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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
INFORMATION STATEMENT
PURSUANT TO SECTION 14(F)
OF THE
SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
NACT TELECOMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
000-22017
(Commission File Number)
87-0378662
(I.R.S. employer identification no.)
191 West 5200 North, Provo, Utah 84604
(Address of principal executive offices,
including zip code)
(801) 802-3000
(Registrant's telephone number, including area code)
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<PAGE>
NACT TELECOMMUNICATIONS, INC.
INFORMATION STATEMENT PURSUANT TO SECTION 14(F)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement (the "Information Statement") is being
mailed on or about February 2, 1998 to the holders of record at the close of
business on January 29, 1998 of the common stock, $.01 par value per share (the
"Common Stock"), of NACT Telecommunications, Inc., a Delaware corporation (the
"Company"), in connection with (i) the acquisition (the "Acquisition") by World
Access, Inc. ("World Access") of an aggregate of 5,113,712 shares of Common
Stock owned by GST USA, Inc. ("GST USA"), representing approximately 63% of the
outstanding Common Stock at December 31, 1997, and (ii) the election of certain
persons to the Board of Directors of the Company other than at a meeting of the
stockholders of the Company. No action is required by the stockholders of the
Company in connection with the election of such persons. Nevertheless, you are
urged to read this Information Statement carefully.
All of the members of the Board of Directors have approved the
Acquisition. No action is required by the stockholders of the Company in
connection with the Acquisition.
This Information Statement is being distributed pursuant to the
requirements of Section 14(f) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and Rule 14f-1 thereunder.
INFORMATION RELATING TO THE COMPANY'S COMMON STOCK
The shares of Common Stock are the only class of voting securities of
the Company outstanding. The holder of each share of Common Stock is entitled to
one vote per share on all matters submitted to a vote of the stockholders. As of
January 23, 1998, there were 8,128,797 shares of Common Stock outstanding.
CHANGE OF CONTROL OF THE COMPANY
On December 31, 1997, GST USA and its parent corporation, GST
Telecommunications, Inc. ("GST"), entered into a Stock Purchase Agreement (the
"Stock Purchase Agreement") under which GST USA agreed to sell the 5,113,712
shares of Common Stock owned by it to World Access. As a result, all of GST
USA's equity interest in the Company, representing approximately 63% of the
outstanding Common Stock, will be acquired by World Access and certain incumbent
directors of the Company will resign and will be replaced by persons designated
by World Access. The purchase price for GST USA's interest in the Company is
$89,489,960, payable $59,662,956 in cash and $29,827,004 in shares of common
stock of World Access.
The Stock Purchase Agreement was attached as an exhibit to the
Company's Current Report on Form 8-K dated January 2, 1998 (the "Form 8-K
Report"), which was filed with the Securities and Exchange Commission (the
"Commission"). For further information concerning the Acquisition, reference is
made to the Form 8-K Report. The description in this Information Statement of
the Stock Purchase Agreement and its terms and conditions is
<PAGE>
qualified in its entirety by reference to the Form 8-K Report and to the Stock
Purchase Agreement and is not, and does not purport to be, complete.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
CURRENT MANAGEMENT
The executive officers, directors and key employees of the Company,
their ages and present positions with the Company are as follows:
NAME AGE POSITION(S)
A. Lindsay Wallace 48 President, Chief Executive Officer and Director
Eric F. Gurr 38 Chief Financial Officer, Treasurer and Secretary
W. Gordon Blankstein 47 Director
Stephen Irwin 56 Director
Robert L. Olson 47 Director
Clifford V. Sander 60 Director
Ronald S. Eliason 63 Director
Thomas E. Sawyer 65 Director
Gary D. Brown 43 Vice President of Research and Development
Geoffrey Shupe 42 Vice President of Sales and Marketing
A. LINDSAY WALLACE has been the President and a director of the Company
since January 1996 and Chief Executive Officer of the Company since April 1996.
From January 1994 to January 1996, he was the Director of Sales and Marketing of
the Company and was the Executive Vice President of the Company from October
1995 to January 1996. From 1988 to December 1993, Mr. Wallace was a National
Account Manager of Sprint Corporation and opened the Sprint/Telnet data office
in Salt Lake City, Utah.
