-----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, BuoMHv4gLpmCVUh1M8CLGmTsDWGN72VMlcaIGZCitILHwQSVxnUhWwZ73kdKSqLK PHkxh96y+wtSVkWVR7bRfQ== 0000950144-99-012439.txt : 19991108 0000950144-99-012439.hdr.sgml : 19991108 ACCESSION NUMBER: 0000950144-99-012439 CONFORMED SUBMISSION TYPE: S-4/A PUBLIC DOCUMENT COUNT: 30 FILED AS OF DATE: 19991105 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD ACCESS INC /NEW/ CENTRAL INDEX KEY: 0001071645 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 582398004 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4/A SEC ACT: SEC FILE NUMBER: 333-89479 FILM NUMBER: 99742639 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 WORLD ACCESS, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 5, 1999 REGISTRATION NO. 333-89479 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 3669 58-2398004 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification Number)
945 EAST 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) MARK A. GERGEL EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WORLD ACCESS, INC. 945 EAST 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: As soon as practicable after the Registration Statement becomes effective. If the only 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, please 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, please 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 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROSPECTUS AND CONSENT SOLICITATION WORLD ACCESS, INC. $300,000,000 AGGREGATE PRINCIPAL AMOUNT OF 13.25% SENIOR NOTES DUE 2008 $15,000,000 OF WORLD ACCESS COMMON STOCK EXCHANGE OFFER AND CONSENT SOLICITATION OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL, INC. EXCHANGED FOR 13.25% SENIOR NOTES DUE 2008 AND COMMON STOCK OF WORLD ACCESS AND CASH - -------------------------------------------------------------------------------- TERMS OF THE EXCHANGE OFFER - - The exchange offer will expire at 12:00 p.m., New York City time, on December 7, 1999, unless we extend it. - - If all the conditions to this exchange offer are satisfied, we will exchange all FaciliCom notes that are validly tendered and not withdrawn. - - For each $1,000 principal amount of FaciliCom notes tendered and accepted for exchange, you will receive (1) $1,000 principal amount of our 13.25% Senior Notes due 2008, (2) such number of shares of our common stock having an aggregate market value of $50 and (3) a payment of $10 in cash. - - The exchange notes that we will issue to you in exchange for your FaciliCom notes are new securities with no established trading market and will not be listed on any securities exchange or market. We expect the exchange notes will be eligible for trading in the PORTAL market. - - Our common stock is traded on the Nasdaq National Market under the symbol "WAXS." - - The exchange offer is subject to various conditions described in this document. TERMS OF THE CONSENT SOLICITATION - - The consent solicitation will expire at 12:00 p.m., New York City time, on December 7, 1999, unless we extend it. - - If you tender your FaciliCom notes, you will automatically consent to amendments to the indenture governing the FaciliCom notes. - - These amendments include the elimination of: - your right to require us to repurchase your FaciliCom notes at a price of 101% of their principal amount upon completion of our pending merger with FaciliCom; and - other restrictions on our operations following the merger with FaciliCom. - - These amendments will continue to apply after the merger to any FaciliCom notes not exchanged. - - We will make no separate payment, other than the exchange consideration in exchange for your FaciliCom notes, for consents delivered in the consent solicitation. TAXABILITY OF EXCHANGE - - The exchange of FaciliCom notes for exchange notes, common stock and cash should be taxable only to the extent of the cash payment. - - The IRS, however, could take the position that the receipt of both our common stock and the cash payment may be taxable to holders. SEE "RISK FACTORS," BEGINNING ON PAGE 18, FOR A DESCRIPTION OF FACTORS THAT YOU SHOULD CONSIDER IN EVALUATING THE EXCHANGE OFFER AND CONSENT SOLICITATION. - -------------------------------------------------------------------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus and consent solicitation is truthful or complete. Any representation to the contrary is a criminal offense. - -------------------------------------------------------------------------------- The exchange agent for the exchange offer and consent solicitation is: FIRST UNION NATIONAL BANK The date of this prospectus and consent solicitation is November 5, 1999. 3 TABLE OF CONTENTS
PAGE SUMMARY.................................. 1 RISK FACTORS............................. 18 RECENT DEVELOPMENTS...................... 30 FORWARD-LOOKING STATEMENTS............... 32 USE OF PROCEEDS.......................... 32 CAPITALIZATION........................... 33 THE EXCHANGE OFFER....................... 34 DESCRIPTION OF THE EXCHANGE NOTES........ 45 COMPARISON OF THE EXCHANGE NOTES AND THE FACILICOM NOTES........................ 84 THE PROPOSED AMENDMENTS.................. 98 FEDERAL INCOME TAX CONSIDERATIONS........ 112 WORLD ACCESS............................. 116 THE MERGER............................... 116 RELATED AGREEMENTS....................... 128
PAGE RELATED TRANSACTIONS..................... 131 PRINCIPAL STOCKHOLDERS................... 132 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS................... 134 FACILICOM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................. 144 BUSINESS OF FACILICOM.................... 153 LEGAL MATTERS............................ 170 EXPERTS.................................. 170 WHERE YOU CAN FIND MORE INFORMATION...... 171 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.............................. 172 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................. F-1
This prospectus incorporates by reference documents relating to World Access which are not presented in or delivered with this prospectus. These documents (without exhibits, unless such exhibits are specifically incorporated by reference) are available without charge to any holder or beneficial owner of FaciliCom notes upon request. Requests for World Access documents should be directed to World Access, Inc., 945 E. Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326 (Telephone (404) 231-2025), Attention: Chief Financial Officer. In order to ensure timely delivery of the documents prior to the expiration of the exchange offer and consent solicitation, any request should be made prior to November 30, 1999. 4 SUMMARY We are offering to exchange the new World Access notes, World Access common stock and a payment in cash described in this prospectus for FaciliCom's outstanding 10 1/2% Series B Senior Notes due 2008 and are soliciting consents with respect to FaciliCom's notes on the terms and conditions described in this prospectus. The following is a brief summary of the information included in this prospectus and may not contain all of the information that is important to you. You should carefully read and review this entire document and the other documents to which it refers to fully understand the terms of the new World Access notes, exchange offer and consent solicitation. Throughout this prospectus, we refer to the new World Access notes, or "exchange notes," the World Access common stock, or "exchange shares," and the cash payment that you are entitled to receive in exchange for your FaciliCom notes collectively as the "exchange consideration." Our reference to the FaciliCom notes means the FaciliCom notes as governed by the FaciliCom indenture until the execution of the FaciliCom second supplemental indenture, after which the FaciliCom notes means the FaciliCom notes as governed by the FaciliCom indenture, as amended by the second supplemental indenture. WORLD ACCESS We provide international long distance voice and data services and proprietary network equipment to the global telecommunications markets. Our World Access Telecommunications Group provides wholesale international long distance services through a combination of our own international routing relationships and resale arrangements with other international long distance service providers. Our World Access Equipment Group develops, manufacturers and markets network products that switch and transport voice, data and internet traffic. Our principal executive offices are located at 945 E. Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, and our telephone number at that location is (404) 231-2025. FACILICOM FaciliCom is a multinational telecommunications carrier. It provides international long distance services to other carriers worldwide and offers international and domestic long distance voice, internet access, data and other value-added services to business and residential customers in select European markets. FaciliCom provides these services over its carrier-grade international network, which consists of 17 gateway switches and 18 additional points of presence in the U.S. and in 13 European countries, as well as a satellite earth station. The FaciliCom network is connected primarily by fiber optic cable capacity that FaciliCom owns or leases. In addition to these facilities, FaciliCom has 12 interconnection agreements, ten of which are with the dominant national carriers in its markets, and 21 operating agreements, 16 of which are with the dominant national carriers in its markets. The principal executive offices of FaciliCom are located at 1401 New York Avenue, N.W., 9th Floor, Washington, D.C. 20005, and its telephone number at this location is (202) 496-1100. THE MERGER On August 17, 1999, we announced that we entered into a merger agreement with FaciliCom, providing that FaciliCom will merge with and into World Access. Upon consummation of the merger, the separate existence of FaciliCom will cease and World Access will continue as the surviving corporation. Pursuant to the terms of the merger agreement, the shareholders and optionholders of FaciliCom will receive approximately $436.0 million in consideration, primarily in the form of new Series C preferred stock to be issued by us. The Series C preferred stock bears no dividend and is convertible into shares of World Access common stock at a conversion rate of $20.38 per common share, subject to potential adjustment under certain circumstances. If the closing trading price of World Access common stock on Nasdaq exceeds $20.38 per share for 60 consecutive trading days, the Series C preferred stock will automatically convert into World Access common stock. 1 5 Under the terms of the merger agreement, the consummation of the merger is conditioned upon the adoption of amendments to the FaciliCom indenture under which FaciliCom issued the FaciliCom notes. We refer to these amendments throughout this prospectus as the "proposed amendments." In addition, the closing of the merger is subject to the approval of World Access stockholders at a special meeting of stockholders to be held on December 7, 1999, expiration of the waiting periods under applicable antitrust and anticompetition laws in Sweden, Germany and Finland, and approval of the transfer to World Access of FaciliCom's telecommunications licenses by the Federal Communications Commission and other applicable regulatory authorities. WorldCom Network Services, Inc., The 1818 Fund III, L.P. and John D. Phillips, which hold shares representing in the aggregate approximately 24.1% of the current voting power of World Access common stock, have entered into a voting agreement committing to vote in favor of the merger. Armstrong International Telecommunications, Inc., Epic Interests, Inc. and BFV Associates, Inc., which are the majority stockholders of FaciliCom, have already approved the merger. The merger is expected to close in the fourth quarter of 1999 and will be accounted for as a purchase transaction. For a more detailed discussion of the merger and related transactions, see "The Merger." We are conducting the exchange offer and consent solicitation in connection with the merger. If the proposed amendments are approved in the consent solicitation, we expect that FaciliCom and the trustee under the indenture for the FaciliCom notes will execute a second supplemental indenture containing the proposed amendments that will be effective immediately prior to the closing of the merger. The continued effectiveness of the second supplemental indenture is subject to the closing of the merger and consummation of the exchange offer. We anticipate that the closing of the exchange offer will occur at the closing of the merger. THE EXCHANGE OFFER On October 12, 1999, we entered into an agreement with FaciliCom and the holders of a majority in interest of the FaciliCom notes in which we agreed, under certain circumstances, to make an exchange offer for the outstanding FaciliCom notes for the exchange consideration and those holders agreed to tender their FaciliCom notes in exchange for the exchange consideration. You are entitled to exchange in the exchange offer your FaciliCom notes for the exchange consideration which consists of the following for each $1,000 principal amount of FaciliCom notes: (1) $1,000 principal amount of exchange notes, which have terms and conditions substantially identical in all material respects to the terms of the outstanding FaciliCom notes except: - we, and not FaciliCom, are responsible for payment of all amounts due on the exchange notes; - the interest rate we will pay on the exchange notes is 13.25% per annum; - we will be obligated to make an offer to purchase the exchange notes at a price of 100% of the principal amount with the cash proceeds from any individual asset sales that exceeds $15.0 million; - the amounts we must pay to redeem the exchange notes prior to 2006 are greater than the equivalent payments under the FaciliCom notes; and - the covenants in the indenture governing the terms of the exchange notes allow us more flexibility to, among other things, incur indebtedness, make some restricted payments, enter into some transactions with our affiliates, permit restrictions on the payment of dividends, conduct our telecommunications equipment business and undertake some asset sales than was allowed under the FaciliCom indenture; (2) exchange shares, which are shares of our common stock, par value $.01 per share, having an aggregate market value of $50; and (3) a cash payment of $10. For a more detailed description of the exchange consideration, see "The Exchange Offer." 2 6 IN ORDER TO TENDER YOUR FACILICOM NOTES, YOU WILL BE REQUIRED, AS A CONDITION TO A VALID TENDER, TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE. BY PROPERLY TENDERING YOUR FACILICOM NOTES, YOU WILL ALSO BE CONSENTING TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE. FURTHERMORE, IN ORDER TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS, YOU MUST VALIDLY TENDER, AND NOT VALIDLY WITHDRAW, YOUR FACILICOM NOTES. IF YOU WITHDRAW YOUR TENDER OF FACILICOM NOTES, YOUR CONSENT TO THE AMENDMENTS WILL ALSO BE DEEMED WITHDRAWN. IF THE PROPOSED AMENDMENTS BECOME EFFECTIVE, EACH NON- EXCHANGING HOLDER OF FACILICOM NOTES WILL BE BOUND BY THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE EVEN THOUGH THE HOLDER DID NOT CONSENT. SEE "-- THE CONSENT SOLICITATION" BELOW AND "THE PROPOSED AMENDMENTS" FOR A DESCRIPTION OF THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE. Interest on the Exchange Notes......................... The exchange notes will bear interest at the rate of 13.25% per annum, payable semiannually in arrears on January 15 and July 15 of each year, commencing January 15, 2000 or, if the exchange date does not occur prior to January 1, 2000 on July 15, 2000, to the person in whose name the exchange note is registered at the close of business on the preceding January 1 or July 1, as the case may be. Interest will begin to accrue at the rate of 13.25% commencing on the exchange date. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the FaciliCom Notes Accepted for Exchange... Accrued and unpaid interest on the FaciliCom notes validly tendered and accepted for exchange by World Access will be paid to the person in whose name such notes are tendered or such other person as indicated on the letter of transmittal for tendered FaciliCom notes. Interest on the FaciliCom notes tendered in the exchange offer will cease to accrue interest on the day prior to the exchange date. Payment will be made on January 15, 2000 or, if the exchange date has not occurred prior to January 1, 2000, on July 15, 2000. Expiration Date; Withdrawal of Tender........................ The exchange offer will expire at 12:00 p.m., New York City time, on December 7, 1999, or such later date and time to which we extend it. A tender of FaciliCom notes pursuant to the exchange offer may be withdrawn at any time prior to the expiration date. Withdrawal of tendered FaciliCom notes will be deemed to be a revocation of the consent to the proposed amendments to the FaciliCom indenture. Any FaciliCom notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offer. Certain Conditions to the Exchange Offer................ The exchange offer is subject to certain conditions, which we may waive, including: - consummation of the merger of FaciliCom and World Access; - tender by the holders of at least a majority of the aggregate principal amount of the FaciliCom notes in the exchange offer; and 3 7 - consent by the holders of at least a majority of the aggregate principal amount of the FaciliCom notes to the proposed amendments to the FaciliCom indenture. Pursuant to the terms of our agreement dated October 12, 1999 with FaciliCom and the holders of a majority interest of the FaciliCom notes, such holders agreed to tender their FaciliCom notes in the exchange offer and to consent to the proposed amendments, subject to various conditions, including the consummation of our merger with FaciliCom. Please read the section captioned "The Exchange Offer -- Certain Conditions to the Exchange Offer" of this prospectus for more information regarding the conditions to the exchange offer. Procedures for Tendering FaciliCom Notes............... If you wish to accept the exchange offer, you must complete, sign and date the accompanying letter of transmittal, or a photocopy or facsimile of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or a photocopy or facsimile of the letter of transmittal, together with the FaciliCom notes and any other required documents to the exchange agent at the address on the cover page of the letter of transmittal. If you hold FaciliCom notes through The Depository Trust Company, which we refer to in this prospectus as DTC, and wish to participate in the exchange offer, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal. By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: - any exchange notes that you receive will be acquired in the ordinary course of your business; - you have no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; - if you are a broker-dealer that will receive exchange notes for your own account in exchange for FaciliCom notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of such exchange notes; and - you are not our "affiliate," as defined in Rule 405 of the Securities Act or, if you are our affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act. In addition, by signing or agreeing to be bound by the letter of transmittal, you will be consenting to the proposed amendments to the FaciliCom indenture. Special Procedures for Beneficial Owners............. If you are a beneficial owner of FaciliCom notes which are not registered in your name, and you wish to tender the FaciliCom 4 8 notes in the exchange offer, you should contact the registered holder promptly and instruct the registered holder to tender on your behalf. If you wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your FaciliCom notes, either make appropriate arrangements to register ownership of the FaciliCom notes in your name or obtain a properly completed bond power from the registered holder. Guaranteed Delivery Procedures.................... If you wish to tender your FaciliCom notes and your FaciliCom notes are not immediately available or you cannot deliver your FaciliCom notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date, you must tender your FaciliCom notes according to the guaranteed delivery procedures set forth in this prospectus under "The Exchange Offer -- Guaranteed Delivery Procedures." Accounting Treatment of the Exchange Offer................ The exchange notes will be recorded by World Access based on the fair value of the exchange notes. Any difference (discount or premium) between the fair value and par value of the exchange notes will be amortized over the life of the exchange notes as an adjustment to interest expense. No Dissenters' Rights......... You will not have any right to dissent and receive an appraisal of your FaciliCom notes in connection with the exchange offer or consent solicitation. Federal Income Tax Considerations................ We believe that the exchange of FaciliCom notes for exchange notes, common stock and cash in the exchange offer will not result in your recognizing gain or loss for federal income tax purposes except to the extent of the cash payment. However, due to the inherently factual nature of these issues, our tax counsel is unable to render any tax opinion to us with respect to the federal income tax consequences to you of the exchange offer and consent solicitation. Moreover, the IRS may take the position that tendering holders recognize taxable income upon the receipt of both the exchange shares and cash payment. We have not requested a ruling from the IRS with respect to the federal income tax consequences of the exchange offer and consent solicitation. It is not a condition to the exchange offer or consent solicitation that we or FaciliCom receive such a ruling or an opinion of tax counsel concerning such tax consequences. See "Tax Considerations -- Federal Income Tax Considerations." Use of Proceeds............... We will not receive any cash proceeds from the issuance of the exchange notes and exchange shares pursuant to the exchange offer. Exchange Agent................ First Union National Bank is the exchange agent for the exchange offer. The address and telephone number of the 5 9 exchange agent are set forth in the section captioned "The Exchange Offer -- Exchange Agent" of this prospectus. DESCRIPTION OF EXCHANGE NOTES The exchange offer applies to $300,000,000 aggregate principal amount of FaciliCom notes. The exchange notes will be entitled to the benefits and subject to the terms and conditions of an indenture to be entered into between World Access and First Union National Bank. See "Description of the Exchange Notes." Issue......................... $300,000,000 aggregate principal amount of 13.25% Senior Notes due 2008. Maturity Date................. January 15, 2008 Interest Payment Dates........ January 15 and July 15, commencing on January 15, 2000, or July 15, 2000 if the exchange date does not occur prior to January 1, 2000. Security...................... On the exchange date, a pro rata portion of the securities and/or cash pledged in connection with the issuance of the FaciliCom notes will be deposited in a pledge account created for the benefit of the holders of the exchange notes. The exchange notes will be secured by a first priority security interest in the pledged securities and/or cash deposited in the pledge account. See "Description of the Exchange Notes -- Security." Ranking....................... The indebtedness evidenced by the exchange notes will be our unsecured (except as described) obligations. The exchange notes will rank senior in right of payment to any of our existing and future obligations expressly subordinated in right of payment to the exchange notes and will be pari passu in right of payment with all of our other existing and future unsecured and unsubordinated obligations, including trade payables. The exchange notes will be subordinated to all of our existing and future secured indebtedness, including indebtedness under our credit facility, to the extent of the value of the assets securing the indebtedness. After giving effect to the merger of World Access and FaciliCom, we will have approximately $464.0 million of indebtedness, excluding trade payables, of which $187.1 million will rank senior to and $1.9 million will rank pari passu with the exchange notes, respectively. Because we are a holding company and we conduct business through our subsidiaries, all existing and future indebtedness and other liabilities and commitments of our subsidiaries, including trade payables, will be effectively senior to the exchange notes. Our subsidiaries will not be guarantors of the exchange notes. The indenture under which we will issue the exchange notes limits, but does not prohibit, the incurrence of certain additional indebtedness by us and our restricted subsidiaries and does not limit the amount of indebtedness incurred to finance the cost of telecommunications assets. After giving effect to our merger with FaciliCom, our consolidated subsidiaries will have aggregate liabilities of approximately $428.3 million, which includes $164.0 million of indebtedness. 6 10 Market for the Exchange Notes; Listing....................... Although we expect the exchange notes will be eligible for trading in the PORTAL market, there is no public market for the exchange notes, and we do not intend to apply for listing of the exchange notes on any national securities exchange or for quotation through Nasdaq. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes. Optional Redemption........... The exchange notes are not redeemable at our option prior to January 15, 2003. At any time on or after that date, the exchange notes will be redeemable, in whole or in part, at our option, at the redemption prices set forth in this prospectus plus accrued and unpaid interest thereon to the date of redemption. Notwithstanding the foregoing, prior to January 15, 2001, we may redeem from time to time up to 35.0% of the originally issued aggregate principal amount of exchange notes at a redemption price equal to 110.5% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the date of redemption with the net cash proceeds of one or more public equity offerings; provided, that at least 65.0% of the originally issued aggregate principal amount of the exchange notes remains outstanding immediately after such redemption; and provided further that notice of the redemption shall be given within 60 days after the closing of any such public equity offering. See "Description of the Exchange Notes -- Optional Redemption." Change of Control............. In the event of a change of control of the surviving corporation subsequent to the merger of World Access and FaciliCom, each holder of exchange notes will have the right to require us to purchase all or any part of such holder's exchange notes at a purchase price in cash equal to 101.0% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase. See "Description of the Exchange Notes -- Repurchase of Exchange Notes Upon a Change of Control." We cannot assure you that we will be able to fund these repurchase obligations in the event of a change of control. Covenants..................... The indenture under which we will issue the exchange notes contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to incur additional indebtedness, pay dividends or make other distributions, repurchase capital stock or subordinated indebtedness or make some other types of restricted payments, create some types of liens, enter into some types of transactions with stockholders and affiliates, sell assets, issue or sell capital stock of certain of our subsidiaries or enter into some types of mergers and consolidations. See "Description of the Exchange Notes -- Covenants." THE CONSENT SOLICITATION As part of the exchange offer, we are soliciting consents from the holders of the FaciliCom notes to some amendments to the FaciliCom indenture under which FaciliCom issued the FaciliCom notes. The 7 11 proposed amendments materially reduce the obligations of FaciliCom (and us as the surviving corporation after the merger) under the FaciliCom indenture by, among other things: (1) removing restrictions on FaciliCom's ability to: - consolidate and/or merge; - incur additional debt; - make payments to affiliates; - make dividend payments; - sell capital stock of its subsidiaries; - enter into transactions with shareholders; - create liens on its property; - sell assets; - transfer its existing business; and - enter into sale-leaseback transactions; and (2) eliminating FaciliCom's obligations to: - hold money for payment of the FaciliCom notes in trust; - pay taxes; - maintain its properties; - maintain insurance coverage; and - provide the holders of FaciliCom notes with financial statements. If the consents of the holders of a majority of the aggregate principal amount of the FaciliCom notes are received, the FaciliCom indenture will be amended in accordance with the proposed amendments described more fully under "The Proposed Amendments." If the proposed amendments become effective, each holder of FaciliCom notes that does not exchange its FaciliCom notes for the exchange notes will be bound by the applicable proposed amendments even though the holder did not consent to the proposed amendments. WE WILL MAKE NO SEPARATE PAYMENT, OTHER THAN THE EXCHANGE CONSIDERATION IN EXCHANGE FOR THE FACILICOM NOTES, FOR CONSENTS DELIVERED IN THE CONSENT SOLICITATION WHICH IS PART OF THE EXCHANGE OFFER. If you withdraw your tender of FaciliCom notes, your consent to the proposed amendments will also be deemed withdrawn. You may not withdraw your consent without withdrawing your tender of FaciliCom notes. EFFECT OF THE EXCHANGE OFFER AND CONSENT SOLICITATION ON HOLDERS OF FACILICOM NOTES WHO DO NOT TENDER The holders of a majority in interest of the FaciliCom notes have agreed to tender their FaciliCom notes in the exchange offer. If you do not tender your FaciliCom notes in the exchange offer, you will continue to be entitled to all the rights and subject to the terms applicable to the FaciliCom notes under the FaciliCom indenture. However, if the exchange offer and consent solicitation are consummated, the terms of the FaciliCom indenture will be materially changed pursuant to the proposed amendments and you will no longer have the right to require us to repurchase your FaciliCom notes at a purchase price of 101% of the principal amount upon completion of our pending merger with FaciliCom or to approve the merger. For a description of the proposed amendments, see "The Proposed Amendments." 8 12 If you do not tender your FaciliCom notes in the exchange offer, you will not be entitled to receive the exchange consideration, which includes exchange notes with an interest rate of 13.25% per annum as compared to the 10 1/2% per annum for the FaciliCom notes and more favorable offer to purchase and redemption provisions as compared to the FaciliCom notes. Our proposed merger with FaciliCom would violate several covenants applicable to the FaciliCom notes allowing the holders of 25.0% of the aggregate principal amount of the FaciliCom notes or the trustee under the FaciliCom indenture to declare principal and accrued and unpaid interest on the FaciliCom notes immediately due and payable. However, holders who tender their FaciliCom notes in the exchange offer will effectively waive this right by consenting to the proposed amendments to the FaciliCom indenture that delete the covenants which would be breached. Upon effectiveness of the consent solicitation, the proposed amendments will apply to all FaciliCom notes that are not tendered in the exchange offer. MARKETS AND MARKET PRICES Our common stock is traded on Nasdaq under the symbol "WAXS." The following table shows the high and low sales prices for the World Access common stock as reported by Nasdaq for the periods indicated.
HIGH LOW CALENDAR YEAR 1997 First Quarter............................................. $ 9 1/4 $ 7 1/2 Second Quarter............................................ 23 7 5/8 Third Quarter............................................. 34 1/8 20 Fourth Quarter............................................ 33 3/4 17 CALENDAR YEAR 1998 First Quarter............................................. 33 1/2 21 5/8 Second Quarter............................................ 40 25 3/8 Third Quarter............................................. 30 15/16 18 3/4 Fourth Quarter............................................ 24 3/4 12 CALENDAR YEAR 1999 First Quarter............................................. 22 3/4 6 3/8 Second Quarter............................................ 14 1/8 7 7/8 Third Quarter............................................. 16 3/16 10 5/16 Fourth Quarter (through November 3, 1999)................. 14 1/16 10 13/16
On August 16, 1999, the last full trading day prior to the public announcement of the execution of the merger agreement with FaciliCom, and November 3, 1999, the last reported sale prices on Nasdaq of World Access common stock were $13 11/16 and $13 3/16, respectively. We have not paid or declared any cash dividends on our common stock since our inception and anticipate that our future earnings will be retained to finance the continuing development of our business. The payment of any future dividends will be at the discretion of our board of directors and will depend upon future earnings, the success of business activities, regulatory and capital requirements, our financial condition, general business conditions and other factors. We currently are restricted from paying dividends on our common stock under our revolving credit facility, and, after the merger, we will also be restricted from paying dividends under the terms of the exchange notes. The holders of our 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, and our 4.25% Cumulative Junior Convertible Preferred Stock, Series B, which have preference to the holders of shares of World Access common stock, are entitled to receive, when, as and if declared by our board of directors, cash dividends at an annual rate on the respective liquidation preferences equal to 4.25%. Dividends payable on the Series A preferred stock and Series B preferred stock are cumulative and accrue, whether or not declared, on a daily basis from the respective dates of issuance. The current aggregate annual dividend payments required to be made by World Access on the Series A preferred stock and Series B preferred stock are approximately $3.1 million. The Series C preferred stock to be issued in our 9 13 merger with FaciliCom will rank, as to dividends, on parity with our common stock and junior to our Series A preferred stock and Series B preferred stock. RISK FACTORS For a discussion of factors that should be considered in evaluating the exchange offer and consent solicitation, see "Risk Factors," beginning on page 18. 10 14 SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA) WORLD ACCESS SELECTED HISTORICAL FINANCIAL INFORMATION The selected financial data presented below for the five years ended December 31, 1998 have been derived from the audited consolidated financial statements of World Access. The financial data for the six month periods ended June 30, 1998 and 1999 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. On October 28, 1999, World Access reported the financial results of its third quarter ended September 30, 1999. Net sales, income from continuing operations and income from continuing operations per diluted share for the three months and nine months ended September 30, 1999 were $203.0 million and $524.3 million; $14.3 million and $22.6 million; and $0.33 and $0.56, respectively. For additional information relating to these financial results, see "Recent Developments".
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, -------------------------------------------------- -------------------- 1994 1995 1996 1997 1998 1998 1999 ------- ------- ------- -------- --------- -------- -------- (UNAUDITED) STATEMENT OF CONTINUING OPERATIONS DATA(1): Equipment sales............................... $ 6,014 $12,612 $17,131 $ 48,614 $ 138,990 $ 56,684 $122,360 Carrier service revenues...................... -- -- -- -- 13,143 1,263 198,891 ------- ------- ------- -------- --------- -------- -------- Total sales........................... 6,014 12,612 17,131 48,614 152,133 57,947 321,251 Gross profit.................................. 135 1,802 3,055 21,087 56,031 27,477 64,929 In-process research and development........... -- -- -- -- 100,300 35,400 -- Goodwill impairment........................... -- -- -- -- 6,200 -- -- Restructuring and other charges............... -- -- -- -- 17,240 590 -- Income (loss) from continuing operations...... (2,079) (389) (1,041) 8,350 (114,645) (27,690) 8,393 Income (loss) from continuing operations per share(2).................................... $ (0.45) $ (0.04) $ (0.07) $ 0.45 $ (5.19) $ (1.39) $ 0.22 Weighted average shares outstanding(2)........ 4,631 9,083 14,530 18,708 22,073 19,960 38,446 OTHER FINANCIAL DATA: EBITDA from continuing operations(3).......... $(1,261) $ 288 $ (632) $ 13,709 $(106,950) $(19,489) $ 34,903 Cash flows from operating activities.......... (1,247) (6,189) 1,995 (1,602) (13,038) 2,952 4,288 Cash flows from investing activities.......... (240) (2,687) (1,793) (18,240) (66,527) (69,774) (4,102) Cash flows from financing activities.......... 1,616 10,010 20,391 115,427 16,676 6,410 43,634 Capital expenditures.......................... 240 280 1,176 3,591 12,216 5,859 4,163 Ratio of earnings to fixed charges(4)......... -- -- -- 9.1 -- -- 4.1
AT DECEMBER 31, AT JUNE 30, ------------------------------------------------ ------------------- 1994 1995 1996 1997 1998 1998 1999 ------ ------- ------- -------- -------- -------- -------- (UNAUDITED) BALANCE SHEET DATA(5): Cash and equivalents................................ $ 753 $ 1,887 $22,480 $118,065 $ 55,176 $ 57,653 $ 98,996 Working capital..................................... 2,267 10,222 37,961 153,750 125,586 112,465 180,061 Total assets........................................ 8,943 28,515 60,736 225,283 613,812 268,518 693,146 Long-term debt...................................... 4,328 3,750 -- 115,264 137,864 115,529 140,728 Total liabilities................................... 7,783 14,181 8,362 133,528 253,229 169,944 267,354 Stockholders' equity................................ 1,160 14,334 52,374 91,755 360,583 98,574 425,792
(Footnotes on following page) 11 15 - ------------------------------ (1) Includes the results of operations for the following businesses from their respective dates of acquisition: AIT, Inc. -- May 1995; Cellular Infrastructure Supply, Inc. -- January 1997; Galaxy Personal Communications Services, Inc. -- July 1997; Advanced TechCom, Inc. -- January 1998; NACT Telecommunications, Inc. -- February 1998; Telco Systems, Inc. -- November 1998; and Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited -- December 1998. We refer to Cherry Communications Incorporated, or Cherry U.S., and Cherry Communications U.K. Limited, or Cherry U.K., collectively in this prospectus as Resurgens. (2) Net income (loss) per share and weighted average shares outstanding are presented on a diluted basis. The calculations exclude 8,307,000; 995,000; 401,000 and 896,000 shares of World Access Common Stock for 1998, 1997, 1996 and 1995, respectively, that are held in escrow accounts. See Notes A and B to the World Access Consolidated Financial Statements which are incorporated by reference and "Related Transactions." (3) EBITDA from continuing operations consists of earnings (losses) before interest expense, income taxes, depreciation and amortization. EBITDA should not be considered as a substitute for operating earnings, net income (loss), cash flow or other combined statement of operations or cash flow data computed in accordance with generally accepted accounting principles or as a measure of World Access' results of operations or liquidity. EBITDA is widely used as a measure of a company's operating performance and its ability to service its indebtedness because it assists in comparing performance on a consistent basis across companies, which can vary significantly. EBITDA from continuing operations before special charges excludes charges for in-process research and development, goodwill impairment, provision for doubtful accounts, restructuring and other charges and inventory write-downs. The following table reconciles income (loss) from continuing operations to EBITDA from continuing operations and EBITDA from continuing operations before special charges:
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------ ------------------ 1994 1995 1996 1997 1998 1998 1999 ------- ------ ------- ------- --------- -------- ------- Income (loss) from continuing operations...................... $(2,079) $ (389) $(1,041) $ 8,350 $(114,645) $(27,690) $ 8,393 Interest expense (income), net........................... 511 308 (230) (1,426) 3,413 988 3,098 Income taxes (benefit).......... -- -- (114) 4,792 (1,387) 5,906 9,357 Income tax related to minority interests..................... -- -- -- -- (1,663) (1,021) -- Depreciation and amortization... 307 369 753 1,993 7,332 2,328 14,055 ------- ------ ------- ------- --------- -------- ------- EBITDA from continuing operations.................... (1,261) 288 (632) 13,709 (106,950) (19,489) 34,903 Special charges: In-process research and development................... -- -- -- -- 100,300 35,400 -- Write-down of inventories....... -- -- -- -- 9,292 465 -- Goodwill impairment............. -- -- -- -- 6,200 -- -- Provision for doubtful accounts...................... -- -- -- -- 10,674 -- -- Restructuring and other charges....................... 80 980 -- -- 17,240 590 -- ------- ------ ------- ------- --------- -------- ------- EBITDA from continuing operations before special charges....................... $(1,181) $1,268 $ (632) $13,709 $ 36,756 $ 16,966 $34,903 ======= ====== ======= ======= ========= ======== =======
(4) Computed by dividing earnings by total fixed charges. Earnings consist of pretax income from continuing operations before fixed charges. Fixed charges consist of interest on debt, including amortization of debt issuance costs, and a portion of rent expense estimated by management to be the interest component of the rentals. Earnings were not sufficient to cover fixed charges for the years ended December 31, 1994, 1995, 1996 and 1998 and for the six months ended June 30, 1998, in the amount of $2.1 million, $389,000, $1.2 million, $117.7 million and $21.3 million, respectively. Excluding special charges for the year ended December 31, 1998 and the six months ended June 30, 1998 of $143.7 million and $36.5 million, respectively, our ratio of earnings to fixed charges would have been approximately 4.3 and 5.3, respectively. (5) In October 1997, World Access sold $115.0 million of convertible subordinated notes. See Note I to the World Access Consolidated Financial Statements which are incorporated by reference. 12 16 FACILICOM SELECTED HISTORICAL FINANCIAL INFORMATION The selected financial data presented below for the period from January 1, 1995 to June 30, 1995 are from FaciliCom's predecessor (the "Predecessor"), and the period from FaciliCom's inception on May 5, 1995 to September 30, 1995 and for the fiscal years ended September 30, 1996, 1997 and 1998 have been derived from the audited consolidated financial statements of FaciliCom. The selected financial data for FaciliCom for the nine month periods ended June 30, 1998 and 1999 have been derived from the unaudited consolidated financial statements of FaciliCom which, in the opinion of FaciliCom's management, include all significant normal and recurring adjustments necessary for fair presentation of the financial position and results of operations for such unaudited periods. On November 4, 1999, FaciliCom reported financial results of its fourth quarter ended September 30, 1999. Revenues and net loss for the three and twelve months ended September 30, 1999 were $124.1 million and $403.8 million, and $22.6 million and $74.5 million, respectively. For additional information relating to these financial results see "Recent Developments."
PERIOD FROM PERIOD JANUARY 1, FROM 1995 TO MAY 5, JUNE 30, 1995 NINE MONTHS ENDED 1995 TO YEAR ENDED SEPTEMBER 30, JUNE 30, FOR THE SEPTEMBER 30, ----------------------------- -------------------- PREDECESSOR(1) 1995 1996 1997 1998 1998 1999 -------------- ------------- ------- -------- -------- --------- -------- (UNAUDITED) STATEMENT OF OPERATIONS DATA: U.S. originated............. $ -- $ -- $ 7,838 $ 53,821 $116,383 $ 80,755 $121,591 European originated......... 367 547 4,053 16,366 67,863 36,391 158,104 ------- ------- ------- -------- -------- --------- -------- Total revenues..... 367 547 11,891 70,187 184,246 117,146 279,695 Cost of revenues............ 938 1,022 12,742 65,718 178,952 114,473 257,253 ------- ------- ------- -------- -------- --------- -------- Gross profit (deficit)...... (571) (475) (851) 4,469 5,294 2,673 22,442 ------- ------- ------- -------- -------- --------- -------- Operating loss.............. (1,305) (1,560) (9,576) (11,360) (43,886) (30,181) (35,171) Net Loss.................... (1,341) (1,725) (9,662) (14,031) (46,595) (32,515) (51,879) OTHER FINANCIAL DATA: EBITDA(2)................... $(1,108) $(1,418) $(8,433) $ (9,042) $(35,070) $ (24,867) $(18,276) Cash flows from operating activities................ 563 (1,624) (5,413) (8,361) (36,115) (26,304) (30,290) Cash flows from investing activities................ (545) (1,055) (1,074) (1,664) (184,692) (185,462) (18,232) Cash flows from financing activities................ -- 2,788 8,572 7,914 285,154 290,622 (742) Capital expenditures........ 1,213 1,105 8,404 12,282 101,910 72,460 94,771 Ratio of earnings to fixed charges(3)................ -- -- -- -- -- -- --
AT SEPTEMBER 30, AT JUNE 30, ---------------------------------------- -------------------- 1995 1996 1997 1998 1998 1999 ------ ------- ------- -------- -------- --------- (UNAUDITED) BALANCE SHEET DATA: Cash and equivalents.................... $ 109 $ 2,198 $ 1,016 $ 68,129 $ 80,433 $ 18,696 Marketable securities -- unrestricted... -- -- -- 38,698 56,864 -- Marketable securities -- restricted(4)........... -- -- -- 74,518 87,131 61,280 Net property and equipment.............. 2,661 10,144 20,244 115,748 84,338 185,768 Total assets............................ 5,664 21,008 44,017 378,884 375,701 384,765 Total long-term obligations............. 1,906 9,194 20,973 308,137 305,429 304,166 Total capital accounts.................. 1,109 (1,715) (9,421) (38,575) (22,170) (106,137)
- ------------------------------ (1) Data for periods prior to January 1, 1995 have not been presented because amounts were insignificant and not meaningful. Cumulative revenue and net losses from inception through December 31, 1994 were $35,758 and $287,564, respectively, and both total assets and liabilities at December 31, 1994 were $2.6 million. (2) EBITDA consists of earnings (losses) before interest expense, income taxes, depreciation, amortization and foreign exchange (loss) gain. EBITDA should not be considered as a substitute for operating earnings, net income, cash flow or other combined statement of income or cash flow data computed in accordance with generally accepted accounting principles or as a measure of results of operations or liquidity. EBITDA is widely used as a measure of a company's operating performance 13 17 and its ability to service its indebtedness because it assists in comparing performance on a consistent basis across companies, which can vary significantly. The following table reconciles net loss to EBITDA:
PERIOD FROM PERIOD FROM MAY 5, 1995 NINE MONTHS ENDED JANUARY 1, 1995 TO YEAR ENDED SEPTEMBER 30, JUNE 30, TO JUNE 30, 1995 SEPTEMBER 30, ----------------------------- ------------------- (PREDECESSOR) 1995 1996 1997 1998 1998 1999 ---------------- ------------- ------- -------- -------- -------- -------- Net loss.................... $(1,341) $(1,725) $(9,662) $(14,031) $(46,595) $(32,515) $(51,879) Foreign exchange (loss) gain...................... (8) 85 (226) 1,335 391 655 1,346 Interest expense (income), net....................... 44 80 312 1,336 14,460 8,945 22,044 Gain on settlement agreement................. -- -- -- -- (791) (791) -- Income tax benefit.......... -- -- -- -- (11,351) (6,475) (6,682) Depreciation and amortization.............. 197 142 1,143 2,318 8,816 5,314 16,895 ------- ------- ------- -------- -------- -------- -------- EBITDA...................... $(1,108) $(1,418) $(8,433) $ (9,042) $(35,070) $(24,867) $(18,276) ======= ======= ======= ======== ======== ======== ========
- ------------------------------ (3) The ratio of earnings to fixed charges is computed by dividing pretax income from operations before fixed charges by fixed charges. Fixed charges consist of interest charges and that portion of rental expense FaciliCom believes to be representative of interest. For the period January 1, 1995 through June 30, 1995 (Predecessor), the periods ended September 30, 1995, 1996, 1997 and 1998 and the nine months ended June 30, 1998 and 1999, earnings were insufficient to cover fixed charges by $1.3 million, $1.7 million, $9.7 million, $14.0 million, $57.9 million, $39.0 million and $58.6 million, respectively. (4) Comprises amounts deposited in 1998 which are required to be used to fund interest payments on the FaciliCom notes. 14 18 UNAUDITED SELECTED PRO FORMA FINANCIAL INFORMATION The unaudited selected pro forma balance sheet data of World Access as of June 30, 1999 set forth below give effect to the FaciliCom merger and certain related transactions as if consummated on such date. The unaudited selected pro forma statement of operations data of World Access for the year ended December 31, 1998 and the six months ended June 30, 1999 set forth below give effect to the FaciliCom merger, the $75.0 million private placement of World Access common stock and the exchange offer, as well as certain transactions that World Access has completed in 1998 and 1999, as if consummated at the beginning of 1998. 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, NACT, Telco and Resurgens, which in the case of FaciliCom, are included in this document and, in the case of World Access, NACT, Telco and Resurgens, are incorporated in this prospectus 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 Combined Financial Statements."
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 1998 JUNE 30, 1999 ----------------- ------------- UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS DATA: Carrier service revenues.................................... $ 322,353 $ 367,808 Equipment sales............................................. 236,532 122,360 --------- --------- Total sales............................................... 558,885 490,168 Cost of carrier services.................................... 340,234 350,785 Cost of equipment sold...................................... 138,783 68,690 Write-down of inventories................................... 9,292 -- Amortization of acquired technology......................... 4,806 2,400 --------- --------- Total cost of sales....................................... 493,115 421,875 --------- --------- Gross profit.............................................. 65,770 68,293 Engineering and development................................. 22,611 8,773 Selling, general and administrative......................... 120,455 52,205 Amortization of goodwill.................................... 40,585 20,473 In-process research and development......................... 20,985 -- Goodwill impairment......................................... 6,200 -- Provision for doubtful accounts............................. 18,939 4,270 Restructuring and other charges............................. 17,240 -- --------- --------- Operating loss from continuing operations................. (181,245) (17,428) Foreign exchange loss....................................... (391) (1,290) Interest and other income................................... 14,556 4,268 Interest and other expense.................................. (58,908) (26,051) --------- --------- Loss from continuing operations before income taxes....... (225,988) (40,501) Income taxes (benefit)...................................... (21,498) 1,781 --------- --------- Loss from continuing operations........................... (204,490) (42,282) Preferred stock dividends................................... -- 413 --------- --------- Loss from continuing operations available to common stockholders............................................ $(204,490) $ (42,695) ========= ========= Loss from continuing operations per common share(1): Basic..................................................... $ (4.22) $ (0.85) Diluted................................................... $ (4.22) $ (0.85) Weighted average shares outstanding(1): Basic..................................................... 48,460 50,102 Diluted................................................... 48,460 50,102
- --------------- (1) Represents basic and diluted earnings per share including shares of World Access common stock issued in connection with the FaciliCom merger and certain other transactions that World Access has completed as if consummated on January 1, 1998, calculated in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128. Due to the pro forma loss from continuing operations for the year ended December 31, 1998 and the six months ended June 30, 1999, potential 15 19 common stock shares related to stock options, stock warrants, convertible notes and convertible preferred stock have been excluded from the weighted average shares outstanding as the inclusion of these potential common stock shares would be anti-dilutive.
AT JUNE 30, 1999 ------------- UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA: Current Assets Cash and equivalents...................................... $ 123,442 Accounts receivable....................................... 195,884 Marketable securities -- restricted....................... 31,755 Inventories............................................... 45,216 Other current assets...................................... 60,996 ---------- Total Current Assets.............................. 457,293 Property and equipment...................................... 248,093 Goodwill and other intangibles.............................. 874,149 Marketable securities -- restricted......................... 29,525 Other assets................................................ 25,348 ---------- Total Assets...................................... $1,634,408 ========== Current Liabilities Short-term debt............................................. $ 34,122 Accounts payable............................................ 184,816 Other accrued liabilities................................... 84,220 ---------- Total Current Liabilities......................... 303,158 Long-term debt.............................................. 429,894 Noncurrent liabilities...................................... 10,204 ---------- Total Liabilities................................. 743,256 ---------- Stockholders' Equity Common and preferred stock................................ 517 Capital in excess of par value............................ 1,009,773 Accumulated deficit....................................... (119,138) ---------- Total Stockholders' Equity........................ 891,152 ---------- Total Liabilities and Stockholders' Equity........ $1,634,408 ==========
16 20 COMPARATIVE PER SHARE DATA (UNAUDITED) Set forth below are historical income (loss) per share from continuing operations and book value per common share data of World Access and FaciliCom and the income (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 FaciliCom merger and certain related transactions and to the acquisition of a majority interest in NACT in February 1998 and subsequent merger with NACT in October 1998 and to the acquisition of Telco and the acquisition of Resurgens (the "Resurgens Acquisition") completed in the fourth quarter of 1998. No common stock dividends were paid by World Access during the periods presented below. The pro forma information assumes the issuances of 5,308,000 shares of World Access common stock to be issued in connection with the private placement of $75.0 million of World Access common stock, 1,062,000 shares of World Access common stock to be issued to the holders of the FaciliCom notes, and the release of 7,500,000 shares of World Access common stock held in escrow in connection with the Resurgens Acquisition which will be released upon consummation of our merger with FaciliCom. It does not assume the conversion of the Series C preferred stock (conversion price of $20.38 per share) due to its anti-dilutive effect. We issued 1,430,000, 2,790,000, 7,042,000 and 3,687,500 shares of World Access common stock as part of the consummation of the acquisition of a majority interest in NACT, the merger with NACT, Telco acquisition and the Resurgens Acquisition, respectively. Equivalent pro forma information for FaciliCom is not meaningful and therefore not presented because the FaciliCom merger consideration will be in the form of cash and/or World Access common stock and Series C preferred stock. The pro forma per share data is not necessarily indicative of actual results had the FaciliCom merger, the $75.0 million private placement and the exchange of FaciliCom Notes for World Access Notes occurred on such dates or of future expected results.
SIX MONTHS YEAR ENDED ENDED DECEMBER 31, 1998 JUNE 30, 1999 ------------------ ------------- WORLD ACCESS -- HISTORICAL Income (loss) per share from continuing operations Basic..................................................... $ (5.19) $ 0.22 Diluted................................................... (5.19) 0.22 Book value per common share(1).............................. 10.06 9.85 WORLD ACCESS -- PRO FORMA Loss per share from continuing operations(2) Basic..................................................... $ (4.22) $ (0.85) Diluted................................................... (4.22) (0.85) Book value per common share(3).............................. 10.41 11.13
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, 1998 JUNE 30, 1998 ------------------ ------------- FACILICOM -- HISTORICAL Net loss per share(4) Basic..................................................... $(206.41) $(229.55) Diluted................................................... (206.41) (229.55) Book value per share(1)..................................... (170.88) (467.72)
- ------------------------------ (1) Calculated by dividing historical stockholders' equity by the number of outstanding common shares. Historical stockholders' equity for World Access at June 30, 1999 does not include the issuance of preferred stock. 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 income (loss) per share from continuing operations is presented on a basic and diluted basis computed as pro forma income (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. (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 FaciliCom merger, 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. Pro forma stockholders' equity at June 30, 1999 does not include the issuance of preferred stock. (4) The calculation of net loss per share assumes FaciliCom's reorganization occurred on October 1, 1997. See FaciliCom's Consolidated Financial Statements included elsewhere in this prospectus. 17 21 RISK FACTORS You should consider carefully the following factors, in addition to the other information contained in this prospectus. RISK FACTORS RELATED TO THE EXCHANGE OFFER AND CONSENT SOLICITATION IF YOU DO NOT EXCHANGE YOUR FACILICOM NOTES, YOUR RIGHTS UNDER THE FACILICOM INDENTURE WILL BE SUBSTANTIALLY DIMINISHED AND THE MARKET PRICE OF THOSE NOTES MAY DECLINE. The holders of a majority in interest of the FaciliCom notes have agreed to tender their FaciliCom notes in the exchange offer. If you do not exchange your FaciliCom notes in the exchange offer, you will continue to hold your FaciliCom notes and be subject to the terms of the FaciliCom indenture under which the FaciliCom notes were issued. However, if the conditions to the exchange offer are met and the exchange is consummated, the FaciliCom indenture will be amended and supplemented by a second supplemental indenture implementing the proposed amendments. The second supplemental indenture will substantially reduce the covenants with which World Access, as successor to FaciliCom after the merger, would otherwise have to comply under the FaciliCom indenture, as more fully described under "The Proposed Amendments." The elimination of those covenants would, among other things, permit us to take actions that could increase our credit risk and thereby adversely affect the market price of FaciliCom notes. Your right to require us to repurchase your FaciliCom notes at 101% of the principal amount upon completion of the merger and the right of holders of FaciliCom notes to approve the merger will be eliminated. We do not currently intend, nor are we required, to purchase any FaciliCom notes not exchanged in the exchange offer. In addition, the tender of FaciliCom notes in the exchange offer will reduce the principal amount of FaciliCom notes outstanding, which may have an adverse effect upon, and increase the volatility of, the market price of the FaciliCom notes remaining outstanding after the merger due to a reduction in liquidity. AS A HOLDING COMPANY, WE MAY BE UNABLE TO MAKE PAYMENTS ON THE EXCHANGE NOTES IF OUR SUBSIDIARIES ARE UNABLE TO DISTRIBUTE MONEY TO US We are a holding company with few direct operations and few assets of significance other than the stock of our subsidiaries. As a holding company, we will be dependent on the cash flows of our subsidiaries to meet our obligations, including the payment of principal and interest on the exchange notes. Our subsidiaries are separate legal entities that will have no obligation to pay any amounts due under the exchange notes. Generally, creditors of a subsidiary will have a superior claim to the assets and earnings of such subsidiary than the claims of creditors of the parent company, except to the extent the claims of the parent's creditors are guaranteed by the subsidiary. Our subsidiaries have not guaranteed the payment of the exchange notes. The exchange notes therefore will be effectively subordinated to the claims of the creditors of our subsidiaries, including trade creditors and holders of indebtedness of our subsidiaries. After giving effect to our merger with FaciliCom, our consolidated subsidiaries will have aggregate liabilities of approximately $428.3 million, which includes $164.0 million of indebtedness. YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES WILL BE JUNIOR TO OUR CREDIT FACILITY AND OUR EXISTING AND FUTURE SECURED INDEBTEDNESS The exchange notes are unsecured and, therefore, will be subordinated to all of our existing and future secured indebtedness, including indebtedness under our credit facility, to the extent of the value of the assets securing the indebtedness. As of November 2, 1999, we had no outstanding indebtedness under our credit facility. Consequently, in the event of bankruptcy, liquidation, dissolution, reorganization or a similar proceeding, our assets will be available to satisfy obligations of secured debt before any payment may be made on the exchange notes. Accordingly, there might be a limited amount of assets or no assets available to satisfy your claims as a holder of the exchange notes. 18 22 WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO PURCHASE THE EXCHANGE NOTES UPON A CHANGE OF CONTROL AS REQUIRED BY OUR INDENTURE GOVERNING THE EXCHANGE NOTES Upon the occurrence of certain specific kinds of change of control events, we will be required to offer to repurchase all outstanding exchange notes. However, it is possible that we will not have sufficient funds at the time of the change of control to repurchase the notes or the restrictions in our credit facility will not allow such repurchases. BECAUSE OF THE LACK OF A PUBLIC MARKET FOR THE NOTES, YOU MAY BE UNABLE TO RESELL YOUR EXCHANGE NOTES Although the exchange notes will be eligible for trading in the PORTAL market, they will not be listed on any securities exchange or automated quotations system. We cannot assure you that an active trading market for the exchange notes will develop. In addition, the liquidity of the trading market in the exchange notes, and the market price quoted for the exchange notes, may be adversely affected by the changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you may be unable to resell your exchange notes. YOU MAY BE SUBJECT TO FEDERAL INCOME TAXATION AS A RESULT OF TENDERING YOUR FACILICOM NOTES We believe that FaciliCom noteholders will recognize gain on the exchange offer only to the extent of the cash payment. However, due to the inherently factual nature of these issues, our tax counsel is unable to render any tax opinion to us with respect to the federal income tax consequences to you of the exchange offer and consent solicitation. If either (1) the FaciliCom notes or the exchange notes are determined by the IRS not to be "securities" for purposes of the Internal Revenue Code of 1986, as amended, or (2) the exchange does not qualify as an "exchange" for purposes of the Code, and if you tender your FaciliCom notes, you would recognize gain or loss under the Code equal to the difference between the fair market value of the exchange consideration you receive from us and your tax basis in the FaciliCom notes you tendered (as more fully described in "Federal Income Tax Considerations"). In addition, even if your receipt of exchange notes is not a taxable event for you, the IRS may take the position that your receipt of the exchange shares may be, in addition to the cash payment, a taxable event for you. Under these circumstances, your receipt of the exchange shares and the cash payment may not be eligible to be taxed as capital gain, which typically is subject to taxation at reduced rates, and may instead be taxed as ordinary income, which may be subject to taxation at higher rates. The tax treatment of your receipt of the exchange shares and the cash payment is more fully described in "Federal Income Tax Considerations." RISK FACTORS RELATED TO THE FACILICOM MERGER WE MAY NOT BE ABLE TO MEET OUR OBLIGATIONS ON OUTSTANDING INDEBTEDNESS BECAUSE OF OUR INCREASED FINANCIAL LEVERAGE, AND WE WILL BE SUBJECT TO SIGNIFICANT OPERATING AND FINANCIAL RESTRICTIONS Immediately subsequent to the consummation of the merger, we will have a higher degree of financial leverage than we had prior to the merger. At June 30, 1999, we had $140.7 million of long-term debt and a total debt to equity ratio of 62.8%, and FaciliCom had $304.2 million of long-term debt and negative stockholders' equity. Based on our pro forma balance sheet at June 30, 1999, as a result of the consummation of the merger, the exchange offer and certain other transactions, we would have long-term debt of $429.9 million and a total debt to equity ratio of 83.4%. The indenture governing the exchange notes and FaciliCom's revolving credit facility will limit our ability to incur additional indebtedness and contain other significant operating and financial restrictions, such as limits on our ability to create liens, sell assets, engage in mergers or consolidations, make investments and pay dividends. In addition, our $75.0 million revolving line of credit contains provisions that will also limit our operations. For example, we will need to obtain the lender's consent and sometimes prepay a portion of the outstanding debt under this credit facility before we can issue securities, enter into 19 23 acquisitions for cash or securities, dispose of assets or incur additional debt. Under this credit facility, we must also maintain certain operating ratios and achieve specified financial thresholds. We cannot assure you that we will be able to meet the obligations on our outstanding indebtedness. Giving effect to the FaciliCom merger and related transactions and the exchange in full of the FaciliCom notes for the exchange notes, we anticipate that our 1999 pro forma debt service payments will be approximately $61.0 million. If we are unable to generate sufficient cash flow or to otherwise obtain funds necessary to meet our obligations, or if we do not comply with the various covenants under our indebtedness, we will be in default under the terms of that debt. If we default, the holders of our indebtedness can accelerate the maturity of the indebtedness that is owed to them, which could cause defaults under our other indebtedness. WE WILL NEED INCREASED CASH FLOW TO FUND CAPITAL EXPENDITURES If our available cash flow substantially decreases as a result of lower telecommunications prices or otherwise, we may have limited ability to continue to make capital expenditures for the acquisition and development of our international telecommunications network. Historically, we and FaciliCom have financed these expenditures primarily with cash flow from operations and proceeds from debt and equity financings, asset sales and sales of partial interests in foreign concessions. If our cash flow from operations is not sufficient to satisfy our capital expenditure requirements, we may not be able to obtain additional debt or equity financing or other sources of capital to meet these requirements. If we are not able to fund our capital expenditures, we may be forced to reduce or forfeit our interests in some of our properties. OUR INABILITY TO ACHIEVE ANTICIPATED BENEFITS FROM INTEGRATION OF OPERATIONS COULD RESULT IN SUBSTANTIAL COSTS AND MAY DAMAGE OUR RELATIONSHIPS WITH OUR KEY CUSTOMERS AND EMPLOYEES The merger is expected to create a more competitive company. However, we cannot assure you that we will be able to integrate our operations without encountering difficulties or experiencing the loss of key employees or that we will realize the cost savings and synergies expected from integration. The merger requires the integration in a timely manner of two companies that previously operated independently. The workforce will have to be combined and offices consolidated. Some employees may be required to relocate as part of this process. Our ability to consolidate our purchasing and obtain more favorable prices from suppliers may be limited by changes in the purchasing power or practices of our competitors and other market dynamics. In addition, the consolidation of our operations will require substantial attention from management. The diversion of management's attention and any difficulties we encounter in the transition and integration process could have a material adverse effect on our revenues, levels of expenses and operating results and damage our relationship with key customers and employees. WE MAY NOT BE ABLE TO ACHIEVE PROFITABILITY We believe that efficiencies will be achieved by combining our operations following the merger. After the merger, we anticipate that our cost of transmission will decrease as we will be able to transmit a portion of our long distance traffic on FaciliCom's existing transmission networks. In addition, following consummation of the merger, we plan to integrate the existing World Access and FaciliCom networks, which should result in a reduction in our cost of providing telecommunication services. We also expect to reduce our operator service expenses, eliminate duplicative network switching centers and reduce our selling, general and administrative expenses. Notwithstanding these anticipated benefits, we cannot assure you that the anticipated changes in our operations will result in the profitability of our operations in the future. WE WILL INCUR SIGNIFICANT MERGER-RELATED CHARGES We estimate that, as a result of the merger, we will incur significant consolidation and integration expenses. In addition, we expect that we will incur merger-related expenses of approximately $12.5 million, consisting of investment banking, legal and accounting fees and financial printing and other related 20 24 charges, including fees and expenses associated with the exchange of notes described in this prospectus. The foregoing amounts are preliminary and the actual amounts may be higher or lower. Moreover, we may incur additional unanticipated expenses in connection with the integration of our and FaciliCom's businesses. VOTING INTERESTS OF OUR STOCKHOLDERS WILL BE SUBSTANTIALLY DILUTED Following the consummation of the FaciliCom merger, including the issuance of $75.0 million of World Access common stock in a private placement, the issuance of Series C Preferred Stock, the issuance of common stock in the exchange offer, the release of escrowed shares and the grant of World Access stock options to purchase approximately 520,000 shares of World Access common stock, the current World Access stockholders will own shares representing approximately 67.9% of our total voting power and will own 60.6% of our total outstanding shares on a fully diluted basis. The consummation of the merger and related transactions will result in a substantial dilution of the voting and equity interests of current World Access stockholders. HOLDERS OF SERIES C PREFERRED STOCK MAY BE ABLE TO MATERIALLY INFLUENCE THE OUTCOME OF STOCKHOLDER VOTES Following the consummation of the merger, including the issuance of $75.0 million of World Access common stock in a private placement, the issuance of common stock in the exchange offer and the release of escrowed shares, the holders of the Series C preferred stock will collectively own shares representing approximately 24.1% of the voting power of World Access voting stock. In addition, the holders of the Series C preferred stock, voting as a separate series, will be entitled to elect up to four members of our board of directors, subject to maintaining specified levels of stock ownership, and will have approval rights, voting as a separate series, with respect to certain reorganizations, consolidations or mergers. This concentration of voting power may enable such holders to materially influence the outcome of matters submitted to a vote of these stockholders and may have the effect of delaying, deferring or preventing a change of control pursuant to a transaction which might otherwise be beneficial to our stockholders. RISK FACTORS RELATED TO OUR BUSINESS AND OPERATIONS FUTURE ACQUISITIONS MAY SIGNIFICANTLY DECREASE OUR STOCKHOLDERS' PERCENTAGE OWNERSHIP, REDUCE OUR PROFITABILITY AND HINDER OUR ABILITY TO RAISE CAPITAL We may issue securities in future acquisitions that could significantly reduce our stockholders' equity ownership and reduce our earnings on a per share basis. We also may incur additional debt and amortization expense related to goodwill and other intangible assets acquired in future acquisitions. This additional debt and amortization expense may reduce significantly our profitability and hinder our ability to raise capital in the future. IF WE ARE UNABLE TO ATTRACT AND RETAIN QUALIFIED MANAGEMENT AND TECHNICAL PERSONNEL, WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE OUR BUSINESS We will be highly dependent on the services of several key executive officers and technical employees, particularly John D. Phillips, our Chairman of the Board, President and Chief Executive Officer, and Walter J. Burmeister, FaciliCom's President and Chief Executive Officer. In addition, we will need to hire additional skilled personnel to support the continued growth of our business. Neither we nor FaciliCom maintains "key person" insurance, and none of FaciliCom's current executive officers are bound by an employment agreement. The market for skilled personnel, especially those with the technical abilities we and FaciliCom require, is currently very competitive, and we will have to compete with much larger companies with significantly greater resources to attract and retain these persons. If we are unable to retain the services of Mr. Phillips, Mr. Burmeister and other key management and technical personnel, or to attract qualified personnel in the future, we may not be able to successfully operate our business. 21 25 OUR SUBSTANTIAL INDEBTEDNESS COULD SEVERELY RESTRICT OUR OPERATIONAL FLEXIBILITY Our substantial indebtedness could have important consequences to you. For example, it could: - increase our vulnerability to general adverse economic conditions; - limit our ability to pursue our acquisition business strategy; - limit our ability to obtain necessary financing or bonding, and to fund future working capital, capital expenditures and other general corporate requirements; - require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes; - limit our flexibility in planning for, or reacting to, changes in our business and the telecommunications industry; - place us at a competitive disadvantage compared to our competitors that have less debt; and - limit, along with the financial and other restrictive covenants related to our indebtedness, our ability to borrow additional funds. OUR SIGNIFICANT RELIANCE ON INTERNATIONAL SALES COULD RESULT IN LOST REVENUE AND INCREASED COSTS BECAUSE OF INTERNATIONAL REGULATORY CHANGES, POLITICAL AND ECONOMIC INSTABILITY AND DIFFICULTY IN COLLECTION EFFORTS On a pro forma basis giving effect to the FaciliCom merger and certain other transactions, international sales would have represented approximately 22.4% of our total revenues for the six months ended June 30, 1999 and 15.9% of our total revenues in the year ended December 31, 1998. We intend to increase our international sales, which are subject to inherent risks, including: - unexpected changes in legal or regulatory requirements, tariffs, exchange rates, or other barriers; - difficulties in staffing and managing international operations; - longer payment cycles; - unstable political and economic environments; - greater difficulty in accounts receivable collection; - potentially adverse tax consequences; and - dependence on foreign partners. WE MAY NOT BE ABLE TO LEASE TRANSMISSION FACILITIES AT HISTORICAL RATES Our future profitability will be based in part on our 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. As a result of the merger, we will be able to utilize both our network facilities and FaciliCom's network facilities. However, a substantial portion of transmission capacity used by World Access and FaciliCom is obtained on a variable, per minute and short-term basis, subjecting us to the possibility of unanticipated price increases and service cancellations. Since we 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, our gross margins are subject to significant fluctuations over short periods of time. Our gross margins also may be negatively impacted in the longer term by competitive pricing pressures. 22 26 TERMINATION OF OUR CARRIER SERVICE AGREEMENT WITH WORLDCOM NETWORK SERVICES COULD MATERIALLY ADVERSELY AFFECT OUR REVENUES We anticipate that the carrier service agreement with WorldCom Network Services pursuant to which WorldCom Network Services purchases international long distance services on a wholesale basis will continue in effect for us after the merger. WorldCom Network Services presently provides a significant portion of our service revenues. Termination of the carrier service agreement, or any reduction in services provided thereunder, could materially decrease our revenues. WorldCom Network Services is obligated to purchase from us at least $25.0 million a month of such services, provided the services are of acceptable quality and the rates quoted are at least equal to the rates WorldCom Network Services is obtaining from other third party providers. The carrier service agreement is for a one-year term but automatically renews each month, subject to a one-year termination notice. On a pro forma basis after giving effect to the merger and certain other transactions, revenues attributable to the carrier service agreement for the first six months of 1999 would have comprised approximately 28.2% of our total revenues for this period. TECHNICAL DIFFICULTIES WITH OR FAILURES IN OUR NETWORK COULD RESULT IN DISSATISFIED CUSTOMERS AND LOSS OF REVENUE Technical difficulties with or failures in our telecommunications network could result in dissatisfied customers and lost revenue. For example, a failure in a portion of our network could prevent us from delivering telephone calls initiated by our customers. Additionally, technical difficulties with the network could cause the loss of call detail record information, which is the basis for our ability to process and substantiate customer billings. Components of World Access' telecommunications group's network have failed in the past, which have had a material adverse effect on the telecommunications group's operating results. We cannot assure you that similar or other failures will not occur in the future. REGULATION OF CUSTOMERS MAY MATERIALLY ADVERSELY AFFECT OUR REVENUES BY DECREASING THE VOLUME OF TRAFFIC WE RECEIVE FROM MAJOR CUSTOMERS Our customers will also be subject to actions taken by domestic or foreign regulatory authorities that may affect the ability of customers to deliver traffic to us. Regulatory sanctions have been imposed on some of our and FaciliCom's customers in the past. Future regulatory actions could materially adversely affect the volume of traffic received from a major customer, which could materially decrease our revenues. EXISTING AND FUTURE GOVERNMENTAL REGULATION IN THE U.S. AND IN THE OTHER COUNTRIES IN WHICH WE OPERATE OR IN WHICH WE MAY OPERATE COULD INCREASE OUR COSTS OR RESTRICT OUR OPERATIONS IN A MANNER THAT COULD REDUCE OUR PROFITABILITY National and local laws and regulations governing telecommunications services differ significantly among the countries in which we currently operate and in which we may operate. In the United States, our business is subject to the Communications Act of 1934 and the rules issued under the Communications Act by the Federal Communications Commission, including regulations which limit the conditions under which a carrier may connect international private lines to the telephone network and which limit the arrangements U.S. international carriers may enter into with foreign carriers for exchanging telecommunications traffic. To the extent we provide intrastate services, our business is also subject to the applicable laws and regulations of the individual states. We are also subject to the laws and regulations of the various foreign countries in which we operate. The interpretation and enforcement of these laws and regulations varies and could limit our ability to provide communications services in some of the markets in which we operate, or make it more costly for us to conduct our operations. In addition, future regulatory, judicial and legislative changes may have a material adverse effect on us. While each of World Access and FaciliCom believes it is in substantial compliance with all applicable U.S. and foreign laws and regulations, U.S. or foreign regulators or third parties, including our competitors, may allege that we have failed to comply with applicable laws and regulations. If we fail to comply with national, local or foreign regulations, whether existing or future, we could become subject to fines, penalties, the forfeiture of 23 27 our authorizations, the termination of our arrangements with foreign carriers, or other adverse actions. These penalties could substantially increase our costs or prevent us from providing our services. 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 our competitors or companies, such as national telephone companies, upon which we and our foreign partners may depend for required interconnections to local telephone networks and other services. Accordingly, government actions in the future could have a material adverse effect on our operations. In highly regulated countries in which we are not dealing directly with the dominant local exchange carrier, the dominant carrier may have the ability to route service to us or our foreign partner and, if this occurs, we may have limited or no recourse. In countries where competition is not yet fully established and we are dealing with an alternative operator, foreign laws may prohibit or impede new operators from offering services in these markets. We currently plan to expand our foreign operations as these markets increasingly permit competition. The nature, extent and timing of our 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 us with practical opportunities to compete in the near future, or at all, and we may not be able to take advantage of any such liberalization in a timely manner. RECENT FCC ACTIONS MAY ADVERSELY AFFECT US BY INCREASING COMPETITION, WHICH MAY INCREASE PRICING PRESSURES AND DECREASE DEMAND FOR OUR SERVICES Recent FCC 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 FCC'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. In addition, the Telecommunications Act of 1996 permits the FCC to forbear enforcement of the tariff provisions in that act, which apply to all interstate and international carriers, and the U.S. Court of Appeals for the District of Columbia Circuit is currently reviewing an FCC order directing all domestic interstate carriers to de-tariff their offerings. The FCC's order, which is stayed pending the court's review, only applies to our domestic services. However, subject to the court's decision, the FCC may also forbear from enforcing its current tariff rules for U.S. international carriers, or order these carriers to de-tariff their services. In that event, we would have greater flexibility in pricing our international service offerings and to compete, although any such FCC action likely would grant other non-dominant international carriers equivalent freedom. The FCC also 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 FCC. We expect that competition will continue to intensify as a result of the new competitive opportunities created by the Telecommunications Act of 1996 and the implementation of the World Trade Organization agreement. Such increased competition may increase pricing pressures, reduce our margins and decrease demand for our services. Our World Access Telecommunications Group also competes with MCI WorldCom, Pacific Gateway Exchange, Inc. and other foreign and U.S.-based long distance providers, including the regional Bells, which presently have FCC authority to resell and route international telecommunications services originating outside of their respective in-region states. Many of the long distance providers and telecommunications equipment manufacturers with whom we and FaciliCom compete have significantly 24 28 more extensive engineering, manufacturing, marketing, financial and technical resources than World Access and FaciliCom. We are uncertain whether we can continue to compete successfully with our competitors. FCC INTERVENTION REGARDING THE SETTLEMENT RATES CHARGED BY FOREIGN CARRIERS MAY DISRUPT OUR TRANSMISSION ARRANGEMENTS TO CERTAIN COUNTRIES The FCC 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 FCC's benchmarks order was recently upheld by the U.S. Court of Appeals for the District of Columbia Circuit. The FCC's action may reduce our settlement costs, although the costs of other U.S. international carriers also may be reduced in a similar fashion. The FCC 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 FCC intervention could disrupt our transmission arrangements to certain countries or require us to modify our existing arrangements. DELAYS AND INCONSISTENCIES IN IMPLEMENTATION OF THE WORLD TRADE ORGANIZATION AGREEMENT AND OTHER COMPETITIVE DIRECTIVES MAY ADVERSELY AFFECT OUR BUSINESS 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. Our ability to expand our operations internationally will be limited if any signatory country to the World Trade Organization agreement fails to implement its obligations on a timely basis. These factors and other obstacles which could develop in connection with the deregulation of telecommunications services could have a material adverse effect on our operations by slowing down our rate of expansion. The national governments of the European Union member states in which we currently operate, and in which we may operate in the future, were required to pass legislation to liberalize the telecommunications markets within their countries to implement European Commission directives. Most of the member states have now implemented the required legislation. In certain cases this has been done on an inconsistent, and sometimes unclear, basis. In addition, the legislation and/or its implementation 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. 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. These factors and other obstacles which could develop in connection with deregulation of telecommunications services could have a material adverse effect on our operations by slowing down the rate of our expansion. AS WE EXPAND OUR FOCUS ON RETAIL CUSTOMERS AND EMERGING CARRIERS, OUR LEVEL OF UNCOLLECTIBLE DEBT MAY INCREASE As a wholesale provider of international long distance services, we will depend upon traffic from other long distance providers, and upon the collection of receivables from these customers. If we experience difficulties in the collection of our accounts receivable from our major customers, our cash flow may be substantially reduced. In addition, we may expend considerable resources to collect receivables from customers who fail to make timely payments. 25 29 In the experience of World Access and FaciliCom, a higher percentage of the revenues generated by retail customers and from emerging carriers is uncollectible. Therefore, if the percentage of our revenues derived from retail operations and from sales to emerging carriers increases, our level of uncollectible debt is likely to increase. WE MAY SUSTAIN MATERIAL LIABILITY AS A RESULT OF STOCKHOLDER SUITS AGAINST US Following our 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 us. The plaintiffs alleged violations of the federal securities laws and have requested an unspecified amount of damages in their complaints. We may have to pay substantial damages if the plaintiffs are successful in their actions. WE MAY LOSE MARKET SHARE AND FACE PRICING PRESSURES IF WE ARE NOT ABLE TO COMPETE SUCCESSFULLY WITH OTHER TELECOMMUNICATIONS FIRMS The segments of the telecommunications industry in which we operate are intensely competitive. We believe that competition will continue to increase, placing downward pressure on prices, thus adversely affecting our gross margins. Many of the long distance providers and telecommunications equipment manufacturers with whom we compete have significantly more extensive engineering, manufacturing, marketing, financial and technical resources than we. We are uncertain whether we can continue to compete successfully with our competitors. Additionally, the telecommunications industry is in a period of rapid technological evolution, marked by the introduction of competitive product and service offerings, such as the utilization of the Internet for international voice and data communications. Technological developments by our competitors may challenge our competitive position or increase the amount of expenditures that will be required for us to respond to a rapidly changing technological environment. IF WE ARE UNABLE TO PROTECT AND MAINTAIN THE COMPETITIVE ADVANTAGE OF OUR INTELLECTUAL PROPERTY RIGHTS, WE MAY INCUR SIGNIFICANT LICENSING COSTS OR BE PRECLUDED FROM MANUFACTURING OR SELLING OUR PRODUCTS We rely on contractual rights, trade secrets, trademarks and copyrights to establish and protect our proprietary rights in our products. In the future, we may be required to bring or defend against litigation to enforce any patents issued or assigned to us, to protect trademarks, trade secrets and other intellectual property rights we own, to defend against claimed infringement of the rights of others and to determine the scope and validity of the proprietary rights of others. Regardless of the ultimate outcome, any litigation could be costly and could divert management's attention from the operations of our business. Adverse determinations in litigation could result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from third parties or prevent us from manufacturing or selling our products, any of which could have a material adverse effect on our business, financial condition and results of operations. WE MAY INCUR SUBSTANTIAL COSTS IF A THIRD PARTY CLAIMS THAT ANY OF OUR PRODUCTS INFRINGE UPON ITS PATENTS Software comprises a substantial portion of the technology in our products. The scope of protection accorded to patents covering software-related inventions is evolving and is subject to a degree of uncertainty that may increase our risk of litigation and costs if we discover the existence of third party patents related to our software products or if such patent rights are asserted against us in the future. Although we presently hold several patents for certain of our existing products and have several patent applications pending, not all of our products are covered by patents. We have not conducted a formal patent search relating generally to the technology used in our products. In addition, since a patent application in the United States is not publicly disclosed until the patent is issued and foreign patent applications generally are not publicly disclosed for at least a portion of the time that they are pending, applications may have been filed which, if issued as patents, would relate to our products. 26 30 WE MAY FACE LIABILITY UNDER THE FOREIGN CORRUPT PRACTICES ACT Our international operations are subject to the Foreign Corrupt Practices Act, which generally prohibits U.S. companies and their intermediaries from bribing foreign officials for the purpose of obtaining or keeping business. We may face liability under the Foreign Corrupt Practices Act as a result of past or future actions taken without our knowledge by agents, strategic partners and other intermediaries. THE LOSS OF, OR A MATERIAL REDUCTION IN ORDERS BY, ONE OR MORE OF OUR EQUIPMENT GROUP'S KEY CUSTOMERS COULD MATERIALLY DECREASE OUR REVENUES A small number of customers historically has accounted for a significant percentage of our equipment group's total sales. For the six months ended June 30, 1999, one customer accounted for 10.1% of our equipment group's total sales and our top ten customers accounted for 51.8% of total sales. For the year ended December 31, 1998, no customer individually accounted for more than 10.0% of our equipment group's total sales and our top ten customers accounted for 30.1% of our equipment group's total sales. Our customers typically are not obligated contractually to purchase any quantity of products or services in any particular period. The loss of, or a material reduction in orders by, one or more key customers could materially decrease our revenues. RAPID TECHNOLOGICAL DEVELOPMENT AND NEW PRODUCTS INTRODUCED BY OUR COMPETITORS COULD MAKE OUR PRODUCTS OBSOLETE Our failure to introduce new products and services and to respond to industry changes on a timely and cost effective basis could make our products obsolete and could impair our ability to meet the demands of our customers. The introduction and marketing of new or enhanced products and services require us to manage the transition from existing products in order to minimize disruption in customer purchasing patterns. There can be no assurance that we will successfully manage the transition to new or enhanced products or services. Further, there can be no assurance that products, services or technologies developed by others will not render our products, services or technologies obsolete. From time to time, we or our competitors may announce new products, services, capabilities or technologies that have the potential to replace or shorten the life cycle of our existing product and service offerings. There can be no assurance that announcements of product enhancements or new product or service offerings will not cause customers to defer purchasing our existing products or cause resellers to return products. Any such deferrals, cancellations or returns could materially decrease our revenues. OUR NEW PRODUCTS MAY CONTAIN UNDETECTED ERRORS RESULTING IN THE LOSS OR DELAY OF MARKET ACCEPTANCE OF OUR PRODUCTS Products as complex as ours may contain undetected errors or failures when first introduced or as new versions are released. Such errors have occurred in our products in the past. The occurrence of these errors could result in the following: - the loss or delay in market acceptance of our products; - the diversion of development resources; - damage to our reputation; or - increased service or warranty costs. OUR RELIANCE ON THIRD PARTY SUPPLIERS FOR CERTAIN PRODUCTS AND KEY COMPONENTS COULD HINDER OUR ABILITY TO SATISFY CUSTOMER DEMANDS OR OUR GROWTH OBJECTIVES Failure to obtain products and key components from third party suppliers on a timely and cost effective basis could have a material adverse effect on our business, financial condition and results of operations. We purchase substantially all of our components and other parts from suppliers on a purchase order basis and do not maintain long-term supply arrangements. We obtain several components, primarily custom hybrid integrated circuits, from a single source. Accordingly, there can be no assurance that we 27 31 will be able to continue to obtain sufficient quantities of products or key components as required or that these products or key components, if obtained, will be available to us on commercially favorable terms. DELAYS AND COSTS INCURRED IN ACHIEVING COMPLIANCE WITH GOVERNMENT REGULATIONS AND EVOLVING INDUSTRY STANDARDS COULD ADVERSELY AFFECT OUR REVENUES Any products' failure to comply with the various existing and evolving regulations and industry standards or the delays and costs incurred in achieving compliance with these regulations and standards could materially decrease our revenues, increase our costs and reduce our profitability. Our 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 FCC, as well as with standards established by Bell Communications Research. Internationally, our products and services must comply with standards established by telecommunications authorities in various countries, as well as with recommendations of the International Telecommunications Union. WE MAY LOSE REVENUE OR INCUR ADDITIONAL COSTS BECAUSE OF A FAILURE TO ADEQUATELY ADDRESS THE YEAR 2000 ISSUE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the Year 2000. We are in the final phase of completing our Year 2000 Readiness Plan which is the remediation phase. Until we have completed our verification testing of our remediation efforts, we cannot be certain that our efforts to address Year 2000 issues are appropriate, adequate or complete. In addition, we may be adversely affected by Year 2000 problems experienced by suppliers or customers. Although we are conducting an external review of third parties with whom we do business, we are limited in our ability to determine the ability of these parties to address Year 2000 issues. As a result, we may suffer various consequences, including: - a significant number of operational inconveniences and inefficiencies for us, our customers and our suppliers that may divert our time and attention and financial and human resources from our ordinary business activities; - serious system failures (or serious system failures by companies on which we rely) that may require significant efforts by us, our customers and our suppliers to prevent or alleviate material business disruptions; and - a significant loss of revenues or a significant amount of unanticipated expenses. RISK FACTORS RELATED TO OUR COMMON STOCK THE PRICE OF OUR COMMON STOCK HAS BEEN VOLATILE AND COULD CONTINUE TO FLUCTUATE SUBSTANTIALLY Our common stock is traded on Nasdaq. The market price of our common stock has been volatile and could fluctuate substantially based on a variety of factors, including the following: - announcements of new products or technological innovations by us or others; - variations in our results of operations; - the gain or loss of significant customers; - the timing of acquisitions of businesses or technology licenses; - legislative or regulatory changes; - general trends in the industry; 28 32 - market conditions; and - analysts' estimates and other events in our industry. SIGNIFICANT VARIANCE IN OUR QUARTERLY OPERATING RESULTS MAY CONTINUE TO ADVERSELY AFFECT THE PRICE OF OUR COMMON STOCK In future quarters, our results of operations may fail to meet the expectations of market analysts and investors, which may adversely affect the price of our common stock. Our quarterly operating results have varied significantly in the past and are expected to do so in the future. In response to competitive pressures or new product and service introductions, we may take certain pricing or marketing actions that could materially adversely affect our quarterly operating results. We base our expense levels, in part, on our expectations of future sales. If future sales levels are below expectations, then we may be unable to adjust spending sufficiently in a timely manner to compensate for the unexpected sales shortfall. Accordingly, we believe that you should not rely upon period-to-period comparisons of our operating results as an indication of our future performance. In addition, the operating results of any quarterly period are not indicative of results that you should expect for a full fiscal year. Historically, we have generated a disproportionate amount of our 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. SALE OF SHARES BY FACILICOM STOCKHOLDERS COULD ADVERSELY AFFECT THE TRADING PRICE OF OUR COMMON STOCK The Series C preferred stock is freely convertible into our common stock at any time and the holders of our common stock issuable upon conversion of the Series C preferred stock are not contractually prohibited from selling all or any portion of that stock at any time. In addition, the FaciliCom stockholders have demand and piggyback registration rights which would permit a public resale of that stock. If we are unable to pay all or any portion of the $56.0 million of the merger consideration in cash, we will be required to issue to the stockholders and certain optionholders of FaciliCom at the closing of the merger and thereafter the number of shares of our common stock that will result upon resale in net proceeds of $56.0 million. The FaciliCom stockholders may resell a substantial portion of their stockholdings after the consummation of the merger resulting in an adverse effect on the trading price of our common stock. OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD MAKE IT LESS LIKELY THAT OUR STOCKHOLDERS RECEIVE A PREMIUM FOR THEIR SHARES IN AN UNSOLICITED TAKEOVER ATTEMPT Certain provisions of our restated certificate of incorporation and our restated bylaws could discourage unsolicited acquisition proposals or delay or prevent a change in control resulting in our stockholders receiving a lower premium for their shares in any such attempt or in our market price per share and the voting and other rights of our stockholders being adversely affected. Currently, those provisions include a classified Board of Directors, a prohibition on written consents in lieu of meetings of the stockholders and the authorization to issue up to 150,000,000 shares of common stock and up to 10,000,000 shares of preferred stock, with the Board having the authority to designate the rights, preferences and limitations of the preferred stock. 29 33 RECENT DEVELOPMENTS WORLD ACCESS THIRD QUARTER RESULTS On October 28, 1999, we announced the financial results of our third quarter of 1999. The unaudited financial information of World Access presented below, in the opinion of World Access management, includes all the significant normal and recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented (in thousands, except per share data).
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1999 1998 1999 1998 -------- ------- -------- -------- (UNAUDITED) STATEMENT OF CONTINUING OPERATIONS DATA: Carrier service revenues.................................... $130,470 $ 629 $329,361 $ 1,892 Equipment sales............................................. 72,569 35,619 194,929 92,303 -------- ------- -------- -------- Total Sales........................................ 203,039 36,248 524,290 94,195 Cost of carrier services.................................... 112,508 590 287,777 1,631 Cost of services network.................................... 4,006 38 13,969 114 Cost of equipment sold...................................... 42,234 18,395 110,924 47,748 Amortization of acquired technology......................... 1,200 -- 3,600 -- -------- ------- -------- -------- Total Cost of Sales................................ 159,948 19,023 416,270 49,493 -------- ------- -------- -------- Gross Profit....................................... 43,091 17,225 108,020 44,702 Research and development.................................... 4,509 1,778 13,282 4,256 Selling, general and administrative......................... 15,596 4,938 43,105 11,493 Amortization of goodwill.................................... 3,346 927 9,715 2,402 Provision for doubtful accounts............................. 1,410 166 2,840 410 In-process research and development......................... -- -- -- 35,400 Restructuring and other charges............................. -- -- -- 590 -------- ------- -------- -------- Operating Income (Loss)............................ 18,230 9,416 39,078 (9,849) Gain on sale of securities.................................. 8,704 -- 8,704 -- Interest and other income................................... 1,123 857 2,629 2,827 Interest expense............................................ (2,790) (1,641) (7,394) (4,599) -------- ------- -------- -------- Income (Loss) From Continuing Operations Before Income Taxes and Minority Interests.............. 25,267 8,632 43,017 (11,621) Income taxes................................................ 11,013 3,473 20,370 9,379 -------- ------- -------- -------- Income (Loss) From Continuing Operations Before Minority Interests............................... 14,254 5,159 22,647 (21,000) Minority interests in earnings of subsidiary................ -- 1,090 -- 2,623 -------- ------- -------- -------- Income (Loss) From Continuing Operations(1)........ 14,254 4,069 22,647 (23,623) Net income (loss) from discontinued operations.............. (49) 2,962 (702) 2,922 Write-down of discontinued operations to net realizable value..................................................... -- -- (13,662) -- -------- ------- -------- -------- Net Income (Loss).................................. 14,205 7,031 8,283 (20,701) Preferred stock dividends................................... 784 -- 1,197 -- -------- ------- -------- -------- Net Income (Loss) Available to Common Stockholders..................................... $ 13,421 $ 7,031 $ 7,086 $(20,701) ======== ======= ======== ======== Income (Loss) Per Common Share: Basic: Continuing Operations................................... $ 0.37 $ 0.19 $ 0.59 $ (1.16) Discontinued Operations................................. -- 0.14 (0.39) 0.14 -------- ------- -------- -------- Net Income (Loss)....................................... $ 0.37 $ 0.33 $ 0.20 $ (1.02) ======== ======= ======== ======== Diluted: Continuing Operations(1)................................ $ 0.33 $ 0.19 $ 0.56 $ (1.16) Discontinued Operations................................. -- 0.13 (0.35) 0.14 -------- ------- -------- -------- Net Income (Loss)....................................... $ 0.33 $ 0.32 $ 0.21 $ (1.02) ======== ======= ======== ======== Weighted Average Shares Outstanding: Basic..................................................... 36,509 21,249 36,245 20,346 ======== ======= ======== ======== Diluted................................................... 43,491 25,144 40,048 20,346 ======== ======= ======== ========
30 34
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (UNAUDITED) BALANCE SHEET DATA: ASSETS Current Assets: Cash and equivalents...................................... $107,841 $ 55,176 Accounts receivable....................................... 123,382 70,485 Inventories............................................... 40,337 48,591 Other current assets...................................... 55,041 58,566 -------- -------- Total Current Assets.............................. 326,601 232,818 Property and equipment...................................... 63,390 63,602 Goodwill and other intangibles.............................. 306,930 298,780 Other assets................................................ 30,683 18,612 -------- -------- Total Assets...................................... $727,604 $613,812 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Short-term debt........................................... $ 13,755 $ 17,989 Accounts payable.......................................... 75,438 36,418 Other accrued liabilities................................. 47,595 52,825 -------- -------- Total Current Liabilities......................... 136,788 107,232 Long-term debt.............................................. 140,926 137,864 Noncurrent liabilities...................................... 7,986 8,133 -------- -------- Total Liabilities................................. 285,700 253,229 -------- -------- Stockholders' Equity........................................ 441,904 360,583 -------- -------- Total Liabilities and Stockholders' Equity........ $727,604 $613,812 ======== ========
- --------------- (1) Income from continuing operations for the three and nine months ended September 30, 1999 includes a one-time net gain of approximately $5.3 million or $0.12 per diluted share from the sale of securities. FACILICOM FISCAL FOURTH QUARTER RESULTS On November 4, 1999, FaciliCom announced the results of their fourth quarter of fiscal 1999. The unaudited financial information of FaciliCom presented below, in the opinion of FaciliCom management, include all the significant normal and recurring adjustments necessary for a fair presentation of the financial position and results of operations for the periods presented (in thousands).
THREE MONTHS ENDED TWELVE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ---------------------- 1999 1998 1999 1998 -------- -------- ----------- -------- (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues.............................................. $124,071 $ 67,100 $403,766 $184,246 Cost of revenues...................................... 111,325 64,479 368,578 178,952 -------- -------- -------- -------- Gross margin........................................ 12,746 2,621 35,188 5,294 Selling, general and administrative................... 14,676 12,514 55,030 34,347 Staff restructuring expense........................... 634 -- 634 -- Stock-based compensation expense...................... 3,247 311 3,611 6,017 Depreciation and amortization......................... 12,863 3,502 29,758 8,816 -------- -------- -------- -------- Operating loss...................................... (18,674) (13,706) (53,845) (43,886)
31 35
THREE MONTHS ENDED TWELVE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ---------------------- 1999 1998 1999 1998 -------- -------- ----------- -------- (UNAUDITED) (UNAUDITED) Interest expense...................................... (8,717) (8,073) (34,407) (22,612) Interest income....................................... 710 2,558 4,356 8,152 Other income.......................................... -- -- -- 791 Exchange gain (loss).................................. (244) 264 (1,590) (391) -------- -------- -------- -------- Los before income taxes............................. (26,925) (18,957) (85,486) (57,946) Income tax benefit.................................... 4,313 4,877 10,995 11,351 -------- -------- -------- -------- Net loss............................................ $(22,612) $(14,080) $(74,491) $(46,595)
SEPTEMBER 30, ---------------------- 1999 1998 ----------- -------- (UNAUDITED) BALANCE SHEET DATA: Cash, equivalents and investments........................... $ 61,323 $181,345 Property and equipment, gross............................... 215,599 126,165 Total assets................................................ 370,166 378,884 Total long-term obligations (net of current portion)........ 328,421 305,137 Stockholders' equity (deficit).............................. (126,830) (38,575)
FORWARD-LOOKING STATEMENTS This prospectus contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Forward-looking statements are statements other than historical information or statements of current condition. Some forward looking statements may be identified by use of such terms as "believes," "anticipates," "intends," or "expects." These forward-looking statements relate to our plans, objectives and expectations for future operations. In light of the risks and uncertainties inherent in all such projected operational matters, the inclusion of forward-looking statements in this prospectus should not be regarded as a representation by us or any other person that our objectives or plans will be achieved or that any of our operating expectations will be realized. USE OF PROCEEDS We will not receive any cash proceeds from the issuance of the exchange notes or the exchange shares in exchange for the outstanding FaciliCom notes. We are making this exchange offer solely in connection with our merger with FaciliCom. 32 36 CAPITALIZATION The following table sets forth our consolidated capitalization as of June 30, 1999 on an actual basis, and as adjusted to give effect to our merger with FaciliCom and the issuance of the exchange notes in the exchange offer. You should read this table in conjunction with FaciliCom's "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this prospectus and FaciliCom's consolidated financial statements and notes thereto, included in this prospectus, as well as our Management's Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and notes thereto, each incorporated by reference from our Form 10-K, as amended, for the year ended December 31, 1998. See "Incorporation of Certain Documents by Reference."
