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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER : 0-27594
TRESCOM INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 65-0454571
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
200 EAST BROWARD BOULEVARD, 33301
FT. LAUDERDALE, FLORIDA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 763-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $0.0419
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. [ X ] YES [ ] NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K [ ].
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT AS OF MARCH 17, 1997 WAS APPROXIMATELY $33,692,010.
AS OF MARCH 17, 1997, 11,820,914 SHARES OF THE REGISTRANT'S COMMON STOCK,
$0.0419 PAR VALUE, WERE OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE. THE INFORMATION CALLED FOR BY PART III
IS INCORPORATED BY REFERENCE TO THE DEFINITIVE PROXY STATEMENT FOR THE COMPANY'S
1997 ANNUAL MEETING OF SHAREHOLDERS, WHICH WILL BE FILED ON OR BEFORE APRIL 30,
1997.
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TABLE OF CONTENTS
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PAGE
PART I.................................................................... 1
ITEM 1. BUSINESS................................................... 1
General.................................................... 1
Services................................................... 1
Marketing and Sales........................................ 3
Customer Service........................................... 3
Network.................................................... 4
Competition................................................ 6
Regulatory Environment..................................... 6
Employees.................................................. 9
ITEM 2. PROPERTIES................................................. 9
ITEM 3. LEGAL PROCEEDINGS.......................................... 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........ 10
PART II................................................................... 10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................ 10
ITEM 6. SELECTED FINANCIAL DATA.................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................ 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE........................ 49
PART III.................................................................. 49
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT......... 49
ITEM 11. EXECUTIVE COMPENSATION..................................... 49
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT. .................................... 49
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............. 49
PART IV................................................................... 49
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K........................................ 49
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K which
express "belief", "anticipation", "expectation", or "intention" and statements
regarding the expansion of TresCom International's business, including the
negotiation of agreements with PTTs and TAs (each as hereinafter defined),
capital expenditures, the effects of regulatory changes and product
offerings insofar as they may apply prospectively and are not historical facts,
are "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward-looking
statements. Factors that could cause actual results to differ materially from
those expressed or implied by such forward-looking statements include, but are
not limited to, the factors set forth in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
Which May Affect the Company's Future Results."
PART I
ITEM 1. BUSINESS
GENERAL
TresCom International, Inc. (together with its subsidiaries and
Predecessors (as defined herein), referred to collectively herein as "TresCom"
or the "Company"), is a facilities based long distance telecommunications
carrier focused on international long distance traffic. The Company offers a
broad array of competitively priced services, including long distance, calling
cards, prepaid debit cards, domestic and international toll-free calling, frame
relay and bilingual operator services. The Company provides long distance
service to over 230 countries and territories through an international network
consisting of: (i) owned facilities, concentrated in a Caribbean hub linking the
United States, the Caribbean and South and Central America; (ii) direct
operating and transit agreements with various post, telegraph and telephone
organizations ("PTTs") and foreign telecommunications administrations ("TAs");
and (iii) leased capacity.
The Company markets its services on a wholesale basis to other
telecommunications carriers and resellers and on a retail basis to residential
and commercial customers, ranging in size from small businesses to Fortune 500
companies. To take advantage of the benefits associated with its network, the
Company targets its United States mainland sales and marketing efforts towards
customers with significant southbound international long distance traffic. These
customers include businesses with sales or operations in the Caribbean, South
and Central America and Mexico (referred to collectively herein as "Latin
America") as well as the rapidly growing Hispanic population in the United
States. The Company has increased its sales and marketing efforts directed
towards residential and commercial customers, while maintaining its carrier and
reseller customer base. In emerging markets in Central and South America, the
Company has teamed with local agents and expects to generate international
traffic originating from those markets. As part of the Company's marketing
activities, the Company has entered into joint marketing and promotional
arrangements with certain other companies, including Coca-Cola, Shell Oil
Company, Seagrams and Walgreens Drug Stores, pursuant to which such companies
have agreed to market their products or services with those of TresCom.
TresCom was formed in December 1993 and acquired The St. Thomas and San
Juan Telephone Company, Inc. ("STSJ"), a United States Virgin Islands
("U.S.V.I.") and Puerto Rico based long distance carrier, in February 1994.
TresCom has experienced significant growth through a combination of internal
growth and acquisitions, including the November 1994 acquisition of Total
Telecommunications, Inc. ("TTI"), which was a Ft. Lauderdale based
inter-exchange carrier. STSJ and TTI are referred to collectively herein as the
"Predecessors."
SERVICES
TresCom offers a broad array of services to its customers, both through
its owned facilities and through contractual arrangements with other carriers.
The Company's service offerings include direct dial "1 plus" and "800" long
distance, calling and debit cards, international toll-free service, 24-hour
bilingual operator services, intra-island local service in Puerto Rico, private
lines, frame relay, international inbound service, and, beginning in the first
quarter of 1997, prepaid cellular phone service. The Company markets its
products under a number of registered and common law service marks including
TresCom SM, Terafon SM and Express USA SM, as well as various registered logos.
TresCom has the capability to route calls over multiple alternative paths, thus
offering full redundancy. The
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Company also offers customized country calling plans that help customers manage
their long distance costs for high volume destinations.
In addition to basic "1 plus" and "800" services, the Company's service
offerings include:
o CALLING AND DEBIT CARDS. The Company's international calling
cards provide access to more than 230 countries and territories
and international origination and termination. The Company's
debit cards provide payment convenience and are rechargeable.
o INTERNATIONAL TOLL-FREE SERVICE. Also known as "International
800," this service permits customers to place calls terminating
in the United States (including the U.S.V.I. and Puerto Rico)
from a foreign country on a toll-free basis. As of December 31,
1996, the Company's international toll-free service was available
for origination from over 40 countries.
o 24-HOUR BILINGUAL OPERATOR SERVICES. The Company offers a full
range of operator services to residential and commercial
customers. A staff of operators fluent in English and Spanish can
be accessed to complete collect, third party, person-to-person,
station-to-station and credit card validation calls.
o INTRA-ISLAND LOCAL SERVICE. The Company offers local calling
services in Puerto Rico, pursuant to which customers can make
local calls on the island at very competitive rates.
o PRIVATE LINES. The Company leases to customers dedicated private
lines that provide high capacity between predetermined locations
for voice and data services.
o FRAME RELAY. The Company offers frame relay, a transmission
standard which utilizes multiplex technology. Frame relay enables
multiple users to share communications bandwidth for enhanced
data transmission. The Company's frame relay capabilities are
compatible with frame relay networks around the world.
o INTERNATIONAL INBOUND SERVICES. The Company offers international
inbound calling services which provide collect calling to the
United States and calling card services with United States
terminations. In 1997, the Company intends to expand its
marketing programs in Honduras, Nicaragua and Panama and intends
to launch new programs in El Salvador and the Dominican Republic.
Planning is underway for similar services in key South American
countries. There can be no assurance, however, that the Company
will be able to launch such services or that, if launched, such
services will be successful.
o PREPAID CELLULAR PHONE SERVICE. In the first quarter of 1997, the
Company began providing prepaid cellular phone services. The
Company continues to evaluate target market acceptance and
support processes required for this new product.
New services the Company expects to introduce in 1997 include:
o INTERNET SERVICES. TresCom intends to offer businesses high
speed, direct connections to the Internet, through either private
line or frame relay service. Once connected to the Internet,
users will be able to access services provided by others such as
Worldwide Web browsing, electronic mail, file transfer, news
feeds and bulletin boards.
o WHOLESALE AND RETAIL BILLING SERVICES. The Company will offer the
capability for real time traffic repricing for international
traffic.
o COMPETITIVE LOCAL ACCESS SERVICE. The Company is planning to
offer competitive local access services to business customers in
South Florida.
There can be no assurance that the Company will be able to launch any
of the proposed services in 1997 or thereafter or that, if launched, such
services will be successful.
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MARKETING AND SALES
The Company markets its services on a wholesale basis to other
telecommunications carriers and resellers and on a retail basis to residential
and commercial customers ranging in size from small businesses to Fortune 500
companies. Through its in-house, direct sales force and through independent
sales and telemarketing agents, the Company targets customers in the United
States, the U.S.V.I. and Puerto Rico with significant international telephone
usage, particularly southbound calls to Latin America.
WHOLESALE. The Company's wholesale customers include both facilities
based carriers and switched and switchless resellers who purchase the Company's
services for resale to their own customers. The Company uses its direct sales
force to market its services to wholesale customers and participates in and
advertises at key carrier industry trade shows. During 1996, the Company was not
dependent on any one customer to provide more than 8% of its total annual
revenues.
RETAIL. The Company's retail customer base is comprised of residential
and commercial customers. The Company markets its services to retail customers
primarily through direct sales representatives and through independent sales
representatives and telemarketing agents. Sales techniques such as joint
marketing arrangements, direct mail, promotions and advertising are employed by
the Company as well.
DIRECT SALES. The Company's direct sales force targets major accounts
and small to medium size businesses with significant southbound traffic to Latin
America. The sales representatives receive commissions based upon the revenues
received by the Company from new customers. As of December 31, 1996, the Company
had 105 sales and marketing employees. The Company has expanded its direct sales
force as a part of its growth strategy by adding sales representatives to its
sales offices located in New York, Florida, Texas, Georgia, southern California,
St. Thomas, the U.S.V.I and Puerto Rico.
INDEPENDENT SALES REPRESENTATIVES AND TELEMARKETING AGENTS. The Company
supplements its direct sales efforts by marketing through a network of
independent sales representatives and telemarketing agents. As of December 31,
1996, the Company had approximately 150 independent sales representatives and
telemarketing agents. Independent sales representatives generally enter into
sales agreements with the Company providing for commissions to be paid based on
revenues generated for the Company. Telemarketing agents are generally paid on
an hourly basis or on a per sale basis and receive no commission. The Company
typically grants a nonexclusive right to solicit customers and requires that its
agents maintain a minimum quota.
JOINT MARKETING ARRANGEMENTS. The Company enters into joint marketing
arrangements with other companies to increase name recognition and customer
awareness and to generate referrals of potential customers who can then be
contacted by the Company's sales representatives and telemarketing agents.
PROMOTIONS AND ADVERTISING. The Company also engages in various
promotional activities, such as sponsorship of the Ft. Lauderdale Boat Show, the
Shell Air and Sea Show and various civic and charity events. The Company engages
in such promotional opportunities to target specific customer groups. In
addition, the Company has increased its use of print advertising which targets
heavy users of international telecommunications services. The Company advertises
in publications such as the World Trade Magazine, the Latin Trade Magazine and
Global Sites Magazine. In the residential market, the Company has targeted
Spanish speaking consumers by advertising in Spanish language newspapers and
through direct mail campaigns. The Company believes that continued focus on the
growing domestic Hispanic market will attract customers with heavy long distance
usage to Latin America.
CUSTOMER SERVICE
The Company strives to provide superior customer service and believes
that the quality of its customer service is one of its competitive advantages.
The Company has a fully staffed bilingual customer service department available
through "800" access, as well as a trouble reporting unit with extensive
industry and technical expertise to cater to the Company's wholesale customers.
In order to facilitate quality customer service, the Company has designed and
implemented computerized customer profiles and billing information to permit
rapid access by its customer service representatives to billing records and
prompt response to inquiries.
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The Company direct bills certain wholesale customers, its larger
business accounts and a small percentage of its small business and residential
customers. In many cases, these customers and accounts have customized billing
arrangements, including bilingual billing, to help them achieve better
management of their long distance telecommunications needs. In 1996, the Company
launched two billing innovations: billing files delivered via bulletin board
system ("BBS") and software to allow commercial customers to better manage their
long distance bills through various sorting and classification functions. The
Company believes that flexible, customized billing is an important value-added
service that is a key factor in attracting and retaining commercial customers.
The Company's small business and residential customers are generally billed by
their respective local exchange carriers ("LECs"), which charge for the
Company's services in a monthly all-inclusive invoice sent to the customer.
NETWORK
Under direct operating and transit agreements with PTTs and TAs,
TresCom transmits customer calls through an international network consisting of
ownership interests in undersea digital fiber optic transmission cables and
leased capacity from other carriers. Through its owned switching facilities and
network infrastructure, the Company continuously monitors its network to
optimize routing of calls over the least cost route available on its
international network.
OWNED FACILITIES.
The Company's international network utilizes digital fiber optic
circuits to transmit long distance calls. TresCom's transmission facilities
include ownership interests in international undersea digital fiber optic
transmission cables linking the United States, Europe, the Caribbean and South
and Central America. TresCom's owned network also includes wholly owned
microwave relay and satellite earth station equipment linking the mainland
United States, Puerto Rico and the U.S.V.I. that provide redundancy and
diversity to its ownership interests in digital fiber optic transmission cables.
The international undersea digital fiber optic cables in which the
Company has an investment are owned and operated through consortium arrangements
between various international telecommunications service providers, which
include United States carriers, foreign PTTs and foreign TAs. Typically,
participation in a consortium includes those carriers which have the operating
authority to provide direct international service and have direct operating
agreements with the PTTs or TAs in the countries served by the cables. In most
cases, ownership in cables is acquired solely through the purchase of minimum
increments of capacity or Minimum Investment Units ("MIUs"). In instances where
a carrier has not purchased ownership interests in the cable prior to the time
it was placed in service, the carrier is only permitted to acquire capacity on
that cable through the purchase, by way of a lump sum payment, of an
Indefeasible Right of Use ("IRUs"). The fundamental difference between an IRU
holder and an owner of MIUs is that the IRU holder is not entitled to
participate in management decisions relating to the cable system. The Company
currently owns MIUs in the Americas 1 Cable System, the Columbus II Cable
System, the Eastern Caribbean Fiber Cable System, the Taino-Carib Cable System,
the Antilles I Cable System, the Bahamas II Cable System and the Pan American
Cable System. The Company obtained MIU's in the Antilles I Cable System, the
Bahamas II Cable System and the Pan American Cable System during 1996. The
Company's investments in the TCS-1 Cable System, the Bahamas 1 Cable System, the
PTAT-1, the CARAC Cable Systems, the CANUS Cable System, the CANTAT 3 Cable
System, the ODIN Cable System and the RIOJA Cable System are in the form of
IRUs. The various consortium arrangements to which the Company is a party
contain restrictions on the transfer of use, provide for the acquisition of
additional capacity, designate maintenance responsibility and also contain
arrangements regarding system design modifications. The Company's investment in
certain cables is currently limited to the portion of the cable in which the
Company is routing traffic. The Company has a right to acquire capacity on the
remaining portions of the system through the payment of additional amounts.
The Company's network infrastructure and digital switches provide the
means to maximize its owned and leased international facilities. Switches
located in Ft. Lauderdale, Florida; New York, New York; Guaynabo, Puerto Rico;
and Miami, Florida; provide the entry and exit gateways for the Company's
international network.
During 1996, the Company completed strategic capital expansion projects
that expanded the current network portal capacity by 53% and future growth
capacity by 300% and introduced key technological advancements to the network.
The Company installed its first international STP gateway that effectively
allows the
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Company to utilize previously domestic only switching systems to establish
international gateway switching systems at a significantly reduced capital cost.
Other key technological/infrastructure achievements in 1996 include:
construction of a new Ft. Lauderdale, Florida central office facility designed
to support a minimum of 80,000 switch ports, served by an all electronic office,
complete with battery and generator back up power and hurricane protection;
expansion of the Company's New York switch to provide a 300% capacity increase
for growth; and establishment of the Company's first international transmission
point-of-presence ("POP") at the Vero Beach, Florida cable station.
The Company's owned switching systems and network infrastructure
permits the Company to maximize the portion of its call traffic that is carried
on the Company's own network rather than by other carriers, and therefore to
realize economies of scale. Switches are digital computerized routing facilities
that receive calls, route calls through transmission lines to their destination
and record information about the source, destination and duration of calls. The
Company also uses its computerized network switching equipment to continuously
monitor its network to optimize the routing of calls over the least cost route
available on its international network. To maintain effectiveness and minimize
its costs, TresCom continuously evaluates the addition of new switches, POPs and
other facilities as its customer base expands.
LEASED CAPACITY AND DIRECT OPERATING AND TRANSIT AGREEMENTS.
TresCom's international network is comprised of leased capacity from
other carriers and direct operating and transit agreements with PTTs and TAs.
These arrangements permit the Company to transmit and terminate calls over
networks of other carriers. The Company's contracts with these entities
typically have terms ranging from one to five years, with clauses providing for
negotiated renewals. Contracts with PTTs and TAs typically have longer terms
than those with domestic United States carriers.
The Company uses leased capacity to provide long distance services in
areas where it does not own transmission facilities and to provide redundancy
where it does own transmission facilities. The Company's ability to operate
profitably depends in part on planning the mix of circuits and transmission
capacity to be leased or used for each switching center, so that calls are
completed on a cost effective basis without compromising service, transmission
quality or reliability. As the Company expands its services into a new area,
services are provided via leased capacity from other carriers on a variable
cost, usage-sensitive basis. When the volume of traffic in the new area is
sufficient to justify additional investment, the Company will enter into long
term fixed price arrangements such as fiber optic cable or satellite
transmission capacity.
For international traffic, the Company can terminate traffic via leased
capacity from other carriers or through direct operating agreements with foreign
PTTs and TAs. Direct operating agreements provide for the termination of traffic
in, and return traffic to, the parties' respective countries for mutual
compensation through negotiated settlement rates. Direct operating agreements
between a United States based international carrier and a foreign carrier
provide that a foreign carrier will return the same percentage of total United
States terminating traffic as it receives from the United States based carrier
and also provide for network coordination and accounting and settlement
procedures. In addition to specifying the terms for accounting and settlement
procedures, certain of the direct operating agreements to which the Company is a
party also specify the services to be provided (e.g., switched services,
operator-assisted calls, debit card services), the currency to be used to
determine payment, the time of payment and the duration of the arrangement.
These agreements help to reduce costs on the Company's network by allowing for
the termination of calls at rates lower than those available in some cases and
create opportunities for revenue enhancement through the receipt of return
traffic as well as the transmission of traffic on a wholesale basis for other
carriers and resellers which do not have similar agreements.
As of December 31, 1996, the Company had 24 direct operating and
transit agreements with PTTs and TAs. Currently, the Company is negotiating
direct operating and transit agreements with PTTs and TAs in certain other
countries, although there can be no assurance that the Company will enter into
such agreements.
Included in the group of carriers providing leased capacity to
TresCom's network are MCI and Sprint, niche carriers with direct operating
agreements to specific countries and resellers with large volume and long term
contracts for international capacity on AT&T, MCI and Sprint facilities.
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COMPETITION
The telecommunications industry is highly competitive and affected by
rapid regulatory and technological change, as well as, corporate consolidation.
Examples of industry consolidations are the LDDS WorldCom, Inc./MFS, Inc. merger
and the contemplated merger of British TeleCom and MCI. The Company believes
that the principal competitive factors in its business include customer service,
pricing, network quality, service offerings and the flexibility to adapt to
changing market conditions. The Company's future success will depend upon its
ability to compete with AT&T, MCI, Sprint, LDDS WorldCom and other United States
based and foreign carriers, many of which have considerably greater financial
and other resources than the Company. Certain of the larger United States based
carriers have entered into joint ventures with foreign carriers to provide
international services. In addition, certain foreign carriers have entered into
joint ventures with other foreign carriers to provide international services and
have begun to compete or invest in the United States market, creating greater
competitive pressures on the Company. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
Which May Affect the Company's Future Results -- Competition."
The Company believes it competes favorably in its targeted markets, due
to its bilingual operator and billing services, competitive pricing, high
network quality and broad array of service offerings. The Company also believes
that its success will increasingly depend on its ability to offer on a timely
basis new services based on evolving technologies and industry standards. There
can be no assurance that new technologies or services will be available to the
Company on favorable terms.
Regulatory trends have had, and may have in the future, significant effects
on competition in the industry. See "-- Regulatory Environment."
REGULATORY ENVIRONMENT
The Company's business operations are subject to extensive federal and
state regulation. Federal laws and regulations of the Federal Communications
Commission (the "FCC") apply to interstate telecommunications (including
international telecommunications that originate or terminate in the United
States), while particular state regulatory authorities have jurisdiction over
telecommunications originating and terminating within the same state. The laws
of other countries only directly apply to carriers doing business in those
countries. Thus, when the Company conducts business with its foreign
correspondent, it is affected indirectly by such laws insofar as they affect the
foreign carrier. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which May
Affect the Company's Future Results - Regulatory and Legislative Risks."
FEDERAL.
The FCC has classified the Company as a non-dominant inter-exchange
carrier. Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges, practices or classifications of non-dominant
carriers. Nevertheless, the FCC acts upon complaints against such carriers for
failure to comply with statutory obligations or with the FCC's rules,
regulations and policies. The FCC also has the power to impose more stringent
regulatory requirements on the Company and to change its regulatory
classification. In the current regulatory atmosphere, the Company believes that
the FCC is unlikely to do so.
Among domestic carriers, only the LECs are currently classified as
dominant carriers. Thus, the FCC regulates many of the LECs' rates, charges and
services to a greater degree than the Company's. Until October 1995, AT&T was
classified as a dominant carrier but AT&T successfully petitioned the FCC for
non-dominant status in the domestic interstate and inter-exchange market.
Therefore, certain pricing restrictions that once applied to AT&T have been
eliminated, likely making AT&T's prices more competitive with the Company's.
While AT&T is still classified as a dominant carrier for international services,
it has asked the FCC to reclassify it to non-dominant status for these services
as well.
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The Company has the authority to provide domestic, interstate
telecommunications services. The Company has also been granted authority by the
FCC to provide switched international telecommunications services through the
resale of switched services of United States facilities based carriers and to
provide certain international telecommunications services by acquiring circuits
on various undersea cables or leasing certain satellite facilities. The FCC
reserves the right to condition, modify or revoke such domestic and
international authority for violations of the Communications Act of 1934, as
amended (the "Communications Act") or the FCC's regulations, rules or policies
promulgated thereunder. Although the Company believes the probability to be
remote, a rescission by the FCC of the Company's domestic or international
authority or a refusal by the FCC to grant additional international authority
would have a material adverse effect on the Company.
Both domestic and international non-dominant carriers must maintain
tariffs on file with the FCC. The Company is required to file tariffs containing
detailed actual rate schedules for both its domestic and international tariffs.
Last year, the FCC adopted new rules which would require the Company to cancel
and withdraw its tariffs covering interstate domestic services by September 22,
1997. The FCC's order was appealed and effectively has been stayed pending
resolution of the appeal.
As a non-dominant carrier, the Company is also subject to a variety of
miscellaneous regulations that, among other things, govern the documentation and
verifications necessary to change a consumer's long distance carrier, limit the
use of "800" numbers, require certain disclosures regarding operator services,
limit foreign ownership and control, and require prior approval of transfers of
control. For instance, the Company could not continue to hold certain radio
licenses it now holds if its foreign ownership level reaches 25%, unless prior
permission were obtained from the FCC.
To date, the FCC has exercised its regulatory authority to supervise
closely the rates only of dominant carriers. However, the FCC has increasingly
relaxed its control in this area. As an example, the FCC is in the process of
repricing local access charges (the fee for the use of the LECs' transmission
facilities connecting the LECs' central offices and the inter-exchange carrier's
access point). In addition, the LECs have been afforded a degree of pricing
flexibility in setting access charges where adequate competition exists, and the
FCC is considering certain proposals which would relax further LEC access
regulation. The impact of such repricing and pricing flexibility on facilities
based inter-exchange carriers, such as the Company, cannot be determined at this
time.
On February 1, 1996, the United States Congress enacted comprehensive
telecommunications reform legislation, which the President signed into law as
the Telecommunications Act of 1996 on February 8, 1996. The Telecommunications
Act of 1996 amends the Communications Act to impose a legal duty on all
telecommunications carriers (i) not to prohibit or unduly restrict resale of
their services; (ii) to provide dialing parity and nondiscriminatory access to
telephone numbers, operator services, directory assistance and directory
listings; (iii) to afford access to poles, ducts, conduits and rights-of-way;
and (iv) to establish reciprocal compensation arrangements for the transport and
termination of telecommunications.
In addition, under the terms of the Telecommunications Act of 1996, the
Regional Bell Operating Companies (the "RBOCs") are released from the
constraints of the Modification of Final Judgment, the judicial consent decree
resulting from the Bell System divestiture. On February 28, 1996, the Department
of Justice recommended that the presiding judge terminate the decree.
The Telecommunications Act of 1996 transfers enforcement of the
obligations of the Modification of Final Judgment from the District Court to the
FCC, eliminates some of the restrictions immediately and creates requirements
and timetables for the removal of others. As a consequence, the RBOCs may offer
long distance services outside their local telephone service territories almost
immediately, including international services which compete with the Company.
Subject to the FCC finding that the necessary prerequisites have been met, the
RBOCs will be authorized to provide such services within their local telephone
service areas at some future point. As a result, the Company will likely face
additional competition from RBOCs.
The FCC has determined that call-back services using uncompleted
call-signaling violates neither United States domestic nor international law.
Call-back services involve calls originating in a foreign country directed in
such a manner as to give the foreign caller the advantage of the lower charges
for outbound United States calls. However, United States call-back providers are
not authorized to provide service to customers in countries which expressly have
declared such call-back services to be illegal. The FCC will receive
documentation from any
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<PAGE>
government which seeks to place United States carriers on notice that call-back
services using uncompleted call signaling has been expressly declared illegal in
its country. The Company provides services to resellers and other carriers that
provide such call-back services. In the event that call-back services are
determined to be illegal in a given country, the Company may lose revenues that
are derived from call-back services to that country.
The microwave and satellite communications licenses held by the Company
are subject to FCC regulations. Such licenses were granted for fixed terms. The
majority of these licenses expire within six years and the remainder will expire
within ten years. The Company intends to seek renewal of its licenses and
anticipates that they will be renewed in the ordinary course. Failure to obtain
renewal of its licenses could have a material adverse effect on the Company.
Authorizations held under Section 214 of the Communications Act (such
as those held by the Company) for international services traditionally have been
granted for the provision of services or use of facilities between the United
States and countries specified in the authorizations and may now be granted, in
appropriate circumstances, on a global basis. The Company holds all necessary
Section 214 authorizations for conducting its present business but may need
additional authority in the future. Additionally, carriers may not lease lines
between the United States and an international point for the purpose of offering
switched services without the FCC first determining that the foreign country
affords opportunities to United States carriers equivalent to those available
under United States law. In addition, if the Company is acting as a reseller, it
cannot provide a service interconnected with the public switched network at only
one end to a country that has not been found equivalent. Facilities-based
carriers can do so however. The FCC adopted an Order on February 29, 1996, that
reduced the regulatory burdens imposed on international carriers, making it
easier for the Company to provide and expand its international services but also
making it easier for competitive entry by other carriers.
In addition, the FCC has promulgated certain rules governing the
offering of international switched telecommunications. Such calls typically
involve a bilateral, correspondent relationship between a carrier in the United
States and a carrier in the foreign country. Until recently, the United States
was one of a few countries to allow multiple carriers to handle international
calls; almost all foreign countries authorized only a single carrier, often a
state-owned monopoly, to provide telecommunications services. In light of the
disparate bargaining positions of the United States carriers, the FCC imposed
certain requirements to try to minimize the opportunities that dominant foreign
telecommunications providers would have to counterpose one United States carrier
against another. These policies include the International Settlement Policy,
which requires that the accounting or settlement rate for all carriers be
uniform on parallel routes and traffic received by a United States carrier from
a foreign carrier must be proportional to the traffic that the United States
carrier terminates to a foreign carrier. The FCC has adopted a policy to
consider proposals for deviation from uniform settlements in the case of
countries with competitive multi-carrier markets. Separately, the FCC also is
considering new rules that would require significant reductions in international
settlement rates. The Company has numerous agreements with foreign carriers
providing for the handling of switched calls.
Additionally, the FCC enforces certain requirements which derive from
the regulations of the International Telecommunications Union (the "ITU"). These
regulations may further circumscribe the correspondent relationships described
above. In addition to settlement rates, these regulations govern certain aspects
of transit arrangements, wherein the originating carrier may contract with an
interim carrier in a second country to terminate service in a third country. The
Company has transit agreements with foreign carriers. Such agreements may allow
the Company to pay less than the full accounting rate it would have to pay if it
had a direct operating agreement with the terminating country. However, the
Company is unaware of any instance in which a terminating country has objected
with respect to any of the Company's traffic. If a terminating country objects
in the future to such transit arrangements, the Company may be required to
secure alternative arrangements.
The trade agreement reached on February 15, 1997 among the nearly 70
countries in the World Trade Organization Group on Basic Telecommunications
Services ("WTO Agreement") also may have an impact on worldwide competitive
market conditions. Pursuant to the WTO Agreement, which becomes effective
January 1, 1998, the United States has made certain commitments to permit access
to the U.S. market by foreign telecommunications services providers. The FCC
must complete certain proceedings by the end of the year to review, and modify
if necessary, its current international telecommunications policies in light of
U.S. obligations under the WTO Agreement. These proceedings may address, among
other issues, the viability of equivalency and other reciprocity principles
currently applicable to international facilities based and resale services,
foreign
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<PAGE>
ownership limitations, foreign carrier entry into the U.S. market, and
settlement rates. Correspondingly, telecommunications markets in many foreign
countries are expected to be significantly liberalized, creating additional
competitive market opportunities for U.S. telecommunications operators such as
the Company.
STATE.
The intrastate, long distance telecommunications operations of the
Company are also subject to various state laws, regulations, rules and policies.
Currently, the Company is certified, tariffed or otherwise qualified to provide
service in 46 states. Additionally, the Company provides service in certain
states that do not require certification or registration of any form.
Ultimately, the Company intends to obtain authorization in all states that
require certification or registration.
The vast majority of states require the Company to apply for
certification to provide telecommunications services before commencing
intrastate service and to file and maintain detailed tariffs listing the rates
for intrastate service. Many states also impose various reporting requirements
and require prior approval for all transfers of control of certified carriers,
assignments of carrier assets, carrier stock offerings and the incurrence by
carriers of certain debt obligations. In some states, prior regulatory approval
may be required for acquisitions of telecommunications operations. In the past,
the Company has sought and successfully obtained such prior approval for its
acquisitions.
FOREIGN.
The Company provides international services by either reselling the
services of other carriers or by entering into direct operating or transit
agreements with PTTs and TAs. Generally, PTTs' are state-owned and operated
monopolies and TAs are former PTTs which have been privatized. Although the
services currently provided by the Company are not directly subject to the laws
of other countries, the foreign carriers with whom the Company conducts business
are subject to those laws. Consequently, any changes to the laws of a country
served by the Company could have a material adverse effect on the Company.
EMPLOYEES
As of March 17, 1997, the Company had 237 full-time employees and 8
part-time employees. None of the Company's employees are members of a labor
union or are covered by a collective bargaining agreement. Management believes
that the Company's relationship with its employees is good.
ITEM 2. PROPERTIES.
The Company's headquarters in Ft. Lauderdale, Florida consist of
approximately 20,600 square feet of office space under leases that expire
through April 2003. In addition, the Company leases an aggregate of
approximately 71,000 square feet where it maintains its sales offices or
switches. The Company's sales offices are located in Ft. Lauderdale, Florida;
Hollywood, Florida; Tampa, Florida; New York, New York; Houston, Texas; Los
Angeles, California; Guaynabo, Puerto Rico; St. Thomas, U.S.V.I. and St. Croix,
U.S.V.I.; and its switches are located in Miami, Florida; Ft. Lauderdale,
Florida; New York, New York and Guaynabo, Puerto Rico.
Management believes that the Company's present office facilities,
together with additional space available under expansion options, are adequate
for its operations for the foreseeable future and that similar additional space
can readily be obtained as needed.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time involved in litigation incidental to
the conduct of its business. There is no pending legal proceeding to which the
Company is a party which, in the opinion of Company management, is likely to
have a material adverse effect on the Company's financial condition or results
of operations.
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<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the
executive officers of the Company as of March 17, 1997.
NAME AGE POSITION
---- --- --------
Wesley T. O'Brien 41 President, Chief Executive Officer and Director
Rudolph McGlashan 44 Chief Operating Officer and Director
William A. Paquin 51 Chief Financial Officer
WESLEY T. O'BRIEN has served as Chief Executive Officer and Director of
the Company since January 1996 and has served as President of the Company since
October 1995. Prior to joining the Company, Mr. O'Brien held several positions
with MCI, including Vice President of MCI's Small Business Division from July
1992 to September 1995 and Director of Product Marketing and Sales from November
1987 to July 1992. Mr. O'Brien has over 13 years of experience in the
telecommunications industry.
RUDOLPH MCGLASHAN, a co-founder of the Company, has served as Chief
Operating Officer of the Company since its formation in December 1993 and as a
Director of the Company since August 1995. Prior to joining the Company, Mr.
McGlashan was Vice President of Network Engineering and Operations of LDDS
Communications, Inc. (now known as WorldCom, Inc.) from April 1992 to October
1993. From May 1989 to April 1992, Mr. McGlashan was Senior Vice President of
Advanced Telecommunications Corporation. Mr. McGlashan has over 25 years of
experience in the telecommunications industry.
