................... 320,162 (320,162) 4.33-5.00 5.00 ----------- ----------- ------------- ------ Balance as of September 30, 1998............................ 663,441 3,200,300 0.42-10.00 5.73 Additional shares reserved...... 4,000,000 -- -- -- Grants.......................... (1,273,752) 1,273,752 10.00-11.00 10.34 Exercises....................... -- (236,239) 0.67-11.00 6.98 Cancellations................... 495,391 (495,391) 5.00-10.00 9.06 ----------- ----------- ------------- ------ Balance as of September 30, 1999............................ 3,885,080 3,742,422 0.42-11.00 6.85 Grants (unaudited).............. (621,581) 621,581 10.00-13.00 11.67 Exercises (unaudited)........... -- (92,486) 0.42-10.00 3.80 Cancellations (unaudited)....... 740,662 (740,662) 5.00-11.00 9.68 ----------- ----------- ------------- ------ Balance as of June 30, 2000 (unaudited)..................... 4,011,659 3,530,855 0.42-13.00 $ 7.02 =========== =========== ============= ======
The following table summarizes significant ranges of outstanding and exercisable options at June 30, 2000 (unaudited):
OUTSTANDING OPTIONS ------------------------------------------- OPTIONS EXERCISABLE WEIGHTED -------------------------- AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING LIFE AVERAGE AVERAGE EXERCISE PRICES SHARES IN YEARS EXERCISE PRICE SHARES EXERCISE PRICE - --------------- --------- -------------- -------------- --------- -------------- $0.42-$0.67 909,575 2.75 $ 0.58 909,575 $ 0.58 $5.00-$9.00 721,951 6.10 6.21 570,326 5.87 $10.00-$10.00 1,254,528 8.48 10.00 613,609 10.00 $11.00-$13.00 644,801 9.27 11.21 78,223 11.29 --------- ---- ------ --------- ------ 3,530,855 6.66 $ 7.02 2,171,733 $ 5.02 ========= ==== ====== ========= ======
The weighted average fair value at date of grant for options granted during fiscal 1997, 1998 and 1999 were $1.43, $1.88 and $2.52 per share, respectively, and $3.46 per share for the nine months ended June 30, 2000. F-20 151 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) 9. RELATED PARTY TRANSACTIONS Affiliated Long Distance Companies In fiscal 1996, WorldxChange began utilizing long distance services from four affiliated companies owned by a relative of WorldxChange's officers/shareholders. Billings by the four affiliates for long distance services provided to WorldxChange were approximately $12,607,000, $5,409,000 and $1,705,000 for the years ended September 30, 1997, 1998 and 1999, respectively. WorldxChange had accounts payable to the four affiliates of $468,000 at September 30, 1998 and no such amounts outstanding at September 30, 1999. Effective January 1999, WorldxChange terminated the agreements with these affiliates. 10. SAVINGS PLAN In January 1996, WorldxChange adopted a 401(k) Savings Plan covering substantially all employees that have been employed for at least one year and meet other age and eligibility requirements. Participants may elect to contribute up to six percent of their compensation. WorldxChange matches 25% of participant contributions. WorldxChange's matching contribution totaled $62,000, $82,000 and $100,000 during the years ended September 30, 1997, 1998 and 1999, respectively. 11. LITIGATION AND REGULATION WorldxChange is required under federal law and regulations to file tariffs showing rates, terms and conditions affecting its services. WorldxChange has filed interstate long distance tariffs with the FCC. The FCC has adopted an order that, with certain exceptions, rescinds the requirement that carriers such as WorldxChange maintain FCC tariffs and mandates that tariffs be withdrawn. The FCC stayed its order pending judicial review. If tariffs are eliminated, it will probably be necessary for WorldxChange to secure contractual agreements with its customers providing for many of the terms of its existing tariffs. Absent tariffs and contracts, WorldxChange believes that disputes could arise concerning the respective rights of WorldxChange and its customers, which could hinder WorldxChange's ability to collect its accounts receivable, increase WorldxChange's overall bad debt losses and collection expenses, and increase WorldxChange's exposure to unlimited damage claims. The FCC has not proposed to change its requirements that tariffs for international services be filed, and WorldxChange continues to file such tariffs. The intrastate long distance operations of WorldxChange are also subject to various state laws. The majority of states require certification or registrations. WorldxChange has secured the ability to offer intra-state service in forty-one states. Many states require tariff filing as well. WorldxChange has been successful in obtaining all necessary regulatory approvals to date, although revision of tariffs, authorities and approvals are being made on a continuing basis and many such requests are pending at any one time. Some states may assess penalties on long distance service providers for traffic sold prior to tariff approval. Such states may require refunds to be made to customers. It is the opinion of management that such penalties and refunds, if any, would not have a material adverse effect on the consolidated results of operations, financial position or liquidity of WorldxChange. In May 1997, the California Public Utilities Commission issued an order, which became effective in October 1997, revoking WorldxChange's Certificate of Public Convenience and Necessity in California and F-21 152 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) imposing certain other fines and penalties against WorldxChange based on the California Public Utilities Commission's findings that WorldxChange violated California laws and regulations requiring WorldxChange to obtain prior consumer authorization before switching consumers' long distance carriers. As a result of the revocation for WorldxChange's Certificate of Public Convenience and Necessity, WorldxChange cannot provide intrastate telecommunication services in California. In addition, WorldxChange must, among other things, (i) pay a $19.6 million fine to the state of California, $2 million of which has been paid with the balance suspended so long as WorldxChange is not found to have committed any future violations of California law or California Public Utilities Commission directives; (ii) reimburse the California Public Utilities Commission for $100,000 in prosecution costs which has also been paid; and (iii) pay approximately $1.9 million in reparations to consumers, of which $1,211,000 remains payable at September 30, 1999 and $0 remains payable at June 30, 2000. Under the California Public Utilities Commission's order, the suspension of WorldxChange's Certificate of Public Convenience and Necessity and the other sanctions and fines imposed on WorldxChange are binding on any successor of WorldxChange. WorldxChange may apply to the California Public Utilities Commission for reinstatement of the Certificate of Public Convenience and Necessity after October 22, 2000, although there can be no assurance that such reinstatement would be granted. In addition, WorldxChange is subject to certain legal, regulatory and administrative proceedings, claims and inquiries arising in the ordinary course of business, some of which involve claims for substantial amounts of damages. The ultimate outcome of such proceedings, claims or inquiries cannot be predicted at this time. It is management's opinion, after consultation with its legal counsel, that any such liability or possible restrictions placed on WorldxChange's operations resulting from the ultimate resolution of such proceedings, claims, and inquiries, beyond that provided, would not have a material effect on WorldxChange's consolidated financial position or WorldxChange's future consolidated results of operations or cash flows. 12. SEGMENT INFORMATION In 1999, WorldxChange adopted SFAS 131. The prior year's segment information has been restated to present three reportable operating segments. WorldxChange's segments are organized on the basis of geographic location and include North America, Pacific Rim and Europe. None of WorldxChange's operating segments have been aggregated. WorldxChange evaluates performance and allocates resources based on profit or loss from operations before interest expense, other income (loss) and minority interest. The accounting policies of the reportable segments are the same as those described in the basis of presentation and summary of significant accounting policies. Intersegment sales and transfers between geographic regions are accounted for at prices that approximate arm's length transactions. No single customer accounted for 10% or more of revenues in fiscal 1999, 1998 or 1997. WorldxChange's regional segments earn revenue from direct-dial long distance services as well as operator, debit/calling card, toll free, private line and other enhanced services to residential customers, other telecommunications carriers, and small to medium-sized businesses. Each of WorldxChange's reportable regions represents a strategic business segment that functions in an environment with common economic characteristics determined based on historical and expected future performance. F-22 153 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) The Company markets its products domestically and internationally, with its principal international markets being Australia and Europe. The tables below contain information about the geographical areas in which the Company operates and represent information utilized by management to evaluate its operating segments. Revenues are attributed to countries based on location in which the sale originated. Long-lived assets are based on the country of domicile.
NORTH PACIFIC AMERICA RIM EUROPE TOTALS -------- ------- -------- ---------- June 30, 2000, and for the nine months then ended (in thousands) Sales to unaffiliated customers.................... $246,063 $38,178 $139,672 $ 423,913 Intersegment revenues.............................. 28,091 4,015 10,957 43,063 -------- ------- -------- ---------- Segment revenues................................... 274,154 42,193 150,629 466,976 Depreciation and amortization...................... 15,176 2,088 17,867 35,131 Segment operating loss............................. (32,894) (8,707) (31,445) (73,046) Segment assets..................................... 639,668 29,952 379,632 1,049,252 Expenditures for long-lived assets................. 2,889 527 1,747 5,163 Reconciliations: NET LOSS Total operating loss for reportable segments....... $ (73,046) Interest expense................................... (22,694) Other expense, net................................. (822) Minority interest.................................. -- ---------- Total consolidated net loss................ $ (96,562) ========== ASSETS Total assets for reportable segments............... $1,049,252 Elimination of intercompany receivables............ (618,840) ---------- Total consolidated assets.................. $ 430,412 ==========
June 30, 1999 and for the nine months then ended (in thousands) Sales to unaffiliated customers.................... $238,013 $42,975 $ 23,336 $ 304,324 Intersegment revenues.............................. 35,551 9,953 4,987 50,491 -------- ------- -------- ---------- Segment revenues................................... 273,564 52,928 28,323 354,815 Depreciation and amortization...................... 9,823 1,298 1,273 12,394 Segment operating loss............................. (22,405) (3,785) (8,910) (35,100) Segment assets..................................... 364,006 24,183 55,657 443,846 Expenditures for long-lived assets................. 15,765 1,742 7,618 25,125 Reconciliations: NET LOSS Total operating loss for reportable segments......... $ (35,100) Interest expense................................... (12,448) Other expense, net................................. (222) Minority interest.................................. 1,782 ---------- Total consolidated net loss................ $ (45,988) ==========
F-23 154 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
ASSETS Total assets for reportable segments............... $ 443,846 Elimination of intercompany receivables............ (244,177) ---------- Total consolidated assets.................. $ 199,669 ========== September 30, 1999, and for the year then ended (in thousands) Sales to unaffiliated customers.................... $337,457 $55,619 $ 28,504 $ 421,580 Intersegment revenues.............................. 48,345 11,025 6,169 65,539 -------- ------- -------- ---------- Segment revenues................................... 385,802 66,644 34,673 487,119 Depreciation and amortization...................... 13,871 1,948 1,887 17,705 Segment operating loss............................. (24,619) (5,166) (18,786) (48,571) Segment assets..................................... 444,250 18,273 111,987 574,510 Expenditures for long-lived assets................. 15,731 1,842 10,060 27,633 Reconciliations: NET LOSS Total operating loss for reportable segments....... $ (48,571) Interest expense................................... (16,883) Other expense, net................................. (648) Minority interest.................................. 2,251 ---------- Total consolidated net loss................ $ (63,851) ========== ASSETS Total assets for reportable segments............... $ 574,510 Elimination of intercompany receivables............ (339,508) ---------- Total consolidated assets.................. $ 235,002 ========== September 30, 1998, and for the year then ended (in thousands) Sales to unaffiliated customers.................... $321,763 $58,382 $ 18,722 $ 398,867 Intersegment revenues.............................. 44,650 22,605 7,576 74,831 -------- ------- -------- ---------- Segment revenues................................... 366,413 80,987 26,298 473,698 Depreciation and amortization...................... 9,988 1,484 860 12,332 Segment operating loss............................. (5,547) (3,041) (7,086) (15,674) Segment assets..................................... 176,678 19,883 28,705 225,266 Expenditures for long-lived assets................. 11,790 200 -- 11,990 Reconciliations: NET LOSS Total operating loss for reportable segments......... $ (15,674) Interest expense................................... 11,947 Other expense, net................................. 1,378 Minority interest.................................. 1,546 ---------- Total consolidated net loss................ $ (27,453) ========== ASSETS Total assets for reportable segments............... $ 225,266 Elimination of intercompany receivables............ (105,137) ---------- Total consolidated assets.................. $ 120,129 ==========
F-24 155 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED)
September 30, 1997, and for the year then ended (in thousands) Sales to unaffiliated customers.................... $291,633 $24,437 $ 15,590 $ 331,660 Intersegment revenues.............................. 39,326 19,333 2,712 61,371 -------- ------- -------- ---------- Segment revenues................................... 330,959 43,770 18,302 393,031 Depreciation and amortization...................... 7,474 548 655 8,677 Segment operating profit (loss).................... (23,439) 2,433 (4,497) (25,503) Other significant noncash item: Write down of impaired long-lived assets........ 659 -- -- 659 Segment assets..................................... 136,355 17,796 17,583 171,734 Expenditures for long-lived assets................. 8,691 2,180 -- 10,871 Reconciliations: NET LOSS Total operating loss for reportable segments....... $ (25,503) Interest expense................................... (8,682) Other expense, net................................. (3,366) Minority interest.................................. 473 ---------- Total consolidated net loss................ $ (37,078) ========== ASSETS Total assets for reportable segments............... $ 171,734 Elimination of intercompany receivables............ (67,989) ---------- Total consolidated assets.................. $ 103,745 ==========
The following table summarizes revenue by region and by type of customer for the years ended September 30, 1997, 1998 and 1999 and nine months ended June 30, 1999 and 2000:
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30, --------------- --------------------------- 2000 1999 1999 1998 1997 ------ ------ ------- ------- ------- (UNAUDITED) (IN MILLIONS) REVENUE BY REGIONS: United States................................. $240.0 $233.5 $330.0 $318.1 $287.4 North America (other)......................... 6.0 4.5 7.5 3.7 4.3 ------ ------ ------ ------ ------ North America total........................... 246.0 238.0 337.5 321.8 291.7 Pacific Rim................................... 38.2 43.0 55.6 58.4 24.4 Europe........................................ 139.7 23.3 28.5 18.7 15.6 ------ ------ ------ ------ ------ Total............................... $423.9 $304.3 $421.6 $398.9 $331.7 ====== ====== ====== ====== ====== REVENUE BY CUSTOMERS: Carrier....................................... $172.9 $138.1 $186.9 $166.1 $163.3 Residential................................... 175.5 125.5 185.3 161.1 116.9 Operator Services............................. 7.6 17.7 22.9 41.1 28.7 Commercial.................................... 67.9 23.0 26.5 30.6 22.8 ------ ------ ------ ------ ------ Total............................... $423.9 $304.3 $421.6 $398.9 $331.7 ====== ====== ====== ====== ======
F-25 156 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) 13. SUBSEQUENT EVENTS On November 4, 1999, WorldxChange acquired the outstanding shares of certain European subsidiaries of ACC Corp, a subsidiary of AT&T. The operations of these subsidiaries are located in the United Kingdom, Germany, France and Italy. As part of this transaction, WorldxChange also acquired from ACC Corp a switch located in the United States and certain indefeasible rights of use of a transatlantic telecommunications cable system. The $113 million purchase price for this transaction was comprised of $60 million cash and a $53 million, 12% per annum interest rate note due on or before December 28, 2000. The acquisition has been accounted for as a purchase, and accordingly, the excess purchase price over the fair value of the net assets acquired of approximately $85.0 million has been preliminarily allocated to goodwill and customer base based on management's estimates. Goodwill will be amortized on a straight-line basis over twenty years and the customer base will be amortized over five years. WorldxChange financed $50 million of the cash payment through the issuance in November 1999 of 50,000 shares of Series B Convertible Preferred Stock to two existing shareholders for $50 million. The Series B Convertible Preferred Stock has a liquidation preference of $1,000 per share. Unless previously converted prior to 180 days after the issuance date, on the 180th day each share of Series B Stock shall be convertible automatically, without any additional consideration by the holder thereof, into 111.111 fully paid and non-assessable common shares. Assuming that the acquisition of ACC Corp. had occurred on the first day of WorldxChange's fiscal year ended September 30, 1998, pro forma condensed consolidated results of operations would have been as follows (in thousands):
YEARS ENDED SEPTEMBER 30, -------------------- 1999 1998 --------- -------- (UNAUDITED) Revenues.................................................... $ 581,826 $517,670 Net loss.................................................... (128,654) (47,765)
In January 2000, WorldxChange secured a loan, which allows for borrowing of up to $15 million from a shareholder. The loans bear interest at 15% and becomes payable on December 31, 2000. In February 2000, WorldxChange signed an Agreement and Plan of merger with World Access, Inc. Concurrent with the signing of the Agreement and Plan of merger, World Access, Inc. agreed to participate in WorldxChange's existing loan and security agreement with a financial institution whereby the existing line increased by $30 million. The $30 million consists of a term loan, which bears interest at 11% and is payable in total on February 11, 2001. In May 2000, the loan and security agreement was amended to increase the term loan to $45 million. In January 2000, WorldxChange negotiated payment terms with a network provider to finance outstanding invoices payable to the carrier. Under the terms of the agreement, the Company agreed to pay to the carrier a total of $24.1 million for services through August 31, 1999. Payments in the aggregate of $4.3 million are due and payable in monthly installments through September 30, 2000 and the remainder is payable in monthly installments of $1.25 million beginning October 2000. The financing bears interest at 13%. F-26 157 COMMUNICATIONS TELESYSTEMS INTERNATIONAL D.B.A. WORLDXCHANGE COMMUNICATIONS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1999 AND PERTAINING TO JUNE 30, 2000 AND FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND 2000 IS UNAUDITED) 14. RECENT EVENT (UNAUDITED) Effective August 1, 2000, WorldxChange has entered into an Executive Management Services Agreement with World Access under which World Access will manage the operations and business affairs of WorldxChange as if World Access and WorldxChange had already completed the merger. The agreement will terminate on the first to occur of the following: - the parties terminate the WorldxChange merger agreement, - the completion of the WorldxChange merger, - World Access gives WorldxChange 15 days notice or WorldxChange materially breaches the services agreement, or - World Access materially breaches the services agreement. F-27 158 Herrn Dr. Henning F. Klose Vorsitzender des Vorstands TelDaFax AG Postfach 22 06 35010 Marburg INDEPENDENT AUDITORS' REPORT We have audited the accompanying consolidated balance sheets of TelDaFax AG as of December 31, 1999, 1998 and 1997, and the related consolidated statements of operations, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TelDaFax AG as of December 1999, 1998 and 1997, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. As discussed in Note 11, the Company's 1999 financial statements have been restated to account for the acquisition of Demuth & Dietl only from the acquisition date, October 4, 1999. Wiesbaden, August 2, 2000 BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprufungsgesellschaft /s/ BUNGERS /s/ KARLIK - ------------------------------ ------------------------------ H.G. Bungers Karlik
F-28 159 TELDAFAX GROUP CONSOLIDATED BALANCE SHEETS (ALL AMOUNTS IN DM '000)
DECEMBER 31, JUNE 30, ----------------- 2000 1999 1998 ----------- ------- ------- (UNAUDITED) Current assets: Cash and equivalents...................................... 53,882 178,287 159,011 Accounts receivable, less allowance for doubtful accounts of DM 556 as of June 30, 2000 (unaudited) and DM 1,128 and DM 3,115 as of December 31, 1999 and 1998, respectively........................................... 86,569 80,260 63,853 Inventories............................................... 4,908 4,129 68 Prepaid expenses and other current assets................. 57,579 29,422 7,843 ------- ------- ------- Total current assets.............................. 202,938 292,098 230,775 Equipment and leasehold improvements, net................... 133,199 137,929 67,355 Intangible assets........................................... 32,261 16,451 13,624 Loan to related parties..................................... 1,385 1,411 -- Financial assets............................................ 4,461 -- -- Deferred tax assets, net.................................... 17,394 3,255 -- Other assets................................................ 3,340 4,027 815 ------- ------- ------- Total assets...................................... 394,978 455,171 312,569 ======= ======= ======= Current liabilities: Accounts payable.......................................... 150,353 196,041 90,699 Accrued expenses.......................................... 10,784 6,575 12,094 Other current liabilities................................. 8,856 4,778 -- Current portion of long-term debt......................... 1,424 1,553 -- Current portion of capital lease obligations.............. 13,390 13,761 4,818 ------- ------- ------- Total current liabilities......................... 184,807 222,708 107,611 Long-term debt.............................................. 1,549 1,572 -- Capital lease obligations................................... 37,873 44,251 10,076 Deferred tax liabilities.................................... -- -- 2,794 Other long-term liabilities................................. 707 721 753 ------- ------- ------- Total long-term liabilities....................... 40,129 46,544 13,623 Minority interests.......................................... 1,811 (160) -- Shareholders' equity: Common stock, Eur 2,60 as of June 30, 2000 (unaudited) and December 31, 1999 and DM 5 par value as of December 31, 1998, 33,828,600 authorized, issued and outstanding as of June 30, 2000 (unaudited) and December 31, 1999 and 1998, respectively..................................... 172,024 172,024 169,143 Additional paid in capital................................ 15,787 15,787 15,787 Retained earnings......................................... (19,580) (1,732) 6,405 ------- ------- ------- Total shareholders' equity........................ 168,231 186,079 191,335 ------- ------- ------- Total liabilities and shareholders' equity........ 394,978 455,171 312,569 ======= ======= =======
F-29 160 TELDAFAX GROUP CONSOLIDATED STATEMENTS OF OPERATIONS (ALL AMOUNTS IN DM '000, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------- ----------------------------------- 2000 1999 1999 1998 1997 ---------- ---------- ---------- ---------- --------- (UNAUDITED) Sales................................. 307,704 305,896 611,018 263,050 32,271 Cost of services...................... (279,607) (248,879) (548,110) (202,359) (31,085) Gross profit.......................... 28,097 57,017 62,908 60,691 1,186 Sales expenses........................ (41,783) (26,257) (50,716) (31,417) (3,434) General administration expenses....... (17,305) (2,808) (17,723) (8,570) (2,797) Other operating income................ 2,260 829 791 327 76 Other operating expenses.............. (4,751) (5,307) (9,625) (2,969) (1,448) Operating income (loss)............... (33,482) 23,474 (14,365) 18,062 (6,417) Financial result...................... 197 1,494 764 425 (1,104) Taxes................................. 13,691 (12,052) 7,009 (9,713) 1,667 Minority interests.................... 1,746 140 1,336 -- -- Net income (loss)..................... (17,848) 13,056 (5,256) 8,774 (5,854) Income (loss) per Common Share from Continuing Operations: Basic and Diluted................... (0.53) 0.39 (0.16) 0.45 (5.16) Weighted Average Shares Outstanding: Basic and Diluted................... 33,828,600 33,828,600 33,828,600 19,296,826 1,133,525
F-30 161 TELDAFAX GROUP CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT AND COMPREHENSIVE OF CHANGES IN COMBINED EQUITY SHAREHOLDER'S FUNDS
ADDITIONAL COMMON STOCK PAID SHARE RETAINED SHARES AMOUNT IN CAPITAL CAPITAL EARNINGS TOTAL ------------ ------- ------------- ------- -------- ------- PIECES DM'000 DM'000 DM'000 DM'000 BALANCE AT DECEMBER 31, 1996...... -- -- -- 4,000 (7,732) (3,732) Issuance of common stock.......... 20,000 100 100 Issuance of common stock.......... 1,648,000 8,240 8,240 Issuance of common stock.......... 714,860 3,574 14,450 18,024 Retirement of share capital....... (4,000) (4,000) Loss of predecessor company....... (3,663) 3,663 -- Contribution in kind.............. 7,554 7,554 Loss for the period............... (5,854) (5,854) ---------- ------- ------ ------ ------- ------- BALANCE AT DECEMBER 31, 1997...... 2,382,860 11,914 10,787 -- (2,369) 20,332 Issuance of common stock.......... 1,000,000 5,000 5,000 10,000 Issuance of IPO -- public......... 9,725,722 48,629 48,629 Issuance of IPO -- old shareholders.................... 20,720,018 103,600 103,600 Cash dividends.................... -- Transfer to legal reserve......... 334 (334) -- Profit for the period............. 8,774 8,774 ---------- ------- ------ ------ ------- ------- BALANCE AT DECEMBER 31, 1998...... 33,828,600 169,143 16,121 -- 6,071 191,335 Issue of share capital (Euro), Dec 17, 1999........................ -- 2,881 (2,881) -- Loss for the period............... (5,256) (5,256) ---------- ------- ------ ------ ------- ------- BALANCE AT DECEMBER 31, 1999...... 33,828,600 172,024 16,121 -- (2,066) 186,079 Loss for the period (unaudited)... (17,848) (17,848) ---------- ------- ------ ------ ------- ------- BALANCE AT JUNE 30, 2000.......... 33,828,600 172,024 16,121 -- (19,914) 168,231 ========== ======= ====== ====== ======= =======