AS OF JUNE 30, 1999 ---------------------- ACTUAL AS ADJUSTED (IN THOUSANDS) Cash and cash equivalents................................... $ 98,996 $ 123,442 ======== ========== Long-term debt (including current portion): Revolving credit facility borrowings...................... $ 5,900 $ 15,900 13.25% Senior Notes due 2008.............................. -- 285,000 4.5% Convertible Subordinated Notes due 2002.............. 115,000 115,000 Capital lease obligations................................. 30,713 46,207 Other..................................................... 1,400 1,909 -------- ---------- Total long-term debt, including current portion... 153,013 464,016 Stockholders' equity........................................ 425,792 891,152 -------- ---------- Total capitalization.............................. $578,805 $1,355,168 ======== ==========
For a description of our 4.5% Convertible Subordinated Notes due 2008 and our revolving credit facility, see Note I to the consolidated financial statements in our Form 10-K for the year ended December 31, 1998, as amended, incorporated by reference in this prospectus. 33 37 THE EXCHANGE OFFER PURPOSE AND EFFECT OF THE EXCHANGE OFFER In connection with the merger of FaciliCom with and into World Access, we have entered into an agreement with FaciliCom and the holders of a majority in interest of the FaciliCom notes in which we agreed, among other things, to use our reasonable best efforts to file a registration statement relating to an offer to exchange the FaciliCom notes for the exchange consideration, which includes the exchange notes, the exchange shares and a cash payment, as more fully described below under "-- Terms of the Exchange Offer." We have also agreed to: - distribute a copy of this prospectus to each of the holders of FaciliCom notes; - keep the exchange offer open for at least 20 business days after the date on which notice of the exchange offer is first mailed to holders of the FaciliCom notes; and - after the expiration of the exchange offer, accept for exchange all FaciliCom notes properly tendered and not validly withdrawn. In exchange, under the terms of this agreement, each holder of the FaciliCom notes party to the agreement has agreed to (subject to certain conditions): - exchange all of their FaciliCom notes for the exchange consideration in the exchange offer; and - consent to the proposed amendments to the FaciliCom indenture. In addition, we have agreed, upon the completion of the merger and the exchange and consent solicitation, to: - transfer on a pro rata basis securities and/or funds held in the collateral account established and maintained for the benefit of the holders of the FaciliCom notes to a collateral account for the benefit of the holders of the exchange notes; and - make interest payments on the FaciliCom notes and the exchange notes from those collateral accounts until they are exhausted. The FaciliCom notes were issued on January 28, 1998 pursuant to an indenture between FaciliCom and The State Street Bank and Trust Company, dated as of January 28, 1998, as amended and supplemented by the first supplemental indenture. This indenture, as supplemented, is referred to in this prospectus as the FaciliCom indenture. IN ORDER TO TENDER YOUR FACILICOM NOTES, YOU WILL BE REQUIRED, AS A CONDITION TO A VALID TENDER, TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE. BY PROPERLY TENDERING YOUR FACILICOM NOTES, YOU WILL ALSO BE CONSENTING TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE. FURTHERMORE, IN ORDER TO GIVE YOUR CONSENT TO THE PROPOSED AMENDMENTS, YOU MUST VALIDLY TENDER, AND NOT VALIDLY WITHDRAW, YOUR FACILICOM NOTES. IF YOU WITHDRAW YOUR TENDER OF FACILICOM NOTES, YOUR CONSENT TO THE AMENDMENTS WILL ALSO BE DEEMED WITHDRAWN. IF THE PROPOSED AMENDMENTS BECOME EFFECTIVE, EACH NON- EXCHANGING HOLDER OF FACILICOM NOTES WILL BE BOUND BY THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE EVEN THOUGH THE HOLDER DID NOT CONSENT. SEE "-- THE CONSENT SOLICITATION" BELOW AND "THE PROPOSED AMENDMENTS" FOR A DESCRIPTION OF THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE. 34 38 TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any FaciliCom notes properly tendered and not withdrawn prior to the expiration date. We are offering to exchange $1,000 original principal amount of exchange notes for $1,000 original principal amount of FaciliCom notes. Unless otherwise agreed to by us, FaciliCom notes may be tendered only in integral multiples of $1,000. The exchange notes will have terms substantially identical to the FaciliCom notes except that: - we, and not FaciliCom, are responsible for payment of all amounts due on the exchange notes; - the interest rate we will pay on the exchange notes is 13.25% per annum; - we will be obligated to make an offer to purchase the exchange notes at a price of 100% of the principal amount with the cash proceeds from any individual asset sale that exceeds $15.0 million; - the amounts we must pay to redeem the exchange notes prior to 2006 are greater than the equivalent amounts under the FaciliCom notes; and - the covenants in the indenture governing the terms of the exchange notes allow us more flexibility to, among other things, incur indebtedness, make some restricted payments, enter into some transactions with our affiliates, permit restrictions on the payment of dividends, conduct our telecommunications equipment business and undertake some asset sales than was allowed under the FaciliCom indenture. The exchange notes will be issued under and entitled to the benefits of an indenture, to be entered into between us and First Union National Bank, as trustee. For a description of the indenture, see "Description of the Exchange Notes." In addition to exchange notes, in exchange for FaciliCom notes tendered and accepted for exchange in the exchange offer, we will also issue the exchange shares and the cash payment. The exchange shares will consist of our common stock, par value $.01 per share, having an aggregate market value of $50 per $1,000 original principal amount of FaciliCom notes. The number of exchange shares that each holder of FaciliCom notes will receive will be determined as follows: - the aggregate principal amount of each holder's tendered and accepted FaciliCom notes will be multiplied by 0.05; and - the product of such multiplication will be divided by the market price of the exchange shares. The market price of the exchange shares will be the average closing price of the exchange shares on Nasdaq over the five consecutive trading days up to and including the trading day prior to the last full trading day before the closing of the merger between us and FaciliCom. The cash payment will be made in the amount of $10 per $1,000 original principal amount of FaciliCom notes. The exchange notes will bear interest at the rate of 13.25% per annum commencing on the exchange date, payable semiannually in arrears on January 15 and July 15 of each year, commencing January 15, 2000 (or July 15, 2000, if the exchange date is subsequent to January 1, 2000), to the person in whose name the exchange note is registered at the close of business on the preceding January 1 or July 1, as the case may be. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Accrued and unpaid interest on the FaciliCom notes tendered and accepted on the exchange date will be paid to the person in whose name such notes are tendered or such other person as indicated on the letter of transmittal. Interest on the FaciliCom notes tendered in the exchange offer will cease to accrue interest on the day prior to the exchange date. Payment will be made on January 15, 2000, or July 15, 2000 if the exchange date has not occurred prior to January 1, 2000. As of the date of this prospectus, $300 million aggregate original principal amount of the FaciliCom notes are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders 35 39 of FaciliCom notes. There will be no fixed record date for determining registered holders of FaciliCom notes entitled to participate in the exchange offer. We intend to conduct the exchange offer in accordance with the provisions of the agreement among us, FaciliCom and the holders of a majority in interest of the FaciliCom notes, the applicable requirements of the Securities Act, the Exchange Act and the rules and regulations of the SEC. FaciliCom notes that are not tendered in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and subject to the terms and conditions of the FaciliCom indenture, as amended and supplemented. However, if the conditions to the exchange offer are met and the exchange is consummated, the FaciliCom indenture will be further amended and supplemented by a second supplemental indenture which will materially reduce the obligations of FaciliCom (and us as the surviving corporation after the merger) under the FaciliCom indenture. See "-- The Consent Solicitation" below and, for a description of the proposed amendments to the FaciliCom indenture, see "The Proposed Amendments." We will be deemed to have accepted for exchange properly tendered FaciliCom notes when we have given oral or written notice of the acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from us and delivering the exchange consideration to such holders. Subject to the terms of the agreement among us, FaciliCom and the holders of a majority in interest of the FaciliCom notes, we expressly reserve the right to amend or terminate the exchange offer, and not to accept for exchange any FaciliCom notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption "-- Certain Conditions to the Exchange Offer." Holders who tender FaciliCom notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of FaciliCom notes. We will pay all charges and expenses, other than some applicable taxes described below, in connection with the exchange offer. You should read the section labeled "-- Fees and Expenses" below for more details regarding fees and expenses incurred in the exchange offer. THE CONSENT SOLICITATION As part of the exchange offer, we are also soliciting consents from the holders of the FaciliCom notes to certain amendments to the FaciliCom indenture under which the FaciliCom notes were issued. The proposed amendments materially reduce the obligations of FaciliCom (and us as the surviving corporation after the merger) under the FaciliCom indenture by, among other things: (1) removing restrictions on FaciliCom's ability to: - consolidate and/or merge; - incur additional debt; - make payments to affiliates; - make dividend payments; - sell capital stock of its subsidiaries; - enter into transactions with shareholders; - create liens on its property; - sell assets; - transfer its existing business; and - enter into sale-leaseback transactions; and 36 40 (2) eliminating FaciliCom's obligations to: - hold money for payment of the FaciliCom notes in trust; - pay taxes; - maintain its properties; - maintain insurance coverage; and - provide the holders of FaciliCom notes with financial statements. If the consents of the holders of a majority of the aggregate original principal amount of the FaciliCom notes are received, the FaciliCom indenture will be amended in accordance with the proposed amendments described more fully under "The Proposed Amendments." FaciliCom and the trustee under the FaciliCom indenture will execute a second supplemental indenture after certification to the FaciliCom trustee that the required consents have been received and the satisfaction or waiver of the other conditions to the execution of the second supplemental indenture. We will give oral or written notice to the exchange agent of our acceptance and shall be deemed to have accepted for exchange validly tendered FaciliCom notes only after such oral or written notice of acceptance has been given to the exchange agent and the second supplemental indenture has been executed. If the proposed amendments become effective, each non-exchanging holder of FaciliCom notes will be bound by the applicable proposed amendments even though the holder did not consent to the proposed amendments. WE WILL MAKE NO SEPARATE PAYMENT, OTHER THAN THE EXCHANGE CONSIDERATION IN EXCHANGE FOR THE FACILICOM NOTES, FOR CONSENTS DELIVERED IN THE CONSENT SOLICITATION WHICH IS PART OF THE EXCHANGE OFFER. EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATIONS The exchange offer will expire at 12:00 p.m., New York City time, on December 7, 1999, unless, in our sole discretion, we extend it. In order to extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We will notify the registered holders of FaciliCom notes of the extension no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration date. We reserve the right, in our sole discretion: - to delay accepting for exchange any FaciliCom notes; - to extend the exchange offer or to terminate the exchange offer and to refuse to accept FaciliCom notes not previously accepted if any of the conditions set forth below under "-- Certain Conditions to the Exchange Offer" have not been satisfied, by giving oral or written notice of such delay, extension or termination to the exchange agent; or - subject to the terms of the agreement among us, FaciliCom and the holders of a majority in interest of the FaciliCom notes, to amend the terms of the exchange offer in any manner. Any delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of FaciliCom notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose the amendment in a manner reasonably calculated to inform the holders of FaciliCom notes of the amendment. Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we shall have no obligation to publish, advertise or otherwise communicate any public announcement, other than by making a timely release to a financial news service. 37 41 CERTAIN CONDITIONS TO THE EXCHANGE OFFER The exchange offer is conditioned upon: - the consummation of the merger of World Access and FaciliCom; - the tender by the holders of at least a majority of the aggregate principal amount of FaciliCom notes in the exchange offer and the acceptance by World Access of such tenders; and - the consent by the holders of at least a majority of the aggregate principal amount of FaciliCom notes to the proposed amendments to the FaciliCom indenture. Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange any exchange notes for, any FaciliCom notes, and we may terminate the exchange offer as provided in this prospectus before accepting any FaciliCom notes for exchange if: - the trustee under the FaciliCom indenture has objected to, or taken any action that could adversely affect, the consummation of the exchange offer or the consent solicitation or our ability to effect the proposed amendments to the FaciliCom indenture; - the trustee under the FaciliCom indenture has taken any action that challenges the validity or effectiveness of the procedures we used in the exchange offer or consent solicitation; - the exchange offer, or the making of any exchange by a holder of FaciliCom notes, in our reasonable judgment, would violate applicable law or any applicable interpretation of the staff of the SEC; or - any action or proceeding has been instituted or threatened in any court or by or before any governmental agency, or any statute, rule, regulation, judgment, order, stay, decree or injunction has been promulgated, enacted or entered, with respect to the exchange offer that, in our judgment, could reasonably be expected to impair our ability to proceed with the exchange offer. In addition, we will not be obligated to accept for exchange the FaciliCom notes of any holder that has not made to us the representations described under "-- Procedures for Tendering." We expressly reserve the right, at any time or at various times, to extend the period of time during which the exchange offer is open. Consequently, we may delay acceptance of any FaciliCom notes by giving oral or written notice of the extension to their holders. During any extensions, all FaciliCom notes previously tendered will remain subject to the exchange offer, and we may accept them for exchange. We will return any FaciliCom notes that we do not accept for exchange for any reason without expense to their tendering holders as promptly as practicable after the expiration or termination of the exchange offer. We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any FaciliCom notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer specified above. We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the FaciliCom notes as promptly as practicable. In the case of any extension, the notice will be issued no later than 9:00 a.m., New York City time, on the first business day after the previously scheduled expiration date. These conditions are for our sole benefit and we may assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any or at various times in our sole discretion. If we fail at any time to exercise any of the foregoing rights, this failure will not constitute a waiver of such right. Each such right will be deemed an ongoing right that we may assert at any time or at various times. In addition, we will not accept for exchange any FaciliCom notes tendered, and will not issue exchange notes in exchange for any such FaciliCom notes, if at such time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture under the Trust Indenture Act of 1939. 38 42 PROCEDURES FOR TENDERING Only a holder of FaciliCom notes may tender FaciliCom notes in the exchange offer. To tender in the exchange offer, a holder must: - complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and mail or deliver such letter of transmittal or facsimile to the exchange agent prior to the expiration date; or - comply with DTC's Automated Tender Offer Program procedures described below. In addition, either: - the exchange agent must receive FaciliCom notes along with the letter of transmittal; - the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of the FaciliCom notes into the exchange agent's account at DTC according to the procedure for book-entry transfer described below or a properly transmitted agent's message; or - the holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under "-- Exchange Agent" prior to the expiration date. The tender by a holder that is not withdrawn prior to the expiration date will constitute an agreement between that holder and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, including, but not limited to, the agreement by such holders to deliver good and marketable title to the tendered FaciliCom notes free and clear of all liens, charges, claims, encumbrances, interests and restrictions of any kind. The method of delivery of FaciliCom notes, the letter of transmittal and all other required documents to the exchange agent is at the holder's election and risk. Rather than mail these items, we recommend that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the exchange agent before the expiration date. Holders should not send the letter of transmittal or FaciliCom notes to us. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them. Any beneficial owner whose FaciliCom notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owner's behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its FaciliCom notes, either: - make appropriate arrangements to register ownership of the FaciliCom notes in such owner's name; or - obtain a properly completed bond power from the registered holder of FaciliCom notes. The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date. Signatures on a letter of transmittal or a notice of withdrawal described below must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act, unless the FaciliCom notes tendered pursuant thereto are tendered: - by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal; or - for the account of an eligible guarantor institution. 39 43 If the letter of transmittal is signed by a person other than the registered holder of any FaciliCom notes listed on the FaciliCom notes, the FaciliCom notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder's name appears on the FaciliCom notes and an eligible guarantor institution must guarantee the signature on the bond power. If the letter of transmittal or any FaciliCom notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to deliver the letter of transmittal. The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the FaciliCom notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. The term "agent's message" means a message transmitted by DTC, received by the exchange agent and forming part of the book-entry confirmation, to the effect that: - DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that is tendering FaciliCom notes that are the subject of the book-entry confirmation; - the participant has received and agrees to be bound by the terms of the letter of transmittal (or, in the case of an agent's message relating to guaranteed delivery, that the participant has received and agrees to be bound by the applicable notice of guaranteed delivery); and - the agreement may be enforced against the participant. We will determine in our sole discretion all questions of the validity, form, eligibility (including time of receipt) and acceptance of tendered FaciliCom notes and the withdrawal of tendered FaciliCom notes. Our determination will be final and binding. We reserve the absolute right to reject any FaciliCom notes not properly tendered or any FaciliCom notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular FaciliCom notes. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of FaciliCom notes must be cured within a specified time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of FaciliCom notes, neither we, the exchange agent nor any other person will incur any liability for failure to give this notification. Tenders of FaciliCom notes will not be deemed made until the defects or irregularities have been cured or waived. Any FaciliCom notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the exchange agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. In all cases, we will issue the exchange consideration in exchange for FaciliCom notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives: - FaciliCom notes or a timely book-entry confirmation of such FaciliCom notes into the exchange agent's account at DTC; and - a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent's message. 40 44 By signing the letter of transmittal, each tendering holder of FaciliCom notes will represent to us that, among other things: - any exchange notes that the holder receives will be acquired in the ordinary course of its business; - the holder has no arrangement or understanding with any person or entity to participate in the distribution of the exchange notes; and - the holder is not our "affiliate," as defined in Rule 405 of the Securities Act or, if the holder is our affiliate, it will comply with any applicable registration and prospectus delivery requirements of the Securities Act. BOOK-ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the FaciliCom notes at DTC for purposes of the exchange offer promptly after the date of this prospectus; and any financial institution participating in DTC's system may make book-entry delivery of FaciliCom notes by causing DTC to transfer the FaciliCom notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. Holders of FaciliCom notes who are unable to deliver confirmation of the book-entry tender of their FaciliCom notes into the exchange agent's account at DTC or all other documents required by the letter of transmittal to the exchange agent on or prior to the expiration date must tender their FaciliCom notes according to the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES Holders wishing to tender their FaciliCom notes but whose FaciliCom notes are not immediately available or who cannot deliver their FaciliCom notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's Automated Tender Offer Program prior to the expiration date may tender if: - the tender is made through an eligible guarantor institution; - prior to the expiration date, the exchange agent receives from an eligible guarantor institution either a properly completed and duly executed notice of guaranteed delivery (by facsimile transmission, mail or hand delivery) or a properly transmitted agent's message and notice of guaranteed delivery: - setting forth the name and address of the holder, the registered number(s) of the FaciliCom notes and the principal amount of the FaciliCom notes tendered; - stating that the tender is being made thereby; and - guaranteeing that, within three (3) Nasdaq trading days after the expiration date, the letter of transmittal (or facsimile thereof) together with the FaciliCom notes or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent; and - the exchange agent receives such properly completed and executed letter of transmittal (or facsimile thereof), as well as all tendered FaciliCom notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three (3) Nasdaq trading days after the expiration date. 41 45 UPON WRITTEN REQUEST TO THE EXCHANGE AGENT, A NOTICE OF GUARANTEED DELIVERY WILL BE SENT TO HOLDERS WHO WISH TO TENDER THEIR FACILICOM NOTES ACCORDING TO THE GUARANTEED DELIVERY PROCEDURES SET FORTH ABOVE. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, holders of FaciliCom notes may withdraw their tenders at any time prior to the expiration date. For a withdrawal to be effective: - the exchange agent must receive a written notice (which may be by telegram, telex, facsimile transmission or letter) of withdrawal at one of the addresses set forth below under "-- Exchange Agent"; or - holders must comply with the appropriate procedures of DTC's Automated Tender Offer Program system. Any such notice of withdrawal must: - specify the name of the person who tendered the FaciliCom notes to be withdrawn; - identify with specificity the FaciliCom notes to be withdrawn (including the principal amount of the FaciliCom notes); and - where certificates for FaciliCom notes have been transmitted, specify the name in which the FaciliCom notes were registered, if different from that of the withdrawing holder. If certificates for FaciliCom notes have been delivered or otherwise identified to the exchange agent, then, prior to the release of such certificates, the withdrawing holder must also submit: - the serial numbers of the particular certificates to be withdrawn; and - a signed notice of withdrawal with signatures guaranteed by an eligible guarantor institution unless the holder is an eligible guarantor institution. If FaciliCom notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn FaciliCom notes and otherwise comply with the procedures of this facility. We will determine all questions as to the validity, form and eligibility (including time of receipt) of the notices, and our determination shall be final and binding on all parties. We will deem any FaciliCom notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any FaciliCom notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder (or, in the case of FaciliCom notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described above, the FaciliCom notes will be credited to an account maintained with DTC for FaciliCom notes) as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn FaciliCom notes may be retendered by following one of the procedures described under "--Procedures for Tendering" above at any time on or prior to the expiration date. If you withdraw your tender of FaciliCom notes, your consent to the proposed amendments under the second supplemental indenture will also be deemed to be withdrawn. You may not withdraw your consent without withdrawing your tender of FaciliCom notes. 42 46 EXCHANGE AGENT First Union National Bank has been appointed as exchange agent for the exchange offer. You should direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent addressed as follows: First Union National Bank 1525 West W.T. Harris Boulevard 3C3 NC-1153 Charlotte, North Carolina 28262 By Facsimile Transmission (for eligible guarantor institutions only): (704) 590-7628 For Confirmation and/or Information Call: (704) 590-7408 DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF SUCH LETTER OF TRANSMITTAL. FEES AND EXPENSES We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by telegraph, facsimile, telephone or in person by our officers and regular employees and those of our affiliates. Except as described herein, we will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses. We have agreed to pay Donaldson, Lufkin & Jenrette Securities Corporation compensation of approximately $1.5 million and Lehman Brothers Inc. compensation of approximately $750,000 for their financial advisory services in connection with the exchange offer and consent solicitation. This compensation is payable on the exchange date upon completion of the exchange offer. We have also agreed to reimburse Donaldson, Lufkin & Jenrette and Lehman Brothers for their reasonable out-of-pocket expenses, including reasonable fees and expenses of legal counsel, and we have agreed to indemnify them against some liabilities, including some liabilities under the federal securities laws. Donaldson, Lufkin & Jenrette has provided in the past, and currently is providing, other investment banking and financial advisory services to us. We will pay other cash expenses to be incurred in connection with the exchange offer, including: - SEC registration fees; - fees and expenses of the trustee; - accounting and legal fees and printing costs; and - related fees and expenses. 43 47 ACCOUNTING TREATMENT OF THE EXCHANGE OFFER The exchange notes will be recorded by World Access based on the fair value of the exchange notes. Any difference (discount or premium) between the fair value and par value of the exchange notes will be amortized over the life of the exchange notes as an adjustment to interest expense. NO DISSENTERS' RIGHTS You will not have any right to dissent and receive an appraisal of your FaciliCom notes in connection with the exchange offer or consent solicitation. TRANSFER TAXES We will pay all transfer taxes, if any, applicable to the exchange of FaciliCom notes under the exchange offer. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if: - certificates representing FaciliCom notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of FaciliCom notes tendered; - tendered FaciliCom notes are registered in the name of any person other than the person signing the letter of transmittal; or - a transfer tax is imposed for any reason other than the exchange of FaciliCom notes under the exchange offer, then the tendering holder will be required to pay any transfer taxes, whether imposed on the registered holder or any other persons. If satisfactory evidence of payment of these taxes is not submitted with the letter of transmittal, the amount of the transfer taxes will be billed to that tendering holder. CONSEQUENCES OF FAILURE TO EXCHANGE The holders of a majority in interest of the FaciliCom notes have agreed to tender their FaciliCom notes in the exchange offer. If you do not exchange your FaciliCom notes for the exchange consideration in the exchange offer, you will continue to hold your FaciliCom notes subject to the terms and conditions of the FaciliCom indenture under which the FaciliCom notes were issued, as amended and supplemented by the first supplemental indenture. However, if the conditions to the exchange offer are met and the exchange is consummated, the FaciliCom indenture will be further amended and supplemented by a second supplemental indenture that will materially reduce the covenants to which FaciliCom is subject under the indenture and you will no longer have the right to require us to repurchase your FaciliCom notes at a purchase price of 101% of the principal amount upon completion of our pending merger with FaciliCom or to approve the merger. For a description of the proposed amendments to the FaciliCom indenture, see "The Proposed Amendments." If you do not tender your FaciliCom notes in the exchange offer, you will not be entitled to receive the exchange consideration which includes exchange notes with an interest rate of 13.25% per annum as compared to the 10 1/2% per annum for the FaciliCom notes and more favorable offer to purchase and redemption provisions as compared to the FaciliCom notes. Our proposed merger with FaciliCom would violate several covenants applicable to the FaciliCom notes allowing the holders of 25.0% of the aggregate principal amount of the FaciliCom notes or the trustee under the FaciliCom indenture to declare principal and accrued and unpaid interest on the FaciliCom notes immediately due and payable. However, holders who tender their FaciliCom notes in the exchange offer will effectively waive this right by consenting to the proposed amendments to the FaciliCom indenture that delete the covenants which would be breached. Upon effectiveness of the consent solicitation, the proposed amendments will apply to all FaciliCom notes that are not tendered in the exchange offer. 44 48 OTHER Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take. We may in the future seek to acquire untendered FaciliCom notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plans to acquire any FaciliCom notes that are not tendered in the exchange offer. Following the exchange offer, FaciliCom notes accepted by us for exchange will be cancelled. DESCRIPTION OF THE EXCHANGE NOTES The exchange notes will be issued pursuant to an indenture to be entered into between us, as issuer, and First Union National Bank, as Trustee. The indenture will be subject to and governed by the Trust Indenture Act of 1939. The following summary of the material provisions of the exchange notes, the indenture and the Pledge Agreement does not purport to be complete and is subject to, and is qualified by reference to, all the provisions of the exchange notes, the indenture and the Pledge Agreement, including the definitions of terms in those agreements and those terms made a part of the exchange notes and the indenture by the Trust Indenture Act. Whenever particular sections or defined terms of the indenture not otherwise defined in this prospectus are referred to, these sections or defined terms are incorporated in this prospectus by reference. Copies of the indenture and the Pledge Agreement have been filed with the SEC as exhibits to the registration statement of which this prospectus is a part. The definitions of certain terms used in the following summary are set forth below under "-- Certain Definitions." GENERAL The exchange notes are senior obligations of World Access, limited to $300,000,000 aggregate original principal amount, and will mature on January 15, 2008. The exchange notes bear interest commencing on the exchange date at the rate of 13.25% per annum, payable semiannually in arrears on January 15 and July 15 of each year, commencing January 15, 2000, or July 15, 2000 if the exchange date is subsequent to January 1, 2000, to the person in whose name the exchange note is registered at the close of business on the preceding January 1 or July 1, as the case may be. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Principal of, premium, if any, and interest on the exchange notes will be payable, and the exchange notes may be exchanged or transferred, at the office or agency of World Access, which initially will be the corporate trust operations office of the Trustee at 1525 West W.T. Harris Boulevard, 3C3 NC-1153, Charlotte, North Carolina 28262, or, at the option of World Access payment of interest may be made by check mailed to the address of the holders as such address appears in the register; provided that all payments with respect to global exchange notes the holders of which have given wire transfer instructions to World Access will be required to be made by wire transfer of immediately available funds to the accounts specified by the holders of those notes. (Section 301) The exchange notes will be issued only in fully registered form, without coupons, in denominations of $1,000 of principal amount and any integral multiple thereof. See "-- Book-Entry, Delivery and Form." No service charge will be made for any registration of transfer or exchange of exchange notes, but World Access may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. (Section 302) OPTIONAL REDEMPTION Except as otherwise provided, the exchange notes will not be redeemable at the option of World Access prior to January 15, 2003. At any time on or after that date, the exchange notes may be redeemed at World Access' option, in whole or in part, at any time or from time to time, on or after January 15, 45 49 2003 and prior to maturity, upon not less than 30 nor more than 60 days' prior notice mailed by first class mail to each holder's last address as it appears in the register, at the following redemption prices (expressed in percentages of principal amount thereof), plus accrued and unpaid interest thereon to the redemption date (subject to the right of holders of record on the relevant regular record date to receive interest due on an interest payment date that is on or prior to the redemption date), if redeemed during the 12-month period commencing on January 15, of the years set forth below:
REDEMPTION YEAR PRICE 2003........................................................ 106.625% 2004........................................................ 104.417% 2005........................................................ 102.208% 2006 (and thereafter)....................................... 100.000%
Notwithstanding the foregoing, prior to January 15, 2001, World Access may on any one or more occasions redeem up to 35.0% of the originally issued aggregate principal amount of exchange notes at a redemption price of 110.5% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon to the Redemption Date, with the Net Cash Proceeds of one or more Public Equity Offerings; provided, that at least 65.0% of the originally issued principal amount of the exchange notes remains outstanding immediately after the occurrence of such redemption; and provided further that notice of such redemptions shall be given within 60 days of the closing of any such Public Equity Offering. (Section 1101) In the case of any partial redemption, selection of the exchange notes for redemption will be made by the Trustee in compliance with the requirements of the principal national securities exchange, if any, on which the exchange notes are listed or, if the exchange notes are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate; provided that the principal amount of an exchange note shall not be reduced below $1,000. If any exchange note is to be redeemed in part only, the notice of redemption relating to such exchange note shall state the portion of the principal amount thereof to be redeemed. A new note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original note. SECURITY On the exchange date, the pro rata portion of the total amount of FaciliCom Pledged Securities and/or cash held in the FaciliCom Pledge Account based on the percentage of the aggregate principal amount of the FaciliCom Notes exchanged for exchange notes shall pursuant to the FaciliCom Pledge Agreement be released from the FaciliCom Pledge Account to FaciliCom. Upon the consummation of the merger, such Pledged Securities and/or cash will automatically be transferred to World Access and deposited by World Access in the Pledge Account to be held pursuant to the Pledge Agreement. Such Pledged Securities and/or cash will be pledged by World Access to the Trustee for the benefit of the holders of the exchange notes pursuant to the Pledge Agreement and will be held by the Trustee in the Pledge Account pending disposition pursuant to the Pledge Agreement. Pursuant to the Pledge Agreement, immediately prior to any scheduled interest payment on the exchange notes, World Access may either deposit with the Trustee from funds otherwise available to World Access cash sufficient to pay the interest scheduled to be paid on such date, World Access may direct the Trustee to release from the Pledge Account proceeds sufficient to pay interest then due or World Access may elect to use any combination of deposited funds and Pledge Account proceeds to pay interest then due. In the event that World Access deposits additional funds with the Trustee, World Access may thereafter direct the Trustee to release to World Access proceeds or Pledged Securities from the Pledge Account in like amount. A failure by World Access to pay scheduled interest on the exchange notes in a timely manner through any interest payment date on or prior to January 15, 2001 will constitute an immediate Event of Default under the indenture, with no grace or cure period. 46 50 Interest earned on the Pledged Securities will be added to the Pledge Account. In the event that the funds or Pledged Securities held in the Pledge Account exceed the amount sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by World Access, to provide an amount sufficient to provide for payment in full of any scheduled interest payments on or prior to January 15, 2001 on the exchange notes assuming an interest rate of 10 1/2% per annum instead of 13.25% per annum less the amount of any scheduled interest previously paid on the exchange notes, the Trustee will be permitted to release to World Access, at World Access' request, any such excess amount. The exchange notes are secured by a first priority security interest in the Pledged Securities and in the Pledge Account and, accordingly, the Pledged Securities and the Pledge Account will also secure repayment of the principal amount of the exchange notes to the extent of such security. Under the Pledge Agreement, assuming that World Access makes the scheduled interest payments on or prior to January 15, 2001 on the exchange notes in a timely manner, any remaining Pledged Securities will be released from the Pledge Account and the exchange notes will be unsecured. RANKING The exchange notes will be unsecured (except as described above) obligations of World Access and will rank senior in right of payment to any existing and future obligations of World Access expressly subordinated in right of payment to the exchange notes and pari passu in right of payment with all other existing and future unsecured and unsubordinated obligations of World Access, including trade payables. After giving effect to the Merger, World Access will have approximately $464.0 million of Indebtedness (of which $187.1 will rank senior to and $1.9 million will rank pari passu with the exchange notes, respectively). Because World Access is a holding company that conducts its business through its Subsidiaries, all existing and future Indebtedness and other liabilities and commitments of World Access's Subsidiaries, including trade payables, will be effectively senior to the exchange notes. The indenture limits, but does not prohibit, the incurrence of certain additional Indebtedness by World Access and its Restricted Subsidiaries and does not limit the amount of Indebtedness Incurred to finance the cost of Telecommunications Assets. World Access anticipates that it and its Subsidiaries will Incur substantial additional Indebtedness in the future. After giving effect to the Merger, World Access' consolidated Subsidiaries will have aggregate liabilities of approximately $428.3 million, which will include $164.0 million of Indebtedness. COVENANTS LIMITATION ON INDEBTEDNESS (a) World Access will not, and will not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that World Access may Incur Indebtedness if immediately thereafter the ratio of: (1) the aggregate principal amount (or accreted value, as the case may be) of Indebtedness of World Access and its Restricted Subsidiaries on a consolidated basis outstanding as of the Transaction Date to (2) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by two, determined on a pro forma basis as if any such Indebtedness had been Incurred and the proceeds thereof had been applied at the beginning of such two fiscal quarters, would be greater than zero and less than 5.0 to 1. 47 51 (b) The foregoing limitations of paragraph (a) of this covenant will not apply to any of the following Indebtedness ("Permitted Indebtedness"), each of which shall be given independent effect: (1) Indebtedness of World Access evidenced by the exchange notes or the FaciliCom Notes; (2) Indebtedness of World Access or any Restricted Subsidiary outstanding on the Exchange Date; (3) Indebtedness of World Access or any Restricted Subsidiary under one or more Credit Facilities, in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $135.0 million and (y) 80.0% of Eligible Accounts Receivable at any one time outstanding, subject to any permanent reductions required by any other terms of the indenture; (4) Indebtedness of World Access or any Restricted Subsidiary Incurred to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of Telecommunications Assets; (5) Indebtedness of a Restricted Subsidiary owed to and held by World Access or another Restricted Subsidiary, except that (A) any transfer of such Indebtedness by World Access or a Restricted Subsidiary (other than to World Access or another Restricted Subsidiary) and (B) the sale, transfer or other disposition by World Access or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an incurrence of Indebtedness by such Restricted Subsidiary, subject to the other provisions of the indenture; (6) Indebtedness of World Access owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right to the payment and performance to the obligations of World Access under the indenture and the exchange notes, except that the limitations of paragraph (a) above shall apply to such Indebtedness at such time as (A) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary) and (B) the sale, transfer or other disposition by World Access or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed such Indebtedness of World Access subject to other provisions of the indenture; (7) Indebtedness of World Access or a Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance (whether by amendment, renewal, extension or refunding), then outstanding Indebtedness of World Access or a Restricted Subsidiary, other than Indebtedness Incurred under clauses (3), (5), (6), (8), (9), (11) and (12) of this paragraph, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, and reasonable fees and expenses); provided that such new Indebtedness shall only be permitted under this clause (7) if: (A) in case the exchange notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the exchange notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining exchange notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the exchange notes, such new Indebtedness, by its terms or by the terms of any agreement or 48 52 instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the exchange notes at least to the extent that the Indebtedness to be refinanced is subordinated to the exchange notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of World Access be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (7); (8) Indebtedness of: (x) World Access not to exceed, at any one time outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale, other than to a Subsidiary, of Common Stock (other than Redeemable Stock) of World Access (less the amount of such proceeds used to make Restricted Payments as provided in clause (c) or (d) of the second paragraph of the "Limitation on Restricted Payments" covenant) and (y) World Access or Acquired Indebtedness of a Restricted Subsidiary not to exceed, at one time outstanding, the Fair Market Value of any Telecommunications Assets acquired by World Access in exchange for Common Stock of World Access issued after the Exchange Date; provided, however, that in determining the Fair Market Value of any such Telecommunications Assets so acquired, if the estimated Fair Market Value of such Telecommunications Assets exceeds: (A) $2.0 million (as estimated in good faith by the Board of Directors), then the Fair Market Value of such Telecommunications Assets will be determined by a majority of the Board of Directors of World Access, which determination will be evidenced by a resolution thereof, and (B) $10.0 million (as estimated in good faith by the Board of Directors), then World Access will deliver the Trustee a written appraisal as to the Fair Market Value of such Telecommunications Assets prepared by a nationally recognized investment banking or public accounting firm (or, if no such investment banking or public accounting firm is qualified to prepare such an appraisal, by a nationally recognized appraisal firm); and provided further that such Indebtedness does not mature prior to the Stated Maturity of the exchange notes and the Average Life of such Indebtedness is longer than that of the exchange notes; (9) Indebtedness of World Access or any Restricted Subsidiary: (A) in respect of performance, surety or appeal bonds or letters of credit supporting trade payables, in each case provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements covering Indebtedness of World Access; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, including without limitation, World Access' indemnification obligations pursuant to that certain Indemnification Agreement dated August 19, 1999, by and between World Access and Clay C. Long, Esq., trustee of the World Access Charitable Trust, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of World Access or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of World Access (other than Guarantees of Indebtedness Incurred by any person acquiring all or 49 53 any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by World Access or any Restricted Subsidiary in connection with such disposition; (10) Indebtedness of World Access, to the extent that the net proceeds thereof are promptly: (A) used to repurchase exchange notes tendered in a Change of Control Offer or (B) deposited to defease all of the exchange notes as described below under "Defeasance and Covenant Defeasance of Indenture"; (11) Indebtedness of a Restricted Subsidiary represented by a Guarantee of the exchange notes permitted by and made in accordance with the "Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries" covenant; (12) Indebtedness of World Access and its Subsidiaries existing upon the consummation of the Merger; and (13) Indebtedness of World Access or any Restricted Subsidiary in addition to that permitted to be incurred pursuant to clauses (1) through (11) above in an aggregate principal amount not in excess of $10.0 million (or, to the extent not denominated in United States dollars, the United States Dollar Equivalent thereof) at any one time outstanding. (c) For purposes of determining any particular amount of Indebtedness under this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included; provided, however, that the foregoing shall not in any way be deemed to limit the provisions of " -- Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries." For purposes of determining compliance with this "Limitation on Indebtedness" covenant, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, World Access, in its sole discretion may, at the time of such Incurrence: (1) classify such item of Indebtedness under and comply with either of paragraph (a) or (b) of this covenant (or any of such definitions), as applicable, (2) classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (3) elect to comply with such paragraphs (or definitions), as applicable in any order. (Section 1011) LIMITATION ON RESTRICTED PAYMENTS World Access will not, and will not permit any Restricted Subsidiary to, directly or indirectly: (1) (A) declare or pay any dividend or make any distribution in respect of World Access' Capital Stock to the holders thereof (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) of World Access or in options, warrants or other rights to acquire such shares of Capital Stock) or (B) declare or pay any dividend or make any distribution in respect of the Capital Stock of any Restricted Subsidiary to any Person other than dividends and distributions including a distribution payable solely in shares of Capital Stock (other than Redeemable Stock) payable to World Access or any Restricted Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis; (2) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of World Access (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or any shares of Capital Stock of any Restricted Subsidiary (including options, warrants and other rights to acquire such shares of Capital Stock) held by any Affiliate of World Access 50 54 (other than a wholly owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5.0% or more of World Access' Capital Stock; (3) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of World Access that is subordinated in right of payment to the exchange notes; or (4) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (1) through (4) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing; (B) World Access could not Incur at least $1.00 of Indebtedness under paragraph (a) of the "Limitation on Indebtedness" covenant; and (C) the aggregate amount of all Restricted Payments declared or made from and after the Exchange Date would exceed the sum of: (1) Cumulative Consolidated Cash Flow minus 200% of Cumulative Consolidated Fixed Charges; (2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a Person, which is not a Subsidiary of World Access, of Capital Stock of World Access (other than Redeemable Stock) or of debt securities of World Access which have been converted into or exchanged for such Capital Stock (except to the extent such Net Cash Proceeds are used to Incur new Indebtedness outstanding pursuant to clause (8) of paragraph (b) of the "Limitation on Indebtedness" covenant); and (3) to the extent any Permitted Investment that was made after the Exchange Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (x) the cash return of capital with respect to such Permitted Investment (less the cost of disposition, if any) and (y) the initial amount of such Permitted Investment. The foregoing provision shall not be violated by reason of: (a) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (b) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the exchange notes including a premium, if any, and accrued and unpaid interest with the net proceeds of, or in exchange for, Indebtedness Incurred under clause (8) of paragraph (b) of the "Limitation on Indebtedness" covenant; (c) the repurchase, redemption or other acquisition of Capital Stock of World Access in exchange for, or out of the Net Cash Proceeds of a substantially concurrent: (A) capital contribution to World Access or (B) offering of shares of Capital Stock (other than Redeemable Stock) of World Access (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (8) of paragraph (b) of the "Limitation on Indebtedness" covenant); 51 55 (d) the acquisition of Indebtedness of World Access which is subordinated in right of payment to the exchange notes in exchange for, or out of the proceeds of, a substantially concurrent: (A) capital contribution to World Access or (B) offering of shares of the Capital Stock of World Access (other than Redeemable Stock) (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (8) of paragraph (b) of the "Limitation on Indebtedness" covenant); (e) payments or distributions to dissenting stockholders in accordance with applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with the provisions of the indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of World Access; and (f) the declaration or payment of any dividend or distribution in respect of, and in accordance with the terms of, World Access': (A) 50,000 outstanding shares of 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, par value $0.01 per share (the "Senior Preferred Stock"), and, in the event that The 1818 Fund III, L.P. ("The 1818 Fund") exercises its option to purchase up to 20,000 additional shares of Senior Preferred Stock, then such additional shares as well and (B) 23,174 outstanding shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B, par value $0.01 per share (the "Junior Preferred Stock"); (g) the conversion of the Senior Preferred Stock, the Junior Preferred Stock or World Access' Convertible Preferred Stock, Series C, par value $0.01 per share, into Capital Stock of World Access in accordance with the terms of such preferred stock; (h) the exercise of employee or non-employee options to purchase the Capital Stock of World Access; and (i) other Restricted Payments not to exceed $2.0 million; provided that, except in the case of clause (a), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the immediately preceding paragraph (other than the Restricted Payment referred to in clause (b) thereof) and the Net Cash Proceeds from any capital contributions to World Access or issuance of Capital Stock referred to in clauses (c) and (d) of the immediately preceding paragraph, shall be included in calculating whether the conditions of clause (C) of the first paragraph of this "Limitation on Restricted Payments" covenant have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of World Access are used for the redemption, repurchase or other acquisition of the exchange notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this "Limitation on Restricted Payments" covenant only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of the exchange notes. (Section 1012) LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES So long as any of the exchange notes are outstanding, World Access will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to do any one of the following: (a) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by World Access or any other Restricted Subsidiary, 52 56 (b) pay any Indebtedness owed to World Access or any other Restricted Subsidiary, (c) make loans or advances to World Access or any other Restricted Subsidiary, or (d) transfer any of its property or assets (including the Capital Stock of any Restricted Subsidiary) to World Access or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (1) existing on the Exchange Date in the indenture or any other agreements or instruments in effect on the Exchange Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (2) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if the encumbrance or restriction applies only in the event of a default with respect to a financial covenant contained in such Indebtedness or agreement and such encumbrance or restriction is not materially more disadvantageous to the holders of the exchange notes than is customary in comparable financings (as determined by World Access) and World Access determines that any such encumbrance or restriction will not materially affect World Access' ability to make principal or interest payments on the exchange notes; (3) existing under or by reason of applicable law; (4) existing with respect to any Person or the property or assets of such Person acquired by World Access or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (5) in the case of clause (4) of the first paragraph of this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant: (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is, or is subject to, a lease, purchase mortgage obligation, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of World Access or any Restricted Subsidiary not otherwise prohibited by the indenture, or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of World Access or any Restricted Subsidiary in any manner material to World Access or any Restricted Subsidiary; or (6) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing contained in this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent World Access or any Restricted Subsidiary from: (A) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in the "Limitation on Liens" covenant or 53 57 (B) restricting the sale or other disposition of property or assets of World Access or any of its Restricted Subsidiaries that secure Indebtedness of World Access or any of its Restricted Subsidiaries. (Section 1013) LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES World Access will not, and will not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, distribute, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary (other than to World Access or a wholly owned Restricted Subsidiary or in respect of any director's qualifying shares or sales of shares of Capital Stock to foreign nationals mandated by applicable law or pursuant to the exercise of employee or non-employee options to purchase the Capital Stock of World Access) to any Person unless: (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with the provisions of the "Limitation on Asset Sales" covenant; (B) immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary; and (C) any Investment in such Person remaining after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition would have been permitted to be made under the "Limitation on Restricted Payments" covenant if made on the date of such issuance, transfer, conveyance, sale, lease or other disposition (valued as provided in the definition of "Investment"). (Section 1014) LIMITATION ON TRANSACTIONS WITH STOCKHOLDERS AND AFFILIATES World Access will not, and will not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5.0% or more of any class of Capital Stock of World Access or any Restricted Subsidiary or with any Affiliate of World Access or any Restricted Subsidiary, unless the following conditions have been met: (a) such transaction or series of transactions is on terms no less favorable to World Access or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate; (b) if such transaction or series of transactions involves aggregate consideration in excess of $2.0 million, then such transaction or series of transactions is approved by a majority of the Board of Directors of World Access and is evidenced by a resolution therein; and (c) if such transaction or series of transactions involves aggregate consideration in excess of $10.0 million, then World Access or such Restricted Subsidiary will deliver to the Trustee a written opinion as to the fairness to World Access or such Restricted Subsidiary of such transaction from a financial point of view from a nationally recognized investment banking firm (or, if an investment banking firm is generally not qualified to give such an opinion, by a nationally recognized appraisal firm or accounting firm). The foregoing limitation does not limit, and will not apply to: (1) any transaction between World Access and any of its Restricted Subsidiaries or between Restricted Subsidiaries; (2) the payment of reasonable and customary regular fees to directors of World Access who are not employees of World Access; (3) any Restricted Payments not prohibited by the "Limitation on Restricted Payments" covenant; 54 58 (4) loans and advances to officers or employees of World Access and its Subsidiaries not exceeding at any one time outstanding $1.5 million in the aggregate, made in the ordinary course of business; (5) arrangements with Telecommunications Management Group, Inc., Armstrong Holdings, Inc. and/or its subsidiaries existing on the date of the Original Indenture and listed on a schedule attached thereto as such arrangement may be extended or renewed; provided that the terms of any arrangement altered by any such extension or renewal may not be altered in a manner adverse to World Access or the holders of the exchange notes; (6) the issuance of up to 20,000 additional shares of Senior Preferred Stock to The 1818 Fund pursuant to an option agreement existing on the date of this indenture; (7) the sale to and purchase by World Access from MCI WorldCom, Inc. and its Affiliates of telecommunications services and equipment in the ordinary course of business; (8) the issuance and sale by World Access of Common Stock whether pursuant to the conversion of the Senior Preferred Stock, the Junior Preferred Stock or World Access' Convertible Preferred Stock, Series C, par value $0.01 per share into Capital Stock of World Access, the exercise of any employee or non-employee options to purchase the Capital Stock of World Access; and (9) World Access' and any of its Restricted Subsidiaries arrangements with the World Access Charitable Trust listed on Schedule B attached thereto as such arrangements exist on the Exchange Date and as such arrangements may be amended; provided that the terms of any such amendments are not materially adverse to World Access, any Restricted Subsidiary or the Holders of the Notes. (Section 1015) LIMITATION ON LIENS Under the terms of the indenture, World Access will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other than Permitted Liens) on any of its assets or properties of any character (including, without limitation, licenses and trademarks), or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, whether owned at the date of the indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereof, without making effective provision for all of the exchange notes and all other amounts ranking pari passu with the exchange notes to be directly secured equally and ratably with the obligation or liability secured by such Lien, or, if such obligation or liability is subordinated to the exchange notes and other amounts ranking pari passu with the exchange notes, without making provision for the exchange notes and such other amounts to be directly secured prior to the obligation or liability secured by such Lien. (Section 1016) LIMITATION ON SALE-LEASEBACK TRANSACTIONS World Access will not, and will not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of World Access or any of its Restricted Subsidiaries. Notwithstanding the foregoing, World Access may enter into Sale-Leaseback Transactions; provided, however, that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of World Access and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing clause (a), other than any Sale-Leaseback Transactions involving NACT's facility in Provo, Utah, World Access would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the covenant described under "-- Limitation on Indebtedness." (Section 1021) 55 59 LIMITATION ON ASSET SALES World Access will not, and will not permit any Restricted Subsidiary to, make any Asset Sale, unless: (a) World Access or the Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the Fair Market Value of the assets sold or disposed of as determined by the good faith judgment of the Board of Directors evidenced by a Board Resolution and (b) at least 80.0% of the consideration received for such sale or other disposition consists of cash or cash equivalents or the assumption of unsubordinated Indebtedness; provided that any securities, notes or other obligations issued by an Investment Grade Company with a Total Equity Market Capitalization in excess of $25 billion determined at the time any commitment to effect any such Asset Sale is entered into that are received by World Access or the Restricted Subsidiary, as the case may be, that are converted within 180 days thereof into cash or cash equivalents shall be deemed to be cash or cash equivalents; provided further that the amount of cash or cash equivalents realized upon the sale of any such securities, notes or other obligations must be included within the amount of Net Cash Proceeds for purposes of clause (1)(B) of the next paragraph. World Access shall, or shall cause the relevant Restricted Subsidiary to, within 270 days after the date of receipt of the Net Cash Proceeds from an Asset Sale: (1) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of World Access or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) if the Net Cash Proceeds from such Asset Sale exceed $15.0 million, apply an amount equal to such Net Cash Proceeds to make an offer to purchase (an "Offer to Purchase") from the holders of the exchange notes on a pro rata basis an aggregate principal amount of exchange notes equal to such Net Cash Proceeds, at a purchase price equal to 100% of the principal amount of the exchange notes, plus, in each case, accrued and unpaid interest to the date of purchase and less the product of: (a) the Market Value per share of the Common Stock of World Access and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of exchange notes accepted for purchase by World Access (the "Offer to Purchase Payment"), provided that the Company shall not be obligated to make any Offer to Purchase after it has made one or more Offers to Purchase, which Offer or Offers to Purchase, in the aggregate, were for an aggregate principal amount of exchange notes equal to the aggregate principal amount of exchange notes issued on the Exchange Date (regardless of the actual aggregate principal amount of exchange notes actually tendered in such Offer or Offers to Purchase), or (C) if World Access has made sufficient Offers to Purchase such that it has satisfied its obligation as described in the final proviso to clause (B), invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, World Access and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (2) apply (no later than the end of the 270-day period referred to above) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (1)) as provided in the following paragraphs of this "Limitation on Asset Sales" covenant. The amount of such Net Cash Proceeds required to be 56 60 applied (or to be committed to be applied) during such 270-day period referred to above in the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds." If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10.0 million, World Access must, not later than the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase from the holders on a pro rata basis an aggregate principal amount of exchange notes equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the principal amount of the exchange notes, plus, in each case, accrued and unpaid interest to the date of purchase less the product of: (a) the Market Value per share of the Common Stock of World Access and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of exchange notes accepted for purchase by World Access ("Excess Proceeds Payment"). World Access shall commence an Offer to Purchase or an Excess Proceeds Offer by mailing a notice to the Trustee and each holder stating: (1) that the Offer to Purchase or Excess Proceeds Offer, as applicable, is being made pursuant to this "Limitation on Asset Sales" covenant and that all exchange notes validly tendered will be accepted for payment on a pro rata basis; (2) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Offer Payment Date"); (3) that any exchange note not tendered will continue to accrue interest pursuant to its terms; (4) that, unless World Access defaults in the payment of the Offer to Purchase Payment or the Excess Proceeds Payment, as applicable, any exchange note accepted for payment pursuant to the Offer to Purchase or Excess Proceeds Offer, as applicable, shall cease to accrue interest on and after the applicable Offer Payment Date; (5) that holders electing to have an exchange note purchased pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable, will be required to surrender the exchange note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the exchange note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the applicable Offer Payment Date; (6) that holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the applicable Offer Payment Date, a telegram, facsimile transmission or letter setting forth the name of such holder, the principal amount of exchange notes delivered for purchase and a statement that such holder is withdrawing his election to have such exchange notes purchased; and (7) that holders whose exchange notes are being purchased only in part will be issued new exchange notes equal in principal amount to the unpurchased portion of the exchange notes surrendered; provided that each exchange note purchased and each new exchange note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the applicable Offer Payment Date, World Access shall: (1) accept for payment on a pro rata basis exchange notes or portions thereof tendered pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable; (2) deposit with the Paying Agent money sufficient to pay the purchase price of all exchange notes or portions thereof so accepted; and 57 61 (3) deliver, or cause to be delivered, to the Trustee all exchange notes or portions thereof so accepted together with an Officers' Certificate specifying the exchange notes or portions thereof accepted for payment by World Access. The Paying Agent shall promptly mail to the holders of exchange notes so accepted payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such holders a new note equal in principal amount to any unpurchased portion of the exchange note surrendered; provided that each exchange note purchased and each new exchange note issued shall be in a principal amount of $1,000 or integral multiples thereof. With respect to any Excess Proceeds Offer, to the extent that the aggregate principal amount of exchange notes tendered is less than the Excess Proceeds, World Access may use any remaining Excess Proceeds for general corporate purposes. World Access will publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Offer Payment Date. For purposes of this "Limitation on Asset Sales" covenant, the Trustee shall act as the Paying Agent. World Access will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company undertakes an Offer to Purchase or Excess Proceeds Offer under this "Limitation on Asset Sales" covenant. (Section 1017) LIMITATION ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS BY RESTRICTED SUBSIDIARIES World Access will not permit any Restricted Subsidiary, directly or indirectly, to Guarantee, assume or in any other manner become liable with respect to any Indebtedness of World Access, other than Indebtedness under Credit Facilities incurred under clause (3) of paragraph (b) in the "Limitation on Indebtedness" covenant, unless: (a) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to the indenture providing for a Guarantee of the exchange notes on terms substantially similar to the guarantee of such Indebtedness, except that if such Indebtedness is by its express terms subordinated in right of payment to the exchange notes, any such assumption, Guarantee or other liability of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's assumption, Guarantee or other liability with respect to the exchange notes substantially to the same extent as such Indebtedness is subordinated to the exchange notes and (b) such Restricted Subsidiary waives, and will not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against World Access or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guarantee. Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may provide by its terms that it will be automatically and unconditionally released and discharged upon: (1) any sale, exchange or transfer, to any Person not an Affiliate of World Access, of all of World Access' and each Restricted Subsidiary's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by the indenture) or (2) the release or discharge of the guarantee which resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such Guarantee. (Section 1018) BUSINESS OF WORLD ACCESS; RESTRICTION ON TRANSFERS OF EXISTING BUSINESS World Access will not, and will not permit any Restricted Subsidiary to, be principally engaged in any business or activity other than a Permitted Business. In addition, World Access and any Restricted Subsidiary will not be permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary (1) any of the licenses, material agreements or instruments, permits or authorizations used in the Permitted Business of World Access and any Restricted Subsidiary on the Exchange Date or 58 62 (2) any material portion of the "property and equipment" (as such term is used in World Access' consolidated financial statements) of World Access or any Restricted Subsidiary used in the licensed service areas of World Access and any Restricted Subsidiary as they exist on the Exchange Date. (Section 1019) LIMITATION ON INVESTMENTS IN UNRESTRICTED SUBSIDIARIES World Access will not make, and will not permit any of its Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of such Investments together with any other Restricted Payments made after the Exchange Date would exceed the amount of Restricted Payments then permitted to be made pursuant to the "Limitation on Restricted Payments" covenant. Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (1) will be treated as the making of a Restricted Payment in calculating the amount of Restricted Payments made by World Access or a Subsidiary and (2) may be made in cash or property (if made in property, the Fair Market Value thereof as determined by the Board of Directors of World Access (whose determination shall be conclusive and evidenced by a Board Resolution) shall be deemed to be the amount of such Investment for the purpose of clause (1)). (Section 1020) PROVISION OF FINANCIAL STATEMENTS AND REPORTS World Access will file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not World Access has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that World Access would be required to file if it were subject to Section 13 or 15 of the Exchange Act. All such annual reports shall include the geographic segment financial information required to be disclosed by World Access under Item 101(d) of Regulation S-K under the Securities Act. World Access will also be required (a) to file with the Trustee, and provide to each holder, without cost to such holder, copies of such reports and documents within 15 days after the date on which World Access files such reports and documents with the Commission or the date on which World Access would be required to file such reports and documents if World Access were so required and (b) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at World Access' cost copies of such reports and documents to any prospective holder promptly upon request. (Section 1009) REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL Upon the occurrence of a Change of Control, each holder shall have the right to require World Access to repurchase all or any part of its exchange notes at a purchase price in cash pursuant to the offer described below (the "Change of Control Offer") equal to 101.0% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase (subject to the right of holders of record to receive interest on the relevant Interest Payment Date) (the "Change of Control Payment"). 59 63 Within 30 days of the Change of Control, World Access will mail a notice to the Trustee and each holder in the manner provided in the indenture stating, among other things: (1) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this "Repurchase of Exchange Notes upon a Change of Control" covenant and that all validly tendered will be accepted for payment; (2) the circumstances and relevant facts regarding such Change of Control (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (3) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (4) that any exchange note not tendered will continue to accrue interest pursuant to its terms; (5) that, unless World Access defaults in the payment of the Change of Control Payment, any exchange note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; (6) that holders electing to have any note or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such exchange note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such exchange note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (7) that holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of such holder, the principal amount of exchange notes delivered for purchase and a statement that such holder is withdrawing his election to have such exchange notes purchased; and (8) that holders whose exchange notes are being purchased only in part will be issued new exchange notes equal in principal amount to the unpurchased portion of the exchange notes surrendered; provided that each note purchased and each new note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the Change of Control Payment Date, World Access shall: (a) accept for payment exchange notes or portions thereof tendered pursuant to the Change of Control Offer; (b) deposit with the Paying Agent money sufficient to pay the purchase price of all exchange notes or portions thereof so accepted; and (c) deliver, or cause to be delivered, to the Trustee, all exchange notes or portions thereof so accepted together with an Officer's Certificate specifying the exchange notes or portions thereof accepted for payment by World Access. The Paying Agent shall promptly mail, to the holders of exchange notes so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such holders a new exchange note equal in principal amount to any unpurchased portion of the exchange notes surrendered; provided that each exchange note purchased and each new exchange note issued shall be in a principal amount of $1,000 or integral multiples thereof. World Access will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this "Repurchase of Exchange Notes upon a Change of Control" covenant, the Trustee shall act as Paying Agent. 60 64 World Access shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes a Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by World Access and purchases all exchange notes validly tendered and not withdrawn under such Change of Control Offer. World Access will comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in the event that a Change of Control occurs and World Access is required to repurchase the exchange notes under this "Repurchase of Exchange Notes upon a Change of Control" covenant. (Section 1010) If World Access is unable to repay all of its Indebtedness that would prohibit repurchase of the exchange notes or is unable to obtain the consents of the holders of Indebtedness, if any, of World Access outstanding at the time of a Change of Control whose consent would be so required to permit the repurchase of exchange notes, then World Access will have breached such covenant. This breach will constitute an Event of Default under the indenture if it continues for a period of 30 consecutive days after written notice is given to World Access by the Trustee or the holders of at least 25.0% in aggregate principal amount of the exchange notes outstanding. In addition, the failure by World Access to repurchase exchange notes at the conclusion of the Change of Control Offer will constitute an Event of Default without any waiting period or notice requirements. There can be no assurances that World Access will have sufficient funds available at the time of any Change of Control to make any debt payment (including repurchases of exchange notes) required by the foregoing covenant (as well as may be contained in other securities or Indebtedness of World Access which might be outstanding at the time). The above covenant requiring World Access to repurchase the exchange notes will, unless the consents referred to above are obtained, require World Access to repay all Indebtedness then outstanding which by its terms would prohibit such note repurchase, either prior to or concurrently with such note repurchase. CONSOLIDATION, MERGER AND SALE OF ASSETS World Access will not consolidate with, merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into World Access and World Access will not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of World Access or World Access and its Restricted Subsidiaries, taken as a whole, to any other Person or Persons, unless: (1) either (A) World Access will be the continuing Person, (B) the Person (if other than World Access) formed by such consolidation or into which World Access is merged or that acquired or leased such property and assets of World Access will be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the obligations of World Access with respect to the exchange notes and under the indenture or (C) in the case of any such transaction or series of transactions entered into by any Restricted Subsidiary, the Person into which the Restricted Subsidiary is merged is another Restricted Subsidiary; (2) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, World Access, or any Person becoming the successor obligor of the exchange notes, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of World Access immediately prior to such transaction; 61 65 (4) immediately after giving effect to such transaction on a pro forma basis, World Access, or any Person becoming the successor obligor of the exchange notes, as the case may be, could Incur at least $1.00 of Indebtedness under paragraph (a) of the "Limitation on Indebtedness" covenant; and (5) World Access delivers to the Trustee an Officers' Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4)) and an Opinion of Counsel, in each case stating that such consolidation, merger or transfer and such supplemental indenture complies with this provision and that all conditions precedent provided for herein relating to such transaction have been complied with; provided, however, that clauses (3) and (4) above do not apply if, in the good faith determination of the Board of Directors of World Access, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of World Access; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. (Section 801) EVENTS OF DEFAULT The following events will be defined as "Events of Default" in the indenture: (a) default in the payment of interest on any exchange note when due and payable as to any Interest Payment Date falling on or prior to January 15, 2001; or (b) default in the payment of interest on any exchange note when due and payable as to any Interest Payment Date following after January 15, 2001, and any such failure continued for a period of 30 days; or (c) default in the payment of principal of (or premium, if any, on) any exchange note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; or (d) default in the payment of principal or interest on any exchange note required to be purchased pursuant to an Offer to Purchase or an Excess Proceeds Offer as described under "Limitation on Asset Sales" or pursuant to a Change of Control Offer as described under "Repurchase of Exchange Notes upon a Change of Control"; or (e) failure to perform or comply with the provisions described under "Consolidation, Merger and Sale of Assets"; or (f) default in the performance of or breach of any other covenant or agreement of World Access in the indenture or under the exchange notes (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with elsewhere in the "Events of Default" section) and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the holders of 25.0% or more in aggregate principal amount of the exchange notes then outstanding; or (g) there occurs with respect to any issue or issues of Indebtedness of World Access or any Restricted Subsidiary having an outstanding principal amount of $5.0 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created: (x) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled by expiration of any applicable grace period and/or (y) the failure to make a principal payment at the final (but not any interim) fixed maturity date thereon and such defaulted payment shall not have been made, waived or extended by the expiration of any applicable grace period; or 62 66 (h) any final judgment or order (not covered by insurance) for the payment of money in excess of $5.0 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against World Access or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5.0 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of World Access or any of its Significant Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of World Access or any of its Significant Subsidiaries or for all or substantially all of the property and assets of World Access or any of its Significant Subsidiaries or (C) the winding up or liquidation of the affairs of World Access or any of its Significant Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (j) World Access or any of its Significant Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of World Access or any of its Significant Subsidiaries or for all or substantially all of the property and assets of World Access or any of its Significant Subsidiaries or (C) effects any general assignment for the benefit of creditors; or (k) World Access asserts in writing that the Pledge Agreement ceases to be in full force and effect before payment in full of the obligations thereunder. (Section 501) If an Event of Default (other than an Event of Default specified in clause (i) or (j) above) occurs and is continuing under the indenture, the Trustee or the holders of at least 25.0% in aggregate principal amount of the exchange notes then outstanding, by written notice to World Access (and to the Trustee if such notice is given by the holders), may, and the Trustee at the request of such holders shall, declare the principal of, premium, if any, accrued and unpaid interest on the exchange notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall become immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (g) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the default triggering such Event of Default pursuant to clause (g) shall be remedied or cured by World Access and/or the relevant Significant Subsidiaries or waived by the holders of the relevant Indebtedness within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (i) or (j) above occurs, the principal of, premium, if any, and accrued interest on the exchange notes then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holder. The holders of at least a majority in aggregate principal amount of the outstanding exchange notes, 63 67 by written notice to World Access and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if (1) all existing Events of Default, other than the nonpayment of the principal of, premium, if any, accrued and unpaid interest on the exchange notes that have become due solely by such declaration of acceleration, have been cured or waived (subject to certain limitations) and (2) the rescission, in the opinion of counsel, would not conflict with any judgment or decree of a court of competent jurisdiction. For information as to the waiver of defaults, see "-- Modification and Waiver." (Section 502) The holders of at least a majority in aggregate principal amount of the outstanding exchange notes may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee. However, the Trustee may refuse to follow any direction that conflicts with law or the indenture, that may involve the Trustee in personal liability, or that the Trustee determines in good faith may be unduly prejudicial to the rights of holders of exchange notes not joining in the giving of such direction and may take any other action it deems proper that is not inconsistent with any such direction received from holders of exchange notes. No holder may pursue any remedy with respect to the indenture or the exchange notes unless: (1) the holder gives the Trustee written notice of a continuing Event of Default; (2) the holders of at least 25.0% in aggregate principal amount of outstanding exchange notes make a written request to the Trustee to pursue the remedy; (3) such holder or holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period, the holders of a majority in aggregate principal amount of the outstanding exchange notes do not give the Trustee a direction that is inconsistent with the request. However, such limitations do not apply to the right of any holder of an exchange note to receive payment of the principal of, premium, if any, or interest on, such note or to bring suit for the enforcement of any such payment, on or after the due date expressed in the exchange notes, which right shall not be impaired or affected without the consent of the holder. (Sections 507, 508 and 512) The indenture will require certain officers of World Access to certify, on or before a date not more than 120 days after the end of each fiscal year, that a review has been conducted of the activities of World Access and World Access' performance under the indenture and that World Access has fulfilled all obligations thereunder or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. World Access will also be obligated to notify the Trustee of any default or defaults in the performance of any covenants or agreements under the indenture. For these purposes, such compliance shall be determined without regard to any grace period or notice requirement under the indenture. (Section 1008) 64 68 DEFEASANCE AND COVENANT DEFEASANCE OF INDENTURE World Access may, at its option and at any time, elect to have the obligations of World Access under the exchange notes discharged with respect to the outstanding exchange notes ("defeasance"). Such defeasance means that World Access will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding exchange notes and to have satisfied all its other obligations under such exchange notes and the indenture insofar as such exchange notes are concerned except for: (1) the rights of holders of outstanding exchange notes to receive payments (solely from monies deposited in trust) in respect of the principal of, premium, if any, and interest on such exchange notes when such payments are due, (2) World Access' obligations to issue temporary exchange notes, register the transfer or exchange of any exchange notes, replace mutilated, destroyed, lost or stolen exchange notes, maintain an office or agency for payments in respect of the exchange notes and segregate and hold such payments in trust, (3) the rights, powers, trusts, duties and immunities of the Trustee and (4) the defeasance provisions of the indenture. Alternatively, World Access may, at its option and at any time, elect to have the obligations of World Access released with respect to certain covenants and other provisions set forth in the indenture, and any omission to comply with such obligations will not constitute a Default or an Event of Default with respect to the exchange notes ("covenant defeasance"). (Sections 1301, 1302 and 1303) In order to exercise either defeasance or covenant defeasance: (a) World Access must irrevocably deposit or cause to be deposited with the Trustee, as trust funds in trust, specifically pledged as security for, and dedicated solely to, the benefit of the holders of the exchange notes, cash in United States dollars, U.S. Government Obligations (as defined in the indenture), or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay and discharge (i) the principal of, premium, if any, and interest on the outstanding exchange notes on the Stated Maturity (or upon redemption, if applicable) of such principal, premium, if any, or installment of interest and (ii) any mandatory sinking fund payments or similar payments applicable to the outstanding exchange notes on the day on which such payments are due and payable; (b) no Default or Event of Default with respect to the exchange notes will have occurred and be continuing on the date of such deposit or, insofar as an event of bankruptcy under clause (i) or (j) of "Events of Default" above is concerned, at any time during the period ending on the 123rd day after the date of such deposit; (c) such defeasance or covenant defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than the indenture) to which World Access is a party or by which it is bound; (d) in the case of defeasance, World Access shall have delivered to the Trustee an Opinion of Counsel stating that World Access has received from, or there has been published by, the Internal Revenue Service a ruling, or since January 15, 1998, there has been a change in applicable federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the holders of the outstanding exchange notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred; (e) in the case of covenant defeasance, World Access shall have delivered to the Trustee an Opinion of Counsel to the effect that the holders of the exchange notes outstanding will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will 65 69 be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; and (f) World Access shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance or the covenant defeasance, as the case may be, have been complied with. (Section 1304) SATISFACTION AND DISCHARGE The indenture will be discharged and will cease to be of further effect (except as to surviving rights or registration of transfer or exchange of the exchange notes, as expressly provided for in the indenture) as to all outstanding exchange notes when: (1) either: (A) all the exchange notes theretofore authenticated and delivered (except lost, stolen or destroyed exchange notes which have been replaced or repaid and exchange notes for whose payment money has theretofore been deposited in trust or segregated and held by World Access and thereafter repaid to World Access or discharged from such trust) have been delivered to the Trustee for cancellation or (B) all exchange notes not theretofore delivered to the Trustee for cancellation (except lost, stolen or destroyed exchange notes which have been replaced or paid) (i) have become due and payable (ii) will become due and payable at their Stated Maturity within 1 year or (iii) are to be called for redemption within 1 year under arrangements satisfactory to the Trustee, and in the case of (i), (ii) or (iii), World Access has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire Indebtedness on the exchange notes not theretofore delivered to the Trustee for cancellation, for principal of, premium, if any, and interest on the exchange notes to the date of deposit together with irrevocable instructions from World Access directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; (2) World Access had paid all other sums payable under the indenture by World Access; and (3) World Access has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel stating that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture have been complied with. MODIFICATION, WAIVER AND AMENDMENT Modifications and amendments of the indenture may be made by World Access and the Trustee with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding exchange notes; provided, however, that no such modification or amendment may, without the consent of each holder affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any exchange note, (2) reduce the principal amount of, or premium, if any, or interest on any exchange note or extend the time for payment of interest on, or alter the redemption provisions of, any exchange note, (3) change the place or currency of payment of principal of, or premium, if any, or interest on any exchange note, (4) impair the right of any holder of the exchange notes to receive payment of, principal of and interest on such holder's exchange notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any exchange note, 66 70 (5) reduce the above-stated percentage of outstanding exchange notes the consent of whose holders is necessary to modify, amend, waive, supplement or consent to take any action under the indenture or the exchange notes, (6) waive a default in the payment of principal of, premium, if any, or accrued and unpaid interest on the exchange notes, (7) reduce or change the rate or time for payment of interest on the exchange notes, (8) modify any provisions of any Guarantees in a manner adverse to the holders of the exchange notes or (9) reduce the percentage or aggregate principal amount of outstanding exchange notes the consent of whose holders is necessary for waiver of compliance with certain provisions of the indenture or for waiver of certain defaults. Compliance with certain provisions of the indenture may be waived with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding exchange notes. GOVERNING LAW AND SUBMISSION TO JURISDICTION The exchange notes and the indenture are governed and construed in accordance with the laws of the State of New York. World Access submits to the jurisdiction of the U.S. federal and New York state courts located in the Borough of Manhattan, City and State of New York for purposes of all legal actions and proceedings instituted in connection with the exchange notes and the indenture. CONCERNING THE TRUSTEE The indenture contains certain limitations on the rights of the Trustee, should it become a creditor of World Access, to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, if the Trustee acquires any conflicting interest, it must eliminate such conflict as soon as practicable, but in any event within 90 days. The holders of a majority in aggregate principal amount of the outstanding exchange notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee, subject to certain exceptions. The indenture provides that in case an Event of Default shall occur (which shall not be cured), the Trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of exchange notes, unless such holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the indenture. Reference is made to the indenture for the full definition of all terms as well as any other capitalized term used herein for which no definition is provided. "Acquired Indebtedness" is defined to mean Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with an Asset Acquisition by World Access or a Restricted Subsidiary and not incurred in connection with, or in anticipation of, such Person becoming a Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon the consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be considered as Indebtedness. 67 71 "Affiliate" is defined to mean, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Acquisition" is defined to mean: (1) an investment by World Access or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary of World Access or shall be merged into or consolidated with World Access or any of its Restricted Subsidiaries or (2) an acquisition by World Access or any of its Restricted Subsidiaries of the property and assets of any Person (other than World Access or any of its Restricted Subsidiaries) that constitute substantially all of a division or line of business of such Person. "Asset Disposition" is defined to mean the sale or other disposition by World Access or any of its Restricted Subsidiaries (other than to World Access or another Restricted Subsidiary of World Access) of: (1) all or substantially all of the Capital Stock of any Restricted Subsidiary of World Access or (2) all or substantially all of the assets that constitute a division or line of business of World Access or any of its Restricted Subsidiaries. "Asset Sale" is defined to mean any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transactions) in one transaction or a series of related transactions by World Access or any of its Restricted Subsidiaries to any Person (other than World Access or any of its Restricted Subsidiaries) of: (1) all or any of the Capital Stock of any Restricted Subsidiary (other than in respect of any director's qualifying shares or investments by foreign nationals mandated by applicable law), (2) all or substantially all of the property and assets of an operating unit or business of World Access or any of its Restricted Subsidiaries or (3) any other property and assets of World Access or any of its Restricted Subsidiaries outside the ordinary course of business of World Access or such Restricted Subsidiary and, in each case, that is not governed by the provisions of the indenture applicable to mergers, consolidations and sales of assets of World Access and which, in the case of any of clause (1), (2) or (3) above, whether in one transaction or a series of related transactions, (a) have a Fair Market Value in excess of $1.0 million or (b) are for net proceeds in excess of $1.0 million; provided that sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business shall not be included within the meaning of "Asset Sale." "Attributable Value" is defined to mean, as to any particular lease under which any Person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such Person under such lease during the remaining term thereof (whether or not such lease is terminable at the option of the lessee prior to the end of such term), including any period for which such lease has been, or may, at the option of the lessor, be extended, discounted from the last date of such term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with like term in accordance with GAAP. The net amount of rent required to be paid under any lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding 68 72 amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. "Attributable Value" means, as to a Capitalized Lease Obligation under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such Person in accordance with GAAP. "Average Life" is defined to mean, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (1) the sum of the products of (a) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (2) the sum of all such principal payments. "Board of Directors" is defined to mean the board of directors of World Access or its equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Capital Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether now outstanding or issued after the date of the indenture, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease Obligation" is defined to mean any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of the indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Change of Control" is defined to mean such time as (1) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50.0% of the total voting power of the then outstanding Voting Stock of World Access on a fully diluted basis; (2) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors (together with any directors who are members of the Board of Directors on the date hereof and any new directors whose election by the Board of Directors or whose nomination for election by World Access's stockholders was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of such board of directors then in office; (3) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of World Access and its Subsidiaries taken as a whole to any such "person" or "group" (other than to World Access or a Restricted Subsidiary); (4) the merger or consolidation of World Access with or into another corporation or the merger of another corporation with or into World Access in one or a series of related transactions with the effect that immediately after such transaction any such "person" or "group" of persons or entities shall have become the beneficial owner of securities of the surviving corporation of such merger or 69 73 consolidation representing a majority of the total voting power of the then outstanding Voting Stock of the surviving corporation; or (5) the adoption of a plan relating to the liquidation or dissolution of World Access. "Common Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of the indenture, including, without limitation, all series and classes of such common stock. "Consolidated Cash Flow" is defined to mean, for any period, the sum of the amounts for such period of (1) Consolidated Net Income, (2) Consolidated Interest Expense, (3) income taxes, to the extent such amount was deducted in calculating Consolidated Net Income (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (4) depreciation expense, to the extent such amount was deducted in calculating Consolidated Net Income, (5) amortization expense, to the extent such amount was deducted in calculating Consolidated Net Income, and (6) all other non-cash items reducing Consolidated Net Income (excluding any non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period), less all non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for World Access and its Restricted Subsidiaries in conformity with GAAP. "Consolidated Fixed Charges" is defined to mean, for any period, Consolidated Interest Expense plus dividends declared and payable on Preferred Stock. "Consolidated Interest Expense" is defined to mean, for any period, the aggregate amount of interest in respect of Indebtedness (including capitalized interest, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with Interest Rate Agreements; and interest on Indebtedness that is Guaranteed or secured by World Access or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by World Access and its Restricted Subsidiaries during such period. "Consolidated Net Income" means, with respect to any Person, for any period, the consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication: (1) all extraordinary gains or losses, (2) net income (or loss) of any Person combined in such Person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (3) gains or losses (on an after-tax basis) in respect of any Asset Sales by such Person or one of its Restricted Subsidiaries, (4) the net income of any Restricted Subsidiary of such Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at 70 74 the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders, (5) any gain or loss realized as a result of the cumulative effect of a change in accounting principles, (6) any amount paid or accrued as dividends on Preferred Stock of World Access or Preferred Stock of any Restricted Subsidiary owned by Persons other than World Access and any of its Restricted Subsidiaries and (7) the net income (or loss) of any Person (other than net income (or loss) attributable to a Restricted Subsidiary) in which any Person (other than World Access or any of its Restricted Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to World Access or any of its Restricted Subsidiaries by such other Person during such period. "Consolidated Net Worth" is defined to mean, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of World Access and its Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation), less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory exchange notes receivable from the sale of the Capital Stock of World Access or any of its Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Credit Facilities" is defined to mean one or more debt facilities or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Cumulative Consolidated Cash Flow" is defined to mean, for the period beginning on the Exchange Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Cash Flow of World Access and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Cumulative Consolidated Fixed Charges" are defined to mean the Consolidated Fixed Charges of World Access and its Restricted Subsidiaries for the period beginning on the Exchange Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, determined on a consolidated basis in accordance with GAAP. "Cumulative Consolidated Interest Expense" is defined to mean, for the period beginning on the Exchange Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Interest Expense of World Access and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Currency Agreement" is defined to mean any foreign exchange contract, currency swap agreement and any other arrangement and agreement designed to provide protection against fluctuations in currency (or currency unit) values. "Default" is defined to mean any event that is, or after notice or passage of time or both would be, an Event of Default. "Eligible Accounts Receivable" is defined to mean the accounts receivable (net of any reserves and allowances for doubtful accounts in accordance with GAAP) of any Person that are not more than 60 days 71 75 past their due date and that were entered into in the ordinary course of business on normal payment terms as shown on the most recent consolidated balance sheet of such Person filed with the Commission, all in accordance with GAAP. "Eligible Institution" is defined to mean a commercial banking institution that has combined capital and surplus of not less than $500.0 million or its equivalent in foreign currency, and has outstanding debt with a rating of "A-3" or higher according to Moody's Investors Service, Inc., or "A-" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)) at the time as of which any investment or rollover therein is made. "Event of Default" has the meaning set forth under "Events of Default" herein. "Exchange Date" means the date of the consummation of the registered exchange offer under which holders of the FaciliCom Notes tendered such notes in exchange for the exchange notes. "FaciliCom Notes" means the 10 1/2% Series B Senior Notes due 2008 issued by FaciliCom pursuant to the Original Indenture. "FaciliCom Pledge Account" means an account established with the FaciliCom Trustee in its name as trustee under the Original Indenture pursuant to the terms of the FaciliCom Pledge Agreement. "FaciliCom Pledge Agreement" means the Collateral Pledge and Security Agreement, dated as of January 28, 1998, from FaciliCom to the FaciliCom Trustee governing the FaciliCom Pledge Account and the disbursements of funds therefrom. "FaciliCom Pledged Securities" means the securities purchased by FaciliCom with the portion of the net proceeds from the original offering of the FaciliCom Notes consisting of U.S. Government Obligations and which were deposited in the FaciliCom Pledge Account pursuant to the FaciliCom Pledge Agreement. "FaciliCom Trustee" means State Street Bank and Trust Company, as trustee under the Original Indenture. "Fair Market Value" is defined to mean, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "GAAP" is defined to mean generally accepted accounting principles in the United States as in effect from time to time, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession of the United States. "Guarantee" is defined to mean any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person: (1) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take- or-pay, or to maintain financial statement conditions or otherwise) or (2) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Incur" or "Incurrence" is defined to mean, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the 72 76 payment of, contingently or otherwise, such Indebtedness, including an Incurrence of Indebtedness by reason of the acquisition of more than 50.0% of the Capital Stock of any Person; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" is defined to mean, with respect to any Person at any date of determination (without duplication): (1) all indebtedness of such Person for borrowed money, (2) all obligations of such Person evidenced by bonds, debentures, exchange notes or other similar instruments, (3) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (4) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (5) all obligations of such Person as lessee under Capitalized Lease Obligations and the Attributable Value under any Sale-Leaseback Transaction of such Person, (6) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the Fair Market Value of such asset at such date of determination or (B) the amount of such Indebtedness, (7) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person, (8) the maximum fixed redemption or repurchase price of Redeemable Stock of such Person at the time of determination and (9) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation; provided: (x) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (y) that Indebtedness shall not include any liability for federal, state, local or other taxes. "Interest Rate Agreement" is defined to mean interest rate swap agreements, interest rate cap agreements, interest rate insurance, and other arrangements and agreements designed to provide protection against fluctuations in interest rates. "Investment" in any Person is defined to mean any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of World Access or its Restricted Subsidiaries) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, 73 77 debentures or other similar instruments issued by, such Person. For purposes of the definition of "Unrestricted Subsidiary," the "Limitation on Restricted Payments" covenant and the "Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant described above, (1) "Investment" shall include: (a) the Fair Market Value of the assets (net of liabilities) of any Restricted Subsidiary of World Access at the time that such Restricted Subsidiary of World Access is designated an Unrestricted Subsidiary and shall exclude the Fair Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of World Access and (b) the Fair Market Value, in the case of a sale of Capital Stock in accordance with the "Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries" covenant such that a Person no longer constitutes a Restricted Subsidiary, of the remaining assets (net of liabilities) of such Person after such sale, and shall exclude the Fair Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of World Access and (2) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined by the Board of Directors in good faith. "Investment Grade Company" means a Person whose debt securities are rated BBB- or higher by Standard & Poor's Ratings Service. Inc. or Baa3 or higher by Moody's Investor Service, Inc. (or an equivalent rating by another nationally recognized rating agency). "Junior Preferred Stock" has the meaning set forth under "-- Limitation on Restricted Payments." "Lien" is defined to mean any mortgage, charge, pledge, security interest, encumbrance, lien (statutory or other), hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Market Price" means, the average closing price of the shares of World Access's Common Stock on the principal trading market of such Common Stock over the five consecutive trading days up to and including the trading day prior to the last full trading day before the closing of the Merger. "Market Value" means the average of the closing price of the applicable security on such security's principal trading market over the five consecutive trading days up to and including the trading day prior to the last full trading day before the initiation of any Offer to Purchase described in clause (1)(B) of the second paragraph under "-- Limitation on Asset Sales" or the time any commitment to effect an Asset Sale is entered into as described under "-- Limitation on Asset Sales." "Marketable Securities" is defined to mean: (1) U.S. Government Obligations which have a remaining weighted average life to maturity of not more than one year from the date of Investment therein; (2) any time deposit account, money market deposit and certificate of deposit maturing not more than 180 days after the date of acquisition issued by, or time deposit of, an Eligible Institution; (3) certificates of deposit, Eurodollar time deposits and bankers' acceptances with maturity of 90 days or less and overnight bank deposits of any financial institution that is organized under the laws of the United States of America or any state hereof, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $300.0 million (or, to the extent non-United States dollar-denominated, the United States Dollar Equivalent of such amount) and has 74 78 outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act); (4) commercial paper maturing not more than 180 days after the date of acquisition issued by a corporation (other than an Affiliate of World Access) with a rating, at the time as of which any investment therein is made, of "P-1" or higher according to Moody's Investors Service, Inc., or "A-1" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); (5) auction rate preferred securities whose rates are reset based on market levels for a par security not more than 90 days after the date of acquisition with a rating, at the time as of which any investment therein is made, of "A-3" or higher according to Moody's Investors Service, Inc., or "A-" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)) and issued by a corporation that is not an Affiliate of World Access; (6) any banker's acceptance or money market deposit accounts issued or offered by an Eligible Institution; (7) repurchase obligations with a term of not more than seven days for U.S. Government Obligations entered into with an Eligible Institution; and (8) any fund investing exclusively in investments of the types described in clauses (1) through (7) above. "Merger" means the merger of FaciliCom with and into World Access pursuant to the Agreement and Plan of Merger dated August 17, 1999 between World Access and FaciliCom. "Net Cash Proceeds" is defined to mean (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to World Access or any Restricted Subsidiary of World Access) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of: (1) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (2) provisions for all taxes payable as a result of such Asset Sale without regard to the consolidated results of operations of World Access and its Restricted Subsidiaries, taken as a whole (after taking into account any available offsetting tax credits or deductions and any tax sharing arrangements), (3) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either: (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (4) appropriate amounts to be provided by World Access or any Restricted Subsidiary of World Access as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP, and 75 79 (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to World Access or any Restricted Subsidiary of World Access) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Original Indenture" means the Indenture, dated as of January 28, 1998, among FaciliCom and the FaciliCom Trustee, as supplemented by the First Supplemental Indenture thereto, pursuant to which FaciliCom issued the FaciliCom Notes. "Original Issue Date" means January 28, 1998, the date FaciliCom issued the FaciliCom Notes. "Permitted Business" is defined to mean any business involving voice, data and other telecommunications services or equipment. "Permitted Investment" is defined to mean: (1) an Investment in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into or transfer or convey all or substantially all its assets to, World Access or a Restricted Subsidiary; (2) any Investment in Marketable Securities or Pledged Securities; (3) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (4) loans or advances to officers and employees made in the ordinary course of business that do not in the aggregate exceed $1.0 million at any time outstanding; (5) stock, obligations or securities received in satisfaction of judgments; (6) Investments in any Person received as consideration for Asset Sales to the extent permitted under the "Limitation on Asset Sales" covenant; (7) Investments in any Person at any one time outstanding (measured on the date each such Investment was made without giving effect to subsequent changes in value) in an aggregate amount not to exceed the greater of: (A) $15.0 million or (B) 5.0% of World Access's total consolidated assets; (8) Investments in deposits with respect to leases or utilities provided to third parties in the ordinary course of business; (9) Investments in Currency Agreements and Interest Rate Agreements on commercially reasonable terms entered into by World Access or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operation of the business of World Access or its Restricted Subsidiaries; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder; (10) repurchases or redemptions by World Access of Capital Stock from officers and other employees of World Access or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such individuals, in an aggregate amount not exceeding $1.0 million in any calendar year and $3.0 million from the date of the indenture; and 76 80 (11) Investments in evidences of Indebtedness, securities or other property received from another Person by World Access or any of its Restricted Subsidiaries in connection with any bankruptcy proceeding or by reason of a composition or readjustment of debt or a reorganization of such Person or as a result of foreclosure, perfection or enforcement of any Lien in exchange for evidences of Indebtedness, securities or other property of such person held by World Access or any of its Subsidiaries, or for other liabilities or obligations of such Person to World Access or any of its Subsidiaries that were created, in accordance with the terms of the indenture. "Permitted Liens" is defined to mean: (1) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (2) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (3) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (4) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (5) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of World Access or any of its Restricted Subsidiaries; (6) Liens (including extensions and renewals thereof) upon real or personal property purchased or leased after the Original Issue Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred in compliance with the "Limitation on Indebtedness" covenant (x) to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (y) to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (7) leases or subleases granted to others that do not materially interfere with the ordinary course of business of World Access and its Restricted Subsidiaries, taken as a whole; (8) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of World Access or its Restricted Subsidiaries relating to such property or assets; 77 81 (9) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation or operating lease; (10) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (11) Liens on property of, or on shares of stock or Indebtedness of, any corporation existing at the time such corporation becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of World Access or any Restricted Subsidiary other than the property or assets acquired and were not created in contemplation of such transaction; (12) Liens in favor of World Access or any Restricted Subsidiary; (13) Liens arising from the rendering of a final judgment or order against World Access or any Restricted Subsidiary of World Access that does not give rise to an Event of Default; (14) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (15) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (16) Liens encumbering customary initial deposits and margin deposits and other Liens that are either within the general parameters customary in the industry or incurred in the ordinary course of business, in each case, securing Indebtedness under Interest Rate Agreements and Currency Agreements; (17) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by World Access or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of World Access and its Restricted Subsidiaries prior to the Exchange Date; (18) Liens existing on the Original Issue Date or securing the exchange notes or the FaciliCom Notes or any Guarantee of the exchange notes or the FaciliCom Notes; (19) Liens granted after the Exchange Date on any assets or Capital Stock of World Access or its Restricted Subsidiaries created in favor of the holders; (20) Liens securing Indebtedness which is incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (8) of paragraph (b) of the "Limitation on Indebtedness" covenant; provided that such Liens do not extend to or cover any property or assets of World Access or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; and (21) Liens securing Indebtedness under Credit Facilities incurred in compliance with clause (3), or securing Indebtedness to finance the cost of Telecommunications Assets under clause (4) of paragraph (b) of the "Limitation on Indebtedness" covenant. "Person" is defined to mean any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Account" is defined to mean an account established with the Trustee pursuant to the terms of the Pledge Agreement for the deposit of the Pledged Securities. "Pledge Agreement" is defined to mean the Collateral Pledge and Security Agreement, dated as of the date of the indenture, from World Access to the Trustee, governing the Pledge Account and the disbursement of funds therefrom. 78 82 "Pledged Securities" is defined to mean the FaciliCom Pledged Securities or portion thereof which are to be released from the FaciliCom Pledge Account to FaciliCom, and deposited in, the Pledge Account pursuant to the FaciliCom Pledge Agreement. "Preferred Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations, rights or other equivalents (however designated, whether voting or non-voting) of such person's preferred or preference stock, whether now outstanding or issued after the date of the indenture, including, without limitation, all series and classes of such preferred or preference stock. "Pro Forma Consolidated Cash Flow" is defined to mean, for any period, the Consolidated Cash Flow of World Access for such period calculated on a pro forma basis to give effect to any Asset Disposition or Asset Acquisition not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during such period as if such Asset Disposition or Asset Acquisition had taken place on the first day of such period. "Public Equity Offering" is defined to mean an underwritten primary public offering of Common Stock of World Access pursuant to an effective registration statement under the Securities Act. "Redeemable Stock" is defined to mean any class or series of Capital Stock of any Person that by its terms (or by the terms of any security into which it is exchangeable) or otherwise is: (1) required to be redeemed on or prior to the date that is 123 days after the date of the Stated Maturity of the exchange notes, (2) redeemable at the option of the holder of such class or series of Capital Stock at any time on or prior to the date that is 123 days after the date of the Stated Maturity of the exchange notes or (3) convertible into or exchangeable for Capital Stock referred to in clause (1) or (2) above or Indebtedness having a scheduled maturity on or prior to the date that is 123 days after the date of the Stated Maturity of the exchange notes; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring on or prior to the date that is 123 days after the date of the Stated Maturity of the exchange notes shall not constitute Redeemable Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in "Limitation on Asset Sales" and "Repurchase of Exchange Notes upon a Change of Control" covenants described above and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provisions on or prior to the date that is 123 days after the date of World Access's repurchase of such exchange notes as are required to be repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of Exchange Notes upon a Change of Control" covenants described above. "Restricted Subsidiary" is defined to mean any Subsidiary of World Access other than an Unrestricted Subsidiary. "Sale-Leaseback Transaction" of any person is defined to mean an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person which has been or is being sold or transferred by such person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangements may be terminated by the lessee without payment of a penalty. "Significant Subsidiary" is defined to mean a Restricted Subsidiary that is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act. 79 83 "Stated Maturity" is defined to mean, (1) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (2) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" is defined to mean, with respect to any Person, any corporation, association or other business entity including, without limitation, partnerships and limited liability companies, of which more than 50.0% of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such person. "Telecommunications Assets" is defined to mean, with respect to any Person, equipment used in the telecommunications business or ownership rights with respect to IRUs, MAOUs or minimum investment units (or similar ownership interests) in fiber optic cable and international or domestic telecommunications switches or other transmission facilities (or Common Stock of a Person that becomes a Restricted Subsidiary, the assets of which consist primarily of any such Telecommunications Assets), in each case purchased or acquired through Indebtedness, provided that such Indebtedness does not exceed the Fair Market Value of such assets, by World Access or a Restricted Subsidiary after the Original Issue Date. "Total Equity Market Capitalization" of any Person means, as of any date of determination, the product of: (1) the aggregate number of outstanding shares of Common Stock of such Person on such date on a fully-diluted basis and (2) the average closing price of such Common Stock over the five consecutive trading days immediately preceding such date. If no closing price exists with respect to shares of any such class, the value of such shares shall be determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. "Trade Payables" is defined to mean any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by World Access or any of its Restricted Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods and services. "Transaction Date" is defined to mean, with respect to the Incurrence of any Indebtedness by World Access or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "United States Dollar Equivalent" is defined to mean, with respect to any monetary amount in a currency other than the United States dollar, at any time for the determination thereof, the amount of United States dollars obtained by converting such foreign currency involved in such computation into United States dollars at the spot rate for the purchase of United States dollars with the applicable foreign currency as quoted by Reuters at approximately 11:00 a.m. (New York City time) on the date not more than two business days prior to such determination. For purposes of determining whether any Indebtedness can be incurred (including Permitted Indebtedness), any Investment can be made and any transaction described in the "Limitation on Transactions with Stockholders and Affiliates" covenant can be undertaken (a "Tested Transaction"), the United States Dollar Equivalent of such Indebtedness, Investment or transaction described in the "Limitation on Transactions with Stockholders and Affiliates" covenant will be determined on the date incurred, made or undertaken and no subsequent change in the United States Dollar Equivalent shall cause such Tested Transaction to have been incurred, made or undertaken in violation of the indenture. 80 84 "Unrestricted Subsidiary" is defined to mean (1) any Subsidiary of World Access that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary of World Access (including any newly acquired or newly formed Subsidiary of World Access) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, World Access or any Restricted Subsidiary; provided that (A) the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted under the "Limitation on Restricted Payments" covenant described above, and such Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of World Access; provided that immediately after giving effect to such designation: (x) World Access could Incur $1.00 of additional Indebtedness under the first paragraph of the "Limitation on Indebtedness" covenant described above and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Unrestricted Subsidiary Indebtedness" is defined to mean any Indebtedness of any Unrestricted Subsidiary: (1) as to which neither World Access nor any Restricted Subsidiary is directly or indirectly liable (by virtue of World Access or any such Restricted Subsidiary being the primary obligor on, guarantor of, or otherwise liable in any respect to, such Indebtedness) and (2) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of World Access or any Restricted Subsidiary to declare, a default of such Indebtedness of World Access or any Restricted Subsidiary or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "U.S. Government Obligations" is defined to mean securities that are: (x) direct obligations of the United States for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. 81 85 "Voting Stock" is defined to mean with respect to any person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such person. "World Access Charitable Trust" means that certain World Access Charitable Trust dated August 19, 1999, by and between World Access Investment Corp., a Delaware corporation and Clay C. Long, Esq., as trustee, in favor of World Access Foundation, Inc., a Georgia nonprofit corporation. BOOK-ENTRY, DELIVERY AND FORM The exchange notes will initially be represented by one or more permanent global exchange notes in definitive, fully registered book-entry form, without interest coupons. The global exchange notes will be deposited on the Exchange Date with, or on behalf of, DTC and registered in the name of DTC or a nominee of DTC. As described below under "-- Certificated Exchange Notes," owners of beneficial interests in a global exchange note may receive physical delivery of certificated exchange notes only in the limited circumstances described therein. The Global Exchange Notes. World Access expects that pursuant to procedures established by DTC (1) upon deposit of the global exchange notes, DTC or its custodian will credit, on its internal system, the corresponding principal amount of global exchange notes to the respective accounts of persons who have accounts with such depositary and (2) ownership of the global exchange notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC or its nominee (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). So long as DTC, or its nominee, is the registered owner or holder of the notes, DTC or such nominee will be considered the sole owner or holder of the global exchange notes represented by the applicable global exchange notes for all purposes under the indenture. No beneficial owner of an interest in the global exchange notes will be able to transfer such interest except in accordance with DTC's applicable procedures in addition to those provided for under the indenture with respect to the exchange notes. Payments of the principal of, premium (if any) and interest on, the global exchange notes will be made to DTC or its nominee, as the case may be, as the registered owner thereof. None of World Access, the Trustee or any paying agent will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the global exchange notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interest. World Access expects that DTC or its nominee, upon receipt of any payment of the principal of, premium (if any) and interest on, the global exchange notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of such global exchange note, as shown on the records of DTC or its nominee. World Access also expects that payments by participants to owners of beneficial interests in any such global exchange notes held through such participants will be governed by standing instructions and customary practice, as is now the case with securities held for the accounts of customers registered in the names of nominees for such customers. Such payments will be the responsibility of such participants. Transfers between participants in DTC will be effected in the ordinary way in accordance with DTC rules and will be settled in clearinghouse funds. The laws of some jurisdictions may require that certain purchasers of securities take physical delivery of such securities in definitive form. Accordingly, the ability to transfer interests in the exchange notes represented by a global exchange note to such persons may be limited. DTC has advised World Access that DTC will take any action permitted to be taken by a holder of exchange notes (including the presentation of exchange notes for exchange as described below) only at the direction of one or more participants to whose account the DTC interests in the applicable global exchange note is credited and only in respect of the aggregate principal amount of exchange notes as to which such participant or participants has or have given such direction. However, if there is an Event of Default under 82 86 the indenture, DTC will exchange the applicable global exchange note for certificated notes, which it will distribute to its participants. DTC has advised World Access as follows: DTC is a limited purpose trust company organized under the laws of the State of New York, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the Uniform Commercial Code and a "Clearing Agency" registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of certificates. "Participants" include securities brokers and dealers, banks, trust companies and clearing corporations and certain other organizations. Indirect access to the DTC system is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly ("indirect participants"). Although DTC has agreed to the foregoing procedures in order to facilitate transfers of interests in the global exchange notes among participants of DTC, it is under no obligation to perform such procedures, and such procedures may be discontinued at any time. Neither World Access nor the Trustee will have any responsibility for the performance by DTC or its participants or indirect participants of their respective obligations under the rules and procedures governing their operations. Certificated Exchange Notes. If (1) World Access notifies the Trustee in writing that the DTC is no longer willing or able to act as a depository and World Access does not appoint a qualified successor within 90 days or (2) World Access, at its option, notifies the Trustee in writing that it elects to cause the issuance of exchange notes in definitive form under the indenture, then, upon surrender by the relevant registered owner of its global exchange note, certificated exchange notes in such form will be issued to each person that such registered owner and DTC identify as the beneficial owner of the related exchange notes. In addition, subject to certain conditions, any person having a beneficial interest in the global exchange note may, upon request to the Trustee, exchange such beneficial interest for exchange notes in the form of certificated exchange notes. Upon any such issuance, the Trustee is required to register such certificated exchange notes in the name of, and cause the same to be delivered to, such person or persons (or the nominee of any thereof) in fully registered form. Neither World Access nor the Trustee shall be liable for any delay by the related registered owner or DTC in identifying the beneficial owners of the related exchange notes and each such person may conclusively rely on, and shall be protected in relying on, instructions from such registered owner or of DTC for all purposes (including with respect to the registration and delivery, and the principal amount of the exchange notes to be issued). 83 87 COMPARISON OF THE EXCHANGE NOTES AND THE FACILICOM NOTES The following comparison of the exchange notes and the FaciliCom notes summarizes the material differences between the exchange notes and the FaciliCom notes and is not a complete description of all differences. See "Description of the Exchange Notes" for a more complete discussion of the terms of the exchange notes and the indenture. References in the following discussion to "World Access" include the surviving company in the merger of World Access and FaciliCom unless the context otherwise requires. Capitalized terms used in this discussion have the meanings given to them in the indenture. In connection with the exchange offer, World Access will enter into an indenture with First Union National Bank, as trustee, pursuant to which the exchange notes will be issued. The holders of the exchange notes will be entitled to the benefits of the indenture, which will be substantially similar to the FaciliCom indenture, under which the FaciliCom notes were issued. Changes to the terms of the exchange notes as compared with the FaciliCom notes include that the obligor under the exchange notes will be World Access, Inc. and interest on the exchange notes will be payable at a rate of 13.25% per annum. In addition, as a result of the consummation of the merger of World Access and FaciliCom, World Access would violate the "Limitation on Indebtedness," "Limitation on Restricted Payments," "Limitation on Transactions with Stockholders and Affiliates," "Business of the Company; Restriction on Transfers of Existing Business" and "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenants contained in the FaciliCom indenture. The differences discussed in paragraphs 1(b), 2, 3, 5 and 7 below modify the covenants to the extent required to effect the proposed merger. In addition, World Access believes that, after the merger, it would be in the best interests of the combined enterprise if the resulting entity could have additional flexibility under the "Limitation on Indebtedness" and "Limitation on Asset Sales" covenants as described in paragraphs 1(a), 4(a) and 6 below. World Access is also proposing to increase some of the redemption prices for the exchange notes when redeemed at the option of World Access and to undertake an offer to repurchase the exchange notes following some Asset Sales as described in paragraph 4(b) below. Forms of these covenants as they are proposed to be amended are included under "-- Text of Changes to the Indenture" below. 1. (a) The first change to the "Limitation on Indebtedness" covenant modifies the exception for indebtedness incurred under one or more credit facilities to the greater of: (x) the sum of FaciliCom's existing credit facility ($35.0 million) and World Access' existing credit facility ($100.00 million) and (y) 80% of eligible accounts receivable. The FaciliCom indenture permitted the incurrence of the greater of (A) $35.0 million and (B) 80% of eligible accounts receivable. (b) The second change to the "Limitation on Indebtedness" covenant is the inclusion of Indebtedness of World Access existing at the time of the merger among the types of Indebtedness permitted to exist under the covenant. (c) Another change to the "Limitation on Indebtedness" covenant specifies that Indebtedness arising from World Access' indemnification obligations under the Indemnification Agreement, dated August 19, 1999, by and between World Access and Clay C. Long, Esq., trustee of the World Access Charitable Trust, is among the types of Indebtedness permitted to exist under the covenant. 2. The "Limitation on Restricted Payments" covenant would restrict the payment of some dividends and distributions by World Access, subject to some limited exceptions. World Access recently issued 50,000 shares of its Series A preferred stock to The 1818 Fund for a purchase price of $50.0 million. In addition, World Access recently acquired the assets of Comm/Net Holding Corporation and its 84 88 subsidiaries for a purchase price of approximately $27.0 million, consisting primarily of 23,174 shares of World Access' Series B preferred stock. In addition, The 1818 Fund has an option to purchase up to 20,000 additional shares of Series A preferred stock for a purchase price of $1,000 per share prior to June 30, 2000. Each share of preferred stock pays dividends equal to 4.25% of the liquidation preference per annum. The dividend payments payable on the outstanding shares of the Series A preferred stock and the Series B preferred stock, which are expected to total approximately $3.1 million per annum (approximately $4.0 million if The 1818 Fund exercises its option), would not be permitted under the "Limitation on Restricted Payments" covenant in the FaciliCom indenture. The change to this covenant allows World Access to continue to make its dividend payments on these securities after the merger. The "Limitation on Restricted Payments" covenant is also proposed to be modified to permit the conversion of the Series A preferred stock, the Series B preferred stock and Series C preferred stock to be issued in the merger into World Access common stock in accordance with the terms of such preferred stock. A final change to the "Limitation on Restricted Payments" covenant would permit the exercise of employee or non-employee stock options to purchase World Access capital stock. 3. The "Limitation on Transactions with Stockholders and Affiliates" covenant in the FaciliCom indenture would prohibit World Access from, among other things, engaging in any transaction with a holder of 5% or more of any class of capital stock of World Access (referred to in this description as a "5% stockholder") or with an Affiliate of World Access unless certain conditions are met. The 1818 Fund, after giving effect to the merger and related transactions, will be a holder of approximately 5.8% of the outstanding common stock of World Access (7.9% if the option described above is exercised) and therefore a 5% stockholder. As a result, after completion of the merger, the sale of the 20,000 shares of World Access' Series A preferred stock subject to the option held by The 1818 Fund could violate the "Limitation on Transactions with Stockholders and Affiliates" covenant. In addition, World Access currently sells to and purchases from MCI WorldCom, Inc. and its Affiliates telecommunications services and equipment in the ordinary course of business. MCI WorldCom, as a result of the merger and related transactions, will own approximately 8.1% of World Access' outstanding common stock and will therefore be a 5% stockholder. Under the changes to the "Limitation on Transactions with Stockholders and Affiliates" covenant, the transactions described above will be exempted from the prohibitions contained in this covenant. The "Limitation on Transactions with Stockholders and Affiliates" covenant is also proposed to be modified to exempt the issuance and sale by World Access of its common stock to its affiliates and 5% stockholders. Another proposed change to the "Limitation on Transactions with Stockholders and Affiliates" covenant would exempt the issuance and sale of World Access common stock upon conversion of the Series A, Series B or Series C preferred stock into capital stock of World Access or exercise of employee or non-employee options to purchase World Access capital stock. A final proposed change would permit certain arrangements between World Access and the World Access Charitable Trust in existence on the exchange date. 4. (a) Under the "Limitation on Asset Sales" covenant in the FaciliCom indenture, World Access or any Restricted Subsidiary could only conduct Asset Sales if, among other things, 80% of the consideration received was cash or cash equivalents or the assumption of unsubordinated Indebtedness. In order to provide additional flexibility for World Access to negotiate a sale of some of its assets to large, well-capitalized telecommunications equipment manufacturers, which could prefer to issue equity or other securities as consideration, the changes to the "Limitation on Asset Sales" covenant would include within consideration constituting cash or cash equivalents, securities, notes or other obligations as long as those securities, notes or other obligations are issued by an investment grade company with a total equity market capitalization in excess of $25 billion and are converted within 180 days into cash or cash equivalents. (b) As part of the modifications to the "Limitation on Asset Sales" covenant, World Access also proposes to include an obligation for it to make an Offer to Purchase the exchange notes following an Asset Sale if it does not apply the net cash proceeds from such sale to repay Indebtedness. This obligation would only apply if the net cash proceeds from any individual sale exceed $15 million and would expire 85 89 once World Access has made, in the aggregate, one or more Offers to Purchase for an aggregate principal amount of exchange notes equal to the aggregate principal amount of exchange notes issued on the exchange date. Any Offer to Purchase would be made at a purchase price of 100% of the principal amount of the exchange notes plus accrued and unpaid interest less, for each $1,000 principal amount, the market value of the number of shares of World Access common stock issued on the exchange date for each $1,000 principal amount of FaciliCom notes exchanged. The purchase price for any Excess Proceeds Offer following an Asset Sale would also be reduced by an amount corresponding to the market value of the common stock. 5. The "Permitted Business" covenant in the FaciliCom indenture would provide that World Access could engage only in a Permitted Business, which is limited to telecommunications services. In addition to providing telecommunications services, World Access develops, manufactures and markets a variety of telecommunications products. As a result of the merger, World Access would be in violation of the "Permitted Business" covenant as it appears in the FaciliCom indenture. The definition of Permitted Business for the exchange notes, therefore, has been modified to include any business involving telecommunications equipment as well as services. 6. The definition of "Telecommunications Assets" applicable to the exchange notes has been modified to permit the acquisition of such assets by World Access by means of Indebtedness. Under subsection (b)(iv) of the "Limitation on Indebtedness" covenant in the indenture, World Access is permitted to incur Indebtedness in order to, among other things, acquire Telecommunications Assets. In the FaciliCom indenture, however, the definition of Telecommunications Assets is limited to such assets purchased or acquired through Capital Lease Obligations by FaciliCom or a Restricted Subsidiary. The indenture for the exchange notes permits World Access greater flexibility by broadening the means by which World Access can make such acquisitions to include Indebtedness, so long as the amount of such Indebtedness does not exceed the Fair Market Value of the assets so acquired. 7. The "Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries" covenant has been modified for the exchange notes to exempt restrictions of World Access existing on the exchange date so that World Access will not be in default under the indenture. 8. As noted above, some of the redemption prices for the exchange notes when redeemed at the option of World Access have been increased as compared to the FaciliCom notes. 9. Under the "Limitation on Sale-Leaseback Transactions" covenant, World Access may enter into a sale-leaseback transaction provided that, among other things, World Access would be able to incur $1.00 of additional indebtedness under Section 1011 under the FaciliCom indenture. A proposed change to the "Limitation on Sale-Leaseback Transactions" covenant would exempt from this requirement a sale-leaseback arrangement involving NACT Telecommunications, Inc.'s facility in Provo, Utah. TEXT OF CHANGES TO THE INDENTURE Set forth below are the material provisions, covenants and definitions that have been changed from the FaciliCom indenture. TEXT BEING ADDED IS IN BOLD AND TEXT BEING DELETED IS IN BRACKETS. Additional technical and conforming changes have also been made. 86 90 SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with, or merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company and the Company shall not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other Person or Persons, unless: (1) either (A) the Company shall be the continuing Person or, (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company (i) shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and (ii) shall expressly assume, by an indenture supplemental hereto, duly executed and delivered to the Trustee, all of the obligations of the Company with respect to all the Notes and under this Indenture OR (C) IN THE CASE OF ANY SUCH TRANSACTION OR SERIES OF TRANSACTIONS ENTERED INTO BY ANY RESTRICTED SUBSIDIARY, THE PERSON INTO WHICH THE RESTRICTED SUBSIDIARY IS MERGED IS ANOTHER RESTRICTED SUBSIDIARY; (2) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (4) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (5) the Company delivers to the Trustee an Officer's Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4) above) and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; provided, however, that clauses (3) and (4) above shall not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. SECTION 1011. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate principal amount (or accreted value, as the case may be) of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding as of the Transaction Date to (ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by two, determined on a pro forma basis as if any such Indebtedness had been Incurred and the proceeds thereof had been applied at the beginning of such two fiscal quarters, would be greater than zero and less than 5 to 1. 87 91 (b) The foregoing limitations of paragraph (a) of this covenant will not apply to any of the following Indebtedness ("Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company evidenced by the Notes OR THE FACILICOM NOTES; (ii) Indebtedness of [the Company] FACILICOM or any OF ITS Restricted [Subsidiary] SUBSIDIARIES outstanding on the [Issue] EXCHANGE Date; (iii) Indebtedness of the Company or any Restricted Subsidiary under one or more Credit Facilities, in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $[35] 135.0 million and (y) 80% of Eligible Accounts Receivable at any one time outstanding, subject to any permanent reductions required by any other terms of this Indenture; (iv) Indebtedness of the Company or any Restricted Subsidiary Incurred in connection with or to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of Telecommunications Assets; (v) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (A) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) or (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an Incurrence of Indebtedness by such Restricted Subsidiary, subject to the other provisions of this Indenture; (vi) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right to the payment and performance to the obligations of the Company under this Indenture and the Notes, except that the limitations of paragraph (a) of this Section 1011 shall apply to such Indebtedness at such time as (A) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary) and (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed such Indebtedness, subject to other provisions of this Indenture; (vii) Indebtedness of the Company or a Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance (whether by amendment, renewal, extension or refunding), then outstanding Indebtedness of the Company or a Restricted Subsidiary, other than Indebtedness Incurred under clauses (iii), (v), (vi), (viii), (ix), (xi) and (xii) of this paragraph, and any refinancing thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, and reasonable fees and expenses); provided that such new Indebtedness shall only be permitted under this clause (vii) if (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (vii); (viii) Indebtedness of (x) the Company not to exceed, at any one time outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale, other than to a Subsidiary, of Common Stock (other than Redeemable Stock) of the Company (less the amount of such proceeds used to make 88 92 Restricted Payments as provided in clause (iii) or (iv) of the second paragraph of Section 1012) and (y) the Company or Acquired Indebtedness of a Restricted Subsidiary not to exceed, at one time outstanding, the [fair market value] FAIR MARKET VALUE of any Telecommunications Assets acquired by the Company in exchange for Common Stock of the Company issued after the [Issue] EXCHANGE Date; provided, however, that in determining the [fair market value] FAIR MARKET VALUE of any such Telecommunications Assets so acquired, if the estimated [fair market value] FAIR MARKET VALUE of such Telecommunications Assets exceeds (A) $2.0 million (as estimated in good faith by the Board Of Directors), then the [fair market value] FAIR MARKET VALUE of such Telecommunications Assets will be determined by a majority of the Board of Directors of the Company, which determination will be evidenced by a resolution thereof, and (B) $10.0 million (as estimated in good faith by the Board of Directors), then the Company shall deliver the Trustee a written appraisal as to the [fair market value] FAIR MARKET VALUE of such Telecommunications Assets prepared by a nationally recognized investment banking or public accounting firm (or, if no [such] NATIONALLY RECOGNIZED investment banking or public accounting firm is qualified to prepare such an appraisal, by a nationally recognized appraisal firm); and provided further that such Indebtedness does not mature prior to the Stated Maturity of the Notes and the Average Life of such Indebtedness is longer than that of the Notes; (ix) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds or letters of credit supporting trade payables, in each case provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements covering Indebtedness of the Company; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, INCLUDING WITHOUT LIMITATION, THE COMPANY'S INDEMNIFICATION OBLIGATIONS PURSUANT TO THAT CERTAIN INDEMNIFICATION AGREEMENT DATED AUGUST 19, 1999, BY AND BETWEEN THE COMPANY AND CLAY C. LONG, ESQ., TRUSTEE OF THE WORLD ACCESS CHARITABLE TRUST, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (x) Indebtedness of the Company, to the extent that the net proceeds thereof are promptly (A) used to repurchase Notes tendered in a Change of Control Offer or (B) deposited to defease all of the Notes pursuant to Article Thirteen; (xi) Indebtedness of a Restricted Subsidiary represented by a Guarantee of the Notes permitted by and made in accordance with Section 1018; [and] (XII) INDEBTEDNESS OF THE COMPANY AND ITS SUBSIDIARIES EXISTING UPON THE CONSUMMATION OF THE MERGER; AND (xiii) Indebtedness of the Company or any Restricted Subsidiary in addition to that permitted to be incurred pursuant to clauses (i) through (xi) above in an aggregate principal amount not in excess of $10 million (or, to the extent not denominated in United States dollars, the United States Dollar Equivalent thereof) at any one time outstanding. (c) For purposes of determining any particular amount of Indebtedness under this Section 1011, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included; provided, however, that the foregoing shall not in any way be deemed to limit the provisions of Section 1018. For purposes of determining compliance with this Section 1011, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion may, at the time of such Incurrence, (i) classify such item of Indebtedness under and 89 93 comply with either of paragraph (a) or (b) of this covenant (or any of such definitions), as applicable, (ii) classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (iii) elect to comply with such paragraphs (or definitions), as applicable in any order. SECTION 1012. Limitation on Restricted Payments. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) (A) declare or pay any dividend or make any distribution in respect of the Company's Capital Stock to the Holders thereof (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) of the Company or in options, warrants or other rights to acquire such shares of Capital Stock) or (B) declare or pay any dividend or make any distribution in respect of the Capital Stock of any Restricted Subsidiary to any Person other than dividends and distributions, INCLUDING A DISTRIBUTION PAYABLE SOLELY IN SHARES OF CAPITAL STOCK (OTHER THAN REDEEMABLE STOCK), payable to the Company or any Restricted Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis; (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or any shares of Capital Stock of any Restricted Subsidiary (including options, warrants and other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company (other than a wholly owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or more of the Company's Capital Stock; (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes; or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing; (B) the Company could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (C) the aggregate amount of all Restricted Payments declared or made from and after the [Closing] EXCHANGE Date would exceed the sum of: (1) Cumulative Consolidated Cash flow minus 200% of Cumulative Consolidated Fixed Charges; (2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a Person, which is not a Subsidiary of the Company, of Capital Stock of the Company (other than Redeemable Stock) or of debt securities of the Company which have been converted into or exchanged for such Capital Stock (except to the extent such Net Cash Proceeds are used to Incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); and (3) to the extent any Permitted Investment that was made after the [Closing] EXCHANGE Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Permitted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Permitted Investment. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including a premium, if any, and accrued and unpaid interest [and Liquidated Damages, if any,] with the net proceeds of, or in exchange for, Indebtedness Incurred under clause (viii) of paragraph (b) of Section 1011; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of Capital Stock (other than Redeemable Stock) of the Company 90 94 (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (iv) the acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes in exchange for, or out of the proceeds of, a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of the Capital Stock of the Company (other than Redeemable Stock) (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (v) payments or distributions to dissenting stockholders in accordance with applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with Article Eight; (VI) THE DECLARATION OR PAYMENT OF ANY DIVIDEND OR DISTRIBUTION IN RESPECT OF, AND IN ACCORDANCE WITH THE TERMS OF, THE COMPANY'S (A) 50,000 OUTSTANDING SHARES OF 4.25% CUMULATIVE SENIOR PERPETUAL CONVERTIBLE PREFERRED STOCK, SERIES A, PAR VALUE $0.01 PER SHARE (THE "SENIOR PREFERRED STOCK"), AND, IN THE EVENT THAT THE 1818 FUND III, L.P. ("THE 1818 FUND") EXERCISES ITS OPTION TO PURCHASE UP TO 20,000 ADDITIONAL SHARES OF SENIOR PREFERRED STOCK, THEN SUCH ADDITIONAL SHARES AS WELL AND (B) 23,174 OUTSTANDING SHARES OF 4.25% CUMULATIVE JUNIOR CONVERTIBLE PREFERRED STOCK, SERIES B, PAR VALUE $0.01 PER SHARE (THE "JUNIOR PREFERRED STOCK"); (VII) THE CONVERSION OF THE SENIOR PREFERRED STOCK, THE JUNIOR PREFERRED STOCK OR THE COMPANY'S CONVERTIBLE PREFERRED STOCK, SERIES C, PAR VALUE $0.01 PER SHARE, INTO CAPITAL STOCK OF THE COMPANY IN ACCORDANCE WITH THE TERMS OF SUCH PREFERRED STOCK; (VIII) THE EXERCISE OF EMPLOYEE OR NON-EMPLOYEE OPTIONS TO PURCHASE THE CAPITAL STOCK OF THE COMPANY; AND [(vi)] (IX) other Restricted Payments not to exceed $2 million; provided that, except in the case of clause (i), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the immediately preceding paragraph (other than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash Proceeds from any capital contributions to the Company or issuance of Capital Stock referred to in clauses (iii) and (iv) of the immediately preceding paragraph, shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 1012 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 1012 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of the Notes. SECTION 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes are Outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to do any one of the following: (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (iii) make loans or advances to the Company or any other Restricted Subsidiary; or (iv) transfer any of its property or assets (INCLUDING CAPITAL STOCK OF ANY RESTRICTED SUBSIDIARY) to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the [Closing] EXCHANGE Date in this Indenture or any other agreements or instruments in effect on the [Closing] EXCHANGE Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less 91 95 favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if the encumbrance or restriction applies only in the event of a default with respect to a financial covenant contained in such Indebtedness or agreement and such encumbrance or restriction is not materially more disadvantageous to the Holders than is customary in comparable financing (as determined by the Company) and the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes; (iii) existing under or by reason of applicable law; (iv) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (v) in the case of clause (iv) of the first paragraph of this Section 1013, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is, or is subject to, a lease, purchase mortgage obligation, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and asserts of, such Restricted Subsidiary. Nothing contained in this Section 1013 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 1016 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, DISTRIBUTE, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary (other than to the Company or a [wholly owned] WHOLLY OWNED Restricted Subsidiary or in respect of any director's qualifying shares or sales of shares of Capital Stock to foreign nationals mandated by applicable law OR PURSUANT TO THE EXERCISE OF EMPLOYEE OR NON-EMPLOYEE OPTIONS TO PURCHASE THE CAPITAL STOCK OF THE COMPANY) to any Person unless (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 1017, (B) immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and (C) any Investment in such Person remaining after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition would have been permitted to be made under Section 1012 if made on the date of such issuance, transfer, conveyance, sale, lease or other disposition (valued as provided in the definition of "Investment" contained in Section 101). 92 96 SECTION 1015. Limitation on Transactions with Stockholders and Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, unless the following conditions have been met: (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with a person that is not such a holder or an Affiliate; (ii) if such transaction or series of transactions involves aggregate consideration in excess of $2.0 million, then such transaction or series of transactions is approved by a majority of the Board of Directors of the Company and is evidenced by a resolution therein; and (iii) if such transaction or series of transactions involves aggregate consideration in excess of $10.0 million, then the Company or such Restricted Subsidiary shall deliver to the Trustee a written opinion as to the fairness to the Company or such Restricted Subsidiary of such transaction from a financial point of view from a nationally recognized investment banking firm (or, if an investment banking firm is generally not qualified to give such an opinion, by a nationally recognized appraisal firm or accounting firm). The foregoing limitation does not limit, and will not apply to (i) any transaction between the Company and any of its Restricted Subsidiaries or between Restricted Subsidiaries; (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any Restricted Payments not prohibited by Section 1012; (iv) loans and advances to officers or employees of the Company and its Subsidiaries not exceeding at any one time outstanding $1.5 million in the aggregate, made in the ordinary course of business; [and] (v) arrangements with TMG, Armstrong and/or its subsidiaries existing on the date of [this] THE ORIGINAL Indenture and listed on Schedule A attached thereto as such arrangements may be extended or renewed; provided that the terms of any arrangement altered by any such extension or renewal may not be altered in a manner adverse to the Company or the Holders of the Notes; (VI) THE ISSUANCE OF UP TO 20,000 ADDITIONAL SHARES OF SENIOR PREFERRED STOCK TO THE 1818 FUND PURSUANT TO AN OPTION AGREEMENT EXISTING ON THE DATE OF THIS INDENTURE; (VII) THE SALE TO AND PURCHASE BY THE COMPANY FROM MCI WORLDCOM, INC. AND ITS AFFILIATES OF TELECOMMUNICATIONS SERVICES AND EQUIPMENT IN THE ORDINARY COURSE OF BUSINESS; (VIII) THE ISSUANCE AND SALE BY THE COMPANY OF COMMON STOCK WHETHER PURSUANT TO THE CONVERSION OF THE SENIOR PREFERRED STOCK, THE JUNIOR PREFERRED STOCK, THE COMPANY'S CONVERTIBLE PREFERRED STOCK, SERIES C, PAR VALUE $0.01 PER SHARE, OR ANY OTHER CLASS OR SERIES OF PREFERRED STOCK INTO CAPITAL STOCK OF THE COMPANY, THE EXERCISE OF ANY EMPLOYEE OR NON-EMPLOYEE OPTIONS TO PURCHASE THE CAPITAL STOCK OF THE COMPANY; AND (IX) THE COMPANY'S AND ANY OF ITS RESTRICTED SUBSIDIARIES' ARRANGEMENTS WITH THE WORLD ACCESS CHARITABLE TRUST LISTED ON SCHEDULE B ATTACHED HERETO AS SUCH ARRANGEMENTS EXIST ON THE EXCHANGE DATE AND AS SUCH ARRANGEMENTS MAY BE AMENDED; PROVIDED THAT THE TERMS OF ANY SUCH AMENDMENTS ARE NOT MATERIALLY ADVERSE TO THE COMPANY, ANY RESTRICTED SUBSIDIARY OR THE HOLDERS OF THE NOTES. SECTION 1017. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the assets sold or disposed of as determined by the good faith judgment of the Board of Directors evidenced by a Board Resolution and (ii) at least 80% of the consideration received for such sale or other disposition consists of cash or cash equivalents or the assumption of unsubordinated Indebtedness; PROVIDED THAT ANY SECURITIES, NOTES OR OTHER OBLIGATIONS ISSUED BY AN INVESTMENT GRADE COMPANY WITH A TOTAL EQUITY MARKET CAPITALIZATION IN EXCESS OF $25 BILLION DETERMINED AT THE TIME ANY COMMITMENT TO EFFECT ANY SUCH ASSET SALE IS ENTERED INTO WHICH ARE RECEIVED BY THE COMPANY OR THE RESTRICTED SUBSIDIARY, AS THE CASE MAY BE, AND CONVERTED 93 97 WITHIN 180 DAYS THEREOF INTO CASH OR CASH EQUIVALENTS SHALL BE DEEMED TO BE CASH OR CASH EQUIVALENTS; PROVIDED FURTHER THAT THE AMOUNT OF CASH OR CASH EQUIVALENTS REALIZED UPON THE SALE OF ANY SUCH SECURITIES, NOTES OR OTHER OBLIGATIONS MUST BE INCLUDED WITHIN THE AMOUNT OF NET CASH PROCEEDS FOR PURPOSES OF CLAUSE (I)(B) OF THE NEXT PARAGRAPH. The Company shall, or shall cause the relevant Restricted Subsidiary to, within 270 days after the date of receipt of the Net Cash Proceeds from an Asset Sale, (i)(A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) IF THE NET CASH PROCEEDS FROM SUCH ASSET SALE EXCEED $15 MILLION, APPLY AN AMOUNT EQUAL TO SUCH NET CASH PROCEEDS TO MAKE AN OFFER TO PURCHASE (AN "OFFER TO PURCHASE") FROM THE HOLDERS ON A PRO RATA BASIS AN AGGREGATE PRINCIPAL AMOUNT OF NOTES EQUAL TO SUCH NET CASH PROCEEDS, AT A PURCHASE PRICE EQUAL TO 100% OF THE PRINCIPAL AMOUNT OF THE NOTES, PLUS, IN EACH CASE, ACCRUED AND UNPAID INTEREST TO THE DATE OF PURCHASE AND LESS THE PRODUCT OF (A) THE MARKET VALUE PER SHARE OF THE COMMON STOCK OF THE COMPANY AND (B) THE NUMBER OF SHARES (INCLUDING ANY PORTION OF A SHARE) OF SUCH COMMON STOCK DETERMINED BY DIVIDING $50 BY THE MARKET PRICE OF THE COMMON STOCK FOR EACH $1,000 IN PRINCIPAL AMOUNT OF NOTES ACCEPTED FOR PURCHASE BY THE COMPANY (THE "OFFER TO PURCHASE PAYMENT"), PROVIDED THAT THE COMPANY SHALL NOT BE OBLIGATED TO MAKE ANY OFFER TO PURCHASE AFTER IT HAS MADE ONE OR MORE OFFERS TO PURCHASE, WHICH OFFER OR OFFERS TO PURCHASE, IN THE AGGREGATE, WERE FOR AN AGGREGATE PRINCIPAL AMOUNT OF NOTES EQUAL TO THE AGGREGATE PRINCIPAL AMOUNT OF NOTES ISSUED ON THE EXCHANGE DATE (REGARDLESS OF THE ACTUAL AGGREGATE PRINCIPAL AMOUNT OF NOTES ACTUALLY TENDERED IN SUCH OFFER OR OFFERS TO PURCHASE), OR (C) IF THE COMPANY HAS MADE SUFFICIENT OFFERS TO PURCHASE SUCH THAT IT HAS SATISFIED ITS OBLIGATION AS DESCRIBED IN THE FINAL PROVISO TO CLAUSE (B), invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period referred to above) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraphs of this Section 1017. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 270-day period referred to above in the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10.0 million, the Company must, not later than the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Notes equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest [and Liquidated Damages, if any], to the date of purchase LESS THE PRODUCT OF (A) THE MARKET VALUE PER SHARE OF THE COMMON STOCK OF THE COMPANY AND (B) THE NUMBER OF SHARES (INCLUDING ANY PORTION OF A SHARE) OF SUCH COMMON STOCK DETERMINED BY DIVIDING $50 BY THE MARKET PRICE OF THE COMMON STOCK FOR EACH $1,000 IN PRINCIPAL AMOUNT OF NOTES ACCEPTED FOR PURCHASE BY THE COMPANY (the "Excess Proceeds Payment"). The Company shall commence an OFFER TO PURCHASE OR AN Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (i) that the OFFER TO PURCHASE OR Excess Proceeds Offer, AS APPLICABLE, is being made pursuant to this Section 1017 and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "[Excess Proceeds] OFFER Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the OFFER TO PURCHASE PAYMENT OR THE Excess Proceeds Payment, AS APPLICABLE, any Note accepted for payment pursuant to the OFFER TO PURCHASE OR THE Excess Proceeds Offer, AS APPLICABLE, shall cease to accrue 94 98 interest [and Liquidated Damages, if any,] on and after the APPLICABLE OFFER [Excess Proceeds] Payment Date; (v) that Holders electing to have a Note purchased pursuant to the OFFER TO PURCHASE OR THE Excess Proceeds Offer, AS APPLICABLE, will be required to surrender the Note together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the APPLICABLE OFFER [Excess Payment] Payment Date; (vi) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the APPLICABLE OFFER [Excess Proceeds] Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the APPLICABLE OFFER [Excess Proceeds] Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to the OFFER TO PURCHASE OR THE Excess Proceeds Offer, AS APPLICABLE; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall upon Company Order promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. WITH RESPECT TO ANY EXCESS PROCEEDS OFFER, TO [To] the extent that the aggregate principal amount of Notes tendered is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. The Company shall publicly announce the results of the Excess Proceeds Offer as soon as practicable after the [Excess Proceeds] OFFER Payment Date. For purposes of this Section 1017, the Trustee shall act as the Paying Agent. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that [such Excess Proceeds are received by] the Company UNDERTAKES AN OFFER TO PURCHASE OR EXCESS PROCEEDS OFFER under this Section 1017. [and the Company is required to repurchase Notes as described above.] SECTION 1021. Limitation on Sale-Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company may enter into Sale-Leaseback Transactions; provided, however, that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company and (b) after giving pro forma effect to any such Sale-Leaseback transaction and the foregoing clause (a), OTHER THAN ANY SALE-LEASEBACK TRANSACTION INVOLVING NACT TELECOMMUNICATIONS, INC.'S FACILITY IN PROVO, UTAH, the Company would be able to incur $1.00 of additional Indebtedness(other than Permitted Indebtedness) pursuant to Section 1011. SECTION 101. Definitions. "EXCHANGE DATE" MEANS THE DATE OF ISSUANCE OF THE NOTES UPON THE CONSUMMATION OF THE REGISTERED EXCHANGE OFFER PURSUANT TO WHICH HOLDERS OF THE FACILICOM NOTES TENDERED SUCH NOTES IN EXCHANGE FOR THE NOTES ISSUED BY THE COMPANY PURSUANT TO THIS INDENTURE. "FACILICOM" MEANS FACILICOM INTERNATIONAL, INC., A DELAWARE CORPORATION. "FACILICOM NOTES" MEANS THE 10 1/2% SERIES B SENIOR NOTES DUE 2008 ISSUED BY FACILICOM PURSUANT TO THE ORIGINAL INDENTURE. 95 99 "FACILICOM TRUSTEE" MEANS THE STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE UNDER THE ORIGINAL INDENTURE. "INVESTMENT GRADE COMPANY" MEANS A PERSON WHOSE DEBT SECURITIES ARE RATED BBB- OR HIGHER BY STANDARD & POOR'S RATINGS SERVICE. INC. OR BAA3 OR HIGHER BY MOODY'S INVESTOR SERVICE, INC. (OR AN EQUIVALENT RATING BY ANOTHER NATIONALLY RECOGNIZED RATING AGENCY). "MARKET PRICE" MEANS, ON ANY GIVEN DAY, THE AVERAGE CLOSING PRICE OF THE SHARES OF THE COMPANY'S COMMON STOCK ON THE PRINCIPAL TRADING MARKET OF SUCH COMMON STOCK OVER THE FIVE CONSECUTIVE TRADING DAYS UP TO AND INCLUDING THE DAY OF SUCH VALUATION. "MARKET VALUE" MEANS THE AVERAGE OF THE CLOSING PRICE OF THE APPLICABLE SECURITY ON SUCH SECURITY'S PRINCIPAL TRADING MARKET OVER THE FIVE CONSECUTIVE TRADING DAYS UP TO AND INCLUDING THE TRADING DAY PRIOR TO THE LAST FULL TRADING DAY BEFORE THE INITIATION OF ANY OFFER TO PURCHASE DESCRIBED IN CLAUSE (I) (B) OR THE TIME ANY COMMITMENT TO EFFECT AN ASSET SALE IS ENTERED INTO AS DESCRIBED IN THE PRECEDING PARAGRAPH. "MERGER" MEANS THE MERGER OF FACILICOM WITH AND INTO THE COMPANY PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DATED AUGUST 17, 1999 BETWEEN THE COMPANY AND FACILICOM. "ORIGINAL INDENTURE" MEANS THE INDENTURE, DATED AS OF JANUARY 28, 1998, AMONG FACILICOM AND THE FACILICOM TRUSTEE, AS SUPPLEMENTED BY THE FIRST SUPPLEMENTAL INDENTURE THERETO, PURSUANT TO WHICH FACILICOM ISSUED THE FACILICOM NOTES. "ORIGINAL ISSUE DATE" MEANS JANUARY 28, 1998, THE DATE FACILICOM ISSUED THE FACILICOM NOTES. "Permitted Business" means any business involving voice, data and other telecommunications services OR EQUIPMENT. "Telecommunications Assets" means, with respect to any person, equipment used in the telecommunications business or ownership rights with respect to IRUs, MAOUs or minimum investment units (or similar ownership interests) in fiber optic cable and international or domestic telecommunications switches or other transmission facilities (or Common Stock of a Person that becomes a Restricted Subsidiary, the [Assets] ASSETS of which consist primarily of any such Telecommunications Assets), in each case purchased or acquired through Incurring [a Capitalized Lease Obligation] INDEBTEDNESS, PROVIDED THAT SUCH INDEBTEDNESS DOES NOT EXCEED THE FAIR MARKET VALUE OF SUCH ASSETS, by the Company or a Restricted Subsidiary after the ORIGINAL ISSUE [Closing] Date. "TOTAL EQUITY MARKET CAPITALIZATION" OF ANY PERSON MEANS, AS OF ANY DATE OF DETERMINATION, THE PRODUCT OF (I) THE AGGREGATE NUMBER OF OUTSTANDING SHARES OF COMMON STOCK OF SUCH PERSON ON SUCH DATE ON A FULLY-DILUTED BASIS AND (II) THE AVERAGE CLOSING PRICE OF SUCH COMMON STOCK OVER THE FIVE CONSECUTIVE TRADING DAYS IMMEDIATELY PRECEDING SUCH DATE. IF NO CLOSING PRICE EXISTS WITH RESPECT TO SHARES OF ANY SUCH CLASS, THE VALUE OF SUCH SHARES SHALL BE DETERMINED BY THE BOARD OF DIRECTORS IN GOOD FAITH AND EVIDENCED BY A RESOLUTION OF THE BOARD OF DIRECTORS FILED WITH THE TRUSTEE. "WORLD ACCESS CHARITABLE TRUST" MEANS THAT CERTAIN WORLD ACCESS CHARITABLE TRUST DATED AUGUST 19, 1999, BY AND BETWEEN WORLD ACCESS INVESTMENT CORP., A DELAWARE CORPORATION AND CLAY C. LONG, ESQ., AS TRUSTEE, IN FAVOR OF WORLD ACCESS FOUNDATION, INC., A GEORGIA NONPROFIT CORPORATION. 96 100 FORM OF REVERSE OF NOTE The Notes are subject to redemption upon not less than 30 nor more than 60 days' prior notice, in whole or in part, at any time or from time to time on or after January 15, 2003, at the election of the Company, at Redemption Prices (expressed in percentages of principal amount thereof), plus accrued and unpaid interest [and Liquidated Damages, if any,] thereon to the Redemption Date (subject to the right of Holders of record on the relevant Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period commencing on January 15, of the years set forth below:
YEAR REDEMPTION PRICE 2003........................................................ [105.25%] 106.625% 2004........................................................ [103.50] 104.417% 2005........................................................ [101.75] 102.208% 2006 (and thereafter)....................................... 100.00%
97 101 THE PROPOSED AMENDMENTS GENERAL On October 12, 1999, we entered into an agreement to exchange and consent with FaciliCom and the holders of a majority in interest of the FaciliCom notes in which we and FaciliCom agreed, among other things, to use our reasonable best efforts to prepare, and have declared effective by the SEC, a registration statement under which the exchange notes and exchange shares would be registered in connection with the exchange offer. In turn, the holders of a majority in interest of the FaciliCom notes agreed to tender their FaciliCom notes in the exchange offer and consent to the proposed amendments to the terms of the FaciliCom indenture described below. Under its terms, the applicable provisions of the FaciliCom indenture can be amended by a supplemental indenture if FaciliCom and the holders of a majority in interest of the outstanding FaciliCom notes consent to such amendments. Adoption of the proposed amendments to the FaciliCom indenture is required to consummate the merger with FaciliCom. Holders of a majority in interest of the outstanding FaciliCom notes have agreed, in the agreement to exchange and consent, to consent to the proposed amendments described below. If such holders exchange their FaciliCom notes in the exchange offer, immediately prior to the merger, FaciliCom will enter into the second supplemental indenture which, among other things, will omit the provisions permitting the holders of FaciliCom notes to require us, as the surviving corporation in the merger with FaciliCom, to repurchase the FaciliCom notes as a result of the merger. IF YOU TENDER YOUR FACILICOM NOTES IN THE EXCHANGE OFFER, YOU ARE ALSO CONSENTING TO THE PROPOSED AMENDMENTS TO THE FACILICOM INDENTURE DESCRIBED BELOW. IF THE HOLDERS OF A MAJORITY IN PRINCIPAL AMOUNT OF THE OUTSTANDING FACILICOM NOTES CONSENT TO THE PROPOSED AMENDMENTS, THE FACILICOM INDENTURE WILL BE AMENDED BY A SECOND SUPPLEMENTAL INDENTURE INCLUDING THE PROPOSED AMENDMENTS. THE TERMS OF THE AMENDED FACILICOM INDENTURE WILL APPLY TO ALL OF THE FACILICOM NOTES. The second supplemental indenture will amend the FaciliCom indenture by deleting in their entirety the covenants set forth below from the FaciliCom indenture, the effect of which will be to: (1) remove restrictions on FaciliCom's ability to: - consolidate and/or merge; - incur additional debt; - make payments to affiliates; - make dividend payments; - sell capital stock of its subsidiaries; - enter into transactions with shareholders; - create liens on its property; - sell assets; - transfer its existing business; and - enter into sale-leaseback transactions; and (2) eliminate FaciliCom's obligations to: - hold money for payment of the FaciliCom notes in trust; - pay taxes; - maintain its properties; - maintain insurance coverage; and 98 102 - provide the holders of FaciliCom notes with financial statements. THE SECOND SUPPLEMENTAL INDENTURE The second supplemental indenture will delete from the FaciliCom indenture the following covenants in their entirety: SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with, or merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company and the Company shall not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other Person or Persons, unless: (1) either (A) the Company shall be the continuing Person or (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company (i) shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and (ii) shall expressly assume, by an indenture supplemental hereto, duly executed and delivered to the Trustee, all of the obligations of the Company with respect to all the Notes and under this Indenture; (2) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (4) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (5) the Company delivers to the Trustee an Officer's Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4) above) and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; provided, however, that clauses (3) and (4) above shall not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. SECTION 1003. Money for Note Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of (or premium or Liquidated Damages, if any) or interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium or Liquidated Damages, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. 99 103 Whenever the Company shall have one or more Paying Agents for the Notes, it shall, on or before each due date of the principal of (or premium or Liquidated Damages, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium and Liquidated Damages, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 1003, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of (and premium and Liquidated Damages, if any) or interest on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium and Liquidated Damages, if any) or interest on the Notes; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium or Liquidated Damages, if any) or interest on any Note and remaining unclaimed for two years after such principal, premium, interest or Liquidated Damages has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 1004. Corporate Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the 100 104 Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien (other than a Permitted Lien) upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. Maintenance of Properties. The Company shall cause all properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. Insurance. The Company shall at all times keep all of its and its Subsidiaries properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties. SECTION 1008. Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officer's Certificate from the principal executive officer, principal financial officer or principal accounting officer to the effect that a review has been conducted of the activities of the Company and the Company's performance under this Indenture, and that the Company has fulfilled its obligations thereunder or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. For purposes of this Section 1008(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the trustee for or the Holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $1,000,000) shall deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officer's Certificate specifying such event, notice or other action within five Business Days of its occurrence. (c) When any Registration Default (as defined in the Registration Rights Agreement) occurs, the Company shall immediately deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officer's Certificate specifying the nature of such Registration Default. In addition, the Company shall deliver to the Trustee on each Interest Payment Date during the continuance of a Registration Default and on the Interest Payment Date following the cure of a Registration Default, an Officer's Certificate specifying the amount of Liquidated Damages which have occurred and which are then owing under the Registration Rights Agreement. SECTION 1009. Provision of Financial Statements and Reports. (a) After the Company has completed the Exchange Offer, the Company shall file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, 101 105 quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. All such annual reports shall include the geographic segment financial information contemplated by Item 101(d) of Regulation S-K under the Securities Act, and all such quarterly reports shall provide the same type of interim financial information that, as of the date of this Indenture, is the Company's practice to provide. (b) The Company shall also be required (i) to file with the Trustee, and provide to each Holder, without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (ii) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective Holder promptly upon request. SECTION 1010. Repurchase of Notes upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the Company to repurchase such Holder's Notes in whole or in part (the "Change of Control Offer"), at a purchase price (the "Purchase Price") in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (subject to the right of Holders of record to receive interest on the relevant Interest Payment Date) (the "Change of Control Payment") in accordance with the procedures set forth in paragraphs (c) and (d) of this Section. (b) [Reserved] (c) Within 30 days following any Change of Control, the Company shall give to each Holder and the Trustee in the manner provided in Section 106 a notice stating: (i) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this Section 1010 and that all Notes validly tendered will be accepted for payment; (ii) the circumstances and relevant facts regarding such Change of Control (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (iii) the Purchase Price and date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (iv) that any Note not tendered will continue to accrue interest pursuant to its terms; (v) that, unless the Company defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest and Liquidated Damages, if any, on and after the Change of Control Payment Date; (vi) that Holders electing to have any Note or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (vii) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and 102 106 (viii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. (d) [Reserved]. (e) On the Change of Control Payment Date, the Company shall: (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee, all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail, to the Holders so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 1010, the Trustee shall act as Paying Agent. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes a Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in the event that a Change of Control occurs and the Company is required to repurchase the Notes under this Section 1010. SECTION 1011. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate principal amount (or accreted value, as the case may be) of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding as of the Transaction Date to (ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by two, determined on a pro forma basis as if any such Indebtedness had been Incurred and the proceeds thereof had been applied at the beginning of such two fiscal quarters, would be greater than zero and less than 5 to 1. (b) The foregoing limitations of paragraph (a) of this covenant will not apply to any of the following Indebtedness ("Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company evidenced by the Notes; (ii) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date; (iii) Indebtedness of the Company or any Restricted Subsidiary under one or more Credit Facilities, in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $35.0 million and (y) 80% of Eligible Accounts Receivable at any one time outstanding, subject to any permanent reductions required by any other terms of this Indenture; 103 107 (iv) Indebtedness of the Company or any Restricted Subsidiary Incurred to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of Telecommunications Assets; (v) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (A) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) or (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an Incurrence of Indebtedness by such Restricted Subsidiary, subject to the other provisions of this Indenture; (vi) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right to the payment and performance to the obligations of the Company under this Indenture and the Notes, except that the limitations of paragraph (a) of this Section 1011 shall apply to such Indebtedness at such time as (A) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary) and (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed such Indebtedness, subject to other provisions of this Indenture; (vii) Indebtedness of the Company or a Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance (whether by amendment, renewal, extension or refunding), then outstanding Indebtedness of the Company or a Restricted Subsidiary, other than Indebtedness Incurred under clauses (iii), (v), (vi), (viii), (ix), (xi) and (xii) of this paragraph, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, and reasonable fees and expenses); provided that such new Indebtedness shall only be permitted under this clause (vii) if: (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (vii); (viii) Indebtedness of (x) the Company not to exceed, at any one time outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale, other than to a Subsidiary, of Common Stock (other than Redeemable Stock) of the Company (less the amount of such proceeds used to make Restricted Payments as provided in clause (iii) or (iv) of the second paragraph of Section 1012) and (y) the Company or Acquired Indebtedness of a Restricted Subsidiary not to exceed, at one time outstanding, the fair market value of any Telecommunications Assets acquired by the Company in exchange for Common Stock of the Company issued after the Issue Date; provided, however, that in determining the fair market value of any such Telecommunications Assets so acquired, if the estimated fair market value of such Telecommunications Assets exceeds (A) $2 million (as estimated in good faith by the Board of Directors), then the fair market value of such Telecommunications Assets will be determined by a majority of the Board of Directors of the Company, which determination will be evidenced by a resolution thereof, and 104 108 (B) $10 million (as estimated in good faith by the Board of Directors), then the Company shall deliver the Trustee a written appraisal as to the fair market value of such Telecommunications Assets prepared by a nationally recognized investment banking or public accounting firm (or, if no such investment banking or public accounting firm is qualified to prepare such an appraisal, by a nationally recognized appraisal firm); and provided further that such Indebtedness does not mature prior to the Stated Maturity of the Notes and the Average Life of such Indebtedness is longer than that of the Notes; (ix) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds or letters of credit supporting trade payables, in each case provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements covering Indebtedness of the Company; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (x) Indebtedness of the Company, to the extent that the net proceeds thereof are promptly (A) used to repurchase Notes tendered in a Change of Control Offer or (B) deposited to defease all of the Notes pursuant to Article Thirteen; (xi) Indebtedness of a Restricted Subsidiary represented by a Guarantee of the Notes permitted by and made in accordance with Section 1018; and (xii) Indebtedness of the Company or any Restricted Subsidiary in addition to that permitted to be incurred pursuant to clauses (i) through (xi) above in an aggregate principal amount not in excess of $10 million (or, to the extent not denominated in United States dollars, the United States Dollar Equivalent thereof) at any one time outstanding. (l) For purposes of determining any particular amount of indebtedness under this Section 1011, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included; provided, however, that the foregoing shall not in any way be deemed to limit the provisions of Section 1018. For purposes of determining compliance with this Section 1011, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion may, at the time of such Incurrence, (i) classify such item of Indebtedness under and comply with either of paragraph (a) or (b) of this covenant (or any of such definitions), as applicable, (ii) classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (iii) elect to comply with such paragraphs (or definitions), as applicable in any order. SECTION 1012. Limitation on Restricted Payments. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) (A) declare or pay any dividend or make any distribution in respect of the Company's Capital Stock to the holders thereof (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) of the Company or in options, warrants or other rights to acquire such shares of Capital Stock) or (B) declare or pay any dividend or make any distribution in respect of the Capital Stock of any Restricted Subsidiary to any Person other than dividends and 105 109 distributions payable to the Company or any Restricted Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis; (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or any shares of Capital Stock of any Restricted Subsidiary (including options, warrants and other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company (other than a wholly owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or more of the Company's Capital Stock; (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes; or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing; (B) the Company could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (C) the aggregate amount of all Restricted Payments declared or made from and after the Closing Date would exceed the sum of: (1) Cumulative Consolidated Cash Flow minus 200% of Cumulative Consolidated Fixed Charges; (2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a Person, which is not a Subsidiary of the Company, of Capital Stock of the Company (other than Redeemable Stock) or of debt securities of the Company which have been converted into or exchanged for such Capital Stock (except to the extent such Net Cash Proceeds are used to Incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); and (3) to the extent any Permitted Investment that was made after the Closing Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Permitted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Permitted Investment. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including a premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, with the net proceeds of, or in exchange for, Indebtedness Incurred under clause (viii) of paragraph (b) of Section 1011; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of Capital Stock (other than Redeemable Stock) of the Company (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (iv) the acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes in exchange for, or out of the proceeds of, a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of the Capital Stock of the Company (other than Redeemable Stock) (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (v) payments or distributions to dissenting stockholders in accordance with applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with Article Eight; and (vi) other Restricted Payments not to exceed $2 106 110 million; provided that, except in the case of clause (i), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the immediately preceding paragraph (other than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash Proceeds from any capital contributions to the Company or issuance of Capital Stock referred to in clauses (iii) and (iv) of the immediately preceding paragraph, shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 1012 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 1012 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of the Notes. SECTION 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes are Outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to do any one of the following: (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (iii) make loans or advances to the Company or any other Restricted Subsidiary; or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date in this Indenture or any other agreements or instruments in effect on the Closing Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if the encumbrance or restriction applies only in the event of a default with respect to a financial covenant contained in such Indebtedness or agreement and such encumbrance or restriction is not materially, more disadvantageous to the Holders than is customary in comparable financing (as determined by the Company) and the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes; (iii) existing under or by reason of applicable law; (iv) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; 107 111 (v) in the case of clause (iv) of the first paragraph of this Section 1013, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is, or is subject to, a lease, purchase mortgage obligation, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing contained in this Section 1013 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 1016 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 1014.Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary (other than to the Company or a wholly owned Restricted Subsidiary or in respect of any director's qualifying shares or sales of shares of Capital Stock to foreign nationals mandated by applicable law) to any Person unless (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 1017, (B) immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and (C) any Investment in such Person remaining after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition would have been permitted to be made under Section 1012 if made on the date of such issuance, transfer, conveyance, sale, lease or other disposition (valued as provided in the definition of "Investment" contained in Section 101). SECTION 1015. Limitation on Transactions with Stockholders and Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, unless the following conditions have been met: (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate; (ii) if such transaction or series of transactions involves aggregate consideration in excess of $2 million, then such transaction or series of transactions is approved by a majority of the Board of Directors of the Company and is evidenced by a resolution therein; and (iii) if such transaction or series of transactions involves aggregate consideration in excess of $10 million, then the Company or such Restricted Subsidiary shall deliver to the Trustee a written opinion as to the fairness to the Company or such Restricted Subsidiary of such transaction from a financial point of view from a nationally recognized investment banking firm 108 112 (or, if an investment banking firm is generally not qualified to give such an opinion, by a nationally recognized appraisal firm or accounting firm). The foregoing limitation does not limit, and will not apply to (i) any transaction between the Company and any of its Restricted Subsidiaries or between Restricted Subsidiaries; (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any Restricted Payments not prohibited by Section 1012; (iv) loans and advances to officers or employees of the Company and its Subsidiaries not exceeding at any one time outstanding $1.5 million in the aggregate, made in the ordinary course of business; and (v) arrangements with TMG, Armstrong and/or its subsidiaries existing on the date of this Indenture and listed on Schedule A attached thereto as such arrangements may be extended or renewed; provided that the terms of any arrangement altered by any such extension or renewal may not be altered in a manner adverse to the Company or the Holders of the Notes. SECTION 1016. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other than Permitted Liens) on any of its assets or properties of any character (including, without limitation, licenses and trademarks), or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, whether owned at the date of this Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereof, without making effective provision for all of the Notes and all other amounts ranking pari passu with the Notes to be directly secured equally and ratably with the obligation or liability secured by such Lien or, if such obligation or liability is subordinated to the Notes and other amounts ranking pari passu with the Notes, without making provision for the Notes and such other amounts to be directly secured prior to the obligation or liability secured by such Lien. SECTION 1017. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the assets sold or disposed of as determined by the good faith judgment of the Board of Directors evidenced by a Board Resolution and (ii) at least 80% of the consideration received for such sale or other disposition consists of cash or cash equivalents or the assumption of unsubordinated Indebtedness. The Company shall, or shall cause the relevant Restricted Subsidiary to, within 270 days after the date of receipt of the Net Cash Proceeds from an Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries, or (B) invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period referred to above) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraphs of this Section 1017. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 270-day period referred to above in the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10 million, the Company must, not later than the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Notes 109 113 equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (the "Excess Proceeds Payment"). The Company shall commence an Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being made pursuant to this Section 1017 and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the Excess Proceeds Payment any Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest and Liquidated Damages, if any, on and after the Excess Proceeds Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Excess Proceeds Offer will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Excess Proceeds Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the Excess Proceeds Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall upon Company Order promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. To the extent that the aggregate principal amount of Notes tendered is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. The Company shall publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date. For purposes of this Section 1017, the Trustee shall act as the Paying Agent. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that such Excess Proceeds are received by the Company under this Section 1017 and the Company is required to repurchase Notes as described above. SECTION 1018.Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to Guarantee, assume or in any other manner become liable with respect to any Indebtedness of the Company, other than Indebtedness under Credit Facilities incurred under clause (iii) of paragraph (b) in Section 1011, unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a Guarantee of the Notes on terms substantially similar to the Guarantee of such Indebtedness, except that if such Indebtedness is by its 110 114 express terms subordinated in right of payment to the Notes, any such assumption, Guarantee or other liability of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's assumption, Guarantee or other liability with respect to the Notes substantially to the same extent as such Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary waives, and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guarantee. Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may provide by its terms that it will be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture) or (ii) the release or discharge of the guarantee which resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such Guarantee. SECTION 1019.Business of the Company; Restriction on Transfers of Existing Business. The Company shall not, and shall not permit any Restricted Subsidiary to, be principally engaged in any business or activity other than a Permitted Business. In addition, the Company and any Restricted Subsidiary shall not be permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary (i) any of the licenses, material agreements or instruments, permits or authorizations used in the Permitted Business of the Company and any Restricted Subsidiary on the Closing Date or (ii) any material portion of the "property and equipment" (as such term is used in the Company's consolidated financial statements) of the Company or any Restricted Subsidiary used in the licensed service areas of the Company and any Restricted Subsidiary as they exist on the Closing Date. SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries. The Company shall not make, and shall not permit any of its Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of such Investments together with any other Restricted Payments made after the Closing Date would exceed the amount of Restricted Payments then permitted to be made pursuant to Section 1012. Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i) shall be treated as the making of a Restricted Payment in calculating the amount of Restricted Payments made by the Company or a Subsidiary and (ii) may be made in cash or property (if made in property, the Fair Market Value thereof as determined by the Board of Directors of the Company (whose determination shall be conclusive and evidenced by a Board Resolution) shall be deemed to be the amount of such Investment for the purpose of clause (i) of this Section 1020). SECTION 1021. Limitation on Sale-Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company may enter into Sale-Leaseback Transactions; provided, however, that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company and (b) after giving pro forma effect to any such Sale- Leaseback Transaction and the foregoing clause (a), the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011. 111 115 FEDERAL INCOME TAX CONSIDERATIONS The following is a summary of the federal income tax consequences of the exchange offer and consent solicitation to holders of original FaciliCom notes. Long Aldridge & Norman, LLP, tax counsel to World Access in connection with the exchange offer and consent solicitation, has reviewed this discussion and is of the opinion that, except as to matters upon which they have expressly declined to express an opinion, as disclosed herein, to the extent this discussion summarizes matters of law or legal conclusions, it is accurate in all material respects under the federal income tax laws as now in effect. This discussion is general in nature and does not purport to be a complete analysis of all aspects of federal income taxation that may be relevant to you in light of your particular circumstances. For example, special rules may apply to you if you are one of the following types of holders: (i) an insurance company; (ii) a tax-exempt organization; (iii) an employee stock ownership plan; (iv) a bank; (v) broker, dealer or financial institution; (vi) a holder that holds original FaciliCom notes as part of a position in a "straddle" or as part of a "hedging" or "conversion" transaction for federal income tax purposes; (vii) a holder that has a "functional currency" other than the United States dollar; (viii) a holder subject to alternative minimum tax; or (ix) a taxpayer that is not a citizen or resident of the United States, or that is a foreign corporation, foreign partnership or foreign estate or trust as to the United States. In addition, the discussion does not consider the effect of any foreign, state, local, or other tax laws, or any tax consequences (for example, estate or gift tax) other than federal income tax consequences, that may be applicable to you. Further, this summary assumes that you hold the FaciliCom notes as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code"). This summary is based on the Code and final, temporary and proposed Treasury regulations promulgated thereunder, administrative pronouncements and rulings, and judicial decisions as of the date hereof, 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 summary. World Access has not requested a ruling from the IRS with respect to the federal income tax consequences of the exchange offer or the consent solicitation. It is not a condition to either the exchange offer or the consent solicitation that World Access or FaciliCom receive such a ruling or an opinion of tax counsel concerning such tax consequences. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR TO DETERMINE THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO YOU OF THE EXCHANGE OFFER AND CONSENT SOLICITATION. TAX CONSIDERATIONS IF YOU EXCHANGE Receipt of Exchange Consideration. In general, if you tender your original FaciliCom notes in the exchange offer, the exchange will likely be treated for federal income tax purposes as either (i) part of our merger with FaciliCom under Section 368 of the Code, or (ii) a "recapitalization" within the meaning of Section 368(a)(1)(E) of the Code. If so, then in either case the treatment of the exchange will be governed by Section 354 of the Code. Under Section 354, you should not recognize any gain or loss as a result of your receipt of the exchange notes. Because Long Aldridge & Norman LLP is unable to render an opinion that the FaciliCom notes and exchange notes are both "securities" within the meaning of Section 354 of the Code as discussed below, Long Aldridge & Norman LLP is in turn unable to render an opinion that the exchange will be treated for federal income tax purposes as either (i) part of our merger with FaciliCom under Section 368 of the Code, or (ii) a "recapitalization" within the meaning of Section 368(a)(1)(E) of the Code. The law is unclear as to how the exchange shares and the cash payment (collectively referred to in this summary only as the "exchange premium") that is received by you with respect to your FaciliCom notes exchanged in the exchange offer should be characterized by the IRS for federal income tax purposes. World Access believes that such exchange premium should be treated as additional consideration received 112 116 by you in the exchange as a premium paid to retire your FaciliCom notes. In that case, you should not recognize any gain or loss as a result of your receipt of the exchange shares. However, treatment of the exchange premium as additional consideration in the exchange will result in the recognition of gain (but not loss) by you to the extent of the lesser of: (1) the cash payment received and (2) the gain, if any, realized by you on the exchange of those FaciliCom notes (i.e., the excess of the "amount realized" on the exchange, which equals the sum of the "issue price" of the exchange notes, as determined under either Section 1273 or Section 1274 of the Code as discussed below, the fair market value of the exchange shares and the cash payment over your tax basis in the FaciliCom notes tendered). Any gain recognized will most likely be capital gain under Section 356 of the Code, except to the extent of any accrued market discount on the FaciliCom notes. Assuming that the exchange premium is treated as additional consideration received by you in the exchange as a premium paid to retire your FaciliCom notes, your basis in the exchange shares and the exchange notes immediately after the exchange offer will in the aggregate be the same as the basis of your original FaciliCom notes tendered in the exchange offer, increased by the amount of gain, if any, you recognized in the exchange offer and decreased by the amount of the cash payment received (but only if such cash payment is treated as additional consideration in exchange for your FaciliCom notes as discussed above). This aggregate basis will be allocated between the exchange notes and the exchange shares in proportion to the fair market values of such exchange notes and exchange shares. The holding period of the exchange notes and the exchange shares you received in the exchange offer will include the period during which you held your FaciliCom notes tendered in the exchange offer. It is possible that the IRS could instead take the view that the exchange premium is (i) a separate payment or fee in order to obtain your consent to the proposed amendments under the consent solicitation, or (ii) a separate payment of additional interest on the FaciliCom notes. In either case, this would result in ordinary income to you in an amount equal to the fair market value of the exchange shares plus the cash payment received. Your basis for the exchange shares received as part of the exchange premium would be the fair market value of such exchange shares upon receipt. Your basis in the exchange notes immediately after the exchange offer would be the same as the basis of your original FaciliCom notes tendered in the exchange offer. The holding period for the exchange shares would begin upon consummation of the exchange offer, while the holding period for the exchange notes you received in the exchange offer will include the period during which you held your FaciliCom notes tendered in the exchange offer. The first statement discussed above, that the exchange will likely qualify as an exchange of debt between parties to our merger with FaciliCom, is based on the likelihood that under the so-called "step transaction doctrine," the IRS will integrate (i.e., treat as one transaction for federal income tax purposes) the exchange offer and the consent solicitation with our merger with FaciliCom under Section 368 of the Code. This is because consummation of the exchange offer and consent solicitation is conditioned on the closing of the merger, and vice versa. In this context, and where we understand that none of you are shareholders of FaciliCom, the IRS published ruling position reflects that the exchange can qualify as a separate Section 354 exchange occurring pursuant to our plan of reorganization with FaciliCom under Section 368 of the Code. This result is also based on the assumption, among others, that the FaciliCom notes and exchange notes are both "securities" within the meaning of Section 354 of the Code. Whether a debt instrument constitutes a "security" depends on the terms, conditions and other facts and circumstances relating to the instrument. Prominent factors that the IRS and the courts have relied upon in making this determination include: (a) the term of maturity of the debt; (b) the collateral securing the debt; (c) the degree of subordination of the debt; (d) the ratio of debt to equity of the issuer; (e) the riskiness of the business of the issuer; and (f) the negotiability of the instrument. Generally, notes with terms to maturity of ten years or more are treated as "securities" under Section 354. Securities with terms to maturity of five years or less are generally not treated as "securities" under Section 354. Nevertheless, the IRS and the courts have taken the position that while the term to maturity is an important factor, the controlling consideration is an overall evaluation of the nature of the debt, degree of participation and continuing interest in the 113 117 business, the extent of proprietary interest compared with the similarity of the note to a cash payment, the purposes of the advances, and certain other factors. Based on all of the factors discussed above, World Access believes that both the original FaciliCom notes and the exchange notes should be treated as "securities" under Section 354 and currently expects to report the exchange offer as a Section 354 exchange for federal income tax purposes on its consolidated federal income tax return. However, due to the inherently factual nature of the determination of whether a debt instrument is a security for tax purposes, Long Aldridge & Norman LLP is unable to render an opinion that the FaciliCom notes and exchange notes are both "securities" within the meaning of Section 354 of the Code. Accordingly, there can be no assurance that the IRS or a court would not determine that the original FaciliCom notes or the exchange notes do not constitute securities. If either (i) the original FaciliCom notes or the exchange notes are determined not to be "securities" under Section 354, or (ii) the exchange does not qualify as an exchange described in Section 354 of the Code, then if you participate in the exchange offer you would recognize capital gain or loss under Section 1001 of the Code equal to the difference between the "amount realized" on the exchange (i.e., the sum of the "issue price" of the exchange notes, as determined under either Section 1273 or Section 1274 of the Code as discussed below, the fair market of the exchange shares and the cash payment if, as discussed below, it is determined that the exchange shares and the cash payment are treated as additional consideration in exchange for your FaciliCom notes) and your tax basis of the FaciliCom notes tendered. Any gain may be subject to ordinary income treatment if you acquired the original FaciliCom notes with "market discount" for federal income tax purposes. Due to the inherently factual nature of this determination, coupled with the dearth of authority as to how your receipt of the exchange premium should be characterized for federal income tax purposes, Long Aldridge & Norman LLP is unable to render an opinion on this matter. For federal income tax purposes on its consolidated federal income tax return, World Access currently intends to treat the exchange premium as additional consideration received by you in the exchange as a premium paid to retire your FaciliCom notes in the exchange offer. However, no ruling has been requested from the IRS nor has any opinion of tax counsel been issued regarding the tax consequences of the receipt of the exchange premium. Thus, no assurance can be given that the position currently intended to be taken by World Access described above will be accepted by the IRS. Accrued Interest. Any portion of the exchange consideration received by you which is attributable to accrued interest on your FaciliCom notes will be taxable as ordinary income in accordance with your method of accounting for federal income tax purposes. Original Issue Discount. Under Section 1273(b)(3) of the Code and the Treasury regulations thereunder, if either the FaciliCom notes or the exchange notes are treated as publicly traded (i.e., is considered "traded on an established securities market" under the applicable Treasury regulations), then the exchange notes may be issued with original issue discount ("OID") equal to the difference between their "issue price" and their stated principal amount. You would include any OID in income as it accrues on the basis of a constant yield to the maturity date, and thus would be required to include amounts in income prior to the date such income is actually paid in cash. Although World Access understands that the FaciliCom notes are eligible for trading in the PORTAL market, they are not listed on any securities market. Further, it is unclear whether there has ever been sufficient trading volume and frequency of trades of the FaciliCom notes in the PORTAL market in order for such notes to be considered to be traded on an established securities market. Accordingly, it is unclear whether the FaciliCom notes are publicly traded. As for the exchange notes, although they will also be eligible for trading in the PORTAL market, they too will not be listed on any securities exchange. Again, it is unclear whether there will be sufficient trading volume and frequency of trades of the exchange notes in the PORTAL market in order for the exchange notes to be considered traded on an established securities market. Due to the factual nature of both the trading volume and the frequency of trading with respect to the FaciliCom Notes, and the inability to predict the trading volume or frequency of trading for the exchange notes which have not yet 114 118 been issued, Long Aldridge & Norman LLP is unable to render any opinion on whether either the FaciliCom notes are, or the exchange notes will be, "traded on an established securities market" under the applicable Treasury Regulations. If the exchange notes are not treated as publicly traded, then under Section 1274 of the Code and the Treasury regulations thereunder, where neither the exchange notes or the FaciliCom notes are publicly traded, the issue price of the exchange notes will be determined (regardless of their actual fair market value) by reference to their stated principal amount because the exchange notes will have "adequate stated interest" under Section 1274. Accordingly, if Section 1274 governs, there should be no OID on the exchange notes because there will be no difference between their issue price and their stated principal amount. The determination of whether Section 1273(b)(3) or Section 1274 applies cannot be made until the exchange offer is consummated. TAX CONSIDERATIONS IF YOU DO NOT EXCHANGE If you do not exchange your FaciliCom notes in the exchange offer, you should not recognize gain or loss for federal income tax purposes unless the second supplemental indenture with respect to the FaciliCom notes becomes effective and is deemed to constitute a "significant modification" of the FaciliCom notes under Section 1001 of the Code. Although the changes in the terms of the FaciliCom notes to be effected by the second supplemental indenture will likely constitute a significant modification under the applicable Treasury regulations, and will result in a deemed exchange of an original FaciliCom note for a " new" FaciliCom note for federal income tax purposes, if you do not tender your FaciliCom notes into the exchange offer, you should not recognize gain or loss on such deemed exchange since the deemed exchange should also qualify as a "recapitalization" within the meaning of Section 368(a)(1)(E) of the Code (assuming that the FaciliCom notes constitute "securities" under Section 354 of the Code as discussed above). As discussed above, Long Aldridge & Norman LLP is unable to render an opinion that the FaciliCom notes are "securities" under Section 354 of the Code. Further, unless the FaciliCom notes are treated as publicly traded (as discussed above), the deemed reissuance of FaciliCom notes in such a deemed exchange should not result in the creation of any OID. This is because like the exchange notes, the reissued FaciliCom notes bear adequate stated interest under Section 1274 of the Code and as such, their issue price equals their stated principal amount. If, however, the reissued FaciliCom notes are treated as publicly traded, then OID will be created upon such deemed exchange to the extent that their issue price is less than their stated principal amount. INFORMATION REPORTING AND BACKUP WITHHOLDING We must report annually to the IRS and to each holder of FaciliCom notes, exchange notes and exchange shares the amount of interest paid (including any OID reportable by such holder) and the dividends paid to such holder, respectively, and any amount withheld under the backup withholding provisions. Under the federal income tax backup withholding provisions of the Code and applicable Treasury regulations, you will be subject to backup withholding at the rate of 31% with respect to interest and may be subject to backup withholding at the rate of 31% with respect to the exchange premium received by you unless you: (a) are a corporation or come within certain other exempt categories and, when required, demonstrate this fact; or (b) provide a correct taxpayer identification number to the exchange agent, certify as to no loss of exemption from backup withholding, and otherwise comply with the applicable requirements of the backup withholding rules. Any amount withheld under these rules will be credited against your federal income tax liability. To prevent backup withholding with respect to the payment of interest, you must complete and sign a substitute Form W-9, which is included as part of the consent and letter of transmittal, and return it to the exchange agent. If the exchange agent is not provided with the correct taxpayer identification number, you may also be subject to penalties imposed by the IRS. If withholding results in an overpayment of taxes, a refund may be obtained by you from the IRS provided that you furnish the required information to the IRS. 115 119 WORLD ACCESS We are a leading provider of international long distance services with agreements in place to route voice, data and internet traffic throughout the world. In addition, we are a leading provider of proprietary network equipment to many of the world's largest telecommunications companies. We market and sell our services and products to a broad range of customers, including all of the regional Bell operating companies; other local exchange carriers such as British Telecom, GTE and ALLTEL; inter-exchange carriers such as MCI WorldCom, AT&T, Sprint and Cable & Wireless; wireless service providers such as Cellular One, Comcast Cellular and Price Communications; and other telecommunications service providers, including competitive access providers, cable television companies and private network operators. Our revenues and earnings before interest, expense, income taxes, depreciation and amortization (EBITDA) for the six months ended June 30, 1999 were $321.3 million and $34.9 million, respectively. Our telecommunications group provides wholesale and retail international long distance services through a combination of owned and leased international network facilities, various international termination relationships and resale arrangements with other international long distance service providers. Our digital telecommunications network includes transatlantic cable facilities and international gateway switches located in Los Angeles, Dallas, Chicago, Newark and London, England. For the six months ended June 30, 1999, our Telecommunications Group had revenues and EBITDA of $198.9 million and $9.8 million, respectively. Our equipment group develops, manufactures and markets network products that switch and transport voice, data and internet traffic. To support and complement our product sales, we also provide our customers with a broad range of network design, engineering, testing, installation and other value-added services. For the six months ended June 30, 1999, our equipment group had revenues and earnings before interest, expense, income taxes, depreciation and amortization of $122.4 million and $25.1 million, respectively. THE MERGER On August 17, 1999, we announced that we entered into a merger agreement with FaciliCom, providing that FaciliCom will merge with and into World Access. Upon consummation of the merger, the separate existence of FaciliCom will cease and World Access will continue as the surviving corporation. Pursuant to the terms of the merger agreement, the shareholders of FaciliCom will receive approximately $436 million in consideration, primarily in the form of Convertible Preferred Stock, Series C. The Series C Preferred Stock bears no dividend and is convertible into shares of World Access common stock at a conversion rate of $20.38 per common share, subject to potential adjustment under certain circumstances. If the closing trading price of World Access common stock exceeds $20.38 per share for 60 consecutive trading days, the Series C Preferred Stock will automatically convert into World Access common stock. Adoption of the proposed amendments to the FaciliCom indenture is required to consummate the merger. Accordingly, under the terms of the merger agreement, the consummation of the merger is conditioned upon the adoption of the proposed amendments. In addition, the closing of the merger is subject to the approval of World Access stockholders and certain regulatory agencies. Certain stockholders of World Access have entered into a voting agreement whereby they have committed to vote in favor of the merger. The merger is expected to close in the fourth quarter of 1999 and will be accounted for as a purchase transaction. We are conducting the exchange offer and consent solicitation in connection with the merger in order to facilitate the adoption of the proposed amendments. If the proposed amendments are adopted, we expect that FaciliCom and the trustee under the indenture for the FaciliCom notes will execute a second supplemental indenture containing the proposed amendments on the closing date of the merger that will be effective on that date. We anticipate that the closing of the exchange offer will occur immediately after the closing of the merger. 116 120 BACKGROUND OF THE MERGER On or about July 16, 1999, Brown Brothers Harriman & Co. was contacted regarding the possibility of an investment by Brown Brothers Harriman in FaciliCom. Brown Brothers Harriman, the general partner of The 1818 Fund, which holds 50,000 shares of World Access Series A preferred stock, was not inclined to invest in a competitor of World Access, but suggested that FaciliCom and World Access contact each other directly regarding a potential strategic alliance. During the week of July 19, 1999, Clifford S. Rees, Executive Vice President of International Business Development for the World Access Telecommunications Group, called Walter J. Burmeister, President and Chief Executive Officer of FaciliCom, to arrange a meeting between members of management of World Access and FaciliCom. On the morning of July 26, 1999, John D. Phillips and W. Tod Chmar, Executive Vice President of World Access, met with Mr. Burmeister and Jeffrey J. Guzy, Executive Vice President of Sales, Marketing and Product Development of FaciliCom, at the principal executive offices of FaciliCom in Washington, D.C. The parties determined that they shared similar views on the outlook for the international telecommunications industry and the market strategies to be followed in order to capitalize on the favorable trends expected to occur in the industry. They also determined that the operating networks and customer bases of World Access and FaciliCom were complimentary and that the possibility of a strategic transaction should be explored. Mr. Burmeister indicated that management of Armstrong Holdings, the indirect controlling stockholder of FaciliCom, should be contacted and participate in any discussions to be held. At the request of Mr. Phillips, a meeting between Messrs. Phillips, Chmar and Burmeister and the senior management of Armstrong Holdings was immediately scheduled for that afternoon. On the afternoon of July 26, 1999, Messrs. Phillips, Chmar and Burmeister met with Kirby J. Campbell, Chief Executive Officer of Armstrong Holdings, and Bryan Cipoletti, Vice President of Finance of Armstrong Holdings, at the principal executive offices of Armstrong Holdings in Butler, Pennsylvania. The parties discussed the potential advantages of combining the significant international wholesale, retail and data services revenue base and extensive carrier-grade European network of FaciliCom with the MCI WorldCom wholesale carrier service revenues, Equipment Group and financial strength of World Access. The parties also discussed the advantages of the Equipment Group of World Access providing funding for the forecasted growth of the combined companies' services business, the strategy of adding significant retail services and the expansion of the combined companies' network and future acquisitions in Europe. On July 28, 1999, Messrs. Campbell, Cipoletti, Burmeister, Christopher S. King, Chief Financial Officer of FaciliCom, and representatives of Lehman Brothers, Inc., financial advisor to FaciliCom, met with Messrs. Phillips and Chmar and Mark A. Gergel, Executive Vice President and Chief Financial Officer of World Access, A. Lindsay Wallace, President of the World Access Equipment Group, and Michael F. Mies, Vice President of Finance and Treasurer of World Access, at the principal executive offices of World Access in Atlanta, Georgia. On July 30, 1999, Messrs. Phillips, Chmar and Gergel met with the same representatives of FaciliCom and Armstrong Holdings in Butler, Pennsylvania and discussed the relative valuations of World Access and FaciliCom and the alternative structures of convertible preferred stock to be used as consideration in a potential merger transaction. The parties continued to discuss the terms of a possible strategic transaction during the week of August 2, 1999, and on August 6, 1999 reached a preliminary understanding on certain principal terms of the merger. During August 10 through 12, 1999, Messrs. Chmar, Gergel and Mies met with Messrs. Cipoletti, Burmeister and King, members of FaciliCom's and World Access' operating management, representatives of Brown Brothers Harriman, including Lawrence C. Tucker, also a director of World Access, representatives of Donaldson, Lufkin & Jenrette, financial advisor to World Access, and representatives of Lehman Brothers at the principal executive offices of FaciliCom in Washington, D.C. The purpose of these meetings was for each party to conduct business due diligence and develop a combined business model. In addition to business due diligence, counsel for World Access reviewed publicly available 117 121 documents filed by FaciliCom with the Commission and conducted legal due diligence on materials provided to it at FaciliCom's Washington, D.C. offices. Throughout the week of August 9, 1999, senior management of World Access had several telephone conferences with each of the members of the World Access board of directors in order to update the board individually on the discussions with FaciliCom. On August 13, 1999, the board had a telephonic conference call during which legal counsel reviewed the terms of a draft of the merger agreement, which had been provided to the board prior to the call, and advised the board of its fiduciary duties in the context of the proposed merger. Donaldson, Lufkin & Jenrette reviewed the preliminary financial terms of the proposed merger and its analysis thereof. During the call, the members of the board of directors had extensive discussions regarding the legal and financial terms of the proposed merger. The board of directors instructed management of World Access to proceed with its discussions with FaciliCom and FaciliCom stockholders to finalize the terms of the proposed merger agreement. On August 16, 1999, the board of directors of World Access met by telephonic conference call to discuss the terms of the merger, and Donaldson, Lufkin & Jenrette gave its oral opinion as to the fairness of the consideration to be paid by World Access pursuant to the merger agreement. Legal counsel advised the board with respect to, and responded to questions regarding, the development of negotiations with FaciliCom and certain of the FaciliCom shareholders. During this conference, the World Access board of directors unanimously approved the merger agreement and the transactions contemplated by the merger agreement and unanimously agreed to recommend its adoption to the stockholders of World Access. On August 17, 1999, Donaldson, Lufkin & Jenrette forwarded its written opinion regarding the fairness of the consideration to be paid by World Access pursuant to the merger agreement to the members of the board of directors of World Access. WORLD ACCESS' REASONS FOR THE MERGER The board of directors of World Access believes that the merger is fair to and in the best interests of World Access and its stockholders. After consideration of relevant business, financial, legal and market factors, the board of directors unanimously approved the merger agreement and the transactions contemplated by the merger agreement and voted to recommend that the stockholders of World Access vote for the approval and adoption of the merger agreement and the transactions contemplated by the merger agreement. In deciding to approve the merger agreement and to recommend approval and adoption of the merger agreement by the stockholders of World Access, the World Access board of directors considered a number of factors, including particularly the factors listed below. In view of the number and wide variety of factors considered in connection with its evaluation of the merger, 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 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. The Financial Terms of the Merger. The board of directors of World Access considered information concerning the business, earnings, operations, financial condition and prospects of World Access and FaciliCom, both individually and on a combined basis. The board of directors also considered the financial analyses and other information with respect to World Access and FaciliCom presented to it by World Access' financial advisor, as well as the directors' own knowledge of World Access and FaciliCom and their respective businesses. FaciliCom's Extensive Facilities-Based International Telecommunications Network. The board of directors of World Access considered FaciliCom's strong European presence and the potential for entry into additional deregulating European countries. The board of directors also considered the technical capabilities, cost effectiveness and available capacity of FaciliCom's carrier-grade network in 14 countries and the utilization of this network to facilitate World Access' global expansion strategy. 118 122 Industry Trend Toward Consolidation. The board of directors of World Access considered the status of the international telecommunications services industry and the likely trend toward consolidation of service providers. The board of directors also considered the importance of market position in the global telecommunications services industry. The board of directors considered the potential significant cost savings to be achieved as a result of the merger in order to provide global retail telecommunications services at competitive rates. FaciliCom's Established Wholesale Customer Base. The board of directors of World Access considered the compatibility of FaciliCom's established base of wholesale customers with World Access' existing wholesale customer base. With only approximately 20% wholesale customer overlap between World Access and FaciliCom, the board of directors considered the significant expansion possibility to be achieved with the addition of approximately 220 wholesale carrier customers of FaciliCom. Significant Increase in Offered Services. The board of directors of World Access considered the additional services offered by FaciliCom, which would be made available to current and future customers of World Access. Specifically, the board of directors considered the potential growth opportunities for new internet and data services. CLOSING; EFFECTIVE TIME OF THE MERGER The closing of the merger will take place on the second business day following the satisfaction or waiver of the conditions to be fulfilled prior to the closing set forth in the merger agreement, unless another date is agreed to in writing by World Access, FaciliCom and the FaciliCom stockholders. On the closing date, World Access and FaciliCom will file a Certificate of Merger with the Secretary of State of the State of Delaware. We anticipate that, assuming all conditions are met, the merger will occur prior to December 31, 1999. MANAGEMENT OF WORLD ACCESS AFTER THE MERGER Executive Officers. Following the consummation of the merger, John D. Phillips, Chairman of the Board, President and Chief Executive Officer of World Access will continue as Chairman and Chief Executive Officer of World Access. Walter J. Burmeister, President and Chief Executive Officer of FaciliCom, will be the President of World Access after the merger. It is anticipated that the other current executive officers of World Access will continue as executive officers of World Access with their current duties and responsibilities. The parties have not yet determined which specific offices will be held by the other current executive officers of FaciliCom. Mr. Burmeister does not have an employment contract with FaciliCom. For FaciliCom's fiscal year ended September 30, 1999, FaciliCom paid Mr. Burmeister $212,000 in cash compensation. Mr. Burmeister's compensation arrangements with World Access have not yet been determined. Board of Directors. After the merger, the board of directors of World Access will consist of twelve members. Six of these twelve are the current directors of World Access who will continue as directors, and four of these twelve will be designated by the holders of World Access Series C preferred stock. The current directors of World Access are John D. Phillips, Stephen J. Clearman, Mark A. Gergel, John P. Imlay, Carl E. Sanders and Lawrence C. Tucker. The initial designees of the holders of World Access Series C preferred stock to the board of directors are Dru A. Sedwick, Kirby J. Campbell, Bryan Cipoletti and Walter J. Burmeister. Of the six continuing directors, The 1818 Fund, as sole holder of World Access Series A preferred stock, is entitled to designate one person for recommendation for election by the World Access board of directors to the stockholders of World Access. Lawrence C. Tucker was so designated by The 1818 Fund. In connection with the closing of the private placement of the $75.0 million of World Access common stock to fund the cash portion of the consideration payable in the merger and expenses related to the merger, Massimo Prelz Oltramonti, a Managing Director of Gilbert Global Equity Partners, and John P. Rigas, Managing Partner of Zilkha Capital Partners, have agreed to join our board of directors. 119 123 Information concerning the six current directors of World Access who will continue as directors of the World Access after the merger can be found in World Access' Proxy Statement for its 1999 Annual Meeting held on June 15, 1999. See "Incorporation of Certain Documents by Reference." The initial four persons designated by the holders of World Access Series C preferred stock to be members of the board of directors of World Access after the merger are as follows: Walter J. Burmeister (age 60) is one of FaciliCom's co-founders and has been its Chief Executive Officer, President and one of its directors since it was founded in 1995. Prior to co-founding FaciliCom, Mr. Burmeister founded Telecommunications Management Group, a telecommunications consulting firm, and he has served as its Chairman from 1992 to the present. Before founding this firm, Mr. Burmeister was Vice President and Chief Financial Officer of Bell Atlantic International from 1989 to 1992. In these positions, Mr. Burmeister was responsible for overseeing business development in Central and South America, the Middle East and Africa, as well as managing that company's financial affairs. During his 31 years with Bell Atlantic, Mr. Burmeister was Vice President of Bell of Pennsylvania's and Diamond State Telephone's sales organization and headed the C&P Telephone Operations Staff. Mr. Burmeister has served as a director of Skysat Communications Network since 1992. Kirby J. Campbell (age 52) has served as Treasurer, Vice President and as a director of FaciliCom since its inception. Since June 1997, Mr. Campbell has been the Chief Executive Officer of Armstrong Holdings, and since 1993 he has been Executive Vice President of Armstrong Holdings. Mr. Campbell also holds various executive and board positions with Armstrong Holdings' affiliated companies. Dru A. Sedwick (age 35) has served as Secretary, Vice President and as a director of FaciliCom since FaciliCom's inception. Since June 1997, Mr. Sedwick has been President of Armstrong Holdings, and since 1993 he has been Senior Vice President of Armstrong Holdings. Mr. Sedwick also holds various executive and board positions with Armstrong Holdings' affiliated companies. Bryan Cipoletti (age 39) has been one of FaciliCom's directors since September 1997. Since 1993, Mr. Cipoletti has been Vice President of Finance of Armstrong Holdings. Mr. Cipoletti also holds various executive and board positions with Armstrong Holdings' affiliated companies. The two people who have agreed to join the World Access board of directors in connection with the closing of the merger and our private placement of $75.0 million of World Access common stock are as follows: Massimo Prelz Oltramonti (age 44) is a Managing Director of Gilbert Global Equity Partners, L.L.C., a private equity firm with a diversified global investment strategy. He previously served as Managing Director of Advent International Corporation, the general partner of a series of global private equity funds. In this capacity, he co-managed the media and telecom investment activity of Advent International in Europe and was directly responsible for its investments in Scandinavian Broadcasting Systems SA, Esat Telecom Group plc, PrimaCom AG, Esaote S.p.A and Jazztel SA. Prior to joining Advent International in 1991, Mr. Prelz was a partner at Alta Berkeley Associates, a venture capital group in London. He currently serves as Vice-Chairman of PrimaCom AG and is a director of Esat Telecom Group plc, Jazztel SA and Iaxis N.V. John P. Rigas (age 36) is a Managing Partner of Zilkha Capital Partners L.P., a private equity firm involved in a wide variety of venture capital and technology investments both in the U.S. and internationally. Mr. Rigas has been with Zilkha Capital Partners and its predecessor firms for twelve years. He currently serves as the Chairman of Advanced Interactive Systems Inc. and as a director of New Colt Holding, Inc. and Omniglow, Inc. CONSIDERATION TO BE RECEIVED IN THE MERGER In the merger, the outstanding FaciliCom common stock will be converted into the right to receive, and certain outstanding options to purchase FaciliCom common stock will be exchanged for, in the aggregate, (i) an amount of cash and/or World Access common stock equal in value to $56.0 million, 120 124 (ii) approximately 369,400 shares, or $369.4 million in aggregate liquidation preference, of World Access Series C preferred stock and (iii) approximately 520,000 vested options that each may be exercised for one share of World Access common stock at an average exercise price of $3.06 per share. In the event that we are unable to obtain net proceeds from the private placement of World Access common stock of $56.0 million on or prior to the closing of the merger, the FaciliCom stockholders and certain of the FaciliCom optionholders will be entitled to receive, in the aggregate, such number of shares of World Access common stock as is equal to the cash shortfall divided by the market price of World Access common stock on the trading day immediately preceding the closing date plus such number of additional shares of World Access common stock as will result, upon the resale by such persons of all such shares, in the aggregate, in net cash proceeds to such persons equal to the cash shortfall. We have agreed to file a registration statement with the SEC in connection with the resale of any World Access common stock received by the stockholders of FaciliCom. We have received commitments from a group of institutional and sophisticated investors to purchase $75.0 million of World Access common stock in a private transaction that is conditioned upon, among other things, and will close simultaneously with, the merger with FaciliCom. We will use the majority of the proceeds from this private placement to fund the cash portion of the FaciliCom merger, including related fees and expenses. The World Access common stock to be issued will be priced at the average trading value of the World Access common stock during a five day period prior to the closing of the merger, with the purchase price to be no lower than $13 per share and no higher than $17 per share. Brown Brothers Harriman & Co. acted as an advisor to us on this transaction. Descriptions of the World Access Series C preferred stock to be received by the stockholders of FaciliCom and the treatment of FaciliCom options in the merger are set forth below. Description of World Access Series C Preferred Stock. Designation. Upon the filing of a Certificate of Designation with the Secretary of State of the State of Delaware, approximately 369,400 shares of World Access authorized preferred stock will be designated as "Convertible Preferred Stock, Series C." Ranking. The Series C preferred stock will rank, as to dividends, on parity with the World Access common stock and junior to World Access Series A preferred stock and Series B preferred stock. The Series C preferred stock will rank, as to liquidation preference, senior to World Access common stock, on parity with World Access Series B preferred stock and junior to World Access Series A preferred stock. Voting Rights. In addition to any voting rights provided by law, except with respect to the election of directors, the holders of shares of World Access Series C preferred stock will be entitled to vote on all matters voted on by the 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 B preferred stock and other shares entitled to vote on those matters. Each holder of shares of Series C preferred stock will be 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 of Series C preferred stock into World Access common stock on the record date for determining the stockholders eligible 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 affirmative vote of the holders of at least 66 2/3% of the outstanding shares of World Access Series C preferred stock, voting separately as a single series, will be required to: (i) authorize, increase the authorized number of shares of or issue any shares of any class or classes of stock ranking senior to the Series C preferred stock; (ii) authorize, adopt or approve an amendment to the certificate of incorporation of World Access that would increase or decrease the par value of the shares of Series C preferred stock, or alter or change the powers, preferences or special rights of the shares of 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; (iii) amend or alter the certificate of incorporation of World Access so as to affect the shares of Series C preferred stock adversely and materially; (iv) 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 (v) subject to certain exceptions set forth in 121 125 the certificate of designation for the Series C preferred stock, effect the voluntary liquidation, dissolution, winding up, recapitalization or reorganization of World Access, or the consolidation or merger of World Access with or into any other entity (except a wholly-owned subsidiary of World Access), 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 outstanding shares of World Access Series C preferred stock will have the right, voting as a separate series, to nominate and elect four directors to the board of directors of World Access, and will not be 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 on such matters, at least 15% of the originally issued shares of Series C preferred stock is outstanding. Notwithstanding the foregoing, 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 constitute at least 15% of the originally issued shares of Series C preferred stock, the holders of Series C preferred stock will have the right to elect, voting as a separate series, such number of directors which, as a percentage of the total number of members of the board of directors of World Access, is at least equal to the percentage of all outstanding shares of capital stock 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 shares of World Access Series C preferred stock will be convertible into shares of World Access common stock at a conversion rate equal to one share of World Access common stock per $20.38 of liquidation preference, 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 in certain other instances specified in the certificate of designation for the Series C preferred stock. Mandatory Conversion. If for 60 consecutive trading days the market price, as defined in the certificate of designation for World Access Series C preferred stock, of World Access common stock on each such trading day exceeds the conversion price in effect on each such trading day, then the outstanding shares of Series C preferred stock 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 the liquidation preference of the Series C preferred stock 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 within three years following the issue date of the Series C preferred stock will automatically be 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 the liquidation preference divided by the current market price, as defined in the certificate of designation for World Access Series C preferred stock. Notwithstanding the foregoing, the three year conversion price may not be less than $11.50; if the three year conversion price is less than the market price on the issue date of the Series C preferred stock and the Nasdaq Composite Index on the close of business of the three year conversion date is 85% or less than the Nasdaq Composite Index on the close of business on the issue date of the Series C preferred stock, then the three year conversion price will be increased by a percentage equal to that portion in excess of 15%; and the three year conversion price may not be greater than the conversion price. Treatment of FaciliCom Stock Options. FaciliCom 1998 Stock Option Plan. FaciliCom has granted options to approximately 70 individuals under its 1998 Stock Option Plan, representing rights to acquire approximately 12,242 shares of non-voting FaciliCom common stock. Pursuant to the provisions of the FaciliCom 1998 Stock Option Plan, in the event of a change or exchange of the non-voting FaciliCom common stock, each share of non-voting FaciliCom common stock subject to each outstanding option shall be substituted with the number and kind of stock or securities into which the non-voting FaciliCom common stock is changed or exchanged, 122 126 with an appropriate adjustment to the per share option exercise price. In addition, pursuant to the provisions of the FaciliCom 1998 Stock Option Plan, each outstanding option granted under that plan shall become fully exercisable upon a change in control of FaciliCom. For that purpose, the merger will constitute a change in control of FaciliCom. In connection with the merger, the options to acquire 12,242 shares of non-voting FaciliCom common stock are expected to be exchanged for an aggregate of approximately $10.7 million in cash and non-qualified options to acquire approximately 520,000 shares of World Access common stock at an average exercise price of $3.06 per share. The cash consideration and the fair value of the new options are part of the total consideration to be paid by World Access in the merger. FaciliCom 1999 Stock Option Plan. In October 1999, FaciliCom granted stock options under a new FaciliCom 1999 Stock Option Plan to its employees who are expected to continue with World Access after the merger. These options were granted in contemplation of and contingent upon the merger. Upon consummation of the merger, these options will convert into non-qualified options to purchase approximately 1,900,000 shares of World Access common stock at an exercise price of $15.00 per share. These options generally will become exercisable in 25% increments on each of the first four anniversaries from the date of grant. The exercisability will not be accelerated due to the merger. The exercise of all these options would result in approximately $28.5 million of capital infusion into World Access and may result in significant income tax benefits for World Access. These options will be granted as incentives for the FaciliCom employees to continue in their positions following the merger and will not result in a reduction of the number of shares of World Access Series C preferred stock to be issued in the merger. The value of the approximately 1.9 million shares of World Access common stock which may be issued upon exercise of the options is in addition to the total consideration to be paid by World Access in the merger. REGULATORY APPROVALS On September 29, 1999, World Access, the Jud L. Sedwick Grandchildren's Trust (the ultimate parent entity of FaciliCom) and Walter J. Burmeister (the ultimate parent entity of BFV Associates, Inc.) each filed a Pre-Merger Notification and Report Form with the Justice Department and the Federal Trade Commission pursuant to the Hart-Scott-Rodino Act. Under the Hart-Scott-Rodino Act, the merger could not have been consummated until at least 30 days after such filing unless earlier termination of the waiting period was granted. The Federal Trade Commission granted early termination of the Hart-Scott-Rodino Act waiting period, effective October 19, 1999. No further action under the Hart-Scott-Rodino Act is required so long as the merger is consummated prior to October 18, 2000. The early termination of the Hart-Scott-Rodino Act waiting period does not preclude the Justice Department, the Federal Trade Commission or other parties from seeking actions challenging the merger based on federal antitrust statutes. We do not anticipate any such challenge. The transaction also requires notification in certain European countries. Under the Finnish Competition Act, the merger must be notified and cannot be consummated until the merger has been approved or certain waiting periods/investigation periods have expired. FaciliCom filed for approval under the Finnish Competition Act on October 25, 1999. The initial waiting period lasts for 30 days from the date that the notification is considered to be complete. If the Finnish competition authority has not issued its decision prior to the end of the waiting period, the merger may be consummated. During the initial waiting period, the Finnish competition authority may decide to open a further investigation of the transaction. If a further investigation is instituted, the transaction may not be consummated until a further three month period has expired, which may be extended to five months in certain cases, or the transaction has been cleared. Furthermore, the Finnish competition authority may decide to refer the merger to the Finnish competition council. If the case is referred to the Finnish competition council, the merger may not be consummated until the Finnish competition council has issued its decision or a three month period has expired. The Finnish competition council has the authority to 123 127 block the merger. We cannot assure you that a challenge to the merger on competition law grounds will not be made or that, if such a challenge is made, it would not be successful in Finland. The merger must also be notified under the Swedish Competition Act and, if the merger is notified prior to consummation, it cannot be completed until it has been approved or a 30 day waiting period has expired. FaciliCom filed for approval under the Swedish Competition Act on October 22, 1999. The 30 day waiting period may be extended if it is decided that the notification was incomplete or inaccurate. During the waiting period, the Swedish competition authority may decide to open a further investigation of the merger, in which case the Swedish competition authority has six months to render a final decision. Swedish law does not require that notification be completed prior to consummation of the merger. However, if the filing is delayed and the Swedish competition authority decides that the merger creates or strengthens a dominant position that would reduce competition in Sweden, it can declare the merger void with respect to Sweden or impose conditions. We cannot assure you that a challenge to the merger on competition law grounds will not be made or that, if such a challenge is made, it would not be successful in Sweden. INTERESTS OF CERTAIN PERSONS IN THE MERGER In considering the recommendation of the World Access board of directors with respect to the merger, holders of World Access voting stock should be aware that certain members of World Access' management and board of directors, including certain of the new directors and executive officers to be appointed by World Access in connection with the merger, have interests in the merger that are in addition to the interests of stockholders of World Access in general. Stock Options Held by John D. Phillips. In connection with the execution of the merger agreement, Armstrong International Telecommunications, intending to ensure that John D. Phillips devotes his full time and attention to the management and operations of World Access, required Mr. Phillips to enter into a Letter Agreement, dated August 17, 1999, under which Mr. Phillips agreed not to sell or transfer any of his shares of World Access for a specified period of time. In consideration for Mr. Phillips' entering into the letter agreement, the Board of Directors of World Access has agreed to accelerate the exercisability of currently outstanding options held by Mr. Phillips under the World Access 1998 Stock Option Plan for 1,000,000 shares of World Access common stock at an exercise price of $12.75 per share. The options were originally scheduled to vest ratably over a four-year period. Upon consummation of the merger, all of these options will be immediately exercisable. Release of Escrowed Shares of World Access Common Stock. In connection with the acquisition of Cherry U.S. and Cherry U.K. by World Access and related transactions in December 1998, World Access entered into a Share Exchange Agreement and Plan of Reorganization, dated as of May 12, 1998, by and among World Access, WAXS, Inc., Cherry U.K. and Renaissance Partners II pursuant to which Renaissance Partners II, a Georgia general partnership and the sole shareholder of Cherry U.K., exchanged all of the issued and outstanding ordinary shares of Cherry U.K. for 1,875,000 shares of World Access common stock, of which 1,250,000 shares were placed in escrow and constitute part of the escrowed shares subject to release or forfeiture based on whether Cherry U.S. and Cherry U.K. meet certain specified financial performance criteria. These criteria have not yet been satisfied. Pursuant to the Operating Agreement, dated December 11, 1998, for Resurgens Partners, LLC, of which Renaissance Partners II is the manager, Renaissance Partners II made a capital contribution to Resurgens Partners in the form of its interest in 937,500 shares of World Access common stock, of which 625,000 shares were part of the escrowed shares. Notwithstanding the performance criteria set forth in the share exchange agreement, the share exchange agreement provides that all of the escrowed shares shall be released and shall no longer be subject to forfeiture upon a change of control of World Access. For the purposes of the share exchange agreement, the merger constitutes a change of control of World Access. Mr. Phillips has sole voting and dispositive power over the shares of World Access common stock owned of record by Renaissance Partners II and Resurgens Partners. Upon consummation of the merger, Mr. Phillips, and his affiliates, and Carl E. Sanders and John P. Imlay, Jr., each a director of World 124 128 Access and each of whom will be a director of World Access after the merger, will be entitled to receive the economic benefit of approximately 416,667, 40,000 and 26,667, respectively, of the released escrowed shares, and Mr. Phillips will have the sole voting and dispositive power over all of the escrowed shares. Release of Contingent Shares of World Access Common Stock. In connection with the acquisition of Cherry U.S. by World Access in December 1998, pursuant to an Agreement and Plan of Merger and Reorganization, dated May 12, 1998, by and among World Access, WAXS, Inc., WA Merger Corp. and Cherry U.S., WorldCom Network Services received 1,310,430 shares of World Access common stock and is expected to receive an additional 541,902 to 822,986 shares later in 1999 when all creditor claims against Cherry U.S. are finalized. In addition, 6,250,000 shares of World Access common stock were placed in escrow and constitute part of the escrowed shares which are subject to release or forfeiture based on whether Cherry U.K. and Cherry U.S. meet certain specified financial criteria. Approximately 4,200,000 of these escrowed shares are owned of record by World Com Network Services. These performance criteria have not yet been satisfied. Notwithstanding these performance criteria, the Cherry merger agreement provides that all of these escrowed shares shall be released and shall no longer be subject to forfeiture upon a change of control of World Access. For purposes of the Cherry merger agreement, the merger constitutes a change of control of World Access, and World Com Network Services will be entitled to receive approximately 4,200,000 of these escrowed shares. Lawrence C. Tucker, a director of World Access and a World Access designee for director of World Access after the merger, is a member of the board of directors of MCI WorldCom. While we cannot determine at this time whether the relevant financial performance criteria for release of the escrowed shares would have been in fact satisfied, the World Access board of directors, in approving the merger agreement, considered the release of the escrowed shares in the context of the overall merger transaction and believed that the relevant performance criteria would have been satisfied and that the escrowed shares would have been released in February 2000 and 2001, irrespective of the merger. FaciliCom Director Designees. The holders of World Access Series C preferred stock are entitled to elect up to four of the twelve members of the board of directors of World Access after the merger, subject to maintaining specified levels of stock ownership. The initial designee directors of the holders of the Series C preferred stock are Dru A. Sedwick, Kirby J. Campbell, Bryan Cipoletti and Walter J. Burmeister. Each of Messrs. Sedwick, Campbell and Cipoletti are executive officers of Armstrong Holdings and hold other executive and board positions, including on FaciliCom's board of directors, with Armstrong Holdings affiliated companies and will continue to do so after the consummation of the merger. Mr. Burmeister is the President and Chief Executive Officer, as well as a board member, of FaciliCom and will serve as President of World Access after the merger. Mr. Burmeister is the beneficial owner of 24,067 shares of FaciliCom common stock, representing 10.6% of the outstanding FaciliCom common stock, and will be entitled to receive approximately $5.6 million in cash or, in the event of a cash shortfall, World Access common stock and approximately 38,300 shares of World Access Series C preferred stock pursuant to the merger. Mr. Burmeister also holds FaciliCom stock options with respect to shares of FaciliCom common stock and, in connection with the merger, these options are expected to be exchanged for $587,000 in cash and non-qualified options to acquire 195,474 shares of World Access common stock. In the event of a cash shortfall, Mr. Burmeister would receive additional non-qualified options to acquire World Access common stock in exchange for his FaciliCom stock options. Mr. Cipoletti holds FaciliCom stock options with respect to 200 shares of FaciliCom common stock. In connection with the merger, these options are expected to be exchanged for cash or, in the event of a cash shortfall, World Access common stock. Management Information Services Agreement Between FaciliCom and Armstrong Holdings. FaciliCom has an agreement with Armstrong Holdings through which Armstrong Holdings provides billing and management information support services, including call collection, processing, rating and reporting for FaciliCom and its subsidiaries. Armstrong Holdings also provides FaciliCom with access to experienced management information professionals and computer programmers on an as-needed basis. This service 125 129 expires on September 30, 2002. The parties anticipate that Armstrong Holdings will continue to render similar services to World Access after the merger. The terms of the billing and management information support services that Armstrong Holdings will provide to World Access after the merger have not been determined. The costs for such services are currently as follows: - professional services are billed at a rate of $65.00 per hour; - call detail record processing including data center management, operations and hardware services are billed at a rate per minute of use dependent upon call volumes; - AS/400 disk storage services are billed at a rate of $25.00 per gigabyte; - software applications and direct hardware FaciliCom purchases are billed at actual cost; and - telecommunications facilities are billed based on the actual facilities it uses. Armstrong Holdings has the right to increase the cost of its services upon 30 days' written notice if there is a change in the underlying cost of providing these services. During the nine months ended June 30, 1999 and the fiscal years ended September 30, 1998, 1997 and 1996, FaciliCom paid $2.2 million, $1.5 million, $431,000 and $0, respectively, to Armstrong Holdings for the management information services Armstrong Holdings provided FaciliCom under this agreement and an earlier agreement. Armstrong Holdings provides similar services to other telecommunications companies with which it is affiliated. FaciliCom believes that the terms of this agreement with Armstrong Holdings are competitive with similar agreements offered by other providers of management information services. Financial Accounting Services Agreement Between FaciliCom and Armstrong Holdings. FaciliCom also has an agreement with Judco Management Services, Inc., an affiliate of Armstrong Holdings, for Judco to provide certain financial accounting services to it, such as payroll, accounts payable, human resources support services and income tax return preparation and compliance services. The costs for these services are currently as follows: - human resources and payroll processing is billed at $6.75 per check; - accounts payable invoice and check processing is billed at $3.50 per invoice; and - income tax return preparation is billed at $80.00 per hour. Judco has the right to increase the cost of its services upon 30 days' written notice if there is a change in the underlying cost of providing these services. Judco provides similar services to other telecommunications companies with which it is affiliated at comparable prices. FaciliCom believes that the benefits to it of this agreement with Judco are competitive with similar agreements offered by providers of comparable financial and accounting services. This service agreement is expected to continue in effect at the closing. The agreement expires on September 30, 2000, and shall be automatically renewed for successive terms of two years unless either party provides written notice of its intent to terminate the agreement at least 180 days prior to the end of the original term of any then current term. The terms of the financial accounting services that Judco will provide to World Access after the merger have not been determined. FaciliCom's payments under this agreement for the nine months ended June 30, 1999 and for fiscal 1998, fiscal 1997 and fiscal 1996 were $43,818, $30,000, $8,000 and $7,000, respectively. Armstrong Holdings Guarantee of FaciliCom Credit Facility and Letters of Credit. Armstrong Holdings serves as guarantor for any borrowings up to $35.0 million under FaciliCom's credit facility with Key Corporate Capital, Inc. In addition, an affiliated company of Armstrong Holdings has issued letters of credit on behalf of FaciliCom totaling approximately $6.9 million as of September 30, 1999. The termination of this guarantee and these letters of credit on terms and conditions reasonably satisfactory to FaciliCom are conditions to the obligations of FaciliCom and the FaciliCom stockholders to complete the merger. 126 130 FaciliCom Management Relationship with Telecommunications Management Group. Mr. Burmeister is a co-founder, stockholder and director of Telecommunications Management Group, an international telecommunications consulting company. During 1997, FaciliCom used the consulting services of Telecommunications Management Group principally for exploring business development opportunities in Latin America. Since FaciliCom's inception, Mr. Burmeister has devoted less than 5% of his working time to performing services for this entity. Since becoming an employee of FaciliCom, Mr. Burmeister has not provided to FaciliCom any of the services provided by Telecommunications Management Group. FaciliCom paid Telecommunications Management Group fees of $0; $60,000; $85,097 and $58,274 in the nine months ended June 30, 1999 and the fiscal years ended September 30, 1998, 1997 and 1996, respectively. FaciliCom believes that the fees it has paid to Telecommunications Management Group for its services are competitive with those charged for comparable services by other companies in the industry. 127 131 RELATED AGREEMENTS VOTING AGREEMENT FaciliCom, Armstrong International Telecommunications, BFV Associates, Inc., Epic Interests, Inc., WorldCom Network Services, The 1818 Fund and John D. Phillips have entered into a voting agreement, dated August 17, 1999 pursuant to which each of the World Access shareholders has agreed to vote all of its or his shares of World Access voting stock, whether owned beneficially or of record, as well as any other shares such World Access shareholder acquires beneficial ownership of after the date of the voting agreement, in favor of the merger and the adoption and approval of the merger agreement and the transactions contemplated by the merger agreement. Pursuant to the voting agreement, the World Access shareholders have also agreed to vote against any action or agreement that would result in a breach in any material respect of any covenant, representation or warranty or any other obligation or agreement of World Access under the merger agreement, and any action or agreement that would materially impede, interfere with, delay or postpone or that would reasonably be expected to discourage the merger. The voting agreement, and all rights and obligations thereunder, terminate upon the first to occur of the consummation of the merger, the termination of the merger agreement, or February 28, 2000. As of the date of this prospectus, these World Access shareholders own, beneficially or of record, shares of World Access voting stock representing approximately 24.1% of the voting stock of the World Access voting together as a single class. LETTER AGREEMENT John D. Phillips and Armstrong International Telecommunications have entered into a letter agreement, pursuant to which Mr. Phillips has agreed not to sell or transfer, directly or indirectly, any shares of World Access common stock held by him, including his personal interest in such shares held by Renaissance Partners II and Resurgens Partners and any shares received upon exercise of World Access stock options or warrants, without the prior written consent of Armstrong International Telecommunications for so long as Armstrong International Telecommunications or any of its affiliates remains a stockholder of the World Access. The provisions of the letter agreement terminate upon Mr. Phillips' death or disability, any decision to remove, or to not reelect, Mr. Phillips as the Chief Executive Officer of World Access in which at least 50% of the directors elected by the holders of the Series C preferred stock (or, upon conversion into or other acquisition of World Access common stock, by 50% of the directors nominated, designated or elected by the FaciliCom shareholders, or their affiliates) vote in favor of such removal or fail to vote in favor of such reelection, the 5th anniversary of the closing in the event that Mr. Phillips is no longer Chief Executive Officer of World Access for any reason, and upon a change of control of World Access. REGISTRATION RIGHTS AGREEMENT World Access has agreed to enter into a registration rights agreement with certain FaciliCom stockholders pursuant to which World Access will grant certain rights to such persons to cause World Access to register their shares of World Access common stock, including World Access common stock issued or issuable upon conversion of the Series C preferred stock and securities issued or issuable with respect to such shares of World Access common stock by way of dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. Demand Registration Rights. At any time after the date of the registration rights agreement, one or more holders of an aggregate of at least 25% of the total number of shares of World Access common stock issued or issuable upon conversion of the Series C preferred stock may demand that World Access register its or their registrable securities under the Securities Act. Other holders of registrable securities and holders of World Access securities with the right to participate in a World Access registration statement will have the right to include their shares in such a demand registration; provided, however, that if the facilitating broker/dealer or, in an underwritten offering, the lead managing underwriter advises that 128 132 marketing factors require a limitation on the number of shares to be sold, the number of shares to be included in the sale or underwriting and registration will be allocated pro rata among the initiating holders and the holders seeking registration on the basis of the estimated proceeds from the sale of the securities covered by such registration. World Access will not be required to effect more than four Demand Registrations in the aggregate or more than one demand registration within any 12-month period occurring immediately subsequent to the effectiveness of a demand registration. Notwithstanding the foregoing, a demand registration will not be deemed to have been effected unless, among other things, (x) a registration statement with respect thereto has become effective and remains effective in compliance with the Securities Act until the earlier of (1) such time as all of such registrable securities covered by the registration statement have been disposed of and (2) 180 days after the effective date of such registration with respect to any registration statement filed pursuant to Rule 415 under the Securities Act or (y) if, when effective, it includes fewer than 75% of the number of shares of registrable securities of the initiating holders which were the subject matter of the demand. Piggyback Registration Rights. Subject to certain exceptions set forth in the registration rights agreement, if at any time World Access proposes to register any shares of World Access common stock or any securities convertible into World Access common stock under the Securities Act by registration on any form other than Forms S-4 or S-8, each holder of registrable securities will have the right to include in such registration statement such number of registrable securities as it requests. If the managing underwriter of any underwritten offering informs World Access that the number of registrable securities requested to be included in such registration would materially affect such offering, then World Access will include in such offering, to the extent of the number and type that World Access is advised can be sold in such offering, and subject to the rights described in section 2.1(f) of the registration rights agreement, dated as of April 21, 1999, between World Access and The 1818 Fund, first, all securities proposed to be sold by World Access for its own account, second, such registrable securities requested to be included in such registration and securities of other persons who have the right to require that their securities be included in such registration, pro rata on the basis of the estimated proceeds from the sale thereof, and third, all other securities proposed to be registered. Expenses. World Access will pay all registration expenses, except for underwriting commissions or discounts, in connection with the first and second demand registrations. Each holder of registrable securities whose registrable securities are included in the third and fourth demand registrations will pay its proportionate share of the registration expenses (including underwriting commissions or discounts) on the basis of such holder's share of the gross proceeds from the sale of its registrable securities. World Access will pay all registration expenses in connection with any piggyback registration. Expiration of Registration Rights. Registrable securities will cease to be registrable securities and, therefore, no longer have registration rights pursuant to the registration rights agreement when (i) a registration statement with respect to the sale of such securities has become effective under the Securities Act and such securities have been disposed of in accordance with the registration statement, (ii) they have been sold as permitted by Rule 144 under the Securities Act and the purchaser thereof does not receive "restricted securities" as defined in Rule 144, (iii) they have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer have been delivered by World Access and subsequent public distribution of them will not, in the opinion of counsel for the holders, require registration under the Securities Act or (iv) they have ceased to be outstanding. PRIVATE PLACEMENT AGREEMENTS In connection with the private placement of $75.0 million of World Access common stock to fund the cash portion of the FaciliCom merger (including related fees and expenses), we entered into separate agreements with a group of institutional and sophisticated investors on October 13, 1999. The closing of the purchase and sale of the shares of World Access common stock pursuant to the private placement will occur on the date, and is subject to the closing, of the FaciliCom merger. Additional conditions to each such investor's obligation to proceed to the private placement closing include (i) the termination or expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Act related to 129 133 the transactions contemplated by such investor's private placement agreement, if applicable, and (ii) the non-occurrence of a Material Adverse Effect (as defined in the private placement agreement) with respect to World Access. The number of shares of World Access common stock to be acquired by each investor is determined by dividing (x) the total consideration paid by each such investor by (y) the average of the daily closing price of World Access common stock as reported on Nasdaq for the five consecutive trading days ending at the close of trading on the trading day before the private placement closing, provided that the denominator may not be less than $13.00 or more than $17.00. Under each private placement agreement, we have agreed to file with the SEC, no later than thirty (30) days following the private placement closing, a registration statement on Form S-3 in connection with the resale of the shares of World Access common stock acquired thereunder. Each private placement agreement may be terminated by either the investor or World Access at any time prior to the private placement closing (a) upon termination of the merger agreement or (b) if the private placement has not occurred on or before December 31, 1999. 130 134 RELATED TRANSACTIONS RELEASE OF ESCROWED SHARES Prior to October 1997, Cherry U.S. and Cherry U.K. were under the operational and financial direction and control of James R. Elliot, Chairman of the Board and Chief Executive Officer of Cherry U.S., an 80.1% owner of the outstanding shares of the common stock of Cherry U.S., and the owner of all the issued and outstanding capital stock of Cherry U.K.. In the second half of 1997, Mr. Elliot sought financial assistance from WorldCom Network Services, already a significant creditor of Cherry U.S. and the owner of the remaining outstanding shares of Cherry U.S. stock. In October 1997, Cherry U.S., WorldCom Network Services, Cherry U.K., Mr. Elliot and John D. Phillips entered into a series of agreements pursuant to which Cherry U.S. retained Mr. Phillips to engineer a turnaround and reorganization of the financially ailing Cherry U.S. These agreements also culminated in, among other things, Mr. Phillips obtaining the right to acquire at least 50% of the total outstanding amount of each of the Cherry U.K. stock and the Cherry U.S. stock held by Mr. Elliot. In December 1997, Mr. Elliot resigned as director, officer and employee of Cherry U.S. and exercised his right to have all of his Cherry U.K. stock sold to Mr. Phillips. As part of the acquisition of Cherry U.S. and Cherry U.K., World Access entered into the Cherry merger agreement and the share exchange agreement. The Cherry merger agreement provided that the creditors of Cherry U.S., in satisfaction of their claims against Cherry U.S., would receive an aggregate of 9,375,000 shares of World Access common stock, of which 6,250,000 shares were to be held in escrow as part of the escrowed shares and are subject to forfeiture in the event the combined business of Cherry U.S. and Cherry U.K. failed to meet certain financial performance criteria. As a creditor of Cherry U.S., WorldCom Network Services became eligible to receive up to a total of 6,638,096 shares of World Access common stock. Of that amount, 1,310,430 shares have been issued to WorldCom Network Services. Upon resolution of the total amount of claims against Cherry U.S. for which shares of World Access common stock are to be issued, WorldCom Network Services will receive a minimum of 541,902 and a maximum of 822,986 additional shares. Assuming the full amount of the escrowed shares are issued to Cherry U.S. creditors, WorldCom Network Services could receive a minimum of 3,911,172 and a maximum of 4,504,680 shares, depending on the resolution of the total claims against Cherry U.S. for which shares are to be issued. At the present time, WorldCom Network Services votes or has the power to direct the voting of an aggregate of 6,074,372 shares of World Access common stock. The share exchange agreement provided that Renaissance Partners II, a Georgia limited partnership formed by, among others, Mr. Phillips to be the sole shareholder of Cherry U.K., and the manager of Resurgens Partners, was to receive an aggregate of 1,875,000 shares of World Access common stock, 625,000 of which were issued upon consummation of the Cherry acquisition and 1,250,000 of which are held in escrow as part of the escrowed shares and are subject to forfeiture in the event the combined business of Cherry U.S. and Cherry U.K. fail to meet certain financial performance criteria. While we cannot determine at this time whether the relevant financial performance criteria for the release of the escrowed shares would have been in fact satisfied, the World Access board of directors, in approving the merger agreement, considered the release of the escrowed shares as a result of the merger and in the context of the overall merger transaction and believed that the relevant performance criteria would have been satisfied and that the escrowed shares would have been released in February 2000 and 2001, irrespective of the merger. 131 135 PRINCIPAL STOCKHOLDERS Our only issued and outstanding classes of voting securities are World Access common stock, Series A preferred stock and Series B preferred stock. As of the date of this prospectus, there were 45,236,057 shares of World Access common stock issued and outstanding, 50,000 shares of Series A preferred stock issued and outstanding (convertible into 4,347,826 shares of World Access common stock) and 23,174 shares of Series B preferred stock issued and outstanding (convertible into 1,448,375 shares of World Access common stock). The following table sets forth information regarding the beneficial ownership of World Access common stock, Series A preferred stock and Series B preferred stock as of November 3, 1999 for (i) each person known by World Access to beneficially own more than 5% of the World Access common stock, Series A preferred stock or Series B preferred stock, (ii) each director and each nominee for director individually, (iii) each executive officer who would be a "Named Executive Officer" of World Access under Rule 402 of Regulation S-K and (iv) all directors and Named Executive Officers as a group.
SHARES UNDER EXERCISABLE TOTAL SHARES SHARES OPTIONS AND BENEFICIALLY PERCENTAGE NAME OWNED(1) WARRANTS(2) OWNED(1) OWNED ---- --------- ------------ ------------ ---------- WORLD ACCESS COMMON STOCK - ------------------------------- WorldCom Network Services, Inc.(3) 500 Clinton Center Drive Clinton, MS 39056......................... 6,074,372 -- 6,074,372 13.4% The 1818 Fund III, L.P.(4) 59 Wall Street New York, NY 10005........................ 4,347,826 1,739,130 6,086,956 11.9 John D. Phillips+++(6)...................... 1,875,000 1,184,340 3,059,340 6.6 Stephen J. Clearman+++...................... 52,210 167,000 219,210 * Mark A. Gergel+++(7)........................ 26,683 237,500 264,183 * John P. Imlay, Jr.+......................... 19,900 179,000 198,900 * Carl E. Sanders+............................ 10,000 179,000 189,000 * Lawrence C. Tucker+(4)...................... 4,347,826 1,839,130 6,186,956 12.0 A. Lindsay Wallace++(7)..................... 309 122,380 122,689 * Walter J. Burmeister#....................... -- -- -- * Kirby J. Campbell#.......................... -- -- -- * Bryan Cipoletti#............................ -- -- -- * Massimo Prelz Oltramonti#................... -- -- -- * John P. Rigas#.............................. -- -- -- * Dru A. Sedwick#............................. -- -- -- * All directors and executive officers as a group (9 persons)(8)...................... 6,331,928 3,908,350 10,240,278 19.1 SERIES A PREFERRED STOCK - -------------------------- The 1818 Fund III, L.P.(4).................. 50,000 20,000 70,000 100.0 SERIES B PREFERRED STOCK - -------------------------- Gregory A. Somers 2301 Ohio Drive, Suite 285 Plano, TX 75093........................... 13,760 -- 13,760 59.4 Teleplus Telecommunications, Inc. 111 Main Street Webb, IA.................................. 3,032 -- 3,032 13.1 R. Scott Birdwell 3626 N. Hall Street, Suite 908 Dallas, TX 75219.......................... 2,276 -- 2,276 9.8 Kelli J. Somers 2301 Ohio Drive, Suite 285 Plano, TX 75093........................... 2,270 -- 2,270 9.7
- --------------- * Less than one percent + Director ++ Named Executive Officer 132 136 # Nominee for Director (1) Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Unless otherwise noted, World Access believes 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) Includes shares which may be acquired by the exercise of stock options and warrants granted by World Access and exercisable on or before January 2, 2000. (3) In connection with World Access' acquisition of Cherry U.S., World Access issued shares of World Access common stock to the creditors of Cherry U.S., including WorldCom Network Services, a wholly owned subsidiary of MCI WorldCom, in satisfaction of their claims against Cherry U.S. WorldCom Network Services is eligible to receive up to a total of 6,638,096 shares of World Access common stock. Of this amount, 1,310,430 shares have been issued to WorldCom Network Services. Upon resolution of the total amount of claims against Cherry U.S. for which World Access' shares are to be issued, WorldCom Network Services will receive a minimum of 541,902 and a maximum of 822,986 shares. This distribution is expected to occur by the end of 1999. Additional shares of World Access common stock were placed into escrow in connection with the acquisition and were to be released to Cherry U.S. creditors in February 2000 and February 2001, subject to the attainment of certain earnings levels by Cherry U.S. and Cherry U.K. during 1999 and 2000, respectively. Assuming the full amount of shares held in escrow are issued to Cherry U.S. creditors, WorldCom Network Services could receive a minimum of 3,911,172 and a maximum of 4,504,680 shares, depending on the resolution of the total claims against Cherry U.S. for which shares are to be issued. At the present time, WorldCom Network Services votes or has the power to direct the voting of an aggregate of 6,074,372 shares of World Access common stock. The merger will constitute a "change of control" of World Access under the Cherry merger agreement and as a result, upon consummation of the merger, all shares currently held in escrow will be released to Cherry U.S. creditors. (4) Represents 4,347,826 shares of World Access common stock issuable upon the conversion of 50,000 shares of Series A preferred stock owned of record by The 1818 Fund, a private equity partnership, and 1,739,130 shares of World Access common stock reserved for issuance upon the conversion of 20,000 shares of World Access Series A preferred stock, which is subject to an option held by The 1818 Fund. The general partner of The 1818 Fund is Brown Brothers Harriman. Mr. Tucker, a partner at Brown Brothers Harriman, is deemed to be the beneficial owner of these shares due to his role as co-manager of The 1818 Fund. (5) Represents shares of World Access common stock issuable upon the conversion of shares of World Access Series B preferred stock. (6) Represents 937,500 shares owned of record by Renaissance Partners II and 937,500 shares owned of record by Resurgens Partners. Renaissance Partners II is the manager of Resurgens Partners and, as such, has sole voting and dispositive power over the shares of the World Access common stock owned of record by Resurgens Partners. Mr. Phillips beneficially owns a majority of the general partnership interests of Renaissance and, as such, has sole voting and dispositive power over the shares of the World Access common stock owned of record by Renaissance Partners II and sole indirect voting and dispositive power over the shares of the World Access common stock owned of record by Resurgens Partners. Of the aggregate 1,875,000 shares of World Access common stock owned of record by Renaissance Partners II and Resurgens Partners, an aggregate of 1,250,000 shares (625,000 owned of record by each of Renaissance Partners II and Resurgens Partners) were placed into escrow in connection with the acquisition of Cherry U.K. and were to be released to Renaissance Partners II and Resurgens Partners in February 2000 and February 2001, subject to the attainment of certain earnings levels by Cherry U.S. and Cherry U.K. during 1999 and 2000, respectively. The merger will constitute a change of control of World Access under the share exchange agreement and as a result, upon consummation of the merger, all shares currently held in escrow will be released to Renaissance Partners II and Resurgens Partners. (7) 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 by World Access under a matching contribution program offered to all 401(k) Plan participants: Mr. Gergel -- 3,933 shares; and Mr. Wallace -- 309 shares. (8) Includes W. Tod Chmar and Dennis E. Bay, two Named Executive Officers of World Access that currently have no beneficial ownership of World Access common stock and no stock options or warrants exercisable on or before January 2, 2000. 133 137 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The following unaudited pro forma financial statements of World Access give effect to several transactions we completed in 1998 and our pending merger with FaciliCom, the private placement of World Access common stock and the exchange of FaciliCom notes for exchange notes. The Unaudited Pro Forma Combined Balance Sheet gives effect to our pending merger with FaciliCom, private placement and exchange offer noted previously as if they had been completed as of June 30, 1999. The Unaudited Pro Forma Combined Statements of Operations give effect to the following transactions as if each had been completed as of January 1, 1998: - our acquisition of a majority interest in NACT Telecommunications, Inc. on February 27, 1998 and subsequent merger with NACT on October 28, 1998; - our merger with Telco Systems, Inc. on November 30, 1998; - our merger with Cherry Communications Incorporated, d/b/a Resurgens Communications Group, and Cherry Communications U.K. Limited on December 15, 1998 (these companies are collectively referred to as Resurgens in the pro forma financial statements); and - our pending merger with FaciliCom, private placement and exchange offer. We have prepared the pro forma financial statements to demonstrate how these combined businesses might have looked if the mergers and related transactions had been completed as of the dates or at the beginning of the periods presented. The pro forma financial statements, while helpful in illustrating characteristics of the combined company under one set of assumptions, do not attempt to predict or suggest future results. The pro forma financial statements are preliminary and subject to change based on a final review of the fair values of FaciliCom's net assets as of the actual merger date. Upon final review of the fair value of FaciliCom's assets and liabilities, it is likely that certain tangible and intangible assets such as international licenses and foreign carrier operating agreements may be recognized which generally have lives ranging from 5-10 years. Although we do not expect these final adjustments to be significant, they would increase the amortization expense reflected in the unaudited pro forma financial statements as these intangible assets would be amortized over a shorter life than goodwill. Each of the merger transactions above has been accounted for using the purchase method of accounting. In connection with our acquisitions of NACT and Telco, we recorded charges of $44.6 million and $50.3 million, respectively, representing the portion of the purchase price allocated to in-process research and development. Since these charges were directly related to the acquisitions and will not recur, the Unaudited Pro Forma Combined Statement of Operations for the year ended December 31, 1998 has been prepared excluding these one-time non-recurring charges. Upon the completion of our merger with FaciliCom, we expect to record a one-time restructuring charge for the estimated costs of (i) consolidating certain of our United States gateway switching centers and related technical support functions into existing FaciliCom operations; (ii) consolidating our United Kingdom operations into existing FaciliCom operations; (iii) consolidating the administrative functions of our Telecommunications Group into FaciliCom's operations; and (iv) eliminating other redundant operations and assets as a result of combining our Telecommunications Group's and FaciliCom's operations. The restructuring charge is expected to include the write-down of our switching and transmission equipment taken out of service, the write-off of certain leasehold improvements, a provision for lease commitments remaining on certain facilities and equipment taken out of service and employee termination benefits. Although we have not yet finalized the restructuring program, it is expected to be approved in its final form and adopted immediately following the FaciliCom merger, communicated to our employees at that time and completed within three months. We have not yet determined the actual 134 138 restructuring charge to be recorded but estimate that it will be in excess of $20.0 million. This one-time charge has been excluded from the pro forma financial statements. As a result of the FaciliCom merger and the restructuring program discussed above, we expect the combined company 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 certain administrative functions. We currently estimate that these annualized cost savings, which have been excluded from the pro forma financial statements, will range from $20.0 million to $35.0 million. The pro forma financial statements are presented for comparative purposes only and are not intended to be indicative of the actual results had these transactions occurred as of the dates indicated above nor do they purport to indicate results which may be attained in the future. The pro forma financial statements should be read in conjunction with the historical consolidated financial statements of World Access, NACT, Telco, Resurgens and FaciliCom, which are included herein or incorporated herein by reference. 135 139 WORLD ACCESS, INC. UNAUDITED PRO FORMA COMBINED BALANCE SHEET AS OF JUNE 30, 1999 (IN THOUSANDS)
WORLD PRO FORMA PRO FORMA ACCESS(1) FACILICOM(3) ADJUSTMENTS WORLD ACCESS --------- ------------ ----------- ------------ ASSETS Current Assets Cash and equivalents.................. $ 98,996 $ 18,696 $ 5,750(6) $ 123,442 Accounts receivable................... 97,342 98,542 -- 195,884 Marketable securities -- restricted... -- 31,755 -- 31,755 Inventories........................... 45,216 -- -- 45,216 Other current assets.................. 54,929 6,067 -- 60,996 -------- -------- -------- ---------- Total Current Assets.......... 296,483 155,060 5,750 457,293 Property and equipment.................. 62,325 185,768 -- 248,093 Goodwill and other intangibles.......... 309,540 13,862 (13,199)(8) 874,149 460,216(5) 103,730(7) Marketable securities -- restricted..... -- 29,525 -- 29,525 Other assets............................ 24,798 550 -- 25,348 -------- -------- -------- ---------- Total Assets.................. $693,146 $384,765 $556,497 $1,634,408 ======== ======== ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Short-term debt....................... $ 12,285 $ 21,837 $ -- $ 34,122 Accounts payable...................... 58,393 126,423 -- 184,816 Other accrued liabilities............. 45,744 38,476 -- 84,220 -------- -------- -------- ---------- Total Current Liabilities..... 116,422 186,736 -- 303,158 Long-term debt.......................... 140,728 304,166 (15,000)(5) 429,894 Noncurrent liabilities.................. 10,204 -- -- 10,204 -------- -------- -------- ---------- Total Liabilities............. 267,354 490,902 (15,000) 743,256 -------- -------- -------- ---------- Stockholders' Equity Preferred stock....................... 1 -- 4(5) 5 Common stock.......................... 448 2 (2)(4) 512 11(5) 53(6) Capital in excess of par value........ 544,481 37,658 (37,658)(4) 1,009,773 287,365(5) 103,730(7) 74,197(6) Stock-based compensation.............. -- 5,546 (5,546)(4) -- Foreign currency translation adjustment......................... -- (5,819) 5,819(4) -- Accumulated deficit................... (119,138) (143,524) 143,524(4) (119,138) -------- -------- -------- ---------- Total Stockholders' Equity.... 425,792 (106,137) 571,497 891,152 -------- -------- -------- ---------- Total Liabilities and Stockholders' Equity........ $693,146 $384,765 $556,497 $1,634,408 ======== ======== ======== ==========
136 140 WORLD ACCESS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA)
WORLD PRO FORMA PRO FORMA ACCESS(1) FACILICOM(3) ADJUSTMENTS WORLD ACCESS --------- ------------ ----------- ------------ Carrier service revenues................... $198,891 $173,257 $ (4,340)(10) $367,808 Equipment sales............................ 122,360 -- -- 122,360 -------- -------- -------- -------- Total Sales.............................. 321,251 173,257 (4,340) 490,168 Cost of carrier services................... 185,232 169,243 (3,690)(10) 350,785 Cost of equipment sold..................... 68,690 -- -- 68,690 Amortization of acquired technology........ 2,400 -- -- 2,400 -------- -------- -------- -------- Total Cost of Sales...................... 256,322 169,243 (3,690) 421,875 -------- -------- -------- -------- Gross Profit............................. 64,929 4,014 (650) 68,293 Research and development................... 8,773 -- -- 8,773 Selling, general and administrative........ 27,486 24,719 -- 52,205 Amortization of goodwill................... 6,369 634 13,470(15) 20,473 Provision for doubtful accounts............ 1,453 2,817 -- 4,270 -------- -------- -------- -------- Operating Income (Loss).................. 20,848 (24,156) (14,120) (17,428) Foreign exchange loss...................... -- (1,290) -- (1,290) Interest and other income.................. 1,506 2,762 -- 4,268 Interest expense........................... (4,604) (16,907) (4,540)(9) (26,051) -------- -------- -------- -------- Income (Loss) From Continuing Operations Before Income Taxes................... 17,750 (39,591) (18,660) (40,501) Income taxes (benefits).................... 9,357 (5,576) (2,000)(17) 1,781 -------- -------- -------- -------- Income (Loss) From Continuing Operations............................ 8,393 (34,015) (16,660) (42,282) Preferred stock dividends.................. 413 -- -- 413 -------- -------- -------- -------- Income (Loss) From Continuing Operations Available to Common Stockholders...... $ 7,980 $(34,015) $(16,660) $(42,695) ======== ======== ======== ======== Income (Loss) From Continuing Operations Per Common Share: Basic.................................... $ 0.22 $ (0.85)(18) ======== ======== Diluted.................................. $ 0.22 $ (0.85)(18) ======== ======== Weighted Average Shares Outstanding: Basic.................................... 36,232 50,102(18) ======== ======== Diluted.................................. 38,446 50,102(18) ======== ========
137 141 WORLD ACCESS, INC. UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA WORLD PRO FORMA WORLD ACCESS(1) NACT(2) TELCO(2) RESURGENS(2) FACILICOM(3) ADJUSTMENTS ACCESS --------- ------- -------- ------------ ------------ ----------- --------- Carrier service revenues................. $ 13,143 $1,160 $126,324 $ -- $184,246 $ (2,520)(10) $ 322,353 Equipment sales.......... 138,990 1,175 -- 96,367 -- -- 236,532 --------- ------- -------- -------- -------- -------- --------- Total Sales............ 152,133 2,335 126,324 96,367 184,246 (2,520) 558,885 Cost of carrier sales.... 12,522 1,050 145,043 -- 184,989 (2,140)(10) 340,234 (1,230)(12) Cost of equipment sold... 73,842 925 -- 64,416 -- (400)(11) 138,783 Write-down of inventories............ 9,292 -- -- -- -- -- 9,292 Amortization of acquired technology............. 446 -- -- -- -- 4,360(13) 4,806 --------- ------- -------- -------- -------- -------- --------- Total Cost of Sales.... 96,102 1,975 145,043 64,416 184,989 590 493,115 --------- ------- -------- -------- -------- -------- --------- Gross Profit (Deficit)............ 56,031 360 (18,719) 31,951 (743) (3,110) 65,770 Research and development............ 6,842 504 -- 15,265 -- -- 22,611 Selling, general and administrative......... 19,984 1,265 38,569 22,295 37,562 780(14) 120,455 Amortization of goodwill............... 4,255 39 -- 800 961 34,530(15) 40,585 In-process research and development............ 100,300 -- -- 15,585 -- (94,900)(16) 20,985 Goodwill impairment...... 6,200 -- -- -- -- -- 6,200 Provision for doubtful accounts............... 11,332 104 2,294 589 4,620 -- 18,939 Restructuring and other charges................ 17,240 -- -- -- -- -- 17,240 --------- ------- -------- -------- -------- -------- --------- Operating Income (Loss)............... (110,122) (1,552) (59,582) (22,583) (43,886) 56,480 (181,245) Foreign exchange loss.... -- -- -- -- (391) -- (391) Interest and other income................. 3,419 -- -- 2,194 8,943 -- 14,556 Interest and other expense................ (6,832) -- (9,457) (127) (22,612) (19,880)(9) (58,908) --------- ------- -------- -------- -------- -------- --------- Loss Before Income Taxes and Minority Interests............ (113,535) (1,552) (69,039) (20,516) (57,946) 36,600 (225,988) Income taxes (benefits)............. (1,387) (620) -- 300 (11,351) (8,440)(17) (21,498) --------- ------- -------- -------- -------- -------- --------- Loss Before Minority Interests............ (112,148) (932) (69,039) (20,816) (46,595) 45,040 (204,490) Minority interests in earnings of subsidiary............. (2,497) -- -- -- -- 2,497 -- --------- ------- -------- -------- -------- -------- --------- Loss From Continuing Operations........... $(114,645) $ (932) $(69,039) $(20,816) $(46,595) $ 47,537 $(204,490) ========= ======= ======== ======== ======== ======== ========= Loss From Continuing Operations Per Common Share: Basic.................. $ (5.19) $ (4.22)(18) ========= ========= Diluted................ $ (5.19) $ (4.22)(18) ========= ========= Weighted Average Shares Outstanding: Basic.................. 22,073 48,460(18) ========= ========= Diluted................ 22,073 48,460(18) ========= =========
138 142 WORLD ACCESS, INC. NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS 1. These columns represent the historical results of operations and financial position of World Access. With respect to the information included in the Unaudited Pro Forma Results of Operations for the year ended December 31, 1998, the World Access information includes the results for the following businesses from their respective dates of acquisition: Advanced TechCom, Inc. -- January 1998; NACT -- February 1998; Telco -- November 1998; and Resurgens -- December 1998. 2. These columns represent the historical results of NACT for the period January 1, 1998 to February 27, 1998; Telco for the period January 1, 1998 to November 29, 1998; and Resurgens for the period January 1, 1998 to December 14, 1998. 3. These columns represent the historical results of operations and financial position of FaciliCom. With respect to the information included in the Unaudited Pro Forma Combined Statements of Operations for the year ended December 31, 1998 and the six months ended June 30, 1999, the FaciliCom information is for the twelve months ended September 30, 1998 and the six months ended March 31, 1999, respectively. Depreciation and amortization related to network operations has been reclassified to costs of carrier sales to conform with the World Access presentation. 4. Elimination of the historical FaciliCom stockholders' equity accounts. 5. The FaciliCom merger will be accounted for under the purchase method of accounting. World Access has not determined the final allocation of the purchase price, and accordingly, the amount ultimately determined may differ from the amounts shown below. Under the terms of the merger agreement and based on the valuation of the Series C Preferred Stock and World Access common stock at that time, the purchase price was determined as follows (in thousands): Purchase price: Issuance of preferred stock(i)............................ $266,000 Cash...................................................... 56,000 Issuance of common stock(ii).............................. 15,000 Fair value of World Access options issued in exchange for FaciliCom options(iii)................................. 6,380 Estimated fees and expenses............................... 12,500 -------- Total purchase price.............................. 355,880 -------- Allocation to fair values: Historical stockholders' deficit.......................... 106,137 Adjust assets and liabilities: Eliminate historical goodwill and debt issue costs........ 13,199 Discount on World Access 13.25% Senior Notes(iv).......... (15,000) -------- Estimated goodwill................................ $460,216 ========
- --------------- (i) Represents the fair value of the approximately 369,400 shares of Series C Preferred Stock to be issued as part of the FaciliCom merger consideration. The fair value was computed using the Black-Scholes Option Pricing Model assuming a volatility factor of 45%, a risk free rate of 6% and a 10% discount for the lack of liquidity in a private security. The Series C Preferred Stock bears no dividend and is convertible into shares of World Access common stock at a conversion rate of $20.38 per share of World Access common stock, 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 $20.38 per share for 60 consecutive trading days, the Series C Preferred Stock will automatically convert into World Access common stock at a conversion rate of $20.38 per share of World Access common stock. 139 143 WORLD ACCESS, INC NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) Initially, the holders of the Series C Preferred Stock will be entitled to elect four new directors to the World Access Board of Directors. Except for the election of directors, the holders of the Series C Preferred Stock will vote on an as-converted basis with the holders of World Access common stock. (ii) In connection with the merger of World Access and FaciliCom, holders of a majority of the aggregate principal amount of FaciliCom's 10 1/2% Series B Senior Notes due 2008 (the FaciliCom Notes) have agreed to tender their notes and accept in exchange for each $1,000 in principal amount (i) $1,000 principal amount of World Access 13.25% Senior Notes due 2008 (the World Access Notes) having an aggregate principal amount of $300.0 million (ii) $10 in cash, and (iii) World Access common stock having a market value of $50, as measured at the time of the exchange. These pro forma statements assume that all holders of FaciliCom Notes will exchange their notes for World Access Notes, and that therefore (i) $300.0 million aggregate principal amount of the World Access Notes will be issued (ii) an aggregate amount of $3.0 million cash will be paid to holders of the FaciliCom Notes (which represents the fee paid by World Access to obtain the consent from the FaciliCom noteholders waiving their right to put their notes at 101% of par in connection with the FaciliCom merger) and (iii) World Access common stock equal in value to an aggregate amount of $15.0 million will be issued to the holders of the FaciliCom Notes. For purposes of these pro forma financial statements, 1,062,000 shares of World Access common stock were assumed issued based upon the closing trading price on Nasdaq on June 30, 1999 for the World Access common stock, which was $14.13 per share. (iii) Represents the fair value of approximately 520,000 options to acquire World Access common stock to be issued in exchange for certain options outstanding to acquire FaciliCom common 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 5.8% and an expected life of 5 years. The World Access options are expected to be issued at an average exercise price of $3.06 per share and will be fully vested upon the consummation of the FaciliCom merger. (iv) Represents the discount to face value to be recorded to adjust the World Access Notes to their estimated fair value. The estimated fair value was based on the quoted market price of debt with similar characteristics. The terms of the World Access Notes were structured to provide fair value equal to 95% of the principal amount. 6. In connection with the FaciliCom merger, World Access has received commitments from a group of institutional and sophisticated investors to purchase $75.0 million of World Access common stock in a private transaction that is conditioned upon and will close simultaneously with the FaciliCom merger. World Access will use the majority of the proceeds from this private placement to fund the $56.0 million cash portion of the merger consideration, as well as fees and expenses to be incurred in connection with the merger. The World Access common stock to be issued will be priced at the average trading value of World Access common stock during a five day period prior to the closing of the FaciliCom merger, with the purchase price to be no lower than $13.00 per share and no higher than $17.00 per share. For purposes of these pro forma financial statements, 5,308,000 shares were assumed issued based upon the closing trading price on Nasdaq on June 30, 1999 for the World Access common stock, which was $14.13 per share. 7. In December 1998, World Access acquired Resurgens and issued approximately 7,500,000 restricted shares of World Access common stock which were placed in escrow for future release contingent upon their future EBITDA performance. The release of these shares is accelerated in 140 144 WORLD ACCESS, INC NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) connection with the FaciliCom merger as the FaciliCom merger qualifies as a "Change in Control" as defined in the Resurgens merger agreements. The release of the 7,500,000 shares has been accounted for as an increase in goodwill and stockholders' equity. These shares were valued based on the average market price on Nasdaq of World Access common stock for the three days prior and the three days subsequent to the date economic terms of the FaciliCom merger were announced (August 17, 1999), or $13.83 per share. 8. Elimination of existing goodwill from prior FaciliCom acquisitions and debt issue costs associated with the FaciliCom Notes. 9. Represents the adjustment to interest expense related to the exchange of FaciliCom Notes (10 1/2% coupon) for World Access Notes (13.25% coupon) and the amortization of the $15.0 million debt discount related to the World Access Notes over a period of eight years. The FaciliCom Notes were issued on January 28, 1998 and were outstanding for approximately eight months in fiscal 1998. The pro forma adjustment to interest expense was computed as follows (in thousands):
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1999 DECEMBER 31, 1998 ---------------- ----------------- Interest expense on World Access Notes................ $ 19,875 $ 39,750 Debt issue cost amortization on World Access Notes.......................................... 940 1,875 Historical FaciliCom Note interest expense....... (15,750) (21,000) Historical FaciliCom debt issue cost amortization................................... (525) (745) -------- -------- $ 4,540 $ 19,880 ======== ========
10. Elimination of inter-company carrier service revenues and related costs. 11. Adjustment to depreciation expense related to the write-down of certain redundant equipment at Telco. 12. Adjustment to depreciation and amortization expense for the adjustment to fair value of switching equipment and license agreements at Resurgens. 13. Amortization of acquired technology relating to the NACT and Telco acquisitions over 8 years. 14. Amortization of trademarks of Telco over 8 years. 15. Amortization of goodwill over an estimated life of 20 years. The pro forma adjustment to goodwill for the six months ended June 30, 1999 was computed as follows (in thousands):
HISTORICAL PRO FORMA GOODWILL PRO FORMA GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENTS -------- ------------ ------------ ----------- FaciliCom (see Note 5).................... $460,216 $11,510 $(634) $10,876 Escrowed shares (see Note 7)......... 103,730 2,594 -- 2,594 ------- ----- ------- $14,104 $(634) $13,470 ======= ===== =======
141 145 WORLD ACCESS, INC NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) The pro forma adjustment to goodwill for the year ended December 31, 1998 was computed as follows (in thousands):
HISTORICAL PRO FORMA GOODWILL PRO FORMA GOODWILL AMORTIZATION AMORTIZATION ADJUSTMENT -------- ------------ ------------ ----------- FaciliCom (see Note 5).................... $460,216 $ 23,010 $ (961) $22,049 Escrowed shares (see Note 7)......... 103,730 5,186 -- 5,186 NACT................................. 92,668 4,630 (2,107) 2,523 Telco................................ 39,418 1,970 (964) 1,006 Resurgens............................ 78,625 3,930 (164) 3,766 -------- ------- ------- $ 38,726 $(4,196) $34,530 ======== ======= =======
16. Elimination of the one-time, non-recurring in-process research and development charges recorded in connection with the NACT and Telco mergers. 17. Adjustment for the additional tax 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 FaciliCom's net operating losses. 18. Represents pro forma weighted average shares and basic and diluted earnings from continuing operations per share. The weighted average shares are computed assuming the issuance of (i) approximately 1,430,000, 2,790,000, 7,042,000 and 3,687,500 shares of World Access common stock for the acquisition of a majority interest in NACT, NACT merger, Telco merger and Resurgens merger, respectively; (ii) an aggregate of approximately 5,308,000 shares issued for $75.0 million in connection with the private placement of World Access common stock; (iii) an aggregate of 1,062,000 shares issued to the holders of the FaciliCom Notes; and (iv) 7,500,000 shares released from escrow related to the acceleration of the Resurgens earn-out (see Note 7) as of the beginning of the periods presented. Due to the pro forma loss from continuing operations for the six months ended June 30, 1999 and the year ended December 31, 1998, 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. 19. In October 1999, FaciliCom granted stock options (contingent upon the consummation of the merger) to its employees who are expected to continue with the surviving corporation after the merger with World Access. These options, which were granted under a new FaciliCom 1999 Stock Option Plan, will have a four year vesting period. Upon consummation of the merger, these options will convert into non-qualified options to purchase approximately 1.9 million shares of World Access common stock at an exercise price of $15.00 per share. Given that the conversion of the options is contingent upon the merger, any resulting compensation expense to be recorded over the vesting period will be determined at the time of the merger based on the intrinsic value of the options. As a result, no effect for these options has been included in the pro forma financial statements. 20. In connection with the execution of the FaciliCom merger agreement, John D. Phillips was required to enter into a letter agreement, dated August 17, 1999, under which he agreed not to sell or transfer any of his shares of World Access for a specified period of time. In consideration 142 146 WORLD ACCESS, INC NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED) for Mr. Phillips' entering into the letter agreement, the Board of Directors of World Access has agreed to accelerate the exercisability of currently outstanding options held by Mr. Phillips under the World Access 1998 Stock Option Plan for 1.0 million shares of World Access common stock at an exercise price of $12.75 per share. The options were originally scheduled to vest ratably over a four-year period. Upon consummation of the merger, all of these options will be immediately exercisable. Since acceleration of the options is contingent upon consummation of the merger, and given its one time nature, its effects have not been included in the pro forma financial statements. 143 147 FACILICOM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW FaciliCom is a rapidly growing multinational carrier focused on providing international wholesale telecommunications services to other carriers worldwide. As a facilities-based carrier, FaciliCom seeks primarily to provide service over its facilities and international transmission capacity owned or leased on a fixed-cost basis (commonly referred to as "on-net"). FaciliCom believes that it is better able to control the quality and the termination costs of on-net traffic and that increasing the proportion of on-net traffic significantly improves its gross margins. For the nine months ended June 30, 1999, 41.7% of FaciliCom's wholesale international traffic was terminated on-net and 58.3% was terminated by other long distance carriers pursuant to resale and operating agreements between FaciliCom and such carriers (commonly referred to as "off-net"). FaciliCom's expanding facility-based network will enable it to increase the percentage of on-net traffic. FaciliCom provides its services over a carrier-grade international network consisting of international gateway switches, transmission capacity owned or leased on a fixed-cost basis and various multinational termination agreements and resale arrangements with other long distance providers. FaciliCom began generating revenues in July 1995 through its acquisition of FCI-Sweden, formerly Nordiska Tele8 AB. Since that time, FaciliCom has installed or acquired 16 additional international gateway switches in the United States (New York, New Jersey, Los Angeles and Miami) and Europe (United Kingdom, The Netherlands, Germany, Finland, Denmark, France, Norway, Switzerland, Italy, Austria, Spain and Belgium). FaciliCom's strategy is to invest in network facilities as it expands its customer base, allowing it to enhance service quality and increase gross margins on particular routes. However, this approach also causes FaciliCom's gross margins to fluctuate with changes in network utilization due to FaciliCom's fixed-cost investment in its network. Currently, FaciliCom's revenues are generated through the sale of international long distance services on a wholesale basis to telecommunications carriers and through the sale of domestic and international long distance services on a retail basis in Sweden, Denmark, Norway and Finland. FaciliCom records revenues from the sale of telecommunications services at the time of customer usage. FaciliCom earns revenues based on the number of minutes it bills to and collects from its customers. FaciliCom's agreements with its wholesale customers are short-term in duration and are subject to significant traffic variability. The rates charged to customers are subject to change from time to time, generally requiring seven days' notice to the customer. FaciliCom believes its services are competitively priced in each country in which it offers its services. Prices for wholesale and retail telecommunications services in many of FaciliCom's markets have declined in recent years as a result of deregulation and increased competition. FaciliCom believes that worldwide deregulation and increased competition are likely to continue to reduce its wholesale and retail revenues per billed minute of use. FaciliCom believes, however, that any decrease in wholesale and retail revenues per minute will be at least partially offset by an increase in billed minutes by its wholesale and retail customers, and by a decreased cost per billed minute. FaciliCom has made since its inception, and expects to continue to make, investments to expand its network. FaciliCom expects increased capital expenditures in the future to affect its operating results due to increased depreciation charges and interest expense in connection with borrowings to fund such expenditures. 144 148 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain unaudited financial data and related percentage of revenues (dollars in thousands):
NINE MONTHS ENDED JUNE 30, YEARS ENDED SEPTEMBER 30, ------------------------------------- --------------------------------------------------------- 1999 1998 1998 1997 1996 Revenues............... $279,695 100.0% $117,146 100.0% $184,246 100.0% $ 70,187 100.0% $11,891 100.0% Cost of revenues....... 257,253 92.0 114,473 97.7 178,952 97.1 65,718 93.6 12,742 107.2 -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Gross Margin........... 22,442 8.0 2,673 2.3 5,294 2.9 4,469 6.4 (851) (7.2) -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Operating expenses: Selling, general and administrative (including related party)............. 40,354 14.5 21,834 18.6 32,797 17.8 13,072 18.6 7,575 63.7 Stock-based compensation expense............ 364 0.1 5,706 4.9 6,017 3.3 -- -- -- -- Related party expenses........... -- -- -- -- 1,550 0.8 439 0.6 7 0.1 Depreciation and amortization....... 16,895 6.0 5,314 4.5 8,816 4.8 2,318 3.3 1,143 9.6 -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Total operating expenses....... 57,613 20.6 32,854 28.1 49,180 26.7 15,829 22.6 8,725 73.4 -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Operating loss......... (35,171) (12.6) (30,181) (25.8) (43,886) (23.8) (11,360) (16.2) (9,576) (80.6) -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Other income (expense): Interest expense (including related party)............. (25,690) (9.2) (14,539) (12.4) (22,612) (12.3) (1,336) (1.9) (312) (2.6) Interest income...... 3,646 1.3 5,594 4.8 8,152 4.4 -- -- -- -- Gain on settlement agreement.......... -- -- 791 0.7 791 0.5 -- -- -- -- Foreign exchange (loss) gain........ (1,346) (0.5) (655) (0.6) (391) (0.2) (1,335) (1.9) 226 1.9 -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Total other income (expense)........ (23,390) (8.4) (8,809) (7.5) (14,060) (7.6) (2,671) (3.8) (86) (0.7) -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Loss before income taxes................ (58,561) (21.0) (38,990) (33.3) (57,946) (31.4) (14,031) (20.0) (9,662) (81.3) Income tax benefit..... 6,682 2.4 6,475 5.5 11,351 6.1 -- -- -- -- -------- ----- -------- ----- -------- ----- -------- ----- ------- ----- Net loss............... $(51,879) (18.6)% $(32,515) (27.8)% $(46,595) (25.3)% $(14,031) (20.0)% $(9,662) (81.3)% ======== ===== ======== ===== ======== ===== ======== ===== ======= =====