WILLIAM A. PAQUIN has served as Chief Financial Officer of the Company
since April 1996. Prior to joining the Company, Mr. Paquin was the Vice
President, Finance of the International Division of MCI from June 1987 to April
1996. Mr. Paquin served as the Controller of the International Division of MCI
from March 1985 to June 1987. Mr. Paquin has over 12 years of experience in the
telecommunications industry. Mr. Paquin is a Certified Public Accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock, par value $0.0419 per share ("Common
Stock"), commenced trading on February 8, 1996, on the Nasdaq National Market
("NNM") under the symbol "TRES". The 1996 high and low sales prices for the
Common Stock as reported by the NNM from February 8, 1996 (the date the Common
Stock commenced trading) to March 31, 1996 and for the three full quarterly
periods thereafter are as follows:
HIGH LOW
---- ---
First Quarter (February 8 to March 31) $ 16 5/8 $ 13 1/4
Second quarter 1996 20 1/4 9
Third quarter 1996 13 1/4 7 1/2
Fourth quarter 1996 14 7
On March 17, 1997, there were approximately 49 shareholders of record
of the Common Stock. The Company believes that it has in excess of 300
beneficial owners.
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<PAGE>
The Company has not declared or paid any cash dividends on its Common
Stock since its formation and does not presently anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company currently
intends to retain any future earnings to finance the expansion and continued
development of its business. The Company has a $5.0 million credit facility with
a commercial bank (the "Credit Facility") which contains certain restrictions on
its ability to declare or pay dividends, except stock dividends, during the term
of the agreement. In addition to restrictions under the Credit Facility, the
Company's ability to declare and pay cash dividends may, in the future, be
affected by the ability of the Company's present and future subsidiaries to
declare and pay dividends or otherwise transfer funds to the Company because the
Company conducts substantially all of its operations through its subsidiaries.
Subject to the restrictions contained in the Credit Facility and any future
limitations, the payment of cash dividends on the Common Stock will be within
the sole discretion of the Company's Board of Directors and will depend upon the
earnings, capital requirements and financial position of the Company, applicable
requirements of the Florida Business Corporation Act, general economic
conditions and other factors considered relevant by the Company's Board of
Directors.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data for the Company and
the Predecessors should be read in conjunction with the financial statements and
notes thereto and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations". The selected consolidated financial data
of the Combined Predecessors, the Combined Predecessors and Company and the
Company presented below under "Statement of Operations Data" for the ended
December 31, 1993, the period from January 1, 1994 to November 30, 1994, the
year ended December 31, 1994 for both the Combined Predecessors and Company and
the Company and the year ended December 31, 1995 and 1996 for the Company and
"Balance Sheet Data" as of December 31, 1994, 1995 and 1996, have been derived
from the audited consolidated financial statements of the Company and the
Predecessors. The selected consolidated financial data as of December 31, 1992
and 1993 and for the year ended December 31, 1992, have been derived from the
unaudited financial statements of the Company and the Predecessors, which
include all adjustments the Company considers necessary for a fair presentation
of the financial information set forth therein.
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<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND REVENUE PER MINUTE OF USE)
--------------------------------------- ------------- ---------- ---------------------
COMBINED
PREDECESSORS
AND
COMBINED PREDECESSORS COMPANY COMPANY
--------------------------------------- ------------- --------------------------------
PERIOD FROM
JANUARY 1, YEAR
1994 TO ENDED
YEAR ENDED NOVEMBER 30, DECEMBER 31, YEAR ENDED
DECEMBER 31, DECEMBER 31,
------------------------- ------------- ------------- ---------- ---------------------
1992 1993(1) 1994(2) 1994(3) 1994(4) 1995 1996
---- ------- -------- ------- ------- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $20,217 $27,900 $18,871 $ 50,290 $ 31,419 $102,641 $ 139,621
Cost of services.............. 12,975 15,994 11,802 32,603 20,801 74,679 106,928
------- ------- ------- --------- -------- -------- ---------
Gross profit.................. 7,242 11,906 7,069 17,687 10,618 27,962 32,693
Selling, general and
administrative ............... 4,269 11,078 7,222 29,432 22,210 32,437 30,808
Depreciation and amortization. 411 602 252 2,156 1,904 3,961 4,928
------- ------- ------- --------- -------- -------- ---------
Operating income (loss)....... 2,562 226 (405) (13,901) (13,496) (8,436) (3,043)
Interest (income) expense, net (96) 134 134 687 553 3,191 578
Other (income) expense, net .. -- (4) -- 6 6 -- --
------- ------- ------- --------- -------- -------- ---------
Net income (loss) before taxes
and extraordinary item...... 2,658 96 (539) (14,594) (14,055) (11,627) (3,621)
Provision for income taxes.... 144 99 13 13 -- -- --
------- ------- -------- -------- -------- -------- ---------
Income (loss) before
extraordinary item.......... 2,514 (3) (552) (14,607) (14,055) (11,627) (3,621)
Extraordinary item............ -- -- -- -- -- -- 1,956
Net income (loss) ............ $ 2,514 $ (3) $ (552) $(14,607) $(14,055) $(11,627) $ (5,577)
======= ======= ======== ========= ======== ======== =========
Weighted average number of
shares of common stock and
common stock equivalents
outstanding(5) .............. 7,696 11,169
Loss per share of Common
Stock(5)(6)................. $ (1.51) $ (.50)
OPERATING DATA:
Minutes of use................ 81,724 175,568 93,843 330,296 455,481
Revenue per minute of use..... $ .23 $ .29 $ .33 $ .31 $ .31
EBITDA(7)..................... $ 2,973 $ 828 $ (153) $ (6,299) $ (6,146) $ (4,336) $ 3,149
-----------------------------------------------------------------------------------
COMBINED
PREDECESSORS
COMBINED PREDECESSORS AND COMPANY COMPANY
-----------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-----------------------------------------------------------------------------------
1992 1993(1) 1994(3) 1994(4) 1995 1996
---- ------- ------- ------- ---- ----
BALANCE SHEET DATA:
Cash............................. $958 $1,786 -- -- $ 2,052 $ 6,020
Working capital (deficiency)..... 1,106 122 $(8,674) $(8,674) (30,012) 8,201
Total assets..................... 12,233 13,718 61,565 61,565 72,630 101,610
Long-term obligations due within
one year....................... 462 1,408 174 174 25,290 871
Long-term obligations............ 1,000 8,817 26,114 26,114 702 3,965
Stockholders' equity (deficit)... 7,130 (2,147) 14,875 14,875 21,508 67,322
- ----------------------------
(1) Includes approximately $25 of start-up costs incurred by the Company from
its formation on December 8, 1993 through December 31, 1993.
(2) Includes operations for STSJ from January 1, 1994 through February 22, 1994
and operations for TTI from January 1, 1994 through November 30, 1994.
(3) Includes results of operations or period-end amounts, as applicable, for
each of the Company and the Predecessors, as if the acquisition of each of
the Predecessors had occurred on January 1, 1994. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Summary" and Note 3 of the Company's Notes to Consolidated Financial
Statements.
(4) Includes results of operations for STSJ from February 23, 1994 through
December 31, 1994 and results of operations for TTI from December 1, 1994
through December 31, 1994.
(5) Computed on the basis described in Note 2 of the Company's Notes to
Consolidated Financial Statements.
(6) Assuming the repayment of certain obligations, including accrued interest
outstanding on December 31, 1995 ($35.8 million) as if repaid on the date
incurred or the beginning of the period, whichever is later, with the
proceeds from the sale of Common Stock, supplemental net loss per share for
the year ended December 31, 1995 and 1996 would have been $1.33 and $.22.
(7) As used herein, "EBITDA" is defined as net income or loss PLUS depreciation
expense, amortization expense, interest expense, income taxes and other
non-cash charges, MINUS extraordinary income and gains and non-cash income,
if any, and PLUS extraordinary losses, if any. EBITDA also includes an
adjustment of $5,446 associated with the revaluation of an acquired
customer base for the Combined Predecessors and Company and the Company
during 1994. While EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information regarding the ability of the Company to meet its future debt
service, capital expenditures and working capital requirements. EBITDA is
not necessarily a measure of the Company's ability to fund its cash needs.
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
SUMMARY
TresCom is a facilities based long distance telecommunications carrier
focused on international long distance traffic originating in the United States.
The Company offers a broad array of competitively priced services, including
long distance, calling cards, prepaid debit cards, domestic and international
toll-free calling, frame relay and bilingual operator services. The Company
derives its revenues by providing international and domestic long distance
services on a wholesale basis to other telecommunications carriers and resellers
and on a retail basis to residential and commercial customers, ranging in size
from small businesses to Fortune 500 companies. Service revenues are based on
minutes of use and charged at a rate per minute which varies according to the
termination point of the traffic and time of day. All revenues are billed in
United States dollars.
Since its formation, the Company has expanded its revenues, customer
base and network through internal growth and acquisitions. The following table
provides a chronology of significant acquisitions completed by the Company:
CASH
CONSIDERATION
ACQUISITIONS DATE PAID
- ------------ ------------ --------------
(IN THOUSANDS)
The St. Thomas and San Juan
Telephone Company, Inc. ........... February 1994 $17,035
IDB Communications Group,
Inc. Puerto Rico customer base .... June 1994 3,600
Virgin Islands Tele-Com, Inc.
customer base ..................... July 1994 2,250
Total Telecommunications, Inc. ..... November 1994 22,610
The Company seeks to continue to expand its revenues from internal growth
through four distinct sales channels: (i) direct sales efforts; (ii) an agent
sales network; (iii) ethnic focused telemarketing programs; and (iv) wholesale
sales activities. In addition, the Company is constantly evaluating potential
acquisition opportunities. The Company believes that it has established the
network, operations, customer service, infrastructure and systems necessary to
support its expanding sales and customer base for the foreseeable future.
During 1994, 1995 and 1996, the Company's revenues were derived primarily
from wholesale sales. In 1996, increased competition drove down wholesale
prices. Because of changing market conditions, the Company intends to manage its
rate of growth to ensure continued profitability in the wholesale division. The
Company intends to continue to pursue a growth strategy designed to leverage its
network capabilities and further expand its retail sales distribution channels.
The Company also intends to continue to pursue its strategy of increasing
revenues derived from retail customers. The Company intends to continue to focus
its sales and marketing efforts on customers with significant southbound long
distance traffic. These customers include businesses with sales or operations in
Latin America and the rapidly growing Hispanic population in the United States.
Cost of services includes those costs associated with the transmission and
termination of services over the Company's international network. Transmission
and termination costs are the Company's most significant expense and the Company
seeks to lower these costs through: (i) increasing volume on its owned
facilities, thereby spreading the allocation of fixed costs over a larger number
of minutes; (ii) negotiating lower cost direct operating and transit agreements
with PTTs and TAs; and (iii) optimizing the routing of calls over the least cost
route on its international network. Consistent with its strategy of maximizing
traffic carried on the Company's own network, the Company significantly expanded
its network switch capacity in 1996.
The majority of the Company's cost of services is variable and consists of
payments for leased capacity from other carriers and payments to PTTs and TAs
with which the Company has direct operating and transit agreements. See "Item 1.
Business -- Leased Capacity and Direct Operating and Transit Agreements." Under
its direct operating agreements, the Company agrees to send United States
originated traffic to the PTTs or TAs and the PTTs or TAs agree to send a
proportionate amount of return traffic at agreed upon accounting rates. If there
is an imbalance in the volume of traffic sent and received in return, the
carrier that originates more traffic pays for the difference to compensate the
other carrier. The difference is the settlement payment. Under the Company's
direct
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<PAGE>
operating agreements, the Company's net settlement revenues and payments are
denominated in United States dollars.
The Company's profitability is driven by the difference between net
revenues and the cost of leased capacity and settlement payments to PTTs and
TAs. In order to minimize the costs of leased capacity and settlement payments,
the Company utilizes a Least Cost Routing ("LCR") system designed to transmit
the Company's traffic over the least cost route choice on its network. Based on
FCC data for the period from 1989 through 1995, per minute settlement payments
from United States carriers to PTTs and TAs have declined at a significantly
faster rate than per minute billed revenues. Due to the WTO Agreement, the
Company expects this trend to continue. See "Item 1. Business -- Regulatory
Environment -- Federal."
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
REVENUES. Revenues increased 36.1%, or $37.0 million, from $102.6 million
in 1995 to $139.6 million in 1996 due to a 37.9% increase in minutes of use from
330.3 million in 1995 to 455.5 million in 1996, offset in part by a fractional
decrease in average revenue per minute resulting from pricing pressures and a
change in the mix of international terminations. In 1996, approximately 80% of
the Company's revenue was derived from international traffic compared with
approximately 75% in 1995. Historically, international traffic has commanded a
higher per minute rate than domestic traffic, however this gap is decreasing due
to increased international competition.
COSTS OF SERVICES. Costs of services increased 43.1%, or $32.2 million,
from $74.7 million in 1995 to $106.9 million in 1996. This increase resulted
from a greater percentage of international traffic in 1996 (approximately 80.0%)
compared to 1995 (approximately 75.0%) as discussed above. The cost per minute
also increased in absolute terms due to higher cost countries within the
international mix.
GROSS PROFIT. Gross profit increased 16.8%, or $4.7 million, from $28.0
million in 1995 to $32.7 million in 1996. As a percentage of revenues, gross
profit decreased from 27.3% in 1995 to 23.4% in 1996. The primary factors
contributing to the increase in gross profit are the Company's mix of business
and continued international competitive pressures as described above in
"Revenues" and "Costs of Services".
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense decreased 4.9%, or $1.6 million, from $32.4 million in
1995 to $30.8 million in 1996. The 1995 selling, general and administrative
expense reflects a $4.1 million charge for a settlement with a major customer,
and a $1.7 million charge for expenses relating to Hurricane Marilyn (which hit
St. Thomas, a significant base of operations for the Company, in September
1995). The 1996 expense reflects a $1.5 million promotional credit for services
rendered by a vendor and $.6 million associated with a one-time cash
compensation charge relating to changes in executive management during the year
(see Notes 10 and 13 of the Notes to Consolidated Financial Statements). After
giving effect to these items, selling, general and administrative expense, as a
percentage of revenues, decreased from 26% in 1995 to 22.7% in 1996.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 22.5%, or $.9 million, from $4.0 million in 1995 to $4.9 million in
1996. The increased expense is due to depreciation of assets acquired during
1996 to support continued expansion of the Company's network and corporate
infrastructure.
INTEREST, NET. Interest expense, net decreased 81.2%, or $2.6 million, from
$3.2 million in 1995 to $.6 million in 1996. The decrease is primarily due to
the repayment of borrowings under a Bank Facility between TresCom Network
Services, Inc. ("TNS"), a wholly-owned subsidiary of the Company, and a
commercial bank (the "Bank Facility") and due to the repayment of borrowings
from a major shareholder, each in February 1996.
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<PAGE>
EXTRAORDINARY ITEM. The extraordinary expense in 1996 of $2.0 million was a
result of the early extinguishment of $35.8 million of indebtedness in February.
Approximately $1.5 million was attributable to debt and warrants payable to a
major shareholder of the Company and $.4 million was related to the write-off of
deferred financing costs associated with the Bank Facility.
NET LOSS. Net loss decreased 51.7%, or $6.0 million, from $11.6 million in
1995 to $5.6 million in 1996 due to the above factors.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
FOR PURPOSES OF THE FOLLOWING DISCUSSION, THE YEAR ENDED DECEMBER 31, 1994
INCLUDES 12 MONTHS OF OPERATIONS FOR EACH OF THE COMPANY, STSJ AND TTI, AS IF
THE ACQUISITIONS OF STSJ AND TTI HAD BEEN COMPLETED ON JANUARY 1, 1994.
REVENUES. Revenues increased 104.0%, or $52.3 million, from $50.3 million
in 1994 to $102.6 million in 1995 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 88.1% from 175.6 million in 1994 to 330.3
million in 1995 and average revenue per minute increased 6.9% from $.29 in 1994
to $.31 in 1995.
COST OF SERVICES. Cost of services increased 129.1%, or $42.1 million, from
$32.6 million in 1994 to $74.7 million in 1995. Approximately $37.1 million of
the increase was due to increased minutes of use by the Company's customers and
$5.0 million was due to network cost increases experienced in the first and
second quarters of 1995 resulting from the replacement of an exclusive vendor
for virtually all of the Company's leased capacity for international
terminations. As a result, the Company incurred additional cost of services in
the first and second quarters of 1995 in the amount of $4.1 million and $.9
million, respectively, reflecting the additional network expense incurred by the
Company until it was able to secure replacement leased capacity on terms
substantially equivalent to that provided to the Company by the previous vendor.
As a percentage of revenues, cost of services increased from 64.8% in 1994 to
72.8% in 1995, resulting primarily from the increase in network costs due to the
replacement of the vendor discussed above.
GROSS PROFIT. Gross profit increased 58.2%, or $10.3 million, from $17.7
million in 1994 to $28.0 million in 1995, due to the reasons discussed above in
"Revenues" and "Cost of Services." As a percentage of revenues, gross profit
decreased from 35.2% in 1994 to 27.3% in 1995, primarily due to network cost
increases resulting from the replacement of the vendor discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 47.3%, or $10.4 million, from $22.0 million in
1994 to $32.4 million in 1995. The $10.4 million increase was due to a $4.1
million charge in the first quarter of 1995 attributable to a settlement with a
major customer, a $1.7 million charge during the fourth quarter of 1995 for
expenses relating to Hurricane Marilyn which hit St. Thomas in September 1995
and a $4.6 million charge due to the addition of infrastructure principally in
engineering and operations, customer service, management information systems and
finance, as well as variable costs associated with higher revenues and non-cash
charges related to deferred compensation. In addition, the Company recorded
charges in the fourth quarter of 1994 in the amounts of $2.0 million
attributable to certain bad debt and $1.2 million related to the consolidation
of corporate functions and installation and conversion of the Company's
information systems. As a percentage of revenues, selling, general and
administrative expense decreased from 43.7% in 1994 to 31.6% in 1995.
DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization
expense increased by 81.8%, or $1.8 million, from $2.2 million in 1994 to $4.0
million in 1995. The $1.8 million increase was due to the depreciation of assets
acquired during 1995 to support continued expansion of the Company's network and
corporate infrastructure.
INTEREST, NET. Interest expense increased $2.5 million from $.7 million in
1994 to $3.2 million in 1995. The increase is primarily due to interest expense
associated with borrowings under the Bank Facility, which was not in place until
the fourth quarter of 1994, and due to interest expense associated with
borrowings from a major shareholder of the Company.
-15-
<PAGE>
NET INCOME (LOSS). Net loss decreased $3.0 million from ($14.6) million in
1994 to ($11.6) million in 1995 due to the above factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from working capital needs,
primarily the costs associated with maintenance of switching capacity, cost of
services and interest and 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., TNS and STSJ 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 sale of equity securities, bank borrowings
and loans from shareholders.
During the first quarter of 1996, the Company 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 an
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 outstanding preferred stock, including accrued and
unpaid dividends thereon, into Common Stock. The Company used a portion of the
net proceeds from the initial public offering to repay all of its short-term and
long-term debt obligations then outstanding.
TNS had borrowed $24.2 million under the Bank Facility which was used to
fund the acquisition of TTI, to refinance existing indebtedness, to provide
working capital and to fund general corporate purposes of the Company. The Bank
Facility was secured by security interests in substantially all of the present
and future property, assets and rights of the Company and its subsidiaries. In
February 1996, the Company repaid all outstanding amounts borrowed under the
Bank Facility. During the first 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 interest rate swap agreement
and the interest rate cap agreement which the Company was required to maintain
under the terms of the Bank Facility (the "Instruments"). In September, when the
net settlement value of the Instruments was $.3 million, the Instruments were
paid off in full.
In December 1996, the Company established the Credit Facility. The Credit
Facility, as amended on March 27, 1997, includes standard debt covenants
relating to financial position and performance, as well as restrictions on the
declaration and payment of dividends. The Company is currently in compliance
with all covenants under the Credit Facility. As of December 31, 1996, $1.1
million was utilized to provide letters of credit to certain vendors. During the
first quarter of 1997, an additional $.9 million was utilized to provide letters
of credit and $2.5 million was drawn down under the Credit Facility to fund
current obligations. As of March 17, 1997, $.5 million remains available.
During the third quarter of 1996, the Company established a relationship
with a commercial bank to provide $5.4 million of asset financing. As of
December 31, 1996, the Company had utilized $4.3 million for capital projects.
The additional $1.1 million remains available for 1997 capital expenditures.
The Company currently has construction commitments of $2.5 million and
projected maintenance costs of $.2 million for undersea cable systems during
1997. Pending available financing, the Company has identified approximately $8.0
million to $10.0 million of additional annual capital expenditures designed to
expand the Company's operations. The Company is currently reviewing various
alternative financing arrangements. There can be no assurance, however, that
such alternative financing arrangements will be available, or if available, on
terms acceptable to the Company.
Based on management's projections, the Company anticipates having
sufficient funds for its needs. If additional funds are needed and sources are
not available, the Company's business and results of operations could be
materially adversely affected. The Company has retained the services of an
investment banking firm to assist in actively seeking alternative means for
financing or identifying strategic partners.
From time to time, the Company evaluates acquisitions of businesses and
customer bases which complement the business of the Company. Depending on the
cash requirements of potential transactions, the
-16-
<PAGE>
Company may finance transactions with cash flow from operations, or the Company
may raise additional funds by pursuing various financing vehicles such as new
bank financing or one or more public offerings, or private placements of the
Company's securities. The Company, however, has no present understanding,
commitment or agreement with respect to any acquisition, and there can be no
assurance that any such acquisition will occur, or that the funds to finance any
such acquisition will be available on reasonable terms or at all.
INCOME TAXES.
The Company did not have a material cash requirement for income taxes in
1996.
The Company has generated significant net operating losses ("NOLs") both in
Puerto Rico and in the United States. These NOLs may be available to offset
future taxable income, subject to the limitations discussed below. STSJ
generated NOL carryforwards totaling $3.4 million in Puerto Rico before the date
on which it was acquired by the Company ("Puerto Rico preacquisition NOLs"). The
Company has generated NOLs totaling $3.8 million in Puerto Rico ("Puerto Rico
postacquisition NOLS"), $2.1 million in the U.S.V.I. ("U.S.V.I. postacquisition
NOLS") and $11.4 million in the United States ("United States postacquisition
NOLs") since February 22, 1994. The Puerto Rico preacquisition NOLs expire in
the years 1997 through 2000, the Puerto Rico postacquisition NOLs expire in the
years 2001 through 2003 and the U.S.V.I. postacquisition NOLs expire in the
years 2010 through 2011, while the United States postacquisition NOLs expire in
the years 2009 through 2011. The availability of the NOL carryforwards is
subject to certain factual and legal uncertainties relating to the reporting
positions of the Company and there can be no assurance that the Internal Revenue
Service will not require the NOL carryforwards to be reduced.
Upon certain changes in the ownership of the Company's stock occurring over
a three-year measuring period, the Company's ability to use its United States
postacquisition NOLs would become subject to an annual limitation under Section
382 of the Internal Revenue Code of 1986, as amended (the "Code"). Under Section
382 of the Code, if an ownership change occurs, the Company's United States
postacquisition NOLs would be subject to an annual limitation, subject to
adjustment for certain recognized built-in gains in an amount equal to the total
value of the Company on the day preceding the ownership change times the highest
adjusted Federal long-term rate for the three months preceding the ownership
change. The Puerto Rico preacquisition NOLs are not subject to limitations
imposed under Section 382 of the Code.
On July 17, 1989, the Industrial Development Commission of the U.S.V.I.
granted STSJ tax benefits to cover long distance telecommunications services in
the U.S.V.I. These benefits include a 100% exemption from gross receipts taxes,
a 100% exemption from real property taxes, a 90% exemption from income taxes and
a 100% exemption from various excise taxes. These tax benefits are for a
ten-year period effective January 1, 1989. There are various conditions to such
grant, including the employment of a minimum of six employees. In addition, at
least 80% of all employees of STSJ must be U.S.V.I. residents.
CERTAIN FACTORS WHICH MAY AFFECT THE COMPANY'S FUTURE RESULTS
LIMITED OPERATING HISTORY; ABILITY TO MANAGE GROWTH. The Company has a
limited operating history and has incurred significant losses from operations
since its inception. There can be no assurance that the Company will become
profitable. Since its formation, the Company has required substantial capital.
The Company's growth has placed, and will continue to place, significant demands
on the Company's financial and other resources. If the Company's management is
unable to manage growth effectively or new employees are unable to achieve
anticipated performance levels, the Company's results of operations could be
adversely affected.
-17-
<PAGE>
COMPETITION. The telecommunications industry is highly competitive and
affected by rapid regulatory and technological change. The Company's future
success will depend upon its ability to compete with AT&T, MCI, Sprint, LDDS
WordCom and other United States based and foreign carriers, many of which have
considerably greater financial and other resources than the Company. Certain of
the larger United States based carriers have entered into joint ventures with
foreign carriers to provide international services. In addition, certain foreign
carriers have entered into joint ventures with other foreign carriers to provide
international services and have begun to compete or invest in the United States
market, creating greater competitive pressures on the Company. The ability of
the Company to compete effectively will depend on its ability to provide high
quality service at competitive prices.
REGULATORY AND LEGISLATIVE RISKS. Federal regulations, regulatory actions
and court decisions have had, and may have in the future, negative effects on
the Company and its ability to compete. The Company is subject to regulation by
the FCC and the regulations promulgated by the FCC are subject to change in the
future. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
regulators or third parties will not raise material issues with regard to the
Company's compliance or noncompliance with applicable regulations or that
regulatory activities will not have a material adverse effect on the Company.
The Company is also subject to state regulation that varies by jurisdiction and
is subject to change. For example, the Company must obtain and maintain
certificates of public convenience and necessity from most state regulatory
authorities where it offers intrastate long distance services. In most cases, it
must also file tariffs for its intrastate offerings. There can be no assurance
that the Company will not experience difficulties or delays in obtaining
necessary state authorizations in the future or that such difficulties or delays
will not adversely affect the Company's business. The multiplicity of state
regulations makes full compliance with all such regulations a challenge for
companies such as the Company which have certain business activities in numerous
states. There can be assurance that regulators or third parties will not raise
material issues with regard to the Company's compliance or noncompliance with
applicable regulations or that regulatory activities will not have a material
adverse effect on the Company. Additionally, many states are relaxing the
regulatory restrictions currently imposed on the LECs. There can be no assurance
that future regulatory, judicial and legislative changes will not have a
material adverse effect on the Company.
The services currently provided by the Company are not directly subject to
laws of other countries, but the foreign carriers with which the Company
conducts business are subject to those laws. For instance, the Company's use of
transit agreements may be affected by regulations in either the transitted or
the terminating foreign jurisdiction. Certain countries are considering opening
up their markets to competition. In the process, they may impose regulatory
requirements that could have a material adverse effect on the Company.
EFFECTS OF NATURAL DIASTERS. Areas in which the Company conducts its
business may be affected by natural diasters (including hurricanes and tropical
storms) as evidenced by Hurricane Marilyn, which struck certain Caribbean
islands, including St. Thomas and Puerto Rico, in September 1995. The occurrence
of future hurricanes, tropical storms and other natural disasters could have a
material adverse effect on the Company's business resulting from damages to the
Company's network facilities or from curtailed telephone traffic resulting from
effects of such events, such as destruction of homes and businesses.
UNAVAILABILITY OF LEASED CAPACITY; CHANGES IN TECHNOLOGY. The Company's
profitability will depend, in part, on its ability to obtain and utilize leased
capacity on a cost-effective basis, on its ability to anticipate and adapt to
rapid technological changes occurring in the telecommunications industry and on
its ability to offer, on a timely basis, services that meet evolving industry
standards. There can be no assurance that leased capacity will be available at
cost-effective rates in the future or that the Company will be able to adapt to
such technological changes or offer such products on a timely basis.
-18-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following statements are filed as part of this Annual Report on
Form 10-K:
<TABLE>
<CAPTION>
FORM 10-K
PAGE NO.
----------
FINANCIAL STATEMENTS:
TRESCOM INTERNATIONAL, INC.:
<S> <C>
Report of Independent Auditors.................................................... 20
Consolidated Balance Sheets as of December 31, 1996 and 1995...................... 21
Consolidated Statements of Operations for the years ended December 31, 1996 1995
and 1994........................................................................ 22
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994................................................ 23
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994........................................................................ 24
Notes to Consolidated Financial Statements........................................ 25
THE ST. THOMAS AND SAN JUAN TELEPHONE COMPANY, INC.:
Report of Independent Auditors.................................................... 37
Consolidated Statement of Operations for the period from January 1 to February 22,
1994............................................................................ 38
Consolidated Statement of Cash Flows for the period from January 1 to February 22,
1994............................................................................ 39
Notes to Consolidated Statement of Operations and Cash Flows...................... 40
TOTAL TELECOMMUNICATIONS, INC.:
Report of Independent Auditors.................................................... 42
Statement of Income for the eleven months ended November 30, 1994................. 43
Statement of Cash Flows for the eleven months ended November 30, 1994............. 44
Notes to Statement of Income and Cash Flows....................................... 45
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES:
Report of Independent Auditors.................................................... 47
Schedule II - Valuation and Qualifying Accounts................................... 48
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements
or related notes.
</TABLE>
-19-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TresCom International, Inc.
We have audited the accompanying consolidated balance sheets of TresCom
International, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of TresCom
International, Inc. and subsidiaries at December 31, 1996 and 1995 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
March 27, 1997
-20-
<PAGE>
<TABLE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
DECEMBER 31,
1996 1995
-------------- ---------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C>
Current assets:
Cash........................................................................... $ 6,020 $ 2,052
Accounts receivable, net of allowance for doubtful accounts of
$7,588 and $4,140, respectively............................................. 29,063 17,054
Other current assets........................................................... 3,441 1,302
-------------- ---------------
Total current assets........................................................ 38,524 20,408
Property and equipment, at cost:
Transmission and communications equipment...................................... 24,691 14,001
Furniture, fixtures and other.................................................. 5,600 3,494
-------------- ---------------
30,291 17,495
Less accumulated depreciation and amortization................................. (5,755) (2,716)
-------------- ---------------
24,536 14,779
Other assets:
Customer bases, net of accumulated amortization of $1,358 and
$6,612, respectively......................................................... 3,806 3,092
Excess of cost over net assets of businesses acquired, net of
accumulated amortization of $2,368 and $1,371, respectively.................. 34,260 33,313
Other.......................................................................... 484 1,038
-------------- ---------------
Total assets..................................................................... $101,610 $ 72,630
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................... $ 2,758 $ 1,613
Accrued network costs.......................................................... 19,546 11,585
Other accrued expenses......................................................... 5,395 3,459
Long-term obligations due within one year...................................... 817 25,290
Notes payable to stockholder................................................... -- 8,179
Deferred revenue and other current liabilities................................. 1,807 294
-------------- ---------------
Total current liabilities................................................... 30,323 50,420
Long-term obligations (Notes 4 and 5)............................................ 3,965 702
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized, including
accrued undeclared dividends (Notes 2 and 6):
Series A, no shares authorized, issued, and outstanding;
180,617 shares authorized, issued, and outstanding ...................... -- 21,807
Series B, no shares authorized, issued and outstanding; 200,000 shares
authorized, 104,444 shares issued and outstanding ....................... -- 11,620
Series C, no shares authorized, issued, and outstanding;
151,421 shares authorized, issued, and outstanding....................... -- 16,750
Common stock, $.0419 par value; 50,000,000 shares authorized;
11,804,675 shares issued and outstanding; 2,386,663 shares issued
and outstanding .......................................................... 493 100
Deferred compensation.......................................................... (808) (657)
Additional paid-in capital..................................................... 106,140 4,124
Accumulated deficit............................................................ (38,503) (32,236)
---------------------- ------------------
Total stockholders' equity....................................................... 67,322 21,508
---------------------- ------------------
Total liabilities and stockholders' equity....................................... $101,610 $ 72,630
====================== ==================
See accompanying notes.
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Twelve months ended December 31,
1996 1995 1994
----------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................................ $ 139,621 $ 102,641 $ 31,419
Cost of services........................................ 106,928 74,679 20,801
----------------------------------------------------------
Gross profit............................................ 32,693 27,962 10,618
Selling, general and administrative
(Notes 2, 10 and 13) ................................. 30,808 32,437 22,210
Depreciation and amortization........................... 4,928 3,961 1,904
----------------------------------------------------------
Operating loss.......................................... (3,043) (8,436) (13,496)
Other expenses, net:
Interest.............................................. 578 3,191 553
Other................................................. -- -- 6
----------------------------------------------------------
Loss before extraordinary item ......................... (3,621) (11,627) (14,055)
Extraordinary loss on early extinguishment of debt ..... 1,956 -- --
==========================================================
Net loss................................................ $ (5,577) $ (11,627) $ (14,055)
==========================================================
Net loss applicable to common stock..................... $ (6,264) $ (16,504) $ (15,707)
==========================================================
Per share data (Pro forma prior to February 8, 1996.