F-31 162 CONSOLIDATED STATEMENTS OF CASH FLOWS TELDAFAX GROUP (ALL AMOUNTS IN DM '000)
SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, ----------------------- ----------------------------- 2000 1999 1999 1998 1997 ---------- ---------- -------- -------- ------- (UNAUDITED) Net income (loss)...................................... (19,594) 12,916 (5,256) 8,774 (5,854) Minority interests..................................... 1,746 140 (1,336) -- -- Amortization and depreciation.......................... 22,269 13,290 33,630 18,086 5,040 Depreciation of current assets......................... 2,860 -- -- -- -- Loss on the sale of property, plant and equipment...... 6 -- 3,800 6 -- Decrease (increase) in deferred tax assets............. (14,139) -- (3,255) -- -- Increase (decrease) in deferred tax liabilities........ -- -- (2,794) -- -- -------- -------- -------- -------- ------- (6,852) 26,346 24,789 26,866 (814) -------- -------- -------- -------- ------- Decrease (increase) in accounts receivable trade, net of bad debts......................................... (6,309) (14,013) (16,407) (59,817) (2,759) Increase (decrease) in inventories..................... (779) -- (4,061) -- -- Decrease (increase) in prepaid expenses and other current assets....................................... (28,157) (25,413) (21,579) (8,376) -- Decrease (increase) in other assets.................... 687 815 (3,112) 130 -- Increase (decrease) in accounts payable................ (45,688) 11,106 105,342 48,856 7,205 Increase (decrease) in other accrued liabilities....... 8,287 (729) 5,469 34,164 3,091 Increase (decrease) in tax provisions.................. -- 11,905 (6,210) 6,179 31 Increase (decrease) in provision for deferred taxes.... -- (89) -- (60) 2,854 Decrease (increase) in deferred taxes from loss carryforwards........................................ -- -- -- 4,525 (4,525) Increase (decrease) in other long-term liabilities..... (500) (18) 927 2,121 (1,674) Adjustment for effects of acquisition of subsidiaries......................................... (889) 821 4,472 -- -- -------- -------- -------- -------- ------- CASH FLOWS FROM OPERATING ACTIVITIES................... (80,200) 10,731 89,630 54,588 3,409 -------- -------- -------- -------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures................................... (10,450) (29,029) (110,397) (65,796) (30,718) Acquisitions........................................... (27,340) (30) (4,757) (350) -- -------- -------- -------- -------- ------- (37,790) (29,059) (115,154) (66,146) (30,718) -------- -------- -------- -------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from capital increases........................ -- -- -- 157,229 2,199 Loans to related parties............................... -- -- (1,411) -- -- Proceeds in respect of share premium amounts........... -- -- -- 5,000 7,512 Proceeds from outstanding amounts due in respect of capital subscribed................................... -- -- -- 9,615 -- Proceeds from outstanding amounts due in respect of share premium amounts................................ -- -- -- 3,275 -- Payments on debt....................................... (23) (22) -- (6) (86) Proceeds from issuance of debt......................... -- 22 3,125 (9,519) 9,519 Payments on capital lease obligations.................. (6,378) -- -- (12,066) -- Proceeds from long-term accounts payable............... -- 4,505 43,118 10,076 -- Payments on other long-term liabilities................ (14) (18) (32) (64) -- Other proceeds from paid-in capital.................... -- -- -- -- 3,663 Proceeds from issuance of other long-term debt......... -- -- -- -- 10,546 -------- -------- -------- -------- ------- (6,415) 4,487 44,800 163,540 33,353 -------- -------- -------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... (124,405) (13,841) 19,276 151,982 6,044 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD....... 178,287 159,011 159,011 7,029 985 CASH AND CASH EQUIVALENTS AT END OF PERIOD............. 53,882 145,170 178,287 159,011 7,029 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: 12,815 7,729 26,812 5,468 1,106 Interest............................................. 1,617 700 3,415 5,425 1,106 Income taxes......................................... 11,198 7,029 23,397 43 -- NON-CASH INVESTING AND FINANCING ACTIVITIES............ 475 9,283 57,695 10,821 9,519 Assets acquired by incurring capital lease obligations or................................................... 525 9,283 56,086 20,340 -- long term debt......................................... (50) -- 1,609 (9,519) 9,519
F-32 163 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (DM IN THOUSANDS) 1. DESCRIPTION OF BUSINESS TelDaFax Telefon-, Daten- und Fax Transfer GmbH & Co. KG was founded in March 1995. On July 1, 1997, TelDaFax Telefon-, Daten und Fax Transfer GmbH & Co. KG transferred all of its business assets to TelDaFax GmbH. TelDaFax AG was then established through a change in the legal form of TelDaFax GmbH. The transfer of the business assets was a contribution-in-kind to TelDaFax GmbH in exchange for new shares. The assets were contributed at their fair market value. The step-up amounts were treated as contributed capital. Following a resolution, of the General Meeting of Shareholders on May 27, 1998, the legal form was changed again to that of a stock corporation in accordance with Sections 190ff and 238ff of the law governing changes in legal form. The incorporation into TelDaFax AG was entered in the Commercial Register on June 10, 1998. TelDaFax AG ("TelDaFax"), a German company, provides voice telephony, fax and data transmission services along with mobile hardware and mobile phone cards throughout Germany. TelDaFax provides fixed-to-mobile, -international and - -domestic connections to commercial and residential customers through a communication network of dedicated lines leased from Deutsche Telekom AG. Prior to January 1, 1998, these services were provided solely to commercial customers. The receipt of a Category 4 License from the Federal Ministry for Post and Telecommunications for fixed-line telecommunication services on September 30, 1997 and the full liberalization of the German telecommunications market on January 1, 1998 allowed TelDaFax to expand these services to residential customers under the carrier number "01030". TelDaFax also provides internet access through its majority-owned subsidiary GeoNet Systems GmbH and mobile phone hardware and calling cards through its majority-owned subsidiaries Demuth & Dietl + Co. Kommunikationselektronic GmbH and Netztel Plus Drillish AG. TelDaFax also wholly owns BNC Kommunikationssysteme GmbH & Co. KG, an operating division responsible for monitoring TelDaFax router system, and TelDaFax Vertriebs GmbH, an operating division consisting of TelDaFax's sales organization. The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles, referred to as US GAAP. TelDaFax maintains its financial records in accordance with German statutory regulations which represents generally accepted accounting principles in Germany. Generally, accepted accounting principles in Germany vary in certain respects from US GAAP. Accordingly, TelDaFax has recorded certain adjustments in order that these financial statements be in accordance with US GAAP. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Interim Financial Information (Unaudited) The unaudited consolidated balance sheet as of June 30, 2000 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the six month periods ended June 30, 2000 and 1999, have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All adjustments, in the opinion of management, that are necessary for the fair statement of the financial position and the operating results and cash flows for the interim periods have been presented. Results of operations for the six month periods ended June 30, 2000 and 1999 are not necessarily indicative of the results that may be achieved for the entire years or future periods. Principles of Consolidation The accompanying consolidated financial statements include the accounts of TelDaFax and its wholly-and majority-owned financial subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. F-33 164 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Cash and Cash Equivalents TelDaFax considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. Concentration of credit risk with respect to trade receivables is limited as the outstanding total represents a large number of customers with individually small balances. The Company does not require collateral or other security interests against trade receivable balances; however, it does maintain reserves for potential credit losses and such losses have been within management's expectations. Substantially all of the Company's cash and cash equivalents are deposited in financial institutions in Germany. Inventories Inventories are stated at the lower of cost or market and are valued using the weighted-average method. Property, Plant and Equipment Property, plant and equipment, is valued at acquisition or production cost and depreciated or amortized over their estimated useful lives, using the straight-line method. Equipment under capital leases are recorded at the net present value of the minimum lease payments and are amortized over the shorter of the useful life of the asset or the lease term using the straight-line method. The range of depreciable lives are as follows:
YEARS ------ Technical equipment, plant and machinery.................... 4 - 7 Operational, office and other equipment..................... 4 - 20
Intangible Assets Intangible assets mainly relate to goodwill, acquired software, acquired technical know-how and the license for fixed-line telecommunication services. Goodwill is amortized on a straight-line basis over 15 years. Goodwill as of June 30, 2000 and December 31, 1999, 1998 and 1997, net of accumulated amortization, was DM 25,363, DM 8,049, DM 3,852 and DM 2,694, respectively. Software is capitalized when it is purchased from a third party, either in the ordinary course of business or, in the case of the acquisition of subsidiaries, as allocated goodwill. It is amortized over 4 years. Technical know-how is capitalized as allocated goodwill in the case of the acquisition of subsidiaries. It is amortized over 4 years. Technical know-how as of June 30, 2000 and December 31, 1999, 1998 and 1997, net of accumulated amortization, was DM 841, DM 1,245, DM 2,054 and DM 2,614, respectively. TelDaFax evaluates the recoverability of long-lived assets by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. At the time such evaluations indicate that the future undiscounted cash flows of long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to their fair values. Based on these evaluations, there were no material adjustments to the carrying value of long-lived assets during the six month period ended June 30, 2000 and 1999 and the years ended December 31, 1999, 1998 and 1997. F-34 165 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Revenue Recognition Telecommunication revenue is recognized as services are provided. Mobile hardware revenue is reported when the customer takes possession of the product and prepaid mobile calling card revenue is recorded when the minutes are used. Advertising TelDaFax expenses advertising costs as incurred. Total advertising costs were DM 8,320 DM 5,041, DM 24,696, DM 12,321 and DM 3,434 for the six month periods ended June 30, 2000 and 1999 and the years ended December 31, 1999, 1998 and 1997, respectively. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133 "Accounting for Derivative Instruments and Hedging Activities", which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In June 1999, SFAS No. 133 was amended by SFAS 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of SFAS 133". As a result of this amendment, SFAS No. 133 shall be effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. In accordance with SFAS No. 133, an entity is required to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS No. 133 requires that changes in the derivatives' fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement and requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company does not expect the adoption of this standard to have a material effect on its consolidated financial position or results of operations. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassification Certain amounts in prior years financial statements have been reclassified to conform with the presentation in 1999. 3. INVENTORIES Inventories consist of:
JUNE 30, DECEMBER 31, ----------- ------------ 2000 1999 1998 ----------- ----- ---- (UNAUDITED) Raw materials............................................... -- -- 68 Work-in-progress............................................ -- 1,027 -- Finished goods.............................................. 4,908 3,102 -- ----- ----- -- 4,908 4,129 68 ===== ===== ==
F-35 166 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following:
JUNE 30, DECEMBER 31, ----------- -------------- 2000 1999 1998 ----------- ------ ----- (UNAUDITED) Contractual claim of purchase reduction for traffic services.................................................. 2,313 -- -- Prepaid income taxes........................................ 28,104 16,858 -- Short-term portion of prepaid commissions................... 8,344 5,090 -- Other....................................................... 18,818 7,474 7,843 ------ ------ ----- Total............................................. 57,579 29,422 7,843 ====== ====== =====
5. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, at cost, consist of:
JUNE 30, DECEMBER 31, ----------- ----------------- 2000 1999 1998 ----------- ------- ------- (UNAUDITED) Technical equipment, plant and machinery.................. 168,573 160,723 75,755 Other equipment, operational and office equipment......... 20,042 18,769 8,657 Construction in progress.................................. 2,662 578 570 ------- ------- ------- Total cost...................................... 191,277 180,070 84,982 Accumulated depreciation and amortization................. (58,078) (42,141) (17,627) ------- ------- ------- Net book value.................................. 133,199 137,929 67,355 ======= ======= =======
6. LONG-TERM DEBT Long-term debt consists of the following:
JUNE 30, DECEMBER 31, ----------- ------------- 2000 1999 1998 ----------- ----- ----- (UNAUDITED) Loan due November 2002 with a yearly principal reduction of DM 34.787 and an interest rate of 5.5 %................... 49 72 -- Term loan due September, 2003 with interest payable at per annum rate equal to 6.75 %................................ 1,500 1,500 -- ----- ----- ----- Total............................................. 1,549 1,572 -- ===== ===== =====
Aggregate maturities of long-term debt as of December 31, 1999 are as follows:
PRINCIPAL INTEREST TOTAL --------- -------- -------- 2001........................................................ 35 101 136 2002........................................................ 37 100 137 2003........................................................ 1,500 74 1,574 2004........................................................ -- -- -- Thereafter.................................................. -- -- -- ----- --- ----- Total............................................. 1,572 275 1,847 ===== === =====
F-36 167 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The loans are secured by transfers of ownership by way of security, blank assignments as well as land charges of Demuth & Dietl. 7. CAPITAL LEASE OBLIGATIONS The future minimum lease payments as of December 31, 1999 under capital leases consist of the following:
CAPITAL LEASES -------------- 2000........................................................ 16,609 2001........................................................ 15,213 2002........................................................ 14,803 2003........................................................ 13,641 2004........................................................ 4,226 Thereafter.................................................. -- ------- Total minimum lease payments................................ 64,492 Less amount representing interests.......................... 6,480 ------- Present value of minimum lease payments..................... 58,012 Less current portion........................................ (13,761) ------- Amounts due after one year........................ 44,251 =======
8. INCOME TAXES Income taxes are provided for in accordance with the provisions of FASB Statement No. 109, Accounting for Income Taxes. Under this method, TelDaFax recognizes deferred tax assets and liabilities for the expected future tax effects of temporary differences between the carrying amounts and the tax basis of assets and liabilities, as well as operating loss carryforwards. The provision for income taxes consists of the following:
YEAR ENDED DECEMBER 31, --------------------------- 1998 1999 ------------ ------------ Current income taxes: Payment for 1998 in 1999.................................. -- 989 Corporate tax claim from loss carryback 1999 to 1998...... -- (950) Prepaid trade taxes....................................... (25) -- Prepaid corporate taxes................................... (475) -- Provision from trade taxes................................ (732) -- Provision from corporate taxes............................ (5,500) -- ------ ----- (6,732) 39 Deferred taxes: Provision from trade taxes................................ (1,042) 2,278 Provision from corporate taxes............................ (1,934) 4,231 ------ ----- (2,976) 6,509 ------ ----- Total provision for income taxes.................. (9,708) 6,548 ====== =====
F-37 168 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes consist of the following:
YEAR ENDED DECEMBER 31, --------------- 1998 1999 ------ ----- Deferred tax liabilities: On Amortization of intangible assets........................ 2,794 1,589 Elimination of intermediate earnings from tangible assets...................................... -- (535) Differences in value assessment............................. -- 211 ------ ----- Total deferred tax liabilities.................... 2,794 1,265 Deferred tax assets: Tax loss carry forward...................................... -- 4,520 ------ ----- Total deferred tax assets......................... -- 4,520 ------ ----- Net deferred tax assets........................... (2,794) 3,255 ====== =====
The provision for income taxes differs from the amount of income tax provision computed by applying the Germany federal income tax rate to income before income taxes and minority interest. A reconciliation of the differences is as follows: Loss before income taxes and minority interest:............. DM (13,486) Income tax rate............................................. 46% Expected income tax:........................................ DM (6,204) Prior year payment.......................................... DM (989) Differences in value assessment............................. DM (211) Elimination of intermediate earnings........................ DM 535 Higher tax rate on loss carryback........................... DM 321 ------------- Total provision for income taxes.................. DM (6,548) =============
9. SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, --------------------------- 1997 1998 1999 ------- ------- ------- DM '000 DM '000 DM '000 Profit (loss) for the period................................ (5,854) 8,774 (5,256) Loss of predecessor company................................. 3,663 -- -- Increase contributed capital................................ 10,787 5,000 -- Capital increase............................................ 15,468 -- -- Issue of share capital...................................... -- 157,229 -- ------ ------- ------- Net changes in combined equity shareholder's funds.......... 24,064 171,003 (5,256) Opening combined equity shareholder's funds................. (3,732) 20,332 191,335 ------ ------- ------- Closing combined equity shareholder's funds....... 20,332 191,335 186,079 ====== ======= =======
The share capital is divided into 33,828,600 non par value bearer shares with a theoretical nominal value of EUR 2,60. The executive board is authorized, with the approval of the supervisory board, to increase the share capital of TelDaFax in the period up to June 9, 2004 at one time or on several occasions by up to a total amount of EUR 42,900,000.00 through the issue of new no par value bearer shares with a theoretical nominal value of EUR 2,60 each against payment in cash or contribution in kind (authorized capital). Shareholder's are to be granted subscription rights with respect thereto. However, subject to the approval of the supervisory board may decide on the exclusion of subscription rights for existing shareholders. F-38 169 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The executive board is authorized, with the approval of the supervisory board, at one time or on several occasions in the period up to June 9, 2004, to grant bearer options and/or convertible bonds with up to a total nominal amount of EUR 858,000,000.00 and a term of no longer than 20 years and to grant option rights to the bearers of convertible debenture stock or to grant the bearers of convertible bonds right of conversion for new shares of TelDaFax with stake in share capital of up to EUR 42,900,000.00 -- or up to 16,500,000 shares -- within the limits of the conditions for options or bonds. 10. COMMITMENTS AND CONTINGENCIES Operating Leases Certain buildings and automobiles are under noncancellable operating lease agreements expiring in various years. Minimum future lease obligations, by year and in aggregate, as of December 31, 1999 are as follows:
OPERATING LEASES ---------------- 2000........................................................ 2,033 2001........................................................ 1,888 2002........................................................ 1,470 2003........................................................ 1,218 2004........................................................ 1,167 Thereafter.................................................. 17,505 ------ Total minimum lease payments...................... 25,281 ======
Legal Proceedings TelDaFax and certain of its suppliers have entered into legal proceedings regarding the cost, functionality and period of services provided. TelDaFax has two such disputes outstanding which individually amount to DM 21,000 and DM 5,000, respectively. TelDaFax has refused payment of these amounts because of defective delivery or cancellation of the supplier contracts. TelDaFax has accrued amounts, including legal fees, which it believes reflect the amounts for which it will ultimately settle these disputes. Although there can be no assurance as to the ultimate disposition of these matters, it is the opinion of TelDaFax's management, based on information available at this time, that the expected outcome of these matters, individually, or in the aggregate, will not have an adverse effect on the results of operations and financial condition of TelDaFax. 11. ACQUISITIONS On July 1, 1997, TelDaFax acquired 100% of the stock of BNC Kommunikationssysteme GmbH & Co. KG, a router management service provider, for DM 3,037. TelDaFax recorded the acquisition in accordance with purchase accounting resulting in goodwill of DM 1,374 and goodwill allocated to technical know-how of DM 2,987. On January 1, 1998, TelDaFax acquired 100% of the stock of TelDaFax Vertriebs GmbH, a sales organization, for DM 250. TelDaFax recorded the acquisition in accordance with purchase accounting resulting in goodwill of DM 115. On December 8, 1998, TelDaFax acquired 75% of the stock of GeoNet Systems GmbH, an internet access provider, for DM 400. TelDaFax recorded the acquisition in accordance with purchase accounting as of January 1, 1999 (the acquisition was classified as an investment as of December 31, 1998) resulting in goodwill of DM 1,478. F-39 170 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) On October 4, 1999, TelDaFax acquired 51% of the stock of Demuth & Dietl + Co. Kommunikationselektronik GmbH, a provider of mobile hardware and calling cards, for DM 5,200. TelDaFax recorded the acquisition in accordance with purchase accounting resulting in goodwill of DM 3,414. Previously, the financial statements reflected the acquisition of Demuth & Dietl from January 1, 1999 in accordance with the terms to the agreement between TelDaFax and the sellers but, under US GAAP, the Company subsequently determined that it did not "control" Demuth & Dietl until the transaction closed in October, 1999. Unaudited pro forma information with respect to TelDaFax as if the 1998, 1999 and 2000 acquisitions had occurred on January 1, 1998, is as follows:
NET INCOME YEAR ENTITY NET REVENUE (LOSS) - ---- ------ ----------- ----------- (UNAUDITED) (UNAUDITED) 1999 TelDaFax................................................. 630,232 (10,911) Demuth & Dietl........................................... 58,787 (181) Netztel.................................................. 17,781 (613) Eliminations............................................. (19,214) 5,579 ------- ------- Combined................................................. 687,586 (6,126) ======= ======= 1998 TelDaFax................................................. 292,033 16,890 Demuth & Dietl........................................... 107,204 (50) Netztel.................................................. -- (204) Eliminations............................................. (28,983) (8,116) ------- ------- Combined................................................. 370,254 8,520 ======= =======
12. RELATED PARTY TRANSACTIONS In conjunction with TelDaFax's acquisition of Demuth & Dietl + Co. Kommunikationselektronic GmbH, a DM 1,411 loan was made to a division of the acquired company excluded from the transaction with payments beginning in 2000. 13. BUSINESS SEGMENT INFORMATION TelDaFax provides telecommunication products and services to its customers in Germany in three distinct business segments organized around the different services provided: Fixed Network, Mobile and Internet. The Fixed Network is made up of one operating unit: TelDaFax. TelDaFax provides fixed-to-mobile, - -international and -domestic telephony, fax and data connections to commercial and residential customers through its communication network leased from Deutsche Telekom AG. Mobile services, which consist of hardware sales and calling cards provided through a distribution network consisting of over 1,500 retailer dealers in Germany, are provided by Demuth + Dietl + Co. Kommunikationselektronic GmbH and Netztel Plus Drillish. Internet services, which consists of internet access, is provided by GeoNet Systems GmbH. F-40 171 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tables below present information about the business segments in which TelDaFax operates and represent information utilized by management to evaluate its business segments. TELDAFAX FINANCIAL DATA PER SEGMENT
SIX MONTHS ENDED JUNE 30, 1999 --------------------------------------- FIXED CELLULAR NETWORK INTERNET SERVICE TOTAL ------- -------- -------- ------- (IN THOUSAND DM) Sales to unaffiliated customers............................. 305,065 831 -- 305,896 Intersegment revenues....................................... -- -- -- -- Segment revenues............................................ 305,065 831 -- 305,896 Depreciation and amortization............................... (13,229) (61) -- (13,290) Segment operating profit (loss)............................. 23,463 (818) -- 22,645 Segment assets.............................................. 353,992 953 -- 354,945 Expenditures for long-lived assets.......................... 28,529 530 -- 29,059 Reconciliations: NET RESULT Total operating result for the reportable segments........ 22,645 Other income.............................................. 829 Financial result.......................................... 1,494 Other expense, net........................................ (12,052) Minority interest......................................... 140 Total consolidated profit (loss).................. 13,056 ASSETS Total assets for reportable segments...................... 354,945 Elimination of intercompany receivables................... (4,191) Total consolidated assets......................... 350,754
