======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
TRESCOM INTERNATIONAL, INC.
(Exact name of Registrant as Specified in its Charter)
Commission File Number : 0-27594
FLORIDA 65-0454571
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
(Address of Principal Executive Offices) (Zip Code)
(954) 763-4000
(Registrant's Telephone Number, Including Area Code)
Indicate by an X whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
/ X / Yes / / No
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding
Common Stock, par value $0.0419 11,546,365 shares
per share. as of May 3, 1996.
========================================================================
<PAGE>
<PAGE>
TRESCOM INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 . . . . . . . . . . 1
Consolidated Statements of Operations for the Three
Months Ended March 31, 1996 (Unaudited) and the Three
Months Ended March 31, 1995 (Unaudited) . . . . . . . 3
Consolidated Statements of Shareholders' Equity at
March 31, 1996 (Unaudited). . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1996 (Unaudited) and the Three
Months Ended March 31, 1995 (Unaudited) . . . . . . . . 5
Notes to Consolidated Financial Statements (Unaudited) . 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings . . . . . . . . . . . . . . . . . 19
ITEM 2. Changes in Securities . . . . . . . . . . . . . . . 19
ITEM 3. Default Upon Senior Securities . . . . . . . . . . 19
ITEM 4. Submission of Matters to a Vote of
Security-Holders . . . . . . . . . . . . . . . . . 19
ITEM 5. Other Information . . . . . . . . . . . . . . . . . 19
ITEM 6. Exhibits and Reports on Form 8-K . . . . . . . . . 19
SIGNATURES
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---------------------------
(Unaudited)
(In thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . $2,052 $11,271
Accounts receivable, net of allowance
for doubtful accounts of $4,140 and
$5,919, respectively . . . . . . . . 17,054 22,987
Other current assets . . . . . . . . . 1,302 1,431
-----------------------
Total current assets . . . . . . . . 20,408 35,689
Property and equipment, at cost:
Transmission and communications
equipment . . . . . . . . . . . . . . 14,001 15,876
Furniture, fixtures and other . . . . 3,494 4,352
-----------------------
17,495 20,228
Less accumulated depreciation and
amortization . . . . . . . . . . . . (2,716) (3,299)
------------------------
14,779 16,929
Other assets:
Customer bases, net of accumulated
amortization of $6,612 and $6,750,
respectively . . . . . . . . . . . 3,092 2,955
Excess of cost over net assets of
businesses acquired, net of
accumulated amortization of $1,371 and
$1,619, respectively . . . . . . . . 33,313 33,065
Other . . . . . . . . . . . . . . . . 1,038 402
_______________________
Total assets . . . . . . . . . . . . . . $72,630 $89,040
=======================
</TABLE>
See accompanying notes to financial statements.
- 1 -
<PAGE>
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---------------------------
(Unaudited)
(In thousands, except share
and per share data)
<S> <C> <C>
Current liabilities:
Accounts payable . . . . . . . . . $1,613 $2,146
Accrued network costs . . . . . . . 11,585 14,666
Other accrued expenses . . . . . . 3,459 3,416
Long-term obligations due within
one year . . . . . . . . . . . . . . 25,290 118
Notes payable to shareholder . . . . . 8,179 ---
Other current liabilities . . . . . . 294 247
-----------------------
Total current liabilities . . . . . 50,420 20,593
Long term obligations (Note 3) . . . . . 702 671
Shareholders' equity:
Redeemable preferred stock, $.01 par
value, 1,000,000 shares authorized
including accrued undeclared dividends
(Notes 4 and 8):
Series A, 180,617 shares authorized,
issued and outstanding; no shares
authorized, issued, and outstanding . . 21,807 ---
Series B, 200,000 shares authorized;
104,444 shares authorized, issued
and outstanding; no shares issued
and outstanding . . . . . . . . . . . 11,620 ---
Series C, 151,421 shares authorized,
issued and outstanding; no shares
authorized, issued, and outstanding . . 16,750 ---
Common stock, $.0419 par value; 50,000,000
shares authorized, 2,386,663 shares issued
and outstanding; 11,529,187 shares issued
and outstanding . . . . . . . . . . . . . . . . 100 483
Deferred compensation . . . . . . . . . . . . . (657) (1,686)
Additional paid-in capital . . . . . . . . . . . 4,124 105,309
Accumulated deficit . . . . . . . . . . . . . . (32,236) (36,330)
------------------------
Total shareholders' equity . . . . . . . . . . . 21,508 67,776
------------------------
Total liabilities and shareholders' equity . . $72,630 $89,040
========================
</TABLE>
<PAGE>
See accompanying notes to financial statements.
- 2 -
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
First Quarter
1995 1996
--------------------------
(In thousands, except
per share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . $20,922 $32,331
Cost of services . . . . . . . . . . . . 16,509 24,128
---------------------------
Gross profit . . . . . . . . . . . . . . 4,413 8,203
Selling, general and administrative . . . 6,540 7,409
Depreciation and amortization . . . . . . 854 1,169
Settlement with a major customer . . . . 4,069 ---
---------------------------
Operating loss . . . . . . . . . . . . . . (7,050) (375)
Other expenses, net:
Interest . . . . . . . . . . . . . . . 578 1,075
Other . . . . . . . . . . . . . . . . --- 1
--------------------------
578 1,076
--------------------------
Net loss before extraordinary items . . . . (7,628) (1,451)
--------------------------
Extraordinary items . . . . . . . . . . . . --- 1,956
--------------------------
Net loss . . . . . . . . . . . . . . . . . $(7,628) $(3,407)
===========================
Per Share Data:
Loss per share of common stock and
common stock equivalents before
extraordinary items . . . . . . . . . . $(1.02) $(0.14)
Extraordinary items per share . . . . . . --- (0.19)
--------------------------
Loss per share of common stock and
common stock equivalents
after extraordinary items . . . . . . . $(1.02) $(0.33)
==========================
Weighted average number of common stock
and common stock equivalents
outstanding . . . . . . . . . . . . . . 7,489 10,242
==========================
</TABLE>
See accompanying notes to financial statements.
- 3 -
<PAGE>
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Redeemable Preferred Stock
---------------------------------------------
Accrued
Undeclared Stock
Shares Amount Dividends Subscriptions
---------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 . . . 436,482 $43,648 $6,529 $---
----------------------------------------------
Conversion of Redeemable
Preferred Stock to
Common Stock . . . . . (436,482) (43,648) --- ---
Accrued dividends on
Redeemable Preferred
Stock . . . . . . . . --- --- 687 ---
Conversion of accrued
dividends on Redeemable
Preferred Stock to
Common Stock . . . . --- --- 7,216 ---
Initial public offering
of Common Stock . . . --- --- --- ---
Costs associated with
initial public offering
of Common Stock . . --- --- --- ---
Grant of stock options . --- --- --- ---
Exercise of stock
options . . . . . . . --- --- --- ---
Net loss . . . . . . . . --- --- --- ---
----------------------------------------------
Balance at
March 31, 1996 . . . . --- $--- $--- $---
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock
----------------------------------
Additional
Paid-In Deferred
Shares Amount Capital Compensation
---------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 . . . . . 2,386,663 $100 $4,124 $(657)
---------------------------------------
Conversion of Redeemable
Preferred Stock to
Common Stock . . . . . . 3,911,129 164 43,484 ---
Accrued dividends on
Redeemable
Preferred Stock . . . . --- --- --- ---
Conversion of accrued
dividends on Redeemable
Preferred Stock to
Common Stock . . . . . 646,482 27 7,189 ---
Initial public offering
of Common Stock . . . . . 4,545,455 190 50,537 ---
Costs associated with
initial public offering
of Common Stock . . . . --- --- (1,739) ---
Grant of stock options . . . --- --- 1,701 (1,029)
Exercise of stock options . . 39,458 2 13 ---
Net loss . . . . . . . . . . --- --- --- ---
--------------------------------------
Balance at March 31, 1996 . . 11,529,187 $483 $105,309 $(1,686)
--------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Total
<PAGE>
Accumulated Shareholders'
Deficit Equity
-----------------------------------
<S> <C> <C>
Balance at December 31, 1995 . . . $(32,236) $21,508
-----------------------------------
Conversion of Redeemable
Preferred Stock to
Common Stock . . . . . . . . . . --- ---
Accrued dividends on
Redeemable Preferred
Stock . . . . . . . . . . . . . (687) ---
Conversion of accrued
dividends on Redeemable
Preferred Stock to
Common Stock . . . . . . . . . . --- ---
Initial public offering
of Common Stock . . . . . . . . . --- 50,727
Costs associated with
initial public offering
of Common Stock . . . . . . . . . --- (1,739)
Grant of stock options . . . . . . . --- 672
Exercise of stock
options . . . . . . . . . . . . . . --- 15
Net loss . . . . . . . . . . . . . . (3,407) (3,407)
--------------------------------
Balance at March 31, 1996 . . . . . . (36,330) $67,776
--------------------------------
</TABLE>
See accompanying notes to financial statements.