FOR THE NINE MONTHS ENDED JUNE 30, 1999 AS COMPARED TO THE NINE MONTHS ENDED JUNE 30, 1998 Revenues increased by $162.5 million to $279.7 million for the nine months ended June 30, 1999, from $117.1 million for the nine months ended June 30, 1998. The growth in revenues resulted primarily from an increase in billed customer minutes of use generated from an increase in wholesale customers in the U.S. and Europe. Many of the new wholesale customers relate to newly deployed and activated switch facilities in Europe. Offsetting the growth in billed customer minutes of use during this period was a decrease in the price per billed minute to $0.194 for the nine months ended June 30, 1999, from $0.233 for the nine months ended June 30, 1998. The unit revenue decrease is the combined result of increases in the percentage of on-net traffic and increased competition. For the nine months ended June 30, 1999, U.S. revenues totaled $121.6 million or 43.5% of FaciliCom's consolidated revenues and European revenues totaled $158.1 million, or 56.5% of consolidated revenues. Billed minutes of use increased by 935.3 million, to 1,438.7 million minutes of use for the nine months ended June 30, 1999, from 503.3 million minutes of use for the nine months ended June 30, 1998. Wholesale customers increased by 106, or 93.0%, to 220 wholesale customers at June 30, 1999 from 114 wholesale customers at June 30, 1998. As of June 30, 1999, FaciliCom had approximately 52,000 retail customers in Sweden, Denmark, Finland and Norway. 145 149 Cost of revenues increased by $142.8 million to $257.3 million for the nine months ended June 30, 1999, from $114.5 million for the nine months ended June 30, 1998. As a percentage of revenues, cost of revenues decreased to 92.0% for the nine months ended June 30, 1999, from 97.7% for the nine months ended June 30, 1998, primarily as a result of increased minutes of use on FaciliCom's network, improved efficiencies of network fiber facilities due to higher traffic volumes and reductions in rates charged by FaciliCom's carrier suppliers. FaciliCom expects cost of revenues as a percentage of revenues to decrease as a result of improved efficiencies of network fiber facilities due to higher traffic volumes as well as from an anticipated increase in the percentage of on-net traffic. Gross margin increased by $19.8 million to $22.4 million for the nine months ended June 30, 1999, from $2.7 million for the nine months ended June 30, 1998. As a percentage of revenues, gross margin increased to 8.0% for the nine months ended June 30, 1999, from 2.3% for the nine months ended June 30, 1998. Selling, general and administrative expenses increased by $13.2 million to $40.7 million for the nine months ended June 30, 1999, from $27.5 million for the nine months ended June 30, 1998, primarily as a result of FaciliCom's increased sales and an increase in customer service, billing, collections and accounting staff required to support revenues growth. Offsetting these increased expenses was a reduction in stock-based compensation related to FaciliCom's stock options. As a percentage of revenues, selling, general and administrative expenses decreased to 14.6% for the nine months ended June 30, 1999, from 23.5% for the nine months ended June 30, 1998. Bad debt expense was $4.6 million, or 1.6% of revenues for the nine months ended June 30, 1999, compared with $1.8 million, or 1.5% of revenues for the nine months ended June 30, 1998. Although selling, general and administrative expenses are expected to increase on an absolute basis in order to support expansion of its operations, FaciliCom expects that selling, general and administrative expenses as a percentage of revenues will continue to decrease over time. Depreciation and amortization increased by $11.6 million to $16.9 million for the nine months ended June 30, 1999, from $5.3 million for the nine months ended June 30, 1998, primarily due to increased capital expenditures incurred in connection with the deployment and expansion of FaciliCom's network. Interest expense increased by $11.2 million to $25.7 million for the nine months ended June 30, 1999, from $14.5 million for the nine months ended June 30, 1998, primarily due to interest obligations on the FaciliCom notes which were issued on January 28, 1998. Interest income decreased by $1.9 million to $3.6 million for the nine months ended June 30, 1999, from $5.6 million for the nine months ended June 30, 1998 as the proceeds from the FaciliCom notes offering have been used to service interest payments and fund capital expenditures. Foreign exchange loss increased by $0.7 million to $1.3 million for the nine months ended June 30, 1999, from $655,000 for the nine months ended June 30, 1998. Income tax benefit of $6.7 million and $6.5 million was recorded for the nine months ended June 30, 1999 and 1998, respectively, related principally to the estimated tax benefits utilized by Armstrong Holdings. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998, AS COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 1997 Revenues increased by $114.1 million to $184.2 million for the fiscal year ended September 30, 1998, from $70.2 million for the fiscal year ended September 30, 1997. The growth in revenue resulted primarily from an increase in billed customer minutes of use resulting from an increase in wholesale customers in the U.S. and Europe and an increase in retail customers in Sweden, Denmark and Finland, as well as usage increases from existing wholesale customers. Offsetting the growth in revenue during this period was a decrease in the price per billed minute to $0.225 for the fiscal year ended September 30, 1998, from $0.278 for the fiscal year ended September 30, 1997, as a result of increased on-net traffic and competition. For the fiscal year ended September 30, 1998, U.S. revenues totaled $116.4 million or 63.2% 146 150 of FaciliCom's consolidated revenues and European revenues totaled $67.8 million, or 36.8% of consolidated revenues. Billed minutes of use increased by 568.1 million, to 820.3 million minutes of use for the fiscal year ended September 30, 1998, from 252.3 million minutes of use for the fiscal year ended September 30, 1997. Wholesale customers increased by 86, or 162.3%, to 139 wholesale customers at September 30, 1998, from 53 at September 30, 1997. As of September 30, 1998 retail customers in Sweden, Denmark and Finland total approximately 43,300. Cost of revenues increased by $113.3 million, to $179.0 million for the fiscal year ended September 30, 1998, from $65.7 million for the fiscal year ended September 30, 1997. As a percentage of revenues, cost of revenues increased to 97.1% for the fiscal year ended September 30, 1998, from 93.6% for the fiscal year ended September 30, 1997, primarily as a result of increased fixed costs associated with expanding inter-switch fiber capacity within the U.S. and Europe. FaciliCom expects cost of revenues as a percentage of revenues to decrease as a result of improved efficiencies of network fiber facilities due to higher traffic volumes as well as from an anticipated increase in the percentage of on-net traffic. Gross margin increased by $825,000 to $5.3 million for the fiscal year ended September 30, 1998, from $4.5 million for the fiscal year ended September 30, 1997. As a percentage of revenues, gross margin decreased to 2.9% for the fiscal year ended September 30, 1998, from 6.4% for the fiscal year ended September 30, 1997. Selling, general and administrative expenses increased by $26.9 million to $40.4 million for the fiscal year ended September 30, 1998, from $13.5 million for the fiscal year ended September 30, 1997, primarily as a result of FaciliCom's increased sales, an increase in customer service, billing, collections and accounting staff required to support revenue growth, and approximately $6.0 million of expenses related to stock-based compensation arrangements. As a percentage of revenues, selling, general and administrative expenses increased to 21.9% for the fiscal year ended September 30, 1998, from 19.3% for the fiscal year ended September 30, 1997. Bad debt expense was $3.8 million, or 2.0% of revenues for the fiscal year ended September 30, 1998, compared with $1.3 million, or 1.8% of revenues for the fiscal year ended September 30, 1997, as a result of increased revenue and new customers. Depreciation and amortization increased by $6.5 million to $8.8 million for the fiscal year ended September 30, 1998, from $2.3 million for the fiscal year ended September 30, 1997, primarily due to increased capital expenditures incurred in connection with the deployment and expansion of FaciliCom's network. Interest expense increased by $21.3 million to $22.6 million for the fiscal year ended September 30, 1998, from $1.3 million for the fiscal year ended September 30, 1997, primarily due to the offering of the FaciliCom notes. Interest income for the fiscal year ended September 30, 1998, was $8.2 million and related principally to interest on proceeds from the FaciliCom notes offering, which were invested in marketable securities and cash and cash equivalents. Foreign exchange loss decreased by $944,000 to $391,000 for the fiscal year ended September 30, 1998, from $1.3 million for the fiscal year ended September 30, 1997. Income tax benefit of $11.4 million was recorded for the fiscal year ended September 30, 1998 related mainly to a tax benefit of $12.1 million utilized by Armstrong Holdings, a $393,000 tax charge related to the change in tax status as a result of a reorganization of FaciliCom on December 22, 1997 and approximately $302,000 tax charge for taxes in Finland. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997, AS COMPARED TO THE FISCAL YEAR ENDED SEPTEMBER 30, 1996 Revenues increased by $58.3 million to $70.2 million in the fiscal year ended September 30, 1997, from $11.9 million in the fiscal year ended September 30, 1996. The growth in revenue resulted primarily 147 151 from an increase in billed customer minutes of use resulting from an increased number of wholesale customers in the U.S., the U.K. and Scandinavia and an increased number of retail customers in Sweden, as well as usage increases from existing wholesale customers. Offsetting the growth in revenue during this period was a decrease in the price per billed minute of 3.5%, to $0.278 for the fiscal year ended September 30, 1997 from $0.288 for the fiscal year ended September 30, 1996, as a result of increased competition. In the fiscal year ended September 30, 1997, U.S. revenues totaled $53.7 million, or 76.5% of FaciliCom's consolidated revenues, Swedish revenues totaled $15.5 million, or 22.1% of consolidated revenues, and U.K. revenues totaled $1.0 million, or 1.4% of consolidated revenues. Wholesale customers increased by 36, or 211.8%, to 53 wholesale customers at September 30, 1997, from 17 at September 30, 1996. Retail customers in Sweden increased by 10,750, to 12,365 retail customers at September 30, 1997, from 1,615 at September 30, 1996. Billed minutes of use increased by 211.0 million, to 252.3 million minutes of use in the fiscal year ended September 30, 1997, from 41.3 million minutes of use in the fiscal year ended September 30, 1996. Cost of revenues increased by $53.0 million, to $65.7 million in the fiscal year ended September 30, 1997, from $12.7 million in the fiscal year ended September 30, 1996. As a percentage of revenues, cost of revenues declined to 93.6% in the fiscal year ended September 30, 1997, from 107.2% in the fiscal year ended September 30, 1996, primarily as a result of increased minutes of use on FaciliCom's network, improved efficiencies of network facilities due to higher traffic volumes and reductions in rates charged by FaciliCom's carrier suppliers. Gross margin increased to $4.5 million in the fiscal year ended September 30, 1997, from ($851,000) in the fiscal year ended September 30, 1996. As a percentage of revenues, gross margin increased to 6.4% in the fiscal year ended September 30, 1997, from (7.2%) in the fiscal year ended September 30, 1996. Selling, general and administrative expenses increased by $5.9 million to $13.5 million in the fiscal year ended September 30, 1997, from $7.6 million in the fiscal year ended September 30, 1996, primarily as a result of FaciliCom's increased sales, and an increase in customer service, billing, collections and accounting staff required to support revenue growth. Staff levels grew by 30, or 47.6%, to 93 employees at September 30, 1997, from 63 employees at September 30, 1996. As a percentage of revenues, selling, general and administrative expenses decreased to 19.3% in the fiscal year ended September 30, 1997, from 63.8% in the fiscal year ended September 30, 1996, as a result of improved efficiencies. Bad debt expense was $1.3 million for the fiscal year ended September 30, 1997, or 1.8% of revenues. Depreciation and amortization expenses increased by $1.2 million to $2.3 million in the fiscal year ended September 30, 1997, from $1.1 million in the fiscal year ended September 30, 1996, primarily due to increased capital expenditures incurred in connection with the deployment and expansion of FaciliCom's network. Interest expense, net increased by $1.0 million to $1.3 million in the fiscal year ended September 30, 1997, from $312,000 in the fiscal year ended September 30, 1996, primarily due to increased levels of vendor financing and loans from Armstrong International Telecommunications. Foreign exchange gain (loss) decreased by $1.5 million to ($1.3) million in the fiscal year ended September 30, 1997, from $226,000 in the fiscal year ended September 30, 1996. Income taxes were $0 for both years, as all net operating losses from foreign subsidiaries were fully reserved. LIQUIDITY AND CAPITAL RESOURCES FaciliCom has incurred significant operating losses and negative cash flows as a result of the development and operation of its network, including the acquisition and maintenance of switches and undersea fiber optic capacity. FaciliCom has financed its growth primarily through equity, a credit facility provided by Armstrong, credit facilities with two equipment vendors, capital lease financing, the proceeds from the $300 million offering of the FaciliCom notes and proceeds from a line of credit. 148 152 Net cash provided by (used in) operating activities was ($30.3) million for the nine months ended June 30, 1999 due principally to a net loss of $51.9 million offset in part by depreciation and amortization expense of $16.9 million. Net cash provided by (used in) investing activities was ($18.2) million for the nine months ended June 30, 1999. Net cash used in investing activities in this period resulted from an increase in capital expenditures to expand FaciliCom's network offset in part by the sale of marketable securities. Net cash provided by (used in) financing activities was ($742,000) for the nine months ended June 30, 1999. Net cash used in financing activities for the nine months ended June 30, 1999 resulted from payments on existing long-term debt and capital leases offset in part by proceeds from FaciliCom's line of credit bank facility. In May 1999, FaciliCom obtained a one-year, $35 million credit facility with Key Corporate Capital, Inc. FaciliCom uses the proceeds of this credit facility for working capital and for general corporate purposes. At June 30, 1999, FaciliCom had $10.0 million in borrowings under this credit facility. Non-cash financing activities for the nine months ended June 30, 1999 resulted from the financing of fiber circuits provided by Qwest Communications Corporation. FaciliCom's business strategy contemplates aggregate capital expenditures of approximately $100 million during fiscal year 1999. Such capital expenditures are expected to be used primarily for international gateway switches, points of presence, transmission equipment, undersea and international fiber circuits (including indefeasible right of use and minimum assignable ownership units for new and existing routes and other support systems. In May 1998, FaciliCom entered into a Memorandum of Understanding with Qwest. The agreement provides Qwest with international direct dial termination service to various destinations and provides FaciliCom an indefeasible right of use for domestic and international fiber optic capacity. The indefeasible right of use is for twenty-five years, for which FaciliCom has agreed to pay $24 million within three years of delivery of the fiber optic capacity. Delivery of the three capacity segments occurred during the twelve months ended September 30, 1999. In addition, FaciliCom has entered into an agreement that provides it with an indefeasible right of use for international fiber optic capacity for the Pacific Rim. Delivery of the capacity under the agreement is expected prior to April 2000. The indefeasible right of use is for 15 years, for which FaciliCom has agreed to pay $20.0 million through September 30, 2002, of which $2.5 million has already been paid as a deposit and an additional $2.5 million is expected to be paid on April 30, 2000. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measuring those instruments at fair value, with the potential effect on operations dependent upon certain conditions being met. The statement (as amended by SFAS No. 137) is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. FaciliCom has yet to determine any impact the implementation of the standard will have on its financial position or results of operations. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 issue is the result of computer programs having been written using two digits rather than four to define the applicable year, resulting in date-sensitive software having the potential, among other things, to recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities, which could have material adverse operational and financial consequences. Currently, FaciliCom believes that a disruption in the operation of its networks, billing system and financial and accounting systems 149 153 and/or an inability to access interconnections with other telecommunications carriers, are the major risks associated with the inability of systems and software to process Year 2000 data correctly. If the systems of other companies on whose services FaciliCom depends, including Armstrong Holdings, or with whom its systems interface are not Year 2000 compliant, there could be a material adverse effect on FaciliCom's business, financial position and results of operations. State of Readiness FaciliCom, in conjunction with Armstrong Holdings, formed a task team in February 1998. The task team's program comprised three phases: (1) assessment of Year 2000 compliance of FaciliCom's equipment, software and systems, (2) a detailed inventory of these items and (3) building and implementing a workplan and contingency plan, which includes assessing the cost in dollars and the necessary manpower, upgrading or replacing the item, and scheduling the date of compliance. As of September 30, 1999, FaciliCom had completed all phases of the program. Included in the task team's assessment was a review of the year 2000 compliance efforts of FaciliCom's key suppliers. Below is a more detailed breakdown of their efforts. Internal Issues Network elements -- FaciliCom's main concern is the switching equipment and peripherals, and other vendor components that are time and date sensitive. FaciliCom has upgraded all of its networks with the compliant software, except for one switch in Finland, which it plans to replace with a new year 2000 compliant switch by October 31, 1999. In addition, FaciliCom has completed the software upgrade for its passport equipment which allows it to compress its traffic thereby allowing more traffic to be carried over a single fiber optic cable. FaciliCom's transmission equipment is currently year 2000 "friendly", which means the manufacturer has represented that the software releases will not experience any service-affecting issues upon rollover into the new millennium. Although FaciliCom expects that it will be able to resolve year 2000 problems with workarounds, it cannot assure you that such workarounds will be successful. Billing System and Accounting System -- FaciliCom's billing system was developed by Armstrong Holdings' programmers and operates on an IBM AS400. FaciliCom believes that the billing system and the IBM AS400 are year 2000 compliant. However, the production of accurate and timely customer invoices depends upon the generation of accurate and timely underlying data by FaciliCom's switches. Though the switch manufacturer has represented that FaciliCom's switches are year 2000 compliant, there can be no assurance that such billing problems will not occur. FaciliCom is in the process of converting its accounting system. The manufacturer has represented that this system is year 2000 compliant and its implementation is expected to be completed by December 31, 1999. Information Systems -- FaciliCom's upgrade of its information systems is in progress. FaciliCom believes that all of its hardware equipment, including the equipment it relies upon at Armstrong Holdings, is year 2000 compliant. All of FaciliCom's software products are year 2000 compliant. Substantially all software applications have been modified or upgraded for year 2000 compliance. Additionally, all of FaciliCom's workstations and laptops have been upgraded for year 2000 compliance. Third Party Issues Vendor Issues -- In general, FaciliCom's product vendors have made available either year 2000 compliant versions of their products or new compliant products as replacements for discontinued offerings. In most cases, statements made by FaciliCom herein as to the degree of compliance of the products in question are based on vendor-provided information, which remains subject to FaciliCom's testing and verification activities. Testing and verification will be ongoing through December 31, 1999. FaciliCom is in the process of requesting information from utilities and similar service providers. Customer Issues -- FaciliCom's customers are interested in the progress of FaciliCom's year 2000 efforts, and FaciliCom anticipates increased demand for information, including detailed testing data and company-specific responses. When requested by customers, FaciliCom provides year 2000 compliance 150 154 information. At this time, FaciliCom has not performed an analysis of its potential liability to customers in the event of year 2000 related problems. Interconnecting Carriers -- FaciliCom's network operations interconnect with domestic and international networks of other carriers. If one of these interconnecting carriers should fail or suffer adverse consequences due to a year 2000 problem, FaciliCom's customers could experience impairment of services. In addition, since many of these interconnecting carriers are also FaciliCom's customers, a year 2000 problem by one of these customers could result in a loss of revenues due to its inability to send traffic to its network. FaciliCom is in the process of sending correspondence to its major interconnecting carriers to determine the status of their year 2000 compliance review. Costs Although it cannot precisely estimate total costs to implement the plan, FaciliCom has not incurred costs to date in excess of those normally associated with business planning and implementation. FaciliCom anticipates that future costs will not be material, in as much as it began to acquire products after the year 2000 issue was identified and manufacturers had begun to remediate the problem. However, FaciliCom cannot assure you that material costs will not be incurred. FaciliCom cannot estimate the future cost related to the inoperability of third party products. These costs will be expensed as incurred, unless new systems are purchased that should be capitalized in accordance with generally accepted accounting principles. Risks The failure to correct a material year 2000 problem could cause an interruption or failure of certain of FaciliCom's normal business functions or operations, which could have a material adverse effect on its business, financial position and results of operations. Due to the uncertainty inherent in other year 2000 issues that are ultimately beyond FaciliCom's control, including, for example, the year 2000 readiness of its suppliers, customers and interconnecting carriers, FaciliCom is unable to determine at this time the likelihood of a material impact on its business, financial position and results of operation, due to such year 2000 issues. However, based upon risk assessment work conducted thus far, FaciliCom believes that the most reasonably likely worst case scenario of the failure by it, its suppliers or other telecommunications carriers with which FaciliCom interconnects to resolve year 2000 issues would be an inability by it - to provide telecommunications services to its customers, - to route and deliver telephone calls originating from or terminating with other telecommunications carriers, and - to timely and accurately bill its customers. In addition to lost earnings, these failures could also result in loss of customers due to service interruptions and billing errors, substantial claims by customers and increased expenses associated with year 2000 litigation, stabilization of operations and executing mitigation and contingency plans. While FaciliCom believes that it is taking appropriate measures to mitigate these risks, it cannot assure you that such measures will be successful. Contingency Plan FaciliCom has completed its contingency plan. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Although FaciliCom's reporting currency is the U.S. dollar, FaciliCom expects to derive an increasing percentage of its revenues from international operations. Accordingly, changes in currency exchange rates may have a significant effect on FaciliCom's results of operations. For example, the accounting rate under operating agreements is often defined in monetary units other than U.S. dollars, such as "special drawing 151 155 rights" or "SDRs." To the extent that the U.S. dollar declines relative to units such as special drawing rights, the dollar equivalent accounting rate would increase. In addition, as FaciliCom expands into foreign markets, its exposure to foreign currency rate fluctuations is expected to increase. Although FaciliCom does not currently engage in exchange rate hedging strategies, it may choose to limit such exposure by purchasing forward foreign exchange contracts or other similar hedging strategies. FaciliCom's board of directors periodically reviews and approves the overall interest rate and foreign exchange risk management policy and transaction authority limits. Specific hedging contracts, if any, will be subject to approval by certain specified officers of FaciliCom acting within its board of directors' overall policies and limits. FaciliCom intends to limit its hedging activities to the extent of its foreign currency exposure. FaciliCom cannot assure you that any currency hedging strategy would be successful in avoiding currency exchange-related losses. Also, FaciliCom is exposed to interest rate risk. FaciliCom maintains both fixed rate and variable rate long-term debt. FaciliCom manages its interest rate risk in order to balance its exposure between fixed and variable rates while attempting to minimize its interest costs. 152 156 BUSINESS OF FACILICOM OVERVIEW FaciliCom is a rapidly growing multinational, facilities-based telecommunications carrier. FaciliCom provides international long distance services to other carriers worldwide and offers international and domestic long distance voice, internet access, data and other value-added services to business and residential customers in select European markets. FaciliCom provides these services over its carrier-grade international network which consists of 17 gateway switches and 18 additional points of presence in the U.S. and in 13 European countries, as well as a satellite earth station in Malmo, Sweden. FaciliCom's network is connected primarily by fiber optic cable capacity which it owns, together with additional fiber capacity that it leases, including capacity that it leases from Hermes, CIRCE and Qwest. In addition to its facilities, FaciliCom has 12 interconnection agreements, ten of which are with the dominant national carriers in FaciliCom's markets, and 21 operating agreements, 16 of which are with the dominant national carriers in these markets. FaciliCom believes that its facilities-based network is one of the most extensive independent telecommunications networks serving the international long distance market in the U.S. and Europe. This network and FaciliCom's interconnection and operating agreements enable it to offer competitively priced, high-quality voice and data services to over 220 wholesale carriers and approximately 52,000 retail customers. FaciliCom believes that its multinational, facilities-based approach and established licensed carrier status in the U.S. and in 13 European countries provide it with significant competitive advantages. These advantages include: - reduced termination and network costs resulting in higher gross margins; - increased flexibility to introduce new products and services such as internet access, data and other value-added services; - improved transmission quality; and - the ability to offer high-quality local sales and customer service. Since January 1998, FaciliCom has focused on entering key deregulating markets, accumulating a critical mass of wholesale telecommunications traffic to support investments in carrier-grade telecommunications facilities and migrating customer traffic onto FaciliCom's international network. During this period, FaciliCom has entered nine new countries, installed 14 gateway switches in 12 countries, acquired capacity in 12 additional fiber systems, and entered into 10 new interconnection and six new operating agreements. As of June 30, 1999, FaciliCom had invested approximately $211.0 million in network facilities. As a result of FaciliCom's infrastructure investments, it has been able to increase the traffic volume delivered over its network (commonly referred to as "on-net traffic") from 26.5% for the nine months ended June 30, 1998 to 41.7% for the nine months ended June 30, 1999, and FaciliCom's gross margin increased from 2.3% during the nine month period ended June 30, 1998, to 8.0% during the nine month period ended June 30, 1999. FaciliCom was founded in May 1995 to capitalize on opportunities for facilities-based carriers in the international telecommunications services industry. FaciliCom has targeted deregulating markets in order to benefit from the significant demand for international long distance services in those markets and the relatively favorable competitive conditions there. FaciliCom expects that worldwide demand for high-quality international telecommunications services will continue to grow as a result of: - the globalization of the world's economies and the worldwide trend toward deregulation of the telecommunications sector; - declining prices and a wider selection of products and services driven by greater competition as a result of deregulation; 153 157 - technological advances, which have substantially increased the transmission capacity and reduced the cost of fiber capacity; - increased demand for internet access, data and other value-added services; and - increased telephone accessibility resulting from greater investment in telecommunications infrastructure, including the deployment of wireless networks. In addition, FaciliCom's industry continues to evolve away from the traditional pricing and operations model for exchanging telecommunications traffic between international carriers, known as the international accounting rate mechanism. As the international accounting rate mechanism model is abandoned, FaciliCom will be able to pass cost savings to its customers, which it believes will further increase demand for these services. STRENGTHS FaciliCom is positioning itself to become a leader in the rapidly growing global market for international long distance voice, internet access, data and other value-added services. FaciliCom enjoys competitive advantages which it believes serve as a model for its continued successful growth as a diversified telecommunications company, including: Extensive Facilities-Based International Telecommunications Network. Since 1995, FaciliCom has built a carrier-grade network in 14 countries, including the U.S. and the top 10 Western European international long distance markets. FaciliCom is in negotiations to complete interconnection agreements with additional carriers. FaciliCom believes that its early entrant approach implemented through its local management and operations has allowed it to enter into interconnection agreements more readily than companies without these resources and provides it with a lower cost structure than its competitors serving these regions who do not have these agreements. FaciliCom's network has been designed and built to allow it to offer high-quality services, control its termination and network costs and cost-effectively expand its service offerings. By adding relatively inexpensive routers to its asynchronous transfer mode network, FaciliCom can further expand its dial-up internet access services with little additional investment. FaciliCom believes that its existing network gives it an early entrant advantage and positions it to continue to increase its revenues and improve gross margins. Strong European Presence. FaciliCom has developed a strong European presence, with 56.5% of FaciliCom's revenue for the nine month period ended June 30, 1999 originating from FaciliCom's European operations as compared to 31.1% for the nine month period ended June 30, 1998. FaciliCom's European focus enables it to capitalize on the higher prices associated with traffic originating in Europe as compared to the U.S. Because FaciliCom's network is concentrated in the leading European markets, it is able to take advantage of increasing opportunities to carry cross-border European traffic on its network, realize greater economies of scale in network management and sales and marketing, and capitalize on strategic opportunities to build fiber systems such as FCI One. In addition, this geographic concentration favorably positions FaciliCom for entry into other deregulating European markets, such as Poland, Portugal and the Czech Republic, on a more cost-effective basis, by adding a new source of traffic which can be terminated throughout FaciliCom's network and by reducing termination costs of network traffic entering these newly-deregulated markets. Established Customer Base. FaciliCom has established a wholesale customer base of over 220 carriers in the U.S. and 13 European countries, including a majority of the first-tier and emerging carriers, European wireless carriers and seven of the ten largest global international carriers. This significant customer base enables FaciliCom to rapidly and cost-effectively build traffic volumes as it expands its network. Because many of its customers are also high-quality carriers, FaciliCom is able to use their facilities on favorable terms to carry traffic on routes where it has no facilities, thereby lowering its network costs. Successful Retail Operations in Scandinavia. Since its initial investment in its Swedish subsidiary in 1995, FaciliCom has increased its retail customer base from fewer than 2,000 to approximately 52,000 154 158 small- to medium-sized business, and residential retail customers in Sweden, Denmark, Norway and Finland. This customer base generated 5.0% of FaciliCom's consolidated revenues for the nine month period ended June 30, 1999. Proven Record of Strong Internal Growth. FaciliCom was established in May 1995 and has since rapidly increased its revenues and network traffic. For the fiscal years ended September 30, 1996, 1997 and 1998, and the nine month period ended June 30, 1999, FaciliCom's revenues were $11.9 million, $70.2 million, $184.2 million and $279.7 million, respectively. In addition, for the fiscal years ended 1996, 1997 and 1998, and the nine month period ended June 30, 1999, FaciliCom's network carried 41.3 million, 252.3 million, 820.3 million and 1.4 billion minutes of traffic, respectively. FaciliCom's growth has been derived mainly from internal expansion. FaciliCom has managed this rapid growth in a manner that has permitted it to increase its customer base efficiently while maintaining high standards of network quality and customer service. Strong Management Team. FaciliCom has a highly experienced senior management team with, on average, over 23 years of experience in the telecommunications industry, including experience with such industry leaders as Bell Atlantic, British Telecom, Cable & Wireless, Global One, Sprint, GTE, Viag Interkom and NorTel Networks. Additionally, in each country in which FaciliCom operates, it employs a local management team that is familiar with local legal and regulatory issues, business practices, and cultural norms that affect FaciliCom's business. The members of FaciliCom's team have proven their ability to obtain licenses, recruit experienced staff, negotiate for interconnection agreements with dominant national carriers, construct and operate a high-quality network and provide superior customer service. FaciliCom believes that experience that it has gained from operating in Europe over the last four years provides it with a distinct advantage over newer entrants to these markets. OPERATING MARKETS FaciliCom currently terminates traffic through a combination of interconnection and operating agreements, transit, refiling, resale and international simple resale to over 200 countries worldwide and originate traffic in Austria, Belgium, Denmark, Finland, France, Germany, Italy, The Netherlands, Norway, Spain, Sweden, Switzerland, the U.K., and the U.S. FaciliCom estimates that it has a market share of less than 1.0% of each of these markets. Austria. Austria has a population of approximately 8.1 million. By 1997, the government had completed a 10-year privatization program of the telecommunications industry. In December 1997, licenses for providing wireline voice telephone services were issued to eight companies. At the same time, the Supervisory Board of Post & Telekom Austria AG approved the separation of its telecommunications operations from the national mail and bus services. The new telecommunications company was named Telekom Austria AG, and Telecom Italia purchased a 25% stake as its strategic partner. Belgium. The population of Belgium is approximately 10.2 million. Although Belgium liberalized its telecommunications services in accordance with the EU directive on January 1, 1998, some barriers to entry still persist, including significant interconnection charges that foreign carriers pay to Belgacom, the Belgium dominant national carrier. Denmark. With a population of approximately 5.2 million, Denmark has a telecommunications market that generated approximately $3.6 billion in revenues in 1996 according to the International Telecommunications Union. The Danish Parliament approved legislation in May 1997 to liberalize its telecommunications industry. The new law allows carriers to provide public voice services and to build and lease networks. Most services, including voice telephony, may be provided under a general class license. The telecommunications market in Denmark has been historically dominated by the primary national carrier of Denmark, Tele Denmark, which, according to TeleGeography 1999, accounted for 82.0% of Denmark's international outgoing minutes in 1997. Since privatization, 12 companies providing facilities-based service have entered the Danish market. Key European companies in Denmark's telecommunications service sector include Telia (Sweden) and French Mobilix (a subsidiary of France Telecom). 155 159 Finland. With a population of approximately 5.2 million, Finland's telecommunications services market generated approximately $2.5 billion in revenues in 1998, according to an estimate by the U.S. Department of State. Finland fully liberalized the provision of voice telephony services in 1994, and has recently eliminated its licensing requirements for the construction of fixed telecommunications networks. Since deregulation, eight companies providing facilities-based service have entered the Finnish market. According to TeleGeography 1999, in 1997, the primary national carrier of Finland, Sonera Ltd., accounted for 58.9% of Finland's international outgoing minutes, while Finnet Group and Telia accounted for 28.2% and 9.3%, respectively. France. The population of France is approximately 58.8 million. As of January 1998, all telecommunications services were open to competition in France, including the provision of public voice telephony. Since liberalization, 33 companies have entered the French market and compete with the national carrier, France Telecom. Restrictions on market entry include a foreign equity limit of 20%. Germany. With a population of approximately 81.8 million, the German telecommunications market is the third largest in the world with an estimated $39 billion in revenues according to an estimate by the U.S. Department of State. Germany is Europe's largest telecommunications market, accounting for 23.4% of the total market. Under German law, all telecommunications services, both national and international, including public voice telephony, became open to competition in Germany on January 1, 1998. Until January 1998, the German national carrier, Deutsche Telekom A.G., operated the German telephony market under a monopolistic regime. A number of new competitors have recently entered the market. As of November 1998, Deutsche Telekom A.G. held approximately 80% of the market for long distance services (including international calls). Italy. With a population of approximately 57.3 million, the total 1999 telecommunications market in Italy, including both equipment and services, is estimated at $32 billion, according to an estimate by the U.S. Department of State. The market was liberalized on January 1, 1998, which allowed the authorization of five new fixed-line carriers. The Netherlands. With a population of approximately 15.9 million, the Dutch telecommunications services market generated approximately $9.0 billion in revenues in 1998 from public voice telephony, network and mobile telephony services, according to the European Commission. The Dutch telecommunications infrastructure, public switched voice telephony and telex markets were liberalized on July 1, 1997. Since liberalization, more than 25 companies have entered the Dutch market. The Dutch national carrier, KPN, accounted for approximately 95% of The Netherlands' market for international outgoing minutes in 1997, according to TeleGeography 1999. Norway. Norway has a population of approximately 4.4 million. The Norwegian telecommunications market for data transmission, voice telephony, paging and other mobile services and satellite communications has been fully liberalized since January 1, 1998. Until the liberalization in 1998, the Norwegian national carrier, Telenor AS, accounted for 100% of Norway's market for international outgoing minutes. Spain. Spain has a population of approximately 39.8 million. Spain liberalized its telecommunications market in December 1998. Prior to that time, the government had phased in competition in basic telephony through licenses granted to recently privatized Spanish second operator, Retevision, and to a third operator, Lince (France Telecom), in addition to the incumbent operator Telefonica. Sweden. With a population of approximately 8.9 million, Sweden has a telecommunications market that generated approximately $6.0 billion in revenues in 1996 according to the International Telecommunications Union. Since Sweden fully liberalized its telecommunications market in January 1998, more than 12 companies providing facilities-based service have entered the Swedish market. Telia AB, the Swedish national carrier, and Tele-2 AB accounted for approximately 66.0% and 22.0%, respectively, of Sweden's market for international outgoing minutes in 1997, according to TeleGeography 1999. Telia AB is a member of the Unisource consortium and is also authorized to provide facilities-based services between the U.S. and Sweden. 156 160 Switzerland. Switzerland has a population of approximately 7.4 million. In 1997, the Swiss Parliament enacted legislation to liberalize and privatize the Swiss telecommunications sector, opening the market to investment and competition from foreign firms. This liberalization took effect on January 1, 1998. According to the WTO Agreement, the Swiss government has committed to complete liberalization of basic telecom services (facilities-based and resale, public and non-public) for all market segments. United Kingdom. With a population of approximately 58.9 million, the U.K. has a telecommunications market that generated approximately $32.8 billion in 1998, according to an estimate by the British Office of Telecommunications ("Oftel"). According to Oftel, the U.K.'s international and domestic long distance services market accounted for approximately $6.6 billion in revenues for the year ended March 31, 1997, with international outgoing calls generating $2.4 billion in revenue. The U.K. has substantially liberalized its telecommunications market. However, the U.K. has applied to the EU for an extension to the EU's requirements that require member states to introduce pre-selection by January 2000. According to TeleGeography 1999, British Telecom held 54.9% of the U.K.'s market for international outgoing minutes in 1997, and Cable &Wireless Communications held 30.3%. In addition to British Telecom and Cable & Wireless Communications, there are over 50 foreign carriers in the U.K. that currently hold licenses authorizing them to interconnect with the dominant national carrier. United States. With a population of approximately 272.6 million, the U.S. has a telecommunications services market that generated revenues of approximately $231.2 billion in 1997, according to the FCC. The United States has committed to open markets for essentially all basic telecommunications services (facilities-based and resale) for all market segments. The U.S. long distance market is highly deregulated and is the largest in the world. According to the FCC, in 1997 long distance telephone revenues were approximately $100.8 billion, including approximately $17.7 billion from international services, representing 17.5% of the total market. According to TeleGeography 1999, AT&T is the largest international long distance carrier in the U.S. market, with approximately 45.3% of the U.S. international outgoing minutes in 1997, while MCI, Sprint and WorldCom had market shares of 26.0%, 12.2% and 6.2%, respectively. AT&T, MCI WorldCom and Sprint are generally regarded as first-tier carriers in the U.S. long distance market. Other large long distance companies with more limited ownership of transmission capacity, including Frontier and Qwest, are generally regarded as second-tier carriers. The remainder of the U.S. long distance market comprises several hundred smaller companies, largely resellers, which are generally regarded as the third-tier carriers. NETWORK General. FaciliCom has an extensive facilities-based international network comprised of gateway switches, additional points of presence, an asynchronous transfer mode transmission backbone, owned and leased fiber capacity and a satellite earth station. FaciliCom's facilities-based network permits it to terminate an increasing percentage of traffic on-net, allowing it to better control both the quality and cost of telecommunications services that FaciliCom provides to its customers. To provide high-quality telecommunications services, FaciliCom's network employs digital switching and fiber technologies, uses advanced signaling protocols and is supported by comprehensive monitoring and technical services. FaciliCom carries international traffic historically carried between U.S. and foreign international long distance carriers over its own network. In addition, FaciliCom's gateway switches and European points of presence allow it to terminate traffic within countries, ensuring quality and lowering termination costs. FaciliCom has also established interconnection and operating agreements with national carriers in the markets where it has facilities. Gateway Switches. FaciliCom currently operates 15 NorTel and two Ericsson gateway switches in the U.S. (New York, New Jersey, Los Angeles and Miami) and in Europe (Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, Norway, Spain, Sweden, Switzerland and the United Kingdom). Asynchronous Transfer Mode Transmission Backbone. FaciliCom currently operates a high-capacity asynchronous transfer mode transmission backbone between certain of its U.S. and European gateway 157 161 switch locations. FaciliCom's asynchronous transfer mode backbone enables it to combine switched voice, private line and data traffic, including frame relay and internet protocol, on the same international circuits. FaciliCom believes that its existing asynchronous transfer mode backbone provides a competitive networking advantage because it is able to combine these forms of traffic onto the same network, thereby eliminating the need to purchase capacity and related equipment for different types of traffic. In addition, the switching technology used in an asynchronous transfer mode system is more efficient than traditional circuit-switched technology because an asynchronous transfer mode network, unlike a circuit-based network, does not require a fixed amount of bandwidth to be reserved for each phone call or data transmission. This allows voice and data calls to be pooled, which enables it to carry more calls with the same amount of bandwidth. This greater efficiency creates network cost savings that can be passed on to FaciliCom's customers in the form of lower rates, and provides an immediate cost advantage for connection from FaciliCom's nearest point of presence to the chosen internet backbone interconnect point. Fiber. FaciliCom seeks to obtain ownership interests in fiber systems where it believes that its customers' demand will justify the investment in those fixed assets. FaciliCom can generally earn a higher gross margin on traffic routed through its network's owned fiber rather than traffic routed through its network's leased fiber. However, when it is more cost effective to do so, FaciliCom will lease fiber capacity on a short term basis on specific routes. FaciliCom currently has acquired fiber capacity on an indefeasible rights of use or minimum assignable membership units basis in 18 fiber cable systems (including Hermes, CIRCE, Flag, Qwest, CANTAT, ODIN and Southern Cross). FaciliCom believes that no single agreement that it has relating to indefeasible rights of use or to minimum assignable ownership units is material to its financial condition or its business operations. With the passage of time, an increasing amount of fiber capacity is becoming available, and the cost of this capacity is expected to continue to decline rapidly. As a result, FaciliCom believes that, when one or more of these agreements expires, it would be able to replace, at similar costs and within reasonable time periods, similar capacity on alternative competing fiber systems through purchases of minimum assignable ownership units or indefeasible rights of use. Ownership and Operation of Fiber Capacity/FCI One. FaciliCom purchases fiber capacity on existing cable systems as demand for FaciliCom's services justifies this investment. When fiber capacity is not available at reasonable prices, FaciliCom may instead install and operate its own fiber cables. FaciliCom's initial effort in this area consisted of FCI One, a 24-pair fiber submarine cable that it owns and operates between Copenhagen, Denmark and Malmo, Sweden. Currently, FaciliCom is only using one such fiber pair with a configured capacity of STM-16. Before Denmark granted licenses to additional facilities-based carriers, Tele Denmark, the incumbent dominant carrier, possessed the exclusive right to build international cables into Denmark, and fiber capacity into Denmark was generally available only at high prices. When FaciliCom became licensed to operate in Denmark as a facilities-based carrier, it also obtained the right to build international cables. Given its current and forecasted capacity requirements, FaciliCom determined it was more cost effective to build FCI One than to lease capacity from Tele Denmark at high rates. FCI One became operational in May 1999. In addition to cost savings on capacity that it uses, FaciliCom can sell or lease excess capacity or swap capacity on FCI One for capacity it requires on other routes. Since May 1999, FaciliCom has sold a portion of the capacity on FCI One and is in discussions to sell or swap additional capacity. Points of Presence. In addition to its switch centers, FaciliCom has installed a number of transmission points of presence in its network that provide additional geographic locations for FaciliCom's customers and the local public switched telephone network to interconnect with FaciliCom's network. In the U.S., FaciliCom operates points of presence in Washington, D.C., Tampa, Florida, New York, New York, and in Germany it operates points of presence in Stuttgart, Hamburg, Dusseldorf and seven other cities. FaciliCom also operates points of presence in London, England, Helsinki, Finland, and in Stockholm and two other cities in Sweden. These points of presence allow FaciliCom to reduce its costs 158 162 for delivering traffic to public networks and make it easier for customers with local networks to deliver traffic to FaciliCom's network. Interconnection and Operating Agreements. FaciliCom enters into interconnection agreements with the national carrier in each of the countries where it has operating facilities so that it can originate and terminate traffic in that country. Interconnection agreements enable FaciliCom to terminate traffic in a country by connecting the local network of that country with FaciliCom's network. Interconnection agreements typically allow FaciliCom to terminate traffic in the countries in which it has these agreements at the lowest available access cost, and to originate traffic from these countries when a customer dials FaciliCom's carrier access code. FaciliCom has entered into 12 interconnection agreements, including agreements with the dominant national carrier in Austria, Denmark, Finland, Germany, Italy, The Netherlands, Norway, Sweden, Switzerland and the U.K. FaciliCom is currently negotiating for additional interconnection agreements with the dominant national carriers in other European countries. FaciliCom also has operating agreements with 16 national carriers and five emerging carriers. An operating agreement provides for the exchange of international long distance traffic between correspondent international long distance providers that own facilities in different countries. Satellite Facilities. FaciliCom owns and operates the Swedish International Teleport, a 13-meter satellite earth station in Malmo, Sweden that transmits to an INTELSAT satellite over the Indian Ocean. FaciliCom's status as a member of INTELSAT enables it to easily expand its geographic coverage worldwide through the acquisition of additional satellite transmission capacity on a preferential basis. The earth station and INTELSAT satellite, which provide coverage to Africa and most of Asia, currently connect customers on the Indian subcontinent with locations in Europe and North America on a private line basis. FaciliCom uses this facility to provide connectivity with carriers in developing countries before international cable capacity becomes available there, and on low-volume international routes. FaciliCom is also negotiating agreements with several Asian carriers to interconnect with Sweden to transmit public switched-voice traffic through FaciliCom's earth station. Signaling Network. Modern carrier networks use standard protocols of the International Telecommunications Union (CCITT-C7 and SS-7) to signal between switches in order to set up connections and monitor call status. Most small carriers use one channel of each trunk group to signal other carriers on what is designated as an "F Link." This F Link signaling is adequate for call setup but is subject to failure because it does not provide for any redundancy. If the F Link fails the entire trunk group cannot be used. F Link signaling also does not provide many network management features because its signal capability is limited to one link between two switches. To overcome the drawbacks of F Link signaling, more advanced network operators install modern and sophisticated packet signaling switches called signal transfer points that enable their switches to communicate with other switches in their network and with customer and carrier networks. These signaling networks include redundant links to paired signal transfer points and are virtually failsafe. FaciliCom has installed a pair of redundant signal transfer points in Frankfurt and London and another pair of signal transfer points in New Jersey and New York. As a result, FaciliCom's network is more robust, and it is able to provide signaling services to other carriers. Network Reliability. FaciliCom's resilient network has diverse switching and routing capabilities. For example, on the high-volume North America to Europe routes, FaciliCom splits customer traffic between its U.S.-based gateway switches, over three transatlantic cable routes and over each of its European-based gateway switches. All of FaciliCom's gateway switches have backup power systems, and each fiber cable has built-in redundancies that reroute traffic in the event of an interruption in cable service. FaciliCom's paired signal transfer points network with redundant signal paths also provides an additional level of network integrity. Network Monitoring and Technical Support. FaciliCom has technical staff located in the U.S. and throughout its markets in Europe who provide support for FaciliCom's network. FaciliCom's technical staff located in Europe provides network management and operations support for FaciliCom's gateway switches. 159 163 In addition, to support its NorTel switches, FaciliCom has implemented GTE's support system. This system provides FaciliCom with integrated proactive network operations, network message management and a customer contact system. FaciliCom fully supports all network management and operations and functions 24 hours a day, seven days a week from a central location in Washington, D.C. FaciliCom's network operations center in Washington, D.C. monitors all of the switches and transmission links in FaciliCom's network and receives immediate signals alerting it to any abnormal network condition. Through this facility, FaciliCom has the capability to reroute traffic if there is a cable cut or an equipment failure. This center also monitors the quality of any carriers FaciliCom uses to route off-net traffic and removes any of them from its routing if they fall below FaciliCom's performance standards. SERVICES FaciliCom offers high-quality international telecommunications services over its own international network and by interconnecting its network with the networks of other carriers. FaciliCom provides primarily wholesale international telecommunications voice services and internet access, data and other value-added services in select European markets. FaciliCom recently expanded its retail services in Scandinavia, and it is offering "dial around" or "casual dialing" service in Finland and Sweden under the brand name Call One. For the fiscal years ended September 30, 1997 and 1998, and the nine month period ended June 30, 1999, wholesale services represented approximately 94.6%, 92.5% and 95.0%, respectively, of FaciliCom's consolidated revenues, and retail services represented approximately 5.4%, 7.5% and 5.0%, respectively, of FaciliCom's consolidated revenues. Wholesale Services. FaciliCom provides wholesale international long distance voice services to carrier customers located in the 14 countries in which it operates. Other carriers interconnect with FaciliCom's network by direct circuit connections from their networks to one of FaciliCom's gateway switches. FaciliCom also provides service to switchless resellers by enabling their customers to access FaciliCom's network from the national public switched telephone network by dialed access through carrier access codes. FaciliCom provides wholesale termination to over 200 countries using a mix of owned and leased facilities, and interconnection, operating and resale agreements. FaciliCom also offers to certain customers internet protocol and frame relay services over FaciliCom's asynchronous transfer mode backbone. Retail Services. FaciliCom provides international and domestic long distance voice services to retail customers in Scandinavia. Retail customers either subscribe to FaciliCom's services or access the services on a call by call basis by dialing FaciliCom's carrier access code. In addition, FaciliCom offers internet access and international private line service to business and residential customers. Voice. FaciliCom's retail customers may access its long distance voice services in the following ways: Direct Access. The telephone equipment used by subscribers is directly connected to FaciliCom's switches through a private line and, unless bill payments are overdue, the subscriber is allowed to make calls up to a predetermined credit limit. Subscribers to this service do not have to dial FaciliCom's access code in order to connect to FaciliCom's network. The private line connections for FaciliCom's direct access services may be leased from the public switched telephone network. In addition, these connections may be radio links or digital subscriber lines. Direct access customers are primarily small-to medium-sized businesses. Casual Dialing. Any telephone in FaciliCom's markets which is connected to the public switched telephone network can be used to dial FaciliCom's access code and place domestic long distance or international calls. The telephone user does not have to apply in advance to be recognized as a customer. FaciliCom's gateway switch receives the calling number from the public network and screens it in order to determine whether it should be denied service for any reason, such as a failure to make payments in the past. Casual dialing customers are primarily residential users. Indirect Access. To utilize this service, the telephone number of a customer who satisfies FaciliCom's credit requirements is added to a list in FaciliCom's switches. Unless the customer's 160 164 payments are overdue, the customer may place calls that have a cost up to a predetermined credit limit. Users of this method of access must dial FaciliCom's access code to connect to FaciliCom's network through the public switched telephone network. If the customer is a heavy user, such as a small business, FaciliCom may equip its telephones with an automatic dialer that will insert FaciliCom's access code whenever the customer seeks to make a long distance or international call. This service is available in countries that do not require equal access. Equal Access. This method of access resembles the service that FaciliCom provides to customers with indirect access. However, customers can choose to subscribe to FaciliCom's network for all of their long distance services and do not have to dial FaciliCom's access code in order to connect to FaciliCom's network through the public switched telephone network. Instead, the local operator will automatically route the customer's calls to FaciliCom's network. The 13 European countries in which FaciliCom operates are all scheduled to require equal access service within the next three years. Data. The retail data services that FaciliCom presently offers in Scandinavia are as follows: Internet Access. FaciliCom offers internet access service to FaciliCom's retail customers in Finland. FaciliCom uses its own facilities to connect customers to an internet backbone interconnect point. FaciliCom bundles these services with its long distance and international voice services to provide a single communications package for certain of its customers. Unlike in the U.S., where most local calls are free, dominant national carriers in Europe charge retail local calling rates of as much as $0.10 per minute for a dial-up connection to an internet service provider. FaciliCom believes that this situation has inhibited the growth of the use of the internet in Europe. FaciliCom believes that companies like it will stimulate internet usage by offering internet access services at lower costs. FaciliCom's interconnection agreements allow any telephone line where it has these agreements to dial FaciliCom's access code and be connected with FaciliCom's network. FaciliCom pays the operator of the public switched telephone network very low wholesale transport charges to connect these calls to FaciliCom's network. Once the call is connected to its network, FaciliCom can connect it to the internet through its own data routers and its own asynchronous transfer mode backbone. This enables FaciliCom to provide high-quality and low-cost dial-up internet access to any home or business. Private Data Lines. Another data service that FaciliCom provides is private line connectivity for business customers, other data providers and for video conferencing. These services are targeted to businesses that have offices or operations in more than one country, and that require voice and data connections between their locations. FaciliCom provides frame relay, internet protocol and bandwidth connectivity between points on FaciliCom's backbone network. Customers pay for the effective amount of bandwidth (64 kbps, 256 kbps, 2 mbps, etc.) that they purchase. Voice Over Internet Protocol (VOIP). Technology has been developed that enables origination and termination of voice traffic over internet protocol networks. This is commonly referred to as VOIP. The initial concept was to use the internet to transport this traffic for free. In actual practice, the quality of voice transported over the internet varies from acceptable to poor because of packet delays during high traffic periods. It is possible to improve the voice quality of internet protocol by routing the traffic over a dedicated intranet that utilizes private data lines instead of the internet. FaciliCom provides VOIP intranet service on its network. FaciliCom believes that business customers and residential early technology adopters that have invested in technology based upon internet protocol will be attracted to this service. No uniform approach to VOIP's regulatory treatment has been developed, and FaciliCom cannot predict the manner in which VOIP may be regulated in the future or the impact of such regulation on FaciliCom's operations. 161 165 CUSTOMERS Wholesale Customers. FaciliCom's target wholesale customer base consists primarily of dominant national carriers, other first-tier carriers, emerging carriers and wireless carriers with international traffic. National carriers and other first-tier carriers generally have their own international networks, but use carriers such as FaciliCom for overflow traffic and in order to route traffic at lower rates. Emerging and wireless carriers are rapidly growing industry segments that generally rely on national carriers and wholesale carriers like FaciliCom to provide international connectivity. As of June 30, 1999, FaciliCom provided service to over 220 carriers, including seven of the ten largest global international carriers, and 40 multinational carriers that originate traffic in more than one of FaciliCom's existing markets, together with five wireless carriers. For the fiscal year ended September 30, 1998, FaciliCom's five largest customers accounted for 21.9% of FaciliCom's consolidated revenues. For the nine month period ended June 30, 1999, FaciliCom's five largest customers accounted for 18.4% of FaciliCom's consolidated revenues. FaciliCom anticipates that the percentage of revenues attributable to FaciliCom's largest customers will decrease as FaciliCom's customer base grows. FaciliCom's agreements with its customers do not currently establish minimum term or usage requirements. FaciliCom uses a comprehensive credit screening process when identifying new wholesale customers. For the fiscal years ended September 30, 1997 and 1998, and for the nine month period ended June 30, 1999, FaciliCom's bad debt expenses represented 1.8%, 2.0% and 1.6%, respectively, of FaciliCom's consolidated revenues. FaciliCom rates its potential customers' creditworthiness based on several factors, including: - traditional bank and trade reports, such as Dun & Bradstreet reports; - internal assessments of FaciliCom's exposure based on the costs of terminating international traffic in certain countries and the capacity requested by the proposed carrier; and - references provided by potential customers. Depending on the results of FaciliCom's credit analysis, a customer's payment terms and/or billing cycle may be adjusted to shorten the length of time that FaciliCom's receivables are outstanding. In addition, FaciliCom may require a customer to post collateral in the form of a security deposit or an irrevocable letter of credit. Retail Customers. FaciliCom's target retail customer base consists primarily of small- to medium-sized businesses, and high volume residential users of international telecommunications services. In July 1995, FaciliCom began its retail operations in Sweden. Since that time, FaciliCom has grown its retail customer base from fewer than 2,000 retail customers in Sweden to approximately 52,000 retail customers in Scandinavia. Retail distribution not only leverages FaciliCom's existing facilities but also improves profitability through the sale of higher-margin services. SALES AND MARKETING Wholesale. FaciliCom's approach to marketing and selling wholesale services consists of local sales staff, who are responsible for day-to-day relationships with local carrier representatives and who have experience in the industry and long standing relationships with such carriers. Additionally, because FaciliCom has several international carrier customers which use it to transport traffic from multiple locations, FaciliCom has a multinational global account group, which coordinates sales to major international accounts in multiple locations and is responsible for client relationships at the senior management level. FaciliCom focuses on hiring and retaining experienced marketing and sales people with extensive knowledge of the telecommunications industry and who have existing relationships with decision makers at carrier customers. Retail. Although FaciliCom's main focus has been on international wholesale service, FaciliCom has been serving retail customers since the middle of 1995. FaciliCom reaches its retail customers through a variety of marketing channels that are tailored to specific markets. FaciliCom targets small- to medium- 162 166 sized businesses in industry segments with high international telecommunications needs, as well as high-volume residential users. MANAGEMENT INFORMATION SYSTEMS The need to bill customers timely and accurately, and to monitor and manage network traffic profitability, requires the accurate operation of management information systems. To meet these needs, FaciliCom contracts with Armstrong Holdings for its billing and other management information services. Armstrong Holdings, through its subsidiary Armstrong, owns 84.0% of the outstanding capital stock of FaciliCom. Subsidiaries of Armstrong Holdings provide billing, financial accounting and specialized information technology services to its subsidiary companies, including FaciliCom, from its data processing center located in Butler, Pennsylvania. Armstrong Holdings's subsidiaries include independent telecommunications companies and international telecommunications companies. Based on its knowledge of billing in the telecommunications industry, Armstrong Holdings has developed customized systems to provide call detail record collection, processing, rating, reporting and bill rendering. These systems enable FaciliCom to: - analyze accurately its traffic, revenues and margins by customer and by route on a daily basis; - validate carrier settlements; and - monitor least cost routing of customer traffic. FaciliCom believes that contracting with Armstrong Holdings for these customized systems gives it a strategic advantage over many emerging carriers because FaciliCom receives timely and accurate reporting of its customer traffic, revenues and margins without incurring the significant costs associated with developing and maintaining its own data center. The Armstrong Holdings data center utilizes IBM mainframe systems with full disaster recovery and back-up facilities and provides 24 hours per day, seven days per week data center support. Armstrong Holdings provides FaciliCom with experienced professionals and programmers to further customize and support FaciliCom's growing and changing needs for management information services. To date, FaciliCom has not experienced any significant delays in billing customers. FaciliCom attempts to bill its customers within five business days after a billing cycle has been completed. FaciliCom believes that its arrangement with Armstrong Holdings enables it to effectively and efficiently manage FaciliCom's growing requirements relating to information technologies. Armstrong Holdings has agreed to provide billing and management information systems support for FaciliCom and FaciliCom's subsidiaries on terms that FaciliCom believes are competitive with similar services offered in the industry. This contract extends through September 30, 2002. In consultation with Armstrong Holdings's staff, FaciliCom is currently implementing a management information system to further enhance its ability to monitor its growing operations. FaciliCom has engaged Perot Systems to develop a data warehouse that will combine and store data from a number of information systems and facilitate the presentation of data for management decision making. FaciliCom uses its information technology and software for the following purposes: Call Detail Record Preprocess. When a customer initiates a call through FaciliCom's network, each switch used to complete the call records the details of the call. These details include the time of initiation, the calling and called numbers, the type of call, called party answer and the time of disconnect. These call detail records are sent to the Armstrong Holdings data center, where they are preprocessed. Copies of the call detail records and summary information regarding the volumes of traffic are stored in the data warehouse. Wholesale Billing. On a predetermined billing schedule, call detail records for completed calls are rated, and wholesale bills are generated at the Armstrong Holdings data center. Based on customer preference, the bills are sent to customers in either a paper or an electronic format. 163 167 Retail Billing. FaciliCom's retail billing in Scandinavia is currently handled by locally-developed billing software. The billing system in Finland receives call detail records directly from FaciliCom's switch in Helsinki, Finland. Billing data for other Scandinavian countries is preprocessed in the Armstrong Holdings data center and sent to Malmo, Sweden in order to produce customer bills. Retail billing data is sent in electronic format to local billing companies that bill and collect. Customer Service. FaciliCom has developed customer service systems that record and track customer trouble reports. FaciliCom is in the process of installing an industry standard customer service system that will allow customers to report service failures and other technical difficulties over the internet. Network Management. FaciliCom has installed software developed by GTE that monitors the status of its network components and displays network conditions in its network operations center. This system provides real time information that FaciliCom's staff members can use to reroute traffic and perform corrective action, and to analyze and repair network hardware or software problems. Inventory and Provisioning. FaciliCom has developed software that keeps track of the status and condition of its network hardware components. FaciliCom's staff members use this system to assign equipment to customer or carrier circuits and to instruct FaciliCom's staff members abroad on the proper connection of these circuits. In addition, all of FaciliCom's administrative and technical locations are connected by a corporate wide area network that runs over the backbone network FaciliCom has constructed to handle customer traffic. An authorized user with a personal computer at any of FaciliCom's offices can access all of FaciliCom's corporate systems and databases. FaciliCom controls access to this network through the use of firewalls, password protection and other customary security measures. FaciliCom has also installed mediation devices and software that were part of a network monitoring system designed by GTE. These devices are located in each of FaciliCom's switch centers and interface with major network components, such as FaciliCom's gateway switches. These devices gather data from the network in real time and transport it over FaciliCom's corporate wide access network to its network operations center and to Armstrong Holdings's data center. COMPETITION The international telecommunications industry is intensely competitive and is significantly affected by regulatory changes, marketing and pricing decisions of the larger industry participants and the introduction of new services made possible by technological advances. FaciliCom competes in the international telecommunications market on the basis of price, customer service, transmission quality and breadth of service offerings, and its carrier customers are especially price sensitive. FaciliCom's competitors include: - large, facilities-based, multinational carriers, and smaller facilities-based long distance service providers that have emerged as a result of deregulation; - switch-based resellers of international long distance services; and - global alliances among some of the world's largest telecommunications carriers. Competition in the U.S. The U.S.-based international telecommunications services market is dominated by AT&T, MCI WorldCom, Qwest and Sprint. FaciliCom also competes in the U.S. with second-tier international carriers, including IDT Corporation, Pacific Gateway Exchange, Inc., Primus Telecommunications Group, Inc. and STAR Telecommunications, Inc. Several of these companies have considerably greater financial and other resources and more extensive domestic and international communications networks than FaciliCom does. In addition, the FCC's order implementing the U.S.'s open market commitments to the WTO may make it easier for some foreign carriers to enter the U.S. market, which would increase FaciliCom's competition. 164 168 Competition in Europe. In many international markets, a single carrier, which is often a government-owned or a former monopoly carrier, controls access to the local networks, enjoys better brand name recognition and customer loyalty and possesses significant operational economies. These advantages include a larger backbone network and operating agreements with other dominant national carriers. These carriers generally have competitive advantages over FaciliCom because of their close ties with the national regulatory authorities of their home countries that may be reluctant to act in a way that fosters increased competition for the local dominant provider. As a result, FaciliCom's ability to increase its market share in these countries may be extremely limited. Competition has begun to increase in the EU telecommunications markets in connection with the deregulation of the telecommunications industry in most EU countries, which began in January 1998. This increase in competition could adversely affect revenue per minute and gross margins as a percentage of revenues. FaciliCom competes in 13 European markets by offering competitively priced wholesale services, and it intends to offer competitively priced stand-alone and bundled telecommunications services to retail customers. The principal competitor in each of these markets is the dominant national carrier, such as British Telecom, Deutsche Telekom, France Telecom, KPN (The Netherlands), Swisscom, Tele Denmark and Telia (Sweden). Other competitors include: Cable and Wireless, Cellnet Group, Colt, Energis, Esprit Telecom Group, RSL Communications and Volaphone in the U.K.; O.tel.o Communications, Mannesmann ARCOR, VIAG Interkom, MCI WorldCom in Germany; Enertel, MCI WorldCom and Telfort in The Netherlands; diAx and Sunrise in Switzerland; and Mobilix and Telia in Denmark. Additionally, FaciliCom may also face competition from other licensed public telephone operators that are constructing their own facilities-based networks, cable companies and switch-based resellers. Competition from Global Alliances and Consolidation in the Telecommunications Industry. FaciliCom anticipates that it will face additional competition from global alliances among large long distance telecommunications providers. In addition, consolidation in the telecommunications industry may create even larger competitors with greater financial and other resources. The effect of these proposed mergers and alliances could create increased competition in the telecommunications services market and reduce the number of customers that purchase wholesale international long distance services from FaciliCom. LICENSES AND REGULATION United States. In the U.S., the provision of telecommunications common carrier services is subject to the provisions of the Communications Act, the FCC regulations promulgated thereunder and the applicable laws and regulations of the various states administered by the relevant state public service commissions. The FCC and the state commissions continue to regulate ownership of transmission facilities, provision of services and the terms and conditions under which such services are provided. Non-dominant carriers are required by federal and state law and regulations to file tariffs listing the rates, terms and conditions of the services they provide. The FCC and some state agencies also impose prior approval requirements on transfers of control. Regulatory requirements imposed on U.S. telecommunications service providers will continue to evolve as a result of the WTO Agreement, federal legislation, court decisions and new and revised policies of the FCC and state commissions. The FCC continues to refine its international service rules to promote competition, reflect and encourage liberalization in foreign countries and reduce international accounting rates toward cost. As noted above, the FCC adopted new lower accounting rate benchmarks that became effective January 1, 1998. More recently, the FCC adopted an order eliminating its international settlements policy on competitive routes and as applied to arrangements between U.S. carriers and foreign carriers that lack market power. Although the new rules are not yet effective, FaciliCom expects them to decrease its regulatory burden. International Service Regulation. International common carriers, such as FaciliCom, are required to obtain authority under Section 214 of the Communications Act and file a tariff containing the rates, terms 165 169 and conditions applicable to their services before initiating international telecommunications services. FaciliCom has obtained "global" Section 214 authority from the FCC to use, on a facilities and resale basis, various transmission media for international switched and private line services. Non-dominant international carriers, such as FaciliCom, must file their international tariffs and any revisions with one day's notice. FaciliCom has filed international tariffs for switched and private line services with the FCC. Additionally, international telecommunications service providers are required to file copies of their contracts with other carriers, including foreign carrier operating agreements, with the FCC within 30 days of execution. FaciliCom has filed each of its foreign carrier agreements with the FCC. The FCC's rules also require that FaciliCom periodically file a variety of reports regarding the volume of its international traffic and revenues and use of international facilities. FaciliCom has filed the required reports. Failure to comply with these requirements could result in the imposition of fines or other penalties, including, in an extreme case, the revocation of FaciliCom's authorizations. FaciliCom's FCC authorization also permits it to resell international private lines interconnected to the public switched telecommunications networks for the provision of switched services between the U.S. and: - WTO member countries that have been found by the FCC to offer equivalent opportunities to U.S. carriers or in which the settlement rate for at least 50% of the settled U.S.-billed traffic on the route in question is at or below the settlement rate benchmark; and - non-WTO member countries if the settlement rate for at least 50% of the settled U.S.-billed traffic on the route in question is at or below the settlement rate benchmark and that have been found by the FCC to offer equivalent opportunities to U.S. carriers. To date, the FCC has found that appropriately licensed U.S. carriers may provide such services to 20 foreign markets including Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong (data and facsimile services only), Iceland, Ireland, Israel, Italy, Japan, Luxembourg, The Netherlands, New Zealand, Norway, Spain, Sweden, Switzerland and the U.K. The FCC has also simplified the process by which carriers may obtain FCC approval to offer international simple resale to particular destinations. Carriers may now petition the FCC to authorize the services using a streamlined procedure if the petition clearly demonstrates that the destination is a WTO member country and that settlement rates for more than 50% of the settled U.S.-billed traffic on that route are at or below the FCC's benchmark settlement rate. Once a carrier makes such a showing and the FCC approves international simple resale on a route, all carriers holding a global Section 214 authorization will be permitted to offer international simple resale on that route. FaciliCom anticipates that these new opportunities to engage in international simple resale will result in reduced costs and prices, increased competition and increased demand on these routes. The FCC currently imposes certain restrictions upon the use of FaciliCom's private lines between the U.S. and the countries in which international simple resale has been authorized. FaciliCom may not route traffic to or from the U.S. over a private line between the U.S. and one of these countries if the traffic originates or terminates in a third country, the third country has not been found by the FCC to offer equivalent resale opportunities and the traffic is not routed to or from the third country and the approved country via a publicly available service (i.e., "switched hubbing"). The FCC's Policies on Transit and Refile. FaciliCom may engage in the practice whereby a carrier routes, through its facilities in a third country, traffic originating from one country and destined for another country. The FCC has permitted third country calling where all countries involved consent to the routing arrangements. This arrangement is referred to as "transiting." Under arrangements referred to as "refiling" or "reorigination," the carrier in the destination country does not consent to receiving traffic from the originating country and does not realize that the traffic it receives from the third country is actually originating from a different country. Although this practice is inconsistent with FCC polices, to date, the FCC has not enforced its policies with respect to carriers engaging in refiling. 166 170 Domestic Service Regulation. FaciliCom does not currently provide domestic interstate or intrastate telecommunication services within the U.S., although it plans to offer such services in the future. When FaciliCom offers such services, its provision of such services will be subject to regulation by the FCC and relevant state commissions, which regulate interstate and intrastate rates, respectively. The majority of the states require FaciliCom to register or apply for certification before initiating long-distance telecommunications services within a single state. Fines and other penalties may be imposed for violations of these rules. Europe. In Europe, each country regulates its telecommunications industry. The member states of the EU are obligated to implement legislation issued by the European Commission, which is responsible for creating pan-European policies and developing a regulatory framework to ensure an open, competitive telecommunications market. In 1990, the European Commission issued the services directive requiring each member state of the EU to abolish existing monopolies in telecommunications services with the exception of voice telephony. The intended effect of the services directive was to permit the competitive offering of all services, other than voice telephony, including value-added services and voice services to closed user groups. However, as a result of local implementation of the services directive through the adoption of national legislation, there are differing interpretations of the definition of prohibited voice telephony and permitted value-added and closed user group services. Voice services accessed by customers through leased lines are permissible in all member states of the EU. The European Commission has generally taken a narrow view of the services classified as voice telephony, declaring that voice services may not be reserved to the national carriers if: - dedicated customer access is used to provide the service; - the service confers new value-added benefits on users, such as alternative billing methods; or - calling is limited by a service provider to a group having legal, economic or professional ties. In March 1996, the EU adopted the full competition directive containing two provisions which required EU member states to allow the creation of alternative telecommunications infrastructures by July 1, 1996, and which reaffirmed the obligation of EU member states to abolish the national carriers' monopolies in voice telephony by 1998. The full competition directive encouraged EU member states to accelerate liberalization of voice telephony. Some EU countries may delay the abolition of the voice telephony monopoly based on exemptions established in the full competition directive. These countries include Portugal and Ireland (January 1, 2000) and Greece (December 31, 2000). However, Luxembourg, Spain and Ireland have already implemented the full competition directive in whole or in part. Each EU member state in which FaciliCom currently conducts or plans to conduct business has a different regulatory regime, and these differences are expected to continue. The requirements for FaciliCom to obtain necessary approvals vary considerably from country to country and are likely to change as competition is permitted in new service sectors. Asia, Pacific Rim and Latin America. The extent and timing of liberalization, and the scope and nature of regulation varies among the Pacific Rim, Asian and Latin American countries. FaciliCom's ability to provide voice telephony services is restricted in some Asian, Pacific Rim and Latin American countries. For example, China remains largely closed to competition. FaciliCom has a pending application to provide international telecommunications services in Hong Kong, where the local authorities have encouraged limited competition. On July 1, 1997, the People's Republic of China resumed sovereignty over Hong Kong, and FaciliCom cannot be certain that China will continue the existing licensing regime with respect to the Hong Kong telecommunications industry. In New Zealand, regulation of FaciliCom's proposed provision of telecommunications services is relatively permissive, and FaciliCom has been granted registration as an international services operator. FaciliCom's services in Japan are subject to regulation by the Ministry of Post and Telecommunications under the Telecommunications Business Law. In Japan, FaciliCom must obtain a license as a Type I facilities-based business before it may provide telecommunications services over its own facilities. FaciliCom must register as a Special Type II business before it provides telecommunications services over 167 171 international circuits leased from another carrier, or provides domestic service in Japan over leased circuits if the volume of traffic exceeds a set amount. A registered Special Type II business may provide over leased lines value-added or basic telecommunications services, or services to closed user groups. FaciliCom must notify the Japanese ministry as a General Type II business only if it provides domestic service in Japan over leased circuits and does not exceed the traffic threshold that would require Special Type II. Although the Japanese government until recently prohibited greater than 33.0% foreign ownership of a Type I business, as well as the resale of international private lines interconnected to the public switched telephone network at both ends, the Japanese ministry is now awarding authorizations to foreign-affiliated carriers to provide telecommunications services using their own facilities and to resell interconnected international private lines. The Japanese ministry also regulates the interconnection charges imposed by Type I businesses, and must approve intercarrier agreements between Type I carriers or between Type I and Special Type II carriers. FaciliCom has also filed an application in Japan requesting a Type I telecommunications license requesting authorization to allow it to construct and operate its own network facilities, as well as to originate and terminate traffic over resold lines. The Type I license process is onerous and involves extensive consultation with the Japanese ministry. Licenses. Consistent with its global strategy, FaciliCom or one of FaciliCom's local operating subsidiaries has received facilities-based and resale authorization to provide telecommunications services in Austria, Canada, Sweden, Denmark, The Netherlands, Germany, El Salvador, Finland, France, Italy, Norway, Guatemala, Spain, Switzerland and the U.K. FaciliCom also participates in the numbering plans of Sweden, Denmark, Finland, The Netherlands, Norway, Switzerland and the U.K. FaciliCom is also licensed in Belgium as a provider of non-reserved services, including voice services for closed user groups and value-added services, and it has requested additional authorization to provide international simple resale. FaciliCom has been awarded access codes in El Salvador, Denmark, Finland, France, Guatemala, Italy, Norway, Sweden, Switzerland and the U.K. to allow it to operate as a facilities-based provider of international telecommunications services. FaciliCom has been granted registration by the New Zealand Ministry of Commerce as an operator under the Telecommunications (International Services) Regulation 1994. FaciliCom has pending applications for various authorizations in Hong Kong. In the U.S., FaciliCom has obtained international facilities and resale licenses from the FCC. In addition, FaciliCom is certified or registered to provide intrastate interexchange telecommunications services or may provide such services based upon FaciliCom's unregulated status in 45 states. Applications for certification are pending in five states. State issued certificates of authority to provide intrastate interexchange telecommunications services generally can be conditioned, modified, canceled, terminated or revoked by state telecommunications commissions for failure to comply with state law or the rules, regulations and policies of the state commissions. EMPLOYEES As of September 30, 1999, FaciliCom had 293 employees. None of FaciliCom's U.S. employees are covered by a collective bargaining agreement; however, certain of FaciliCom's European employees are members of labor unions. FaciliCom believes that its relationship with its employees is good. On October 1, 1999, as part of a corporate restructuring, FaciliCom reduced its total number of employees to 251. INTELLECTUAL PROPERTY FaciliCom owns the registered service mark FaciliCom International for international long distance telecommunications services, as well as other marks that are used to provide some of FaciliCom's retail services in specific countries. 168 172 PROPERTIES FaciliCom leases office space, including its principal headquarters in Washington, D.C., and switch location space under operating leases and subleases that expire at various dates through January 2009. The principal properties that FaciliCom leased or subleased as of September 30, 1999 are as follows:
SQUARE LOCATION FOOTAGE LEASE EXPIRATION Malmo, Sweden (Sales Office)................................ 9,218 December 1999 Oslo, Norway (Switch Location).............................. 42 February 2000 New York, NY (Switch Location).............................. 1,500 August 2000 Jersey City, NJ (Switch Location)........................... 2,404 September 2000 Sornaisten, Finland (Switch Location)....................... 1,130 June 2001 Amsterdam, The Netherlands (Sales Office)................... 3,379 December 2001 Malmo, Sweden (Switch Location)............................. 1,584 January 2002 Frankfurt, Germany (Sales Office)........................... 2,956 February 2002 London, U.K. (Switch Location).............................. 888 April 2002 Geneva, Switzerland (Sales Office).......................... 2,428 June 2002 Los Angeles, CA (Switch Location)........................... 5,350 November 2002 London, U.K. (Sales Office)................................. 3,839 January 2003 Frankfurt, Germany (Switch Location)........................ 2,798 February 2003 Amsterdam, The Netherlands (Switch Location)................ 1,161 May 2003 London, U.K. (Switch Location).............................. 546 September 2003 Helsinki, Finland (Sales Office and Switch Location)........ 3,769 October 2003 Malmo, Sweden (Sales Office and Switch Location)............ 18,458 November 2003 Milan, Italy (Sales Office and Switch Location)............. 6,297 July 2004 Paris, France (Sales Office and Switch Location)............ 5,438 January 2007 Brussels, Belgium (Sales Office and Switch Location)........ 10,253 March 2007 Copenhagen, Denmark (Sales and Switch Location)............. 6,104 August 2007 Miami, FL (Switch Location)................................. 3,578 November 2007 Washington, D.C. (Corporate Headquarters)................... 49,602 March 2008 Zurich, Switzerland (Sales Office and Switch Location)...... 7,603 June 2008 Madrid, Spain (Sales Office and Switch Location)............ 9,979 July 2008 Vienna, Austria (Sales Office and Switch Location).......... 9,775 July 2008 New York, NY (Switch Location).............................. 10,709 January 2009
FaciliCom's leases typically contain provisions that enable it to renew them for additional terms beyond their scheduled termination date. LEGAL PROCEEDINGS FaciliCom makes routine filings and is a party to regulatory proceedings with the FCC relating to its operations that FaciliCom believes are customary for its industry. FaciliCom is not a party to any lawsuit or proceeding which, in its opinion, is likely to have a material adverse effect on its business. CAPITAL STOCK The authorized capital stock of FaciliCom consists of 300,000 shares of common stock, par value $.01 per share, including 275,000 shares of voting stock and 25,000 shares of non-voting stock. As of the date hereof, there were 225,205 shares of voting FaciliCom common stock and 1,182 shares of non-voting FaciliCom common stock issued and outstanding. There is no established public trading market for the FaciliCom common stock. No dividends have been declared or paid on the FaciliCom common stock since October 1, 1996. Holders of shares of voting FaciliCom common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of all FaciliCom common stock are entitled to receive such 169 173 dividends as FaciliCom's board of directors may declare in its discretion out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of FaciliCom, the holders of shares of FaciliCom common stock are entitled to a distribution of any remaining assets of FaciliCom. Holders of shares of FaciliCom common stock have no cumulative voting or preemptive rights. All outstanding shares of FaciliCom common stock are fully paid and nonassessable. LEGAL MATTERS Long Aldridge & Norman LLP, Atlanta, Georgia, has passed upon certain corporate legal matters on our behalf with respect to the exchange notes and our common stock. In addition, Long Aldridge & Norman LLP will deliver its opinion to us as to certain federal income tax consequences of the exchange offer and consent solicitation. EXPERTS Ernst & Young LLP, independent auditors, have audited our consolidated financial statements and schedules included in our Annual Report on Form 10-K/A for the year ended December 31, 1998, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement of which this prospectus forms a part. Our 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, Inc. as of December 31, 1997 and for each of the two years in the period ended December 31, 1997 incorporated in this prospectus by reference to the Annual Report on Form 10-K/A of World Access, Inc. for the year ended December 31, 1998 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 D, which are as of April 9, 1999, given on the authority of that firm as experts in auditing and accounting. Ernst & Young LLP, independent auditors, have audited the combined financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited at December 31, 1997 and for the year then ended, included in our Current Report on Form 8-K filed on July 27, 1998, as amended by Amendment No. 1 on Form 8-K/A filed on September 4, 1998, and Amendment No. 2 on Form 8-K/A filed on September 25, 1998, as set forth in their report (which contains an explanatory paragraph describing conditions that raise substantial doubt about the company's ability to continue as a going concern as described in note 2 to the combined financial statements) which is incorporated by reference in this prospectus and elsewhere in the registration statement of which this prospectus forms a part. These financial statements are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. Grant Thornton LLP, independent auditors, have audited the combined financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited at December 31, 1996 and 1995 and for the years then ended, included in our Current Report on Form 8-K filed on July 27, 1998, as amended by Amendment No. 1 on Form 8-K/A filed on September 4, 1998, and Amendment No. 2 on Form 8-K/A filed on September 25, 1998, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the registration statement of which this prospectus forms a part. These financial statements are incorporated by reference in reliance on Grant Thornton LLP's report, given on their authority as experts in accounting and auditing. Ernst & Young LLP, independent auditors, have audited the consolidated financial statements of Telco Systems, Inc. at August 30, 1998 and August 31, 1997, and for each of the three years in the period ended August 30, 1998 included in our Registration Statement on Form S-4 filed on November 10, 1998, as set forth in their report, which is incorporated by reference in this prospectus and elsewhere in the 170 174 registration statement of which this prospectus forms a part. These financial statements are incorporated by reference in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing. The consolidated financial statements of FaciliCom International, Inc. and subsidiaries as of September 30, 1998 and 1997 and for each of the three years in the period ended September 30, 1998 included in this World Access prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. The consolidated financial statements of NACT Telecommunications, Inc. as of September 30, 1997, and for each of the two years in the period ended September 30, 1997 included in our Registration Statement on Form S-4 filed on October 6, 1998, as amended by Amendment No. 1 to Form S-4 filed on October 7, 1998, and Amendment No. 2 to Form S-4 filed on October 7, 1998, as set forth in their report which is incorporated by reference in this prospectus and elsewhere in the registration statement of which this prospectus forms a part. These financial statements are incorporated by reference in reliance on KPMG LLP's report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION Federal securities laws require us and FaciliCom to file information with the Securities and Exchange Commission concerning our business and operations. Accordingly, we and FaciliCom file annual, quarterly and special reports, proxy statements and other information with the Commission. You can inspect and copy this information at the public reference facility maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. You can also do so at the following regional offices of the Commission: New York Regional Office Seven World Trade Center Suite 1300 New York, New York 10048 Chicago Regional Office Northwest Atrium Center 500 West Madison Street Suite 1400 Chicago, Illinois 60661 You can get additional information about the operation of the Commission's public reference facilities by calling the Commission at 1-800-SEC-0330. The Commission also maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding companies that, like us, file information electronically with the Commission. You can also inspect information about us at the offices of the Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006. This prospectus is part of a registration statement that we filed with the Commission and omits certain information contained in the registration statement as permitted by the Commission. Additional information about World Access and our common stock is contained in the registration statement on Form S-4 of which this prospectus forms a part, including certain exhibits and schedules. You can obtain a copy of the registration statement from the Commission at the street address or Internet site listed above. 171 175 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Commission allows us to "incorporate by reference" the information we file with it, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered part of this prospectus, and later information that we file with the Commission will automatically update and supersede this information. We incorporate by reference documents listed below and any future filings made with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the completion of this exchange offer. We have filed the following documents with the Commission: - Our Current Report on Form 8-K filed on August 19, 1999 (event date: August 17, 1999) (File Number 0-29782); - Our Current Report on Form 8-K filed on July 14, 1999 (event date: June 30, 1999) (File Number 0-29782); - Our Current Report on Form 8-K filed on May 3, 1999 (event date: April 21, 1999) (File Number 0-29782); - Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, as amended by Form 10-Q/A filed on October 7, 1999 and Amendment No. 2 on Form 10-Q/A filed on November 4, 1999 (File Number 0-29782); - Our Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, as amended by Form 10-Q/A filed on August 31, 1999 (File Number 0-29782); - Our Annual Report on Form 10-K for the year ended December 31, 1998, as amended by Form 10-K/A filed on August 31, 1999, Amendment No. 2 on Form 10-K/A filed on October 7, 1999 and Amendment No. 3 on Form 10-K/A filed on November 4, 1999 (File Number 0-29782); - Our definitive proxy materials on Schedule 14A for our special meeting of stockholders to be held December 7, 1999, as filed with the Commission on November 5, 1999; - The combined financial statements of Cherry Communications Incorporated (d/b/a/ Resurgens Communications Group) and Cherry Communications U.K. Limited included in WA Telcom's Current Report on Form 8-K filed on July 27, 1998 (event date: July 20, 1998), as amended by Amendment No. 1 on Form 8-K/A filed on September 4, 1998, and Amendment No. 2 on Form 8-K/A filed on September 25, 1998; - The consolidated financial statements of Telco Systems, Inc. included in our Registration Statement on Form S-4 (No. 333-67025), as filed with the Commission on November 10, 1998. - The consolidated financial statements of NACT Telecommunications, Inc. included in our Registration Statement on Form S-4 (No. 333-65389), filed with the Commission on October 6, 1998, as amended by Amendment No. 1 to Form S-4 filed on October 7, 1998, and Amendment No. 2 to Form S-4 filed on October 7, 1998. - The consolidated financial statements of NACT Telecommunications, Inc. included in NACT's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997 (File Number 000-22017). - The combined unaudited interim financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited included in our Report on Form S-3 (No. 333-79097), Amendment No. 3, filed on November 5, 1999. - Our description of the common stock included in the Registration Statement on Form S-4 (No. 333-67025), as filed with the Commission on November 10, 1998. 172 176 You may request a copy of these filings, at no cost, by writing or telephoning us at the following address: World Access, Inc. 945 E. Paces Ferry Road Suite 2200 Atlanta, Georgia 30326 Attention: Mr. Mark A. Gergel Chief Financial Officer Telephone: (404) 231-2025 TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST THIS INFORMATION NO LATER THAN NOVEMBER 30, 1999. You should rely only on the information incorporated by reference or provided in this prospectus or any supplement. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus or any supplement is accurate as of any date other than the date on the front of the respective document. We have not authorized anyone, including brokers and dealers, to give any information or make any representation not contained in this prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by us or any other person. This prospectus does not constitute an offer to sell or solicitation of any offer to buy any of the securities offered hereby in any jurisdiction in which it is unlawful to make such offer or solicitation. 173 177 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE FACILICOM INTERNATIONAL, INC. Independent Auditors' Report.............................. F-2 Consolidated Balance Sheets as of June 30, 1999 (Unaudited), September 30, 1998 and 1997............... F-3 Consolidated Statements of Operations and Comprehensive Loss for the nine months ended June 30, 1999 (Unaudited) and 1998 (Unaudited) and each of the three years in the period ended September 30, 1998........... F-4 Consolidated Statements of Capital Accounts for the nine months ended June 30, 1999 (Unaudited) and each of the three years in the period ended September 30, 1998..... F-5 Consolidated Statements of Cash Flows for the nine months ended June 30, 1999 and 1998 and each of the three years in the period ended September 30, 1998........... F-6 Notes to Consolidated Financial Statements................ F-8
F-1 178 INDEPENDENT AUDITORS' REPORT To the Board of Directors of FaciliCom International, Inc.: We have audited the accompanying consolidated balance sheets of FaciliCom International, Inc. and subsidiaries (formerly FaciliCom International, LLC) ("FaciliCom") as of September 30, 1998 and 1997, and the related consolidated statements of operations and comprehensive loss, capital accounts and cash flows for each of the three years in the period ended September 30, 1998. These financial statements are the responsibility of FaciliCom's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of FaciliCom International, Inc. and subsidiaries as of September 30, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Pittsburgh, Pennsylvania December 9, 1998 F-2 179 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, JUNE 30, ------------------- 1999 1998 (UNAUDITED) 1997 ASSETS Current Assets: Cash and cash equivalents................................. $ 18,696 $ 68,129 $ 1,016 Accounts receivable -- net of allowance for doubtful accounts of $7,862 (Unaudited), $4,620 and $161 at June 30, 1999, September 30, 1998 and 1997, respectively..... 98,542 59,915 19,485 Marketable securities ($31,755 (Unaudited) at June 30, 1999 and $31,394 at September 30, 1998 restricted)...... 31,755 70,092 -- Prepaid expenses and other current assets................. 6,067 6,060 1,737 --------- -------- -------- Total current assets................................ 155,060 204,196 22,238 --------- -------- -------- Property and Equipment: Transmission and communications equipment................. 121,838 97,849 16,593 Transmission and communications equipment-leased.......... 69,178 17,162 5,419 Furniture, fixtures and other............................. 19,874 11,154 1,266 --------- -------- -------- 210,890 126,165 23,278 Less accumulated depreciation and amortization............ (25,122) (10,417) (3,034) --------- -------- -------- Net property and equipment.......................... 185,768 115,748 20,244 --------- -------- -------- Other Assets: Intangible assets, net of accumulated amortization of $2,846 (Unaudited), $1,673 and $583 at June 30, 1999, September 30, 1998 and 1997, respectively........................ 4,949 5,630 1,535 Debt issue costs, net of accumulated amortization of $1,527 (Unaudited) and $744 at June 30, 1999 and September 30, 1998, respectively..................................... 8,913 9,696 -- Advance to affiliate...................................... 550 490 -- Marketable securities-restricted.......................... 29,525 43,124 -- --------- -------- -------- Total other assets.................................. 43,937 58,940 1,535 --------- -------- -------- Total Assets........................................ $ 384,765 $378,884 $ 44,017 ========= ======== ======== LIABILITIES AND CAPITAL ACCOUNTS Current Liabilities: Accounts payable.......................................... $ 95,269 $ 63,802 $ 24,205 Accounts payable -- transmission equipment................ 29,344 24,668 -- Accounts payable -- related party......................... 1,810 332 389 Accrued interest.......................................... 14,938 7,109 331 Other current obligations................................. 23,538 12,610 5,924 Line of credit............................................ 10,000 -- -- Capital lease obligations due within one year............. 11,490 3,407 573 Long-term debt due within one year........................ 347 394 1,043 --------- -------- -------- Total current liabilities........................... 186,736 112,322 32,465 --------- -------- -------- Other Liabilities: Capital lease obligations................................. 4,004 4,791 1,723 Long-term debt............................................ 300,162 300,346 13,000 Loans from owners......................................... -- -- 6,250 --------- -------- -------- Total other liabilities............................. 304,166 305,137 20,973 --------- -------- -------- Commitments and Contingencies Capital Accounts: Common stock, $.01 par value -- 300,000 shares authorized; 226,923 and 225,741 issued and outstanding at June 30, 1999 (Unaudited) and September 30, 1998, respectively... 2 2 -- Additional paid-in capital................................ 37,658 36,534 -- Class A initial capital................................... -- -- 180 Class B initial capital................................... -- -- 60 Excess capital contributions -- Class A................... -- -- 16,296 Stock-based compensation.................................. 5,546 6,305 -- Accumulated other comprehensive (loss) income: Holding gain on marketable securities................... -- 24 -- Foreign currency translation adjustments................ (5,819) 3,450 684 Accumulated deficit....................................... (143,524) (84,890) (26,641) --------- -------- -------- Total capital accounts.............................. (106,137) (38,575) (9,421) --------- -------- -------- Total liabilities and capital accounts.............. $ 384,765 $378,884 $ 44,017 ========= ======== ========
See notes to the consolidated financial statements. F-3 180 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (IN THOUSANDS)
NINE MONTHS ENDED JUNE 30 YEARS ENDED SEPTEMBER 30, ------------------- ----------------------------- 1999 1998 1998 1997 (UNAUDITED) 1996 Revenues..................................... $279,695 $117,146 $184,246 $ 70,187 $11,891 Cost of revenues........................... 257,253 114,473 178,952 65,718 12,742 -------- -------- -------- -------- ------- Gross margin (deficit)..................... 22,442 2,673 5,294 4,469 (851) -------- -------- -------- -------- ------- Operating expenses: Selling, general and administrative..... 38,073 20,917 32,797 13,072 7,575 Stock-based compensation expense........ 364 5,706 6,017 -- -- Related party expense................... 2,281 917 1,550 439 7 Depreciation and amortization........... 16,895 5,314 8,816 2,318 1,143 -------- -------- -------- -------- ------- Total operating expenses........... 57,613 32,854 49,180 15,829 8,725 -------- -------- -------- -------- ------- Operating loss............................. (35,171) (30,181) (43,886) (11,360) (9,576) -------- -------- -------- -------- ------- Other income (expense): Interest expense-related party.......... -- (195) (195) (462) (26) Interest expense........................ (25,690) (14,344) (22,417) (874) (286) Interest income......................... 3,646 5,594 8,152 -- -- Gain on settlement agreement............ -- 791 791 -- -- Foreign exchange (loss) gain............ (1,346) (655) (391) (1,335) 226 -------- -------- -------- -------- ------- Total other expense................ (23,390) (8,809) (14,060) (2,671) (86) -------- -------- -------- -------- ------- Loss before income taxes................... (58,561) (38,990) (57,946) (14,031) (9,662) Income tax benefit......................... 6,682 6,475 11,351 -------- -------- -------- -------- ------- Net loss................................... (51,879) (32,515) (46,595) (14,031) (9,662) Other comprehensive (loss) income: Foreign currency translation adjustment............................ (9,269) 561 2,766 929 4 -------- -------- -------- -------- ------- Total comprehensive loss........... $(61,148) $(31,954) $(43,829) $(13,102) $(9,658) ======== ======== ======== ======== =======
See notes to the consolidated financial statements. F-4 181 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITAL ACCOUNTS (IN THOUSANDS)
HOLDING COMMON STOCK ADDITIONAL CLASS A CLASS B EXCESS CAPITAL STOCK- LOSS ON --------------- PAID-IN INITIAL INITIAL CONTRIBUTIONS BASED MARKETABLE SHARES AMOUNT CAPITAL CAPITAL CAPITAL CLASS A COMPENSATION SECURITIES Balance, September 30, 1995........ -- $ -- $ -- $ 180 $ 60 $ 2,594 $ -- $ -- Net loss.......................... -- -- -- -- -- -- -- -- Contributions..................... -- -- -- -- -- 7,083 -- -- Guaranteed return................. -- -- -- -- -- -- -- -- Contribution to excess capital -- guaranteed return.... -- -- -- -- -- 499 -- -- Foreign currency translation adjustments..................... -- -- -- -- -- -- -- -- --- ---- ------- ----- ---- -------- ------ ---- Balance, September 30, 1996........ -- -- -- 180 60 10,176 -- -- Net loss.......................... -- -- -- -- -- -- -- -- Converted loans from owners....... -- -- -- -- -- 5,396 -- -- Guaranteed return................. -- -- -- -- -- -- -- -- Contribution to excess capital -- guaranteed return.... -- -- -- -- -- 724 -- -- Foreign currency translation adjustments..................... -- -- -- -- -- -- -- -- --- ---- ------- ----- ---- -------- ------ ---- Balance, September 30, 1997........ -- -- -- 180 60 16,296 -- -- Net loss.......................... -- -- -- -- -- -- -- -- Contributions..................... -- -- -- -- -- 13,750 -- -- Converted loans from owners....... -- -- -- -- -- 6,250 -- -- Reorganization.................... 226 2 36,534 (180) (60) (36,296) -- -- Utilization of tax benefit of the Company's operating loss by AHI............................. -- -- -- -- -- -- -- -- Stock options granted............. -- -- -- -- -- -- 5,706 -- Phantom unit exchange............. -- -- -- -- -- -- 599 -- Holding gain on marketable securities...................... -- -- -- -- -- -- -- 24 Foreign currency translation adjustments..................... -- -- -- -- -- -- -- -- --- ---- ------- ----- ---- -------- ------ ---- Balance, September 30, 1998........ 226 2 36,534 -- -- -- 6,305 24 Net loss (Unaudited).............. -- -- -- -- -- -- -- -- Utilization of tax benefit of the Company's operating loss by AHI (Unaudited)..................... -- -- -- -- -- -- -- -- Stock options granted/exercised (Unaudited)..................... 1 1,124 (759) Holding loss on marketable securities (Unaudited).......... (24) Foreign currency translation adjustments (Unaudited)......... -- -- -- -- -- -- -- -- --- ---- ------- ----- ---- -------- ------ ---- Balance, June 30, 1999 (Unaudited)....................... 227 $ 2 $37,658 $ -- $ -- $ -- $5,546 $ -- === ==== ======= ===== ==== ======== ====== ==== FOREIGN CURRENCY TOTAL TRANSLATION ACCUMULATED CAPITAL ADJUSTMENTS DEFICIT ACCOUNTS Balance, September 30, 1995........ $ -- $ (1,725) $ 1,109 Net loss.......................... -- (9,662) (9,662) Contributions..................... -- -- 7,083 Guaranteed return................. -- (499) (499) Contribution to excess capital -- guaranteed return.... -- -- 499 Foreign currency translation adjustments..................... (245) -- (245) ------- --------- --------- Balance, September 30, 1996........ (245) (11,886) (1,715) Net loss.......................... -- (14,031) (14,031) Converted loans from owners....... -- -- 5,396 Guaranteed return................. -- (724) (724) Contribution to excess capital -- guaranteed return.... -- -- 724 Foreign currency translation adjustments..................... 929 -- 929 ------- --------- --------- Balance, September 30, 1997........ 684 (26,641) (9,421) Net loss.......................... -- (46,595) (46,595) Contributions..................... -- -- 13,750 Converted loans from owners....... -- -- 6,250 Reorganization.................... -- -- -- Utilization of tax benefit of the Company's operating loss by AHI............................. -- (11,654) (11,654) Stock options granted............. -- -- 5,706 Phantom unit exchange............. -- -- 599 Holding gain on marketable securities...................... -- -- 24 Foreign currency translation adjustments..................... 2,766 -- 2,766 ------- --------- --------- Balance, September 30, 1998........ 3,450 (84,890) (38,575) Net loss (Unaudited).............. -- (51,879) (51,879) Utilization of tax benefit of the Company's operating loss by AHI (Unaudited)..................... -- (6,755) (6,755) Stock options granted/exercised (Unaudited)..................... 365 Holding loss on marketable securities (Unaudited).......... (24) Foreign currency translation adjustments (Unaudited)......... (9,269) -- (9,269) ------- --------- --------- Balance, June 30, 1999 (Unaudited)....................... $(5,819) $(143,524) $(106,137) ======= ========= =========
See notes to the consolidated financial statements. F-5 182 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
NINE MONTHS ENDED YEARS ENDED JUNE 30, SEPTEMBER 30, -------------------- ------------------------------ 1999 1998 1998 1997 1996 Cash flows from operating activities: Net loss..................................... $(51,879) $ (32,515) $ (46,595) $(14,031) $(9,662) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization.............. 16,895 5,314 8,816 2,318 1,143 Non-cash stock-based compensation.......... 364 5,706 6,017 -- -- Non-cash income tax benefit................ (6,753) (6,569) (11,654) -- -- Amortization of bond discount.............. (1,789) 762 237 -- -- Loss on disposal of property and equipment............................... -- -- -- 130 -- Changes in operating assets and liabilities: Accounts receivable..................... (38,627) (19,881) (40,107) (14,260) (4,356) Prepaid expenses and other current assets................................ (7) (7,595) (3,792) (810) (770) Accounts payable and other current liabilities........................... 50,224 30,720 51,510 17,903 8,731 Accounts payable -- related party....... 1,478 (228) (57) 389 -- Advance to affiliate.................... (196) (2,018) (490) -- (499) -------- --------- --------- -------- ------- Net cash used operating activities............. (30,290) (26,304) (36,115) (8,361) (5,413) -------- --------- --------- -------- ------- Cash flows from investing activities: Purchase of investments in subsidiaries...... -- (4,652) (4,652) -- -- Purchase of investments in available-for-sale securities................................. (7,407) (64,234) (77,820) -- -- Maturities of available-for-sale securities................................. 13,378 1,769 30,582 -- -- Sales of available-for-sale securities....... 32,798 4,037 7,046 -- -- Purchase of investments in held-to-maturity securities................................. (1,164) (86,549) (87,683) -- -- Maturities of held-to-maturity securities.... 16,120 -- 14,446 -- -- Purchases of property and equipment.......... (72,288) (35,877) (66,487) (1,897) (2,004) Other........................................ 331 44 (124) 233 930 -------- --------- --------- -------- ------- Net cash used in investing activities........ (18,232) (185,462) (184,692) (1,664) (1,074) -------- --------- --------- -------- ------- Cash flows from financing activities: Advances from owners......................... -- -- -- 9,726 2,029 Excess capital contributions................. -- 13,750 13,750 -- 7,083 Proceeds from debt issuance.................. -- 300,000 300,000 -- -- Proceeds from line of credit................. 10,000 -- -- -- -- Payments of long-term debt and capital leases..................................... (10,742) (12,823) (18,156) (1,812) (540) Payment of debt issuance costs............... (10,305) (10,440) -------- --------- --------- -------- ------- Net cash provided by financing activities.... (742) 290,622 285,154 7,914 8,572 -------- --------- --------- -------- ------- Effect of exchange rate changes on cash........ (169) 561 2,766 929 4 -------- --------- --------- -------- ------- Increase (decrease) in cash and cash equivalents.................................. (49,433) 79,417 67,113 (1,182) 2,089 Cash and cash equivalents, beginning of period....................................... 68,129 1,016 1,016 2,198 109 -------- --------- --------- -------- ------- Cash and cash equivalents, end of period....... $ 18,696 $ 80,433 $ 68,129 $ 1,016 $ 2,198 ======== ========= ========= ======== ======= Supplemental cash flow information: Interest paid................................ $ 17,861 $ 1,181 $ 15,834 $ 747 $ 201 ======== ========= ========= ======== =======
- ------------------------------ NONCASH TRANSACTIONS: (a) For the nine months ended June 30, 1998 and the fiscal year ended September 30, 1998, the majority owner converted $6,250 of loans into capital and a $162 receivable was forgiven as part of the purchase of minority interest which reduced prepaid expenses and other current assets and increased goodwill. (b) FCI received $480 in FCI-Sweden convertible debentures during the year ended September 30, 1997 to satisfy an advance to affiliate, which reduced advance to affiliate and advances from owners. F-6 183 (c) During the year ended September 30, 1997, the majority owner converted $5,396 of loans and accrued interest into capital. (d) FCI received property and equipment under capital leases and financing agreements, which increased property and equipment and long-term obligations $17,807 (Unaudited) and $10,755 (Unaudited) in the nine months ended June 30, 1999 and 1998, respectively, and $10,755, $10,385 and $6,400 in the fiscal years ended September 30, 1998, 1997 and 1996, respectively. In addition, for the nine months ended June 30, 1999 and 1998 and for the fiscal year ended September 30, 1998, FCI received equipment which increased property and equipment and accounts payable transmission equipment by $4,676 (Unaudited), $25,744 (Unaudited) and $24,668, respectively (of which $15,331 was not yet placed in service as of September 30, 1998). (e) FCI recognized a tax benefit of $6,755 (Unaudited) and $6,569 (Unaudited) for the nine months ended June 30, 1999 and 1998, respectively, and $11,654 for the fiscal year ended September 30, 1998. In accordance with the tax sharing agreement with AHI entered into on December 22, 1997, FCI recorded a dividend to AHI for the amount of the benefit to be realized by AHI (See Note 5 to the consolidated financial statements). See notes to the consolidated financial statements. F-7 184 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL: Organization. FaciliCom International, LLC ("FCI, LLC") is a Delaware limited liability company that was formed on May 5, 1995 to engage in various international telecommunications businesses. On December 22, 1997, the owners of FCI, LLC entered into an Investment and Shareholders Agreement ("Agreement"). Under the Agreement, the owners of FCI, LLC transferred all of their respective units in FCI, LLC and FCI (GP), LLC, a Delaware limited liability company, to FaciliCom International, Inc. ("FCI"), a Delaware corporation, and additionally Armstrong International Telecommunications, Inc. ("AIT") contributed $20,000,000 (in cash and assignment of indebtedness) to FCI, all in exchange for 225,741 shares of FCI's common stock. FCI was incorporated on November 20, 1997, and has 300,000 authorized shares of common stock. Since the reorganization was a combination of entities under common control, it was accounted for by combining the historical accounts of FCI, LLC, FCI (GP), LLC and FCI in a manner similar to a pooling of interests. FCI is authorized by the Federal Communications Commission (the "FCC") to provide global facilities-based services as well as switched international services through resale of the services and facilities of other international carriers. In addition, FCI has worldwide authorization for private line resale of noninterconnected private line services and authorization to resell interconnected private lines for switched services to Canada, the United Kingdom, Sweden, and New Zealand. FCI, LLC was and FCI is a majority-owned subsidiary of AIT, which is a wholly owned subsidiary of Armstrong Holdings, Inc. ("Armstrong" or "AHI"). On July 21, 1995, FCI acquired 66.5% of the outstanding capital stock of both Nordiska Tele8 AB ("Tele8" or "FCI-Sweden") and FGC, Inc. ("FGC"), entities related through common ownership. Subsequently, FCI acquired up to 99% of FCI-Sweden and sold all of its interest in FGC. The additional interest in FCI-Sweden was the result of three separate transactions (see Note 8). On March 14, 1997, $1,600,000 of FCI-Sweden convertible debentures were converted into 7,400 shares of FCI-Sweden common stock, on May 15, 1997, FCI paid $3,600,000 for 14,400 shares of FCI-Sweden common stock and on October 23, 1997, FCI paid $750,000 for substantially all of the minority interest outstanding and recorded $750,000 of goodwill. Also, on October 23, 1997, FCI sold all of its interest in FGC for $100 and recorded a loss of approximately $79,000 on the transaction. FCI-Sweden is a corporation organized under the laws of Sweden to provide national and international telecommunications services. These acquisitions were accounted for as purchase transactions with the purchase price being allocated to the assets and liabilities acquired based on their fair values as of the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and is being amortized over five years. The following summarizes the allocation of the original 1995 purchase price to the major categories of assets acquired and liabilities assumed (in thousands): Current assets.............................................. $ 343 Property and equipment...................................... 1,760 Excess of cost over net assets of businesses acquired....... 1,715 Other intangibles........................................... 32 ------ 3,850 Less liabilities assumed.................................... 3,010 ------ Cash paid......................................... $ 840 ======
On April 27, 1998, FCI entered into an agreement to purchase 100% of the issued and outstanding capital stock of Oy Teleykkanen AB ("Tele 1" or "FCI-Finland"), a corporation formed under the laws of Finland, for $4.0 million in cash. FCI Finland is a Finnish provider of local and long distance international telecommunication services and has a carrier agreement to exchange customer traffic with Telecom Finland, the dominant carrier in Finland. This acquisition was accounted for using the purchase method of F-8 185 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) accounting. The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill and is being amortized over five years. The results of operations for Tele 1 were included in consolidated results of operations since the date of acquisition. The following summarizes the allocation of the purchase price to the major categories of assets acquired and liabilities assumed (in thousands): Current assets.............................................. $1,017 Property and equipment...................................... 976 Excess of cost over net assets of businesses acquired....... 3,911 Other assets................................................ 126 ------ 6,030 Less liabilities assumed.................................... 1,966 ------ Cash paid......................................... $4,064 ======
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: a. Basis of Presentation. The accompanying consolidated financial statements include the accounts of FCI and its majority owned and wholly owned subsidiaries (together, "FaciliCom"). All intercompany transactions and balances have been eliminated in consolidation. Because losses applicable to the minority interest exceeded the minority interest in the equity capital and the minority stockholder was not obligated to provide additional funding with respect to the losses incurred, such losses were recorded by FaciliCom prior to the purchase of the minority interest. b. Cash and cash equivalents. FaciliCom considers its investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost plus accrued interest and are highly liquid debt instruments of the U.S. government and commercial corporations and money market funds. c. Property and Equipment. Property and equipment is stated at cost. Depreciation is provided for financial reporting purposes using the straight-line method. Depreciation expense includes the amortization of capital leases. The estimated useful lives of property and equipment are as follows: Transmission and communications equipment................... 5 to 25 years Transmission and communications equipment-leased............ 5 to 25 years Furniture, fixtures and other............................... 5 to 7 years
FaciliCom capitalizes the costs of software and software upgrades purchased for use in its transmission and communications equipment. FaciliCom expenses the costs of software purchased for internal use. Maintenance and repairs are expensed as incurred. Replacements and betterments are capitalized. Depreciation expense for the fiscal years ended September 30, 1998, 1997 and 1996 was $7,383,000, $2,053,000 and $863,000. FaciliCom periodically evaluates its long-lived assets to confirm that the carrying values have not been impaired using the provisions of Statement of Financial Accounting Standards ("SFAS") No. 121. d. Intangible Assets. Intangible assets, consisting primarily of goodwill, are amortized using the straight-line method over 5 years. FaciliCom periodically evaluates its intangible assets to confirm that the carrying values have not been impaired using the provisions of SFAS No. 121. F-9 186 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) e. Income Taxes. FCI, LLC is a limited liability company and is not subject to income tax, while FaciliCom International, Inc., incorporated on November 20, 1997 as a Delaware corporation is subject to income taxes. FaciliCom accounts for income taxes under the liability method in accordance with the provisions set forth in SFAS No. 109, "Accounting for Income Taxes," whereby deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In assessing realization of deferred tax assets, FaciliCom uses judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. Based on the weight of evidence, both negative and positive, including the lack of historical earnings, if it is more likely than not that some portion or all of a deferred tax asset will not be realized, a valuation allowance is established. f. Initial and Excess Capital Contributions. Excess capital contributions were the amounts of capital an owner had contributed in excess of the owner's initial capital commitment. The owners were credited with a guaranteed return through September 30, 1997 for the use of their capital, and profits and losses were allocated, in accordance with the provisions in the FCI LLC Limited Liability Company Agreement ("LLC Agreement"). The guaranteed return was calculated as simple interest at a rate per annum equal to the lowest rate of interest available to AIT or any of its affiliates from time-to-time under any of their respective existing credit facilities. Upon liquidation of FCI LLC, allocations of annual net profits are allocated first to the Class A and Class B owners to the extent required to adjust capital accounts, then to the extent of cumulative net losses previously allocated in accordance with certain capital contribution priorities set forth in the LLC Agreement and thereafter 75% to Class A and 25% to Class B owners. Allocations of annual net losses are allocated to the extent of cumulative net profits previously allocated and then to the extent of owner's capital contributions and thereafter to the Class A owner. Net losses allocated to the Class B owner may not cause such owner's account to result in a deficit. FaciliCom may make distributions after first paying any unpaid guaranteed return and then in accordance with the owner's respective capital contributions and thereafter 75% to the Class A owner and 25% to the Class B owner. Upon dissolution, the LLC Agreement provides for liquidation of FCI LLC's assets and any distribution to owners will be in accordance with the balance of their respective capital accounts. Following distribution of assets, owners having a capital account with a deficit balance shall be required to restore the account. The LLC Agreement provides that FCI LLC shall terminate on December 31, 2025. In consideration of all capital contributions made through September 30, 1997, the Class A and Class B owners owned 15,390,000 and 3,610,000 membership interests in FCI LLC, respectively, representing 81% and 19%, respectively, of such interests. g. Foreign Currency Translation. For non-U.S. subsidiaries, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using year-end exchange rates; income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are reported as a separate component of other accumulated comprehensive income (loss). Exchange losses and gains resulting from foreign currency transactions are included in the results of operations based upon the provisions of SFAS No. 52, "Foreign Currency Translation." h. 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. F-10 187 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) i. Revenue Recognition. FaciliCom records revenues from the sale of telecommunications services at the time of customer usage based upon minutes of traffic processed at contractual fees. FaciliCom has entered into, and continues to enter into, operating agreements with telecommunications carriers in several foreign countries under which international long distance traffic is both delivered and received. Under these agreements, the foreign carriers are contractually obligated to adhere to the policy of the FCC, whereby traffic from the foreign country is routed to U.S. based international carriers, such as FaciliCom, in the same proportion as traffic carried into the country. Mutually exchanged traffic between FaciliCom and foreign carriers is settled through a formal settlement policy at an agreed upon rate which allows for the offsetting of receivables and payables with the same carrier (settlement on a net basis). Although FaciliCom can reasonably estimate the revenue it will receive under the FCC's proportional share policy, there is no guarantee that FaciliCom will receive return traffic and FaciliCom is unable to determine what impact changes in future settlement rates will have on net payments made and revenue received. Accordingly, FaciliCom does not record this revenue until the service is provided and the minutes of traffic are processed. FaciliCom recognizes revenues from prepaid calling cards when earned. j. Cost of Revenues. Cost of revenue includes network costs which consist of access, transport and termination costs. Such costs are recognized when incurred in connection with the provision of telecommunication services, including costs incurred under operating agreements. k. Interim Financial Information. The interim financial data as of June 30, 1999, and for the nine month periods ended June 30, 1999 and 1998, is Unaudited. The information reflects all adjustments consisting only of normal, recurring adjustments that, in the opinion of management, are necessary to present fairly the financial position and results of operations of FaciliCom for the periods indicated. Results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. l. Stock-Based Compensation. FaciliCom accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to Employees" and related interpretations. Accordingly, compensation cost is measured as the excess, if any, of the market price of FaciliCom's stock at the date of grant (determined by a valuation report) over the amount an employee must pay to acquire the stock. m. Financial Instruments. FaciliCom has financial instruments, which include cash and cash equivalents, marketable securities and long-term debt obligations. The carrying values of these instruments in the balance sheets, except for certain marketable securities and 10 1/2% Senior Notes due 2008 (the "Notes") (see Note 4), approximated their fair market value. See Note 16 for disclosure of fair market value for marketable securities. The estimated fair value of FaciliCom's Notes at September 30, 1998 was $261.0 million and was estimated using quoted market prices. The fair values of the instruments were based upon quoted market prices of the same or similar instruments or on the rate available to FaciliCom for instruments of similar maturities. n. Fiber Optic Cable Arrangements. FaciliCom obtains capacity on certain fiber optic cables under three types of arrangements. The Indefeasible Right of Use ("IRU") basis provides FaciliCom the right to use a fiber optic cable, with most of the rights and duties of ownership, but without the right to control or manage the facility and without any right to salvage or duty to dispose of the cable at the end of its useful life. Because of this lack of control and an IRU term approximates the estimated economic life of the asset, FaciliCom accounts for such leases as leased transmission and communications equipment and as capital leases. The Minimum Assignable Ownership Units ("MAOU") basis provides FaciliCom an ownership interest in the fiber optic cable with certain rights to control and to manage the facility. Because of the ownership features, FaciliCom records these fiber optic cables as owned transmission and communications equipment and as long-term debt. The Carrier Lease Agreement basis involves a shorter F-11 188 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) term agreement which provides FaciliCom the right to use capacity on a cable but without any rights and duties of ownership. FaciliCom accounts for such leases as operating leases. o. Impact of Recently Issued Accounting Standards. In June 1997 the FASB issued SFAS No. 130, "Reporting Comprehensive Income," which (i) establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements, and (ii) requires an enterprise to report a total for comprehensive income in condensed financial statements of interim periods. FaciliCom adopted SFAS No. 130 in fiscal 1999 and has elected to display the components of Comprehensive Income within the Consolidated Statements of Operations and Comprehensive Loss. Prior period amounts have been appropriately disclosed. In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. The statement is effective for fiscal years beginning after December 15, 1997. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measuring those instruments at fair value, with the potential effect on operations dependent upon certain conditions being met. The statement (as amended by SFAS No. 137) is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The implementation of SFAS No. 131 is not expected to have a material impact on FaciliCom's financial position or results of operations. FaciliCom has not determined the impact that implementing SFAS No. 133 will have on FaciliCom's financial position or results of operations. p. Reclassifications. Certain amounts in the September 30, 1997 and 1996 consolidated financial statements have been reclassified to conform with the presentation of the September 30, 1998 consolidated financial statements. 3. OPERATING DEFICIT AND MANAGEMENT'S PLANS: FaciliCom had a net loss of approximately $46.6 million for the year ended September 30, 1998. On January 28, 1998, FaciliCom issued $300 million aggregate principal amount of the Notes. FaciliCom believes that the net proceeds from the offering of the Notes, together with cash provided by operating activities and vendor financing, will provide FaciliCom with sufficient capital to fund planned capital expenditures and anticipated losses and to make interest payments on the Notes through at least September 30, 1999. 4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS: Long-Term Debt. During 1997, FCI entered into an Equipment Loan and Security Agreement with NTFC Capital Corporation ("NTFC") to finance up to $5,000,000 for the purchase of transmission and communications equipment. Interest was payable quarterly and was calculated based upon the London Interbank Offering Rate ("LIBOR") plus 4%. Quarterly principal payments were to commence on June 30, 1999. The loan was collateralized by the related equipment purchased under such agreement. FaciliCom used a portion of the proceeds from the offering of Notes to pay off the indebtedness under the Equipment Loan and Security Agreement and the agreement was terminated. During 1995, FCI entered into an equipment financing agreement with Ericsson I.F.S. to purchase certain equipment. The original agreement was amended and restated on December 30, 1996, to increase the borrowing limit to $7,000,000 and certain terms were further revised on June 12, 1997 and F-12 189 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) November 21, 1997. Interest was calculated based upon LIBOR plus 4%. Quarterly principal payments were to commence on June 30, 1998. The loan was collateralized by the related equipment purchased under the financing agreement. FaciliCom used a portion of the proceeds from the offering of Notes to pay off the indebtedness under the equipment financing agreement and the agreement was terminated. On January 28, 1998, FCI issued $300 million aggregate principal amount of Notes bearing interest at 10 1/2% due 2008 pursuant to an Indenture (the "Offering"). The Notes are unsecured obligations of FCI and interest on the Notes is payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 1998. The Notes are redeemable at the option of FCI, in whole or in part at any time on or after January 15, 2003, at specified redemption prices plus accrued and unpaid interest. In addition, at any time prior to January 15, 2001, FCI, may redeem from time to time up to 35% of the originally issued aggregate principal amount of the Notes at the specified redemption prices with the net cash proceeds (as defined in the Indenture) of one or more public equity offerings. In the event of a change in control of ownership of FCI, Inc., each holder of the Notes has the right to require FCI, to purchase all or any of such holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount. FCI used approximately $86.5 million of the proceeds from the Offering to purchase investments consisting of U.S. Government Obligations, which are pledged as security and restricted for the first six scheduled interest payments on the Notes (see Note 16). The Notes require maintenance of certain financial and nonfinancial covenants, including limitations on additional indebtedness, restricted payments including dividends, transactions with affiliates, liens and asset sales. Long-term debt at September 30, 1998 and 1997 consists of the following (dollars in thousands):
INTEREST RATE 1998 1997 Indenture notes, due 2008.......................... 10.5% $300,000 $ -- NTFC debt.......................................... LIBOR + 4% -- 7,116 Ericsson debt...................................... LIBOR + 4% -- 5,094 Cable capacity debt, due 2001...................... LIBOR + 4.5% 740 1,134 Other.............................................. Various -- 699 -------- ------- Sub-total.......................................... 300,740 14,043 Less: Current portion of long-term debt............ (394) (1,043) -------- ------- $300,346 $13,000 ======== =======
The LIBOR rate was 5.3% and 5.8% on September 30, 1998 and 1997, respectively. Capital Leases. FaciliCom leases certain fiber optic cables under agreements permitting the use of the cables over periods up to 25 years with payment requirements over periods not exceeding five years. Payments are made quarterly and interest is calculated at LIBOR plus 4% to 4.5%. F-13 190 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum payments on long-term debt and capital lease obligations at September 30, 1998 are as follows (in thousands):
LONG-TERM CAPITAL DEBT LEASES 1999........................................................ $ 394 $4,195 2000........................................................ 346 4,065 2001........................................................ -- 650 2002........................................................ -- 221 2003........................................................ -- -- Thereafter.................................................. 300,000 -- -------- ------ Total future minimum payments............................... $300,740 9,131 ======== Less: Amount representing interest (using September 30, 1998 LIBOR rate)............................................... (933) ------ $8,198 ======
5. INCOME TAXES: At September 30, 1998, FaciliCom has approximately $2.6 million of cumulative net operating losses ("NOLs") to offset future U.S. federal taxable income and approximately $25.3 million of NOLs to offset future foreign taxable income for those subsidiaries taxed in foreign jurisdictions. The U.S. NOLs expire in fifteen years, while the foreign NOLs do not expire. A valuation allowance was established for the deferred assets related to the NOLs at September 30, 1998. Deferred tax assets of approximately $3,130,000 at September 30, 1997 were related to the NOL carryforwards of foreign subsidiaries taxed in foreign jurisdictions totaling approximately $11,100,000. A valuation allowance was established for the amount of deferred tax assets at September 30, 1997. On December 22, 1997, FaciliCom adopted a tax sharing agreement with AHI, whereby FaciliCom is obligated to file a consolidated federal income tax return with AHI and subsidiaries. Under the Agreement, FCI is obligated to pay, with certain exceptions, its share of the consolidated tax liability to AHI and FCI will not be paid by AHI for tax benefits realized in the consolidated tax return. At December 31, 1997, FCI had approximately $1,018,000 of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes that amounted to approximately $393,000 and was recorded as a deferred tax liability and deferred income tax expense for the change in tax status for the year ended September 30, 1998. From December 23, 1997 through September 30, 1998, the period after the change in tax status, FCI recorded a tax benefit of $12.1 million based upon FaciliCom's losses expected to be utilized by AHI. The net benefit recorded was passed through to AHI. The components of loss before income taxes for the periods ended September 30, 1998, 1997 and 1996 are as follows (in thousands):
1998 1997 1996 Domestic................................................... $43,432 $ 6,978 $3,009 Foreign.................................................... 14,514 7,053 6,653 ------- ------- ------ Total............................................ $57,946 $14,031 $9,662 ======= ======= ======
F-14 191 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the income tax provision for the years ended September 30, 1997 and 1996 are as follows (in thousands):
1997 1996 Deferred tax-asset foreign NOLs............................. $ 2,010 $ 1,120 Valuation allowance......................................... (2,010) (1,120) ------- ------- $ -- $ -- ======= =======
A reconciliation of the total tax benefit with the amount computed by applying the statutory federal income tax rate to the loss before taxes for the year ended September 30, 1998 is as follows (in thousands):
1998 Loss applying statutory rate................................ $19,700 Permanent differences....................................... (3,693) Foreign country taxes....................................... (302) Change in tax status........................................ (393) State taxes................................................. 226 Valuation allowance......................................... (4,187) ------- Income tax benefit.......................................... $11,351 =======
There are no pro forma income tax amounts presented giving effect to the change in tax status for the statements of operations presented as FaciliCom would have been a stand alone taxpaying entity and a valuation allowance would have been established for any net deferred tax benefit related to net operating losses. The components of deferred tax assets and liabilities at September 30, 1998 and 1997 are as follows (in thousands):
1998 1997 Deferred tax asset -- foreign NOLs.......................... $ 7,718 $ -- Deferred tax asset -- domestic NOLs......................... 1,065 3,130 Property and equipment...................................... 600 -- Stock-based compensation.................................... 2,522 -- Valuation allowance......................................... (11,905) (3,130) -------- ------- $ -- $ -- ======== =======
F-15 192 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. OPERATING LEASES: FaciliCom leases office facilities and certain fiber optic cables and switching facilities under noncancelable operating leases. Rental expense for the fiscal years ended September 30, 1998, 1997, and 1996 was $21.9 million, $4.7 million and $1.4 million, respectively, of which $19.2 million, $3.8 million and $1.1 million relates to fiber optic cable leases, which are generally for less than one year. Future minimum lease payments under noncancelable operating leases as of September 30, 1998 are as follows (in thousands): 1999........................................................ $ 3,864 2000........................................................ 3,733 2001........................................................ 3,599 2002........................................................ 3,247 2003........................................................ 2,955 Thereafter.................................................. 13,659 ------- Total....................................................... 31,057 Less: Subleases............................................. (1,087) ------- $29,970 =======
7. BORROWINGS FROM OWNERS: At September 30, 1996, FaciliCom had outstanding interest-bearing working capital advances from Armstrong totaling $1,549,000. On November 1, 1996, FCI entered into a Convertible Line of Credit Agreement with Armstrong. The outstanding advances were converted into borrowings under the line of credit agreement. Under such agreement, FCI had a $15,000,000 credit facility of which $5,000,000 was available in cash and $10,000,000 was available for letter of credit needs. Armstrong had the right, at any time on or before October 31, 1999, to convert the entire principal amount of the cash loan into a maximum of 3.1% of additional ownership and convert the letter of credit balance outstanding into a maximum additional 4.44% ownership. In 1997, Armstrong converted the outstanding balance of $5,396,000 under the cash portion of the agreement into an ownership interest. At September 30, 1997, FCI had $10,000,000 for letter of credit needs of which it had outstanding letters of credit of $6,136,000 under the Convertible Line of Credit Agreement. In 1997, FCI entered into a Bridge Loan Agreement with Armstrong in which FCI could borrow up to $10,000,000. Interest was calculated based upon prime plus 1%. The prime rate was 8.5% at September 30, 1997. The loan was due on October 1, 1998. The outstanding balance at September 30, 1997 was $6,250,000. During the year ended September 30, 1998, Armstrong converted the outstanding balance of $6,250,000 into an ownership interest (see Note 1). Additionally, as of September 30, 1996, FCI-Sweden had outstanding convertible debentures in the amount of $480,000 to a minority stockholder of both FCI-Sweden and FGC (the "Minority Stockholder"). Such convertible debentures accrued interest at LIBOR plus 4%. Interest was payable annually on September 30, with the full principal amount due on September 30, 2003. In December 1996, these convertible debentures were assigned to FCI (see Note 8). FCI's total interest expense under the above borrowings was $195,000, $462,000 and $26,000 for the years ended September 30, 1998, 1997 and 1996, respectively. F-16 193 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. OTHER RELATED PARTY TRANSACTIONS: As of September 30, 1996, FCI had an outstanding advance to the Minority Stockholder of $499,000. As of September 30, 1996, FCI and the Minority Stockholder held $1,120,000 and $480,000, respectively, of FCI-Sweden debentures totaling $1,600,000 which earned interest at LIBOR plus 4%. The holder of the debentures had the right to convert the outstanding principal balance into FCI-Sweden common stock at a predetermined price ranging from $200 to $250 per share. On December 23, 1996, the Minority Stockholder assigned its right, title and interest in the FCI-Sweden convertible debentures to FCI to satisfy the outstanding advance due to FCI from the Minority Stockholder. On March 14, 1997, FCI converted all of its FCI-Sweden convertible debentures into 7,400 shares of FCI-Sweden common stock. On May 15, 1997, FCI-Sweden issued 14,400 additional shares of common stock to FCI for consideration of $3,600,000. Such transactions increased FCI's ownership in FCI-Sweden to 89.6%. In March 1996, Tele8 Kontakt, a subsidiary of FCI at that time, was awarded a license agreement from the Swedish government for certain rights relating to communications systems and technology. During October 1996, FCI distributed its rights under such license agreement to its owners. FCI has contracted with AHI, since its inception, for the performance of certain services by AHI for FCI, including but not limited to financial accounting, professional and billing services. In May 1998, an agreement was entered into for such services. The agreement expires on September 30, 2002. Expenses related to such contracted services of approximately $1.6 million, $439,000 and $7,000 are included in the statements of operations for the years ended September 30, 1998, 1997 and 1996, respectively. The terms of the agreements include professional services billed at hourly rates, check processing at an amount per check and data center services based on usage and disk storage space. FaciliCom believes that the terms of the agreements are competitive with similar services offered in the industry. As of September 30, 1998 an affiliate of AHI had issued letters of credits on behalf of FaciliCom totaling $9.4 million. 9. BENEFIT PLANS: Foreign Operations. Various foreign subsidiaries contribute to their respective government pension funds, social insurance, medical insurance and unemployment charters for their employees. The total contribution was $1.3 million, $781,000 and $563,000 for the years ended September 30, 1998, 1997 and 1996, respectively. 401(k). Employees of FCI may participate in a salary reduction (401(k) plan administered by AHI. All contributions represent employee salary reductions. 10. CONCENTRATION OF RISK: Financial instruments that potentially subject FaciliCom to concentration of credit risk are accounts receivable. Four of FaciliCom's customers accounted for approximately 13.0% and 31.0% of gross accounts receivable as of September 30, 1998 and 1997, respectively. FaciliCom performs on-going credit evaluations of its customers and in certain circumstances requires collateral to support customer receivables. However, many of FaciliCom's customers, including these four, are suppliers to whom FaciliCom has accounts payable that mitigate this risk. In addition, FaciliCom is dependent upon certain suppliers for the provision of telecommunication services to its customers. FaciliCom has not experienced, and does not expect, any disruption of such services. F-17 194 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Approximately 24% and 41% of FaciliCom's revenues for the years ended September 30, 1997 and 1996, respectively, were derived from two customers each with percentages in excess of 10%. No one customer represented 10% or more of FaciliCom's revenues for the year ended September 30, 1998. 11. COMMITMENTS: Equipment. At September 30, 1998, FaciliCom had outstanding commitments to purchase certain switching equipment for approximately $15 million. In May 1998, FaciliCom entered into a Memorandum of Understanding ("MOU") with Qwest. The MOU incorporates agreements to provide Qwest with international direct dial termination service to various destinations and provides FaciliCom an indefeasible right of use ("IRU") for domestic and international fiber optic capacity. Deliveries of capacity under the IRU began in March 1999. The IRU is for twenty-five years, for which FaciliCom has agreed to pay $24 million. Delivery of two of the capacity segments occurred during the nine month period ended June 30, 1999. The delivery of the remaining capacity is expected by September 30, 1999. FaciliCom has recorded a liability related to the two capacity segments that were delivered during the nine month period ended June 30, 1999. In addition, during a three-year period, Qwest has the right of first refusal pursuant to additional capacity purchases made by FaciliCom. FaciliCom has also entered into two agreements that provide FaciliCom with IRU's for international fiber optic capacity for Europe and the Pacific Rim. Deliveries of the capacity under the agreements are expected prior to November 1999. The IRU's are for ten to fifteen years, for which FaciliCom has agreed to pay approximately $41.6 million through September 30, 2002, of which $2.5 million has already been paid as a deposit and an additional $24.1 million is expected to be paid in the fiscal year ended September 30, 1999. Subsequent to September 30, 1998, FaciliCom agreed to acquire additional capacity in Europe and Scandinavia for $8.6 million. Deliveries and payment of the capacity under these agreements are expected by September 30, 1999. 12. CONTINGENCIES AND LITIGATION: FaciliCom is involved in various claims and possible actions arising in the normal course of its business. Although the ultimate outcome of these claims cannot be ascertained at this time, it is the opinion of FaciliCom's management, based on its knowledge of the facts and advice of counsel, that the resolution of such claims and actions will not have a material adverse effect on FaciliCom's financial condition or results of operations. In August 1997, FaciliCom entered into a settlement agreement relating to litigation arising from a certain 1996 FCI-Sweden international telephone services agreement and related billing, collection and factoring agreements with third parties. For the fiscal year ended September 30, 1996, selling, general and administrative expenses includes approximately $708,000 of losses relating to the settlement of which $500,000 represents a reserve on advances, paid at the time of the settlement agreement, on behalf of the telephone service company. Under the settlement agreement all of the above amounts were paid to fully satisfy any amounts which may be owing from FaciliCom and the telephone services company to a company under a factoring agreement. At the date of settlement, the management of FaciliCom believed the amounts advanced to the telephone services company were uncollectible. The settlement agreement also provides for the factoring company to assign to FaciliCom any and all receivable claims the factoring company may have against the billing and collection agent ("Agent"). FaciliCom filed a complaint against the Agent for breach of contract and related claims pursuant to an agreement between FaciliCom and the F-18 195 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Agent. The Agent placed in escrow the sum of $1,431,324. On May 8, 1998, the balance of the escrow account was distributed among various entities. FaciliCom received $791,000. 13. STOCK-BASED COMPENSATION: Through December 22, 1997, certain employees and directors were eligible to participate in a Performance Unit Plan established by FaciliCom, under which a maximum of 1,254,000 units could have been granted. A unit is a right to receive a cash payment equal to the excess of the fair market value of a unit on its maturity date over the initial value of a unit. Fair market value of a unit as determined by the management committee of FaciliCom. At September 30, 1997 and 1996, 484,500 and 152,000 units had been granted, respectively. Participants vested in their units over a period not to exceed two years and were entitled to receive cash compensation equivalent to the value of the units at the time a participant retires provided the participant had 10 years of continuous service or, if earlier, upon the occurrence of certain events, including a change in control of FaciliCom. FaciliCom accrued to expense over the participant's service vesting period (10 years) amounts based on the value of the unit at year end. Amounts charged to expense for this plan for the year ended September 30, 1997 was $288,000. No amounts were expensed in prior years. On December 22, 1997, the Board of Directors adopted the 1997 Phantom Stock Rights Plan (the "Phantom Stock Plan"). The Phantom Stock Plan provided for the granting of phantom stock rights ("Phantom Shares") to certain directors, officers and key employees of FaciliCom and its subsidiaries. The total number of Phantom Shares eligible for grant pursuant to the Phantom Stock Plan was 6,175, subject to adjustments for stock splits and stock dividends. All of the units granted under FaciliCom's Performance Unit Plan were exchanged for equivalent phantom rights with equivalent terms under the new phantom rights plan. Accordingly, 4,845 Phantom Shares had been granted of which 3,182 had vested. All of the provisions of the Phantom Stock Plan including vesting, forfeiture and cash settlement mirror the provisions of FaciliCom's Performance Unit Plan. On March 31, 1998, the Board of Directors adopted the FaciliCom International, Inc. 1998 Stock Option Plan (the "1998 Stock Option Plan"). By resolution of the Board of Directors on March 31, 1998, FaciliCom's Certificate of Incorporation was amended to create 25,000 shares of a non-voting class of common stock. At September 30, 1998, FaciliCom has 300,000 authorized shares, of which 275,000 are a voting class of common stock. The 1998 Stock Option Plan provides for the grant of options to purchase shares of FaciliCom's non-voting common stock to certain directors, officers, key employees and advisors of FaciliCom. The aggregate number of options that may be granted under the 1998 Stock Option Plan is 22,574 and no option may be granted after March 31, 2008. No option is exercisable within the first six months of grant and options expire after ten years. Also on March 31, 1998, all of the Phantom Shares previously granted to employees of FaciliCom under FaciliCom's Phantom Stock Plan were converted to options under the 1998 Stock Option Plan, and FaciliCom granted additional options to purchase 6,448 shares of non-voting common stock to employees, directors and advisors under the 1998 Stock Option Plan. The exchange of employees' Phantom Shares for options resulted in additional compensation cost for the incremental value of the new option amortized over the vesting period of the option that is shorter than the service period of the Phantom Shares. Total unrecognized compensation cost approximated $1,672,375 at time of conversion. F-19 196 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) A summary of the stock option activity at September 30, 1998 is as follows:
OPTION SHARES OPTION SHARES OPTION SHARES OPTION SHARES (EXERCISE (EXERCISE PRICE (EXERCISE PRICE (EXERCISE PRICE PRICE $1) $263) $500) $1,000) Options granted March 31, 1998..... 9,918 670 705 -- Options granted June 1, 1998....... -- -- 30 -- Options granted July 1, 1998....... -- -- -- 200 ----- --- --- --- Options outstanding at September 30, 1998......................... 9,918 670 735 200 ===== === === === Options exercisable at September 30, 1998......................... 9,490 380 ===== ===
All of the options outstanding at September 30, 1998 have a 10-year life and an option price range from $1.00 to $1,000 per option share. The options vest over a period up to 5 years and at September 30, 1998 there were 8,826 options granted that vested immediately. FaciliCom recognized compensation cost of $5,706,000 as of September 30, 1998 relating to options granted and recognized compensation cost of $311,592 for the year ended September 30, 1998 relating to FaciliCom's Phantom Stock plan. For the year ended September 30, 1998 compensation cost includes $2,112,640 for 3,401 options with an exercise price of $1.00 granted to certain non-employee directors and advisors related to certain directors of FaciliCom. The fair value of options granted at September 30, 1998 was as follows:
OPTION SHARES OPTION FAIR VALUE EXERCISE PRICE AT DATE OF GRANT $ 1.................................................... $640 $ 263..................................................... $423 $ 500..................................................... $306 $1,000.................................................... $135
The fair value of the option grant is estimated on the date of grant using the Black-Scholes option pricing model. The assumptions used in the Black-Scholes model are: dividend yield 0%, volatility 30%, risk free interest rate of 6%, assumed forfeiture rate of 0% and an expected life of 3 to 5 years. If FaciliCom would have recorded compensation cost for FaciliCom's stock option plan consistent with the fair value-based method of accounting prescribed under SFAS No. 123 it would have had an immaterial effect on the net loss of FaciliCom for the fiscal year ended September 30, 1998. On October 1, 1998, FaciliCom granted options to purchase 1,702 shares at exercise prices ranging from $1 to $950. The options vest over 1 to 5 years and are exercisable for 10 years. Approximately $589,000 of compensation expense will be recorded for the options. 14. VALUATION AND QUALIFYING ACCOUNTS: Activity in FaciliCom's allowance accounts for the periods ended September 30, 1998, 1997 and 1996 were as follows (in thousands):
DOUBTFUL ACCOUNTS ADDITIONS --------------------------- BALANCE AT CHARGED TO BEGINNING OF COSTS AND CHARGED TO BALANCE AT PERIOD EXPENSE OTHER ACCOUNTS DEDUCTIONS END OF PERIOD 1996......................... $ -- $ -- $ -- $ -- $ -- 1997......................... $ -- $1,263 $ -- $(1,102) $ 161 1998......................... $161 $3,771 $745 $ (57) $4,620
F-20 197 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TAX ASSET VALUATION -------------------------------- CHARGED TO BALANCE AT COSTS AND BALANCE AT BEGINNING OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD 1996................................ $ -- $1,120 $ -- $ 1,120 1997................................ $1,120 $2,010 $ -- $ 3,130 1998................................ $3,130 $8,221 $ -- $11,351
15. GEOGRAPHIC DATA: FaciliCom operates as a provider of international long-distance telecommunications services. FaciliCom is a multinational company operating in many countries including the United States, the United Kingdom, Sweden, Denmark, France, Germany and The Netherlands. Sales between geographic areas represent the providing of services through carrying and ultimately termination of customer traffic originated in the other geographic area and are accounted for based on established sales prices. In computing operating loss for foreign operations, no allocations of certain general corporate expenses have been made. Summary information with respect to FaciliCom's geographic operations is as follows (in thousands):
YEARS ENDED SEPTEMBER 30, ------------------------------ 1998 1997 1996 NET REVENUE North America........................................ $ 142,126 $ 56,315 $ 8,363 Europe............................................... 112,392 24,187 7,347 Eliminations......................................... (70,272) (10,315) (3,819) --------- -------- ------- Total........................................ $ 184,246 $ 70,187 $11,891 ========= ======== ======= OPERATING LOSS North America........................................ $ (29,553) $ (6,337) $(2,936) Europe............................................... (14,333) (5,023) (6,640) --------- -------- ------- Total........................................ $ (43,886) $(11,360) $(9,576) ========= ======== ======= ASSETS North America........................................ $ 488,649 $ 25,035 $ 9,431 Europe............................................... 150,992 21,824 13,042 Eliminations......................................... (260,757) (2,842) (1,465) --------- -------- ------- Total........................................ $ 378,884 $ 44,017 $21,008 ========= ======== =======
16. MARKETABLE SECURITIES: In accordance with SFAS 115, FaciliCom's debt securities are considered either held-to-maturity or available-for-sale. Held-to-maturity securities represent those securities that FaciliCom has both the positive intent and the ability to hold to maturity, and are carried at amortized cost. This classification includes those securities purchased and pledged for payment of interest on the Notes. Available-for-sale securities represent those securities that do not meet that classification of held-to-maturity, are not actively traded and are carried at fair value. Unrealized gains and losses on these securities are excluded from earnings and are reported as a separate component of capital accounts until realized. F-21 198 FACILICOM INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The amortized cost and estimated fair value of the marketable securities are as follows:
SEPTEMBER 30, 1998 ---------------------------------------------- GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAIN LOSS VALUE (IN THOUSANDS) Held-to-Maturity U.S. Government Securities Maturing in 1 year or less............................. $ 31,394 $ 79 $ -- $ 31,473 Maturing between 1 and 3 years.............. 43,124 546 -- 43,670 -------- ------- ---- -------- Total held-to-maturity.............. 74,518 625 -- 75,143 -------- ------- ---- -------- Available-for-sale Commercial paper............................ 6,887 -- -- 6,887 Government backed securities................ 31,787 24 -- 31,811 -------- ------- ---- -------- Total available-for-sale............ 38,674 24 -- 38,698 -------- ------- ---- -------- Total marketable securities......... $113,192 $ 649 $ -- $113,841 -------- ------- ---- -------- AS REPORTED SEPTEMBER 30, 1998 (IN THOUSANDS): Current Assets: Held-to-maturity (at amortized cost)................... $31,394 Available-for-sale (at fair value)..................... 38,698 ------- Total current assets........................... $70,092 ======= Noncurrent Assets: Held-to-maturity (at amortized cost)................... $43,124 ======= Capital Accounts: Holding gain on marketable securities.................. $ 24 =======
At June 30, 1999, there were no available-for-sale securities. 17. OTHER EVENTS (UNAUDITED): Revolving Credit Facility. On May 24, 1999, FaciliCom entered into a $35.0 million revolving credit facility (the "Credit Facility"), which is scheduled to terminate on May 23, 2000. As of June 30, 1999, FaciliCom had $10.0 million outstanding under the Credit Facility. The Credit Facility contains interest rate options based upon LIBOR or Prime, plus applicable margin percentages. The Credit Facility contains certain restrictive covenants. Subsequent to June 30, 1999, FaciliCom replaced certain switching equipment with newer equipment. As such, in the 4th quarter of fiscal year ending September 30, 1999, FaciliCom will record approximately a $3.8 million write-down for the remaining net book value of the replaced equipment. Subsequent to June 30, 1999, FaciliCom canceled 539 shares of its outstanding voting stock and, simultaneously, issued 2,379 options under the 1998 Stock Option Plan to certain advisors at an exercise price of $.01 per share, which vested immediately. As such, FaciliCom will record a 4th quarter charge of approximately $3.3 million for related compensation expense. F-22 199 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NOVEMBER 5, 1999 [WORLD ACCESS, INC., LOGO] EXCHANGE OFFER AND CONSENT SOLICITATION OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL, INC. EXCHANGED FOR 13.25% SENIOR NOTES DUE 2008 AND COMMON STOCK OF WORLD ACCESS, INC. AND CASH ----------------------------------------------------- PROSPECTUS AND CONSENT SOLICITATION ----------------------------------------------------- The Exchange Agent for the Exchange Offer is: FIRST UNION NATIONAL BANK 1525 West W.T. Harris Boulevard 3C3 NC-1153 Charlotte, North Carolina 28262 By Facsimile: (704) 590-7628 For Confirmation and/or Information Call: (704) 590-7408 Any questions concerning the terms of the Exchange Offer may be directed to the Exchange Agent. - -------------------------------------------------------------------------------- We have not authorized any dealer, salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell any securities or our solicitation of your offer to buy any securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein or the affairs of World Access or FaciliCom have not changed since the date hereof. - -------------------------------------------------------------------------------- 200 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 102 of the Delaware General Corporation Law ("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 of 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. Section 145 of the DGCL provides that in the case of an action by or in the right of a corporation to procure a judgment in its favor, a corporation may indemnify any person who was or is a party or is threatened to be made a party to any action or suit 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) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under standards similar to those set forth in the preceding paragraph, except that no indemnification may be made in respect of any action or claim as to which such person shall have been adjudged to be liable to the corporation unless a court determines that such person is fairly and reasonably entitled to indemnification. Articles X and XI of the World Access, Inc. Restated 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 of 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 II-1 201 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. 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 August 17, 1999, among World Access, Inc., FaciliCom International, Inc., Armstrong International Telecommunications, Inc., Epic Interests, Inc. and BFV Associates, Inc. (incorporated by reference to Appendix A to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of Stockholders to be held on December 7, 1999). 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 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 ("Old World Access") 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 -- Bylaws of World Access (incorporated by reference to Exhibit 34.2 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 Old World Access 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 between FaciliCom International, Inc. and State Street Bank and Trust Company dated January 28, 1998. 4.4 -- First Supplemental Indenture, dated as of April 26, 1999, to FaciliCom Indenture. 4.5 -- Form of Second Supplemental Indenture to FaciliCom Indenture. 4.6 -- Form of Indenture between World Access, Inc. and First Union National Bank, as Trustee. 4.7 -- Form of Collateral Pledge Agreement between World Access, Inc. and First Union National Bank. 4.8 -- Agreement to Exchange and Consent, dated as of October 12, 1999 by and among World Access, FaciliCom and certain holders of FaciliCom notes. 4.9 -- Voting Agreement, dated August 17, 1999 by and among FaciliCom, Armstrong International Telecommunications, Inc., BFV Associates, Inc, Epic Interests, Inc., WorldCom Network Services, The 1818 Fund and John D. Phillips (incorporated by reference to Appendix C to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of Stockholders to be held on December 7, 1999). 4.10 -- Form of Stock Purchase Agreements, dated as of October 13, 1999, by and between World Access, Inc. and Gilbert Global Equity Partners, L.P., Gilbert Global Equity Partners (Bermuda) L.P., GGEP/GECC Equity Partners, L.P., Zilkha Capital Partners, L.P., Erie Indemnity Company, Erie Insurance Exchange, Geocapital V, L.P. and Ezra K. Zilkha.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 4.11 -- Form of Registration Rights Agreement between World Access, Inc. and Armstrong International Telecommunications, Inc., BFV Associates, Inc., Epic Interests, Inc. and Anand Kumar (incorporated by reference to Exhibit 6.3 to Appendix A to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of Stockholders to be held on December 7, 1999). 4.12 -- Form of Certificate of Designation of World Access, Inc. 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 to be held on December 7, 1999). 4.13 -- Collateral Pledge and Security Agreement, dated as of January 28, 1998 from FaciliCom International, Inc., pledgor, to State Street Bank and Trust Company, trustee. 5.1 -- Opinion of Long Aldridge & Norman LLP regarding legality of notes and common stock. 8.1 -- Opinion of Long Aldridge & Norman LLP regarding certain tax matters. 10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' Form 10-K for the year ended December 31, 1996, filed April 11, 1997). 10.10 -- Amendment One to Directors' Warrant Incentive Plan (incorporated by reference to Exhibit 10.31 to Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Steven A. Odom (incorporated by reference to Exhibit 10.33 to Old World Access' Form 10-K for the year ended December 31, 1997, filed April 15, 1998).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 10.15 -- Severance Protection Agreement dated November 1, 1997 by and between World Access, Inc. and Hensley E. West (incorporated by reference to Exhibit 10.33 to Old World Access' Form 10-K for the year ended December 31, 1997, filed April 15, 1998). 10.16 -- 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 Old World Access' Form 10-K for the year ended December 31, 1997, filed April 15, 1998). 10.17 -- License Agreement dated July 1, 1996, by and between International Communication Technologies, Inc., World Access and Eagle Telephonics, Inc. (incorporated by reference to Exhibit 10.36 to Old World Access' Form 10-K for the year ended December 31, 1996, filed April 11, 1997). 10.18 -- Agreement and Plan of Merger between and among World Access, Inc. and CIS Acquisition Corp. and Thomas R. Canham; Brian A. Schuchman; and Cellular Infrastructure Supply, Inc. (with exhibits thereto) (incorporated by reference to Exhibit Z to Old World Access' Form 8-K, filed April 10, 1997). 10.19 -- Registration Rights Agreement dated October 1, 1997 by and between World Access, Inc., BT Alex Brown Incorporated and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.2 to Old World Access' Form 8-K, filed October 8, 1997). 10.20 -- Agreement and Plan of Merger by and among World Access, Inc., Cellular Infrastructure Supply, Inc., Advanced TechCom, Inc. and Ernest H. Lin dated as of December 24, 1997 (incorporated by reference to Exhibit 2.1 to Old World Access' Form 8-K, filed February 13, 1998). 10.21 -- 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). 10.22 -- Executive Employment Agreement between World Access, Inc. and Steven A. Odom dated as of December 14, 1998 (incorporated by reference to Exhibit 10.22 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.23 -- 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). 10.24 -- Letter Agreement with Hensley E. West, dated as of December 14, 1998 (incorporated by reference to Exhibit 10.24 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.25 -- 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). 10.26 -- 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). 10.27 -- 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). 10.28 -- Schedule of all officers and directors who have signed an Indemnification Agreement referred to in Exhibit 10.27 (incorporated by reference to Exhibit 10.28 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.29 -- Credit Agreement dated as of December 30, 1998 between Telco Systems, Inc., World Access Holdings, Inc. and NationsBank, N.A. as Administrative Agent and Fleet National Bank as Syndication Agent and Bank Creditanstalt Corporate Finance, Inc. (incorporated by reference to Exhibit 10.29 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 10.30 -- Guaranty dated as of December 30, 1998 between World Access, Telco, World Access Holdings, Inc., NationsBank, N.A. as Administrative Agent and the lenders party to the Credit Agreement referred to in Exhibit 10.29 (incorporated by reference to Exhibit 10.30 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.31 -- 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 10.29 (incorporated by reference to Exhibit 10.31 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.32 -- 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 10.29 (incorporated by reference to Exhibit 10.32 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.33 -- Disbursement Agreement dated as of December 14, 1998 by and among World Access, 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 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.34 -- 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' Proxy Statement dated November 12, 1998 relating to the Special Meeting of Stockholders held on December 14, 1998). 10.35 -- 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' Proxy Statement dated November 12, 1998 relating to the Special Meeting of Stockholders held on December 14, 1998). 12.1* -- Computation of Ratio of Earnings to Fixed Charges for World Access. 12.2* -- Computation of Ratio of Earnings to Fixed Charges for FaciliCom. 21.1* -- Subsidiaries of the Registrant. 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 Deloitte & Touche LLP with respect to the financial statements of FaciliCom International, Inc. 23.4 -- Consent of PricewaterhouseCoopers LLP with respect to the financial statements of World Access, Inc. 23.5 -- Consent of Ernst & Young LLP with respect to the financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited. 23.6 -- Consent of Grant Thornton LLP with respect to the financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited. 23.7 -- Consent of Ernst & Young LLP with respect to the financial statements of Telco Systems, Inc. 23.8 -- Consent of KPMG LLP with respect to the financial statements of NACT Telecommunications, Inc. 24.1* -- Power of Attorney of World Access. 25.1 -- Statement of eligibility of trustee of Exchange Notes. 99.1 -- Form of Letter of Transmittal. 99.2 -- Form of Notice of Guaranteed Delivery. 99.3 -- Form of Exchange Agency Agreement. 99.4 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 99.5 -- Form of Letter to Clients. 99.6 -- Consent of Walter J. Burmeister. 99.7 -- Consent of Kirby J. Campbell. 99.8 -- Consent of Bryan Cipoletti. 99.9 -- Consent of Massimo Prelz Oltramonti. 99.10 -- Consent of John P. Rigas. 99.11 -- Consent of Dru A. Sedwick.