SIX MONTHS ENDED JUNE 30, 2000 --------------------------------------- FIXED CELLULAR NETWORK INTERNET SERVICE TOTAL ------- -------- -------- ------- (IN THOUSAND DM) Sales to unaffiliated customers............................. 255,275 3,810 48,619 307,704 Intersegment revenues....................................... -- -- -- -- Segment revenues............................................ 255,275 3,810 48,619 307,704 Depreciation and amortization............................... (22,501) (460) (2,168) (25,129) Segment operating profit (loss)............................. (24,551) (6,987) (4,204) (35,742) Segment assets.............................................. 380,081 1,575 42,477 424,133 Expenditures for long-lived assets.......................... 36,670 144 976 37,790 Reconciliations: NET RESULT Total operating result for the reportable segments........ (35,742) Other income.............................................. 2,260 Financial result.......................................... 197 Other expense, net........................................ 13,691 Minority interest......................................... 1,746 Total consolidated profit (loss).................. (17,848) ASSETS Total assets for reportable segments...................... 424,133 Elimination of intercompany receivables................... (29,155) Total consolidated assets......................... 394,978
F-41 172 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1999, AND FOR THE YEAR THEN ENDED ----------------------------------- FIXED CELLULAR NETWORK INTERNET SERVICE TOTAL ------- -------- -------- ------- (IN THOUSAND DM) Sales to unaffiliated customers........................... 587,299 4,124 19,595 611,018 Intersegment revenues..................................... -- -- -- -- Segment revenues.......................................... 587,299 4,124 19,595 611,018 Depreciation and amortization............................. (33,391) (183) (56) (33,630) Segment operating profit (loss)........................... (10,279) (4,843) (34) (15,156) Segment assets............................................ 458,507 3,587 14,154 476,248 Expenditures for long-lived assets........................ 108,185 1,367 845 110,397 Reconciliations: NET RESULT Total operating result for the reportable segments........ (15,156) Other income.............................................. 791 Financial result.......................................... 764 Other expense, net........................................ 7,009 Minority interest......................................... 1,336 Total consolidated profit (loss).................. (5,256) ASSETS Total assets for reportable segments...................... 476,248 Elimination of intercompany receivables................... (21,077) Total consolidated assets......................... 455,171
DECEMBER 31, 1998, AND FOR THE YEAR THEN ENDED ----------------------------------- FIXED CELLULAR NETWORK INTERNET SERVICE TOTAL ------- -------- -------- -------- (IN THOUSAND DM) Sales to unaffiliated customers....................... 263,050 -- -- 263,050 Intersegment revenues................................. -- -- -- -- Segment revenues...................................... 263,050 -- -- 263,050 Depreciation and amortization......................... (18,086) -- -- (18,086) Segment operating profit (loss)....................... 17,735 -- -- 17,735 Segment assets........................................ 314,392 -- -- 314,392 Expenditures for long-lived assets.................... 66,146 -- -- 66,146 Reconciliations: NET RESULT Total operating result for the reportable segments.... 17,735 Other income.......................................... 327 Financial result...................................... 425 Other expense, net.................................... (9,713) Minority interest..................................... -- Total consolidated profit (loss).............. 8,774 ASSETS Total assets for reportable segments.................. 314,392 Elimination of intercompany receivables............... (1,823) Total consolidated assets..................... 312,569
F-42 173 TELDAFAX AG NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997, AND FOR THE YEAR THEN ENDED ---------------------------------------------- FIXED CELLULAR NETWORK INTERNET SERVICE TOTAL -------- ----------- ----------- ------- (IN THOUSAND DM) Sales to unaffiliated customers..................... 32,271 -- -- 32,271 Intersegment revenues............................... -- -- -- -- Segment revenues.................................... 32,271 -- -- 32,271 Depreciation and amortization....................... (5,040) -- -- (5,040) Segment operating profit (loss)..................... (6,493) -- -- (6,493) Segment assets...................................... 61,885 -- -- 61,885 Expenditures for long-lived assets.................. 30,718 -- -- 30,718 Reconciliations: NET RESULT Total operating result for the reportable segments......................................... (6,493) Other income........................................ 76 Financial result.................................... (1,104) Other expense, net.................................. 1,667 Minority interest................................... -- Total consolidated profit (loss)............ (5,854) ASSETS Total assets for reportable segments................ 61,885 Elimination of intercompany receivables............. -- Total consolidated assets................... 61,885
Other Information TelDaFax is dependent upon one significant supplier for the leasing of transmission lines and billing operations for call-by-call customers. TelDaFax's reliance on this external source can be shifted, over a period of time, to alternative sources should the changes be necessary. However, there may be a material adverse effect on the business, financial and operations of TelDaFax. 14. SUBSEQUENT EVENTS Investment in Netztel Plus Drillish AG On February 3, 2000, TelDaFax acquired an 81.9% of the stock of Netztel Plus Drillish AG, a mobile phone calling card provider, for DM 15,000. TelDaFax recorded the acquisition in accordance with purchase accounting resulting in goodwill of DM 13,658. Investment in Internet AG On April 5, 2000, TelDaFax acquired a 32% interest in Internet AG, a provider of e-commerce solutions with integrated payment systems, on-line shops and electronic market places. TelDaFax's investment totaled Euro 2,275. F-43 174 ANNEX A TELDAFAX PURCHASE AGREEMENT A-1 175 EXHIBIT 2.3 PURCHASE AND TRANSFER AGREEMENT DATED 14 JUNE 2000 (THE "SIGNING DATE") between 1. Dr. Henning F. Klose hereinafter "KLOSE" 2. Apax Germany II L.P. hereinafter "APAX II" 3. Apax Funds Nominees Ltd. fr "B" Account hereinafter "APAX B FUND" 4. Apax Funds Nominees Ltd. fr "D" Account hereinafter "APAX D FUND" -- Apax B Fund and Apax D Fund together "APAX FUNDS NOMINEES LIMITED" -- 5. AP Vermogensverwaltung Gesellschaft hereinafter "AP" burgerlichen Rechts 6. A + M GmbH & Co Vermogensverwaltung KG hereinafter "A+M" -- together the "SELLERS" -- and 7. World Access, Inc. -- hereinafter the "PURCHASER" -- 8. TelDaFax Aktiengesellschaft Marburg/Lahn -- hereinafter the "TELDAFAX" --
A-2 176 SECTION 1 DEFINITIONS A+M Call Option............................................. sec. 5.2 A+M Option Shares........................................... sec. 5.2 A+M Put Option.............................................. sec. 5.2 AP.......................................................... Caption Apax Funds Nominees Limited Assets.......................... Caption Apax B Fund................................................. Caption Apax D Fund................................................. Caption Apax II..................................................... Caption A+M......................................................... Caption Breach of Warranty.......................................... sec. 12.1 Call Option Closing......................................... sec. 17.2.3 Closing..................................................... sec. 9.1 Closing Conditions.......................................... sec. 8.1 Closing Date................................................ sec. 9.1 Consideration Stock......................................... sec. 6.1 Consolidated 1999 Financial Statements...................... sec. 11.3.2.1 Contribution Agreement...................................... sec. 4.1 Disclosed Information....................................... sec. 10.2 Exchange Ratio.............................................. sec. 16.4 Funds....................................................... sec. 11.1 Interim Financial Statements................................ sec. 11.3.2.4 Klose....................................................... Caption Klose Call Option........................................... sec. 5.2 Klose Option Shares......................................... sec. 5.2 Klose Put Option............................................ sec. 5.2 Loss........................................................ sec. 12.1 Material Adverse Event...................................... sec. 13.4 Material Agreement.......................................... sec. 11.3.12 Offeror..................................................... sec. 17.4.1 Option Shares............................................... sec. 5.2 Put Option Closing.......................................... sec. 17.1.3 Purchaser................................................... Caption Reasonable Purchaser........................................ sec. 13.4.4 Registration Rights Agreement............................... sec. 5.5 Relevant Percentage......................................... sec. 6.5 Sales Notice................................................ sec. 17.4.1(a) Sellers..................................................... Caption Signing Date................................................ Caption Sold Shares................................................. sec. 5.1 Stand-Alone Financial Statements............................ sec. 11.3.2.1 Subsidiaries................................................ sec. 3.7 Caption/sec. TelDaFax.................................................... 2.1 TelDaFax Group.............................................. sec. 3.7 Tender Offer................................................ sec. 16.4
A-3 177 SECTION 2 TELDAFAX AKTIENGESELLSCHAFT 2.1 TelDaFax Aktiengesellschaft, is registered in the commercial register of the local court Marburg under HR B 2174 ("TELDAFAX"). TelDaFax provides telecommunication services, in particular voice telephony via its fixed line network, internet services through its own platform and other data and fax transmission services. 2.2 The share capital of TelDaFax currently amounts to 87,954,360, divided into 33,828,600 non par value shares. TelDaFax has an authorised capital (Genehmigtes Kapital) with an aggregate nominal amount of 42,900,000 and a conditional capital in the amount of 42,900,000 to cover the issue of convertible bonds. The shares of TelDaFax are admitted to the regular market of the Frankfurt Stock Exchange, segment Neuer Markt, and on the EASDAQ. 2.3 The Sellers presently hold the following shares in TelDaFax: 2.3.1 Klose holds 2,756,200 shares equal to 8.15% of the aggregate share capital; 2.3.2 Apax II holds 3,587,312 shares equal to 10,60% of the aggregate share capital; 2.3.3 Apax B holds 2,508,076 share equal to 7,41% of the aggregate share capital; 2.3.4 Apax D holds 3,755,988 shares equal to 11.10% of the aggregate share capital; 2.3.5 AP holds 1,326,800 shares equal to 3.92% of the aggregate share capital. 2.3.6 A+M holds 143,492 shares equal to 0,42% of the aggregate share capital.
SECTION 3 PARTICIPATIONS OF TELDAFAX TelDaFax holds shares in the following corporations: 3.1 BNC Kommunikationssysteme GmbH & Co. KG, Bonn, registered in the commercial register of the local court in Bonn under HR A 4286, Share capital: DM 50,000 Participation of TelDaFax: 100% 3.2 BNC Kommunikationssysteme Verwaltungs GmbH, Bonn, registered in the commercial register of the local court in Bonn under HR B 7295, Share capital: DM 50,000 Participation of TelDaFax: 100% 3.3 TelDaFax Telefon, Daten und Fax Transfer Vertriebs GmbH, Marburg, registered under HR B 2137 in the commercial register of the local court in Marburg, Share capital: DM 50,000 Participation of TelDaFax: 100% 3.4 GeoNet Systems GmbH, Marburg, registered in the commercial register of Marburg under HR B 2265, Share capital: DM 100,000 Participation of TelDaFax: 95% 3.5 Demuth, Dietl & Co. Kommunikationselektronik GmbH, Wetzlar, registered in the commercial register of Wetzlar under HR B 1579, Share capital: DM 462,200 Participation of TelDaFax: 50,95%
A-4 178 3.6 Internet AG, Global Network, Birkenau, registered in the commercial register of Furth/Odenwald under HR B 879, Share capital: E13,500,000 Participation of TelDaFax: 65% (after registration of capital increases against cash contributions and contributions in kind registration is still pending) 3.7 Netztel Plus AG, Heppenheim a.d. BergstraBe, registered in the commercial register under HR B5096, Share capital: E6.925.000.200 Participation of TelDaFax: 81,94% The companies listed in 3.1, 3.2 and 3.3 are not engaged in any commercial activity. The companies listed in this 3 are collectively referred to as the "SUBSIDIARIES". TelDaFax and the Subsidiaries are together referred to as the "TELDAFAX GROUP".
SECTION 4 COMBINATION OF GERMAN BUSINESSES OF PURCHASER AND THE BUSINESS OF TELDAFAX Purchaser and TelDaFax agree to use good faith efforts to pursue the combination of their respective businesses in Germany in order to realise synergies to the largest extent practically possible. The business combination shall be implemented by taking the following actions: 4.1. Purchaser shall contribute the German activities of Netnet Telekommunikationssysteme GmbH, and NewTel Communications GmbH to TelDaFax by way of a capital increase against contribution in kind out of authorised capital. TelDaFax and Purchaser and/or affiliates of Purchaser shall enter into a contribution agreement by June 30, 2000 substantially in the form of Exhibit 4.1.2 (the "Contribution Agreement") once agreement on the evaluation of the contributed assets and the number of shares to be issued has been reached. 4.2. The management board (Vorstand) of TelDaFax with the consent of the supervisory board (Aufsichtsrat) of TelDaFax is entitled to increase the capital of TelDaFax by the amount of the authorised capital to the exclusion of subscription rights of the existing shareholders if, inter alia, the newly issued shares are used to acquire other businesses. TelDaFax and the Sellers undertake to the extent permitted under applicable law that Vorstand and Aufsichtsrat will adopt the necessary resolution to effect the capital increase is effected. 4.3. As soon as and to the extent legally possible and consistent with the best interest of their shareholders TelDaFax and the other German businesses of Purchaser shall enter into such agreements of combination or co-operation to achieve synergies in the most efficient and beneficial way for all parties and the shareholders of Purchaser and TelDaFax.
SECTION 5 SALE AND TRANSFER, PUT AND CALL OPTION 5.1 Subject to the terms and conditions of this agreement, the Funds hereby agree to sell the shares in TelDaFax listed in sec. 2.3.2 to 2.3.5 (the "SOLD SHARES").
A-5 179 5.2 Subject to the terms set forth in sec. 17, Klose has the right to sell to Purchaser and Purchaser is obliged to buy from Klose all of the shares in TelDaFax listed in sec. 2.3.1 or any portion thereof (the "KLOSE OPTION SHARES"), in up to three instalments in the period beginning on the Signing Date and ending on December 31, 2001 ("KLOSE PUT OPTION") A+M has the right to sell to Purchaser and Purchaser is obliged to buy from A+M all of the shares in TelDaFax listed in 2.3.6 (the "A+M OPTION SHARES") in the period beginning on the Closing and ending on April 30, 2001 (the "A+M Put Option") in one instalment. Purchaser has the right to buy from Klose and Klose is obliged to sell to Purchaser all of the Klose Option Shares owned by him at the time when Purchaser makes use of this right in the period beginning on July 1, 2002 and ending on December 31, 2002 (the "KLOSE CALL OPTION"). Purchaser has the right to buy from A+M and A+M is obliged to sell to Purchaser all of the A+M Option Shares in the period beginning on July 1, 2001 and ending on December 31, 2001 (the "A+M CALL OPTION"). The shares which are subject to the put and call Options are hereinafter together referred to as the "OPTION SHARES". Until the options are exercised Klose and A+M will retain and may exercise all rights attached to the Option Shares. 5.3 The Sold Shares and Option Shares are represented by global certificates which are held in global custody by Clearstream AG. The Sold Shares and Option Shares are only deliverable as fractional entitlements to the global certificates held by Clearstream AG. The transfer of the Sold Shares shall be effected as provided for in Exhibit 5.3 at the Closing. The Sold Shares are booked to the following securities accounts: 5.3.1 The shares held by Apax II are booked to the securities account No. 5 374 898 Bank Code 700 202 70 with Bayerische Hypo- und Vereinsbank. 5.3.2 The shares held by Apax B are booked to the securities account No. 555 910 44 Bank Code 702 202 00 with BHF Bank AG Munchen. 5.3.3 The shares held by Apax D are booked to the securities account No. 555 910 51 Bank Code 702 202 00 with BHF Bank AG Munchen. 5.3.4 The shares held by AP are booked to the securities account No. 2 733 951 Bank Code 700 202 70 with Bayerische Hypo- und Vereinsbank. 5.3.5 The Klose Option Shares are booked to the securities account No. 035 81672 7 with Goldman Sachs & Co., New York. 5.3.6 The A+M Option Shares are booked to the securities account No. 241925700 with Commerzbank AG. 5.4 The sale and transfer of the Sold Shares and Option Shares hereunder shall include all rights and obligations attached to the Sold Shares at the Closing or the relevant Option Closing. 5.5 It is understood and agreed that Purchaser will use its reasonable best efforts to effect the registration under the Securities Act of 1933, as amended, of the portion of the Consideration Stock (as defined below) to be issued as consideration for the Sold Shares on the Form S-4 registration statement to be filed in connection with the Tender Offer. If this portion of the Consideration Stock is not included on this Form S-4, or if, even if such Consideration Stock can be so included on such Form S-4, Purchaser and the Funds determine, based on the advice of legal counsel, that the Funds' acquisition of Consideration Stock is subject to Rule 145 under the Securities Act of 1933, as amended, or that the Funds would be deemed an affiliate (as defined in Rule 144 under the Securities Act of 1933, as amended) of Purchaser, Purchaser and the Funds shall, not later than the Closing Date, enter into a registration rights agreement with respect to the Consideration Stock with terms substantially similar to the terms in the registration rights term sheet attached as Exhibit 5.5.
A-6 180 Purchaser, Klose and AM, as the case may be, shall, not later than the Closing Date, enter into a registration rights agreement with respect to the Consideration Stock to be issued as consideration for the Option Shares with terms substantially similar to the terms in the registration rights agreement term sheet attached as Exhibit 5.4. In the event that the Purchaser and the Funds enter into a registration rights agreement as contemplated by the foregoing paragraph, such Consideration Stock shall, to the extent legally practicable, be registered on the same registration statement on Form S-3 contemplated by such registration rights agreement and Klose and A+M shall be a party to such registration rights agreement in lieu of a separate agreement between Purchaser and Klose or A+M.
SECTION 6 CONSIDERATION 6.1 The consideration for the Sold Shares and for the sale of the Option Shares shall be the issue to the Sellers of World Access Common Stock (the "CONSIDERATION STOCK"). 6.2 In exchange for each of the Sold Shares and the Option Shares the Purchaser shall issue such number of shares of the World Access Common Stock resulting from applying the Exchange Ratio offered in the Tender Offer to the Sold Shares, or Option Shares, as the case may be, but in no event less than 1.025 shares of World Access Common Stock for one TelDaFax share. 6.3 In the event the Purchaser changes the number or kind of shares of World Access Common Stock as a result of a stock split, stock dividend, recapitalization, reclassification, reorganisation of similar transaction with respect to the outstanding World Access Common Stock, and the record date therefore shall be after the date hereof and prior to the Closing, the Exchange Ratio shall be proportionately adjusted to such manner as Purchaser and the Sellers shall agree, which adjustment may include, as appropriate, the issuance of securities, property or cash on the same basis as that on which any of the foregoing shall have been issued, distributed or paid to the holders of World Access Common Stock generally. 6.4 The Consideration Stock shall (save as provided below) be transferred to the following securities accounts of Sellers: 6.4.1 Klose securities account No. 035-81672-7 with Goldman, Sachs & Co., New York; 6.4.2 Apax II securities account No. 5 374 898 Bank Code 700 202 70 with Bayerische Hypo- und Vereinsbank; 6.4.3 Apax B securities account No. 555 910 44 Bank Code 702 202 00 with BHF Bank AG Munchen; 6.4.4 Apax D securities account No. 555 910 51 Bank Code 702 202 00 with BHF Bank AG Munchen; 6.4.5 AP securities account No. 2 733 951 Bank Code 700 202 70 with Bayerische Hypo- und Vereinsbank; 6.4.6 A+M securities account No. 2 419 257 00 Bank Code 700 400 41 with Commerzbank AG. 6.5 Sellers are entitled to the following percentage of the total Consideration Stock (the "Relevant Percentage").
A-7 181 The Relevant Percentage is for Apax II..................................................... 25,5% Apax B...................................................... 17,8 Apax D...................................................... 26,7 AP.......................................................... 9,4 A+M......................................................... 1,0 Klose....................................................... 19,6 ----- Total............................................. 100,0% =====
SECTION 7 DIVIDENDS 7.1 TelDaFax has no distributable profits for the fiscal year 1999. 7.2 In respect of the profit distribution of the Subsidiaries listed in sec. 3, Sellers undertake to procure that no profit distribution shall take place in the period between the Signing Date and the Closing.
SECTION 8 CLOSING CONDITIONS 8.1 The closing of the sale of the Sold Shares shall be subject to the following conditions (the "CLOSING CONDITIONS"): 8.1.1 Clearance by the Federal Cartel Office of all the transactions contemplated by this Agreement pursuant to sec. 20 (Merger Control) has been obtained. 8.1.2 In Tender Offer enough shares having been tendered so that following the Closing Purchaser will own more than 50% of the then outstanding TelDaFax shares; 8.1.3 The capital increase to effect the contributions contemplated by the Contribution Agreement having been registered in the commercial register of TelDaFax; 8.1.4 No Material Adverse Event having occurred and no party having exercised the right to withdraw pursuant to sec. 13. 8.1.5 The shareholders of Purchaser having approved the transactions contemplated by this Agreement including the Tender Offer and the merger agreements of the Purchaser with Communications Telesystems International Inc and Star Telecommunications Inc. 8.1.6 No laws shall have been adopted or promulgated and no court order of whatsoever nature shall be in effect which prohibits the consummation of the transactions contemplated by this Agreement or having the effect of making the transactions illegal. 8.1.7 All material consents, approvals and actions of, filing with and notices to any third party or governmental authority required to consummate the transactions contemplated by this Agreement shall have been obtained including, to the extent required, under Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended.
A-8 182 8.2 Purchaser and Sellers shall have the right to withdraw (zurcktreten) from this Agreement including the Klose and A+M Put and Call Options provided for in sec.sec. 5.2 and 17, if (i) the Closing Conditions have not been satisfied by September 30, 2000 or (ii) the Supervisory Board of TelDaFax does not resolve on the capital increase contemplated by the Contribution Agreement, or (iii) the Supervisory Board of TelDaFax changes its recommendation to the TelDaFax shareholders to accept the Tender Offer on the basis of its fiduciaries duties owed to the outside shareholders in deviation from its resolution adopted on June 14, 2000 attached as Exhibit 8.2. by which this Agreement and the transactions contemplated herein were approved, or (iv) if the Closing Condition in Section sec. 8.1.2 becomes impossible due to the acquisition by a third party of TelDaFax shares. If by September 30, 2000 all Closing Conditions have been satisfied except for the Closing Condition in 8.1.2 and 8.1.3, but the Tender Offer has been launched and is pending, the right to withdraw may not be exercised prior to October 31, 2000. Sellers may only jointly exercise this right to withdraw by notifying Purchaser accordingly. 8.3 Purchaser, but not Sellers have the right to withdraw from this Agreement including the Klose and A+M Put and Call Option, if the TelDaFax Supervisory Board fails to take any action required to implement the contribution agreed in the Contribution Agreement referred to in sec. 4.1 or takes any action which makes such implementation impossible. 8.4 If Purchaser and/or Sellers withdraw from this Agreement in accordance with this sec. 8, sec. 13.4 or sec. 13.5, they shall not be liable to the other parties for any damages or for the fulfilment of any other obligations under this agreement or in connection with this Agreement irrespective of the legal basis on which any claim of such other parties is based; provided, however, neither Purchaser nor Sellers shall be relieved or released from any liabilities arising out of its breach of this Agreement. Sellers and Purchaser may agree in writing on an extension of the periods set forth in sec. 8.2. 8.5 If the competent antitrust authorities only clear the transaction contemplated by this Agreement subject to modifications, the Closing Condition set forth in sec. 8.1 shall only be deemed to be satisfied if (i) Sellers and Purchaser acting reasonably agree that the modification shall be implemented in order to proceed with the Closing or (ii) in the event that such modification significantly alters the financial expectations of the Purchaser (in respect of the purchase of shares in TelDaFax) Sellers agree to indemnify Purchaser in full against any financial disadvantage resulting from such modification. Sellers and Purchaser undertake to negotiate for at least three weeks in good faith with a view to reaching agreement on the acceptance of such modification and, if relevant, the payment of the appropriate indemnification. 8.6 If the Agreement is terminated in accordance with this sec. 8, sec. 13.4 or sec. 13.5 by withdrawal of Purchaser and/or Sellers, each party shall be obliged to return all material received from the other side and to keep secret and not to use for its purposes all confidential information received in the context of this transaction.
SECTION 9 CLOSING 9.1 Representatives of the Funds and Purchaser shall meet on the fifth banking day following the satisfaction of the Closing Conditions, or on such other day as is mutually agreed between the Funds and Purchaser (the "Closing Date"), in order to close the sale of the Sold Shares contemplated herein in accordance with sec. 9.3 ("CLOSING").