- 4 -
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
First Quarter
1995 1996
--------------------
(In thousands)
<S> <C> <C>
Cash flows used in operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . $(7,628) $(3,407)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization . . . . . . . 854 1,169
Non-cash interest expense on
swap agreement . . . . . . . . . . . . . . --- 407
<PAGE>
Non-cash interest expense on note
to shareholder . . . . . . . . . . . . . . --- 297
Non-cash compensation . . . . . . . . . . . . --- 672
Extraordinary item: early retirement
of revolving credit facility . . . . . . . . --- 431
Extraordinary item: early retirement
of note to shareholder . . . . . . . . . . . --- 1,524
Changes in operating assets and
liabilities, net:
Accounts and notes receivable . . . . . . 1,806 (5,933)
Other current assets . . . . . . . . . . . (100) (750)
Accounts payable . . . . . . . . . . . . . 600 533
Accrued network costs . . . . . . . . . . . 5,671 3,081
Other accrued expenses . . . . . . . . . . (1,153) (449)
Other current liabilities . . . . . . . . . 29 (47)
------------------
Net cash used in operating activities . . . . . . . 79 (2,472)
Cash flows used in investing activities:
Purchases of property, plant and equipment . . . (2,312) (2,733)
Expenditures for line installations . . . . . . (71) 4
-----------------
Net cash used in investing activities . . . . . . . . (2,383) (2,729)
Cash flows from financing activities:
Net proceeds from the issuance of
common stock . . . . . . . . . . . . . . . . . --- 50,727
Costs relating to initial public offering . . . . --- (1,123)
Proceeds from stock subscriptions . . . . . . . . 6,000 ---
Repayment of revolving credit facility . . . . . --- (24,173)
Repayment of seller's note . . . . . . . . . . . --- (1,000)
Repayment of notes payable to shareholder . . . . --- (10,000)
Proceeds from stock option exercise . . . . . . . --- 15
Repayment of debt . . . . . . . . . . . . . . . . (20) ---
Principal payments on capital lease obligations . (50) (26)
-----------------
Net cash provided by financing activities . . . . . . 5,930 14,420
-----------------
Net change in cash . . . . . . . . . . . . . . . . . . 3,626 9,219
Cash and cash equivalents at beginning of period . . . (382) 2,052
-----------------
Cash and cash equivalents at end of period . . . . . . $3,244 $11,271
=================
Interest paid . . . . . . . . . . . . . . . . . . . . $582 $766
=================
</TABLE>
See accompanying notes to financial statements.
- 5 -
<PAGE>
<PAGE>
1. Business
Organization and Basis of Presentation
TresCom International, Inc. (the "Company") was incorporated
in Florida on December 8, 1993 as TeraCom Communications, Inc.
Effective June 30, 1994, the Company changed its name to TresCom
International, Inc. The Company was considered a development stage
enterprise from inception until February 22, 1994, the date revenues
were first generated. During the development stage, the Company
incurred a net loss of $319.
The Company is a facilities based long distance
telecommunications carrier focused on international long distance
traffic originating in the United States. The Company offers
telecommunications services, including long distance, calling cards,
prepaid debit cards, international toll-free calling and bilingual
operator services.
The Company has a limited operating history and has sustained
net losses since its inception. In addition, the Company had a working
capital deficiency of approximately $30,012 at December 31, 1995 but had
a working capital surplus of approximately $15,096 at March 31, 1996.
The Company generated negative cash flows from operations of $16,443
during the year ended December 31, 1995 and $2,472 for the three months
ended March 31, 1996. Further, since its formation, the Company has
experienced growth and its operations have required substantial
additional capital. The Company's growth has placed and will continue
to place, significant demands on the Company's financial and other
resources. In connection with these demands, the Company successfully
completed an initial public offering of its Common Stock, par value
$.0419 per share (the "Common Stock") in February 1996 (the "Initial
Public Offering") for net proceeds of approximately $48,600 as
described in Note 8.
The 1995 Annual Report on Form 10-K for the Company and
subsidiaries includes a summary of significant accounting policies and
should be read in conjunction with this Quarterly Report of Form 10-Q.
The consolidated financial statements at March 31, 1996 and the quarter
then ended are unaudited and the balance sheet at December 31, 1995 is
derived from audited financial statements. These financial statements
do not include all disclosures required by generally accepted accounting
principles. In the opinion of management, all material adjustments
necessary to present fairly the results of operations for such periods
have been included. All such adjustments are of a normal recurring
nature. Results of operations for any interim period are not
necessarily indicative of the results of operations for the entire
fiscal year.
- 6 -
<PAGE>
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
<PAGE>
significant intercompany transactions and balances have been eliminated
in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with
original maturities of three months or less to be cash equivalents.
Cash equivalents are recorded at cost, which approximates fair value.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and
amortization is provided for financial reporting purposes using the
straight-line method over the following estimated useful lives:
Transmission and communications equipment 3 to 10 years
Furniture, fixtures and other 3 to 7 years
The costs of software and software upgrades purchased for
internal use are capitalized.
Advertising
The Company expenses advertising costs as incurred, except for
direct-response advertising, which is capitalized and amortized over its
expected period of future benefits. Direct-response advertising
consists of fees paid to various telemarketing entities and agents. The
capitalized costs are amortized over a six-month period beginning in the
month revenues associated with those costs are first generated.
At March 31, 1996, advertising costs totaling $447 were
recorded as assets. Advertising expense for the year ended December 31,
1995 and the quarter ended March 31, 1996 were $1,431 and $414,
respectively.
Other Assets
The excess of cost over net assets of businesses acquired
represents the excess of the consideration paid over the fair value of
the net assets and is amortized on a straight-line basis over 35 years.
Customer bases are recorded on the estimated value of the customer bases
acquired in the acquisition of businesses and are amortized on a
straight-line basis over seven years.
- 7 -
<PAGE>
Periodically, the Company assesses the appropriateness of the
asset valuations and the amortization periods based on the present value
of the current and anticipated future cash flows and projected
profitability of the acquired business.