ERIC F. GURR has been the Vice President of Finance and Administration
and Chief Financial Officer of the Company since August 1995 and Treasurer and
Secretary of the Company since June 1989. Between June 1989 and August 1995, Mr.
Gurr served as Controller and Director of Administration and Finance of the
Company. From 1985 to 1989, Mr. Gurr served as a Senior Auditor for Deseret
Management Corporation, a diversified conglomerate. Mr. Gurr is a Certified
Public Accountant.
W. GORDON BLANKSTEIN has been a director of the Company since April
1994. He was the Vice Chairman of the Board of GST from March 1997 to October
1997, was Chairman of the Board of GST from February 1995 to March 1997 and was
a founder of GST. Mr. Blankstein is currently a director of GST and the Chairman
of the Board of GST Global Telecommunications, Inc. He is a founder, past
President and Chairman of the Board and former director of ICG Communications,
Inc.
STEPHEN IRWIN has been a director of the Company since November 1996.
Mr. Irwin has been Vice Chairman of the Board and a director of GST since
September 1995 and has been Secretary of GST since November 1992. Mr. Irwin is
an attorney specializing in corporate matters and has been of counsel to the New
York law firm of Olshan Grundman Frome & Rosenzweig LLP since 1990.
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<PAGE>
ROBERT L. OLSON has been a director of the Company since November 1996.
Mr. Olson has been the President, Chief Executive Officer and a director of PCS
Plus Holdings Corporation, a wireless telecommunications company, since October
1997. Mr. Olson was President of GST Telecom Inc. ("GST Telecom"), a subsidiary
of GST, from January 1997 to August 1997 and was Vice President and General
Manager of Exchange and Wireless at GST Telecom from March 1995 until January
1997. Mr. Olson was Vice President and General Manager of Metroplex
Communications Corporation, a holding company which owned various communications
companies from 1986 to 1995. Mr. Olson's past experience included providing
telecommunications consulting services to the industry as a supervisor with
Ernst and Whinney.
CLIFFORD V. SANDER has been a director of the Company since November
1996. Mr. Sander has been Senior Vice President and Treasurer of GST since March
1995. He has also been the Executive Vice President and Chief Financial Officer
of GST Telecom since June 1994. From 1962 to 1994, Mr. Sander was in private
accounting practice in Portland, Oregon. He was acting Chief Financial Officer
of Electric Lightwave, Inc. ("ELI") during its formation in 1988 and continued
to provide accounting and financial consulting services to ELI through 1993. Mr.
Sander is a Certified Public Accountant.
RONALD S. ELIASON has been a director of the Company since March 1997.
Mr. Eliason has been the President and Chief Executive Officer of Campus Credit
Union, a financial institution based in Provo, Utah, since June 1991. He was the
Vice President-Administration and Chief Financial Officer of Novell, Inc. from
August 1985 to April 1990.
THOMAS E. SAWYER has been a director of the Company since May 1997. Dr.
Sawyer was Chairman of the Board Emeritus of the Company from November 1996 to
May 1997, a director of the Company from 1982 to November 1996, the Chairman of
the Board of Directors of the Company from October 1985 to November 1996 and was
Chief Executive Officer of the Company from October 1988 to March 1996. He was
the Chief Technology Officer of GST from December 1993 to March 1997, was a
director of GST from August 1995 to June 1997 and has been a director of GST
since September 1997. Dr. Sawyer has over 35 years of experience in information
technology industries and 23 years of experience in senior management of four
publicly-traded information technology firms.
GARY D. BROWN has been the Vice President of Research and Development
of the Company since June 1996. Prior to being named Vice President, he had
served as the Director of Research and Development of the Company since July
1990. In these positions, he has helped conceive and direct all development
activities of the Company. From July 1985 until July 1990, Mr. Brown served as a
Senior Software Engineer of the Company. Prior to joining the Company in July
1985, Mr. Brown was a Lead Software Engineer for a proprietary operating system
at WICAT Systems, Inc. for over five years.
GEOFFREY SHUPE has been the Vice President of Sales and Marketing of
the Company since October 1996. Mr. Shupe is responsible for sales development,
strategic sales development, marketing and technical support. He joined the
Company in January 1994 as Major Account Manager for sales and became the
Director of Sales and Marketing in January 1996. Mr. Shupe was an account
representative, Major Account Representative and National Account Manager for
Sprint Corporation from February 1987 through December 1993.