See Note 2):
Loss before extraordinary item ........................... $ (.32) $ (1.51)
Extraordinary item ....................................... (.18) --
--------------------------------------
Loss per share of common stock and common stock
equivalents after extraordinary item ................... $ (.50) $ (1.51)
======================================
Weighted average number of shares of common stock
outstanding ............................................ 11,168,797 7,696,361
======================================
See accompanying notes.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Preferred Stock Common Stock
------------------------------------------------- ------------------------------------
Accrued Additional
Undeclared Stock Paid-in
Shares Amount Dividends Subscriptions Shares Amount Capital
-------------------------------------------------- -----------------------------------
(In thousands, except
share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993............. -- $ -- $ -- $ -- -- $ -- $ --
Issuance of Common Stock............... -- -- -- -- 202,864 9 76
Issuance of Preferred Stock:
Series A............................. 179,150 17,915 -- -- -- -- --
Series C............................. 34,854 3,485 -- -- -- -- --
Conversion of debt to Series B....... 69,590 6,959 -- -- -- -- --
Subscriptions ....................... -- -- -- 511 -- -- --
Accrued dividends on Preferred Stock -- -- 1,652 -- -- -- --
Net loss............................. -- -- -- -- -- -- --
------------------------------------------------- ------------------------------------
Balance at December 31, 1994............. 283,594 28,359 1,652 511 202,864 9 76
Issuance of Common Stock............... -- -- -- -- 2,183,799 91 824
Issuance of Preferred Stock:
Series A............................. 1,467 147 -- -- -- -- --
Series C............................. 151,421 15,142 -- (511) -- -- --
Accrued dividends on Preferred Stock -- -- 4,877 -- -- -- --
Grant of stock options................. -- -- -- -- -- -- 796
Non-cash compensation.................. -- -- -- -- -- -- --
Issuance of Common Stock Warrants...... -- -- -- -- -- -- 2,428
Net loss............................... -- -- -- -- -- -- --
----------------------------------------------------------------------------------------
Balance at December 31, 1995............. 436,482 43,648 6,529 -- 2,386,663 100 4,124
Conversion of Preferred Stock
to Common Stock and accrued dividends. (436,482) (43,648) (7,219) -- 4,558,155 191 50,676
Accrued dividends on Preferred Stock..... -- -- 690 -- -- -- --
Initial public offering of Common Stock.. -- -- -- -- 4,545,455 190 50,537
Costs associated with initial public
offering of Common Stock............... -- -- -- -- -- -- (2,160)
Grant of stock options................... -- -- -- -- -- -- 1,701
Noncash compensation expense ............ -- -- -- -- -- -- --
Exercise of stock options................ -- -- -- -- 141,988 6 54
Forfeiture of stock options ............. -- -- -- -- -- -- (286)
Net loss ................................ -- -- -- -- -- -- --
Common Stock issued in connections with
acquisition. ......................... -- -- -- -- 172,414 6 1,494
------------------------------------------------- ------------------------------------
Balance at December 31, 1996............. -- $ -- $ -- $ -- 11,804,675 $ 493 $ 106,140
================================================= ====================================
Total
Deferred Accumulated Stockholders'
Compensation Deficit Equity
---------------------------------------------
Balance at December 31, 1993............. $ -- $ (25) $ (25)
Issuance of Common Stock............... -- -- 85
Issuance of Preferred Stock:
Series A............................. -- -- 17,915
Series C............................. -- -- 3,485
Conversion of debt to Series B....... -- -- 6,959
Subscriptions ....................... -- -- 511
Accrued dividends on Preferred Stock -- (1,652) --
Net loss............................. -- (14,055) (14,055)
--------------------------------------
Balance at December 31, 1994............. -- (15,732) 14,875
Issuance of Common Stock............... -- -- 915
Issuance of Preferred Stock:
Series A............................. -- -- 147
Series C............................. -- -- 14,631
Accrued dividends on Preferred Stock -- (4,877) --
Grant of stock options................. (796) -- --
Non-cash compensation.................. 139 -- 139
Issuance of Common Stock Warrants...... -- -- 2,428
Net loss............................... -- (11,627) (11,627)
--------------------------------------
Balance at December 31, 1995............. (657) (32,236) 21,508
Conversion of Preferred Stock
to Common Stock and accrued dividends. -- -- --
Accrued dividends on Preferred Stock..... -- (690) --
Initial public offering of Common Stock.. -- -- 50,727
Costs associated with initial public
offering of Common Stock............... -- -- (2,160)
Grant of stock options................... (1,701) -- --
Noncash compensation expense ............ 1,264 -- 1,264
Exercise of stock options................ -- -- 60
Forfeiture of stock options ............. 286 -- --
Net loss ................................ -- (5,577) (5,577)
Common Stock issued in connections with
acquisition. ......................... -- -- 1,500
--------------------------------------
Balance at December 31, 1996............. $ (808) $ (38,503) $ 67,322
======================================
</TABLE>
-23-
<PAGE>
<TABLE>
<CAPTION>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED DECEMBER 31,
1996 1995 1994
----------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Loss before extraordinary item...................................... $ (3,621) $ (11,627) $ (14,055)
Extraordinary loss on early extinguishment of debt.................. (1,956) -- --
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization................................... 4,928 3,961 1,904
Revaluation of customer bases................................... -- -- 5,446
Payment of interest by issuance of preferred stock.............. -- -- 259
Non-cash interest expense ...................................... 431 607 --
Non-cash interest expense on note to stockholder ............... 297 -- --
Non-cash compensation .......................................... 1,264 139 --
Changes in operating assets and liabilities, net
of effects of acquisitions:
Accounts receivable............................................ (11,770) (5,511) (4,586)
Other current assets........................................... (2,139) (943) 255
Accounts payable............................................... 564 (2,307) 1,297
Accrued network costs.......................................... 7,911 1,180 5,410
Other accrued expenses......................................... 754 (1,942) 3,264
Deferred revenue and other current liabilities............. 1,513 -- --
----------------------------------------------------
Net cash used in operating activities............................... (1,824) (16,443) (806)
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of property and equipment................................. (8,086) (5,637) (5,612)
Expenditures for line installations................................. (144) (418) (199)
Purchases of businesses and customer bases.......................... (522) -- (45,495)
----------------------------------------------------
Net cash used in investing activities............................... (8,752) (6,055) (51,306)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of common stock.......................... 50,727 915 85
Costs relating to initial public offering .......................... (2,160) -- --
Proceeds from the issuance of preferred stock....................... -- 14,778 28,100
Proceeds from stock subscriptions................................... -- -- 511
Proceeds from debt.................................................. -- 7,572 24,173
Proceeds from issuance of warrants associated with debt............. -- 2,428 --
Payment of loan acquisition costs................................... (86) (533) (436)
Proceeds from cash overdraft........................................ -- -- 357
Repayment of cash overdraft......................................... -- (382) --
Repayment of revolving credit facility ............................. (24,173) -- --
Repayment of sellers' note ......................................... (1,000) -- --
Repayment of notes payable to stockholder........................... (8,476) -- --
Repayment of debt................................................... (18) (27) (642)
Proceeds from stock option exercise ................................ 60 -- --
Principal payments on capital lease obligations..................... (330) (201) (36)
----------------------------------------------------
Net cash provided by financing activities........................... 14,544 24,550 52,112
----------------------------------------------------
Net change in cash.................................................. 3,968 2,052 --
Cash at beginning of period......................................... 2,052 -- --
----------------------------------------------------
Cash at end of period............................................... $ 6,020 $ 2,052 $ --
====================================================
Interest paid....................................................... $ 1,352 $ 2,257 $ 582
====================================================
See accompanying notes.
</TABLE>
-24-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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.
TresCom is a facilities based long distance telecommunications carrier
focused on international long distance traffic. The Company offers
telecommunications services, including long distance, calling cards, prepaid
debit cards, domestic and international toll-free calling, frame relay and
bilingual operator services.
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 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. Significant capital projects are constantly being initiated as
the Company continues to expand its network. Beginning in 1996, a substantial
amount of employee time was required to properly plan, install, test and certify
the equipment associated with these projects. In connection with these projects,
the Company capitalized $1,450 in direct employee costs.
ADVERTISING.
Pursuant to American Institute of Certified Public Accountants (AICPA)
Statement of Position No. 93-7, "Reporting on Advertising Costs," the Company
expenses advertising costs as incurred except for direct-response advertising
costs, which are capitalized and amortized over the expected period of future
benefit. Direct-response advertising programs were implemented during 1996 and
consist of fees paid to various telemarketing entities. The capitalized costs
are amortized over a nine month period beginning in the month revenues
associated with those costs are first generated.
At December 31, 1996, advertising costs totaling $1,390 were recorded as
other current assets. Advertising expense for the years ended December 31, 1996,
1995 and 1994 were $2,047, $1,359 and $469 respectively.
-25-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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
acquired and is amortized on a straight-line basis over 35 years. Customer bases
are recorded based on the estimated value of the customer bases acquired in the
acquisition of businesses and are amortized on a straight-line basis over
periods ranging from two to seven years.
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. During 1994, based on these assessments, the Company recorded
additional expense of $5,446 as recognition of the impairment in value of
customer bases acquired in June and July 1994.
Legal expenses and other direct costs incurred in connection with
obtaining financing agreements are deferred and amortized over the life of the
financing agreements. Such costs amounted to $86 and $533 during the years ended
December 31, 1996 and 1995, respectively. Accumulated amortization of deferred
financing costs was $10 and $391 at December 31, 1996 and 1995, respectively.
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, post, telegraph and telephone organizations ("PTTs") and
telecommunications administrations ("TAs") 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 or letters of credit 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 carrying amounts of assets and
liabilities for financial reporting and the amounts used for income tax
purposes.
PER SHARE DATA
Net loss per share was computed by dividing net loss by the weighted
average number of shares of the Company's Common Stock, $.0419 par value per
share (the "Common Stock"), outstanding after giving retroactive effect to the
conversion of all of the Company's Series A Preferred Stock, $.01 par value per
share ("Series A Preferred Stock"), Series B Preferred Stock, $.01 par value per
share ("Series B Preferred Stock"), Series C Preferred Stock, $.01
-26-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
par value per share ("Series C Preferred Stock"), and related accrued dividends
thereon, into shares of Common Stock, which occurred in February 1996 upon the
consummation of the Company's initial public offering (the "IPO"), plus Cheap
Stock as defined below.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock, common stock equivalents, and other potentially
dilutive securities (including preferred stock) issued at prices equal to or
below the IPO price per share ("Cheap Stock") during the twelve month period
immediately preceding the initial filing date of the Company's registration
statement for its IPO have been included as outstanding for all periods, through
February 8, 1996 (using the treasury stock method at the IPO price) even though
the effect is to reduce the loss per share.
Supplemental net loss per share is calculated using the weighted
average number of shares of Common Stock and common stock equivalents
outstanding during the respective periods assuming the same number of shares
were outstanding as described above, and considering the reduction in interest
expense and extraordinary loss on retirement of debt from the repayment of
certain obligations of $35.8 million as if repaid on the date incurred or at the
beginning of the period, whichever is later, with the proceeds of the IPO.
Supplemental net loss per share for the years ended December 31, 1996 and 1995
was $.22 and $.85, respectively.
The corrected net loss per share and the supplemental net loss per
share for the quarters reported during 1996 are:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, JUNE 30, SEPTEMBER SEPTEMBER
1996 1996 1996 30, 1996 30, 1996
------------- ------------- ------------- ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Per share data (pro forma prior
to February 8)
Loss before extraordinary item .............. $(0.15) $(0.04) $(0.18) $(0.02) $(0.20)
Extraordinary charge ........................ (0.20) -- (0.18) -- (0.18)
------------- ------------- ------------- ------------- -------------
Net loss per common share .................. (0.35) $(0.04) (0.36) $(0.02) (0.38)
============= ============= ============= ============= =============
Supplemental loss per share ................ $(0.10) $(0.13) $(0.16)
============= ============= =============
</TABLE>
The Company previously reported the following net losses per share in
its Form 10-Qs for the first, second and third quarter of 1996: $.33 per share
($.14 before extraordinary item and $.19 extraordinary item) for the quarter
ended March 31, 1996; $.34 per share ($.17 before extraordinary item and $.17
extraordinary item) for the six months ended June 30, 1996; and $.36 per share
($.19 before extraordinary item and $.17 extraordinary item) for the nine months
ended September 30, 1996. The Company did not disclose any supplemental loss per
share amounts in its Form 10-Qs for 1996.
The computation of fully diluted net loss per share of Common Stock was
antidilutive; therefore, the amounts reported for primary and fully diluted are
the same. Prior to the IPO, historical loss per share was not presented because
it was not meaningful.
Retroactive restatement has been made to share and per share amounts to
give effect to a 4.19-to-1 reverse stock split effected in connection with the
IPO.
-27-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NEW ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). The adoption of SFAS 121 did not have
any effect on the financial statements. In 1996, the Company also adopted the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). See Note 6.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with
current year presentation.
3. BUSINESS ACQUISITIONS
On February 22, 1994, the Company acquired all of the outstanding capital
stock of the St. Thomas and San Juan Telephone Company, Inc. ("STSJ") for cash
in the amount of $17,035, plus the assumption of liabilities. STSJ is a
facilities based carrier and provides long distance telecommunications services
to customers in the U.S. Virgin Islands and Puerto Rico.
On November 30, 1994, the Company acquired all of the outstanding capital
stock of Total Telecommunications, Inc. ("TTI") for cash in the amount of
$22,610, plus the assumption of liabilities. During 1996, TTI was merged into
TresCom U.S.A., Inc.
The Company also purchased customer bases from IDB Communications Group,
Inc. and Virgin Islands TeleCom, Inc. effective June 30, 1994 and July 12, 1994,
respectively. The aggregate purchase price amounted to $5,850. The customer
bases included long distance customers located in the U.S. Virgin Islands and
Puerto Rico. Subsequent to the dates of acquisitions, the Company established
that the values had been impaired and recognized an impairment loss of $5,446 in
1994.
4. LONG-TERM OBLIGATIONS
A summary of long-term obligations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------------------------------
<S> <C> <C>
Bank 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,
collateralized by a security agreement covering certain assets....... 416 432
Capital leases bearing interest at rates ranging from 9% to
11% and payable in monthly installments totaling $104................ 4,366 383
Other.................................................................. -- 4
-------------------------------
4,782 25,992
Less amounts due within one year....................................... 817 25,290
-------------------------------
$3,965 $ 702
===============================
</TABLE>
In November 1994, a wholly-owned subsidiary of the Company obtained from a
bank a revolving credit facility (the "Bank Facility") with an aggregate
commitment of $27,000, which expired on June 30, 1996. On February 16, 1996,
-28-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
the Company repaid all outstanding amounts borrowed under the Bank Facility.
Extraordinary expense of $432 was recognized to write-off the remaining deferred
financing costs associated with the Bank Facility.
Under the terms of the Bank 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 interest rate cap agreement (the "Instruments")
with the lending bank to convert variable interest rate payments to fixed
payments. The estimated fair value (i.e., the net present value of the amount
the Company was required to pay the counterpart over the remaining term of the
agreement) of the Instruments, based upon the quoted market price provided by
the financial institution was $562 at December 31, 1995. On September 18, 1996
when the net settlement value was $302, the Instruments were paid off in full.
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 Common Stock at an
exercise price of $.42 per share. The warrants are exercisable immediately and
expire on 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. Accordingly,
extraordinary interest expense in the amount of $1,524 was recognized in the
first quarter of 1996.
The Company has funded a portion of its third and fourth quarter capital
expenditures with asset financing of $4,300. The Company has a $5,000 line of
credit with a commercial bank (the "Credit Facility"), secured by certain
accounts receivable. The Credit Facility contains restrictive covenants, which
include the maintenance of minimum tangible net worth, as defined, and certain
financial ratios. As of December 31, 1996, the Company had utilized $1,100 under
the Credit Facility to provide letters of credit to certain vendors.
Principal payments on all debt obligations are:
1997............................................... $ 16
1998 .............................................. 17
1999 .............................................. 17
2000 .............................................. 18
2001 .............................................. 19
Thereafter ........................................ 329
-------
$ 416
=======
5. LEASE OBLIGATIONS
The Company occupies office facilities and leases certain equipment and
software under noncancelable operating leases. Rental expense for the years
ended December 31, 1996, 1995 and 1994 was $1,421, $1,341, and $760,
respectively.
During the year ended December 31, 1996, the Company acquired communication
equipment of approximately $4,310 under capital lease obligations. The Company
did not acquire communication equipment via capital leases during the year ended
December 31, 1995. Asset balances for property acquired under capital leases
consist of:
-29-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
1996 1995
--------------------------
Transmission and communication equipment........... $4,715 $ 405
Furniture, fixtures and other...................... 270 270
--------------------------
4,985 675
Accumulated amortization........................... (311) (141)
--------------------------
$ 4,674 $ 534
==========================
Depreciation expense associated with assets acquired under capital leases
is included with depreciation and amortization expense on the Statement of
Operations. The present value of minimum capital lease payments are included in
the balance sheet as a part of long-term obligations. Future minimum lease
payments for all noncancelable leases at December 31, 1996 are:
<TABLE>
<CAPTION>
CAPITAL OPERATING TOTAL
LEASES LEASES
--------------------------------------------
<S> <C> <C> <C>
1997................................................. $ 1,249 $ 1,255 $ 2,504
1998................................................. 1,249 1,242 2,491
1999................................................. 1,168 966 2,134
2000................................................. 1,116 737 1,853
2001................................................. 806 566 1,372
Thereafter........................................... -- 608 608
--------------------------------------------
Total future minimum lease payments.................. 5,588 $ 5,374 $ 10,962
===============================
Less amounts representing interest................... 1,222
-------------
Present value of net minimum lease payments.......... $ 4,366
=============
</TABLE>
6. CAPITALIZATION
PREFERRED STOCK
The Board of Directors of the Company is authorized to issue up to one
million shares of preferred stock, par value $.01 per share (the "Preferred
Stock"), 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 series provided for
10% cumulative dividends per annum, compounded semi-annually.
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 the
dividend accruals to be compounded quarterly beginning on October 15, 1995. The
dividend rate on Series C Preferred Stock provides 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,
if Series A Preferred Stock and Series C Preferred Stock, or February 1, 2003,
if Series B Preferred Stock. Under certain circumstances outside the
-30-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 was to be 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 outstanding 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 IPO, the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock were converted into
4,558,155 shares of Common Stock.
COMMON STOCK
In February 1996, the Company effected a reverse stock split of the 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.
On February 13, 1996, the Company sold 4,545,455 shares of its Common Stock
at $12 per share in the IPO. The net proceeds of this sale were $48.6 million.
The net proceeds were used to retire debt and accrued interest of approximately
$35.8 million. In connection with the IPO, the available authorized number of
shares of Preferred Stock was reset to one million shares.
STOCK OPTION PLAN
The Company has a stock option plan under which 936,432 options to purchase
shares of Common Stock may be granted to officers, key employees, consultants
and directors. The 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 may not have
an exercise price 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.
Options generally vest as to 20% on the first anniversary of the vesting
commencement date or grant date 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. In the event
of certain changes in control, all options become fully vested.
-31-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes all options activity for the years ended December
31, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercisable Exercise
Granted Options Price
--------------- --------------- -------------
<S> <C> <C> <C>
Outstanding as of December 31, 1993 ............. -- -- --
Granted ......................................... 110,840 $0.42
--------------- --------------- -------------
Outstanding as of December 31, 1994 ............. 110,840 -- 0.42
Canceled ........................................ 110,840 0.42
Granted.......................................... 484,955 0.42
Forfeited........................................ 12,749 0.42
--------------- --------------- -------------
Outstanding as of December 31, 1995 ............. 472,206 19,826 0.42
Canceled ........................................ 220,622 0.42
Granted.......................................... 534,119 12.53
Forfeited........................................ 147,452 10.82
Exercised ....................................... 141,988 0.42
--------------- --------------- -------------
Outstanding as of December 31, 1996 ............. 496,263 23,713 $10.37
=============== =============== =============
</TABLE>
-32-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes options at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options
Exercisable
------------------ -------------------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Range of Number of Exercise Contractual Number of Exercise
Exercise price Options Price Life (years) Options Price
- -------------------- ------------------ ------------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
$0.42 94,144 $0.42 8.66 10,713 $0.42
$12.00 - $17.63 402,119 $12.70 9.26 13,000 $12.00
</TABLE>
As of December 31, 1996, the Company had 94,144 options outstanding at
an exercise price of $.42 per share, 352,119 options outstanding at an exercise
price of $12.00 per share and 50,000 options outstanding at an exercise price of
$17.63. Non-cash compensation expense was recorded over the vesting period of
the options. Accordingly, $1,264 and $139 of non-cash compensation expense was
recorded in the years ended December 31, 1996 and 1995, respectively.
The Company follows the requirements of Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees" to account for its
stock option plan and, accordingly, compensation cost is recognized in the
consolidated statements of operations for the stock option plan to the extent
the options are granted at prices below fair market value. The Company adopted
SFAS 123, which requires certain disclosures about stock-based employee
compensation arrangements. SFAS 123 requires pro forma disclosure of the impact
on net income and earnings per share if the fair value method defined in SFAS
123 had been used. The fair value for these options was estimated at the date of
grant using a minimum value option valuation method for options granted prior to
the IPO and a Black-Scholes option valuation model for options granted after the
IPO with the following weighted-average assumptions: a risk-free interest rate
of 6.1%; a dividend yield of 0%; a volatility factor of the expected market
price of the Common Stock of .729; and an expected life of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because change in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.
The weighted average grant date fair value of options granted in 1995
and 1996 is $10.50 and $7.88 per share, respectively. The options granted during
1995 had exercise prices below market value and the options granted during 1996
had exercise prices at or above market value.
-33-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Because SFAS 123 is applicable only to options granted subsequent to
December 31, 1994, the pro forma effect of its adoption will not be fully
reflected until 1997. The following information will not likely represent the
information reported in future years because options granted after 1995 will
begin to vest over the next several years and are, for the most part, not
included in the 1996 calculation.
The SFAS 123 pro forma information is as follows:
1996 1995
------------- ------------
Pro forma net loss $(5,713) $(11,627)
Pro forma loss per share (0.51) (1.51)
7. INCOME TAXES
The significant components of the Company's deferred tax assets and
liabilities are:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets
Allowance for bad debts................................ $ 2,975 $ 1,139 $ 1,102
Net operating loss carry-forward....................... 6,229 6,311 3,672
Accruals............................................... 566 279 889
Depreciation and amortization.......................... 101 873 1,084
Other.................................................. 11 270 98
Valuation allowance.................................... (8,479) (8,793) (5,737)
------------------------------------------------
1,403 79 --
Deferred tax liabilities
Acquisition basis differences.......................... (1,403) (79) (35)
Litigation settlement................................. -- -- (1,073)
------------------------------------------------
$ -- $ -- $ (1,108)
================================================
</TABLE>
The net change in the Company's valuation allowance was $314, $3,056 and
$5,737 for the years ended December 31, 1996, 1995 and 1994, respectively.
On July 17, 1989, the Industrial Development Commission of the U.S. Virgin
Islands granted STSJ tax benefits to cover long distance telecommunications
services in the U.S. Virgin Islands. These benefits include a 90% exemption from
income taxes for a ten-year period effective January 1, 1989.
-34-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The reconciliation of income tax attributable to operations computed at the
U.S. federal statutory rates to income tax expense is:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rate................................ (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit....................... (2.0) (2.0) (2.4)
Amortization of excess of cost over
net assets of businesses acquired...................... 6.5 2.7 1.4
Foreign tax rate differences.............................. 7.1 3.7 2.3
Other..................................................... -- -- 1.9
Unrecognized benefit of net operating loss................ 22.4 29.6 30.8
-----------------------------------------------
-- -- --
===============================================
</TABLE>
At December 31, 1996, the Company has U.S. and foreign net operating loss
carryforwards for tax purposes of $11,421 and $9,259, respectively. These net
operating loss carryforwards expire in the years 1997 through 2011.
8. RETIREMENT PLAN
The Company maintains the TresCom 401(k) Savings and Retirement Plan for
all U.S. and Virgin Island subsidiaries and the TresCom 165(e) Savings and
Retirement Plan for the Puerto Rican subsidiary. Employees age 21 or older are
eligible to participate six months after their date of hire and to elect to
defer a percentage of his/her salary. The Company has the discretion to make
contributions to the TresCom 401(k) Savings and Retirement Plan and TresCom
165(e) Saving and Retirement Plan. No Company contributions were made to either
plan during 1995 and 1996.
9. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and is subject to 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's management, based on knowledge of the facts and advice of counsel,
that the resolution of such 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 December 31, 1996, the Company has firm construction commitments under
both agreements of approximately $2,500. Construction costs are capitalized and
depreciated over ten years after the transmission cable becomes operational. The
capitalized costs of transmission cables as of December 31, 1996 was $2,995. The
Company has projected maintenance costs of $225 for undersea cables during 1997.
10. SETTLEMENTS
In the past, the Company incurred some significant charges as a result of
disputes with carriers. These charges amounted to $2,730, $4,100 and $900 in the
fourth quarter of 1994, the first quarter of 1995 and the second quarter of
1995, respectively. In addition, significant losses resulting from settlements
with customers totaled $2,031 and $4,069 during 1994 and the first quarter of
1995, respectively.
-35-
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
11. FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash,
accounts receivable, accounts payable and accrued expenses approximate the
respective fair values due to the short nature of these items. The fair values
for long-term obligations are as follows:
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
------------------------------------
<S> <C> <C>
December 31, 1996
Loans payable to the Small
Business Administration.............................. $ 416 $ 335
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 Administration.............................. 432 326
Interest rate swap..................................... -- 562
</TABLE>
12. RELATED PARTY TRANSACTIONS
The Company buys network services from and provides network services to LCI
International, Inc. ("LCI"). At December 31, 1996 and 1995, the net amount due
to LCI was $1,935 and $772, respectively. During 1996 and 1995, $7,140 and
$5,086 of services were provided and $5,453 and $7,822 were used, respectively.
At March 15, 1997, an affiliate of a major shareholder of the Company owned
approximately 10% of LCI.
In December 1996, the Company acquired 100% of the common stock of Intex
Telecommunications, Inc. from LCI. The purchase price consideration was 172,414
shares of Common Stock, subject to incremental adjustment over the twelve month
period following the closing.
13. NATURAL DISASTER
On September 16, 1995, Hurricane Marilyn damaged the island of St. Thomas
where the Company has significant operations. The Company's Property and
Business Interruption Insurance covered a significant portion of the damages to
equipment and certain losses from operations, respectively. At September 30,
1995, the Company estimated its exposure relating to the hurricane to be $2,500.
Based on visits to the affected area, review of accounts receivable and actual
settlements with customers, management revised its estimate of losses resulting
from the hurricane to $1,717. Accordingly, the net loss for the quarter ended
December 31, 1995 included this change in estimate of $783.
-36-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholder
The St. Thomas and San Juan Telephone
Company, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations
and cash flows of The St. Thomas and San Juan Telephone Company, Inc. and
Subsidiary for the period from January 1, 1994 to February 22, 1994. These
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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, the financial statements referred to above present
fairly, in all material respects, the results of the operations and the cash
flows of The St. Thomas and San Juan Telephone Company, Inc. and Subsidiary for
the period from January 1, 1994 to February 22, 1994 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
San Juan, Puerto Rico
May 12, 1994
-37-
<PAGE>
THE ST. THOMAS AND SAN JUAN TELEPHONE COMPANY, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
PERIOD FROM
JANUARY 1 TO
FEBRUARY 22,
1994
----------------
Revenues........................................... $3,916,000
Cost of services................................... 2,987,160
----------------
Gross profit....................................... 928,840
Selling, general and administrative................ 2,036,071
Depreciation and amortization...................... 89,621
----------------
Operating loss..................................... (1,196,852)
Interest expense................................... 69,128
----------------
Loss before provision for income taxes............. (1,265,980)
Provision for income taxes (Note 2)................ 12,576
----------------
Net loss........................................... $ (1,278,556)
================
-38-
<PAGE>
THE ST. THOMAS AND SAN JUAN TELEPHONE COMPANY, INC.
AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1 TO
FEBRUARY 22,
1994
-----------------
<S> <C>
OPERATING ACTIVITIES
Net loss................................................................ $ (1,278,556)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................................ 89,621
Changes in operating assets and liabilities:
Accounts receivable................................................ (104,269)
Prepaid expenses and other current assets.......................... (164,457)
Other assets....................................................... (18,343)
Accrued network costs.............................................. 742,891
Accounts payable and accrued expenses.............................. 1,035,345
------------
Net cash provided by operating activities............................... 302,232
INVESTING ACTIVITIES
Purchase of property and equipment...................................... (235,470)
------------
Net cash used in investing activities................................... (235,470)
FINANCING ACTIVITIES
Payments of notes payable and long-term debt............................ (808,836)
-------------
Net cash used by financing activities................................... (808,836)
------------
Net decrease in cash.................................................... (742,074)
Cash at beginning of year............................................... 1,645,299
------------
Cash at end of year..................................................... $ 903,225
============
See accompanying notes.
</TABLE>
-39-
<PAGE>
THE ST. THOMAS AND SAN JUAN TELEPHONE COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF OPERATIONS AND CASH FLOWS
PERIOD FROM JANUARY 1, 1994 TO FEBRUARY 22, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION
The consolidated statement of operations includes the accounts of The
St. Thomas and San Juan Telephone Company, Inc. ("STSJ"), incorporated in the
U.S. Virgin Islands and its wholly-owned subsidiary, STSJ Overseas Telephone
Company, Inc. ("Overseas"), incorporated in Puerto Rico in 1990 to serve that
market. All significant intercompany balances and transactions have been
eliminated in consolidation.
STSJ and Overseas provide long distance telephone services to residential
and commercial customers between the U.S. Virgin Islands, Puerto Rico, the
United States, and other countries worldwide. It owns and operates a satellite
earth station facility in St. Thomas, U.S. Virgin Islands.
On February 22, 1994, TresCom International, Inc., purchased all of the
outstanding common stock of STSJ.
ACQUISITION OF PUERTO RICO TELECOM CORPORATION
Under the terms of the Asset Purchase Agreement dated November 12,
1991, Overseas acquired all rights, title, interest and all assets of Puerto
Rico Telecom Corporation (Telecom) a wholly-owned subsidiary of Atlantic
Tele-Network, Inc. (ATN), for a price of $1,861,000. The purchase price was
allocated among the net assets acquired based on their fair market values. The
excess of the purchase price over the net assets acquired is being amortized
over thirty years.
REVENUES
Revenues from long distance telecommunications services are recognized
when the services are provided.
NETWORK COSTS
Network costs primarily include right-of-way payments made to local
exchange carriers for access and transport charges. Network costs are recognized
as the services are used.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
STSJ derives primarily all of its telecommunications service revenues
from commercial and residential customers in the Virgin Islands and Puerto Rico.
Financial instruments which potentially subject STSJ to concentrations of credit
risk consist principally of cash and accounts receivable. STSJ's allowance for
doubtful accounts is based upon management's estimates and historical
experience. STSJ performs ongoing credit evaluations of its customers and
generally does not require collateral.
2. INCOME TAXES
STSJ is subject to U.S. Virgin Islands corporate income taxes. Overseas
is subject to Puerto Rico income taxes.
On July 17, 1989, the Industrial Development Commission of the U.S.
Virgin Islands granted STSJ a tax exemption to cover long distance
telecommunication services in the U.S. Virgin Islands, as indicated below:
o 100% exemption from gross receipts taxes
o 100% exemption from real property taxes
o 90% exemption from income taxes
o 100% exemption from various excise taxes
-40-
<PAGE>
THE ST. THOMAS AND SAN JUAN TELEPHONE COMPANY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENT OF OPERATIONS AND CASH FLOWS
PERIOD FROM JANUARY 1, 1994 TO FEBRUARY 22, 1994
These tax benefits are for a ten-year period effective January 1, 1989.
There are various conditions to such grant, including the employment of a
minimum of 6 employees. In addition, at least 80% of all employees of grantee
must be U.S. Virgin Islands residents.
As of February 22, 1994, Overseas had approximately $3,395,000 of Puerto
Rico net operating loss carryforwards that can be used to reduce future taxable
income in Puerto Rico through the year 2000.
3. OPERATING LEASES
STSJ leases its office and operating facilities under noncancelable
operating lease agreements. Future minimum lease commitments at February 22,
1994 are as follows:
1994........................................ $ 169,200
1995........................................ 202,000
1996........................................ 210,900
1997........................................ 219,800
1998........................................ 225,300
1999........................................ 125,500
----------
$1,152,700
==========
Total rent expense for the period from January 1, 1994 to February 22,
1994 amounted to approximately $45,000.
-41-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholders
Total Telecommunications, Inc.
We have audited the accompanying statements of income and cash flows of
Total Telecommunications, Inc. for the eleven months ended November 30, 1994.
These statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 statements of operation and cash flows
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
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of operations and cash flows referred to
above present fairly, in all material respects, the results of operations and
cash flows of Total Telecommunications, Inc. for the eleven months ended
November 30, 1994, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Atlanta, Georgia
January 12, 1995
-42-
<PAGE>
TOTAL TELECOMMUNICATIONS, INC.
STATEMENT OF INCOME
ELEVEN MONTHS
ENDED
NOVEMBER 30,
1994
-----------------
Revenues............................................. $14,955,117
Cost of services..................................... 8,814,532
-----------
Gross profit......................................... 6,140,585
Selling, general and administrative.................. 5,186,086
Depreciation and amortization........................ 162,630
-----------
Operating income..................................... 791,869
Interest expense..................................... 64,458
-----------
Net income........................................... $ 727,411
===========
See accompanying notes.
-43-
<PAGE>
TOTAL TELECOMMUNICATIONS, INC.