Legal expenses and other direct costs incurred in connection
with obtaining financing agreements are deferred and amortized over the
life of the financial agreements. Such costs amounted to $533 during
the year ended December 31, 1995. Subsequent to the Company's Initial
Public Offering, all existing financial agreements were paid off in
their entirety. Accordingly, any remaining unamortized portion of the
costs were expensed in the first quarter of 1996. Of the expense
<PAGE>
incurred relating to these costs, $148 was ordinary and $431 was
extraordinary.
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.
Revenues
Revenues from long distance telecommunications services are
recognized when the services are provided.
Cost of Services
Cost of services include payments to local exchange carriers
("LECs"), interexchange carriers and post, telegraph and telephone
organizations primarily for access and transport charges.
Concentrations of Credit Risk and Major Customers
The Company derives a majority of its operating revenues from
commercial customers in Florida, New York, St. Thomas and Puerto Rico.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts
receivable. The Company's allowance for doubtful accounts is based upon
management's estimates and historical experience. In situations where
the Company deems appropriate, prepayment and/or cash deposits are
required for the provision of services.
Income Taxes
The Company accounts for income taxes under the liability
method. Under the liability method, deferred income taxes are recorded
to reflect the net tax effects of temporary differences between the
- 8 -
<PAGE>
carrying amounts of assets and liabilities for financial reporting and
the amounts used for income tax purposes.
Per Share Data
The computation of fully diluted pro forma net loss per share
of Common Stock was antidilutive; therefore, the amounts reported for
primary and fully diluted are the same.
Pro forma net loss per share was computed by dividing net loss
by the weighted average number of shares of Common Stock outstanding
after giving retroactive effect to the conversion, in February 1996, of
all of the Company's Series A Preferred Stock, $.01 par value per share
(the "Series A Preferred Stock"), Series B Preferred Stock, $.01 par
value per share (the "Series B Preferred Stock") and Series C Preferred
Stock, $.01 par value per share (the "Series C Preferred Stock"), and
related accrued and unpaid dividends thereon, into Common Stock in
connection with the consummation of the Company's Initial Public
Offering, plus cheap stock as defined below. Pursuant to Securities and
<PAGE>
Exchange Commission Staff Accounting Bulletin No. 83, common stock,
common stock equivalents and other potentially dilutive securities
(including preferred stock) issued at prices below the assumed initial
public offering price per share ("cheap stock") during the twelve month
period immediately preceding the initial filing date of the Company's
Registration Statement for its Initial Public Offering have been
included as outstanding for all periods presented (using the treasury
stock method at the assumed Initial Public Offering Price) even though
the effect is to reduce the loss per share. Pro forma net loss per
share was $0.3296 for the quarter ended March 31, 1996. Historical
losses per share have not been presented because such amounts are not
deemed meaningful due to the significant change in the Company's capital
structure which occurred in connection with its Initial Public Offering.
New Accounting Pronouncements
In 1996, the Company adopted SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". The Company is now evaluating the carrying value of its long lived
assets and identifiable intangibles, including goodwill, in accordance
with SFAS 121 in light of events or changes in circumstances which
indicate that the carrying amount of such assets may not be recoverable.
In 1996, the Company also adopted the provisions of SFAS No. 123
"Accounting for Stock-Based Compensation". The Company does not expect
the effect of adopting these statements to be material.
- 9 -
<PAGE>
3. Long-Term Obligations
A summary of long-term obligations is as follows:
December 31, March 31,
1995 1996
---------------------------
Credit facility . . . . . . . . . . $24,173 $ ---
Note payable to former shareholder
of business acquired, bearing 5%
simple interest, due
February 1996 . . . . . . . . . . 1,000 ---
Loans payable to the Small
Business Administration,
bearing interest at 4%, due
in monthly principal and
interest payments of $3 through
February 2015, collaterized by
a security agreement covering
certain assets . . . . . . . . . . 432 428
Capital leases bearing interest at
rates ranging from 9% to
18% and payable in monthly installments
ranging from $2 to $5 . . . . . . . 383 359
Other . . . . . . . . . . . . . . . . 4 2
---------------------
25,992 789
---------------------
Less amounts due within one year . . . 25,290 118
<PAGE>
---------------------
$ 702 $671
=====================
In November 1994, a wholly-owned subsidiary of the Company
obtained from a bank a revolving credit facility (the "Credit Facility")
with an aggregate commitment of $27,000, which expires on June 30, 1996.
Outstanding advances under the Credit Facility accrued interest at the
Eurodollar Rate (as defined), plus certain specified percentages,
depending on the Company's leverage ratio. At December 31, 1995, the
rate was 10.375%. The Company is required to pay a quarterly commitment
fee of .5% of the annualized average daily unused amount of the line of
credit.
Under the terms of the Credit Facility, the Company was
required to maintain at least 50% of its debt on a fixed rate basis and,
as a result, entered into an interest rate swap agreement and an
interest rate cap agreement (the "Instruments") with a commercial bank
to convert variable interest rate payments to fixed payments. At March
31, 1996, the notional principal amount of the swap agreement was $6,400
and the notional principal amount of the interest rate cap was $13,600.
The Instruments effectively change the Company's interest rate exposure
on $20,000 of variable rate notes due in June 1996 from variable to a
fixed rate of 9%. The Instruments mature in January 1998. The Company
is exposed to credit loss in the event of nonperformance by the other
party to the Instruments. The Instruments are cross-collateralized to
the Credit Facility. The estimated fair value (i.e., the net present
value of the amount
- 10 -
<PAGE>
the Company will be required to pay the counterpart
over the remaining term of the agreement) of the Instruments, based on
the quoted market price provided by the financial institution, which is
a party to the Instruments, is $562 and $407 at December 31, 1995 and
March 31, 1996, respectively. Generally, the net fair value of the
Instruments would decrease with an increase in interest rates and would
increase as a result of a decrease in interest rates.
On February 16, 1996, the Company repaid all outstanding
amounts borrowed under the Credit Facility. As a result, the
Instruments are no longer being utilized for hedging purposes. During
the first quarter of 1996, the Company recorded a charge to interest
expense in the approximate amount of $500 to reflect, as a liability,
the current net settlement value of the Instruments.
In October and November 1995, the Company borrowed $7,000 and
$3,000, respectively, under one-year notes bearing interest at 12%
compounded quarterly from a major shareholder of the Company. In
connection with these notes, the Company issued a warrant to purchase
358,034 shares of the Company's Common Stock at an exercise price of
$.42 per share. The warrants are exercisable immediately and expire
October 2, 2007. Of the $10,000 in borrowings, approximately $2,400 has
been allocated to the value of the warrants. On February 14, 1996, the
Company repaid the entire balance relating to the notes and the
warrants. Extraordinary interest expense in the amount of $1,524 was
recognized in the first quarter.
Principal payments on all obligations are:
<TABLE>
<S> <C>
<PAGE>
For the nine months ended December 31, 1996 . . . . . . . . . . . $88
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333
----
$790
====
</TABLE>
4. Capitalization
Preferred Stock
The Board of Directors of the Company is authorized to issue
up to 1,000,000 shares of Preferred Stock, $.01 par value per share, in
one or more series and to fix the powers, voting rights, designations
and preferences of each series. During 1994, the Board of Directors
authorized two series of Preferred Stock: 179,420 shares of Series A
Preferred Stock and 200,000 shares of Series B Preferred Stock. Both
provided for 10% cumulative dividends per annum, compounded semi-
annually.