All directors hold office until the next annual meeting of stockholders
and until their successors have been duly elected and qualify. Executive
officers are elected by and serve at the discretion of the Board of Directors.
MANAGEMENT FOLLOWING THE ACQUISITION
Upon consummation of the Acquisition, Messrs. Blankstein, Irwin, Olson
and Sander will resign their directorships and persons designated by World
Access will be elected by the Company's remaining directors to fill the
vacancies thereby created to serve until the next annual meting of stockholders
and until each such person's
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<PAGE>
successor has been duly elected and qualify. The name, age and present principal
occupation or employment, and material occupations, positions, offices or
employments for the past five years, of each person designated by World Access
(the "World Access Designees") are set forth below. Each of the World Access
Designees has consented to serve as a director of the Company if so elected.
STEVEN A. ODOM (age 44) has been a director of World Access, a
developer, manufacturer and marketer of wireline and wireless switching,
transport and access products, since October 1994. In August 1995, Mr. Odom
became Chairman and Chief Executive Officer of World Access. From 1990 to 1994,
he was a private investor. From 1983 to 1987, Mr. Odom founded and served as
Chairman and Chief Executive Officer of Data Contract Company, Inc. ("DCC"), a
designer and manufacturer of intelligent data PBX systems, pay telephones and
diagnostic equipment. From 1987 to 1990, he was Vice President for the Public
Communications Division of Executone Information Systems, Inc., a public company
that acquired DCC in 1987. Mr. Odom formerly served as a director for Telematic
Products, Inc., a manufacturer of telephone central office equipment and
Resurgens Communications Group, Inc., a provider of long distance operator
services that later merged with LDDS Communications, Inc., now known as
WorldCom, Inc.
HENSLEY E. WEST (age 53) joined World Access in January 1996 as
President and Chief Operating Officer and was also elected a director of World
Access in January 1996. From January 1994 to December 1995, he was Group Vice
President for the Access Systems Group of DSC Communications Corporation
("DSC"), a manufacturer of digital switching, transmission and access
telecommunications equipment. During his nine year tenure with DSC, he held six
sales and general management positions, including Senior Vice President of North
American Sales from July 1993 to December 1993, Vice President of Access
Products Division from March 1992 to July 1993, Vice President of RBOC Sales
from October 1991 to March 1992 and Vice President of Business Development from
March 1990 to October 1991. Prior to joining DSC, Mr. West held general,
engineering and sales management positions with California Microwave, Inc., ITT
Telecommunications, Inc. and Western Electric Co.
MARK A. GERGEL (age 40) joined World Access in April 1992 as Vice
President and Chief Financial Officer and was appointed Executive Vice President
of World Access in January 1997. From 1983 to March 1992, Mr. Gergel held five
positions of increasing responsibility with Federal-Mogul Corporation, a
publicly-held manufacturer and distributor of vehicle parts, including
International Accounting Manager, Assistant Corporate Controller, Manager of
Corporate Development and Director of Internal Audit. Prior to joining
Federal-Mogul, Mr. Gergel spent four years with the international accounting
firm of Ernst & Young. Mr. Gergel is a Certified Public Accountant.
SCOTT N. MADIGAN (age 40) joined World Access in March 1996 as Vice
President of Business Development and was appointed Executive Vice President of
Business Development in June 1997. Mr. Madigan spent the prior four years with
DSC as Vice President of Marketing for the Access System Group and Vice
President of Litespan International Operations and Wireless Access Marketing.
From 1987 to 1992, he held product and account management positions with
Northern Telecom, where he was responsible for identification, assessment and
development of new business opportunities for Northern Telecom's switching,
transport and access products. Prior to 1987, Mr. Madigan held engineering and
operations management positions with California Microwave, Inc. and ITT
Telecommunications, Inc.