- --------------- * Previously filed. (B) Financial Statement Schedule. The financial statements schedule that is required by Regulation S-X is incorporated herein by reference to our Annual Report on Form 10-K for the year ended December 31, 1998. ITEM 22. UNDERTAKINGS The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement 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. Insofar as 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 Securities Act of 1933 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 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 Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. The registrant undertakes that every prospectus: (i) that is filed pursuant to the paragraph immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes 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. II-6 206 The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 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 this registration statement through the date of responding to the request. The undersigned registrant hereby undertakes 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 this registration statement when it became effective. II-7 207 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment 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 5, 1999. WORLD ACCESS, INC. (formerly known as "WAXS INC.") By: /s/ JOHN D. PHILLIPS ------------------------------------ John D. Phillips Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this amendment to the registration statement has been signed by the following persons in the capacities indicated as of November 5, 1999.
SIGNATURES TITLE * Chairman, President and Chief Executive - --------------------------------------------- Officer (Principal Executive Officer) John D. Phillips /s/ MARK A. GERGEL Director, Executive Vice President and Chief - --------------------------------------------- Financial Officer (Principal Financial Mark A. Gergel Officer) * Vice President and Corporate Controller - --------------------------------------------- (Principal Accounting Officer) Martin D. Kidder * Director - --------------------------------------------- Stephen J. Clearman * Director - --------------------------------------------- John P. Imlay, Jr. * Director - --------------------------------------------- Carl E. Sanders * Director - --------------------------------------------- Lawrence C. Tucker *By: /s/ MARK A. GERGEL - --------------------------------------------- Mark A. Gergel, Attorney-in-fact
II-8 208 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 2.1 -- Agreement and Plan of Merger, dated as of August 17, 1999, among World Access, Inc., FaciliCom International, Inc., Armstrong International Telecommunications, Inc., Epic Interests, Inc. and BFV Associates, Inc. (incorporated by reference to Appendix A to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of stockholders to be held on December 7, 1999). 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 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 ("Old World Access") 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 -- Bylaws of World Access (incorporated by reference to Exhibit 34.2 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 Old World Access 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 between FaciliCom International, Inc. and State Street Bank and Trust Company dated January 28, 1998. 4.4 -- First Supplemental Indenture, dated as of April 26, 1999, to FaciliCom Indenture. 4.5 -- Form of Second Supplemental Indenture to FaciliCom Indenture. 4.6 -- Form of Indenture between World Access, Inc. and First Union National Bank, as Trustee. 4.7 -- Form of Collateral Pledge Agreement between World Access, Inc. and First Union National Bank. 4.8 -- Agreement to Exchange and Consent, dated as of October 12, 1999 by and among World Access, FaciliCom and certain holders of FaciliCom notes. 4.9 -- Voting Agreement, dated August 17, 1999 by and among FaciliCom, Armstrong International Telecommunications, Inc., BFV Associates, Inc, Epic Interests, Inc., WorldCom Network Services, The 1818 Fund and John D. Phillips (incorporated by reference to Appendix C to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of Stockholders to be held on December 7, 1999. 4.10 -- Form of Stock Purchase Agreements, dated as of October 13, 1999, by and between World Access, Inc. and Gilbert Global Equity Partners, L.P., Gilbert Global Equity Partners (Bermuda) L.P., GGEP/GECC Equity Partners, L.P., Zilkha Capital Partners, L.P., Erie Indemnity Company, Erie Insurance Exchange, Geocapital V, L.P. and Ezra K. Zilkha. 4.11 -- Form of Registration Rights Agreement between World Access, Inc. and Armstrong International Telecommunications, Inc., BFV Associates, Inc., Epic Interests, Inc. and Anand Kumar (incorporated by reference to Exhibit 6.3 to Appendix A to World Access' Proxy Statement dated November 5, 1999 relating to the Special Meeting of Stockholders to be held on December 7, 1999). 4.12 -- Form of Certificate of Designation of World Access, Inc. 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 to be held on December 7, 1999). 4.13 -- Collateral Pledge and Security Agreement, dated as of January 28, 1998 from FaciliCom International, Inc., pledgor, to State Street Bank and Trust Company, trustee.
II-9 209
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 5.1 -- Opinion of Long Aldridge & Norman LLP regarding legality of exchange notes and common stock. 8.1 -- Opinion of Long Aldridge & Norman LLP regarding certain tax matters. 10.1 -- World Access, Inc. 1991 Stock Option Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 1 to Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' Form 10-K for the year ended December 31, 1996, filed April 11, 1997). 10.10 -- Amendment One to Directors' Warrant Incentive Plan (incorporated by reference to Exhibit 10.31 to Old World Access' 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 Old World Access' 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 Old World Access' 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 Old World Access' 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 Steven A. Odom (incorporated by reference to Exhibit 10.33 to Old World Access' Form 10-K for the year ended December 31, 1997, filed April 15, 1998). 10.15 -- Severance Protection Agreement dated November 1, 1997 by and between World Access, Inc. and Hensley E. West (incorporated by reference to Exhibit 10.33 to Old World Access' Form 10-K for the year ended December 31, 1997, filed April 15, 1998). 10.16 -- 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 Old World Access' Form 10-K for the year ended December 31, 1997, filed April 15, 1998). 10.17 -- License Agreement dated July 1, 1996, by and between International Communication Technologies, Inc., World Access and Eagle Telephonics, Inc. (incorporated by reference to Exhibit 10.36 to Old World Access' Form 10-K for the year ended December 31, 1996, filed April 11, 1997).
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT 10.18 -- Agreement and Plan of Merger between and among World Access, Inc. and CIS Acquisition Corp. and Thomas R. Canham; Brian A. Schuchman; and Cellular Infrastructure Supply, Inc. (with exhibits thereto) (incorporated by reference to Exhibit Z to Old World Access' Form 8-K, filed April 10, 1997). 10.19 -- Registration Rights Agreement dated October 1, 1997 by and between World Access, Inc., BT Alex Brown Incorporated and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.2 to Old World Access' Form 8-K, filed October 8, 1997). 10.20 -- Agreement and Plan of Merger by and among World Access, Inc., Cellular Infrastructure Supply, Inc., Advanced TechCom, Inc. and Ernest H. Lin dated as of December 24, 1997 (incorporated by reference to Exhibit 2.1 to Old World Access' Form 8-K, filed February 13, 1998). 10.21 -- 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). 10.22 -- Executive Employment Agreement between World Access, Inc. and Steven A. Odom dated as of December 14, 1998 (incorporated by reference to Exhibit 10.22 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.23 -- 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). 10.24 -- Letter Agreement with Hensley E. West, dated as of December 14, 1998 (incorporated by reference to Exhibit 10.24 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.25 -- 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). 10.26 -- 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). 10.27 -- 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). 10.28 -- Schedule of all officers and directors who have signed an Indemnification Agreement referred to in Exhibit 10.27 (incorporated by reference to Exhibit 10.28 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.29 -- Credit Agreement dated as of December 30, 1998 between Telco Systems, Inc., World Access Holdings, Inc. and NationsBank, N.A. as Administrative Agent and Fleet National Bank as Syndication Agent and Bank Creditanstalt Corporate Finance, Inc. (incorporated by reference to Exhibit 10.29 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.30 -- Guaranty dated as of December 30, 1998 between World Access, Telco, World Access Holdings, Inc., NationsBank, N.A. as Administrative Agent and the lenders party to the Credit Agreement referred to in Exhibit 10.29 (incorporated by reference to Exhibit 10.30 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.31 -- 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 10.29 (incorporated by reference to Exhibit 10.31 to World Access' Form 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.32 -- 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 10.29 (incorporated by reference to Exhibit 10.32 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 10.33 -- Disbursement Agreement dated as of December 14, 1998 by and among World Access, 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 10-K for the year ended December 31, 1998, filed April 9, 1999). 10.34 -- 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' Proxy Statement dated November 12, 1998 relating to the Special Meeting of Stockholders held on December 14, 1998). 10.35 -- 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' Proxy Statement dated November 12, 1998 relating to the Special Meeting of Stockholders held on December 14, 1998). 12.1* -- Computation of Ratio of Earnings to Fixed Charges for World Access. 12.2* -- Computation of Ratio of Earnings to Fixed Charges for FaciliCom. 21.1* -- Subsidiaries of the Registrant. 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 Deloitte & Touche LLP with respect to the financial statements of FaciliCom International, Inc. 23.4 -- Consent of PricewaterhouseCoopers LLP with respect to the financial statements of World Access, Inc. 23.5 -- Consent of Ernst & Young LLP with respect to the financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited. 23.6 -- Consent of Grant Thornton LLP with respect to the financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited. 23.7 -- Consent of Ernst & Young LLP with respect to the financial statements of Telco Systems, Inc. 23.8 -- Consent of KPMG LLP with respect to the financial statements of NACT Telecommunications, Inc. 24.1* -- Power of Attorney of World Access (included in the signature pages hereto). 25.1 -- Statement of eligibility of trustee of Exchange Notes. 99.1 -- Form of Letter of Transmittal. 99.2 -- Form of Notice of Guaranteed Delivery. 99.3 -- Form of Exchange Agency Agreement. 99.4 -- Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5 -- Form of Letter to Clients. 99.6 -- Consent of Walter J. Burmeister. 99.7 -- Consent of Kirby J. Campbell. 99.8 -- Consent of Bryan Cipoletti. 99.9 -- Consent of Massimo Prelz Oltramonti. 99.10 -- Consent of John P. Rigas. 99.11 -- Consent of Dru A. Sedwick.
- --------------- * Previously filed. II-12 EX-4.3 2 INDENTURE 1 Exhibit 4.3 ================================================================================ FACILICOM INTERNATIONAL, INC., Issuer TO STATE STREET BANK AND TRUST COMPANY, Trustee ---------------------- Indenture Dated as of January 28, 1998 ---------------------- $300,000,000 10 1/2% Senior Notes due 2008 10 1/2% Series B Senior Notes due 2008 ================================================================================ 2 FACILICOM INTERNATIONAL, INC. Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of January 28, 1998 Trust Indenture Act Section Indenture Section - --------------- ----------------- (S) 310(a)(1).............................................. 607 (a)(2).............................................. 607 (b)................................................. 608 (S) 312(c)................................................. 701 (S) 314(a)................................................. 703 (a)(4).............................................. 1008(a) (c)(1).............................................. 102 (c)(2).............................................. 102 (e)................................................. 102 (S) 315(b)................................................. 601 (S) 316(a)(last sentence).................................. 101 ("Outstanding") (a)(1)(A)........................................... 502, 512 (a)(1)(B)........................................... 513 (b)................................................. 508 (c)................................................. 104(d) (S) 317(a)(1).............................................. 503 (a)(2).............................................. 504 (b)................................................. 1003 (S) 318(a)................................................. 111 Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
Page ---- PARTIES............................................................................ 1 RECITALS OF THE COMPANY............................................................ 1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION....................................... 1 SECTION 101. Definitions................................................. 1 SECTION 102. Compliance Certificates and Opinions........................ 22 SECTION 103. Form of Documents Delivered to Trustee...................... 23 SECTION 104. Acts of Holders............................................. 23 SECTION 105. Notices, Etc., to Trustee, Company.......................... 25 SECTION 106. Notice to Holders; Waiver................................... 25 SECTION 107. Effect of Headings and Table of Contents.................... 25 SECTION 108. Successors and Assigns...................................... 26 SECTION 109. Separability Clause......................................... 26 SECTION 110. Benefits of Indenture....................................... 26 SECTION 111. Governing Law............................................... 26 SECTION 112. Legal Holidays.............................................. 26 ARTICLE TWO NOTE FORMS................................................... 27 SECTION 201. Forms Generally............................................. 27 SECTION 202. Restrictive Legends......................................... 28 ARTICLE THREE THE NOTES.................................................... 30 SECTION 301. Title and Terms............................................. 30 SECTION 302. Denominations............................................... 31 SECTION 303. Execution, Authentication, Delivery and Dating.............. 31 SECTION 304. Temporary Notes............................................. 32 SECTION 305. Registration, Registration of Transfer and Exchange......... 32 SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes................. 34 SECTION 307. Payment of Interest; Interest Rights Preserved.............. 34 SECTION 308. Persons Deemed Owners....................................... 36 SECTION 309. Cancellation................................................ 36 SECTION 310. Computation of Interest..................................... 36 SECTION 311. Book-Entry Provisions for Global Notes...................... 36 SECTION 312. Transfer Provisions......................................... 38 ARTICLE FOUR SATISFACTION AND DISCHARGE................................... 41 SECTION 401. Satisfaction and Discharge of Indenture..................... 41
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Page ---- SECTION 402. Application of Trust Money.................................. 42 ARTICLE FIVE REMEDIES..................................................... 43 SECTION 501. Events of Default.......................................... 43 SECTION 502. Acceleration of Maturity; Rescission and Annulment......... 45 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee............................................... 45 SECTION 504. Trustee May File Proofs of Claim........................... 46 SECTION 505. Trustee May Enforce Claims Without Possession of Notes..... 47 SECTION 506. Application of Money Collected............................. 47 SECTION 507. Limitation on Suits........................................ 48 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest..................................... 48 SECTION 509. Restoration of Rights and Remedies......................... 49 SECTION 510. Rights and Remedies Cumulative............................. 49 SECTION 511. Delay or Omission Not Waiver............................... 49 SECTION 512. Control by Holders......................................... 49 SECTION 513. Waiver of Past Defaults.................................... 50 SECTION 514. Waiver of Stay or Extension Laws........................... 50 ARTICLE SIX THE TRUSTEE................................................. 50 SECTION 601. Notice of Defaults......................................... 50 SECTION 602. Certain Rights of Trustee.................................. 51 SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes................................................. 52 SECTION 604. May Hold Notes............................................. 53 SECTION 605. Money Held in Trust........................................ 53 SECTION 606. Compensation and Reimbursement............................. 53 SECTION 607. Corporate Trustee Required; Eligibility.................... 54 SECTION 608. Resignation and Removal; Appointment of Successor.......... 54 SECTION 609. Acceptance of Appointment by Successor..................... 55 SECTION 610. Merger, Conversion, Consolidation or Succession to Business.............................................. 56 ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY........... 56 SECTION 701. Disclosure of Names and Addresses of Holders............... 56 SECTION 702. Reports by Trustee......................................... 57 SECTION 703. Reports by Company......................................... 57 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE....... 58 SECTION 801. Company May Consolidate, Etc., Only on Certain Terms....... 58
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Page ---- SECTION 802. Successor Substituted...................................... 59 SECTION 803. Notes to Be Secured in Certain Events...................... 59 ARTICLE NINE SUPPLEMENTAL INDENTURES..................................... 59 SECTION 901. Supplemental Indentures Without Consent of Holders......... 59 SECTION 902. Supplemental Indentures with Consent of Holders............ 60 SECTION 903. Execution of Supplemental Indentures....................... 61 SECTION 904. Effect of Supplemental Indentures.......................... 61 SECTION 905. Conformity with Trust Indenture Act........................ 62 SECTION 906. Reference in Notes to Supplemental Indentures.............. 62 SECTION 907. Notice of Supplemental Indentures.......................... 62 ARTICLE TEN COVENANTS................................................... 62 SECTION 1001. Payment of Principal, Premium, if Any, and Interest....... 62 SECTION 1002. Maintenance of Office or Agency........................... 62 SECTION 1003. Money for Note Payments to Be Held in Trust............... 63 SECTION 1004. Corporate Existence....................................... 64 SECTION 1005. Payment of Taxes and Other Claims......................... 64 SECTION 1006. Maintenance of Properties................................. 65 SECTION 1007. Insurance................................................. 65 SECTION 1008. Statement by Officers as to Default....................... 65 SECTION 1009. Provision of Financial Statements and Reports............. 66 SECTION 1010. Repurchase of Notes upon Change of Control................ 66 SECTION 1011. Limitation on Indebtedness................................ 68 SECTION 1012. Limitation on Restricted Payments......................... 71 SECTION 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries....................... 73 SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries................................. 75 SECTION 1015. Limitation on Transactions with Stockholders and Affiliates.......................................... 75 SECTION 1016. Limitation on Liens....................................... 76 SECTION 1017. Limitation on Asset Sales................................. 76 SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries.............................. 78 SECTION 1019. Business of the Company; Restriction on Transfers of Existing Business.................................... 79 SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries.... 79 SECTION 1021. Limitation on Sale-Leaseback Transactions................. 79 SECTION 1022. Waiver of Certain Covenants............................... 80 ARTICLE ELEVEN REDEMPTION OF NOTES......................................... 80
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Page ---- SECTION 1101. Right of Redemption....................................... 80 SECTION 1102. Applicability of Article.................................. 80 SECTION 1103. Election to Redeem; Notice to Trustee..................... 81 SECTION 1104. Selection by Trustee of Notes to Be Redeemed.............. 81 SECTION 1105. Notice of Redemption...................................... 81 SECTION 1106. Deposit of Redemption Price............................... 82 SECTION 1107. Notes Payable on Redemption Date.......................... 82 SECTION 1108. Notes Redeemed in Part.................................... 83 ARTICLE TWELVE SECURITY.................................................... 83 SECTION 1201. Security.................................................. 83 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE.......................... 84 SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.............................................. 84 SECTION 1302. Defeasance and Discharge.................................. 85 SECTION 1303. Covenant Defeasance....................................... 85 SECTION 1304. Conditions to Defeasance or Covenant Defeasance........... 85 SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions..... 87 SECTION 1306. Reinstatement............................................. 88
TESTIMONIUM SIGNATURES AND SEALS EXHIBIT A Form of Note EXHIBIT B Form of Certificate to Be Delivered upon Termination of Restricted Period EXHIBIT C Form of Regulation S Certificate SCHEDULE A -iv- 7 INDENTURE, dated as of January 28, 1998, between FACILICOM INTERNATIONAL, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 1401 New York Avenue, NW, 8th Floor, Washington, D.C. 20005, as issuer, and STATE STREET BANK AND TRUST COMPANY, a trust company duly organized and existing under the laws of The Commonwealth of Massachusetts, Trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of 10 1/2% Senior Notes due 2008 (the "Initial Notes"), and its 10 1/2% Series B Senior Notes due 2008 (the "Exchange Notes" and, together with the Initial Notes, the "Notes"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Upon the issuance of Exchange Notes, if any, or the effectiveness of the Shelf Registration Statement (as defined herein), this Indenture will be subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. All things necessary have been done to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and to make this Indenture a valid agreement of the Company, in accordance with their and its terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; 8 2 (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with an Asset Acquisition by the Company or a Restricted Subsidiary and not incurred in connection with, or in anticipation of, such Person becoming a Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon the consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be considered as Indebtedness. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Armstrong" means Armstrong Holdings, Inc., which owns Armstrong International Telecommunications, Inc., of which the Company is a majority owned indirect Subsidiary. "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or shall be merged into or consolidated with the Company or any of its Restricted Subsidiaries or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person (other than the Company or any of its Restricted Subsidiaries) that constitute substantially all of a division or line of business of such Person. 9 3 "Asset Disposition" means the sale or other disposition by the Company or any of its Restricted Subsidiaries (other than to the Company or another Restricted Subsidiary of the Company) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any of its Restricted Subsidiaries. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person (other than the Company or any of its Restricted Subsidiaries) of (i) all or any of the Capital Stock of any Restricted Subsidiary (other than in respect of any director's qualifying shares or investments by foreign nationals mandated by applicable law), (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by Article Eight and which, in the case of any of clause (i), (ii) or (iii) above, whether in one transaction or a series of related transactions, (a) have a fair market value in excess of $1 million or (b) are for net proceeds in excess of $1 million; provided that sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business shall not be included within the meaning of "Asset Sale". "Attributable Value" means, as to any particular lease under which any Person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such person under such lease during the remaining term thereof (whether or not such lease is terminable at the option of the lessee prior to the end of such term), including any period for which such lease has been, or may, at the option of the lessor, be extended, discounted from the last date of such term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with like term in accordance with GAAP. The net amount of rent required to be paid under any lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. "Attributable Value" means, as to a Capitalized Lease Obligation under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such Person in accordance with GAAP. "Average Life" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (ii) the sum of all such principal payments. 10 4 "Board of Directors" means the board of directors of the Company or its equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the secretary or any assistant secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or The City of Boston are authorized or obligated by law or executive order to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether now outstanding or issued after the date of this Indenture, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Certificated Notes" has the meaning specified in Section 201. "Change of Control" means such time as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) (other than Armstrong or FMG) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the then outstanding Voting Stock of the Company on a fully diluted basis; (ii) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors (together with any directors who are members of the Board of Directors on the date hereof and any new directors whose election by the Board of Directors or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of such Board of Directors then in office; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one transaction or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any such "person" or "group" (other than to the Company or a Restricted Subsidiary); (iv) the merger or consolidation of the Company, with or into another corporation or the merger of another corporation with or into the Company in one or a series of related transactions with the effect that immediately after such transaction any such "person" or "group" of persons or entities shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the total 11 5 voting power of the then outstanding Voting Stock of the surviving corporation; or (v) the adoption of a plan relating to the liquidation or dissolution of the Company. "Change of Control Offer" has the meaning specified in Section 1010. "Change of Control Payment" has the meaning specified in Section 1010. "Change of Control Payment Date" has the meaning specified in Section 1010. "Closing Date" means the date on which the Initial Notes are originally issued under this Indenture. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its chairman, its president, any Vice President, its treasurer or any assistant treasurer, and delivered to the Trustee. "Consolidated Cash Flow" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) income taxes, to the extent such amount was deducted in calculating Consolidated Net Income (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (iv) depreciation expense, to the extent such amount was deducted in calculating Consolidated Net Income, (v) amortization expense, to the extent such amount was deducted in calculating Consolidated Net Income, and (vi) all other non-cash items reducing Consolidated Net Income (excluding any non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period), less all non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP. "Consolidated Fixed Charges" means, for any period, Consolidated Interest Expense plus dividends declared and payable on Preferred Stock. 12 6 "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness (including capitalized interest, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with any Interest Rate Agreements; and interest on Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period. "Consolidated Net Income" means, with respect to any Person, for any period, the consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses, (ii) net income (or loss) of any Person combined in such Person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iii) gains or losses (on an after-tax basis) in respect of any Asset Sales by such Person or one of its Restricted Subsidiaries, (iv) the net income of any Restricted Subsidiary of such Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders, (v) any gain or loss realized as a result of the cumulative effect of a change in accounting principles, (vi) any amount paid or accrued as dividends on Preferred Stock of the Company or Preferred Stock of any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries and (vii) the net income (or loss) of any Person (other than net income (or loss) attributable to a Restricted Subsidiary) in which any Person (other than the Company or any of its Restricted Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such other Person during such period. "Consolidated Net Worth" means, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation), less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of the Company or any of its Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Corporate Trust Office" means the principal corporate trust operations office of the Trustee, at which at any particular time its corporate trust business shall be administered, 13 7 which office at the date of execution of this Indenture is located at 225 Franklin Street, Boston Massachusetts 02110, Attention: Corporate Trust Department. "corporation" includes corporations, associations, companies and business trusts. "covenant defeasance" has the meaning specified in Section 1303. "Credit Facilities" means one or more debt facilities or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Cumulative Consolidated Cash Flow" means, for the period beginning on the Closing Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Cash Flow of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Cumulative Consolidated Fixed Charges" means the Consolidated Fixed Charges of the Company and its Restricted Subsidiaries for the period beginning on the Closing Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, determined on a consolidated basis in accordance with GAAP. "Cumulative Consolidated Interest Expense" means, for the period beginning on the Closing Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Interest Expense of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Currency Agreement" means any foreign exchange contract, currency swap agreement and any other arrangement and agreement designed to provide protection against fluctuations in currency (or currency unit) values. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. "defeasance" has the meaning specified in Section 1302. "Depositary" means The Depository Trust Company, its nominees and successors or any replacement thereof. 14 8 "Eligible Accounts Receivable" means the accounts receivable (net of any reserves and allowances for doubtful accounts in accordance with GAAP) of any Person that are not more than 60 days past their due date and that were entered into in the ordinary course of business on normal payment terms as shown on the most recent consolidated balance sheet of such Person filed with the Commission, all in accordance with GAAP. "Eligible Institution" means a commercial banking institution that has combined capital and surplus of not less than $500 million or its equivalent in foreign currency, and has outstanding debt with a rating of "A-3" or higher according to Moody's Investors Service, Inc., or "A-" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)), at the time as of which any investment or rollover therein is made. "Event of Default" has the meaning specified in Section 501. "Excess Proceeds" has the meaning specified in Section 1017. "Excess Proceeds Offer" has the meaning specified in Section 1017. "Excess Proceeds Payment" has the meaning specified in Section 1017. "Excess Proceeds Payment Date" has the meaning specified in Section 1017. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" has the meaning stated in the first recital of this Indenture and refers to any Exchange Notes containing terms substantially identical to the Initial Notes (except that such Exchange Notes shall not contain terms with respect to transfer restrictions and shall be registered under the Securities Act) that are issued and exchanged for the Initial Notes in accordance with the Exchange Offer, as provided for in the Registration Rights Agreement and this Indenture. "Exchange Offer" means the offer by the Company to the Holders of the Initial Notes to exchange all of the Initial Notes for Exchange Notes, as provided for in the Registration Rights Agreement. "Exchange Offer Registration Statement" means the Exchange Offer Registration Statement as defined in the Registration Rights Agreement. "Existing Indebtedness" means Indebtedness outstanding on the date hereof. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. 15 9 "FMG" means FCI Management Group, a Pennsylvania general partnership and holder of a minority interest in the Company. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession of the United States. "Global Notes" means any of the Rule 144A Global Notes or Regulation S Global Notes. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" means a Person in whose name a Note is registered in the Register. "Incur" or "Incurrence" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including an Incurrence of Indebtedness by reason of the acquisition of more than 50% of the Capital Stock of any Person; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (v) all obligations of such Person as lessee under Capitalized Lease Obligations and the Attributable Value under any Sale-Leaseback Transaction of such Person, (vi) all Indebtedness of other Persons secured by a 16 10 Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination or (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person, (viii) the maximum fixed redemption or repurchase price of Redeemable Stock of such Person at the time of determination and (ix) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation; provided (x) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (y) that Indebtedness shall not include any liability for federal, state, local or other taxes. "Indenture" means this instrument and the Pledge Agreement as originally executed and as they may from time to time be supplemented or amended by one or more indentures supplemental hereto and pledge agreements supplemental thereto entered into pursuant to the applicable provisions hereof. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" has the meaning stated in the first recital of this Indenture. "Initial Purchasers" means Lehman Brothers Inc. and BT Alex. Brown Incorporated. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Interest Rate Agreements" means any interest rate swap agreements, interest rate cap agreements, interest rate insurance, and other arrangements and agreements designed to provide protection against fluctuations in interest rates. "Interest Rate Protection Obligations" means the obligations of any Person pursuant to any Interest Rate Agreements. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of 17 11 others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person. For purposes of the definition of "Unrestricted Subsidiary" and Sections 1012 and 1014, (i) "Investment" shall include (a) the fair market value of the assets (net of liabilities) of any Restricted Subsidiary of the Company at the time that such Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary and shall exclude the fair market value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (b) the fair market value, in the case of a sale of Capital Stock in accordance with Section 1014 such that a Person no longer constitutes a Restricted Subsidiary, of the remaining assets (net of liabilities) of such Person after such sale, and shall exclude the fair market value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined by the Board of Directors in good faith. "IRU" means Indefeasible Right of Use, which is the right to use a telecommunications system with most of the rights and duties of ownership, but without the right to control or manage such facility and, depending upon the particular agreement, without any right to salvage or duty to dispose of such system's cable at the end of its useful life. "Issue Date" means January 28, 1998, the date the Initial Notes are initially issued. "Lien" means any mortgage, charge, pledge, security interest, encumbrance, lien (statutory or other), hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Liquidated Damages" means all liquidated damages then owing pursuant to Section 5 of the Registration Rights Agreement. "MAOU" means Minimum Assignable Ownership Units which is capacity on a telecommunications system that has been acquired on an ownership basis. "Marketable Securities" means: (i) U.S. Government Obligations which have a remaining weighted average life to maturity of not more than one year from the date of Investment therein; (ii) any time deposit account, money market deposit and certificate of deposit maturing not more than 180 days after the date of acquisition issued by, or time deposit of, an Eligible Institution; (iii) certificates of deposit, Eurodollar time deposits and bankers' acceptances with maturity of 90 days or less and overnight bank deposits of any financial institution that is organized under the laws of the United States of America or any state hereof, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $300 million (or, to the extent non-United States dollar denominated, the United States Dollar Equivalent of 18 12 such amount) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one " nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act); (iv) commercial paper maturing not more than 180 days after the date of acquisition issued by a corporation (other than an Affiliate of the Company) with a rating, at the time as of which any investment therein is made, of "P-1" or higher according to Moody's Investors Service, Inc., or "A-1" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); (v) auction rate preferred securities whose rates are reset based on market level for a par security not more than 90 days after the date of acquisition with a rating, at the time as of which any investment therein is made, of "A-3" or higher according to Moody's Investors Service, Inc., or "A-" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)) and issued by a corporation that is not an Affiliate of the Company; (vi) any banker's acceptance or money market deposit accounts issued or offered by an Eligible Institution; (vii) repurchase obligations with a term of not more than seven days for U.S. Government Obligations entered into with an Eligible Institution; (viii) any obligations of the Trustee to the extent such obligations qualify as such under clauses (i) through (vii) above and (ix) any fund investing exclusively in investments of the types described in clauses (i) through (viii) above. "Maturity", when used with respect to any Notes, means the date on which the principal of such Notes or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Maturity Date" means January 15, 2008. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole (after taking into account any available offsetting tax credits or deductions and an tax sharing arrangements), (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in 19 13 conformity with GAAP, and (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Notes" means any of the Notes as defined in the first recital of this Indenture and more particularly means any Notes authenticated and delivered under this Indenture. "Officer's Certificate" means a certificate signed by the chairman, the president, a Vice President, the treasurer, an assistant treasurer, the secretary or an assistant secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, and who shall be acceptable to the Trustee. "Outstanding", when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Notes, except to the extent provided in Sections 1302 and 1303, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Thirteen; and (iv) Notes which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands the Notes are valid obligations of the Company; 20 14 provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Notes have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by Section 313 of the TIA, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee actually knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor. "Participant" means, with respect to the Depositary or its nominee, an institution that has an account therewith. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. The initial Paying Agent shall be the Trustee. "Payment Account" has the meaning specified in Section 402. "Permitted Business" means any business involving voice, data and other telecommunications services. "Permitted Indebtedness" has the meaning specified in Section 1011(b). "Permitted Investment" means (i) an Investment in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into, or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary; (ii) any Investment in Marketable Securities or Pledged Securities; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (iv) loans or advances to officers and employees made in the ordinary course of business that do not in the aggregate exceed $1 million at any time outstanding; (v) stock, obligations or securities received in satisfaction of judgments; (vi) Investments in any Person received as consideration for Asset Sales to the extent permitted under Section 1017; (vii) Investments in any Person at any one time outstanding (measured on the date each such Investment was made without giving effect to subsequent changes in value) in an aggregate amount not to exceed the greater of (A) $15 million or (B) 5% of the Company's total consolidated assets; (viii) Investments in deposits with respect to leases or utilities provided to third parties in the ordinary course of business; (ix) Investments in Currency Agreements and Interest Rate Agreements on commercially reasonable terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operation of the business of the Company or its Restricted Subsidiaries; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any 21 15 time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder; (x) repurchases or redemptions by the Company of Capital Stock from officers and other employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such individuals, in an aggregate amount not exceeding $1 million in any calendar year and $3 million from the date of this Indenture; and (xi) Investments in evidences of Indebtedness, securities or other property received from another Person by the Company or any of its Restricted Subsidiaries in connection with any bankruptcy proceeding or by reason of a composition or readjustment of debt or a reorganization of such Person or as a result of foreclosure, perfection or enforcement of any Lien in exchange for evidences of Indebtedness, securities or other property of such Person held by the Company or any of its Subsidiaries, or for other liabilities or obligations of such Person to the Company or any of its Subsidiaries that were created, in accordance with the terms of this Indenture. "Permitted Liens" means (i) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real or personal property purchased or leased after the Closing Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred in compliance with Section 1011 (1) to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (2) to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (vii) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating 22 16 to such property or assets; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation or operating lease; (x) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xi) Liens on property of, or on shares of stock or Indebtedness of, any corporation existing at the time such corporation becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired and were not created in contemplation of such transaction; (xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (xiv) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xv) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens encumbering customary initial deposits and margin deposits and other Liens that are either within the general parameters customary in the industry or incurred in the ordinary course of business, in each case, securing Indebtedness under Interest Rate Agreements and Currency Agreements; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Restricted Subsidiaries prior to the Closing Date; (xviii) Liens existing on the Closing Date or securing the Notes or any Guarantee of the Notes; (xix) Liens granted after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the Holders; (xx) Liens securing Indebtedness which is incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (viii) of paragraph (b) of Section 1011; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; and (xxi) Liens securing Indebtedness under Credit Facilities incurred in compliance with clause (iv) of paragraph (b) of Section 1011. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Account" means an account established with the Trustee in its name as Trustee hereunder pursuant to the terms of the Pledge Agreement for the deposit of the Pledged Securities purchased by the Company with a portion of the net proceeds from the Offering. "Pledge Agreement" means the Collateral Pledge and Security Agreement, dated as of the date of this Indenture, from the Company to the Trustee, governing the Pledge Account and the disbursement of funds therefrom. "Pledged Securities" means the securities purchased by the Company with a portion of the net proceeds from the Offering, which shall consist of U.S. Government Obligations, to be deposited in the Pledge Account. The Pledged Securities may be held in book-entry form through State Street Bank and Trust Company acting as securities intermediary. 23 17 "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 306 in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations, rights or other equivalents (however designated, whether voting or non-voting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock. "Private Placement Legend" has the meaning specified in Section 202. "Pro Forma Consolidated Cash Flow" means, for any period, the Consolidated Cash Flow of the Company for such period calculated on a pro forma basis to give effect to any Asset Disposition or Asset Acquisition not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during such period as if such Asset Disposition or Asset Acquisition had taken place on the first day of such period. "Public Equity Offering" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Purchase Money Indebtedness" means the principal of, premium, if any, and interest on, and any other payment obligations in respect of, any Indebtedness of the Company incurred to finance the purchase of plant, property, equipment, machinery or similar assets (including, without limitation, indebtedness for money borrowed for such purpose and indebtedness in respect of installment payment arrangements). "Purchase Price" has the meaning set forth in Section 1010. "Qualified Institutional Buyers" or "QIBs" has the meaning set forth in Section 201. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms (or by the terms of any security into which it is exchangeable) or otherwise is (i) required to be redeemed on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes; provided that any Capital Stock that would not 24 18 constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes shall not constitute Redeemable Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 1010 and 1017 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provisions, on or prior to the date that is 123 days after the date of the Company's repurchase of such Notes as are required to be repurchased pursuant to Sections 1010 and 1017. "Redemption Date", when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Register" and "Registrar" have the respective meanings specified in Section 305. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Indenture, by and between the Initial Purchasers and the Company, concerning the registration and exchange of the Notes, a conformed copy of which has been delivered to the Trustee. "Registration Statement" means the Registration Statement as defined in the Registration Rights Agreement. "Regular Record Date" for the interest payable on any Interest Payment Date means the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. "Regulation S" means Regulation S under the Securities Act. "Regulation S Certificated Notes" has the meaning specified in Section 201. "Regulation S Global Notes" has the meaning specified in Section 201. "Regulation S Permanent Global Notes" has the meaning specified in Section 201. "Regulation S Temporary Global Notes" has the meaning specified in Section 201. "Responsible Officer", when used with respect to the Trustee, means any officer of its corporate trust department or similar group having direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust 25 19 matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning specified in Section 1012. "Restricted Period" has the meaning specified in Section 201. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Rule 144A Certificated Notes" has the meaning specified in Section 201. "Rule 144A Global Notes" has the meaning specified in Section 201. "Sale-Leaseback Transaction" of any person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person which has been or is being sold or transferred by such person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangements may be terminated by the lessee without payment of a penalty. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" means the Shelf Registration as defined in the Registration Rights Agreement. "Significant Subsidiary" means a Restricted Subsidiary that is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity" means (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity of which more than 50% of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. 26 20 "Telecommunications Assets" means, with respect to any Person, equipment used in the telecommunications business or ownership rights with respect to IRUs, MAOUs or minimum investment units (or similar ownership interests) in fiber optic cable and international or domestic telecommunications switches or other transmission facilities (or Common Stock of a Person that becomes a Restricted Subsidiary, the Assets of which consist primarily of any such Telecommunications Assets), in each case purchased or acquired through a Capitalized Lease Obligation by the Company or a Restricted Subsidiary after the Closing Date. "Tested Transaction" has the meaning stated in the definition of "United States Dollar Equivalent". "TMG" means Telecommunications Management Group, Inc., a company that has provided consulting services to the Company from time to time and of which two executive officers of the Company are co-founders and significant shareholders. "Trade Payables" means any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by the Company or any of its Restricted Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods and services. "Transaction Date" means, with respect to the Incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 905. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Uniform Commercial Code" means the Uniform Commercial Code as in effect in New York State. "United States Dollar Equivalent" means, with respect to any monetary amount in a currency other than the United States dollar, at any time for the determination thereof, the amount of United States dollars obtained by converting such foreign currency involved in such computation into United States dollars at the spot rate for the purchase of United States dollars with the applicable foreign currency as quoted by Reuters at approximately 11:00 a.m. (New York City time) on the date not more than two business days prior to such determination. For purposes of determining whether any Indebtedness can be incurred (including Permitted Indebtedness), any Investment can be made and any transaction described in Section 1015 can be undertaken (a "Tested Transaction"), the United States Dollar Equivalent of such Indebtedness, 27 21 Investment or transaction described in Section 1015 will be determined on the date Incurred, made or undertaken and no subsequent change in the United States Dollar Equivalent shall cause such Tested Transaction to have been Incurred, made or undertaken in violation of this Indenture. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided (A) that the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted under Section 1012, and such Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of Section 1011 and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Unrestricted Subsidiary Indebtedness" means Indebtedness of any Unrestricted Subsidiary (i) as to which neither the Company nor any Restricted Subsidiary is directly or indirectly liable (by virtue of the Company or any such Restricted Subsidiary being the primary obligor on, guarantor of, or otherwise liable in any respect to, such Indebtedness), and (ii) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of the Company or any Restricted Subsidiary to declare, a default on such Indebtedness of the Company or any Restricted Subsidiary or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "U.S. Government Obligations" has the meaning specified in Section 1304. "U.S. Person" has the meaning given to such term in Regulation S under the Securities Act. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. 28 22 "Wholly Owned", with respect to any Subsidiary, means a Subsidiary of the Company if all of the outstanding Capital Stock in such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned by the Company or one or more Wholly Owned Subsidiaries of the Company. SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 1008(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. 29 23 Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Notes held by any Person, and the date of holding the same, shall be proved by the Register. (d) If the Company shall solicit from the Holders of Notes any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other 30 24 Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall b the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Notes shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 105. Notices, Etc., to Trustee, Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other 31 25 Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. SECTION 107. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 108. Successors and Assigns. All covenants and "agreements" in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 109. Separability Clause. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 110. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Notes Registrar and their successors hereunder, and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 111. Governing Law. This Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York. Upon the issuance of Exchange Notes, if any, or the effectiveness of the Shelf Registration Statement, this Indenture will be subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. Each of the parties hereto submits to the jurisdiction of the U.S. federal and any New York state court located in the Borough of Manhattan, The City 32 26 and State of New York with respect to any actions brought against it as defendant in any suit, action or proceeding arising out of or relative to this Indenture or the Notes and waives any rights to which it may be entitled on account of place of residence or domicile. SECTION 112. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, sinking fund payment date or Stated Maturity or Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of principal (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, Redemption Date or sinking fund payment date, or at the Stated Maturity or Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be. ARTICLE TWO NOTE FORMS SECTION 201. Forms Generally. The Notes and the Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit A with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange agreements to which the Company is subject or usage. The Company shall approve the form of the Notes and any notation, legend or endorsement on the Notes. Each Note shall be dated the date of its authentication. The terms and provisions contained in the form of the Notes annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes offered and sold to qualified institutional buyers ("Qualified Institutional Buyers" or "QIBs") in reliance on Rule 144A under the Securities Act shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "Rule 144A Global Notes"), registered in the name of the Depositary or the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The aggregate principal amount of the Rule 144A Global Notes may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the Depositary or its nominee, in accordance with the instructions given by the Holder thereof, as hereinafter provided. 33 27 Notes offered and sold in offshore transactions in reliance on Regulation S under the Securities Act shall be issued initially in the form of one or more temporary global Notes ("Regulation S Temporary Global Note") in registered form substantially in the form set forth in Exhibit A, registered in the name of the Depositary or the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. At any time following March 9, 1998 (the "Restricted Period"), upon receipt by the Trustee and the Company of a certificate substantially in the form of Exhibit B hereto, one or more permanent global Notes in registered form substantially in the form set forth in Exhibit A (the "Regulation S Permanent Global Notes"; and together with the Regulation S Temporary Global Notes, the "Regulation S Global Notes"), duly executed by the Company and authenticated by the Trustee as hereinafter provided, shall be deposited with the Trustee, as custodian for the Depositary, and the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Regulation S Temporary Global Note in an amount equal to the principal amount of the beneficial interest in the Regulation S Temporary Global Note transferred. Notes issued pursuant to Section 312 in exchange for interests in Rule 144A Global Notes shall be issued in the form of permanent certificated Notes in registered form in substantially the form set forth in Exhibit A (the "Rule 144A Certificated Notes"). Notes issued pursuant to Section 312 in exchange for interests in the Regulation S Global Notes shall be in the form of permanent certificated Notes in registered form substantially in the form set forth in Exhibit A (the "Regulation S Certificated Notes"). The Regulation S Certificated Notes and Rule 144A Certificated Notes are sometimes collectively herein referred to as the "Certificated Notes". The Rule 144A Global Notes and the Regulation S Global Notes are sometimes collectively referred to herein as the "Global Notes". Ownership of beneficial interests in Global Notes will be limited to Participants or Indirect Participants. The definitive Notes shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. SECTION 202. Restrictive Legends. Unless and until a Note is exchanged for an Exchange Note in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, Rule 144A Global Notes, Regulation S Temporary Global Notes and each Rule 144A Certificated Note shall bear the following legend (the "Private Placement Legend") on the face thereof: THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE OR OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, 34 28 TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING ITS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR NOTE OF THIS NOTE) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR NOTE OF THIS NOTE) AND (Y) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAWS (THE "RESTRICTED PERIOD") OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER, IN EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM APPEARING ON THE REVERSE SIDE OF THIS NOTE IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE SIDE HEREOF RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESTRICTED PERIOD. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. Each Global Note, whether or not an Exchange Note, shall also bear the following legend on the face thereof: 35 29 UNLESS THIS CERTIFICATE IS PRESENTED, BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 311 AND 312 OF THE INDENTURE. ARTICLE THREE THE NOTES SECTION 301. Title and Terms. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $300,000,000, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 303, 304, 305, 306, 906, 1010, 1017 or 1108. The Initial Notes shall be known and designated as the "10 1/2% Senior Notes due 2008" of the Company and the Exchange Notes shall be known and designated as the "10 1/2% Series B Senior Notes due 2008" of the Company. The Stated Maturity of the principal of the Notes shall be January 15, 2008 and they shall bear interest at the rate of 10 1/2% per annum, payable on January 15 and July 15 of each year, commencing on July 15, 1998, until the principal thereof is paid or duly provided for Interest on the Notes will accrue from the most recent Interest Payment Date for which interest has been paid or, if no interest has been paid, from the Issue Date. The principal of (and premium and Liquidated Damages, if any) and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose pursuant to Section 1002, or, at the option of the Company, interest may be paid by check mailed 36 30 to addresses of the Persons entitled thereto as such addresses shall appear on the Register; provided that all payments with respect to the Global Notes and Certificated Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. The Notes shall be redeemable as provided in Article Eleven. SECTION 302. Denominations. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Company by its chairman, its president, chief financial officer or any Vice President. The signature of any of these officers on the Notes may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Notes. Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Initial Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Initial Notes directing the Trustee to authenticate the Notes and certifying that all conditions precedent to the issuance of Notes contained herein have been fully complied with, and the Trustee in accordance with such Company Order shall authenticate and deliver such Initial Notes. On Company Order, the Trustee shall authenticate for original issue Exchange Notes in an aggregate principal amount not to exceed $300,000,000; provided that such Exchange Notes shall be issuable only upon the valid surrender for cancellation of Initial Notes of a like aggregate principal amount in accordance with an Exchange Offer pursuant to the Registration Rights Agreement and a Company Order for the authentication of such securities certifying that all conditions precedent to the issuance have been complied with (including the effectiveness of a registration statement related thereto). In each case, the Trustee shall be entitled to receive an Officer's Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Notes. Such order shall specify the amount of Notes to be authenticated and the date on which the original issue of Initial Notes or Exchange Notes is to be authenticated. Each Note shall be dated the date of its authentication. 37 31 No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication, substantially in the form provided for in Exhibit A, duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article Eight, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety in a transaction or a series of transactions to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Notes executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Notes surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Notes as specified in such request for the purpose of such exchange. If Notes shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. SECTION 304. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company shall cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 1002 without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. 38 32 SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the "Registrar") for the purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations of a like aggregate principal amount. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive; provided that no exchange of Initial Notes for Exchange Notes shall occur until an Exchange Offer Registration Statement shall have been declared effective by the Commission, the Trustee shall have received an Officer's Certificate confirming that the Exchange Offer Registration Statement has been declared effective by the Commission and the Initial Notes to be exchanged for the Exchange Notes shall be cancelled by the Trustee. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall be duly endorsed and be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any transfer. 39 33 The Company shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the selection of Notes to be redeemed under Section 1104 and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes. If (i) any mutilated Note is surrendered to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section 306, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section 306 in lieu of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 306 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Note (or Predecessor Notes) is registered at the close of business on the Regular Record Date (or if a Predecessor Note is outstanding on such Regular Record Date, such Predecessor Note) for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002 or, at the option of the Company, interest may be paid by check mailed to the address of 40 34 the Person entitled thereto as such address shall appear on the Register; provided that all payments with respect to Global Notes and Certificated Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date ("Special Record Date") for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 106 not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. Subject to the foregoing provisions of this Section 307, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall 41 35 carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 308. Persons Deemed Owners. Prior to the due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to, and promptly cancelled by, the Trustee. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold, and all Notes so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Notes, however, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Notes be returned to it after being appropriately designated as cancelled. SECTION 310. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 311. Book-Entry Provisions for Global Notes. (a) Each Global Note initially shall (i) be registered in the name of the Depositary for such Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 202. Except as provided in Section 311(b), owners of beneficial interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in 42 36 certificated form and will not be considered the registered owner or Holder thereof under this Indenture for any purpose. Members of, or Participants in, the Depositary shall have no rights under this Indenture with respect to any Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants, the operation of customary practices governing the exercise of the rights of a beneficial owner of any Note. The registered Holder of a Global Note may grant proxies and otherwise authorize any person, including Participants and persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Notes (b) Interests of beneficial owners in a Global Note may be transferred in accordance with the applicable rules and procedures of the Depositary and the provisions of Section 312. Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, a nominee of the Depositary, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred in accordance with the rules and procedures of the Depositary and the provisions of Section 312 hereof. Rule 144A Certificated Notes and Regulation S Certificated Notes shall be transferred to beneficial owners in exchange for their beneficial interests in the Rule 144A Global Note(s) or the Regulation S Global Note(s), as the case may be, if (i) the Depositary (A) notifies the Company that it is unwilling or unable to continue as depository for the Global Notes and the Company thereupon fails to appoint a successor depository or (B) has ceased to be clearing agency registered under the Exchange Act; (ii) there shall have occurred and be continuing an Event of Default with respect to the Notes; or (iii) the Company, at its option, notifies the Trustee in writing that it elects to cause issuance of the Notes in certificated form; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Certificated Notes prior to (x) the end of the Restricted Period and (y) receipt by the Trustee and the Company of a certificate substantially in the form of Exhibit B hereto. In connection with a transfer of an entire Global Note to beneficial owners pursuant to clause (i), (ii) or (iii) of this paragraph (b), the applicable Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the applicable Global Note, an equal aggregate principal amount of Rule 144A Certificated Notes (in the case of the Rule 144A Global Note) or Regulation S Certificated Notes (in the case of the Regulation S Global Note), as the case may be, of authorized denominations. (c) Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions, if any, and other procedures 43 37 applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (d) Any Rule 144A Certificated Note delivered in exchange for an interest in the Rule 144A Global Note pursuant to paragraph (b) of this Section shall, unless such exchange is made on or after the date which is two years following the date hereof, or such shorter period of time as permitted under Rule 144(k) under the Securities Act, and except as otherwise provided in Section 312, bear the Private Placement Legend. SECTION 312. Transfer Provisions. Unless and until a Note is exchanged for an Exchange Note in connection with an effective Registration Statement pursuant to the Registration Rights Agreement, the following provisions shall apply: (a) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed transfer of a Rule 144A Certificated Note or an interest in the Rule 144A Global Note to a QIB (excluding Non-U.S. Persons): (i) If the Note to be transferred consists of (x) Rule 144A Certificated Notes, the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account (or an account with respect to which it exercises sole investment discretion) and that each of it and any such account is a QIB, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A or (y) an interest in the Rule 144A Global Note, the transfer of such interest may be effected only through the book-entry system maintained by the Depositary. (ii) If the proposed transferee is a Participant, and the Note to be transferred consists of Rule 144A Certificated Notes, upon receipt by the Registrar of the documents referred to in clause (i)(x) and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Rule 144A Certificated Notes to be transferred, and the Trustee shall cancel the Rule 144A Certificated Note so transferred. 44 38 (b) Transfers of Interests in the Regulation S Temporary Global Note to QIBs. The following provisions shall apply with respect to registration of any proposed transfer of interests in the Regulation S Temporary Global Note: (i) The Registrar shall register the transfer of any Note (x) if the proposed transferee is a Non-U.S. Person and the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit C hereto or (y) if the proposed transferee is a QIB and the proposed transferor has checked the box provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on the form of Note stating, or has otherwise advised the Company and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that each of it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A. (ii) If the proposed transferee is a Participant, upon receipt by the Registrar of the documents referred to in clause (i)(x) above and instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the Regulation S Temporary Global Note to be transferred, and the Trustee shall decrease the amount of the Regulation S Temporary Global Note. (c) Transfers of Interests in the Regulation S Permanent Global Note or Regulation S Certificated Notes to U.S. Persons. The following provisions shall apply with respect to registration of any proposed Transfer of interests in the Regulation S Permanent Global Note or Regulation S Certificated Notes to U.S. Persons: (i) The Registrar shall register the transfer of any such Note without requiring any additional certification. (ii) (A) If the proposed transferor is a Participant holding a beneficial interest in the Regulation S Permanent Global Note, upon receipt by the Registrar of instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Regulation S Permanent Global Note in an amount equal to the principal amount of the beneficial interest in the Regulation S Permanent Global Not to be transferred, and (B) if the proposed transferee is a Participant, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Rule 45 39 144A Global Note in an amount equal to the principal amount of the Regulation S Certificated Notes or the Regulation S Permanent Global Note, as the case may be, to be transferred, and the Trustee shall cancel the Certificated Note, if any, so transferred or decrease the amount of the Regulation S Permanent Global Note. (d) Transfers to Non-U.S. Persons at Any Time. The following provisions shall apply with respect to any transfer of a Note to a Non-U.S. Person: (i) Prior to March 9, 1998, the Registrar shall register any proposed transfer of a Note to a Non-U.S. Person upon receipt of a certificate substantially in the form of Exhibit C hereto from the proposed transferor. (ii) On and after March 9, 1998, the Registrar shall register any proposed transfer to any Non-U.S. Person if the Note to be transferred is a Rule 144A Certificated Note or an interest in the Rule 144A Global Note, upon receipt of a certificate substantially in the form of Exhibit C hereto from the proposed transferor. (iii) (A) If the proposed transferor is a Participant holding a beneficial interest in the Rule 144A Global Note, upon receipt by the Registrar of the documents, if any, required by paragraph (ii) and instructions in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and a decrease in the principal amount of the Rule 144A Global Note in an amount equal to the principal amount of the beneficial interest in the Rule 144A Global Note to be transferred, and (B) if the proposed transferee is a Participant, upon receipt by the Registrar of instructions given in accordance with the Depositary's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Regulation S Global Note in an amount equal to the principal amount of the Rule 144A Certificated Notes or the Rule 144A Global Note, as the case may be, to be transferred, and the Trustee shall cancel the Certificated Note, if any, so transferred or decrease the amount of the Rule 144A Global Note. (e) Private Placement Legend. Upon the transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless either (i)(A) the circumstances contemplated by the fourth paragraph of Section 201 or Section 312(d)(ii) exist or (B) the requested transfer is after the time period referred to in Rule 144(k) under the Securities Act or (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Company and the Trustee to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act. (f) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it shall transfer such Note only as provided in this Indenture. The Registrar shall not register a transfer of any Note unless such transfer complies with the restrictions on transfer of such 46 40 Note set forth in this Indenture. In connection with an transfer of Notes, each Holder agrees by its acceptance of the Notes to furnish the Registrar or the Company such certifications, legal opinions or other information as either of them may reasonably require to confirm that such transfer is being made pursuant to an exemption from, or a transaction not subject to, the registration requirements of the Securities Act; provided that the Registrar shall not be required to determine (but may rely on a determination made by the Company with respect to) the sufficiency of any such certifications, legal opinions or other information. The Registrar shall retain copies of all letters, notices and other written communications received pursuant to Section 311 or this Section 312. The Company shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable written notice to the Registrar. ARTICLE FOUR y SATISFACTION AND DISCHARGE y SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes as expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (i) either (A) All Notes theretofore authenticated and delivered (other than (i) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Notes for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Notes not theretofore delivered to the Trustee for cancellation (other than Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306) (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or 47 41 (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose in an amount sufficient to pay and discharge the entire Indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any), interest and Liquidated Damages, if any, to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at Stated Maturity or redemption, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money. On or prior to the effective date of this Indenture, the Trustee shall establish a segregated, non-interest bearing corporate trust account (the "Payment Account") maintained by the Trustee for the benefit of the Holders in which all amounts paid to the Trustee for the benefit of the Holders in respect of the Notes will be held (except for amount designated to be deposited into the Pledge Account) and from which the Trustee (if the Trustee is the Paying Agent) shall make payments to the Holders in accordance with this Indenture and the Notes. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 and otherwise pursuant to this Indenture shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE 48 42 REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest or Liquidated Damages, if any, on any Note when due and payable as to any Interest Payment Date falling on or prior to January 15, 2001; or (2) default in the payment of interest or Liquidated Damages, if any, on any Note when due and payable as to any Interest Payment Date following after January 15, 2001, and any such failure continued for a period of 30 days; or (3) default in the payment of the principal of (or premium, if any, on) any Note at its Stated Maturity, upon acceleration, redemption or otherwise; or (4) default in the payment of principal or interest or Liquidated Damages, if any, on any Note required to be purchased pursuant to an Excess Proceeds Offer as described in Section 1017 or pursuant to a Change of Control Offer as described in Section 1010; or (5) failure to perform or comply with the provisions of Section 801; or (6) default in the performance or breach of any covenant or agreement of the Company in this Indenture or under the Notes (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with elsewhere in this Section), and continuance of such default or breach for a period of 30 consecutive days after there has been given to the Company by the Trustee or the Holders of at least 25% or more in aggregate principal amount of the Notes then Outstanding a written notice specifying such default or breach; or (7) (A) there shall have occurred with respect to any issue or issues of Indebtedness of the Company or any Restricted Subsidiary having an outstanding principal amount of $5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the Holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled by the expiration of any applicable grace period and/or (II) the failure to make a principal payment at the final (but not any interim) fixed Maturity Date thereon and such defaulted payment shall not have been made, waived or extended by the expiration of any applicable grace period; or 49 43 (8) any final judgment or order (not covered by insurance) for the payment of money in excess of $5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (9) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Subsidiaries or (C) the winding up or liquidation of the affairs of the Company or any of its Significant Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (10) the Company or any of its Significant Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Subsidiaries or (C) effects any general assignment for the benefit of creditors; or (11) the Company asserts in writing that the Pledge Agreement ceases to be in full force and effect before payment in full of the obligations thereunder. SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(9) or 501(10)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Notes Outstanding by a notice in writing to the Company (and to the Trustee if such notice given by such Holders), may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued but unpaid interest and Liquidated Damages, if any, on all the Notes to be immediately due and payable. Upon any such declaration of acceleration, such principal of, premium, if any, accrued interest and Liquidated Damages, if any, shall become immediately due and payable. If an Event of Default specified in Section 501(9) or 501(10) occurs, then the principal of, premium, if any, accrued interest and Liquidated Damages, if any, shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. 50 44 At any time after a declaration of acceleration has been made, the Holders of at least a majority in aggregate principal amount of the Notes Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) all existing Events of Default, other than the nonpayment of amounts of principal of, premium, if any, accrued and unpaid interest and Liquidated Damages, if any, on the Notes which have become due solely by such declaration of acceleration, have been cured or waived subject to the limitations set forth in Section 513; and (2) the rescission, in the opinion of Counsel, would not conflict with any judgment or decrees of a court of competent jurisdiction. No such rescission shall affect any subsequent default or impair any right consequent thereon. Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Notes because an Event of Default specified in Section 501(7) shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or the Holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the Holders of such Indebtedness or a trustee, fiduciary or agent for such Holders, within 60 days after such declaration of acceleration in respect of the Notes, and no other Event of Default has occurred during such 60-day period which has not been cured or waived during such period. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (a) default is made in the payment of any installment of interest and Liquidated Damages, if any, on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or (b) default is made in the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof, the Company shall pay to the Trustee for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium and Liquidated Damages, if any) and interest, and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest and Liquidated Damages, if any, at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, fees expenses, disbursements and advances of the Trustee, its agents and counsel. 51 45 If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, interest or Liquidated Damages, if any) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium and Liquidated Damages, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents and take other actions as the Trustee may deem necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. 52 46 SECTION 505. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, fees, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any, or Liquidated Damages, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium and Liquidated Damages, if any) and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium and Liquidated Damages, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 507. Limitation on Suits. Except to enforce the right to receive payment of principal or premium, if any, or interest or Liquidated Damages, if any, when due, no Holder of any Notes shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless the following conditions have been met: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee to pursue the remedy in respect of such Event of Default in its own name as trustee hereunder; 53 47 (3) such Holder or Holders have offered to the Trustee indemnity satisfactory to the Trustee against any costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee has failed to institute any such proceeding for 60 days after its receipt of such notice, request and offer of indemnity; and (5) during such 60-day period, no direction inconsistent with such written request has been given to the Trustee by the Holders of a majority or more in aggregate principal amount of the Outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Thirteen) and in such Note of the principal of (and premium and Liquidated Damages, if any) and (subject to Section 307) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment on or after such Stated Maturities, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter 54 48 existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. The Holders of not less than a majority in aggregate principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) the Trustee need not take any action that conflicts with law or this Indenture, which might involve the Trustee in personal liability or which, in the good faith determination of the Trustee, may be unduly prejudicial to rights Holders not joining in the giving of such direction, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes waive any past default hereunder and its consequences, except a default (1) in respect of the payment of the principal of (or premium or Liquidated Damages, if any) or interest on any Note, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no 55 49 such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults. Within 90 days after the occurrence of any Default hereunder, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder of the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided further that in the case of any Default of the character specified in Section 501(7), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. SECTION 602. Certain Rights of Trustee. Subject to the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other 56 50 paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, may require and rely upon an Officer's Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (9) any permissive right or power available to the Trustee under this Indenture or any supplement hereto shall not be construed to be a mandatory duty or obligation; 57 51 (10) the Trustee shall not be charged with knowledge of any matter (including any default, other than as described in Section 501(1), (2) or (3)) unless and except to the extent actually known to a Responsible Officer of the Trustee or to the extent written notice thereof is received by the Trustee at the Corporate Trust Office; and (11) the Trustee shall have no liability for any inaccuracy in the books or records of, or for any actions or omissions of, DTC, Euroclear or CEDEL or any depository acting on behalf of any of them. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Trustee shall not be required to examine any of the reports and documents filed with it pursuant to Sections 703 or 1009 to determine whether or not the Company is in compliance with the covenants set forth at Sections 1010 through 1021. SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes. The recitals contained in this Indenture and in the Notes, except for the Trustees certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Notes and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. SECTION 604. May Hold Notes. The Trustee, any Paying Agent, any Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Registrar or such other agent. SECTION 605. Money Held in Trust. Money held by the Trustee in trust hereunder shall be segregated from other funds. The Trustee shall be under no liability for interest on any money received by it hereunder. SECTION 606. Compensation and Reimbursement. The Company agrees: 58 52 (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder and under the Pledge Agreement (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture and under the Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance and administration of its duties under the Pledge Agreement or the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Notes. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(8) or (9), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law; provided, however, that if any such amounts are not paid as expenses of administration, they may be collected by the Trustee as amounts payable to it pursuant to Section 506. The provisions of this Section 606 shall survive the termination of this Indenture. SECTION 607. Corporate Trustee Required; Eligibility. There shall be at all times a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50 million. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and 59 53 surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 607, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 608. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 609. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 609 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (2) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of 60 54 the Holders of a majority in aggregate principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders in the manner provided for in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 609. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 610. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder (provided such corporation shall be otherwise qualified and eligible under this Article), without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In case at that time any of the Notes shall not have been authenticated, any successor Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee. In all 61 55 such cases such certificates shall have the full force and effect which this Indenture provides for the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of Notes, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 702. Reports by Trustee. Within 60 days after February 15 of each year commencing with the first February 15 after the first issuance of Notes, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such February 15 if required by TIA Section 313(a). SECTION 703. Reports by Company. The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934 in respect of a security listed and registered on a national securities exchange as may be prescribed from tim to time in such rules and regulations; 62 56 (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Holders, in the manner and to the extent provided in TIA Section 313(c), within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate with, or merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company and the Company shall not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other Person or Persons, unless: (1) either (A) the Company shall be the continuing Person or (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company (i) shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and (ii) shall expressly assume, by an indenture supplemental hereto, duly executed and delivered to the Trustee, all of the obligations of the Company with respect to all the Notes and under this Indenture; (2) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; 63 57 (4) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (5) the Company delivers to the Trustee an Officer's Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4) above) and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; provided, however, that clauses (3) and (4) above shall not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. SECTION 802. Successor Substituted. Upon any consolidation of the Company with or merger of the Company with or into any other corporation or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and in the event of any such conveyance or transfer, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 801), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Notes and may be dissolved and liquidated. SECTION 803. Notes to Be Secured in Certain Events. If, upon any such consolidation of the Company with, or merger of the Company into, any other corporation, or upon any conveyance, lease or transfer of the property of the Company substantially as an entirety to any other Person, any property or assets of the Company would thereupon become subject to any Lien, then unless such Lien could be created pursuant to Section 1016 without equally and ratably securing the Notes, the Company, prior to or simultaneously with such consolidation, merger, conveyance, lease or transfer, will, as to such property or assets, secure the Notes Outstanding (together with, if the Company shall so determine any other Indebtedness of the Company now existing or hereinafter created which is not subordinate in right of payment to the Notes) equally and ratably with (or prior to) the Indebtedness which upon such consolidation, merger, conveyance, lease or transfer is to become secured as to such property or assets by such Lien, or shall cause such Notes to be so secured. 64 58 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Notes; or (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 609; or (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or (6) to secure the Notes pursuant to the requirements of Section 803 or Section 1016 or otherwise. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note; 65 59 (ii) reduce the principal amount of, or premium, if any, or interest on any Note or extend the time for payment of interest on, or alter the redemption provisions of, any Note; (iii) change the place or currency of payment of principal of, or premium, if any, or interest on any Note; (iv) impair the right of any Holder to receive payment of, principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any Note; (v) reduce the percentage of Outstanding Notes the consent of whose Holders is necessary to modify, amend, waive, supplement or consent to take any action under this Indenture or the Notes; (vi) waive a default in the payment of principal of, premium, if any, or accrued and unpaid interest or Liquidated Damages, if any, on the Notes; (vii) reduce or change the rate or time for payment of interest on the Notes; (viii) reduce or change the rate or time for payment of Liquidated Damages, if any; (ix) modify any provisions of any Guarantees in a manner adverse to the Holders; or (x) modify any provisions of this Section 902 or Sections 513 and 1022, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustees own rights, duties or immunities under this Indenture or otherwise. 66 60 SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to the Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and upon Company Order authenticated and delivered by the Trustee in exchange for Outstanding Notes. SECTION 907. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to the Holders of each Outstanding Note affected thereby, in the manner provided for in Section 106, setting forth in general terms the substance of such supplemental indenture. ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if Any, and Interest. The Company covenants and agrees for the benefit of the Holders that it shall duly and punctually pay the principal of (and premium and Liquidated Damages, if any) and interest on the Notes in accordance with the terms of the Notes and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company shall maintain in The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The 67 61 office of the Trustee located at 61 Broadway, New York, New York 10006 shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. In addition, the Company shall maintain an office or agency where the Notes may be presented or surrendered for payment (which shall be the Corporate Trust Office of the Trustee, unless the Company shall designate and maintain some other office or agency for one or more such purposes). The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 1003. Money for Note Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of (or premium or Liquidated Damages, if any) or interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium or Liquidated Damages, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Notes, it shall, on or before each due date of the principal of (or premium or Liquidated Damages, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium and Liquidated Damages, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee the Company shall promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 1003, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of (and premium and Liquidated Damages, if any) or interest on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; 68 62 (2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium and Liquidated Damages, if any) or interest on the Notes; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium or Liquidated Damages, if any) or interest on any Note and remaining unclaimed for two years after such principal, premium, interest or Liquidated Damages has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 1004. Corporate Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence, rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or 69 63 imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien (other than a Permitted Lien) upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. Maintenance of Properties. The Company shall cause all properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. Insurance. The Company shall at all times keep all of its and its Subsidiaries properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties. SECTION 1008. Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officer's Certificate from the principal executive officer, principal financial officer or principal accounting officer to the effect that a review has been conducted of the activities of the Company and the Company's performance under this Indenture, and that the Company has fulfilled its obligations thereunder or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. For purposes of this Section 1008(a), such compliance shall be determined without regard to any period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the trustee for or the Holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $1,000,000) shall deliver to 70 64 the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officer's Certificate specifying such event, notice or other action within five Business Days of its occurrence. (c) When any Registration Default (as defined in the Registration Rights Agreement) occurs, the Company shall immediately deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officer's Certificate specifying the nature of such Registration Default. In addition, the Company shall deliver to the Trustee on each Interest Payment Date during the continuance of a Registration Default and on the Interest Payment Date following the cure of a Registration Default, an Officer's Certificate specifying the amount of Liquidated Damages which have accrued and which are then owing under the Registration Rights Agreement. SECTION 1009. Provision of Financial Statements and Reports. (a) After the Company has completed the Exchange Offer, the Company shall file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. All such annual reports shall include the geographic segment financial information contemplated by Item 101(d) of Regulation S-K under the Securities Act, and all such quarterly reports shall provide the same type of interim financial information that, as of the date of this Indenture, is the Company's practice to provide. (b) The Company shall also be required (i) to file with the Trustee, and provide to each Holder, without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (ii) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective Holder promptly upon request. SECTION 1010. Repurchase of Notes upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the Company to repurchase such Holder's Notes in whole or in part (the "Change of Control Offer"), at a purchase price (the "Purchase Price") in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (subject to the right of Holders of record to receive interest on the relevant Interest Payment Date) (the "Change of Control Payment") in accordance with the procedures set forth in paragraphs (c) and (d) of this Section. (b) [Reserved] 71 65 (c) Within 30 days following any Change of Control, the Company shall give to each Holder and the Trustee in the manner provided in Section 106 a notice stating: (i) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this Section 1010 and that all Notes validly tendered will be accepted for payment; (ii) the circumstances and relevant facts regarding such Change of Control (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (iii) the Purchase Price and date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (iv) that any Note not tendered will continue to accrue interest pursuant to its terms; (v) that, unless the Company defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest and Liquidated Damages, if any, on and after the Change of Control Payment Date; (vi) that Holders electing to have any Note or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (vii) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. (d) [Reserved]. (e) On the Change of Control Payment Date, the Company shall: 72 66 (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (ii) deliver, or cause to be delivered, to the Trustee, all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail, to the Holders so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 1010, the Trustee shall act as Paying Agent. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes a Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in the event that a Change of Control occurs and the Company is required to repurchase the Notes under this Section 1010. SECTION 1011. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate principal amount (or accreted value, as the case may be) of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding as of the Transaction Date to (ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by two, determined on a pro forma basis as if any such Indebtedness had been Incurred and the proceeds thereof had been applied at the beginning of such two fiscal quarters, would be greater than zero and less than 5 to 1. (b) The foregoing limitations of paragraph (a) of this covenant will not apply to any of the following Indebtedness ("Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company evidenced by the Notes; 73 67 (ii) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Issue Date; (iii) Indebtedness of the Company or any Restricted Subsidiary under one or more Credit Facilities, in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $35 million and (y) 80% of Eligible Accounts Receivable at any one time outstanding, subject to any permanent reductions required by any other terms of this Indenture; (iv) Indebtedness of the Company or any Restricted Subsidiary Incurred to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of Telecommunications Assets; (v) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (A) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) or (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an Incurrence of Indebtedness by such Restricted Subsidiary, subject to the other provisions of this Indenture; (vi) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right to the payment and performance to the obligations of the Company under this Indenture and the Notes, except that the limitations of paragraph (a) of this Section 1011 shall apply to such Indebtedness at such time as (A) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary) and (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed such Indebtedness, subject to other provisions of this Indenture; (vii) Indebtedness of the Company or a Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance (whether by amendment, renewal, extension or refunding), then outstanding Indebtedness of the Company or a Restricted Subsidiary, other than Indebtedness Incurred under clauses (iii), (v), (vi), (viii), (ix), (xi) and (xii) of this paragraph, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrue interest, and reasonable fees and expenses); provided that such new Indebtedness shall only be permitted under this clause (vii) if: (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the 74 68 Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (vii); (viii) Indebtedness of (x) the Company not to exceed, at any one time outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale, other than to a Subsidiary, of Common Stock (other than Redeemable Stock) of the Company (less the amount of such proceeds used to make Restricted Payments as provided in clause (iii) or (iv) of the second paragraph of Section 1012) and (y) the Company or Acquired Indebtedness of a Restricted Subsidiary not to exceed, at one time outstanding, the fair market value of any Telecommunications Assets acquired by the Company in exchange for Common Stock of the Company issued after the Issue Date; provided, however, that in determining the fair market value of any such Telecommunications Assets so acquired, if the estimated fair market value of such Telecommunications Assets exceeds (A) $2 million (as estimated in good faith by the Board of Directors), then the fair market value of such Telecommunications Assets will be determined by a majority of the Board of Directors of the Company, which determination will be evidenced by a resolution thereof, and (B) $10 million (as estimated in good faith by the Board of Directors), then the Company shall deliver the Trustee a written appraisal as to the fair market value of such Telecommunications Assets prepared by a nationally recognized investment banking or public accounting firm (or, if no such investment banking or public accounting firm is qualified to prepare such an appraisal, by a nationally recognized appraisal firm); and provided further that such Indebtedness does not mature prior to the Stated Maturity of the Notes and the Average Life of such Indebtedness is longer than that of the Notes; (ix) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds or letters of credit supporting trade payables, in each case provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements covering Indebtedness of the Company; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rate or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; 75 69 (x) Indebtedness of the Company, to the extent that the net proceeds thereof are promptly (A) used to repurchase Notes tendered in a Change of Control Offer or (B) deposited to defease all of the Notes pursuant to Article Thirteen; (xi) Indebtedness of a Restricted Subsidiary represented by a Guarantee of the Notes permitted by and made in accordance with Section 1018; and (xii) Indebtedness of the Company or any Restricted Subsidiary in addition to that permitted to be incurred pursuant to clauses (i) through (xi) above in an aggregate principal amount not in excess of $10 million (or, to the extent not denominated in United States dollars, the United States Dollar Equivalent thereof) at any one time outstanding. (c) For purposes of determining any particular amount of indebtedness under this Section 1011, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included; provided, however, that the foregoing shall not in any way be deemed to limit the provisions of Section 1018. For purposes of determining compliance with this Section 1011, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion may, at the time of such Incurrence, (i) classify such item of Indebtedness under and comply with either of paragraph (a) or (b) of this covenant (or any of such definitions), as applicable, (ii) classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (iii) elect to comply with such paragraphs (or definitions), as applicable in any order. SECTION 1012. Limitation on Restricted Payments. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) (A) declare or pay any dividend or make any distribution in respect of the Company's Capital Stock to the holders thereof (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) of the Company or in options, warrants or other rights to acquire such shares of Capital Stock) or (B) declare or pay any dividend or make any distribution in respect of the Capital Stock of any Restricted Subsidiary to any Person other than dividends and distributions payable to the Company or any Restricted Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis; (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or any shares o Capital Stock of any Restricted Subsidiary (including options, warrants and other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company (other than a wholly owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or more of the Company's Capital Stock; (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes; or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being 76 70 collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing; (B) the Company could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (C) the aggregate amount of all Restricted Payments declared or made from and after the Closing Date would exceed the sum of: (1) Cumulative Consolidated Cash Flow minus 200% of Cumulative Consolidated Fixed Charges; (2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a Person, which is not a Subsidiary of the Company, of Capital Stock of the Company (other than Redeemable Stock) or of debt securities of the Company which have been converted into or exchanged for such Capital Stock (except to the extent such Net Cash Proceeds are used to Incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); and (3) to the extent any Permitted Investment that was made after the Closing Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Permitted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Permitted Investment. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including a premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, with the net proceeds of, or in exchange for, Indebtedness Incurred under clause (viii) of paragraph (b) of Section 1011; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of Capital Stock (other than Redeemable Stock) of the Company (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (iv) the acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes in exchange for, or out of the proceeds of, a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of the Capital Stock of the Company (other than Redeemable Stock) (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (v) payments or distributions to dissenting stockholders in accordance with applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with 77 71 Article Eight; and (vi) other Restricted Payments not to exceed $2 million; provided that, except in the case of clause (i), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the immediately preceding paragraph (other than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash Proceeds from any capital contributions to the Company or issuance of Capital Stock referred to in clauses (iii) and (iv) of the immediately preceding paragraph, shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 1012 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 1012 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of the Notes. SECTION 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes are Outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to do any one of the following: (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (iii) make loans or advances to the Company or any other Restricted Subsidiary; or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Date in this Indenture or any other agreements or instruments in effect on the Closing Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; 78 72 (ii) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if the encumbrance or restriction applies only in the event of a default with respect to a financial covenant contained in such Indebtedness or agreement and such encumbrance or restriction is not materially, more disadvantageous to the Holders than is customary in comparable financing (as determined by the Company) and the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes; (iii) existing under or by reason of applicable law; (iv) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (v) in the case of clause (iv) of the first paragraph of this Section 1013, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is, or is subject to, a lease, purchase mortgage obligation, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing contained in this Section 1013 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 1016 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary (other than to the Company or a wholly owned Restricted Subsidiary or in respect of any director's qualifying shares or sales of shares of Capital Stock to foreign nationals mandated by applicable law) to any Person unless (A) the Net Cash Proceeds 79 73 from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 1017, (B) immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and (C) any Investment in such Person remaining after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition would have been permitted to be made under Section 1012 if made on the date of such issuance, transfer, conveyance, sale, lease or other disposition (valued as provided in the definition of "Investment" contained in Section 101). SECTION 1015. Limitation on Transactions with Stockholders and Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, unless the following conditions have been met: (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate; (ii) if such transaction or series of transactions involves aggregate consideration in excess of $2 million, then such transaction or series of transactions is approved by a majority of the Board of Directors of the Company and is evidenced by a resolution therein; and (iii) if such transaction or series of transactions involves aggregate consideration in excess of $10 million, then the Company or such Restricted Subsidiary shall deliver to the Trustee a written opinion as to the fairness to the Company or such Restricted Subsidiary of such transaction from a financial point of view from a nationally recognized investment banking firm (or, if an investment banking firm is generally not qualified to give such an opinion, by a nationally recognized appraisal firm or accounting firm). The foregoing limitation does not limit, and will not apply to (i) any transaction between the Company and any of its Restricted Subsidiaries or between Restricted Subsidiaries; (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any Restricted Payments not prohibited by Section 1012; (iv) loans and advances to officers or employees of the Company and its Subsidiaries not exceeding at any one time outstanding $1.5 million in the aggregate, made in the ordinary course of business; and (v) arrangements with TMG, Armstrong and/or its subsidiaries existing on the date of this Indenture and listed on Schedule A attached thereto as such arrangements may be extended or renewed; provided that the terms of any arrangement altered by any such extension or renewal may not be altered in a manner adverse to the Company or the Holders of the Notes. 80 74 SECTION 1016. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other than Permitted Liens) on any of its assets or properties of any character (including, without limitation, licenses and trademarks), or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, whether owned at the date of this Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereof, without making effective provision for all of the Notes and all other amounts ranking pari passu with the Notes to be directly secured equally and ratably with the obligation or liability secured by such Lien or, if such obligation or liability is subordinated to the Notes and other amounts ranking pari passu with the Notes, without making provision for the Notes and such other amounts to be directly secured prior to the obligation or liability secured by such Lien. SECTION 1017. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the assets sold or disposed of as determined by the good faith judgment of the Board of Directors evidenced by a Board Resolution and (ii) at least 80% of the consideration received for such sale or other disposition consists of cash or cash equivalents or the assumption of unsubordinated Indebtedness. The Company shall, or shall cause the relevant Restricted Subsidiary to, within 270 days after the date of receipt of the Net Cash Proceeds from an Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period referred to above) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraphs of this Section 1017. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 270-day period referred to above in the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10 million, the Company must, not later than the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate 81 75 principal amount of Notes equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase (the "Excess Proceeds Payment"). The Company shall commence an Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (i) that the Excess Proceeds Offer is being made pursuant to this Section 1017 and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Excess Proceeds Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the Excess Proceeds Payment, any Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest and Liquidated Damages, if any, on and after the Excess Proceeds Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Excess Proceeds Offer will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Excess Proceeds Payment Date; (vi) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Excess Proceeds Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the Excess Proceeds Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to the Excess Proceeds Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall upon Company Order promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. To the extent that the aggregate principal amount of Notes tendered is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. The Company shall publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date. For purposes of this Section 1017, the Trustee shall act as the Paying Agent. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are 82 76 applicable, in the event that such Excess Proceeds are received by the Company under this Section 1017 and the Company is required to repurchase Notes as described above. SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to Guarantee, assume or in any other manner become liable with respect to any Indebtedness of the Company, other than Indebtedness under Credit Facilities incurred under clause (iii) of paragraph (b) in Section 1011, unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a Guarantee of the Notes on terms substantially similar to the Guarantee of such Indebtedness, except that if such Indebtedness is by its express terms subordinated in right of payment to the Notes, any such assumption, Guarantee or other liability of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's assumption, Guarantee or other liability with respect to the Notes substantially to the same extent as such Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary waives, and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guarantee. Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may provide by its terms that it will be automatically and unconditionally released and discharged upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture) or (ii) the release or discharge of the guarantee which resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such Guarantee. SECTION 1019. Business of the Company; Restriction on Transfers of Existing Business. The Company shall not, and shall not permit any Restricted Subsidiary to, be principally engaged in any business or activity other than a Permitted Business. In addition, the Company and any Restricted Subsidiary shall not be permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary (i) any of the licenses, material agreements or instruments, permits or authorizations used in the Permitted Business of the Company and any Restricted Subsidiary on the Closing Date or (ii) any material portion of the "property and equipment" (as such term is used in the Company's consolidated financial statements) of the Company or any Restricted Subsidiary used in the licensed service areas of the Company and any Restricted Subsidiary as they exist on the Closing Date. SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries. The Company shall not make, and shall not permit any of its Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the time thereof, the 83 77 aggregate amount of such Investments together with any other Restricted Payments made after the Closing Date would exceed the amount of Restricted Payments then permitted to be made pursuant to Section 1012. Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i) shall be treated as the making of a Restricted Payment in calculating the amount of Restricted Payments made by the Company or a Subsidiary and (ii) may be made in cash or property (if made in property, the Fair Market Value thereof as determined by the Board of Directors of the Company (whose determination shall be conclusive and evidenced by a Board Resolution) shall be deemed to be the amount of such Investment for the purpose of clause (i) of this Section 1020). SECTION 1021. Limitation on Sale-Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company may enter into Sale-Leaseback Transactions; provided, however, that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing clause (a), the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011. SECTION 1022. Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 803 or Sections 1007 through 1021, inclusive, if before or after the time for such compliance the Holders of at least a majority in aggregate principal amount of the Outstanding Notes, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF NOTES SECTION 1011. Right of Redemption. (a) The Notes may be redeemed, at the election of the Company, as a whole or in part, at any time or from time to time, on or after January 15, 2003, subject to the conditions and at the Redemption Prices specified in the form of Note, together with accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date. 84 78 (b) Notwithstanding the foregoing, prior to January 15, 2001, the Company may redeem up to 35% of the originally issued aggregate principal amount of the Notes on one or more occasions with the Net Cash Proceeds of one or more Public Equity Offerings at a redemption price equal to 110.5% of the aggregate principal amount thereof, plus accrued interest, if any, and Liquidated Damages, if any, thereon to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date); provided that, immediately after giving effect to such redemption, at least 65% of the originally issued aggregate principal amount of the Notes remains Outstanding; and provided further that notice of such redemptions shall be given within 60 days of the date of closing of any such Public Equity Offering. SECTION 1102. Applicability of Article. Redemption of Notes at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Notes pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the Redemption Price and of the principal amount of Notes to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 1104. SECTION 1104. Selection by Trustee of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Notes not previously called for redemption, in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Notes; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Notes shall relate, in the case of any Note redeemed or to be 85 79 redeemed only in part, to the portion of the principal amount of such Note which has been or is to be redeemed. SECTION 1105. Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 106 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Notes to be redeemed. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 1107, if any; (3) if less than all Outstanding Notes are to be redeemed, the identification (and, in the case of a partial redemption, the principal amounts) of the particular Notes to be redeemed; (4) in case any Note is to be redeemed in part only, the notice which relates to such Note shall state that on and after the Redemption Date, upon surrender of such Note, the Holder shall receive, without charge, a new Note or Notes of authorized denominations for the principal amount thereof remaining unredeemed; (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 1107) will become due and payable upon each such Note, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date; and (6) the place or places where such Notes are to be surrendered for payment of the Redemption Price and accrued interest, if any. Notice of redemption of Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company. SECTION 1106. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and Liquidated Damages, if any, and accrued interest on, all the Notes which are to be redeemed on that date. 86 80 SECTION 1107. Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with Liquidated Damages and accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price, together with Liquidated Damages and accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Regular Record Dates according to their terms and the provisions of Section 307. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Notes. SECTION 1108. Notes Redeemed in Part. Any Note which is to be redeemed only in part (pursuant to the provisions of this Article Eleven) shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall upon Company Order authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered. ARTICLE TWELVE SECURITY SECTION 1201. Security. (a) On the Closing Date, the Company shall purchase, and, at all times, subject to the Pledge Agreement, shall maintain Pledged Securities pledged to the Trustee as security for the benefit of the Holders in such amount as will be sufficient upon receipt of scheduled interest and/or principal payments of such Pledged Securities, in the opinion of a nationally recognized firm of independent public accountants selected by the Company, to provide for payment in full of the first six scheduled interest payments due on the outstanding Notes. The Pledged Securities shall be pledged by the Company to the Trustee for the benefit of the Holders and shall be held by the Trustee in the Pledge Account pending disposition pursuant to the Pledge Agreement. 87 81 (b) Each Holder, by its acceptance of a Note, consents and agrees to the terms of the Pledge Agreement (including, without limitation, the provisions providing for foreclosure and release of the Pledged Securities) as the same may be in effect or may be amended from time to time in accordance with its terms, and authorizes and directs the Trustee to enter into the Pledge Agreement and to perform its respective obligations and exercise its respective rights thereunder in accordance therewith. The Company shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Pledge Agreement, to assure and confirm to the Trustee the security interest in the Pledged Securities contemplated hereby, by the Pledge Agreement or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes secured hereby, according to the intent and purposes herein expressed. The Company shall take, or shall cause to be taken, any and all actions reasonably required (and any action reasonably requested by the Trustee) to cause the Pledge Agreement to create and maintain, as security for the obligations of the Company under this Indenture and the Notes, valid and enforceable first priority liens in and on all the Pledged Securities, in favor of the Trustee, superior to and prior to the rights of third Persons and subject to no other Liens. (c) The release of any Pledged Securities pursuant to the Pledge Agreement will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Pledged Securities are released pursuant to this Indenture and the Pledge Agreement. To the extent applicable, the Company shall cause TIA Section 314(d) relating to the release of property or securities from the Lien and security interest of the Pledge Agreement (other than pursuant to Sections 7(e) and 7(g) thereof) and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an officer of the Company, except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected by the Company. (d) The Trustee, in its sole discretion and without the consent of the Holders, may, and at the request of the Holders of at least 25% in aggregate principal amount of Notes then outstanding shall, on behalf of the Holders, take all actions it deems necessary or appropriate in order to (i) enforce any of the terms of the Pledge Agreement and (ii) collect and receive any and all amounts payable in respect of the obligations of the Company thereunder. The Trustee shall have power to institute and to maintain such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Pledged Securities (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee). 88 82 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance. The Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have either Section 1302 or Section 1303 be applied to all Outstanding Notes upon compliance with the conditions set forth below in this Article Thirteen. SECTION 1302. Defeasance and Discharge. Upon the Company's exercise under Section 1301 of the option applicable to this Section 1302, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Notes on the date the conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1305 and the other Sections of this Indenture referred to in (A) and (B) below, and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Notes to receive payments, (solely from monies deposited in trust) in respect of the principal of, premium, if any, interest and Liquidated Damages, if any, on such Notes when such payments are due, (B) the Company's obligations with respect to such Notes under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option under this Section 1302 notwithstanding the prior exercise of its option under Section 1303 with respect to the Notes. SECTION 1303. Covenant Defeasance. Upon the Company's exercise under Section 1301 of the option applicable to this Section 1303, the Company shall be released from its obligations under any covenant contained in Section 801(3) and (4) and Section 803 and in Sections 1007 through 1022 with respect to the Outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of 89 83 Default under Section 501(6), but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 1304. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of either Section 1302 or Section 1303 to the Outstanding Notes: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (A) cash in United States dollars, or (B) U.S. Government Obligation or (C) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any), interest and Liquidated Damages, if any, on the Outstanding Notes on the Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest and Liquidated Damages, if any, and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Notes on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Notes; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes. Before such a deposit, the Company may give to the Trustee, in accordance with Section 1103 hereof, a notice of its election to redeem all of the Outstanding Notes at a future date in accordance with Article Eleven hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. 90 84 (2) No Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit or, insofar as paragraph (9) or (10) of Section 501 hereof is concerned, at any time during the period ending on the 123rd day after the date of such deposit. (3) [Reserved] (4) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company is a party or by which it is bound. (5) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since January 15, 1998, there has been a change in the applicable federal income tax law, in either case to the effect, and based thereon such opinion shall confirm, that Holders will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (6) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (7) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. 91 85 The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Governmental Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders. Anything in this Article Thirteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article. SECTION 1306. Reinstatement. If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 1305 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 1302 or 1303, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1305; provided, however, that if the Company makes any payment of principal of (or premium, if any) or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. This Indenture may be signed in any number of counterparts each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. FACILICOM INTERNATIONAL, INC. By: /s/ Christopher S. King --------------------------- Name: Christopher S. King Title: Chief Financial Officer 92 86 STATE STREET BANK AND TRUST COMPANY, Trustee By: /s/ Robert J. Dunn ------------------------- Name: Robert J. Dunn Title: Vice President 93 Exhibit A FORM OF FACE OF NOTE FACILICOM INTERNATIONAL, INC. 10 1/2% Senior Note due 2008 [CUSIP] [CINS] No. ____________ $_________________ FACILICOM INTERNATIONAL, INC., a Delaware corporation (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to ____________________ or registered assigns, the principal sum of ___ United States dollars on January 15, 2008, at the office or agency of the Company referred to below, and to pay interest thereon on July 15, 1998 and semi- annually thereafter, on January 15 and July 15 in each year, from January 28, 1998 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, at the rate of 10 1/2% per annum, until the principal hereof is paid or duly provided for, and (to the extent lawful) to pay on demand interest on any overdue interest at the rate borne by the Notes from the date on which such overdue interest becomes payable to the date payment of such interest has been made or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such Defaulted Interest, and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes, may be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. [The Holder of this Note is entitled to the benefits of the Registration Rights Agreement, dated as of January 28, 1998 (the "Registration Rights Agreement"), between the Company and the Initial Purchasers named therein. In the event that either (i) the Company fails to file with the Commission any of the Registration Statements required by the Registration Rights Agreement on or before the date specified therein for such filing, (ii) any of such Registration Statements is not declared effective by the Commission on or prior to the date 94 specified for such effectiveness in the Registration Rights Agreement (the "Effectiveness Target Date"), (iii) the Exchange Offer has not been consummated within 30 days after the Effectiveness Target Date with respect to the Exchange Offer Registration Statement or (iv) any Registration Statement required by the Registration Rights Agreement is filed and declared effective but thereafter ceases to be effective or fails to be usable for its intended purpose without being succeeded within five business days by a post-effective amendment to such Registration Statement that cures such failure and that is declared effective within such five business day period (each such event referred to in clauses (i) through (iv) above, a "Registration Default"), additional cash interest ("Liquidated Damages") shall accrue to each Holder of the Notes commencing upon the occurrence of such Registration Default in an amount equal to .50% per annum of the principal amount of Notes held by such Holder. The amount of Liquidated Damages will increase by an additional .50% per annum of the principal amount of Notes with respect to each subsequent 90-day period (or portion thereof) until all Registration Defaults have been cured, up to a maximum rate of Liquidated Damages of 1.50% per annum of the principal amount of Notes. All accrued Liquidated Damages will be paid to Holders by the Company in the same manner as interest is paid pursuant to the Indenture. Following the cur of all Registration Defaults relating to any particular Transfer Restricted Securities (as defined in the Registration Rights Agreement), the accrual of Liquidated Damages with respect to such Transfer Restricted Securities will cease.](1) The principal of (and premium and Liquidated Damages, if any) and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose (which shall initially be the Office of the Trustee located at 61 Broadway, New York, New York 10006, unless the Company shall designate and maintain some other office or agency for such purpose), and, at the option of the Company, interest may be paid by check mailed to addresses of the holders as such address appears in the Register; provided that all payments with respect to the Global Notes and Certificated Notes, the Holders of which have given wire transfer instructions to the Company, will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. - ------------------------- (1) To be included in Initial Notes. A-2 95 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. FACILICOM INTERNATIONAL, INC. By: ------------------------------------ Name: Christopher S. King Title: Chief Financial Officer TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: --------------------------- This is one of the 10 1/2% Senior Notes due 2008 referred to in the within-mentioned Indenture. STATE STREET BANK AND TRUST COMPANY, Trustee By: ------------------------------------ Authorized Signatory A-3 96 FORM OF REVERSE SIDE OF NOTE FACILICOM INTERNATIONAL, INC. 10 1/2% Senior Note due 2008 This Note is one of a duly authorized issue of securities of the Company designated as its 10 1/2% Senior Notes due 2008 (herein called the "Notes"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $300,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of January 28, 1998 between the Company and State Street Bank and Trust Company, trustee (herein called the "Trustee", which term includes an successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes are subject to redemption upon not less than 30 nor more than 60 days' prior notice, in whole or in part, at any time or from time to time on or after January 15, 2003, at the election of the Company, at Redemption Prices (expressed in percentages of principal amount thereof), plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the Redemption Date (subject to the right of Holders of record on the relevant Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period commencing on January 15, of the years set forth below:
Year Redemption Price - ---- ---------------- 2003....................................................... 105.25% 2004....................................................... 103.50 2005....................................................... 101.75 2006 (and thereafter)...................................... 100.00%
Notwithstanding the foregoing, prior to January 15, 2001, the Company may on any one or more occasions redeem up to 35% of the originally issued aggregate principal amount of Notes at a redemption price of 110.5% of the aggregate principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, thereon, to the Redemption Date, with the Net Cash Proceeds of one or more Public Equity Offerings; provided that at least 65% of the originally issued principal amount of the Notes remains outstanding immediately after the occurrence of such redemption; and provided further that notice of such redemptions shall be given within 60 days of the closing of any such Public Equity Offering. Upon the occurrence of a Change of Control, the Holder of this Note may require the Company, subject to certain limitations provided in the Indenture, to repurchase all or any A-4 97 part of this Note at a purchase price in cash in an amount equal to 101% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any. Under certain circumstances, in the event the Net Cash Proceeds received by the Company from an Asset Sale, which proceeds are not used to (i) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period immediately following the date of receipt of the Net Cash Proceeds from an Asset Sale) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) in accordance with the Indenture, and which proceeds equal or exceed a specified amount, the Company shall be required to make an offer to all Holders to purchase the maximum principal amount of Notes, in an integral multiple of $1,000, that may be purchased out of such amount at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued, unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the Indenture. Holders of Notes that are subject to any offer to purchase shall receive an Excess Proceeds Offer from the Company prior to any related Excess Proceeds Payment Date. In the case of any redemption or repurchase of Notes, interest and Liquidated Damages installments, if any, whose Stated Maturity is on or prior to the Redemption Date or Excess Proceeds Payment Date will be payable to the Holders of such Notes, or one or more Predecessor Notes, of record at the close of business on the relevant Record Date referred to on the face hereof. Notes (or portions thereof) for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date or Excess Proceeds Payment Date, as the case may be. In the event of redemption or repurchase of this Note in part only, a new Note or Notes for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness of the Company on this Note and (b) certain restrictive covenants and the related Defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Note. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the A-5 98 rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding. Additionally, the Indenture permits that, without notice to or consent of any Holder, the Company and the Trustee together may amend or supplement the Indenture or this Note to: (i) evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Notes; (ii) add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (iii) add any additional Events of Default; (iv) evidence and provide for the acceptance of appointment hereunder by a successor Trustee; (v) cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or (vi) secure the Notes. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herewith or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, interest and Liquidated Damages, if any, on this Note at the times, place, and rate, and in the coin or currency, herein prescribed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than 60 days prior to the Redemption Date in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Notes. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable on the Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York or at the Corporate Trust Office of the Trustee, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain A-6 99 limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to the time of due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered on the Register as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Interest on this Note shall be computed on the basis of a 360-day year of twelve 30-day months. All capitalized terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. A-7 100 FORM OF TRANSFER NOTICE FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto Insert Taxpayer Identification No. --------------------------------------------- (Please print or typewrite name and address including zip code of assignee) - ------------------------------------------------------------------------------- the within Note and all rights thereunder, hereby irrevocably constituting and appointing attorney to transfer such Note on the books of the Company with full power of substitution in the premises. [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES, REGULATION S PERMANENT GLOBAL NOTES AND REGULATIONS PERMANENT CERTIFICATED NOTES] In connection with any transfer of this Note occurring prior to the date which is the earlier of the date of an effective Registration Statement or the end of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] [_] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act of 1933, as amended, provided by Rule 144A thereunder. or [_] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If neither of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this Note in the name of any Person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Section 312 of the Indenture shall have been satisfied. Date: ---------------------- ------------------------------------------- NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever. A-8 101 Signature Guarantee /1/ ------------------------ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, as amended, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: ---------------------- ---------------------------------------------- NOTICE: To be executed by an executive officer /1/ The Holder's signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to or in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-9 102 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 1010 or Section 1017 of the Indenture, check the Box: [_] If you wish to have a portion of this Note purchased by the Company pursuant to Section 1010 or Section 1017 of the Indenture, state the amount (in original principal amount) below: $ --------------------------. Date: ------------------- Your Signature: -------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee /1/ ------------------------ /1/ The Holder's signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to or in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-10 103 Exhibit B Form of Certificate to Be Delivered upon Termination of Restricted Period [DATE] State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Attention: Corporate Trust Department Re: Facilicom International, Inc. (the "Company") 10 1/2% Senior Notes due 2008 (the "Notes") Ladies and Gentlemen: This letter relates to $__________ principal amount of Notes represented by the offshore global note certificate (the "Regulation S Global Note"). Pursuant to Section 201 of the Indenture dated as of January 28, 1998 relating to the Notes (the "Indenture"), we hereby certify that (1) we are the beneficial owner of such principal amount of Notes represented by the Regulation S Global Note and (2) we are a Non-U.S. Person to whom the Notes could be transferred in accordance with Rule 904 of Regulation S promulgated under the Securities Act of 1933, as amended ("Regulation S"). Accordingly, you are hereby requested to issue a Regulation S Permanent Global Note representing the undersigned's interest in the principal amount of Notes represented by the Global Note, all in the manner provided by the Indenture. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Holder] By: -------------------------------- Authorized Signature B-9 104 Exhibit C Form of Regulation S Certificate [DATE] State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Attention: Corporate Trust Department Re: Facilicom International, Inc. (the "Company") 10 1/2% Senior Notes due 2008 (the "Notes") Ladies and Gentlemen: This Certificate relates to our proposed transfer of $____ principal amount of Notes issued under the Indenture dated as of January 28, 1998 relating to the Notes. Terms are used in this Certificate as defined in Regulation S under the Securities Act of 1933, as amended (the "Securities Act"). We hereby certify as follows: 1. The offer of the Notes was not made to a person in the United States (unless such person or the account held by it for which it is acting is excluded from the definition of "U.S. person" pursuant to Rule 902(o) of Regulation S under the circumstances described in Rule 902(i)(3) of Regulation S) or specifically targeted at an identifiable group of U.S. citizens abroad. 2. Either (a) at the time the buy order was originated, the buyer was outside the United States or we and any person acting on our behalf reasonably believed that the buyer was outside the United States or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market, and neither we nor any person acting on our behalf knows that the transaction was pre-arranged with a buyer in the United States. 3. Neither we, any of our affiliates, nor any person acting on our or their behalf, has made any directed selling efforts in the United States. 4. The proposed transfer of Notes is not part of a plan or scheme to evade the registration requirements of the Securities Act. 5. If we are a dealer or a person receiving a selling concession or other fee or remuneration in respect of the Notes, and the proposed transfer takes place before the 105 Regulation S Note Exchange Date referred to in the Indenture, or we are an officer or director of the Company or a distributor, we certify that the proposed transfer is being made in accordance with the provisions of Rule 904(c) of Regulation S. You and the Company are entitled to rely upon this Certificate and are irrevocably authorized to produce this Certificate or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [NAME OF SELLER] By: ------------------------------------ Authorized Signature C-2 106 Schedule A SCHEDULE A I. Arrangements with Armstrong and its subsidiaries A. FaciliCom International, L.L.C. First Amended and Restated Limited Liability Company Agreement dated as of September 30, 1997 between Armstrong International Telecommunications, Inc. and FCI Management Group B. FCI (GP) LLC Limited Liability Company Agreement dated as of September 30, 1997 between Armstrong International Telecommunications, Inc. and FCI Management Group C. FaciliCom International, Inc. Tax Sharing Agreement dated as of December 22, 1997 between Armstrong Holdings, Inc. and FaciliCom International, Inc. D. Services Agreement dated as of July 1, 1997 between Armstrong Holdings, Inc. and FaciliCom International, L.L.C. E. Billing and MIS Services Agreement dated as of July 1, 1997 between Armstrong Holdings, Inc. and FaciliCom International, L.L.C. II. Arrangements with TMG -- There are no written arrangements between TMG and the Company or any Restricted Subsidiary; however, TMG provides, and expects to continue to provide, consulting services to the Company and its Restricted Subsidiaries. See "Certain Relationships and Related Transactions" in the Offering Memorandum dated January 23, 1998. EX-4.4 3 FIRST SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.4 FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (this "SUPPLEMENTAL INDENTURE"), dated as of April 26, 1999, by and between FACILICOM INTERNATIONAL, INC., a Delaware corporation (the "COMPANY"), as issuer, and STATE STREET BANK AND TRUST COMPANY, as trustee (the "TRUSTEE"), to the Indenture (the "INDENTURE"), dated as of January 28, 1998, between the Company and the Trustee, under which the Company's 10 1/2% Senior Notes due 2008 and 10 1/2% Series B Senior Notes due 2008 (collectively, the "NOTES") are outstanding. Capitalized terms utilized and not otherwise defined herein shall have the respective meanings assigned to those terms in the Indenture. WHEREAS, the Indenture contains an incorrect reference at subpart (xxi) of the definition of "Permitted Liens" in that it refers to "Liens securing Indebtedness under Credit Facilities incurred in compliance with clause (iv) of paragraph (b) of Section 1011 whereas "Liens securing Indebtedness under Credit Facilities" are described in clause (iii) of paragraph (b) of said Section 10ll; and WHEREAS, clause (iv) of paragraph (b) of Section 1011 references "Telecommunications Assets;" and WHEREAS, it was the intention of the Board of Directors of the Company, as confirmed by Lehman Brothers Inc., the Representative for the Initial Purchasers of the Notes secured by the Indenture, that the reference in said subpart (xxi) should be both to clause (iii) and to clause (iv) of paragraph (b) of Section 1011 and it is the desire of the Board of Directors to correct the incorrect reference accordingly; and WHEREAS, in accordance with the terms of Section 901 of Article Nine of the Indenture, the Company, when authorized by a Board Resolution, and the Trustee may, without the consent of any Holders, enter into a supplemental indenture to cure any ambiguity, provided that such action does not adversely affect the interests of the Holders of the Notes in any material respect; and WHEREAS, the Board of Directors of the Company has determined that this Supplemental Indenture shall not adversely affect the interests of the Holders of the Notes in any material respect; and WHEREAS, the execution and delivery of this Supplemental Indenture has been authorized by a resolution of the Board of Directors of the Company; and WHEREAS, concurrent with the execution hereof, Lehman Brothers Inc. and Shearman & Sterling have each delivered a certificate, and the Company has delivered an Officers' Certificate and has caused its special counsel, Swidler Berlin Shereff Friedman, LLP, to deliver to the Trustee an Opinion of Counsel, each to the effect that this Supplemental Indenture complies with Section 901 of Article Nine of the Indenture and that all conditions precedent provided for in the Indenture relating to this Supplemental Indenture have been complied with. 2 NOW, THEREFORE, in consideration of the above premises, each party agrees, for the benefit of the other and for the equal and ratable benefit of the Holders of the Notes, as follows: 1. Subpart (xxi) of the definition of "Permitted Liens" in Section 101 of Article One of the Indenture is hereby amended by deleting Subpart (xxi) in its entirety and inserting in place thereof the following: "(xxi) Liens securing Indebtedness under Credit Facilities incurred in compliance with clause (iii), or securing Indebtedness to finance the cost of Telecommunication Assets under clause (iv) of paragraph (b) of Section 1011." 2. Except as expressly set forth herein, this Supplemental Indenture shall not be deemed to waive, amend or modify any term or condition of the Indenture, each of which is hereby ratified and reaffirmed, and the Indenture, as amended and supplemented hereby, shall remain in full force and effect. 3. All conditions and requirements of the Indenture necessary to make this Supplemental Indenture a valid, binding and legal instrument in accordance with its terms have been performed and fulfilled by the parties hereto and the execution and delivery thereof have been in all respects duly authorized by the parties hereto. 4. This Supplemental Indenture may be executed in one or more counterparts, each one of which shall be deemed an original, and all of which, taken together, shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 2 3 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed as of the day and year first above written. FACILICOM INTERNATIONAL, INC. By: /s/ Walter Burmeister -------------------------- Name: Walter Burmeister Title: CEO STATE STREET BANK AND TRUST COMPANY By: -------------------------- Name: Title: 3 4 IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental Indenture to be executed as of the day and year first above written. FACILICOM INTERNATIONAL, INC. By: -------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY By: /s/ Alison Deila Bella ------------------------- Name: Alison Deila Bella Title: Assistant Vice President EX-4.5 4 FORM OF SECOND SUPPLEMENTAL INDENTURE 1 EXHIBIT 4.5 SECOND SUPPLEMENTAL INDENTURE - ------------------------------------------------------------------------------- FACILICOM INTERNATIONAL, INC., AS ISSUER AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE ------------------ SECOND SUPPLEMENTAL INDENTURE EXECUTED AS OF --, 1999 EFFECTIVE IMMEDIATELY PRIOR TO THE CLOSING OF THE MERGER OF THE ISSUER WITH AND INTO WORLD ACCESS, INC. ------------------ $300,000,000 10 1/2% SENIOR NOTES DUE 2008 SUPPLEMENTING THE INDENTURE DATED AS OF JANUARY 28, 1998 BETWEEN FACILICOM INTERNATIONAL, INC., AS ISSUER, AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE, AS SUPPLEMENTED BY THE FIRST SUPPLEMENTAL INDENTURE, DATED AS OF APRIL 26, 1999 - -------------------------------------------------------------------------------- 2 2 SECOND SUPPLEMENTAL INDENTURE (the "Second Supplemental Indenture"), executed --, 1999, and effective immediately prior to the closing of the Merger (as defined herein) between FACILICOM INTERNATIONAL, INC., a corporation duly authorized and existing under the laws of the State of Delaware, as issuer (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a trust duly authorized and existing under the laws of the Commonwealth of Massachusetts, as trustee (the "Trustee"), under the Indenture, dated as of January 28, 1998, as amended and supplemented by the First Supplemental Indenture, dated as of April 26, 1999 (the "Indenture"). WITNESSETH: WHEREAS, the Company has issued $300,000,000 aggregate principal amount of 10 1/2% Senior Notes due 2008 (the "Notes") pursuant to the Indenture; WHEREAS, the Company has entered into an agreement and plan of merger, dated August 17, 1999 (the "Merger Agreement"), with World Access, Inc., a Delaware corporation ("World Access"), pursuant to which, subject to the terms and conditions thereof, the Company will merge with and into World Access (the "Merger"); WHEREAS, in connection with the Merger, World Access has launched an exchange offer and consent solicitation (the "Exchange Offer and Consent Solicitation") in which it requested, among other things, that the holders of the Notes consent to the amendments to the Indenture set forth below (the "Proposed Amendments"); WHEREAS, the Issuer wishes to adopt immediately prior to the Effective Time (as defined in the Merger Agreement) of the Merger such Proposed Amendments pursuant to a Second Supplemental Indenture, as permitted by Section 902 of the Indenture; and WHEREAS, the Trustee has received evidence satisfactory to it of the consent of the holders of a majority of the aggregate principal amount of the Notes outstanding to the Proposed Amendments set forth herein. NOW, THEREFORE, intending to be legally bound hereby, the parties agree as follows. Capitalized terms utilized and not otherwise defined herein shall have the respective meanings assigned to those terms in the Indenture. 3 3 ARTICLE I AMENDMENTS All holders and every subsequent holder of the Notes shall be bound by the following amendments to the Indenture: Section 1.1. The definition of "Change of Control Offer" in Section 101 of the Indenture is deleted in its entirety. Section 1.2. The definition of "Change of Control Payment" in Section 101 of the Indenture is deleted in its entirety. Section 1.3. The definition of "Change of Control Payment Date" in Section 101 is deleted in its entirety. Section 1.4. The definition of "Excess Proceeds" in Section 101 of the Indenture is deleted in its entirety. Section 1.5. The definition of "Excess Proceeds Offer" in Section 101 of the Indenture is deleted in its entirety. Section 1.6. The definition of "Excess Proceeds Payment" in Section 101 of the Indenture is deleted in its entirety. Section 1.7. The definition of "Excess Proceeds Payment Date" in Section 101 of the Indenture is deleted in its entirety. Section 1.8. The phrases "and Sections 1012 and 1014" and "in accordance with Section 1014" in the second sentence of the definition of "Investment" in Section 101 of the Indenture are deleted in their entirety. Section 1.9. The definition of "Permitted Indebtedness" in Section 101 of the Indenture is deleted in its entirety. Section 1.10. The phrase "to the extent permitted under Section 1017" in clause (vi) of the definition of "Permitted Investment" in Section 101 of the Indenture is deleted in its entirety. Section 1.11. The phrase "in compliance with Section 1011(1)" in clause (vi)(a) of the definition of "Permitted Liens" in Section 101 of the Indenture is deleted in its entirety. 4 4 Section 1.12. The phrase "which is permitted to be Incurred under clause (viii) of paragraph (b) of Section 1011" in clause (xx) of the definition of "Permitted Liens" in Section 101 of the Indenture is deleted in its entirety. Section 1.13. Clause (xxi) of the definition of "Permitted Liens" in Section 101 of the Indenture is deleted in its entirety and replaced with the following: "(xxi) Liens securing Indebtedness under Credit Facilities incurred in compliance with clause (iii)." Section 1.14. The definition of "Purchase Price" in Section 101 of the Indenture is deleted in its entirety. Section 1.15. The definition of "Redeemable Stock" in Section 101 of the Indenture is deleted in its entirety and replaced with the following: "'Redeemable Stock' means any class or series of Capital Stock of any person that by its terms (or by the terms of any security into which it is exchangeable) or otherwise is (i) required to be redeemed on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes. Section 1.16. The definition of "Restricted Payments" in Section 101 of the Indenture is deleted in its entirety. Section 1.17. The second and third sentences in the definition of "Unrestricted Subsidiary" in Section 101 of the Indenture are deleted in their entirety and replaced with the following: "The Board of Directors may designate any Restricted Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company, provided that immediately after giving effect to such designation no Default or Event of Default shall have occurred and be continuing." Section 1.18. The last sentence of the definition of "United States Dollar Equivalent" in Section 101 of the Indenture is deleted in its entirety and replaced with the following: "For purposes of determining whether any Indebtedness can be incurred (including Permitted Indebtedness), any Investment can be made (a "Tested Transaction"), the United States Dollar Equivalent of such Indebtedness or Investment will be determined on the date Incurred, made or undertaken and no subsequent change in the United States Dollar Equivalent shall cause such Tested Transaction to have been Incurred, made or undertaken in violation of this Indenture." 5 5 Section 1.19. The phrase "(other than pursuant to Section 1008(a))" in the second paragraph of Section 102 of the Indenture is deleted in its entirety. Section 1.20. The first paragraph of Section 301 of the Indenture is deleted in its entirety and replaced with the following: "The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $300,000,000, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 303, 304, 305, 306, 906 or 1108." Section 1.21. The sixth paragraph of Section 305 of the Indenture is deleted in its entirety and replaced with the following: "No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 304, 906 or 1108 not involving any transfer." Section 1.22. Subclause (A) of clause (i) of Section 401 of the Indenture is deleted in its entirety and replaced with the following: "(A) All Notes theretofore authenticated and delivered (other than Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306) have been delivered to the Trustee for cancellation;". Section 1.23. The final paragraph of Section 401 of the Indenture is deleted in its entirety and replaced with the following: "Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (i) of this Section, the obligations of the Trustee under Section 402 shall survive." Section 1.24. The phrase "Subject to the provisions of the last paragraph of Section 1003," in the second sentence of Section 402 of the Indenture is deleted in its entirety. Section 1.25. Clauses (4) and (5) of the definition of "Event of Default" in Section 501 of the Indenture are deleted in their entirety. Section 1.26. The final paragraph of Section 602 of the Indenture is deleted in its entirety. Section 1.27. Section 801 of the Indenture is deleted in its entirety. Section 1.28. The phrases "in accordance with Section 801" and "which shall theretofore become such in the manner described in Section 801" in Section 802 of the Indenture are deleted in their entirety. Section 1.29. The phrase "pursuant to Section 1016" in Section 803 of the Indenture is deleted in its entirety. 6 6 Section 1.30. Clause (6) of Section 901 is deleted in its entirety and replaced with the following: "(6) to secure the Notes pursuant to the requirements of Section 803 or otherwise." Section 1.31. Section 1003 of the Indenture is deleted in its entirety. Section 1.32. Section 1004 of the Indenture is deleted in its entirety. Section 1.33. Section 1005 of the Indenture is deleted in its entirety. Section 1.34. Section 1006 of the Indenture is deleted in its entirety. Section 1.35. Section 1007 of the Indenture is deleted in its entirety. Section 1.36. Section 1008 of the Indenture is deleted in its entirety. Section 1.37. Section 1009 of the Indenture is deleted in its entirety. Section 1.38. Section 1010 of the Indenture is deleted in its entirety. Section 1.39. Section 1011 of the Indenture is deleted in its entirety. Section 1.40. Section 1012 of the Indenture is deleted in its entirety. Section 1.41. Section 1013 of the Indenture is deleted in its entirety. Section 1.42. Section 1014 of the Indenture is deleted in its entirety. Section 1.43. Section 1015 of the Indenture is deleted in its entirety. Section 1.44. Section 1016 of the Indenture is deleted in its entirety. Section 1.45. Section 1017 of the Indenture is deleted in its entirety. Section 1.46. Section 1018 of the Indenture is deleted in its entirety. Section 1.47. Section 1019 of the Indenture is deleted in its entirety. Section 1.48. Section 1020 of the Indenture is deleted in its entirety. Section 1.49. Section 1021 of the Indenture is deleted in its entirety. 7 7 Section 1.50. The phrase "(or, if the Company is acting as its own paying Agent, segregate and hold in trust as provided in Section 1003)" in Section 1106 of the Indenture is deleted in its entirety. Section 1.51. Clause (B) of Section 1302 of the Indenture is deleted in its entirety and replaced with the following: "(B) the Company's obligations with respect to such Notes under Section 304, 305, 306 and 1002,". Section 1.52. The phrase "Subject to the provisions of the first paragraph of Section 1003," in Section 1305 of the Indenture is deleted in its entirety. Section 1.53. The phrases "Section 801(3) and (4) and" and "and in Sections 1007 through 1022" in Section 1303 of the Indenture shall be deleted in their entirety. ARTICLE II MISCELLANEOUS Section 2.1. Except as amended hereby, all of the terms of the Indenture shall remain and continue in full force and effect and are hereby confirmed in all respects. Section 2.2. This Second Supplemental Indenture and each and every provision hereof shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of such State. Section 2.3. This Second Supplemental Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall constitute but one and the same instrument. Section 2.4. In entering this Second Supplemental Indenture, the Trustee shall be entitled to the benefit of every provision of the Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee, whether or not elsewhere herein so provided. Section 2.5. Notwithstanding the execution and delivery of this Second Supplemental Indenture by the parties hereto, this Second Supplemental Indenture shall become effective only immediately prior to the Effective Time of the Merger pursuant to the Merger Agreement and the continuation of such effectiveness shall be conditioned upon the subsequent occurrence of the Effective Time of the Merger. Upon the effectiveness of this Second Supplemental Indenture, the Indenture shall be supplemented in accordance herewith, and this Second Supplemental Indenture shall form a part of the Indenture for all purposes, and every holder of Notes heretofore or hereafter authenticated and delivered under the Indenture shall be bound thereby. 8 8 IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental Indenture to be executed as of the day and year first above written. FACILICOM INTERNATIONAL, INC., as Issuer By: --------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee By: --------------------------- Name: Title: EX-4.6 5 FORM OF INDENTURE 1 EXHIBIT 4.6 ================================================================================ WORLD ACCESS, INC., Issuer TO FIRST UNION NATIONAL BANK, Trustee ---------------------- Indenture Dated as of -, 1999 ---------------------- $300,000,000 13.25% Senior Notes due 2008 ================================================================================ 2 WORLD ACCESS, INC. Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of -, 1999