- 11 -
<PAGE>
On August 9, 1995, the Board of Directors authorized 151,421
shares of Series C Preferred Stock. In addition, the Board of Directors
authorized an additional 1,197 shares of Series A Preferred Stock. The
dividend rate on Series A Preferred Stock was increased to 12% beginning
on August 1, 1995, with dividend accruals compounded quarterly beginning
on October 15, 1995. The dividend rate on the Series C Preferred Stock
provided for 12% cumulative dividends per annum, compounded quarterly,
computed retroactively from February 23, 1995.
The Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock required mandatory redemption of preference
value plus dividends upon the earlier of the closing of an underwritten
public offering of shares of Common Stock or in three equal annual
installments beginning February 1, 2002, in the case of Series A
Preferred Stock and Series C Preferred Stock, or February 1, 2003, in
the case of Series B Preferred Stock. Under certain circumstances
outside the control of the Company, upon the effective date of an
initial public offering, the holders of Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock were required to
exchange their shares for shares of Common Stock; the number of shares
of Common Stock calculated based on the redemption value of the
Preferred Stock divided by the Initial Public Offering price less
underwriting discounts and commissions. The Company was entitled to
redeem, at its option, Series A Preferred Stock and Series C Preferred
Stock in whole or Series B Preferred Stock in whole or in part at the
redemption price. The Preferred Stock had a preference value of $100
per share for purposes of calculating dividends and redemption value.
On February 5, 1996, the terms of the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock were
amended such that mandatory redemption was not required. In connection
with the Initial Public Offering, on February 7, 1996, the Series A
<PAGE>
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
were converted into 4,557,895 shares of Common Stock.
On February 13, 1996, the Company effected a reverse stock
split of its Common Stock at a ratio of approximately 4.19-to-1. The
share and per share amounts in the financial statements have been
adjusted for the reverse stock split.
Stock Option Plan
The Company has a stock option plan under which a total of
936,432 options to purchase shares of Common Stock may be granted to
officers, key employees, consultants and directors.
The Stock Option Plan allows the granting of incentive stock options,
which may not have an exercise price below the greater of par value or
the market value on the date of grant, and non-qualified stock options,
which have no restrictions as to exercise price other than the exercise
price cannot be below par value. All options must be exercised no later
than 10 years from the date of grant. No option may be granted under
the plan after February 22, 2004.
The following table summarizes all option activity for the
year ended December 31, 1995 and the quarter ended March 31, 1996.
- 12 -
<PAGE>
<TABLE>
<CAPTION>
Number of
options issued
--------------
<S> <C>
Outstanding as of December 31, 1994 . . . . . . . . 110,840
Canceled . . . . . . . . . . . . . . . . . . 110,840
Granted . . . . . . . . . . . . . . . . . . 484,955
Forfeited . . . . . . . . . . . . . . . . . 12,749
-------
Outstanding as of December 31, 1995 . . . . . . . . 472,206
Canceled . . . . . . . . . . . . . . . . . . 222,460
Granted . . . . . . . . . . . . . . . . . . . 396,119
Forfeited . . . . . . . . . . . . . . . . . . 6,614
-------
Outstanding as of March 31, 1996 . . . . . . . . . . 639,251
=======
</TABLE>
At December 31, 1995 and March 31, 1996, of the options
outstanding 112,094 and 501,599, respectively, were non-contingent
options and 360,112 and 137,652, respectively, were contingent options.
As a result of the Company's Initial Public Offering, contingent options
now vest in a manner identical to non-contingent options. Consequently,
nearly all options granted in 1995 vest as to 20% on the first
anniversary of the date of hire and 20% on each anniversary thereafter.
All options granted by the Company in the first quarter of 1996 vest as
to 20% on the first anniversary of the date of grant and as to an
additional 20% on each anniversary thereafter. All options expire on
the tenth anniversary of the grant date, unless sooner terminated under
the terms of the Stock Option Plan.
<PAGE>
As of March 31, 1996, the Company has 247,132 options
outstanding at an exercise price of $.42 per share and 392,119 options
outstanding at an exercise price of $12.00 per share. All options were
granted at fair market value on the date of grant. Non-cash
compensation expense was recorded over the vesting period of the non-
contingent options. Accordingly, $139 and $672 of non-cash compensation
expense was recorded in the year ended December 31, 1995 and the quarter
ended March 31, 1996, respectively.
At December 31, 1995 and March 31, 1996, 17,587 and 97,902
options, respectively, were exercisable.
5. Commitments and Contingencies
The Company is involved in various claims and possible actions
arising out of the normal course of its business. Although the ultimate
outcome of these claims cannot be ascertained at this time, it is the
opinion of the Company, based on knowledge of facts and advice of
counsel, that the resolution of such
- 13 -
<PAGE>
claims and actions will not have a material adverse effect on the
Company's financial condition or results of operations.
The Company has entered into agreements where it either owns
portions of or has the indefeasible right to use transmission cables.
These agreements require the Company to fund portions of the
construction, operation and maintenance costs. At March 31, 1996, the
Company has firm construction commitments under both types of agreement
of approximately $350. Construction costs are capitalized and
depreciated over ten years after the transmission cable becomes
operational. The capitalized costs of transmission cables at March 31,
1996 are $2,995. The Company has projected maintenance costs of $280
for transmission cables during the remaining nine months of 1996.
6. Financial Instruments
The carrying amounts reflected in the consolidated balance
sheets for cash, accounts receivable, Credit Facility and amounts
payable for business acquired approximate the respective fair values due
to the short maturities of these instruments. The fair values for long-
term obligations are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
-----------------------
<S> <C> <C>
March 31, 1996
Notes payable to former shareholders . . . $--- $---
Notes payable to shareholder . . . . . . . --- ---
Loans payable to the Small
Business Administration . . . . . . . . . 428 312
Interest rate swap . . . . . . . . . . . . 407 407
December 31, 1995
Notes payable to former shareholders . . . 1,000 995
Notes payable to shareholder . . . . . . . 8,179 10,000
Loans payable to the Small Business
<PAGE>
Administration . . . . . . . . . . . . . . 432 316
Interest rate swap . . . . . . . . . . . . . --- 562
</TABLE>
7. Related Party Transactions
The Company buys network services from and provides network
services to LCI International, Inc. ("LCI"). At December 31, 1995, the
net amount due to LCI was $772. At March 31, 1996, the net amount due
from LCI was $2,311. This amount includes a promotional credit of
$1,500 for services rendered during the first quarter of 1996. During
1995 and the first quarter of 1996, $5,086 and $2,883 of services were
provided and $7,822 and $1,767 were used, respectively. At March 31,
1996, an affiliate of a major shareholder of the Company owned in excess
of 20% of LCI.
- 14 -
<PAGE>
8. Initial Public Offering
On February 13, 1996, the Company sold 4,545,455 shares of its
Common Stock at $12 per share in the Initial Public Offering. The net
proceeds of this sale were approximately $48,600. The net proceeds were
used to retire debt and accrued interest of approximately $35,800.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company's revenues are a function of switched minutes of
use and rate structure, which in turn are a function of the Company's
customer and service mix. The long distance telecommunications industry
has experienced increasing volume and decreasing rates for several
years, although in recent years the rate of price decline has moderated.
The Company's cost of services consists primarily of expenses incurred
for origination, termination and transmission of calls through LECs and
transmission through other long distance carriers.
Operating Information
The following table should be read in conjunction with the
unaudited Consolidated Financial Statements and related notes thereto.