STATEMENT OF CASH FLOWS
ELEVEN MONTHS
ENDED
NOVEMBER 30,
1994
-----------------
OPERATING ACTIVITIES
Net income................................................ $ 727,411
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......................... 162,630
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,727,586)
Other current assets................................. (114,209)
Accrued network costs................................ 790,415
Accounts payable..................................... 1,382,769
------------
Net cash provided by operating activities................. 1,221,430
INVESTING ACTIVITIES
Purchases of property and equipment....................... (700,769)
Other assets.............................................. (22,833)
------------
Net cash used in investing activities..................... (723,602)
FINANCING ACTIVITIES
Repayment of notes payable................................ (88,165)
Proceeds from cash overdraft.............................. 230,723
Distributions to shareholders............................. (680,000)
Principal payments of capital lease obligations........... (101,232)
------------
Net cash used in financing activities..................... (638,674)
------------
Decrease in cash.......................................... (140,846)
Cash at beginning of year................................. 140,846
------------
Cash at end of year....................................... $ --
============
SUPPLEMENTAL DISCLOSURE
Interest paid.......................................... $ 64,534
============
See accompanying notes.
-44-
<PAGE>
TOTAL TELECOMMUNICATIONS, INC.
NOTES TO STATEMENTS OF INCOME AND CASH FLOWS
ELEVEN MONTHS ENDED NOVEMBER 30, 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The principal operations of Total Telecommunications, Inc. ("TTI")
consist of providing telecommunication services to commercial customers,
primarily in Florida. TTI provides a full range of services, including switched
and dedicated, international, domestic, calling card, and 800 services.
On November 30, 1994, all of TTI's outstanding stock was acquired by
TresCom International, Inc.
REVENUES
Revenues from long distance telecommunications services are recognized
when the services are provided.
NETWORK COSTS
Network costs primarily include right-of-way payments made to local
exchange carriers for access and transport charges. Network costs are recognized
as services are used.
INCOME TAXES
TTI has elected S Corporation status under the provisions of the
Internal Revenue Code (IRC), which eliminates federal income taxes at the
corporate level. Certain states in which TTI conducts business do not recognize
S Corporation status. Accordingly, state income taxes of approximately $8,000 as
of November 30, 1994 have been included in selling, general and administrative
expenses in the accompanying statement of income. Deferred state income taxes
resulting from differences in net income for financial reporting purposes and
taxable income are not significant.
On November 30, 1994, the outstanding stock was acquired by TresCom
International, Inc., a C Corporation under the provisions of the IRC. Because of
the acquisition, TTI will no longer qualify under the Subchapter S provision of
the IRC. The change in filing election as a result of the acquisition will not
have a material effect on TTI's deferred state or federal income taxes.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
TTI derives primarily all of its telecommunications service revenues
from commercial and residential customers in the State of Florida. Financial
instruments which potentially subject TTI to concentrations of credit risk
consist principally of cash and accounts receivable. TTI's allowance for
doubtful accounts is based upon management's estimates and historical
experience. TTI performs ongoing credit evaluations of its customers and
generally does not require collateral.
2. COMMITMENTS
TTI entered into a license agreement (the Agreement) in November 1992
with Electronic Data Systems Corporation ("EDS"), which allows for the
nonexclusive and nontransferable use of a licensed program in connection with
the TTI's invoice printing and billing system. The Agreement requires monthly
payments for licensing fees of approximately $2,800. TTI also pays a monthly
maintenance service fee based on billable messages multiplied by a rate per
message as defined in the Agreement. The Agreement expires April 30, 1998 and is
cancelable by either party upon written notice.
TTI has noncancelable operating leases for the rental of its office
space in Fort Lauderdale and New York. Rental expense amounted to approximately
$143,000 for the eleven months ended November 30, 1994.
-45-
<PAGE>
TOTAL TELECOMMUNICATIONS, INC.
NOTES TO STATEMENTS OF INCOME AND CASH FLOWS - (CONTINUED)
ELEVEN MONTHS ENDED NOVEMBER 30, 1994
Future minimum lease payments for all noncancelable leases at November
30, 1994 are:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES TOTAL
--------------------------------------------------------
<S> <C> <C> <C>
December 1994.................................... $ 10,900 $ 13,264 $ 24,164
1995............................................. 130,795 167,592 298,387
1996............................................. 130,795 168,828 299,623
1997............................................. 126,995 48,941 175,936
1998............................................. 85,200 39,258 124,458
1999............................................. 28,400 19,968 48,368
------------------------------------------------
Total future minimum lease payments.............. 513,085 $ 457,851 $ 970,936
===================================
Less amount representing interest................ 99,883
----------
Long-term capital lease obligations.............. $ 413,202
==========
</TABLE>
3. SUPPLEMENTAL CASH FLOW INFORMATION
During the eleven months ended November 30, 1994, TTI acquired property and
equipment of approximately $99,000 under capital lease obligations.
-46-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TresCom International, Inc.
We have audited the consolidated financial statements of TresCom
International, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995 and, for each of the three years in the period ended December 31, 1996, and
have issued our report thereon dated March 27, 1997 (included in this Annual
Report on Form 10-K). Our audit also included the financial statement schedule
of the Company listed in Item 8 of this Annual Report on Form 10-K. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Atlanta, Georgia
March 27, 1997
-47-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
TRESCOM INTERNATIONAL, INC.
(IN THOUSANDS)
COL. A. COL. B. COL. C. COL. D. COL. E.
- ----------------------------------------------- ------------- --------------------------- ------------- -----------
ADDITIONS
-------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------------------------------------------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Reserve and allowance deducted from
asset accounts:
Allowance for Doubtful Accounts $4,140 $5,036 $ -- $1,588 (2) $7,588
Valuation Allowance for Deferred Taxes 8,793 -- -- 314 (3) 8,479
Year ended December 31, 1995:
Reserve and allowance deducted from
asset accounts:
Allowance for Doubtful Accounts 3,761 1,791 700 (1) 2,112 (2) 4,140
Valuation Allowance for Deferred Taxes 5,737 3,056 -- -- 8,793
Year ended December 31, 1994:
Reserve and allowance deducted from
asset accounts:
Allowance for Doubtful Accounts -- 3,857 -- 96 (2) 3,761
Valuation Allowance for Deferred Taxes -- 5,737 -- -- 5,737
- -----------------------
(1) Uncollectible accounts in Virgin Islands resulting from Hurricane Marilyn.
(2) Write-off of uncollectible accounts.
(3) Change in deferred taxes.
</TABLE>
-48-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to executive officers of the Company is presented
in Item 4 of this Report under the caption "Executive Officers of the Company."
The information appearing under the captions "Proposal 1-Election of
Directors", "Certain Transactions" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders (the "1997 Proxy Statement") is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information appearing under the caption "Executive Compensation" in the
1997 Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information appearing under the caption "Security Ownership of Beneficial
Owners and Management" in the 1997 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under the caption "Certain Transactions" in the 1997
Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) 1. Financial Statements.
The financial statements are included in Part II, Item 8 of this Report.
2. Financial Statement Schedules and Supplementary Information
Required to be Submitted.
The financial statement schedules are included in Part II, Item 8 of this
Report.
(B) Reports on Form 8-K.
None.
-49-
<PAGE>
(C) INDEX TO EXHIBITS
The following is a list of all Exhibits filed as part of this Report:
EXHIBIT NO. DESCRIPTION
----------- -----------
*3.1(i) Third Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8, File No. 333-1912, filed on March 4,
1996).
*3.1(ii) Amended and Restated By-laws of the Company (filed as Exhibit
3.1(ii) to the Company's Annual Report on Form 10-K for fiscal
1996, File No. 0-27594, filed on March 29, 1996 (the "1996
Form 10-K")).
4.1 See Exhibit numbers 3.1(i) and 3.1(ii) for provisions of the
Third Amended and Restated Articles of Incorporation and
Amended and Restated By-laws of the Company defining the
rights of the holders of Common Stock.
**4.2 Second Amended and Restated 1994 Stock Option Plan.+
*4.3 Amended and Restated Stockholders Agreement (filed as Exhibit
4.3 to the Company's Registration Statement on Form S-1,
File No. 33-99738, filed on November 22, 1995 (the "Company's
Form S-1")).+
*4.4 Form of Stock Option Agreement for Management Employees who
are a party to an employment agreement and the Stockholders
Agreement (filed as Exhibit 4.4 to the Company's Form S-1).+
*4.5 Form of Stock Option Agreement for Management Employees who
are not a party to an employment agreement or the Stockholders
Agreement (filed as Exhibit 4.5 to the Company's Form S-1).+
*4.6 Form of Stock Option Agreement for Employees who will receive
non-contingent options only (filed as Exhibit 4.6 to the
Company's Form S-1).+
*4.7 Form of Stock Option Agreement for Management Employees who
are a party to an employment agreement but are not a party to
the Stockholders Agreement (filed as Exhibit 4.7 to the
Company's Form S-1).+
*4.8 1996 Form of Stock Option Agreement for Rudolph McGlashan
(filed as Exhibit 4.8 to the 1996 Form 10-K).+
*4.9 1996 Basic Form of Stock Option Agreement for Management
Employees (filed as Exhibit 4.9 to the 1996 Form 10-K).+
*4.10 1996 Form of Stock Option Agreement for Wesley T. O'Brien
(filed as Exhibit 4.10 to the 1996 Form 10-K).+
*4.11 1996 Modified Form of Stock Option Agreement for Management
Employee (filed as Exhibit 4.11 to the 1996 Form 10-K).+
*4.12 Form of Common Stock Certificate of the Company (filed as
Exhibit 4.8 to the Company's Form S-1).
**4.13 1997 Form of Stock Option Agreement for Rudolph McGlashan.
**4.14 1997 Basic Form of Stock Option Agreement for Employees.
**4.15 1997 Form of Stock Option Agreement for Wesley T. O'Brien.
*10.1 Employment Agreement between the Company and Norman Klugman
(filed as Exhibit 10.1 to the Company's Form S-1).+
*10.2 Amendment to Employment Agreement between the Company and
Norman Klugman (filed as Exhibit 10.2 to the Company's Form
S-1).+
**10.3 Amended and Restated Employment Agreement between the Company
and Wesley T. O'Brien.+
*10.4 Employment Agreement between the Company and Rudolph McGlashan
(filed as Exhibit 10.4 to the Company's Form S-1).+
*10.5 Amendment to Employment Agreement between the Company and
Rudolph McGlashan (filed as Exhibit 10.5 to the Company's Form
S-1).+
*10.6 Warrant Agreement between the Company and Warburg, Pincus
Investors, L.P. (filed as Exhibit 10.6 to the Company's Form
S-1).
*10.7 Stock Purchase and Sale Agreement, dated December 15,
1993, by and among Teracom Communications, Inc. ("Purchaser")
and Douglas M. Lapin, Stanley P. Lapin and Eileen Lapin
("Sellers")(filed as Exhibit 10.13 to the Company's Form S-1).
-50-
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.8 Asset Purchase Agreement, dated June 30, 1994, between IDB
Communications Group, Inc. on behalf of its subsidiaries, IDB
WorldCom Services, Inc. and IDB WorldCom, Inc. ("Seller")
and Teracom U.S.A., Inc. ("Purchaser") (filed as Exhibit 10.14
to the Company's Form S-1).
*10.9 Stock Purchase and Sale Agreement, dated July 8, 1994, by
and among Teracom U.S.A., Inc. ("Purchaser") and Peter Buffa,
Sam Herzberg, Lawrence Levy and Felix Fernandez ("Sellers")
(filed as Exhibit 10.15 to the Company's Form S-1).
*10.10 Asset Purchase Agreement, dated July 12, 1994, by and between
Virgin Islands Tele-Com, Inc. ("Seller") and Teracom U.S.A.,
Inc. ("Purchaser") (filed as Exhibit 10.16 to the Company's
Form S-1).
*10.11 Equipment Lease, dated February 1, 1993, by and between DSC
Finance Corporation ("Lessor") and Total Telecommunications,
Inc. ("Lessee") (filed as Exhibit 10.17 to the Company's Form
S-1).
*10.12 Equipment Lease, dated February 17, 1992, between Advanced
Telecommunications Corporation ("Lessor") and Total
Telecommunications, Inc. ("Lessee") (filed as Exhibit 10.18
to the Company's Form S-1).
*10.13 Agreement for Billing and Related Services, dated August 1994,
between TresCom U.S.A., Inc. and Electronic Data Systems
Corporation (filed as Exhibit 10.19 to the Company's Form
S-1).
*10.14 Lease Agreement, dated June 28, 1990, between Twenty One
Century Building and Puerto Rico Telecom Corporation (filed as
Exhibit 10.20 to the Company's Form S-1).
*10.15 Lease, dated February 1, 1992, between Telcom Building
Corporation and Total Telecommunications, Inc. (filed as
Exhibit 10.21 to the Company's Form S-1).
*10.16 Lease, dated December 20, 1993, between Hudson Telegraph
Associates and Caribbean Telecommunications, Inc. (filed as
Exhibit 10.22 to the Company's Form S-1).
*10.17 Form of Indemnification Agreement between the Company and its
directors and executive officers (filed as Exhibit 10.23 to
the Company's Form S-1).
*10.18 Amendment No. 1 to Restated Stockholders Agreement, dated
February 5, 1996 (filed as Exhibit 10.24 to the Company's Form
S-1).
*10.19 Employment Agreement between the Company and William A Paquin
(filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996).+
*10.20 Severance Agreement between the Company and Norman Klugman
(filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1996).
**10.21 Credit Facility between the Company and SunTrust Bank and
Amendment No. 1 thereto.
**11.1 Statement re computation of earnings per share.
**11.2 Statement re computation of supplemental earnings per share.
**21.1 Subsidiaries of the Company.
**23.1 Consent of Ernst & Young LLP.
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Ernst & Young LLP.
**27.1 Financial Data Schedule.
- --------------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated herein.
** Filed herewith.
-51-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Ft.
Lauderdale, State of Florida, on the 28th day of March, 1997.
TRESCOM INTERNATIONAL, INC.
By:/S/ WESLEY T. O'BRIEN
-------------------------------------
Wesley T. O'Brien
President and Chief Executive Officer
KNOWN BY ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Wesley T. O'Brien and William A. Paquin
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K,
and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and about the
premises, as fully as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or their or his substitutes
or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on the 28th day of March, 1997.
SIGNATURE TITLE(S)
--------- --------
/S/ Wesley T. O'Brien President, Chief Executive Officer
- ------------------------------------ and Director (Principal Executive
Wesley T. O'Brien Officer)
/S/ Rudolph McGlashan Chief Operating Officer and Director
- ------------------------------------
Rudolph McGlashan
/S/ William A. Paquin Chief Financial Officer (Principal
- ------------------------------------ Financial and Accounting Officer)
William A. Paquin
/S/ Douglas M. Karp Director
- ------------------------------------
Douglas M. Karp
/S/ Henry Kressel Director
- ------------------------------------
Henry Kressel
Director
- ------------------------------------
Gary D. Nusbaum
/s/ Helen Seltzer Director
- ------------------------------------
Helen Seltzer
/s/ Read McNamara Director
- ------------------------------------
Read McNamara
-52-
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
*3.1(i) Third Amended and Restated Articles of Incorporation of the
Company (filed as Exhibit 4.1 to the Company's Registration
Statement on Form S-8, File No. 333-1912, filed on March 4,
1996).
*3.1(ii) Amended and Restated By-laws of the Company (filed as Exhibit
3.1(ii) to the Company's Annual Report on Form 10-K for fiscal
1996, File No. 0-27594, filed on March 29, 1996 (the "1996
Form 10-K")).
4.1 See Exhibit numbers 3.1(i) and 3.1(ii) for provisions of the
Third Amended and Restated Articles of Incorporation and
Amended and Restated By-laws of the Company defining the
rights of the holders of Common Stock.
**4.2 Second Amended and Restated 1994 Stock Option Plan.+
*4.3 Amended and Restated Stockholders Agreement (filed as Exhibit
4.3 to the Company's Registration Statement on Form S-1,
File No. 33-99738, filed on November 22, 1995 (the "Company's
Form S-1")).+
*4.4 Form of Stock Option Agreement for Management Employees who
are a party to an employment agreement and the Stockholders
Agreement (filed as Exhibit 4.4 to the Company's Form S-1).+
*4.5 Form of Stock Option Agreement for Management Employees who
are not a party to an employment agreement or the Stockholders
Agreement (filed as Exhibit 4.5 to the Company's Form S-1).+
*4.6 Form of Stock Option Agreement for Employees who will receive
non-contingent options only (filed as Exhibit 4.6 to the
Company's Form S-1).+
*4.7 Form of Stock Option Agreement for Management Employees who
are a party to an employment agreement but are not a party to
the Stockholders Agreement (filed as Exhibit 4.7 to the
Company's Form S-1).+
*4.8 1996 Form of Stock Option Agreement for Rudolph McGlashan
(filed as Exhibit 4.8 to the 1996 Form 10-K).+
*4.9 1996 Basic Form of Stock Option Agreement for Management
Employees (filed as Exhibit 4.9 to the 1996 Form 10-K).+
*4.10 1996 Form of Stock Option Agreement for Wesley T. O'Brien
(filed as Exhibit 4.10 to the 1996 Form 10-K).+
*4.11 1996 Modified Form of Stock Option Agreement for Management
Employee (filed as Exhibit 4.11 to the 1996 Form 10-K).+
*4.12 Form of Common Stock Certificate of the Company (filed as
Exhibit 4.8 to the Company's Form S-1).
**4.13 1997 Form of Stock Option Agreement for Rudolph McGlashan.
**4.14 1997 Basic Form of Stock Option Agreement for Employees.
**4.15 1997 Form of Stock Option Agreement for Wesley T. O'Brien.
*10.1 Employment Agreement between the Company and Norman Klugman
(filed as Exhibit 10.1 to the Company's Form S-1).+
*10.2 Amendment to Employment Agreement between the Company and
Norman Klugman (filed as Exhibit 10.2 to the Company's Form
S-1).+
**10.3 Amended and Restated Employment Agreement between the Company
and Wesley T. O'Brien.+
*10.4 Employment Agreement between the Company and Rudolph McGlashan
(filed as Exhibit 10.4 to the Company's Form S-1).+
*10.5 Amendment to Employment Agreement between the Company and
Rudolph McGlashan (filed as Exhibit 10.5 to the Company's Form
S-1).+
*10.6 Warrant Agreement between the Company and Warburg, Pincus
Investors, L.P. (filed as Exhibit 10.6 to the Company's Form
S-1).
*10.7 Stock Purchase and Sale Agreement, dated December 15,
1993, by and among Teracom Communications, Inc. ("Purchaser")
and Douglas M. Lapin, Stanley P. Lapin and Eileen Lapin
("Sellers")(filed as Exhibit 10.13 to the Company's Form S-1).
*10.8 Asset Purchase Agreement, dated June 30, 1994, between IDB
Communications Group, Inc. on behalf of its subsidiaries, IDB
WorldCom Services, Inc. and IDB WorldCom, Inc. ("Seller")
and
-53-
<PAGE>
EXHIBIT NO. DESCRIPTION
----------- -----------
Teracom U.S.A., Inc. ("Purchaser") (filed as Exhibit 10.14
to the Company's Form S-1).
*10.9 Stock Purchase and Sale Agreement, dated July 8, 1994, by
and among Teracom U.S.A., Inc. ("Purchaser") and Peter Buffa,
Sam Herzberg, Lawrence Levy and Felix Fernandez ("Sellers")
(filed as Exhibit 10.15 to the Company's Form S-1).
*10.10 Asset Purchase Agreement, dated July 12, 1994, by and between
Virgin Islands Tele-Com, Inc. ("Seller") and Teracom U.S.A.,
Inc. ("Purchaser") (filed as Exhibit 10.16 to the Company's
Form S-1).
*10.11 Equipment Lease, dated February 1, 1993, by and between DSC
Finance Corporation ("Lessor") and Total Telecommunications,
Inc. ("Lessee") (filed as Exhibit 10.17 to the Company's Form
S-1).
*10.12 Equipment Lease, dated February 17, 1992, between Advanced
Telecommunications Corporation ("Lessor") and Total
Telecommunications, Inc. ("Lessee") (filed as Exhibit 10.18
to the Company's Form S-1).
*10.13 Agreement for Billing and Related Services, dated August 1994,
between TresCom U.S.A., Inc. and Electronic Data Systems
Corporation (filed as Exhibit 10.19 to the Company's Form
S-1).
*10.14 Lease Agreement, dated June 28, 1990, between Twenty One
Century Building and Puerto Rico Telecom Corporation (filed as
Exhibit 10.20 to the Company's Form S-1).
*10.15 Lease, dated February 1, 1992, between Telcom Building
Corporation and Total Telecommunications, Inc. (filed as
Exhibit 10.21 to the Company's Form S-1).
*10.16 Lease, dated December 20, 1993, between Hudson Telegraph
Associates and Caribbean Telecommunications, Inc. (filed as
Exhibit 10.22 to the Company's Form S-1).
*10.17 Form of Indemnification Agreement between the Company and its
directors and executive officers (filed as Exhibit 10.23 to
the Company's Form S-1).
*10.18 Amendment No. 1 to Restated Stockholders Agreement, dated
February 5, 1996 (filed as Exhibit 10.24 to the Company's Form
S-1).
*10.19 Employment Agreement between the Company and William A Paquin
(filed as Exhibit 10.1 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996).+
*10.20 Severance Agreement between the Company and Norman Klugman
(filed as Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended June 30, 1996).
**10.21 Credit Facility between the Company and SunTrust Bank and
Amendment No. 1 thereto.
**11.1 Statement re computation of earnings per share.
**11.2 Statement re computation of supplemental earnings per share.
**21.1 Subsidiaries of the Company.
**23.1 Consent of Ernst & Young LLP.
**23.2 Consent of Ernst & Young LLP.
**23.3 Consent of Ernst & Young LLP.
**27.1 Financial Data Schedule.
- --------------------------
+ Management contract or compensatory plan or arrangement.
* Incorporated herein.
** Filed herewith.
-54-
TRESCOM INTERNATIONAL, INC.
SECOND AMENDED AND RESTATED 1994 STOCK OPTION PLAN
ARTICLE I
PURPOSE
This TresCom International, Inc. Second Amended and Restated 1994 Stock
Option Plan (the "Plan") is intended as an incentive and to encourage stock
ownership by officers, key employees, consultants and directors of TresCom
International, Inc. (the "Company") in order to increase their proprietary
interest in the Company's success and to encourage them to continue to provide
services to the Company.
The term "Company," when used in the Plan with reference to eligibility
and employment, shall include the Company and its subsidiaries. The word
"subsidiary," when used in the Plan, shall mean any subsidiary of the Company
within the meaning of Section 424(f) of the Internal Revenue Code of 1986, as
amended (the "Code").
It is intended that certain options granted under the Plan will qualify as
"incentive stock options" under Section 422 of the Code.
ARTICLE II
ADMINISTRATION
The Plan shall, unless the Board of Directors (the "Board") shall
otherwise determine, be administered by a Compensation Committee (the
"Committee") appointed by the Board that shall consist of not less than two
non-employee director members within the meaning of the rules promulgated under
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Subject to the provisions of the Plan, the Committee shall have sole
authority, in its absolute discretion: (a) to determine which of the eligible
officers, employees, consultants and directors of the Company shall be granted
options; (b) to authorize the granting of both incentive stock options and
nonstatutory stock options; (c) to determine the times when options shall be
granted and the number of shares to be optioned and the times when options shall
be repurchased and the number of options to be repurchased; (d) to determine the
option price of the shares subject to each option, which price shall be not less
than the minimum specified in ARTICLE V (or ARTICLE VII, if applicable); (e) to
determine the time or times when each option becomes exercisable, the duration
of the exercise period and any other restrictions on the exercise of options
issued hereunder (subject to the provisions of ARTICLE VI and, if
<PAGE>
applicable, ARTICLE VII); (f) to prescribe the form or forms of the option
agreements under the Plan (which forms shall be consistent with the terms of the
Plan but need not be identical); (g) to adopt, amend and rescind such rules and
regulations as, in its opinion, may be advisable in the administration of the
Plan; and (h) to construe and interpret the Plan, the rules and regulations and
the option agreements under the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan. All decisions,
determinations and interpretations of the Committee shall be final and binding
on all optionees.
ARTICLE III
COMMON STOCK
The stock to be optioned under the Plan shall be authorized shares of
Common Stock, par value $0.01 per share, of TresCom International, Inc. (the
"Common Stock"). Under the Plan, the total number of shares of Common Stock
which may be purchased pursuant to options granted hereunder shall not exceed,
in the aggregate, Nine Hundred Thirty Six Thousand, Four Hundred and Thirty-Two
(936,432) shares, except as such number of shares shall be adjusted in
accordance with the provisions of ARTICLE XI hereof. The Company shall at all
times reserve a sufficient number of shares of Common Stock for issuance
pursuant to the Plan and any stock option agreements issued pursuant to the
Plan.
The number of shares of Common Stock available for grant of options under
the Plan shall be decreased by the sum of the number of shares with respect to
which options have been issued and are then outstanding, and the number of
shares issued upon exercise of options, under the Plan. In the event that any
outstanding option under the Plan for any reason expires, is terminated or is
cancelled prior to the end of the period during which options may be granted,
the shares of Common Stock called for by the unexercised portion of such option
may again be subject to an option grant under the Plan.
ARTICLE IV
ELIGIBILITY OF PARTICIPANTS
Subject to ARTICLE VII, in the case of incentive stock options, officers
and key employees of the Company (excluding any person who is a member of the
Committee) shall be eligible to receive options under the Plan. Options which
are not incentive stock options may be granted to officers, key employees,
consultants and directors (excluding any person who is a member of the
Committee). For purposes of this Plan, an "employee" shall mean any person,
including officers and directors of the Company, employed by the Company or any
subsidiary of the Company. Neither service as a director nor the payment of a
director's fee by the Company shall be sufficient to constitute a person an
"employee" of the Company.
<PAGE>
ARTICLE V
OPTION PRICE
In the case of each incentive stock option granted under the Plan, subject
to ARTICLE VII, the option price shall be at least equal to the greater of (i)
the fair market value of the Common Stock at the time the option was granted or
(ii) the par value of the Common Stock. The fair market value shall be deemed
for all purposes of the Plan to be the mean between the highest and lowest sale
prices reported as having occurred on any national securities exchange (an
"Exchange") on which the Company's Common Stock may be listed and traded on the
last business day prior to the date the option is granted, or, if there is no
such sale on that date, then on the last preceding date on which such a sale was
reported. If the Company's Common Stock is not listed on any Exchange but the
Common Stock is quoted in the National Market System of the National Association
of Securities Dealers Automated Quotation System ("NASDAQ") on a last sale
basis, then the fair market value of the Common Stock shall be deemed to be the
mean between the high and low price reported on the last business day prior to
the date the option is granted, or, if there is no such sale on that date, then
on the last preceding date on which a sale was reported. If the Common Stock is
not quoted in the National Market System of NASDAQ on a last sale basis, but the
Common Stock is otherwise quoted on NASDAQ, then the fair market value of the
Common Stock shall be deemed to be the mean between the high and low bid prices
on NASDAQ for the Common Stock on the last business day prior to the date the
option is granted. If the Common Stock is not listed on an Exchange or quoted on
NASDAQ, then the fair market value of the Common Stock shall mean the amount
determined by the Board to be the fair market value based upon a good faith
attempt to value the Common Stock accurately and computed in accordance with
applicable regulations of the Internal Revenue Service. In no event shall the
option price be less than the par value per share of Common Stock on the date an
option is granted.
In the case of each nonstatutory stock option granted under the Plan, the
option price shall be such price as may be determined by the Committee in its
sole discretion, provided that the option price shall be at least equal to the
par value of the Common Stock.
ARTICLE VI
EXERCISE AND TERMS OF OPTIONS
If an option is exercisable in installments, installments or portions
thereof which are exercisable and not exercised shall remain exercisable.
Any other provision of the Plan to the contrary notwithstanding, but
subject to ARTICLE VII in the case of incentive stock options, no option shall
be exercised after the date ten years from the date of grant of such option (the
"Termination Date").
<PAGE>
ARTICLE VII
SPECIAL PROVISIONS APPLICABLE
TO INCENTIVE STOCK OPTIONS ONLY
To the extent the aggregate fair market value (determined as of the time
the option is granted) of the Common Stock with respect to which any incentive
stock options granted under the Plan may be exercisable for the first time by
the optionee in any calendar year (under the Plan or any other stock option plan
of the Company), exceeds $100,000, such options shall not be considered
incentive stock options, but shall be considered nonstatutory stock options for
purposes of the Code. This Article VII shall be applied by taking options into
account in the order in which they were granted.
No incentive stock option may be granted to an individual who, at the time
the option is granted, owns directly, or indirectly within the meaning of
Section 424(d) of the Code, stock possessing more than 10 percent of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary thereof, unless such option (i) has an option price of at least 110
percent of the fair market value of the Common Stock on the date of the grant of
such option; and (ii) cannot be exercised more than five years after the date it
is granted.
Each optionee who receives an incentive stock option must agree to notify
the Company in writing immediately after the optionee makes a disqualifying
disposition of any Common Stock acquired pursuant to the exercise of an
incentive stock option. A disqualifying disposition is any disposition
(including any sale) of such Common Stock before the later of (a) two years
after the date the optionee was granted the incentive stock option or (b) one
year after the date the optionee acquired Common Stock by exercising the
incentive stock option.
ARTICLE VIII
PAYMENT FOR SHARES
Payment for shares of Common Stock purchased under an option granted
hereunder shall be made in full upon exercise of the option, by certified or
bank cashier's check payable to the order of the Company or by any other means
(including without limitation tender of shares of Common Stock then owned by the
optionee) acceptable to the Company. The Common Stock purchased shall thereupon
be promptly delivered; provided, however, that the Company may, in its
discretion, require that an optionee pay to the Company, at the time of
exercise, such amount as the Company deems necessary to satisfy its obligation,
if any, to withhold Federal, state or local income or other taxes incurred by
reason of the exercise or the transfer of shares thereupon.
<PAGE>
ARTICLE IX
NON-TRANSFERABILITY OF OPTION RIGHTS
No option shall be transferable except by will or the laws of descent and
distribution. During the lifetime of the optionee, the option shall be
exercisable only by him.
ARTICLE X
CHANGE IN CONTROL
Notwithstanding other provisions pertaining to times at which options may
be exercised, all outstanding options, to the extent not then currently
exercisable, shall become exercisable in full upon the occurrence of a "Change
in Control." For purposes of the Plan, a "Change in Control" shall be deemed to
have occurred if: (A) any "person", as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act (other than the Company, any trustee or other
fiduciary holding securities under any employee benefit plan of the Company or
any company owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of Common Stock, of the
Company), becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the combined voting power of all classes of the Company's then
outstanding voting securities; (B) during any period of two consecutive calendar
years individuals who at the beginning of such period constitute the Board,
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's shareholders of each
new director was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
two-year period or whose election or nomination for election was previously so
approved; (C) the shareholders of the Company approve a merger or consolidation
of the Company with any other corporation or legal entity, other than a merger
or consolidation that would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; PROVIDED, HOWEVER, that a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no person acquires more than 30% of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in Control
of the Company; or (D) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
<PAGE>
ARTICLE XI
ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC.
The aggregate number of shares of Common Stock which may be purchased
pursuant to options granted hereunder, the number of shares of Common Stock
covered by each outstanding option and the price per share of each such option
shall be appropriately adjusted for any increase or decrease in the number of
outstanding shares of stock resulting from a stock split, reverse stock split or
other subdivision or consolidation of shares of Common Stock or for other
capital adjustments or payments of stock dividends or distributions or other
increases or decreases in the outstanding shares of Common Stock without receipt
of consideration by the Company. Any adjustment shall be conclusively determined
by the Committee.
In the event of any change in the outstanding shares of Common Stock by
reason of any recapitalization, merger, consolidation, spin-off, combination or
exchange of shares or other corporate change, or any distributions to common
shareholders other than cash dividends, the Committee shall make such
substitution or adjustment, if any, as it deems to be equitable, as to the
number or kind of shares of Common Stock or other securities issued or reserved
for issuance pursuant to the Plan, and the number or kind of shares of Common
Stock or other securities covered by outstanding options, and the option price
thereof. In instances where another corporation or other business entity is
being acquired by the Company, and the Company has assumed outstanding employee
option grants and/or the obligation to make future or potential grants under a
prior existing plan of the acquired entity, similar adjustments are permitted at
the discretion of the Committee. The Committee shall notify optionees of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
The foregoing adjustments and the manner of application of the foregoing
provisions shall be determined by the Committee in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an option.
ARTICLE XII
NO OBLIGATION TO EXERCISE OPTION
Granting of an option shall impose no obligation on the recipient to
exercise such option.
ARTICLE XIII
USE OF PROCEEDS
The proceeds received from the sale of Common Stock pursuant to the Plan
shall be used for general corporate purposes.
<PAGE>
ARTICLE XIV
RIGHTS AS A COMMON STOCKHOLDER
An optionee or a transferee of an option shall have no rights as a
stockholder with respect to any share covered by his option until he shall have
become the holder of record of such share, and he shall not be entitled to any
dividends or distributions or other rights in respect of such share for which
the record date is prior to the date on which he shall have become the holder of
record thereof.
ARTICLE XV
EMPLOYMENT RIGHTS
Nothing in the Plan or in any option granted hereunder shall confer on any
optionee any right to continue in the employ of the Company or any of its
subsidiaries, or to interfere in any way with the right of the Company or any of
its subsidiaries to terminate the optionee's employment at any time.