World Access has advised the Company that, to the best knowledge of
World Access, except as described below, none of the World Access Designees (i)
is currently a director of, or holds any position with, the Company, (ii) has a
familial relationship with any of the directors or executive officers of the
Company, (iii) beneficially owns any securities (or rights to acquire any
securities) of the Company, (iv) is a party adverse to the Company or any of its
subsidiaries in any legal proceeding or (v) has been involved in any
transactions with the Company or any of its directors, executive officers or
affiliates that are required to be disclosed pursuant to the rules and
regulations of the Commission. Pursuant to Rule 13d-3(d)(1)(i) promulgated under
the Exchange Act, World Access (i) may be deemed to have beneficial ownership of
the shares of Common Stock subject to the Stock Purchase Agreement and (ii)
beneficially owns 355,000 shares of Common Stock and, as a result, the World
access Designees may be deemed,
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<PAGE>
by virtue of their position with and beneficial ownership of World Access, to
have beneficial ownership of 5,468,712 shares of Common Stock.
PENDING LITIGATION
No director, officer, affiliate or person known to the Company to be
the record or beneficial owner of in excess of 5% of the Common Stock, or any
person known to the Company to be an associate of any of the foregoing is a
party adverse to the Company or has a material interest adverse to the Company
in any material pending legal proceedings.
BOARD MEETINGS AND COMMITTEES
BOARD OF DIRECTORS MEETINGS
The Board of Directors held two meetings during the fiscal year ended
September 30, 1997. From time to time during such fiscal year, the members of
the Board of Directors acted by unanimous written consent. W. Gordon Blankstein
attended only one of such meetings and Robert Olson did not attend either of
such meetings.
BOARD COMMITTEES
The Board of Directors has two standing committees: Audit Committee and
Compensation Committee.
AUDIT COMMITTEE. The Audit Committee is composed of Ronald S. Eliason
(Chairman) and Thomas E. Sawyer. The Audit Committee of the Board of Directors
reviews the results and scope of the annual audit and other services provided by
the Company's independent accountant, reviews and evaluates the Company's
internal audit and control functions, and monitors transactions between the
Company and its principal stockholder and its employees, officers and directors.
The Audit Committee did not meet during the fiscal year ended September 30,
1997.
COMPENSATION COMMITTEE. The Compensation Committee is composed of
Ronald S. Eliason (Chairman) and Thomas E. Sawyer. The Compensation Committee of
the Board of Directors administers the 1996 Stock Option Plan and reviews and
approves the compensation and benefits for the Company's executive officers. The
Compensation Committee did not meet during the fiscal year ended September 30,
1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
On the date hereof, no interlocking relationship exists between any
member of the Company's Board of Directors and any member of the board of
directors or compensation committee of any other company, nor has any such
interlocking relationship existed in the past, except as follows: Thomas E.
Sawyer, a director of GST, W. Gordon Blankstein, a director of GST, Stephen
Irwin, the Vice Chairman of the Board of GST and a director of GST USA, and
Clifford V. Sander, Senior Vice President of GST and GST USA and a director of
GST USA, each serve as a director of the Company.
DIRECTOR COMPENSATION
The Company does not pay any compensation to employees of the Company
or GST who serve on the Board of Directors. However, the Board of Directors may
in the future authorize the payment of a fixed sum to directors for their
attendance at regular and special meetings of the Board of Directors as is
customary for similar companies. Independent directors are reimbursed for
out-of-pocket expenses incurred in connection with attendance at such meetings
and receive (i) an annual retainer of $15,000, paid quarterly, (ii) $2,500 per
committee appointment,
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(iii) $1,500 for each Board or committee meeting attended and (iv) $1,000 per
committee meeting for serving as chairman of a committee.
The Company granted five-year options to purchase 25,000 shares of
Common Stock at an exercise price per share of $10.00 to Mr. Eliason in February
1997. Reference is made to the option tables below for information in respect of
options granted to Dr. Sawyer.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Company's Common Stock outstanding as of January 23, 1998 by (i) each person
known by the Company to be the beneficial owner of more than 5% of the Company's
Common Stock, (ii) each director, (iii) each of the executive officers named in
the Summary Compensation Table below and (iv) all executive officers and
directors of the Company as a group.