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1996
----------------------------
(Unaudited)
(In thousands, except per
share data)
<S> <C> <C>
Revenues . . . . . . . . . . . . . . $20,922 $32,331
Cost of services . . . . . . . . . . 16,509 24,128
----------------------------
<PAGE>
Gross profit . . . . . . . . . . . . 4,413 8,203
Selling, general and
administrative . . . . . . . . . 6,540 7,409
Depreciation and amortization . . . 854 1,169
Settlement with a major customer . . 4,069 ---
----------------------------
Operating loss . . . . . . . . . . . (7,050) (375)
Interest expense, net . . . . . . . 578 1,075
Other expense, net . . . . . . . . . --- 1
----------------------------
Net loss before extraordinary items . (7,628) (1,451)
Extraordinary items . . . . . . . . . --- 1,956
----------------------------
Net loss . . . . . . . . . . . . . . $(7,628) $(3,407)
============================
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Per Share Data:
Loss per share of common stock and
common stock equivalents before
extraordinary items . . . . . . . $ (1.02) $(0.14)
Extraordinary items per share . . . --- (0.19)
--------------------------
Loss per share of common stock and
common stock equivalents after
extraordinary items . . . . . . . $ (1.02) $ (0.33)
===========================
</TABLE>
Results of Operations for the Three Months Ended March 31, 1996 as
Compared to the Three Months Ended March 31, 1995
Revenues. Revenues increased 54.5%, or $11.4 million, from
$20.9 million in the first quarter of 1995 to $32.3 million in the first
quarter of 1996 due to an increase in minutes of use as well as an
increase in average revenue per minute resulting from a change in the
mix of business. Minutes of use grew 36.7% from 73.2 million minutes in
the first quarter of 1995 to 100.1 million minutes in the first quarter
of 1996 and average revenue per minute increased 10.3% from $.29 in the
first quarter of 1995 to $.32 in the first quarter of 1996.
Costs of Services. Costs of services increased 46.1%, or $7.6
million, from $16.5 million in the first quarter of 1995 to $24.1
million in the first quarter of 1996. This increase was due to
increased volumes resulting from new business and, to a lesser extent,
growth from existing customers.
Gross Profit. Gross profit increased 86.4%, or $3.8 million,
from $4.4 million in the first quarter of 1995 to $8.2 million in the
first quarter of 1996. As a percentage of revenues, gross profit
increased from 21.1% in the first quarter of 1995 to 25.4% in the first
quarter of 1996 primarily due to network cost decreases resulting from
the implementation of a least cost routing system during the second and
third quarters of 1995 and its continued utilization throughout the
first quarter of 1996.
<PAGE>
Selling General and Administrative Expense. Selling, general
and administrative expense increased 13.8%, or $.9 million, from $6.5
million in the first quarter of 1995 to $7.4 million in the first
quarter of 1996. This increase was due to variable costs associated
with higher revenues, bad debt and non-cash charges related to deferred
compensation. As a percentage of revenues, selling, general and
administrative expense decreased from 31.1% in the first quarter of 1995
to 22.9% in the first quarter of 1996 as the Company was able to
leverage its fixed costs over more revenue while only experiencing
modest increases in its variable costs.
Depreciation and Amortization Expense. Depreciation and
amortization expense increased 33.3%, or $.3 million, from $.9 million
in the first quarter of 1995 to $1.2 million in the first quarter of
1996. This increase was due to the depreciation of assets purchased to
support the Company's network and corporate infrastructure.
Settlement with a Major Customer. The three months ended
March 31, 1995 included a charge of $4.1 million attributable to one
customer which provided calling center services.
- 16 -
<PAGE>
Net Loss. Net loss decreased 55.3%, or $4.3 million, from
($7.6) million in the first quarter of 1995 to ($3.4) million in the
first quarter of 1996. Included in the net loss amount for the first
quarter of 1996 is $2.0 million of non-recurring extraordinary items
related to the early extinguishment of debt. Net loss before
extraordinary items decreased 81.6%, or $6.2 million, from ($7.6)
million in the first quarter of 1995 to ($1.4) million in the first
quarter of 1996.
Liquidity and Capital Resources
The Company's liquidity requirements arise from working
capital needs, primarily the acquisition and maintenance of switching
capacity, cost of services and interest and, on a historical basis,
principal payments on outstanding indebtedness. The Company is a
holding company, the principal assets of which are the capital stock of
TresCom U.S.A., Inc., Global Telephone Holdings, Inc., TresCom Network
Services, Inc. ("TNS") and The St. Thomas and San Juan Telephone Company
and has no independent means of generating revenues. As a holding
company, the Company's internal sources of funds to meet its cash needs,
including payment of expenses, are dividends and other permitted
payments from its direct and indirect subsidiaries. Historically, the
Company's working capital requirements have been funded primarily from
the private placement of equity securities, bank borrowings and loans
from shareholders.
During the first quarter of 1996, the Company successfully
completed changes to its capital structure which significantly improved
its financial position. In February 1996, the Company sold 4,545,455
shares of its Common Stock in the Initial Public Offering which
generated approximately $48.6 million in net proceeds. Concurrent with
the Initial Public Offering, the Company converted all outstanding
shares of its Preferred Stock, and accrued and unpaid dividends thereon,
into shares of Common Stock. The Company used the net proceeds from the
Initial Public Offering, in part, to repay the majority of its short-
<PAGE>
term and long-term debt obligations, including the amounts outstanding
under the Credit Facility discussed below. The net impact of these
changes in the Company's financial results will be a reduction in interest
expense and amortization of deferred financing fees in excess of $4.0
million on an annual basis.
On February 16, 1996, TNS repaid all amounts outstanding under
the Credit Facility, which had an aggregate commitment of $24.2 million,
and no longer has available borrowings under such facility. Borrowings
under the Credit Facility accrued interest at the Eurodollar Rate plus
certain specified percentages, depending on the Company's leverage
ratio. Prior to repayment on February 16, 1996, TNS had borrowed $24.2
million, which was used to fund the acquisition of Total
Telecommunications Incorporated, to refinance existing indebtedness of
the Company, to provide working capital and to fund general corporate
purposes of the Company. The Credit Facility is secured by security
interests in substantially all of the present and future property,
assets and rights of the Company and its subsidiaries. The Credit
Facility is also guaranteed by the Company and certain of its subsidiaries.
Under the terms of the Credit Facility, TNS and the Company's other
subsidiaries were restricted from declaring, making or paying any
distributions to the Company except in certain limited circumstances.
In addition, under the terms of the Credit Facility, the
Company was required to maintain at least 50% of its debt on a fixed
rate basis and, as a result, entered into the Instruments (as defined in
Note 3 to the Company's Notes to Consolidated Financial Statements).
Those Instruments effectively changed the Company's interest rate
exposure on $20 million of variable rate notes due in June 1996 from
variable to a fixed rate of 9%. The Instruments are cross-
collateralized to the Credit Facility. Since the Company repaid all
outstanding amounts borrowed under the Credit Facility on February 16,
1996, the Instruments are no longer being utilized for hedging purposes.
As a result, during the first
- 17 -
<PAGE>
quarter of 1996, the Company recorded a charge to interest expense in
the approximate amount of $.5 million to reflect, as a liability, the
current net settlement value of the Instruments. This liability
generally decreases as interest rates increase and increases as
interest rates decrease. The Company may elect to settle this
liability through a cash payment during 1996.
Capitalization
The following table highlights the significant changes in the
Company's capital structure as a result of the conversion of Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock,
and all accrued and unpaid dividends thereon, the sale of 4,545,455
shares of Common Stock in the Initial Public Offering, and operations
since December 31, 1995.