ARTICLE XVI
COMPLIANCE WITH THE LAW
The Company is relieved from any liability for the nonissuance or
non-transfer or any delay in issuance or transfer of any shares of Common Stock
subject to options under the Plan which results from the inability of the
Company to obtain or any delay in obtaining, from any regulatory body having
jurisdiction, all requisite authority to issue or transfer shares of Common
Stock of the Company either upon exercise of options under the Plan or upon a
request for transfer of shares of Common Stock issued as a result of such
exercise if counsel for the Company deems such authority necessary for lawful
issuance or transfer of any such shares. Appropriate legends may be placed on
the stock certificates evidencing shares issued upon exercise of options to
reflect such transfer restrictions.
Each option granted under the Plan is subject to the requirement that if
at any time the Committee determines, in its discretion, that the listing,
quotation, registration or qualification of shares of Common Stock issuable upon
exercise of options is required by any securities exchange, automated quotation
service or under any state or Federal law, or that the consent or approval of
any governmental regulatory body is necessary or desirable as a condition of, or
in connection with, the grant of options or the issuance of shares of Common
Stock, no shares of Common Stock shall be issued, in whole or in part, unless
such listing, registration, qualification, consent or approval has been effected
or obtained free of any conditions or with such conditions as are acceptable to
the Committee.
<PAGE>
ARTICLE XVII
EFFECTIVE DATE AND EXPIRATION DATE OF PLAN
The Plan was effective as of February 22, 1994, the date of adoption of
the Plan by the Company's Board of Directors and approval by the stockholders of
the Company in a manner which complies with Rule 16b-3 under the Exchange Act
and Section 422(b)(l) of the Code and the Treasury Regulations thereunder. The
expiration date of the Plan, after which no option may be granted hereunder,
shall be February 22, 2004.
ARTICLE XVIII
AMENDMENT OR DISCONTINUANCE OF PLAN
The Board may, without the consent of the Company's stockholders or
optionees under the Plan, at any time terminate the Plan entirely and at any
time or from time to time amend or modify the Plan, provided that no such action
shall adversely affect options theretofore granted hereunder without the
optionee's consent, and provided further that no such action by the Board,
without approval of the stockholders, may: (a) increase the total number of
shares of Common Stock which may be purchased pursuant to options granted under
the Plan, except as contemplated in ARTICLE XI; (b) expand the class of
officers, employees, consultants or directors eligible to receive options under
the Plan; (c) decrease the minimum option price; (d) extend the maximum term of
options granted hereunder; or (e) extend the term of the Plan.
ARTICLE XIX
REPURCHASE OF OPTIONS
In granting options hereunder, the Committee may in its discretion, and on
terms it considers appropriate, require in the option agreement that an
optionee, or the executors or administrators of an optionee's estate, sell back
to the Company such options or shares of Common Stock issued upon exercise of
such options in the event such optionee's employment with the Company is
terminated.
ARTICLE XX
MISCELLANEOUS
(a) Options shall be evidenced by option agreements (which need not be
identical) in such forms as the Committee may from time to time approve. Such
agreements shall conform
<PAGE>
to the terms and conditions of the Plan and may provide that the grant of any
option under the Plan and Common Stock acquired pursuant to the Plan shall also
be subject to such other conditions (whether or not applicable to the option or
Common Stock received by any other optionee) as the Committee determines
appropriate, including, without limitation, provisions to assist the optionee in
financing the purchase of Common Stock through the exercise of options,
provisions for the forfeiture of, or restrictions on, resale or other
disposition of shares under the Plan, provisions giving the Company the right to
repurchase shares acquired under the Plan in the event the participant elects to
dispose of such shares, and provisions to comply with Federal and state
securities laws and Federal, state and local income tax withholding
requirements.
(b) If the Committee shall find that any person to whom any amount is
payable under the Plan is unable to care for his affairs because of illness or
accident, or is a minor, or has died, then any payment due to such person or his
estate (unless a prior claim therefor has been made by a duly appointed legal
representative), may, if the Committee so directs the Company, be paid to his
spouse, child, relative, an institution maintaining or having custody of such
person, or any other person deemed by the Committee to be a proper recipient on
behalf of such person otherwise entitled to payment. Any such payment shall be a
complete discharge of the liability of the Committee and the Company therefor.
(c) No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by such member or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made in
good faith, and the Company shall indemnify and hold harmless each member of the
Committee and each other employee, officer or director of the Company to whom
any duty or power relating to the administration or interpretation of the Plan
may be allocated or delegated, against any cost or expense (including counsel
fees) or liability (including any sum paid in settlement of a claim) arising out
of any act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith; provided, however, that approval of the
Company's Board of Directors shall be required for the payment of any amount in
settlement of a claim against any such person. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Certificate of
Incorporation or ByLaws, as a matter of law, or otherwise, or any power that the
Company may have to indemnify them or hold them harmless.
(d) The Plan shall be governed by and construed in accordance with the
internal laws of the State of Florida without reference to the principles of
conflicts of law thereof.
(e) No provision of the Plan shall require the Company, for the purpose of
satisfying any obligations under the Plan, to purchase assets or place any
assets in a trust or other entity to which contributions are made or otherwise
to segregate any assets, nor shall the Company maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or separately
maintained or administered fund for such purposes.
<PAGE>
(f) Each member of the Committee and each member of the Company's Board of
Directors shall be fully justified in relying, acting or failing to act, and
shall not be liable for having so relied, acted or failed to act in good faith,
upon any report made by the independent public accountant of the Company and
upon any other information furnished in connection with the Plan by any person
or persons other than such member.
(g) Except as otherwise specifically provided in the relevant plan
document, no payment under the Plan shall be taken into account in determining
any benefits under any pension, retirement, profit-sharing, group insurance or
other benefit plan of the Company.
(h) The expenses of administering the Plan shall be borne by the Company.
(i) Masculine pronouns and other words of masculine gender shall refer to
both men and women.
* * *
As adopted by the Board of Directors of TresCom International, Inc. as of
February 22, 1994, amended and restated as of August 11, 1995 and further
amended and restated as of February 14, 1997
TRESCOM INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
AGREEMENT, dated as of February 6, 1997, by and between TresCom
International, Inc., a Florida corporation (the "Company") and the undersigned
optionee (the "Optionee").
1. GRANT OF OPTIONS. The Company hereby grants to the Optionee in
accordance with the attached Notice of Stock Option Grant (the "Notice of
Grant") options (the "Options") to purchase a total number of shares (the
"Shares") of the Common Stock, $.0419 par value (the "Common Stock"), of TresCom
International, Inc. set forth in the Notice of Grant at the "Option Price Per
Share" set forth in the Notice of Grant (the "Exercise Price").
If designated as incentive stock options ("ISOs"), the Options are
intended to qualify as "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). To the extent any
Option issued pursuant to this Agreement does not qualify as an ISO under the
Code, such Option shall be considered a nonstatutory stock option ("NSO") under
the Code.
2. EXERCISE OF OPTIONS. The Options shall be exercisable during their term
in accordance with the terms and conditions set forth below:
(a) RIGHT TO EXERCISE.
(i) VESTING SCHEDULE. Subject to Optionee's continued
employment and the terms of this Agreement and further subject to early vesting
in the event of a Change in Control (as defined in the Stock Option Plan (as
hereinafter defined)), Options to purchase the Shares shall become vested and
fully exercisable as to 20% of such Shares on the first anniversary of the
Vesting Commencement Date (as defined in the Notice of Grant) and shall become
vested and fully exercisable as to an additional 20% of such Shares on each
anniversary of such first anniversary, such that the Options are fully
exercisable five (5) years after the Vesting Commencement Date.
(ii) The Options may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Options shall be governed
by Section 5 below.
(iv) In no event may any Option be exercised after the Term
Expiration Date set forth in the Notice of Grant.
(v) As used in this Agreement, the following terms shall have
the meanings ascribed to them below:
<PAGE>
"CAUSE" shall have the meaning given to such term in the Employment
Agreement (as defined herein).
"COMMITTEE" means the Compensation Committee that administers the
Stock Option Plan (as defined herein).
"DISABILITY" shall have the meaning given to such term in the
Employment Agreement.
"EMPLOYMENT AGREEMENT" means the Employment Agreement, dated as of
February 22, 1994, as amended, between Optionee and the Company.
"NON-PERFORMANCE" shall have the meaning given to such term
in the Employment Agreement.
"STOCK OPTION PLAN" means the TresCom International, Inc. Second
Amended and Restated 1994 Stock Option Plan, as the same may be amended from
time to time in accordance with its terms.
"TERMINATION WITHOUT CAUSE" shall have the meaning given to such
term in the Employment Agreement.
(vi) To the extent the aggregate fair market value (determined
as of the time the Options are granted) of Shares with respect to which Options
are exercised for the first time by Optionee during any calendar year exceeds
the maximum amount permitted by the Code for treatment as ISOs, such Options
shall be treated as NSOs for purposes of the Code. This rule shall be applied by
taking into account Options in the order in which they were granted. Options
that are treated as NSOs shall otherwise be subject to all the provisions of
this Agreement to the extent applicable.
(b) PROCEDURE FOR EXERCISE. The Options shall be exercisable by
written notice (in the form attached hereto as Exhibit A) which shall state the
election to exercise Options, the method of exercise, the number of Shares in
respect of which Options are being exercised, and such representations and
agreements with respect to such shares of Common Stock as may be required by the
Company. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the Exercise Price. Options
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of Options unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or automated quotation service upon
which the Shares may then be listed or quoted.
<PAGE>
3. METHOD OF PAYMENT.
(a) Payment of the Exercise Price for the number of shares for which
Options are being exercised shall be made:
(i) in cash or by check;
(ii) by tender to the Company of shares of the Common Stock
then owned by the Optionee having a fair market value, as determined
by the Company's Board of Directors, at least equal to the Exercise
Price; or
(iii) a combination of the foregoing.
(b) Notwithstanding the foregoing, Options may not be exercised by
tender to the Company of shares of the Common Stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Common Stock or, if in the
opinion of counsel to the Company, such tender of stock might impair the ability
of purchasers of stock from the Company from taking full advantage of the
provisions of Section 1202 of the Code relating to capital gains treatment of
stock issued by the Company. Unless otherwise provided by the Committee, an
Option may not be exercised by tender to the Company of shares of the Common
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
4. RESTRICTIONS ON EXERCISE. Options may not be exercised if the issuance
of the Shares upon such exercise would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of an Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
5. TERMINATION OF RELATIONSHIP.
(a) In the event of (i) the termination of the Employment Agreement
for Cause, Non-Performance or by reason of the death or Disability of Optionee
or (ii) the termination by Optionee of his employment by the Company (other than
pursuant to a Termination Without Cause), Optionee may, to the extent, but only
to the extent, Options are vested as of the date of termination as provided in
this Agreement, exercise this Option during the "Termination Period" described
in the Notice of Grant, and any Options which are not deemed to have vested in
accordance with Section 2(a) hereof shall automatically expire and be
terminated.
(b) In the event of the termination of the Employment Agreement
pursuant to a Termination Without Cause, all Options which had not previously
vested shall automatically be deemed to have vested and Optionee may, to the
extent Options are deemed to have vested
<PAGE>
as set forth herein, exercise Options during the Termination Period, and any
Options which are not deemed to have vested in accordance herewith shall
automatically expire and be terminated.
(c) If, following the expiration of the Employment Agreement, the
employment of Optionee is terminated, Optionee may, to the extent otherwise so
entitled at the date of such termination, exercise Options during the
Termination Period, and any Options which are not deemed to have vested in
accordance herewith shall automatically expire and be terminated.
(d) If Optionee does not exercise Options within the time specified
herein as to any Shares, such Options shall terminate as to such Shares.
(e) For purposes of this Section 5 and the definition of "Cause" in
subsection 2(a)(v), "Company" shall mean TresCom International, Inc. and any of
its subsidiaries (as defined in the Stock Option Plan).
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Stock Option Plan but as to which no
Options have yet been granted or which have been returned to the Stock Option
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; PROVIDED, HOWEVER, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to the
Options.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, the Options shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. For the purposes of this paragraph, the Options shall be
considered assumed if, following the merger, the Options
<PAGE>
confer the right to purchase, for each Share subject to a vested Option
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); PROVIDED,
HOWEVER, that if such consideration received in the merger was not solely common
stock of the successor corporation or its parent, the Committee may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of Options, for each Share
subject to such Options, to be solely common stock of the successor corporation
or its parent equal in fair market value to the per share consideration received
by holders of Common Stock in the merger.
7. NON-TRANSFERABILITY OF OPTIONS. Options may not be transferred in any
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by him/her. The terms of this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
8. TERM OF OPTIONS. The Options may be exercised only on or prior to the
"Term Expiration Date" set forth in the Notice of Grant, and may be exercised
during such term only in accordance with the terms and conditions of this
Agreement.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of
this Agreement of some of the federal tax consequences of exercise of Options
and disposition of the Shares. THIS SUMMARY ADDRESSES ONLY CERTAIN OF THE
GENERAL FEDERAL INCOME TAX CONSIDERATIONS; IT DOES NOT CONSIDER THE FACTS AND
CIRCUMSTANCES OF ANY PARTICULAR OPTIONEE'S SITUATION, NOR DOES IT ADDRESS STATE,
LOCAL OR FOREIGN TAX CONSIDERATIONS. THIS SUMMARY IS BASED ON FEDERAL TAX LAW AS
CURRENTLY IN EFFECT, AND SUCH TAX LAW IS SUBJECT TO CHANGE. OPTIONEE SHOULD
CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OF
RECEIVING AND EXERCISING OPTIONS AND DISPOSING OF SHARES BEFORE EXERCISING THE
OPTIONS OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISOS. If an Option qualifies as an ISO, no regular
federal income tax will be imposed upon the exercise of such Option. However,
the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price will generally be treated as an adjustment for
federal alternative minimum tax purposes and may subject the Optionee to the
alternative minimum tax in the year of exercise.
(ii) EXERCISE OF NSOS. If an Option does not qualify as an ISO,
federal income tax may be imposed upon the exercise of such Option. The Optionee
will generally be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to deduct and
<PAGE>
withhold applicable taxes from Optionee's compensation, or collect such amounts
from Optionee and pay them to the applicable taxing authorities, at the time of
exercise.
(iii) DISPOSITION OF SHARES. In the case of Shares acquired on
exercise of an NSO that are held for at least one (1) year, any gain realized on
disposition of the Shares will generally be treated as long-term capital gain
for federal income tax purposes. In the case of Shares acquired on exercise of
an ISO that are held for at least one (1) year after exercise and two (2) years
after the "Date of Grant" set forth in the Notice of Grant, any gain realized on
disposition of the Shares will also be treated as long-term capital gain for
federal income tax purposes. If Shares purchased under an ISO are disposed of
prior to the later of one (1) year after exercise of the ISO and two (2) years
after the Date of Grant, any gain realized on such disposition will generally be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price, and the balance of such gain will generally be
treated as long-term capital gain.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If an Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two (2) years after the Date of Grant, or (2) the date one
(1) year after transfer of such Shares to the Optionee upon exercise of the ISO,
the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to tax withholding by
the Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current compensation paid to the
Optionee.
10. RECEIPT OF STOCK OPTION PLAN. Optionee acknowledges that he has
received, read and understood the provisions of the Stock Option Plan pursuant
to which this Agreement was issued, and agrees to be bound by its terms and
conditions.
11. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Committee (or if no Committee is then in existence, to the Company's Board of
Directors), which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee (or the Board) shall be final and
binding on the Company and on Optionee.
12. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
<PAGE>
14. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Stock Option Plan,
Notice of Grant and Exercise Notice are incorporated herein by reference. This
Agreement, the Stock Option Plan, the Notice of Grant and the Exercise Notice
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida, excluding that body of law
pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
OPTIONEE TRESCOM INTERNATIONAL, INC.
_______________________________ By:_________________________________
Signature Title:
ADDRESS: ADDRESS:
________________________________ 200 East Broward Boulevard
Fort Lauderdale, Florida 33301
________________________________
<PAGE>
EXHIBIT A
EXERCISE NOTICE
TresCom International, Inc.
200 East Broward Boulevard
Fort Lauderdale, FL 33301
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ________________, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
________ shares of Common Stock (the "Shares") of TresCom International, Inc.
(the "Company") under and pursuant to the Company's Second Amended and Restated
1994 Stock Option Plan (the "Stock Option Plan"), and the Stock Option Agreement
by and between the Company and the Optionee dated February 6, 1997 (the "Option
Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Stock Option Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions. References herein
to this "Agreement" include this Exercise Notice, the Stock Option Plan, the
Notice of Grant (which is attached to the Option Agreement) and the Option
Agreement, all of which are incorporated herein by reference as provided in
Section 11 hereof.
3. COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any other provision of
the Option Agreement to the contrary, Optionee understands and acknowledges that
the exercise of any rights to purchase any Shares is expressly conditioned upon
compliance with the Securities Act of 1933, as amended, all applicable state
securities laws and all applicable requirements of any stock exchange, automated
quotation service or over the counter market on which the Company's Common Stock
may be listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.
4. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
<PAGE>
6. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. This Agreement
shall be binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
committee thereof that administers the Stock Option Plan (or if no such
committee is then in existence, to the Company's Board of Directors), which
shall review such dispute at its next regular meeting. The resolution of such a
dispute by the committee (or the Board) shall be final and binding on the
Company and on Optionee.
8. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
9. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
10. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the full
Exercise Price for the Shares. Optionee hereby elects to pay the full Exercise
Price (check the appropriate box):
|_| in cash or by check;
|_| by tender to the Company of shares of Common Stock in
accordance with Section 3(a)(ii) of the Option Agreement;
|_| by a combination of the foregoing.
<PAGE>
11. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Stock Option Plan,
Notice of Grant and Option Agreement are incorporated herein by reference. This
Exercise Notice, the Stock Option Plan, the Notice of Grant and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida, excluding that body of law
pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
Submitted by: Accepted by:
OPTIONEE: TRESCOM INTERNATIONAL, INC.
_________________________________ By:________________________________
Signature Title:
_________________________________
Print Name
ADDRESS: ADDRESS:
_________________________________ 200 East Broward Boulevard
Fort Lauderdale, Florida 33301
TRESCOM INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
AGREEMENT, dated as of February 6, 1997, by and between TresCom
International, Inc., a Florida corporation (the "Company") and the undersigned
optionee (the "Optionee").
1. GRANT OF OPTIONS. The Company hereby grants to the Optionee in
accordance with the attached Notice of Stock Option Grant (the "Notice of
Grant") options (the "Options") to purchase a total number of shares (the
"Shares") of the Common Stock, $.0419 par value (the "Common Stock"), of TresCom
International, Inc. set forth in the Notice of Grant at the "Option Price Per
Share" set forth in the Notice of Grant (the "Exercise Price").
If designated as incentive stock options ("ISOs"), the Options are
intended to qualify as "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). To the extent any
Option issued pursuant to this Agreement does not qualify as an ISO under the
Code, such Option shall be considered a nonstatutory stock option ("NSO") under
the Code.
2. EXERCISE OF OPTIONS. The Options shall be exercisable during their term
in accordance with the terms and conditions set forth below:
(a) RIGHT TO EXERCISE.
(i) VESTING SCHEDULE. Subject to Optionee's continued
employment and the terms of this Agreement and further subject to early vesting
in the event of a Change in Control (as defined in the Stock Option Plan (as
hereinafter defined)), Options to purchase Shares shall become vested and fully
exercisable as to 20% of such Shares on the first anniversary of the Vesting
Commencement Date (as defined in the Notice of Grant) and shall become vested
and fully exercisable as to an additional 20% of such Shares on each anniversary
of such first anniversary, such that the Options are fully exercisable five (5)
years after the Vesting Commencement Date.
(ii) The Options may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Options shall be governed
by Section 5 below.
(iv) In no event may any Option be exercised after the Term
Expiration Date set forth in the Notice of Grant.
(v) As used in this Agreement, the following terms shall have
the meanings ascribed to them below:
<PAGE>
"COMMITTEE" means the Compensation Committee that administers the
Stock Option Plan (as defined herein).
"STOCK OPTION PLAN" means the TresCom International, Inc. Second
Amended and Restated 1994 Stock Option Plan, as the same may be amended from
time to time in accordance with its terms.
(vi) To the extent the aggregate fair market value (determined
as of the time the Options are granted) of Shares with respect to which Options
are exercised for the first time by Optionee during any calendar year exceeds
the maximum amount permitted by the Code for treatment as ISOs, such Options
shall be treated as NSOs for purposes of the Code. This rule shall be applied by
taking into account Options in the order in which they were granted. Options
that are treated as NSOs shall otherwise be subject to all the provisions of
this Agreement to the extent applicable.
(b) PROCEDURE FOR EXERCISE. The Options shall be exercisable by
written notice (in the form attached hereto as Exhibit A) which shall state the
election to exercise Options, the method of exercise, the number of Shares in
respect of which Options are being exercised, and such representations and
agreements with respect to such shares of Common Stock as may be required by the
Company. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the Exercise Price. Options
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of Options unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or automated quotation service upon
which the Shares may then be listed or quoted.
3. METHOD OF PAYMENT.
(a) Payment of the Exercise Price for the number of shares for which
Options are being exercised shall be made:
(i) in cash or by check;
(ii) by tender to the Company of shares of the Common Stock
then owned by the Optionee having a fair market value, as determined
by the Company's Board of Directors, at least equal to the Exercise
Price; or
(iii) a combination of the foregoing.
(b) Notwithstanding the foregoing, Options may not be exercised by
tender to the Company of shares of the Common Stock to the extent such tender of
stock would
<PAGE>
constitute a violation of the provisions of any law, regulation and/or agreement
restricting the redemption of the Common Stock or, if in the opinion of counsel
to the Company, such tender of stock might impair the ability of purchasers of
stock from the Company from taking full advantage of the provisions of Section
1202 of the Code relating to capital gains treatment of stock issued by the
Company. Unless otherwise provided by the Committee, an Option may not be
exercised by tender to the Company of shares of the Common Stock unless such
shares either have been owned by the Optionee for more than six (6) months or
were not acquired, directly or indirectly, from the Company.
4. RESTRICTIONS ON EXERCISE. Options may not be exercised if the issuance
of the Shares upon such exercise would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of an Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
5. TERMINATION OF RELATIONSHIP.
(a) In the event of (i) the termination by the Company of the
employment of Optionee for any reason, with or without cause, and including but
not limited to termination upon death or disability or (ii) the termination by
Optionee of his employment by the Company, Optionee may, to the extent, but only
to the extent, Options are vested as of the date of termination as provided in
this Agreement, exercise such Options during the "Termination Period" described
in the Notice of Grant, and any Options which are not deemed to have vested in
accordance with Section 2(a) hereof shall automatically expire and be
terminated.
(b) If the employment of Optionee is terminated, Optionee may, to
the extent otherwise so entitled at the date of such termination, exercise
Options during the Termination Period, and any Options which are not deemed to
have vested in accordance herewith shall automatically expire and be terminated.
(c) If Optionee does not exercise Options within the time specified
herein as to any Shares, such Options shall terminate as to such Shares.
(d) For purposes of this Section 5, "Company" shall mean
TresCom International, Inc. and any of its subsidiaries (as defined in the
Stock Option Plan).
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Stock Option Plan but as to which no
Options have yet been granted or which have been returned to the Stock Option
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of
<PAGE>
Common Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; PROVIDED, HOWEVER, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to the Options.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, the Options shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. For the purposes of this paragraph, the Options shall be
considered assumed if, following the merger, the Options confer the right to
purchase, for each Share subject to a vested Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding shares of Common Stock); PROVIDED, HOWEVER, that if such
consideration received in the merger was not solely common stock of the
successor corporation or its parent, the Committee may, with the consent of the
successor corporation and the participant, provide for the consideration to be
received upon the exercise of Options, for each Share subject to such Options,
to be solely common stock of the successor corporation or its parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the merger.
7. NON-TRANSFERABILITY OF OPTIONS. Options may not be transferred in any
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by him/her. The terms of this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
8. TERM OF OPTIONS. The Options may be exercised only on or prior to the
"Term Expiration Date" set forth in the Notice of Grant, and may be exercised
during such term only in accordance with terms and conditions of this Agreement.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of
this Agreement of some of the federal tax consequences of exercise of Options
and disposition of the Shares. THIS SUMMARY ADDRESSES ONLY CERTAIN OF THE
GENERAL FEDERAL INCOME TAX CONSIDERATIONS; IT DOES NOT CONSIDER THE FACTS AND
<PAGE>
CIRCUMSTANCES OF ANY PARTICULAR OPTIONEE'S SITUATION, NOR DOES IT ADDRESS STATE,
LOCAL OR FOREIGN TAX CONSIDERATIONS. THIS SUMMARY IS BASED ON FEDERAL TAX LAW AS
CURRENTLY IN EFFECT, AND SUCH TAX LAW IS SUBJECT TO CHANGE. OPTIONEE SHOULD
CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OF
RECEIVING AND EXERCISING OPTIONS AND DISPOSING OF SHARES BEFORE EXERCISING THE
OPTIONS OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISOS. If an Option qualifies as an ISO, no regular
federal income tax will be imposed upon the exercise of such Option. However,
the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price will generally be treated as an adjustment for
federal alternative minimum tax purposes and may subject the Optionee to the
alternative minimum tax in the year of exercise.
(ii) EXERCISE OF NSOS. If an Option does not qualify as an ISO,
federal income tax may be imposed upon the exercise of such Option. The Optionee
will generally be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to deduct and withhold applicable taxes
from Optionee's compensation, or collect such amounts from Optionee and pay them
to the applicable taxing authorities, at the time of exercise.
(iii) DISPOSITION OF SHARES. In the case of Shares acquired on
exercise of an NSO that are held for at least one (1) year, any gain realized on
disposition of the Shares will generally be treated as long-term capital gain
for federal income tax purposes. In the case of Shares acquired on exercise of
an ISO that are held for at least one (1) year after exercise and two (2) years
after the "Date of Grant" set forth in the Notice of Grant, any gain realized on
disposition of the Shares will also be treated as long-term capital gain for
federal income tax purposes. If Shares purchased under an ISO are disposed of
prior to the later of one (1) year after exercise of the ISO and two (2) years
after the Date of Grant, any gain realized on such disposition will generally be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price, and the balance of such gain will generally be
treated as long-term capital gain.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If an Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two (2) years after the Date of Grant, or (2) the date one
(1) year after transfer of such Shares to the Optionee upon exercise of the ISO,
the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to tax withholding by
the Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current compensation paid to the
Optionee.
<PAGE>
10. RECEIPT OF STOCK OPTION PLAN. Optionee acknowledges that he has
received, read and understood the provisions of the Stock Option Plan pursuant
to which this Agreement was issued, and agrees to be bound by its terms and
conditions.
11. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Committee (or if no Committee is then in existence, to the Company's Board of
Directors), which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee (or the Board) shall be final and
binding on the Company and on Optionee.
12. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
14. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Stock Option Plan,
Notice of Grant and Exercise Notice are incorporated herein by reference. This
Agreement, the Stock Option Plan, the Notice of Grant and the Exercise Notice
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida, excluding that body of law
pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
OPTIONEE TRESCOM INTERNATIONAL, INC.
____________________________________ By:___________________________________
Signature Title:
____________________________________
Print Name
ADDRESS: ADDRESS:
____________________________________ 200 East Broward Boulevard
Fort Lauderdale, Florida 33301
____________________________________
<PAGE>
EXHIBIT A
EXERCISE NOTICE
TresCom International, Inc.
200 East Broward Boulevard
Fort Lauderdale, FL 33301
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ________________, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
________ shares of Common Stock (the "Shares") of TresCom International, Inc.
(the "Company") under and pursuant to the Company's Second Amended and Restated
1994 Stock Option Plan (the "Stock Option Plan"), and the Stock Option Agreement
by and between the Company and the Optionee dated February 6, 1997 (the "Option
Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Stock Option Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions. References herein
to this "Agreement" include this Exercise Notice, the Stock Option Plan, the
Notice of Grant (which is attached to the Option Agreement) and the Option
Agreement, all of which are incorporated herein by reference as provided in
Section 11 hereof.
3. COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any other provisions
of the Option Agreement to the contrary, Optionee understands and acknowledges
that the exercise of any rights to purchase any Shares is expressly conditioned
upon compliance with the Securities Act of 1933, as amended, all applicable
state securities laws and all applicable requirements of any stock exchange,
automated quotation service or over the counter market on which the Company's
Common Stock may be listed or traded at the time of exercise and transfer.
Optionee agrees to cooperate with the Company to ensure compliance with such
laws.
4. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
<PAGE>
6. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. This Agreement
shall be binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
committee thereof that administers the Stock Option Plan (or if no such
committee is then in existence, to the Company's Board of Directors), which
shall review such dispute at its next regular meeting. The resolution of such a
dispute by the committee (or the Board) shall be final and binding on the
Company and on Optionee.
8. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
9. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
10. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the full
Exercise Price for the Shares. Optionee hereby elects to pay the full Exercise
Price (check the appropriate box):
|_| in cash or by check;
|_| by tender to the Company of shares of Common Stock in
accordance with Section 3(a)(ii) of the Option Agreement;
|_| by a combination of the foregoing.
<PAGE>
11. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Stock Option Plan,
Notice of Grant and Option Agreement are incorporated herein by reference. This
Exercise Notice, the Stock Option Plan, the Notice of Grant and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida, excluding that body of law
pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
Submitted by: Accepted by:
OPTIONEE: TRESCOM INTERNATIONAL, INC.
_________________________________ By:________________________________
Signature Title:
_________________________________
Print Name
ADDRESS: ADDRESS:
_________________________________ 200 East Broward Boulevard
Fort Lauderdale, Florida 33301
_________________________________
TRESCOM INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
AGREEMENT, dated as of February 6, 1997, by and between TresCom
International, Inc., a Florida corporation (the "Company") and the undersigned
optionee (the "Optionee").
1. GRANT OF OPTIONS. The Company hereby grants to the Optionee in
accordance with the attached Notice of Stock Option Grant (the "Notice of
Grant") options (the "Options") to purchase a total number of shares (the
"Shares") of the Common Stock, $.0419 par value (the "Common Stock"), of TresCom
International, Inc. set forth in the Notice of Grant at the "Option Price Per
Share" set forth in the Notice of Grant (the "Exercise Price").
If designated as incentive stock options ("ISOs"), the Options are
intended to qualify as "incentive stock options" as defined in Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"). To the extent any
Option issued pursuant to this Agreement does not qualify as an ISO under the
Code, such Option shall be considered a nonstatutory stock option ("NSO") under
the Code.
2. EXERCISE OF OPTIONS. The Options shall be exercisable during their term
in accordance with the terms and conditions set forth below:
(a) RIGHT TO EXERCISE.
(i) VESTING SCHEDULE. Subject to Optionee's continued
employment and the terms of this Agreement and further subject to early vesting
in the event of a Change in Control (as defined in the Stock Option Plan (as
hereinafter defined)), Options to purchase the Shares shall become vested and
fully exercisable as to 20% of such Shares on the first anniversary of the
Vesting Commencement Date (as defined in the Notice of Grant) and shall become
vested and fully exercisable as to an additional 20% of such Shares on each
anniversary of such first anniversary, such that the Options are fully
exercisable five (5) years after the Vesting Commencement Date.
(ii) The Options may not be exercised for a fraction of a
share.
(iii) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Options shall be governed
by Section 5 below.
(iv) In no event may any Option be exercised after the Term
Expiration Date set forth in the Notice of Grant.
(v) As used in this Agreement, the following terms shall have
the meanings ascribed to them below:
<PAGE>
"CAUSE" shall have the meaning given to such term in the Employment
Agreement (as defined herein).
"COMMITTEE" means the Compensation Committee that administers the
Stock Option Plan (as defined herein).
"DISABILITY" shall have the meaning given to such term in the
Employment Agreement.
"EMPLOYMENT AGREEMENT" means the Employment Agreement, dated as of
October 1, 1995, as amended, between Optionee and the Company.
"NON-PERFORMANCE" shall have the meaning given to such term in the
Employment Agreement.
"STOCK OPTION PLAN" means the TresCom International, Inc. Second
Amended and Restated 1994 Stock Option Plan, as the same may be amended from
time to time in accordance with its terms.
"TERMINATION WITHOUT CAUSE" shall have the meaning given to such
term in the Employment Agreement.
(vi) To the extent the aggregate fair market value (determined
as of the time the Options are granted) of Shares with respect to which Options
are exercised for the first time by Optionee during any calendar year exceeds
the maximum amount permitted by the Code for treatment as ISOs, such Options
shall be treated as NSOs for purposes of the Code. This rule shall be applied by
taking into account Options in the order in which they were granted. Options
that are treated as NSOs shall otherwise be subject to all the provisions of
this Agreement to the extent applicable.
(b) PROCEDURE FOR EXERCISE. The Options shall be exercisable by
written notice (in the form attached hereto as Exhibit A) which shall state the
election to exercise Options, the method of exercise, the number of Shares in
respect of which Options are being exercised, and such representations and
agreements with respect to such shares of Common Stock as may be required by the
Company. Such written notice shall be signed by the Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company. The
written notice shall be accompanied by payment of the Exercise Price. Options
shall be deemed to be exercised upon receipt by the Company of such written
notice accompanied by the Exercise Price.