Name and Address of Amount of Shares
Beneficial Owner(1) Beneficially Owned(2) Percent of Class
------------------- --------------------- -------------------
GST USA, Inc.(3) 5,113,712 62.9%
Thomas E. Sawyer 25,000(4) (5)
A. Lindsay Wallace 76,667(4) (5)
W. Gordon Blankstein(3) 0(6) --
Stephen Irwin(3) 0(6) --
Robert L. Olson(3) 0(6) --
Clifford V. Sander(3) 0(6) --
Ronald S. Eliason 25,000(4) (5)
Eric F. Gurr 43,125(4) (5)
All directors and officers 169,792(4) 2.0%
as a group (8 persons)
World Access, Inc. 5,468,712(7) 67.3%
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(1) Unless otherwise indicated, all addresses are c/o NACT
Telecommunications, Inc. 191 West 5200 North, Provo, Utah 84604.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act ("Rule 13d-3") and unless otherwise indicated,
represents shares as to which the beneficial owner has sole voting and
investment power. The percentage of class is calculated in accordance
with Rule 13d-3 and includes options or other rights to subscribe that
are exercisable within 60 days after January 23, 1998.
(3) The address of these beneficial owners is 4001 Main Street, Vancouver,
Washington 98663.
(4) Represents shares of Common Stock issuable upon the exercise of
options.
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(5) Less than 1%.
(6) Does not include shares of Common Stock beneficially owned by GST USA.
(7) Represents (i) 355,000 shares of Common Stock owned by World Access and
(ii) 5,113,712 shares of Common Stock that World Access may be deemed
to beneficially own by reason of the Stock Purchase Agreement.
SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who are beneficial owners of more than 10%
of the Common Stock, to file reports of ownership and changes in ownership with
the Commission. Such persons are required by the Commission's regulations to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on review of copies of such forms furnished to the Company, or written
representations that no Form 5's were required, the Company believes that during
the fiscal year ended September 30, 1997, there was compliance with all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners.
EXECUTIVE COMPENSATION
The following table sets forth for the fiscal years indicated the
certain information concerning compensation of the Company's Chief Executive
Officer and each other most highly compensated executive officer of the Company
whose aggregate cash compensation exceeded $100,000 during the fiscal year ended
September 30, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------
Annual Compensation Awards(1) Payouts
---------------------------------------- ----------- -----------
Long-Term
Securities Incentive All Other
Other Annual Underlying Plan Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options(#) Payouts($) ($)(2)
- --------------------------- ------ ---------- ----------- ----------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Sawyer(3)........... 1997 -- -- -- 85,000 -- --
Chairman of the 1996 $222,556 $2,066 $5,608(4) -- -- $4,492
Board of Directors 1995 $140,793 $4,733 $14,959(4) -- -- --
A. Lindsay Wallace............ 1997 $165,769 $2,500 -- 160,000 -- $4,308
President and Chief 1996 $149,841 $1,036 $27,036(4) -- -- $5,055
Executive Officer 1995 $96,807 $1,300 $63,293(5) -- -- --
Eric F. Gurr.................. 1997 $95,769 $4,550 -- 90,000 -- $10,385
Chief Financial 1996 $70,772 $1,200 $5,035(4) -- -- --
Officer 1995 $53,262 $933 $6,493(4) -- -- --
</TABLE>
(1) The Company did not make any restricted stock awards or grant any stock
appreciation rights.
(2) Represent payments made pursuant to the Company's Profit Sharing Plan. The
Company terminated this plan in September 1996.
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(3) Dr. Sawyer served as the Company's Chief Executive Officer from October 1988
to March 1996. Dr. Sawyer resigned as Chairman of the Board in November
1996. From April 1996 until June 30, 1997, his compensation was paid
entirely by GST USA for services rendered to GST USA and its subsidiaries.
(4) Represents matching contributions by the Company to its 401(k) Plan.
(5) Represents sales commissions paid.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
INDIVIDUAL GRANTS AT ASSUMED ANNUAL RATES
--------------------------------------------------------------- OF STOCK PRICE APPRECIATION FOR
OPTION TERM(1)
------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ----------------------- -------------- -------------- -------------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Thomas E. Sawyer....... 85,000(2) 9.1% $9.35 11/25/01 219,575 485,203
A. Lindsay Wallace..... 160,000(3) 17.1% $9.35 11/25/01 413,317 913,323
Eric F. Gurr........... 90,000(4) 9.6% $9.35 11/25/01 232,491 513,744
</TABLE>
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(1) The potential realizable portion of the table illustrates value that
might be realized upon exercise of options immediately prior to the
expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation of the Common Stock over the
term of the option. These numbers do not take into account provisions
providing for termination of the option following termination of
employment, nontransferability or difference in vesting periods.