<TABLE>
<CAPTION>
December 31, March 31,
1995 Adjustments 1996
------------ ----------- ---------
<S> <C> <C> <C>
Current maturities -
<PAGE>
Credit Facility . . . . $24,173 ($24,173) $ 0
- Seller's note . . . . 1,000 (1,000) 0
- Capital lease
obligations . . . . . 102 1 103
Notes payable to
shareholders . . . . . 8,179 (8,179) 0
Capital lease
obligations . . . . . . 285 (27) 258
Shareholders' equity:
Preferred Stock . . . . 50,177 (50,177) 0
Common Stock . . . . . 100 383 483
Additional paid-in
capital . . . . . . . 4,124 101,185 105,309
Accumulated deficit . . (32,236) (4,053) (36,289)
Total shareholders'
equity . . . . . . . 21,508 46,268 67,776
Total capitalization . 55,247 12,890 68,137
</TABLE>
Capital Requirements
During the first three months of 1996, the Company had capital
expenditures of $2.7 million. The Company's expected capital
expenditure requirements for the remainder of 1996 are $12.0 million, of
which approximately $8.0 million relates to expansion of switched
facilities and continued investment in undersea fiber optic cables. The
Company expects that cash generated by operations and remaining net
proceeds from the Initial Public Offering will be sufficient to fund its
working capital needs and planned capital expenditures for the
foreseeable future.
- 18 -
<PAGE>
Impact of Seasonality
The Company's long distance revenue is subject to seasonal
variations, primarily because most of the Company's revenue is generated
by commercial customers. Use of long distance services by commercial
customers is typically lower in the fourth quarter due to holidays and
on weekends throughout the year.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 5 to the Notes to Consolidated Financial Statements.
Item 2. Changes in Securities.
In connection with the Company's Initial Public Offering, all
outstanding shares of the Company's Preferred Stock, and accrued and
unpaid dividends thereon, were converted into shares of Common Stock.
<PAGE>
Item 3. Default Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
10.1 Employment Agreement between the Company and William A.
Paquin
27. Financial Data Schedule
- 19 -
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1996.
- 20 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated: May 14, 1996
TRESCOM INTERNATIONAL, INC.
-------------------------------------
(Registrant)
/s/ Wesley T. O'Brien
Wesley T. O'Brien
President and Chief Executive Officer
/s/ William A. Paquin
William A. Paquin
Chief Financial Officer and
Chief Accounting Officer
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Description Page
----------- ----------- ------------
<S> <C>
10.1 Employment Agreement between
the Company and William A. Paquin
27 Financial Data Schedule
</TABLE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of April 23, 1996, between TresCom
International, Inc., a Florida corporation ("Employer"), and William A.
Paquin (the "Executive").
RECITALS
Employer, directly and through its Subsidiaries (as defined
below), is engaged in the telephone and telecommunications business.
Employer desires to employ Executive, and Executive desires to be employed
by Employer, on the terms and conditions set forth in this Agreement.
ACCORDINGLY, in consideration of the mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
1. Employment and Duties. Employer hereby employs
Executive and Executive hereby accepts employment as Chief Financial
Officer of Employer and, if Employer so elects, as an executive officer or
director of any of the direct or indirect subsidiaries of Employer (the
"Subsidiaries"). Executive agrees to serve without additional remuneration
in such capacities for the Subsidiaries of Employer, with responsibilities
and authority commensurate with the nature of Executive's responsibility
and authority with Employer as the Board of Directors of Employer (the
"Board of Directors") may from time to time request, subject to appropriate
authorization by the Subsidiaries involved and any limitations under
applicable law. Executive shall perform such duties and have such powers
and authority as the Board of Directors shall determine, commensurate with
Executive's position as an executive officer of Employer. The Executive's
failure to discharge an order or perform a function because the Executive
reasonably and in good faith believes such would violate a law or
regulation or be dishonest shall not be deemed a breach by him of his
obligations or duties hereunder.
2. Services and Exclusivity of Services.
2.1. So long as this Agreement shall continue in effect,
Executive shall devote his full business time and energy to the business,
affairs and interests of Employer and its Subsidiaries and matters related
thereto and shall faithfully and diligently endeavor to promote such
business, affairs and interests.
2.2. Executive may serve as a director or in any other
capacity of any business enterprise, including an enterprise whose
activities may involve or relate to the business of the Employer and its
Subsidiaries, provided that such service is expressly approved by the Board
of Directors of the Employer. Executive may make and manage personal
business investments of his choice (provided such investments are in
businesses which do not compete with Employer and its Subsidiaries or such
investments satisfy the standards set forth in the proviso to Section
6.1.1. and, in either case, do not require any services on the part of
Executive in the affairs of the companies in which such investments are
made) and may serve in any capacity with any civic, educational or
<PAGE>
charitable organization, or any governmental entity or trade association,
without seeking or obtaining approval by the Board of Directors of
Employer, provided such activities and service do not materially interfere
or conflict with the performance of his duties hereunder.
3. Compensation, Expenses and Other Benefits.
3.1. Base Salary. During the Term (as defined in
Section 4.1), the Executive shall receive a base salary at an annual rate
of $160,000.00 per annum (the "Base Salary"). The Base Salary shall be
paid in substantially equal installments consistent with the Employer's
normal payroll schedule, but in no event less frequently than bi-weekly,
subject to applicable withholding and other taxes.
3.2. Bonus. In addition to the Base Salary, the
Executive shall also be eligible to receive a bonus (the "Bonus") equal to
40% of the Base Salary. The amount of the Bonus shall be determined by the
Board of Directors of Employer and shall be based on the financial and
operating performance of Employer. The Board of Directors may, in its sole
and absolute discretion, award additional bonuses to Executive on any other
basis as it deems appropriate from time to time.
3.3. Stock Options. Executive shall receive, on the
date on which this Agreement becomes effective, options (the "Options") to
purchase 50,000 shares of common stock, par value $0.0419 per share (the
"Common Stock"), of Employer, in accordance with the terms of Employer's
Amended and Restated 1994 Stock Option Plan and related Stock Option
Agreement (the "Stock Option Agreement").
3.4. Expenses. Employer shall promptly reimburse
Executive for all reasonable expenses incurred by him in connection with
the performance of his services under this Agreement upon presentation of
appropriate documentation in accordance with Employer's and its
Subsidiaries' customary procedures and policies applicable to its and their
senior executives.
3.5. Life Insurance. Employer shall obtain a life
insurance policy on the life of Executive in the face amount equal to 200%
of the Executive's then current Base Salary naming Executive or his
designee as the beneficiary. Employer shall obtain a disability policy
covering the Executive in the event he becomes disabled, in a monthly
amount equal to 60% of Executive's then-current monthly Base Salary.
3.6. Other Benefits. Executive shall be eligible to
participate in any accident, health or disability plans and any other
employee benefit plans (other than any stock option or similar plans) that
may from time to time be provided by the Employer to its executive
personnel.
3.7. Vacation. Executive shall be entitled to
reasonable vacation during the Term (as defined in Section 4.1 hereof), the
timing and duration thereof to be determined by mutual agreement between
Executive and the Employer.
<PAGE>
4. Term and Termination.
4.1. Term. The term of Employee's employment hereunder
shall be for a period of one year (the "Term") from the date of this
Agreement (the "Effective Date"), unless earlier terminated as hereinafter
set forth.
4.2. Termination.
4.2.1. Employer may, at its election, subject to
the provisions of Section 4.3 hereof, terminate Executive's employment
hereunder as follows:
(i) for "Cause" upon notice of such termination to Executive;
(ii) for "Non-Performance" upon 30 days' notice to Executive
of such termination;
(iii) upon the death of Executive; or
(iv) upon 10 days' notice to Executive if Executive becomes
"Disabled".