No Shares will be issued pursuant to the exercise of Options unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or automated quotation service upon
which the Shares may then be listed or quoted.
<PAGE>
3. METHOD OF PAYMENT.
(a) Payment of the Exercise Price for the number of shares for which
Options are being exercised shall be made:
(i) in cash or by check;
(ii) by tender to the Company of shares of the Common Stock
then owned by the Optionee having a fair market value, as determined
by the Company's Board of Directors, at least equal to the Exercise
Price; or
(iii) a combination of the foregoing.
(b) Notwithstanding the foregoing, Options may not be exercised by
tender to the Company of shares of the Common Stock to the extent such tender of
stock would constitute a violation of the provisions of any law, regulation
and/or agreement restricting the redemption of the Common Stock or, if in the
opinion of counsel to the Company, such tender of stock might impair the ability
of purchasers of stock from the Company from taking full advantage of the
provisions of Section 1202 of the Code relating to capital gains treatment of
stock issued by the Company. Unless otherwise provided by the Committee, an
Option may not be exercised by tender to the Company of shares of the Common
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
4. RESTRICTIONS ON EXERCISE. Options may not be exercised if the issuance
of the Shares upon such exercise would constitute a violation of any applicable
federal or state securities or other law or regulation. As a condition to the
exercise of an Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any applicable
law or regulation.
5. TERMINATION OF RELATIONSHIP.
(a) In the event of (i) the termination of the Employment Agreement
for Cause, Non-Performance or by reason of the death or Disability of Optionee
or (ii) the termination by Optionee of his employment by the Company (other than
pursuant to a Termination Without Cause), Optionee may, to the extent, but only
to the extent, Options are vested as of the date of termination as provided in
this Agreement, exercise this Option during the "Termination Period" described
in the Notice of Grant, and any Options which are not deemed to have vested in
accordance with Section 2(a) hereof shall automatically expire and be
terminated.
(b) In the event of the termination of the Employment Agreement
pursuant to a Termination Without Cause, all Options which had not previously
vested shall automatically be deemed to have vested and Optionee may, to the
extent Options are deemed to have vested
<PAGE>
as set forth herein, exercise Options during the Termination Period, and any
Options which are not deemed to have vested in accordance herewith shall
automatically expire and be terminated.
(c) If, following the expiration of the Employment Agreement, the
employment of Optionee is terminated, Optionee may, to the extent otherwise so
entitled at the date of such termination, exercise Options during the
Termination Period, and any Options which are not deemed to have vested in
accordance herewith shall automatically expire and be terminated.
(d) If Optionee does not exercise Options within the time specified
herein as to any Shares, such Options shall terminate as to such Shares.
(e) For purposes of this Section 5 and the definition of "Cause" in
subsection 2(a)(v), "Company" shall mean TresCom International, Inc. and any of
its subsidiaries (as defined in the Stock Option Plan).
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Stock Option Plan but as to which no
Options have yet been granted or which have been returned to the Stock Option
Plan upon cancellation or expiration of an Option, as well as the price per
share of Common Stock covered by each such outstanding Option, shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of issued shares of Common Stock effected
without receipt of consideration by the Company; PROVIDED, HOWEVER, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock subject to the
Options.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent not
previously exercised, all Options will terminate immediately prior to the
consummation of such proposed action.
(c) MERGER. In the event of a merger of the Company with or into
another corporation, the Options shall be assumed or an equivalent option shall
be substituted by such successor corporation or a parent or subsidiary of such
successor corporation. For the purposes of this paragraph, the Options shall be
considered assumed if, following the merger, the Options
<PAGE>
confer the right to purchase, for each Share subject to a vested Option
immediately prior to the merger, the consideration (whether stock, cash, or
other securities or property) received in the merger by holders of Common Stock
for each share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding shares of Common Stock); PROVIDED,
HOWEVER, that if such consideration received in the merger was not solely common
stock of the successor corporation or its parent, the Committee may, with the
consent of the successor corporation and the participant, provide for the
consideration to be received upon the exercise of Options, for each Share
subject to such Options, to be solely common stock of the successor corporation
or its parent equal in fair market value to the per share consideration received
by holders of Common Stock in the merger.
7. NON-TRANSFERABILITY OF OPTIONS. Options may not be transferred in any
manner other than by will or by the laws of descent or distribution and may be
exercised during the lifetime of Optionee only by him/her. The terms of this
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
8. TERM OF OPTIONS. The Options may be exercised only on or prior to the
"Term Expiration Date" set forth in the Notice of Grant, and may be exercised
during such term only in accordance with the terms and conditions of this
Agreement.
9. TAX CONSEQUENCES. Set forth below is a brief summary as of the date of
this Agreement of some of the federal tax consequences of exercise of Options
and disposition of the Shares. THIS SUMMARY ADDRESSES ONLY CERTAIN OF THE
GENERAL FEDERAL INCOME TAX CONSIDERATIONS; IT DOES NOT CONSIDER THE FACTS AND
CIRCUMSTANCES OF ANY PARTICULAR OPTIONEE'S SITUATION, NOR DOES IT ADDRESS STATE,
LOCAL OR FOREIGN TAX CONSIDERATIONS. THIS SUMMARY IS BASED ON FEDERAL TAX LAW AS
CURRENTLY IN EFFECT, AND SUCH TAX LAW IS SUBJECT TO CHANGE. OPTIONEE SHOULD
CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO HIM OF
RECEIVING AND EXERCISING OPTIONS AND DISPOSING OF SHARES BEFORE EXERCISING THE
OPTIONS OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISOS. If an Option qualifies as an ISO, no regular
federal income tax will be imposed upon the exercise of such Option. However,
the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price will generally be treated as an adjustment for
federal alternative minimum tax purposes and may subject the Optionee to the
alternative minimum tax in the year of exercise.
(ii) EXERCISE OF NSOS. If an Option does not qualify as an ISO,
federal income tax may be imposed upon the exercise of such Option. The Optionee
will generally be treated as having received compensation income (taxable at
ordinary income tax rates) equal to the excess, if any, of the fair market value
of the Shares on the date of exercise over the Exercise Price. If Optionee is an
employee, the Company will be required to deduct and
<PAGE>
withhold applicable taxes from Optionee's compensation, or collect such amounts
from Optionee and pay them to the applicable taxing authorities, at the time of
exercise.
(iii) DISPOSITION OF SHARES. In the case of Shares acquired on
exercise of an NSO that are held for at least one (1) year, any gain realized on
disposition of the Shares will generally be treated as long-term capital gain
for federal income tax purposes. In the case of Shares acquired on exercise of
an ISO that are held for at least one (1) year after exercise and two (2) years
after the "Date of Grant" set forth in the Notice of Grant, any gain realized on
disposition of the Shares will also be treated as long-term capital gain for
federal income tax purposes. If Shares purchased under an ISO are disposed of
prior to the later of one (1) year after exercise of the ISO and two (2) years
after the Date of Grant, any gain realized on such disposition will generally be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price, and the balance of such gain will generally be
treated as long-term capital gain.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If an Option
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two (2) years after the Date of Grant, or (2) the date one
(1) year after transfer of such Shares to the Optionee upon exercise of the ISO,
the Optionee shall immediately notify the Company in writing of such
disposition. Optionee agrees that Optionee may be subject to tax withholding by
the Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current compensation paid to the
Optionee.
10. RECEIPT OF STOCK OPTION PLAN. Optionee acknowledges that he has
received, read and understood the provisions of the Stock Option Plan pursuant
to which this Agreement was issued, and agrees to be bound by its terms and
conditions.
11. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Committee (or if no Committee is then in existence, to the Company's Board of
Directors), which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Committee (or the Board) shall be final and
binding on the Company and on Optionee.
12. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
13. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
<PAGE>
14. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Stock Option Plan,
Notice of Grant and Exercise Notice are incorporated herein by reference. This
Agreement, the Stock Option Plan, the Notice of Grant and the Exercise Notice
constitute the entire agreement of the parties and supersede in their entirety
all prior undertakings and agreements of the Company and Optionee with respect
to the subject matter hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida, excluding that body of law
pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the date first above written.
OPTIONEE TRESCOM INTERNATIONAL, INC.
_________________________________ By:__________________________________
Signature Title:
ADDRESS: ADDRESS:
__________________________________ 200 East Broward Boulevard
Fort Lauderdale, Florida 33301
__________________________________
<PAGE>
EXHIBIT A
EXERCISE NOTICE
TresCom International, Inc.
200 East Broward Boulevard
Fort Lauderdale, FL 33301
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today, ________________, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
________ shares of Common Stock (the "Shares") of TresCom International, Inc.
(the "Company") under and pursuant to the Company's Second Amended and Restated
1994 Stock Option Plan (the "Stock Option Plan"), and the Stock Option Agreement
by and between the Company and the Optionee dated February 6, 1997 (the "Option
Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Stock Option Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions. References herein
to this "Agreement" include this Exercise Notice, the Stock Option Plan, the
Notice of Grant (which is attached to the Option Agreement) and the Option
Agreement, all of which are incorporated herein by reference as provided in
Section 11 hereof.
3. COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any other provision of
the Option Agreement to the contrary, Optionee understands and acknowledges that
the exercise of any rights to purchase any Shares is expressly conditioned upon
compliance with the Securities Act of 1933, as amended, all applicable state
securities laws and all applicable requirements of any stock exchange, automated
quotation service or over the counter market on which the Company's Common Stock
may be listed or traded at the time of exercise and transfer. Optionee agrees to
cooperate with the Company to ensure compliance with such laws.
4. RIGHTS AS SHAREHOLDER. Subject to the terms and conditions of this
Agreement, Optionee shall have all of the rights of a shareholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
5. TAX CONSULTATION. Optionee understands that Optionee may suffer adverse
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax consultants
Optionee deems advisable in connection with the purchase or disposition of the
Shares and that Optionee is not relying on the Company for any tax advice.
<PAGE>
6. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. This Agreement
shall be binding upon Optionee and his or her heirs, executors, administrators,
successors and assigns.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
committee thereof that administers the Stock Option Plan (or if no such
committee is then in existence, to the Company's Board of Directors), which
shall review such dispute at its next regular meeting. The resolution of such a
dispute by the committee (or the Board) shall be final and binding on the
Company and on Optionee.
8. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
9. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further actions as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
10. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the full
Exercise Price for the Shares. Optionee hereby elects to pay the full Exercise
Price (check the appropriate box):
|_| in cash or by check;
|_| by tender to the Company of shares of Common Stock in
accordance with Section 3(a)(ii) of the Option Agreement;
|_| by a combination of the foregoing.
<PAGE>
11. ENTIRE AGREEMENT; GOVERNING LAW; SEVERABILITY. The Stock Option Plan,
Notice of Grant and Option Agreement are incorporated herein by reference. This
Exercise Notice, the Stock Option Plan, the Notice of Grant and the Option
Agreement constitute the entire agreement of the parties and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and shall be governed by and construed in
accordance with the laws of the State of Florida, excluding that body of law
pertaining to conflicts of law. Should any provision of this Agreement be
determined by a court of law to be illegal or unenforceable, the other
provisions shall nevertheless remain effective and shall remain enforceable.
Submitted by: Accepted by:
OPTIONEE: TRESCOM INTERNATIONAL, INC.
_________________________________ By:________________________________
Signature Title:
_________________________________
Print Name
ADDRESS: ADDRESS:
_________________________________ 200 East Broward Boulevard
Fort Lauderdale, Florida 33301
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT, amended and restated as of February 15, 1997,
between TresCom International, Inc., a Florida corporation ("Employer"), and
Wesley T. O'Brien (the "Executive").
RECITALS
WHEREAS, the Employer and the Executive have entered into an
Employment Agreement, dated as of October 1, 1995, and the parties are desirous
of amending and restating such agreement as set forth below;
ACCORDINGLY, in consideration of the mutual covenants and
agreements contained in this Agreement, the parties agree as follows:
l. EMPLOYMENT AND DUTIES. Employer hereby employs Executive
and Executive hereby accepts employment as President and Chief Executive 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
<PAGE>
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 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
$231,000.00 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. The Executive's Base Salary shall be reviewed at
least annually and may be increased but may not be decreased.
3.2. BONUS. In addition to the Base Salary, the
Executive shall also be eligible to receive an annual 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 be entitled to
receive grants of stock options, which options will be subject to the terms
and conditions of Employer's Second Amended and Restated 1994 Stock Option Plan
(the "Stock Option Plan") and any related stock option agreement (the "Stock
Option Agreement"), in amounts determined by the Board of Directors (or a
committee thereof) in its sole and absolute discretion.
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.
<PAGE>
3.6. OTHER BENEFITS. Executive shall be eligible to
participate in any accident, health, medical, disability, pension, savings 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 vacations during each year of 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.
4. TERM AND TERMINATION.
4.1. TERM. The term of Employee's employment
hereunder shall be for a period of twenty eight (28) months (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
<PAGE>
(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, 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 (A) by the Employer for reasons other
than (a) as set forth in Section 4.2.1(i) through (iv) and (b)
by the Executive for Good Reason, or (B) 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.
(vi) "Good Reason" shall mean the occurrence, without
Executive's express written consent, of any of the following
circumstances following a Change in Control unless such
circumstances are fully corrected prior to the date of
termination specified in the termination notice given in
respect thereof (A) the failure of Executive to be retained as
an employee in a senior executive position; (B) a reduction by
the Employer in Executive's salary payable pursuant to Section
3.1 hereof; or (C) a relocation of Executive's office to a
location more than fifty (50) miles from the current executive
office of the Employer and (i) a failure to
<PAGE>
make Executive whole for all losses and costs reasonably
incurred in connection with the relocation including, but not
limited to, moving expenses, forfeited bonds, fees or escrows
to clubs or other organizations and losses from the sale of
Executive's personal residence and (ii) the failure of
Employee to obtain an agreement in form and substance
reasonably satisfactory to Executive from any successor to
provide employment to Executive in the capacity of a senior
executive, at his then current Base Salary, for a period of at
least two years from the date of the Change in Control.
(vii) "Change in Control" shall be deemed to have occurred if:
(A) any "person", as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Employer, any trustee or
other fiduciary holding securities under any employee benefit
plan of the Employer or any company owned, directly or
indirectly, by the shareholders of the Employer in
substantially the same proportions as their ownership of the
Employer's common stock, $0.0419 par value per share (the
"Common Stock"), of the Employer), becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of Employer representing
30% or more of the combined voting power of all classes of the
Employer's then outstanding voting securities; (B) during any
period of two consecutive calendar years individuals who at
the beginning of such period constitute the Board of
Directors, cease for any reason to constitute at least a
majority thereof, unless the election or nomination for the
election by the Employer's shareholders of each new director
was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at
the beginning of the two-year period or whose election or
nomination for election was previously so approved; (C) the
shareholders of the Employer approve a merger or consolidation
of the Employer with any other corporation or legal entity,
other than a merger or consolidation that would result in the
voting securities of the Employer outstanding immediately
prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) more than 50% of the combined voting
power of the voting securities of the Employer or such
surviving entity outstanding immediately after such merger or
consolidation; PROVIDED, HOWEVER, that a merger or
consolidation effected to implement a recapitalization of the
Employer (or similar transaction) in which no person acquires
more than 30% of the combined voting power of the Employer's
then outstanding securities shall not constitute a Change in
Control of the Employer; or (D) the shareholders of the
Employer approve a plan of complete liquidation of the
Employer or an agreement for the sale or disposition by the
Employer of all or substantially all of the Employer's assets.
<PAGE>
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 an additional 12-months' Base Salary (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 within 10 days
following such termination, provided, that, at Employer's option, the Severance
Payment may be made in equal monthly installments over the 12-month period
following the date of termination specified in the termination notice.
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 12-month
period subsequent to the date of termination specified in the termination
notice.
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 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. Upon termination of this Agreement by
Executive for Good Reason, Employer shall pay to Executive any unpaid Base
Salary and Bonus accrued
<PAGE>
through the date of termination specified in the termination notice, plus an
Additional Payment equal to the unpaid Base Salary for the balance of the Term
and shall reimburse Executive for reasonable business expenses incurred prior to
the date of termination, subject to the provisions of Section 3.4 hereof.
4.3.6. Notwithstanding the foregoing, Executive
may terminate his employment on his own initiative following a relocation of
Executive's office to a location more than fifty (50) miles from the current
executive office of the Employer if the executive has been offered the two year
employment agreement and reimbursement arrangement specified in the definition
of Good Reason (defined in Section 4.2.2 (vi) hereof). In such event, the
Employer shall pay to Executive an amount equal to 12-months' Base Salary, 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 in a cash lump sum within 10 days following such
termination.
4.3.7. 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.
4.3.8. Upon any termination provided for in
this Agreement, any outstanding options granted to Executive shall be treated in
the manner set forth in the Stock Option Plan and the applicable Stock Option
Agreement.
4.3.9. 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 result of his employment by the
Employer during the Term or as a shareholder, 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 obligation to the
Employer 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,
<PAGE>
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,
until the first anniversary of the date this Agreement is terminated, without
the prior written consent of the Employer, directly or indirectly (whether as a
sole proprietor, partner, venturer, shareholder, 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 Employer 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. 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
<PAGE>
understandings, whether oral or written, including, but not limited to, the
Employment Agreement, dated October 1, 1995; (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: Wesley T. O'Brien
14849 Fieldbrook Circle
Boca Raton, Florida 33496
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 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.
<PAGE>
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.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
EMPLOYER:
TRESCOM INTERNATIONAL, INC.
By: ________________________
Title:
EXECUTIVE:
____________________________
Wesley T. O'Brien
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into as of this 26th day of
November, 1996, by and between TresCom International, Inc., a Florida
corporation ("Borrower"), TresCom U.S.A., Inc., a Florida corporation
("Pledgor"), and SunTrust Bank, South Florida, N.A., a national banking
association ("Bank").
BACKGROUND
Borrower has applied to Bank for a line of credit availability in the
maximum principal amount of $7,000,000.00. Bank is willing to establish on its
books such line of credit availability for Borrower upon the terms and
conditions described in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, covenants, and conditions herein, Borrower and Bank agree as
follows:
TERMS
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. Except as otherwise expressly provided in this
Agreement, the capitalized terms used in the foregoing preamble section and the
following capitalized terms shall have the respective meanings ascribed to them
for all purposes of this Agreement:
"Agreement" means this Credit Agreement, as the same may be amended,
supplemented, restated, replaced, or otherwise modified from time to time in
accordance with the provisions hereof.
"Bank" has the meaning specified in the first sentence hereof.
"Borrower" has the meaning specified in the first sentence hereof.
"Borrowing Base" means seventy percent (70%) of Eligible Receivables.
"Borrowing Base Certificate" means a borrowing base certificate
substantially in the form of Exhibit "A" hereto.
"Business Day" means a day that is not a Saturday, a Sunday, or a day on
which Bank is closed pursuant to authorization or requirement of law.
"Collateral" means all of Borrower's and all of Pledgor's accounts,
general intangibles, chattel paper, documents, instruments, all books and
records, monies, securities and deposits, and all proceeds and products of the
foregoing, all as more fully described in the Security Agreements.
<PAGE>
"Committed Amount" has the meaning specified in Subsection 2.1(a) hereof.
"Consistent Basis" means, in reference to the application of Generally
Accepted Accounting Principles that the accounting principles observed in the
current period are comparable in all material respects to those applied in the
preceding period.
"Debt Service Coverage Ratio" means the ratio of (i) EBITDA to (ii) the
sum of interest expense plus current portion of long term debt plus current
portion of capital and operating leases (excluding Revolving Credit principal
outstanding but including Revolving Credit interest outstanding).
"EBITDA" means net income or loss plus depreciation expense, amortization
expense, interest expense, income taxes and other non-cash charges, minus
extraordinary income and gains and non-cash income, if any, and plus
extraordinary losses, if any.
"Eligible Receivables" means the aggregate outstanding balance (net of
retainages and allowances for doubtful accounts) of all of the accounts of
Borrower and of Pledgor resulting from the sale of goods and the rendering of
services in the ordinary course of business, but excludes any account receivable
if (i) the account is unpaid for more than ninety (90) days after the date of
the invoice related to it; (ii) any of the goods or services that gave rise to
the account have been returned, rejected, or repossessed, or a dispute exists
between Borrower or Pledgor and the account debtor with respect to either the
account or the goods or services that gave rise to it; (iii) the account is
subject to any actual or threatened defense, claim, counterclaim, or set-off by
the account debtor, including without limitation accounts payable or contra
amounts due to the account debtor, customer deposits, and all accrued but unpaid
rebates and discounts; (iv) the account is owed by any account debtor for which
at least ten percent (10%) or more of the aggregate amounts of such account
debtor are outstanding for at least ninety (90) days after the date of the
invoice related to it; (v) any other account due from the account debtor has
become, or has been determined by Bank to be, ineligible for the reason set
forth in clause (i), (ii), or (iii); (vi) the account has been sold to, assigned
to, discounted with, or financed with or become subject to a lien in favor of, a
factor, lender, or other party (other than Bank); (vii) the account debtor is
the United States government, the government of any state of the United States
or any political subdivision thereof, or any agency or instrumentality of any of
the foregoing, or the account is such that the Bank's ability to obtain direct
payment thereunder is governed by any federal or state statutory requirements;
(viii) the account debtor is an affiliate, subsidiary, employee, or officer of
Borrower or Pledgor; (ix) the account debtor is a supplier, vendor, or creditor
of Borrower or Pledgor, except to the extent the amount owed to Borrower or
Pledgor (as applicable) thereunder exceeds the amount owed by Borrower or
Pledgor (as applicable) to the supplier, vendor or creditor; (x) the sale or
service represented by the account is to an account debtor located outside the
United States; (xi) the account is denominated in other than United States
Dollars or is payable outside the United States; (xii) the sale represented by
the account is on a bill-and-hold, guaranteed sale, sale or return, or sale on
approval basis; (xiii) the account is not evidenced by an invoice or other
writing in form acceptable to Bank in its sole discretion; (xiv) the account is
evidenced by a promissory note, instrument, or chattel paper; (xv) the account
debtor is insolvent or the subject of bankruptcy proceedings; (xvi) the account
represents a rebilling; (xvii) in order to be entitled to collect the account,
Borrower or Pledgor is required to deliver additional goods to, or perform
additional services for, or perform or incur
2
<PAGE>
additional obligations to, the account debtor; (xviii) Borrower or Pledgor has
received notice of the bankruptcy or insolvency of the account debtor; or (xix)
Bank otherwise determines that such receivable is ineligible.
"ERISA" means the Employee Retirement Income Security Act of 1974, as the
same may be supplemented or amended from time to time.
"Event of Default" means any of the events specified in Section 8 hereof.
"Financing Statement" means the UCC-1 financing statement covering the
Collateral naming Borrower and Pledgor as debtors and Bank as secured party to
be filed by Bank with the Florida Secretary of State in connection with the
Security Agreements.
"Generally Accepted Accounting Principles" means those principles of
accounting set forth in Opinions of the Financial Accounting Standards Board or
the American Institute of Certified Public Accountants or which have other
substantial authoritative support and are applicable in the circumstances as of
the date of any report required herein or as of the date of an application of
such principles as required herein.
"Guarantor" means TresCom Network Services, Inc., a Florida corporation.
"Guaranty" has the meaning specified in Subsection 3.2 hereof.
"Liabilities" all of the following, whether primary, secondary, direct,
indirect, absolute, contingent, sole, joint, or several, arising prior to the
date hereof or in connection herewith, or which may be hereafter contracted or
acquired, or incurred directly or indirectly in respect thereof, and all
extensions or renewals thereof and all sums payable under or by virtue thereof,
and whether arising in the ordinary course of business or otherwise, and whether
owed to, held, or to be held by Bank for its own account or as agent for another
or others:
(a) all liabilities and obligations of Borrower to Bank, however and
whenever incurred or evidenced, including, without limitation, all amounts of
principal and interest arising pursuant to the Revolving Credit;
(b) all other existing and future indebtedness, obligations, and
liabilities of Borrower and of Pledgor hereunder and under the other Loan
Documents, as may be amended from time to time;
(c) any renewals, enlargements, extensions or modifications thereof
or additions thereto;
(d) any deficiency remaining upon enforcement of Bank's rights
against all or any portion of the Collateral;
(e) all other existing and future debts, liabilities, and
obligations of Borrower to Bank and of Pledgor to Bank, of every kind and
description, of any nature whatsoever, whether or not evidenced by any note or
other instrument or agreement; and
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(f) all expenses incurred or paid by Bank in enforcing the
Liabilities or this Agreement or preserving any right of Bank thereunder or
hereunder (including, without limitation, obligations that would become due but
for the operation of the automatic stay under Section 362(a) of the Bankruptcy
Code, 11 U.S.C. ss.362(a), including interest, fees, and other charges whether
or not a claim is allowed for such obligations in any such bankruptcy
proceedings, including costs of collection and attorneys' fees as more
specifically described in the obligations and herein).
The term "Liabilities" as used herein shall include all liabilities of any
successor entity or entities of such parties to Bank.
"Loan Documents" means this Agreement, the Revolving Credit Note, the Tax
Indemnification Agreement, the Guaranty, and the Security Agreements.
"Person" means any corporation, business entity, natural person, firm,
joint venture, partnership, trust, unincorporated organization, association,
government, or any department or agency of any government.
"Pledgor" has the meaning specified in the first sentence hereof.
Revolving Credit" has the meaning specified in Subsection 2.1 hereof.
"Revolving Credit Note" has the meaning specified in Subsection 2.5 hereof.
"Security Agreements" has the meaning specified in Subsection 3.1 hereof.
"Solvent" means, with respect to any Person, that as of the date of
determination, both: (a)(i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
obligations) of such Person and (z) greater than the amount that will be
required to pay the probable liabilities of such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur debts beyond its ability to pay such debts as they become due; and (b)
such Person is solvent within the meaning given that term and similar terms
under applicable laws relating to fraudulent transfers.
"Subsidiary" means, for any Person, any corporation, partnership, or other
entity of which fifty percent (50%) or more of the securities or other ownership
interests having ordinary voting power to elect the board or directors or having
direct power to perform functions similar to that of a board of directors is at
the time directly or indirectly owned or controlled by such Person. Unless the
context clearly indicates otherwise, the term "Subsidiary" refers to a
Subsidiary of Borrower.
"Tangible Net Worth" means the aggregate amount of assets shown on the
balance sheet of Borrower, excluding capitalized organization and development
costs, capitalized interest, goodwill, patents, trademarks, copy rights,
franchises, licenses, amounts due or to become due
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from officers, employees, directors, stockholders, and affiliates, and such
other assets classified as "intangible assets" under Generally Accepted
Accounting Principles, less all liabilities of Borrower excluding debt
subordinated to Bank.
"Tax Indemnification Agreement" means the agreement between Borrower and
Bank of even date regarding payment of and reimbursement for documentary stamp
taxes and intangible taxes, and any similar agreements that may be entered into
between Borrower and Bank from time to time.
"Total Funded Debt" means the amount of all principal outstanding
indebtedness of the Borrower and its subsidiaries, whether present or future,
for borrowed money or for the deferred purchase price of property, all
indebtedness, whether present or future, secured by a lien on property and
indebtedness, whether present or future, arising under letter of credit
facilities. This shall not include accounts payable incurred by Borrower in the
ordinary course of the Borrower's business.
1.2 OTHER DEFINITIONAL PROVISIONS.
(g) The terms "material" and "materially" shall have the meanings
ascribed to such terms under Generally Accepted Accounting Principles as such
would be applied to the business of Borrower or others, except as the context
shall clearly otherwise require; (b) all of the terms defined in this Agreement
shall have such defined meanings when used in other documents issued under, or
delivered pursuant to, this Agreement unless the context shall otherwise
require; (c) words in singular shall include the plural and words in plural
shall include the singular, unless the context clearly requires otherwise; (d)
accounting terms to the extent not otherwise defined shall have the respective
meanings given them under, and shall be construed in accordance with, Generally
Accepted Accounting Principles; (e) terms defined in, or by reference to,
Article 9 of the Uniform Commercial Code as adopted in Florida to the extent not
otherwise defined herein shall have the respective meanings given to them in
Article 9 with the exception of the word "document" unless the context clearly
requires such meaning; (f) the words "hereby," "hereto," "hereof," "herein,"
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement; (g) words of any gender shall include all other genders; and (h)
whenever in this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns of such parties
unless the context shall expressly provide otherwise.
SECTION 2. LOAN AMOUNT AND TERMS.
2.1 THE REVOLVING CREDIT.
(a) Subject to the terms and conditions of this Agreement, Bank
agrees to establish on its books a revolving line of credit availability in
favor of Borrower (the "Revolving Credit") in the maximum principal amount of
$7,000,000.00 (which maximum amount shall be referred to herein as the
"Committed Amount").
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(b) Prior to April 30, 1998 (as may be extended from time to time
subject to the terms hereof, the "Termination Date"), and so long as there
exists no Event of Default or circumstance which with the giving of notice or
passage of time would become an Event of Default, Bank shall, upon the request
of Borrower, make advances and issue letters of credit under the Revolving
Credit in accordance with the provisions hereof. No advance shall be made or
letter of credit issued which, when aggregated with the amounts of any letters
of credit outstanding and any principal amounts then outstanding under the
Revolving Credit (which amounts shall include all unreimbursed amounts paid by
Bank and amounts of drafts accepted by Bank under letters of credit), would
exceed the lesser of the Committed Amount and the Borrowing Base. During such
period, Borrower may borrow, repay, and reborrow, and request the issuance of
letters of credit, under the Revolving Credit in accordance with the terms
hereof. Notwithstanding anything to the contrary set forth herein, no letters of
credit shall be issued which, when aggregated with the outstanding amounts of
any letters of credit issued under the Revolving Credit and any unreimbursed
amounts paid by Bank or amounts of drafts accepted by Bank under any letters of
credit would exceed $2,000,000.00.
(c) Borrower shall submit to Bank no later than fifteen (15) after
the end of each month Borrowing Base certificates for such month in such form as
Bank shall require. The calculation of the Borrowing Base, however, may be made
from time to time in Bank's discretion, and is not necessarily based upon the
contents of the most recent Borrowing Base certificate.
(d) If at any time the aggregate amount of principal outstanding and
letters of credit outstanding under the Revolving Credit shall exceed the lesser
of the Committed Amount or the then existing Borrowing Base, Borrower will pay
to Bank upon demand such amount as shall be required to cause the aggregate
amount of principal outstanding and letters of credit outstanding under the
Revolving Credit to be equal to or less than the lesser of the Committed Amount
or the then existing Borrowing Base. Borrower hereby authorizes Bank to charge
any deposit account of Borrower for the amount of such excess.
2.2 ADVANCES UNDER REVOLVING CREDIT. Advances made by Bank under the
Revolving Credit (other than advances made by Bank by honoring drafts drawn
under letters of credit) shall be made upon notice from Borrower to Bank at
least one (1) Business Day prior to the date of the advance. Each such notice
shall be by telephone or telecopier, confirmed immediately in writing, and shall
be accompanied by the payment of any applicable taxes. Each request of Borrower
for such an advance shall be in an amount not less than $25,000.00 or an
integral multiple thereof. Each such advance shall be made by crediting the
amount of the advance to the general deposit account of Borrower maintained with
Bank, except as otherwise specified in writing by Borrower. Any draw under a
letter of credit or any acceptance of a letter of credit issued under the
Revolving Credit shall be deemed an advance under the Revolving Credit.
2.3 ISSUANCE OF LETTERS OF CREDIT UNDER THE REVOLVING CREDIT. The form of
each letter of credit shall be in the sole and complete discretion of Bank.
Without limiting the generality of the foregoing, however, in the sole and
complete discretion of Bank, the expiration date of each letter of credit shall
not extend beyond thirty (30) days after the Termination Date. Each letter of
credit shall be requested by Borrower at least 72 hours prior to the proposed
date
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of issuance, and the request shall be accompanied by such other applications,
agreements, information or documents, and the payment of fees or commissions, as
Bank shall require.
2.4 ANNUAL REVIEW. At least once each year, after review of the
financial statements of Borrower for the preceding fiscal year, Bank will
permit the Revolving Credit to continue for an additional year unless Bank
determines that a material adverse change has occurred with respect to Borrower,
Pledger, or Guarantor, in which case Bank may terminate the Revolving Credit
and demand payment of all amounts outstanding thereunder.
2.5 NOTE. The Revolving Credit shall be evidenced by a master promissory
note of Borrower payable to order of Bank in form and substance satisfactory to
Bank in an aggregate principal amount equivalent to the Committed Amount, and
dated the date of this Agreement (as may be amended, renewed, increased,
restated, replaced, or otherwise modified from time to time, the "Revolving
Credit Note").
2.6 INTEREST RATE. The principal amount from time to time outstanding
under the Revolving Credit shall bear interest at the Prime Rate (as defined in
the Revolving Credit Note), or the LIBOR Rate (as defined in the Revolving
Credit Note) plus 2.5% per annum; provided however, that in no event shall the
interest rate applicable to principal outstanding under the Revolving Credit
exceed the maximum rate of interest allowed by applicable law, as amended from
time to time.
2.7 REPAYMENT. Principal under the Revolving Credit shall be due and
payable in a single payment on the Termination Date. Interest shall be payable
monthly in arrears beginning on December 31, 1996, and continuing on the like
day of each month thereafter, as long as any principal amount remains
outstanding under the Revolving Credit, and at maturity.