(2) Such option is fully vested. Options to purchase 25,000 shares of
Common Stock became exercisable on September 30, 1997 and options to
purchase 60,000 shares of Common Stock become exercisable on September
30, 1998.
(3) Options to purchase 80,000 shares of Common Stock vested and became
exercisable as to one-third on September 30, 1997 and vest and become
exercisable as to one-third on September 30, 1998 and the remaining
one-third on September 30, 1999. Options to purchase 40,000 shares of
Common Stock vested and became exercisable as to one-fourth on
September 30, 1997 and vest and become exercisable as to one-fourth on
September 30, 1998, one-fourth on September 30, 1999 and the remaining
one-fourth on September 30, 2000. Options to purchase an additional
40,000 shares of Common Stock vested on September 30, 1997 and become
exercisable on September 30, 1998.
(4) Options to purchase 45,000 shares of Common Stock vested and became
exercisable as to one-third on September 30, 1997 and vest and become
exercisable as to one-third on September 30, 1998 and the remaining
one-third on September 30, 1999. Options to purchase 22,500 shares of
Common Stock vested and became exercisable as to one-fourth on
September 30, 1997 and vest and become exercisable as to one-fourth on
September 30, 1998, one-fourth on September 30, 1999 and the remaining
one-fourth on September 30, 2000. Options to purchase an additional
22,500 shares of Common Stock vested on September 30, 1997 and become
exercisable on September 30, 1998.
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GST OPTION GRANTS
On June 1, 1996, GST granted options to purchase 5,000 of its Common
Shares at an exercise price of $10.00 per share to each of Dr. Sawyer and Mr.
Wallace. Such options expire on May 31, 2001. During the fiscal year ended
September 30, 1997, Dr. Sawyer, Mr. Wallace and Mr. Gurr exercised options to
purchase 75,000, 22,193 and 21,750 Common Shares of GST, respectively.
AGGREGATED OPTION EXERCISES DURING THE MOST RECENTLY COMPLETED
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NO. OF SHARES VALUE(1) OF UNEXERCISED
OF COMMON STOCK IN THE MONEY OPTIONS
SHARES UNDERLYING UNEXERCISED AT
ACQUIRED ON VALUE OPTIONS AT FY-END FY-END($) EXERCISABLE/
NAME EXERCISE (#) REALIZED($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE
- ------------------------- --------------- --------------- -------------------------- --------------------------
<S> <C> <C> <C> <C>
Thomas E. Sawyer............ -- -- 25,000/60,000 $161,575/387,780
A. Lindsay Wallace.......... -- -- 36,667/123,333 $236,979/797,101
Eric F. Gurr................ -- -- 20,625/69,375 $133,299/448,371
</TABLE>
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(1) Represents the total gain that would be realized if all in-the-money
options held at September 30, 1997 were exercised, determined by
multiplying the number of shares underlying the options by the
difference between the per share option exercise price and the fair
market value of $15.813 per share at September 30, 1997. An option is
in-the-money if the fair market value of the underlying shares exceeds
the exercise price of the option.
EMPLOYMENT AND CONSULTING AGREEMENTS
The Company has entered into an employment agreement with Mr. Wallace
pursuant to which, effective October 1, 1996, Mr. Wallace is employed as the
Company's President and Chief Executive Officer for a term ending on September
30, 2001. The agreement provides for an initial base salary of $160,000 annually
or such greater amount as the Board of Directors may determine, and incentive
compensation as awarded by the Board of Directors from time to time. In the
event of Mr. Wallace's death while employed by the Company, the agreement
provides for a payment of one and a half times his then current base annual
salary, over a period of one and a half years, to his designated beneficiary. In
the event of his disability, Mr. Wallace is to receive the full amount of his
base salary for six months. If such six-month period ends prior to September 30,
2001, he is to receive salary at a rate of one-half his then current base salary
for a further period ending on the earlier of one year thereafter or September
30, 2001. The agreement contains covenants restricting Mr. Wallace's ability to
engage in activities competitive with those of the Company for a period ending
on the earlier of two years after his termination or September 30, 2001. Upon a
change of control of the Company that results in Mr. Wallace's removal from the
Company's Board of Directors, a significant change in the conditions of his
employment or other breach of the agreement, he is to receive liquidated damages
equal to the "base amount," as defined in the United States Internal Revenue
Code of 1986, as amended (the "Code"), of his compensation.