Trust Indenture Act Section Indenture Section - --------------- ----------------- (ss) 310(a)(1).......................................................... 607 (a)(2).......................................................... 607 (b)............................................................. 608 (ss) 312(c)............................................................. 701 (ss) 313(a)............................................................. 702 (ss 313(c).............................................................. 703 (ss) 314(a)............................................................. 703 (a)(4).......................................................... 1008(a) (c)(1).......................................................... 102 (c)(2).......................................................... 102 (e)............................................................. 102 (ss) 315(b)............................................................. 601 (ss) 316(a)(last sentence).............................................. 101 ("Outstanding") (a)(1)(A)....................................................... 502, 512 (a)(1)(B)....................................................... 513 (b)............................................................. 508 (c)............................................................. 104(d) (ss) 317(a)(1).......................................................... 503 (a)(2).......................................................... 504 (b)............................................................. 1003 (ss) 318(a)............................................................. 111
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part of the Indenture. B-10 3 11 TABLE OF CONTENTS
Page ---- PARTIES ..........................................................................................................1 RECITALS OF THE COMPANY...........................................................................................1 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions................................................................................2 SECTION 102. Compliance Certificates and Opinions......................................................21 SECTION 103. Form of Documents Delivered to Trustee....................................................22 SECTION 104. Acts of Holders...........................................................................22 SECTION 105. Notices, Etc., to Trustee, Company........................................................23 SECTION 106. Notice to Holders; Waiver.................................................................24 SECTION 107. Effect of Headings and Table of Contents..................................................24 SECTION 108. Successors and Assigns....................................................................24 SECTION 109. Separability Clause.......................................................................24 SECTION 110. Benefits of Indenture.....................................................................24 SECTION 111. Governing Law.............................................................................25 SECTION 112. Legal Holidays............................................................................25 ARTICLE TWO NOTE FORMS SECTION 201. Forms Generally...........................................................................25 SECTION 202. Restrictive Legends.......................................................................26 ARTICLE THREE THE NOTES SECTION 301. Title and Terms...........................................................................26 SECTION 302. Denominations.............................................................................27 SECTION 303. Execution, Authentication, Delivery and Dating............................................27 SECTION 304. Temporary Notes...........................................................................28 SECTION 305. Registration, Registration of Transfer and Exchange.......................................28 SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes...............................................29 SECTION 307. Payment of Interest; Interest Rights Preserved............................................30 SECTION 308. Persons Deemed Owners.....................................................................31 SECTION 309. Cancellation..............................................................................32 SECTION 310. Computation of Interest...................................................................32 SECTION 311. Book-Entry Provisions for Global Notes....................................................32 ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture...................................................33 SECTION 402. Application of Trust Money................................................................34
4 ARTICLE FIVE REMEDIES SECTION 501. Events of Default.........................................................................35 SECTION 502. Acceleration of Maturity; Rescission and Annulment........................................36 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...........................37 SECTION 504. Trustee May File Proofs of Claim..........................................................38 SECTION 505. Trustee May Enforce Claims Without Possession of Notes....................................38 SECTION 506. Application of Money Collected............................................................39 SECTION 507. Limitation on Suits.......................................................................39 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest..................................................................................40 SECTION 509. Restoration of Rights and Remedies........................................................40 SECTION 510. Rights and Remedies Cumulative............................................................40 SECTION 511. Delay or Omission Not Waiver..............................................................40 SECTION 512. Control by Holders........................................................................41 SECTION 513. Waiver of Past Defaults...................................................................41 SECTION 514. Waiver of Stay or Extension Laws..........................................................41 ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults........................................................................42 SECTION 602. Certain Rights of Trustee.................................................................42 SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes.................................44 SECTION 604. May Hold Notes............................................................................44 SECTION 605. Money Held in Trust.......................................................................44 SECTION 606. Compensation and Reimbursement............................................................44 SECTION 607. Corporate Trustee Required; Eligibility...................................................45 SECTION 608. Resignation and Removal; Appointment of Successor.........................................45 SECTION 609. Acceptance of Appointment by Successor....................................................46 SECTION 610. Merger, Conversion, Consolidation or Succession to Business...............................47 ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders..............................................47 SECTION 702. Reports by Trustee........................................................................47 SECTION 703. Reports by Company........................................................................48 ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms......................................48 SECTION 802. Successor Substituted.....................................................................49 SECTION 803. Notes to Be Secured in Certain Events.....................................................50
-ii- 5 ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders........................................50 SECTION 902. Supplemental Indentures with Consent of Holders...........................................51 SECTION 903. Execution of Supplemental Indentures......................................................52 SECTION 904. Effect of Supplemental Indentures.........................................................52 SECTION 905. Conformity with Trust Indenture Act.......................................................52 SECTION 906. Reference in Notes to Supplemental Indentures.............................................52 SECTION 907. Notice of Supplemental Indentures.........................................................52 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if Any, and Interest......................................53 SECTION 1002. Maintenance of Office or Agency..........................................................53 SECTION 1003. Money for Note Payments to Be Held in Trust..............................................53 SECTION 1004. Corporate Existence......................................................................54 SECTION 1005. Payment of Taxes and Other Claims........................................................55 SECTION 1006. Maintenance of Properties................................................................55 SECTION 1007. Insurance................................................................................55 SECTION 1008. Statement by Officers as to Default......................................................55 SECTION 1009. Provision of Financial Statements and Reports............................................56 SECTION 1010. Repurchase of Notes upon Change of Control...............................................56 SECTION 1011. Limitation on Indebtedness...............................................................58 SECTION 1012. Limitation on Restricted Payments........................................................61 SECTION 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. 63 SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries...64 SECTION 1015. Limitation on Transactions with Stockholders and Affiliates..............................65 SECTION 1016. Limitation on Liens......................................................................66 SECTION 1017. Limitation on Asset Sales................................................................66 SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries.. 68 SECTION 1019. Business of the Company; Restriction on Transfers of Existing Business.............................................. 69 SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries...................................69 SECTION 1021. Limitation on Sale-Leaseback Transactions............................................... 70 SECTION 1022. Waiver of Certain Covenants..............................................................70 ARTICLE ELEVEN REDEMPTION OF NOTES SECTION 1101. Right of Redemption......................................................................70 SECTION 1102. Applicability of Article.................................................................71 SECTION 1103. Election to Redeem; Notice to Trustee....................................................71 SECTION 1104. Selection by Trustee of Notes to Be Redeemed.............................................71 SECTION 1105. Notice of Redemption.....................................................................71 SECTION 1106. Deposit of Redemption Price..............................................................72 SECTION 1107. Notes Payable on Redemption Date.........................................................72 SECTION 1108. Notes Redeemed in Part.................................................................. 73
-iii- 6 ARTICLE TWELVE SECURITY SECTION 1201. Security.................................................................................73 ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.............................74 SECTION 1302. Defeasance and Discharge.................................................................74 SECTION 1303. Covenant Defeasance......................................................................75 SECTION 1304. Conditions to Defeasance or Covenant Defeasance..........................................75 SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.......................................................... 77 SECTION 1306. Reinstatement............................................................................77
TESTIMONIUM SIGNATURES AND SEALS Schedule A World Access Charitable Trust Arrangements EXHIBIT A Form of Note 7 INDENTURE, dated as of , 1999, between WORLD ACCESS, INC., a corporation duly organized and existing under the laws of the State of Delaware (herein called the "Company"), having its principal office at 945 East Paces Ferry Road, Suite 2200, Atlanta, Georgia 30326, as issuer, and FIRST UNION NATIONAL BANK, a national banking association, as Trustee (the "Trustee"). RECITALS OF THE COMPANY WHEREAS, the Company and FaciliCom International, Inc., a Delaware corporation ("FaciliCom") and certain shareholders of FaciliCom have entered into an Agreement and Plan of Merger, dated as of August 17, 1999, with respect to the Merger (the "Merger") of FaciliCom with and into the Company and in connection with the Merger the Company has offered to exchange its 13.25% Senior Notes due 2008 (the "Notes") and certain other consideration for FaciliCom's outstanding 10 1/2% Senior Notes due 2008 (the "FaciliCom Notes"); WHEREAS, the Company has duly authorized the creation of an issue of the Notes, of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. WHEREAS, this Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. WHEREAS, all things necessary have been done to make the Notes, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company and to make this Indenture a valid agreement of the Company, in accordance with their and its terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: 8 2 ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (b) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein, and the terms "cash transaction" and "self-liquidating paper", as used in TIA Section 311, shall have the meanings assigned to them in the rules of the Commission adopted under the Trust Indenture Act; (c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Acquired Indebtedness" means Indebtedness of a Person existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with an Asset Acquisition by the Company or a Restricted Subsidiary and not incurred in connection with, or in anticipation of, such Person becoming a Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person which is redeemed, defeased, retired or otherwise repaid at the time of or immediately upon the consummation of the transactions by which such Person becomes a Restricted Subsidiary or such Asset Acquisition shall not be considered as Indebtedness. "Act", when used with respect to any Holder, has the meaning specified in Section 104. "Affiliate" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, is defined to mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Armstrong" means Armstrong Holdings, Inc. 9 3 "Asset Acquisition" means (i) an investment by the Company or any of its Restricted Subsidiaries in any other Person pursuant to which such Person shall become a Restricted Subsidiary of the Company or shall be merged into or consolidated with the Company or any of its Restricted Subsidiaries or (ii) an acquisition by the Company or any of its Restricted Subsidiaries of the property and assets of any Person (other than the Company or any of its Restricted Subsidiaries) that constitute substantially all of a division or line of business of such Person. "Asset Disposition" means the sale or other disposition by the Company or any of its Restricted Subsidiaries (other than to the Company or another Restricted Subsidiary of the Company) of (i) all or substantially all of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all or substantially all of the assets that constitute a division or line of business of the Company or any of its Restricted Subsidiaries. "Asset Sale" means any sale, transfer or other disposition (including by way of merger, consolidation or sale-leaseback transactions) in one transaction or a series of related transactions by the Company or any of its Restricted Subsidiaries to any Person (other than the Company or any of its Restricted Subsidiaries) of (i) all or any of the Capital Stock of any Restricted Subsidiary (other than in respect of any director's qualifying shares or investments by foreign nationals mandated by applicable law), (ii) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries or (iii) any other property and assets of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary and, in each case, that is not governed by Article Eight and which, in the case of any of clause (i), (ii) or (iii) above, whether in one transaction or a series of related transactions, (a) have a Fair Market Value in excess of $1 million or (b) are for net proceeds in excess of $1 million; provided that sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business shall not be included within the meaning of "Asset Sale". "Attributable Value" means, as to any particular lease under which any Person is at the time liable other than a Capitalized Lease Obligation, and at any date as of which the amount thereof is to be determined, the total net amount of rent required to be paid by such person under such lease during the remaining term thereof (whether or not such lease is terminable at the option of the lessee prior to the end of such term), including any period for which such lease has been, or may, at the option of the lessor, be extended, discounted from the last date of such term to the date of determination at a rate per annum equal to the discount rate which would be applicable to a Capitalized Lease Obligation with like term in accordance with GAAP. The net amount of rent required to be paid under any lease for any such period shall be the aggregate amount of rent payable by the lessee with respect to such period after excluding amounts required to be paid on account of insurance, taxes, assessments, utility, operating and labor costs and similar charges. "Attributable Value" means, as to a Capitalized Lease Obligation under which any Person is at the time liable and at any date as of which the amount thereof is to be determined, the capitalized amount thereof that would appear on the face of a balance sheet of such Person in accordance with GAAP. "Average Life" means, with respect to any Indebtedness, as at any date of determination, the quotient obtained by dividing (i) the sum of the products of (a) the number of 10 4 years from such date to the date or dates of each successive scheduled principal payment (including, without limitation, any sinking fund requirements) of such Indebtedness and (b) the amount of each such principal payment by (ii) the sum of all such principal payments. "Board of Directors" means the board of directors of the Company or its equivalent, including managers of a limited liability company, general partners of a partnership or trustees of a business trust, or any duly authorized committee thereof. "Board Resolution" means a copy of a resolution certified by the secretary or any assistant secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in The City of New York or The City of Atlanta are authorized or obligated by law or executive order to close. "Capital Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated, whether voting or non-voting) in equity of such Person, whether now outstanding or issued after the date of this Indenture, including, without limitation, all Common Stock and Preferred Stock. "Capitalized Lease Obligation" means any obligation under a lease of (or other agreement conveying the right to use) any property (whether real, personal or mixed) that is required to be classified and accounted for as a capital lease obligation under GAAP, and, for the purpose of this Indenture, the amount of such obligation at any date shall be the capitalized amount thereof at such date, determined in accordance with GAAP. "Change of Control" means such time as (i) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the then outstanding Voting Stock of the Company on a fully diluted basis; (ii) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors (together with any directors who are members of the Board of Directors on the date hereof and any new directors whose election by the Board of Directors or whose nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the members of the Board of Directors then still in office who either were members of the Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of such Board of Directors then in office; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one transaction or a series of related transactions, of all or substantially all of the assets of the Company and its Subsidiaries taken as a whole to any such "person" or "group" (other than to the Company or a Restricted Subsidiary); (iv) the merger or consolidation of the Company, with or into another corporation or the merger of another corporation with or into the Company in one or a series of related transactions with the effect that immediately after such transaction any such "person" or "group" of persons or entities shall have become the beneficial owner of securities of the surviving corporation of such merger or consolidation representing a majority of the total voting power of the then outstanding Voting Stock of the surviving corporation; or (v) the adoption of a plan relating to the liquidation or dissolution of the Company. 11 5 "Change of Control Offer" has the meaning specified in Section 1010. "Change of Control Payment" has the meaning specified in Section 1010. "Change of Control Payment Date" has the meaning specified in Section 1010. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" means, with respect to any Person, any and all shares, interests, participations, rights in or other equivalents (however designated, whether voting or non-voting) of such Person's common stock, whether now outstanding or issued after the date of this Indenture, including, without limitation, all series and classes of such common stock. "Company" means the Person named as the "Company" in the first paragraph of this Indenture, until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person and references to the "Company" shall include FaciliCom after giving effect to the Merger. "Company Request" or "Company Order" means a written request or order signed in the name of the Company by its chairman, its president, any Vice President, its treasurer or any assistant treasurer, and delivered to the Trustee. "Consolidated Cash Flow" means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) income taxes, to the extent such amount was deducted in calculating Consolidated Net Income (other than income taxes (either positive or negative) attributable to extraordinary and non-recurring gains or losses or sales of assets), (iv) depreciation expense, to the extent such amount was deducted in calculating Consolidated Net Income, (v) amortization expense, to the extent such amount was deducted in calculating Consolidated Net Income, and (vi) all other non-cash items reducing Consolidated Net Income (excluding any non-cash charge to the extent that it represents an accrual of or reserve for cash charges in any future period), less all non-cash items increasing Consolidated Net Income, all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP. "Consolidated Fixed Charges" means, for any period, Consolidated Interest Expense plus dividends declared and payable on Preferred Stock. "Consolidated Interest Expense" means, for any period, the aggregate amount of interest in respect of Indebtedness (including capitalized interest, amortization of original issue discount on any Indebtedness and the interest portion of any deferred payment obligation, calculated in accordance with the effective interest method of accounting; all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing; the net costs associated with any Interest Rate Agreements; and 12 6 interest on Indebtedness that is Guaranteed or secured by the Company or any of its Restricted Subsidiaries) and all but the principal component of rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid or to be accrued by the Company and its Restricted Subsidiaries during such period. "Consolidated Net Income" means, with respect to any Person, for any period, the consolidated net income (or loss) of such Person and its Restricted Subsidiaries for such period as determined in accordance with GAAP, adjusted, to the extent included in calculating such net income, by excluding, without duplication, (i) all extraordinary gains or losses, (ii) net income (or loss) of any Person combined in such Person or one of its Restricted Subsidiaries on a "pooling of interests" basis attributable to any period prior to the date of combination, (iii) gains or losses (on an after-tax basis) in respect of any Asset Sales by such Person or one of its Restricted Subsidiaries, (iv) the net income of any Restricted Subsidiary of such Person to the extent that the declaration of dividends or similar distributions by that Restricted Subsidiary of that income is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulations applicable to that Restricted Subsidiary or its stockholders, (v) any gain or loss realized as a result of the cumulative effect of a change in accounting principles, (vi) any amount paid or accrued as dividends on Preferred Stock of the Company or Preferred Stock of any Restricted Subsidiary owned by Persons other than the Company and any of its Restricted Subsidiaries and (vii) the net income (or loss) of any Person (other than net income (or loss) attributable to a Restricted Subsidiary) in which any Person (other than the Company or any of its Restricted Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to the Company or any of its Restricted Subsidiaries by such other Person during such period. "Consolidated Net Worth" means, at any date of determination, stockholders' equity as set forth on the most recently available quarterly or annual consolidated balance sheet of the Company and its Subsidiaries (which shall be as of a date not more than 90 days prior to the date of such computation), less any amounts attributable to Redeemable Stock or any equity security convertible into or exchangeable for Indebtedness, the cost of treasury stock and the principal amount of any promissory notes receivable from the sale of the Capital Stock of the Company or any of its Subsidiaries, each item to be determined in conformity with GAAP (excluding the effects of foreign currency exchange adjustments under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 52). "Corporate Trust Office" means the corporate trust operations office of the Trustee, at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this Indenture is located at First Union National Bank, Corporate Trust Department, 1525 West W.T. Harris Boulevard, 3C3 NC-1153, Charlotte, North Carolina 28262. "corporation" includes corporations, associations, companies and business trusts. "covenant defeasance" has the meaning specified in Section 1303. "Credit Facilities" means one or more debt facilities or commercial paper facilities with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to 13 7 special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Cumulative Consolidated Cash Flow" means, for the period beginning on the Exchange Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Cash Flow of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Cumulative Consolidated Fixed Charges" means the Consolidated Fixed Charges of the Company and its Restricted Subsidiaries for the period beginning on the Exchange Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, determined on a consolidated basis in accordance with GAAP. "Cumulative Consolidated Interest Expense" means, for the period beginning on the Exchange Date through and including the end of the last fiscal quarter (taken as one accounting period) preceding the date of any proposed Restricted Payment, Consolidated Interest Expense of the Company and its Restricted Subsidiaries for such period determined on a consolidated basis in accordance with GAAP. "Currency Agreement" means any foreign exchange contract, currency swap agreement and any other arrangement and agreement designed to provide protection against fluctuations in currency (or currency unit) values. "Default" means any event that is, or after notice or passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 307. "defeasance" has the meaning specified in Section 1302. "Depositary" means The Depository Trust Company, its nominees and successors or any replacement thereof. "Eligible Accounts Receivable" means the accounts receivable (net of any reserves and allowances for doubtful accounts in accordance with GAAP) of any Person that are not more than 60 days past their due date and that were entered into in the ordinary course of business on normal payment terms as shown on the most recent consolidated balance sheet of such Person filed with the Commission, all in accordance with GAAP. "Eligible Institution" means a commercial banking institution that has combined capital and surplus of not less than $500 million or its equivalent in foreign currency, and has outstanding debt with a rating of "A-3" or higher according to Moody's Investors Service, Inc., or "A-" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)), at the time as of which any investment or rollover therein is made. 14 8 "Event of Default" has the meaning specified in Section 501. "Excess Proceeds" has the meaning specified in Section 1017. "Excess Proceeds Offer" has the meaning specified in Section 1017. "Excess Proceeds Payment" has the meaning specified in Section 1017. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Date" means the date of issuance of the Notes upon the consummation of the registered exchange offer pursuant to which holders of the FaciliCom Notes tendered such notes in exchange for the Notes issued by the Company pursuant to this Indenture. "Existing Indebtedness" means Indebtedness outstanding on the date hereof. "FaciliCom" has the meaning specified in the recitals to this Indenture. "FaciliCom Notes" has the meaning specified in the recitals to this Indenture. "FaciliCom Pledge Account" means an account established with the FaciliCom Trustee in its name as trustee under the Original Indenture pursuant to the terms of the FaciliCom Pledge Agreement. "FaciliCom Pledge Agreement" means the Collateral Pledge and Security Agreement, dated as of January 28, 1998, from FaciliCom to the FaciliCom Trustee governing the FaciliCom Pledge Account and the disbursements of funds therefrom. "FaciliCom Pledged Securities" means the securities purchased by FaciliCom with the portion of the net proceeds from the original offering of the FaciliCom Notes consisting of U.S. Government Obligations and which were deposited in the FaciliCom Pledge Account pursuant to the FaciliCom Pledge Agreement. "FaciliCom Trustee" means State Street Bank and Trust Company, as trustee under the Original Indenture. "Fair Market Value" means, with respect to any asset or property, the sale value that would be obtained in an arm's length transaction between an informed and willing seller under no compulsion to sell and an informed and willing buyer under no compulsion to buy. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession of the United States. 15 9 "Global Notes" has the meaning specified in Section 201. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation of such other Person (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Holder" means a Person in whose name a Note is registered in the Register. "Incur" or "Incurrence" means, with respect to any Indebtedness, to incur, create, issue, assume, Guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Indebtedness, including an Incurrence of Indebtedness by reason of the acquisition of more than 50% of the Capital Stock of any Person; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Indebtedness. "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables, (v) all obligations of such Person as lessee under Capitalized Lease Obligations and the Attributable Value under any Sale-Leaseback Transaction of such Person, (vi) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided that the amount of such Indebtedness shall be the lesser of (A) the Fair Market Value of such asset at such date of determination or (B) the amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person, (viii) the maximum fixed redemption or repurchase price of Redeemable Stock of such Person at the time of determination and (ix) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation; provided (x) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the face amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as 16 10 determined in conformity with GAAP and (y) that Indebtedness shall not include any liability for federal, state, local or other taxes. "Indenture" means this instrument and the Pledge Agreement as originally executed and as they may from time to time be supplemented or amended by one or more indentures supplemental hereto and pledge agreements supplemental thereto entered into pursuant to the applicable provisions hereof. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Interest Payment Date" means the Stated Maturity of an installment of interest on the Notes. "Interest Rate Agreements" means any interest rate swap agreements, interest rate cap agreements, interest rate insurance, and other arrangements and agreements designed to provide protection against fluctuations in interest rates. "Investment" in any Person means any direct or indirect advance, loan or other extension of credit (including, without limitation, by way of Guarantee or similar arrangement; but excluding advances to customers in the ordinary course of business that are, in conformity with GAAP, recorded as accounts receivable on the balance sheet of the Company or its Restricted Subsidiaries) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, bonds, notes, debentures or other similar instruments issued by, such Person. For purposes of the definition of "Unrestricted Subsidiary" and Sections 1012 and 1014, (i) "Investment" shall include (a) the Fair Market Value of the assets (net of liabilities) of any Restricted Subsidiary of the Company at the time that such Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary and shall exclude the Fair Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (b) the Fair Market Value, in the case of a sale of Capital Stock in accordance with Section 1014 such that a Person no longer constitutes a Restricted Subsidiary, of the remaining assets (net of liabilities) of such Person after such sale, and shall exclude the Fair Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of such transfer, in each case as determined by the Board of Directors in good faith. "Investment Grade Company" means a Person whose debt securities are rated BBB- or higher by Standard & Poor's Ratings Service, Inc. or Baa3 or higher by Moody's Investor Service, Inc. (or an equivalent rating by another nationally recognized rating agency). "IRU" means Indefeasible Right of Use, which is the right to use a telecommunications system with most of the rights and duties of ownership, but without the right to control or manage such facility and, depending upon the particular agreement, without any right to salvage or duty to dispose of such system's cable at the end of its useful life. 17 11 "Junior Preferred Stock" has the meaning specified in Section 1012. "Lien" means any mortgage, charge, pledge, security interest, encumbrance, lien (statutory or other), hypothecation, assignment for security, claim, or preference or priority or other encumbrance upon or with respect to any property of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "MAOU" means Minimum Assignable Ownership Units which is capacity on a telecommunications system that has been acquired on an ownership basis. "Market Price" means the average closing price of the shares of the Company's Common Stock on the principal trading market of such Common Stock over the five consecutive trading days up to and including the trading day prior to the last full trading day before the closing of the Merger. "Market Value" means the average of the closing price of the applicable security on such security's principal trading market over the five consecutive trading days up to and including the trading day prior to the last full trading day before the initiation of any Offer to Purchase described in clause (i) (B) of the second paragraph of Section 1017 or the time any commitment to effect an Asset Sale is entered into as described in the first paragraph of Section 1017. "Marketable Securities" means: (i) U.S. Government Obligations which have a remaining weighted average life to maturity of not more than one year from the date of Investment therein; (ii) any time deposit account, money market deposit and certificate of deposit maturing not more than 180 days after the date of acquisition issued by, or time deposit of, an Eligible Institution; (iii) certificates of deposit, Eurodollar time deposits and bankers' acceptances with maturity of 90 days or less and overnight bank deposits of any financial institution that is organized under the laws of the United States of America or any state hereof, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $300 million (or, to the extent non-United States dollar denominated, the United States Dollar Equivalent of such amount) and has outstanding debt which is rated "A" (or such similar equivalent rating) or higher by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act); (iv) commercial paper maturing not more than 180 days after the date of acquisition issued by a corporation (other than an Affiliate of the Company) with a rating, at the time as of which any investment therein is made, of "P-1" or higher according to Moody's Investors Service, Inc., or "A-1" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)); (v) auction rate preferred securities whose rates are reset based on market level for a par security not more than 90 days after the date of acquisition with a rating, at the time as of which any investment therein is made, of "A-3" or higher according to Moody's Investors Service, Inc., or "A-" or higher according to Standard & Poor's Ratings Services (or such similar equivalent rating by at least one "nationally recognized statistical rating organization" (as defined in Rule 436 under the Securities Act)) and issued by a corporation that is not an Affiliate of the Company; (vi) any banker's acceptance or money market deposit accounts issued or offered by an Eligible Institution; (vii) repurchase obligations with a term of not more than seven days for U.S. Government Obligations entered 18 12 into with an Eligible Institution; (viii) any obligations of the Trustee to the extent such obligations qualify as such under clauses (i) through (vii) above and (ix) any fund investing exclusively in investments of the types described in clauses (i) through (viii) above. "Maturity", when used with respect to any Notes, means the date on which the principal of such Notes or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or otherwise. "Maturity Date" means January 15, 2008. "Merger" means the merger of FaciliCom with and into the Company pursuant to the Agreement and Plan of Merger dated August 17, 1999 between the Company and FaciliCom. "Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of (i) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale, (ii) provisions for all taxes payable as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole (after taking into account any available offsetting tax credits or deductions and any tax sharing arrangements), (iii) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (A) is secured by a Lien on the property or assets sold or (B) is required to be paid as a result of such sale and (iv) appropriate amounts to be provided by the Company or any Restricted Subsidiary of the Company as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP, and (b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or cash equivalents, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or cash equivalents (except to the extent such obligations are financed or sold with recourse to the Company or any Restricted Subsidiary of the Company) and proceeds from the conversion of other property received when converted to cash or cash equivalents, net of attorneys' fees, accountants' fees, underwriters' or placement agents' fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. "Notes" means any of the Notes as defined in the first recital of this Indenture and more particularly means any Notes authenticated and delivered under this Indenture. "Offer Payment Date" has the meaning specified in Section 1017. 19 13 "Offer to Purchase" has the meaning specified in Section 1017. "Offer to Purchase Payment" has the meaning specified in Section 1017. "Officer's Certificate" means a certificate signed by the chairman, the president, a Vice President, the treasurer, an assistant treasurer, the secretary or an assistant secretary of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, and who shall be acceptable to the Trustee. "Original Indenture" means the Indenture, dated as of January 28, 1998, among FaciliCom and the FaciliCom Trustee, as supplemented by the First Supplemental Indenture thereto, pursuant to which FaciliCom issued the FaciliCom Notes. "Original Issue Date" means January 28, 1998, the date FaciliCom issued the FaciliCom Notes. "Outstanding", when used with respect to Notes, means, as of the date of determination, all Notes theretofore authenticated and delivered under this Indenture, except: (i) Notes theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (ii) Notes, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Notes; provided that, if such Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (iii) Notes, except to the extent provided in Sections 1302 and 1303, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Thirteen; and (iv) Notes which have been paid pursuant to Section 306 or in exchange for or in lieu of which other Notes have been authenticated and delivered pursuant to this Indenture, other than any such Notes in respect of which there shall have been presented to the Trustee proof satisfactory to it that such Notes are held by a bona fide purchaser in whose hands the Notes are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Notes have given any request, demand, authorization, direction, consent, notice or waiver hereunder, and for the purpose of making the calculations required by Section 313 of the TIA, Notes owned by the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making such calculation or in 20 14 relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Notes which the Trustee actually knows to be so owned shall be so disregarded. Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Notes and that the pledgee is not the Company or any other obligor upon the Notes or any Affiliate of the Company or such other obligor. "Participant" means, with respect to the Depositary or its nominee, an institution that has an account therewith. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of (and premium, if any) or interest on any Notes on behalf of the Company. The initial Paying Agent shall be the Trustee. "Payment Account" has the meaning specified in Section 402. "Permitted Business" means any business involving voice, data and other telecommunications services or equipment. "Permitted Indebtedness" has the meaning specified in Section 1011(b). "Permitted Investment" means (i) an Investment in a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into, or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary; (ii) any Investment in Marketable Securities or Pledged Securities; (iii) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; (iv) loans or advances to officers and employees made in the ordinary course of business that do not in the aggregate exceed $1 million at any time outstanding; (v) stock, obligations or securities received in satisfaction of judgments; (vi) Investments in any Person received as consideration for Asset Sales to the extent permitted under Section 1017; (vii) Investments in any Person at any one time outstanding (measured on the date each such Investment was made without giving effect to subsequent changes in value) in an aggregate amount not to exceed the greater of (A) $15 million or (B) 5% of the Company's total consolidated assets; (viii) Investments in deposits with respect to leases or utilities provided to third parties in the ordinary course of business; (ix) Investments in Currency Agreements and Interest Rate Agreements on commercially reasonable terms entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in connection with the operation of the business of the Company or its Restricted Subsidiaries; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder; (x) repurchases or redemptions by the Company of Capital Stock from officers and other employees of the Company or any of its Subsidiaries or their authorized representatives upon the death, disability or termination of employment of such individuals, in an aggregate amount not exceeding $1 million in any calendar year and $3 million from the date of this Indenture; and (xi) Investments in evidences of Indebtedness, securities or other property received from another Person by the Company or any of its Restricted Subsidiaries in connection with any bankruptcy proceeding or by reason of a composition or readjustment of debt or a reorganization of such 21 15 Person or as a result of foreclosure, perfection or enforcement of any Lien in exchange for evidences of Indebtedness, securities or other property of such Person held by the Company or any of its Subsidiaries, or for other liabilities or obligations of such Person to the Company or any of its Subsidiaries that were created, in accordance with the terms of this Indenture. "Permitted Liens" means (i) Liens for taxes, assessments, governmental charges or claims that are being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (ii) statutory Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; (iv) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers' acceptances, surety and appeal bonds, government contracts, performance and return-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities that do not materially interfere with the ordinary course of business of the Company or any of its Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof) upon real or personal property purchased or leased after the Original Issue Date; provided that (a) such Lien is created solely for the purpose of securing Indebtedness Incurred in compliance with Section 1011 (1) to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property or (2) to refinance any Indebtedness previously so secured, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; (vii) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; (ix) any interest or title of a lessor in the property subject to any Capitalized Lease Obligation or operating lease; (x) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xi) Liens on property of, or on shares of stock or Indebtedness of, any corporation existing at the time such corporation becomes, or becomes a part of, any Restricted Subsidiary; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired and were not created in contemplation of such transaction; (xii) Liens in favor of the Company or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary of the Company that does not give rise to an Event of Default; (xiv) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; (xv) Liens in favor of customs and revenue authorities 22 16 arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (xvi) Liens encumbering customary initial deposits and margin deposits and other Liens that are either within the general parameters customary in the industry or incurred in the ordinary course of business, in each case, securing Indebtedness under Interest Rate Agreements and Currency Agreements; (xvii) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business in accordance with the past practices of the Company and its Restricted Subsidiaries prior to the Exchange Date; (xviii) Liens existing on the Original Issue Date or securing the Notes or the FaciliCom Notes or any Guarantee of the Notes or the FaciliCom Notes; (xix) Liens granted after the Exchange Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the Holders; (xx) Liens securing Indebtedness which is incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (viii) of paragraph (b) of Section 1011; provided that such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; and (xxi) Liens securing Indebtedness under Credit Facilities incurred in compliance with clause (iii), or securing Indebtedness to finance the cost of Telecommunication Assets under clause (iv) of paragraph (b) of Section 1011. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Account" means an account established with the Trustee in its name as Trustee hereunder pursuant to the terms of the Pledge Agreement for the deposit of the Pledged Securities. "Pledge Agreement" means the Collateral Pledge and Security Agreement, dated as of the date of this Indenture, from the Company to the Trustee, governing the Pledge Account and the disbursement of funds therefrom. "Pledged Securities" means the FaciliCom Pledged Securities or portion thereof which are to be transferred from the FaciliCom Pledge Account to, and deposited in, the Pledge Account pursuant to the Pledge Agreement. The Pledged Securities may be held in book-entry form through the Trustee acting as securities intermediary. "Predecessor Note" of any particular Note means every previous Note evidencing all or a portion of the same debt as that evidenced by such particular Note; and, for the purposes of this definition, any Note authenticated and delivered under Section 306 in exchange for a mutilated security or in lieu of a lost, destroyed or stolen Note shall be deemed to evidence the same debt as the mutilated, lost, destroyed or stolen Note. "Preferred Stock" means, with respect to any Person, any and all shares, interests, participations, rights or other equivalents (however designated, whether voting or non-voting) of such Person's preferred or preference stock, whether now outstanding or issued after the date of the Indenture, including, without limitation, all series and classes of such preferred or preference stock. 23 17 "Pro Forma Consolidated Cash Flow" means, for any period, the Consolidated Cash Flow of the Company for such period calculated on a pro forma basis to give effect to any Asset Disposition or Asset Acquisition not in the ordinary course of business (including acquisitions of other Persons by merger, consolidation or purchase of Capital Stock) during such period as if such Asset Disposition or Asset Acquisition had taken place on the first day of such period. "Public Equity Offering" means an underwritten primary public offering of Common Stock of the Company pursuant to an effective registration statement under the Securities Act. "Purchase Money Indebtedness" means the principal of, premium, if any, and interest on, and any other payment obligations in respect of, any Indebtedness of the Company incurred to finance the purchase of plant, property, equipment, machinery or similar assets (including, without limitation, indebtedness for money borrowed for such purpose and indebtedness in respect of installment payment arrangements). "Purchase Price" has the meaning set forth in Section 1010. "Redeemable Stock" means any class or series of Capital Stock of any Person that by its terms (or by the terms of any security into which it is exchangeable) or otherwise is (i) required to be redeemed on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of such class or series of Capital Stock at any time on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes or (iii) convertible into or exchangeable for Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a scheduled maturity on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes; provided that any Capital Stock that would not constitute Redeemable Stock but for provisions thereof giving holders thereof the right to require such Person to repurchase or redeem such Capital Stock upon the occurrence of an "asset sale" or "change of control" occurring on or prior to the date that is 123 days after the date of the Stated Maturity of the Notes shall not constitute Redeemable Stock if the "asset sale" or "change of control" provisions applicable to such Capital Stock are no more favorable to the holders of such Capital Stock than the provisions contained in Sections 1010 and 1017 and such Capital Stock specifically provides that such Person will not repurchase or redeem any such stock pursuant to such provisions, on or prior to the date that is 123 days after the date of the Company's repurchase of such Notes as are required to be repurchased pursuant to Sections 1010 and 1017. "Redemption Date", when used with respect to any Note to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price", when used with respect to any Note to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture. "Register" and "Registrar" have the respective meanings specified in Section 305. "Regular Record Date" for the interest payable on any Interest Payment Date means the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. 24 18 "Responsible Officer", when used with respect to the Trustee, means any officer of its corporate trust department or similar group having direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payments" has the meaning specified in Section 1012. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale-Leaseback Transaction" of any person means an arrangement with any lender or investor or to which such lender or investor is a party providing for the leasing by such person of any property or asset of such person which has been or is being sold or transferred by such person after the acquisition thereof or the completion of construction or commencement of operation thereof to such lender or investor or to any person to whom funds have been or are to be advanced by such lender or investor on the security of such property or asset. The stated maturity of such arrangement shall be the date of the last payment of rent or any other amount due under such arrangement prior to the first date on which such arrangements may be terminated by the lessee without payment of a penalty. "Securities Act" means the Securities Act of 1933, as amended. "Senior Preferred Stock" has the meaning specified in Section 1012. "Significant Subsidiary" means a Restricted Subsidiary that is a "significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities Act and the Exchange Act. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307. "Stated Maturity" means (i) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (ii) with respect to any scheduled installment of principal of or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" means, with respect to any Person, any corporation, association or other business entity including, without limitation, partnerships and limited liability companies, of which more than 50% of the outstanding Voting Stock is owned, directly or indirectly, by such Person and one or more other Subsidiaries of such Person. "Telecommunications Assets" means, with respect to any Person, equipment used in the telecommunications business or ownership rights with respect to IRUs, MAOUs or minimum investment units (or similar ownership interests) in fiber optic cable and international or domestic telecommunications switches or other transmission facilities (or Common Stock of a 25 19 Person that becomes a Restricted Subsidiary, the assets of which consist primarily of any such Telecommunications Assets), in each case purchased or acquired through Incurring Indebtedness, provided that such Indebtedness does not exceed the Fair Market Value of such assets, by the Company or a Restricted Subsidiary after the Original Issue Date. "Tested Transaction" has the meaning stated in the definition of "United States Dollar Equivalent". "The 1818 Fund" has the meaning specified in Section 1012. "TMG" means Telecommunications Management Group, Inc. "Total Equity Market Capitalization" of any Person means, as of any date of determination, the product of (i) the aggregate number of outstanding shares of Common Stock of such Person on such date on a fully-diluted basis and (ii) the average closing price of such Common Stock over the five consecutive trading days immediately preceding such date. If no closing price exists with respect to shares of any such class, the value of such shares shall be determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. "Trade Payables" means any accounts payable or any other indebtedness or monetary obligation to trade creditors created, assumed or Guaranteed by the Company or any of its Restricted Subsidiaries arising in the ordinary course of business in connection with the acquisition of goods and services. "Transaction Date" means, with respect to the Incurrence of any Indebtedness by the Company or any of its Restricted Subsidiaries, the date such Indebtedness is to be Incurred and, with respect to any Restricted Payment, the date such Restricted Payment is to be made. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939 as in force at the date as of which this Indenture was executed, except as provided in Section 905. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Uniform Commercial Code" means the Uniform Commercial Code as in effect in New York State. "United States Dollar Equivalent" means, with respect to any monetary amount in a currency other than the United States dollar, at any time for the determination thereof, the amount of United States dollars obtained by converting such foreign currency involved in such computation into United States dollars at the spot rate for the purchase of United States dollars with the applicable foreign currency as quoted by Reuters at approximately 11:00 a.m. (New York City time) on the date not more than two business days prior to such determination. For purposes of determining whether any Indebtedness can be incurred (including Permitted Indebtedness), any Investment can be made and any transaction described in Section 1015 can be undertaken (a "Tested Transaction"), the United States Dollar Equivalent of such Indebtedness, 26 20 Investment or transaction described in Section 1015 will be determined on the date Incurred, made or undertaken and no subsequent change in the United States Dollar Equivalent shall cause such Tested Transaction to have been Incurred, made or undertaken in violation of this Indenture. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Restricted Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary; provided (A) that the Subsidiary to be so designated has total assets of $1,000 or less or (B) if such Subsidiary has assets greater than $1,000, that such designation would be permitted under Section 1012, and such Subsidiary is not liable, directly or indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the first paragraph of Section 1011 and (y) no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Unrestricted Subsidiary Indebtedness" means Indebtedness of any Unrestricted Subsidiary (i) as to which neither the Company nor any Restricted Subsidiary is directly or indirectly liable (by virtue of the Company or any such Restricted Subsidiary being the primary obligor on, guarantor of, or otherwise liable in any respect to, such Indebtedness), and (ii) which, upon the occurrence of a default with respect thereto, does not result in, or permit any holder of any Indebtedness of the Company or any Restricted Subsidiary to declare, a default on such Indebtedness of the Company or any Restricted Subsidiary or cause the payment thereof to be accelerated or payable prior to its Stated Maturity. "U.S. Government Obligations" has the meaning specified in Section 1304. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" means with respect to any Person, Capital Stock of any class or kind ordinarily having the power to vote for the election of directors, managers or other voting members of the governing body of such Person. "Wholly Owned", with respect to any Subsidiary, means a Subsidiary of the Company if all of the outstanding Capital Stock in such Subsidiary (other than any director's qualifying shares or Investments by foreign nationals mandated by applicable law) is owned by the Company or one or more Wholly Owned Subsidiaries of the Company. "World Access Charitable Trust" means that certain World Access Charitable Trust dated August 19, 1999, by and between World Access Investment Corp., a Delaware 27 21 corporation, and Clay C. Long, Esq., as trustee, in favor of World Access Foundation, Inc., a Georgia nonprofit corporation. SECTION 102. Compliance Certificates and Opinions. Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture (including any covenant compliance with which constitutes a condition precedent) relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 1008(a)) shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 103. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or 28 22 officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 104. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by agents duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner that the Trustee deems sufficient. (c) The principal amount and serial numbers of Notes held by any Person, and the date of holding the same, shall be proved by the Register. (d) If the Company shall solicit from the Holders of Notes any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board Resolution, fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act, but the Company shall have no obligation to do so. Notwithstanding TIA Section 316(c), such record date shall be the record date specified in or pursuant to such Board Resolution, which shall be a date not earlier than the date 30 days prior to the first solicitation of Holders generally in connection therewith and not later than the date such solicitation is completed. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of Outstanding Notes have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or 29 23 other Act, and for that purpose the Outstanding Notes shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than eleven months after the record date. (e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 105. Notices, Etc., to Trustee, Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this Indenture, or at any other address previously furnished in writing to the Trustee by the Company. SECTION 106. Notice to Holders; Waiver. Where this Indenture provides for notice of any event to Holders by the Company or the Trustee, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice mailed to a Holder in the manner herein prescribed shall be conclusively deemed to have been received by such Holder, whether or not such Holder actually receives such notice. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case by reason of the suspension of or irregularities in regular mail service or by reason of any other cause, it shall be impracticable to mail notice of any event to Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. 30 24 SECTION 107. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 108. Successors and Assigns. All covenants and "agreements" in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 109. Separability Clause. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 110. Benefits of Indenture. Nothing in this Indenture or in the Notes, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Notes Registrar and their successors hereunder, and the Holders, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 111. Governing Law. This Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York. This Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of this Indenture and shall, to the extent applicable, be governed by such provisions. Each of the parties hereto submits to the jurisdiction of the U.S. federal and any New York state court located in the Borough of Manhattan, The City and State of New York with respect to any actions brought against it as defendant in any suit, action or proceeding arising out of or relative to this Indenture or the Notes and waives any rights to which it may be entitled on account of place of residence or domicile. SECTION 112. Legal Holidays. In any case where any Interest Payment Date, Redemption Date, sinking fund payment date or Stated Maturity or Maturity of any Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Notes) payment of principal (or premium, if any) or interest need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, Redemption Date or sinking fund payment date, or at the Stated Maturity or Maturity; provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or Maturity, as the case may be. 31 25 ARTICLE TWO NOTE FORMS SECTION 201. Forms Generally. The Notes and the Trustee's certificate of authentication shall be substantially in the form annexed hereto as Exhibit A with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange agreements to which the Company is subject or usage. The Company shall approve the form of the Notes and any notation, legend or endorsement on the Notes. The terms and provisions contained in the form of the Notes annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a part of this Indenture. To the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. Notes shall be issued initially in the form of one or more permanent global Notes in registered form, substantially in the form set forth in Exhibit A (the "Global Notes"), registered in the name of the Depositary or the nominee of the Depositary, deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. Ownership of beneficial interests in Global Notes will be limited to Participants or Indirect Participants. The definitive Notes shall be typed, printed, lithographed or engraved or produced by any combination of these methods or may be produced in any other manner permitted by the rules of any securities exchange on which the Notes may be listed, all as determined by the officers executing such Notes, as evidenced by their execution of such Notes. SECTION 202. Restrictive Legends. Each Global Note shall bear the following legend on the face thereof: UNLESS THIS CERTIFICATE IS PRESENTED, BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. 32 26 TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTION 311 OF THE INDENTURE. ARTICLE THREE THE NOTES SECTION 301. Title and Terms. The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $300,000,000, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 303, 304, 305, 306, 906, 1010, 1017 or 1108. The Notes shall be known and designated as the "13.25% Senior Notes due 2008" of the Company. The Stated Maturity of the principal of the Notes shall be January 15, 2008 and they shall bear interest at the rate of 13.25% per annum, payable on January 15 and July 15 of each year, commencing on January 15, 2000 (or July 15, 2000, if the Exchange Date does not occur prior to January 1, 2000), until the principal thereof is paid or duly provided for. Interest on the Notes will accrue from the most recent Interest Payment Date for which interest has been paid or, if no interest has been paid, from the Exchange Date. The principal of (and premium, if any) and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose pursuant to Section 1002, or, at the option of the Company, interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Register; provided that all payments with respect to the Global Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. The Notes shall be redeemable as provided in Article Eleven. SECTION 302. Denominations. The Notes shall be issuable only in registered form without coupons and only in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. The Notes shall be executed on behalf of the Company by its chairman, its president, chief financial officer or any Vice President. The signature of any of these officers on 33 27 the Notes may be manual or facsimile signatures of the present or any future such authorized officer and may be imprinted or otherwise reproduced on the Notes. Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Notes executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Notes directing the Trustee to authenticate the Notes and certifying that all conditions precedent to the issuance of Notes contained herein have been fully complied with, and the Trustee in accordance with such Company Order shall authenticate and deliver such Notes. The Trustee shall be entitled to receive an Officer's Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Notes. Such order shall specify the amount of Notes to be authenticated and the date on which the original issue of Notes is to be authenticated. Each Note shall be dated the date of its authentication. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication, substantially in the form provided for in Exhibit A, duly executed by the Trustee by manual signature of an authorized officer, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, pursuant to Article Eight, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of its properties and assets substantially as an entirety in a transaction or a series of transactions to any Person, and the successor Person resulting from such consolidation, or surviving such merger, or into which the Company shall have been merged, or the Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Notes executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Notes surrendered for such exchange and of like principal amount; and the Trustee, upon Company Request of the successor Person, shall authenticate and deliver Notes as specified in such request for the purpose of such exchange. If Notes shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. 34 28 SECTION 304. Temporary Notes. Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company shall cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 1002 without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 305. Registration, Registration of Transfer and Exchange. The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and of transfers of Notes. The Register shall be in written form or any other form capable of being converted into written form within a reasonable time. At all reasonable times, the Register shall be open to inspection by the Trustee. The Trustee is hereby initially appointed as security registrar (the "Registrar") for the purpose of registering Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations of a like aggregate principal amount. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange 35 29 shall be duly endorsed and be accompanied by a written instrument of transfer, in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange or redemption of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Notes, other than exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any transfer. The Company shall not be required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the selection of Notes to be redeemed under Section 1104 and ending at the close of business on the day of such mailing of the relevant notice of redemption, or (ii) to register the transfer of or exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes. If (i) any mutilated Note is surrendered to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and there is delivered to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, then, in the absence of notice to the Company or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section 306, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Note issued pursuant to this Section 306 in lieu of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, whether or not the mutilated, destroyed, lost or stolen Note shall be at any time enforceable by anyone, and shall be entitled to all benefits of this Indenture equally and proportionately with any and all other Notes duly issued hereunder. The provisions of this Section 306 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes. 36 30 SECTION 307. Payment of Interest; Interest Rights Preserved. Interest on any Note which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Note (or Predecessor Notes) is registered at the close of business on the Regular Record Date (or if a Predecessor Note is outstanding on such Regular Record Date, such Predecessor Note) for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002 or, at the option of the Company, interest may be paid by check mailed to the address of the Person entitled thereto as such address shall appear on the Register; provided that all payments with respect to Global Notes the Holders of which have given wire transfer instructions to the Company will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Any interest on any Note which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the Holder on the Regular Record Date by virtue of having been such Holder, and such defaulted interest and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") may be paid by the Company, at its election in each case, as provided in clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on a special record date ("Special Record Date") for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Note and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be given in the manner provided for in Section 106 not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so given, such Defaulted Interest shall be paid to the Persons in whose names the Notes (or their respective Predecessor Notes) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. 37 31 Subject to the foregoing provisions of this Section 307, each Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 308. Persons Deemed Owners. Prior to the due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 307) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 309. Cancellation. All Notes surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to, and promptly cancelled by, the Trustee. The Company may at any time deliver to the Trustee for cancellation any Notes previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Notes previously authenticated hereunder which the Company has not issued and sold, and all Notes so delivered shall be promptly cancelled by the Trustee. If the Company shall so acquire any of the Notes, however, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Notes unless and until the same are surrendered to the Trustee for cancellation. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Notes be returned to it after being appropriately designated as cancelled. SECTION 310. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 311. Book-Entry Provisions for Global Notes. (a) Each Global Note initially shall (i) be registered in the name of the Depositary for such Global Notes or the nominee of such Depositary, (ii) be delivered to the Trustee as custodian for such Depositary and (iii) bear legends as set forth in Section 202. Except as provided in Section 311(b), owners of beneficial interests in the Global Notes will not have Notes registered in their names, will not receive physical delivery of Notes in 38 32 certificated form and will not be considered the registered owner or Holder thereof under this Indenture for any purpose. Members of, or Participants in, the Depositary shall have no rights under this Indenture with respect to any Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants, the operation of customary practices governing the exercise of the rights of a beneficial owner of any Note. The registered Holder of a Global Note may grant proxies and otherwise authorize any person, including Participants and persons that may hold interests through Participants, to take any action which a Holder is entitled to take under this Indenture or the Notes. (b) Interests of beneficial owners in a Global Note may be transferred in accordance with the applicable rules and procedures of the Depositary. Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, a nominee of the Depositary, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred in accordance with the rules and procedures of the Depositary. Notes in certificated form shall be transferred to beneficial owners in exchange for their beneficial interests in the Global Note, as the case may be, if (i) the Depositary (A) notifies the Company that it is unwilling or unable to continue as depository for the Global Notes and the Company thereupon fails to appoint a successor depository or (B) has ceased to be a clearing agency registered under the Exchange Act; (ii) there shall have occurred and be continuing an Event of Default with respect to the Notes; or (iii) the Company, at its option, notifies the Trustee in writing that it elects to cause issuance of the Notes in certificated form. In connection with a transfer of an entire Global Note to beneficial owners pursuant to clause (i), (ii) or (iii) of this paragraph (b), the applicable Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depositary in exchange for its beneficial interest in the applicable Global Note, an equal aggregate principal amount of certificated notes of authorized denominations. ARTICLE FOUR SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture. This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes as expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (1) either 39 33 (A) All Notes theretofore authenticated and delivered (other than (i) Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Notes for whose payment money has theretofore been deposited in trust with the Trustee or any Paying Agent or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Notes not theretofore delivered to the Trustee for cancellation (other than Notes which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306) (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose in an amount sufficient to pay and discharge the entire Indebtedness on such Notes not theretofore delivered to the Trustee for cancellation, for principal (and premium, if any) and interest to the date of such deposit (in the case of Notes which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be, together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at Stated Maturity or redemption, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 606 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive. SECTION 402. Application of Trust Money On or prior to the effective date of this Indenture, the Trustee shall establish a 40 34 segregated, non-interest bearing corporate trust account (the "Payment Account") maintained by the Trustee for the benefit of the Holders in which all amounts paid to the Trustee for the benefit of the Holders in respect of the Notes will be held (except for amount designated to be deposited into the Pledge Account) and from which the Trustee (if the Trustee is the Paying Agent) shall make payments to the Holders in accordance with this Indenture and the Notes. Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 and otherwise pursuant to this Indenture shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE FIVE REMEDIES SECTION 501. Events of Default. "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of any interest on any Note when due and payable as to any Interest Payment Date falling on or prior to January 15, 2001; or (2) default in the payment of interest on any Note when due and payable as to any Interest Payment Date following after January 15, 2001, and any such failure continued for a period of 30 days; or (3) default in the payment of the principal of (or premium, if any, on) any Note at its Stated Maturity, upon acceleration, redemption or otherwise; or (4) default in the payment of principal or interest on any Note required to be purchased pursuant to an Offer to Purchase or an Excess Proceeds Offer as described in Section 1017 or pursuant to a Change of Control Offer as described in Section 1010; or (5) failure to perform or comply with the provisions of Section 801; or (6) default in the performance or breach of any covenant or agreement of the Company in this Indenture or under the Notes (other than a default in the performance, or breach, of a covenant or agreement which is specifically dealt with elsewhere in this Section), and continuance of such default or breach for a period of 30 consecutive days after there has been given to the Company by the Trustee or the Holders of at least 25% or more in aggregate principal amount of the Notes then Outstanding a written notice specifying such default or breach; or 41 35 (7) (A) there shall have occurred with respect to any issue or issues of Indebtedness of the Company or any Restricted Subsidiary having an outstanding principal amount of $5 million or more in the aggregate for all such issues of all such Persons, whether such Indebtedness now exists or shall hereafter be created, (B) an event of default that has caused the Holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled by the expiration of any applicable grace period and/or (C) the failure to make a principal payment at the final (but not any interim) fixed Maturity Date thereon and such defaulted payment shall not have been made, waived or extended by the expiration of any applicable grace period; or (8) any final judgment or order (not covered by insurance) for the payment of money in excess of $5 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Restricted Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $5 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (9) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company or any of its Significant Subsidiaries in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Subsidiaries or (C) the winding up or liquidation of the affairs of the Company or any of its Significant Subsidiaries and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; or (10) the Company or any of its Significant Subsidiaries (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company or any of its Significant Subsidiaries or for all or substantially all of the property and assets of the Company or any of its Significant Subsidiaries or (C) effects any general assignment for the benefit of creditors; or (11) the Company asserts in writing that the Pledge Agreement ceases to be in full force and effect before payment in full of the obligations thereunder. 42 36 SECTION 502. Acceleration of Maturity; Rescission and Annulment. If an Event of Default (other than an Event of Default specified in Section 501(9) or 501(10)) occurs and is continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Notes Outstanding by a notice in writing to the Company (and to the Trustee if such notice given by such Holders), may, and the Trustee at the request of such Holders shall, declare the principal of, premium, if any, and accrued but unpaid interest on all the Notes to be immediately due and payable. Upon any such declaration of acceleration, such principal of, premium, if any, and accrued interest shall become immediately due and payable. If an Event of Default specified in Section 501(9) or 501(10) occurs, then the principal of, premium, if any, and accrued interest shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. At any time after a declaration of acceleration has been made, the Holders of at least a majority in aggregate principal amount of the Notes Outstanding, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (1) all existing Events of Default, other than the nonpayment of amounts of principal of, premium, if any, and accrued and unpaid interest on the Notes which have become due solely by such declaration of acceleration, have been cured or waived subject to the limitations set forth in Section 513; and (2) the rescission, in the opinion of counsel, would not conflict with any judgment or decrees of a court of competent jurisdiction. No such rescission shall affect any subsequent default or impair any right consequent thereon. Notwithstanding the preceding paragraph, in the event of a declaration of acceleration in respect of the Notes because an Event of Default specified in Section 501(7) shall have occurred and be continuing, such declaration of acceleration shall be automatically annulled if the Indebtedness that is the subject of such Event of Default has been discharged or the Holders thereof have rescinded their declaration of acceleration in respect of such Indebtedness, and written notice of such discharge or rescission, as the case may be, shall have been given to the Trustee by the Company and countersigned by the Holders of such Indebtedness or a trustee, fiduciary or agent for such Holders, within 60 days after such declaration of acceleration in respect of the Notes, and no other Event of Default has occurred during such 60-day period which has not been cured or waived during such period. SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (a) default is made in the payment of any installment of interest on any Note when such interest becomes due and payable and such default continues for a period of 30 days, or 43 37 (b) default is made in the payment of the principal of (or premium, if any, on) any Note at the Maturity thereof, the Company shall pay to the Trustee for the benefit of the Holders of such Notes, the whole amount then due and payable on such Notes for principal (and premium, if any) and interest, and interest on any overdue principal (and premium, if any) and, to the extent that payment of such interest shall be legally enforceable, upon any overdue installment of interest at the rate borne by the Notes, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, fees expenses, disbursements and advances of the Trustee, its agents and counsel. If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Notes, wherever situated. If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 504. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Notes shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove a claim for the whole amount of principal (and premium, if any) and interest owing and unpaid in respect of the Notes and to file such other papers or documents and take other actions as the Trustee may deem necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly 44 38 to the Holders, to pay the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 606. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 505. Trustee May Enforce Claims Without Possession of Notes. All rights of action and claims under this Indenture or the Notes may be prosecuted and enforced by the Trustee without the possession of any of the Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name and as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, fees, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal (or premium, if any) or interest, upon presentation of the Notes and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 606; SECOND: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the Notes in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Notes for principal (and premium, if any) and interest, respectively; and THIRD: The balance, if any, to the Person or Persons entitled thereto. SECTION 507. Limitation on Suits. Except to enforce the right to receive payment of principal or premium, if any, or interest when due, no Holder of any Notes shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless the following conditions have been met: (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (2) the Holders of not less than 25% in aggregate principal amount of the 45 39 Outstanding Notes shall have made written request to the Trustee to pursue the remedy in respect of such Event of Default in its own name as trustee hereunder; (3) such Holder or Holders have offered to the Trustee indemnity satisfactory to the Trustee against any costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee has failed to institute any such proceeding for 60 days after its receipt of such notice, request and offer of indemnity; and (5) during such 60-day period, no direction inconsistent with such written request has been given to the Trustee by the Holders of a majority or more in aggregate principal amount of the Outstanding Notes; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Thirteen) and in such Note of the principal of (and premium, if any) and (subject to Section 307) interest on such Note on the respective Stated Maturities expressed in such Note (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment on or after such Stated Maturities, and such rights shall not be impaired without the consent of such Holder. SECTION 509. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. 46 40 SECTION 510. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 511. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 512. Control by Holders. The Holders of not less than a majority in aggregate principal amount of the Outstanding Notes shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee, provided that (1) the Trustee need not take any action that conflicts with law or this Indenture, which might involve the Trustee in personal liability or which, in the good faith determination of the Trustee, may be unduly prejudicial to rights Holders not joining in the giving of such direction, and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 513. Waiver of Past Defaults. The Holders of not less than a majority in aggregate principal amount of the Outstanding Notes may on behalf of the Holders of all the Notes waive any past default hereunder and its consequences, except a default (1) in respect of the payment of the principal of (or premium, if any) or interest on any Note, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Note affected. 47 41 Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 514. Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it shall not hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law had been enacted. ARTICLE SIX THE TRUSTEE SECTION 601. Notice of Defaults. Within 90 days after the occurrence of any Default hereunder, the Trustee shall transmit in the manner and to the extent provided in TIA Section 313(c), notice of such Default hereunder of the Trustee, unless such Default shall have been cured or waived; provided, however, that, except in the case of a Default in the payment of the principal of (or premium, if any) or interest on any Note, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determines that the withholding of such notice is in the interest of the Holders; and provided further that in the case of any Default of the character specified in Section 501(7), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. In case an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. SECTION 602. Certain Rights of Trustee. Subject to the provisions of TIA Sections 315(a) through 315(d): (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by 48 42 the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, may require and rely upon an Officer's Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (9) any permissive right or power available to the Trustee under this Indenture or any supplement hereto shall not be construed to be a mandatory duty or obligation; (10) the Trustee shall not be charged with knowledge of any matter (including any default, other than as described in Section 501(1), (2) or (3)) unless and except to the extent actually known to a Responsible Officer of the Trustee or to the extent written notice thereof is received by the Trustee at the Corporate Trust Office; and 49 43 (11) the Trustee shall have no liability for any inaccuracy in the books or records of, or for any actions or omissions of the Depositary. The Trustee shall not be required to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The Trustee shall not be required to examine any of the reports and documents filed with it pursuant to Sections 703 or 1009 to determine whether or not the Company is in compliance with the covenants set forth at Sections 1010 through 1021. SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes. The recitals contained in this Indenture and in the Notes, except for the Trustees certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Notes and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of Notes or the proceeds thereof. SECTION 604. May Hold Notes. The Trustee, any Paying Agent, any Registrar or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Registrar or such other agent. SECTION 605. Money Held in Trust. Money held by the Trustee in trust hereunder shall be segregated from other funds. The Trustee shall be under no liability for interest on any money received by it hereunder. SECTION 606. Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder and under the Pledge Agreement (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by 50 44 the Trustee in accordance with any provision of this Indenture and under the Pledge Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and (3) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without gross negligence or bad faith on its part, arising out of or in connection with the acceptance and administration of its duties under the Pledge Agreement or the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligations of the Company under this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Trustee shall constitute additional indebtedness hereunder and shall survive the satisfaction and discharge of this Indenture. As security for the performance of such obligations of the Company, the Trustee shall have a claim prior to the Notes upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of (and premium, if any) or interest on particular Notes. When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 501(8) or (9), the expenses (including the reasonable charges and expenses of its counsel) of and the compensation for such services are intended to constitute expenses of administration under any applicable federal or state bankruptcy, insolvency or other similar law; provided, however, that if any such amounts are not paid as expenses of administration, they may be collected by the Trustee as amounts payable to it pursuant to Section 506. The provisions of this Section 606 shall survive the termination of this Indenture. SECTION 607. Corporate Trustee Required; Eligibility. There shall be at all times a Trustee hereunder which shall be eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital and surplus of at least $50 million. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of federal, state, territorial or District of Columbia supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 607, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 608. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 609. 51 45 (b) The Trustee may resign at any time by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 609 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with the provisions of TIA Section 310(b) after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (2) the Trustee shall cease to be eligible under Section 607 and shall fail to resign after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Note for at least six months, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by a Board Resolution, may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in aggregate principal amount of the Outstanding Notes delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Note for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders in the manner provided for in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. 52 46 SECTION 609. Acceptance of Appointment by Successor. Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 610. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder (provided such corporation shall be otherwise qualified and eligible under this Article), without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Notes shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In case at that time any of the Notes shall not have been authenticated, any successor Trustee may authenticate such Notes either in the name of any predecessor hereunder or in the name of the successor Trustee. In all such cases such certificates shall have the full force and effect which this Indenture provides for the certificate of authentication of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor Trustee or to authenticate Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. ARTICLE SEVEN HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Disclosure of Names and Addresses of Holders. Every Holder of Notes, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company or the Trustee or any agent of either of them shall be held accountable by reason of the disclosure of any such information as to the names and 53 47 addresses of the Holders in accordance with TIA Section 312, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under TIA Section 312(b). SECTION 702. Reports by Trustee. Within 60 days after February 15 of each year commencing with the first February 15 after the first issuance of Notes, the Trustee shall transmit to the Holders, in the manner and to the extent provided in TIA Section 313(c), a brief report dated as of such February 15 if required by TIA Section 313(a). SECTION 703. Reports by Company. The Company shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit by mail to all Holders, in the manner and to the extent provided in TIA Section 313(c), within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. 54 48 The Company shall not consolidate with, or merge with or into, or sell, convey, transfer, lease or otherwise dispose of all or substantially all of its property and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person or permit any Person to merge with or into the Company and the Company shall not permit any of its Restricted Subsidiaries to enter into any such transaction or series of transactions if such transaction or series of transactions, in the aggregate, would result in the sale, assignment, conveyance, transfer, lease or other disposition of all or substantially all of the properties and assets of the Company or the Company and its Restricted Subsidiaries, taken as a whole, to any other Person or Persons, unless: (1) either (A) the Company shall be the continuing Person, (B) the Person (if other than the Company) formed by such consolidation or into which the Company is merged or that acquired or leased such property and assets of the Company (i) shall be a corporation organized and validly existing under the laws of the United States of America or any jurisdiction thereof and (ii) shall expressly assume, by an indenture supplemental hereto, duly executed and delivered to the Trustee, all of the obligations of the Company with respect to all the Notes and under this Indenture or (C) in the case of any such transaction or series of transactions entered into by any Restricted Subsidiary, the Person into which the Restricted Subsidiary is merged is another Restricted Subsidiary; (2) immediately after giving effect to such transaction on a pro forma basis, no Default or Event of Default shall have occurred and be continuing; (3) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, shall have a Consolidated Net Worth equal to or greater than the Consolidated Net Worth of the Company immediately prior to such transaction; (4) immediately after giving effect to such transaction on a pro forma basis, the Company, or any Person becoming the successor obligor of the Notes, as the case may be, could Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (5) the Company delivers to the Trustee an Officer's Certificate (attaching the arithmetic computations to demonstrate compliance with clauses (3) and (4) above) and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with; provided, however, that clauses (3) and (4) above shall not apply if, in the good faith determination of the Board of Directors of the Company, whose determination shall be evidenced by a Board Resolution, the principal purpose of such transaction is to change the state of incorporation of the Company; and provided further that any such transaction shall not have as one of its purposes the evasion of the foregoing limitations. SECTION 802. Successor Substituted. Upon any consolidation of the Company with or merger of the Company with or into any other Person or any conveyance, transfer or lease of the properties and assets of the 55 49 Company substantially as an entirety to any Person in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and in the event of any such conveyance or transfer, the Company (which term shall for this purpose mean the Person named as the "Company" in the first paragraph of this Indenture or any successor Person which shall theretofore become such in the manner described in Section 801), except in the case of a lease, shall be discharged of all obligations and covenants under this Indenture and the Notes and may be dissolved and liquidated. SECTION 803. Notes to Be Secured in Certain Events. If, upon any such consolidation of the Company with, or merger of the Company into, any other corporation, or upon any conveyance, lease or transfer of the property of the Company substantially as an entirety to any other Person, any property or assets of the Company would thereupon become subject to any Lien, then unless such Lien could be created pursuant to Section 1016 without equally and ratably securing the Notes, the Company, prior to or simultaneously with such consolidation, merger, conveyance, lease or transfer, will, as to such property or assets, secure the Notes Outstanding (together with, if the Company shall so determine any other Indebtedness of the Company now existing or hereinafter created which is not subordinate in right of payment to the Notes) equally and ratably with (or prior to) the Indebtedness which upon such consolidation, merger, conveyance, lease or transfer is to become secured as to such property or assets by such Lien, or shall cause such Notes to be so secured. ARTICLE NINE SUPPLEMENTAL INDENTURES SECTION 901. Supplemental Indentures Without Consent of Holders. Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Notes; or (2) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; or (3) to add any additional Events of Default; or (4) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 609; or 56 50 (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or (6) to secure the Notes pursuant to the requirements of Section 803 or Section 1016 or otherwise. SECTION 902. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Notes, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Note affected thereby: (i) change the Stated Maturity of the principal of, or any installment of interest on, any Note; (ii) reduce the principal amount of, or premium, if any, or interest on any Note or extend the time for payment of interest on, or alter the redemption provisions of, any Note; (iii) change the place or currency of payment of principal of, or premium, if any, or interest on any Note; (iv) impair the right of any Holder to receive payment of, principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the Redemption Date) of any Note; (v) reduce the percentage of Outstanding Notes the consent of whose Holders is necessary to modify, amend, waive, supplement or consent to take any action under this Indenture or the Notes; (vi) waive a default in the payment of principal of, premium, if any, or accrued and unpaid interest on the Notes; (vii) reduce or change the rate or time for payment of interest on the Notes; (viii) [Reserved] (ix) modify any provisions of any Guarantees in a manner adverse to the Holders; or 57 51 (x) modify any provisions of this Section 902 or Sections 513 and 1022, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Note affected thereby. It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 903. Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustees own rights, duties or immunities under this Indenture or otherwise. SECTION 904. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 905. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to the Article shall conform to the requirements of the Trust Indenture Act as then in effect. SECTION 906. Reference in Notes to Supplemental Indentures. Notes authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Notes so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and upon Company Order authenticated and delivered by the Trustee in exchange for Outstanding Notes. SECTION 907. Notice of Supplemental Indentures. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to the Holders of each Outstanding Note affected thereby, in the manner provided for in Section 106, setting forth in general terms the substance of such supplemental indenture. 58 ARTICLE TEN COVENANTS SECTION 1001. Payment of Principal, Premium, if Any, and Interest. The Company covenants and agrees for the benefit of the Holders that it shall duly and punctually pay the principal of (and premium, if any) and interest on the Notes in accordance with the terms of the Notes and this Indenture. SECTION 1002. Maintenance of Office or Agency. The Company shall maintain in The City of New York, an office or agency where Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The office of the Trustee located at 40 Broad Street, Suite 550, New York, New York 10004 shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. In addition, the Company shall maintain an office or agency where the Notes may be presented or surrendered for payment (which shall be the Corporate Trust Office of the Trustee, unless the Company shall designate and maintain some other office or agency for one or more such purposes). The Company shall give prompt written notice to the Trustee of any change in the location of any such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind any such designation; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and any change in the location of any such other office or agency. SECTION 1003. Money for Note Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, it shall, on or before each due date of the principal of (or premium, if any) or interest on any of the Notes, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal of (or premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for the Notes, it 59 shall, on or before each due date of the principal of (or premium, if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of such action or any failure so to act. The Company shall cause each Paying Agent (other than the Trustee) to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section 1003, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of (and premium, if any) or interest on Notes in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium, if any) or interest on the Notes; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest on any Note and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in the Borough of Manhattan, The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining shall be repaid to the Company. SECTION 1004. Corporate Existence. Subject to Article Eight, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect the corporate existence (or in the case of 60 its Subsidiaries, existence under the applicable statutes for non-corporate business entities such as partnerships and limited liability companies), rights (charter and statutory) and franchises of the Company and each Subsidiary; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries as a whole and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 1005. Payment of Taxes and Other Claims. The Company shall pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any Subsidiary or upon the income, profits or property of the Company or any Subsidiary and (b) all lawful claims for labor, materials and supplies, which, if unpaid, might by law become a lien (other than a Permitted Lien) upon the property of the Company or any Subsidiary; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. SECTION 1006. Maintenance of Properties. The Company shall cause all properties owned by the Company or any Subsidiary or used or held for use in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the maintenance of any of such properties if such discontinuance is, in the judgment of the Company, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 1007. Insurance. The Company shall at all times keep all of its and its Subsidiaries properties which are of an insurable nature insured with insurers, believed by the Company to be responsible, against loss or damage to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties. SECTION 1008. Statement by Officers as to Default. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officer's Certificate from the principal executive officer, principal financial officer or principal accounting officer to the effect that a review has been conducted of the activities of the Company and the Company's performance under this Indenture, and that the Company has fulfilled its obligations thereunder or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. For purposes of this Section 1008(a), such compliance shall be determined without regard to any 61 period of grace or requirement of notice under this Indenture. (b) When any Default has occurred and is continuing under this Indenture, or if the trustee for or the Holder of any other evidence of Indebtedness of the Company or any Subsidiary gives any notice or takes any other action with respect to a claimed default (other than with respect to Indebtedness in the principal amount of less than $1,000,000) shall deliver to the Trustee by registered or certified mail or by telegram, telex or facsimile transmission an Officer's Certificate specifying such event, notice or other action within five Business Days of its occurrence. SECTION 1009. Provision of Financial Statements and Reports. (a) The Company shall file on a timely basis with the Commission, to the extent such filings are accepted by the Commission and whether or not the Company has a class of securities registered under the Exchange Act, the annual reports, quarterly reports and other documents that the Company would be required to file if it were subject to Section 13 or 15 of the Exchange Act. All such annual reports shall include the geographic segment financial information contemplated by Item 101(d) of Regulation S-K under the Securities Act, and all such quarterly reports shall provide the same type of interim financial information that, as of the date of this Indenture, is the Company"s practice to provide. (b) The Company shall also be required (i) to file with the Trustee, and provide to each Holder, without cost to such Holder, copies of such reports and documents within 15 days after the date on which the Company files such reports and documents with the Commission or the date on which the Company would be required to file such reports and documents if the Company were so required and (ii) if filing such reports and documents with the Commission is not accepted by the Commission or is prohibited under the Exchange Act, to supply at the Company's cost copies of such reports and documents to any prospective Holder promptly upon request. SECTION 1010. Repurchase of Notes upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the Company to repurchase such Holder's Notes in whole or in part (the "Change of Control Offer"), at a purchase price (the "Purchase Price") in cash in an amount equal to 101% of the principal amount thereof, plus accrued and unpaid interest, to the date of purchase (subject to the right of Holders of record to receive interest on the relevant Interest Payment Date) (the "Change of Control Payment") in accordance with the procedures set forth in paragraphs (c) and (d) of this Section. (b) [Reserved] (c) Within 30 days following any Change of Control, the Company shall give to each Holder and the Trustee in the manner provided in Section 106 a notice stating: (i) that a Change of Control has occurred, that the Change of Control Offer is being made pursuant to this Section 1010 and that all Notes validly tendered will be accepted for payment; 62 (ii) the circumstances and relevant facts regarding such Change of Control (including but not limited to information with respect to pro forma historical income, cash flow and capitalization after giving effect to such Change of Control); (iii) the Purchase Price and date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Change of Control Payment Date"); (iv) that any Note not tendered will continue to accrue interest pursuant to its terms; (v) that, unless the Company defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest on and after the Change of Control Payment Date; (vi) that Holders electing to have any Note or portion thereof purchased pursuant to the Change of Control Offer will be required to surrender such Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of such Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the Change of Control Payment Date; (vii) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (viii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. (d) [Reserved]. (e) On the Change of Control Payment Date, the Company shall: (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee, all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail, to the 63 Holders so accepted, payment in an amount equal to the purchase price, and the Trustee shall promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. For purposes of this Section 1010, the Trustee shall act as Paying Agent. The Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes a Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements applicable to a Change of Control Offer made by the Company and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in the event that a Change of Control occurs and the Company is required to repurchase the Notes under this Section 1010. SECTION 1011. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate principal amount (or accreted value, as the case may be) of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding as of the Transaction Date to (ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by two, determined on a pro forma basis as if any such Indebtedness had been Incurred and the proceeds thereof had been applied at the beginning of such two fiscal quarters, would be greater than zero and less than 5 to 1. (b) The foregoing limitations of paragraph (a) of this covenant will not apply to any of the following Indebtedness ("Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company evidenced by the Notes or the FaciliCom Notes; (ii) Indebtedness of the Company or any Restricted Subsidiary outstanding on the Exchange Date; (iii) Indebtedness of the Company or any Restricted Subsidiary under one or more Credit Facilities, in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $135.0 million and (y) 80% of Eligible Accounts Receivable at any one time outstanding, subject to any permanent reductions required by any other terms of this Indenture; (iv) Indebtedness of the Company or any Restricted Subsidiary Incurred in connection with or to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of Telecommunications Assets; 64 (v) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (A) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) or (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an Incurrence of Indebtedness by such Restricted Subsidiary, subject to the other provisions of this Indenture; (vi) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right to the payment and performance to the obligations of the Company under this Indenture and the Notes, except that the limitations of paragraph (a) of this Section 1011 shall apply to such Indebtedness at such time as (A) any transfer of such Indebtedness by a Restricted Subsidiary (other than to another Restricted Subsidiary) and (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed such Indebtedness, subject to other provisions of this Indenture; (vii) Indebtedness of the Company or a Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance (whether by amendment, renewal, extension or refunding), then outstanding Indebtedness of the Company or a Restricted Subsidiary, other than Indebtedness Incurred under clauses (iii), (v), (vi), (viii), (ix), (xi) and (xii) of this paragraph, and any refinancings thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, and reasonable fees and expenses); provided that such new Indebtedness shall only be permitted under this clause (vii) if: (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (vii); (viii) Indebtedness of (x) the Company not to exceed, at any one time outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale, other than to a Subsidiary, of Common Stock (other than Redeemable Stock) of the Company (less the amount of such proceeds used to make Restricted Payments as provided in clause (iii) or (iv) of the second paragraph of Section 1012) and (y) the Company or Acquired Indebtedness of a Restricted Subsidiary not to exceed, at one time outstanding, the Fair 65 Market Value of any Telecommunications Assets acquired by the Company in exchange for Common Stock of the Company issued after the Exchange Date; provided, however, that in determining the Fair Market Value of any such Telecommunications Assets so acquired, if the estimated Fair Market Value of such Telecommunications Assets exceeds (A) $2 million (as estimated in good faith by the Board of Directors), then the Fair Market Value of such Telecommunications Assets will be determined by a majority of the Board of Directors of the Company, which determination will be evidenced by a resolution thereof, and (B) $10 million (as estimated in good faith by the Board of Directors), then the Company shall deliver the Trustee a written appraisal as to the Fair Market Value of such Telecommunications Assets prepared by a nationally recognized investment banking or public accounting firm (or, if no such investment banking or public accounting firm is qualified to prepare such an appraisal, by a nationally recognized appraisal firm); and provided further that such Indebtedness does not mature prior to the Stated Maturity of the Notes and the Average Life of such Indebtedness is longer than that of the Notes; (ix) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds or letters of credit supporting trade payables, in each case provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements covering Indebtedness of the Company; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations including, without limitation, the Company"s indemnification obligations pursuant to that certain Indemnification Agreement dated August 19, 1999, by and between the Company and Clay C. Long, Esq., trustee of the World Access Charitable Trust, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (x) Indebtedness of the Company, to the extent that the net proceeds thereof are promptly (A) used to repurchase Notes tendered in a Change of Control Offer or (B) deposited to defease all of the Notes pursuant to Article Thirteen; (xi) Indebtedness of a Restricted Subsidiary represented by a Guarantee of the Notes permitted by and made in accordance with Section 1018; (xii) Indebtedness of the Company and its Subsidiaries existing upon the consummation of the Merger; and (xiii) Indebtedness of the Company or any Restricted Subsidiary in addition to that permitted to be incurred pursuant to clauses (i) through (xi) above in an aggregate 66 principal amount not in excess of $10 million (or, to the extent not denominated in United States dollars, the United States Dollar Equivalent thereof) at any one time outstanding. (c) For purposes of determining any particular amount of indebtedness under this Section 1011, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included; provided, however, that the foregoing shall not in any way be deemed to limit the provisions of Section 1018. For purposes of determining compliance with this Section 1011, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness described in the above clauses, the Company, in its sole discretion may, at the time of such Incurrence, (i) classify such item of Indebtedness under and comply with either of paragraph (a) or (b) of this covenant (or any of such definitions), as applicable, (ii) classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (iii) elect to comply with such paragraphs (or definitions), as applicable in any order. SECTION 1012. Limitation on Restricted Payments. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) (A) declare or pay any dividend or make any distribution in respect of the Company's Capital Stock to the holders thereof (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) of the Company or in options, warrants or other rights to acquire such shares of Capital Stock) or (B) declare or pay any dividend or make any distribution in respect of the Capital Stock of any Restricted Subsidiary to any Person other than dividends and distributions, including a distribution payable solely in shares of Capital Stock (other than Redeemable Stock), payable to the Company or any Restricted Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis; (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company (including options, warrants or other rights to acquire such shares of Capital Stock) held by any Person or any shares of Capital Stock of any Restricted Subsidiary (including options, warrants and other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company (other than a Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or more of the Company's Capital Stock; (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes; or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing; (B) the Company could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (C) the aggregate amount of all Restricted Payments declared or made from and after the Exchange Date would exceed the sum of: 67 (1) Cumulative Consolidated Cash Flow minus 200% of Cumulative Consolidated Fixed Charges; (2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a Person, which is not a Subsidiary of the Company, of Capital Stock of the Company (other than Redeemable Stock) or of debt securities of the Company which have been converted into or exchanged for such Capital Stock (except to the extent such Net Cash Proceeds are used to Incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); and (3) to the extent any Permitted Investment that was made after the Exchange Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Permitted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Permitted Investment. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including a premium, if any, and accrued and unpaid interest with the net proceeds of, or in exchange for, Indebtedness Incurred under clause (viii) of paragraph (b) of Section 1011; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of Capital Stock (other than Redeemable Stock) of the Company (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (iv) the acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes in exchange for, or out of the proceeds of, a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of the Capital Stock of the Company (other than Redeemable Stock) (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (v) payments or distributions to dissenting stockholders in accordance with applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with Article Eight; (vi) the declaration or payment of any dividend or distribution in respect of, and in accordance with the terms of, the Company's (A) 50,000 outstanding shares of 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, par value $0.01 per share (the "Senior Preferred Stock"), and, in the event that The 1818 Fund III, L.P. ("The 1818 Fund") exercises its option to purchase up to 20,000 additional shares of Senior Preferred Stock, then such additional shares as well and (B) 23,174 outstanding shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B, par value $0.01 per share (the "Junior Preferred Stock"); (vii) the conversion of the Senior Preferred Stock, the Junior Preferred Stock or the Company"s Convertible Preferred Stock, Series C, par value $0.01 per share, into Capital Stock of the Company in accordance with the terms of such preferred stock; (viii) the exercise of employee or non-employee options to purchase the Capital Stock of the Company; and (ix) other Restricted Payments not to exceed $2 million; provided that, except in the case of clause (i), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. 68 Each Restricted Payment permitted pursuant to the immediately preceding paragraph (other than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash Proceeds from any capital contributions to the Company or issuance of Capital Stock referred to in clauses (iii) and (iv) of the immediately preceding paragraph, shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 1012 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 1012 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of the Notes. SECTION 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes are Outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to do any one of the following: (i) pay dividends or make any other distributions permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (iii) make loans or advances to the Company or any other Restricted Subsidiary; or (iv) transfer any of its property or assets (including the Capital Stock of any Restricted Subsidiary) to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Exchange Date in this Indenture or any other agreements or instruments in effect on the Exchange Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if the encumbrance or restriction applies only in the event of a default with respect to a financial covenant contained in such Indebtedness or agreement and such encumbrance or restriction is not materially, more disadvantageous to the Holders than is customary in comparable financing (as determined by the Company) and the Company determines that any such encumbrance or restriction will not 69 materially affect the Company's ability to make principal or interest payments on the Notes; (iii) existing under or by reason of applicable law; (iv) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (v) in the case of clause (iv) of the first paragraph of this Section 1013, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is, or is subject to, a lease, purchase mortgage obligation, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary. Nothing contained in this Section 1013 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 1016 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 1014. Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries. The Company shall not, and shall not permit any Restricted Subsidiary, directly or indirectly, to issue, transfer, distribute, convey, sell, lease or otherwise dispose of any shares of Capital Stock (including options, warrants or other rights to purchase shares of such Capital Stock) of such or any other Restricted Subsidiary (other than to the Company or a Wholly Owned Restricted Subsidiary or in respect of any director's qualifying shares or sales of shares of Capital Stock to foreign nationals mandated by applicable law or pursuant to the exercise of employee or non-employee options to purchase the Capital Stock of the Company) to any Person unless (A) the Net Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other disposition are applied in accordance with Section 1017, (B) immediately after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition, such Restricted Subsidiary would no longer constitute a Restricted Subsidiary and (C) any Investment in such Person remaining after giving effect to such issuance, transfer, conveyance, sale, lease or other disposition would have been permitted to be made under Section 1012 if made on the date of such issuance, transfer, conveyance, sale, lease or other disposition (valued as provided in the 70 definition of "Investment" contained in Section 101). SECTION 1015. Limitation on Transactions with Stockholders and Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, unless the following conditions have been met: (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's-length transaction with a Person that is not such a holder or an Affiliate; (ii) if such transaction or series of transactions involves aggregate consideration in excess of $2 million, then such transaction or series of transactions is approved by a majority of the Board of Directors of the Company and is evidenced by a resolution therein; and (iii) if such transaction or series of transactions involves aggregate consideration in excess of $10 million, then the Company or such Restricted Subsidiary shall deliver to the Trustee a written opinion as to the fairness to the Company or such Restricted Subsidiary of such transaction from a financial point of view from a nationally recognized investment banking firm (or, if an investment banking firm is generally not qualified to give such an opinion, by a nationally recognized appraisal firm or accounting firm). The foregoing limitation does not limit, and will not apply to (i) any transaction between the Company and any of its Restricted Subsidiaries or between Restricted Subsidiaries; (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any Restricted Payments not prohibited by Section 1012; (iv) loans and advances to officers or employees of the Company and its Subsidiaries not exceeding at any one time outstanding $1.5 million in the aggregate, made in the ordinary course of business; (v) arrangements with TMG, Armstrong and/or its subsidiaries existing on the date of the Original Indenture and listed on Schedule A attached thereto as such arrangements may be extended or renewed; provided that the terms of any arrangement altered by any such extension or renewal may not be altered in a manner adverse to the Company or the Holders of the Notes; (vi) the issuance of up to 20,000 additional shares of Senior Preferred Stock to The 1818 Fund pursuant to an option agreement existing on the date of this Indenture; (vii) the sale to and purchase by the Company from MCI WorldCom, Inc. and its Affiliates of telecommunications services and equipment in the ordinary course of business; (viii) the issuance and sale by the Company of Common Stock whether pursuant to the conversion of the Senior Preferred Stock, the Junior Preferred Stock, the Company"s Convertible Preferred Stock, Series C, par value $0.01 per share, or any other class or series of Preferred Stock into Capital Stock of the Company, the exercise of any employee or non-employee options to purchase the Capital Stock of the Company; and (ix) the Company"s and any of its Restricted Subsidiaries" arrangements with the World Access Charitable Trust listed on 71 Schedule A attached hereto as such arrangements exist on the Exchange Date and as such arrangements may be amended; provided that the terms of any such amendments are not materially adverse to the Company, any Restricted Subsidiary or the Holders of the Notes. SECTION 1016. Limitation on Liens. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other than Permitted Liens) on any of its assets or properties of any character (including, without limitation, licenses and trademarks), or any shares of Capital Stock or Indebtedness of any Restricted Subsidiary, whether owned at the date of this Indenture or thereafter acquired, or any income, profits or proceeds therefrom, or assign or otherwise convey any right to receive income thereof, without making effective provision for all of the Notes and all other amounts ranking pari passu with the Notes to be directly secured equally and ratably with the obligation or liability secured by such Lien or, if such obligation or liability is subordinated to the Notes and other amounts ranking pari passu with the Notes, without making provision for the Notes and such other amounts to be directly secured prior to the obligation or liability secured by such Lien. SECTION 1017. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the Fair Market Value of the assets sold or disposed of as determined by the good faith judgment of the Board of Directors evidenced by a Board Resolution and (ii) at least 80% of the consideration received for such sale or other disposition consists of cash or cash equivalents or the assumption of unsubordinated Indebtedness; provided that any securities, notes or other obligations issued by an Investment Grade Company with a Total Equity Market Capitalization in excess of $25 billion determined at the time any commitment to effect any such Asset Sale is entered into which are received by the Company or the Restricted Subsidiary, as the case may be, and are converted within 180 days thereof into cash or cash equivalents shall be deemed to be cash or cash equivalents; provided further that the amount of cash or cash equivalents realized upon the sale of any such securities, notes or other obligations must be included within the amount of Net Cash Proceeds for purposes of clause (i)(B) of the next paragraph. The Company shall, or shall cause the relevant Restricted Subsidiary to, within 270 days after the date of receipt of the Net Cash Proceeds from an Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries, or (B) if the Net Cash Proceeds from such Asset Sale exceed $15 million, apply an amount equal to such Net Cash Proceeds to make an offer to purchase (an "Offer to Purchase") from the Holders on a pro rata basis an aggregate principal amount of Notes equal to such Net Cash Proceeds, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest to the date of purchase and less the product of (a) the Market Value per share of the Common Stock of the Company and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of Notes accepted for purchase by the Company (the "Offer to Purchase 72 Payment"), provided that the Company shall not be obligated to make any Offer to Purchase after it has made one or more Offers to Purchase, which Offer or Offers to Purchase, in the aggregate, were for an aggregate principal amount of Notes equal to the aggregate principal amount of Notes issued on the Exchange Date (regardless of the actual aggregate principal amount of Notes actually tendered in such Offer or Offers to Purchase), or (C) if the Company has made sufficient Offers to Purchase such that it has satisfied its obligation as described in the final proviso to clause (B), invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period referred to above) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraphs of this Section 1017. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 270-day period referred to above in the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10 million, the Company must, not later than the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Notes equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest to the date of purchase less the product of (a) the Market Value per share of the Common Stock of the Company and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of Notes accepted for purchase by the Company (the "Excess Proceeds Payment"). The Company shall commence an Offer to Purchase or an Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (i) that the Offer to Purchase or Excess Proceeds Offer, as applicable, is being made pursuant to this Section 1017 and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Offer Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the Offer to Purchase Payment or the Excess Proceeds Payment, as applicable, any Note accepted for payment pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable, shall cease to accrue interest on and after the applicable Offer Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable, will be required to surrender the Note, together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the applicable Offer Payment Date; (vi) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the applicable Offer Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, 73 the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the applicable Offer Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall upon Company Order promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. With respect to any Excess Proceeds Offer, to the extent that the aggregate principal amount of Notes tendered is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. The Company shall publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Offer Payment Date. For purposes of this Section 1017, the Trustee shall act as the Paying Agent. The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that the Company undertakes an Offer to Purchase or Excess Proceeds Offer under this Section 1017. SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness by Restricted Subsidiaries. The Company shall not permit any Restricted Subsidiary, directly or indirectly, to Guarantee, assume or in any other manner become liable with respect to any Indebtedness of the Company, other than Indebtedness under Credit Facilities incurred under clause (iii) of paragraph (b) in Section 1011, unless (i) such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture providing for a Guarantee of the Notes on terms substantially similar to the Guarantee of such Indebtedness, except that if such Indebtedness is by its express terms subordinated in right of payment to the Notes, any such assumption, Guarantee or other liability of such Restricted Subsidiary with respect to such Indebtedness shall be subordinated in right of payment to such Restricted Subsidiary's assumption, Guarantee or other liability with respect to the Notes substantially to the same extent as such Indebtedness is subordinated to the Notes and (ii) such Restricted Subsidiary waives, and shall not in any manner whatsoever claim or take the benefit or advantage of, any rights of reimbursement, indemnity or subrogation or any other rights against the Company or any other Restricted Subsidiary as a result of any payment by such Restricted Subsidiary under its Guarantee. Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may provide by its terms that it will be automatically and unconditionally released and discharged 74 upon (i) any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's and each Restricted Subsidiary's Capital Stock in, or all or substantially all of the assets of, such Restricted Subsidiary (which sale, exchange or transfer is not prohibited by this Indenture) or (ii) the release or discharge of the guarantee which resulted in the creation of such Guarantee, except a discharge or release by or as a result of payment under such Guarantee. SECTION 1019. Business of the Company; Restriction on Transfers of Existing Business. The Company shall not, and shall not permit any Restricted Subsidiary to, be principally engaged in any business or activity other than a Permitted Business. In addition, the Company and any Restricted Subsidiary shall not be permitted to, directly or indirectly, transfer to any Unrestricted Subsidiary (i) any of the licenses, material agreements or instruments, permits or authorizations used in the Permitted Business of the Company and any Restricted Subsidiary on the Exchange Date or (ii) any material portion of the "property and equipment" (as such term is used in the Company's consolidated financial statements) of the Company or any Restricted Subsidiary used in the licensed service areas of the Company and any Restricted Subsidiary as they exist on the Exchange Date. SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries. The Company shall not make, and shall not permit any of its Restricted Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the time thereof, the aggregate amount of such Investments together with any other Restricted Payments made after the Exchange Date would exceed the amount of Restricted Payments then permitted to be made pursuant to Section 1012. Any Investments in Unrestricted Subsidiaries permitted to be made pursuant to this covenant (i) shall be treated as the making of a Restricted Payment in calculating the amount of Restricted Payments made by the Company or a Subsidiary and (ii) may be made in cash or property (if made in property, the Fair Market Value thereof as determined by the Board of Directors of the Company (whose determination shall be conclusive and evidenced by a Board Resolution) shall be deemed to be the amount of such Investment for the purpose of clause (i) of this Section 1020). SECTION 1021. Limitation on Sale-Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any Sale-Leaseback Transaction with respect to any property of the Company or any of its Restricted Subsidiaries. Notwithstanding the foregoing, the Company may enter into Sale-Leaseback Transactions; provided, however, that (a) the Attributable Value of such Sale-Leaseback Transaction shall be deemed to be Indebtedness of the Company and (b) after giving pro forma effect to any such Sale-Leaseback Transaction and the foregoing clause (a), other than any Sale-Leaseback Transaction involving NACT Telecommunications, Inc."s facility in Provo, Utah, the Company would be able to incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011. SECTION 1022. Waiver of Certain Covenants. 75 The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 803 or Sections 1007 through 1021, inclusive, if before or after the time for such compliance the Holders of at least a majority in aggregate principal amount of the Outstanding Notes, by Act of such Holders, waive such compliance in such instance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. ARTICLE ELEVEN REDEMPTION OF NOTES SECTION 1101. Right of Redemption. (a) The Notes may be redeemed, at the election of the Company, as a whole or in part, at any time or from time to time, on or after January 15, 2003, subject to the conditions and at the Redemption Prices specified in the form of Note, together with accrued and unpaid interest thereon to the Redemption Date. (b) Notwithstanding the foregoing, prior to January 15, 2001, the Company may redeem up to 35% of the originally issued aggregate principal amount of the Notes on one or more occasions with the Net Cash Proceeds of one or more Public Equity Offerings at a redemption price equal to 110.5% of the aggregate principal amount thereof, plus accrued interest, if any, thereon to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date); provided that, immediately after giving effect to such redemption, at least 65% of the originally issued aggregate principal amount of the Notes remains Outstanding; and provided further that notice of such redemptions shall be given within 60 days of the date of closing of any such Public Equity Offering. SECTION 1102. Applicability of Article. Redemption of Notes at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 1103. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Notes pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the Redemption Price and of the principal amount of Notes to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 1104. 76 SECTION 1104. Selection by Trustee of Notes to Be Redeemed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Notes not previously called for redemption, in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal amount of such Note which has been or is to be redeemed. SECTION 1105. Notice of Redemption. Notice of redemption shall be given in the manner provided for in Section 106 not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Notes to be redeemed. All notices of redemption shall state: (1) the Redemption Date; (2) the Redemption Price and the amount of accrued interest to the Redemption Date payable as provided in Section 1107, if any; (3) if less than all Outstanding Notes are to be redeemed, the identification (and, in the case of a partial redemption, the principal amounts) of the particular Notes to be redeemed; (4) in case any Note is to be redeemed in part only, the notice which relates to such Note shall state that on and after the Redemption Date, upon surrender of such Note, the Holder shall receive, without charge, a new Note or Notes of authorized denominations for the principal amount thereof remaining unredeemed; (5) that on the Redemption Date the Redemption Price (and accrued interest, if any, to the Redemption Date payable as provided in Section 1107) will become due and payable upon each such Note, or the portion thereof, to be redeemed, and that interest thereon will cease to accrue on and after said date; and (6) the place or places where such Notes are to be surrendered for payment of the Redemption Price and accrued interest, if any. 77 Notice of redemption of Notes to be redeemed at the election of the Company shall be given by the Company or, at the Company's written request, by the Trustee in the name and at the expense of the Company. SECTION 1106. Deposit of Redemption Price. Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and accrued interest on, all the Notes which are to be redeemed on that date. SECTION 1107. Notes Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified (together with accrued interest, if any, to the Redemption Date), and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price, together with accrued interest, if any, to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Notes, or one or more Predecessor Notes, registered as such at the close of business on the relevant Regular Record Dates according to their terms and the provisions of Section 307. If any Note called for redemption shall not be so paid upon surrender thereof for redemption, the principal (and premium, if any) shall, until paid, bear interest from the Redemption Date at the rate borne by the Notes. SECTION 1108. Notes Redeemed in Part. Any Note which is to be redeemed only in part (pursuant to the provisions of this Article Eleven) shall be surrendered at the office or agency of the Company maintained for such purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall upon Company Order authenticate and deliver to the Holder of such Note without service charge, a new Note or Notes, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Note so surrendered. 78 72 ARTICLE TWELVE SECURITY SECTION 1201. Security. (a) On the Exchange Date, the pro rata portion of the total amount of the FaciliCom Pledged Securities based on the percentage of the aggregate principal amount of the FaciliCom Notes exchanged for Notes shall be released from the FaciliCom Pledge Account and deposited in the Pledge Account by the Company to be held pursuant to the Pledge Agreement. The Pledged Securities shall be pledged by the Company to the Trustee for the benefit of the Holders and shall be held by the Trustee in the Pledge Account pending disposition pursuant to the Pledge Agreement. (b) Each Holder, by its acceptance of a Note, consents and agrees to the terms of the Pledge Agreement (including, without limitation, the provisions providing for foreclosure and release of the Pledged Securities) as the same may be in effect or may be amended from time to time in accordance with its terms, and authorizes and directs the Trustee to enter into the Pledge Agreement and to perform its respective obligations and exercise its respective rights thereunder in accordance therewith. The Company shall do or cause to be done all such acts and things as may be necessary or proper, or as may be required by the provisions of the Pledge Agreement, to assure and confirm to the Trustee the security interest in the Pledged Securities contemplated hereby, by the Pledge Agreement or any part thereof, as from time to time constituted, so as to render the same available for the security and benefit of this Indenture and of the Notes secured hereby, according to the intent and purposes herein expressed. The Company shall take, or shall cause to be taken, any and all actions reasonably required (and any action reasonably requested by the Trustee) to cause the Pledge Agreement to create and maintain, as security for the obligations of the Company under this Indenture and the Notes, valid and enforceable first priority liens in and on all the Pledged Securities, in favor of the Trustee, superior to and prior to the rights of third Persons and subject to no other Liens. (c) The release of any Pledged Securities pursuant to the Pledge Agreement will not be deemed to impair the security under this Indenture in contravention of the provisions hereof if and to the extent the Pledged Securities are released pursuant to this Indenture and the Pledge Agreement. To the extent applicable, the Company shall cause TIA Section 314(d) relating to the release of property or securities from the Lien and security interest of the Pledge Agreement (other than pursuant to Sections 7(e) and 7(g) thereof) and relating to the substitution therefor of any property or securities to be subjected to the Lien and security interest of the Pledge Agreement to be complied with. Any certificate or opinion required by TIA Section 314(d) may be made by an officer of the Company, except in cases where TIA Section 314(d) requires that such certificate or opinion be made by an independent Person, which Person shall be an independent engineer, appraiser or other expert selected by the Company. (d) The Trustee, in its sole discretion and without the consent of the Holders, may, and at the request of the Holders of at least 25% in aggregate principal amount of Notes then Outstanding shall, on behalf of the Holders, take all actions it deems necessary or appropriate in order to (i) enforce any of the terms of the Pledge Agreement and (ii) collect and receive any and all amounts payable in respect of the obligations of the Company thereunder. 79 73 The Trustee shall have power to institute and to maintain such suits and proceedings as the Trustee may deem expedient to preserve or protect its interests and the interests of the Holders in the Pledged Securities (including power to institute and maintain suits or proceedings to restrain the enforcement of or compliance with any legislative or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid if the enforcement of, or compliance with, such enactment, rule or order would impair the security interest hereunder or be prejudicial to the interests of the Holders or of the Trustee). ARTICLE THIRTEEN DEFEASANCE AND COVENANT DEFEASANCE SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance The Company may, at its option by Board Resolution, at any time, with respect to the Notes, elect to have either Section 1302 or Section 1303 be applied to all Outstanding Notes upon compliance with the conditions set forth below in this Article Thirteen. SECTION 1302. Defeasance and Discharge Upon the Company"s exercise under Section 1301 of the option applicable to this Section 1302, the Company shall be deemed to have been discharged from its obligations with respect to all Outstanding Notes on the date the conditions set forth in Section 1304 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for the purposes of Section 1305 and the other Sections of this Indenture referred to in (A) and (B) below, and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of Outstanding Notes to receive payments, (solely from monies deposited in trust) in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (B) the Company's obligations with respect to such Notes under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Thirteen. Subject to compliance with this Article Thirteen, the Company may exercise its option under this Section 1302 notwithstanding the prior exercise of its option under Section 1303 with respect to the Notes. SECTION 1303. Covenant Defeasance Upon the Company's exercise under Section 1301 of the option applicable to this Section 1303, the Company shall be released from its obligations under any covenant contained in Section 801(3) and (4) and Section 803 and in Sections 1007 through 1022 with respect to the Outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed not to be "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the 80 74 consequences of any thereof) in connection with such covenants, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to the Outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 501(6), but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. SECTION 1304. Conditions to Defeasance or Covenant Defeasance The following shall be the conditions to application of either Section 1302 or Section 1303 to the Outstanding Notes: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 607 who shall agree to comply with the provisions of this Article Thirteen applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Notes, (A) cash in United States dollars, or (B) U.S. Government Obligations or (C) a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (i) the principal of (and premium, if any), and interest on, the Outstanding Notes on the Stated Maturity (or Redemption Date, if applicable) of such principal (and premium, if any) or installment of interest and (ii) any mandatory sinking fund payments or analogous payments applicable to the Outstanding Notes on the day on which such payments are due and payable in accordance with the terms of this Indenture and of such Notes; provided that the Trustee shall have been irrevocably instructed to apply such money or the proceeds of such U.S. Government Obligations to said payments with respect to the Notes. Before such a deposit, the Company may give to the Trustee, in accordance with Section 1103 hereof, a notice of its election to redeem all of the Outstanding Notes at a future date in accordance with Article Eleven hereof, which notice shall be irrevocable. Such irrevocable redemption notice, if given, shall be given effect in applying the foregoing. For this purpose, "U.S. Government Obligations" means securities that are (x) direct obligations of the United States of America for the timely payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt 81 75 from any amount received by the custodian in respect of the U.S. Government Obligation or the specific payment of principal of or interest on the U.S. Government Obligation evidenced by such depository receipt. (2) No Default or Event of Default with respect to the Notes shall have occurred and be continuing on the date of such deposit or, insofar as paragraph (9) or (10) of Section 501 hereof is concerned, at any time during the period ending on the 123rd day after the date of such deposit. (3) [Reserved] (4) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under any material agreement or instrument (other than this Indenture) to which the Company is a party or by which it is bound. (5) In the case of an election under Section 1302, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (x) the Company has received from, or there has been published by, the Internal Revenue Service a ruling, or (y) since January 15, 1998, there has been a change in the applicable federal income tax law, in either case to the effect, and based thereon such opinion shall confirm, that Holders will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (6) In the case of an election under Section 1303, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (7) The Company shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 1302 or the covenant defeasance under Section 1303 (as the case may be) have been complied with. SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions Subject to the provisions of the last paragraph of Section 1003, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in respect of the Outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money 82 76 need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Governmental Obligations deposited pursuant to Section 1304 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders. Anything in this Article Thirteen to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or U.S. Government Obligations held by it as provided in Section 1304 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance, as applicable, in accordance with this Article. SECTION 1306. Reinstatement If the Trustee or any Paying Agent is unable to apply any money in accordance with Section 1305 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 1302 or 1303, as the case may be, until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 1305; provided, however, that if the Company makes any payment of principal of (or premium, if any) or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. This Indenture may be signed in any number of counterparts each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Indenture. 83 77 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. WORLD ACCESS, INC. By: -------------------------------------- Name: Title: FIRST UNION NATIONAL BANK, Trustee By: -------------------------------------- Name: Title: 84 Schedule A WORLD ACCESS CHARITABLE TRUST ARRANGEMENTS 1. World Access Charitable Trust dated August 19, 1999, by and between World Access Investment Corp., a Delaware corporation, and Clay C. Long, Esq., as trustee, in favor of World Access Foundation, Inc., a Georgia nonprofit corporation. 2. Indemnification Agreement dated August 19, 1999, by and between the Issuer and Clay C. Long, Esq., as trustee of the World Access Charitable Trust. 3. Letter Agreement dated October 8, 1999, by and between World Access Investment Corp. and World Access Foundation, Inc. 85 Exhibit A FORM OF FACE OF NOTE WORLD ACCESS, INC. 13.25% Senior Note due 2008 [CUSIP] [CINS] No. ____________ $_________________ WORLD ACCESS, INC., a Delaware corporation (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to Cede & Co. or registered assigns, the principal sum of ___________ United States dollars on January 15, 2008, at the office or agency of the Company referred to below, and to pay interest thereon on January 15, 2000 (or July 15, 2000 if the Exchange Date (as defined in the Indenture) has not occurred on or prior to January 1, 2000) and semi-annually thereafter, on January 15 and July 15 in each year, from ____________, or from the most recent Interest Payment Date to which interest has been paid or duly provided for under the Indenture (as defined on the reverse of this Note), at the rate of 13.25% per annum, until the principal hereof is paid or duly provided for, and (to the extent lawful) to pay on demand interest on any overdue interest at the rate borne by the Notes from the date on which such overdue interest becomes payable to the date payment of such interest has been made or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest, which shall be the January 1 or July 1 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date, and such Defaulted Interest, and (to the extent lawful) interest on such defaulted interest at the rate borne by the Notes, may be paid to the Person in whose name this Note (or one or more Predecessor Notes) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Notes not less than 10 days prior to such Special Record Date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. The principal of (and premium, if any), and interest on, the Notes shall be payable at the office or agency of the Company maintained for such purpose (which shall initially be the Office of the Trustee located at First Union National Bank, Corporate Trust Department, 999 Peachtree Street, Suite 1100, Atlanta, Georgia 30309, unless the Company shall designate and A-1 86 maintain some other office or agency for such purpose), and, at the option of the Company, interest may be paid by check mailed to addresses of the holders as such address appears in the Register; provided that all payments with respect to the Global Notes, the Holders of which have given wire transfer instructions to the Company, will be required to be made by wire transfer of immediately available funds to the accounts specified by the Holders thereof. Reference is hereby made to the further provisions of this Note set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been duly executed by the Trustee referred to on the reverse hereof by manual signature, this Note shall not be entitled to any benefit under the Indenture, or be valid or obligatory for any purpose. A-2 87 IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. WORLD ACCESS, INC. By: -------------------------------------- Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION Dated: _____________________ This is one of the 13.25% Senior Notes due 2008 referred to in the within-mentioned Indenture. FIRST UNION NATIONAL BANK, Trustee By: -------------------------------------- Authorized Signatory A-3 88 FORM OF REVERSE SIDE OF NOTE WORLD ACCESS, INC. 13.25% Senior Note due 2008 This Note is one of a duly authorized issue of securities of the Company designated as its 13.25% Senior Notes due 2008 (herein called the "Notes"), limited (except as otherwise provided in the Indenture referred to below) in aggregate principal amount to $300,000,000, which may be issued under an indenture (herein called the "Indenture") dated as of __________, between the Company and First Union National Bank, as trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties, obligations and immunities thereunder of the Company, the Trustee and the Holders of the Notes, and of the terms upon which the Notes are, and are to be, authenticated and delivered. The Notes are subject to redemption upon not less than 30 nor more than 60 days' prior notice, in whole or in part, at any time or from time to time on or after January 15, 2003, at the election of the Company, at Redemption Prices (expressed in percentages of principal amount thereof), plus accrued and unpaid interest thereon to the Redemption Date (subject to the right of Holders of record on the relevant Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), if redeemed during the 12-month period commencing on January 15, of the years set forth below:
Year Redemption Price ---- ---------------- 2003 106.625% 2004 104.417% 2005 102.208% 2006 (and thereafter) 100.00%
Notwithstanding the foregoing, prior to January 15, 2001, the Company may on any one or more occasions redeem up to 35% of the originally issued aggregate principal amount of Notes at a redemption price of 110.5% of the aggregate principal amount thereof, plus accrued and unpaid interest thereon, to the Redemption Date, with the Net Cash Proceeds of one or more Public Equity Offerings; provided that at least 65% of the originally issued principal amount of the Notes remains outstanding immediately after the occurrence of such redemption; and provided further that notice of such redemptions shall be given within 60 days of the closing of any such Public Equity Offering. Upon the occurrence of a Change of Control, the Holder of this Note may require the Company, subject to certain limitations provided in the Indenture, to repurchase all or any A-4 89 5 part of this Note at a purchase price in cash in an amount equal to 101% of the principal amount thereof plus accrued and unpaid interest. Under certain circumstances, in the event the Net Cash Proceeds received by the Company from an Asset Sale, which proceeds are not used to (i) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries, or (B) if the Net Cash Proceeds from such Asset Sale exceed $15 million, apply an amount equal to such Net Cash Proceeds to make an offer to purchase from the Holders on a pro rata basis an aggregate principal amount of Notes equal to such Net Cash Proceeds, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest to the date of purchase and less the product of (a) the Market Value per share of the Common Stock of the Company and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of Notes accepted for purchase by the Company, provided that the Company shall not be obligated to make any Offer to Purchase after it has made one or more Offers to Purchase, which Offer or Offers to Purchase, in the aggregate, were for an aggregate principal amount of Notes equal to the aggregate principal amount of Notes issued on the Exchange Date (regardless of the actual aggregate principal amount of Notes actually tendered in such Offer or Offers to Purchase), or (C) if the Company has made sufficient Offers to Purchase such that it has satisfied its obligation as described in the final proviso to clause (B), invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period immediately following the date of receipt of the Net Cash Proceeds from an Asset Sale) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) in accordance with the Indenture, and which proceeds equal or exceed a specified amount, the Company shall be required to make an offer to all Holders to purchase the maximum principal amount of Notes, in an integral multiple of $1,000, that may be purchased out of such amount at a purchase price in cash equal to 100% of the principal amount thereof, plus accrued, unpaid interest to the date of purchase less the product of (a) the Market Value per share of the Common Stock of the Company and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of Notes accepted for purchase by the Company, in accordance with the Indenture. Holders of Notes that are subject to any offer to purchase shall receive an Offer to Purchase or an Excess Proceeds Offer, as applicable, from the Company prior to any related applicable Offer Payment Date. In the case of any redemption or repurchase of Notes, interest installments, if any, whose Stated Maturity is on or prior to the Redemption Date or Offer Payment Date will be payable to the Holders of such Notes, or one or more Predecessor Notes, of record at the close of business on the relevant Record Date referred to on the face hereof. Notes (or portions thereof) A-5 90 6 for whose redemption and payment provision is made in accordance with the Indenture shall cease to bear interest from and after the Redemption Date or Offer Payment Date, as the case may be. In the event of redemption or repurchase of this Note in part only, a new Note or Notes for the unredeemed portion hereof shall be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the principal of all the Notes may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture contains provisions for defeasance at any time of (a) the entire Indebtedness of the Company on this Note and (b) certain restrictive covenants and the related Defaults and Events of Default, upon compliance by the Company with certain conditions set forth therein, which provisions apply to this Note. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Notes at the time Outstanding. Additionally, the Indenture permits that, without notice to or consent of any Holder, the Company and the Trustee together may amend or supplement the Indenture or this Note to: (i) evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company contained herein and in the Notes; (ii) add to the covenants of the Company for the benefit of the Holders or to surrender any right or power herein conferred upon the Company; (iii) add any additional Events of Default; (iv) evidence and provide for the acceptance of appointment hereunder by a successor Trustee; (v) cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or make any other provisions with respect to matters or questions arising under this Indenture; provided that such action shall not adversely affect the interests of the Holders in any material respect; or (vi) secure the Notes. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Notes at the time Outstanding, on behalf of the Holders of all the Notes, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by or on behalf of the Holder of this Note shall be conclusive and binding upon such Holder and upon all future Holders of this Note and of any Note issued upon the registration of transfer hereof or in exchange herewith or in lieu hereof whether or not notation of such consent or waiver is made upon this Note. No reference herein to the Indenture and no provision of this Note or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, premium, if any, and interest on this Note at the times, place, and rate, and in the coin or currency, herein prescribed. If less than all the Notes are to be redeemed, the particular Notes to be redeemed A-6 91 7 shall be selected not more than 60 days prior to the Redemption Date in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a national securities exchange, on a pro rata basis, which may provide for the selection for redemption of portions of the principal of Notes. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Note is registrable on the Register of the Company, upon surrender of this Note for registration of transfer at the office or agency of the Company maintained for such purpose in The City of New York or at the Corporate Trust Office of the Trustee, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Notes, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees. The Notes are issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, the Notes are exchangeable for a like aggregate principal amount of Notes of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any registration of transfer or exchange of Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to the time of due presentment of this Note for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Note is registered on the Register as the owner hereof for all purposes, whether or not this Note be overdue, and neither the Company, the Trustee nor any agent shall be affected by notice to the contrary. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Interest on this Note shall be computed on the basis of a 360-day year of twelve 30-day months. All capitalized terms used in this Note which are defined in the Indenture shall have the meanings assigned to them in the Indenture. A-7 92 OPTION OF HOLDER TO ELECT PURCHASE If you wish to have this Note purchased by the Company pursuant to Section 1010 or Section 1017 of the Indenture, check the Box: [ ] If you wish to have a portion of this Note purchased by the Company pursuant to Section 1010 or Section 1017 of the Indenture, state the amount (in original principal amount) below: $_________________________. Date:________________ Your Signature: ----------------------------------------------------------- (Sign exactly as your name appears on the other side of this Note) Signature Guarantee/1/ ------------------------------------------- /1/ The Holder's signature must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to or in substitution for STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-8 EX-4.7 6 FORM OF COLLATERAL PLEDGE AGREEMENT 1 - ------------------------------------------------------------------------------- Exhibit 4.7 COLLATERAL PLEDGE AND SECURITY AGREEMENT Dated as of _______ __,_____ from WORLD ACCESS, INC., Pledgor to FIRST UNION NATIONAL BANK, Trustee - ------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- SECTION 1. Definitions, Appointment; Deposit and Investment................................................................. 2 1.1 Definitions...................................................................................................... 2 1.2 Appointment of the Trustee....................................................................................... 5 1.3 Pledge and Grant of Security Interest............................................................................ 5 SECTION 2. Delivery of Collateral; Establishment of Collateral Accounts..................................................... 6 SECTION 3. Delivery of the Pledged Securities............................................................................... 7 SECTION 4. Delivery of Collateral Other than U.S. Government Obligations.................................................... 8 SECTION 5. Investing of Amounts in the Collateral Accounts.................................................................. 9 SECTION 6. Disbursements.................................................................................................... 9 SECTION 7. Representations and Warranties................................................................................... 11 SECTION 8. Further Assurances............................................................................................... 13 SECTION 9. Covenants........................................................................................................ 13 SECTION 10. Power of Attorney............................................................................................... 14 SECTION 11. No Assumption of Duties; Reasonable Care........................................................................ 14 SECTION 12. Indemnity....................................................................................................... 15 SECTION 13. Remedies upon Event of Default.................................................................................. 15 SECTION 14. Expenses........................................................................................................ 16 SECTION 15. Security Interest Absolute...................................................................................... 16 SECTION 16. WAXS Securities Intermediary's Representations, Warranties and Covenants........................................ 17 SECTION 17. Miscellaneous Provisions........................................................................................ 18 17.1 Notices........................................................................................................... 18 17.2 No Adverse Interpretation of Other Agreements..................................................................... 19 17.3 Severability...................................................................................................... 19 17.4 Headings.......................................................................................................... 19 17.5 Counterpart Originals............................................................................................. 19 17.6 Benefits of Pledge Agreement...................................................................................... 19 17.7 Amendments, Waivers and Consents.................................................................................. 19 17.8 Interpretation of Agreement....................................................................................... 20 17.9 Continuing Security Interest; Termination......................................................................... 20 17.10 Survival Provisions.............................................................................................. 20 17.11 Waivers.......................................................................................................... 20 17.12 Authority of the Trustee......................................................................................... 20 17.13 Final Expression................................................................................................. 21 17.14 Rights of Holders of the Notes................................................................................... 21 17.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; WAIVER OF DAMAGES............................... 21 17.16 Effectiveness.................................................................................................... 23
i 3 SCHEDULE I: Pledged Securities....................................................................................... I-1 SCHEDULE II: Pledged Securities....................................................................................... II-1 EXHIBIT A: Officer's Certificate.................................................................................... A-1 EXHIBIT B: Independent Public Accountant's Report .................................................................. B-1
ii 4 This Collateral Pledge and Security Agreement (this "Pledge Agreement") is made and entered into as of_______ __, 1999 by World Access, Inc., a Delaware corporation (the "Pledgor"), having its principal offices at 945 East Paces Ferry Road, Suite 220, Atlanta, Georgia 30326, in favor of First Union National Bank, a national banking association having a corporate trust office at 999 Peachtree Street, N.E., Suite 1100, Atlanta, Georgia 30309, Attention: Corporate Trust Department, as trustee (the "Trustee") for the holders (the "Holders") of the Notes (as defined herein) issued by the Pledgor under the Indenture referred to below. W I T N E S S E T H: WHEREAS, Pledgor and FaciliCom International, Inc., a Delaware Corporation ("FaciliCom") and certain shareholders of FaciliCom have entered into an Agreement and Plan of Merger, dated as of August 17, 1999, with respect to the merger (the "Merger") of FaciliCom with and into the Pledgor and in connection with the Merger the Pledgor has offered to exchange its 13.25% Senior Notes due 2008 (the "Notes") and certain other consideration for FaciliCom's outstanding 10.5% Senior Notes due 2008 (the "FaciliCom Notes"). WHEREAS, the Pledgor and the Trustee (as defined herein), have entered into that certain indenture dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Pledgor is issuing the Notes on the date hereof; WHEREAS, pursuant to the Indenture, the Pledgor is required to deposit Collateral and pledge to the Trustee for the benefit of the Holders of the Notes, on the Exchange Date (as defined in the Indenture) Pledged Securities (as defined in the Indenture), in an amount that will be sufficient upon receipt of scheduled interest and principal payments of such securities, in the opinion of a nationally recognized firm of independent public accountants selected by the Pledgor and delivered to the Trustee, to provide for payment of scheduled interest due on the Notes in an amount (the "Pledge Amount") equal to the aggregate amount of scheduled interest payments that would be due on the Notes on or prior to January 15, 2001 assuming an interest rate of 10.5% instead of 13.25%, to secure the Pledgor's obligation to provide for payment of the scheduled interest payments due on the Notes on or prior to January 15, 2001 (such obligation, together with the obligation to repay the principal, premium and interest on the Notes in the event that the Notes become due and payable prior to such time as the scheduled interest payments thereon shall have been paid in full, being collectively referred to herein as the "Obligations"); WHEREAS, the Pledgor has opened a securities account (the "Pledge Account") with First Union National Bank, as Securities Intermediary (the "WAXS Securities Intermediary"), at its office at 999 Peachtree Street, N.E., Suite 1100, Atlanta, Georgia 30309, Account No.__ (designated "Pledge Account pledged by World Access, Inc. to First Union 5 National Bank as Trustee and Sole Entitlement Holder"), in the name of the Pledgor but under the sole dominion and control of the Trustee and subject to the terms of this Pledge Agreement; WHEREAS, the Pledgor has opened a non-interest bearing cash collateral account (the "Cash Collateral Account") with the WAXS Securities Intermediary, at its office at 999 Peachtree Street, N.E., Atlanta, Georgia 30309, Account No. [l] (designated "Cash Collateral Account pledged by World Access, Inc. to First Union National Bank, as Trustee"), in the name of the Pledgor but under the sole dominion and control of the Trustee and subject to the terms of this Pledge Agreement; WHEREAS, to secure the Obligations of the Pledgor, the Pledgor has agreed as part of the exchange of the Notes for the FaciliCom Notes to execute and deliver this Pledge Agreement and pledge to the Trustee, for its benefit and the ratable benefit of the Holders of the Notes, the Pledged Securities and the related Collateral in order to secure the payment by the Pledgor of all the Obligations. NOW, THEREFORE, in consideration of the premises herein contained, and in order to induce the Holders of the Notes to accept the Notes in exchange for the FaciliCom Notes, the Pledgor and the Trustee hereby agree, for the benefit of the Trustee and for the ratable benefit of the Holders of the Notes, as follows: SECTION 1. Definitions, Appointment; Deposit and Investment. 1.1 Definitions. (a) Unless otherwise defined in this Pledge Agreement, terms defined or referenced in the Indenture are used in this Pledge Agreement as such terms are defined or referenced therein. (b) Unless otherwise defined in the Indenture or in this Pledge Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of New York from time to time and/or in Section 357.2 of the Treasury Regulations (as defined in Section 1.1(c)) are used in this Pledge Agreement as such terms are defined in such Article 8 or 9 and/or such Section 357.2. Such terms shall include, but not be limited to, "book-entry security," "certificated security", "entitlement holder", "CUBES", "entitlement order", "financial asset", "instrument", "participant's securities account", "proceeds", "securities account", "securities intermediary", "security", "security entitlement" and "STRIPS". (c) In this Pledge Agreement the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adverse Claim" has the meaning specified in UCC ss. 8-102(a) (1). 6 "Cash Collateral Account" has the meaning specified in Preliminary Statements hereof. "Cash Equivalents" means any of the following, to the extent owned by the Pledgor free and clear of all liens other than liens created hereunder: (a) U.S. Government Obligations, (b) insured certificates of deposit of, or time deposits with, any commercial bank that (i) is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c), (iii) is organized under the laws of the United States of America or any State thereof and (iv) has combined capital and surplus of at least $500 million, (c) commercial paper in an aggregate amount of no more than $5 million per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-l" (or the then equivalent grade) by Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies or (d) overnight repurchase agreements (including overnight repurchase agreements between the Trustee and the WAXS Securities Intermediary) secured by U.S. Government Obligations. "Certificated Security" has the meaning specified in Section 8-103(a)(4) of the UCC. "CFR" means U.S. Code of Federal Regulations. "Collateral" has the meaning specified in Section 1.3. "Collateral Accounts" means the Pledge Account and the Cash Collateral Account. "Deposit Account" has the meaning specified in Section 9-105 (e) of the UCC. "Entitlement Holder" has the meaning specified in UCC ss. 8-102(a)(7). "Entitlement Order" has the meaning specified in UCC ss. 8-102(a)(8). "Financial Asset" has the meaning specified in UCC ss. 8-102(a)(9). "FRBB" means Federal Reserve Bank of Richmond. "FRBB Account" means the participant's securities account maintained in the name of the WAXS Securities Intermediary by the FRBB. 3 7 "FRBB Member": any Person that is eligible to maintain (and that maintains) with the FRBB one or more FRBB Member Securities Accounts in such Person's name. "FRBB Member Securities Account": in respect of any Person, an account in the name of such Person at the FRBB, to which account U.S. Government Obligations held for such Person are or may be credited. "General Intangibles" has the meaning specified in Section 9-106 of the UCC. "Instruments" has the meaning specified in Section 9-105 of the UCC. "Investment Property" has the meaning specified in UCC ss. 9-115(l)(f). "Lien": any lien, mortgage, security interest, charge, Adverse Claim or encumbrance of any kind, including the rights of a vendor, lessor, or similar party under any conditional sale agreement or other title retention agreement or lease substantially equivalent thereto. "Money" has the meaning specified in Section 1-201(24) of the UCC. "Pledgor" has the meaning specified in the recital of the parties hereto. "Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of the UCC and, in any event, shall include without limitation, all interest, dividends or other earnings, income or distributions from or in respect of, or from or in respect of investments or reinvestments of, the cash and Cash Equivalents and Investment Property from time to time on deposit in the Collateral Accounts, all collections and distributions with respect to the U.S. Government Obligations and all other proceeds of Collateral. "Securities Account" has the meaning specified in UCC ss. 8-501(a). "Securities Control": shall mean "control" as defined in UCC ss. 9-115(l)(e). "Securities Intermediary": a Person that is a "securities intermediary" (as defined in UCC ss. 8-102(a)(14)) and, in respect of any book-entry security, a "securities intermediary" (as defined in 31 C.F.R. ss. 357.2 or, as applicable to such Book-Entry Security, the corresponding Federal Book-Entry Regulations). "Security" has the meaning specified in Section 8-102(a)(15) of the UCC. "Security Certificate" has the meaning specified in Section 8-102(a)(16) of the UCC. 4 8 "Security Entitlement": as defined in UCC ss. 8-102(a)(17) or, in respect of any book-entry security, as defined in 31 C.F.R. ss. 357.2 (or, as applicable to such book-entry security, the corresponding Federal Book-Entry Regulations). "Settlement Date" means, as to any U.S. Government Obligations, the date on which the purchase of such U.S. Government Obligations shall have been settled. "Termination Date" means the earlier of (a) January 15, 2001 and (b) the date of the payment in full of all obligations due and owing under this Pledge Agreement, the Indenture and the Notes, in the event such obligations become due and payable prior to January 15, 2001. "Treasury Regulations" means (a) the federal regulations contained in 31 CFR Part 357 (including, without limitation, Section 357.2, Section 357.10 through Section 357.14 and Section 357.41 through Section 357.44 of 31 CFR) and (b) to the extent substantially identical to the federal regulations referred to in clause (a) above (as in effect from time to time) the federal regulations governing other U.S. Government Obligations. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Pledge Agreement until a successor Trustee shall have become such, and thereafter "Trustee" shall mean the Person who is then the Trustee hereunder. "UCC" means, unless otherwise specified herein, the Uniform Commercial as in effect in New York State. "Uncertificated Security" has the meaning specified in Section 8-102(a)(18) of the UCC. "U.S. Government Obligations" means Securities (including, without limitation, United States Treasury Securities, including Treasury bills, Treasury notes, Treasury bonds, STRIPS and CUBES) and the Security Entitlements in, and Financial Assets based on such Securities maintained in the form of entries in the commercial book-entry system of the FRBB and held for the related Entitlement Holder by a FRBB Member pursuant to the Treasury Regulations. "WAXS Securities Intermediary" has the meaning specified in the preliminary statements. 1.2 Appointment of the Trustee. The Pledgor hereby appoints the Trustee as Trustee in accordance with the terms and conditions set forth herein and the Trustee hereby accepts such appointment. 5 9 1.3 Pledge and Grant of Security Interest. As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Pledgor hereby grants to the Trustee for its benefit and for the ratable benefit of the Holders of the Notes, a lien on and security interest in all of the Pledgor's right, title and interest in, to and under the following property, (whether characterized as Certificated Securities or Uncertificated Securities, Financial Assets, Security Entitlements, Deposit Accounts, bank accounts, Securities Accounts, Money, Proceeds, Investment Property, General Intangibles or otherwise): (a) the U.S. Government Obligations identified by CUSIP No. in Schedule I [and Schedule II] to this Pledge Agreement (the "Pledged Securities"), the scheduled payments of principal and interest of which will be sufficient to provide for payment of scheduled interest due on the Notes in an amount equal to the Pledge Amount, (b) any and all applicable Security Entitlements to the Pledged Securities, (c) the Pledge Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Pledge Account, (d) all Collateral Investments (as hereinafter defined) and all certificates and instruments, if any, representing or evidencing the Collateral Investments, and any and all Security Entitlements to the Collateral Investments, and any and all related Securities Accounts in which any Security Entitlements to the Collateral Investments is carried, (e) the Cash Collateral Account, (f) all notes, certificates of deposit, Deposit Accounts, checks and other instruments, if any, from time to time hereafter delivered to or otherwise possessed by the Trustee for or on behalf of the Pledgor in substitution for or in addition to any or all of the then existing Collateral, (g) all interest, dividends, cash, instruments and other property, if any, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Collateral and (h) except as otherwise provided herein, all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) - (g) of this Section 1.3) (such property being collectively referred to herein as the "Collateral"). SECTION 2. Delivery of Collateral; Establishment of Collateral Accounts. (a) The Trustee has established with the WAXS Securities Intermediary, and at all times until the Termination Date, the Pledgor shall maintain with the WAXS Securities Intermediary, each of the Cash Collateral Account and the Pledge Account. The following provisions shall apply to the establishment and maintenance of each such Collateral Account: (i) The Trustee shall cause each Collateral Account to be, and each Collateral Account shall be, separate from all other accounts maintained by the Trustee. (ii) The Trustee shall, in accordance with all applicable laws, have sole dominion and control (including, without limitation, Securities Control) over each Collateral Account, and it shall be a term and condition of each Collateral Account and 6 10 the Pledgor irrevocably instructs the Trustee, notwithstanding any other term or condition to the contrary in any other agreement, that no Collateral shall be released to or for the account of, or withdrawn by or for the account of, the Pledgor or any other Person except as expressly provided in this Pledge Agreement. (iii) The Trustee shall, in accordance with and subject to all applicable laws, be the sole Entitlement Holder of, and have the power to originate Entitlement Orders with respect to, the Pledge Account and all U.S. Government Obligations, Securities, Security Entitlements and other Financial Assets held therein, and it shall be a term and condition of the Pledge Account that the Trustee shall have the right to issue such Entitlement Orders with respect to the Pledge Account and such Securities, Security Entitlements and other Financial Assets without further consent of the Pledgor, and that no Collateral shall be released to or for the account of, or withdrawn by or for the account of, the Pledgor or any other Person except as expressly provided in this Pledge Agreement. (b) On the Exchange Date, the Pledgor shall [(i) transfer, or cause to be transferred, to the Trustee an amount equal to $[__] by depositing all such proceeds into the Cash Collateral Account and (ii)] transfer, or cause to be transferred, to the Trustee the U.S. Government Obligation (in the name of the Trustee) listed on Schedule I hereto. (c) [As soon as possible after receipt of the amount referred to in Section 2(b)(i), (i) the Trustee shall apply such amount to purchase the U.S. Government Obligations (in the name of the Trustee) listed on Schedule II hereto,] and cause the WAXS Securities Intermediary to credit such U.S. Government Obligations, together with the U.S. Government Obligations listed on Schedule I hereto, to the Pledge Account as Collateral hereunder; and (ii) the Trustee shall ensure that, on the Settlement Date, the FRBB credits in the FRBB Account those U.S. Government Obligations being settled on such date. (d) The Trustee will, from time to time, reinvest the proceeds of Collateral that may mature or be sold in such Collateral Investments (in the name of the Trustee) as it may be directed in writing by the Pledgor, and cause such Collateral Investments to be credited to the Pledge Account as Collateral hereunder. Such proceeds that are not so reinvested in Collateral Investments shall be deposited and held in the Cash Collateral Account. SECTION 3. Delivery of the Pledged Securities. (a) The Pledged Securities shall be pledged and delivered to the Pledge Account and the Trustee shall become the Entitlement Holder of a Security Entitlement to the Pledged Securities through action by the WAXS Securities Intermediary, as confirmed (in writing or electronically or otherwise in accordance with standard industry practice) to the Trustee by the WAXS Securities Intermediary (i) indicating by book-entry that the Pledged Securities and all Security Entitlements thereto have been credited to the Pledge Account, or (ii) 7 11 acquiring the Pledged Securities and all Security Entitlements thereto for the Trustee and accepting the same for credit to the Pledge Account. (b) Prior to or concurrently with the execution and delivery hereof and prior to the transfer to the Trustee of the Pledged Securities (or acquisition by the Trustee of any Security Entitlement thereto), as provided in subsection (a) of this Section 3, the Trustee and the WAXS Securities Intermediary shall establish the Pledge Account on the books of the WAXS Securities Intermediary as Securities Account segregated from all other custodial or collateral accounts such account to be maintained either (i) directly at its offices located at 999 Peachtree Street, N.E., Suite 1100, Atlanta, Georgia 30309 or (ii) through a "Securities Account" maintained by the WAXS Securities Intermediary at the FRBB, as Securities Intermediary. Upon transfer of the Pledged Securities to the Trustee (or the Trustee's acquisition of a Security Entitlement thereto), as confirmed to the WAXS Securities Intermediary by FRBB or another securities intermediary, the WAXS Securities Intermediary shall make appropriate book entries indicating that the Pledged Securities and/or such Security Entitlement have been credited to and are held in the Pledge Account. Subject to the other terms and conditions of this Pledge Agreement, all funds or other property held by the Trustee pursuant to this Pledge Agreement shall be held in the Pledge Account or the Cash Collateral Account subject (except as expressly provided in Section 6 hereof) to the exclusive dominion and control (including, without limitation, Securities Control) of the Trustee and exclusively for the benefit of the Trustee and for the ratable benefit of the Holders of the Notes and segregated from all other funds or other property otherwise held by the Trustee. (c) All Collateral shall be retained in the Pledge Account or the Cash Collateral Account pending disbursement pursuant to the terms hereof. (d) Concurrently with the execution and delivery of this Pledge Agreement, the Trustee is delivering to the Pledgor and the Initial Purchasers a duly executed certificate, in the form of Exhibit A hereto, of an officer of the Trustee, confirming the Trustee's establishment and maintenance of the Pledge Account with the WAXS Securities Intermediary and its receipt and holding of the Pledge Securities or a Security Entitlement thereto and the crediting of the Pledged Securities or such Security Entitlement to the Pledge Account, all in accordance with this Pledge Agreement. (e) Concurrently with the execution and delivery of this Pledge Agreement, the Pledgor is delivering to the Trustee an opinion of a nationally recognized firm of independent public accountants, selected by the Pledgor, substantially in the form of Exhibit B hereto. (f) Concurrently with the execution and delivery of this Pledge Agreement, the Pledgor is delivering to the Trustee financing statements in form acceptable for filing under 8 12 the UCC of the State of New York, [__] and the State of Georgia, covering the Collateral described in this Pledge Agreement. SECTION 4. Delivery of Collateral Other than U.S. Government Obligations. (a) Collateral consisting of cash will be deemed to be delivered to the Trustee (such that the Trustee will have an enforceable lien and security interest thereon and therein), when it has been (and for so long as it shall remain) deposited in or credited to the Cash Collateral Account. (b) Collateral consisting of Cash Equivalents (other than U.S. Government Obligations) will be deemed to be delivered to the Trustee (such that the Trustee will have an enforceable lien and security interest thereon and therein), when they have been (and for so long as they shall remain) deposited in or credited to either Collateral Account. (c) Collateral consisting of Securities (other than U.S. Government Obligations) will be deemed delivered to the Trustee when the WAXS Securities Intermediary (A) shall indicate by book entry that such Securities have been credited to the Pledge Account or (B) shall receive such Security (or a Financial Asset based on such Security) for the Trustee from or at the direction of the Pledgor, and shall accept such Security (or such Financial Asset) for credit to such Collateral Account; (d) Collateral consisting of Securities and represented or evidenced by certificates or instruments, will be deemed delivered to the Trustee when all such certificates or instruments representing or evidencing the Collateral, including, without limitation, amounts invested as provided in Section 5, shall be delivered to the WAXS Securities Intermediary and held by or on behalf of the Trustee pursuant hereto and shall be in registered form and specially indorsed to the Trustee by an effective indorsement, all in form and substance sufficient to convey a valid security interest in such Collateral to the Trustee or shall be credited to the Pledge Account. SECTION 5. Investing of Amounts in the Collateral Accounts. If at any time, any amounts shall exist in the Collateral Accounts uninvested, and if directed in writing by the Pledgor, the Trustee will, subject to the provisions of Section 6 and Section 13, (a) invest such amounts on deposit in the Collateral Accounts in such Cash Equivalents in the name of the Trustee as the Pledgor may select and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash Equivalents in the name of the Trustee, as the Pledgor may select and the Trustee may approve (the Cash Equivalents referred to in clauses (a) and (b) above, together with the Pledged Securities, being collectively referred to herein as "Collateral 9 13 Investments"). Except as otherwise provided in Sections 11 and 12, the Trustee shall not be liable for any loss in the investment or reinvestment of amounts held in the Collateral Accounts. SECTION 6. Disbursements. The Trustee shall hold the Collateral in the Collateral Accounts and release the same, or a portion thereof, only as follows: (a) At least one Business Day prior to the due date of any of the scheduled interest payments on the Notes on or prior to January 15, 2001, the Pledgor may, pursuant to written instructions executed by the Pledgor (an "Issuer Order"), direct the Trustee to release from the Collateral Accounts and pay to the Holders of the Notes proceeds sufficient to provide for payment in full (or, with respect to the interest payment date on January 15, 2001, in part) of such interest then due on the Notes; provided, however, that in the event Collateral is required to be liquidated, the Pledgor will give the Trustee at least three Business Days' notice. Upon receipt of an Issuer Order, the Trustee will take any action necessary to provide for the payment of the interest on the Notes to the Holders of the Notes in accordance with the payment provisions of the Indenture from (and to the extent of) proceeds of the Collateral in the Collateral Accounts. Nothing in this Section 6 shall affect the Trustee's rights to apply the Collateral to the payments of amounts due on the Notes upon acceleration thereof. (b) If the Pledgor makes any interest payment or portion of an interest payment for which the Collateral is security from a source of funds other than the Collateral Accounts ("Pledgor Funds"), the Pledgor may, after payment in full of such interest payment or portion thereof from proceeds of the Collateral or such Pledgor Funds or both, direct the Trustee by Issuer Order to release to the Pledgor or to another party at the direction of the Pledgor (the "Pledgor's Designee") proceeds from the Collateral Accounts in an amount less than or equal to the amount of Pledgor Funds applied to such interest payment. Upon receipt of such Issuer Order by the Trustee, the Trustee shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, the requested amount from proceeds in the Collateral Accounts. Concurrently with any release of funds to the Pledgor pursuant to this Section 6(b), the Pledgor shall deliver to the Trustee a certificate signed by an officer of the Pledgor stating that the Pledgor has made the interest payment from a source of funds other than the Pledge Account, and that such release has been duly authorized by the Pledgor and will not contravene any provision of applicable law or Certificate of Incorporation or the By-laws of the Pledgor or any material agreement or other material instrument binding upon the pledgor or any of its subsidiaries or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Pledgor or any of its subsidiaries or result in the creation or imposition of any Lien on any assets of the Pledgor, except for the security interest granted under the Pledge Agreement. (c) At least one Business Day prior to the due date of any of the scheduled interest payments on the Notes on or prior to January 15, 2001, the Pledgor covenants to give the Trustee (by Issuer Order) notice as to whether payment of interest will be made pursuant to Section 6(a) or 6(b) and as to the respective amounts of interest that will be paid pursuant to 10 14 Section 6(a) or 6(b); provided, however, that, in the event Collateral is required to be liquidated, the Pledgor will give the Trustee at least three Business Days' notice. If no such notice is given, the Trustee will, subject to Section 6(d), act pursuant to Section 6(a) as if it had received an Issuer Order pursuant thereto for the payment in full of the interest then due. (d) The Trustee shall not be required to liquidate any Collateral Investments in order to make any scheduled payment of interest or any release hereunder unless instructed to do so by Issuer Order or pursuant to Section 13 hereof. (e) Upon the Termination Date, the security interest in the Collateral evidenced by this Pledge Agreement will automatically terminate and be of no further force and effect and the Collateral, upon receipt by the Trustee of an Issuer Order, shall promptly be paid over and transferred to the Pledgor. (f) In the event that the Collateral held in the Pledge Account exceeds 100% of the amount sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by the Pledgor, to provide for payment of the scheduled interest due on the Notes in an amount equal to the Pledge Amount (or, in the event an interest payment or payments have been made, the Pledge Amount less an amount equal to any interest previously paid) the Trustee shall release to the Pledgor, at the Pledgor's written request, accompanied by an opinion prepared by a nationally recognized firm of independent public accountants, any such excess Collateral. (g) Upon the release of any Collateral from the Pledge Account, in accordance with the terms of this Pledge Agreement, the security interest evidenced by this Pledge Agreement in such released Collateral will automatically terminate and be of no further force and effect. (h) Nothing contained in Section 1, Section 13, this Section 6 or any other Provision of this Pledge Agreement shall (i) afford the Pledgor any right to issue Entitlement Orders with respect to any Security Entitlement to the Pledge Securities or Collateral Investments or any Securities Account in which any such Security Entitlement may be carried, or otherwise afford the Pledgor control of any such Security Entitlement or (ii) otherwise give rise to any rights of the Pledgor with respect to the Collateral Investments, any Security Entitlement thereto or any Securities Account in which any such Security Entitlement may be carried, other than the Pledgor's rights under this Pledge Agreement as the beneficial owner of Collateral pledged to and subject to the exclusive dominion and control (including, without limitation, Securities Control) (except as expressly provided in this Section 6) of the Trustee in its capacity as such (and not as a Securities Intermediary). The Pledgor acknowledges, confirms and agrees 11 15 that the Trustee holds a Security Entitlement to the Collateral Investments solely as trustee for the Holders of the Notes and not as a Securities Intermediary for the Pledgor. SECTION 7. Representations and Warranties. The Pledgor hereby represents and warrants, as of the date hereof, that: (a) The execution and delivery by the Pledgor of, and the performance by the Pledgor of its obligations under, this Pledge Agreement will not contravene any provision of applicable law or the Certificate of Incorporation or By-laws of the Pledgor or any material agreement or other material instrument binding upon the Pledgor or any of its subsidiaries or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Pledgor or any of its subsidiaries, or result in the creation or imposition of any Lien on any assets of the Pledgor, except for the security interests granted under this Pledge Agreement; no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required (i) for the performance by the Pledgor of its obligations under this Pledge Agreement, (ii) for the pledge by the Pledgor of the Collateral pursuant to this Pledge Agreement or (iii) except for any such consents, approvals, authorizations or orders required to be obtained by the Trustee (or the Holders) for reasons other than the consummation of this transaction, for the exercise by the Trustee of the rights provided for in this Pledge Agreement or the remedies in respect of the Collateral pursuant to this Pledge Agreement. (b) The Pledgor is the beneficial owner of the Collateral, free and clear of any Lien or claims of any person or entity (except for the security interests granted under this Pledge Agreement). No financing statement covering the Pledgor's interest in the Collateral is on file in any public office other than the financing statements, if any, filed pursuant to this Pledge Agreement. (c) This Pledge Agreement has been duly authorized, validly executed and delivered by the Pledgor and (assuming the due authorization and valid execution and delivery of this Pledge Agreement by the Trustee and enforceability of the Pledge Agreement against the Trustee in accordance with its terms) constitutes a valid and binding agreement of the Pledgor, enforceable against the Pledgor in accordance with its terms, except as (i) the enforceability hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, preference, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors generally, (ii) the availability of equitable remedies may be limited by equitable principles of general applicability and the discretion of the court before which any proceeding therefor may be brought, (iii) the exculpation provisions and rights to indemnification hereunder may be limited by U.S. federal and state securities laws and public policy considerations and (iv) the waiver of rights and defenses contained in Section 13(b), Section 17.11 and Section 17.15 hereof may be limited by applicable law. 12 16 (d) Upon the delivery to the Trustee of the Collateral in accordance with the procedures described in Section 3 and Section 4 hereof, the pledge of and grant of a security interest in the Collateral securing the payment of the Obligations for the benefit of the Trustee and the Holders of the Notes will constitute a valid, first priority, perfected security interest in such Collateral (except, with respect to Proceeds, only to the extent permitted by Section 9-306 of the UCC), enforceable as such against all creditors of the Pledgor and any persons purporting to purchase any of the Collateral from the Pledgor, except in each case as enforcement may be affected by general equitable principles (whether considered in a proceeding in equity or at law) and other than as permitted by the Indenture. (e) There are no legal or governmental proceedings pending or, to the best of the Pledgor's knowledge, threatened to which the Pledgor or any of its subsidiaries is a party or to which any of the properties of the Pledgor or any of its subsidiaries is subject that would materially adversely affect the power or ability of the Pledgor to perform its obligations under this Pledge Agreement or to consummate the transactions contemplated hereby. (f) The pledge of the Collateral pursuant to this Pledge Agreement is not prohibited by law or governmental regulation (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System) applicable to the Pledgor. (g) No Event of Default (as defined herein) exists. SECTION 8. Further Assurances. The Pledgor will, promptly upon the request by the Trustee (which request the Trustee may submit at the direction of the Holders of a majority in aggregate principal amount of the Notes then outstanding), execute and deliver or cause to be executed and delivered, or use its reasonable best efforts to procure, all assignments, instruments and other documents, all in form and substance reasonably satisfactory to the Trustee, deliver any instruments to the Trustee and take any other actions that are necessary or desirable to perfect, continue the perfection of, or protect the first priority of the Trustee's security interest in and to the Collateral, to protect the Collateral against the rights, claims or interests of third persons (other than any such rights, claims or interests created by or arising through the Trustee) or to effect the purposes of this Pledge Agreement. The Pledgor also hereby authorizes the Trustee to file any financing or continuation statements in the United States with respect to the Collateral without the signature of the Pledgor (to the extent permitted by applicable law). The Pledgor will promptly pay all reasonable costs incurred in connection with any of the foregoing within 45 days of receipt of an invoice therefor. The Pledgor also agrees, whether or not requested by the Trustee, to use its reasonable best efforts to perfect or continue the perfection of, or to protect the first priority of, the Trustee's security interest in and to the Collateral, and to protect the Collateral against the rights, claims or interests of third persons (other than any such rights, claims or interests created by or arising through the Trustee). 13 17 SECTION 9. Covenants. The Pledgor covenants and agrees with the Trustee and the Holders of the Notes that from and after the date of this Pledge Agreement until the Termination Date: (a) that it will not (i) (and will not purport to) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Collateral nor (ii) create or permit to exist any Lien upon or with respect to any of the Collateral (except for the security interests granted under this Pledge Agreement and any Lien created by or arising through the Trustee) and at all times will be the sole beneficial owner of the Collateral; and (b) that it will not (i) enter into any agreement or understanding that restricts or inhibits or purports to restrict or inhibit the Trustee's rights or remedies hereunder, including, without limitation, the Trustee's right to sell or otherwise dispose of the Collateral or (ii) fail to pay or discharge any tax, assessment or levy of any nature with respect to the Collateral not later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment with respect to the Collateral. SECTION 10. Power of Attorney. In addition to all of the powers granted to the Trustee pursuant to the Indenture, subject to the terms of this Pledge Agreement, the Pledgor hereby appoints and constitutes the Trustee as the Pledgor's attorney-in-fact (with full power of substitution) to exercise to the fullest extent permitted by law all of the following powers upon and at any time after the occurrence and during the continuance of an Event of Default: (a) collection of proceeds of any Collateral; (b) conveyance of any item of Collateral to any purchaser thereof; (c) giving of any notices or recording of any Liens under Section 3 hereof; and (d) paying or discharging taxes or Liens levied or placed upon the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Trustee in its sole reasonable discretion, and such payments made by the Trustee to become part of the Obligations of the Pledgor to the Trustee, due and payable immediately upon demand. The Trustee's authority under this Section 10 shall include, without limitation, the authority to endorse and negotiate any checks or instruments representing proceeds of Collateral in the name of the Pledgor, execute and give receipt for any certificate of ownership or any document constituting Collateral, transfer title to any item of Collateral, sign the Pledgor's name on all financing statements (to the extent permitted by applicable law) or any other documents deemed necessary or appropriate by the Trustee in its reasonable discretion to preserve, protect or perfect the security interest in the Collateral and to file the same, prepare, file and sign the Pledgor's name on any notice of Lien, and to take any other actions arising from or incident to the powers granted to the Trustee in this Pledge Agreement. This power of attorney is coupled with an interest and is irrevocable by the Pledgor. SECTION 11. No Assumption of Duties; Reasonable Care. The rights and powers granted to the Trustee hereunder are being granted in order to preserve and protect the 14 18 security interest of the Trustee and the Holders of the Notes in and to the Collateral granted hereby and shall not be interpreted to, and shall not impose any duties on, the Trustee in connection therewith other than those expressly provided herein or imposed under applicable law. Except as provided by applicable law or by the Indenture, the Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Trustee accords similar property held by the Trustee for similar accounts, it being understood that the Trustee in its capacity as such shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities or other matters relative to any Collateral, whether or not the Trustee has or is deemed to have knowledge of such matters, (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral or (c) investing or reinvesting any of the Collateral; provided, however, that nothing contained in this Pledge Agreement shall relieve the Trustee of any responsibilities as a securities intermediary under applicable law. SECTION 12. Indemnity. (a) The Pledgor shall indemnify, hold harmless and defend the Trustee and its directors, officers, agents, employees and attorneys from and against any and all claims, actions, obligations, liabilities and expenses, including reasonable defense costs, reasonable investigative fees and costs, and reasonable legal fees and damages arising from the Trustee's performance as Trustee under this Pledge Agreement, except to the extent that such claim, action, obligation, liability or expense is directly attributable to the bad faith, gross negligence or wilful misconduct of such indemnified person. The provisions of this Section 12 shall survive termination of this Pledge Agreement and the resignation and removal of the Trustee. (b) The Pledgor shall indemnify, hold harmless and defend the WAXS Securities Intermediary and its directors, officers, agents, employees and attorneys from and against any and all claims, actions, obligations, liabilities and expenses, including reasonable defense costs, reasonable investigative fees and costs, and reasonable legal fees and damages arising from the WAXS Securities Intermediary's performance as WAXS Securities Intermediary under this Pledge Agreement, except to the extent that such claim, action, obligation, liability or expense is directly attributable to the bad faith, gross negligence or wilful misconduct of such indemnified person. The provisions of this Section 12 shall survive termination of this Pledge Agreement and the resignation and removal of the WAXS Securities Intermediary. SECTION 13. Remedies upon Event of Default. If any Event of Default under the Indenture or default hereunder (any such Event of Default or default being referred to in this Pledge Agreement as an "Event of Default") shall have occurred and be continuing: 15 19 (a) The Trustee and the Holders of the Notes shall have, in addition to all other rights given by law or by this Pledge Agreement or the Indenture, all of the rights and remedies with respect to the Collateral of a secured party under the UCC in effect in the States of New York and Georgia at that time. In addition, with respect to any Collateral that shall then be in or shall thereafter come into the possession or custody of the Trustee, the Trustee may and, at the direction of the Holders of a majority in aggregate principal amount of the Notes then outstanding, shall appoint a broker or other expert to sell or cause the same to be sold at any broker's board or at public or private sale, in one or more sales or lots, at such price or prices such broker or other expert may deem best, for cash or on credit or for future delivery, without assumption of any credit risk. The purchaser of any or all Collateral so sold shall thereafter hold the same absolutely, free from any claim, encumbrance or right of any kind whatsoever created by or through the Pledgor. Unless any of the Collateral threatens, in the reasonable judgment of the Trustee, to decline speedily in value, the Trustee will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, insurance companies, commercial finance companies, or other financial institutions disposing of property similar to the Collateral shall be deemed to be commercially reasonable. Any requirements of reasonable notice shall be met if such notice is mailed to the Pledgor as provided in Section 17.1 hereof at least ten (10) days before the time of the sale or disposition. The Trustee or any Holder of Notes may, in its own name or in the name of a designee or nominee, buy any of the Collateral at any public sale and, if permitted by applicable law, at any private sale. All expenses (including court costs and reasonable attorneys' fees, expenses and disbursements) of, or incident to, the enforcement of any of the provisions hereof shall be recoverable from the proceeds of the sale or other disposition of the Collateral. (b) The Pledgor further agrees to use its reasonable best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Collateral pursuant to this Section 13 valid and binding and in compliance with any and all other applicable requirements of law. The Pledgor further agrees that a breach of any of the covenants contained in this Section 13 will cause irreparable injury to the Trustee and the Holders of the Notes, that the Trustee and the Holders of the Notes have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 13 shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred. SECTION 14. Expenses. The Pledgor will upon demand pay to the Trustee the amount of any and all reasonable expenses, including, without limitation, the reasonable fees, expenses and disbursements of its counsel, experts and agents retained by the Trustee, that the Trustee may incur in connection with (a) the review, negotiation and administration of this Pledge Agreement, (b) the custody or preservation of, or the sale of, collection from, or other 16 20 realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of the Trustee and the Holders of the Notes hereunder or (d) the failure by the Pledgor to perform or observe any of the provisions hereof. SECTION 15. Security Interest Absolute. All rights of the Trustee and the Holders of the Notes and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Indenture or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Indenture; (c) any exchange, surrender, release or non-perfection of any Liens on any other collateral for all or any of the Obligations; or (d) to the extent permitted by applicable law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Obligations or of this Pledge Agreement. SECTION 16. WAXS Securities Intermediary's Representations, Warranties and Covenants. The WAXS Securities Intermediary represents and warrants that it is as of the date hereof, and it agrees that for so long as it maintains the Collateral Accounts and acts as the Securities Intermediary pursuant to this Pledge Agreement it shall be a Securities Intermediary and a FRBB Member. In furtherance of the foregoing the WAXS Securities Intermediary hereby: (a) represents and warrants that it is a national banking association that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity hereunder and with respect to the Pledge Account; (b) represents and warrants that it maintains a FRBB Member Securities Account with the FRBB; (c) agrees that the Pledge Account shall be an account to which Financial Assets may be credited, and the WAXS Securities Intermediary undertakes to treat the Trustee as entitled to exercise rights that comprise (and entitled to the benefits of) such Financial Assets, and entitled to exercise the rights of an Entitlement Holder in the manner contemplated by the UCC; 17 21 (d) hereby represents that it has not granted, and covenants that so long as it acts as a Securities Intermediary hereunder it shall not grant, control (including without limitation, Securities Control) over or with respect to any Collateral credited to any Collateral Account from time to time to any other Person other than the Trustee. (e) covenants that in its capacity as WAXS Securities Intermediary hereunder and with respect to the Collateral Accounts, it shall not take any action inconsistent with, and represents and covenants that it is not and so long as this Pledge Agreement remains in effect will not become party to any agreement the terms of which are inconsistent with the provisions of this Pledge Agreement; (f) agrees that any item of property credited to the Pledge Account shall be treated as a Financial Asset; (g) agrees that any item of Collateral credited to any Collateral Account shall not be subject to any security interest, Lien or right of set-off in favor of the WAXS Securities Intermediary, except as may be expressly permitted under the Indenture (and the WAXS Securities Intermediary shall take such actions as shall be necessary and appropriate to cause such Collateral to remain free of any Lien or security interest of any underlying Securities Intermediary through which the WAXS Securities Intermediary holds such Collateral or any Security Entitlement thereto); (h) agrees, so long as it serves as WAXS Securities Intermediary pursuant to this Pledge Agreement, to maintain the Collateral Accounts and maintain appropriate books and records in respect thereof in accordance with its usual procedures and subject to the terms of this Pledge Agreement; and (i) agrees, with the other parties to this Pledge Agreement, that the WAXS Security Intermediary's jurisdiction, for purposes of Section 8-110(e) of the UCC as it pertains to this Pledge Agreement, the Collateral Accounts and the Security Entitlements relating thereto, shall be the State of New York. SECTION 17. Miscellaneous Provisions. 17.1 Notices. Any notice, approval, consent or other communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail, commercial courier service or telecopier communication, addressed as follows: 18 22 if to the Pledgor: World Access, Inc. 945 East Paces Ferry Road Suite 2200 Atlanta, Georgia 30326 Attention: Mark A. Gergel Telecopier No.: (404) 231-2025 with a copy to: Long Aldridge & Norman LLP 5300 One Peachtree Center 303 Peachtree Street Atlanta, Georgia 30308-3201 Attention: Leonard A. Silverstein, Esq. Telecopier No.: (404) 527-4000 if to the Trustee: First Union National Bank 999 Peachtree Street, N.E., Suite 1100 Atlanta, Georgia 30309 Attention: Corporate Trust Department Telecopier No.: (404) 827-7305 17.2 No Adverse Interpretation of Other Agreements. This Pledge Agreement may not be used to interpret another pledge, security or debt agreement of the Pledgor or any subsidiary thereof. No such pledge, security or debt agreement (other than the Indenture) may be used to interpret this Pledge Agreement. 17.3 Severability. The provisions of this Pledge Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Pledge Agreement in any jurisdiction. 17.4 Headings. The headings in this Pledge Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 19 23 17.5 Counterpart Originals. This Pledge Agreement may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. 17.6 Benefits of Pledge Agreement. Nothing in this Pledge Agreement, express or implied, shall give to any person, other than the parties hereto and their successors hereunder, and the Holders of the Notes, any benefit or any legal or equitable right, remedy or claim under this Pledge Agreement. 17.7 Amendments, Waivers and Consents. Any amendment or waiver of any provision of this Pledge Agreement and any consent to any departure by the Pledgor from any provision of this Pledge Agreement shall be effective only if made or duly given in compliance with all of the terms and provisions of the Indenture, and neither the Trustee nor any Holder of Notes shall be deemed, by any act, delay, indulgence, omission or otherwise, to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. Failure of the Trustee or any Holder of Notes to exercise, or delay in exercising, any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that the Trustee or such Holder of Notes would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 17.8 Interpretation of Agreement. All terms not defined herein or in the Indenture shall have the meaning set forth in the UCC, except where the context otherwise requires. To the extent a term or provision of this Pledge Agreement conflicts with the Indenture, the Indenture shall control with respect to the subject matter of such term or provision. Acceptance of or acquiescence in a course of performance rendered under this Pledge Agreement shall not be relevant to determine the meaning of this Pledge Agreement even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. 17.9 Continuing Security Interest; Termination. (a) This Pledge Agreement shall create a continuing security interest in and to the Collateral and shall, unless otherwise provided in the Indenture or in this Pledge Agreement, remain in full force and effect until the payment in full in cash of the Obligations. This Pledge Agreement shall be binding upon the Pledgor, its transferees, successors and assigns, and shall inure, together with the rights and remedies of the Trustee hereunder, to the benefit of the Trustee, the Holders of the Notes and their respective successors, transferees and assigns. 20 24 (b) In addition to the provisions of Section 6(e) hereof and subject to the provisions of Section 17.10 hereof, this Pledge Agreement shall terminate upon the payment in full in cash of the Obligations. At such time, and subject to Section 12, the Trustee shall, pursuant to an Issuer Order, reassign and redeliver to the Pledgor all of the Collateral hereunder that has not been sold, disposed of, retained or applied by the Trustee in accordance with the terms of this Pledge Agreement and the Indenture. Such reassignment and redelivery shall be without warranty by or recourse to the Trustee in its capacity as such, except as to the absence of any Liens on the Collateral created by or arising through the Trustee, and shall be at the reasonable expense of the Pledgor. 17.10 Survival Provisions. All representations, warranties and covenants of the Pledgor contained herein shall survive the execution and delivery of this Pledge Agreement, and shall terminate only upon the termination of this Pledge Agreement. The obligations of the Pledgor under Sections 12 and 14 hereof shall survive the termination of this Pledge Agreement. 17.11 Waivers. The Pledgor waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or default with respect to any of the Obligations, and all other notices to which the Pledgor might otherwise be entitled, except as otherwise expressly provided herein or in the Indenture. 17.12 Authority of the Trustee. (a) The Trustee shall have and be entitled to exercise all powers hereunder that are specifically granted to the Trustee by the term hereof, together with such powers as are reasonably incident thereto. The Trustee may perform any of its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Except as otherwise expressly provided in this Pledge Agreement or the Indenture, neither the Trustee nor any director, officer, employee, attorney or agent of the Trustee shall be liable to the Pledgor for any action taken or omitted to be taken by the Trustee, in its capacity as Trustee, hereunder, except for its own bad faith, gross negligence or willful misconduct, and the Trustee shall not be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Trustee and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document believed by it or them to be genuine and correct and to have been signed or sent by the proper person or persons. The Trustee shall have no duty to cause any financing statement or continuation statement to be filed in respect of the Collateral. (b) The Pledgor acknowledges that the rights and responsibilities of the Trustee under this Pledge Agreement with respect to any action taken by the Trustee or the 21 25 exercise or non-exercise by the Trustee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Trustee and the Holders of the Notes, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Trustee and the Pledgor, the Trustee shall be conclusively presumed to be acting as agent for the Holders of the Notes with full and valid authority so to act or refrain from acting, and the Pledgor shall not be obligated or entitled to make any inquiry respecting such authority. 17.13 Final Expression. This Pledge Agreement, together with the Indenture and any other agreement executed in connection herewith, is intended by the parties as a final expression of this Pledge Agreement and is intended as a complete and exclusive statement of the terms and conditions thereof. 17.14 Rights of Holders of the Notes. No Holder of Notes shall have any independent rights hereunder other than those rights granted to individual Holders of the Notes pursuant to Section 607 of the Indenture; provided that nothing in this subsection shall limit any rights granted to the Trustee under the Notes or the Indenture. 17.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING THE FOREGOING, THE MATTERS IDENTIFIED IN 31 C.F.R. ss.ss. 357.0 AND 357.11 (AS IN EFFECT ON THE DATE OF THIS PLEDGE AGREEMENT) SHALL BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN. (b) THE PLEDGOR HEREBY APPOINTS CORPORATION SERVICE COMPANY AS ITS AGENT FOR SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE AGREEMENT AND FOR ACTIONS BROUGHT UNDER THE U.S. FEDERAL OR STATE SECURITIES LAWS BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK (EACH A "NEW YORK COURT"). EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION OF ANY NEW YORK COURT AND TO THE COURTS OF ITS CORPORATE DOMICILE WITH RESPECT TO ANY ACTIONS BROUGHT AGAINST IT 22 26 AS DEFENDANT IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND EACH OF THE PARTIES HERETO WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LAYING OF VENUE, INCLUDING ANY PLEADING OF FORUM NON CONVENIENS, WITH RESPECT TO ANY SUCH ACTION AND WAIVES ANY RIGHT TO WHICH IT MAY BE ENTITLED ON ACCOUNT OF PLACE OF RESIDENCE OR DOMICILE. (c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. (d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR (EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE, JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. (e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE 23 27 TRUSTEE OR ANY HOLDER OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER PERTAINING TO THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR, ON THE ONE HAND, AND THE TRUSTEE AND/OR THE HOLDERS OF THE NOTES, ON THE OTHER HAND. 17.16 Effectiveness. This Pledge Agreement shall become effective upon the effectiveness of the Indenture. 24 28 IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this Pledge Agreement to be duly executed and delivered as of the date first above written. Pledgor: WORLD ACCESS, INC. By: ------------------------------------ Name: Mark A. Gergel Title: Chief Financial Officer Trustee: FIRST UNION NATIONAL BANK, as Trustee By: ------------------------------------ Name: Title: FIRST UNION NATIONAL BANK, as Securities Intermediary, for purposes of Section 16 only By: ------------------------------------ Name: Title: 25 29 SCHEDULE I PLEDGED SECURITIES Description Original of Debt CUSIP No(s). Final Maturity Principal Amount ------- ------------ -------------- ----------------
I-1 30 SCHEDULE II PLEDGED SECURITIES Description Original Cost at of Debt CUSIP No(s). Final Maturity Principal Amount Exchange Date ------- ------------ -------------- ---------------- -------------
I-2 31 EXHIBIT A FIRST UNION NATIONAL BANK OFFICER'S CERTIFICATE Pursuant to Section 3 of the Collateral Pledge and Security Agreement (the "Pledge Agreement") dated as of _______ __, ____ between World Access, Inc. a Delaware corporation (the "Pledgor") and First Union National Bank, trustee (the "Trustee") for the holder's of the Pledgor's 13 1/4% Senior Notes Due 2009, the undersigned officer of the Trustee, on behalf of the Trustee, makes the following certifications to the Pledgor and the initial holders of the Notes. Capitalized terms used and not defined in this Officer's Certificate have the meanings set forth or referred to in the Pledge Agreement. 1. Substantially contemporaneously with the execution and delivery of this Officer's Certificate, the Trustee has acquired its security entitlement to the Pledged Securities or through a "securities account" (as defined in Section 8-501(a) of the UCC) maintained by the Trustee at the WAXS Securities Intermediary, for value and without notice of any Adverse Claim thereto. Without limiting the generality of the foregoing, the Pledge Account, the Cash Collateral Account, the Pledged Securities and the other Collateral are not, and the Trustee's security entitlement to the Collateral is not, to the actual knowledge of the corporate trust officer having responsibility for the administration of this Indenture on behalf of the Trustee, subject to any Lien granted by or to or arising through or in favor of any Securities Intermediary (including, without limitation, the Trustee at the WAXS Securities Intermediary, or the Federal Reserve Bank of Richmond) through which the Trustee derives its security entitlement to the Collateral. 2. The Trustee has not caused or permitted the Collateral Account or its Security Entitlement thereto to become subject to any Lien created by or arising through the Trustee. A-1 32 IN WITNESS WHEREOF, the undersigned officer has executed this Officer's Certificate on behalf of First Union National Bank, Trustee this ___ day of _______, ____. FIRST UNION NATIONAL BANK, Trustee By: ------------------------------ ---------------------------- Name: Title: A-2 33 EXHIBIT B INDEPENDENT ACCOUNTANTS' REPORT ON APPLYING AGREED-UPON PROCEDURES To the Board of Directors World Access, Inc. We understand that $________ 13.25% Senior Notes due 2008 ("Notes") of World Access, Inc. (the "Issuer"), are to be issued on __________________. We also understand that First Union National Bank (the "Trustee") will hold the Securities listed on the attached Annex I (the "Securities") pursuant to Section 6 of the Collateral Pledge and Security Agreement, between the Issuer and the Trustee, dated as of ___________________ (the "Pledge Agreement"). We have been requested by the Issuer and the Trustee (collectively, the "Intended Users") to prove the arithmetic accuracy of the computations shown on the attached schedules, prepared by the Issuer. We have performed the procedures enumerated below, which were agreed to by the Intended Users, solely to assist you and the Trustee with respect to proving the arithmetic accuracy of the computations shown on the attached schedules. This engagement to apply agreed-upon procedures was performed in accordance with standards established by the American Institute of Certified Public Accountants. The sufficiency of the procedures is solely the responsibility of the specified users of the report. Consequently, we make no representations regarding the sufficiency of the procedures described below either for the purpose for which this report has been requested or for any other purpose. The procedures that we performed and our findings are as follows: 1. We have proved the arithmetic accuracy of the computations of the Pledge Amount (as defined in the Pledge Agreement), as shown on the attached Annex II, which was prepared by the Issuer. 2. We have proved the arithmetic accuracy of the computation of the scheduled receipts of maturing principal and interest to be received from the Securities and cash on deposit as shown on the attached Annex I, which was prepared by the Issuer. Other than proving such arithmetic accuracy, we have not confirmed or otherwise verified the information on that schedule. 3. We recomputed each amount in the net cash flow column by deducting each amount in the interest payment column from each amount in the total available column, individually and in total. In performing the above calculations, we have relied solely on the data set forth in the attached schedules prepared and provided to us by the Issuer. The scope of our engagement did not include B-1 34 verification of any underlying data, assumptions or definitions necessary to derive the calculations. Such underlying data, assumptions and definitions including, but are not limited to the following: 1. The principal amounts, coupon rates, and the related maturities for the Securities and Notes; and 2. Interest start dates, maturity dates, and interest payment dates for the Securities and the Notes. We were not engaged to, and did not, perform and audit, the objective of which would be the expression of an opinion on the specified elements, accounts, or items included in the attached schedules. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention that would have been reported to you. This report is intended solely for the use of the Intended Users listed above and should not be used by those who have not agreed to the procedures and taken responsibility for the sufficiency of the procedures for their purposes. Dated: ----------- B-1 35 ANNEX I Coupon Maturity Par Coupon Cash Total Interest Net Cash Security Rate Date Amount Interest Flow Available(2) Payment(3) Flow(4)
(1)Coupon interest is calculated assuming a 180-day semi-annual period and a 360 day year. (2)Total Available for each period is equal to the Cash Flow for the period plus Net Cash Flow from the previous period. (3) See Annex I attached hereto. (4)Net Cash flow for each period is equal to Total Available for the period less the Interest Payment for each period. 36 ANNEX II
Interest Payment Date Assumed on the Notes Principal Interest Rate Interest Payment (1) - --------------------- ----------- --------------- ---------------------- 10.5% 10.5% 10.5% 10.5% 10.5% 10.5%
- ------------------------------------------------------------------------------- (1) Interest payments for each period are calculated assuming a 180-day semi- annual period and 360-day year. - ------------------------------------------------------------------------------- EX-4.8 7 AGREEMENT TO EXCHANGE AND CONSENT 1 EXHIBIT 4.8 AGREEMENT TO EXCHANGE AND CONSENT AGREEMENT TO EXCHANGE AND CONSENT (the "Agreement"), dated as of October 12, 1999 by and among World Access, Inc., a Delaware corporation (the "Company"), FaciliCom International, Inc., a Delaware corporation ("FaciliCom"), and each of the holders (a "Noteholder") of FaciliCom's outstanding 10.5% Senior Notes due 2008 (the "FaciliCom Notes") listed on Schedule I hereto. WITNESSETH WHEREAS, FaciliCom and the Company and certain other parties have entered into an Agreement and Plan of Merger (the "Merger Agreement"), dated August 17, 1999, which provides for, among other things, the merger of FaciliCom with and into the Company (the "Merger"); WHEREAS, in connection with the Merger, the Company proposes (i) to exchange (A) $1,000 principal amount of its 13.25% Senior Notes due 2008 (the "Exchange Notes"), (B) such number of shares of the Company's common stock, par value $0.01 per share (the "Exchange Shares"), having a market value of $50 (determined as set forth below), and (C) a payment (the "Cash Payment") of $10 in cash for each $1,000 principal amount of FaciliCom Notes tendered and accepted by the Company for exchange (collectively, the "Exchange"), and (ii) to seek the consent of the holders of the FaciliCom Notes to certain amendments described in Exhibit A attached hereto (the "Amendments") to the FaciliCom Indenture (as defined below), such Amendments to be set forth in a Second Supplemental Indenture to the FaciliCom Indenture (the "Second Supplemental Indenture") (collectively, the "Consent"); and WHEREAS, it is a condition to the consummation of the Exchange and Consent that (i) the Merger shall have been consummated and (ii) the holders of at least a majority of the aggregate principal amount of the FaciliCom Notes shall have tendered their FaciliCom Notes in the Exchange (and such tenders shall have been accepted by the Company) and shall have agreed to the Consent; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants and conditions hereinafter contained, the parties agree as follows: 1. Agreement to Exchange. (a) At the Closing (as defined in the Merger Agreement) and subject only to (i) the simultaneous consummation of the Merger and the Consent and (ii) the declaration by the Securities and Exchange Commission (the "SEC") of the effectiveness of the Exchange Offer Registration Statement (as defined below), each Noteholder hereby agrees to, and to direct its nominee to, exchange all of such Noteholder's FaciliCom Notes listed on Schedule I hereto, together with any other FaciliCom Notes the beneficial ownership (as defined below) of which is acquired by such Noteholder during the period from and including the date hereof through and including the date on which this Agreement is terminated pursuant to Section 10.9 hereof 2 2 (collectively, the "Subject Notes"), for (A) Exchange Notes, which shall have terms substantially similar to the terms of the FaciliCom Notes, except that such Exchange Notes shall contain the terms specified in the Summary of Terms attached hereto as Exhibit B, (B) for Exchange Shares and (C) for the Cash Payment, each on the basis set forth above in the second Whereas clause of this Agreement. For purposes of this Agreement, "beneficial ownership" or "beneficially owned" shall have the meaning ascribed to those terms by Section 13 under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "Exchange Act"). The Exchange Notes and the Exchange Shares will be registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement on Form S-4 (the "Exchange Offer Registration Statement") and the Exchange Notes will be issued pursuant to an indenture (the "Exchange Indenture") between the Company and a trustee (the "Trustee"), which indenture will be substantially similar to the FaciliCom Indenture, except that it shall reflect the Summary of Terms. The exchange offer as described in this paragraph (a) shall be referred to as the "Registered Exchange Offer." All holders of FaciliCom Notes will be eligible to participate in the Registered Exchange Offer, notwithstanding that not all such holders are parties to this Agreement. (b) The number of Exchange Shares that each holder of FaciliCom Notes shall be entitled to receive shall be calculated by multiplying the aggregate principal amount of such holder's tendered and accepted FaciliCom Notes by 0.05 and by dividing such product by the Market Price (as defined below) of the Exchange Shares and rounding to the nearest whole number. "Market Price" shall mean the average closing price of the Exchange Shares on Nasdaq over the five consecutive trading days up to and including the trading day prior to the last full trading day before Closing. (c) Delivery of the Exchange Notes, Exchange Shares and Cash Payment to each Noteholder whose FaciliCom Notes shall have been tendered and accepted by the Company shall be made on the Closing Date (as defined in the Merger Agreement). Exchange Notes and Exchange Shares shall be registered in the name of the registered holder of the applicable FaciliCom Notes. 2. Consent. At the Closing and subject only to the simultaneous consummation of (i) the Merger and (ii) the Exchange, each Noteholder hereby agrees to consent, and agrees to cause its nominee as record holder of all Subject Notes beneficially owned by it to consent, to the Amendments and to direct the FaciliCom Trustee to execute and deliver on behalf of the Noteholders on the Closing Date, immediately prior to the Closing, the Second Supplemental Indenture, pursuant to Section 902 of the FaciliCom Indenture, dated as of January 28, 1998, among FaciliCom and State Street Bank and Trust Company (the "FaciliCom Trustee"), as amended by the First Supplemental Indenture thereto (the "FaciliCom Indenture"), such Consent to be effective with respect to all of such Noteholder's Subject Notes as of the time immediately prior to the Closing. Each holder of FaciliCom Notes who tenders FaciliCom Notes in exchange 3 3 for the Exchange Notes in the Registered Exchange Offer shall by such action be deemed to have agreed to the Consent. 3. Representations and Warranties of the Noteholder. Each Noteholder hereby represents and warrants to the Company and FaciliCom with respect to itself only that: 3.1 Authority. The Noteholder has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by the Noteholder and the consummation by such Noteholder of the transactions contemplated hereby have been duly and validly authorized by all corporate proceedings on its part as are necessary to authorize this Agreement or to consummate such transactions. This Agreement has been duly and validly executed and delivered by the Noteholder and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes its legal, valid and binding obligation, enforceable against such Noteholder in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 3.2 No Conflict. (a) The execution and delivery of this Agreement by the Noteholder do not, and the performance of this Agreement by such Noteholder shall not, (i) conflict with or violate its organizational documents, (ii) conflict with or violate any agreement, arrangement, law, rule, regulation, order, judgment or decree to which it is a party or by which it is (or the Subject Notes held of record or beneficially owned by it are) bound or affected or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any of the Subject Notes held of record or beneficially owned by such Noteholder pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which it is a party or by which it is (or the Subject Notes held of record or beneficially owned by it are) bound or affected, except, in the case of clauses (ii) and (iii) of this Section 3.2, for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or delay the performance by the Noteholder of its obligations under this Agreement. (b) The execution and delivery of this Agreement by the Noteholder do not, and the performance of this Agreement by such Noteholder shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity except for applicable requirements, if any, of the Exchange Act and except where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the performance by the Noteholder of its obligations under this Agreement. 4 4 3.3 Title to the FaciliCom Notes. As of the date hereof, the Noteholder is the record or beneficial owner of the FaciliCom Notes listed beside its name on Schedule I hereto. The FaciliCom Notes listed on Schedule I hereto are all the FaciliCom Notes either held of record or beneficially owned by the Noteholder. The Noteholder has not appointed or granted any proxy, which appointment or grant is still effective, with respect to the FaciliCom Notes held of record or beneficially owned by such Noteholder. The FaciliCom Notes listed on Schedule I hereto are owned and all other Subject Notes will be owned by the Noteholder free and clear of all security interests, liens, claims, pledges, options, rights of first refusal, agreements, charges and other encumbrances of any nature whatsoever (collectively, "Liens"), other than Liens arising as a result of this Agreement. 3.4 Investment Purposes. The Noteholder is agreeing to exchange its Subject Notes and shall receive Exchange Notes and pursuant to the Registered Exchange Offer for its own account solely for the purpose of investment and not with a view to, or for offer or sale in connection with, any distribution of the Exchange Notes in violation of the Securities Act. The Noteholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Exchange and Consent and an investment in the Exchange Notes and is able to bear the economic risk of such investment. 4. Representations and Warranties of FaciliCom and the Company. Each of FaciliCom and the Company hereby represents and warrants to each of the Noteholders with respect to itself only that: 4.1 Authority. Each of FaciliCom and the Company has all necessary power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by each of FaciliCom and the Company and the consummation by each of FaciliCom and the Company of the transactions contemplated hereby have been duly and validly authorized by all corporate proceedings on its part as are necessary to authorize this Agreement or to consummate such transactions. This Agreement has been duly and validly executed and delivered by each of FaciliCom and the Company and, assuming the due authorization, execution and delivery by the other parties hereto, constitutes its legal, valid and binding obligation, enforceable against each of FaciliCom and the Company in accordance with its terms, subject to the effects of bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights generally, general equitable principles (whether considered in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing. 4.2 No Conflict. (a) The execution and delivery of this Agreement by each of FaciliCom and the Company do not, and the performance of this Agreement by each of FaciliCom and the Company shall not, (i) conflict with or violate its organizational documents, (ii) conflict with or 5 5 violate any agreement, arrangement, law, rule, regulation, order, judgment or decree to which it is a party or by which it is bound or affected or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of a lien or encumbrance on any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which it is a party or by which its assets or properties are bound or affected, except, in the case of clause (ii) and (iii) of this Section 4.2, for any such conflicts, violations, breaches, defaults or other occurrences which would not prevent or delay the performance by each of FaciliCom and the Company of its obligations under this Agreement. (b) The execution and delivery of this Agreement by each of FaciliCom and the Company do not, and the performance of this Agreement by each of FaciliCom and the Company shall not, require any consent, approval, authorization or permit of, or filing with or notification to, any governmental entity, except for (i) applicable requirements, if any, of the Exchange Act, the Securities Act or any applicable blue sky or state securities laws, (ii) any consent, approval, authorization, permit, filing or notification required in connection with the Merger and (iii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications, would not prevent or delay the performance by each of FaciliCom and the Company of its obligations under this Agreement. 5. Transfer of Title. Other than pursuant to the Exchange, each Noteholder hereby covenants and agrees that it will not, prior to the termination of this Agreement, either directly or indirectly, offer or otherwise agree to sell, assign, pledge, hypothecate, transfer, exchange, or dispose of any Subject Notes, owned either directly or indirectly by it or with respect to which each such Noteholder has the power of disposition, whether now or hereafter acquired, without the prior written consent of FaciliCom and the Company, unless the person or entity to whom such Subject Notes have been sold, assigned, pledged, hypothecated, transferred, exchanged or disposed agrees to be bound by this Agreement as if a party hereto pursuant to an agreement in form and substance reasonably satisfactory to FaciliCom and the Company. Each Noteholder hereby agrees and consents to the entry of stop transfer instructions by FaciliCom or the FaciliCom Trustee, as the case may be, against the transfer of any Subject Notes inconsistent with the terms of this Section 5. 6. Registered Exchange Offer. 6.1 Registration Statement. Each of the Company and FaciliCom agrees that it will use its reasonable best efforts to prepare, and have declared effective by the SEC, the Exchange Offer Registration Statement. 6.2 Registered Exchange Offer. In connection with the Registered Exchange Offer, the Company will: 6 6 (a) after the Exchange Offer Registration Statement has been declared effective by the SEC, mail to each Noteholder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 20 business days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is first mailed to the holders of FaciliCom Notes; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit holders of FaciliCom Notes to withdraw tendered FaciliCom Notes at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. After the close of the Registered Exchange Offer and subject to the consummation of the Merger and the Consent, the Company shall: (a) accept for exchange all FaciliCom Notes tendered and not validly withdrawn pursuant to the Registered Exchange Offer; (b) deliver to or deposit with the FaciliCom Trustee for cancellation all FaciliCom Notes so accepted for exchange; (c) cause the Trustee for the Exchange Notes to authenticate and deliver to each Noteholder Exchange Notes with an equal principal amount to the FaciliCom Notes of such Noteholder so accepted for exchange; and (d) issue the number of Exchange Shares and deliver the amount of the Cash Payment determined as provided for herein to each holder of FaciliCom Notes accepted for exchange. 6.3 Additional Representations. Each Noteholder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Notes received by such Noteholder will be acquired in the ordinary course of such Noteholder's business, (ii) such Noteholder will have no arrangements or understanding with any person to participate in and is not participating in, and does not intend to participate in, the distribution of the Exchange Notes within the meaning of the Securities Act and (iii) such Noteholder is not an affiliate (as defined in Rule 405 under the Securities Act) of the Company. 7 7 7. Escrow Agreement. Upon the consummation of the Merger and the Exchange and Consent, (i) funds held in the escrow account previously established for the FaciliCom Notes shall be held for the benefit of the holders of the FaciliCom Notes and the Exchange Notes on a pro rata basis determined by reference to the aggregate principal amount of FaciliCom Notes exchanged for Exchange Notes and (ii) interest payments on the FaciliCom Notes and Exchange Notes shall be paid out of that portion of the funds held in such escrow account that are held for the benefit of the holders of the FaciliCom Notes and Exchange Notes, respectively, until exhausted. 8. Miscellaneous. 8.1 Permission to Disclose. Each Noteholder hereby agrees and consents to the disclosure by the Company and FaciliCom of this Agreement in connection with the Merger and the Registered Exchange Offer or as otherwise required by law (except that such Noteholder's name will not be disclosed in any press release, filing or other notice or report unless required by law or the SEC). 8.2 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with the terms hereof and that the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity. 8.3 Entire Agreement. Subject to the consummation of the Exchange and the Consent, this Agreement constitutes the entire agreement between the Company, FaciliCom and the Noteholders party hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, between the Company, FaciliCom and the Noteholders party hereto with respect to the subject matter hereof. 8.4 Amendment. This Agreement may not be amended and no other actions may be taken under this Agreement except by an instrument in writing signed by the Company, FaciliCom and each of the holders of the Subject Notes covered by this Agreement. 8.5 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of this Agreement is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereby shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law in a mutually acceptable manner in order that the terms of this Agreement remain as originally contemplated. 8 8 8.6 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made and shall be effective upon receipt, if delivered personally, upon receipt of a transmission confirmation if sent by facsimile (with a confirming copy sent by overnight courier) and on the next business day if sent by Federal Express, United Parcel Service, Express Mail or other reputable overnight courier to the parties at the following addresses (or at such other address for a party as shall be specified by notice): If to the Noteholders, to the addresses specified on Schedule I. If to the Company, to: Mark Gergel World Access, Inc. 945 East Paces Ferry Road Suite 2200 Atlanta, GA 30326 Facsimile: (404) 261-6190 with a copy to: Leonard Silverstein, Esq. Long Aldridge & Norman 303 Peachtree Street, N.E. Atlanta, GA 30308 Telephone: (404) 527-4000 Fax: (404) 527-4198 If to FaciliCom, to: Christopher King FaciliCom International, Inc. 1401 New York Avenue, NW 8th floor Washington, DC Telephone: (404) 527-4000 Fax: (404) 527-4198 with a copy to: Alan Klein, Esq. Simpson Thacher & Bartlett 425 Lexington Avenue New York, N.Y. 10017-3454 Facsimile: (212) 455-2502 9 9 8.7 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed entirely within such state. 8.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original and all of which, when taken together, shall constitute one and the same instrument. 8.9 Termination. This Agreement shall terminate on the first to occur of (x) a written agreement to terminate of the Company, FaciliCom and the Noteholders party hereto, (y) termination of the Merger Agreement in accordance with its terms or (z) February 28, 2000, unless in any such case it is extended by the Company, FaciliCom and each of the Noteholders party hereto. Upon termination, this Agreement shall be of no further force and effect among the parties except for the provisions of Section 8.10 which shall survive the termination of this Agreement. 8.10 Fees and Expenses. Each party shall bear its own expenses, including the fees and expenses of accountants, financial or other advisors or representatives engaged by it, incurred in connection with this Agreement and the transactions contemplated hereby. 8.11 Survival of Consents, Representations and Warranties. The consents, representations and warranties contained in or made pursuant to this Agreement shall survive the Closing. 8.12 Successors and Assigns. The provisions of this Agreement shall inure to the benefit of, and be binding upon, the parties hereto and their respective successors or assigns. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be signed by its respective officers thereunto duly authorized all as of the date first above written WORLD ACCESS, INC. By: /s/ W. Tod Chmar ----------------------------------------------- Name: W. Tod Chmar Title: EVP FACILICOM INTERNATIONAL, INC. 10 10 By: /s/ Christopher S. King ----------------------------------------------- Name: Christopher S. King Title: CFO MORGAN STANLEY DEAN WITTER DIVERSIFIED INCOME TRUST By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President MORGAN STANLEY DEAN WITTER SELECT DIMENSIONS INVESTMENT SERIES - THE DIVERSIFIED INCOME PORTFOLIO By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President MORGAN STANLEY HIGH INCOME ADVANTAGE TRUST By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President MORGAN STANLEY HIGH INCOME ADVANTAGE TRUST II By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President 11 MORGAN STANLEY HIGH INCOME ADVANTAGE TRUST III By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President MORGAN STANLEY DEAN WITTER VARIABLE INVESTMENT SERIES - HIGH YIELD PORTFOLIO By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President MORGAN STANLEY DEAN WITTER HIGH YIELD SECURITIES, INC. By: /s/ Peter Avelar ----------------------------------------------- Name: Peter Avelar Title: Their Vice President MANAGED HIGH INCOME PORTFOLIO By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director SMITH BARNEY INCOME FUNDS - DIVERSIFIED STRATEGIC INCOME FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director 12 SMITH BARNEY INCOME FUNDS - HIGH INCOME FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director SMITH BARNEY INCOME FUNDS - BALANCED FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director HIGH INCOME OPPORTUNITY FUND INC. By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director GREENWICH STREET SERIES FUND - DIVERSIFIED STRATEGIC INCOME FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director ZENIX INCOME FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director TRAVELERS SERIES FUND INC. - SMITH BARNEY HIGH INCOME PORTFOLIO By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director 13 USA HIGH YIELD FUND N.V. By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director SALOMON BROTHERS GLOBAL HORIZONS INVESTMENT SERIES - DIVERSIFIED STRATEGIC INCOME FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director NOMURA GLOBAL INVESTMENT FUND - DIVERSIFIED BOND FUND By: /s/ Cornelius J. Mack ----------------------------------------------- Name: Cornelius J. Mack Title: Director J.& W. SELIGMAN & CO., AS INVESTMENT ADVISOR FOR SELIGMAN GLOBAL HORIZON FUNDS, SELIGMAN HIGH YIELD BOND SERIES AND CERTAIN OTHER INSTITUTIONAL CLIENTS By: /s/ Daniel J. Charleston ----------------------------------------------- Name: Daniel J. Charleston Title: Managing Director SUN AMERICA, INC. By: /s/ Rafael Fogel ----------------------------------------------- Name: Rafael Fogel Title: As Agent 14 PUTNAM HIGH YIELD ADVANTAGE FUND By: /s/ John R. Verani ----------------------------------------------- Name: John R. Verani Title: Vice President 15 SCHEDULE I 1. Morgan Stanley Dean Witter Diversified Income Trust 2 World Trade Center 72nd Floor New York, NY 10048 Beneficial ownership: $6,400,000 2. Morgan Stanley Dean Witter Select Dimensions Investment Series - The Diversified Income Portfolio 2 World Trade Center 72nd Floor New York, NY 10048 Beneficial ownership: $600,000 3. Morgan Stanley High Income Advantage Trust 2 World Trade Center 72nd Floor New York, NY 10048 Beneficial ownership: $2,000,000 4. Morgan Stanley High Income Advantage Trust II 2 World Trade Center 72nd Floor New York, NY 10048 Beneficial ownership: $3,000,000 5. Morgan Stanley High Income Advantage Trust III 2 World Trade Center 72nd Floor New York, NY 10048 Beneficial ownership: $1,000,000 6. Morgan Stanley Dean Witter Variable Investment Series - High Yield Portfolio 2 World Trade Center 72nd Floor New York, NY 10048 Beneficial ownership: $5,000,000 7. Morgan Stanley Dean Witter High Yield Securities, Inc. 2 World Trade Center New York, NY 10048 Beneficial ownership: $30,000,000 8. Managed High Income Portfolio 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $4,615,000 16 9. Smith Barney Income Funds - Diversified Strategic Income Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $8,505,000 10. Smith Barney Income Funds - High Income Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $17,390,000 11. Smith Barney Income Funds - Balanced Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $2,375,000 12. High Income Opportunity Fund Inc. 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $6,575,000 13. Greenwich Street Series Fund - Diversified Strategic Income Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $247,500 14. Zenix Income Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $1,200,000 15. Travelers Series Fund Inc. - Smith Barney High Income Portfolio 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $1,375,000 16. USA High Yield Fund N.V. 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $655,000 17. Salomon Brothers Global Horizons Investment Series - Diversified Strategic Income Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $125,000 17 3 18. Nomura Global Investment Fund - Diversified Bond Fund 388 Greenwich Street, 23rd Floor New York, NY 10013 Beneficial ownership: $135,000 19. J.& W. Seligman & Co., as investment advisor for Seligman Global Horizon Funds, Seligman High Yield Bond Series and certain other institutional clients 100 Park Avenue, 7th Floor New York, NY 10017 Beneficial ownership: $34,600,000 20. Sun America, Inc. 1999 Avenue of the Stars 38th Floor Los Angeles, CA Beneficial ownership: $21,500,000 21. Putnam One Post Office Square Boston, MA 02109 Beneficial ownership: $21,000,000 18 EXHIBIT A The following is a summary of the proposed amendments to the FaciliCom Indenture: Elimination in their entirety of the following Sections: - Section 801: Company may consolidate, etc., only on certain terms. - Section 1002: Maintenance of Office or Agency covenant. - Section 1003: Money for Note Payments to Be held in Trust covenant. - Section 1004: Corporate Existence covenant. - Section 1005: Payment of Taxes and Other Claims covenant. - Section 1006: Maintenance of Properties covenant. - Section 1007: Insurance covenant. - Section 1008: Statement by Officers as to Default covenant. - Section 1009: Provision of Financial Statements and Reports covenant. - Section 1010: Repurchase of Notes upon Change of Control covenant. - Section 1011: Limitation on Indebtedness covenant. - Section 1012: Limitation on Restricted Payments covenant. - Section 1013: Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries covenant. - Section 1014: Limitation on the Issuance and Sale of Capital Stock of Restricted Subsidiaries covenant. - Section 1015: Limitation on Transactions with Stockholders and Affiliates covenant. - Sections 1016: Limitation on Liens covenant. 19 - Sections 1017: Limitation on Asset Sales covenant. - Section 1018: Limitation on Issuance of Guarantees of Indebtedness by Restricted Subsidiaries covenant. - Section 1019: Business of the Company; Restriction on Transfers of Existing Business covenant. - Section 1020: Limitation on Investments in Unrestricted Subsidiaries covenant. - Section 1021: Limitation on Sale-Leaseback Transactions covenant. 20 EXHIBIT B SUMMARY OF TERMS OF EXCHANGE INDENTURE Terms The Exchange Indenture will be the same in all material respects as the FaciliCom Indenture, except as set forth below. Additional technical and conforming changes will also be made to the Exchange Indenture. Issuer World Access, Inc. (the "Company") Interest Interest on the Exchange Notes will payable semi-annually, in cash, at a rate of 13.25% per annum on each interest payment date. Accrued interest on the FaciliCom Notes through the date of consummation of the Registered Exchange Offer will be paid, along with accrued interest on the Exchange Notes from the date following the consummation of the Registered Exchange Offer to the date of the first regularly scheduled interest payment date of the FaciliCom Notes following such consummation (the "First Interest Payment Date"), in cash, on such First Interest Payment Date. Optional Redemption The Exchange Notes will be redeemable, at the election of the Company, in whole or in part, at any time and from time to time, on or after January 15, 2003, upon not less than 30 nor more than 60 days' notice at the Redemption Prices (expressed in percentages of principal amount thereof), if redeemed during the 12-month period commencing on January 15 of the years set forth below plus, in each case, accrued and unpaid interest thereon, if any, to the date of redemption:
Redemption Year Price ---- ---------- 2003 106.625% 2004 104.417% 2005 102.208% 2006 (and thereafter) 100.000%
On and after the redemption date, interest shall cease to accrue on the Exchange Notes. Covenants and Definitions Set forth below is a summary of the covenants and definitions which will be revised in the Exchange Indenture. The provisions which have been changed have been marked against the versions thereof contained in the FaciliCom Indenture. The new provisions have been 21 underscored and the deleted provisions have been struck through. Additional technical and conforming changes may also be made. SECTION 1011. Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company may Incur Indebtedness if immediately thereafter the ratio of (i) the aggregate principal amount (or accreted value, as the case may be) of Indebtedness of the Company and its Restricted Subsidiaries on a consolidated basis outstanding as of the Transaction Date to (ii) the Pro Forma Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by two, determined on a pro forma basis as if any such Indebtedness had been Incurred and the proceeds thereof had been applied at the beginning of such two fiscal quarters, would be greater than zero and less than 5 to 1. (b) The foregoing limitations of paragraph (a) of this covenant will not apply to any of the following Indebtedness ("Permitted Indebtedness"), each of which shall be given independent effect: (i) Indebtedness of the Company evidenced by the FaciliCom Notes and the Notes; (ii) Indebtedness of FaciliCom or any of its Restricted Subsidiaries outstanding on the Original Issue Date; (iii) Indebtedness of the Company or any Restricted Subsidiary under one or more Credit Facilities, in an aggregate principal amount at any one time outstanding not to exceed the greater of (x) $35 135.0 million and (y) 80% of Eligible Accounts Receivable at any one time outstanding, subject to any permanent reductions required by any other terms of this Indenture; (iv) Indebtedness of the Company or any Restricted Subsidiary Incurred to finance the cost (including the cost of design, development, construction, acquisition, installation or integration) of Telecommunications Assets; (v) Indebtedness of a Restricted Subsidiary owed to and held by the Company or another Restricted Subsidiary, except that (A) any transfer of such Indebtedness by the Company or a Restricted Subsidiary (other than to the Company or another Restricted Subsidiary) or (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital of a Restricted Subsidiary which is owed Indebtedness of another Restricted Subsidiary shall, in each case, be an Incurrence of Indebtedness by such Restricted Subsidiary, subject to the other provisions of this Indenture; (vi) Indebtedness of the Company owed to and held by a Restricted Subsidiary which is unsecured and subordinated in right to the payment and performance to the obligations of the Company under this Indenture and the Notes, except that the limitations of paragraph (a) of this Section 1011 shall apply to such Indebtedness at such time as (A) any transfer of such Indebtedness by a Restricted Subsidiary (other than to 22 3 another Restricted Subsidiary) and (B) the sale, transfer or other disposition by the Company or any Restricted Subsidiary of Capital Stock of a Restricted Subsidiary which is owed such Indebtedness, subject to other provisions of this Indenture; (vii) Indebtedness of the Company or a Restricted Subsidiary issued in exchange for, or the net proceeds of which are used to refinance (whether by amendment, renewal, extension or refunding), then outstanding Indebtedness of the Company or a Restricted Subsidiary, other than Indebtedness Incurred under clauses (iii), (v), (vi), (viii), (ix), (xi) and (xii) of this paragraph, and any refinancing thereof in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, and reasonable fees and expenses); provided that such new Indebtedness shall only be permitted under this clause (vii) if (A) in case the Notes are refinanced in part or the Indebtedness to be refinanced is pari passu with the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued, or remains outstanding, is expressly made pari passu with, or subordinate in right of payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated in right of payment to the Notes, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding is expressly made subordinate in right of payment to the Notes at least to the extent that the Indebtedness to be refinanced is subordinated to the Notes and (C) such new Indebtedness, determined as of the date of Incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded; and provided further that in no event may Indebtedness of the Company be refinanced by means of any Indebtedness of any Restricted Subsidiary pursuant to this clause (vii); (viii) Indebtedness of (x) the Company not to exceed, at any one time outstanding, 2.00 times the Net Cash Proceeds from the issuance and sale, other than to a Subsidiary, of Common Stock (other than Redeemable Stock) of the Company (less the amount of such proceeds used to make Restricted Payments as provided in clause (iii) or (iv) of the second paragraph of Section 1012) and (y) the Company or Acquired Indebtedness of a Restricted Subsidiary not to exceed, at one time outstanding, the fair market value of any Telecommunications Assets acquired by the Company in exchange for Common Stock of the Company issued after the Issue Date; provided, however, that in determining the fair market value of any such Telecommunications Assets so acquired, if the estimated fair market value of such Telecommunications Assets exceeds (A) $2.0 million (as estimated in good faith by the Board Of Directors), then the fair market value of such Telecommunications Assets will be determined by a majority of the Board of Directors of the Company, which determination will be evidenced by a resolution thereof, and (B) $10.0 million (as estimated in good faith by the Board of Directors), then the Company shall deliver the Trustee a written appraisal as to the fair market value of such Telecommunications Assets prepared by a nationally recognized investment banking or public accounting firm (or, if no nationally recognized investment banking or public 23 4 accounting firm is qualified to prepare such an appraisal, by a nationally recognized appraisal firm); and provided further that such Indebtedness does not mature prior to the Stated Maturity of the Notes and the Average Life of such Indebtedness is longer than that of the Notes; (ix) Indebtedness of the Company or any Restricted Subsidiary (A) in respect of performance, surety or appeal bonds or letters of credit supporting trade payables, in each case provided in the ordinary course of business, (B) under Currency Agreements and Interest Rate Agreements covering Indebtedness of the Company; provided that such agreements do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder, and (C) arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from Guarantees or letters of credit, surety bonds or performance bonds securing any obligations of the Company or any of its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in connection with the disposition of any business, assets or Restricted Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by any Person acquiring all or any portion of such business assets or Restricted Subsidiary for the purpose of financing such acquisition), in a principal amount not to exceed the gross proceeds actually received by the Company or any Restricted Subsidiary in connection with such disposition; (x) Indebtedness of the Company, to the extent that the net proceeds thereof are promptly (A) used to repurchase Notes tendered in a Change of Control Offer or (B) deposited to defease all of the Notes pursuant to Article Thirteen; (xi) Indebtedness of a Restricted Subsidiary represented by a Guarantee of the Notes permitted by and made in accordance with Section 1018; and (xii) Indebtedness of the Company or any Restricted Subsidiary in addition to that permitted to be incurred pursuant to clauses (i) through (xi) above in an aggregate principal amount not in excess of $10 million (or, to the extent not denominated in United States dollars, the United States Dollar Equivalent thereof) at any one time outstanding; and (xiii) Indebtedness of the Company existing upon the consummation of the merger of FaciliCom with and into the Company; (c) For purposes of determining any particular amount of Indebtedness under this Section 1011, Guarantees, Liens or obligations with respect to letters of credit supporting Indebtedness otherwise included in the determination of such particular amount shall not be included; provided, however, that the foregoing shall not in any way be deemed to limit the provisions of Section 1018. For purposes of determining compliance with this Section 1011, in the event that an item of Indebtedness meets the criteria of more than one of the types of Indebtedness 24 5 described in the above clauses, the Company, in its sole discretion may, at the time of such Incurrence, (i) classify such item of Indebtedness under and comply with either of paragraph (a) or (b) of this covenant (or any of such definitions), as applicable, (ii) classify and divide such item of Indebtedness into more than one of such paragraphs (or definitions), as applicable, and (iii) elect to comply with such paragraphs (or definitions), as applicable in any order. SECTION 1012. Limitation on Restricted Payments. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, (i) (A) declare or pay any dividend or make any distribution in respect of the Company's Capital Stock to the Holders thereof (other than dividends or distributions payable solely in shares of Capital Stock (other than Redeemable Stock) of the Company or in options, warrants or other rights to acquire such shares of Capital Stock) or (B) declare or pay any dividend or make any distribution in respect of the Capital Stock of any Restricted Subsidiary to any Person other than dividends and distributions payable to the Company or any Restricted Subsidiary or to all holders of Capital Stock of such Restricted Subsidiary on a pro rata basis; (ii) purchase, redeem, retire or otherwise acquire for value any shares of Capital Stock of the Company (including options, variants or other rights to acquire such shares of Capital Stock) held by any Person or any shares of Capital Stock of any Restricted Subsidiary (including options, warrants and other rights to acquire such shares of Capital Stock) held by any Affiliate of the Company (other than a wholly owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or more of the Company's Capital Stock; (iii) make any voluntary or optional principal payment, or voluntary or optional redemption, repurchase, defeasance, or other acquisition or retirement for value, of Indebtedness of the Company that is subordinated in right of payment to the Notes; or (iv) make any Investment, other than a Permitted Investment, in any Person (such payments or any other actions described in clauses (i) through (iv) being collectively "Restricted Payments") if, at the time of, and after giving effect to, the proposed Restricted Payment: (A) a Default or Event of Default shall have occurred and be continuing; (B) the Company could not Incur at least $1.00 of Indebtedness under paragraph (a) of Section 1011; and (C) the aggregate amount of all Restricted Payments declared or made from and after the Closing Date would exceed the sum of: (1) Cumulative Consolidated Cash flow minus 200% of Cumulative Consolidated Fixed Charges; (2) 100% of the aggregate Net Cash Proceeds from the issue or sale to a Person, which is not a Subsidiary of the Company, of Capital Stock of the Company (other than Redeemable Stock) or of debt securities of the Company which have been converted into or exchanged for such Capital Stock (except to 25 6 the extent such Net Cash Proceeds are used to Incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); and (3) to the extent any Permitted Investment that was made after the Closing Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (i) the cash return of capital with respect to such Permitted Investment (less the cost of disposition, if any) and (ii) the initial amount of such Permitted Investment. The foregoing provision shall not be violated by reason of: (i) the payment of any dividend within 60 days after the date of declaration thereof if, at said date of declaration, such payment would comply with the foregoing paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the Notes including a premium, if any, and accrued and unpaid interest and Liquidated Damages, if any, with the net proceeds of, or in exchange for, Indebtedness Incurred under clause (viii) of paragraph (b) of Section 1011; (iii) the repurchase, redemption or other acquisition of Capital Stock of the Company in exchange for, or out of the Net Cash Proceeds of a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of Capital Stock (other than Redeemable Stock) of the Company (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (iv) the Acquisition of Indebtedness of the Company which is subordinated in right of payment to the Notes in exchange for, or out of the proceeds of, a substantially concurrent (A) capital contribution to the Company or (B) offering of, shares of the Capital Stock of the Company (other than Redeemable Stock) (except to the extent such proceeds are used to incur new Indebtedness outstanding pursuant to clause (viii) of paragraph (b) of Section 1011); (v) payments or distributions to dissenting stockholders in accordance with applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets that complies with Article Eight; (vi) the declaration or payment of any dividend or distribution in respect of, and in accordance with the terms of, the Company's (A) 50,000 outstanding shares of 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, par value $0.01 per share (the "Senior Preferred Stock"), and, in the event that The 1818 Fund III, L.P. ("The 1818 Fund") exercises its option to purchase up to 20,000 additional shares of Senior Preferred Stock, then such additional shares as well and (B) 23,174 outstanding shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B, par value $0.01 per share (the "Junior Preferred Stock"); (vii) the conversion of the Senior Preferred Stock, the Junior Preferred Stock or the Company's Convertible Preferred Stock, Series C, par value $0.01 per share, into Capital Stock of the Company in accordance with the terms of such preferred stock and (vi) (viii) other Restricted Payments not to exceed $2 million; provided that, except in the case of clause (i), no Default or Event of Default shall have occurred and be continuing or occur as a consequence of the actions or payments set forth therein. Each Restricted Payment permitted pursuant to the immediately preceding paragraph (other than the Restricted Payment referred to in clause (ii) thereof) and the Net Cash Proceeds from any capital contributions to the Company or issuance of Capital Stock referred to in clauses 26 7 (iii) and (iv) of the immediately preceding paragraph, shall be included in calculating whether the conditions of clause (C) of the first paragraph of this Section 1012 have been met with respect to any subsequent Restricted Payments. In the event the proceeds of an issuance of Capital Stock of the Company are used for the redemption, repurchase or other acquisition of the Notes, then the Net Cash Proceeds of such issuance shall be included in clause (C) of the first paragraph of this Section 1012 only to the extent such proceeds are not used for such redemption, repurchase or other acquisition of the Notes. Section 1013. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. So long as any of the Notes are Outstanding, the Company shall not, and shall not permit any Restricted Subsidiary to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Restricted Subsidiary to do any one of the following: (i) pay dividends or make any other distribution permitted by applicable law on any Capital Stock of such Restricted Subsidiary owned by the Company or any other Restricted Subsidiary; (ii) pay any Indebtedness owed to the Company or any other Restricted Subsidiary; (iii) make loans or advances to the Company or any other Restricted Subsidiary; or (iv) transfer any of its property or assets to the Company or any other Restricted Subsidiary. The foregoing provisions shall not restrict any encumbrances or restrictions: (i) existing on the Closing Exchange Date in this Indenture or any other agreements or instruments in effect on the Closing Exchange Date, and any extensions, refinancings, renewals or replacements of such agreements; provided that the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements are no less favorable in any material respect to the Holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; (ii) contained in the terms of any Indebtedness or any agreement pursuant to which such Indebtedness was issued if the encumbrance or restriction applies only in the event of a default with respect to a financial covenant contained in such Indebtedness or agreement and such encumbrance or restriction is not materially more disadvantageous to the Holders than is customary in comparable financing (as determined by the Company) 27 8 and the Company determines that any such encumbrance or restriction will not materially affect the Company's ability to make principal or interest payments on the Notes; (iii) existing under or by reason of applicable law; (iv) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, existing at the time of such acquisition and not incurred in contemplation thereof, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired; (v) in the case of clause (iv) of the first paragraph of this Section 1013, (A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is, or is subject to, a lease, purchase mortgage obligation, license, conveyance or contract or similar property or asset, (B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any restricted Subsidiary not otherwise prohibited by this Indenture or (C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary; or (vi) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and asserts of, such Restricted Subsidiary. Nothing contained in this Section 1013 shall prevent the Company or any Restricted Subsidiary from (1) creating, incurring, assuming or suffering to exist any Liens otherwise permitted in Section 1016 or (2) restricting the sale or other disposition of property or assets of the Company or any of its Restricted Subsidiaries that secure Indebtedness of the Company or any of its Restricted Subsidiaries. SECTION 1015. Limitation on Transactions with Stockholders and Affiliates. The Company shall not, and shall not permit any Restricted Subsidiary to, directly or indirectly, enter into, renew or extend any transaction (including, without limitation, the purchase, sale, lease or exchange of property or assets, or the rendering of any service) with any holder (or any Affiliate of such holder) of 5% or more of any class of Capital Stock of the Company or any Restricted Subsidiary or with any Affiliate of the Company or any Restricted Subsidiary, unless the following conditions have been met: (i) such transaction or series of transactions is on terms no less favorable to the Company or such Restricted Subsidiary than those that could be obtained in a comparable arm's length transaction with a person that is not such a holder or an Affiliate; 28 9 (ii) if such transaction or series of transactions involves aggregate consideration in excess of $2.0 million, then such transaction or series of transactions is approved by a majority of the Board of Directors of the Company and is evidenced by a resolution therein; and (iii) if such transaction or series of transactions involves aggregate consideration in exceeds of $10.0 million, then the Company or such Restricted Subsidiary shall deliver to the Trustee a written opinion as to the fairness to the Company or such Restricted Subsidiary of such transaction from a financial point of view from a nationally recognized investment banking firm (or, if an investment banking firm is generally not qualified to give such an opinion, by a nationally recognized appraisal firm or accounting firm). The foregoing limitation does not limit, and will not apply to (i) any transaction between the Company and any of its Restricted Subsidiaries or between Restricted Subsidiaries; (ii) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company; (iii) any Restricted Payments not prohibited by Section 1012; (iv) loans and advances to officers or employees of the Company and its Subsidiaries not exceeding at any one time outstanding $1.5 million in the aggregate, made in the ordinary course of business; and (v) arrangements with TMG, Armstrong and/or its subsidiaries existing on the date of this the Original Indenture and listed on Schedule A attached thereto as such arrangements may be extended or renewed; provided that the terms of any arrangement altered by any such extension or renewal may not be altered in a manner adverse to the Company or the Holders of the Notes; (vi) the issuance of up to 20,000 additional shares of Senior Preferred Stock to The 1818 Fund pursuant to an option agreement existing on the date of this Indenture; (vii) the sale to and purchase by the Company from MCI WorldCom, Inc. and its Affiliates of telecommunications services and equipment in the ordinary course of business; and (viii) the issuance and sale by the Company of Common Stock. SECTION 1017. Limitation on Asset Sales. The Company shall not, and shall not permit any Restricted Subsidiary to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the assets sold or disposed of as determined by the good faith judgment of the Board of Directors evidenced by a Board Resolution and (ii) at least 80% of the consideration received for such sale or other disposition consists of cash or cash equivalents or the assumption of unsubordinated Indebtedness; provided that any securities, notes or other obligations issued by an Investment Grade Company with a Total Equity Market Capitalization in excess of $25 billion determined at the time any commitment to effect any such Asset Sale is entered into that are received by the Company or the Restricted Subsidiary, as the case may be, that are converted within 180 days thereof into cash or cash equivalents shall be deemed to be cash or cash equivalents; provided further that the amount of cash or cash equivalents realized upon the sale of any such securities, 29 10 notes or other obligations must be included within the amount of Net Cash Proceeds for purposes of clause (i)(B) of the next paragraph. The Company shall, or shall cause the relevant Restricted Subsidiary to, within 270 days after the date of receipt of the Net Cash Proceeds from an Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to permanently repay unsubordinated Indebtedness of the Company or Indebtedness of any Restricted Subsidiary, in each case owing to a Person other than the Company or any of its Restricted Subsidiaries or (B) if the Net Cash Proceeds from such Asset Sale exceed $15 million, apply an amount equal to such Net Cash Proceeds to make an offer to purchase (an "Offer to Purchase") from the Holders on a pro rata basis an aggregate principal amount of Notes equal to such Net Cash Proceeds, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest to the date of purchase and less the product of (a) the Market Value per share of the Common Stock of the Company and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock for each $1,000 in principal amount of Notes accepted for purchase by the Company (the "Offer to Purchase Payment"), provided that the Company shall not be obligated to make any Offer to Purchase after it has made one or more Offers to Purchase, which offer or offers, in the aggregate, were for an aggregate principal amount of Notes equal to the aggregate principal amount of Notes issued on the Exchange Date (regardless of the actual aggregate principal amount of Notes actually tendered in such Offer or Offers to Purchase), or (C) if the Company has made sufficient Offers to Purchase such that it has satisfied its obligation as described in the final proviso to clause (B), invest an equal amount, or the amount not so applied pursuant to clause (A), in property or assets of a nature or type or that are used in a business (or in a company having property and assets of a nature or type, or engaged in a business) similar or related to the nature or type of the property and assets of, or the business of, the Company and its Restricted Subsidiaries existing on the date of such investment (as determined in good faith by the Board of Directors, whose determination shall be conclusive and evidenced by a Board Resolution) and (ii) apply (no later than the end of the 270-day period referred to above) such excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as provided in the following paragraphs of this Section 1017. The amount of such Net Cash Proceeds required to be applied (or to be committed to be applied) during such 270-day period referred to above in the preceding sentence and not applied as so required by the end of such period shall constitute "Excess Proceeds". If, as of the first day of any calendar month, the aggregate amount of Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined below) totals at least $10.0 million, the Company must, not later than the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase from the Holders on a pro rata basis an aggregate principal amount of Notes equal to the Excess Proceeds on such date, at a purchase price equal to 100% of the principal amount of the Notes, plus, in each case, accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase less the product of (a) the Market Value per share of the Common Stock of the Company and (b) the number of shares (including any portion of a share) of such Common Stock determined by dividing $50 by the Market Price of the Common Stock 30 11 for each $1,000 in principal amount of Notes accepted for purchase by the Company (the "Excess Proceeds Payment"). The Company shall commence an Offer to Purchase or an Excess Proceeds Offer by mailing a notice to the Trustee and each Holder stating: (i) that the Offer to Purchase or Excess Proceeds Offer, as applicable, is being made pursuant to this Section 1017 and that all Notes validly tendered will be accepted for payment on a pro rata basis; (ii) the purchase price and the date of purchase (which shall be a Business Day no earlier than 30 days nor later than 60 days from the date such notice is mailed) (the "Excess Proceeds Offer Payment Date"); (iii) that any Note not tendered will continue to accrue interest pursuant to its terms; (iv) that, unless the Company defaults in the payment of the Offer to Purchase Payment or the Excess Proceeds Payment, as applicable, any Note accepted for payment pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable, shall cease to accrue interest and Liquidated Damages, if any, on and after the applicable Offer Excess Proceeds Payment Date; (v) that Holders electing to have a Note purchased pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable, will be required to surrender the Note together with the form entitled "Option of the Holder to Elect Purchase" on the reverse side of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day immediately preceding the applicable Offer Excess Payment Payment Date; (vi) that Holders shall be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the third Business Day immediately preceding the applicable Offer Excess Proceeds Payment Date, a telegram, facsimile transmission or letter setting forth the name of such Holder, the principal amount of Notes delivered for purchase and a statement that such Holder is withdrawing his election to have such Notes purchased; and (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. On the applicable Offer Excess Proceeds Payment Date, the Company shall (i) accept for payment on a pro rata basis Notes or portions thereof tendered pursuant to the Offer to Purchase or the Excess Proceeds Offer, as applicable; (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes or portions thereof so accepted together with an Officer's Certificate specifying the Notes or portions thereof accepted for payment by the Company. The Paying Agent shall promptly mail to the Holders of Notes so accepted payment in an amount equal to the purchase price, and the Trustee shall upon Company Order promptly authenticate and mail to such Holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided that each Note purchased and each new Note issued shall be in a principal amount of $1,000 or integral multiples thereof. With respect to any Excess Proceeds Offer, to To the extent that the aggregate principal amount of Notes tendered is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. The Company shall publicly announce the results of the Excess Proceeds Offer as soon as practicable after the Excess Proceeds Payment Date. For purposes of this Section 1017, the Trustee shall act as the Paying Agent. 31 12 The Company shall comply with Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable, in the event that such Excess Proceeds are received by the Company undertakes an Offer to Purchase or Excess Proceeds Offer under this Section 1017. and the Company is required to repurchase Notes as described above. "Exchange Date" means the date of the consummation of the registered exchange offer pursuant to which holders of the FaciliCom Notes tendered such notes in exchange for the Notes issued by the Company pursuant to this Indenture. "FaciliCom" means FaciliCom International, Inc., a Delaware corporation. "FaciliCom Notes" means the 10 1/2% Senior Notes due 2008 issued by FaciliCom pursuant to the Original Indenture. "Investment Grade Company" means a Person whose debt securities are rated BBB- or higher by Standard & Poor's Ratings Service. Inc. or Baa3 or higher by Moody's Investor Service, Inc. (or an equivalent rating by another nationally recognized rating agency acceptable to the Holders). "Market Price" means, on any given day, the average closing price of the shares of the Company's Common Stock on the principal trading market of such Common Stock over the five consecutive trading days up to and including the day of such valuation. "Market Value" means the average of the closing price of the applicable security on such security's principal trading market over the five consecutive trading days up to and including the trading day prior to the last full trading day before the initiation of any Offer to Purchase described in clause (i) (B) or the time any commitment to effect an Asset Sale is entered into as described in the preceding paragraph. "Original Indenture" means the Indenture, dated as of January 28, 1998, among FaciliCom and State Street Bank and Trust Company, as supplemented by the First Supplemental Indenture thereto, pursuant to which FaciliCom issued the FaciliCom Notes. "Original Issue Date" means January 28, 1998, the date FaciliCom issued the FaciliCom Notes. "Permitted Business" means any business involving voice, data and other telecommunications services or equipment. "Telecommunications Assets" means, with respect to any person, equipment used in the telecommunications business or ownership rights with respect to IRUs, MAOUs or minimum investment units (or similar ownership interests) in fiber optic cable and international or domestic telecommunications switches or other transmission facilities (or Common Stock of a 32 13 Person that becomes a Restricted Subsidiary, the Assets of which consist primarily of any such Telecommunications Assets), in each case purchased or acquired through Indebtedness, provided that such Indebtedness does not exceed the Fair Market Value of such assets, by the Company or a Restricted Subsidiary after the Closing Date. "Total Equity Market Capitalization" of any Person means, as of any date of determination, the product of (i) the aggregate number of outstanding shares of Common Stock of such Person on such date on a fully-diluted basis and (ii) the average closing price of such Common Stock over the five consecutive trading days immediately preceding such date. If no closing price exists with respect to shares of any such class, the value of such shares shall be determined by the Board of Directors in good faith and evidenced by a resolution of the Board of Directors filed with the Trustee. EX-4.10 8 FORM OF STOCK PURCHASE AGREEMENTS 1 EXHIBIT 4.10 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made as of October 13, 1999, by and among World Access, Inc., a Delaware corporation (the "Company"), and [X] (the "Buyer"). THE PARTIES AGREE AS FOLLOWS: 1. Purchase and Sale of Shares. (a) Upon the terms and subject to the conditions of this Agreement, the Company shall sell to the Buyer and the Buyer shall purchase from the Company, at the Share Closing (as defined below), such number of shares of common stock, par value $.01 per share, of the Company (the "Shares") as determined below for an aggregate purchase price (the "Purchase Price") of [ ]. The number of Shares to be delivered by the Company to the Buyer at the Share Closing shall be equal to the Purchase Price divided by the average of the daily closing price of common stock, par value $.01 per share, of the Company as reported on the National Market System of the NASDAQ Stock Market (as reported in The Wall Street Journal or, if not reported therein, in another authoritative source) for the five (5) consecutive full trading days (in which such shares are traded on the National Market System of the NASDAQ Stock Market) ending at the close of trading on the trading day immediately preceding the Share Closing Date (as defined below). Notwithstanding the foregoing, in no event shall the Purchase Price be less than $13.00 or greater than $17.00, and in the event that the Purchase Price is less than $13.00 or greater than $17.00, the Purchase Price shall, for purposes hereof, equal $13.00 or $17.00, as applicable. (b) Subject to the satisfaction or waiver of the conditions set forth herein, the purchase and sale of the Shares (the "Share Closing") shall take place at the offices of Long Aldridge & Norman LLP, One Peachtree Center, 303 Peachtree Street, Atlanta, Georgia 30308, on the date of the closing of the transactions contemplated by that certain Agreement and Plan of Merger, dated August 17, 1999 (the "Merger Agreement"), between the Company, FaciliCom International, Inc. ("FaciliCom"), Armstrong International Telecommunications, Inc., Epic Interests, Inc. and BFV Associates, Inc. (the "FCI Closing") (the date of the Share Closing being referred to herein as the "Share Closing Date"). At the Share Closing, the Buyer shall pay the Purchase Price to an account or accounts designated by the Company, by wire transfer of immediately available federal funds and the Company shall issue to the Buyer a certificate or certificates evidencing the Shares purchased hereunder. 2. Representations and Warranties of the Company to the Buyer. The Company hereby represents and warrants to the Buyer as follows: 2 (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) The Company has the right, power and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly and validly executed and delivered by the Company and constitutes the Company's legal, valid and binding obligation, enforceable in accordance with its terms. (c) The Shares, when issued, sold and delivered in accordance with the terms of this Agreement, shall be duly and validly issued, fully-paid and non-assessable. (d) The Company has filed all reports required to be filed by it, since December 31, 1998, with the Securities and Exchange Commission (the "SEC") pursuant to Sections 13, 14 and 15 of the Securities Exchange Act of 1934, as amended, or with the NASDAQ Stock Market (collectively, the "Company SEC Reports"). None of the Company SEC Reports, as of their respective dates (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading and such Company SEC Reports conformed, in all material respects, with all of the statutes and published rules and regulations enforced or promulgated by the regulatory authority or exchange with which they were filed. 3. Representations and Warranties of the Buyer to the Company. The Buyer hereby represents and warrants to the Company as follows: (a) The Buyer has the right, power and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary action, corporate or otherwise, on the part of the Buyer. This Agreement has been duly and validly executed and delivered by the Buyer and constitutes the Buyer's legal, valid and binding obligation, enforceable in accordance with its terms. (b) The Buyer has not retained any investment banker, broker or adviser in connection with the transactions contemplated by this Agreement. (c) The Buyer has, or will have at the Share Closing, sufficient financing to pay the entire amount of the Purchase Price in accordance with the terms of this Agreement. -2- 3 4. Securities Laws Representations and Covenants of the Buyer. (a) This Agreement is made with the Buyer in reliance upon the Buyer's representation to the Company, which by the Buyer's execution of this Agreement the Buyer hereby confirms, that the Shares will be acquired for investment for the Buyer's own account, not as a nominee or agent, and not with a view to the direct or indirect sale or distribution of any part thereof, and that the Buyer has no present intention of selling, granting any participation in, or otherwise distributing the same. (b) The Buyer covenants that in no event will it dispose of any of the Shares other than pursuant to an effective registration statement or Rule 144 ("Rule 144") or Rule 144A promulgated by the SEC under the Securities Act of 1933, as amended (the "Securities Act") (or any similar or analogous rule) unless and until (i) the Buyer shall have notified the Company of the proposed disposition and shall have furnished the Company with a statement of the circumstances surrounding the proposed disposition, and (ii) if requested by the Company, the Buyer shall have furnished the Company with an opinion of counsel reasonably satisfactory in form and substance to the Company and the Company's counsel to the effect that (x) such disposition will not require registration under the Securities Act and (y) appropriate action necessary for compliance with the Securities Act and any applicable state, local or foreign law has been taken. (c) The Buyer represents that: (i) the Buyer 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 the Buyer's prospective investment in the Shares; (ii) the Buyer has received all the information requested by it from the Company and considered necessary or appropriate for deciding whether to purchase the Shares; (iii) the Buyer has the ability to bear the economic risks of such Buyer's prospective investment; and (iv) the Buyer is able, without materially impairing its financial condition, to hold the Shares for an indefinite period of time and to suffer complete loss on its investment. 5. Covenants of the Company. (a) The Company shall file with the SEC, as soon as reasonably practicable following the Share Closing, but in no event later than thirty (30) days following the Share Closing, a registration statement on Form S-3 in connection with the resale, pursuant to open market or privately negotiated transactions, of the Shares (the "Registration Statement"), which Registration Statement shall be in a form that can be declared effective as soon as reasonably practicable after the filing thereof. The Company shall use its reasonable best efforts to have the staff of the SEC declare the Registration Statement effective as soon as reasonably practicable following the filing thereof. (b) The Company shall use its reasonable best efforts to keep the Registration Statement (including, if appropriate, the filing of successor registration statements on Form S-3 -3- 4 covering the Shares) effective until the earlier of (i) the Buyer's ability to sell the Shares pursuant to Rule 144(k) promulgated by the SEC under the Securities Act or (ii) five (5) years from the date the staff of the SEC first declared the Registration Statement effective (the "Registration Period"), and pursuant thereto the Company will: (i) prepare and file such amendments and supplements to such Registration Statement as may be necessary to keep such Registration Statement effective during the Registration Period and comply with the provisions of the Securities Act with respect to the disposition of all Shares covered by such Registration Statement during such period; (ii) furnish to the Buyer such number of copies of such Registration Statement, each amendment and supplement thereto, and such other documents as the Buyer may reasonably request in order to facilitate the disposition of the Shares owned by the Buyer; (iii) use its best efforts to register or qualify the Shares owned by the Buyer under such other United States securities or blue sky laws of such jurisdictions as the Buyer reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable the Buyer to consummate the disposition in such jurisdictions of such Shares; provided, however, that the Company shall not be required to qualify to do business in such jurisdiction if not otherwise so required; (iv) notify the Buyer of the happening of any event as a result of which the Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and the Company will prepare a supplement or amendment to the Registration Statement so that, as thereafter delivered to the purchasers of such Shares, the Registration Statement will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (v) cause the listing and the continuation of listing of all the Shares covered by the Registration Statement on the National Market System of the NASDAQ Stock Market, the New York Stock Exchange, the American Stock Exchange or any successor national exchange or market, and cause the Registrable Securities to be quoted or listed on each additional national securities exchange or quotation system upon which the common stock of the Company is then listed or quoted; (vi) enter into such customary indemnity agreements as reasonably requested in order to expedite or facilitate the disposition of such Shares; (vii) make available for inspection by the Buyer, any underwriter participating in any disposition of Shares pursuant to such Registration Statement and any attorney, accountant or other agent retained by the Buyer or any underwriter, all financial and other records, pertinent corporate documents and properties of the Company (other than documents and -4- 5 information deemed by the Company to be confidential or trade secrets), and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by the Buyer or such underwriters, attorneys, accountants or agents in connection with the Registration Statement; (viii) indemnify, to the extent permitted by law, the Buyer and the Buyer's officers and directors and each person who controls the Buyer (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (collectively, "Losses" and individually, a "Loss") caused by any untrue or alleged untrue statement of material fact contained in the Registration Statement or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company shall not be liable in any case pursuant to this Section 5(b)(viii) to the extent that any Loss arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, or any amendment or supplement thereto, in conformity with and in reliance upon information furnished in writing to the Company by the Buyer; and provided, further, that the indemnity set forth herein shall not inure to the benefit of the Buyer or the Buyer's officers or directors or any person who controls the Buyer if a copy of the Registration Statement, or amendment or supplement thereto, in which such untrue statement or alleged untrue statement or omission or alleged omission was corrected was provided to the Buyer prior to the resale of the Buyer's Shares pursuant to the Registration Statement. The Buyer will indemnify, to the extent permitted by law, the Company and the Company's officers and directors and each person who controls the Company (within the meaning of the Securities Act) against all Losses caused by any untrue or alleged untrue statement of material fact contained in the Registration Statement or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent that such untrue statement or alleged untrue statement or omission or alleged omission was made in conformity with and in reliance upon information furnished in writing to the Company by the Buyer; provided, however, that the indemnity set forth herein shall not inure to the benefit of the Company or the Company's officers or directors or any person who controls the Company if a copy of the Registration Statement, or amendment or supplement thereto, in which such untrue statement or alleged untrue statement or omission or alleged omission was corrected was provided to the person asserting a Loss based upon such untrue statement or alleged untrue statement or omission or alleged omission prior to the resale of the Buyer's Shares to such person pursuant to the Registration Statement; and (ix) allow any transferee of the Shares owned by the Buyer (other than a transferee in a sale effected pursuant to Rule 144 or registered under the Registration Statement) to enjoy the benefits of this Section 5(b). 6. Conditions of the Buyer's Obligations at the Share Closing. The obligations of the Buyer to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver of the following conditions: -5- 6 (a) The representations and warranties of the Company contained in Section 2 hereof shall be true, correct and complete in all material respects on the Share Closing Date with the same force and effect as though made on and as of such date. (b) The FCI Closing shall have occurred. (c) The Company and its subsidiaries, taken as a whole, shall not have suffered, since the date hereof, any change, circumstance or effect or any breach of the provisions of this Agreement that, individually or in the aggregate with all other changes, circumstances and effects or breaches, is or would reasonably be expected to be materially adverse to (i) the business, financial condition or results of operations of the Company and its subsidiaries, taken as a whole, or (ii) the ability of the Company to consummate the transactions contemplated by this Agreement (each, a "Material Adverse Effect"); provided, however, that a Material Adverse Effect shall not be deemed to have occurred with respect to any change, circumstance or effect relating to (x) the economy or financial markets in general, (y) in general, the industries in which the Company or its subsidiaries operate and not specifically relating to the Company or its subsidiaries or (z) the trading price of the Company as reported by the National Market System of the NASDAQ Stock Market. (d) If applicable, the waiting period (and any extension thereof) relating to the transactions contemplated hereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have been terminated or shall have expired. 7. Conditions of the Company's Obligations at the Share Closing. The obligations of the Company to consummate the transactions contemplated by this Agreement are subject to the satisfaction or waiver of the following conditions: (a) The representations and warranties of the Buyer contained in Sections 3 and 4 hereof shall be true, correct and complete in all material respects on the Share Closing Date with the same force and effect as though made on and as of such date. (b) The FCI Closing shall have occurred. 8. Termination. This Agreement may be terminated at any time prior to the Share Closing Date (i) by mutual written consent of the Company and the Buyer, (ii) by either the Company or the Buyer, upon termination of the Merger Agreement in accordance with its terms, or (iii) by either the Company or the Buyer, if the Share Closing Date shall not have occurred on or before December 31, 1999. -6- 7 9. Miscellaneous. (a) All notices, demands or other communications hereunder shall be in writing and shall be deemed given when delivered personally, mailed by certified mail, return receipt requested, sent by overnight courier service or faxed (transmission confirmed), or otherwise actually delivered (i) if to the Company, at Resurgens Plaza, Suite 2210, 945 East Paces Ferry Road, Atlanta, Georgia (facsimile: (404) 233-2280), Attention: W. Tod Chmar, and (ii) if to the Buyer, at [-], or at such other address as the Company or the Buyer may designate in writing to the other party. (b) This Agreement shall be governed and construed in accordance with the laws of the State of Georgia (without giving effect to choice of law principles thereof). (c) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. (d) This Agreement may be amended only by a written instrument signed by the Company and the Buyer. No failure to exercise and no delay in exercising, on the part of any party, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. (e) All rights, covenants and agreements of the parties contained in this Agreement shall, except as otherwise provided herein, be binding upon and inure to the benefit of their respective successors and assigns. This Agreement, and the rights and obligations hereunder, may not be assigned by either party without the prior written consent of the other party. (f) The Company and the Buyer will each bear their respective legal and other fees and expenses in connection with the transactions contemplated in this Agreement if such transactions are not successfully completed. (g) Each party hereto agrees to do all acts and to make, execute and deliver such written instruments as shall from time to time be reasonably required to carry out the terms and provisions of this Agreement. (h) This Agreement constitutes the entire agreement among the parties hereto and supersedes and preempts any prior written or oral agreements between the parties hereto which may have related to the subject matter hereof in any way. -7- 8 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WORLD ACCESS, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- [BUYER] By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- -8- EX-4.13 9 COLLATERAL PLEDGE & SECURITY AGREEMENT 1 EXHIBIT 4.13 EXECUTION COPY - -------------------------------------------------------------------------------- COLLATERAL PLEDGE AND SECURITY AGREEMENT Dated as of January 28, 1998 from FACILICOM INTERNATIONAL, INC., Pledgor to STATE STREET BANK AND TRUST COMPANY, Trustee - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