4.2.2. As used in this Agreement, the
following terms shall have the meanings ascribed to them below:
(i) "Cause" shall mean (A) a determination by the Board of
Directors that Executive has ceased materially to perform
his duties hereunder (other than as a result of his
incapacity due to physical or mental illness or injury),
which failure amounts to an intentional and extended
neglect of his duties hereunder, (B) Executive's having
been convicted of a felony, (C) fraud, embezzlement or
misappropriation of funds of Employer by Executive, or
(D) a willful and material breach by Executive of his
obligations hereunder, which breach is not cured within
ten (10) days after notice of same is given to Executive
by Employer.
(ii) "Non-Performance" shall mean (A) a determination by the
Board of Directors that the Performance Standards
(defined below) have not been met or (B) the
commencement by Employer or any of its material
Subsidiaries of a voluntary case or proceeding under any
bankruptcy or similar laws or the filing of an
involuntary petition against Employer or any of its
material Subsidiaries under any such laws which is not
dismissed or stayed within 90 days of filing. The
"Performance Standards" shall be deemed not to have been
met if either (x) the consolidated net revenues of
Employer, as determined in accordance with generally
accepted accounting principles consistently applied
("GAAP") and using Employer's customary accounting
practices, or (y) EBDIAT (defined below), in each case,
<PAGE>
for any period consisting of four consecutive fiscal
quarters commencing not earlier than the first
anniversary of the date of this Agreement, is less than
80% of the amount projected as the consolidated net
revenues or EBDIAT, as the case may be, of Employer for
such period, on a cumulative basis, based on the annual
operating plan for Employer approved by the Board of
Directors (the "Annual Operating Plan") or Annual
Operating Plans with respect to the applicable period.
(iii) "EBDIAT" shall mean, for the relevant accounting period,
an amount equal to the sum of (I) consolidated net
income (or loss) of Employer for such period determined
in accordance with GAAP, and using the Company's
customary accounting practices, excluding any
extraordinary, unusual or non-recurring gains (or
losses), plus (II) all amounts deducted in computing
such net income (or loss) in respect of interest,
depreciation, amortization and taxes based upon or
measured by income.
(iv) "Disabled" or "Disability" shall mean the physical or
mental incapacity of, or injury to, Executive such that
he is unable to perform the services required of him
hereunder and such inability to perform continues for a
period in excess of six months and is continuing at the
time notice is given.
(v) "Termination Without Cause" shall mean any termination of
employment of Executive (i) by the Employer for reasons
other than as set forth in Section 4.2.1(i) through
(iv), or (ii) by the Executive following the willful and
material breach by Employer of its obligations under
Section 1 of this Agreement, which breach is not cured
within 30 days of notice of such breach to the Board of
Directors.
4.3. Rights upon Termination.
4.3.1. Upon any termination of this Agreement
for Cause, Employer shall pay to Executive, within 10 days following such
termination, any unpaid Base Salary through the date of termination
specified in the termination notice and shall reimburse Executive for
reasonable business expenses incurred prior to the date of termination,
subject to the provisions of Section 3.4. hereof.
4.3.2. Upon any termination of this Agreement
for Non-Performance, Employer shall pay to the Executive any unpaid Base
Salary through the date of termination specified in the termination notice,
plus an amount equal to the greater of (i) six-months Base Salary or (ii)
Base Salary for the balance of the Term (such additional amount, the
"Severance Payment"), and shall reimburse Executive for reasonable business
expenses incurred prior to the date of termination, subject to the
provisions of Section 3.4. hereof. Employer shall pay all such amounts
<PAGE>
within 10 days following such termination, provided, that, at Employer's
option, the Severance Payment may be made in equal monthly installments
over the six-month period following the date of termination specified in
the termination notice or the balance of the Term, as applicable.
4.3.3. Upon termination of this Agreement
because of the death or Disability of Executive, Employer shall pay to
Executive or Executive's estate, any unpaid Base Salary and Bonus accrued
through the date of termination specified in the termination notice, plus
an additional amount equal to the Severance Payment, and shall reimburse
Executive (or his estate) for reasonable business expenses incurred prior
to the date of termination, subject to the provisions of Section 3.4.
hereof. Employer shall pay such amounts within 10 days following such
termination, provided, that, at Employer's option, the Severance Payment
may be made in equal monthly installments over the six-month period
following the date of termination specified in the termination notice or
the balance of the Term, as applicable.
4.3.4. Upon a Termination Without Cause, if,
as of the time of such termination, the Performance Standards shall have
been met, Employer shall pay to Executive any unpaid Base Salary and Bonus
accrued through the date of termination specified in the termination
notice, plus an additional amount (the "Additional Payment") equal to the
unpaid Base Salary for the balance of the Term and any unpaid bonus amounts
specified in the last paragraph of Section 3.2, and shall reimburse
Executive for reasonable business expenses incurred prior to the date of
termination, subject to the provisions of Section 3.4. hereof. Employer
shall pay such amounts within 10 days following such termination, provided,
that, at Employer's option, the Additional Payment may be made in equal
monthly installments over the 12-month period following the date of
termination specified in the termination notice. If, as of the time of a
Termination Without Cause, the Performance Standards shall not have been
met, then Employer shall pay to Executive the amounts set forth in Section
4.3.2 hereof at the times specified therein.
4.3.5. The parties agree that, prior to the
expiration of the Term, they will negotiate in good faith the continuation
of severance provisions based upon the principles set forth in this Section
4, it being understood that the foregoing shall not in any way modify the
rights and obligations of the parties provided in this Section 4.
4.3.6. Upon any termination provided for in
this Agreement, the Options granted to Executive shall be treated in the
manner set forth in the Stock Option Agreement.
4.3.7. Except as provided herein, Employer
shall have no further liability to Executive under this Agreement in
respect of any termination of this Agreement.
5. Confidentiality. Executive agrees that he will not make
use of, divulge or otherwise disclose, directly or indirectly, any trade
secret or other confidential information concerning the business,
operations, practices, or financial condition of Employer or any of its
Subsidiaries ("Confidential Information"), which he may have learned as a
<PAGE>
result of his employment by the Employer during the Term or as a
stockholder, officer or director of Employer or any of its Subsidiaries,
except to the extent such use or disclosure is (a) necessary to the
performance of this Agreement and in furtherance of the best interests of
Employer and its Subsidiaries, (b) required by applicable law, (c)
authorized by Employer or its Subsidiaries, or (d) is of information which
is in the public domain through no unlawful act of the Executive or which
the Executive lawfully acquires subsequent to termination of his employment
with the Employer from any person not subject to a confidentiality obliga-
tion to the Company or its Subsidiaries. The Executive acknowledges and
recognizes that the Confidential Information is essential to the unique
nature of the Employer's business and for that reason, all such materials
and information shall at all times remain the exclusive property of the
Employer. Upon the termination of this Agreement, all such Confidential
Information furnished and supplied to the Executive during the Term shall
be returned by the Executive to the Employer. The Executive, in the event
of such termination, will not at any time impart to anyone or use any such
Confidential Information. The provisions of this Section 5 shall survive
the expiration, suspension or termination, for any reason, of this
Agreement.