2.8 COMMITMENT FEE; UNUSED FEE FOR REVOLVING CREDIT. As consideration
for making the Revolving Credit available, Borrower shall pay to Bank: (a) on
the date hereof a commitment fee in the amount of $26,250.00 ($7,500.00 of which
has previously been paid); and (b) commencing on the date hereof and continuing
as long as the Revolving Credit has not been terminated, a unused fee equal to
one-quarter percent (0.25%) per annum of the unused portion of the Committed
Amount under the Revolving Credit. Such fee shall be computed on the basis of
the average daily unused portion of the Committed Amount and shall be payable
quarterly in arrears.
2.9 PREPAYMENTS. Borrower shall be entitled to prepay any notes subject
hereto in whole or in part, at any time, without premium or penalty, except to
the extent that the unused fee required under Subsection 2.8 may be construed to
be a penalty, upon at least one (1) Business Day's notice to Bank, each notice
stating the proposed date and principal amount of the prepayment. Each partial
prepayment of any note hereunder shall be in the principal amount of not less
than $25,000.00, or an integral multiple thereof. Each partial prepayment shall
be applied by Bank first to interest and lawful charges then due and unpaid,
then to principal, then to all other interest and lawful charges accrued, and
with respect to payments under any term note, shall not postpone the due date or
change the amount of any subsequent installment except in the inverse order of
maturity thereof. Borrower may be required to make prepayments in
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connection with the Borrowing Base from time to time, as described more fully in
Subsection 2.1(e) hereof.
SECTION 3. SECURITY AND GUARANTIES
Payment of the loan or loans hereunder shall be secured and guaranteed, as
provided in this Section 3.
3.1 SECURITY INTEREST IN COLLATERAL. Payment and performance of the
Liabilities shall be secured by a first perfected security interest in all of
the Collateral now owned or hereafter acquired or arising, and all proceeds
thereof. Each of Borrower and Pledgor shall execute and deliver to Bank a
security agreement covering said Collateral in form and substance satisfactory
to Bank (collectively, the "Security Agreements"). The Security Agreements shall
be sufficient, when notice thereof is properly filed or recorded in the
appropriate jurisdictions, to grant to Bank a first perfected security interest
in the Collateral subject to no prior liens or encumbrances except in favor of
Bank or as Bank permits in writing. Each of Borrower and Pledgor agrees to
execute or otherwise provide to Bank any and all modifications, financing
statements, and other agreements or consents required by Bank now or in the
future in connection therewith.
3.2 GUARANTIES. Payment of the Revolving Credit Note, any other
obligations under the Loan Documents, and any other obligations of Borrower to
Bank, presently existing or hereafter arising, shall be guaranteed by the
Guarantor, which guarantee shall be evidenced by the execution and delivery to
Bank by Guarantor of a continuing and unconditional guaranty in form and
substance satisfactory to Bank (the "Guaranty").
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce Bank to enter into this Agreement and to make the loan or
loans hereunder, each of Borrower and Pledgor represents and warrants to Bank
(which representations and warranties shall survive the delivery of the
documents mentioned herein and the mailing of the loan or loans contemplated
hereby) as follows:
4.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW; NAME HISTORY. Each of
Borrower and Pledgor is a corporation duly incorporated and organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of Borrower and Pledgor has all requisite power (corporate
and otherwise) to own and operate its properties and to carry on its business as
now being conducted, is duly qualified as a foreign corporation to do business
in every jurisdiction in which the nature of its business or the ownership of
its properties makes such qualification necessary and is in good standing in
such jurisdictions, has all licenses and permits necessary to carry on and
conduct its business in all states and localities wherein it now operates, and
is in compliance with all other requirements of law, rule, or regulation
applicable to it and to its business. Borrower's Subsidiaries are identified on
the attached Schedule 4.1. Neither Borrower nor Pledgor has merged, changed its
name, or done business under a fictitious name during the past five years,
except "TeraCom Communications, Inc." (with respect to Borrower), and "TeraCom
U.S.A., Inc." (with respect to Pledgor).
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4.2 CORPORATE POWER AND AUTHORIZATION TO EXECUTE LOAN DOCUMENTS; NO
CONFLICT; NO CONSENT. Each of Borrower and Pledgor has the corporate power and
authority and the legal right to execute and deliver the Loan Documents to be
executed by it and to perform its obligations thereunder and has taken all
corporate action necessary to authorize the execution, delivery, and performance
of such Loan Documents and to authorize the transactions contemplated thereby.
The execution, delivery, and performance by Borrower and Pledgor of the Loan
Documents to be executed by it will not: (a) contravene, conflict with, result
in the breach of, or constitute a violation of or default under (i) the articles
of incorporation or bylaws of Borrower or Pledgor, (ii) any applicable law,
rule, regulation, judgment, order, writ, injunction, or decree of any court or
governmental authority, or (iii) any agreement or instrument to which Borrower
or Pledgor is a party or by which Borrower or Pledgor or its property may be
bound or affected; or (b) result in the creation of any lien, charge, or
encumbrance upon any property or assets of Borrower or Pledgor pursuant to any
of the foregoing, except the liens created by the Loan Documents. No consent,
license, or authorization of, or filing with, or notice to, any Person or entity
(including, without limitation, any governmental authority), is necessary or
required in connection with the execution, delivery, performance, validity, or
enforceability of the Loan Documents and the transactions as contemplated
thereunder, except for consents, licenses, authorizations, filings, and notices
already obtained or performed and of which Bank has been provided written
notice, or referred to or disclosed in the Loan Documents. Any such consents,
licenses, authorizations, filings, or notices remain in full force and effect.
4.3 ENFORCEABLE OBLIGATIONS. The Loan Documents constitute legal, valid,
and binding agreements enforceable against the respective parties thereto and
any property described therein in accordance with their respective terms.
Without limiting the foregoing, the Loan Documents grant Bank a valid and
enforceable first lien on and, upon filing with the Florida Secretary of State
of the Financing Statement, a first perfected security interest in the personal
property described in the Security Agreements.
4.4 FINANCIAL CONDITION.
(a) The consolidated financial statements as of June 30, 1996, of
Borrower and its Subsidiaries, copies of which have been furnished to Bank, are
correct, complete, and fairly present the financial condition of Borrower and
its Subsidiaries as of the date of the financial statements and fairly present
the results of the operations of Borrower and its Subsidiaries for the period
covered thereby.
(b) The financial statements described above have been prepared in
accordance with Generally Accepted Accounting Principles applied on a Consistent
Basis maintained throughout the period involved. There has been no material
adverse change in the business, properties, or condition, financial or
otherwise, of Borrower or its Subsidiaries since the date of such financial
statements.
(c) Neither Borrower nor any of its Subsidiaries have any material
direct or contingent liabilities, liabilities for taxes, long-term leases, or
unusual forward or long-term commitments as of the date of this Agreement which
are not disclosed by, provided for, or reserved against in the foregoing
financial statements or referred to in notes thereto.
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4.5 NO LITIGATION. There is no suit or proceeding at law or in equity or
other proceeding or investigation (including proceedings by or before any court,
arbitrator, governmental or administrative commission, board, bureau, or other
administrative agency) pending, or to the best knowledge of Borrower and Pledgor
threatened, by or against or involving Borrower, Pledgor or against any of their
respective properties, existence, or revenues which, individually or in the
aggregate, if adversely determined, is reasonably likely to have a material
adverse effect on the properties, assets, or business or on the condition,
financial or otherwise, of Borrower or impair the right or ability of Borrower
to carry on its operations substantially as now conducted, or, regardless of
outcome, which questions the validity of the transactions contemplated by the
Loan Documents, or would be required to be disclosed in notes to any balance
sheet as of the date hereof of Borrower prepared in reasonable detail in
accordance with Generally Accepted Accounting Principles applied on a Consistent
Basis.
4.6 INVESTMENT COMPANY ACT; REGULATION.
(a) Neither Borrower nor Pledgor is an "investment company," an
"affiliated person" of, or "promoter" or "principal underwriter" for, any
"investment company," or a company "controlled" by an "investment company," and
Borrower is not an "investment advisor" or an "affiliated person" of an
"investment advisor" (as each of the quoted terms is defined or used in the
Investment Company Act of 1940, as amended). Neither the making of the loans,
nor the establishment of the credits hereunder, nor the application of the
proceeds or repayment thereof by Borrower, nor the consummation of the other
transactions contemplated hereby, will violate the provisions of the foregoing
Act or any rule, regulation, or order promulgated thereunder.
(b) Borrower is not subject to regulation under any state or local
public utilities code or federal, state, or local statute or regulation limiting
the ability of Borrower to incur indebtedness for money borrowed or to pledge
assets of the type contemplated hereunder.
4.7 DISCLOSURE AND NO UNTRUE STATEMENTS. No representation or warranty
made by Borrower in the Loan Documents or which will be made by Borrower or
Pledgor from time to time in connection with the Loan Documents (a) contains or
will contain any misrepresentation or untrue statement of any material fact, or
(b) omits or will omit to state any material fact necessary to make the
statements therein not misleading. There is no fact (excluding information
relating to world or national economic, social, or political conditions
generally) currently known to Borrower or Pledgor which now, or which might in
the future, materially adversely affect, the business, assets, properties, or
condition, financial or otherwise, of Borrower or Pledgor, or the ability of
Borrower or Pledgor to perform its obligations under the Loan Documents, except
as set forth or referred to in the Loan Documents or otherwise disclosed in
writing to Bank.
4.8 TITLE TO ASSETS; LEASES IN GOOD STANDING. Each of Borrower and
Pledgor has good and marketable title in fee to such of its fixed assets as
are real property and good and marketable title to its other properties and
assets, including the properties and assets reflected in the financial
statements and notes thereto described in Subsection 6.1 hereof, except for such
assets as have been disposed of in the ordinary course of business, and all such
properties and assets are free and clear of all liens, mortgages, pledges,
security interests, charges, title
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retention agreements, or other encumbrances of any kind except those permitted
under Subsection 7.2. Each of Borrower and Pledgor enjoys peaceful and
undisturbed possession under all leases under which it is now operating, none of
which contain any provisions which may materially adversely affect its
operations, and all such leases are valid, subsisting, and in full force and
effect, and neither Borrower nor Pledger is in violation of any material term of
any such lease.
4.9 PAYMENT OF TAXES. Each of Borrower and Pledgor has filed or caused to
be filed all federal, state, and local tax returns which are required to be
filed by it and has paid or caused to be paid all taxes as shown on said returns
or on any assessment received by it, to the extent that such taxes have become
due, other than taxes being contested in good faith by appropriate proceedings
diligently conducted and for which adequate reserves have been established in
accordance with Generally Accepted Accounting Principles, and no controversy in
respect of additional taxes of Borrower is pending, or, to the knowledge of
Borrower or Pledgor, threatened.
4.10 AGREEMENT OR CONTRACT RESTRICTIONS; NO DEFAULT. Neither Borrower nor
Pledgor is a party to, nor is bound by, any agreement, contract, or instrument
or subject to any charter or other corporate restriction which materially or
adversely affects the business, properties, assets, operations, or condition,
financial or otherwise, of Borrower or Pledgor except as disclosed in the
financial statements and notes thereto described in Subsection 6.1 hereof.
Neither Borrower nor Pledgor is in default in the performance, observance, or
fulfillment of any obligations, covenants, or conditions contained in any
agreement or instrument to which it is a party.
4.11 PATENTS, TRADEMARKS, LICENSES, ETC. Each of Borrower and Pledgor
owns, possesses, or has the right to use, and holds free from burdensome
restrictions or known conflicts with the rights of others, all patents, patent
rights, licenses, trademarks and service marks, trademark and service mark
rights, trade names, trade name rights, and copyrights, and all material rights
with respect to the foregoing, useful in the conduct of its business as now
conducted, and is in full compliance with the terms and conditions, if any, of
all such patents, patent rights, licenses, trademarks and service marks,
trademark and service mark rights, trade names, trade name rights, or copyrights
and the terms and conditions of any agreements relating thereto.
4.12 GOVERNMENT CONTRACT. Neither Borrower nor Pledgor is subject to the
renegotiation of any government contract in any material amount.
4.13 ERISA REQUIREMENT. Except as previously disclosed to Bank in
writing, neither Borrower nor Pledgor has in force any written or oral bonus
plan, stock option plan, employee welfare, pension or profit sharing plan,
or any other employee benefit arrangement or understanding. In addition,
neither Borrower, Pledgor, nor any predecessor thereof is now or was formerly
during the five year period immediately preceding the effective date of
this Agreement a participating employer in any multi-employer or "multiple
employer" plans within the meaning of Sections 4001(1)(a)(3), 4063, and 4064
of ERISA. Each employee benefit plan subject to the requirements of ERISA
complies with all of the requirements of ERISA and those plans which are
subject to being "qualified" under Sections 401(a) and 501(a) of the Internal
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Revenue Code of 1986, as amended from time to time, have since their adoption
been "qualified" and have received favorable determination letters from the
Internal Revenue Service so holding. There is no matter which would adversely
affect the qualified tax exempt status of any such trust or plan, and except as
previously disclosed to Bank there are no deficiencies or liabilities for any
such plan or trust. No employee benefit plan sponsored by Borrower or Pledgor
has engaged in a non-exempt "prohibited transaction" as defined in ERISA.
4.14 SOLVENCY. Each of Borrower and Pledgor is, and on and after the
consummation of the transactions contemplated herein will be, Solvent.
4.15 LOCATION OF OFFICES AND COLLATERAL. The chief executive office, the
principal place of business, and the office where all books and records of
Borrower and Pledgor are kept is at the location described in Subsection 10.3
hereof, and there are no other offices of Borrower.
SECTION 5. CONDITIONS OF LENDING.
The obligation of Bank to make the loan or loans or to permit any
borrowings hereunder is conditioned upon the performance of all agreements by
Borrower and Pledgor contained herein, as well as satisfaction of the following
conditions precedent:
5.1 CONTINUING ACCURACY OF REPRESENTATIONS AND WARRANTIES. At the time of
each borrowing hereunder, the representations and warranties set forth in
Section 4 hereof shall be true, correct, and complete on and as of the date of
the borrowing with the same effect as though the representations and warranties
had been made on and as of the date of the borrowing, except to the extent that
such representations and warranties may expressly relate to an earlier date, in
which case they shall continue to be true as of such date.
5.2 NO DEFAULT. At the time of each borrowing hereunder, Borrower and
Pledgor shall be in compliance with all terms and conditions set forth herein,
and no Event of Default, nor any event which upon notice or lapse of time or
both would constitute an Event of Default, shall have occurred and be continuing
at the time of such borrowing.
5.3 OPINION OF COUNSEL. On or prior to the date of this Agreement, Bank
shall have received the favorable opinion of counsel for Borrower, Pledgor, and
Guarantor, in form and substance satisfactory to Bank, as to such matters as
Bank may require.
5.4 APPROVAL OF BANK'S COUNSEL. All legal matters in connection with the
Loan Documents and the transactions herein and therein contemplated and all
documents and proceedings shall be satisfactory in form and substance to Holland
& Knight, counsel for Bank.
5.5 LOAN DOCUMENTS. On or prior to the date of this Agreement, Bank shall
have received, duly executed, this Agreement and the other Loan Documents, all
in form and substance satisfactory to Bank and counsel for Bank.
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5.6 SUPPORTING DOCUMENTS. On or prior to the date of this Agreement, Bank
shall have received the following documents satisfactory in form and substance
to Bank and counsel for Bank and, as requested by Bank, certified by appropriate
corporate or governmental authorities:
(a) A certificate of good standing of each of Borrower, Pledgor, and
Guarantor certified by the secretary of state, or other appropriate governmental
authority, of the state of incorporation of each of Borrower, Pledgor, and
Guarantor, respectively;
(b) a copy of the articles of incorporation of each of Borrower,
Pledgor, and Guarantor in effect on the date hereof certified by the secretary
of state, or other appropriate governmental authority, of the state of
incorporation of each of Borrower, Pledgor, and Guarantor, respectively,
accompanied by a certificate from an appropriate officer of each of Borrower,
Pledgor, and Guarantor, respectively, that the copy is complete and that the
articles of incorporation have not been amended, annulled, rescinded, or revoked
since the date of the articles of incorporation or the last amendment reflected
in the copy, if any;
(c) a copy of the bylaws of each of Borrower, Pledgor, and Guarantor
in effect on the date of this Agreement, accompanied by a certificate from an
appropriate officer of each of Borrower, Pledgor, and Guarantor, respectively,
that the copy is true and complete and that the bylaws have not been amended,
annulled, rescinded, or revoked since the date of the bylaws or the last
amendment reflected in the copy, if any;
(d) a copy of resolutions of the board of directors of each of
Borrower, Pledgor, and Guarantor authorizing the execution, delivery, and
performance of the Loan Documents to which such entity is a party and the
borrowings thereunder, and specifying the officer or officers of each of
Borrower, Pledgor, and Guarantor authorized to execute the Loan Documents to
which such entity is a party, accompanied by a certificate from an appropriate
officer that the resolutions are true and complete, were duly adopted at a duly
called meeting in which a quorum was present and acting throughout, or were duly
adopted by written action, and have not been amended, annulled, rescinded or
revoked in any respect and remain in full force and effect on the date of the
certificate, together with an incumbency certificate containing the names,
titles, and genuine signatures of all duly elected officers of each of Borrower,
Pledgor and, Guarantor, respectively, as of the date of this Agreement,
accompanied by a certificate from an appropriate officer that the information is
true and complete;
(e) UCC-1 Financing Statements covering the Collateral and such
other instruments as necessary to insure Bank a perfected first security
interest in the Collateral, subject only to those matters approved by Bank; and
(f) such additional supporting documents as Bank may request.
SECTION 6. AFFIRMATIVE COVENANTS.
Each of Borrower and Pledgor covenants and agrees as follows from the date
of this Agreement until payment in full of all present or future indebtedness
hereunder and termination
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of all present or future credit facilities established hereunder, unless Bank
shall otherwise consent in writing:
6.1 FINANCIAL REPORTS AND OTHER INFORMATION. Borrower will deliver or
cause to be delivered to Bank the following:
(a) As soon as practicable and in any event within sixty (60) days
after the end of each fiscal quarter, other than the last quarter of each fiscal
year: (i) a consolidated and consolidating balance sheet as of the last day of
such quarter and the related consolidated and consolidating statement of income
for such quarter and cumulative year-to-date for Borrower, setting forth in each
case in comparative form figures for the corresponding period in the preceding
fiscal year, all in reasonable detail and satisfactory in scope to Bank and
certified by the chief financial officer of Borrower as to the fairness of such
financial statements and that the same have been prepared in accordance with
Generally Accepted Accounting Principles applied on a Consistent Basis, subject
to changes resulting from normal, recurring year-end adjustments; and (ii) the
Borrower's Form 10-Q Quarterly Report as filed with the Securities and Exchange
Commission;
(b) As soon as practicable and in any event within one hundred five
(105) days after the end of each fiscal year: (i) the consolidated and
consolidating balance sheet of Borrower as of the end of such fiscal year, and
related consolidated and consolidating statements of income, and changes in
financial position for such fiscal year, setting forth in each case in
comparative form figures for the corresponding period in the preceding fiscal
year, all in reasonable detail and satisfactory in scope to Bank and certified
by and containing an unqualified opinion of Ernst & Young, LLP, or other
independent certified public accountants of recognized national standing
selected by Borrower and satisfactory to Bank; and (ii) the Borrower's Form 10-K
Annual Report as filed with the Securities and Exchange Commission;
(c) Together with each delivery of those items required by clause
(a) above, a certificate executed by the chief financial officer of Borrower,
containing computations in reasonable detail indicating compliance with
Subsection 6.15, and stating that to the best of the officer's knowledge, (i)
Borrower has kept, observed, performed, and fulfilled each and every material
agreement binding on it contained in the Loan Documents, and is not at the time
in default of the keeping, observance, performance, or fulfillment of any of the
terms, provisions, and conditions thereof, and (ii) none of the Events of
Default or events which upon notice or the lapse of time or both would
constitute Events of Default has occurred (or specifying all such defaults and
events of which he may have knowledge and what actions Borrower is taking or
proposes to take with respect thereto);
(d) Within ten (10) days after receipt thereof, copies of any
management audit letters or other communications provided to Borrower by the
independent certified public accountant who prepared Borrower's financial
statements;
(e) As soon as practicable and in any event within ten (10) days
after the filing thereof with the Internal Revenue Service, copies of the
complete Internal Revenue Service tax returns of Borrower for each calendar
year;
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(f) With reasonable promptness, such additional financial or other
data (including but not limited to consolidating financial statements) as Bank
may from time to time reasonably request.
Bank is hereby authorized to deliver a copy of any financial statements or
any other information relating to the business, operations, properties, or
financial condition of Borrower which may be furnished to it or come to its
attention pursuant to the Loan Documents or otherwise, to any regulatory body or
agency having jurisdiction over Bank or to any Person which shall, or shall have
the right or obligation to, succeed to all or any part of Bank's interest in the
Loan Documents.
6.2 PAYMENT OF INDEBTEDNESS TO BANK; PERFORMANCE OF OTHER COVENANTS;
PAYMENT OF OTHER OBLIGATIONS. (a) Borrower will make full and timely payment of
the principal of and interest on the indebtedness owed hereunder; (b) Borrower
will duly comply with all the terms and covenants contained in the Loan
Documents; and (c) Borrower will make full and timely payment of all other
indebtedness of Borrower to Bank, whether now existing or hereafter arising.
6.3 CONDUCT OF BUSINESS; MAINTENANCE OF EXISTENCE AND RIGHTS. Each of
Borrower and Pledgor will do or cause to be done all things necessary to
preserve and to keep in full force and effect its corporate existence and rights
and privileges as a corporation and its franchises, licenses, trade names,
patents, trademarks, and permits which are necessary for the continuance of its
business, and continue to engage principally in the business that it currently
operates.
6.4 MAINTENANCE OF PROPERTY. Each of Borrower and Pledgor will maintain
its property in good condition and repair and, from time to time, make all
necessary and proper repairs, renewals, replacements, additions, and
improvements thereto, so that the business carried on may be properly and
advantageously conducted at all times in accordance with prudent business
management.
6.5 RIGHT OF INSPECTION; DISCUSSIONS. Each of Borrower and Pledgor will
permit any Person designated by Bank to visit and inspect any of its properties,
corporate books, records, papers, and financial reports, including the making of
any copies thereof and abstracts therefrom, and to discuss its affairs,
finances, and accounts with its principal officers, all at such reasonable times
and as often as Bank may reasonably request. Each of Borrower and Pledgor will
also permit Bank, or its designated representative, to audit or appraise any of
its assets or financial and business records.
6.6 NOTICES. Borrower or Pledgor will promptly give notice to Bank of:
(a) The occurrence of any default or Event of Default (or event
which would constitute a default or Event of Default but for the requirement
that notice be given or time elapse or both) hereunder, in which case such
notice shall specify the nature thereof, the period of existence thereof, and
the action that Borrower or Pledgor proposes to take with respect thereto;
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(b) the occurrence of any material casualty to any material facility
of Borrower or Pledgor or any other force majeure (including, without
limitation, any strike or other labor disturbance) materially affecting the
operation or value of any such facility, and whether or not such casualty or
force majeure is covered by insurance; and
(c) the commencement or any material change in the nature or status
of any litigation, dispute, or proceeding that may involve a claim for damages,
injunctive relief, enforcement, or other relief pending, being instituted, or
threatened by, against, or involving Borrower or Pledgor, or the institution of
any attachment, levy, execution, or other process by or against any assets of
Borrower or Pledgor, which might materially impair the conduct of Borrower's or
Pledgor's business or might materially adversely affect financially or otherwise
its business, operations, properties, condition, or prospects.
6.7 PAYMENT OF TAXES; LIENS. Each of Borrower and Pledgor will pay, or
cause to be paid, when due, subject to any permitted extensions, all taxes,
assessments, and other governmental charges which may lawfully be levied or
assessed (a) upon its income or profits; (b) upon any of its property, real,
personal or mixed, or upon any part thereof; or (c) by reason of employee
benefit plans sponsored by it, and will also pay, or cause to be paid, when due,
subject to any permitted extensions, any lawful claims for labor, material, or
supplies which, if unpaid, might become a lien or charge against any of its
property; provided, however, neither Borrower nor Pledgor shall be required to
pay any such tax, assessment, charge, levy, or claim so long as the validity
thereof shall be actively contested in good faith by appropriate proceedings and
Borrower or Pledgor, as applicable, shall have set aside on its books adequate
reserves (determined in accordance with Generally Accepted Accounting
Principles) with respect to any such tax, assessment, charge, levy, or claim so
contested; but provided further that any such tax, assessment, charge, levy, or
claim shall be paid forthwith upon the commencement of proceedings to foreclose
any lien securing the same.
6.8 INSURANCE OF PROPERTIES. Each Borrower and Pledgor will keep its
business and properties insured at all times by insurance companies acceptable
to Bank against the risks for which provision for such insurance is usually made
by other Persons engaged in a similar business similarly situated (including
without limitation insurance for fire and other hazards and insurance against
liability on account of damage to persons or property and insurance under all
applicable workman's compensation laws) and to the same extent thereto and carry
such other types and amounts of insurance as are usually carried by Persons
engaged in the same or a similar business similarly situated, and upon request
deliver to Bank a certificate from the insurer setting forth the nature of the
risks covered by such insurance, the amount carried with respect to each risk,
and the name of the insurer.
6.9 TRUE BOOKS. Each of Borrower and Pledgor will keep proper and true
books of record and account, satisfactory to Bank, in which full, true, and
correct entries will be made of all of its material dealings and transactions,
and establish on its books such reserves as may be required by Generally
Accepted Accounting Principles with respect to all taxes, assessments, charges,
levies, and claims referred to in Subsection 6.7 hereof, and with respect to its
business in general, and will include such reserves in any interim as well as
year-end financial statements.
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6.10 OBSERVANCE OF LAWS. Each of Borrower and Pledgor will conform to and
duly observe all laws, regulations, and other valid requirements of any
governmental authority with respect to the conduct of its business.
6.11 FURTHER ASSURANCES. At its cost and expense, upon request of Bank,
each of Borrower and Pledgor will duly execute and deliver or cause to be duly
executed and delivered to Bank such further instruments or documents and do and
cause to be done such further acts as may be reasonably necessary or proper in
the opinion of Bank to carry out more effectively the provisions and purposes of
this Agreement.
6.12 ERISA BENEFIT PLANS. Borrower will comply with all requirements of
ERISA applicable to it and will not materially increase its liabilities under or
violate the terms of any present or future benefit plans maintained by it
without the prior approval of Bank. Borrower will furnish to Bank as soon as
possible and in any event within 10 days after Borrower or a duly appointed
administrator of a plan (as defined in ERISA) knows or has reason to know that
any reportable event, funding deficiency, or prohibited transaction (as defined
in ERISA) with respect to any plan has occurred, a statement of the chief
financial officer of Borrower describing in reasonable detail such reportable
event, funding deficiency, or prohibited transaction and any action which
Borrower proposes to take with respect thereto, together with a copy of the
notice of such event given to the Pension Benefit Guaranty Corporation or the
Internal Revenue Service or a statement that said notice will be filed with the
annual report of the United States Department of Labor with respect to such plan
if such filing has been authorized.
6.13 WITHHOLDING TAXES. Each of Borrower and Pledgor will pay, as and
when due, all employee withholding, FICA, and other tax payments required by
federal, state, and local governments with respect to wages paid to employees.
6.14 CHANGE OF NAME, PRINCIPAL PLACE OF BUSINESS, OFFICE, OR AGENT.
Borrower or Pledgor will notify Bank of any change in the name of Borrower or
Pledgor, the principal place of business of Borrower or Pledgor, the office
where the books and records of Borrower or Pledgor are kept, or any change in
the registered agent of Borrower or Pledgor for the purposes of service of
process.
6.15 FINANCIAL COVENANTS. Borrower will, in accordance with Generally
Accepted Accounting Principles applied on a Consistent Basis, maintain:
(a) A Total Funded Debt to Tangible Net Worth ratio less than or
equal to 0.75 to 1.0 determined on a quarterly basis.
(b) A Total Funded Debt to EBITDA ratio less than or equal to 4.0 to
1.0, determined on a trailing twelve (12) month basis at the end of each fiscal
quarter of Borrower.
(c) Tangible Net Worth determined on a quarterly basis greater than
or equal to the sum of $30,000,000.00, plus the cumulative sum of fifty percent
(50%) of Borrower's consolidated net income for the quarter in which such
determination is made.
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(d) A Debt Service Coverage Ratio greater than or equal to 1.3 to
1.0, determined on a trailing twelve (12) month basis at the end of each fiscal
quarter of Borrower.
(e) A minimum working capital greater than or equal to
$6,000,000.00, determined on a quarterly basis.
6.16 DEPOSITORY RELATIONSHIP. Each of Borrower and Pledgor shall maintain
all of its [PRINCIPAL] depository accounts with Bank.
SECTION 7. NEGATIVE COVENANTS.
Each of Borrower and Pledgor covenants and agrees as follows from the date
of this Agreement until payment in full of all present or future indebtedness
hereunder and termination of all present or future credit facilities established
hereunder, unless Bank shall otherwise consent in writing:
7.1 OTHER INDEBTEDNESS. Borrower will not, directly or indirectly,
create, incur, assume, or permit to exist any indebtedness for borrowed money
except: (a) indebtedness to Bank; (b) capital lease obligations and equipment
loans incurred in the ordinary course of business, and other financing, all on
terms satisfactory to Bank, to finance capital expenditures and acquisitions
permitted under Section 7.6 hereof, provided that such indebtedness shall be
incurred within 90 days after the making of the capital expenditures or the
consummation of such acquisitions financed thereby.
7.2 LIMITATIONS ON MORTGAGES, LIENS, ETC. Neither Borrower nor Pledgor
will, directly or indirectly, create, incur, assume, or suffer or permit to
exist any mortgage, pledge, lien, security interest, or other charge or
encumbrance (including the lien or retained security title of a conditional
vendor or lessor) upon or with respect to any of its assets, or assign or
otherwise convey any right to receive income, except: (a) mortgages or security
interests in favor of Bank; (b) liens now existing and in such amounts as
described in Schedule 7.2 attached hereto; (c) with respect to Borrower, liens
or security interests securing the indebtedness described in Section 7.1.
7.3 GUARANTIES. Neither Borrower nor Pledgor will, directly or indirectly,
guarantee, assume, endorse, become a surety or accommodation party for, or
otherwise in any way extend credit or become responsible for or remain liable or
contingently liable in connection with any indebtedness or other obligations of
any other Person or entity except guaranties and endorsements made in connection
with the deposit of negotiable instruments and other items for collection or
credit in the ordinary course of business.
7.4 MERGER, SALE OF ASSETS, DISSOLUTION, ETC. Neither Borrower nor
Pledgor will, directly or indirectly: (a) enter into any transaction of
merger or consolidation (unless Borrower is the surviving entity, in which
event, Borrower will provide Bank at least thirty (30) days prior written notice
thereof); (b) transfer, sell, assign, lease, or otherwise dispose of all or a
substantial part of its properties or assets; (c) transfer, sell, assign,
discount, lease, or otherwise dispose of any of its notes or other instruments,
accounts receivable, or contract rights with or
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without recourse, except for collection in the ordinary course of business, or
any assets or properties necessary or desirable for the proper conduct of its
business; (d) change the scope or nature of its business; (e) enter into any
arrangement, directly or indirectly, with my Person whereby Borrower or Pledgor
shall sell or transfer any property, real or personal, used or useful in its
business, whether now owned or hereafter acquired, and thereafter rent or lease
such property which Borrower or Pledgor intends to use for substantially the
same purpose or purposes as the property being sold or transferred; (f) invest
in, acquire assets or stock of, transfer any assets to, or do business through
any Subsidiary not described in Subsection 4.1 hereof; (g) wind up, liquidate,
or dissolve itself or its business; or (h) agree to any of the foregoing.
7.5 PROHIBITIONS ON DIVIDENDS, REDEMPTIONS, DISTRIBUTIONS AND OTHER
PAYMENTS. Without Bank's prior written consent, which shall not be unreasonably
withheld, neither Borrower nor Pledgor will, directly or indirectly, declare,
allocate or pay any dividends (other than dividends payable solely in common
stock) on any shares of stock of any class of Borrower or Pledgor, now or
hereafter outstanding, or purchase, redeem, or otherwise acquire or retire any
shares of stock of any class of Borrower or Pledgor or apply or set apart any of
its assets therefor or make any other distribution (by redemption of capital or
otherwise) in respect of any such shares, or agree to do any of the foregoing in
an aggregate amount.
7.6 CAPITAL EXPENDITURES; ACQUISITIONS. Borrower will not, directly or
indirectly, make or commit to make payments for: (a) capital expenditures
(including capital leases) which would exceed $13,000,000.00 in the aggregate
paid in any fiscal year, such capital expenditures to be determined in
accordance with Generally Accepted Accounting Principles applied on a Consistent
Basis; or (b) acquisitions of businesses which would exceed $5,000,000.00 in the
aggregate paid in any fiscal year.