Page ---- SECTION 1. Definitions, Appointment; Deposit and Investment......................................................2 1.1 Definitions...........................................................................................2 1.2 Appointment of the Trustee............................................................................6 1.3 Pledge and Grant of Security Interest.................................................................6 SECTION 2. Delivery of Collateral; Establishment of Collateral Accounts..........................................6 SECTION 3. Delivery of the Pledged Securities....................................................................7 SECTION 4. Delivery of Collateral Other than U.S. Government Obligations.........................................8 SECTION 5. Investing of Amounts in the Collateral Accounts.......................................................9 SECTION 6. Disbursements.........................................................................................9 SECTION 7. Representations and Warranties.......................................................................11 SECTION 8. Further Assurances...................................................................................13 SECTION 9. Covenants............................................................................................13 SECTION 10. Power of Attorney....................................................................................14 SECTION 11. No Assumption of Duties; Reasonable Care.............................................................14 SECTION 12. Indemnity............................................................................................15 SECTION 13. Remedies upon Event of Default.......................................................................15 SECTION 14. Expenses.............................................................................................16 SECTION 15. Security Interest Absolute...........................................................................16 SECTION 16. FaciliCom Securities Intermediary's Representations, Warranties and Covenants.............................................................................17
i 3 SECTION 17. Miscellaneous Provisions...........................................................................18 17.1 Notices............................................................................................18 17.2 No Adverse Interpretation of Other Agreements......................................................19 17.3 Severability.......................................................................................19 17.4 Headings...........................................................................................19 17.5 Counterpart Originals..............................................................................19 17.6 Benefits of Pledge Agreement.......................................................................19 17.7 Amendments, Waivers and Consents...................................................................19 17.8 Interpretation of Agreement........................................................................20 17.9 Continuing Security Interest; Termination..........................................................20 17.10 Survival Provisions................................................................................20 17.11 Waivers............................................................................................20 17.12 Authority of the Trustee...........................................................................21 17.13 Final Expression...................................................................................21 17.14 Rights of Holders of the Notes.....................................................................21 17.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; WAIVER OF DAMAGES..........................................................21 17.16 Effectiveness......................................................................................23
ii 4
Page ---- SCHEDULE I: Pledged Securities............................................................................I-1 EXHIBIT A: Officer's Certificate.........................................................................A-1 EXHIBIT B: Independent Public Accountant's Report .......................................................B-1
iii 5 This Collateral Pledge and Security Agreement (this "Pledge Agreement") is made and entered into as of January 28, 1998 by FaciliCom International, Inc., a Delaware corporation (the "Pledgor"), having its principal offices at 1401 New York Avenue, N.W., Washington, D.C. 20005, in favor of State Street Bank and Trust Company, a Massachusetts Trust Company having its principal corporate trust office at 225 Franklin Street, Boston, Massachusetts 02110, Attention: Corporate Trust Department, as trustee for the holders (the "Holders") of the Notes (as defined herein) issued by the Pledgor under the Indenture referred to below. W I T N E S S E T H: WHEREAS, the Pledgor and the Initial Purchasers (as defined in the Purchase Agreement) are parties to a Purchase Agreement dated January 23, 1998 (the "Purchase Agreement"), pursuant to which the Pledgor will issue and sell to the Initial Purchasers $300 million aggregate principal amount of 10 1/2 % Senior Notes due 2008 (the "Notes"); WHEREAS, the Pledgor and the Trustee (as defined herein), have entered into that certain indenture dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "Indenture"), pursuant to which the Pledgor is issuing the Notes on the date hereof; WHEREAS, pursuant to the Indenture, the Pledgor is required to purchase, or cause the purchase of, and pledge to the Trustee for the benefit of the Holders of, the Notes on the Closing Date (as defined in the Purchase Agreement) U.S. Government Obligations (as defined in the Indenture) in an amount that will be sufficient upon receipt of scheduled interest and principal payments of such securities, in the opinion of a nationally recognized firm of independent public accountants selected by the Pledgor and delivered to the Trustee, to provide for payment in full of the first six scheduled interest payments due on the Notes to secure the Pledgor's obligation to provide for payment in full of the first six scheduled interest payments due on the Notes (such obligation, together with the obligation to repay the principal, premium (including without limitation any Liquidated Damages (as defined in the Registration Rights Agreement)) and interest on the Notes in the event that the Notes become due and payable prior to such time as the first six scheduled interest payments thereon shall have been paid in full, being collectively referred to herein as the "Obligations"); WHEREAS, the Pledgor has opened a securities account (the "Pledge Account") with State Street Bank and Trust Company, as Securities Intermediary (the "FaciliCom Securities Intermediary"), at its office at 225 Franklin Street, Boston, Massachusetts 02110, Account No. GE4407 (designated "Pledge Account pledged by FaciliCom International, Inc. to State Street Bank and Trust Company as Trustee and Sole Entitlement Holder"), in the name of the Pledgor 6 but under the sole dominion and control of the Trustee and subject to the terms of this Pledge Agreement; WHEREAS, the Pledgor has opened a non-interest bearing cash collateral account (the "Cash Collateral Account") with the FaciliCom Securities Intermediary, at its office at 225 Franklin Street, Boston, Massachusetts 02110, Account No. GE4408 (designated "Cash Collateral Account pledged by FaciliCom International, Inc. to State Street Bank and Trust Company, as Trustee"), in the name of the Pledgor but under the sole dominion and control of the Trustee and subject to the terms of this Pledge Agreement; WHEREAS, pursuant to the Purchase Agreement it is a condition precedent to the purchase of the Notes by the Initial Purchasers that the Pledgor apply certain of the proceeds of the offering of the Notes to purchase the Pledged Securities (as defined below) and deposit such Pledged Securities into the Pledge Account to be held therein under the sole dominion and control of the Trustee and subject to the terms of this Pledge Agreement; WHEREAS, to secure the Obligations of the Pledgor, the Pledgor has agreed to execute and deliver this Pledge Agreement and pledge to the Trustee, for its benefit and the ratable benefit of the Holders of the Notes, the Pledged Securities and the related Collateral in order to secure the payment by the Pledgor of all the Obligations. NOW, THEREFORE, in consideration of the premises herein contained, and in order to induce the Holders of the Notes to purchase the Notes, the Pledgor and the Trustee hereby agree, for the benefit of the Trustee and for the ratable benefit of the Holders of the Notes, as follows: SECTION 1. Definitions, Appointment; Deposit and Investment. 1.1 Definitions. (a) Unless otherwise defined in this Pledge Agreement, terms defined or referenced in the Indenture are used in this Pledge Agreement as such terms are defined or referenced therein. (b) Unless otherwise defined in the Indenture or in this Pledge Agreement, terms defined in Article 8 or 9 of the Uniform Commercial Code in effect in the State of New York from time to time and/or in Section 357.2 of the Treasury Regulations (as defined in Section 1.1(c)) are used in this Pledge Agreement as such terms are defined in such Article 8 or 9 and/or such Section 357.2. Such terms shall include, but not be limited to, "book-entry security," "certificated security", "entitlement holder", "CUBES", "entitlement order", "financial asset", "instrument", "participant's securities account", "proceeds", "securities account", "securities intermediary", "security", "security entitlement" and "STRIPS". 7 3 (c) In this Pledge Agreement the following terms have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Adverse Claim" has the meaning specified in UCC ss. 8-102(a)(1). "Cash Collateral Account" has the meaning specified in Preliminary Statements hereof. "Cash Equivalents" means any of the following, to the extent owned by the Pledgor free and clear of all liens other than liens created hereunder: (a) U.S. Government Obligations, (b) insured certificates of deposit of, or time deposits with, any commercial bank that (i) is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c), (iii) is organized under the laws of the United States of America or any State thereof and (iv) has combined capital and surplus of at least $500 million, (c) commercial paper in an aggregate amount of no more than $5 million per issuer outstanding at any time, issued by any corporation organized under the laws of any State of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or "A-l" (or the then equivalent grade) by Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies or (d) overnight repurchase agreements (including overnight repurchase agreements between the Trustee and the FaciliCom Securities Intermediary) secured by U.S. Government Obligations. "Certificated Security" has the meaning specified in Section 8-103(a)(4) of the UCC. "CFR" means U.S. Code of Federal Regulations. "Collateral" has the meaning specified in Section 1.3. "Collateral Accounts" means the Pledge Account and the Cash Collateral Account. "Deposit Account" has the meaning specified in Section 9-105(e) of the UCC. "Entitlement Holder" has the meaning specified in UCC ss. 8-102(a)(7). "Entitlement Order" has the meaning specified in UCC ss. 8-102(a)(8). "FaciliCom Securities Intermediary" has the meaning specified in the preliminary statements. 8 4 "Financial Asset" has the meaning specified in UCC ss. 8-102(a)(9). "FRBB" means Federal Reserve Bank of Boston. "FRBB Account" means the participant's securities account maintained in the name of the FaciliCom Securities Intermediary by the FRBB. "FRBB Member": any Person that is eligible to maintain (and that maintains) with the FRBB one or more FRBB Member Securities Accounts in such Person's name. "FRBB Member Securities Account": in respect of any Person, an account in the name of such Person at the FRBB, to which account U.S. Government Obligations held for such Person are or may be credited. "General Intangibles" has the meaning specified in Section 9-106 of the UCC. "Instruments" has the meaning specified in Section 9-105 of the UCC. "Investment Property" has the meaning specified in UCC ss. 9-115(l)(f). "Lien": any lien, mortgage, security interest, charge, Adverse Claim or encumbrance of any kind, including the rights of a vendor, lessor, or similar party under any conditional sale agreement or other title retention agreement or lease substantially equivalent thereto. "Money" has the meaning specified in Section 1-201(24) of the UCC. "Pledgor" has the meaning specified in the recital of the parties hereto. "Proceeds": all "proceeds" as such term is defined in Section 9-306(1) of the UCC and, in any event, shall include without limitation, all interest, dividends or other earnings, income or distributions from or in respect of, or from or in respect of investments or reinvestments of, the cash and Cash Equivalents and Investment Property from time to time on deposit in the Collateral Accounts, all collections and distributions with respect to the U.S. Government Obligations and all other proceeds of Collateral. "Securities Account" has the meaning specified in UCC ss. 8-501(a). "Securities Control": shall mean "control" as defined in UCC ss. 9-115(l)(e). "Securities Intermediary": a Person that is a "securities intermediary" (as 9 5 defined in UCC ss. 8-102(a)(14)) and, in respect of any book-entry security, a "securities intermediary" (as defined in 31 C.F.R. ss. 357.2 or, as applicable to such Book-Entry Security, the corresponding Federal Book-Entry Regulations). "Security" has the meaning specified in Section 8-102(a)(15) of the UCC. "Security Certificate" has the meaning specified in Section 8-102(a)(16) of the UCC. "Security Entitlement": as defined in UCC ss. 8-102(a)(17) or, in respect of any book-entry security, as defined in 31 C.F.R. ss. 357.2 (or, as applicable to such book-entry security, the corresponding Federal Book-Entry Regulations). "Settlement Date" means, as to any U.S. Government Obligations, the date on which the purchase of such U.S. Government Obligations shall have been settled. "Termination Date" means the earlier of (a) the date of the payment in full in cash of each of the first six scheduled interest payments due on the Notes under the terms of the Indenture and (b) the date of the payment in full of all obligations due and owing under this Pledge Agreement, the Indenture and the Notes, in the event such obligations become due and payable prior to the payment of the first six scheduled interest payments on the Notes. "Treasury Regulations" means (a) the federal regulations contained in 31 CFR Part 357 (including, without limitation, Section 357.2, Section 357.10 through Section 357.14 and Section 357.41 through Section 357.44 of 31 CFR) and (b) to the extent substantially identical to the federal regulations referred to in clause (a) above (as in effect from time to time) the federal regulations governing other U.S. Government Obligations. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Pledge Agreement until a successor Trustee shall have become such, and thereafter "Trustee" shall mean the Person who is then the Trustee hereunder. "UCC" means, unless otherwise specified herein, the Uniform Commercial as in effect in New York State. "Uncertificated Security" has the meaning specified in Section 8-102(a)(18) of the UCC. "U.S. Government Obligations" means Securities (including, without limitation, United States Treasury Securities, including Treasury bills, Treasury notes, Treasury bonds, STRIPS and CUBES) and the Security Entitlements in, and Financial Assets based on such Securities maintained in the form of entries in the commercial book-entry system of the FRBB 10 6 and held for the related Entitlement Holder by a FRBB Member pursuant to the Treasury Regulations. 1.2 Appointment of the Trustee. The Pledgor hereby appoints the Trustee as Trustee in accordance with the terms and conditions set forth herein and the Trustee hereby accepts such appointment. 1.3 Pledge and Grant of Security Interest. As security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations, the Pledgor hereby grants to the Trustee for its benefit and for the ratable benefit of the Holders of the Notes, a lien on and security interest in all of the Pledgor's right, title and interest in, to and under the following property, (whether characterized as Certificated Securities or Uncertificated Securities, Financial Assets, Security Entitlements, Deposit Accounts, banks accounts, Securities Accounts, Money, Proceeds, Investment Property, General Intangibles or otherwise): (a) the U.S. Government Obligations identified by CUSIP No. in Schedule I to this Pledge Agreement (the "Pledged Securities"), the scheduled payments of principal and interest of which will be sufficient to provide for payment in full of the first six scheduled interest payments due on the Notes, (b) any and all applicable Security Entitlements to the Pledged Securities, (c) the Pledge Account, all funds held therein and all certificates and instruments, if any, from time to time representing or evidencing the Pledge Account, (d) all Collateral Investments (as hereinafter defined) and all certificates and instruments, if any, representing or evidencing the Collateral Investments, and any and all Security Entitlements to the Collateral Investments, and any and all related Securities Accounts in which any Security Entitlements to the Collateral Investments is carried, (e) the Cash Collateral Account, (f) all notes, certificates of deposit, Deposit Accounts, checks and other instruments, if any, from time to time hereafter delivered to or otherwise possessed by the Trustee for or on behalf of the Pledgor in substitution for or in addition to any or all of the then existing Collateral, (g) all interest, dividends, cash, instruments and other property, if any, from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the then existing Collateral and (h) except as otherwise provided herein, all proceeds of any and all of the foregoing Collateral (including, without limitation, proceeds that constitute property of the types described in clauses (a) - (g) of this Section 1.3) (such property being collectively referred to herein as the "Collateral"). SECTION 2. Delivery of Collateral; Establishment of Collateral Accounts. (a) The Trustee has established with the FaciliCom Securities Intermediary, and at all times until the Termination Date, the Pledgor shall maintain with the FaciliCom Securities Intermediary, each of the Cash Collateral Account and the Pledge Account. The following provisions shall apply to the establishment and maintenance of each such Collateral Account: 11 7 (i) The Trustee shall cause each Collateral Account to be, and each Collateral Account shall be, separate from all other accounts maintained by the Trustee. (ii) The Trustee shall, in accordance with all applicable laws, have sole dominion and control (including, without limitation, Securities Control) over each Collateral Account, and it shall be a term and condition of each Collateral Account and the Pledgor irrevocably instructs the Trustee, notwithstanding any other term or condition to the contrary in any other agreement, that no Collateral shall be released to or for the account of, or withdrawn by or for the account of, the Pledgor or any other Person except as expressly provided in this Pledge Agreement. (iii) The Trustee shall, in accordance with and subject to all applicable laws, be the sole Entitlement Holder of, and have the power to originate Entitlement Orders with respect to, the Pledge Account and all U.S. Government Obligations, Securities, Security Entitlements and other Financial Assets held therein, and it shall be a term and condition of the Pledge Account that the Trustee shall have the right to issue such Entitlement Orders with respect to the Pledge Account and such Securities, Security Entitlements and other Financial Assets without further consent of the Pledgor, and that no Collateral shall be released to or for the account of, or withdrawn by or for the account of, the Pledgor or any other Person except as expressly provided in this Pledge Agreement. (b) On the Closing Date, the Pledgor shall transfer, or cause to be transferred, to the Trustee an amount equal to $86,549,914.84 by depositing all such proceeds into the Cash Collateral Account. (c) As soon as possible after receipt of the amount referred to in Section 2(b), (i) the Trustee shall apply such amount to purchase the U.S. Government Obligations (in the name of the Trustee) listed on Schedule I hereto, and cause the FaciliCom Securities Intermediary to credit such U.S. Government Obligations to the Pledge Account as Collateral hereunder; and (ii) the Trustee shall ensure that, on the Settlement Date, the FRBB credits in the FRBB Account those U.S. Government Obligations being settled on such date. (d) The Trustee will, from time to time, reinvest the proceeds of Collateral that may mature or be sold in such Collateral Investments (in the name of the Trustee) as it may be directed in writing by the Pledgor, and cause such Collateral Investments to be credited to the Pledge Account as Collateral hereunder. Such proceeds that are not so reinvested in Collateral Investments shall be deposited and held in the Cash Collateral Account. SECTION 3. Delivery of the Pledged Securities. (a) The Pledged Securities shall be pledged and delivered to the Pledge Account and the Trustee and the Trustee shall become the Entitlement Holder of a Security Entitlement to the Pledged Securities through action by the 12 8 FaciliCom Securities Intermediary, as confirmed (in writing or electronically or otherwise in accordance with standard industry practice) to the Trustee by the FaciliCom Securities Intermediary (i) indicating by book-entry that the Pledged Securities and all Security Entitlements thereto have been credited to the Pledge Account, or (ii) acquiring the Pledged Securities and all Security Entitlements thereto for the Trustee and accepting the same for credit to the Pledge Account. (b) Prior to or concurrently with the execution and delivery hereof and prior to the transfer to the Trustee of the Pledged Securities (or acquisition by the Trustee of any Security Entitlement thereto), as provided in subsection (a) of this Section 3, the Trustee and the FaciliCom Securities Intermediary shall establish the Pledge Account on the books of the FaciliCom Securities Intermediary as Securities Account segregated from all other custodial or collateral accounts such account to be maintained either (i) directly at its offices located at 225 Franklin Street, Boston Massachusetts 02110 or (ii) through a "Securities Account" maintained by the FaciliCom Securities Intermediary at the FRBB, as Securities Intermediary. Upon transfer of the Pledged Securities to the Trustee (or the Trustee's acquisition of a Security Entitlements thereto), as confirmed to the FaciliCom Securities Intermediary by FRBB or another securities intermediary, the FaciliCom Securities Intermediary shall make appropriate book entries indicating that the Pledged Securities and/or such Security Entitlement have been credited to and are held in the Pledge Account. Subject to the other terms and conditions of this Pledge Agreement, all funds or other property held by the Trustee pursuant to this Pledge Agreement shall be held in the Pledge Account or the Cash Collateral Account subject (except as expressly provided in Section 6 hereof) to the exclusive dominion and control (including, without limitation, Securities Control) of the Trustee and exclusively for the benefit of the Trustee and for the ratable benefit of the Holders of the Notes and segregated from all other funds or other property otherwise held by the Trustee. (c) All Collateral shall be retained in the Pledge Account or the Cash Collateral Account pending disbursement pursuant to the terms hereof. (d) Concurrently with the execution and delivery of this Pledge Agreement, the Trustee is delivering to the Pledgor and the Initial Purchasers a duly executed certificate, in the form of Exhibit A hereto, of an officer of the Trustee, confirming the Trustee's establishment and maintenance of the Pledge Account with the FaciliCom Securities Intermediary and its receipt and holding of the Pledge Securities or a Security Entitlement thereto and the crediting of the Pledged Securities or such Security Entitlement to the Pledge Account, all in accordance with this Pledge Agreement. (e) Concurrently with the execution and delivery of this Pledge Agreement, the Pledgor is delivering to the Trustee an opinion of a nationally recognized firm of independent public accountants, selected by the Pledgor, substantially in the form of Exhibit C hereto. 13 9 (f) Concurrently with the execution and delivery of this Pledge Agreement, the Pledgor is delivering to the Trustee financing statements in form acceptable for filing under the UCC of the State of New York, Commonwealth of Massachusetts and the District of Columbia, covering the Collateral described in this Pledge Agreement. SECTION 4. Delivery of Collateral Other than U.S. Government Obligations. (a) Collateral consisting of cash will be deemed to be delivered to the Trustee (such that the Trustee will have an enforceable lien and security interest thereon and therein), when it has been (and for so long as it shall remain) deposited in or credited to the Cash Collateral Account. (b) Collateral consisting of Cash Equivalents (other than U.S. Government Obligations) will be deemed to be delivered to the Trustee (such that the Trustee will have an enforceable lien and security interest thereon and therein), when they have been (and for so long as they shall remain) deposited in or credited to either Collateral Account. (c) Collateral consisting of Securities (other than U.S. Government Obligations) will be deemed delivered to the Trustee when the FaciliCom Securities Intermediary (A) shall indicate by book entry that such Securities have been credited to the Pledge Account or (B) shall receive such Security (or a Financial Asset based on such Security) for the Trustee, from or at the direction of the Pledgor, and shall accept such Security (or such Financial Asset) for credit to such Collateral Account; (d) Collateral consisting of Securities and represented or evidenced by certificates or instruments, will be deemed delivered to the Trustee when all such certificates or instruments representing or evidencing the Collateral, including, without limitation, amounts invested as provided in Section 5, shall be delivered to the FaciliCom Securities Intermediary and held by or on behalf of the Trustee pursuant hereto and shall be in registered form and specially indorsed to the Trustee by an effective indorsement, all in form and substance sufficient to convey a valid security interest in such Collateral to the Trustee or shall be credited to the Pledge Account. SECTION 5. Investing of Amounts in the Collateral Accounts. If at any time, any amounts shall exist in the Collateral Accounts uninvested, and if directed in writing by the Pledgor, the Trustee will, subject to the provisions of Section 6 and Section 13, (a) invest such amounts on deposit in the Collateral Accounts in such Cash Equivalents in the name of the Trustee as the Pledgor may select and (b) invest interest paid on the Cash Equivalents referred to in clause (a) above, and reinvest other proceeds of any such Cash Equivalents that may mature or be sold, in each case in such Cash Equivalents in the name of the Trustee, as the Pledgor may select and the Trustee may approve (the Cash Equivalents referred to in clauses (a) and (b) above, together with the Pledged Securities, being collectively referred to herein as "Collateral Investments"); provided, however, that the amount in cash and Pledged Securities on deposit in 14 10 the Collateral Accounts, collectively, at any time during the term of this Pledge Agreement, must be sufficient to provide for the payment in full of the remaining interest payments at such time on the Notes up to and including the sixth scheduled interest payment. Except as otherwise provided in Sections 11 and 12, the Trustee shall not be liable for any loss in the investment or reinvestment of amounts held in the Collateral Accounts. SECTION 6. Disbursements. The Trustee shall hold the Collateral in the Collateral Accounts and release the same, or a portion thereof, only as follows: (a) At least one Business Day prior to the due date of any of the first six scheduled interest payments on the Notes, the Pledgor may, pursuant to written instructions executed by the Pledgor (an "Issuer Order"), direct the Trustee to release from the Collateral Accounts and pay to the Holders of the Notes proceeds sufficient to provide for payment in full of such interest then due on the Notes; provided, however, that in the event Collateral is required to be liquidated, the Pledgor will give the Trustee at least three Business Days' notice. Upon receipt of an Issuer Order, the Trustee will take any action necessary to provide for the payment of the interest on the Notes to the Holders of the Notes in accordance with the payment provisions of the Indenture from (and to the extent of) proceeds of the Collateral in the Collateral Accounts. Nothing in this Section 6 shall affect the Trustee's rights to apply the Collateral to the payments of amounts due on the Notes upon acceleration thereof. (b) If the Pledgor makes any interest payment or portion of an interest payment for which the Collateral is security from a source of funds other than the Collateral Accounts ("Pledgor Funds"), the Pledgor may, after payment in full of such interest payment or portion thereof from proceeds of the Collateral or such Pledgor Funds or both, direct the Trustee by Issuer Order to release to the Pledgor or to another party at the direction of the Pledgor (the "Pledgor's Designee") proceeds from the Collateral Accounts in an amount less than or equal to the amount of Pledgor Funds applied to such interest payment. Upon receipt of such Issuer Order by the Trustee, the Trustee shall pay over to the Pledgor or the Pledgor's Designee, as the case may be, the requested amount from proceeds in the Collateral Accounts. Concurrently with any release of funds to the Pledgor pursuant to this Section 6(b), the Pledgor shall deliver to the Trustee a certificate signed by an officer of the Pledgor stating that the Pledgor has made the interest payment from a source of funds other than the Pledge Account, and that such release has been duly authorized by the Pledgor and will not contravene any provision of applicable law or Certificate of Incorporation or the By-laws of the Pledgor or any material agreement or other material instrument binding upon the pledgor or any of its subsidiaries or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Pledgor or any of its subsidiaries or result in the creation or imposition of any Lien on any assets of the Pledgor, except for the security interest granted under the Pledge Agreement. (c) At least one Business Day prior to the due date of any of the first six scheduled interest payments on the Notes, the Pledgor covenants to give the Trustee (by Issuer 15 11 Order) notice as to whether payment of interest will be made pursuant to Section 6(a) or 6(b) and as to the respective amounts of interest that will be paid pursuant to Section 6(a) or 6(b); provided, however, that, in the event Collateral is required to be liquidated, the Pledgor will give the Trustee at least three Business Days' notice. If no such notice is given, the Trustee will, subject to Section 6(d), act pursuant to Section 6(a) as if it had received an Issuer Order pursuant thereto for the payment in full of the interest then due. (d) The Trustee shall not be required to liquidate any Collateral Investments in order to make any scheduled payment of interest or any release hereunder unless instructed to do so by Issuer Order or pursuant to Section 13 hereof. (e) Upon the Termination Date, the security interest in the Collateral evidenced by this Pledge Agreement will automatically terminate and be of no further force and effect and the Collateral, upon receipt by the Trustee of an Issuer Order, shall promptly be paid over and transferred to the Pledgor. (f) In the event that the Collateral held in the Pledge Account exceeds 100% of the amount sufficient, in the opinion of a nationally recognized firm of independent public accountants selected by the Pledgor, to provide for payment in full of the first six scheduled interest payments due on the Notes (or, in the event an interest payment or payments have been made, an amount sufficient to provide for payment in full of all interest payments remaining, up to and including the sixth scheduled interest payment), the Trustee shall release to the Pledgor, at the Pledgor's written request, accompanied by an opinion prepared by a nationally recognized firm of independent public accountants, any such excess Collateral. (g) Upon the release of any Collateral from the Pledge Account, in accordance with the terms of this Pledge Agreement, the security interest evidenced by this Pledge Agreement in such released Collateral will automatically terminate and be of no further force and effect. (h) Nothing contained in Section 1, Section 13, this Section 6 or any other Provision of this Pledge Agreement shall (i) afford the Pledgor any right to issue Entitlement Orders with respect to any Security Entitlement to the Pledge Securities or Collateral Investments or any Securities Account in which any such Security Entitlement may be carried, or otherwise afford the Pledgor control of any such Security Entitlement or (ii) otherwise give rise to any rights of the Pledgor with respect to the Collateral Investments, any Security Entitlement thereto or any Securities Account in which any such Security Entitlement may be carried, other than the Pledgor's rights under this Pledge Agreement as the beneficial owner of Collateral pledged to and subject to the exclusive dominion and control (including, without limitation, Securities Control) (except as expressly provided in this Section 6) of the Trustee in its capacity as such (and not as a Securities Intermediary). The Pledgor acknowledges, confirms and agrees 16 12 that the Trustee holds a Security Entitlement to the Collateral Investments solely as trustee for the Holders of the Notes and not as a Securities Intermediary for the Pledgor. SECTION 7. Representations and Warranties. The Pledgor hereby represents and warrants, as of the date hereof, that: (a) The execution and delivery by the Pledgor of, and the performance by the Pledgor of its obligations under, this Pledge Agreement will not contravene any provision of applicable law or the Certificate of Incorporation or By-laws of the Pledgor or any material agreement or other material instrument binding upon the Pledgor or any of its subsidiaries or any judgment, order or decree of any governmental body, agency or court having jurisdiction over the Pledgor or any of its subsidiaries, or result in the creation or imposition of any Lien on any assets of the Pledgor, except for the security interests granted under this Pledge Agreement; no consent, approval, authorization or order of, or qualification with, any governmental body or agency is required (i) for the performance by the Pledgor of its obligations under this Pledge Agreement, (ii) for the pledge by the Pledgor of the Collateral pursuant to this Pledge Agreement or (iii) except for any such consents, approvals, authorizations or orders required to be obtained by the Trustee (or the Holders) for reasons other than the consummation of this transaction, for the exercise by the Trustee of the rights provided for in this Pledge Agreement or the remedies in respect of the Collateral pursuant to this Pledge Agreement. (b) The Pledgor is the beneficial owner of the Collateral, free and clear of any Lien or claims of any person or entity (except for the security interests granted under this Pledge Agreement). No financing statement covering the Pledgor's interest in the Collateral is on file in any public office other than the financing statements, if any, filed pursuant to this Pledge Agreement. (c) This Pledge Agreement has been duly authorized, validly executed and delivered by the Pledgor and (assuming the due authorization and valid execution and delivery of this Pledge Agreement by the Trustee and enforceability of the Pledge Agreement against the Trustee in accordance with its terms) constitutes a valid and binding agreement of the Pledgor, enforceable against the Pledgor in accordance with its terms, except as (i) the enforceability hereof may be limited by bankruptcy, insolvency, fraudulent conveyance, preference, reorganization, moratorium or similar laws now or hereafter in effect relating to or affecting the rights or remedies of creditors generally, (ii) the availability of equitable remedies may be limited by equitable principles of general applicability and the discretion of the court before which any proceeding therefor may be brought, (iii) the exculpation provisions and rights to indemnification hereunder may be limited by U.S. federal and state securities laws and public policy considerations 17 13 and (iv) the waiver of rights and defenses contained in Section 13(b), Section 17.11 and Section 17.15 hereof may be limited by applicable law. (d) Upon the delivery to the Trustee of the Collateral in accordance with the procedures described in Section 3 and Section 4 hereof, the pledge of and grant of a security interest in the Collateral securing the payment of the Obligations for the benefit of the Trustee and the Holders of the Notes will constitute a valid, first priority, perfected security interest in such Collateral (except, with respect to Proceeds, only to the extent permitted by Section 9-306 of the UCC), enforceable as such against all creditors of the Pledgor and any persons purporting to purchase any of the Collateral from the Pledgor, except in each case as enforcement may be affected by general equitable principles (whether considered in a proceeding in equity or at law) and other than as permitted by the Indenture. (e) There are no legal or governmental proceedings pending or, to the best of the Pledgor's knowledge, threatened to which the Pledgor or any of its subsidiaries is a party or to which any of the properties of the Pledgor or any of its subsidiaries is subject that would materially adversely affect the power or ability of the Pledgor to perform its obligations under this Pledge Agreement or to consummate the transactions contemplated hereby. (f) The pledge of the Collateral pursuant to this Pledge Agreement is not prohibited by law or governmental regulation (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System) applicable to the Pledgor. (g) No Event of Default (as defined herein) exists. SECTION 8. Further Assurances. The Pledgor will, promptly upon the request by the Trustee (which request the Trustee may submit at the direction of the Holders of a majority in aggregate principal amount of the Notes then outstanding), execute and deliver or cause to be executed and delivered, or use its reasonable best efforts to procure, all assignments, instruments and other documents, all in form and substance reasonably satisfactory to the Trustee, deliver any instruments to the Trustee and take any other actions that are necessary or desirable to perfect, continue the perfection of, or protect the first priority of the Trustee's security interest in and to the Collateral, to protect the Collateral against the rights, claims or interests of third persons (other than any such rights, claims or interests created by or arising through the Trustee) or to effect the purposes of this Pledge Agreement. The Pledgor also hereby authorizes the Trustee to file any financing or continuation statements in the United States with respect to the Collateral without the signature of the Pledgor (to the extent permitted by applicable law). The Pledgor will promptly pay all reasonable costs incurred in connection with 18 14 any of the foregoing within 45 days of receipt of an invoice therefor. The Pledgor also agrees, whether or not requested by the Trustee, to use its reasonable best efforts to perfect or continue the perfection of, or to protect the first priority of, the Trustee's security interest in and to the Collateral, and to protect the Collateral against the rights, claims or interests of third persons (other than any such rights, claims or interests created by or arising through the Trustee). SECTION 9. Covenants. The Pledgor covenants and agrees with the Trustee and the Holders of the Notes that from and after the date of this Pledge Agreement until the Termination Date: (a) that it will not (i) (and will not purport to) sell or otherwise dispose of, or grant any option or warrant with respect to, any of the Collateral nor (ii) create or permit to exist any Lien upon or with respect to any of the Collateral (except for the security interests granted under this Pledge Agreement and any Lien created by or arising through the Trustee) and at all times will be the sole beneficial owner of the Collateral; and (b) that it will not (i) enter into any agreement or understanding that restricts or inhibits or purports to restrict or inhibit the Trustee's rights or remedies hereunder, including, without limitation, the Trustee's right to sell or otherwise dispose of the Collateral or (ii) fail to pay or discharge any tax, assessment or levy of any nature with respect to the Collateral not later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment with respect to the Collateral. SECTION 10. Power of Attorney. In addition to all of the powers granted to the Trustee pursuant to the Indenture, subject to the terms of this Pledge Agreement, the Pledgor hereby appoints and constitutes the Trustee as the Pledgor's attorney-in-fact (with full power of substitution) to exercise to the fullest extent permitted by law all of the following powers upon and at any time after the occurrence and during the continuance of an Event of Default: (a) collection of proceeds of any Collateral; (b) conveyance of any item of Collateral to any purchaser thereof; (c) giving of any notices or recording of any Liens under Section 3 hereof; and (d) paying or discharging taxes or Liens levied or placed upon the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Trustee in its sole reasonable discretion, and such payments made by the Trustee to become part of the Obligations of the Pledgor to the Trustee, due and payable immediately upon demand. The Trustee's authority under this Section 10 shall include, without limitation, the authority to endorse and negotiate any checks or instruments representing proceeds of Collateral in the name of the Pledgor, execute and give receipt for any certificate of ownership or any document constituting Collateral, transfer title to any item of Collateral, sign the Pledgor's name on all financing statements (to the extent permitted by applicable law) or any other documents deemed necessary or appropriate by the Trustee in its reasonable discretion to preserve, protect or perfect the security interest in the Collateral and to file the same, prepare, file and sign the Pledgor's 19 15 name on any notice of Lien, and to take any other actions arising from or incident to the powers granted to the Trustee in this Pledge Agreement. This power of attorney is coupled with an interest and is irrevocable by the Pledgor. SECTION 11. No Assumption of Duties; Reasonable Care. The rights and powers granted to the Trustee hereunder are being granted in order to preserve and protect the security interest of the Trustee and the Holders of the Notes in and to the Collateral granted hereby and shall not be interpreted to, and shall not impose any duties on, the Trustee in connection therewith other than those expressly provided herein or imposed under applicable law. Except as provided by applicable law or by the Indenture, the Trustee shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral in its possession if the Collateral is accorded treatment substantially equal to that which the Trustee accords similar property held by the Trustee for similar accounts, it being understood that the Trustee in its capacity as such shall not have any responsibility for (a) ascertaining or taking action with respect to calls, conversions, exchanges, maturities or other matters relative to any Collateral, whether or not the Trustee has or is deemed to have knowledge of such matters, (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral or (c) investing or reinvesting any of the Collateral; provided, however, that nothing contained in this Pledge Agreement shall relieve the Trustee of any responsibilities as a securities intermediary under applicable law. SECTION 12. Indemnity. The Pledgor shall indemnify, hold harmless and defend the Trustee and its directors and officers from and against any and all claims, actions, obligations, liabilities and expenses, including reasonable defense costs, reasonable investigative fees and costs, and reasonable legal fees and damages arising from the Trustee's performance as Trustee under this Pledge Agreement, except to the extent that such claim, action, obligation, liability or expense is directly attributable to the bad faith, gross negligence or wilful misconduct of such indemnified person. The provisions of this Section 12 shall survive termination of this Pledge Agreement and the resignation and removal of the Trustee. SECTION 13. Remedies upon Event of Default. If any Event of Default under the Indenture or default hereunder (any such Event of Default or default being referred to in this Pledge Agreement as an "Event of Default") shall have occurred and be continuing: (a) The Trustee and the Holders of the Notes shall have, in addition to all other rights given by law or by this Pledge Agreement or the Indenture, all of the rights and remedies with respect to the Collateral of a secured party under the UCC in effect in the State of New York and the District of Columbia at that time. In addition, with respect to any Collateral that shall then be in or shall thereafter come into the possession or custody of the Trustee, the Trustee may and, at the direction of the Holders of a majority in aggregate principal amount of the Notes then outstanding, shall appoint a broker or 20 16 other expert to sell or cause the same to be sold at any broker's board or at public or private sale, in one or more sales or lots, at such price or prices such broker or other expert may deem best, for cash or on credit or for future delivery, without assumption of any credit risk. The purchaser of any or all Collateral so sold shall thereafter hold the same absolutely, free from any claim, encumbrance or right of any kind whatsoever created by or through the Pledgor. Unless any of the Collateral threatens, in the reasonable judgment of the Trustee, to decline speedily in value, the Trustee will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Collateral conducted in conformity with reasonable commercial practices of banks, insurance companies, commercial finance companies, or other financial institutions disposing of property similar to the Collateral shall be deemed to be commercially reasonable. Any requirements of reasonable notice shall be met if such notice is mailed to the Pledgor as provided in Section 17.1 hereof at least ten (10) days before the time of the sale or disposition. The Trustee or any Holder of Notes may, in its own name or in the name of a designee or nominee, buy any of the Collateral at any public sale and, if permitted by applicable law, at any private sale. All expenses (including court costs and reasonable attorneys' fees, expenses and disbursements) of, or incident to, the enforcement of any of the provisions hereof shall be recoverable from the proceeds of the sale or other disposition of the Collateral. (b) The Pledgor further agrees to use its reasonable best efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Collateral pursuant to this Section 13 valid and binding and in compliance with any and all other applicable requirements of law. The Pledgor further agrees that a breach of any of the covenants contained in this Section 13 will cause irreparable injury to the Trustee and the Holders of the Notes, that the Trustee and the Holders of the Notes have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 13 shall be specifically enforceable against the Pledgor, and the Pledgor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred. SECTION 14. Expenses. The Pledgor will upon demand pay to the Trustee the amount of any and all reasonable expenses, including, without limitation, the reasonable fees, expenses and disbursements of its counsel, experts and agents retained by the Trustee, that the Trustee may incur in connection with (a) the review, negotiation and administration of this Pledge Agreement, (b) the custody or preservation of, or the sale of, collection from, or other realization upon, any of the Collateral, (c) the exercise or enforcement of any of the rights of the Trustee and the Holders of the Notes hereunder or (d) the failure by the Pledgor to perform or observe any of the provisions hereof. 21 17 SECTION 15. Security Interest Absolute. All rights of the Trustee and the Holders of the Notes and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (a) any lack of validity or enforceability of the Indenture or any other agreement or instrument relating thereto; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Indenture; (c) any exchange, surrender, release or non-perfection of any Liens on any other collateral for all or any of the Obligations; or (d) to the extent permitted by applicable law, any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Obligations or of this Pledge Agreement. SECTION 16. FaciliCom Securities Intermediary's Representations, Warranties and Covenants. The FaciliCom Securities Intermediary represents and warrants that it is as of the date hereof, and it agrees that for so long as it maintains the Collateral Accounts and acts as the Securities Intermediary pursuant to this Pledge Agreement it shall be a Securities Intermediary and a FRBB Member. In furtherance of the foregoing the FaciliCom Securities Intermediary hereby: (a) represents and warrants that it is a corporation that in the ordinary course of its business maintains securities accounts for others and is acting in that capacity hereunder and with respect to the Pledge Account; (b) represents and warrants that it maintains a FRBB Member Securities Account with the FRBB; (c) agrees that the Pledge Account shall be an account to which Financial Assets may be credited, and the FaciliCom Securities Intermediary undertakes to treat the Trustee as entitled to exercise rights that comprise (and entitled to the benefits of) such Financial Assets, and entitled to exercise the rights of an Entitlement Holder in the manner contemplated by the UCC; (d) hereby represents that it has not granted, and covenants that so long as it acts as a Securities Intermediary hereunder it shall not grant, control (including without 22 18 limitation, Securities Control) over or with respect to any Collateral credited to any Collateral Account from time to time to any other Person other than the Trustee. (e) covenants that in its capacity as FaciliCom Securities Intermediary hereunder and with respect to the Collateral Accounts, it shall not take any action inconsistent with, and represents and covenants that it is not and so long as this Pledge Agreement remains in effect will not become party to any agreement the terms of which are inconsistent with the provisions of this Pledge Agreement; (f) agrees that any item of property credited to the Pledge Account shall be treated as a Financial Asset; (g) agrees that any item of Collateral credited to any Collateral Account shall not be subject to any security interest, Lien or right of set-off in favor of the FaciliCom Securities Intermediary, except as may be expressly permitted under the Indenture (and the FaciliCom Securities Intermediary shall take such actions as shall be necessary and appropriate to cause such Collateral to remain free of any Lien or security interest of any underlying Securities Intermediary through which the FaciliCom Securities Intermediary holds such Collateral or any Security Entitlement thereto); (h) agrees, so long as it serves as FaciliCom Securities Intermediary pursuant to this Pledge Agreement, to maintain the Collateral Accounts and maintain appropriate books and records in respect thereof in accordance with its usual procedures and subject to the terms of this Pledge Agreement; and (i) agrees, with the other parties to this Pledge Agreement, that the FaciliCom Security Intermediary's jurisdiction, for purposes of Section 8-110(e) of the UCC as it pertains to this Pledge Agreement, the Collateral Accounts and the Security Entitlements relating thereto, shall be the State of New York. SECTION 17. Miscellaneous Provisions. 17.1 Notices. Any notice, approval, consent or other communication shall be sufficiently given if in writing and delivered in person or mailed by first class mail, commercial courier service or telecopier communication, addressed as follows: 23 19 if to the Pledgor: FaciliCom International, Inc. 1401 New York Avenue, N.W. Eighth Floor Washington, D.C. 20005 Attention: Christopher S. King Telecopier No.: (202) 496-1109 with a copy to: Swidler & Berlin 3000 K Street, N.W. Suite 300 Washington, D.C. 20007-5116 Attention: Morris F. DeFeo, Jr., Esq. Telecopier No.: (202) 424-7647 if to the Trustee: State Street Bank and Trust Company 225 Franklin Street Boston, Massachusetts 02110 Attention: Corporate Trust Department Telecopier No.: (617) 664-5371 17.2 No Adverse Interpretation of Other Agreements. This Pledge Agreement may not be used to interpret another pledge, security or debt agreement of the Pledgor or any subsidiary thereof. No such pledge, security or debt agreement (other than the Indenture) may be used to interpret this Pledge Agreement. 17.3 Severability. The provisions of this Pledge Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Pledge Agreement in any jurisdiction. 17.4 Headings. The headings in this Pledge Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof. 24 20 17.5 Counterpart Originals. This Pledge Agreement may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement. 17.6 Benefits of Pledge Agreement. Nothing in this Pledge Agreement, express or implied, shall give to any person, other than the parties hereto and their successors hereunder, and the Holders of the Notes, any benefit or any legal or equitable right, remedy or claim under this Pledge Agreement. 17.7 Amendments, Waivers and Consents. Any amendment or waiver of any provision of this Pledge Agreement and any consent to any departure by the Pledgor from any provision of this Pledge Agreement shall be effective only if made or duly given in compliance with all of the terms and provisions of the Indenture, and neither the Trustee nor any Holder of Notes shall be deemed, by any act, delay, indulgence, omission or otherwise, to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. Failure of the Trustee or any Holder of Notes to exercise, or delay in exercising, any right, power or privilege hereunder shall not preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that the Trustee or such Holder of Notes would otherwise have on any future occasion. The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any rights or remedies provided by law. 17.8 Interpretation of Agreement. All terms not defined herein or in the Indenture shall have the meaning set forth in the UCC, except where the context otherwise requires. To the extent a term or provision of this Pledge Agreement conflicts with the Indenture, the Indenture shall control with respect to the subject matter of such term or provision. Acceptance of or acquiescence in a course of performance rendered under this Pledge Agreement shall not be relevant to determine the meaning of this Pledge Agreement even though the accepting or acquiescing party had knowledge of the nature of the performance and opportunity for objection. 17.9 Continuing Security Interest; Termination. (a) This Pledge Agreement shall create a continuing security interest in and to the Collateral and shall, unless otherwise provided in the Indenture or in this Pledge Agreement, remain in full force and effect until the payment in full in cash of the Obligations. This Pledge Agreement shall be binding upon the Pledgor, its transferees, successors and assigns, and shall inure, together with the rights and remedies of the 25 21 Trustee hereunder, to the benefit of the Trustee, the Holders of the Notes and their respective successors, transferees and assigns. (b) In addition to the provisions of Section 6(e) hereof and subject to the provisions of Section 17.10 hereof, this Pledge Agreement shall terminate upon the payment in full in cash of the Obligations. At such time, and subject to Section 12, the Trustee shall, pursuant to an Issuer Order, reassign and redeliver to the Pledgor all of the Collateral hereunder that has not been sold, disposed of, retained or applied by the Trustee in accordance with the terms of this Pledge Agreement and the Indenture. Such reassignment and redelivery shall be without warranty by or recourse to the Trustee in its capacity as such, except as to the absence of any Liens on the Collateral created by or arising through the Trustee, and shall be at the reasonable expense of the Pledgor. 17.10 Survival Provisions. All representations, warranties and covenants of the Pledgor contained herein shall survive the execution and delivery of this Pledge Agreement, and shall terminate only upon the termination of this Pledge Agreement. The obligations of the Pledgor under Sections 12 and 14 hereof shall survive the termination of this Pledge Agreement. 17.11 Waivers. The Pledgor waives presentment and demand for payment of any of the Obligations, protest and notice of dishonor or default with respect to any of the Obligations, and all other notices to which the Pledgor might otherwise be entitled, except as otherwise expressly provided herein or in the Indenture. 17.12 Authority of the Trustee. (a) The Trustee shall have and be entitled to exercise all powers hereunder that are specifically granted to the Trustee by the term hereof, together with such powers as are reasonably incident thereto. The Trustee may perform any of its duties hereunder or in connection with the Collateral by or through agents or employees and shall be entitled to retain counsel and to act in reliance upon the advice of counsel concerning all such matters. Except as otherwise expressly provided in this Pledge Agreement or the Indenture, neither the Trustee nor any director, officer, employee, attorney or agent of the Trustee shall be liable to the Pledgor for any action taken or omitted to be taken by the Trustee, in its capacity as Trustee, hereunder, except for its own bad faith, gross negligence or willful misconduct, and the Trustee shall not be responsible for the validity, effectiveness or sufficiency hereof or of any document or security furnished pursuant hereto. The Trustee and its directors, officers, employees, attorneys and agents shall be entitled to rely on any communication, instrument or document believed by it or them to be genuine and correct and to have been signed or sent by the proper person or persons. The Trustee shall have no duty to cause any financing statement or continuation statement to be filed in respect of the Collateral. 26 22 (b) The Pledgor acknowledges that the rights and responsibilities of the Trustee under this Pledge Agreement with respect to any action taken by the Trustee or the exercise or non-exercise by the Trustee of any option, right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Pledge Agreement shall, as between the Trustee and the Holders of the Notes, be governed by the Indenture and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Trustee and the Pledgor, the Trustee shall be conclusively presumed to be acting as agent for the Holders of the Notes with full and valid authority so to act or refrain from acting, and the Pledgor shall not be obligated or entitled to make any inquiry respecting such authority. 17.13 Final Expression. This Pledge Agreement, together with the Indenture and any other agreement executed in connection herewith, is intended by the parties as a final expression of this Pledge Agreement and is intended as a complete and exclusive statement of the terms and conditions thereof. 17.14 Rights of Holders of the Notes. No Holder of Notes shall have any independent rights hereunder other than those rights granted to individual Holders of the Notes pursuant to Section 607 of the Indenture; provided that nothing in this subsection shall limit any rights granted to the Trustee under the Notes or the Indenture. 17.15 GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. NOTWITHSTANDING THE FOREGOING, THE MATTERS IDENTIFIED IN 31 C.F.R. ss.ss. 357.0 AND 357.11 (AS IN EFFECT ON THE DATE OF THIS PLEDGE AGREEMENT) SHALL BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN. (b) THE PLEDGOR HEREBY APPOINTS CORPORATION SERVICE COMPANY AS ITS AGENT FOR SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE AGREEMENT AND FOR ACTIONS BROUGHT UNDER THE U.S. FEDERAL OR STATE SECURITIES LAWS BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK (EACH A "NEW YORK COURT"). EACH OF THE PARTIES HERETO SUBMITS TO THE JURISDICTION OF ANY NEW YORK COURT AND TO THE COURTS OF ITS CORPORATE DOMICILE WITH RESPECT TO ANY ACTIONS BROUGHT AGAINST IT 27 23 AS DEFENDANT IN ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN CONNECTION WITH THIS PLEDGE AGREEMENT, AND EACH OF THE PARTIES HERETO WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LAYING OF VENUE, INCLUDING ANY PLEADING OF FORUM NON CONVENIENS, WITH RESPECT TO ANY SUCH ACTION AND WAIVES ANY RIGHT TO WHICH IT MAY BE ENTITLED ON ACCOUNT OF PLACE OF RESIDENCE OR DOMICILE. (c) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. (d) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR (EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR (WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE, JUDGMENT OF A COURT THAT IS BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. (e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE 28 24 TRUSTEE OR ANY HOLDER OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER PERTAINING TO THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT BETWEEN THE PLEDGOR, ON THE ONE HAND, AND THE TRUSTEE AND/OR THE HOLDERS OF THE NOTES, ON THE OTHER HAND. 17.16 Effectiveness. This Pledge Agreement shall become effective upon the effectiveness of the Indenture. 29 25 IN WITNESS WHEREOF, the Pledgor and the Trustee have each caused this Pledge Agreement to be duly executed and delivered as of the date first above written. Pledgor: FACILICOM INTERNATIONAL, INC. By: ---------------------------------------- Name: Title: Trustee: STATE STREET BANK AND TRUST COMPANY, as Trustee By: ---------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Securities Intermediary, for purposes of Section 16 only By: ---------------------------------------- Name: Title: 30 SCHEDULE I PLEDGED SECURITIES
Description Original Cost at of Debt CUSIP No(s). Final Maturity Principal Amount Closing Date ------- ------------ -------------- ---------------- ------------ Treasury Note 912827B50 7/15/98 14,206,000.00 14,446,925.77 Treasury Note 912827D74 1/15/99 14,792,000.00 14,986,023.33 Treasury Note 912627F98 7/15/99 15,263,000.00 15,535,970.28 Treasury Strip 76116EED8 1/15/00 15,750,000.00 14,223,403.06 Treasury Strip 76116EEE6 7/15/00 15,750,000.00 13,857,246.27 Treasury Strip 76116EEF3 1/15/01 15,750,000.00 13,499,857.98
I-1 EX-5.1 10 OPINION OF LONG ALDRIDGE & NORMAN LLP 1 EXHIBIT 5.1 November 5, 1999 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. 333-89479) (the "Registration Statement") and the filing thereof with the Securities and Exchange Commission (the "Commission") for the purpose of registering under the Securities and Exchange Act of 1933, as amended, (i) $300,000,000 aggregate principal amount of 13.25% Senior Notes due 2008 (the "Exchange Notes") and (ii) $15,000,000 aggregate market value of the Company's common stock, $.01 par value per share (the "Exchange Shares"). The Exchange Notes and Exchange Shares are to be issued in exchange (the "Exchange Offer") for the outstanding $300,000,000 aggregate principal amount of FaciliCom International, Inc.'s 10 1/2% Series B Senior Notes due 2008 (the "FaciliCom Notes"). Our opinion is furnished for the benefit of the Company solely with regard to the Registration Statement, may be relied upon by the Company only in connection with the Registration Statement and may not otherwise be relied upon, used, quoted or referred to by or filed with any other person or entity without our prior written permission. In rendering our Opinions (as defined below), we have examined such agreements, documents, instruments and records as we deemed necessary or appropriate under the circumstances hereinafter set forth, including: (i) the Certificate of Incorporation and Bylaws of the Company, in each case as amended through the date hereof; (ii) the Registration Statements; and (iii) the draft Indenture, dated October 27, 1999 by and between the Company and First Union National Bank, a national banking association, as Trustee (the "Indenture"). In making all of our examinations, we assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity 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 latter documents, and the due execution and delivery of all documents by any persons or entities where due execution and delivery by such persons or entities is a prerequisite to the effectiveness of such documents. We have assumed further that (i) at the time of execution, authorization, issuance and delivery of the Exchange Notes, the Indenture will have been duly authorized, executed and delivered by the Company and (ii) execution, delivery and performance by the Company of the Indenture and the Exchange Notes will not violate any applicable laws (excepting from such assumption the laws of the State of Georgia, the Delaware General Corporation Law and the Federal laws of the United States). As to various factual matters that are material to our Opinions, we have relied upon the factual statements set forth in a certificate of officers 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. Members of this firm are admitted to the Bar of the State of Georgia and are duly qualified to practice law in that state. We do not herein express any opinion concerning any matter respecting or affected by any laws other than the laws of the State of Georgia and the Delaware General Corporation Law that are now in effect and that, in the exercise of reasonable professional judgment, are normally considered in transactions 2 World Access, Inc. November 5, 1999 Page 2 such as those contemplated by the issuance of the Exchange Notes and Exchange Shares. The Opinions hereinafter set forth are 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 opinions rendered by this firm are in numbered paragraphs (1) and (2) below (our "Opinions"), and no other opinion is implied or to be inferred. Additionally, our Opinions are 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 Exchange Notes are duly authorized and, when authenticated, issued and delivered in exchange for a like principal amount of the FaciliCom Notes in the Exchange Offer as set forth in the Registration Statement and in accordance with the provisions of the Indenture, will be legally issued, fully paid and nonassessable and will constitute binding obligations of the Company, enforceable against the Company in accordance with the terms of the Indenture, subject to the qualifications that (a) enforcement of the Company's obligations thereunder may be limited by bankruptcy, fraudulent conveyance or transfer, insolvency, reorganization, moratorium, and other laws relating to or affecting rights and remedies of creditors and by general equitable principles (whether considered in a proceeding at law or in equity) and matters of public policy, and (b) an implied covenant of good faith and fair dealing. (2) The Exchange Shares are duly authorized and, when issued and delivered in the Exchange Offer as set forth in the Registration Statement, will be legally issued, fully paid and nonassessable. We hereby consent to the filing of this letter as an exhibit to the Registration Statement and to 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/ Thomas Wardell ---------------------------------------- Thomas Wardell LAS/ldd EX-8.1 11 OPINION OF LONG ALDRIDGE & NORMAN LLP 1 EXHIBIT 8.1 November 5, 1999 World Access, Inc. 945 East Paces Ferry Road Suite 2200 Atlanta, Georgia 30326 Re: Federal Income Tax Considerations of the Exchange Offer and the Consent Solicitation Ladies and Gentlemen: You have requested our opinion as to the federal income tax considerations of an offer by World Access, Inc. ("World Access") to exchange new World Access 13.25% Senior Notes due 2008, World Access common stock and a payment of cash (the "Exchange Offer") for all outstanding 10 1/2% Series B Senior Notes due 2008 of FaciliCom International, Inc. (the "FaciliCom notes") and the solicitation of consents with respect to the FaciliCom notes (the "Consent Solicitation") on the terms and conditions set forth in the Prospectus and Consent Solicitation dated November 5, 1999 (the "Prospectus and Consent Solicitation"), as described in the Registration Statement on Form S-4 (Reg. No. 333-89479), filed by World Access with the Securities and Exchange Commission (the "Registration Statement"). In rendering our opinion, we have examined and relied upon the accuracy and completeness of the facts, information, covenants and representations contained in originals or copies, certified or otherwise identified to our satisfaction, of the Prospectus and Consent Solicitation filed as part of the Registration Statement, and such other documents and representations of representatives of World Access as we have deemed necessary or appropriate. In our examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such documents. We have also assumed the transactions related to the Exchange Offer and Consent Solicitation will be consummated as described in the Prospectus and Consent Solicitation. In rendering our opinion, we have considered the applicable provisions of the Internal Revenue Service Code of 1986, as amended, proposed, temporary and final Treasury Regulations promulgated thereunder, pertinent judicial authorities, interpretive rulings of the Internal Revenue Service and other authorities as we have considered relevant. We caution that statutes, regulations, 2 World Access, Inc. November 5, 1999 Page 2 judicial decisions and administrative interpretations are subject to change at any time and, in some circumstances, with retroactive effect. Any change in the authorities upon which our opinion is based could affect the conclusions stated herein. Based on the foregoing, we are of the opinion that, except as to matters upon which we have expressly declined to express an opinion, the statements and legal conclusions contained in the Prospectus and Consent Solicitation under the caption "Federal Income Tax Considerations", to the extent they constitute matters of law or legal conclusions are accurate in all material respects. In addition, we consent to the reference to Long Aldridge & Norman LLP in the Prospectus and Consent Solicitation under the caption "Legal Matters" and "Federal Income Tax Considerations" and to the filing of this opinion as an exhibit to the Registration Statement. In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission. As expressly set forth in the Prospectus and Consent Solicitation with respect to the specific tax consequences described under the caption "Federal Income Tax Considerations", we express no opinion as to the tax consequences to any holder of FaciliCom notes, whether federal, state, local or foreign, of the Exchange Offer or Consent Solicitation or of any transaction related to the Exchange Offer and Consent Solicitation. This opinion is solely for your benefit and is not to be used, circulated, quoted or otherwise referred to for any purpose without our express prior written consent. Very truly yours, LONG ALDRIDGE & NORMAN LLP By: /s/ Mark S. Lange ------------------------------- Mark S. Lange, a Partner EX-23.2 12 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 Amendment No. 1 to the Registration Statements on Form S-4 and related Prospectus of World Access, Inc. and subsidiaries for the registration of $300 million of 13.25% Senior Notes due 2008 and $15 million of common stock and to the incorporation by reference therein of our report dated March 26, 1999, 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. 3) for the year ended December 31, 1998, filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Atlanta, Georgia November 2, 1999 EX-23.3 13 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.3 INDEPENDENT AUDITORS' CONSENT We consent to the use in Amendment No. 1 to Registration Statement (No. 333-89479) of World Access, Inc. on Form S-4 of our report, dated December 9, 1998, on the consolidated financial statements of FaciliCom International, Inc. and subsidiaries, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP Pittsburgh, Pennsylvania November 2, 1999 EX-23.4 14 CONSENT OF PRICEWATERHOUSECOOPERS LLP 1 EXHIBIT 23.4 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Registration Statement on Form S-4 of our report dated March 5, 1998, except for the discontinued operations reclassifications in the Consolidated Statements of Operations and Note D, which are as of April 9, 1999, relating to the financial statements and financial statement schedules of World Access, Inc. for each of the two years in the period ended December 31, 1997, which appears in World Access, Inc.'s Annual Report on Form 10-K, as amended, for the year ended December 31, 1998. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PricewaterhouseCoopers, LLP Atlanta, Georgia November 2, 1999 EX-23.5 15 CONSENT OF ERNST & YOUNG LLP/CHERRY COMMUNICATIONS 1 EXHIBIT 23.5 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement on Form S-4 and related Prospectus of World Access, Inc. and subsidiaries for the registration of $300 million of 13.25% Senior Notes due 2008 and $15 million of common stock and to the incorporation by reference therein of our report dated June 5, 1998, with respect to the combined financial statements of Cherry Communications Incorporated (d/b/a Resurgens Communications Group) and Cherry Communications U.K. Limited for the year ended December 31, 1997 included in WA Telecom Current Report on Form 8-K dated July 27, 1998, as amended by Amendment No. 1 on Form 8-K/A dated September 4, 1998, as amended by Amendment No. 2 on Form 8-K/A dated September 25, 1998. /s/ Ernst & Young LLP Atlanta, Georgia November 2, 1999 EX-23.6 16 CONSENT OF GRANT THRONTON LLP 1 EXHIBIT 23.6 CONSENT OF INDEPENDENT AUDITORS We have issued our report dated July 11, 1997, except for Notes 2 and 10 as to which the date is July 24, 1997, accompanying the combined financial statements of Cherry Communications Incorporated and Cherry Communications U.K. Limited for each of the two years in the period ended December 31, 1996 included in the WA Telecom Current Report on Form 8-K dated July 27, 1998, as amended by Amendment No. 1 on Form 8-K/A dated September 4, 1998, as amended by Amendment No. 2 on Form 8-K/A dated September 25, 1998. We consent to the incorporation by reference of the aforementioned report in the Registration Statement on Form S-4 of World Access, Inc. and to the use of our name as it appears under the caption "Experts." /s/ GRANT THORNTON LLP Chicago, Illinois November 2, 1999 EX-23.7 17 CONSENT OF ERNST & YOUNG LLP / TELCO SYSTEMS, INC. 1 EXHIBIT 23.7 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement on Form S-4 and related Prospectus of World Access, Inc. and subsidiaries for the registration of $300 million of 13.25% Senior Notes due 2008 and $15 million of common stock and to the incorporation by reference therein of our report dated November 4, 1998, with respect to the consolidated financial statements and schedule of Telco Systems, Inc. for the year ended August 30, 1998 included in World Access, Inc.'s Registration Statement on Form S-4 dated November 10, 1998. /s/ Ernst & Young LLP Boston, Massachusetts November 2, 1999 EX-23.8 18 CONSENT OF KPMG LLP 1 EXHIBIT 23.8 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (No. 333-89479) on Form S-4 of World Access, Inc. of our report dated December 4, 1997, relating to the consolidated balance sheets of NACT Telecommunications, Inc. and subsidiary as of September 30, 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended September 30, 1997, which report appears in the Registration Statement on Form S-4 filed on October 6, 1998, as amended by Amendment No. 1 to Form S-4 filed on October 7, 1998, and Amendment No. 2 to Form S-4 filed on October 7, 1998, and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG LLP Salt Lake City, Utah November 2, 1999 EX-25.1 19 STATEMENT OF ELIGIBILITY OF TRUSTEE 1 EXHIBIT 25.1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------------------- FORM T-1 ---------------------------- STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305-(b) (2)[ ] ---------------------------- FIRST UNION NATIONAL BANK (Exact name of Trustee as specified in its charter) TWO FIRST UNION CENTER CHARLOTTE, NORTH CAROLINA 28288 58-1079889 (Address of principal executive office) (Zip Code) (IRS Employer Identification No.)
Brian K. Justice First Union National Bank 1100 First Union Plaza 999 Peachtree Street N.E. Atlanta, Georgia 30309 (404) 827-7352 (Name, Address and Telephone Number of Agent for Service) ---------------------------- WORLD ACCESS, INC. (Exact name of obligor as specified in its charter) GEORGIA (State or other jurisdiction of incorporation or organization) 58-2398004 (IRS employer identification no.) 945 EAST PACES FERRY ROAD SUITE 2200 ATLANTA, GEORGIA 30326 (404) 231-2025 (Name, address, including zip code, and telephone number, including area code, of principal executive offices) MARK A. GERGEL EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER WORLD ACCESS, INC. 945 EAST PACES FERRY ROAD SUITE 2200 ATLANTA, GEORGIA 30326 (404) 231-2025 ---------------------------- $300,000,000 WORLD ACCESS, INC. 13.25% SENIOR NOTES DUE 2008 (Title of the indenture securities) ================================================================================ 1 2 1. General information. (a) The following are the names and addresses of each examining or supervising authority to which the Trustee is subject: The Comptroller of the Currency, Washington, D.C. Federal Reserve Bank of Atlanta, Georgia. Federal Deposit Insurance Corporation, Washington, D.C. Securities and Exchange Commission, Division of Market Regulation, Washington, D.C. (b) The Trustee is authorized to exercise corporate trust powers. 2. Affiliations with obligor. The obligor is not an affiliate of the Trustee. (See Note 2 on Page 5) 16. List of Exhibits. (1) Articles of Association of the Trustee as now in effect. (See Exhibit 1 of the Form T-1 filed in connection with Registration Statement No. 333-33869, which is incorporated herein by reference) (2) Certificate of Authority of the Trustee to commence business. (See Exhibit 2 of the Form T-1 filed in connection with Registration Statement No. 333-33869, which is incorporated herein by reference) (3) Authorization of the Trustee to exercise corporate trust powers. Incorporated in Exhibit (4). (4) By-Laws of the Trustee, as amended, to date. (See Exhibit 4 of the Form T-1 filed in connection with Registration Statement No.333-33869, which is incorporated herein by reference) (5) Not applicable. (6) Consent by the Trustee required by Section 321(b) of the Trust Indenture Act of 1939. Included on Page 4 of this Form T-1 Statement. (7) Most recent report of condition of the Trustee. (See Exhibit 7 of the Form T-1 filed in connection with Registration Statement No. 333-33869, which is incorporated herein by reference) (8) Not applicable. (9) Not applicable.
2 3 SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, FIRST UNION NATIONAL BANK, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Atlanta, and State of Georgia on the 5th day of November, 1999. FIRST UNION NATIONAL BANK (Trustee) BY: /s/ BRIAN K. JUSTICE ------------------------------------------- Brian K. Justice 3 4 EXHIBIT T-1 (6) CONSENT OF TRUSTEE Under section 321(b) of the Trust Indenture Act of 1939 and in connection with the proposed issuance of Notes of World Access, Inc., First Union National Bank, as the Trustee herein named, hereby consents that reports of examinations of said Trustee by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon requests therefor. FIRST UNION NATIONAL BANK BY: /s/ Sabrina Fuller ------------------------------------------- Sabrina Fuller Dated: November 5, 1999 4 EX-99.1 20 FORM OF LETTER OF TRANSMITTAL 1 EXHIBIT 99.1 LETTER OF TRANSMITTAL WORLD ACCESS, INC. OFFER TO EXCHANGE ITS 13.25% SENIOR NOTES DUE 2008, COMMON STOCK AND CASH FOR ALL OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL, INC. (THE "FACILICOM NOTES") PURSUANT TO THE PROSPECTUS AND CONSENT SOLICITATION DATED NOVEMBER 5, 1999 THE EXCHANGE OFFER WILL EXPIRE AT 12:00 P.M., NEW YORK CITY TIME, ON DECEMBER 7, 1999 OR SUCH LATER DATE AND TIME TO WHICH THE EXCHANGE OFFER MAY BE EXTENDED (THE "EXPIRATION DATE"). The Exchange Agent for the Exchange Offer is FIRST UNION NATIONAL BANK 1525 WEST W.T. HARRIS BOULEVARD 3C3 NC-1153 CHARLOTTE, NORTH CAROLINA 28262 By Facsimile: (704) 590-7628 For Confirmation and/or Information Call: (704) 590-7408 BY TENDERING YOUR FACILICOM NOTES IN THE EXCHANGE OFFER, YOU WILL ALSO BE CONSENTING TO CERTAIN PROPOSED AMENDMENTS TO THE INDENTURE UNDER WHICH THE FACILICOM NOTES WERE ISSUED. DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A FACSIMILE TRANSMISSION TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. 2 PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE COMPLETING ANY BOX BELOW ------------------------ List below the FaciliCom Notes to which this Letter of Transmittal relates. If the space provided below is inadequate, the certificate numbers and principal amount of FaciliCom Notes should be listed on a separate signed schedule affixed hereto. - ---------------------------------------------------------------------------------------------------------------------- DESCRIPTION OF FACILICOM NOTES (1) (2) (3) - ---------------------------------------------------------------------------------------------------------------------- PRINCIPAL AMOUNT OF FACILICOM PRINCIPAL AMOUNT NOTES TENDERED NAME(S) AND ADDRESS(ES) OF CERTIFICATE OF FACILICOM (IF LESS THAN REGISTERED HOLDER(S) NUMBER(S)* NOTES ALL)** - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- * Need not be completed by book-entry holders. ** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate principal amount represented by such FaciliCom Notes. - ----------------------------------------------------------------------------------------------------------------------
The undersigned acknowledges that he or she has received and reviewed the Prospectus and Consent Solicitation dated November 5, 1999 (the "Prospectus"), of World Access, Inc., a Delaware corporation (the "Company"), and this Letter of Transmittal (the "Letter"), which together constitute the Company's solicitation of your consent to amend the indenture governing the FaciliCom Notes as more fully described in the Prospectus and the Company's offer (the "Exchange Offer") to exchange for up to $300,000,000 aggregate principal amount of FaciliCom Notes the following consideration (the "Exchange Consideration"): (i) a like principal amount of its 13.25% Senior Notes due 2008 (the "Exchange Notes"), (ii) shares of the Company's common stock, par value $0.01 per share, having a market value of $50 for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Exchange Shares") and (iii) a payment of $10 in cash for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Cash Payment"). The undersigned has completed the appropriate boxes above and below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. This Letter is to be used either if certificates for FaciliCom Notes are to be forwarded herewith or if delivery of FaciliCom Notes is to be made by book-entry transfer to an account maintained by the Exchange Agent at The Depository Trust Company, pursuant to the procedures set forth in "The Exchange Offer -- Procedures for Tendering" in the Prospectus. Delivery of this Letter and any other required documents should be made to the Exchange Agent. Delivery of documents to a book-entry transfer facility does not constitute delivery to the Exchange Agent. Holders whose FaciliCom Notes are not immediately available or who cannot deliver their FaciliCom Notes and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date must tender their FaciliCom Notes according to the guaranteed delivery procedure set forth in the Prospectus under the caption "The Exchange Offer -- Guaranteed Delivery Procedures." See Instruction 1. 2 3 [ ] CHECK HERE IF FACILICOM NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution - -------------------------------------------------------------------------------- The Depository Trust Company - -------------------------------------------------------------------------------- Account Number - --------------------------- Transaction Code Number - --------------------------------- [ ] CHECK HERE IF FACILICOM NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE THE FOLLOWING: Name of Registered Holder(s) - -------------------------------------------------------------------------------- Name of Eligible Institution that Guaranteed Delivery - ---------------------------------------------------------------- If delivered by book-entry transfer: - -------------------------------------------------------------------------------- Account Number - -------------------------------------------------------------------------------- Date of execution of Notice of Guaranteed Delivery - ------------------------------------------------------------------- [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: - -------------------------------------------------------------------------------- Address: - -------------------------------------------------------------------------------- 3 4 PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of FaciliCom Notes indicated above. Subject to, and effective upon, the acceptance for exchange of the FaciliCom Notes tendered hereby, the undersigned hereby sells, assigns and transfers to the Company all right, title and interest in and to such FaciliCom Notes as are being tendered hereby. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the FaciliCom Notes tendered hereby and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Company or the Exchange Agent to be necessary or desirable to complete the sale, assignment and transfer of the FaciliCom Notes tendered hereby. If the undersigned is not a broker-dealer, the undersigned represents that (i) the Exchange Notes and Exchange Shares acquired pursuant to the Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes and Exchange Shares, whether or not such person is the holder, (ii) such holder or such other person has no arrangement or understanding with any person to participate in the distribution of such Exchange Notes or Exchange Shares within the meaning of the Securities Act and is not participating in, and does not intend to participate in, the distribution of such Exchange Notes or Exchange Shares within the meaning of the Securities Act, and (iii) such holder or such other person is not an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or, if such holder or such other person is an affiliate, such holder or such other person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is a broker-dealer which will receive Exchange Notes or Exchange Shares for its own account in exchange for FaciliCom Notes that were acquired as a result of market-making activities or other trading activities, it may be deemed to be an "underwriter" within the meaning of the Securities Act and it acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale, offer to resell or other transfer of such Exchange Notes or Exchange Shares; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in the instructions contained in this Letter. The undersigned understands that tenders of the FaciliCom Notes pursuant to any one of the procedures described under "The Exchange Offer -- Procedures for Tendering" in the Prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company in accordance with the terms and subject to the conditions of the Exchange Offer. The undersigned recognizes that, under certain circumstances set forth in the Prospectus under "The Exchange Offer -- Certain Conditions to the Exchange Offer," the Company may not be required to accept for exchange any of the FaciliCom Notes tendered. FaciliCom Notes not accepted for exchange or withdrawn will be returned to the undersigned at the address set forth below unless otherwise indicated under "Special Delivery Instructions" below. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please issue the Exchange Consideration (and, if applicable, substitute certificates representing FaciliCom Notes for any FaciliCom Notes not exchanged) in the name of the undersigned. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please deliver the Exchange Consideration (and, if applicable, substitute certificates representing FaciliCom Notes for any FaciliCom Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of FaciliCom Notes." 4 5 The undersigned, by completing the box entitled "Description of FaciliCom Notes" above and signing this Letter and delivering such notes and this Letter to the Exchange Agent, will be deemed to have tendered the FaciliCom Notes as set forth in such box above and consented to the matters described in the Prospectus under the caption "The Exchange Offer -- the Proposed Amendments." 5 6 - -------------------------------------------------------------------------------- PLEASE SIGN HERE (TO BE COMPLETED BY ALL TENDERING HOLDERS) (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9) - ------------------------------------------------------------ --------------------- X - ------------------------------------------------------------ --------------------- Signature(s) of Owner(s)/or Authorized Signatory Date Area Code and Telephone Number: ------------------------------
If a holder is tendering any FaciliCom Notes, this Letter must be signed by the registered holder(s) as the name(s) appear(s) on the certificate(s) for the FaciliCom Notes or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please set forth full title. SEE INSTRUCTION 3. Name(s) ------------------------------------------------------ (Please Type or Print) Capacity: ------------------------------------------------------ Address: ------------------------------------------------------ ------------------------------------------------------ (Include Zip Code) ------------------------------------------------------ (Signature Guarantee) (if Required by Instruction 3) Signature(s) Guaranteed by an Eligible Institution: -------------------------------------------------------------------------- (Authorized Signature) -------------------------------------------------------------------------- (Title) -------------------------------------------------------------------------- (Name of Firm) Dated: -------------------------------------------------------------------- , 1999 - -------------------------------------------------------------------------------- 6 7 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if the Exchange Notes, Exchange Shares or Cash Payment are to be issued in the name of and sent to someone other than the person or persons whose signature(s) appear on this Letter above. Issue [ ] Exchange Notes [ ] Exchange Shares [ ] Cash Payment to: Name(s) --------------------------------------------------------------- - --------------------------------------------------------------- (PLEASE TYPE OR PRINT) Address ------------------------------------------------------------ -------------------------------------------------------- (INCLUDE ZIP CODE) -------------------------------------------------------- (SOCIAL SECURITY NUMBER) (COMPLETE SUBSTITUTE FORM W-9) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if certificates for Exchange Notes, Exchange Shares or Cash Payment are to be sent to someone other than the person or persons whose signature(s) appear(s) on this Letter above or to such person or persons at an address other than shown in the box entitled "Description of FaciliCom Notes" on this Letter above. Mail [ ] Exchange Notes [ ] Exchange Shares [ ] Cash Payment to: Name(s) --------------------------------------------------------------- -------------------------------------------------------- (PLEASE TYPE OR PRINT) Address ------------------------------------------------------------ -------------------------------------------------------- (INCLUDE ZIP CODE) IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS LETTER OR A FACSIMILE HEREOF OR AN AGENT'S MESSAGE (IN EACH CASE, TOGETHER WITH THE CERTIFICATE(S) FOR FACILICOM NOTES OR A CONFIRMATION OF BOOK-ENTRY TRANSFER OF SUCH FACILICOM NOTE AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE. 7 8 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND FACILICOM NOTES; GUARANTEED DELIVERY PROCEDURE. This Letter is to be used to forward, and must accompany, all certificates representing FaciliCom Notes tendered pursuant to the Exchange Offer unless such certificates are accompanied by an Agent's Message (as defined below) in which case you need not submit this Letter to the Exchange Agent. Certificates representing the FaciliCom Notes in proper form for transfer (or a confirmation of book-entry transfer of such FaciliCom Notes into the Exchange Agent's account at the book-entry transfer facility) must be received by the Exchange Agent at its address set forth herein on or before the Expiration Date. A tender will not be deemed to have been timely received when the tendering holder's properly completed and duly signed Letter or an Agent's Message accompanied by the FaciliCom Notes is mailed prior to the Expiration Date but is received by the Exchange Agent after the Expiration Date. The term "Agent's Message" means a message transmitted by The Depository Trust Company ("DTC") to, and received by, the depositary and forming a part of a Book-Entry Confirmation, which states that DTC has received an express acknowledgment from the participant in DTC tendering the FaciliCom Notes, that such participant has received and agrees to be bound by the terms of this Letter and the Company may enforce such agreement against the participant. The method of delivery of this letter, the FaciliCom Notes and all other required documents is at the election and risk of the tendering holders, but the delivery will be deemed made only when actually received or confirmed by the exchange agent. If such delivery is by mail, it is recommended that registered mail properly insured, with return receipt requested, be used. In all cases, sufficient time should be allowed to permit timely delivery. If a holder desires to tender FaciliCom Notes and such holder's FaciliCom Notes are not immediately available or time will not permit such holder's Letter of Transmittal, FaciliCom Notes (or a confirmation of book-entry transfer of FaciliCom Notes into the Exchange Agent's account at the book-entry transfer facility with an Agent's Message) or other required documents to reach the Exchange Agent on or before the Expiration Date, such holder may still tender in the Exchange Offer if: (a) the tender is made through an Eligible Institution (as defined below); (b) prior to the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Letter of Transmittal (or facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by us (by facsimile transmission, mail or hand delivery), setting forth the holder's name and address as holder of the FaciliCom Notes and the amount of FaciliCom Notes tendered, stating that the tender is being made thereby and guaranteeing that within three Nasdaq trading days after the Expiration Date the certificates for all physically tendered FaciliCom Notes, in proper form for transfer, or a book-entry confirmation with an Agent's Message, as the case may be, and any other documents required by the Letter of Transmittal will be deposited by the Eligible Institution with the Exchange Agent; and (c) the certificates for all physically tendered FaciliCom Notes, in proper form for transfer, or a book-entry confirmation as the case may be, and all other documents required by this Letter of Transmittal are received by the Exchange Agent within three Nasdaq trading days after the Expiration Date. See "The Exchange Offer -- Procedures for Tendering" in the Prospectus. 2. WITHDRAWALS. Any holder who has tendered FaciliCom Notes may withdraw the tender by delivering written notice of withdrawal (which may be sent by telegram, facsimile (receipt confirmed by telephone and an original delivered by guaranteed overnight courier)) to the Exchange Agent prior to the close of business on the Expiration Date and prior to acceptance for exchange thereof by us. For a withdrawal to be effective, a written notice of withdrawal must (i) specify the name of the person having tendered the FaciliCom Notes to 8 9 be withdrawn (the "Depositor"), (ii) identify the FaciliCom Notes to be withdrawn (including the certificate number or numbers and principal amount of such FaciliCom Notes), (iii) be signed by the holder in the same manner as the original signature on the Letter by which such FaciliCom Notes were tendered or as otherwise set forth in Instruction 3 below (including any required signature guarantees), or be accompanied by documents of transfer sufficient to have the trustee for the FaciliCom Notes register the transfer of such FaciliCom Notes into the name of the person having made the original tender and withdrawing the tender and (iv) specify the name in which any such FaciliCom Notes are to be registered, if different from that of the Depositor. If FaciliCom Notes have been tendered pursuant to the procedure for book-entry transfer, any notice of withdrawal must specify the name and number of the participant's account at the book-entry transfer facility to be credited, if different from that of the Depositor, with the withdrawn FaciliCom Notes or otherwise comply with the book-entry transfer facility's procedures. See "The Exchange Offer--Withdrawal of Tenders" in the Prospectus. 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered holder of the FaciliCom Notes tendered hereby, the signature must correspond with the name as written on the face of the certificates without alteration, enlargement or any change whatsoever. If this Letter is signed by a participant in DTC, the signature must correspond with the name as it appears on the security position listing as the holder of the FaciliCom Notes. If this Letter or any FaciliCom Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by us, evidence satisfactory to us of their authority to so act must also be submitted with the Letter of Transmittal. If any tendered FaciliCom Notes are owned of record by two or more joint owners, all such owners must sign this Letter. The signatures on this Letter or a notice of withdrawal, as the case may be, must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an "eligible guarantor" institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (each, an "Eligible Institution"), unless the FaciliCom Notes are tendered: (i) by a registered holder (or by a participant in DTC whose name appears on a security position listing as the owner) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter and the Exchange Consideration is being issued directly to such registered holder (or deposited into the participant's account at DTC), or (ii) for the account of an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders of FaciliCom Notes should indicate in the applicable box the name and address to which Exchange Consideration issued pursuant to the Exchange Offer is to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the tax identification number of the person named must also be indicated. If no such instructions are given, any Exchange Consideration will be issued in the name of, and delivered to, the name or address of the person signing this Letter and any FaciliCom Notes not accepted for exchange will be returned to the name or address of the person signing this Letter. 5. BACKUP FEDERAL INCOME TAX WITHHOLDING AND SUBSTITUTE FORM W-9. Under the federal income tax laws, payments that may be made by the Company on account of Exchange Consideration issued pursuant to the Exchange Offer may be subject to backup withholding at the rate of 31%. In order to avoid such backup withholding, each tendering holder should complete and sign the Substitute Form W-9 included in this Letter and either (a) provide the correct taxpayer identification number ("TIN") and certify, under penalties of perjury, that the TIN provided is correct and that (i) the holder has not been notified by the Internal Revenue Service (the "IRS") that the holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the IRS has notified the holder that the holder is no longer subject to backup withholding; or (b) provide an adequate basis for exemption. If the tendering holder has not been issued a TIN and has applied for one, or intends to apply for one in the near future, such holder should write "Applied For" in the 9 10 space provided for the TIN in Part I of the Substitute Form W-9, sign and date the Substitute Form W-9, and sign the Certificate of Payee Awaiting Taxpayer Identification Number. If "Applied For" is written in Part I, the Company (or the Paying Agent under the Indenture governing the Exchange Notes) shall retain 31% of payments made to the tendering holder during the sixty (60) day period following the date of the Substitute Form W-9. If the holder furnishes the Exchange Agent or the Company with his or her TIN within sixty (60) days after the date of the Substitute Form W-9, the Company (or the Paying Agent) shall remit such amounts retained during the sixty (60) day period to the holder and no further amounts shall be retained or withheld from payments made to the holder thereafter. If, however, the holder has not provided the Exchange Agent or the Company with his or her TIN within such sixty (60) day period, the Company (or the Paying Agent) shall remit such previously retained amounts to the IRS as backup withholding. In general, if a holder is an individual, the taxpayer identification number is the Social Security number of such individual. If the Exchange Agent or the Company is not provided with the correct taxpayer identification number, the holder may be subject to a $50 penalty imposed by the IRS. Certain holders (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such holder must submit a statement (generally, IRS Form W-8), signed under penalties of perjury, attesting to that individual's exempt status. Such statements can be obtained from the Exchange Agent. For further information concerning backup withholding and instructions for completing the Substitute Form W-9 (including how to obtain a taxpayer identification number if you do not have one and how to complete the Substitute Form W-9 if FaciliCom Notes are registered in more than one name), consult the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. Tendering holders are urged to also consult their own tax advisors to determine whether they are exempt from these backup withholding and reporting requirements. Failure to complete the Substitute Form W-9 will not, by itself, cause FaciliCom Notes to be deemed invalidly tendered, but may require the Company (or the Paying Agent) to withhold 31% of the amount of any payments made on account of the Exchange Consideration. Backup withholding is not an additional federal income tax. Rather, the federal income tax liability of a person subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained. 6. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the transfer of FaciliCom Notes to it or its order pursuant to the Exchange Offer. If, however, Exchange Consideration and/or substitute FaciliCom Notes not exchanged or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the FaciliCom Notes tendered hereby, or if tendered FaciliCom Notes are registered in the name of any person other than the person signing this Letter, or if a transfer tax is imposed for any reason other than the transfer of FaciliCom Notes to the Company or its order pursuant to the Exchange Offer, the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering holder. 7. WAIVER OF CONDITIONS. Conditions enumerated in the Prospectus may be waived by the Company, in whole or in part, at any time from time to time in its reasonable discretion. 8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering holders of FaciliCom Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their FaciliCom Notes for exchange. Neither the Company nor any other person is obligated to give notice of defects or irregularities in any tender, nor shall any of them incur any liability for failure to give any such notice. 9. INADEQUATE SPACE. If the space provided herein is inadequate, the aggregate principal amount of FaciliCom Notes being tendered and the certificate number or numbers (if available) should be listed on a separate schedule attached hereto and separately signed by all parties required to sign this Letter. 10 11 10. MUTILATED, LOST, STOLEN OR DESTROYED FACILICOM NOTES. If any certificate has been lost, mutilated, destroyed or stolen, the holder should promptly notify First Union National Bank at the telephone number indicated above. The holder will then be instructed as to the steps that must be taken to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the FaciliCom Notes have been replaced. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus and this Letter, may be directed to First Union National Bank at the address and telephone number indicated above. 11 12 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYER'S NAME: WORLD ACCESS, INC. - -------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- PART I--TAXPAYER IDENTIFICATION NUMBER TIN: ----------------------- SUBSTITUTE ENTER YOUR TAXPAYER IDENTIFICATION NUMBER IN THE OR (SOCIAL SECURITY NUMBER) FORMW-9 APPROPRIATE BOX. FOR MOST INDIVIDUALS, THIS IS YOUR SOCIAL SECURITY NUMBER. IF YOU DO NOT HAVE A NUMBER, SEE EMPLOYER OR IDENTIFICATION NUMBER HOW TO OBTAIN A "TIN" IN THE ---------------------------- ENCLOSED GUIDELINES. EMPLOYER IDENTIFICATION NUMBER NOTE: IF THE ACCOUNT IS IN MORE THAN ONE NAME, SEE THE CHART ON PAGE 2 OF THE ENCLOSED GUIDELINES TO DETERMINE WHAT NUMBER TO GIVE. --------------------------------------------------------------------------------------------- DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE PART II -- FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING (SEE ENCLOSED GUIDELINES) ---------------------------------------------------------------------------------------------
PAYER'S REQUEST FOR CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT: TAXPAYER IDENTIFICATION (1) THE NUMBER SHOWN ON THIS FORM IS MY CORRECT TAXPAYER IDENTIFICATION NUMBER (OR I AM NUMBER ("TIN") WAITING FOR A NUMBER TO BE ISSUED TO ME), AND AND (2) I AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER BECAUSE (A) I AM EXEMPT FROM BACKUP CERTIFICATION WITHHOLDING, (B) I HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE (THE "IRS") THAT I AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO REPORT ALL INTEREST OR DIVIDENDS OR (C) THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO BACKUP WITHHOLDING. SIGNATURE __________ DATE __________
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CERTIFICATION GUIDELINES--YOU MUST CROSS OUT ITEM (2) OF THE ABOVE CERTIFICATION IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING OF INTEREST OR DIVIDENDS ON YOUR TAX RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS THAT YOU ARE NO LONGER SUBJECT TO BACKUP WITHHOLDING, DO NOT CROSS OUT ITEM (2). - ----------------------------------------------------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU ON ACCOUNT OF THE EXCHANGE CONSIDERATION. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. - -------------------------------------------------------------------- CERTIFICATE OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER I CERTIFY, UNDER PENALTIES OF PERJURY, THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN ISSUED TO ME, AND THAT I MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE (OR I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE). I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER, 31% OF ALL PAYMENTS MADE TO ME ON ACCOUNT OF THE EXCHANGE CONSIDERATION SHALL BE RETAINED UNTIL I PROVIDE A TAXPAYER IDENTIFICATION NUMBER TO THE PAYER AND THAT, IF I DO NOT PROVIDE MY TAXPAYER IDENTIFICATION NUMBER WITHIN (60) DAYS, SUCH RETAINED AMOUNTS SHALL BE REMITTED TO THE INTERNAL REVENUE SERVICE AS BACKUP WITHHOLDING AND 31% OF ALL REPORTABLE PAYMENTS MADE TO ME THEREAFTER WILL BE WITHHELD AND REMITTED TO THE INTERNAL REVENUE SERVICE UNTIL I PROVIDE A TAXPAYER IDENTIFICATION NUMBER. , 1999 SIGNATURE DATE - --------------------------------------------------------------------
12 13 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER. Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer Identification numbers have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the number to give the Payer. All "section" references are to the Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue Service.
- ----------------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------------------- 1. Individual The individual 2. Two or more individuals (joint The actual owner of accounts) the account or, if combined funds, the first individual on the account 3. Custodian account of a minor The minor(2) (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor- trust (grantor is also trustee(1) trustee) b. So-called trust account The actual owner(1) that is not a legal or valid trust under state law 5. Sole proprietorship The owner(3) 6. Sole proprietorship The owner(3) 7. A valid trust, estate, or The legal entity (Do pension trust not furnish the identifying number of the personal - -----------------------------------------------------------
- ----------------------------------------------------------- GIVE THE SOCIAL SECURITY FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------------------- 7. (Continued) representative or trustee unless the legal entity itself is not designated in the account title.)(4) 8. Corporate The corporation 9. Association, club, religious, The organization charitable, educational or other tax-exempt organization 10. Partnership The partnership 11. A broker or registered nominee The broker or nominee 12. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments - -----------------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has a social security number, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number (if you have one). (4) List first and circle the name of the legal trust, estate, or pension trust. Note: If no name is circled when there is more than one name, the number will be considered to be that of the first name listed. 13 14 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 Section references are to the Internal Revenue Code. OBTAINING A NUMBER If you don't have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card, or Form SS-4, Application for Employer Identification Number, at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") or by calling 1 (800) TAX-FORM and apply for a number. PAYEES EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in (1) through (13) and a person registered under the Investment Advisers Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except that a corporation that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (2) through (6) are exempt from backup withholding for barter exchange transactions, patronage dividends, and payments by certain fishing boat operators. (1) A corporation. (2) An organization exempt from tax under section 501(a), or an individual retirement plan ("IRA"), or a custodial account under section 403(b)(7), if the account satisfies the requirements of section 401(f)(2). (3) The United States or any of its agencies or instrumentalities. (4) A State, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (5) A foreign government or any of its political subdivisions, agencies or instrumentalities. (6) An international organization or any of its agencies or instrumentalities. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Certain payments, other than payments of interest, dividends, and patronage dividends, that are not subject to information reporting are also not subject to backup withholding. For details see sections 6041, 6041(A)(a), 6042, 6044, 6045, 6049, 6050A and 6050N, and the regulations under such sections. PRIVACY ACT NOTICE. Section 6109 requires you to give your correct taxpayer identification number to persons who must file information returns with the IRS to report interest, dividends, and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your tax return. You must provide your taxpayer identification number whether or not you are qualified to file a tax return. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. EXEMPT PAYEES DESCRIBED ABOVE MUST FILE FORM W-9 OR A SUBSTITUTE FORM W-9 TO AVOID POSSIBLE ERRONEOUS BACKUP WITHHOLDING. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, AND RETURN IT TO THE PAYER. IF THE PAYMENTS ARE OF INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE FORM. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. If you fail to furnish your taxpayer identification number to a payer, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Wilfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. 14 EX-99.2 21 FORM OF NOTICE OF GUARANTEED DELIVERY 1 EXHIBIT 99.2 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL, INC. IN EXCHANGE FOR 13.25% SENIOR NOTES DUE 2008, COMMON STOCK AND CASH OF WORLD ACCESS, INC. Registered holders of outstanding 10 1/2% Series B Senior Notes due 2008 of FACILICOM INTERNATIONAL, INC. (the "FaciliCom Notes") who wish to tender their FaciliCom Notes in exchange for a like principal amount of 13.25% Senior Notes due 2008 of WORLD ACCESS, INC., shares of World Access, Inc. common stock, par value $0.01 per share having a market value of $50 for each $1,000 principal amount of FaciliCom Notes tendered and $10 in cash for each $1,000 principal amount of FaciliCom Notes tendered, and whose FaciliCom Notes are not immediately available or who cannot deliver their FaciliCom Notes and Letter of Transmittal (and any other documents required by the Letter of Transmittal) to FIRST UNION NATIONAL BANK (the "Exchange Agent") prior to the Expiration Date, may use this Notice of Guaranteed Delivery or one substantially equivalent hereto. This Notice of Guaranteed Delivery may be delivered by hand or sent by facsimile transmission (receipt confirmed by telephone and an original delivered by guaranteed overnight courier) or letter to the Exchange Agent. See "The Exchange Offer -- Procedures for Tendering" in the Prospectus. The Exchange Agent for the Exchange Offer Is: FIRST UNION NATIONAL BANK 1525 WEST W.T. HARRIS BOULEVARD 3C3 NC-1153 CHARLOTTE, NC 28262 BY FACSIMILE: (704) 590-7628 CONFIRM BY TELEPHONE: (704) 590-7408 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY. This Notice of Guaranteed Delivery is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, such signature guarantee must appear in the applicable space provided on the Letter of Transmittal for Guarantee of Signatures. 2 Ladies and Gentlemen: The undersigned hereby tenders the principal amount of FaciliCom Notes indicated below, upon the terms and subject to the conditions contained in the Prospectus and Consent Solicitation dated November 5, 1999 of World Access, Inc. (the "Prospectus"), receipt of which is hereby acknowledged. - ------------------------------------------------------------------------------------------------------------ DESCRIPTION OF SECURITIES TENDERED - ------------------------------------------------------------------------------------------------------------ AGGREGATE PRINCIPAL CERTIFICATE AMOUNT PRINCIPAL NAME AND ADDRESS OF REGISTERED HOLDER NUMBER(S) OF REPRESENTED BY AMOUNT AS IT APPEARS ON THE OUTSTANDING FACILICOM NOTES FACILICOM FACILICOM OF FACILICOM PLEASE PRINT NOTES NOTES NOTES TENDERED - ------------------------------------------------------------------------------------------------------------ ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- - ------------------------------------------------------------------------------------------------------------
THE GUARANTEE BELOW MUST BE COMPLETED GUARANTEE (NOT TO BE USED FOR A SIGNATURE GUARANTEE) The undersigned, a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or a commercial bank or trust company having an office, branch, agency or correspondent in the United States, hereby guarantees to deliver to the Exchange Agent at its address set forth above, the certificates representing the FaciliCom Notes, together with a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, and any other documents required by the Letter of Transmittal within three Nasdaq Stock Market trading days after the date of execution of this Notice of Guaranteed Delivery. Name of Firm: - -------------------------------------- Address: - --------------------------------------------- - ------------------------------------------------------ Zip Code: - ------------------------------------------- Area Code and Telephone Number: - ---------------------------------- - ------------------------------------------------------ (Authorized Signature) Title: - ------------------------------------------------ Name: - ----------------------------------------------- (Please type or print) DO NOT SEND CERTIFICATES FOR FACILICOM NOTES WITH THIS FORM. THEY SHOULD BE SENT TO THE EXCHANGE AGENT WITH A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL 2 EX-99.3 22 FORM OF EXCHANGE AGENCY AGREEMENT 1 EXHIBIT 99.3 EXCHANGE AGENCY AGREEMENT This Agreement is entered into as of [_______], 1999 between FIRST UNION NATIONAL BANK, a national banking association, as Exchange Agent (the "Agent") and WORLD ACCESS, INC., a corporation organized under the laws of the State of Delaware ("WAXS"). WAXS and FACILICOM INTERNATIONAL, INC. ("FaciliCom") have entered into an Agreement and Plan of Merger, dated as of August 17, 1999 (the "Merger Agreement") pursuant to which WAXS and FaciliCom have agreed to merge (the "Merger"). As a condition to the Merger, certain FaciliCom noteholders have entered into an Agreement to Exchange and Consent, dated as of [_____________], 1999 with WAXS (the "Agreement to Exchange and Consent") in which certain holders of FaciliCom's outstanding 10 1/2 % Series B Senior Notes due 2008 (the "FaciliCom Notes") have agreed to exchange their FaciliCom Notes for Exchange Notes, Exchange Shares and a Cash Payment (each as defined below). In accordance with the Agreement to Exchange and Consent, WAXS proposes to exchange (the "Exchange Offer") for up to $300,000,000 aggregate principal amount of FaciliCom Notes the following consideration (the "Exchange Consideration"): (i) an equal aggregate principal amount of its 13.25% Senior Notes due 2008 (the "Exchange Notes"), (ii) shares of WAXS common stock, par value $0.01 per share, having a market value of $50 for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Exchange Shares") and (iii) a payment of $10 in cash for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Cash Payment"). The terms and conditions of the Exchange Offer as currently contemplated are set forth in a prospectus and consent solicitation dated , 1999 (the "Prospectus"), proposed to be distributed to all record holders of the FaciliCom Notes. The FaciliCom Notes, the Exchange Notes and the Exchange Shares are collectively referred to herein as the "Securities." The Exchange Offer will terminate at 12:00 p.m. New York City time on [______________], 1999, unless extended by WAXS in its sole discretion (the "Expiration Date"). The Exchange Notes are to be issued by WAXS pursuant to the terms of an indenture dated as of [_______________], 1999 (the "Indenture") between WAXS and First Union National Bank, as trustee (the "Trustee"). Subject to the provisions hereof, WAXS hereby appoints and the Agent hereby accepts the appointment as Agent for the purposes of receiving, accepting for delivery and otherwise acting upon tenders of the FaciliCom Notes in accordance with the form of letter of transmittal to be mailed to holders of the FaciliCom Notes pursuant to the Prospectus (the "L/T") and with the terms and conditions set forth herein and under the caption "The Exchange Offer" in the Prospectus. WAXS expressly reserves the right to extend, amend or terminate the Exchange Offer, and not to accept for exchange any FaciliCom Notes not theretofore accepted for exchange, upon the occurrence of any of the conditions specified in the Prospectus under the caption "The Exchange Offer-Certain Conditions to the Exchange Offer." WAXS will give oral (confirmed in writing) or written notice of any extension, amendment, termination or nonacceptance to the Agent as promptly as practicable. The Agent has received the following documents in connection with its appointment (the "Exchange Offer Documents"): 1. the L/T, including Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; 2. a form of Notice of Guaranteed Delivery; 3. the Prospectus; 2 4. a cover letter to clients; and 5. a cover letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. The Agent is authorized and hereby agrees as follows: (a) to establish an account with respect to the FaciliCom Notes at the Depository Trust Company ("DTC") for purposes of the Exchange Offer within two business days after the date of the Prospectus, and any financial institution that is a participant in DTC's systems shall be able to make book-entry delivery of FaciliCom Notes by causing DTC to transfer such FaciliCom Notes into the Agent's account in accordance with DTC's procedure for such transfer; (b) that tenders of FaciliCom Notes may be made only as set forth in the L/T and in the section of the Prospectus captioned "The Exchange Offer" and that FaciliCom Notes shall be considered properly tendered to the Agent only when tendered in accordance with the procedures set forth herein and therein; (c) to address, and deliver by hand or next day courier, a complete set of the Exchange Offer Documents to each person who, prior to the Expiration Date, is or becomes a registered holder of FaciliCom Notes promptly after such person becomes a registered holder of FaciliCom Notes; (d) to receive all tenders of FaciliCom Notes made pursuant to the Exchange Offer and stamp the L/T with the day, month and approximate time of receipt; (e) to examine each L/T and FaciliCom Notes received or agent's message (as defined in the Prospectus) and book-entry transfer, as the case may be, to determine whether: (i) the L/T and any such other documents are duly executed and properly completed in accordance with instructions set forth therein and book-entry confirmations are in due and proper form and contain the information required to be set forth therein and (ii) the FaciliCom Notes have otherwise been properly tendered. In each case where the L/T or any other document has been improperly completed or executed or book-entry confirmations are not in due and proper form and do not contain adequate information or any of the certificates for FaciliCom Notes are not in proper form for transfer or some other irregularity in connection with the acceptance of the Exchange Offer exists, the Agent will endeavor to inform the presenters of the need for fulfillment of all requirements and to take any other action as may be necessary or advisable to cause such irregularity to be corrected. The Agent shall be entitled to rely on the electronic messages sent by DTC regarding ATOP delivery of the Notes to the Agent's account at DTC from the DTC participants listed on the DTC position listing provided to the Agent; (f) to take such actions necessary and appropriate to correct any irregularity or deficiency associated with any tender not in proper order; (g) to follow instructions given by the Chief Executive Officer and President, Executive Vice President and Chief Financial Officer, or Corporate Controller and Secretary of WAXS or any other party designated by such an officer in writing (the "Designated Officers"), with respect to the waiver of any irregularities or deficiencies associated with any tender; 2 3 (h) to hold all valid tenders subject to further instructions from any Designated Officer; (i) to render a report via facsimile, in the form of Exhibit A attached hereto, on each business day during the Exchange Offer to Mark A. Gergel of WAXS at (404) 365-9847, Leonard A. Silverstein, Esq. and L. Briley Brisendine, Jr., Esq. of Long Aldridge & Norman LLP, counsel to WAXS, at (404) 527-4198 and such other persons as any of them may direct; (j) to follow and act upon any written amendments, modifications or supplements to these instructions, any of which may be given to the Agent by any Designated Officer of WAXS or such other person or persons as they shall designate in writing; (k) to return to the presenters, in accordance with the provisions of the L/T, any FaciliCom Notes that were not received in proper order and as to which the irregularities or deficiencies were not cured or waived; (l) in the event the Exchange Offer is consummated, to deliver the Exchange Consideration to tendering noteholders, in accordance with the instructions of such noteholders specified in the respective L/T's, as soon as practicable after consummation thereof; (m) to determine that all endorsements, guarantees, signatures, authorities, stock transfer taxes (if any) and such other requirements are fulfilled in connection with any request for issuance of the Exchange Consideration in a name other than that of the registered owner of the FaciliCom Notes; (n) to deliver to, or upon the order of, WAXS all FaciliCom Notes received under the Exchange Offer, together with any related assignment forms and other documents by first class mail, return receipt requested under a blanket surety bond protecting the Agent and WAXS from loss or liability arising out of the non-receipt or non-delivery of such FaciliCom Notes or registered mail insured separately for the replacement value of each such FaciliCom Notes; and (o) subject to the other terms and conditions set forth in this Agreement, to take all other actions reasonable and necessary in the good faith judgment of the Agent to effect the foregoing matters. The Agent shall: (a) have no duties or obligations other than those specifically set forth herein or as may be subsequently agreed to in writing by you and WAXS; (b) not be required to refer to any documents for the performance of its obligations hereunder other than this Agreement, the Exchange Offer Documents; other than such documents, the Agent will not be responsible or liable for any terms, directions or information in the Prospectus or any other document or agreement unless the Agent specifically agrees thereto in writing; (c) not be required to act on the directions of any person, including the persons named above, unless WAXS provides a corporate resolution to the Agent or other evidence satisfactory to the Agent of the authority of such person; (d) not be required to, and shall make no representations and have no responsibilities as to, the validity, accuracy, value or genuineness of (i) the Exchange Offer, (ii) any FaciliCom Notes, L/Ts 3 4 or documents prepared by WAXS in connection with the Exchange Offer or (iii) any signatures or endorsements, other than its own; (e) not be obligated to take any legal action hereunder that might, in its judgment, involve any expense or liability, unless it has been furnished with reasonable indemnity by WAXS; (f) be able to rely on and shall be protected in acting on the written or oral instructions with respect to any matter relating to its actions as Agent specifically covered by this Agreement, of any Designated Officer of WAXS; (g) be able to rely on and shall be protected in acting upon any certificate, instrument, opinion, notice, letter, telegram or any other document or security delivered to it and believed by it reasonably and in good faith to be genuine and to have been signed by the proper party or parties; (h) not be responsible for, or liable in any respect on account of, the identity, authority or rights of any person executing or delivering or purporting to execute or deliver any document or property under this Agreement and shall have no responsibility with respect to the use or application of any property delivered by it pursuant to the provisions hereof; (i) be able to consult with counsel satisfactory to it (including counsel for WAXS or staff counsel of the Agent), and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with advice or opinion of such counsel; (j) not be called on at any time to advise, and shall not advise, any person delivering an L/T pursuant to the Exchange Offer as to the value of the consideration to be received; (k) not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own gross negligence, willful misconduct or bad faith; (l) not be bound by any notice or demand, or any waiver or modification of this Agreement or any of the terms hereof, unless evidenced by a writing delivered to the Agent signed by the proper authority or authorities and, if the Agent's duties or rights are affected, unless the Agent shall give its prior written consent thereto; (m) have no duty to enforce any obligation of any person to make delivery, or to direct or cause any delivery to be made, or to enforce any obligation of any person to perform any other act; (n) have the right to assume, in the absence of written notice to the contrary from the proper person or persons, that a fact or an event by reason of which an action would or might be taken by the Agent does not exist or has not occurred without incurring liability for any action taken or omitted, or any action suffered by the Agent to be taken or omitted, in good faith or in the exercise of the Agent's best judgment, in reliance upon such assumption; (o) not be authorized to pay or offer to pay any concessions, commissions or solicitation fees to any broker, dealer, bank or other persons or to engage or utilize any person to solicit tenders; (p) waive any lien, encumbrance or right of set-off whatsoever that the Agent may have with respect to funds deposited with the Agent for the payment of transfer taxes by reason of amounts, if 4 5 any, borrowed by WAXS or any of its subsidiaries or affiliates pursuant to any loan or credit agreement with the Agent or for compensation owed to the Agent hereunder; and (q) arrange to comply with all requirements under the tax laws of the United States, including those relating to missing Tax Identification Numbers, and file any appropriate reports with the Internal Revenue Service. WAXS understands that the Agent is required to deduct 31% on payments to holders who have not supplied their correct Taxpayer Identification Number or required certification. Such funds will be turned over to the Internal Revenue Service in accordance with applicable regulations. The Agent shall be entitled to compensation as set forth in Exhibit B attached hereto. WAXS covenants and agrees to reimburse the Agent for, indemnify it against, and hold it harmless from any and all reasonable costs and expenses (including reasonable fees and expenses of one firm of counsel and allocated cost of staff counsel) that may be paid or incurred or suffered by it or to which it may become subject without gross negligence, willful misconduct or bad faith on its part by reason of or as a result of its compliance with the instructions set forth herein or with any additional or supplemental written or oral instructions delivered to it pursuant hereto, or which may arise out of or in connection with the administration and performance of its duties under this Agreement. WAXS agrees to promptly notify the Agent of any extension of the Expiration Date. This Agreement shall be construed and enforced in accordance with the laws of the State of Georgia and shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of the parties hereto. The parties agree to submit to the exclusive jurisdiction of the federal or state courts located in the State of Georgia, Fulton County. Unless otherwise expressly provided herein, all notices, requests, demands and other communications hereunder shall be in writing, shall be delivered by hand or reputable overnight courier, facsimile or by First Class Mail, postage prepaid, shall be deemed given when received and shall be addressed to the Agent and WAXS at the respective addresses listed below or to such other addresses as they shall designate from time to time in writing, forwarded in like manner. If to the Agent, to: First Union National Bank 1100 First Union Plaza 999 Peachtree Street Attention: Mr. Brian Justice Telephone: (404) 827-7352 If to WAXS, to: World Access, Inc. 945 East Paces Ferry Road, Suite 2200 Atlanta, Georgia 30326 Attention: Mark A. Gergel Telephone: (404) 231-2025 5 6 with copies to: (which shall not constitute notice) Long Aldridge & Norman LLP 303 Peachtree Street, Suite 5300 Atlanta, Georgia 30308 Attention: Leonard A. Silverstein, Esq. Telephone: (404) 527-4390 Unless terminated earlier by the parties hereto, this Agreement shall terminate 90 days following the Expiration Date. Notwithstanding the foregoing, the indemnification and compensation provisions of this Agreement shall survive the termination of this Agreement. Upon any termination of this Agreement, the Agent shall promptly deliver to WAXS any certificates for Securities, funds or property then held by the Exchange Agent under this Agreement. This Agreement shall be binding and effective as of the date hereof. (Signatures begin on following page) 6 7 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on their behalf by their officers thereunto duly authorized, all as of the day and year first above written. "AGENT:" FIRST UNION NATIONAL BANK By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- [CORPORATE SEAL] "WAXS:" WORLD ACCESS, INC. By: ----------------------------------- Name: --------------------------------- Title: -------------------------------- [CORPORATE SEAL] 7 8 EXHIBIT A SAMPLE REPORT Date: ------------------------------------------- Report Number: ---------------------------------- As of Date: ------------------------------------- Ladies & Gentlemen: As Exchange Agent for the Exchange Offer dated ____________________, 1999, we hereby render the following report: Principal Amount previously received: Principal Amount received today: Principal Amount received against Guaranteed Deliveries: Principal Amount withdrawn today: TOTAL PRINCIPAL AMOUNT RECEIVED TO DATE: Very truly yours, Corporate Trust Dept. E-1 9 EXHIBIT B COMPENSATION The Agent, for serving as the Exchange Agent pursuant to this Agreement, shall receive a fee of [$ ], payable upon commencement of the Exchange Offer, and reimbursement of the Agent's out-of-pocket expenses incurred in connection with completing its duties pursuant to this Agreement. E-2 EX-99.4 23 FORM OF LETTER 1 EXHIBIT 99.4 WORLD ACCESS, INC. OFFER FOR ANY AND ALL OF THE OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL, INC. To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Enclosed for your consideration is a prospectus and consent solicitation, dated November 5, 1999 (the "Prospectus"), and a Letter of Transmittal (the "Letter of Transmittal") relating to the consent solicitation and offer (the "Exchange Offer") by World Access, Inc. ("WAXS") to exchange for up to $300,000,000 aggregate principal amount of FaciliCom International, Inc. ("FaciliCom") 10 1/2% Series B Senior Notes due 2008 (the "FaciliCom Notes") the following consideration (the "Exchange Consideration"): (ii) an equal aggregate principal amount of its 13.25% Senior Notes due 2008 (the "Exchange Notes"), (ii) shares of WAXS common stock, par value $0.01 per share, having a market value of $50 for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Exchange Shares") and (iii) a payment of $10 in cash for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Cash Payment"), upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. In connection with the Exchange Offer, WAXS is soliciting consents to certain amendments to the indenture under which the FaciliCom Notes were issued (the "Proposed Amendments"). A holder of FaciliCom Notes who tenders such FaciliCom Notes in the Exchange Offer will also be consenting to the Proposed Amendments. We are asking you to contact your clients for whom you hold FaciliCom Notes registered in your name or in the name of your nominee. WAXS will pay all transfer taxes, if any, applicable to the tender of FaciliCom Notes, except as otherwise provided in the Prospectus and the Letter of Transmittal. Enclosed is a copy of each of the following documents for forwarding to your clients: 1. The Prospectus. 2. A Blue Letter of Transmittal, including Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9, for your use in connection with the tender of FaciliCom Notes by record holders and for the information of your clients. 3. A Yellow form of letter addressed "To Our Clients" that may be sent to your clients for whose accounts you hold FaciliCom Notes registered in your name or the name of your nominee, with space provided for obtaining the clients' instructions with regard to the Exchange Offer. 4. A Pink Notice of Guaranteed Delivery to be used to accept the Exchange Offer if certificates for FaciliCom Notes are not lost but not immediately available, or if the procedure for book-entry transfer cannot be completed on or prior to the Expiration Date. 5. A return envelope addressed to First Union National Bank, as Exchange Agent (the "Exchange Agent"). Your prompt action is requested. The Exchange Offer will expire at 12:00 p.m., New York City time, on December 7, 1999, unless extended by WAXS (the "Expiration Date"). FaciliCom Notes tendered pursuant to the Exchange Offer may be validly withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. DTC Participants will be able to execute tenders through the DTC Automated Tender Offer Program. Please refer to the section of the Prospectus entitled "The Exchange Offer -- Procedures for Tendering" for a description of the procedures which must be followed to tender FaciliCom Notes in the Exchange Offer. 3 2 Any questions or requests for additional copies of the enclosed materials should be directed to the Exchange Agent at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, WORLD ACCESS, INC. /s/ John D. Phillips John D. Phillips Chairman, President and Chief Executive Officer NOTHING HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF WAXS OR THE EXCHANGE AGENT, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS ON BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR STATEMENTS EXPRESSLY MADE IN THE PROSPECTUS OR THE LETTER OF TRANSMITTAL. 4 EX-99.5 24 FORM OF LETTER TO CLIENTS 1 EXHIBIT 99.5 WORLD ACCESS, INC. OFFER FOR ANY AND ALL OF THE OUTSTANDING 10 1/2% SERIES B SENIOR NOTES DUE 2008 OF FACILICOM INTERNATIONAL, INC. To our clients: Enclosed for your consideration is a prospectus and consent solicitation, dated November 5, 1999 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange Offer") by World Access, Inc. ("WAXS"), to exchange for up to $300,000,000 aggregate principal amount of FaciliCom International, Inc. ("FaciliCom") 10 1/2% Series B Senior Notes due 2008 (the "FaciliCom Notes") the following consideration (the "Exchange Consideration"): (i) an equal aggregate principal amount of its 13.25% Senior Notes due 2008 (the "Exchange Notes"), (ii) shares of WAXS common stock, par value $0.01 per share, having a market value of $50 for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Exchange Shares"), and (iii) a payment of $10 in cash for each $1,000 principal amount of FaciliCom Notes tendered and accepted for exchange (the "Cash Payment"), upon the terms and subject to the conditions set forth in the Prospectus and the Letter of Transmittal. In connection with the Exchange Offer, WAXS is soliciting consents to certain amendments to the indenture under which the FaciliCom Notes were issued (the "Proposed Amendments"). If you tender your FaciliCom Notes in the Exchange Offer, you will also be consenting to the Proposed Amendments. This material is being forwarded to you as the beneficial owner of FaciliCom Notes carried by us for your account or benefit but not registered in your name. A tender of any FaciliCom Notes may only be made by us as the registered holder and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to tender any or all such FaciliCom Notes held by us for your account or benefit pursuant to the terms and conditions set forth in the Prospectus and the Letter of Transmittal. We urge you to read carefully the Prospectus and the Letter of Transmittal before instructing us to tender your FaciliCom Notes. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender the FaciliCom Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 12:00 p.m., New York City time, on December 7, 1999, unless extended by WAXS (the "Expiration Date"). FaciliCom Notes tendered pursuant to the Exchange Offer may be validly withdrawn, subject to the procedures described in the Prospectus, at any time prior to the Expiration Date. Your attention is directed to the following: 1. The Exchange Offer is for any and all outstanding FaciliCom Notes. 2. The Exchange Offer is subject to certain conditions set forth in the Prospectus in the section entitled "The Exchange Offer -- Conditions to the Exchange Offer." 3. The Exchange Offer will expire on the Expiration Date. 4. Any transfer taxes incident to the transfer of FaciliCom Notes from the tendering holder to WAXS will be paid by WAXS, except as provided in the Prospectus and the instructions to the Letter of Transmittal. 5. The tender of your FaciliCom Notes in the Exchange Offer will also constitute your consent to the Proposed Amendments. If you wish to have us tender any or all of your FaciliCom Notes held by us for your account or benefit, please so instruct us by completing, executing and returning to us the instruction form that appears below. If you authorize the tender of your FaciliCom Notes, all such FaciliCom Notes will be tendered unless otherwise specified below. The Letter 5 2 of Transmittal is furnished to you for informational purposes only and may not be used by you to tender FaciliCom Notes held by us and registered in our name for your account or benefit. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter and the enclosed material referred to therein relating to the Exchange Offer. This will instruct you to tender the FaciliCom Notes indicated below held by you for the account or benefit of the undersigned pursuant to the terms of and conditions set forth in the Prospectus and the Letter of Transmittal. Box 1 [ ] Please tender ALL my FaciliCom Notes held by you for my account or benefit. Box 2 [ ] Please tender LESS than all my FaciliCom Notes. I wish to tender $ ------------------------ principal amount of FaciliCom Notes. Box 3 [ ] Please do not tender any FaciliCom Notes held by you for my account or benefit. Date: - ------------, 1999 Signature(s) - ------------------------------------------------------ - ------------------------------------------------------ Please print name(s) here - ------------------------------------------------------ - ------------------------------------------------------ Account No.: - --------------------------------------- Tax Identification Number or Social Security Number: - ------------------------- Address: - -------------------------------------------- Telephone No.: - ------------------------------------- UNLESS A SPECIFIC CONTRARY INSTRUCTION IS GIVEN, YOUR SIGNATURE(S) HEREON SHALL CONSTITUTE AN INSTRUCTION TO US TO TENDER ALL OF YOUR FACILICOM NOTES. 6 EX-99.6 25 CONSENT OF WALTER J. BURMEISTER 1 EXHIBIT 99.6 CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I Walter J. Burmeister, hereby consent to be named as a person about to become a director of World Access, Inc. in the Registration Statement on Form S-4 (File No. 333-89479) of World Access, Inc. /s/ Walter J. Burmeister ---------------------------- Walter J. Burmeister Dated: November 4, 1999 EX-99.7 26 CONSENT OF KIRBY J. CAMPBELL 1 EXHIBIT 99.7 CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I Kirby J. Campbell, hereby consent to be named as a person about to become a director of World Access, Inc. in the Registration Statement on Form S-4 (File No. 333-89479) of World Access, Inc. /s/ Kirby J. Campbell ----------------------- Kirby J. Campbell Dated: November 3, 1999 EX-99.8 27 CONSENT OF BRYAN CIPOLETTI 1 EXHIBIT 99.8 CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I Bryan Cipoletti, hereby consent to be named as a person about to become a director of World Access, Inc. in the Registration Statement on Form S-4 (File No. 333-89479) of World Access, Inc. /s/ Bryan Cipoletti --------------------- Bryan Cipoletti Dated: November 3, 1999 EX-99.9 28 CONSENT OF MASSIMO PRELZ OLTRAMONTI 1 EXHIBIT 99.9 CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I Massimo Prelz Oltramonti, hereby consent to be named as a person about to become a director of World Access, Inc. in the Registration Statement on Form S-4 (File No. 333-89479) of World Access, Inc. /s/ Massimo Prelz Oltramonti ----------------------------- Massimo Prelz Oltramonti Dated: November 4, 1999 EX-99.10 29 CONSENT OF JOHN P. RIGAS 1 EXHIBIT 99.10 CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I John P. Rigas, hereby consent to be named as a person about to become a director of World Access, Inc. in the Registration Statement on Form S-4 (File No. 333-89479) of World Access, Inc. /s/ John P. Rigas -------------------- John P. Rigas Dated: November 3, 1999 EX-99.11 30 CONSENT OF DRU A. SEDWICK 1 EXHIBIT 99.11 CONSENT OF PERSON NAMED AS ABOUT TO BECOME A DIRECTOR Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended, I Dru A. Sedwick, hereby consent to be named as a person about to become a director of World Access, Inc. in the Registration Statement on Form S-4 (File No. 333-89479) of World Access, Inc. /s/ Dru A. Sedwick --------------------- Dru A. Sedwick Dated: November 3, 1999 -----END PRIVACY-ENHANCED MESSAGE-----