The Company has entered into an employment agreement with Mr. Gurr
pursuant to which, effective October 1, 1996, Mr. Gurr is employed as the
Company's Chief Financial Officer for a term ending on September
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30, 2001. The terms of Mr. Gurr's agreement are identical to Mr. Wallace's
agreement, except that Mr. Gurr's agreement provides for an initial base salary
of $90,000.
GST USA and GST Telecom entered into a consulting agreement dated April
1, 1996 with Infotec Consulting, Inc. ("Infotec") under which Dr. Sawyer, a
director of the Company, provided personal services to GST and its subsidiaries,
including the Company, at the rate of $125 per hour for hours invoiced monthly
until June 30, 1997. The agreement provided that Dr. Sawyer render management
and technical consulting services including the development and evaluation of
strategic and operational planning, merger and acquisition proposals,
preparation of reports and studies thereon and assistance in negotiations and
discussions pertaining thereto. Such consulting agreement also contained
covenants restricting Dr. Sawyer's ability to engage in activities competitive
with those of GST and its subsidiaries. The agreement also provided for a
payment to Infotec of one and one half times the amount paid to Infotec during
the six months preceding Dr. Sawyer's death in the event of Dr. Sawyer's death
during the term of the agreement. The agreement was mutually terminated by the
parties on April 10, 1997. The Company has entered into a deferred compensation
trust agreement with Dr. Sawyer whereby the Company funded a trust with
$144,000, with principal and related interest thereon to be paid to Dr. Sawyer
based upon a defined payment schedule.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "Stock Option Plan") was
approved by the Board of Directors and the sole stockholder of the Company on
November 26, 1996. The purpose of the Stock Option Plan is to create additional
incentives for the Company's employees, directors and others who perform
substantial services to the Company by providing an opportunity to purchase
shares of the Common Stock pursuant to the exercise of options granted under the
Stock Option Plan. The Company may grant options that qualify as incentive stock
options under Section 422 of the Code, and non-qualified stock options.
Incentive stock options may be granted to employees (including officers and
directors who are employees). Non-qualified stock options may be granted to
employees, officers, directors, independent contractors and consultants of the
Company. As of January 15, 1998, 1,250,000 shares were reserved for issuance
under the Stock Option Plan and options to purchase 1,039,065 shares of Common
Stock were outstanding.
The maximum number of shares that may be subject to options granted
under the Stock Option Plan to any individual in any calendar year may not
exceed 100,000 and the method of counting such shares shall conform to any
requirements applicable to "performance-based" compensation under Section 162(m)
of the Code. It is intended that compensation realized upon the exercise of an
option granted under the Stock Option Plan will thereupon be regarded as
"performance-based" under Section 162(m) of the Code and that such compensation
may be deductible without regard to the limits of Section 162(m) of the Code.
The Board of Directors or the Compensation Committee thereof composed
of two or more non-management directors that are "non-employee directors" within
the meaning of Rule 16b-3 promulgated under the Exchange Act and "outside
directors" within the meaning of Section 162(m) of the Code, is authorized to
administer the Stock Option Plan in a manner that complies with Rule 16b-3 under
the Exchange Act. The Board of Directors or Compensation Committee determines
which eligible individuals are granted options and the terms of such options,
including the exercise price, number of shares subject to the option and the
vesting and exercisability thereof; provided, the maximum term of an incentive
stock option granted under the Stock Option Plan may not exceed five years.