A-9 183 9.2 The Closing shall take place at the offices of Hengeler Mueller Weitzel Wirtz in Frankfurt am Main, Bockenheimer Landstra(B)e sec. 51, or as such other place as is mutually agreed between the parties. 9.3 At the Closing, Purchaser shall procure evidence that the transfer of the Consideration Stock will be completed, subject to, and simultaneously with the following: 9.3.1 Delivery by the Funds to Purchaser of the share transfer agreement (Exhibit 5.3) properly executed by the Funds covering all Sold Shares; 9.3.2 delivery by the Funds of confirmations by their respective custody banks that the Sold Shares are booked as of the Closing Date to the securities accounts specified in sec. 5.2 substantially in the form of Exhibit 9.3.2; 9.3.3 delivery by Sellers to Purchaser of resignation letters of all members of the Supervisory Board of TelDaFax except for one representative for the outside shareholders to be designated by Purchaser. Klose undertakes to take all necessary action to have new Supervisory Board members proposed by Purchaser appointed by the competent court as soon as practically possible; 9.3.4 delivery by the Funds to Purchaser and by Purchaser to Funds of certificates of Funds and Purchaser, respectively, that the representations and warranties of each of them shall be true and correct in all material respects as of the Closing, or, as the case may be, as of any other point of time specifically mentioned therein. If Funds cannot deliver the certificate because one or more of the representations and warranties have become incorrect, Purchaser is entitled to withdraw from this agreement pursuant to sec. 13.4. provided the breach of the representation and warranties constitutes a Material Adverse Event within the meaning of sec. 13.4. If the breach does not constitute a Material Adverse Event, Purchaser has the remedies under sec. 12; 9.3.5 execution of the Registration Rights Agreement.
SECTION 10 DUE DILIGENCE 10.1 Giving due consideration to the best interest of TelDaFax and the other shareholders and complying with applicable legal restrictions regarding confidentiality, Sellers prepared a data room which was open for Purchaser in the period from April 25 to May 5, 2000, arranged for a management presentation, allowed Purchaser to obtain certain other information and documentation upon request, gave Purchaser to opportunity to hold interviews with the management of TelDaFax as well as to perform on site visits. Sellers undertake to provide Purchaser with further information on the TelDaFax Group upon request after the Signing Date of this Agreement to the extent permitted under applicable law. 10.2 For the avoidance of doubt, all information provided to Purchaser and referred to in the due diligence reports of Ernst & Young, Frankfurt and Clifford Chance Pnder, Frankfurt, as delivered and initialled by the parties at the Signing Date or listed in Exhibit 10.2.1, in the Business Plan attached as Exhibit 10.2.2 or explicitly disclosed in this Agreement shall be deemed to have been disclosed to and being known by Purchaser. (the "DISCLOSED INFORMATION").
A-10 184 SECTION 11 WARRANTIES AND REPRESENTATIONS 11.1 Funds' Warranties and Representations Regarding their Legal Status Apax II, Apax B Fund, Apax D Fund, and AP (the "FUNDS") severally warrant and represent at the Signing Date and at the Closing unless explicitly stated otherwise: 11.1.1 Apax Funds Nominees Limited holds 6,264,064 shares of TelDaFax as Nominee for B Account and D Account. Apax Funds Nominees Limited has been duly formed and is validly existing in England under the Companies Act 1985. 11.1.2 Apax II is a limited partnership duly formed and validly existing under the laws of the State of Delaware. 11.1.3 AP is a partnership (Gesellschaft burgerlichen Rechts) duly formed and validly existing under German Civil Law. 11.1.4 The Funds have the capacity under the applicable laws and their constitutional documents to enter into this Agreement and to perform their obligations hereunder. 11.1.5 No approval, authorisation or consent under any contract, applicable law and/or constitutional document is required for the Funds to enter in this Agreement and to perform the obligations hereunder. The execution of this Agreement and the performance of the obligations hereunder will not result in the violation of any contract, law applicable to the Funds or provisions of the respective constitutional documents of the Funds. 11.2 The Funds Representations Regarding U.S. Securities Laws The Funds severally represent and warrant at the Signing and Closing Date 11.2.1 The Funds are acquiring the Consideration Stock as contemplated by this Agreement for investment purposes and not with a view toward any distribution thereof. 11.2.2 No Fund will dispose of any of his or its Consideration Stock, other that pursuant to an effective registration statement of Rule 144 or Rule 144A promulgated by the U.S. Securities Exchange Commission (the "SEC") under the U.S. Securities Act of 1933, as amended (the "SECURITIES ACT") (or any similar or analogous rule), unless and until (a) such Fund shall have notified the Purchaser of the proposed disposition and shall have furnished to Purchaser with a statement of the circumstances surrounding the proposed disposition, and (b) if requested by the Purchaser, such Fund shall have furnished the Purchaser with an opinion of counsel reasonably satisfactory in form and substance to the Purchaser and Purchaser's counsel to the effect that (i) such disposition will not require registration under the Securities Act and (ii) appropriate action necessary for compliance with the Securities Act and any applicable U.S. state or local law or non-U.S. law has been taken.
A-11 185 11.2.3 Each Fund: (a) is an "ACCREDITED INVESTOR" as that term is defined in Regulation D promulgated by the SEC under the Securities Act and has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of his or its prospective investment in the Purchaser; (b) has received all the information requested by him or it from the Purchaser and considered necessary or appropriate for deciding whether to exchange his or its Sold Shares for Consideration Stock; (c) has the ability to bear the economic risks of such prospective investment; and (d) is able, without materially impairing his or its financial condition, to hold the Consideration Stock for an indefinite period of time and to suffer a complete loss of its investment. 11.3 The Funds' Warranties and Representations Regarding TelDaFax The Funds warrant and represent severally as follows at the Signing Date and at the Closing unless explicitly stated otherwise: 11.3.1 Legal Situation 11.3.1.1 TelDaFax and the Subsidiaries are corporations duly organised and validly existing under the laws of Germany. 11.3.1.2 Funds have all necessary authority to enter into this Agreement and to implement the transaction contemplated herein. 11.3.1.3 The statements in sec. 2 and sec. 3 are correct, true and in no way misleading. The Funds own and have the unrestricted right to sell, vote and transfer the Sold Shares. The Funds do not hold any further shares of, or interest of whatever nature in, TelDaFax other than the Sold Shares and do not have any rights or warrants to acquire further shares of, or interest in, TelDaFax. To the best knowledge of the Funds, no shareholder or group of shareholders exist which holdings exceed 5% of the issued share capital of TelDaFax. 11.3.1.4 The Sold Shares are free of encumbrances and of all and any rights or obligations whatsoever, which could be asserted by third parties against the Purchaser and/or TelDaFax. 11.3.1.5 sec. 2.2 correctly sets forth the number of shares of TelDaFax issued and outstanding and the number of authorised but not issued shares. There are no outstanding obligations of TelDaFax to repurchase or otherwise acquire outstanding shares. TelDaFax has not issued any securities convertible into or exchangeable for shares of TelDaFax, or any warrants, options or other rights to acquire shares in or from TelDaFax. There are no outstanding obligations of TelDaFax to issue, or any third party rights to call for or otherwise acquire, any shares or securities convertible or exchangeable for shares in TelDaFax. 11.3.1.6 The share capital of TelDaFax is fully paid in; and there are no contributions in kind outstanding except the contributions to be made under the Contribution Agreement. Cash contributions have been made in full, and contributions in kind have been made which fully cover the amount for which the shares are issued, be it either the minimum amount (geringster Ausgabebetrag) or, if the shares are issued for an amount higher than the minimum amount, such higher amount. Contributions have not been reduced by repayments.
A-12 186 11.3.1.7 TelDaFax has good legal title to the shares in the Subsidiaries. The issued shares of the Subsidiaries are fully paid in except as set forth in Exhibit in 11.3.1.7. The shares are free of encumbrances and of any rights or obligations whatsoever which could be asserted by third parties against the Purchaser and/or TelDaFax and/or the respective Subsidiaries. None of the Subsidiaries has distributed profits for the fiscal year 1999 to TelDaFax. To the best knowledge of the Funds, contributions have not been reduced by repayments. 11.3.1.8 Exhibit 11.3.1.8. contains the Articles of Association as presently in force. To the best of knowledge of the Funds no agreements among the shareholders of any company of the TelDaFax Group exist which relate to the constitution or organisation of any company of the TelDaFax Group or the voting of any shares or interests therein. 11.3.1.9 To the best knowledge of the Funds as of the Signing Date TelDaFax and its Subsidiaries mentioned in sec. 3 are not, and have not agreed to become, a party to agreements in the sense of sec. 291 seq. AktG, joint venture agreements, co-operation agreements, partnerships or silent partnership agreements or any other similar contractual arrangement except as shown in Exhibit 11.3.1.9. 11.3.1.10 As of the Signing Date TelDaFax does not have, and has not agreed, to acquire any interest in any legal entity or partnership other than the Subsidiaries. None of the Subsidiaries has an interest in, or has agreed to acquire any interest to any other legal entity or partnership except as provided for in Exhibit 11.3.1.10. 11.3.1.11 To the best knowledge of the Funds nothing has occurred (including any failure to act) which renders any company of the TelDaFax Group liable to be struck off the commercial register, and no proceedings have been commenced for its liquidation. 11.3.1.12 To the best knowledge of the Funds there exist no shareholders' resolutions with respect to the TelDaFax Group which amend the Articles of Association or other shareholders' resolutions which require registration with the commercial register which are not registered in the commercial register except as set forth in Exhibit 11.3.1.12. 11.3.2 Financial Situation 11.3.2.1 TelDaFax has provided Purchaser with copies of the individual financial statements of each member of the TelDaFax Group (the "STAND-ALONE FINANCIAL STATEMENTS") and audited consolidated statements of TelDaFax for the fiscal year ending on December 31, 1999 (the "CONSOLIDATED 1999 FINANCIAL STATEMENTS"). 11.3.2.2 The Consolidated 1999 Financial Statements were prepared according to U.S. GAAP, audited and provided with an unqualified opinion by BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprfungsgesellschaft ("BDO"). The Stand-Alone Financial Statements are prepared according to German GAAP. 11.3.2.3 The Consolidated 1999 Financial Statements and the 1999 Stand-Alone Financial Statements of TelDaFax show a true and fair view of the assets, liabilities and state of affairs as well as the profits and losses of each company of the TelDaFax Group or, as the case may be, of TelDaFax and are prepared on a consistent basis with prior years.
A-13 187 11.3.2.4 To the best knowledge of the Funds, except for normal and recurring year-end adjustments that are not expected to be material in amount, the unaudited interim financial statements for the first quarter of the fiscal year 2000 (the "INTERIM FINANCIAL STATEMENTS") which have been provided to Purchaser have been prepared in accordance with U.S. GAAP with due care and attention on a consistent basis with previously applied accounting principles and show a reasonably accurate view of the assets, liabilities and state of affairs as well as the profits and losses of the TelDaFax Group as of March 31, 2000 and for the period of January 1, 2000 to March 31, 2000. 11.3.2.5 To the best knowledge of the Funds no insolvency proceedings or composition proceedings with creditors in or out of court have been applied for or initiated by any member of the TelDaFax Group. 11.3.3 Assets 11.3.3.1 To the best knowledge of the Funds except for retention of title and other collateral rights arising in the ordinary course of business, and except from statutory liens (gesetzliche Pfandrechte), TelDaFax and its Subsidiaries have good legal title free and clear of any security rights, liens, charges, encumbrances or similar rights (dingliche Rechte) to all assets, reflected in the 1999 Financial Statements plus or minus those assets acquired or disposed of in the ordinary course of business since January 1, 2000 (the "ASSETS"). 11.3.3.2 Subject to fair wear and tear and to Exhibit 11.3.3.2 the Assets, taken as a whole, are to the best knowledge of Sellers in good repair and full working order. 11.3.3.3 To the best knowledge of the Funds Exhibit 11.3.3.3 lists all trademarks and patents and other material intellectual property rights owned and used by the TelDaFax Group. Subject to the best knowledge of the Funds, no employees of TelDaFax Group or any third party has or shall have any rights in respect of any trademarks, patents or other intellectual property rights used by any company of the TelDaFax Group. 11.3.3.4 Subject to the best knowledge of the Funds, the rights, properties and other assets (whether tangible or not) presently owned or leased by or licensed to TelDaFax or any Subsidiary include all rights, properties and other assets necessary to permit them to properly conduct their business according to usual business standards from companies in the telecommunications industry in Germany. To the best knowledge of the Funds, no tangible assets, including all real property and premises used by the TelDaFax Group in the conduct of its business are charged with any environmental damage. 11.3.3.5 The TelDaFax Group does not own real property. 11.3.4 Liabilities 11.3.4.1 To the best knowledge of the Funds and except as set forth in Exhibit 11.3.4.1 as of December 31, 1999 there were no liabilities of TelDaFax and its Subsidiaries which were not sufficiently provided for in the Consolidated 1999 Financial Statements or the Stand-Alone Financial Statements and as of March 31, 2000 there were no liabilities of TelDaFax and its Subsidiaries which were not sufficiently provided for in the Interim Financial Statements.
A-14 188 11.3.4.2 To the best knowledge of the Funds and except as set forth in Exhibit 11.3.4.2, since March 31, 2000, TelDaFax and the Subsidiaries have not incurred any liabilities or obligations other than in the ordinary course of business consistent with past practice. 11.3.5 Conduct of Business, Governmental approvals, licenses and permits 11.3.5.1 To the best knowledge of the Funds the business of TelDaFax and its subsidiaries is and has been materially conducted in accordance with all applicable laws, mandatory rules or requirements of any governmental body or any other authority, and it is and has been conducted in accordance with all applicable laws, mandatory rules or requirements of any governmental body or any other authority in the area of telecommunications. To the best knowledge of the Funds TelDaFax and its Subsidiaries and their respective entities have been complied with and discharged all material obligations (including for this purpose all and any securities laws, regulations or ordinances as applicable to TelDaFax, including without limitation the rules, regulations and other requirements applicable to stocks listed on the Frankfurt and EASDAQ stock exchanges, whether material or otherwise) which they are subject to, whether arising under the law, the Articles of Association, an agreement or otherwise. 11.3.5.2 To the best knowledge of the Funds all members of TelDaFax Group are in possession of all the governmental approvals, licenses and permits necessary and relevant for operating its respective business, as it currently exists. To the best knowledge of the Funds there are presently no apparent indications which could form the basis of a complete or partial revocation of the approvals, licenses or permits. To the best knowledge of the Funds the conditions (Auflagen) accompanying those approvals have been complied with. 11.3.5.3 To the best knowledge of the Funds all members of TelDaFax Group have in place all contractual agreements necessary to provide the services which they are offering. Except as provided for in Exhibit 11.3.5.3 and subject the best knowledge of the Funds during the 12 months ending on the Signing Date, none of the contractual parties from which TelDaFax is receiving services or equipment for its operations has ceased, or informed any member of the TelDaFax Group that it shall cease, rendering the services or supplying the equipment which it is currently providing or delivering or informed TelDaFax Group of its intention to materially alter the terms for providing such services or supplying the equipment. 11.3.5.4 To the best knowledge of the Funds all members of TelDaFax Group have complied, in all material respects, with all requirements, including, but not limited to, information requirements under any Material Agreement. If such agreement also contains a requirement of the other contractual party to consent to the transaction contemplated by this Agreement, all necessary consents are listed in Exhibit 11.3.5.4 and will have been obtained prior to the Closing. To the best knowledge of the Funds neither the execution of this Agreement nor the conclusion of any other matter contemplated herein constitutes a breach of any Material Agreement or will entitle any contractual party to a Material Agreement to terminate, modify or to reduce any such Material Agreement. 11.3.5.5 To the best knowledge of the Funds the TelDaFax Group has not received any investment grants or other subsidies from any public authority which may become repayable in case of failure to comply with the conditions upon which they were granted.
A-15 189 11.3.6 Litigation 11.3.6.1 To the best knowledge of the Funds and except for litigation with a value (Gegenstandswert) of less than E100,000 in the individual case or per series of claims having the same cause or basis and the litigation listed in Exhibit 11.3.6.1, the companies of TelDaFax Group are not involved in, nor do they have any knowledge of any threatened or imminent court proceedings (including arbitration) either as plaintiff or defendant. Except for the proceedings listed in Exhibit 11.3.6.1 and subject to the best knowledge of the Funds, there are no pending or threatened administrative proceedings or investigations of authorities against the companies of TelDaFax Group. To the best knowledge of the Funds there are no circumstances which could give rise to such court or administrative proceedings. 11.3.6.2 To the best knowledge of the Funds TelDaFax and its Subsidiaries do not infringe intellectual property rights of third parties and third parties do not infringe intellectual property rights owned by TelDaFax Group. 11.3.7 Employees 11.3.7.1 To the best knowledge of the Funds and except for the employees listed in Exhibit 11.3.7.4, the employment contracts of the employees of TelDaFax correspond in all material aspects to the standard forms attached as Exhibit 11.3.7.1. 11.3.7.2 No employment agreement of TelDaFax employees is subject to any collective bargaining agreements (Tarifvertrage) and shop agreements (Betriebsvereinbarungen). There is no company pension scheme in force. Except for the works council at the Bonn and Marburg sites of TelDaFax, the employees of TelDaFax have not formed a works council (Betriebsrat) as of the Signing Date. 11.3.7.3 During the last 12 months ending on the Signing Date there were no works stoppages, strikes or other disruptions by employees of TelDaFax or of any of is Subsidiaries. 11.3.7.4 To the best knowledge of the Funds except for the employees listed in Exhibit 11.3.7.4 there are no employment contracts with employees, managing directors or board members providing for a total annual compensation of more than E75,000. No employees' stock option plan has been, or will be implemented until Closing neither is the Company under an obligation to implement a stock option plan. 11.3.7.5 To the best knowledge of the Funds as of the Signing Date no key employee has terminated or has threatened to terminate his/her employment with any company of the TelDaFax Group since January 1, 2000 except for the employee listed in Exhibit 11.3.7.5. 11.3.7.6 To the best knowledge of the Funds TelDaFax has not more than 312 employees and the Subsidiaries in the aggregate have not more than 198 employees. 11.3.7.7 To the best knowledge of the Funds TelDaFax and the Subsidiaries are not engaged in temporary employment (Arbeitnehmeruberlassung), neither as a firm hiring out temporary workers nor as a firm borrowing employees.
A-16 190 11.3.8 Tax To the best knowledge of the Funds the companies of TelDaFax Group have and/or, as appropriate, will have duly and timely filed all tax returns and all other forms and documents relating to taxes or other public levies (including, but not limited to, notifications regarding social security contributions) required under applicable law to be filed on or before Closing. To the best knowledge of the Funds no tax or social security authority has notified the TelDaFax Group of any alleged inaccuracy or incompleteness or proposed any rectification of such forms or other documents or has threatened any company of the TelDaFax Group with any legal or administrative proceedings in relation thereto. All taxes, ancillary fiscal obligations an all other public levies, including, but not limited to, social security contributions and withholding taxes levied under any applicable law, due and payable on or before Closing, whether on its own account or on account of any third party, have and/or, as appropriate, will have been timely paid. All taxes due and payable on or before December 31, 1999 have been appropriately recorded in the books and records of the appropriate companies and are appropriately reflected in the 1999 Consolidated Financial Statements or any financial statements of the relevant company in the TelDaFax Group and, where not paid, have been reflected as provisions in the Consolidated 1999 Financial Statements. 11.3.9 Insurance Policies Sellers have given Purchaser the opportunity to verify the contents of the insurance policies. To the best knowledge of the Funds there are no other insurance policies than those contained in the disclosing information. To the best knowledge of the Funds all insurance premiums under the insurance policies have at all times been paid fully and in a timely manner. To the best knowledge of the Funds there are no outstanding claims in excess of E250,000 by the TelDaFax Group against any insurance. To the best knowledge of the Funds no insurance company has threatened to terminate or initiated termination of the insurance policies. 11.3.10 Changes since January 1, 2000 To the best knowledge of the Funds the business of TelDaFax Group has been managed and run using the same methods and in a manner consistent with former management techniques so as to ensure continuity of the business and none of the following events haven occurred since January 1, 2000 (except for the events listed in Exhibit 11.3.10): 11.3.10.1 A material adverse change in the financial situation and/or in the assets and liabilities shown in the Consolidated 1999 Financial Statements of the TelDaFax Group and the Interim Financials Statements or any event that could cause or constitute a material adverse change (including, but not limited to, contingent liabilities); 11.3.10.2 damages or losses being incurred or suffered by any company of the TelDaFax Group the amount of which exceeds E250,000 in the individual case or E1,000,000 in the aggregate; 11.3.10.3 transactions outside the ordinary course of business; 11.3.10.4 payments of hidden dividends (verdeckte Gewinnausschuttung). 11.3.11 Relations to the Funds 11.3.11.1 Neither any of the Funds nor any affiliates or related parties thereof has granted any loans to TelDaFax or any of the Subsidiaries which are still outstanding and there are no other agreements between any of the Funds, affiliates or related parties thereof with TelDaFax or any of the Subsidiaries.
A-17 191 11.3.11.2 Neither TelDaFax nor any of the Subsidiaries has any outstanding payment claims against, or payment obligations to any of the Funds or any affiliates or related parties thereof. 11.3.11.3 Neither TelDaFax nor any of the Subsidiaries has assumed or is liable for any obligations of any of the Funds or any affiliates or related parties thereof. 11.3.12 Material Agreements To the best knowledge of the Funds all Material Agreements have been disclosed as part of the due diligence process as described in Section 10.1. For the purposes of this provision, the term "MATERIAL AGREEMENTS" shall refer to any agreement, contract or commitment relating to or binding upon any company of the TelDaFax Group, its business or its properties which (i) calls, whether as an actual or contingent liability, for the payment or re-payment by any company of the TelDaFax Group of E500,000 or more in any 12 month period, or (ii) the delivery by any company of the TelDaFax Group of goods or services with a fair market value of E500,000 or more in any 12 month period, or (iii) provides for any company of the TelDaFax Group to receive any payments, or any property with a fair market value of E500,000 or more in any 12 month period, or (iv) which is not terminable by the relevant company in the TelDaFax Group, without payment, on less than 12 months' period or (v) which can be adversely or terminated as an effect of any of the transactions contemplated herein or (vi) which restricts the ability of any company in the TelDaFax Group to compete geographically or in any particular line of business or (vii) which must be deemed, using a sound commercial judgement, material for the business of the TelDaFax Group. To the best knowledge of Sellers none of the companies of the TelDaFax Group is in violation or breach of or default under any Material Agreement, is any other party to any such contract in violation or breach or other default under any such contract except for Deutsche Telekom. 11.4 Purchaser's Warranties and Representations Purchaser warrants and represents as follows: 11.4.1 Purchaser has been duly incorporated and is an existing corporation under the laws of Delaware. 11.4.2 Purchaser has all necessary authority to enter into this Agreement and the Registration Rights Agreement and to implement the transactions contemplated herein and therein. 11.4.3 All of the issued shares of capital stock of the Purchaser have been duly and validly authorised and issued and are fully paid and non-assessable. 11.4.4 The Consideration Stock has been duly and validly authorised and, when issued and delivered as provided herein, will be duly and validly issued and fully paid and non-assessable and upon effectiveness of the shelf registration statement, duly listed and admitted for trading on the Nasdaq Stock Market's National Market. 11.4.5 The holders of the issued and outstanding shares of capital stock of Purchaser are not entitled to pre-emptive or other rights to acquire the shares of Consideration Stock to be acquired by Sellers pursuant to this Agreement.
A-18 192 11.4.6 In issuing and selling the Consideration Stock to the Sellers as contemplated herein, complying with all of the provisions of this Agreement and consummating the transactions contemplated herein, Purchaser has complied with and discharged all material obligations to which it is subject, whether arising under law, its Articles of Incorporation, an agreement or otherwise subject to the matters set forth on Exhibit 11.4.7 and obtaining the consents listed on Exhibit 11.4.6. 11.4.7 Except as provided for in Exhibit 11.4.7, no consent, approval or filing of or with any U.S. federal or state governmental agency is required for the issue and sale of the Consideration Stock to the Sellers or consummation of the transactions contemplated herein other than the registration of the Consideration Stock under the Securities Act. 11.5 Klose's Warranties and Representations Klose warrants and represents at the Signing Date in the form of an independent guarantee: 11.5.1 Klose holds 2,756,200 shares of TelDaFax. 11.5.2 No approval, authorisation or consent under any contract and/or applicable law is required for Klose to enter in this Agreement and to perform the obligations hereunder. The execution of this Agreement and the performance of the obligations hereunder will not result in the violation of any contract and/or law applicable to Klose.