6. Restrictive Covenants.
6.1. Non-competition.
6.1.1. The Executive agrees that he shall not,
during the Restricted Period (as defined below), without the prior written
consent of the Employer, directly or indirectly (whether as a sole
proprietor, partner, venturer, stockholder, director, officer, employee, or
in any other capacity as principal or agent or through any person,
corporation, partnership, entity or employee acting as nominee or agent)
conduct or engage in or be interested in or associated with any person,
firm, association, syndicate, partnership, company, corporation, or other
entity which conducts or engages in the telecommunications business in any
geographic areas in which Employer or any Subsidiary is then so engaged in
business or proposes to engage in business in accordance with its then-
current strategic plan, nor shall Executive interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between
Employer or any of its Subsidiaries, on the one hand, and any customer,
supplier, lessor, lessee or employee of the Company or any of its
Subsidiaries, on the other hand; provided, however, that this Section
6.1.1. shall not prohibit the Executive from owning beneficially or of
record not more than 1% of the outstanding equity securities of any entity
whose equity securities are registered under the Securities Act of 1933, as
amended, or are listed for trading on any United States or foreign stock
exchange.
6.1.2. As used in this Agreement, the term
"Restricted Period" shall mean the period beginning on the Effective Date
of this Agreement and ending on (a) the first anniversary of the date this
Agreement is terminated, if this Agreement is terminated by Employer for
Cause or in the event of a voluntary termination by Executive of his
employment which does not constitute a Termination Without Cause, or (b)
the end of the period in respect of which Executive is entitled to receive
<PAGE>
the Severance Payment or the Additional Payment, as appropriate, under the
applicable provisions of Section 4 hereof, but in any event not less than
one year, in the event this Agreement is terminated by Employer for Non-
Performance or if a Termination Without Cause occurs.
6.1.3. It is the desire and intent of the
parties that the provisions of this Section 6 shall be enforced to the
fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought. Accordingly, if any
particular portion of this Section 6 shall be adjudicated to be invalid or
unenforceable, this Section 6 shall be deemed amended to delete therefrom
the portion thus adjudicated to be invalid or unenforceable, such deletion
to apply only with respect to the operation of this paragraph in the
particular jurisdiction in which such adjudication is made.
7. Injunctive Relief. If there is a breach or threatened
breach of the provisions of Sections 5 or 6 of this Agreement, the Employer
shall be entitled to an injunction restraining the Executive from such
breach. Nothing herein shall be construed as prohibiting the Employer from
pursuing any other remedies for such breach or threatened breach.
8. Insurance. The Employer may, at its election and for its
benefit, insure the Employee against accidental loss or death, and the
Executive shall submit to such physical examination and supply such
information as may be reasonably required in connection therewith.
9. Miscellaneous. This Agreement: (a) constitutes the entire
agreement of the parties with respect to its subject matter and supersedes
all previous agreements or understandings, whether oral or written; (b) may
not be amended or modified except by a written instrument signed by all the
parties; (c) is binding upon and will inure to the benefit of the parties
and their respective successors, transferees, personal representatives,
heirs, beneficiaries and permitted assigns; (d) may not be assigned or the
obligations of any party delegated except with the prior written consent of
all the parties; (e) may be executed in duplicate originals; and (f) shall
be governed by and interpreted in accordance with the laws of the State of
New York, without regard to its conflict of laws rules.
10. Notices. Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been
given when delivered by hand delivery by independent courier service or
when deposited in the United States mail, by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to the Employee: William A. Paquin
1163 Camellia Road
Ft. Lauderdale, Florida 33326
If to the Employer: TresCom International, Inc.
200 East Broward Blvd., 21st Floor
Ft. Lauderdale, Florida 33301
or to such other address as either party hereto may from time to time give
notice of to the other in the aforesaid manner. Any notice delivered in
<PAGE>
the manner set forth in this Section 10 shall be deemed as of the date of
delivery in the case of hand delivery and five (5) business days after
posting in the case of mailing.
11. Indemnification. Employer shall indemnify Executive, in
his capacity as an executive officer or director of Employer or any of its
Subsidiaries, to the full extent permissible under the laws of the State of
Florida, or of the state of incorporation of the relevant Subsidiary as the
case may be.
12. Waiver. The failure of any party to exercise any right
or remedy under this Agreement shall not constitute a waiver of such right
or remedy, and the waiver of any violation or breach of this Agreement by a
party shall not constitute a waiver of any prior or subsequent violation or
breach. No waiver under this Agreement shall be valid unless in writing
and executed by the waiving party.
13. Severability. If any provision of this Agreement is
determined by a court or other governmental authority to be invalid,
illegal or unenforceable, such invalidity, illegality or unenforceability
shall not affect the validity, legality or enforceability of any other
provision of this Agreement. Further, the provision that is determined to
be invalid, illegal or unenforceable shall be reformed and construed to the
extent permitted by law so that it will be valid, legal and enforceable to
the maximum extent possible.
14. Headings. The headings used in this Agreement are
included for the convenience of the parties for reference purposes only and
are not to be used in construing or interpreting this Agreement.
15. Jurisdiction and Venue. Any suit, action or proceeding
against any party to this Agreement arising out of or relating to this
Agreement or any transaction contemplated hereby may only be brought in any
Federal or State court located in the Borough of Manhattan, The City of New
York, and each such party thereby submits to the exclusive jurisdiction of
such courts for the purpose of any such suit, action or proceeding. To the
extent that service of process by mail is permitted by applicable law, each
such party irrevocably consents to the service of process in any such suit,
action or proceeding in such courts by the mailing of such process by
registered or certified mail, postage prepaid, at its address for notices
provided for above. Each such party irrevocably agrees not to assert any
objection which it may ever have to the laying of venue of any such suit,
action or proceeding in any Federal or State court located in the Borough
of Manhattan, The City of New York, and any claim that any such suit,
action or proceeding brought in any such court has been brought in an
inconvenient forum. Each party to this Agreement agrees not to bring any
action, suit or proceeding against any other party arising out of or
relating to this Agreement or any transaction contemplated hereby except in
a Federal or State court in the Borough of Manhattan, The City of New York.
16. No Third Party Beneficiaries. This Agreement shall not
be deemed to confer in favor of any third parties any rights whatsoever as
a third-party beneficiary.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement
as of the date first above written.
EMPLOYER:
TRESCOM INTERNATIONAL, INC.
By: /s/Wesley T. O'Brien
Title: President and Chief Executive Officer
EXECUTIVE:
/s/ William A. Paquin
William A. Paquin
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from the
Company's audited financial statements for the year ended December 31, 1995
and the unaudited financial statements for the quarter ended March 31, 1996
and is qualified in its entirety by reference to such financial statements."
</LEGEND>
<S> <C> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 2,052 11,271
<SECURITIES> 0 0
<RECEIVABLES> 21,194 28,906
<ALLOWANCES> 4,140 5,919
<INVENTORY> 0 0
<CURRENT-ASSETS> 20,408 35,689
<PP&E> 17,495 20,228
<DEPRECIATION> 2,716 3,299
<TOTAL-ASSETS> 72,630 89,040
<CURRENT-LIABILITIES> 50,420 20,593
<BONDS> 702 671
50,177 0
0 0
<COMMON> 100 483
<OTHER-SE> (28,769) 67,293
<TOTAL-LIABILITY-AND-EQUITY> 0 0
<SALES> 20,922 32,331
<TOTAL-REVENUES> 20,922 32,331
<CGS> 16,509 24,128
<TOTAL-COSTS> 5,633 5,039
<OTHER-EXPENSES> 854 1,170
<LOSS-PROVISION> 4,976 2,370
<INTEREST-EXPENSE> 578 1,075
<INCOME-PRETAX> (7,628) (1,451)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,628) (1,451)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 1,956
<CHANGES> 0 0
<NET-INCOME> (7,628) (3,407)
<EPS-PRIMARY> (1.02) (0.33)
<EPS-DILUTED> (1.02) (0.33)
</TABLE>