7.7 REGULATION U. Neither Borrower nor Pledgor will permit any part of
the proceeds of the loan or loans made pursuant to this Agreement to be used
to purchase or carry or to reduce or retire any loan incurred to purchase or
carry any margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System) or to extend credit to others for the
purpose of purchasing or carrying any such margin stock, or to be used for
any other purpose which violates, or which would be inconsistent with, the
provisions of Regulation U or other applicable regulation. Each of Borrower
and Pledgor covenants that it is not engaged and will not become engaged
as one of its principal or important activities in extending credit for the
purpose of purchasing or carrying such margin stock. If requested by Bank, each
of Borrower and Pledgor will furnish to Bank in connection with any loan or
loans hereunder, a statement in conformity with the requirements of Federal
Reserve Form U-1 referred to in said regulation. In addition, each of
Borrower and Pledgor covenants that no part of the proceeds of the loan or
loans hereunder will be used for the purchase of commodity future contracts
(or margins therefor for short sales) for any commodity not required for
the normal raw material inventory of Borrower or Pledgor.
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7.8 MANAGEMENT. Borrower will not, directly or indirectly, permit more
than one of the following persons to change their position with Borrower:
Chief Executive Officer--Wesley T. O'Brien
Chief Operating Officer--Rudolph McGlashan
Chief Financial Officer--William A. Paquin
7.9 INSIDER TRANSACTIONS. Except with respect to Borrower's relations
with Warburg Pincus Investors, LLP, neither Borrower nor Pledgor will, directly
or indirectly, purchase, acquire, or lease any property or services from, or
sell, provide, or lease any property or services to, or otherwise deal with,
in the ordinary course of business or otherwise, (i) any stockholder or
(ii) any business entity, corporation, partnership, or association in which a
stockholder owns a controlling interest, except upon terms and conditions not
less favorable to Borrower or Pledgor, as applicable, than if no such
relationship existed.
7.10 LOANS TO OFFICERS, STOCKHOLDERS, EMPLOYEES, ETC. Neither Borrower
nor Pledgor will, directly or indirectly, lend or advance or permit to
be outstanding any loans or advances of money, credit, or property to
officers, stockholders, employees, agents, or consultants of Borrower or
Pledgor (other than travel advances in the ordinary course of business) in a
aggregate amount in excess of an aggregate amount of $100,000.00 for each
fiscal year.
7.11 CHANGES IN GOVERNING DOCUMENTS, ACCOUNTING METHODS, FISCAL YEAR.
Neither Borrower nor Pledgor will amend in any respect its articles of
incorporation or bylaws from that in existence on the date of this Agreement or
change its accounting methods or practices, its depreciation or amortization
policy or rates, or its fiscal year end from that in existence as of the date of
the financial statements provided to Bank pursuant to Subsection 6.1 hereof,
except as required to comply with law or with Generally Accepted Accounting
Principles.
SECTION 8. EVENTS OF DEFAULT.
The following events shall constitute "Events of Default" hereunder.
8.1 PAYMENT OF OBLIGATIONS UNDER LOAN DOCUMENTS. Borrower fails to make
payment of any principal, interest, or other amount due on any indebtedness owed
Bank under the Loan Documents, or fails to make any other payment to Bank as
contemplated thereunder either by the terms hereof or otherwise.
8.2 REPRESENTATION OR WARRANTY. Any representation or warranty made by
Borrower, Pledgor, or any other Person herein or in any writing furnished in
connection with or pursuant to the Loan Documents, or any report, certificate,
financial statement, or other information provided by Borrower, Pledgor, or any
other Person to Bank in connection with or pursuant to the Loan Documents, shall
be false or misleading in any material respect on the date when made or when
deemed made.
8.3 COVENANTS UNDER THE LOAN DOCUMENTS. Borrower, Pledgor, or any other
Person fails to fully and promptly perform when due any agreement, covenant,
term, or condition binding
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on it contained in this Agreement or any other Loan Document, or otherwise a
part of the transactions covered hereby.
8.4 OTHER DEFAULTS UNDER THE LOAN DOCUMENTS. A default or event of
default occurs under any other Loan Document, other than with respect to any
matters described in Subsection 8.1, 8.2, or 8.3 above.
8.5 CROSS-DEFAULT. A default or event of default occurs under any present
or future indebtedness of Borrower or Pledgor to Bank not evidenced by the Loan
Documents or a default or event of default occurs under any guaranty or security
document executed by any Person in connection therewith. An Event of Default
hereunder shall constitute a default under any such indebtedness, guaranty, or
security document.
8.6 PAYMENT, PERFORMANCE, OR DEFAULT OF OTHER MONETARY OBLIGATIONS.
Borrower or Pledgor fails to make payment on any contract obligation or of
principal or interest on any indebtedness other than that created under the Loan
Documents or otherwise owed to Bank, or Borrower or Pledgor fails to fully and
promptly perform any other material obligation, agreement, term, or condition
contained in any agreement under which any such other indebtedness is created or
there is otherwise a default or event of default thereunder.
8.7 OTHER COVENANTS OR DEFAULTS TO BANK OR OTHERS. Borrower or Pledgor
fails to fully and promptly perform when due any material agreement, covenant,
term, or condition binding on it contained in any lease, contract, or other
agreement to which it is a party or in respect of which it is obligated, other
than the Loan Documents and other than those containing monetary obligations (as
described in Subsections [8.5 and 8.6] above), or there is otherwise a default
or event of default thereunder.
8.8 LIQUIDATION; DISSOLUTION; BANKRUPTCY; ETC. Borrower or Pledgor
liquidates, dissolves, or becomes incompetent, the business of Borrower is
suspended; Borrower or Pledgor files or commences a voluntary petition, case,
proceeding, or other action seeking reorganization, arrangement, readjustment of
its debts, or any other relief under any existing or future law of any
jurisdiction, domestic or foreign, state or federal, relating to bankruptcy,
insolvency, reorganization, or relief of debtors, or Borrower or Pledgor takes
any other action indicating its consent to, approval of, or acquiescence in, any
such petition, case, proceeding, or other action seeking to have an order for
relief entered with respect to it or its debts; Borrower or Pledgor applies for,
or consents to or acquiescence in, the appointment of a receiver, trustee,
custodian, or other similar official for Borrower or Pledgor or for all or a
substantial part of its property; Borrower or Pledgor makes an assignment for
the benefit of creditors; or Borrower or Pledgor is unable to pay its debts as
they mature or admits in writing its inability to pay its debts as they mature.
8.9 INVOLUNTARY BANKRUPTCY; ETC. An involuntary petition, case,
proceeding, or other action is commenced against Borrower or Pledgor under the
Bankruptcy Code or seeking reorganization, arrangement, readjustment of its
debts, or any other relief under any existing or future law of any jurisdiction,
domestic or foreign, state or federal, relating to bankruptcy, insolvency,
reorganization, or relief of debtors; a receiver, trustee, custodian, or other
similar official is involuntarily appointed for Borrower or Pledgor or for all
or a substantial part of Borrower's or Pledgor's property or assets; or any
case, proceeding, or other action seeking issuance
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of a warrant of attachment, execution, distraint, or similar process against all
or a substantial part of Borrower's or Pledgor's assets or property results in
the entry of an order for such relief.
8.10 JUDGMENTS. A judgment is entered against Borrower or Pledgor for the
payment of damages or money in excess of $500,000.00, if the same is not
discharged or if a writ of execution or similar process is issued with respect
thereto and is not stayed within the time allowed by law for filing notice of
appeal of the final judgment.
8.11 ATTACHMENT, GARNISHMENT, LIENS IMPOSED BY LAW. A writ of attachment
or garnishment is issued against, or a lien is imposed by operation of law on,
any property of Borrower or Pledgor, if the amount of the claim or the value of
the affected property is in excess of $500,000.00, if the lien is not discharged
within thirty (30) days after it has attached.
8.12 CORPORATE EXISTENCE, TRANSFER OF PROPERTY. Any act or omission
(formal or informal) of Borrower or Pledgor or its officers, directors, or
shareholders leading to, or resulting in, the termination, invalidation (partial
or total), revocation, suspension, interruption, or unenforceability of its
corporate existence, rights, licenses, franchises, or permits, or the transfer
or disposition (whether by sale, lease, or otherwise) to any Person of all or a
substantial part of its property.
8.13 ADVERSE CHANGE. Bank determines that a material adverse change has
occurred in the financial condition of Borrower or Pledgor from the condition in
existence on the date hereof.
8.14 BANK INSECURE AS TO REPAYMENT. Bank deems itself insecure of
repayment of debt created hereunder to Bank by Borrower or Bank believes in good
faith that the prospect of payment by Borrower of all or any part of any
indebtedness owed to Bank or that the performance of any of the obligations of
Borrower to Bank is materially impaired.
8.15 INVALIDITY OF SECURITY INTEREST AND LIENS; TRANSFER OF COLLATERAL.
For any reason after the execution and delivery thereof, any document delivered
pursuant hereto that creates, or was intended to create, a security interest,
mortgage, or other lien to secure indebtedness created hereunder ceases to be in
full force and effect, or the liens intended to be created thereby cease to be
or are not valid and perfected (so long as Bank does not permit the Financing
Statement to lapse) first liens subject to no other liens except as expressly
permitted herein, or the party executing such document contests the validity or
enforceability thereof or the lien created thereby, or a security interest,
mortgage, or lien is granted in the collateral (except in favor of Bank) or any
collateral covered thereby is transferred to another Person without the prior
written consent of Bank.
8.16 INVALIDITY OF GUARANTY. For any reason after the execution and
delivery thereof, any document that gives rise to or was intended to give rise
to a guaranty of the indebtedness created hereunder ceases to be in full force
and effect, or the party executing such document contests the validity or
enforceability of its Guaranty or denies that it has further liability with
respect to any portion thereof, including without limitation with respect to
future loans.
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SECTION 9. RIGHTS AND REMEDIES OF BANK.
9.1 REMEDIES AVAILABLE UNDER LOAN DOCUMENTS AND OTHERWISE. Bank shall
have, in addition to the rights and remedies contained in this Agreement and the
other Loan Documents, all of the rights and remedies of a creditor and, to the
extent applicable, of a secured party, now or hereafter available at law or in
equity. Bank may, at its option, exercise any one or more of such rights and
remedies individually, partially, or in any combination from time to time,
including, to the extent applicable, before the occurrence of an Event of
Default. No right, power, or remedy conferred upon Bank by the Loan Documents
shall be exclusive of any other right, power, or remedy referred to therein or
now or hereafter available at law or in equity.
9.2 REMEDIES UPON EVENT OF DEFAULT. Without limiting the generality of
the foregoing, if an Event of Default shall occur: (a) All commitments of Bank
to make advances shall terminate; (b) Bank may declare the indebtedness owed
to Bank by Borrower hereunder and any or all of any other indebtedness owed
by Borrower to Bank, whether direct or indirect, contingent or certain, to
be accelerated and due and payable at once, whereupon such indebtedness,
together with interest thereon, shall forthwith become due and payable, all
without presentment, demand, protest, or other notice of any kind from Bank,
all of which are hereby expressly waived; and (c) Bank may proceed to do
other all things provided by law, equity, or contract to enforce its rights
under such indebtedness and to collect all amounts owing to Bank.
SECTION 10. MISCELLANEOUS
10.1 LIENS; SET-OFF. Borrower hereby grants to Bank a continuing lien to
secure all indebtedness of Borrower to Bank whether created hereunder, pursuant
hereto, or otherwise upon any and all monies, securities and other property of
Borrower and the proceeds thereof, now or hereafter held or received by or in
transit to, Bank from or for Borrower, and also upon any and all deposits
(general or special) and credits of Borrower, if any, at Bank, at any time
existing. Upon the occurrence of any Event of Default, Bank is hereby authorized
at any time and from time to time, without notice to Borrower, to set off,
appropriate, and apply any or all items hereinabove referred to against all
indebtedness of Borrower owed to Bank, whether under the Loan Documents or
otherwise, whether now existing or hereafter arising. Bank shall be deemed to
have exercised such right of set-off and to have made a charge against such
items immediately upon the occurrence of such Event of Default although made or
entered on its books subsequent thereof.
10.2 PAYMENT OF EXPENSES, INCLUDING ATTORNEYS' FEES AND TAXES. Borrower
agrees: (a) to pay or reimburse Bank for all its reasonable and customary
out-of-pocket costs and expenses incurred in connection with the preparation,
negotiation, execution, and delivery of, and any amendment, supplement, or
modification to, or waiver or consent under, the Loan Documents, and the
consummation of the transactions contemplated thereby, including, without
limitation, the reasonable and customary fees and disbursements of counsel for
Bank, taxes, and all recording or filing fees; (b) to pay or reimburse Bank for
all of its costs and expenses incurred in connection with the administration,
supervision, collection, or enforcement of, or the preservation of any rights
under, the Loan Documents, including, without limitation, the fees and
disbursements of counsel for Bank, including attorneys' fees out of court, in
trial, on appeal, in bankruptcy proceedings, or
23
<PAGE>
otherwise; (c) without limiting the generality of provision (a) hereof, to pay
or reimburse Bank for, and indemnify and hold Bank harmless against liability
for, any and all documentary stamp taxes, non-recurring intangible taxes, or
other taxes, together with any interest, penalties, or other liabilities in
connection therewith, that Bank now or hereafter determines are payable with
respect to the Loan Documents, the obligations evidenced by the Loan Documents,
any advances under the Loan Documents, and any guaranties or mortgages or other
security instruments; and (d) to pay, indemnify and hold Bank harmless from and
against any and all other liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, or disbursements of any kind or
nature whatsoever with respect to the execution, delivery, enforcement,
performance, and administration of the Loan Documents. The agreements in this
Subsection shall survive repayment of all other amounts payable hereunder or
pursuant hereto, now or in the future, and shall be secured by all collateral
that secures the loan or loans described herein.
10.3 NOTICES. Unless otherwise expressly agreed herein, and
notwithstanding any provisions to the contrary contained in the other Loan
Documents, all notices, requests, and demands to or upon the parties hereto
pursuant to any Loan Document shall be deemed to have been given or made when
delivered by hand or by courier service, when provided to a nationally
recognized overnight delivery service for overnight delivery, when transmitted
to a receiving telecopier, or three days after deposit in the mail, postage
prepaid by registered or certified mail, return receipt requested, addressed as
follows or to such other address as may be hereafter designated in writing by
one party to the other:
Borrower: TresCom International, Inc.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Telecopy: (954) 627-6497
Attention: Angelina M. Spoto
Pledgor: TresCom U.S.A., Inc.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
Telecopy: (954) 627-6497
Attention: Angelina M. Spoto
Bank: SunTrust Bank, South Florida, N.A.
SunTrust Center, 7th Floor
501 East Las Olas Boulevard
Ft. Lauderdale, Florida 33301
Telecopy: (954) 765-7310
Attention: Russell E. Burnette
10.4 GOVERNING LAW. The validity, interpretation, and enforcement of the
Loan Documents and the rights and obligations of the parties thereto, shall be
governed by, and construed and interpreted in accordance with, the laws of the
State of Florida excluding those laws relating to the resolution of conflicts
between laws of different jurisdictions.
24
<PAGE>
10.5 VENUE; PERSONAL JURISDICTION. In any litigation in connection with
or to enforce any of the Loan Documents, Borrower irrevocably consents to
and confers personal jurisdiction on the courts of the State of Florida or
the United States courts located within the State of Florida, expressly waives
any objections as to venue in any of such courts, and agrees that service of
process may be made on Borrower by mailing a copy of the summons and
complaint by registered or certified mail, return receipt requested, to the
address set forth herein (or otherwise expressly provided in writing).
Nothing contained herein shall, however, prevent Bank from bringing any action
or exercising any rights within any other state or jurisdiction or from
obtaining personal jurisdiction by any other means available by applicable law.
10.6 SEVERABILITY AND ENFORCEABILITY OF PROVISIONS. In the event that any
one or more of the provisions of the Loan Documents is determined to be invalid,
illegal, or unenforceable in any respect as to one or more of the parties, all
remaining provisions nevertheless shall remain effective and binding on the
parties thereto and the validity, legality, and enforceability thereof shall not
be affected or impaired thereby. If any such provision is held to be illegal,
invalid, or unenforceable, there will be deemed added in lieu thereof a
provision as similar in terms to such provision as is possible, that is legal,
valid, and enforceable. To the extent permitted by applicable law, the parties
hereby waive any law that renders any such provision invalid, illegal, or
unenforceable in any respect.
10.7 COUNTERPARTS; FACSIMILE SIGNATURES; EFFECTIVE DATE. The Loan
Documents and any amendments, waivers, consents, or supplements hereto may be
signed in original counterparts and by facsimile transmission of signed
counterparts, in any number, each of which shall be deemed an original, no one
of which need contain all of the signatures of the parties, and as many of such
counterparts as shall together contain all of the signatures of the parties
shall be deemed to constitute one and the same instrument. A set of the
counterparts of this Agreement signed by all parties hereto shall be lodged with
Bank. This Agreement shall become effective upon the receipt by Bank of original
signed counterparts or facsimile confirmation of signed counterparts of this
Agreement, each of which shall be deemed an original, from each of the parties
hereto.
10.8 NO WAIVER. No omission or failure of Bank to exercise and no delay
in exercising by Bank of any right, power, or privilege under any of the Loan
Documents shall impair such right, power, or privilege, shall operate as a
waiver thereof or be construed to be a waiver thereof; nor shall any single or
partial exercise of any right, power, or privilege preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege.
10.9 CUMULATIVE REMEDIES. The rights and remedies provided in the Loan
Documents are cumulative, and not exclusive of any rights or remedies provided
by law or in equity, and may be pursued singularly, successively, or together,
and may be exercised as often as the occasion therefor shall arise. The
warranties, representations, covenants, and agreements made herein and therein
shall be cumulative, except in the case of irreconcilable inconsistency, in
which case the provisions of this Agreement shall control.
10.10 SUCCESSORS AND ASSIGNS. The Loan Documents shall be binding upon
the parties thereto and their respective successors and assigns, and shall inure
to the benefitof the parties thereto, and, to the extent permitted herein, their
respective successors and assigns. The terms and provisions of the Loan
Documents shall inure to the benefit of any assignee or transferee of the Note
25
<PAGE>
or Notes hereunder, and in the event of any such assignment or transfer by Bank,
the rights and privileges therein conferred upon Bank shall automatically extend
to and be vested in such assignee or transferee, and Bank shall be relieved of
all liability thereunder. The parties to the Loan Documents (other than Bank)
may not assign any of its rights or obligations under the Loan Documents without
the prior written consent of Bank.
10.11 RELIANCE UPON, SURVIVAL OF AND MATERIALITY OF REPRESENTATIONS AND
WARRANTIES, AGREEMENTS, AND COVENANTS. All representations and warranties,
agreements, and covenants made in the Loan Documents shall be deemed to have
been relied upon by Bank, notwithstanding any investigation heretofore or
hereafter made by Bank, and shall survive the execution and delivery of the Loan
Documents and the making of the loan or loans herein contemplated, and shall
continue in full force and effect so long as any indebtedness is owed to Bank
pursuant hereto or so long as there shall be any commitment by Bank to make
loans hereunder. All statements contained in any certificate or other paper
delivered to Bank by Borrower, Pledgor, or Guarantor at any time pursuant to the
Loan Documents shall constitute representations and warranties under the Loan
Documents.
10.12 LEGAL OR GOVERNMENTAL LIMITATIONS. Anything contained in the Loan
Documents to the contrary notwithstanding, Bank shall not be obligated to extend
credit or make loans to Borrower in an amount in violation of any limitations or
prohibitions provided by any applicable statute or regulation.
10.13 WAIVER OF TRIAL BY JURY. BORROWER, PLEDGOR, AND BANK HEREBY
KNOWINGLY, IRREVOCABLY, VOLUNTARILY, AND INTENTIONALLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR ANY OTHER DOCUMENT EXECUTED IN CONJUNCTION WITH THE
TRANSACTIONS CONTEMPLATED THEREUNDER, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENT (WHETHER ORAL OR WRITTEN), OR ACTION OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THE TRANSACTIONS
EVIDENCED HEREBY. ____
____
____
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their duly authorized officers as of the day and
year first above written.
BORROWER:
WITNESSES: TRESCOM INTERNATIONAL, INC.
a Florida corporation
/s/ SUSAN C. PILCHER By:/s/ WILLIAM A. PAQUIN
- ----------------------- --------------------------
William A. Paquin,
/s/ RUSSELL E. BURNETTE Chief Financial Officer
- -----------------------
26
<PAGE>
PLEDGOR:
TRESCOM U.S.A., INC.
a Florida corporation
/s/ SUSAN C. PILCHER By:/s/ WILLIAM A. PAQUIN
- ----------------------- --------------------------
William A. Paquin,
/s/ RUSSELL E. BURNETTE Chief Financial Officer
- -----------------------
BANK:
SUNTRUST BANK, SOUTH FLORIDA, N.A.
a Florida corporation
/s/ SUSAN C. PILCHER By:/s/ RUSSELL E. BURNETTE
- --------------------- ------------------------
Russell E. Burnette,
/s/ JOHN G. IMMER Vice President
- ---------------------
STATE OF GEORGIA
COUNTY OF FULTON
Execution of the foregoing instrument was acknowledged before me this 26th
day of November, 1996, by William A. Paquin, as Chief Financial Officer of
TresCom International, Inc., a Florida corporation, on behalf of the
corporation. He is either personally known to me or has produced FL DL as
identification.
/s/ SUSAN C. PILCHER
-------------------------
Notary Public
Name: SUSAN C. PILCHER
-------------------
Commission Number: ______ My Commission Expires:
27
<PAGE>
STATE OF GEORGIA
COUNTY OF FULTON
Execution of the foregoing instrument was acknowledged before me this 26th
day of November, 1996, by William A. Paquin, as President of TresCom U.S.A.,
Inc., a Florida corporation, on behalf of the corporation. He is either
personally known to me or has produced FL DL as identification.
/s/ SUSAN C. PILCHER
-------------------------
Notary Public
Name: SUSAN C. PILCHER
------------------
Commission Number: _______ My Commission Expires:
STATE OF GEORGIA
COUNTY OF FULTON
Execution of the foregoing instrument was acknowledged before me this 26th
day of November, 1996, by Russell E. Burnette, as Vice President of SunTrust
Bank, South Florida, N.A., a national banking association, on behalf of the
association. He is either personally known to me or has produced FL DL as
identification.
/s/ SUSAN C. PILCHER
------------------------
Notary Public
Name: SUSAN C. PILCHER
------------------
Commission Number: _______ My Commission Expires:
33043-132
TPA2-381362.5
28
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
<PAGE>
BORROWING BASE CERTIFICATE
PURSUANT TO
REVOLVING CREDIT AGREEMENT
Dated November 26, 1996
by and between
TRESCOM INTERNATIONAL, INC.
(hereinafter "Borrower")
- and -
SUNTRUST BANK, SOUTH FLORIDA, N.A.
(hereinafter "Bank")
As of ______________, 19____
1) Total Accounts Receivables _____________________________
2) Domestic Receivables _____________________________
less 90 days past due _____________________________
less ineligibles - 10% Rule _____________________________
other ineligibles _____________________________
Total Eligible _____________________________
3) Total Eligible
Receivables x 70% _____________________________
4) Loan outstandings as of
_______________________ _____________________________
5) Loan Advance Availability
(3 minus 4) _____________________________
TRESCOM INTERNATIONAL, INC.
BY: _____________________________
TITLE: __________________________
<PAGE>
SCHEDULE 4.1
SUBSIDIARIES
1. TresCom U.S.A., Inc., a Florida corporation
2. TresCom Network Services, Inc., a Florida corporation
3. The St. Thomas and San Juan Telephone Co., Inc., a U.S. Virgin Islands
corporation
4. Global Telephone Holdings, Inc., a U.S. Virgin Islands corporation
5. Interisland Telephone Corp., a U.S. Virgin Islands corporation
6. STSJ Overseas Telephone Company, Inc., a Puerto Rico corporation
7. OTC Network Assets, a Puerto Rico corporation
8. Puerto Rico Telecommunications Corporation, a New York corporation
9. STSJ Network Assets, Inc., a U.S. Virgin Islands corporation
10. Total Telecommunications, Inc., a Florida corporation
<PAGE>
SCHEDULE 7.2
EXISTING LIENS
1. Charter Financial
2. General Electric Capital Corporation
<PAGE>
SUNTRUST BANK, SOUTH FLORIDA, N.A.
P.O. Box 405100
Fort Lauderdale, FL 33340-5100
Tel (954) 467-5000
- --------------------------------------------------------------------------------
SUNTRUST
March 11, 1997
Ernst & Young LLP
TO WHOM IT MAY CONCERN:
As a result of noncompliance of TresCom International, Inc.'s tangible net worth
covenant as of December 31, 1996, SunTrust Bank, South Florida, N.A. has agreed
to amend the covenant as of December 31, 1996 with the following terms and
conditions:
[1] Tangible Net Worth, as described in Section 6.15 of the Credit
Agreement dated November 26, 1996, will be amended to be
greater than or equal to $22,000,000.00, tested on a quarterly
basis, plus the cumulative sum of fifty (50%) of consolidated
net income for the quarter in which such determination is
made.
[2] Total Liabilities to Tangible Net Worth covenant will be added
which will be less than or equal to 2.0 to 1.0, determined on
a quarterly basis.
[3] Funding under the line of credit will be continued, under
the terms and conditions of the Credit Agreement dated
November 26, 1996, so long as the Company meets its Profit/
Loss projections on a quarterly basis, attached as Exhibit A,
by no more than a 10% variance. The total availability under
the revolving line of credit will be reduced to $5,000,000
from $7,000,000. The aggregate amount of $5,000,000 will
include any Standby Letters of Credit outstanding.
[4] Monthly Financial Statements of TresCom International, Inc.
will be required going forward.
Any other conditions will be governed by the amendment to the Credit Agreement
prepared by Bank's counsel.
Sincerely,
/s/ Russell E. Burnette
Russell E. Burnette
Vice President
Corporate Banking Division
<PAGE>
EXHIBIT "A"
FY97 BUSINESS PLAN
4 QUARTER P&L
(Millions)
<TABLE>
<CAPTION>
Quarter 1 Quarter 2 Quarter 3 Quarter 4 TOTAL
<S> <C> <C> <C> <C> <C>
Revenue $ 34.7 $ 37.5 $ 40.0 $ 41.5 $ 153.7
Line Costs $ 26.4 $ 28.5 $ 30.4 $ 31.5 $ 116.8
Gross Profit $ 8.3 $ 9.0 $ 9.6 $ 10.0 $ 36.9
% Revenue 24.0% 24.0% 24.0% 24.0% 24.0%
Selling/General $ 7.8 $ 8.0 $ 8.1 $ 8.2 $ 32.1
Administrative
% Revenue 22.5% 21.3% 20.3% 19.8% 20.9%
EBITDA $ 0.5 $ 1.0 $ 1.5 $ 1.8 $ 4.8
Depreciation/ $ 1.4 $ 1.5 $ 1.5 $ 1.6 $ 6.0
Amortization
Interest/Other $ 0.2 $ 0.2 $ 0.3 $ 0.3 $ 1.0
Net Income $ (1.1) $ (0.7) $ (0.3) $ (0.1) $ (2.2)
</TABLE>
Exhibit 11.1
<TABLE>
<CAPTION>
TRESCOM INTERNATIONAL, INC.
COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED DECEMBER 31,
1996 1995
---------------------------------------
<S> <C> <C>
Primary and fully diluted:
Weighted average Common Stock outstanding during the period(1).............. 10,590,634 2,386,663
Conversion of Preferred Stock into Common Stock, including
accrued dividends through the date of the initial public offering ...... 498,131 4,496,147
Effect of common stock equivalents issued subsequent to November 22, 1994,
computed in accordance with the treasury stock method
as required by the Securities and Exchange Commission(1) ............... 80,032 813,551
---------------------------------------
Total.......................................................................... 11,168,797 7,696,361
=======================================
Loss before extraordinary item................................................. $ (3,621,000) $ (11,627,000)
Extraordinary loss on early extinguishment of debt.......................... 1,956,000 --
---------------------------------------
Net loss ...................................................................... (5,577,000) (11,627,000)
Less: Preferred Stock dividends .............................................. (687,000) (4,877,000)
---------------------------------------
Net loss available for Common Stock and common stock equivalents............... $ (6,264,000) $ (16,504,000)
=======================================
Per share amount............................................................... $ (.50) $ (1.51)
=======================================
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock equivalents 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 public offering have
been included as outstanding for all periods presented prior to and
through the date of the initital public offering.
<TABLE>
Exhibit 11.2
TRESCOM INTERNATIONAL, INC.
COMPUTATION OF SUPPLEMENTAL EARNINGS PER SHARE
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995
--------------------------------------------
<S> <C> <C>
Primary and fully diluted:
Weighted average Common Stock outstanding during the period(1) ................. 10,590,634 2,386,663
Conversion of Preferred Stock into Common Stock, including
accrued dividends through the date of the initial public offering .......... 498,131 4,496,147
Shares issued to repay current and long-term obligations ....................... 380,831 2,443,449
Effect of common stock equivalents issued subsequent to November 22, 1994,
computed in accordance with the treasury stock method
as required by the Securities and Exchange Commission(1) ................... 80,032 813,551
============================================
Total ............................................................................. 11,549,628 10,139,810
============================================
Loss before extraordinary item .................................................... $ (3,621,000) $ (11,627,000)
Extraordinary loss on early extinguishment of debt 1,956,000 --
--------------------------------------------
Net loss .......................................................................... (5,577,000) (11,627,000)
Plus: Reduction in interest expense and extraordinary loss on retirement of
debt from repayment of current and long-term obligations(2)................. 3,006,000 3,000,000
Less: Preferred Stock dividends................................................... (687,000) (4,877,000)
--------------------------------------------
Net loss available for Common Stock and common stock equivalents................... $ (3,258,000) $ (13,504,000)
===========================================
Per share amount .................................................................. $ (0.22) $ (0.85)
===========================================
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock equivalents 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 public offering have
been included as outstanding for all periods presented prior to and
through the date of the initial public offering.
(2) Supplemental earnings per share reflects the number of shares of Common
Stock upon consummation of the initial public offering used to repay
$35.8 million in current and long-term obligations as if such issuance
had occurred at the beginning of each year.
EXHIBIT 21.1
List of Subsidiaries of TresCom International, Inc.
The following is a list of the corporations that are
subsidiaries of TresCom International, Inc., a Florida corporation (the
"Corporation"). The capital stock of all of the corporations listed below are
owned indirectly by the Corporation except for the capital stock of TresCom
Network Services, Inc. and INTEX Telecommunications, Inc. which are directly
owned. If indented, the corporation listed is a wholly owned subsidiary of the
corporation under which it is listed.
Name of State of
Corporation Incorporation
----------- -------------
TresCom Network Services, Inc. Florida
TresCom U.S.A., Inc. (formerly known as Teracom U.S.A., Florida
Inc.)
The St. Thomas and San Juan Telephone Company, Inc. U.S. Virgin
Islands
STSJ Overseas Telephone Company, Inc. Puerto Rico
OTC Network Assets, Inc. Puerto Rico
Puerto Rico Telecom Corporation (formerly known as New York
Caribbean Telecommunications, Inc.)
STSJ Network Assets, Inc. U.S. Virgin
Islands
Global Telephone Holdings, Inc.1 U.S. Virgin
Islands
Interisland Telephone Corp. U.S. Virgin
Islands
INTEX Telecommunications, Inc. South Carolina
- --------------------
1 TresCom Network Services, Inc. directly owns 85.1% of Global Telephone
Holdings, Inc. and the remaining 14.9% is owned by The St. Thomas and San Juan
Telephone Company, Inc. of which TresCom Network Services, Inc. owns 100% of the
outstanding shares.
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-1912) pertaining to the 1994 Stock Option Plan of TresCom
International, Inc. of our reports dated March 27, 1997 with respect to the
consolidated financial statements and schedule of TresCom International, Inc. in
the Annual Report (Form 10-K) of TresCom International, Inc. for the year ended
December 31, 1996.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 28, 1997
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-1912) pertaining to the 1994 Stock Option Plan of TresCom
International, Inc. of our report dated May 12, 1994 with respect to the
consolidated statements of operations and cash flows of The St. Thomas and San
Juan Telephone Company, Inc., in the Annual Report (Form 10-K) of TresCom
International, Inc. for the year ended December 31, 1996.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
March 28, 1997
EXHIBIT 23.3
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-1912) pertaining to the 1994 Stock Option Plan of TresCom
International, Inc. of our report dated January 12, 1995 with respect to the
consolidated statements of income and cash flows of Total Telecommunications,
Inc. in the Annual Report (Form 10-K) of TresCom International, Inc. for the
year ended December 31, 1996.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF TRESCOM INTERNATIONAL, INC. FOR THE YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
AUDITED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,020
<SECURITIES> 0
<RECEIVABLES> 36,651
<ALLOWANCES> 7,588
<INVENTORY> 0
<CURRENT-ASSETS> 38,524
<PP&E> 30,291
<DEPRECIATION> 5,755
<TOTAL-ASSETS> 101,610
<CURRENT-LIABILITIES> 30,323
<BONDS> 0
0
0
<COMMON> 493
<OTHER-SE> 66,829
<TOTAL-LIABILITY-AND-EQUITY> 101,610
<SALES> 139,621
<TOTAL-REVENUES> 139,621
<CGS> 106,928
<TOTAL-COSTS> 30,808
<OTHER-EXPENSES> 4,928
<LOSS-PROVISION> (3,043)
<INTEREST-EXPENSE> 578
<INCOME-PRETAX> (3,621)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,956
<CHANGES> 0
<NET-INCOME> (5,577)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