SECTION 12 REMEDIES 12.1 If a warranty or representation given by the Funds in sec. 11 is incorrect at the Signing Date or at the Closing ("BREACH OF WARRANTY"), the Funds shall indemnify Purchaser against the loss, damage, cost or expense (the "LOSS") suffered or incurred by Purchaser as follows: (i) in the event the Loss suffered is attributable to a diminution in the value of the TelDaFax Group, the amount of the Loss for which the Purchaser shall be indemnified by the Sellers shall equal 33.05% of the aggregate diminution in the value of the TelDaFax Group; and (ii) in the event that Purchaser is able to show that the Loss suffered by Purchaser is attributable to other than diminution in the value of the TelDaFax Group then Sellers shall indemnify Purchaser against 100% of such Loss. As long as and to the extent that Sellers are holders of the shares of Consideration Stock received pursuant hereto indemnification within the meaning of this section shall be satisfied by transferring such shares of Consideration Stock back to Purchaser having a value equal to the loss. Thereafter or to the extent Losses are not covered by retransfer of such shares of Consideration Stock Sellers shall indemnify Purchaser by way of a cash payment. For purposes of discharging the indemnification obligation the shares of Consideration Stock shall be deemed to have a value which is equal to the closing quotation on the Nasdaq National Market on the Signing Date. 12.2 The Purchaser shall only be entitled to assert claims under this sec. 12 if they exceed (together with any claims for indemnification under sec. 13.4) the amount of E1,750,000 in the aggregate, but then only for the exceeding amount. 12.3 All claims under this sec. 12 based on a Breach of Warranty shall be limited in the aggregate to an amount equal to 33% of the Consideration Stock or, in case of indemnification by way of payment in cash, its value as of the Signing Date.
A-19 193 12.4 The foregoing basket (sec. 12.2) and cap (sec. 12.3) shall not apply to a Breach of Warranty of sec.sec. 11.1, 11.2, 11.3.1.3, 11.3.1.4, 11.3.1.5, 11.3.1.7 and 11.5 or in cases where Purchaser is able to show that a Breach of Warranty was known to the Funds at the Signing Date, but not disclosed, provided however that the liability of the Funds can never exceed the value of the Consideration Stock received as of the Signing Date. 12.5 Any claim of the Purchaser under this sec. 12 is excluded if and to the extent that: 12.5.1 the Loss has been compensated to the Purchaser or to the applicable company of the TelDaFax Group, as the case may be, by virtue of an existing insurance policy net of any increase in premiums arising, or likely to arise, out of the payment of such compensation; 12.5.2 the damage arising from the Breach of Warranty has been compensated to the Purchaser or to the applicable company of the TelDaFax Group, as the case may be, by a third party other than an insurance company; 12.5.3 the circumstances constituting the Breach of Warranty have been known to the Purchaser before the Signing Date by means of the Disclosed Information; 12.5.4 the Breach of Warranty is directly and adequately caused by a change after the Closing of the corporate or tax structure or the accounting policies of TelDaFax and its Subsidiaries; 12.5.5 the Breach of Warranty is directly and adequately caused by an action or omission (in both cases outside the ordinary course of business) after the Closing of the Purchaser, TelDaFax or its Subsidiaries or any other person whose action or omission is attributable to the Purchaser within the meaning of Section 278 BGB; 12.5.6 the Breach of Warranty has the effect of decreasing the tax burden of the Purchaser or TelDaFax or its Subsidiaries, by way of any final tax savings, provided that there are no offsetting tax detriments; 12.5.7 reserves contained in the Consolidated 1999 Financial Statements expressly and specifically identified and established for purposes of such Loss -- to the extent not reduced or otherwise used prior to the Closing --, which are used or can be used pursuant to U.S. GAAP to offset such Loss provided however that if risk materialises for which such reserves were made, but such reserves were not sufficient to offset the Loss incurred, Purchaser is entitled to claim the exceeding amount as Loss. 12.6 In case of a claim under sec. 11.3.8 (Tax), the following limitations apply in addition to the provisions of the preceding subsections 12.1 to 12.5: 12.6.1 If and to the extent that in a tax audit (Steuerliche Au(beta)enprufung) the profits for tax purposes are increased (for example as a result of non- recognition of deprecations or provisions), but such increase will lead to a decrease of profits for tax purposes in later years (tax accelerations), the amount payable to Purchaser under 12.1 shall be limited to the financing cost of the additional tax liability beginning on the date on which the additional tax liability becomes due pursuant to the relevant tax assessment up to the time when the tax decreasing effects -- if applicable on a pro rata basis -- realises, whereby the financing cost shall be calculated on the basis of an interest rate of 5% p.a. above the -- basic interest rate (Basiszinssatz) relevant for that period of time.
A-20 194 12.6.2 If and to the extent that additional corporate income tax is payable by TelDaFax or any of its Subsidiaries and as a result the equity available for distribution which is subject to corporate income tax (mit Korperschaftsteuer belastetes verwendbares Eigenkapital) is increased, such additional taxes are not deemed to constitute a damage to the extent of the corresponding corporate tax credit including the reduction amount (Minderungsbetrag) which is realised at the time of distribution; this restriction shall only apply if and to the extent that the Sold Shares are held by an entity which is entitled to the corporate income tax credit. 12.7 Notwithstanding the foregoing subsections 12.1 and 12.5 and 12.6, the general principles pursuant to sec.sec. 249 seq. and 254 BGB regarding the calculation and assessment of reimbursable damages and the duty to mitigate damages remain unaffected. 12.8 To the extent that representations and warranties are qualified by reference to the best knowledge of the Funds, the knowledge has to be established of the Funds separately. To establish knowledge of the Funds: the knowledge of the following members of the Supervisory Board of TelDaFax: Messrs. Halusa and McMonigall. 12.9 The Funds are not jointly liable for any damage payable to the Purchaser, but only severally on a pro rata basis according to the Relevant Percentage of the Consideration in sec. 6.4 (Consideration Stock). The cap pursuant to sec. 12.3 shall be allocated in the same manner and applied on a pro rata basis for each the Funds. 12.10 The statute of limitations for claims for Breach of Warranty shall be as follows: 12.10.1 Claims for legal defects (Rechtsmangel) within the meaning of section 434 German Civil Code relating to the Sold Shares shall be barred in accordance with the applicable provisions of German law; 12.10.2 all other claims excepts under sec. 11.2.8 (Tax) shall be barred after eighteen months from Closing; 12.10.3 claims under sec. 11.2.8 (Tax) shall be barred six months after the right of the competent authority to asses or to change the relevant tax assessment for the period up to December 31, 1999 ended, however, in any case not prior to the end of the time limits set forth in sub-section 12.10.1 and 12.10.2 with the exception of claims under sec. 11.2.8 resulting from the fact that persons who were treated by TelDaFax at the Signing Date as free agents (Handelsvertreter) have to be treated as employees for tax and/or social security purposes pursuant to binding decisions of competent authorities shall be barred after twelve months from Closing. The statute of limitations shall be interrupted (unterbrochen) or extended (gehemmt) in accordance with the applicable provisions of German law. In case of interruption the new statute of limitations beginning after the end of the interruption (section 217 German Civil Code) shall be 6 months; provided, however, that the period prior and after the interruption in the aggregate shall not be less than eighteen months. 12.11 Indemnifications by the Funds made according to this sec. 12 constitute in the relationship between Funds and Purchaser a reduction of the value of the Consideration Stock and, to the extent they are made directly to a corporation belonging to the TelDaFax Group, in the relationship between Purchaser and the relevant corporation a capital contribution (Einlage).
A-21 195 12.12 The Funds intend to take out insurance policies providing coverage for such amounts as could be payable by the relevant Fund to Purchaser in respect of any breach and warranties set forth in sec. 11. The Funds herewith assigns any claims under such insurance policies, provided that the mere fact of the assignment of such claims does not affect the obligations of the Funds under this Section 12. The Funds undertake to provide Purchaser with the relevant information and documentation, if they take out the insurance policies and to make all necessary payments thereunder and keep them in full force and effect as long as payment obligations of the Funds to Purchaser subsist. To the extent Purchaser receives payments under the insurance policies, its claims for Breach of Warranties are reduced by such payments. Any limitations on claims of Purchaser as set forth in sec. 12 remain uneffected.
SECTION 13 EXCLUSION OF FURTHER CLAIMS 13.1 The provisions of sec.sec. 11 and 12 of this Agreement represent the full and entire agreement of the parties with regard to the consequences of a violation of any representations and warranties of the Sellers. 13.2 Any further claims of the Purchaser and the Sellers relating to this Agreement and the transactions contemplated herein for a reduction of the Purchase Price, rescission of the Agreement, payment of damages or otherwise, whether on the basis of violation of pre-contractual duties of care (culpa in contrahendo), voidability (Anfechtbarkeit) at any other cause of action, shall be excluded. 13.3 Claims based on deliberate misconduct (vorsatzliches Handeln) are not limited by any of the provisions of this Agreement. 13.4 Subject to sec. 13.6 below, Purchaser shall be entitled (without penalty or liability) to withdraw from this Agreement including the Klose and A+M Put and Call Option prior to Closing if any of (but limited to) the following material adverse events ("MATERIAL ADVERSE EVENT") should occur: 13.4.1 any of the representations of warranties given in sec.sec. 11.1, 11.2, 11.3.1, 11.3.2.3, 11.3.2.4, 11.3.2.5, 11.3.12 and 11.5 being or becoming incorrect; 13.4.2 any of the approvals, licences or permits necessary and relevant for TelDaFax to continue the business activities as they existed on the Signing Date being revoked after the Signing Date; 13.4.3 TelDaFax entering into a Material Agreement outside the ordinary course of business consistent with past practice, or entering into or agreeing to enter into any contracts or arrangements or the type referred to in sec.sec. 11.2.1.9 and 11.2.1.10. without consent of Purchaser after the Signing Date;
A-22 196 13.4.4 there having occurred after the Signing Date any event, fact or circumstance that, individually or when considered with any other matter or event, fact or circumstance (including, without limitation, any of the other matters listed in this subsection 13.4), would make or be likely to make a reasonable purchaser, willing to buy the Sold Shares for the consideration and on the terms set out in this Agreement taking into account any diminution in the value of the Consideration Stock from the Signing Date (the "REASONABLE PURCHASER"), to seek a reduction in the value of such consideration in an amount equal to or exceeding 33% of the value of the Consideration Stock as of the Signing Date, provided however that in themselves none of the following events will (in and of themselves) be considered as constituting a material adverse event for these purposes: (i) a fall in the listed stock price of TelDaFax on the Neuer Markt of the Frankfurt Stock Exchange and/or EASDAQ, (ii) a change in the economic situation in Germany or the condition of the financial markets in general (iii) a change in the services and pricing of competitors of TelDaFax to any third party and (iv) changes in applicable laws and/or regulations. 13.4.5 failure of Sellers and/or TelDaFax to perform or comply with any of the covenants or agreements contained herein required to be performed, or complied with, at or prior to the Closing, which failure, individually or when considered with any other such failures or any of the other matters listed in this subsection 13.4, would make or be likely to make a Reasonable Purchaser to seek a reduction in the value of such consideration in an amount equal to or exceeding 33% of the Consideration Stock as of the Signing Date; provided, however, that in the event that a matter or matters of the type described in this sec. 13.4.5 (notwithstanding the 33% qualification contained therein) arises or occurs and, due to the fact that such 33% qualification has not been satisfied. Purchaser is not entitled to withdraw from this Agreement pursuant to this sec. 13.4, then Sellers and/or TelDaFax as applicable undertake to indemnify Purchaser against such Loss. 13.5 Subject sec. 13.6 below, the Sellers shall be entitled (without penalty or liability) to withdraw from this Agreement prior to the Closing if any of (but limited to) the following material adverse events should occur after the Signing Date which should be deemed for the purpose of sec. 8.1.4 to also constitute Material Adverse Events: 13.5.1 any of the warranties given in sec. 11.4 being or becoming incorrect in any material respects; 13.5.2 any of the material approvals, licences or permits necessary and relevant for Purchaser and its affiliates to continue the business activities as they existed on the Signing Date being revoked; 13.5.3 there having occurred after the Signing Date any event that, individually or when considered with any other matter or event, would make or be likely to make a reasonable purchaser, willing to buy the Consideration Stock in exchange for the Sold Shares and on the terms set out in this Agreement taking into account any diminution in the value of the Sold Shares from the Signing Date, to seek a reduction in the value of such consideration in an amount equal to or exceeding 33% of the value of the Consideration Stock as of the Signing Date, provided however that in themselves none of the following events will be considered as constituting a material adverse event for these purposes: (i) a fall in the listed stock price of World Access on the Nasdaq National Market, (ii) a change in the economic situation in the United States or the condition of the financial markets in general or (iii) changes in applicable laws and/or regulations.
A-23 197 13.6 In case of any of the above material adverse events, each party upon becoming aware of the same shall forthwith inform all other parties. The parties undertake to negotiate in good faith for two weeks to amend this Agreement so that it becomes acceptable to both Sellers and Purchaser under the changed circumstances before exercising its right to withdraw. Sellers may only jointly exercise the right to withdraw pursuant to sec. 13.5 by notifying Purchasers accordingly.
SECTION 14 INFORMATION CONDUCT OF PROCEEDINGS ACCESS TO FILES 14.1 Upon making a claim under this Agreement, Purchaser shall use all reasonable endeavours to procure that the Funds are informed, and are kept informed, promptly and fully of all circumstances involving such claim of Purchaser against the Funds hereunder, and shall make available to the Funds copies of all relevant documents. Purchaser shall give the Funds opportunity to take part at their own expense in all relevant meetings and negotiations. As between Purchaser and the Funds, a settlement (Vergleich), waiver (Verzicht) or acknowledgement (Anerkenntnis) by Purchaser or any corporation belonging to TelDaFax Group shall not contribute evidence for the factual situation or legal position underlying the compromise, waiver or acknowledgement. 14.2 If and as far as circumstances could give rise to a claim of Purchaser against the Funds hereunder, Purchaser shall use all reasonable endeavours to procure that the Funds are informed of any reports, written opinions given by the tax authorities in connection with the tax audit before the final meeting (Schlu(beta)bericht) and are given the opportunity to take part at their own expense in all meetings with the tax authorities in the context of tax audits and tax assessments relating to period until December 31, 2000, as well as to present their position to the tax authorities in writing. If Purchaser or TelDaFax or any of its Subsidiaries intend to give any written statements to tax authorities referring to periods until December 31, 2000 and relevant for the Funds' position, Purchaser undertakes to inform the Funds in time of such intent so that the Funds can review the intended statements and comment thereon. Upon request and at cost of the Funds, Purchaser shall use all reasonable efforts to procure that all available remedies are used against tax assessments assessing taxes for the period until December 31, 2000, which could result in a claim of Purchaser against the Funds. To the extent remedies cannot be sought in time for reasons of delayed transmission of tax assessments and other documents to the Funds, claims of the Purchaser in respect of the additional tax liability which was to be contested by such remedy shall be excluded. Court proceedings shall be conduced jointly by Purchaser and the Funds, and sentences 1 and 2 of this subsection 14.2 shall apply mutatis mutandis. Purchaser shall use all reasonable efforts to procure that a settlement, waiver or acknowledgement is not entered or not declared into except with the consent of the Funds. 14.3 Purchaser shall procure that the Funds are granted reasonable access on reasonable notice to all files, documents and information directly relating to tax assessments against the Funds or affiliates of the Funds, or which are otherwise reasonably required by the Funds.
A-24 198 14.4 It is agreed that the provisions of this sec. 14 shall not apply so as to require the Purchaser to provide any information or documentation or allow the Funds access to any meetings or negotiations where, to do so, would in Purchaser's reasonable opinion be, or might be, unlawful or detrimental to its legitimate commercial interest or those of any affiliated company (including all and any members of the TelDaFax Group).
SECTION 15 CONDUCT OF THE BUSINESS UNTIL TRANSFER OF SHARES 15.1 The Funds, A+M and Klose shall use their best endeavours to procure (including, without limitation, by voting any shares over which they have control) that (i) the business of TelDaFax Group is continued in the ordinary course of business in the period between signing of this Agreement and the Closing and the Purchaser has appropriate access to the management of TelDaFax Group during this period of time, that (ii) no steps are taken by TelDaFax which are, or could be, using a sound commercial judgement, detrimental to the transaction contemplated by this Agreement and that (iii) no action is taken by TelDaFax which would require shareholders' or supervisory board's approval. 15.2 TelDaFax undertakes not to acquire directly or indirectly any interest in any legal entity or partnership other than the Subsidiaries without the consent of the Purchaser which shall not be unreasonably withheld. 15.3 TelDaFax undertakes not to become a party to agreements in the sense of sec.sec. 291 seq. AktG, joint venture agreements, co-operation agreements, partnerships or silent partnership agreements or any other similar contractual arrangement and to procure that the Subsidiaries do not enter into any of those agreements without the consent if the Purchaser which shall not be unreasonably withheld. 15.4 TelDaFax undertakes not to enter into, or terminate or materially amend, any Material Agreement without the consent of Purchaser which shall not be unreasonably withheld.
SECTION 16 CONFIDENTIALITY/PUBLIC ANNOUNCEMENT/TAKE-OVER CODE 16.1 The parties will keep the contents of this Agreement and any information provided in connection with the transaction contemplated hereunder confidential. Any public announcement including, but not limited to an announcement pursuant to the WpHG (Wertpapierhandelsgesetz = Securities Trading Act) and/or press statement to be made after the Signing Date shall be agreed between the parties in advance. 16.2 Notwithstanding the foregoing, the Purchaser shall be entitled to make, without the consent of any Seller, any such disclosures or announcements as may be required by law or by any regulatory, governmental or other authority (including the U.S. Securities Exchange Commission and Nasdaq National Market) in connection with the transactions contemplated hereunder. 16.3 After the Closing, the Funds and Purchaser will comply with the notification duties pursuant to sec. 20 Stock Corporation Act and sec. 21 Securities Trading Act, to the extent applicable.
A-25 199 16.4 It is the current intention of the Purchaser to comply with the Take-Over Code of the Exchange Expert Commission, as amended. Purchaser agrees subject to sec. 8 to launch a tender offer (the "TENDER OFFER") for all the shares of TelDaFax as soon as reasonably practicable pursuant to which each share of TelDaFax would receive 1.025 shares of World Access Common Stock ("EXCHANGE RATIO") conditioned upon receipt of all necessary approvals (including, without limitation, approval of the shareholders of Purchaser) and registration of the shares of the World Access Common Stock to be issued in the Tender Offer. 16.5 The Funds and A+M undertake not to sell, pledge, hypothecate, or otherwise transfer any shares of TelDaFax stock owned or controlled by them directly or indirectly (including any shares acquired after the date hereof), except pursuant to this Agreement. If, after the Closing, the Funds decide to sell their shares in Purchaser, Purchaser and the Funds agree to co-operate in an effort to have such shares sold institutionally rather than on the open market.
SECTION 17 PUT AND CALL OPTION 17.1 Klose can exercise the Klose Put Option in up to three installments by giving written notice to Purchaser in accordance with sec. 26 in the period beginning on the signing Date and ending on December 31, 2001. Upon receipt of the notice a purchase contract is deemed to be entered into with the following terms: 17.1.1 In exchange for each Option Share sold, the Purchaser shall issue the number of World Access Common Stock as provided for in sec. 6.2. 17.1.2 If the Put Option is exercised prior to the Closing Klose shall be deemed to give the same representations and warranties as the Funds in sec. 11, provided that all references to the Funds are deemed to be refer to Klose and all references to the Sold Shares are deemed to refer to the Klose Option Shares. sec.sec. 12, 13.1 to 13.3 and 14 shall apply accordingly, in particular (i) the relevant percentage in sec. 12.1 shall be equal to the percentage of the share capital sold, (ii) and the statute of limitations shall run from the Option Closing and (iii) the knowledge of all members of the Board of Management of TelDaFax Messrs. Klose, Legner, Meier shall be attributed to Klose. If the Put Option is exercised after the Closing Klose shall be deemed to give only the representation in sec.sec. 11.3.1.2, 11.3.1.3 sentence 2, 11.3.1.4 and sec. 11.2. 17.1.3 The sale under the Put Option shall be closed as soon as the Purchaser can deliver the Consideration Stock but in no event earlier than the Closing (the "PUT OPTION CLOSING"). If the Purchaser has enough authorized shares the Put Option Closing shall take place within three business days after receipt of the exercise notice. 17.1.4 At the Put Option Closing Purchaser shall procure evidence that the transfer of the Consideration Stock for the respective number of Option Shares will be completed, subject to, and simultaneously with the following: 17.1.4.1 Delivery by Klose to Purchaser of the share transfer agreement in the form of Exhibit 5.3 properly executed by the Klose covering all Option Shares sold; 17.1.4.2 Delivery of Klose of confirmation by its custody banks that the sold Option Shares are booked as of the Put Option Closing to the securities account specified in sec. 5.2 substantially in the form of Exhibit 9.3.2;
A-26 200 17.1.4.3 If the Put Option is exercised prior to the Closing, delivery by Klose to Purchaser and by Purchaser to Klose of certificates of the Funds and Purchaser, respectively, that the representations and warranties of each of them shall be true and correct in all material respects as of the Put Option Closing, or, as the case may be, as of any other point of time specifically mentioned therein. 17.2 Purchaser can exercise the Klose Call Option in the period between July 1, 2002 until December 31, 2002. To exercise the Klose Call Option Purchaser has to give written notice to Klose. The Klose Call Option can only be exercised once. If exercised, an agreement to sell all Klose Option Shares Klose is holding at the time of receipt of the notice shall be deemed to be entered into between Klose and the Purchaser upon the following terms: 17.2.1 In exchange for each Option Share sold the Purchaser shall issue the number World Access Common Stock as provided in sec. 6.2. 17.2.2 Klose shall be deemed to give the representations in sec.sec. 11.3.1.2, 11.3.1.3 sentence 2, 11.3.1.4, 11.2 and 11.5 and to represent that he holds no shares in TelDaFax other than the Option Shares he is selling as of the Call Option Closing. 17.2.3 The sale under the Call Option shall be closed as soon as the Purchaser can deliver the Consideration Stock (the "CALL OPTION CLOSING"). If the Purchaser has enough authorized shares, the Call Option Closing shall take place within five business days after receipt of the exercise notice. 17.2.4 At the Call Option Closing Purchaser shall procure evidence that the transfer of the Consideration Stock for the respective number of Option Shares will be completed, subject to, and simultaneously with the following: 17.2.4.1 Delivery by Klose to Purchaser of the share transfer agreement in the form of Exhibit 5.2 properly executed by the Klose covering all Option Shares sold; 17.2.4.2 Delivery of Klose of confirmation by its custody banks that the sold Option Shares are booked as of the Call Option Closing date to the securities account specified in sec. 5.2 substantially in the form of Exhibit 9.2.2; 17.3 Purchaser undertakes to use reasonable efforts to assist Klose with finding buyers for the Consideration Stock owned by him following the Put Option or Call Option Closing in order to obtain liquid means to cover Klose's personal tax arising from such sales. 17.4 Klose may not, and will not enter into any Agreement to, sell, pledge, hypothecate or otherwise transfer any of the Option Shares except in accordance with the terms of this Section 17.4. 17.4.1 In the event Klose desires to sell any of the Option Shares and has received a bona fide written offer from an unrelated third party (the "OFFEROR") Klose shall be entitled to sell such Option Shares to the Offeror only in accordance with this Section 17.4.1: (a) Klose shall give written notice (the "SALES NOTICE") of his intention to sell such Options Shares to the Purchaser. The Sales Notice shall be accompanied by a copy of the written offer from the offeror containing the terms of the proposed purchase. The Sales Notice shall include the identity of the Offeror, the number of Option Shares to be sold, the purchase price and the terms of payment. The Purchaser may elect to purchase all of such Option Shares on the terms set forth in the Sales Notice by giving written notice to Klose within ten days from the date of the receipt of the Sales Notice.