The exercise price of an incentive stock option granted under the Stock
Option Plan must equal at least 100% of the fair market value of the subject
stock on the date of grant and the exercise price of all non-qualified stock
options must equal at least 80% of the fair market value of the subject stock on
the date of grant; provided, however, that if an option granted to the Company's
Chief Executive Officer or to any of the Company's other four most highly
compensated officers is intended to qualify as "performance-based" compensation
under Section 162(m) of the Code, the exercise price must equal at least 100% of
the fair market value of the subject stock on the date of
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grant. With respect to any participant who owns more than 10% of the voting
power of the Common Stock of the Company, the exercise price of any option
granted must equal at least 110% of the fair market value on the date of grant.
The aggregate fair market value on the date of grant of the stock for which
incentive stock options are exercisable for the first time by an employee of the
Company during any calendar year may not exceed $100,000.
Options shall become exercisable at such times and in such installments
as the Board of Directors or Compensation Committee shall provide. Non-qualified
and incentive stock options granted under the Stock Option Plan are not
transferable other than by will or the laws of descent or distribution, and each
option that has not yet expired is exercisable only by the recipient during such
person's lifetime or for 12 months thereafter by the person or persons to whom
the option passes by will or the laws of descent or distribution. The Stock
Option Plan may be amended at any time by the Board of Directors although
certain amendments require stockholder approval. The Stock Option Plan will
terminate on November 25, 2006, unless earlier terminated by the Board of
Directors.
401(K) PLAN
The Company maintains a defined contribution 401(k) plan (the "401(k)
Plan") which is available to all employees of the Company who have attained the
age of twenty-one. Such eligible employees may elect to defer any percentage of
their current salary subject to a maximum of 15% or the statutory maximum
($9,500 in 1997), whichever is the lesser. The maximum salary that can be
considered for compensation purposes is $150,000 per year.
The Company matches the deferrals of its employees to the extent of 50%
of such deferrals, up to a maximum of 7.5% of the annual compensation of such
employees. During the fiscal year ended September 30, 1997, the Company
contributed $88,361 to the 401(k) Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
From time to time the Company has made short-term loans to GST, or
subsidiary companies of GST, in order to provide for temporary working capital
requirements. Such loans were made at prevailing rates of interest, and all have
been repaid in full, with interest. At the date of this information statement,
no such loans were outstanding.
On July 1, 1997, the Company moved its entire operations to a new
40,000-square-foot facility in Provo, Utah. The Company purchased the land and
the building from GST Realco, Inc., a subsidiary of GST, with a portion of the
net proceeds of the Company's initial public offering. The purchase price and
additional costs to the Company to complete construction of the building
aggregated approximately $4.1 million.
In early 1995, the Company began offering prepaid debit and
international call back/reorigination services to its customers that did not yet
desire to expend a substantial amount of capital on hardware. The Company
incorporated Wasatch International Network Services, Inc. ("Wins") to offer such
services. The Company was able to increase sales of its switch systems as a
result of services provided by Wins as certain users of these services grew to
be able to justify the capital expenditure to purchase a switch. Effective
October 1, 1995, the Company declared a dividend consisting of 100% of the
outstanding capital stock of Wins payable to its sole stockholder, GST USA.
Since becoming a subsidiary of GST USA, Wins has continued to refer customers to
the Company.
The Company provides facilities management services to certain of its
customers who have purchased switching and billing systems. Included in the
provision of facilities management services is the offering of network carrier
services. Prior to October 1, 1996, the Company offered such services to its
customers pursuant to a resale contract that it had negotiated with major
interexchange carriers. Effective October 1, 1996, the Company has purchased a
substantial portion of its carrier service from GST or subsidiaries thereof. The
Company obtains such
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service from GST on terms no less favorable than those accorded to the network
carrier accounts of GST which enjoy the most preferential rates.
Stephen Irwin, a director of the Company, is of counsel to the law firm
of Olshan Grundman Frome & Rosenzweig LLP, which rendered services to the
Company both during the last fiscal year and the current fiscal year.
The Company believes that the foregoing transactions were in its best
interests. It is the Company's current policy that all transactions by the
Company with officers, directors, 5% stockholders and their affiliates will be
entered into only if such transactions are approved by a majority of the
disinterested independent directors, are on terms no less favorable to the
Company than could be obtained from unaffiliated parties and are reasonably
expected to benefit the Company.
By Order of the Board of Directors
A. Lindsay Wallace
President and Chief Executive Officer
Provo, Utah
January 31, 1998
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