A-27 201 (b) If Purchaser does not elect to purchase such Option Shares, then Klose shall be free to sell such Option Shares to the Offerer in accordance with the terms of the Sales Notice. If such sale does not occur within ninety (90) days of the original mailing of the Sales Notice then such Option Shares will once again become fully subject to this Section 17.4. 17.4.2 In the event Klose desires to sell Option Shares on the Frankfurt Stock Exchange Klose shall be entitled to sell such Option Shares only in accordance with this sec. 17.4.2: (a) Klose shall give a Sales Notice to Purchaser. The Sales Notice shall specify the number of Option Shares to be sold. Purchaser may elect to purchase all of such Option Shares by giving written notice to Klose within ten days from the date of the receipt of the Sales Notice for a price per Option Share equal to the average price quoted on the Frankfurt Stock Exchange on the five trading days prior the date of the Sales Notice. (b) If Purchaser does not elect to purchase such Option Shares, Klose is free to sell such Option Shares during a period of 30 days following the expiry of the ten days period or the notice given by Purchaser not to purchase such Option Shares, whichever is earlier. 17.5 The terms set forth in sec.sec. 17.1 - 17.3 shall apply mutatis mutandis to the A+M Put and Call Option with the following differences. 17.5.1 The A+M Put Option can only be exercised in one instalment during the period beginning after the Closing and ending on April 30, 2001. 17.5.2 The A+M Call Option can only be exercised during the period beginning on July 1, 2001 and ending on December 31, 2001. 17.5.3 A+M shall be deemed to represent that A+M is a limited partnership (Kommanditgesellschaft) duly formed and validly existing under German law and to give the representations in sec.sec. 11.1.4 and 11.1.5.
SECTION 18 NON-COMPETITION COVENANT 18.1 For a period of one year after the termination of the respective term of any employment or service agreement with TelDaFax or any affiliate, Klose and those companies affiliated with him within the meaning of sec. 15 et seq. Aktiengesetz (Stock Corporation Act) undertake not to engage directly or indirectly in any activity, enterprise or company having activities similar to the telecommunication activities of the TelDaFax Group from time to time in the current geographical area of the activities of TelDaFax Group. 18.2 The acquisition or the holding of any participation of up to 5% in stock of exchange listed corporations shall not constitute a violation of the non-competition covenant pursuant to sec. 18.1. 18.3 In case of any violation of the non-competition covenant pursuant to sec. 18.1 Klose shall be obliged to pay to Purchaser a contractual penalty (Vertragsstrafe) in the amount of E250,000 (in words: two hundred fifty thousand). If the violation continues (andauert), Klose shall be obliged to pay for each further month of the violation a further contractual penalty in the amount of E100,000 (in words: one hundred thousand). Further claims of Purchaser for cease and desist (Unterlassung) and for damages remain unaffected. The contractual penalty shall be deducted from any damage payments, if any.
A-28 202 SECTION 19 ASSIGNMENT Neither the Sellers nor the Purchaser are entitled to transfer without the consent of the other contracting parties rights, except rights for payment, or obligations arising out of this Agreement to a third party. SECTION 20 MERGER CONTROL CLEARANCE 20.1 Sellers and Purchaser shall co-operate and provide each other with all necessary assistance to notify all transactions contemplated herein (including, without limitation, the contribution by Purchaser in accordance with sec. 4.2 of this Agreement) to the Federal Cartel Office ("FCO"). 20.2 Purchaser shall take responsibility for drafting and formulating a joint notification to, and full communications with, the FCO. Such actions shall be taken by Purchaser in consultation with Sellers. The Purchaser shall use its best endeavours to notify the Agreement as soon as is practically possible after the Signing Date, provided that the Sellers provide the pre-requisite information for the completion of the notification. Representatives of Sellers shall be informed of, and are entitled at their own expense to be present at, meetings with representatives of the FCO in the context of the transaction contemplated hereunder. Purchaser shall keep Sellers informed of contacts which it may have with such FCO representatives. In the event that any of the Sellers should have any contact with the FCO, it shall so inform the Purchaser.
SECTION 21 SERVICE CONTRACT WITH KLOSE Klose undertakes to continue to work for TelDaFax under a two year fixed term contract to be on such terms as agreed between Purchaser and Klose prior to Closing provided that the compensation available to Klose under such contract shall not be less favourable than that currently available to him under the existing employment contract as disclosed to Purchaser. SECTION 22 COSTS Each Party shall bear its own costs and transfer taxes arising in the context of this Agreement and the implementation of the transaction contemplated herein. SECTION 23 MUTUAL ASSISTANCE/FILINGS Sellers and TelDaFax undertake to co-operate with and to provide Purchaser with all necessary information required for any regulatory filings, in particular, but not limited to, all filings with the Securities Exchange Commission. A-29 203 SECTION 24 COMPLETE AGREEMENT/WRITTEN FORM This Agreement, together with the agreements mentioned herein and the documents referred to in sec. 10.2, sets forth the complete agreement reached by the parties on the subject matters dealt with herein. Changes of this Agreement, including a change of this written form clause, shall require written form, except where a stronger form requirement applies. SECTION 25 SEVERABILITY 25.1 Should any provision of this Agreement be or become in whole or in part invalid, this shall not affect the validity of the rest of the Agreement. In this event, the invalid provision shall be deemed to be replaced by a valid provision which corresponds to the economic purpose of the invalid provisions to the largest extent possible. This shall also apply in the case of any gaps in this Agreement. 25.2 Should any provision of this Agreement be invalid to its geographical or substantive areas of application or the period of application, the respective provision shall be deemed reduced to the maximum permissible scope.
SECTION 26 NOTICES, SERVICES OF PROCESS 26.1 Notices or declarations to Sellers made in the context of this Agreement shall be deemed to be validly given if sent by registered mail, courier or fax to the following address or such other address as is notified in writing by Sellers to Purchaser: 26.1.1 If to Klose: Dr. Henning F. Klose Augsburger Stra(beta)e 25 D-10789 Berlin Fax-No.: ++49 6423-1798 26.1.2 If to the Funds: Pollath + Partner Lilienthalstra(beta)e 7 D-85399 Munchen - Hallbergmoos Fax-No.: ++49 89 223 325 26.2 Notices or declarations to Purchaser made in the context of this Agreement shall be deemed to be validly given if sent by registered mail, courier or fax to the following address or such other address as is notified in writing by Purchaser to Sellers: GAEDERTZ, Frankfurt office Bockenheimer Landstra(beta)e 98 - 100 D-60323 Frankfurt am Main Fax-No.: ++49 69 7941 100 with a copy to: World Access, Inc. Attn.: W. Tod Chmar, Executive Vice President, 945 East Paces Ferry Road, Suite 2200 Atlanta, GA 30326 U.S.A. Fax-No.: ++1 404 233 2280
A-30 204 26.3 Purchaser appoints GAEDERTZ, Frankfurt office, Bockenheimer Landstra(beta)e 98 - 100, D-60323 Frankfurt am Main, as its authorised agent for accepting services of process with respect to any legal proceedings in Germany. The Funds appoint Pollath + Partner, attention Dr. Matthias Bruse, Munchen, as its authorised agent for accepting services of process. 26.4 Notices or declarations to TelDaFax made in the context of this Agreement shall be deemed to be validly given if sent by registered mail, courier or fax to the following address or such other address as is notified in writing by TelDaFax to Purchaser: TelDaFax Aktiengesellschaft Rudolf-Breitscheid-Str. 1-5 35037 Marburg Fax-No.: ++49 6421-181-1210
SECTION 27 LANGUAGE/COUNTERPARTS/CHOICE OF LAW/JURISDICTION 27.1 This Agreement except for Exhibits 10.2.1,11.3.1.8, 11.3.1.12, 11.3.3.2, 11.3.4.1, 11.3.4.2, 11.3.7.1, 11.3.10.1 is in the English language only. Purchaser confirms that he is fully aware of the contents of those Exhibits which are in the German language. 27.2 This Agreement will be executed in four counterparts. 27.3 This Agreement shall be governed by the laws of the Federal Republic of Germany. 27.4 The courts in Frankfurt am Main shall have non-exclusive jurisdiction.
/s/ KLOSE/s/ LEGNER - --------------------------------------------------- TelDaFax AG by Klose und by Legner /s/ TOD CHMAR /s/ OTTO HABERSTOCK - --------------------------------------------------- --------------------------------------------------- World Access, Inc. Otto Haberstock by proxy dated June 7, 2000 for By: W. Tod Chmar Apax Funds Nominee Ltd. fur "B" Account Title: Executive Vice President /s/ DR. HENNING F. KLOSE /s/ OTTO HABERSTOCK - --------------------------------------------------- --------------------------------------------------- Dr. Henning F. Klose Otto Haberstock by proxy dated June 7, 2000 for Apax Funds Nominee Ltd. fur "D" Account /s/ OTTO HABERSTOCK /s/ OTTO HABERSTOCK - --------------------------------------------------- --------------------------------------------------- Otto Haberstock by proxy dated June 5, 2000 for Otto Haberstock by proxy dated June 6, 2000 for AP Apax Germany II L.P. Vermogensverwaltung Gesellschaft burgerlichen Rechts /s/ OTTO HABERSTOCK - --------------------------------------------------- A + M GmbH & Co Vermogensverwaltung KG
A-31 205 ANNEX B June 14, 2000 Board of Directors World Access, Inc. 945 East Paces Ferry Road Suite 2200 Atlanta, GA 30326 Dear Sirs: You have requested our opinion as to the fairness from a financial point of view to World Access, Inc. (the "Company" or the "Purchaser") of the consideration to be paid by the Company in the Stock Acquisition (as defined below) and the Tender Offer (as defined below) pursuant to the terms of the Purchase and Transfer Agreement, dated as of June 14, 2000 (the "Agreement"), by and among Apax Germany II L.P. ("Apax II"), Apax Funds Nominees Ltd. fur "B" Account ("Apax B Fund"), Apax Funds Nominees Ltd. fur "D" Account ("Apax D Account"), AP Vermogensverwaltung Gesellschaft burgerlichen Rechts ("AP") (together, the "Funds"), A+M GmbH & Co Vermogensverwaltung KG ("A+M"), Dr. Henning F. Klose ("Klose") (together with the Funds and A+M, the "Sellers"), TelDaFax Aktiengesellschaft Marburg, Lahn ("TelDaFax"), and the Company, pursuant to which, among other things: (i) the Funds agree to sell to the Company all of the TelDaFax shares currently owned by the Funds (the "Sold Shares") (the "Stock Acquisition"); and (ii) the Company will launch a tender offer (the "Tender Offer") for all the other outstanding shares of TelDaFax as soon as reasonably practicable. Pursuant to the Agreement, (a) the Company and TelDaFax have agreed to pursue a combination of their respective businesses in Germany (the "Contribution"), (b) each of Klose and A+M has the right to sell to the Company its shares of TelDaFax at the same price at which shares are purchased in the Tender Offer (the "Put Option") and (c) the Company has the right to purchase from each of Klose and A+M its shares of TelDaFax at the same price at which shares are purchased in the Tender Offer (the "Call Option"). Pursuant to the Agreement, the Company will launch the Tender Offer in which each share of TelDaFax would receive 1.025 shares of common stock, par value $.01 per share ("World Access Common Stock"), of the Company (the "Consideration"), and the Company will also purchase each of the Sold Shares for the Consideration. The closing of the Stock Acquisition and the Tender Offer are conditioned upon enough shares being tendered in the Tender Offer so that following the Tender Offer the Company will own more than 50% of the then outstanding TelDaFax shares. In arriving at our opinion, we have reviewed the Agreement. We also reviewed financial and other information that was publicly available or furnished to us by the Company and TelDaFax, including information provided during discussions with their respective managements. Included in the information provided during discussions with the respective managements were certain financial projections of TelDaFax for the period beginning April 1, 2000 and ending December 31, 2001 prepared by the management of TelDaFax and for the period beginning January 1, 2002 and ending December 31, 2004 prepared by the management of the Company, as well as certain financial projections of the Company for the period beginning April 1, 2000 and ending December 31, 2004 prepared by the management of the Company. In addition, we have compared certain financial and securities data of TelDaFax and the Company with various other companies whose securities are traded in public markets, reviewed the historical stock prices and trading volumes of the common stock of TelDaFax and the Company, reviewed prices paid in certain other business combinations and conducted such other financial studies, analyses and investigations as we deemed appropriate for purposes of this opinion. In rendering our opinion, we have relied upon and assumed the accuracy and completeness of all of the financial and other information that was available to us from public sources, that was provided to us by the Company and TelDaFax or their respective representatives, or that was otherwise reviewed by us. With respect to the financial projections supplied to us, we have relied on representations that they have been B-1 206 reasonably prepared on the basis reflecting the best currently available estimates and judgments of the management of the Company and TelDaFax as to the future operating and financial performance of the Company and TelDaFax. In addition, we have assumed that: (i) the TelDaFax shares are tendered in the Tender Offer for the Consideration equal to 1.025 shares of World Access Common Stock for each TelDaFax share; (ii) the pending merger of the Company with STAR Telecommunications, Inc. ("STAR") and Communication TeleSystems International d/b/a WORLDxCHANGE Communications ("WORLDxCHANGE") are consummated; (iii) upon such consummation, the German businesses of STAR and WORLDxCHANGE are integrated (through consolidation or by contract) with TelDaFax; and (iv) the Contribution is consummated and the German assets of the Company that are contributed thereof include at least the German businesses of NetNet and NewTel. We have also relied upon the estimates of the management of the Company of the operating synergies achievable as a result of the consummation of the Contribution and the combination of TelDaFax with the German businesses of STAR and WORLDxCHANGE and upon our discussions of such synergies with management of TelDaFax. We have not assumed any responsibility for making any independent evaluation of any assets or liabilities or for making any independent verification of any of the information reviewed by us. Our opinion is necessarily based on economic, market, financial and other conditions as they exist on, and on the information made available to us as of, the date of this letter. It should be understood that, although subsequent developments may affect this opinion, we do not have any obligation to update, revise or reaffirm this opinion. We are expressing no opinion as to the prices at which World Access Common Stock will actually trade at any time. Our opinion does not address the relative merits of the Tender Offer, the Stock Acquisition and the other transactions contemplated by the Agreement and the other business strategies being considered by the Company's Board of Directors, nor does it address the Board's decision to proceed with the Tender Offer, Stock Acquisition and the other transactions contemplated by the Agreement. Our opinion also does not address the consideration to be paid by the Company upon exercise of the Put Option or the Call Option or the terms of the Contribution. Our opinion does not constitute a recommendation to any stockholder as to how such stockholder should vote on the proposed transactions or whether any shareholder should tender shares in the Tender Offer. Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its investment banking services, is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, underwritings, sales and distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. DLJ has performed investment banking and other services for the Company in the past and has been compensated for such services, including (i) acting as financial advisor to the Company in connection with its acquisition of FaciliCom International, Inc. ("FaciliCom") in 1999 and acting as financial advisor in connection with the exchange offer for FaciliCom's outstanding senior notes; (ii) acting as financial advisor to the Company in connection with its pending acquisitions of both STAR and WORLDxCHANGE in 2000; and (iii) acting as financial advisor in connection with the sale of the Company's Telco Systems Inc. subsidiary and the Company's Wireless Local Loop Division in 2000. Based upon the foregoing and such other factors as we deem relevant, we are of the opinion that the Consideration to be paid by the Company in the Stock Acquisition and the Tender Offer pursuant to the Agreement is fair to the Company and its stockholders from a financial point of view. Very truly yours, DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ MICHAEL CONNOLLY -------------------------------------- Michael Connolly Senior Vice President B-2 207 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102 of the General Corporation Law of the State of Delaware ("DGCL") allows a corporation to eliminate or limit the personal liability of directors of a corporation to the corporation or to any of its security holders for monetary damages for a breach of fiduciary duty as a director, except (i) for breach of the director's duty or loyalty, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for certain unlawful dividends and stock repurchases, or (iv) for any transaction from which the director derived an improper personal benefit. Section 145 of the DGCL provides that, in the case of any action other than one by or in the right of the corporation, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation in such capacity on behalf of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Articles X and XI of the World Access, Inc. amended certificate of incorporation provide for indemnification of directors, officers and employees to the fullest extent permissible under the DGCL. Officers and directors of World Access are presently covered by insurance which (with certain exceptions and with certain limitations) indemnifies them against any losses or liabilities arising from any alleged "wrongful act" including any alleged breach of duty, neglect, error, misstatement, misleading statement, omissions or other act done or wrongfully attempted. The cost of such insurance is borne by World Access as permitted by the DGCL. World Access has entered into separate indemnification agreements with its directors and non-director officers at the level of Vice President and above. These indemnification agreements provide as follows: - there is a rebuttable presumption that the director or officer has met the applicable standard of conduct required for indemnification; - World Access will advance litigation expenses to a director or officer at his request provided that he undertakes to repay the amount advanced if it is ultimately determined that he is not entitled to indemnification for such expenses; - World Access will indemnify a director or officer for amounts paid in settlement of a derivative suit; - in the event of a determination by the disinterested members of the board of directors or independent counsel that a director or officer did not meet the standard of conduct required for indemnification, the director or officer may contest this determination by petitioning a court or commencing any arbitration proceeding conducted by a single arbitrator pursuant to the rules of the American Arbitration Association to make an independent determination of whether such director or officer is entitled to indemnification under his indemnification agreement; and - World Access will reimburse a director or officer for expenses incurred enforcing his rights under his indemnification agreement. II-1 208 ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (A) Exhibits. The following exhibits are filed as part of this registration statement.
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 2.1 -- Agreement and Plan of Merger, dated as of February 11, 2000 among World Access, Inc., STI Merger Co. and STAR Telecommunications, Inc. (incorporated by reference to Exhibit 2.1 to World Access' Form 10-Q for the quarter ended March 31, 2000, filed May 22, 2000). 2.2 -- Agreement and Plan of Merger, dated as of February 11, 2000 among World Access, Inc., WorldxChange Communications, Inc. f/k/a CTI Merger Co. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Exhibit 2.2 to World Access' Form 10-Q for the quarter ended March 31, 2000, filed May 22, 2000). 2.3 -- First Amendment to Agreement and Plan of Merger dated May 23, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication Telesystems International d/b/a WorldxChange Communications (incorporated by reference to Exhibit 2.3 to World Access' Registration Statement on Form S-4, filed on November 14, 2000, Registration No. 333-37750). 2.4 -- Second Amendment to Agreement and Plan of Merger dated August 1, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Exhibit 2.4 to World Access' Registration Statement on Form S-4, filed on November 14, 2000, Registration No. 333-37750). 2.5 -- First Amendment to Agreement and Plan of Merger dated June 7, 2000 by and among World Access, Inc., STI Merger Co. and STAR Telecommunications, Inc. (incorporated by reference to Exhibit 2.5 to World Access' Registration Statement on Form S-4, filed on November 14, 2000, Registration No. 333-37750). 2.6 -- Purchase and Transfer Agreement, dated as of June 14, 2000 between Dr. Henning F. Klose, Apax Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account, AP Vermogensverwaltung Gesellshaft burgerlichen Rechts, A+M GmbH & Co. Vermogensverwaltung KG, and, World Access, Inc. and TelDaFax Aktiengsellschaft Marburg/Lahn (incorporated by reference to Exhibit 2.3 to World Access' Form 10-Q for the quarter ended June 30, 2000, filed August 14, 2000). 2.7 -- Second Amendment to Agreement and Plan of Merger dated October 6, 2000 by and among World Access, Inc., STI Merger Co. and STAR Telecommunications, Inc. (incorporated by reference to Exhibit 2.7 to World Access' Registration Statement on Form S-4, filed on November 14, Registration No. 333-37750). 2.8 -- Third Amendment to Agreement and Plan of Merger dated October 23, 2000 by and among World Access, Inc., WorldxChange Communications, Inc. and Communication TeleSystems International d/b/a WorldxChange Communications (incorporated by reference to Exhibit 2.8 to World Access' Registration Statement on Form S-4, filed on November 14, Registration No. 333-37750). 3.1 -- Certificate of Incorporation of World Access and Amendments to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to World Access' Form S-4 filed to October 6, 1998, Registration No. 333-65389, Amendment to Certificate of Incorporation incorporated by reference to Exhibit 3.2 of WA Telcom Products Co., Inc.'s Form 8-K filed October 28, 1998) 3.2 -- Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 3.3 -- Certificate of Designation of 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A (incorporated by reference to Exhibit 4 to World Access' Form 8-K, filed May 3, 1999).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.4 -- Certificate of Designation of 4.25% Cumulative Junior Convertible Preferred Stock, Series B (incorporated by reference to Exhibit 4.1 to World Access' Form 8-K, filed July 14, 1999) 3.5 -- Certificate of Designation of Convertible Preferred Stock, Series C (incorporated by reference to Exhibit 1.7(b) to Appendix A to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of Stockholders held on December 7, 1999) 3.6 -- Certificate of Designation of Convertible Preferred Stock, Series D (incorporated by reference to Exhibit 4 to World Access' Form 8-K, filed February 28, 2000) 3.7 -- Certificate of Designation of Convertible Preferred Stock, Series E (incorporated by reference to Exhibit 3.7 to World Access' Form 10-Q for the quarter ended June 30, 2000, filed August 14, 2000). 3.8 -- Bylaws of World Access (incorporated by reference to Exhibit 3.2 to World Access' Form S-4 filed October 6, 1998, No. 333-65389) 4.1 -- Indenture dated as of October 1, 1997 by and between World Access, Inc. and First Union Bank, as trustee (incorporated by reference to Exhibit 4.1 to WA Telcom Products Co., Inc.'s Form 8-K, filed October 8, 1997) 4.2 -- First Supplemental Indenture dated October 28, 1998 between World Access, Inc., WA Telcom Products Co., Inc. and First Union Bank, as Trustee (incorporated by reference to Exhibit 4.1 to World Access' Form 8-K filed October 28, 1998) 4.3 -- Indenture dated as of December 7, 1999 by and between World Access, Inc. and First Union Bank, as Trustee (incorporated by reference to Exhibit 4.3 to World Access' Registration Statement on Form S-4, filed on October 10, 2000, Registration No. 333-37750). 5.1 -- Opinion of Long Aldridge & Norman LLP regarding legality of common stock 10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to WA Telco Systems' Registration Statement on Form S-8, filed on July 25, 1991, No. 33-41255-A) 10.2 -- Amendment to World Access, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.2 to WA Telco Systems' Form 10-K for the year ended December 31, 1993, filed March 31, 1994) 10.3 -- Second Amendment to 1991 Stock Option Plan (incorporated by reference to Exhibit 10.3 to WA Telco Systems' Form 10-K for the year ended December 31, 1993, filed March 31, 1994) 10.4 -- Third Amendment to 1991 Stock Option Plan (incorporated by reference to Exhibit 10.26 to WA Telco Systems' Form S-2, Amendment No. 2, filed on February 14, 1995, No. 33-87026) 10.5 -- World Access, Inc., Outside Directors' Warrant Plan (incorporated by reference to Exhibit 10.40 to WA Telco Systems' Form 10-K for the year ended December 31, 1995, filed April 10, 1996) 10.6 -- Directors' Warrant Incentive Plan (incorporated by reference to Exhibit 10.41 to WA Telco Systems' Form 10-K for the year ended December 31, 1995, filed April 10, 1996) 10.7 -- Fourth Amendment to 1991 Stock Option Plan (incorporated by reference to Exhibit 10.32 to WA Telco Systems' Form 10-K for the year ended December 31, 1996, filed April 11, 1997) 10.8 -- Fifth Amendment to 1991 Stock Option Plan (incorporated by reference to Exhibit 10.33 to WA Telco Systems' Form 10-K for the year ended December 31, 1996, filed April 11, 1997) 10.9 -- Amendment One to Outside Directors' Warrant Plan (incorporated by reference to Exhibit 10.33 to WA Telco Systems' Form 10-K for the year ended December 31, 1996, filed April 11, 1997)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.10 -- Amendment One to Directors' Warrant Incentive Plan (incorporated by reference to Exhibit 10.31 to WA Telco Systems' Form 10-K for the year ended December 31, 1996, filed April 11, 1997) 10.11 -- Amendment Two to Outside Directors' Warrant Plan (incorporated by reference to Exhibit 10.21 to WA Telco Systems' Form 10-K for the year ended December 31, 1997, filed April 15, 1998) 10.12 -- Amendment Two to Directors' Warrant Incentive Plan (incorporated by reference to Exhibit 10.22 to WA Telco Systems' Form 10-K for the year ended December 31, 1997, filed April 15, 1998) 10.13 -- Sixth Amendment to 1991 Stock Option Plan (incorporated by reference to Exhibit 10.22 to WA Telco Systems' Form 10-K for the year ended December 31, 1997, filed April 15, 1998) 10.14 -- Severance Protection Agreement dated November 1, 1997 by and between World Access, Inc. and Mark A. Gergel (incorporated by reference to Exhibit 10.33 to WA Telco Systems' Form 10-K for the year ended December 31, 1997, filed April 15, 1998) 10.15 -- Amendment Three to Outside Directors' Warrant Plan (incorporated by reference to Exhibit 10.21 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 10.16 -- Executive Employment Agreement between World Access, Inc. and Mark A. Gergel dated as of December 14, 1998 (incorporated by reference to Exhibit 10.23 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 10.17 -- World Access, Inc. 1998 Incentive Equity Plan, as amended (incorporated by reference to Exhibit 10.25 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 10.18 -- Assignment and Assumption Agreement dated October 29, 1998 between World Access, Inc. and WA Telcom Products Co., Inc. (incorporated by reference to Exhibit 10.1 to World Access' Form 8-K filed October 28, 1998) 10.19 -- Form of Indemnification Agreement with directors and officers (incorporated by reference to Appendix H to World Access' Joint Proxy Statement/Prospectus dated November 10, 1998 relating to the Special Meeting of Stockholders held on November 30, 1998) 10.20 -- Schedule of all officers and directors who have signed an Indemnification Agreement referred to in Exhibit 10.19 (incorporated by reference to Exhibit 10.28 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 10.21 -- First Amended and Restated Credit Agreement dated as of December 7, 1999 between Telco Systems, Inc., World Access Holdings, Inc. and Bank of America, N.A. as Administrative Agent and Fleet National Bank as Syndication Agent and Bank Austria Creditanstalt Corporate Finance, Inc. as Documentation Agent and Banc of America Securities LLC as Lead Arranger and Book Running Manager (incorporated by reference to Exhibit 10.20 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 10.22 -- Guaranty dated as of December 30, 1998 between World Access, Telco Systems, World Access Holdings, Inc., NationsBank, N.A. as Administrative Agent and the lenders party to the Credit Agreement referred to in Exhibit 10.21 (incorporated by reference to Exhibit 10.30 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 10.23 -- Pledge Agreement dated as of December 31, 1998 by World Access in favor of NationsBank, N.A. as Administrative Agent and the lenders party to the Credit Agreement referred to in Exhibit 10.21 (incorporated by reference to Exhibit 10.31 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999)
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.24 -- Security Agreement dated as of December 31, 1998 by World Access in favor of NationsBank, N.A. as Administrative Agent and the lenders party to the Credit Agreement referred to in Exhibit 10.21 (incorporated by reference to Exhibit 10.32 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999) 10.25 -- Disbursement Agreement dated as of December 14, 1998 by and among World Access, Inc., Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and William H. Cauthen, Esq. (incorporated by reference to Exhibit 10.33 to World Access' Form 10M-K for the year ended December 31, 1998, filed April 9, 1999) 10.26 -- Agreement and Plan of Merger and Reorganization by and among World Access, Inc., WAXS INC., WA Merger Corp. and Cherry Communications Incorporated (d/b/a/ Resurgens Communications Group) dated as of May 12, 1998, as amended (incorporated by reference to Appendix A to World Access, Inc.'s Proxy Statement dated November 12, 1998 relating to the Special Meeting of Stockholders held on December 14, 1998) 10.27 -- Share Exchange Agreement by and among World Access, Inc., WAXS INC., Cherry Communications U.K. Limited and Renaissance Partners II, dated as of May 12, 1998 (incorporated by reference to Appendix B to World Access, Inc.'s Proxy Statement dated November 12, 1998 relating to the Special Meeting of Stockholders held on December 14, 1998) 10.28 -- Confirmation Agreement dated as of December 7, 1999 by Telco Systems, Inc., World Access Holdings, Inc., World Access, Inc., WA Telco Systems Products Co., Inc., NACT Telecommunications, Inc., Restor-AIT, Inc., Sunrise Sierra, Inc., Westec Communications, Inc., Telco Systems Security Corporation, World Access Capital Corp., World Access Telecommunications Group, Inc., Cellular Infrastructure Supply, Inc. and Galaxy Personal Services, Inc. for the benefit of the lenders party to the Credit Agreement referred to in Exhibit 10.20 (incorporated by reference to Exhibit 10.24 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 10.29 -- Pledge Agreement dated as of December 7, 1999 by World Access, Inc. in favor of Bank of America, N.A., in its capacity as Administrative Agent, and each lender a party to the Credit Agreement referred to in Exhibit 10.20 (incorporated by reference to Exhibit 10.28 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 10.30 -- FaciliCom International, Inc. 1998 Stock Option Plan (incorporated by reference to Exhibit 10.19 to FaciliCom International, Inc.'s Form 10-K for the year ended September 30, 1998, filed December 28, 1998) 10.31 -- First Amendment to the World Access, Inc. 1998 Incentive Equity Plan (incorporated by reference to Exhibit 10.32 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 10.32 -- FaciliCom International, Inc. 1999 Special Stock Option Plan (incorporated by reference to Exhibit 10.33 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 10.33 -- Credit Agreement dated as of November 15, 1999 by and among FaciliCom International, L.L.C. and Nortel Networks Inc. (incorporated by reference to Exhibit 10.34 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 10.34 -- Contribution/Exchange Agreement, dated August 11, 2000, by and among TelDaFax Aktiengsellschaft Marburg/Lahn and Netnet Telekommunikations GmbH and NewTel Communications GmbH.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.35 -- Agreement dated September 21, 2000 by and among Dr. Henning F. Klose, Apax Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account, AP Vermogensverwaltung Gesellschaft burgerlichen Rechts, A + M GmbH & Co Vermogensverwaltung KG, World Access, and TelDaFax Aktiengesellschaft, Marburg/Lahn. **16.1 -- Letter of PricewaterhouseCoopers LLP. 21.1 -- Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to World Access' Form 10-K for the year ended December 31, 1999, filed March 30, 2000) 23.1 -- Consent of Long Aldridge & Norman LLP (included in Exhibit 5.1) 23.2 -- Consent of Ernst & Young LLP with respect to the financial statements of World Access, Inc. 23.3 -- Consent of PricewaterhouseCoopers LLP with respect to the financial statements of World Access, Inc. 23.4 -- Consent of Deloitte & Touche LLP with respect to the financial statements of FaciliCom International, Inc. 23.5 -- Consent of Ernst & Young LLP with respect to the financial statements of Long Distance International, Inc. 23.6 -- Consent of Arthur Andersen LLP with respect to the financial statements of STAR Telecommunications, Inc. 23.7 -- Consent of Ernst & Young LLP with respect to the financial statements of Communications Telesystems International (d/b/a WorldxChange Communications) 23.8 -- Consent of BDO Deutsche Warentrehand with respect to the financial statements of TelDaFax AG. 23.9 -- Consent of Donaldson, Lufkin & Jenrette Securities Corporation with respect to the financial opinion of Donaldson, Lufkin & Jenrette Securities Corporation. 24.1** -- Power of Attorney of World Access (previously included in the signature pages to the initial filing of this registration statement). 99.1 -- Form of proxy for World Access stockholders
- --------------- **Previously filed. (B) Financial Statement Schedules. The financial statement schedules that are required by Regulation S-X are incorporated herein by reference to our Annual Report on Form 10-K for the year ended December 31, 1999. ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sells are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the lower high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume in price represent no II-6 213 more than 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registration includes any prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (5) Insofar as the indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (6) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (7) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. II-7 214 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia, on November 14, 2000. WORLD ACCESS, INC. By: /s/ JOHN D. PHILLIPS ------------------------------------ John D. Phillips Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the registration statement has been signed by the following persons in the capacities indicated as of November 14, 2000.
SIGNATURES TITLE ---------- ----- /s/ JOHN D. PHILLIPS Chairman and Chief Executive Officer - ----------------------------------------------------- (Principal Executive Officer) John D. Phillips /s/ BRYAN D. YOKLEY Executive Vice President and Chief Financial - ----------------------------------------------------- Officer (Principal Financial Officer) Bryan D. Yokley /s/ MARTIN D. KIDDER Vice President and Corporate Controller - ----------------------------------------------------- (Principal Accounting Officer) Martin D. Kidder * President and Director - ----------------------------------------------------- Walter J. Burmeister * Director - ----------------------------------------------------- Kirby J. Campbell * Director - ----------------------------------------------------- Bryan Cipoletti Director - ----------------------------------------------------- Stephen J. Clearman * Director - ----------------------------------------------------- John P. Imlay, Jr. Director - ----------------------------------------------------- Massimo Prelz Oltramonti Director - ----------------------------------------------------- John P. Rigas * Director - ----------------------------------------------------- Carl E. Sanders * Director - ----------------------------------------------------- Dru A. Sedwick
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SIGNATURES TITLE ---------- ----- * Director - ----------------------------------------------------- Lawrence C. Tucker *By: /s/ JOHN D. PHILLIPS ------------------------------------------------ John D. Phillips Attorney-in-Fact
II-9 EX-5.1 2 g63772a1ex5-1.txt OPINION OF LONG ALDRIDGE & NORMAN LLP 1 [Long Aldridge & Norman Letterhead] Exhibit 5.1 November 14, 2000 World Access, Inc. 945 E. Paces Ferry Road, Suite 2200 Atlanta, Georgia 30326 RE: REGISTRATION STATEMENT ON FORM S-4 OF WORLD ACCESS, INC. Ladies and Gentlemen: We have acted as counsel to World Access, Inc., a Delaware corporation (the "Company"), in connection with a Registration Statement on Form S-4 (SEC Registration No. 333-44864) (the "Registration Statement") and the filing thereof with the Securities and Exchange Commission (the "Commission") for the purpose of registering under the Securities Act of 1933, as amended, an aggregate of 19,873,989 shares (the "Shares") of the Company's common stock, $.01 par value per share. The Company proposes to issue the Shares in connection with the TelDaFax Tender Offer (as defined below). Pursuant to the terms of a Purchase and Transfer Agreement dated as of June 14, 2000 (the "TelDaFax Purchase Agreement"), by and among the Company, TelDaFax Aktiengesellschaft Marburg/Lahn, a German corporation ("TelDaFax"), Dr. Henning F. Klose, Apax Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account, AP Vermogensverwaltung Gesellschaft burgerlichen Rechts and A+M GmbH & Co. Vermogensverwaltung KG, the Company expects to conduct a tender offer for all of the issued and outstanding shares of TelDaFax not owned by the Company or an affiliate of the Company (the "TelDaFax Tender Offer"). Our Opinion (as defined below) is furnished solely with regard to the Registration Statement, may be relied upon only in connection with the Registration Statement and may not otherwise be used, quoted or referred to by or filed with any other person or entity without our prior written permission. In rendering our Opinion, we have examined such agreements, documents, instruments and records as we deemed necessary or appropriate under the circumstances, including: (i) the Certificate of Incorporation and Bylaws of the Company, in each case as amended through the date hereof; (ii) the Registration Statement, (iii) the minutes of the proceedings of the Board of Directors of the Company; and (iv) the TelDaFax Purchase Agreement. In making all of our examinations, we assumed (x) the legal capacity of all natural persons, (y) the approval by the stockholders of the Company of the TelDaFax Purchase Agreement and the transactions contemplated thereby, and an amendment to Article IV of the Amended Certificate of Incorporation increasing the number of authorized shares of common stock from 150,000,000 shares to 290,000,000 shares, and (z) the due filing of a certificate of amendment reflecting the increase to 290,000,000 shares of authorized common stock with the office of the Delaware Secretary of State. We have also assumed the genuineness of all signatures, the authenticity and completeness of all documents submitted to us as originals, the conformity to the original documents of all documents submitted to us as copies, and the authenticity of the originals of such documents. We further have assumed the due execution and delivery of all documents by any persons or entities other than the Company where due execution and delivery by such persons or entities is a prerequisite to the effectiveness of such documents. As to all questions of fact that are material to our Opinion, we have relied upon the factual statements set forth in a certificate of an officer of the Company and certificates of various public officials. We have not independently verified or investigated, nor do we assume any responsibility for, the factual accuracy or completeness of such factual statements. Because the Company is organized under, and the subject of our Opinion therefore is governed by, the General Corporation Law of the State of Delaware (the "Delaware Code"), we do not herein express any opinion concerning any matter respecting or affected by any laws other than the laws set forth in the Delaware Code that are on the date hereof in effect and that, in the exercise of reasonable professional judgment, are 2 World Access, Inc. November 14, 2000 Page 2 - ------------------------ normally considered in transactions such as those contemplated by the issuance of the Shares. The Opinion hereinafter set forth is based upon pertinent laws and facts in existence as of the date hereof, and we expressly disclaim any obligation to advise you of changes to such pertinent laws or facts that hereafter may come to our attention. The only opinion rendered by this firm is in numbered paragraph (1) below (our "Opinion"), and no other opinion is implied or to be inferred. Additionally, our Opinion is based upon and subject to the qualifications, limitations and exceptions set forth in this letter. Based on and subject to the foregoing, we are of the opinion that: (1) The Shares to be issued in exchange for the shares of TelDaFax capital stock tendered pursuant to the TelDaFax Tender Offer, when issued in accordance with the terms of the TelDaFax Purchase Agreement, will be validly issued, fully paid and nonassessable. We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to the reference to our firm under the heading "Legal Matters" set forth in the prospectus forming a part of the Registration Statement. Very truly yours, LONG ALDRIDGE & NORMAN LLP By:/s/ Leonard A. Silverstein ------------------------------------ Leonard A. Silverstein 3 WORLD ACCESS, INC. CERTIFICATE OF OFFICER The undersigned, MARK A. GERGEL, in his capacity as Executive Vice President -- Business Development of World Access, Inc., a Delaware corporation (the "Company"), does hereby certify as follows: 1. Attached hereto as Exhibit A is a true and complete copy of the Certificate of Incorporation of the Company, including all amendments and changes thereto, or restatements thereof. No amendment or other document relating to or affecting the Certificate of Incorporation of the Company has been authorized or filed in the office of the Secretary of State of the State of Delaware since June 29, 1999, and such Certificate of Incorporation is in full force and effect on the date hereof. 2. The Company has at all times had a registered agent and office in the State of Delaware. The Company has filed or caused to be filed all tax returns, annual reports and other filings which are required to be made or filed with the State of Delaware, and all of such filings have been made or effected in a timely manner. The Company has not received any notice from the Secretary of State of the State of Delaware of a determination that any grounds exist for administratively dissolving the Company or any of its subsidiaries and neither the Company nor any of its subsidiaries has received notice of the commencement of any action to judicially dissolve the Company or any of its subsidiaries. The Company remains in good standing in the State of Delaware. 3. No proceeding for the dissolution, merger, consolidation or liquidation of the Company or for the sale of all or substantially all of its assets is pending or, to the best of my knowledge, threatened, and no such proceeding is contemplated by the Company. 4. Attached hereto as Exhibit B is a complete and correct copy of the Bylaws of the Company as in full force and effect on the date hereof, and no proposal for any amendment to such Bylaws of the Company is currently pending. 5. The minute books and records of the Company relating to all proceedings of the stockholders, the Board of Directors and the committees of the Board of Directors of the Company and its subsidiaries, as the same have been made available for review by Long Aldridge & Norman LLP, counsel for the Company, are the original minute books and records of the Company, or are true, correct and complete copies thereof, with respect to all proceedings of such stockholders, Board of Directors and committees. There have been no material changes, additions or alterations in the minute books, records and other documents that have not been disclosed to such counsel in writing. 6. The Company and its subsidiaries are duly qualified to do business in all states in which they are required to be so qualified, except where the failure to so qualify would not have a material adverse effect on the condition (financial or other), business, properties, net worth or results of operations of the Company and its subsidiaries, taken as a whole. 7. Attached hereto as Exhibit C is a complete and correct copy of the minutes of the meeting (the "Minutes") of the Board of Directors of the Company dated as of February 11, 2000 relating to the preparation and filing with the Securities and Exchange Commission of a Registration Statement on Form S-4 (the "Registration Statement") for the purpose of registering under the Securities Act of 1933, as amended, shares of the Company's common stock, $0.1 par value per share, in accordance with the terms of a merger transaction with STAR Telecommunications, Inc. and a merger transaction with Communication TeleSystems International d/b/a WORLDxCHANGE Communications (collectively, the "Mergers"). The Minutes were executed in compliance with all procedural or other requirements of the Company's Certificate of Incorporation and Bylaws and the Delaware General Corporation Law, as in effect on February 11, 2000. The Minutes have not been modified or rescinded since their execution and are in full force and effect as of the date hereof. The Minutes contain the only resolutions adopted by the Board of Directors of the Company or any duly authorized committee thereof relating to the Mergers and the transactions contemplated thereby. The foregoing actions of the Board of Directors are accurately reflected in the minute books of the Company. 4 8. Each person who, as a director or officer of the Company or attorney-in-fact of such director or officer, approved the Mergers, signed the Minutes or signed any other document delivered prior hereto or on the date hereof in connection with the transactions described in the Registration Statement was at the respective times of such approval or signing and delivery and is now duly elected or appointed, qualified and acting as such director or officer or duly appointed and acting as such attorney-in-fact, and the signatures of such persons appearing on such documents are their genuine signatures. 9. The Company is subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and during the preceding 12 months, the Company has filed all reports and other materials required to be filed pursuant to the requirements of the Exchange Act. 10. No consent or state or federal governmental approval or consent is required on the part of the Company for the Mergers, except such consents and approvals as may be required under (i) domestic and foreign antitrust laws; (ii) Blue Sky laws, federal securities laws or state securities governing the issuance of securities pursuant to the Mergers and (iii) the Federal Communications Commission. The undersigned understands and acknowledges that this certificate will be relied upon by Long Aldridge & Norman LLP in connection with its opinion to be given pursuant to the Registration Statement. IN WITNESS WHEREOF, I have hereunto signed my name as of this 14(th) day of November, 2000. /s/ MARK A. GERGEL -------------------------------------- Mark A. Gergel Executive Vice President -- Business Development EX-10.34 3 g63772a1ex10-34.txt CONTRIBUTION/EXCHANGE AGREEMENT 1 CONTRIBUTION/EXCHANGE AGREEMENT of AUGUST 11, 2000 among TELDAFAX AKTIENGESELLSCHAFT and NETNET TELEKOMMUNIKATIONS GMBH and NEWTEL COMMUNICATIONS GMBH 2 -2- This CONTRIBUTION / EXCHANGE AGREEMENT (the "Agreement") is made on 11 August 2000 (the "Signing Date") by 1. TelDaFax Aktiengesellschaft, a public stock corporation under the laws of Germany, ( "TDF") and 2. Netnet Telekommunikations GmbH, a company with limited liability under the laws of Germany, ("Netnet"), and 3. NewTel Communications GmbH, a company with limited liability under the laws of Germany, ("NewTel"), (together the "Companies"). PREAMBLE A. World Access, Inc., a public stock corporation under the laws of Delaware, U.S.A., ("WA") intends to acquire a majority stake in TDF. WA has entered into a share purchase and transfer agreement with certain shareholders of TDF, dated June 14, 2000, (the "Purchase and Transfer Agreement") for the acquisition of 41.62% of the issued shares in TDF (the "Share Purchase and Transfer Agreement"). B. TDF supports WA's intention as it is convinced that the acquisition by WA of such majority stake and the combination of their respective German businesses is for the benefit of, and in the best interests of, both companies and their shareholders. C. The Companies are wholly owned subsidiaries of WA. 3 -3- D. TDF is registered in the commercial register in the local court of Marburg under HR B 2174. The share capital of TDF currently amounts to EURO 87,954,360, divided into 33,828,600 non par value shares. TDF has an authorised capital (genehmigtes Kapital) in an aggregate nominal amount of EURO 42,900,000 and a conditional capital in the amount of EURO 42,900,000 to cover the issue of convertible bonds. The shares of TDF are admitted to the Frankfurt Stock Exchange and listed on the segment Neuer Markt and on EASDAQ. E. The management board (Vorstand) of TDF with the consent of the supervisory board (Aufsichtsrat) is entitled to increase the capital of TDF by the amount of the authorised capital to the exclusion of subscription rights of the existing shareholders if, inter alia, the newly issued shares are used to acquire other businesses. The Vorstand now intends to make use of this authority to acquire the businesses operated by the Companies. F. WA intends to cause the businesses operated by the Companies to be contributed to TDF against the issue of the shares available under the authorised capital (genehmigtes Kapital) of TDF to the Companies. G. For German tax purposes the contribution of the businesses operated by the Companies shall constitute a transfer of each of the Company's entire business (Geschaftsbetrieb im Ganzen). For purposes of applying U.S. federal income tax law under the United States Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") and the regulations issued thereunder to the transactions set forth in this Agreement, and depending upon the ultimate percentage of outstanding TDF shares WA acquires in TDF, the transfer of the business operated by NewTel to TDF in exchange for the issuance of TDF shares may be treated as a taxable sale of such assets under Section 1001 of the Internal Revenue Code, but the transfer of the assets and liabilities comprising the business operated by Netnet in exchange for the issuance of TDF shares is intended to and shall be treated as a tax-free "reorganisation" under Section 368 (a)(1)(C) of the Internal Revenue Code. In this regard, this Agreement is intended and shall constitute a "plan of reorganisation" within the meaning of U.S. Treasury Regulation Section 1.368-2(g). 4 -4- Therefore, the Parties agree as follows: SS. 1 DEFINITIONS Agreement Caption Application ss. 2.5 Balance Sheet Assets ss. 3/2 Business ss. 2.1 Companies Caption Contribution Balance Sheets ss. 3.1 Internal Revenue Code Preamble G Netnet Caption New Shares ss. 9.1 NewTel Caption Purchase and Transfer Agreement Preamble A Share Purchase and Transfer Agreement Preamble A Signing Date Caption TDF Caption Transferred Assets ss. 3.3 Transfer Date ss. 2.4 WA Preamble A SS. 2 CONTRIBUTION OF THE BUSINESSES / ISSUANCE OF SHARES 2.1 Pursuant to the terms and conditions set forth in this Agreement, each of the Companies agrees to transfer to TDF and TDF accepts the transfer of each Company's entire business (Geschaftsbetrieb im Ganzen) with all assets, liabilities 5 -5- and contracts (the "Business") operated by each of the Companies as a contribution in kind (Sacheinlage) against the issue of new shares to the respective Company. The transfers of the Companies' Businesses are set out in more detail in ss.ss. 3 to 8 hereto. The transfer or assignment of the Business shall not include such liabilities under contracts and any other legal position owed by each of the Companies to WA and/or its other subsidiaries. 2.2 The Companies and TDF hereby make all declarations and, unless expressly provided otherwise herein, consummate all actions which are required to effect the transfer of the Businesses. To the extent that certain declarations and actions are specifically mentioned in this Agreement, this is done for the purpose of emphasis and clarification only. 2.3 The transfers of the Businesses shall become effective between the parties (schuldrechtlich) and (unless the consent of any third party is required and outstanding at the Transfer Date) also with title effect towards third parties (dinglich) upon registration of the capital increase in the commercial register of TDF contemplated by this Agreement (the "Transfer Date"). 2.4 It is understood that (i) the management board (Vorstand) of TDF and (ii) the supervisory board (Aufsichtsrat) of TDF each have agreed in principle to adopt the capital increase contemplated hereby in order to issue the number of shares to the Companies as set forth in ss. 9. TDF undertakes to arrange for filing of the registration of the capital increase contemplated hereby (the "Application") on or immediately after the period for the acceptance of the Tender Offer contemplated by the Share Purchase and Transfer Agreement has expired, unless it turns out that following the Tender Offer WA will not own 50% of the outstanding shares in TDF. TDF further undertakes to consult with the competent commercial register in order to ensure registration of the capital increase as soon as possible after filing. 2.5 The parties to this Agreement shall have the right to withdraw (zurucktreten) from this Agreement (i) if the Closing Conditions of the Share Purchase and Transfer Agreement have not been satisfied by October 31, 2000 or (ii) if one of the parties 6 -6- of the Share Purchase and Transfer Agreement has withdrawn therefrom, or (iii) if the auditor (Sacheinlagenprufer) does not confirm the value of the Business to cover the total contribution amount. SS. 3 TRANSFER OF ASSETS OF THE COMPANIES 3.1 As of the Transfer Date, each of the Companies hereby transfers to TDF and TDF hereby accepts the transfer of all assets which are included in the balance sheet of each Company as of December 31, 1999, which are attached as Exhibit 3.1 to 3.3 (the "Contribution Balance Sheets"). In particular all moveable assets (bewegliche Sachen) which are located at the locations described in Exhibit 3.4 shall be transferred to TDF including all furniture and computer hardware. 3.2 As of the Transfer Date, each of the Companies transfers to TDF and TDF hereby accepts the transfer of, title to all assets, which are not, need not or cannot be accounted for in the Contribution Balance Sheets, but which are directly and indirectly attributable to the Businesses, including any and all goods of minor or little value (all these assets hereinafter referred to as "Balance Sheet Assets"). 3.3 As of the Transfer Date each of the Companies hereby transfers to TDF and TDF hereby accepts the transfer of all additions to the Balance Sheet Assets since December 31, 1999. Those Balance Sheet Assets which have been sold since December 31, 1999 or which no longer assist, are not subject to the transfer of assets under this Section 3 (the Balance Sheet Assets as adjusted are referred to as the "Transferred Assets"). 3.4 As of the Transfer Date ach of the Companies and TDF agree that title and rights to usage as well as encumbrances on the Transferred Assets shall pass to TDF. To the extent that the Transferred Assets are not directly owned by the respective Company, this Company hereby assigns to TDF its right to demand delivery and to take possession of the respective assets. TDF hereby accepts such assignments. 7 -7- 3.5 Possession to movable assets which are transferred in accordance with this Section shall pass from the respective Company to TDF effective as at the Transfer Date. To the extent that movable assets are not in the possession of the respective Companies as of the Transfer Date, each Company hereby assigns to TDF the right to require redelivery or surrender of such assets. TDF hereby accepts such assignment. 3.6. To the extent that any of the Transferred Assets under this Section are subject to reservation of title by supplier or transfer of title for security purposes, each Company hereby transfers to TDF as of the Transfer Date its contingent right to acquire title to such assets (Anwartschaftsrecht). TDF hereby accepts such assignment. SS. 4 ASSIGNMENT OF RECEIVABLES 4.1 As of the Transfer Date each of the Companies hereby assigns to TDF and TDF hereby accepts the assignment of, all accounts receivable as well as all other rights and claims of each of the Company, accounted for in the referenced Balance Sheets taking into account additions, disposals and discharges pursuant to ss. 3.3 of this Agreement. 4.2 To the extent that the transfer of receivables pursuant to Subsection 1 requires the consent of third parties, each Company will take every action, in order to obtain such consent. If such consent to the transfer of a receivable claims is withheld, the respective Company and TDF will treat each other as if the relevant receivable had been transferred as of the Transfer Date. SS. 5 ASSIGNMENT OF TRADEMARKS AND SOFTWARE As of the Transfer Date each of the Companies hereby assigns to TDF and TDF hereby accepts an assignment of, all trademarks, software and other intellectual property rights 8 -8- which form part of their respective Business as of the Transfer Date including, without limitation, the trademarks and software listed in Exhibit 5 together will all rights and obligations relating thereto. In due course, after the Transfer Date, the respective Company and TDF will take all this actions reasonably required to have TDF registered as the new owner of trademarks and other intellectual property rights. SS. 6 TRANSFER OF INTANGIBLE ASSETS AND OF ALL BOOKS AND RECORDS As of the Transfer Date each of the companies hereby assigns to TDF and TDF hereby accepts the assignment of, all intangible assets forming part of the business as of the Transfer Date, including without limitation, all goodwill, customer relations and all rights in the name of the respective Company as well as all books, records, certificates deeds and other information relating to its Business. SS. 7 ASSIGNMENT OF CONTRACTS, LEGAL POSITIONS AND LIABILITIES 7.1 As of the Transfer Date each of the companies hereby assigns to TDF and TDF hereby accepts the assignment of all contracts and, to the extent assignable, contract offers, memberships, approvals, licences and other legal relations forming part of the business as of the Transfer Date except contracts and any other legal positions owed to WA and/or its other subsidiaries. The aforementioned assignment of contracts shall include but not be limited to the contracts which are listed in Exhibit 7.1. 7.2 As of the Transfer Date each Company hereby assigns to TDF and TDF hereby accepts the assignment of all obligations shown in the balance sheets taking into account all additions, disposals and discharges since December 31, 1999, except liabilities owed by each of the Companies to WA and/or its other subsidiaries under contracts and any other legal position. The assignment shall also include liabilities under contracts and other legal positions assigned in accordance with 9 -9- Subsection 1, tax liabilities and other liabilities arising from the operations of the respective Company. 7.3 To the extent that the assignment of contracts, legal positions, liabilities in accordance with this Section requires the consent of the relevant creditors and counterparties, respectively, the Company and TDF will use reasonable efforts to obtain such consent to wherever reasonably possible. If any creditor or counterparty withholds its consent, the parties will treat each other as if the relevant liability or contract had been transferred as of the Transfer Date not only with internal but also with external effect. In particular any liabilities and contracts shall be performed by TDF on behalf of the respective Company but for the account of TDF and TDF shall indemnify and hold the respective Company harmless against all damages, costs and expenses suffered or incurred in connection with any contract, legal position and liability which is assigned to TDF in accordance with this Agreement. If a Company is held liable by any third party for fulfilment of any liability or contract which is, or, if they existed as stated by the relevant third party, would be assigned by the Company to TDF in accordance with this Agreement and, if TDF does therefore not fulfil the liability or contract as demanded by the third party, then TDF shall be responsible for handling the further proceedings including, but not limited to, any litigation and shall advance to the Company all funds reasonably required to defend itself against any claims stated by the third party without prejudice to its obligation to indemnify and hold the Company harmless in accordance with the proceeding provisions. SS. 8 TRANSFER OF EMPLOYMENTS AND OF PENSION LIABILITIES 8.1 All rights and obligations under any employment agreement to which any of the Companies is party as employer as of the Transfer Date shall transfer to TDF as at that date in accordance with ss. 613a of the German Civil Code (BGB). 8.2 TDF shall indemnify and hold each Company harmless against all damages, costs and expenses suffered or incurred in connection with any liability towards actually 10 -10- or former employees of the Companies which are transferred to TDF in accordance with Subsection 1. The provisions in ss. 7.3 apply accordingly. SS. 9 CONSIDERATION 9.1 As consideration for the contribution of the Businesses of the Companies, TDF shall issue in total 2.546.239 non par value shares; of these shares TDF shall issue 9.1.1 to Netnet 1,620,334 non par value shares representing a capital of Euro 1,620,334 at a subscription amount of Euro 8,90 per share or a total contribution amount of Euro 14,420,972.60; 9.1.2 to NewTel 925,905 non par value shares representing a capital of Euro 925,905 as a subscription amount of Euro 8.90 per share, or a total contribution amount of Euro 8,240,554.50. The issued shares are hereinafter together referred to as the "New Shares". 9.2 Upon issuance the New Shares will be duly and validly authorised, fully paid and non assessable and free of pre-emptive or similar rights or encumbrances. 9.3 In its tax balance sheet TDF shall be obliged to continue to account for the assets transferred under this Agreement at their book value. SS. 10 REPRESENTATIONS AND WARRANTIES The Companies and WA do not give any representations and warranties with respect to their Businesses. Any obligations of the Companies vis-a-vis TDF under the applicable laws remain unaffected by this exclusion. 11 -11- SS. 11 CONDUCT OF THE BUSINESSES OF WA AND TDF Each of the Companies undertakes to TDF and TDF undertakes to each of the Companies to procure that (i) the Businesses of the Companies and TDF, respectively, during the period from the date hereof to the registration with the commercial register of the New Shares, are conducted in the ordinary course except with the prior written approval of the other party, (ii) no steps are taken by the Companies and TDF, as the case may be, which are or could be, using a sound commercial judgment, detrimental to the transaction contemplated by this Agreement and that (iii) no action is taken by the Companies and / or TDF which would require their respective shareholders' or supervisory board's approval. SS. 12 COSTS Each party shall bear the cost of its own legal and other advisors incurred in connection with the negotiation, execution and completion of this Agreement and the transactions contemplated hereby as well as any personal taxes arising therefrom. All notary's fees relating to the contribution in kind shall be borne by TDF. SS. 13 NOTICES Any notices provided or required under the terms of this Agreement shall be given in writing and shall be effective immediately when provided by facsimile transmission or personal delivery, or five days after being sent by internationally recognised courier, and addressed as follows: 12 -12- (a) If to the Companies: World Access, Inc. c/o GAEDERTZ, Frankfurt office Bockenheimer Landstra(beta)e 98 - 100, 60323 Frankfurt am Main, Fax-No.: ++49 69 7941 100 with copy to: World Access, Inc., Attn.: W. Tod Chmar, Executive Vice President 945 East Paces Ferry Road, Suite 2200, Atlanta, GA 30326, U.S.A. Fax-No.: ++1 404 233 2280 (b) If to TDF: TelDaFax AG, Attn.: Dr. Henning F. Klose Rudolf-Breitscheid-Stra(beta)e 35010 Marburg/Lahn Fax-No.: ++49 6421 181 1210 SS. 14 MUTUAL ASSISTANCE The parties undertake to co-operate with and to provide each other with all necessary information required for any regulatory filings, in particular, but not limited to, all filings with the Securities Exchange Commission. 13 -13- SS. 15 MISCELLANEOUS 15.1 This Agreement shall be governed by and construed in accordance with the laws of the Federal Republic of Germany. The courts in Frankfurt am Main shall have non-exclusive jurisdiction. 15.2. The authentic text of this Agreement shall be the English text. However, if any German translations have been provided in brackets, such German terms shall prevail. Each of the Companies confirms that it is fully aware of the contents of all Exhibits including those which are in the German language. For purposes of the registration, a German translation of this Agreement will be prepared. 15.3 The parties to this Agreement shall keep this Agreement confidential and shall only make public announcements as to its contents upon mutual agreement. This does not apply to any disclosure required under the applicable laws, by governmental regulatory bodies, under banking covenants or stock exchange regulations (including the U.S. Securities Exchange Commission and Nasdaq National Market) to which a party to this Agreement is subject to. The content of such disclosure will be communicated to either party prior to the disclosure. 15.4 This Agreement, together with the agreements mentioned herein and the Side Letter between the Parties and others of even date, sets forth the entire agreement and understanding of the Parties with respect to the subject matter hereof. This Agreement will be executed in five counterparts. 14 -14- 15.5 No amendment to this Agreement shall be of any effect unless it is in writing and signed for or on behalf of the parties hereto. This shall also apply to any amendment of the present section. 15.6 If any of the provisions of this Agreement shall be or become invalid, this shall not affect the validity of the remaining provisions. The parties undertake to replace any invalid provisions by such provisions as shall come as close as possible to their commercial intentions in a legally valid manner. The same shall apply if this Agreement should contain an unintentional gap. /s/ Dr. Achim Herfs - ----------------------------------- TelDaFax Aktiengesellschaft /s/ Thomas Sievert - ----------------------------------- Netnet Telekommunikations GmbH /s/ Thomas Sievert - ----------------------------------- NewTel Communications GmbH EX-10.35 4 g63772a1ex10-35.txt AGREEMENT DATED SEPTEMBER 21, 2000 1 EXHIBIT 10.35 AGREEMENT dated 21 September 2000 (the "Agreement") The parties hereto are among the parties to the PURCHASE AND TRANSFER AGREEMENT, dated 14 June 2000, between Dr. Henning F. Klose, Apax Germany II L.P., Apax Funds Nominees Ltd. fur "B" Account, Apax Funds Nominees Ltd. fur "D" Account, AP Vermogensverwaltung Gesellschaft burgerlichen Rechts, A + M GmbH & Co Vermogensverwaltung KG, World Access, Inc. and TelDaFax Aktiengesellschaft, Marburg/Lahn (the "Purchase Agreement"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Purchase Agreement. The Funds and Purchaser have agreed to immediately close the sale of the Sold Shares to the Purchaser on the terms set forth herein. 1.1 The Funds and the Purchaser agree that the Funds will immediately transfer to the Purchaser the Sold Shares. The Funds and the Purchaser confirm that the provisions of the Purchase Agreement shall apply to the transfer of the Sold Shares to the Purchaser (including, without limitation, the obligations of the Funds under ss. 12 of the Purchase Agreement), except as otherwise modified in this Agreement. 1.2 For the purpose of the transfer to the Purchaser of the Sold Shares, the Put Option Closing and the Call Option Closing (ss. 17 of the Purchase Agreement), as they relate to A+M, the parties hereto agree that the Closing Conditions in ss.ss. 8.1.2, 8.1.3, 8.1.4, 8.1.5, 8.1.6 and 8.1.7 of the Purchase Agreement shall be met (gelten als eingetreten) as of the date of the signing of this Agreement. 1.3 For the avoidance of doubt it is hereby explicitly clarified that the above mentioned agreements on the fulfillment of certain Closing Conditions are restricted to the purpose of executing the transfer of the Sold Shares as soon as possible, and to the purpose of implementing the put options and the call options as they relate to A+M, respectively. 1.4 At the closing of the purchase of the Sold Shares the actions set forth in ss. 9 of the Purchase Agreement shall be implemented; provided, however, that, with respect to the 2 2 Funds' representatives on the Supervisory Board, Messrs. Halusa and McMonigall, Mr. McMonigall shall immediately resign and Mr. Halusa shall remain on the Supervisory Board until such time as the Purchaser requests his resignation, however, not longer than until October 31, 2000. Upon such request Mr. Halusa shall immediately resign from the Supervisory Board. 1.5 The parties agree that the period in which A+M can exercise the A+M Put Option (as described in ss.ss. 5.2 and 17.5.1 of the Purchase Agreement) shall commence on 1 January 2001 only. 1.6 For purposes of (a) ss.ss. 7.2 and 15.1 of the Purchase Agreement and (b) ss.ss. 5.5 and 9.3.5 of the Purchase Agreement as such sections relate to A+M, "Closing" shall be defined as the later of the consummation of the contribution (ss. 4.1 of the Purchase Agreement) and the completion of the Tender Offer (ss. 16.4 of the Purchase Agreement). For purposes of ss.ss. 17.1.2 and 17.1.3 of the Purchase Agreement, as those sections relate to A+M, "Closing" shall be defined as the consummation of the contribution (ss.ss. 4.1 of the Purchase Agreement). 1.7 Each party hereto shall take such action, shall furnish such information, and shall prepare or cooperate in preparing, and execute and deliver such certificates, instruments and other documents as may be reasonably requested by another party hereto in order to effectuate the agreements contained herein. 1.8 This Agreement may be executed in one or more counterparts, each of which shall be deemed as original and all of which shall constitute one and the same instrument. 1.9 This Agreement is subject to German law. /s/ W. Tod Chmar /s/ Otto Haberstock - -------------------------------- -------------------------------------------- World Access, Inc. Otto Haberstock by proxy dated June 7, 2000 by: W. Tod Chmar or Apax Funds Nominee Ltd. fur "B" Account Title: Executive Vice President 3 3 /s/ Otto Haberstock /s/ Otto Haberstock - ---------------------------------------------- -------------------------------------------- Otto Haberstock by proxy dated June 5, 2000 Otto Haberstock by proxy dated June 7, 2000 for Apax Germany II L.P. for Apax Funds Nominee Ltd. fur "D" Account /s/ Otto Haberstock /s/ Otto Haberstock - ---------------------------------------------- -------------------------------------------- Otto Haberstock by proxy dated June 11, 2000 Otto Haberstock by proxy dated June 6, 2000 for A + M GmbH & Co Vermogensverwaltung KG for AP Vermogensverwaltung Gesellschaft burgerlichen Rechts
EX-23.2 5 g63772a1ex23-2.txt CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-4, Amendment No. 1 related Prospectus of World Access, Inc. and subsidiaries for the registration of its common stock and to the incorporation by reference therein of our report dated March 20, 2000, with respect to the consolidated financial statements and schedules of World Access, Inc. and subsidiaries included in its Annual Report (Form 10-K/A, Amendment No. 4), for the year ended December 31, 1999, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Atlanta, Georgia November 8, 2000 EX-23.3 6 g63772a1ex23-3.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-4, as amended, of our report dated March 5, 1998, except for the discontinued operations reclassifications in the Consolidated Statements of Operations and Note C, which are as of March 14, 2000, relating to the financial statements and financial statement schedules of World Access, Inc. for the year ended December 31, 1997, which appears in World Access Inc.'s Annual Report on Form 10-K/A Amendment No. 4 for the year ended December 31, 1999. We also consent to the references to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers LLP Atlanta, Georgia November 8, 2000 EX-23.4 7 g63772a1ex23-4.txt CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.4 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Amendment No. 1 to Registration Statement No. 333-44864 of World Access, Inc. on Form S-4 of our report dated December 7, 1999, on the consolidated financial statements of FaciliCom International, Inc. and subsidiaries, appearing in the Current Report on Form 8-K dated December 7, 1999 of World Access, Inc., and to the reference to us under the heading "Experts" in the Prospectus, which is part of such Registration Statement. /s/ Deloitte & Touche LLP Pittsburgh, Pennsylvania November 8, 2000 EX-23.5 8 g63772a1ex23-5.txt CONSENT OF ERNST & YOUNG 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" in the Registration Statement on Form S-4, Amendment No. 1, and related Prospectus of World Access, Inc. and subsidiaries for the registration of its common stock and to the incorporation by reference therein of our report dated March 10, 2000, with respect to the consolidated financial statements of Long Distance International, Inc. included in the World Access, Inc. and subsidiaries Current Report (Form 8-K, as amended) dated February 11, 2000, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP West Palm Beach, Florida November 8, 2000 EX-23.6 9 g63772a1ex23-6.txt CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.6 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this registration statement File No. 333-44864 of our report, which includes a matter of emphasis, dated April 14, 2000, included in the STAR Telecommunications, Inc.'s Form 10-K/A for the year ended December 31, 1999 and to all references to our Firm included in this registration statement. /s/ ARTHUR ANDERSEN LLP Los Angeles, California November 10, 2000 EX-23.7 10 g63772a1ex23-7.txt CONSENT OF ERNST & YOUNG LLP 1 EXHIBIT 23.7 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated December 10, 1999 (except for the fourth paragraph of Note 5 and sixth paragraph of Note 13, as to which the date is May 22, 2000), with respect to the financial statements of Communications Telesystems International d.b.a. WORLDxCHANGE Communications included in the Registration Statement (Amendment No. 1 to Form S-4 No. 333-44864) and related Prospectus of World Access, Inc. for the registration of shares of its common stock expected to be filed on or about November 14, 2000. /s/ ERNST & YOUNG LLP San Diego, California November 13, 2000 EX-23.8 11 g63772a1ex23-8.txt CONSENT OF BDO DEUTSCHE WARENTREHAND 1 EXHIBIT 23.8 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Herrn Dr. Henning F. Klose Vorsitzender des Vorstands TelDaFax AG Postfach 22 06 35010 Marburg We hereby consent to the use in the Proxy Statement/Prospectus constituting a part of this Registration Statement on Form S-4, Amendment No. 1, of our report dated August 2, 2000, relating to the consolidated financial statements of TelDaFax AG, which is contained in that Proxy Statement/Prospectus. We also consent to the reference to us under the caption "Experts" in the Proxy Statement/Prospectus. Wiesbaden, November 9, 2000 BDO Deutsche Warentreuhand Aktiengesellschaft Wirtschaftsprufungsgesellschaft /s/ H. G. Bungers /s/ M. Karlik - --------------------- --------------------- H. G. Bungers M. Karlik EX-23.9 12 g63772a1ex23-9.txt CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES 1 EXHIBIT 23.9 CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION We hereby consent to (i) the inclusion of our opinion letter, dated June 14, 2000, to the Board of Directors of World Access, Inc., a Delaware Corporation (the "Company"), as Appendix B to the Proxy Statement/Prospectus of the Company, which forms a part of this Registration Statement on Form S-4 (the "Proxy Statement/Prospectus), relating to the Company's proposed acquisition of TelDaFax Aktiengesellschaft ("TelDaFax") shares from the Apax funds and Dr. Klose, the TelDaFax tender offer and the German business combination between the Company and TelDaFax, and (ii) all references to us in the sections captioned "Opinion of World Access' financial advisor regarding the TelDaFax transactions" of the Proxy Statement/Prospectus. In giving such consent, we do not admit that we come within the category of persons whose consent is required under, and we do not admit that we are "experts" for purposes of, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. Any other use of our opinion requires our prior written consent. DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION By: /s/ Michael Connolly New York, New York ----------------------------------- November 13, 2000 EX-99.1 13 g63772a1ex99-1.txt FORM OF PROXY FOR WORLD ACCESS STOCKHOLDERS 1 EXHIBIT 99.1 WORLD ACCESS, INC. PROXY FOR THE WORLD ACCESS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 14, 2000 THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF WORLD ACCESS The board of directors of World Access recommends that you vote FOR the following proposal: [X] Please mark votes as in this example. 1. Approval of the adoption of a Purchase and Transfer Agreement dated as of June 14, 2000, between World Access, TelDaFax Aktiengesellschaft, Dr. Henning F. Klose, Apax Germany II L.P., Apax Funds Nominees Ltd fur "B" Account, Apax Funds Nomninees Ltd. fur "D" Account, AP Vermogensverwaltung Gesellschaft burgerlichen Rechts and A+M GmbH & Co Vermogensverwaltung KG and the transactions contemplated thereby pursuant to which World Access will acquire shares of TelDaFax in five transactions. FOR [ ] AGAINST [ ] ABSTAIN [ ] The undersigned appoints Bryan D. Yokley and W. Tod Chmar, and each of them, with full power of substitution, the proxies and attorneys of the undersigned, to vote as specified hereon at the Special Meeting of Stockholders of World Access to be held on December 14, 2000 at 1:00 p.m. local time, and at any adjournments or postponements thereof, with all powers (other than the power to revoke the proxy or vote the proxy in a manner not authorized by the executed form of proxy) that the undersigned would have if personally present at the World Access Special Meeting, to act in their discretion upon any other matter or matters that may properly be brought before the World Access Special Meeting and to appear and vote all the shares of World Access stock that the undersigned may be entitled to vote. The undersigned hereby acknowledges receipt of the accompanying proxy statement/prospectus and hereby revokes any proxy or proxies heretofore given by the undersigned relating to this World Access Special Meeting. 2 UNLESS OTHERWISE MARKED, THIS PROXY WILL BE VOTED AS IF MARKED "FOR" THE FOREGOING PROPOSALS. --------------------------------------------- Signature --------------------------------------------- Signature if jointly held Dated: --------------------------------------- PLEASE DATE AND SIGN AS NAME APPEARS HEREON. WHEN SIGNING AS EXECUTOR, ADMINISTRATOR, TRUSTEE, GUARDIAN OR ATTORNEY, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED CORPORATE OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. JOINT OWNERS SHOULD EACH SIGN. -----END PRIVACY-ENHANCED MESSAGE-----